SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended MARCH 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-21934
------------------------------
TELEPAD CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1680936
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
380 HERNDON PARKWAY, SUITE 1900, HERNDON, VIRGINIA 22070
- - -------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (703) 834-9000
--------------
Not Applicable
-----------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 ninety days.
Yes X No
--------- ----------
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical date:
Shares Outstanding
Class of Common Stock at May 10, 1996
--------------------- ----------------
Class A Common Stock 11,036,175 shares, $0.01 par value
Class B Common Stock 555,563 shares, $0.01 par value
<PAGE>
TELEPAD CORPORATION
INDEX TO FORM 10-QSB
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1996 (unaudited) and
December 31, 1995 3
Statements of Operations for the three month
periods ended March 31, 1996 (unaudited)
and 1995 (unaudited) 4
Statements of Cash Flows for the three month
periods ended March 31, 1996 (unaudited)
and 1995 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
PART II. OTHER INFORMATION
Item 5. Other Information 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
- 2 -
<PAGE>
TELEPAD CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 555,833 $ 1,257,948
Accounts receivable, less allowance of $100,000
at March 31, 1996 and December 31, 1995, respectively 114,478 472,724
Inventory, less allowance of $80,000 at March 31, 1996 and
December 31, 1995, respectively 560,908 403,733
Other current assets 167,253 96,246
------------ ------------
Total current assets 1,398,472 2,230,651
------------ ------------
Furniture and equipment:
Office furniture and equipment 117,520 117,520
Computer equipment 557,834 527,908
------------ ------------
675,354 645,428
Less accumulated depreciation (340,361) (287,838)
------------ ------------
Net furniture and equipment 334,993 357,590
Deposits and other assets 21,061 21,061
------------ ------------
Total assets $ 1,754,526 $ 2,609,302
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 2,604,612 $ 2,821,741
Notes payable (Note 2) 4,750,000 3,881,698
Deferred revenue 56,880 17,718
------------ ------------
Total current liabilities 7,411,492 6,721,157
Stockholders' deficit:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued
Common stock, $.01 par value; 95,000,000 shares authorized:
Class A common stock, 94,406,937 shares designated,
4,481,175 and 4,436,175 shares issued and outstanding
at March 31,1996 and December 31, 1995, respectively 44,811 44,361
Class B common stock, 593,063 shares designated,
555,563 shares issued and outstanding
at March 31,1996 and December 31, 1995, respectively 5,556 5,556
Additional paid-in capital 18,671,484 18,657,124
Accumulated deficit (24,378,817) (22,818,896)
------------ ------------
Total stockholders' deficit (5,656,966) (4,111,855)
------------ ------------
Total liabilities and stockholders' deficit $ 1,754,526 $ 2,609,302
============ ============
</TABLE>
See accompanying notes
- 3 -
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended March 31,
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
Revenues:
TelePad products $ 190,893 $ 354,859
Service contracts 101,022 282,804
----------- -----------
Total revenues 291,915 637,663
Costs and expenses:
Cost of goods sold - Telepad products 255,082 157,407
Cost of goods sold - service contracts 40,650 177,266
Research and development 240,204 370,947
Selling, general and administrative 879,485 887,768
----------- -----------
Total costs and expenses 1,415,421 1,593,388
----------- -----------
Loss from operations (1,123,506) (955,725)
Interest income 2,239 3,885
Interest expense (249,909) --
Amortization of debt issue costs (118,302) --
Other expenses (70,443) --
----------- -----------
Net loss $(1,559,921) $ (951,840)
=========== ===========
Net loss per share $ (0.31) $ (0.20)
=========== ===========
Weighted average shares outstanding 5,014,405 4,712,328
=========== ===========
See accompanying notes
- 4 -
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1996 1995
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,559,921) $ (951,840)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 52,523 28,883
Amortization of debt discount 118,302 --
Common stock issued in lieu of cash for consulting
and employment services -- 313,750
Changes in assets and liabilities:
Accounts receivable 358,246 3,310,848
Inventory (157,175) 1,188,066
Other current assets (71,007) --
Deposits and other assets -- 23,143
Accounts payable and accrued expenses (217,129) (5,676,308)
Deferred revenue 39,162 21,945
----------- -----------
Net cash used in operating activities (1,436,999) (1,741,513)
INVESTING ACTIVITIES
Purchase of furniture and equipment (29,926) (14,899)
----------- -----------
Net cash used in investing activities (29,926) (14,899)
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock 14,810 1,593,647
Proceeds from notes payable 750,000 --
----------- -----------
Net cash provided by financing activities 764,810 1,593,647
----------- -----------
Net increase (decrease) in cash (702,115) (162,765)
Cash and cash equivalents, beginning of period 1,257,948 378,660
----------- -----------
Cash and cash equivalents, end of period $ 555,833 $ 215,895
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Actual cash payments for:
Interest $ 75,000 $ --
=========== ===========
</TABLE>
See accompanying notes
- 5 -
<PAGE>
TELEPAD CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION PERTAINING TO THE PERIODS ENDED MARCH
31, 1996 AND 1995 IS UNAUDITED.)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10- QSB and Item
310 of Regulation S-B. 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 normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. For further information, refer to the financial
statements for the year ended December 31, 1995 and footnotes thereto included
in the Company's Form 10-KSB filed with the Securities and Exchange Commission
on April 15, 1996.
Net Loss Per Share
Net loss per share is calculated using the weighted average
number of common shares outstanding during the period, with shares of Class A
common stock and Class B common stock treated as a single class for purposes of
the calculation. Shares issuable upon the exercise of stock options and warrants
have been excluded from the computation because the effect of their inclusion
would be antidilutive.
2. NOTES PAYABLE
On February 15, 1996, the Company and an individual investor, who
had previously provided his personal guaranty of the Company's obligations to
International Business Machines Corporation ("IBM") for the production of 400
TelePad 3 computers, entered into an agreement whereby the individual investor
loaned the Company $750,000 evidenced by a promissory note which has a term of
one year, but has the right to require early retirement of the obligation at the
final closing of the secondary public offering. The promissory note bears
interest at the rate of 20% and contains a loan origination fee of approximately
$68,000. The promissory note is secured by all of the Company's assets. The
conditions of the agreement require that a portion of the proceeds from the note
be used to satisfy existing obligations to IBM and that IBM release the
guaranty. The Company received net proceeds, after disbursements to IBM and
prepayment of one-half of the annual interest due under the promissory note, of
approximately $193,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
- - ---------------------
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS
ENDED MARCH 31, 1995 ENDED MARCH 31,
For the three months ended March 31, 1996, the Company recognized
revenues of $292,000 compared to revenues of $638,000 in the three months ended
March 31, 1995. This decrease of $346,000 is the result of a $164,000 decrease
in product sales and a $182,000 decrease in service sales. Sales of TelePad 3
computers commenced in July 1995, but due to financial and technical issues,
production of the TelePad 3 has been limited
- 6 -
<PAGE>
to 400 units. As a result, sales of the TelePad 3 in the quarter ended March 31,
1996 generated less revenue than the revenue generated by sales of TelePad SL
computers in the same period a year ago. The decrease in service revenues
resulted from work on multiple small professional service contracts in the first
quarter of 1996 versus work on one large contract designing a custom software
solution in same period in 1995.
Cost of products and services sold during the three months ended
March 31, 1996 totaled $296,000 (101% of revenue) compared to $334,000 (52% of
revenue) in the three months ended March 31, 1995. This reduced gross margin is
primarily attributable a charge of approximately $47,000 to expense accessories
for the TelePad 3 which were made obsolescent by design modifications and
approximately $29,000 in warranty costs. The warranty expense represents
warranty costs in the period and an $11,000 addition to warranty reserves to
cover the cost of upgrading TelePad 3s sold and capitalized in the period to the
latest engineering changes being incorporated into new production units.
Research and development ("R&D") expenses for the three months
ended March 31, 1996 were $240,000 compared to $371,000 for the three months
ended March 31, 1995 . This 35% decrease in R&D spending was due primarily to
the completion of design and development of the TelePad 3 as compared with
expenditures for the initial design of the TelePad 3 for the same three month
period in 1995.
Selling, general and administrative expenses for the three months
ended March 31, 1996 were $879,000 compared to $888,000 for the three months
ended March 31, 1995. The slight decrease of $9,000 (1%) was primarily the
result of the maintenance of cost controls implemented when a cost reduction
program was implemented early in 1995.
As a result of the foregoing, the Company recorded a net loss of
$1,560,000 or ($0.31) per share for the three months ended March 31, 1996
compared to a net loss of $952,000 or ($0.20) per share for the same period in
1995.
Liquidity and Capital Resources
- - -------------------------------
Cash used in operating activities was $1,437,000 in the period
ended March 31, 1996 as compared to $1,742,000 in the comparable period in 1995.
The $1,560,000 net loss was partially offset by a $358,000 reduction in accounts
receivable, which resulted from collections being greater than sales. Accounts
payable and accrued expenses consumed $217,000 in cash primarily as a net result
of payments to IBM and increases in accounts payable due to other vendors.
Inventory increased by a net amount of $157,000, primarily as a net result of
the purchase of $300,000 in TelePad SL parts from IBM and a reduction of TelePad
3 inventory.
Cash was increased by the proceeds of a note payable from an
individual investor in the amount of $750,000.
On April 3, 1996, the Company completed a public offering of
20,000 units (the "Units"). Each Unit consisted of 285 shares of Class A common
stock and 1,000 Class D warrants and was sold for $1,000 per Unit, pursuant to
which the Company raised $20,000,000. The net proceeds to the Company from the
Unit offering amounted to $17,742,000.
On April 25, 1996, the underwriter exercised the over-allotment
option to purchase an additional 3,000 Units pursuant to which the Company
raised an additional $3,000,000. The Company received net proceeds of $2,736,300
from the exercise of the over-allotment option.
- 7 -
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
KEY PERSONNEL
On April 16, 1996, Donald W. Barrett was appointed Chief
Executive Officer of the Company. Mr. Barrett was elected to the Board of
Directors and elected Chairman succeeding Mr. John Diesel, who remains as a
director.
Bridge Financing
----------------
In July, August and September, 1995, the Company undertook a
private placement of 80 units, each consisting of $50,000 in 10% promissory
notes due upon the earlier to occur of (a) the closing of a public offering of
the Company's Class A common stock and warrants or (b) July 26, 1997, and 25,000
Class D warrants, each of which entitled the holder thereof to purchase one
share of the Company's Class A common stock at an exercise price of $2.50 per
share under certain circumstances. On July 26, 1995, the Company completed the
sale of 46.5 units and received net proceeds therefrom in the amount of
$1,966,663. On August 7, 1995, the Company completed the sale of an additional
29 units and received net proceeds therefrom in the amount of $1,261,500. On
September 8, 1995, the Company completed the sale of an additional 4.5 units and
received net proceeds therefrom in the amount of $195,750.
On April 25, 1996 the Company paid $4,268,685 to repay the
$4,000,000 principal amount of the promissory notes and accrued interest in the
amount of $268,685.
Promissory Note
---------------
On May 1, 1996, the Company paid $825,000 to the individual
investor holding the $750,000 promissory note to repay the $750,000 principal
amount and $75,000 in interest.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - None
- 8 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELEPAD CORPORATION
Date: May 15, 1996 /s/ Ronald C. Oklewicz
------------ ----------------------
Ronald C. Oklewicz
President and Chief Operating Officer
Date: May 15, 1996 /s/ Robert D. Russell
------------ ----------------------
Robert D. Russell
Vice President and Treasurer
Principal Financial and Accounting Officer
- 9 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000892038
<NAME> TELEPAD CORPORATION
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 555,833
<SECURITIES> 0
<RECEIVABLES> 114,478
<ALLOWANCES> 100,000
<INVENTORY> 560,908
<CURRENT-ASSETS> 1,398,472
<PP&E> 675,354
<DEPRECIATION> (340,361)
<TOTAL-ASSETS> 1,754,526
<CURRENT-LIABILITIES> 7,411,492
<BONDS> 0
0
0
<COMMON> (5,656,966)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,754,526
<SALES> 0
<TOTAL-REVENUES> 291,915
<CGS> 295,732
<TOTAL-COSTS> 1,415,421
<OTHER-EXPENSES> (188,745)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (249,909)
<INCOME-PRETAX> (1,559,921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,559,921)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,559,921)
<EPS-PRIMARY> (0.31)
<EPS-DILUTED> (0.31)
</TABLE>
