SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1997. OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21934
TELEPAD CORPORATION
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(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 20170
- -------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (703) 834-9000
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NOT APPLICABLE
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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 1, 1997
--------------------- --------------
Class A Common Stock 11,680,624 shares, $0.01 par value
Class B Common Stock 37,500 shares, $0.01 par value
Transitional Small Business Disclosure Format (check one):
Yes [_] No[X]
<PAGE>
TELEPAD CORPORATION
INDEX TO FORM 10-QSB
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1997 (unaudited)
and December 31, 1996 3
Statements of Operations for the three-month periods
ended March 31, 1997 (unaudited) and 1996 (unaudited) 4
Statements of Cash Flows for the three-month periods
ended March 31, 1997 (unaudited) and 1996 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
2
<PAGE>
TELEPAD CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,282,874 $ 1,418,770
Short-term investments 2,137,558 4,078,679
Restricted cash 2,000,000 2,000,000
Accounts receivable, less allowance of $104,000
at March 31, 1997 and $107,000 at December 31, 1996 391,503 668,922
Inventory, less allowance of $14,000 at March 31, 1997
and $14,000 at December 31, 1996 4,281,241 3,474,782
Other current assets 114,571 243,988
------------ ------------
Total current assets 10,207,747 11,885,141
------------ ------------
Furniture and equipment:
Office furniture and equipment 197,932 197,932
Computer equipment 880,656 880,656
------------ ------------
1,078,588 1,078,588
Less accumulated depreciation (568,893) (505,639)
------------ ------------
Net furniture and equipment 509,695 572,949
Deposits and other assets 27,689 27,689
------------ ------------
Total assets $ 10,745,131 $ 12,485,779
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,510,041 $ 1,991,805
Deferred revenue 21,154 34,643
------------ ------------
Total current liabilities 1,531,195 2,026,448
Stockholders' equity
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,
11,568,124 and 11,558,905 shares issued and outstanding
at March 31,1997 and December 31, 1996, respectively 115,681 115,589
Class B common stock, 593,063 shares designated,
150,000 shares issued and outstanding
at March 31,1997 and December 31, 1996, respectively 1,500 1,500
Additional paid-in capital 39,283,488 39,250,820
Accumulated deficit (30,186,733) (28,908,578)
------------ ------------
Total stockholders' equity 9,213,936 10,459,331
------------ ------------
Total liabilities and stockholders' equity $ 10,745,131 $ 12,485,779
============ ============
</TABLE>
See accompanying notes
3
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues:
TelePad products $ 489,361 $ 190,893
Service contracts 32,331 101,022
------------ ------------
Total revenues 521,692 291,915
Costs and expenses:
Cost of goods sold - Telepad products 435,047 255,082
Cost of goods sold - service contracts 13,417 40,650
Research and development 306,290 240,204
Selling, general and administrative 1,142,275 879,485
------------ ------------
Total costs and expenses 1,897,029 1,415,421
------------ ------------
Loss from operations (1,375,337) (1,123,506)
Interest income 97,182 2,239
Interest expense -- (249,909)
Amortization of debt issue costs -- (118,302)
Other expenses -- (70,443)
------------ ------------
Net loss $ (1,278,155) $ (1,559,921)
============ ============
Net loss per share $ (0.11) $ (0.31)
============ ============
Weighted average shares outstanding 11,716,982 5,014,405
============ ============
</TABLE>
See accompanying notes
4
<PAGE>
TELEPAD CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1997 1996
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(1,278,155) $(1,559,921)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 63,254 52,523
Amortization of debt discount -- 118,302
Provision for loss on accounts receivable (3,558) --
Changes in assets and liabilities:
Accounts receivable 280,977 358,246
Inventory (806,459) (157,175)
Other current assets 129,417 (71,007)
Accounts payable and accrued expenses (481,764) (217,129)
Deferred revenue (13,489) 39,162
----------- -----------
Net cash used in operating activities (2,109,777) (1,436,999)
INVESTING ACTIVITIES
Purchase of furniture and equipment -- (29,926)
Sales of short-term investments 1,941,121 --
----------- -----------
Net cash provided (used) in investing activities 1,941,121 (29,926)
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock 32,760 14,810
Proceeds from notes payable -- 750,000
----------- -----------
Net cash provided by financing activities 32,760 764,810
----------- -----------
Net decrease in cash (135,896) (702,115)
Cash and cash equivalents, beginning of period 1,418,770 1,257,948
----------- -----------
Cash and cash equivalents, end of period $ 1,282,874 $ 555,833
=========== ===========
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, 1997 AND 1996 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, 1997
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. For further information, refer to the financial
statements for the year ended December 31, 1996 and footnotes thereto included
in the Company's Form 10-KSB.
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.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted on
December 31, 1997. At that time, the Company will be required to change the
method currently used to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per share,
the dilutive effect of stock options will be excluded. The impact of Statement
128 on the calculation of basic earnings per share and fully diluted earnings
per share for this quarter is not expected to be material.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Three Months ended March 31, 1997 Compared to the Three Months ended
March 31, 1996
For the three months ended March 31, 1997, the Company recognized
revenues of $522,000 compared to revenues of $292,000 in the same period in
1996. The $230,000 (79%) increase is the net result of a $298,000 increase in
product sales and a $69,000 decrease in service sales. Sales of the TelePad 3 in
the first quarter of 1996 were hampered by the lack of a supply of TelePad 3s
due to a switch in contract manufacturers. In addition, uncertainties relating
to the timing of the resumption of production and the corresponding lack of
evaluation units that incorporated the latest engineering changes interrupted
the TelePad 3 sales cycle during the change in manufacturers. The sales effort
was subdued until June 1996 when a new supply of TelePad 3 computers became
available.
Cost of products and services sold during the three months ended March
31, 1997 totaled $448,000 (86% of revenue) compared to $296,000 (101% of
revenue) in the same period in 1996. The product gross margin in the prior
period was reduced by charges of approximately $47,000 to expense accessories
for the TelePad 3, which were made obsolete by design modifications, and by
approximately $29,000 in warranty costs.
Research and development ("R&D") expenses for the three months ended
March 31, 1997 were $306,000 compared to $240,000 for the same period in 1996.
This 28% increase in R&D spending was due primarily to the addition of engineers
after the first quarter of 1996 to facilitate a shift in emphasis to product
enhancements and to the development of new modules to broaden the TelePad 3
product line. This compares to a lower level of engineering work in the prior
period, which was focused on the manufacturing transition and on quality issues.
Selling, general and administrative expenses for the three months ended
March 31, 1997 were $1,142,000 compared to $879,000 for the same period in 1996.
This $263,000 (30%) increase in expenses was primarily the result of increases
in selling expenses in response to the new supply of TelePad 3 units and the
addition of personnel and space to expand the Company's capabilities.
Interest income in the current period was $97,000 compared to $2,000 in
the comparison period as a result of the investment of the net proceeds of the
secondary public offering completed in April 1996. The interest expense and
amortization of debt issue costs in the same period in 1996 were related to
outstanding indebtedness that was retired with the proceeds from the second
public offering.
7
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Net cash used in operating activities was $2,110,000 in the three-month
period ended March 31, 1997 as compared to $1,437,000 in the comparable period
in 1996. The use of cash in both quarters was primarily due to the net losses
incurred in each period. Collections of accounts receivables increased cash by
$281,000 in the current period and by $358,000 in the prior period. In each
case, collections exceeded increases in receivables resulting from sales due to
sales being lower than the respective preceding periods. Inventory increased in
the current quarter by $806,000 as scheduled production of TelePad 3 computers
exceeded sales. Inventory increased by a net $157,000 in the first quarter of
1996 as TelePad 3 inventory declined through sales, but increased by the
purchase of $300,000 in TelePad SL parts from IBM. In the current period, cash
used in operating activities was primarily funded by a reduction in short-term
investments whereas in the prior period cash used in operating activities was
only partially funded by a $750,000 note payable.
"Safe Harbor" Statement under the private Securities Litigation Reform
Act of 1995: The statements above which are not historical facts are
forward-looking statements that involve risks and uncertainties, including, but
not limited to, demand for the Company's products and market acceptance risks,
the effect of economic conditions, the impact of competitive products and
pricing, product development, commercialization and technological difficulties,
capacity, and supply constraints or difficulties, the results of financing
efforts, and other risks detailed in the Company's Securities and Exchange
Commission filings.
PART II. OTHER INFORMATION
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 14, 1997 /S/ DONALD W. BARRETT
----------------- -----------------------
Donald W. Barrett
Chairman of the Board and
Chief Executive Officer
Date: MAY 14, 1997 /S/ ROBERT D. RUSSELL
----------------- -----------------------
Robert D. Russell
Vice President, Secretary 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,282,874
<SECURITIES> 2,137,558
<RECEIVABLES> 391,503
<ALLOWANCES> 104,000
<INVENTORY> 4,281,241
<CURRENT-ASSETS> 10,207,747
<PP&E> 1,078,588
<DEPRECIATION> (568,893)
<TOTAL-ASSETS> 10,745,131
<CURRENT-LIABILITIES> 1,531,195
<BONDS> 0
0
0
<COMMON> 9,213,936
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 10,745,131
<SALES> 489,361
<TOTAL-REVENUES> 521,692
<CGS> 435,047
<TOTAL-COSTS> 448,464
<OTHER-EXPENSES> 1,448,565
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,278,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,278,155)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> 0
</TABLE>
