UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from to
Commission file number 0-22190
VERSO TECHNOLOGIES, INC.
| MINNESOTA (State or Other Jurisdiction of Incorporation or Organization) |
41-1484525 (I.R.S. Employer Identification No.) |
400 Galleria Parkway, Suite 300, Atlanta, GA 30339
(Address of Principal Executive Offices)
(678) 589-3500
(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 .
Indicated by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes No X .
Shares of the registrant’s common stock, par value $.01 per share, outstanding as of August 12, 2003: 96,005,118.
VERSO TECHNOLOGIES, INC.
FORM 10-Q
INDEX
| Page No. | |||||
Part I. FINANCIAL INFORMATION |
|||||
Item 1. Financial Statements |
|||||
Condensed Consolidated Balance Sheets as of June 30, 2003 and
December 31, 2002 |
2 | ||||
Condensed Consolidated Statements of Operations for the three months
and the six months ended June 30, 2003 and 2002 |
3 | ||||
Condensed Consolidated Statements of Cash Flows for the six months
ended June 30, 2003 and 2002 |
4 | ||||
Notes to Condensed Consolidated Financial Statements |
5 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations |
19 | ||||
Item 3. Quantitative and Qualitative Disclosures about Market Risk |
31 | ||||
Item 4. Controls and Procedures |
31 | ||||
PART II. OTHER INFORMATION |
|||||
Item 1. Legal Proceedings |
32 | ||||
Item 2. Changes in Securities and Use of Proceeds |
32 | ||||
Item 6. Exhibits and Reports on Form 8-K |
32 | ||||
Signature Page |
34 | ||||
Exhibit Index |
35 | ||||
1
VERSO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
| June 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
ASSETS: |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 1,207 | $ | 1,294 | |||||||
Restricted cash |
430 | 300 | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $2,465
and $1,853 at June 30, 2003 and December 31, 2002, respectively |
14,711 | 10,909 | |||||||||
Inventories |
10,302 | 4,733 | |||||||||
Other current assets |
2,281 | 681 | |||||||||
Total current assets |
28,931 | 17,917 | |||||||||
Property and equipment, net |
4,141 | 4,962 | |||||||||
Investment |
548 | 600 | |||||||||
Other intangibles, net |
3,566 | 3,671 | |||||||||
Goodwill |
12,685 | 12,685 | |||||||||
Total assets |
$ | 49,871 | $ | 39,835 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: |
|||||||||||
Current liabilities: |
|||||||||||
Line of credit |
$ | 2,848 | $ | 800 | |||||||
Current portion of notes payable |
5,750 | — | |||||||||
Accounts payable |
2,715 | 1,993 | |||||||||
Accrued compensation |
2,332 | 1,586 | |||||||||
Accrued expenses |
2,903 | 4,473 | |||||||||
Unearned revenue and customer deposits |
5,527 | 5,387 | |||||||||
Current portion of liabilities of discontinued operations |
1,241 | 1,829 | |||||||||
Total current liabilities |
23,316 | 16,068 | |||||||||
Liabilities of discontinued operations, net of current portion |
1,101 | 1,302 | |||||||||
Other long-term liabilities |
809 | 1,128 | |||||||||
Notes payable, net of current portion |
3,000 | — | |||||||||
Convertible subordinated debentures, net of discount |
3,841 | 3,703 | |||||||||
Total liabilities |
32,067 | 22,201 | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock, $.01 par value, 200,000,000 shares authorized;
92,188,094 and 89,077,846 shares issued and outstanding |
922 | 891 | |||||||||
Additional paid-in capital |
276,279 | 275,040 | |||||||||
Notes receivable from shareholders |
(1,578 | ) | (1,623 | ) | |||||||
Accumulated deficit |
(256,373 | ) | (254,857 | ) | |||||||
Deferred compensation |
(1,399 | ) | (1,797 | ) | |||||||
Accumulated other comprehensive loss — foreign currency translation |
(47 | ) | (20 | ) | |||||||
Total shareholders’ equity |
17,804 | 17,634 | |||||||||
Total liabilities and shareholders’ equity |
$ | 49,871 | $ | 39,835 | |||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
VERSO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
(Unaudited)
| For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
Revenue: |
||||||||||||||||||||
Products |
$ | 9,856 | $ | 6,086 | $ | 17,124 | $ | 12,690 | ||||||||||||
Services |
6,002 | 5,585 | 11,731 | 10,975 | ||||||||||||||||
Total revenue |
15,858 | 11,671 | 28,855 | 23,665 | ||||||||||||||||
Cost of revenue: |
||||||||||||||||||||
Products |
3,340 | 2,274 | 6,101 | 4,605 | ||||||||||||||||
Services |
2,984 | 2,519 | 5,648 | 5,137 | ||||||||||||||||
Total cost of revenue |
6,324 | 4,793 | 11,749 | 9,742 | ||||||||||||||||
Gross profit: |
||||||||||||||||||||
Products |
6,516 | 3,812 | 11,023 | 8,085 | ||||||||||||||||
Services |
3,018 | 3,066 | 6,083 | 5,838 | ||||||||||||||||
Total gross profit |
9,534 | 6,878 | 17,106 | 13,923 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
General and administrative |
3,927 | 2,996 | 7,248 | 6,108 | ||||||||||||||||
Sales and marketing |
2,201 | 1,866 | 4,092 | 3,631 | ||||||||||||||||
Research and development |
2,383 | 1,464 | 4,279 | 3,139 | ||||||||||||||||
Depreciation and amortization of property and equipment |
543 | 716 | 1,196 | 1,478 | ||||||||||||||||
Amortization of intangibles |
213 | 147 | 425 | 289 | ||||||||||||||||
Amortization of deferred compensation, related to
sales, general and administrative |
194 | 324 | 393 | 648 | ||||||||||||||||
Reorganization costs |
— | — | 194 | — | ||||||||||||||||
Total operating expenses |
9,461 | 7,513 | 17,827 | 15,293 | ||||||||||||||||
Operating income (loss) from continuing operations |
73 | (635 | ) | (721 | ) | (1,370 | ) | |||||||||||||
Other (expense) income, net: |
||||||||||||||||||||
Other income |
9 | 345 | 18 | 431 | ||||||||||||||||
Equity in loss of investment |
(19 | ) | — | (52 | ) | — | ||||||||||||||
Interest expense, net |
(454 | ) | (309 | ) | (761 | ) | (519 | ) | ||||||||||||
Other (expense) income, net |
(464 | ) | 36 | (795 | ) | (88 | ) | |||||||||||||
Loss from continuing operations before income taxes |
(391 | ) | (599 | ) | (1,516 | ) | (1,458 | ) | ||||||||||||
Income tax benefit (expense) |
— | — | — | — | ||||||||||||||||
Loss from continuing operations |
(391 | ) | (599 | ) | (1,516 | ) | (1,458 | ) | ||||||||||||
Loss from discontinued operations, net of income taxes |
— | — | — | (331 | ) | |||||||||||||||
Net loss |
$ | (391 | ) | $ | (599 | ) | $ | (1,516 | ) | $ | (1,789 | ) | ||||||||
Net loss per common share — basic and diluted: |
||||||||||||||||||||
Loss from continuing operations |
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||||||
Loss from discontinued operations |
— | — | — | — | ||||||||||||||||
Net loss per common share — basic and diluted |
$ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | ||||||||
Weighted average shares outstanding — basic and diluted |
91,062,189 | 78,254,493 | 90,246,011 | 78,069,301 | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
VERSO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| For the six months ended June 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Operating Activities: |
||||||||||||
Continuing operations: |
||||||||||||
Net loss from continuing operations |
$ | (1,516 | ) | $ | (1,458 | ) | ||||||
Adjustments to reconcile net loss from continuing operations to net
cash provided by (used in) continuing operating activities: |
||||||||||||
Equity in loss of investment |
52 | — | ||||||||||
Depreciation |
1,196 | 1,478 | ||||||||||
Amortization of intangibles |
425 | 289 | ||||||||||
Amortization of deferred compensation |
393 | 648 | ||||||||||
Provision for doubtful accounts |
1,268 | 804 | ||||||||||
Amortization of loan fees and discount on convertible subordinated debentures |
205 | 265 | ||||||||||
Other |
(83 | ) | 86 | |||||||||
Changes in current operating assets and liabilities, net of effects of acquisition: |
||||||||||||
Accounts receivable |
(2,028 | ) | (3,462 | ) | ||||||||
Inventories |
2,058 | 371 | ||||||||||
Other current assets |
(576 | ) | 253 | |||||||||
Accounts payable |
619 | 573 | ||||||||||
Accrued compensation |
673 | (837 | ) | |||||||||
Accrued expenses |
(2,117 | ) | (498 | ) | ||||||||
Unearned revenue and customer deposits |
(340 | ) | (346 | ) | ||||||||
Net cash provided by (used in) continuing operating activities |
229 | (1,834 | ) | |||||||||
Discontinued operations: |
||||||||||||
Loss from discontinued operations |
— | (331 | ) | |||||||||
Adjustment to reconcile loss from discontinued operations
to net cash used in discontinued operating activities |
(525 | ) | (127 | ) | ||||||||
Net cash used in discontinued operating activities |
(525 | ) | (458 | ) | ||||||||
Net cash used in operating activities |
(296 | ) | (2,292 | ) | ||||||||
Investing Activities: |
||||||||||||
Purchases of property and equipment, net |
(297 | ) | (446 | ) | ||||||||
Software development costs capitalized |
(320 | ) | (161 | ) | ||||||||
Purchase of Clarent Corporation, net of cash acquired |
(1,026 | ) | — | |||||||||
Net cash used in investing activities |
(1,643 | ) | (607 | ) | ||||||||
Financing Activities: |
||||||||||||
Payments of note payable for the purchase of NACT |
— | (1,500 | ) | |||||||||
Payments of notes payable |
(1,050 | ) | — | |||||||||
Payments of notes receivable from shareholders |
— | 15 | ||||||||||
Borrowings on credit line, net |
2,048 | — | ||||||||||
Proceeds from issuances of common stock, net |
812 | 292 | ||||||||||
Net cash provided by (used in) financing activities |
1,810 | (1,193 | ) | |||||||||
Effect of exchange rate changes on cash |
42 | — | ||||||||||
Decrease in cash and cash equivalents |
(87 | ) | (4,092 | ) | ||||||||
Cash and cash equivalents at beginning of period |
1,294 | 7,745 | ||||||||||
Cash and cash equivalents at end of period |
$ | 1,207 | $ | 3,653 | ||||||||
Supplemental disclosure of cash flow information: |
||||||||||||
Cash payments during the period for: |
||||||||||||
Interest |
$ | 447 | $ | 147 | ||||||||
Income taxes |
$ | 10 | $ | 38 | ||||||||
Non-cash investing and financing activities |
||||||||||||
Common stock and compensatory
options issued in reorganization |
$ | 125 | $ | — | ||||||||
Issuance of common stock in arbitration settlement |
264 | 403 | ||||||||||
Issuance of warrants in exchange for services |
119 | 211 | ||||||||||
Assets acquired and liabilities assumed in conjunction with business acquisitions: |
||||||||||||