UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
o 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 o No x.
Indicated by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act) Yes o No x.
Shares of the registrant’s common stock, par value $.01 per share, outstanding as of November 13, 2003: 119,726,803.
| EX-31.1 302 CERTIFICATION OF CEO | ||||||||
| EX-31.2 302 CERTIFICATION OF CFO | ||||||||
| EX-32.1 906 CERTIFICATION OF CEO | ||||||||
| EX-32.2 906 CERTIFICATION OF CFO | ||||||||
VERSO TECHNOLOGIES, INC.
FORM 10-Q
INDEX
| Page No. | ||||
Part I |
FINANCIAL INFORMATION |
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Item 1 |
Financial Statements |
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Condensed Consolidated Balance Sheets as of September 30, 2003 and |
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December 31, 2002 |
2 |
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Condensed Consolidated Statements of Operations for the three months |
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and the nine months ended September 30, 2003 and 2002 |
3 |
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Condensed Consolidated Statements of Cash Flows for the nine months |
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ended September 30, 2003 and 2002 |
4 |
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Notes to Condensed Consolidated Financial Statements |
5 |
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Item 2 |
Management's Discussion and Analysis of Financial Condition and |
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Results of Operations |
20 |
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Item 3 |
Quantitative and Qualitative Disclosures about Market Risk |
35 |
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Item 4 |
Controls and Procedures |
35 |
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PART II |
OTHER INFORMATION |
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Item 1 |
Legal Proceedings |
36 |
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Item 2 |
Changes in Securities and Use of Proceeds |
37 |
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Item 6 |
Exhibits and Reports on Form 8-K |
37 |
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Signature Page |
39 |
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Exhibit Index |
40 |
1
VERSO TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
| September 30, | December 31, | ||||||||||
| 2003 | 2002 | ||||||||||
ASSETS: |
|||||||||||
Current assets: |
|||||||||||
Cash and cash equivalents |
$ | 9,781 | $ | 1,294 | |||||||
Restricted cash |
2,445 | 300 | |||||||||
Accounts receivable, net of allowance for doubtful accounts of $2,857
and $1,853 at September 30, 2003 and December 31, 2002, respectively |
17,247 | 10,909 | |||||||||
Inventories |
9,317 | 4,733 | |||||||||
Other current assets |
1,703 | 681 | |||||||||
Total current assets |
40,493 | 17,917 | |||||||||
Property and equipment, net |
5,901 | 4,962 | |||||||||
Investment |
539 | 600 | |||||||||
Other intangibles, net |
7,303 | 3,671 | |||||||||
Goodwill |
14,599 | 12,685 | |||||||||
Total assets |
$ | 68,835 | $ | 39,835 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY: |
|||||||||||
Current liabilities: |
|||||||||||
Line of credit |
$ | — | $ | 800 | |||||||
Current portion of notes payable |
4,235 | — | |||||||||
Accounts payable |
3,299 | 1,993 | |||||||||
Accrued compensation |
2,265 | 1,586 | |||||||||
Accrued expenses |
3,472 | 4,473 | |||||||||
Current portion of accrued costs of MCK Communications, Inc. acquisition |
4,173 | — | |||||||||
Unearned revenue and customer deposits |
6,716 | 5,387 | |||||||||
Current portion of liabilities of discontinued operations |
1,278 | 1,829 | |||||||||
Total current liabilities |
25,438 | 16,068 | |||||||||
Liabilities of discontinued operations, net of current portion |
879 | 1,302 | |||||||||
Other long-term liabilities |
1,722 | 1,128 | |||||||||
Notes payable, net of discount, net of current portion |
2,643 | — | |||||||||
Convertible subordinated debentures, net of discount |
3,910 | 3,703 | |||||||||
Total liabilities |
34,592 | 22,201 | |||||||||
Shareholders’ equity: |
|||||||||||
Common stock, $.01 par value, 200,000,000 shares authorized;
115,052,738 and 89,077,846 shares issued and outstanding |
1,151 | 891 | |||||||||
Additional paid-in capital |
302,360 | 275,040 | |||||||||
Notes receivable from shareholders |
— | (1,623 | ) | ||||||||
Accumulated deficit |
(267,980 | ) | (254,857 | ) | |||||||
Deferred compensation |
(1,205 | ) | (1,797 | ) | |||||||
Accumulated other comprehensive loss — foreign currency translation |
(83 | ) | (20 | ) | |||||||
Total shareholders’ equity |
34,243 | 17,634 | |||||||||
Total liabilities and shareholders’ equity |
$ | 68,835 | $ | 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 September 30, | For the nine months ended September 30, | |||||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||||||
Revenue: |
||||||||||||||||||||
Products |
$ | 9,573 | $ | 5,156 | $ | 26,697 | $ | 17,846 | ||||||||||||
Services |
5,741 | 5,256 | 17,473 | 16,231 | ||||||||||||||||
Total revenue |
15,314 | 10,412 | 44,170 | 34,077 | ||||||||||||||||
Cost of revenue: |
||||||||||||||||||||
Products |
3,671 | 1,936 | 10,198 | 6,541 | ||||||||||||||||
Services |
2,686 | 2,624 | 7,910 | 7,761 | ||||||||||||||||
Total cost of revenue |
6,357 | 4,560 | 18,108 | 14,302 | ||||||||||||||||
Gross profit: |
||||||||||||||||||||
Products |
5,902 | 3,220 | 16,499 | 11,305 | ||||||||||||||||
Services |
3,055 | 2,632 | 9,563 | 8,470 | ||||||||||||||||
Total gross profit |
8,957 | 5,852 | 26,062 | 19,775 | ||||||||||||||||
Operating expenses: |
||||||||||||||||||||
General and administrative |
2,897 | 2,316 | 10,146 | 8,424 | ||||||||||||||||
Sales and marketing |
2,402 | 1,631 | 6,493 | 5,262 | ||||||||||||||||
Research and development |
2,382 | 1,455 | 6,661 | 4,593 | ||||||||||||||||
Depreciation and amortization of property and equipment |
867 | 607 | 2,062 | 2,086 | ||||||||||||||||
Amortization of intangibles |
263 | 159 | 688 | 448 | ||||||||||||||||
Amortization of deferred compensation, related to
sales, general and administrative |
194 | 272 | 587 | 920 | ||||||||||||||||
Write-down of goodwill |
10,930 | — | 10,930 | — | ||||||||||||||||
Reorganization costs |
232 | 131 | 426 | 131 | ||||||||||||||||
Total operating expenses |
20,167 | 6,571 | 37,993 | 21,864 | ||||||||||||||||
Operating loss from continuing operations |
(11,210 | ) | (719 | ) | (11,931 | ) | (2,089 | ) | ||||||||||||
Other (expense) income, net: |
||||||||||||||||||||
Other income |
— | 22 | 18 | 453 | ||||||||||||||||
Equity in loss of investment |
(9 | ) | — | (61 | ) | — | ||||||||||||||
Interest expense, net |
(388 | ) | (322 | ) | (1,149 | ) | (841 | ) | ||||||||||||
Other expense, net |
(397 | ) | (300 | ) | (1,192 | ) | (388 | ) | ||||||||||||
Loss from continuing operations before income taxes |
(11,607 | ) | (1,019 | ) | (13,123 | ) | (2,477 | ) | ||||||||||||
Income taxes |
— | — | — | — | ||||||||||||||||
Loss from continuing operations |
(11,607 | ) | (1,019 | ) | (13,123 | ) | (2,477 | ) | ||||||||||||
Loss from discontinued operations, net of income taxes |
— | — | — | (331 | ) | |||||||||||||||
Net loss |
$ | (11,607 | ) | $ | (1,019 | ) | $ | (13,123 | ) | $ | (2,808 | ) | ||||||||
Net loss per common share — basic and diluted: |
||||||||||||||||||||
Loss from continuing operations |
$ | (0.12 | ) | $ | (0.01 | ) | $ | (0.14 | ) | $ | (0.03 | ) | ||||||||
Loss from discontinued operations |
— | — | — | (0.01 | ) | |||||||||||||||
Net loss per common share — basic and diluted |
$ | (0.12 | ) | $ | (0.01 | ) | $ | (0.14 | ) | $ | (0.04 | ) | ||||||||
Weighted average shares outstanding — basic and diluted |
96,507,282 | 78,970,101 | 92,361,308 | 78,373,925 | ||||||||||||||||
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 nine months ended September 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
Operating
Activities: |
||||||||||||
Continuing operations: |
||||||||||||
Net loss from continuing operations |
$ | (13,123 | ) | $ | (2,477 | ) | ||||||
Adjustments to reconcile net loss from continuing operations to net
cash provided by (used in) continuing operating activities: |
||||||||||||
Equity in loss of investment |
61 | — | ||||||||||
Depreciation |
2,062 | 2,086 | ||||||||||
Amortization of intangibles |
688 | 448 | ||||||||||
Amortization of deferred compensation |
587 | 920 | ||||||||||
Writedown of goodwill |
10,930 | — | ||||||||||
Provision for doubtful accounts |
1,573 | 1,150 | ||||||||||
Amortization of loan fees and discount on notes and convertible subordinated debentures |
415 | 452 | ||||||||||
Other |
(112 | ) | 86 | |||||||||
Changes in current operating assets and liabilities, net of effects of acquisition: |
||||||||||||
Accounts receivable |
(3,709 | ) | (3,397 | ) | ||||||||
Inventories |
2,547 | (492 | ) | |||||||||
Other current assets |
(155 | ) | (262 | ) | ||||||||
Accounts payable |
708 | 512 | ||||||||||
Accrued compensation |
552 | (1,684 | ) | |||||||||
Accrued expenses |
(2,591 | ) | (154 | ) | ||||||||
Unearned revenue and customer deposits |
316 | 8 | ||||||||||
Net cash provided by (used in) continuing operating activities |
749 | (2,804 | ) | |||||||||
Discontinued operations: |
||||||||||||
Loss from discontinued operations |
— | (331 | ) | |||||||||
Adjustment to reconcile loss from discontinued operations
to net cash used in discontinued operating activities |
(710 | ) | (566 | ) | ||||||||
Net cash used in discontinued operating activities |
(710 | ) | (897 | ) | ||||||||
Net cash provided by (used in) operating activities |
39 | (3,701 | ) | |||||||||
Investing
Activities: |
||||||||||||
Purchases of property and equipment |
(977 | ) | (648 | ) | ||||||||
Software development costs capitalized |
(481 | ) | (267 | ) | ||||||||
Purchase of Clarent Corporation assets, net of cash acquired |
(1,122 | ) | — | |||||||||
Purchase of MCK Communications, Inc., net of cash acquired |
9,915 | — | ||||||||||
Net cash provided by (used in) investing activities |
7,335 | (915 | ) | |||||||||
Financing
Activities: |
||||||||||||
Payments of note payable for the purchase of NACT |
— | (2,000 | ) | |||||||||
Payments of notes payable |
(2,550 | ) | — | |||||||||
Shareholder note repayments |
1,771 | 24 | ||||||||||
Net repayments under line of credit |
(800 | ) | — | |||||||||
Proceeds from issuances of common stock, net |
2,744 | 289 | ||||||||||
Net cash provided by (used in) financing activities |
1,165 | (1,687 | ) | |||||||||
Effect of exchange rate changes on cash |
(52 | ) | — | |||||||||
Increase (decrease) in cash and cash equivalents |
8,487 | (6,303 | ) | |||||||||
Cash and cash equivalents at beginning of period |
1,294 | 7,745 | ||||||||||
Cash and cash equivalents at end of period |
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