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 MARCH 31, 2003
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 000-28843
TURNSTONE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| DELAWARE |
77-0473640 | |
| (State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification Number) |
2220 CENTRAL EXPRESSWAY, SANTA CLARA, CALIFORNIA 95050
(Address of principal executive offices, including zip code)
(408) 907-1400
(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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ¨
There were 63,015,032 shares of the Registrant’s common stock, par value $0.001, outstanding on April 30, 2003, and the Registrant held an additional 3,286,379 shares as treasury stock on April 30, 2003.
TURNSTONE SYSTEMS, INC.
| PART I. |
FINANCIAL INFORMATION |
Page No. | ||
| Item 1. |
Financial Statements (Unaudited) |
|||
| Condensed Consolidated Balance Sheets as of March 31, 2003 and December 31, 2002 |
2 | |||
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2003 and 2002 |
3 | |||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 |
4 | |||
| 5 | ||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 | ||
| Item 3. |
30 | |||
| Item 4. |
31 | |||
| PART II. |
OTHER INFORMATION |
|||
| Item 1. |
32 | |||
| Item 2. |
34 | |||
| Item 3. |
34 | |||
| Item 4. |
34 | |||
| Item 5. |
34 | |||
| Item 6. |
34 | |||
| 37 | ||||
| 38 |
TURNSTONE SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| March 31, 2003 |
December 31, 2002 |
|||||||
| Assets |
||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ |
195,157 |
|
$ |
103,358 |
| ||
| Short-term investments |
|
10,318 |
|
|
60,951 |
| ||
| Accounts receivable, net |
|
255 |
|
|
314 |
| ||
| Prepaid expenses and other current assets |
|
1,335 |
|
|
767 |
| ||
| Total current assets |
|
207,065 |
|
|
165,390 |
| ||
| Property and equipment, net |
|
1,056 |
|
|
1,495 |
| ||
| Long-term investments |
|
— |
|
|
47,301 |
| ||
| Restricted cash |
|
3,639 |
|
|
3,639 |
| ||
| Total assets |
$ |
211,760 |
|
$ |
217,825 |
| ||
| Liabilities and stockholders’ equity |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ |
475 |
|
$ |
621 |
| ||
| Accrued compensation and benefits |
|
1,460 |
|
|
784 |
| ||
| Other current liabilities and accrued expenses |
|
2,679 |
|
|
2,644 |
| ||
| Deferred revenue |
|
36 |
|
|
154 |
| ||
| Total current liabilities |
|
4,650 |
|
|
4,203 |
| ||
| Other long-term liabilities |
|
450 |
|
|
675 |
| ||
| Total liabilities |
|
5,100 |
|
|
4,878 |
| ||
| Stockholders’ equity: |
||||||||
| Convertible preferred stock, $.001 stated value, 5,000 shares authorized; none issued and outstanding at March 31, 2003 and December 31, 2002 |
|
— |
|
|
— |
| ||
| Common stock, $.001 stated value, 200,000 shares authorized; 66,009 and 65,884 shares issued and outstanding at March 31, 2003 and December 31, 2002, respectively |
|
66 |
|
|
66 |
| ||
| Treasury stock, at cost; 3,186 and 3,128 shares at March 31, 2003 and December 31, 2002, respectively |
|
(10,038 |
) |
|
(9,896 |
) | ||
| Additional paid-in capital |
|
311,527 |
|
|
311,498 |
| ||
| Deferred stock compensation |
|
(127 |
) |
|
(425 |
) | ||
| Accumulated other comprehensive income |
|
19 |
|
|
424 |
| ||
| Accumulated deficit |
|
(94,787 |
) |
|
(88,720 |
) | ||
| Total stockholders’ equity |
|
206,660 |
|
|
212,947 |
| ||
| Total liabilities and stockholders’ equity |
$ |
211,760 |
|
$ |
217,825 |
| ||
See accompanying notes to condensed consolidated financial statements.
2
TURNSTONE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
| THE THREE MONTHS ENDED MARCH 31, |
||||||||
| 2003 |
2002 |
|||||||
| Revenues: |
||||||||
| Product revenue |
$ |
268 |
|
$ |
266 |
| ||
| Service revenue |
|
122 |
|
|
397 |
| ||
| Sales returns reserve adjustment |
|
— |
|
|
167 |
| ||
| Total net revenues |
|
390 |
|
|
830 |
| ||
| Cost of revenues: |
||||||||
| Cost of product revenue |
|
2 |
|
|
182 |
| ||
| Cost of service revenue |
|
— |
|
|
100 |
| ||
| Total cost of revenues |
|
2 |
|
|
282 |
| ||
| Gross profit |
|
388 |
|
|
548 |
| ||
| Operating expenses: |
||||||||
| Research and development (exclusive of non-cash compensation expense of $54 and $316 for the three months ended March 31, 2003 and 2002, respectively) |
|
4,363 |
|
|
3,527 |
| ||
| Sales and marketing (exclusive of non-cash compensation expense of $16 and $183 for the three months ended March 31, 2003 and 2002, respectively) |
|
1,219 |
|
|
2,165 |
| ||
| General and administrative (exclusive of non-cash compensation expense of $54 and $236 for the three months ended March 31, 2003 and 2002, respectively) |
|
1,737 |
|
|
694 |
| ||
| Amortization of deferred stock compensation |
|
124 |
|
|
735 |
| ||
| Total operating expenses |
|
7,443 |
|
|
7,121 |
| ||
| Operating loss |
|
(7,055 |
) |
|
(6,573 |
) | ||
| Interest income and other, net |
|
1,013 |
|
|
1,597 |
| ||
| Loss before income tax |
|
(6,042 |
) |
|
(4,976 |
) | ||
| Income tax expense |
|
25 |
|
|
105 |
| ||
| Net loss |
$ |
(6,067 |
) |
$ |
(5,081 |
) | ||
| Basic net loss per share of common stock |
$ |
(.10 |
) |
$ |
(.08 |
) | ||
| Diluted net loss per share of common stock |
$ |
(.10 |
) |
$ |
(.08 |
) | ||
| Weighted-average shares of common stock outstanding used in computing basic net loss per share |
|
62,707 |
|
|
63,568 |
| ||
| Weighted-average shares of common stock outstanding used in computing diluted net loss per share |
|
62,707 |
|
|
63,568 |
| ||
See accompanying notes to condensed consolidated financial statements.
3
TURNSTONE SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
| THE THREE MONTHS ENDED MARCH 31, |
||||||||
| 2003 |
2002 |
|||||||
| Operating activities |
||||||||
| Net loss |
$ |
(6,067 |
) |
$ |
(5,081 |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Depreciation |
|
418 |
|
|
471 |
| ||
| Stock compensation expense |
|
141 |
|
|
735 |
| ||
| Reduction in allowance for doubtful accounts and sales returns |
|
(3 |
) |
|
(481 |
) | ||
| Loss on disposal of property and equipment |
|
19 |
|
|
— |
| ||
| Effect of changes in foreign currency |
|
(13 |
) |
|
(35 |
) | ||
| Changes in assets and liabilities: |
||||||||
| Accounts receivable |
|
62 |
|
|
467 |
| ||
| Inventories |
|
— |
|
|
12 |
| ||
| Prepaid expenses and other assets |
|
(567 |
) |
|
(449 |
) | ||
| Accounts payable |
|
(147 |
) |
|
273 |
| ||
| Accrued compensation and benefits |
|
676 |
|
|
104 |
| ||
| Other accrued liabilities |
|
35 |
|
|
||||