-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQ9M66/J7mep+3QYWwxwWacfZkf6tGcsj4G2mlIJ8i3MCPKujzxRUOJa1mQeScan LTKn7rHsLS/3F0j34Pt6xQ== 0001019056-01-000028.txt : 20010123 0001019056-01-000028.hdr.sgml : 20010123 ACCESSION NUMBER: 0001019056-01-000028 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: C-PHONE CORP CENTRAL INDEX KEY: 0000835585 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 061170506 STATE OF INCORPORATION: NY FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 000-24426 FILM NUMBER: 1508816 BUSINESS ADDRESS: STREET 1: 6714 NETHERLANDS DRIVE CITY: WILMINGTON STATE: NC ZIP: 28405 BUSINESS PHONE: 9103956100 MAIL ADDRESS: STREET 1: 6714 NETHERLANDS DR CITY: WILMINGTON STATE: NC ZIP: 28405 FORMER COMPANY: FORMER CONFORMED NAME: TARGET TECHNOLOGIES INC DATE OF NAME CHANGE: 19940615 10QSB 1 0001.txt FORM 10QSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-24426 C-PHONE CORPORATION ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) New York 06-1170506 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 6714 Netherlands Drive Wilmington, North Carolina 28405 ---------------------------------------- (Address of principal executive offices) (910) 395-6100 ------------------------------------------------ (Issuer's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 [ ] State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 8,990,092 shares of common stock as of January 12, 2001. --------- ---------------- Transitional Small Business Disclosure Form Yes [ ] No [X] C-PHONE CORPORATION FORM 10-QSB INDEX Page Number ----------- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Balance Sheets as of November 30, 2000 (unaudited) and February 29, 2000 3 Statements of Operations for the three and nine months ended November 30, 2000 and 1999 (unaudited) 4 Statements of Cash Flows for the nine months ended November 30, 2000 and 1999 (unaudited) 5 Notes to Unaudited Financial Statements 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURES 14 2
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS C-PHONE CORPORATION BALANCE SHEETS November 30, 2000 February 29, 2000 ----------------- ----------------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 646,621 $ 2,367,633 Restricted cash 150,000 150,000 Accounts receivable, net of allowance for doubtful accounts of $259,000 at November 30, 2000 (unaudited) and $83,086 at February 29, 2000 104,760 210,497 Inventories, net 881,253 1,051,804 Prepaid expenses and other current assets 54,996 89,689 ----------------- ----------------- Total current assets 1,837,630 3,869,623 Property and equipment, net 60,651 105,116 Other assets 11,875 -- ----------------- ----------------- Total assets $ 1,910,156 $ 3,974,739 ================= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 224,816 $ 255,551 Accrued expenses 178,543 240,741 Deferred revenue 550 -- ----------------- ----------------- Total current liabilities 403,909 496,292 Shareholders' equity: Common stock, $.01 par value; 20,000,000 shares authorized; 8,990,092 and 8,980,092 shares, respectively, issued and outstanding at November 30, 2000 (unaudited) and February 29, 2000 89,901 89,801 Paid-in capital 29,903,111 29,878,836 Accumulated deficit (28,486,765) (26,490,190) ----------------- ----------------- Total shareholders' equity 1,506,247 3,478,447 ----------------- ----------------- Total liabilities and shareholders' equity $ 1,910,156 $ 3,974,739 ================= =================
The accompanying notes are an integral part of the financial statements. 3
C-PHONE CORPORATION STATEMENTS OF OPERATIONS (unaudited) Three Months Ended November 30, Nine Months Ended November 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Net sales $ 133,893 $ 371,429 $ 1,153,985 $ 1,127,798 Other revenue 46,395 45,000 84,160 55,000 -------------- -------------- -------------- -------------- Total revenue 180,288 416,429 1,238,145 1,182,798 -------------- -------------- -------------- -------------- Cost of goods sold 339,413 320,508 1,048,558 998,410 Cost of other revenue 18,198 -- 32,502 3,000 -------------- -------------- -------------- -------------- Total cost of revenue 357,611 320,508 1,081,060 1,001,410 -------------- -------------- -------------- -------------- Gross (loss) profit (177,323) 95,921 157,085 181,388 -------------- -------------- -------------- -------------- Operating expenses: Selling, general and administrative 641,645 726,951 1,799,673 2,412,835 Research, development and engineering 131,993 145,939 420,583 508,687 -------------- -------------- -------------- -------------- Total operating expenses 773,638 872,890 2,220,256 2,921,522 -------------- -------------- -------------- -------------- Operating loss (950,961) (776,969) (2,063,171) (2,740,134) Interest income 13,711 32,119 66,596 109,340 -------------- -------------- -------------- -------------- Net loss $ (937,250) $ (744,850) $ (1,996,575) $ (2,630,794) ============== ============== ============== ============== Per-share data: Basic and diluted net loss per common share $ (0.10) $ (0.09) $ (0.22) $ (0.32) ============== ============== ============== ============== Weighted average number of common shares outstanding 8,990,092 8,400,967 8,989,837 8,130,731 ============== ============== ============== ==============
The accompanying notes are an integral part of the financial statements. 4
C-PHONE CORPORATION STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended November 30, ------------------------------ 2000 1999 ------------- ------------- Cash flows from operating activities: Net loss $ (1,996,575) $ (2,630,794) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 64,458 80,176 Bad debt expense, net of recoveries 150,799 13,268 Provision for inventory obsolescence -- 17,596 Write down of inventory to net realizable value 189,279 -- Changes in operating assets and liabilities: Accounts receivable (45,062) (181,140) Inventories (18,728) 63,205 Prepaid expenses and other current assets 34,693 34,655 Other assets (11,875) 130,943 Accounts payable (30,735) (2,485) Accrued expenses (62,198) (96,571) Deferred revenue 550 -- ------------- ------------- Net cash used in operating activities (1,725,394) (2,571,147) ------------- ------------- Cash flows from investing activities: Purchase of restricted certificate of deposit -- (150,000) Equipment purchases (19,993) (95,633) ------------- ------------- Net cash used in investing activities (19,993) (245,633) ------------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock 24,375 1,287,453 ------------- ------------- Net cash provided by financing activities 24,375 1,287,453 ------------- ------------- Net decrease in cash and cash equivalents (1,721,012) (1,529,327) ------------- ------------- Cash and cash equivalents, beginning of period 2,367,633 4,602,752 ------------- ------------- Cash and cash equivalents, end of period $ 646,621 $ 3,073,425 ============= =============
The accompanying notes are an integral part of the financial statements. 5 C-PHONE CORPORATION NOTES TO UNAUDITED FINANCIAL STATEMENTS NOVEMBER 30, 2000 1. BASIS OF PRESENTATION The accompanying unaudited financial statements of our company 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(b) of Regulation SB. Accordingly, these financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of our management, these financial statements include all adjustments necessary to present fairly, in all material respects, the information set forth in these financial statements. Our operating results for the three and nine month periods ended November 30, 2000 are not necessarily indicative of the results that may be expected for our current fiscal year, which will end on February 28, 2001. These financial statements should be read in conjunction with our audited financial statements and the notes thereto included in our Annual Report on Form 10-KSB for our previous fiscal year, which ended on February 29, 2000. 2. RESTRICTED CASH Our restricted cash consisted of a certificate of deposit in a bank, which is collateral for a letter of credit in the amount of $150,000. The letter of credit expires on September 2, 2001, and was issued to our contract manufacturer to secure our obligations under our agreement with it. 3. STOCK OPTIONS As of November 30, 2000, options for 464,352 shares of our common stock were outstanding under our 1994 Amended and Restated Stock Option Plan. Of such options, 68,900 are non-qualified options exercisable at prices ranging from $0.906 to $7.00 per share, depending upon the date of grant, and 395,452 are incentive stock options exercisable at prices ranging from $0.8438 to $10.375 per share, depending upon the date of the grant. As of November 30, 2000, 83,420 shares of our common stock had been issued upon exercise of options granted under this plan. Due to vesting provisions, only options to acquire 210,125 shares of our common stock were exercisable as of November 30, 2000. The following table summarizes certain information with respect to exercisable options as of this date: Range of Number of Exercise Price Exercisable Options ---------------------- ------------------- $0.84 - $1.69 35,239 $2.69 - $3.00 32,385 $3.13 - $4.50 72,617 $5.95 - $6.91 28,734 $7.00 - $7.50 17,000 $8.38 - $10.38 24,150 -------------------- 210,125 ==================== 6 C-PHONE CORPORATION NOTES TO UNAUDITED FINANCIAL STATEMENTS NOVEMBER 30, 2000 4. NET LOSS PER SHARE We calculate our earnings or loss per share in accordance with Statement of Financial Accounting Standards No. 128, Earnings Per Share, which requires the presentation of "basic" earnings per share and "diluted" earnings per share on the face of our statement of operations. Basic earnings per share is computed by dividing the net income (loss) available to common shareholders by the weighted average number of outstanding common shares. The calculation of diluted earnings per share is similar to the calculation of basic earnings per share, except that the denominator includes dilutive common stock equivalents such as stock options and warrants. Common stock options and warrants are not included for the nine months ended November 30, 2000 and November 30, 1999, as they would be anti-dilutive. 5. SUBSEQUENT EVENT On January 8, 2001, we announced that we had entered into a Letter of Intent to sell our video conferencing assets for $1 million to Motion Media Technology Inc., a subsidiary of Motion Media Technology Limited of Bristol, United Kingdom. The closing of this transaction is subject to the approval by our shareholders and, therefore, will take several months to consummate. Until the closing, we are required to maintain our operations, which will result in continuing operating deficits. Motion Media initially is purchasing some of our component inventory and acquiring a non-exclusive license for a recently developed product which has not yet been put into production. The funds from these initial activities should enable us to continue our operations until the closing of the transaction. If the transaction is approved by our shareholders, the funds available for eventual distribution to shareholders may be as much as $0.05 per share. If the transaction is not approved by our shareholders, then, in all likelihood, we will cease operations, in which event it is unlikely that any funds will be available for distribution to our shareholders. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OVERVIEW We have been engaged primarily in the engineering, manufacturing and marketing of video conferencing systems. Our video conferencing products were designed to operate primarily over either a regular, analog telephone line or ISDN, a type of digital telephone line, and are available in configurations for the U.S. market as well as most international markets. We have distributed our products primarily to the business market and for special applications such as health care and security services and have sold our products primarily to resellers and system integrators. In November 2000, we announced that we were winding down our video conferencing operations, laying off approximately one-third of our employees and attempting to sell our remaining inventory while considering strategic alternatives such as a business combination or a complete liquidation of the company. On January 8, 2001, we announced that we had entered into a Letter of Intent to sell our video conferencing assets for $1 million to Motion Media Technology Inc., a subsidiary of Motion Media Technology Limited of Bristol, United Kingdom. The closing of the transaction is subject to the approval of our shareholders and, therefore, will take several months to consummate. Until the closing, we are required to maintain our operations, which will result in continuing operating deficits. Motion Media initially is purchasing some of our component inventory and acquiring a non-exclusive license for a recently developed product, which has not yet been put into production. The funds from these initial activities should enable us to continue our operations until the closing of the transaction. If the transaction is approved by our shareholders, the funds available for eventual distribution to shareholders may be as much as $0.05 per share. If the transaction is not approved by our shareholders, then, in all likelihood, we will cease operations, in which event it is unlikely that any funds will be available for distribution to our shareholders. We also announced that, while we are still seeking a business combination for the remainder of the company without the video conferencing business, the likelihood of our success in these endeavors was remote. RECENT EQUITY OFFERINGS Agreement with Sovereign. On September 18, 1998, we entered into a private equity credit agreement with Sovereign Partners, L.P. Pursuant to the agreement, Sovereign agreed to purchase our common stock during the 18-month period, which ended on September 30, 2000. The agreement provided that the purchase price for each share of our common stock was equal to 85% of the average closing bid price of our common stock during the five trading days immediately preceding the day we notify Sovereign of a purchase obligation. We sold a total of 1,001,487 shares of our common stock to Sovereign under this agreement and received gross proceeds of $1,500,000. In connection with the agreement, we issued to Cardinal Capital Management, Inc., as finder, a two-year warrant to purchase 100,000 shares of our common stock at an exercise price of $8.00 per share. This warrant expired unexercised on September 18, 2000. We also paid Cardinal a total of $90,000 in cash fees. 8 RESULTS OF OPERATIONS FISCAL QUARTER ENDED NOVEMBER 30, 2000 (THIRD QUARTER OF FISCAL 2001) AS COMPARED TO FISCAL QUARTER ENDED NOVEMBER 30, 1999 (THIRD QUARTER OF FISCAL 2000) Revenues. Net sales decreased 64% to $133,893 in the third quarter of fiscal 2001 from $371,429 in the third quarter of fiscal 2000. The decrease in net sales was primarily the result of our attempt, in the early part of Calendar 2000, to derive a viable business plan by changing our focus to developing major OEM, distribution and licensing relationships. As we were not successful in establishing relationships which would provide sufficient revenues in the near term, we announced in November that we were winding down our video conferencing operations. This announcement further negatively impacted sales for the balance of the quarter. Other revenue during the third quarter of fiscal 2001 was $46,395, which consisted primarily of fees for engineering design and development, while other revenue during the third quarter of fiscal 2000 was $45,000, which consisted of a license fee and a software development fee. As a result of the foregoing, our total revenues decreased 57% to $180,288 in the third quarter of fiscal 2001 from $416,429 in the third quarter of fiscal 2000. Cost of revenue. Cost of goods sold increased 6% to $339,413, or 253% of net sales, in the third quarter of fiscal 2001 from $320,508, or 86% of net sales, in the third quarter of fiscal 2000. The increases in cost of goods sold and in the cost of goods sold as a percentage of net sales were primarily related to a $189,279 write down of inventory to its net realizable value related to the proposed sale of our video conferencing business to Motion Media discussed above. There was no comparable write down of inventory in the third quarter of fiscal 2000. The cost associated with other revenue in the third quarter of fiscal 2001 represents an allocation of salaries and benefits of engineering personnel directly related to the generation of the other revenue. There was no such allocation in the third quarter of fiscal 2000 as expenses associated with other revenue for the third quarter of fiscal 2000 were expensed in prior periods. Gross (loss) profit. We had a gross loss of $177,323, or 98% of revenues, in the third quarter of fiscal 2001, as compared to a gross profit of $95,921, or 23% of revenues, in the third quarter of fiscal 2000. The gross loss was primarily the result of the inventory write down discussed above. Selling, general and administrative. Selling, general and administrative expenses decreased 12% to $641,645, or 356% of revenues, in the third quarter of fiscal 2001 from $726,951, or 175% of revenues, in the third quarter of fiscal 2000. In January 2000, we made the decision to focus more on developing OEM and licensing arrangements and less on building our own distribution channels. Our change in focus allowed us to significantly reduce headcount and expenses. As a result, our selling, marketing and customer support expenses decreased 43% to about $215,000 in the third quarter of fiscal 2001 from about $375,000 in the third quarter of fiscal 2000 and our administration and general expenses decreased 13% to about $300,000 in the third quarter of fiscal 2001 from about $345,000 in the third quarter of fiscal 2000. These decreases were partially offset by a net bad debt expense of about $125,000 in the third quarter of fiscal 2001, as compared to a net bad debt expense of about $8,000 in the third quarter of fiscal 2000. The increase in bad debt expense was the result of the non-payment by one customer, now in financial difficulty, and our belief that certain existing customers will not pay all of their obligations to us as a result of our decision to wind down our video conferencing business. Research, development and engineering. Research, development and engineering expenses decreased 10% to $131,993, or 73% of revenues, in the third quarter of fiscal 2001 from $145,939, or 35% of revenues, in the third quarter of fiscal 2000. The decrease was primarily the result of a reduction in personnel and related development expenses due to the previous completion of the development of many of our current products and the allocation of about $18,000 of expenses related to the cost of other revenue, discussed above. All of these costs were charged to operations as incurred and were funded by our cash reserves. 9 Operating loss. As a result of the factors discussed above, our operating loss increased 22% to $950,961 in the third quarter of fiscal 2001 from $776,969 in the third quarter of fiscal 2000. Interest. Interest income decreased 57% to $13,711 in the third quarter of fiscal 2001 from $32,119 in the third quarter of fiscal 2000, as a result of a decrease in available cash for investments due to the continued use of our cash to fund operations. NINE MONTHS ENDED NOVEMBER 30, 2000 AS COMPARED TO NINE MONTHS ENDED NOVEMBER 30, 1999 Revenues. Net sales increased 2% to $1,153,985 in the first nine months of fiscal 2001 from $1,127,798 in the first nine months of fiscal 2000. The increase in net sales was primarily the result of sales of older generation product to one customer that represented about 32% of our total net sales during the first nine months of fiscal 2001. However, the decrease in sales during the third quarter of 2001 discussed above substantially offset the sales to this customer. Other revenue during the first nine months of fiscal 2001 was $84,160, which consisted primarily of fees for engineering design and development, while other revenue for the first nine months of fiscal 2000 was $55,000, which consisted of a license fee and software development fees. As a result of the foregoing, our total revenues increased 5% to $1,238,145 in the first nine months of fiscal 2001 from $1,182,798 in the first nine months of fiscal 2000. Cost of revenue. Cost of goods sold increased 5% to $1,048,558, or 91% of net sales, in the first nine months of fiscal 2001 from $998,410, or 89% of net sales, in the first nine months of fiscal 2000. The increases in cost of goods sold and in the cost of goods sold as a percentage of net sales were primarily related to a $189,279 write down of inventory to its net realizable value related to the proposed sale of our video conferencing business to Motion Media discussed above. There was no comparable write down of inventory in the first nine months of fiscal 2000. The cost associated with other revenue in both the first nine months of fiscal 2001 and the first nine months of fiscal 2000 represents an allocation of salaries and benefits of engineering personnel directly related to the generation of the other revenue. Gross profit. Our gross profit decreased to $157,085, or 13% of revenues, in the first nine months of fiscal 2001, from $181,388 or 15% of revenues, in the first nine months of fiscal 2000. The decrease in gross profit and the related decrease in the percentage of cost of goods sold to net sales was primarily the result of the inventory write down discussed above. Selling, general and administrative. Selling, general and administrative expenses decreased 25% to $1,799,673, or 145% of revenues, in the first nine months of fiscal 2001 from $2,412,835, or 204% of revenues, in the first nine months of fiscal 2000. In January 2000, we made the decision to focus more on developing OEM and licensing arrangements and less on building our own distribution channels. Our change in focus allowed us to significantly reduce headcount and expenses. As a result, our selling, marketing and customer support expenses decreased 46% to about $635,000 in the first nine months of fiscal 2001 from about $1,185,000 in the first nine months of fiscal 2000 and our administration and general expenses decreased 17% to about $1,010,000 in the first nine months of fiscal 2001 from about $1,215,000 in the first nine months of fiscal 2000. These decreases were partially offset by a net bad debt expense of about $150,000 in the first nine months of fiscal 2001, as compared to a net bad debt expense of about $15,000 in the first nine months of fiscal 2000. The increase in bad debt expense was the result of the non-payment by one customer, now in financial difficulty, and our belief that certain existing customers will not pay all of their obligations to us as a result of our decision to wind down our video conferencing business. Research, development and engineering. Research, development and engineering expenses decreased 17% to $420,583, or 34% of revenues, in the first nine months of fiscal 2001 from $508,687, or 43% of revenues, in the first nine months of fiscal 2000. The decrease was primarily the result of a reduction in personnel and related development expenses due to the previous completion of the development of many of our current products and the allocation of about $32,000 of expenses related to the cost of other revenue, discussed above. All of these costs were charged to operations as incurred and were funded by our cash reserves. 10 Operating loss. As a result of the factors discussed above, our operating loss decreased 25% to $2,063,171 in the first nine months of fiscal 2001 from $2,740,134 in the first nine months of fiscal 2000. Interest. Interest income decreased 39% to $66,596 in the first nine months of fiscal 2001 from $109,340 in the first nine months of fiscal 2000, as a result of a decrease in available cash for investments due to the continued use of our cash to fund operations. LIQUIDITY AND CAPITAL RESOURCES We have financed our operations primarily from the proceeds of sale of our securities. See "Recent Equity Offerings" for information concerning recent sales to Sovereign. At November 30, 2000, we had working capital of $1,433,721, as compared to $3,373,331, at February 29, 2000, a decrease of $1,939,610. Our cash and cash equivalents were $646,621 at November 30, 2000, as compared to $2,367,633 at February 29, 2000. Our invested funds consisted primarily of overnight repurchase agreements for discount notes issued by the United States Treasury or United States government agencies. Our restricted cash consisted of a $150,000 certificate of deposit pledged by us to a bank to secure a letter of credit which expires on September 2, 2001. During the first nine months of fiscal 2001, our operating activities used $1,725,394 of net cash, primarily to fund operating activities and accounts receivables, our investing activities used $19,993 for the purchase of equipment and our financing activities provided $24,375 of net cash from the sale of 10,000 shares of our common stock. We lease our facility and own our manufacturing equipment free from any liens or other encumbrances. As of November 30, 2000, we had no material commitments for capital expenditures. In November 2000, we announced that we were winding down our video conferencing operations, laying off approximately one-third of our employees and attempting to sell our remaining inventory while considering strategic alternatives such as a business combination or a complete liquidation of the company. On January 8, 2001, we announced that we had entered into a Letter of Intent to sell our video conferencing assets for $1 million to Motion Media Technology Inc., a subsidiary of Motion Media Technology Limited of Bristol, United Kingdom. The transaction is subject to the approval by our shareholders and, therefore, will take several months to consummate. Until the closing, we are required to maintain our operations, which will result in continuing operating deficits. Motion Media initially is purchasing some of our component inventory and acquiring a non-exclusive license for a recently developed product, which has not yet been put into production. The funds from these initial activities should enable us to continue our operations until the closing of the transaction. However, if the Motion Media transaction does not close for any reason or the time needed to obtain shareholder approval is extended past our current expectation, our working capital may not be sufficient to continue our operations. In that event, it is likely that we would cease operations so that we would have sufficient funds to meet the company's remaining obligations. Also see "Factors That Could Effect Us - - We Will Require Significant Additional Capital To Become Profitable, Which Capital May Not Be Readily Available" in Item 1. - "Description of Business" of our Annual Report on Form 10-KSB for our fiscal year ended February 29, 2000. At February 29, 2000, we estimated that we had available net operating loss carryforwards of approximately $23,000,000 for Federal and state purposes, which may be used to reduce future taxable income, if any. The Federal carryforwards begin to expire in 2009 and the state carryforwards begin to expire in 2001. We do not believe that inflation has had a significant impact on our sales or operating results, during the past three years. 11 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made statements in this Quarterly Report on Form 10-QSB that are "forward-looking statements" within the meaning of the Securities Act and the Securities Exchange Act. Sometimes these statements contain words like "may," "believe," "expect," "continue," "intend," "anticipate" or other similar words. These statements could involve known and unknown risks, uncertainties and other factors that might significantly alter the actual results suggested by the statements. In other words, our performance might be quite different from what the forward-looking statements imply. The following factors, as well as those discussed above in this section, could cause our performance to differ from the expectations implied by our forward-looking statements: inability to consummate the proposed sale of our video conferencing assets due to failure of shareholders to approve the transaction. inability to continue our operations while seeking shareholder approval, which could result in the failure of the proposed sale of our video conferencing assets. failure of the proposed purchaser of our video conferencing assets to go forward with the transaction. loss of our key employees. technological advances which could cause our products to become obsolete. changes in general economic and business conditions. changes in industry trends. incurrence of unexpected liabilities or contingencies. We have no obligation to release publicly the result of any revisions to any of our "forward-looking statements" to reflect events or circumstances that occur after the date of this Quarterly Report or to reflect the occurrence of other unanticipated events. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION. As previously reported, we intended to voluntarily withdraw our appeal of the delisting of our common stock on the Nasdaq SmallCap Market. Such action has been taken and, on January 9, 2001, our common stock was delisted from trading on the Nasdaq SmallCap Market. Our common stock currently is listed for trading on the OTC Bulletin Board. Such listing requires, among other things, that our common stock continues to be registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934. Since our common stock is held of record by less than 500 persons (although we have a more significant number of beneficial holders) and our total assets have not exceeded $10 million on the last day of each of our three most recently completed fiscal years, we have the right to terminate such registration pursuant to Rule 12g-4 under that Act. Such termination would decrease our expenses, and has been discussed by our Board of Directors. In the event that our common stock ceases to be listed for trading on the OTC Bulletin Board, we anticipate that quotations for our common stock would be listed in the "Pink Sheets" published by The National Quotation Bureau, Inc. 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS 27. Financial Data Schedule (B) REPORTS ON FORM 8-K On November 20, 2000, we filed a Current Report on Form 8-K responding to Item 6 - "Other Events." On January 8, 2001, we filed a Current Report on Form 8-K responding to Item 5 - "Other Events." 13 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. C-PHONE CORPORATION Date: January 15, 2000 By: /s/ PAUL H. ALBRITTON -------------------------------- Paul H. Albritton President and Chief Executive Officer (Principal Executive Officer) Date: January 15, 2000 By: /s/ KURT SVENDSEN -------------------------------- Kurt Svendsen Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) 14 -----END PRIVACY-ENHANCED MESSAGE-----