-----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, GCcpMYuZrxwQcwv5m7A8CPZ4I722NSOtS+84vALIA8PTXfluI2jWOGZT9YPzHvda U0pTflT+HvWwzBgC1lEL2w== 0000912057-97-016363.txt : 19970512 0000912057-97-016363.hdr.sgml : 19970512 ACCESSION NUMBER: 0000912057-97-016363 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970509 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MICROFIELD GRAPHICS INC /OR CENTRAL INDEX KEY: 0000944947 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 930935149 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26226 FILM NUMBER: 97598833 BUSINESS ADDRESS: STREET 1: 9216 SW DURHAM RD CITY: PORTLAND STATE: OR ZIP: 97224 BUSINESS PHONE: 5036204000 MAIL ADDRESS: STREET 1: MICRFIELD GRAPHICS INC /OR STREET 2: 9216 SW DURHAM RD CITY: PORTLAND STATE: OR ZIP: 97224 10QSB 1 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 1O-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------- -------- Commission File Number : 0-26226 MICROFIELD GRAPHICS, INC. (Exact name of small business issuer as specified in its charter) OREGON 93-0935149 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7216 SW DURHAM RD. PORTLAND, OR 97224 (Address of principal executive offices and zip code) (503) 620-4000 (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 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 [ ] The number of shares outstanding of the Registrant's Common Stock as of April 30, 1997 was 3,195,575 shares. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] MICROFIELD GRAPHICS, INC. FORM 10-QSB INDEX PART I FINANCIAL INFORMATION Page - ------------------------------- ---- Item 1. Financial Statements Consolidated Balance Sheet -March 29, 1997 and December 28, 1996 3 Consolidated Statement of Operations -Quarter Ended March 29, 1997 and March 30, 1996 4 Consolidated Statement of Cash Flows -Quarter Ended March 29, 1997 and March 30, 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II OTHER INFORMATION - ---------------------------- Item 6. Exhibits and Reports on Form 8-K 10
2 MICROFIELD GRAPHICS, INC. CONSOLIDATED BALANCE SHEETS
March 29, December 28, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents $ 1,466,291 $ 1,867,856 Accounts receivable, net of allowances of $24,680 and $45,648 751,615 777,807 Inventories (Note 3) 918,249 997,693 Prepaid expenses and other 199,982 248,875 ------------ ---------- Total current assets 3,336,137 3,892,231 Property and equipment, net (Note 4) 494,459 542,826 Other assets 84,021 86,720 ------------ ---------- $ 3,914,617 $ 4,521,777 ------------ ---------- ------------ ---------- Current liabilities: Current portion of debt $ 483,328 $ 119,537 Accounts payable 183,806 399,011 Accrued payroll and payroll taxes 145,573 209,697 Unearned income 64,661 60,803 Accrued liabilities 148,161 183,420 ------------ ---------- Total current liabilities 1,025,529 972,468 Long-term debt, net of current portion 159,728 181,956 ------------ ---------- 1,185,257 1,154,424 Shareholders' equity: Common stock, no par value, 25,000,000 shares authorized, 3,195,575 and 3,152,326 shares issued and outstanding 12,152,781 12,152,781 Accumulated deficit (9,423,421) (8,785,428) ------------ ---------- Total shareholders' equity 2,729,360 3,367,353 ------------ ---------- $ 3,914,617 $ 4,521,777 ------------ ---------- ------------ ----------
The accompanying notes are an integral part of these financial statements. 3 MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended --------------------------- March 29, March 30, 1997 1996 ---------- ---------- Sales $1,185,367 $1,353,349 Cost of goods sold 640,560 702,815 ---------- ---------- Gross profit 544,807 650,534 Operating expenses Research and development 218,887 368,454 Marketing and sales 758,066 801,329 General and administrative 211,807 249,230 ---------- ---------- 1,188,760 1,419,013 ---------- ---------- Loss from operations (643,953) (768,479) Other income (expense) Interest income, net 1,735 50,306 Other income, net 4,682 4,259 ---------- ---------- Loss before provision for income taxes (637,536) (713,914) Provision for income taxes 457 800 ---------- ---------- Net loss $ (637,993) $ (714,714) ---------- ---------- ---------- ---------- Net loss per share $ (0.20) $ (0.23) ---------- ---------- ---------- ---------- Shares used in per share calculations 3,195,575 3,152,326 ---------- ---------- ---------- ----------
The accompanying notes are an integral part of these financial statements. 4 MICROFIELD GRAPHICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended ---------------------------------------- March 29, March 30, 1997 1996 ------------- ------------- Cash Flows From Operating Activities: Net loss $ (637,993) $ (714,714) Adjustments to reconcile loss from continuing operations to operating cash flows: Depreciation and amortization 75,112 63,700 Gain on sale and leaseback of property and equipment (1,626) (2,439) Changes in assets and liabilties: Accounts receivable 26,192 41,912 Inventories 79,444 (82,054) Prepaid expenses and other 48,893 (38,190) Accounts payable (215,205) (18,547) Accrued payroll and payroll taxes (64,124) Unearned income 3,858 Accrued liabilties (33,633) (6,798) ------------- ------------- Net cash used in operating activities (719,082) (757,130) Cash flows from investing activities: Sales of marketable securities -- 45,546 Acquisition of property and equipment (24,046) (110,910) Purchases of other assets -- (14,571) ------------- ------------- Net cash used in investing activities (24,046) (79,935) Cash flows from financing activities: Payments on equipment line of credit (6,944) -- Payments on capital lease obligations (51,493) (30,873) Proceeds from operating line of credit 400,000 Proceeds from exercise of common stock options and warrants 38,239 ------------- ------------- Net cash provided by financing activities 341,563 7,366 Net decrease in cash and cash equivalents (401,565) (829,699) Cash and cash equivalents, beginning of period 1,867,856 3,180,872 ------------- ------------- Cash and cash equivalents, end of period $ 1,466,291 $ 2,351,173 ------------- ------------- ------------- ------------- Supplemental disclosure of cash flow information: Cash paid for: Interest $ 13,439 $ 12,461 ------------- ------------- ------------- ------------- Income taxes 456 800 ------------- ------------- ------------- -------------
The accompanying notes are an integral part of these financial statements. 5 MICROFIELD GRAPHICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Microfield Graphics, Inc. (the "Company") for the quarters ended March 29, 1997 and March 30, 1996 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission. The financial information as of December 28, 1996 is derived from the Company's Annual Report on From 10-KSB. The accompanying financial statements do not include all of the information and footnotes required by generally accepted accounting principles and should be read in conjunction with the Company's audited financial statements and notes thereto for the year ended December 28, 1996. In the opinion of Company management, the unaudited consolidated financial statements for the interim periods presented include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. Operating results for the quarter ended March 29, 1997 are not necessarily indicative of the results that may be expected for the full year or any portion thereof. The Company's fiscal year is the 52- or 53-week period ending on the Saturday closest to the last day of December. The Company's last fiscal year was the 52 weeks ended December 28, 1996. The Company's first fiscal quarters in fiscal 1997 and 1996 were the 13-week periods ended March 29, 1997, and March 30, 1996, respectively. 2. RECENTLY ISSUED ACCOUNTING STANDARD In March 1997, The FASB issued Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128). SFAS 128 applies to entities with publicly held common stock and is effective for financial statements issued for periods ending after December 15, 1997. SFAS replaces APB Opinion 15, EARNINGS PER SHARE, and simplifies the computation of EPS by replacing the presentation of primary EPS with a presentation of basic EPS. The impact of the SFAS 128 EPS calculation for the first quarter 1997 is not material. 3. INVENTORIES Inventories are stated at the lower of standard cost (which approximates the first-in, first-out method), or market value, and consist of the following: March 29, December 28, 1997 1996 ---------- ------------ Raw materials $508,787 $554,713 Work in process -- -- Finished goods 409,462 442,980 ---------- ------------ $918,249 $997,693 ---------- ------------ ---------- ------------ 6 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following: March 29, December 1997 28, 1996 -------- --------- Machinery and equipment $987,252 $738,431 Furniture -- -- Capitalized leased assets -- 224,775 -------- --------- 987,252 963,206 Less accumulated depreciation and amortization 492,793 420,380 -------- --------- $494,459 $542,826 -------- --------- -------- --------- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Microfield Graphics, Inc. (the "Company"), develops, manufactures and markets computer conferencing and telecommunications products to facilitate group communications. The company's product lines incorporate a series of digital whiteboards and digital whiteboard rear projection systems under the brand name SoftBoard, along with a variety of application software packages, supplies and accessories. Information written or drawn on the SoftBoard surface is recorded and displayed on a personal computer simultaneously and in color using the Company's proprietary technology. The information is recorded in a computer file that can be replayed, printed, faxed, e-mailed or saved for future applications. Optional proprietary software allows the information to be communicated in real time to remote computers over standard telephone lines, networks and the internet. The Company's SoftBoard products are expected to provide the substantial majority of its sales for the foreseeable future. The Company's results will therefore depend on continued and increased market acceptance of these products and the Company's ability to modify them to meet the needs of its customers. Any reduction in demand for, or increasing competition with respect to, these products could have a material adverse effect on the Company's financial condition and results of operations. In September 1995, the Company entered into an exclusive distributorship agreement with Sord Computer Corporation, a subsidiary of Toshiba Corporation ("SORD") to market SoftBoards in Japan. The agreement with SORD extends the distributorship through June 30, 1997, and contains a minimum purchase commitment of approximately $1,000,000 over the twelve-month period beginning July 1, 1995. Sales to SORD were approximately 4% and 21% of total sales in the first quarter of 1997 and 1996 respectively. As with any large OEM or distributor relationship, order rates may be subject to quarterly fluctuations as demand varies and inventories are adjusted. The Company's results for the first quarter of 1997 were adversely affected by the decrease in sales to SORD. 7 RESULTS OF OPERATIONS The following table sets forth, as a percentage of sales, certain consolidated statement of operations data relating to the SoftBoard business for the periods indicated.
FIRST FIRST QUARTER QUARTER 1997 1996 ------- ------- Sales 100 % 100 % Cost of goods sold 54 52 ------- ------- Gross profit 46 48 Research and development expenses (18) (27) Marketing and sales expenses (64) (59) General and administrative expenses (18) (18) ------- ------- Loss from operations (54) (56) Other income (expense) -- 4 ------- ------- Loss before provision for income taxes (54) (52) Provision for income taxes -- -- ------- ------- Net loss (54)% (52)% ------- ------- ------- -------
FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996 SALES. Sales decreased $168,000 (12%) to $1,185,000 in the first quarter of 1997 from $1,353,000 in the first quarter of 1996. The decrease resulted primarily from lower shipments to SORD in the first quarter of 1997 compared to the first quarter of 1996. Sales to all customers other than SORD increased by 6% quarter over quarter. SEE "OVERVIEW" GROSS PROFIT. Cost of goods sold includes the cost of raw materials needed to assemble the products, assembly and preparation by vendors and direct and indirect costs associated with the procurement, testing, scheduling and quality assurance functions performed by the Company. The Company's gross margin decreased to 46% in the first quarter of 1997 from 48% in the first quarter of 1996. The decrease in gross margin was due primarily to lower absorption of manufacturing overhead during the quarter. RESEARCH AND DEVELOPMENT EXPENSES. Research and development costs are expensed as incurred. These expenses decreased $150,000 (41%) to $219,000 in the first quarter of 1997 from $369,000 in the first quarter of 1995. Research and development expenses decreased as a percentage of sales to 18% in the first quarter of 1997 from 27% in the first quarter of 1996. The decrease was due primarily to the lower rate of spending on new product development in the first quarter of 1997 compared to the first quarter of 1996. MARKETING AND SALES EXPENSES. Marketing and sales expenses decreased $43,000 (5%) to $758,000 in the first quarter of 1997 from $801,000 in the first quarter of 1996. The decrease was due primarily to lower advertising expense, and to lower expenditures for outside sales travel. Marketing and sales expenses increased as a percentage of sales to 64% in the first quarter of 1997 from 59% in the first quarter of 1996. The Company plans to continue its efforts to build market and product awareness through advertising and attendance at industry trade shows. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased $37,000 (15%) to $212,000 in the first quarter of 1997 from $249,000 in the first quarter of 1996. The decrease was due primarily to 8 lower insurance costs and lower use of outside resources. These expenses were 18% of sales in both the first quarter of 1997 and the first quarter of 1996. OTHER INCOME (EXPENSE). Other income (expense) includes interest income, interest expense, and miscellaneous income. Net interest income decreased $48,000 (96%) to $2,000 in the first quarter of 1997 from $50,000 in the first quarter of 1996. Net interest income decreased as a result of lower cash balances in the first quarter of 1997 compared to the first quarter of 1996. INCOME TAXES. The Company recorded losses from operations in the first quarters of 1997 and 1996. Accordingly, no provision for income taxes, other than minimum state taxes, was provided for in either of these periods. LIQUIDITY AND CAPITAL RESOURCES Since inception, the Company has financed its operations and capital expenditures through the private and publi sale of equity securities, cash from operations, and borrowings under operating lines of credit. At March 29, 1997, the Company had working capital of approximately $2.3 million and its principal source of liquidity consisted of $1.5 million in cash and cash equivalents. Additionally, as of March 29, 1997, the Company had a $2,000,000 line of credit with its bank, which bears interest monthly at prime (8.5 % at March 29, 1997). At March 29, 1997 $400,000 was outstanding under the line of credit. Inventories decreased approximately $79,000 in the first quarter of 1997 as a result of lower purchases of raw materials. Prepaids decreased $49,000, primarily due to a decrease in deposits on leases and trade shows. Property and equipment, net of depreciation, decreased by $48,000 primarily due to low fixed asset purchases during the quarter offset by depreciation expense. The Company has no commitments for capital expenditures in material amounts. The Company believes its existing cash and cash equivalents, cash available under its operating line of credit, and cash from operations will be sufficient to fund its operations for at least the next 12 months. 9 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) The exhibit filed as part of this report is listed below: Exhibit No. ----------- 11 Statement regarding computation of per share earnings 27 Financial data schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 29, 1997. 10 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May , 1997 -- MICROFIELD GRAPHICS, INC. By: --------------------------------- John B. Conroy President and Chief Executive Officer (Principal Executive Officer) By: --------------------------------- Randall R. Reed Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 11 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May , 1997 -- MICROFIELD GRAPHICS, INC. By: /s/ John B. Conroy --------------------------------- John B. Conroy President and Chief Executive Officer (Principal Executive Officer) By: /s/ Randall R. Reed --------------------------------- Randall R. Reed Chief Financial Officer and Secretary (Principal Financial and Accounting Officer) 12 EX-11 2 COMPUTATION REGARDING COMP. OF PER SHARE EARNINGS EXHIBIT 11 MICROFIELD GRAPHICS, INC. CALCULATION OF NET LOSS PER SHARE
THREE MONTHS ENDED --------------------------- MARCH 29, MARCH 30, 1997 1996 ------------- ------------ Total shares used in per share calculations 3,195,575 3,152,326 ------------- ------------ ------------- ------------ Net loss $ (637,993) $ (714,714) ------------- ------------ ------------- ------------ Net loss per share $ (0.20) $ (0.23) ------------- ------------ ------------- ------------
13 EX-27 3 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated financial statements found in the Company's Form 10-QSB for the three month periods ended March 29, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS JAN-03-1998 DEC-28-1996 MAR-29-1997 1,446 0 776 25 918 3,336 987 493 3,915 1,026 0 0 0 12,153 (9,423) 3,915 1,185 1,185 641 641 1,189 0 0 (638) 0 0 0 0 0 (638) (.20) (.20)
-----END PRIVACY-ENHANCED MESSAGE-----