SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period ended
September 30, 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 0-27988
MICROWARE SYSTEMS CORPORATION
(Exact name of registrant as specified in its charter)
IOWA 42-1073916
(State of incorporation) (I.R.S. Employer Identification No.)
1500 N.W. 118TH ST. DES MOINES, IOWA 50325
(Address of principal executive office)
(515) 223-8000
(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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
COMMON STOCK: 14,490,842 SHARES OUTSTANDING AS OF September 30, 1997
<PAGE>
MICROWARE SYSTEMS CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying financial information is unaudited but, in the opinion
of management, reflects all adjustments (which include only normally
recurring adjustments) necessary for a fair presentation of the results
for the periods shown. The audited financial statements and notes
thereto for the year ended March 31, 1997 are included in the Annual Report
on Form 10-K previously filed with the Securities and Exchange Commission.
The results for the quarter ended September 30, 1997, are not
necessarily indicative of the results to be expected for the entire year
<PAGE>
Microware Systems Corporation
Consolidated Statements of Income
(unaudited)
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
------------------- ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product $ 2,841 $ 3,957 $ 5,552 $ 7,921
Services 1,437 3,340 2,805 6,186
------- ------- ------- -------
4,278 7,297 8,357 14,107
------- ------- ------- -------
Cost of revenues:
Product 577 679 1,155 1,247
Services 925 950 1,628 1,720
------- ------- ------- -------
1,502 1,629 2,783 2,967
------- ------- ------- -------
Gross profit 2,776 5,668 5,574 11,140
Operating expenses:
Research & development 1,775 1,728 3,656 3,422
Sales & marketing 2,225 2,418 4,656 4,698
General & administrative 1,388 849 2,200 1,617
Special charges 940 - 940 75
------- ------- ------- -------
Total operating expenses 6,328 4,995 11,452 9,812
------- ------- ------- -------
Operating (loss) profit (3,552) 673 (5,878) 1,328
------- ------- ------- -------
Other income (expense):
Foreign currency (loss) gain, net (78) 10 (91) 22
Interest income 200 358 421 682
Interest expense (130) (32) (160) (36)
------- ------- ------- -------
(8) 336 170 668
------- ------- ------- -------
(Loss)earnings before income tax expense (3,560) 1,009 (5,708) 1,996
Income tax expense 26 242 60 482
------- ------- ------- -------
Net (loss) earnings $(3,586) $ 767 $(5,768) $ 1,514
======= ======= ======= =======
(Loss) earnings per share $ (0.25) $ 0.05 $ (0.40) $ 0.10
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding (in thousands) 14,422 16,287 14,250 15,900
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Microware Systems Corporation
Consolidated Balance Sheets
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
September 30,
1997 March 31,
(unaudited) 1997
------------ ----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,129 $ 6,758
Short-term investments 10,394 13,204
Trade receivables, net of allowance
for doubtful accounts of
$517 and $635, respectively 4,249 7,014
Income taxes receivable 121 207
Inventories 80 96
Prepaid royalties 589 1,005
Prepaid expenses and other current assets 589 316
Deferred tax assets 488 507
--------- ---------
Total current assets 21,639 29,107
Investment, at cost 5,004 5,004
Property and equipment:
Land and improvements 2,649 144
Buildings 10,446 2,017
Furniture, fixtures & equipment 4,484 4,115
Research & development equipment 3,656 3,612
Leasehold improvements 121 123
Construction in progress - 7,369
--------- ---------
21,356 17,380
Accumulated depreciation and
amortization 5,963 5,463
--------- --------
Net property and equipment 15,393 11,917
Other assets:
Intangible assets, net of amortization 2,696 1,675
Deposits and other 1,403 1,380
--------- ---------
Total other assets 4,099 3,055
--------- ---------
$46,135 $49,083
========= =========
Liabilities
Current liabilities:
Notes payable to banks $331 $323
Current portion of long-term debt 39 38
Accounts payable 1,508 2,559
Accrued expenses 2,221 2,194
Deferred revenues 954 867
Income taxes payable 122 102
--------- ---------
Total current liabilities 5,175 6,083
Long-term debt, less current installments 11,130 8,038
Deferred income taxes 269 236
--------- ---------
Total liabilities 16,574 14,357
--------- ---------
Shareholders' equity
Series A preferred stock, $14.71 par
value; 340,000 shares authorized,
none issued or outstanding - -
Series I preferred stock, no par
value; 500,000 shares authorized;
none issued or outstanding - -
Common stock, voting, no par value;
50,000,000 shares authorized;
14,715,942 and 14,190,561 shares
issued, 14,490,842 and 13,965,461
shares outstanding 36,674 36,152
(Accumulated deficit) retained earnings (5,679) 89
Cumulative adjustment for foreign
currency translation (657) (738)
--------- ---------
30,338 35,503
Less cost of common shares acquired
for the treasury, 225,100 and
225,100 shares 777 777
--------- ---------
Total shareholders' equity 29,561 34,726
--------- ---------
$46,135 $49,083
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Microware Systems Corporation
Consolidated Statements of Cash Flows
(unaudited)
($ in thousands)
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $ (5,768) $ 1,514
Adjustments to reconcile net (loss)earnings to net
cash used in operating activities:
Depreciation and amortization 825 739
Write-off of intangible assets 940 -
Deferred income taxes 52 (421)
Change in assets and liabilities:
Trade receivables, net 2,754 (2,169)
Inventories 77 (20)
Prepaid royalties (211) (848)
Other current assets (275) (168)
Income taxes receivable 87 242
Other assets (1,566) (557)
Accounts payable (1,058) (744)
Accrued expenses 52 418
Deferred revenues 89 29
Income taxes payable 21 189
--------- ---------
Net cash used in operating activities (3,981) (1,796)
--------- ---------
Cash flows from investing activities:
Capital expenditures (4,148) (1,308)
Purchases of short-term investments (11,283) (25,699)
Maturities of short-term investments 14,093 5,500
Purchase of land - (2,163)
--------- ---------
Net cash used in investing activities (1,338) (23,670)
--------- ---------
Cash flows from financing activities:
Principal payments on notes payable to banks and
long-term debt (617) (950)
Proceeds from issuance of notes payable to banks 3,710 3,125
Proceeds from issuance of common stock 570 19,238
Cost of issuance of common stock (47) (394)
--------- ---------
Net cash provided by financing activities 3,616 21,019
Effect of foreign currency exchange rate changes on cash 74 (43)
--------- ---------
Net decrease in cash and cash equivalents (1,629) (4,490)
Cash and cash equivalents at beginning of period 6,758 12,337
--------- ---------
Cash and cash equivalents at end of period $ 5,129 $ 7,847
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 359 $ 85
========= =========
Cash paid for taxes $ 23 $ 92
========= =========
</TABLE>
Supplemental disclosure of non-cash financing activities:
In connection with the Company's initial public offering effective
April 2, 1996, the 340,000 shares of Series A Preferred Stock were
each converted into 4 shares of Common Stock.
See accompanying notes to consolidated financial statements.
<PAGE>
MICROWARE SYSTEMS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In accordance with the rules and regulations of the Securities and
Exchange Commission, the preceding unaudited financial statements omit
or condense certain information and footnote disclosure normally
required for complete financial statements prepared in accordance with
generally accepted accounting principles. In the opinion of management,
all adjustments (which include reclassifications and normal recurring
adjustments) necessary to present fairly the financial position, results
of operations and cash flows at September 30, 1997 and for all periods
presented, have been made.
2. NET (LOSS) EARNINGS PER SHARE
Net (loss) earnings per share is computed dividing net (loss) earnings
by the weighted average number of common and, when dilutive, common
equivalent shares outstanding during the period. Dilutive common
equivalent shares are calculated using the treasury stock method and
consist of common stock issuable upon the exercise of options and
warrants.
3. STOCK OPTIONS
In May, 1997 the Company offered all recipients of stock option grants
made in October 1996 (totaling 353,100 shares) the right to cancel
those outstanding (and non-vested) options at the original exercise
price of $15.50 per share and receive new options dated May 1997 with a
new exercise price and revised vesting. The new exercise prices are
$10.00 per share for employees who were serving as executive officers at
the time of the original grant and $6.25 for all other employees. Both
exercise prices are equal to or in excess of the fair value of the
Company's common stock at the date of grant. While the original grants
had a vesting schedule of 25% on each anniversary of October 14, 1996,
the new grants have vesting of 10%, 20%, 30%, and 40% on each
anniversary of May 2, 1997. Vesting of grants accelerates in the event
of a change in control of the Company. The new grants all have an
expiration date of May 2, 2007.
4. RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 (SFAS 130), "Reporting
Comprehensive Income", and Statement of Financial Accounting Standards
No. 131 (SFAS 131), "Disclosure about Segments of an Enterprise and
Related Information". The adoption of both statements is required for
fiscal years beginning after December 15, 1997.
SFAS 130 establishes standards for reporting and displaying comprehensive
income and its components in the financial statements. It requires that
a company classify items of their comprehensive income, as defined by
accounting standards, by their nature (i.e. unrealized gains or losses on
securities) in a financial statement, but does not require a specific
format for that statement.
SFAS 131 changes current practice under SFAS 14, "Financial Reporting of
Segments of a Business Enterprise", by establishing a new framework on
which to base segment reporting (referred to as the management approach)
and also requires interim reporting of segment information.
The Company is studying the implications of these new statements and the
impact of their implementation on its consolidated financial statements.
<PAGE>
MICROWARE SYSTEMS CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FORWARD-LOOKING INFORMATION IS SUBJECT TO UNCERTAINTY
Except for the historical information contained herein, the following
discussion and analysis of the Company's financial condition and results
of operations includes forward-looking statements that involve risks and
uncertainties, including management's expectations for fiscal 1998 and
known trends and uncertainties in the business. Actual future results
and trends may differ materially depending on a variety of factors,
including the volume and timing of orders received during the quarter,
the timing and acceptance of new products and product enhancements by
the Company or its competitors, changes in pricing, product life cycles,
seasonality of customer buying patterns, the existence of product errors,
extraordinary events, such as litigation or acquisition, including
related charges, and economic conditions generally or in various geographic
areas. Additionally, the Company has recently experienced significant
turnover in its North American sales personnel, which has had, and may
continue to have, an interim adverse affect on the Company's North
American operations. While the Company has made significant progress in
filling its vacated sales positions, the future effect of the turnover
cannot be presently determined. All of the foregoing factors, and others
not mentioned, make operating results difficult to forecast. The Company's
operating results have varied significantly from quarter to quarter in the
past and the future operating results of the Company may fluctuate as a
result of the above and other risk factors detailed in the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1997, and other
documents filed by the Company with the Securities and Exchange Commission.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not
necessarily meaningful and should not be relied upon as an indication of
future performance. For the fiscal year ended March 31, 1997 and the six
month period ended September 30, 1997, the Company's actual performance did
not meet market expectations. It is likely that, in some future period, the
Company's operating results will again be below the expectations of stock
market analysts and investors.
OVERVIEW
The Company has historically derived revenues from development licenses
and run-time license royalty fees along with sales of related software
productivity tools, maintenance support and custom contract engineering
work. Custom contract engineering revenues are typically derived from
discrete software engineering projects porting the OS-9 operating system
along with customized software products. Typically, license royalty fees
follow the completion of these contracts. For financial reporting
purposes, product revenues primarily consist of software licenses and
software development tool products, along with license run-time royalty
fees earned (including non-refundable prepaid royalties). Services
revenues principally consist of revenues from custom contract
engineering and maintenance support agreements, along with consulting
and training activity.
A key element of the Company's long-term strategy is to focus on markets
the Company anticipates will significantly increase run-time license
royalty fees. The Company has made significant investments targeting
various emerging markets including wireless personal communications,
interactive and digital television, and Internet access devices, through
the development of specialized software modules that utilize the OS-9
operating system. As a result, the Company's product revenues have
demonstrated a proportionate increase in large account, vertical market
activities and related services, and a corresponding decrease in
traditional run-rate embedded systems business as a percentage of total
revenues. Deriving a large portion of revenues from a small number of
key customers increases the quarterly variability of the Company's
financial results. Recently the Company has begun working towards
strengthening its traditional embedded systems business to better
capitalize on the more stable growth in that market and thereby gain
greater quarterly stability.
RESULTS OF OPERATIONS
Second Quarter of Fiscal 1998 Compared to the Second Quarter of Fiscal
1997
Revenues
Total revenues decreased 41% or $3.0 million from $7.3 million in the
second quarter of fiscal 1997 to $4.3 million in the second quarter of
fiscal 1998. During the second quarter of fiscal 1998, the Company
experienced significant turnover in its North American sales force
which has had, and may continue to have, an adverse effect on revenues.
Product revenues decreased 28% or $1.1 million from $4.0 million in the
second quarter of fiscal 1997 to $2.9 million in the second quarter of
fiscal 1998. The decrease in product revenues from the second quarter
of fiscal 1997 to the same period in fiscal 1998 was primarily due to a
reduction in nonrefundable prepaid royalties recognized from customers.
In addition, the initial license fees from new accounts in the Internet
and wireless vertical markets did not meet management expectations in
the current quarter. Future growth in the Company's product revenues
will continue to be substantially dependent on its customers' timely and
successful development and distribution of new products using the Company's
products, making product revenues difficult to accurately forecast on a
quarterly or annual basis. Services revenues decreased 57% or $1.9
million from $3.3 million in the second quarter of fiscal 1997 to $1.4
million in the second quarter of fiscal 1998. The decrease from the
second quarter of fiscal 1997 to the same period in fiscal 1998 primarily
resulted from a decrease in funded development of advanced processor ports.
Cost of Revenues
Total cost of revenues decreased 8% or $127,000 from $1.6 million in the
second quarter of fiscal 1997 to $1.5 million in the second quarter of
fiscal 1998. As a percentage of product revenues, cost of product revenues
increased from 17% in the second quarter of fiscal 1997 to 20% in the second
quarter of fiscal 1998. The percentage increase resulted from increased
amortization of purchased software, product warranty reserves and third
party royalty expense compounded by the overall decrease in product revenues
from the second quarter of fiscal 1997 to the second quarter of fiscal 1998.
As a percentage of services revenues, cost of services revenues increased
from 28% in the second quarter of fiscal 1997 to 64% in the second quarter
of fiscal 1998. The percentage increase between periods resulted from small,
lower margin custom work being performed during the second quarter of fiscal
1998 compared to large, higher margin custom work being performed during the
second quarter of fiscal 1997. During the second quarter of fiscal 1997 the
Company was engaged in three large advanced processor ports which allowed the
Company to achieve economies of scale and leverage between contracts which
resulted in higher margins.
Research and Development
Research and development expense increased 3% or $47,000 from $1.7
million in the second quarter of fiscal 1997 to $1.8 million in the second
quarter of fiscal 1998. The increase in overall dollars resulted primarily
from an increase in support costs related to certain acquired technology from
the second quarter of fiscal 1997 to the second quarter of fiscal 1998.
Sales and Marketing
Sales and marketing expense decreased 8% or $193,000 from $2.4 million
in the second quarter of fiscal 1997 to $2.2 million in the second quarter
of fiscal 1998. Sales and marketing expenses decreased during the second
quarter of fiscal 1998 as compared to the second quarter of fiscal 1997 as
a result of the elimination or resignation of certain U.S. sales
representatives. Offsetting the decrease in the second quarter of fiscal
1998 was an increase resulting from the addition of a new Vice President
of Sales and a new Vice President of Marketing. The Company will incur
additional spending related to new hiring of North American sales personnel
in the third quarter of fiscal 1998.
General and Administrative Expense
General and administrative expenses increased 63% or $539,000 from $849,000
to $1.4 million in the second quarters of fiscal 1997 and 1998, respectively.
The increase in general and administrative expenses resulted from costs
incurred due to organizational changes in the Company's U.S. operation
during the second quarter of fiscal 1998. These costs included severance
and related benefits associated with the elimination and resignation of
employees of approximately $170,000, moving costs to the Company's new
headquarters facility of approximately $80,000 and recruiting and relocation
costs associated with the hiring of new executive management personnel of
approximately $260,000.
Special Charges
During the three-month period ended September 30, 1997, the Company determined
that due to revised estimates of the marketability of certain products under
development, a special charge of $940,000 was appropriate to more adequately
reflect the residual value of certain intangible assets. Included in this
charge was approximately $566,000 of deferred development costs in the form
of pre-paid royalties, approximately $202,000 relating to goodwill associated
with Micromall, a wholly owned subsidiary of the Company, and approximately
$172,000 relating to the write-off of previously capitalized purchased
technology.
Other Income (Expense)
Other income decreased $344,000 from $336,000 in the second quarter of fiscal
1997 to ($8,000) in the second quarter of fiscal 1998. This decrease is
attributable to a reduction of interest income due to cash used in operations,
an increase in interest expense related to the Company's construction note on
its new headquarters facility and an unfavorable change in foreign currency
exchange rates.
Six Months Year-to-Date of Fiscal 1998 Compared to the Six Months Year-to-Date
of Fiscal 1997
Revenues
Total revenues decreased 41% or $5.7 million from $14.1 million for the six
month period ended September 30, 1996 to $8.4 million for the six month
period ended September 30, 1997. During the second quarter of fiscal 1998,
the Company experienced significant turnover in its North American sales force
which has had, and may continue to have, an adverse effect on revenues.
Product revenues decreased 30% or $2.3 million from $7.9 million for the six
month period ended September 30, 1996 to $5.6 million for the six month period
ended September 30, 1997. The decrease in product revenues from the six month
period ended September 30, 1996 to the six month period ended September 30,
1997 was primarily due to a reduction in nonrefundable prepaid royalties
recognized from customers. In addition, initial license fees from new accounts
in the Internet and wireless vertical markets have not met management
expectations in fiscal 1998. Future growth in the Company's product revenues
will continue to be substantially dependent on its customers' timely and
successful development and distribution of new products using the Company's
products, making product revenues difficult to accurately forecast on a
quarterly or annual basis. Services revenues decreased 55% or $3.4 million
from $6.2 million for the six month period ended September 30, 1996 to $2.8
million for the six month period ended September 30, 1997. The decrease in
services revenues between periods primarily resulted from a decrease in
funded development of advanced processor ports.
Cost of Revenues
Total cost of revenues decreased 6% or $184,000 from $3.0 million for the six
month period ended September 30, 1996 to $2.8 million for the six month period
ended September 30, 1997. As a percentage of product revenues, cost of
product revenues increased from 16% for the six month period ended September
30,1996 to 21% for the six month period ended September 30, 1997. The
percentage increase resulted from increased amortization of purchased
software, productwarranty reserves and third party royalty expense compounded
by the overall decrease in product revenues between periods. As a percentage
of services revenues, cost of services revenues increased from 28% for the six
month period ended September 30, 1996 to 58% for the six month period ended
September 30, 1997. The percentage increase between periods resulted from
small, lower margin custom work being performed during the six month period
ended September 30, 1997 compared to large, higher margin custom work being
performed during the six month period ended September 30, 1996.
Research and Development
Research and development expense increased 7% or $234,000 from $3.4 million
for the six month period ended September 30, 1996 to $3.7 million for the six
month period ended September 30, 1997. The increase in overall dollars
resulted from an increase in costs associated with additional technical staff
and higher support costs as a result of certain acquired technology.
Sales and Marketing
Sales and marketing expense decreased slightly from $4.7 million to $4.6
million for the six month periods ended September 30, 1996 and 1997,
respectively. Sales and marketing expenses decreased for the six month
period ended September 30, 1996 to the six month period ended September 30,
1997 as a result of the elimination or resignation of certain U.S. sales
representatives. Offsetting the decrease for the six month period ended
September 30, 1997 was an increase resulting from the addition of a new
Vice President of Sales and a new Vice President of Marketing.
General and Administrative Expense
General and administrative expenses increased 36% or $583,000 from $1.6
million for the six month period ended September 30, 1996 to $2.2 million
for the six month period ended September 30, 1997. The increase in general
and administrative expenses resulted from costs incurred due to
organizational changes in the Company's U.S. operations during the second
quarter of fiscal 1998. These costs included severance and related benefits
associated with the elimination and resignation of employees of approximately
$175,000, moving costs to the Company's new headquarters facility of
approximately $80,000 and recruiting and relocation costs associated with the
hiring of new executive management personnel of approximately $330,000.
Special Charges
For the six month period ended September 30, 1997, the Company determined
that due to revised estimates of the marketability of certain products under
development, a special charge of $940,000 was appropriate to more adequately
reflect the residual value of certain intangible assets. Included in this
charge was approximately $566,000 of deferred development costs in the form
of pre-paid royalties, approximately $202,000 relating to goodwill associated
with Micromall, a wholly owned subsidiary of the Company, and approximately
$172,000 relating to the write-off of previously capitalized purchased
technology. Special charges incurred for the six month period ended September
30, 1996 related to severance and related benefits associated with the
restructuring of operations in France.
Other Income (Expense)
Other income decreased $498,000 from $668,000 for the six month period ended
September 30, 1996 to $170,000 for the six month period ended September 30,
1997. This decrease is attributable to a reduction of interest income due to
cash used in operations, an increase in interest expense related to the
Company's construction note on its new headquarters facility and an
unfavorable change in foreign currency exchange rates.
Liquidity and Capital Resources
At September 30, 1997, the Company had working capital of $16.5 million, and
approximately $15.5 million in cash, cash equivalents and short-term
investments. Of the $15.5 million, approximately $10.0 million of the
Company's short-term investments are required to be pledged as security for
the construction note (due April 1999)on the Company's new headquarters
facility. The Company is currently in the process of securing long-term
financing for its new headquarters facility. The Company anticipates
completing the financing by December 31, 1997.
Net cash used in operating activities increased from $1.8 million for the
six month period ended September 30, 1996 to $4.0 million for the six month
period ended September 30, 1997. The net loss of $5.8 million, offset by a
decrease in trade receivables of $2.8 million, were the primary reasons for
the cash used in operating activities for the six month period ended
September 30, 1997. The net earnings of $1.5 million, offset by the increase
in trade receivables of $2.2 million, were the primary reasons for the cash
used in operations for the six month period ended September 30, 1996.
Net cash used in investing activities totaled $23.7 million and $1.3
million for the six month periods ended September 30, 1996 and 1997,
respectively. Uses of cash for the six month period ended September 30,
1997 resulted primarily from construction expenditures made on the Company's
new headquarters facility offset by net maturities of short-term investments.
Uses of cash for the six month period ended September 30, 1996 resulted
primarily from net purchases of short-term investments, the purchase of land
to construct the Company's new headquarters facility, and purchases of
computer and research equipment.
Net cash provided by financing activities totaled $21.0 million and $3.6
million for the six month periods ended September 30, 1996 and 1997,
respectively. The cash provided to the Company for the six month period ended
September 30, 1997 resulted primarily from proceeds received on the Company's
construction note on its new headquarters facility. The cash provided to the
Company for the six month period ended September 30, 1996 resulted primarily
from the issuance of approximately $17.6 million in common stock in
connection with the Company's initial public offering along with approximately
$3.1 million in proceeds received on the Company's construction note on its
new headquarters facility.
The Company expects to incur additional operating losses, at least through its
fiscal year end March 31, 1998. However, assuming the Company secures
long-term financing for its new headquarters facility, its existing cash and
short-term investments along with other working capital is expected to be
sufficient to meet its operating and capital expenditure needs for at least
the next 12 months.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Company was held on
September 9, 1997. More than 93 percent of the holders of the Company's
Common Stock were represented at the meeting. Three issues were presented
for consideration at the meeting; 1) the election of three Class II
Directors to hold office until the 2000 Annual Meeting; 2) the amendment of
the Company's 1995 Stock Option Plan i)to authorize the issuance of an
additional 600,000 shares under the plan and ii) to limit the total grants
to any executive officer to 200,000 options in any fiscal year; and 3) the
ratification of the selection of KPMG Peat Marwick LLP as independent public
accountants of theCompany for the fiscal year ending March 31, 1998. The
results were as follows:
1. Election of Class II Directors
Shares Entitled to Vote Votes at Meeting
----------------------- ----------------
14,313,852 13,423,192
Name For Withhold Authority
---- ---------- ------------------
M. Denis Connaghan 13,382,561 40,631
James A. Gordon 13,359,841 63,351
Robert L. Growney 13,387,721 35,471
2. Proposal to Amend the Company's 1995 Stock Option Plan
For Against Abstain Broker Non-vote
----------- ------- ------- ---------------
13,166,381 112,364 25,548 118,899
3. Ratification of Selection of KPMG Peat Marwick LLP as Independent
Public Accountants
For Against Abstain Broker Non-vote
----------- ------- ------- ---------------
13,396,572 13,565 13,055 -0-
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a.) Exhibit 11 - Computation of Net Earnings (Loss) per
Share.
Exhibit 27 - Financial Data Schedule (EDGAR version
only).
(b.) None.
No other items.
SIGNATURE
Pursuant to the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned
thereunto authorized.
MICROWARE SYSTEMS CORPORATION
Date: November 12, 1997 /s/ KENT R. KELDERMAN
-----------------------
Kent R. Kelderman
Chief Financial Officer,
Executive Vice President
& Treasurer (Principal
Financial & Accounting
Officer)
Exhibit 11
Microware Systems Corporation
Computation of Net Earnings (Loss) per Share (1)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
September 30, September 30,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net (loss) earnings ($3,586) $767 ($5,768) $1,514
======== ======== ======== ========
Reconciliation of weighted average
number of shares outstanding
to amount used in net (loss)
earnings per share computation:
Weighted average number of
common shares outstanding 14,422 13,624 14,250 13,116
Dilutive effect of warrants - 692 - 591
Dilutive effect of options - 1,971 - 2,193
-------- -------- -------- --------
14,422 16,287 14,250 15,900
======== ======== ======== ========
Net (loss) earnings per share ($0.25) $0.05 ($0.40) $0.10
======== ======== ======== ========
</TABLE>
(1) See Note 1 of Notes to the Consolidated Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of 9/30/97 and Consolidated Statement of
Operations for the six months ended 9/30/97 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,129
<SECURITIES> 10,394
<RECEIVABLES> 4,766
<ALLOWANCES> 517
<INVENTORY> 80
<CURRENT-ASSETS> 21,639
<PP&E> 21,356
<DEPRECIATION> 5,963
<TOTAL-ASSETS> 46,135
<CURRENT-LIABILITIES> 5,175
<BONDS> 0
0
0
<COMMON> 36,674
<OTHER-SE> (7,113)
<TOTAL-LIABILITY-AND-EQUITY> 46,135
<SALES> 5,552
<TOTAL-REVENUES> 8,357
<CGS> 1,155
<TOTAL-COSTS> 2,783
<OTHER-EXPENSES> 11,452
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> (5,708)
<INCOME-TAX> 60
<INCOME-CONTINUING> (5,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,768)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
