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
December 31, 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: 14,516,042 SHARES OUTSTANDING AS OF December 31, 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 December 31, 1997, are not
necessarily indicative of the results to be expected for the entire year.
<PAGE>
Microware Systems Corporation
Consolidated Statements of Operations
(unaudited)
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
------------------- ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Product $ 2,936 $ 4,129 $ 8,488 $12,050
Services 1,229 1,745 4,034 7,931
------- ------- ------- -------
4,165 5,874 12,522 19,981
------- ------- ------- -------
Cost of revenues:
Product 855 851 2,010 2,098
Services 661 1,081 2,289 2,801
------- ------- ------- -------
1,516 1,932 4,299 4,899
------- ------- ------- -------
Gross profit 2,649 3,942 8,223 15,082
Operating expenses:
Research & development 1,849 1,748 5,505 5,170
Sales & marketing 2,527 2,488 7,183 7,186
General & administrative 1,253 861 3,453 2,478
Special charges - - 940 75
------- ------- ------- -------
5,629 5,097 17,081 14,909
------- ------- ------- -------
Operating (loss) profit (2,980) (1,155) (8,858) 173
------- ------- ------- -------
Other income (expense):
Foreign currency gain (loss), net 42 44 (49) 65
Gain on sale of land and building 215 - 215 -
Interest income 178 265 599 946
Interest expense (184) (26) (344) (60)
------- ------- ------- -------
251 283 421 951
------- ------- ------- -------
(Loss)earnings before income tax expense (2,729) (872) (8,437) 1,124
Income tax expense (benefit) 16 (257) 76 225
------- ------- ------- -------
Net (loss) earnings $(2,745) $ (615) $(8,513) $ 899
======= ======= ======= =======
Basic (loss) earnings per share $ (0.19) $ (0.04) $ (0.59) $ 0.07
======= ======= ======= =======
Weighted average common
shares outstanding (in thousands) 14,508 13,859 14,327 13,339
======= ======= ======= =======
Diluted (loss) earnings per share $ (0.19) $ (0.04) $ (0.59) $ 0.06
======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding (in thousands) 14,508 13,859 14,327 15,166
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Microware Systems Corporation
Consolidated Balance Sheets
($ in thousands, except per share amounts)
<TABLE>
<CAPTION>
December 31,
1997 March 31,
(unaudited) 1997
------------ ----------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,749 $ 6,758
Short-term investments 3,527 13,204
Trade receivables, net of allowance
for doubtful accounts of
$516 and $635, respectively 3,735 7,014
Income taxes receivable 121 207
Inventories 74 96
Prepaid royalties 574 1,005
Prepaid expenses and other current assets 651 316
Deferred tax assets 488 507
--------- ---------
Total current assets 14,919 29,107
Investment, at cost 5,004 5,004
Property and equipment:
Land and improvements 2,529 144
Building 8,420 2,017
Furniture, fixtures & equipment 4,576 4,115
Research & development equipment 3,661 3,612
Leasehold improvements 87 123
Construction in progress - 7,369
--------- ---------
19,273 17,380
Accumulated depreciation and
amortization 5,507 5,463
--------- --------
Net property and equipment 13,766 11,917
Other assets:
Intangible assets, net of amortization 3,197 1,675
Deposits and other 1,432 1,380
--------- ---------
Total other assets 4,629 3,055
--------- ---------
$38,318 $49,083
========= =========
Liabilities
Current liabilities:
Notes payable to banks $309 $323
Current portion of long-term debt 59 38
Accounts payable 1,410 2,559
Accrued expenses 1,832 2,194
Deferred revenues 645 867
Income taxes payable 104 102
--------- ---------
Total current liabilities 4,359 6,083
Long-term debt, less current installments 6,941 8,038
Deferred income taxes 242 236
--------- ---------
Total liabilities 11,542 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;
14,741,142 and 14,190,561 shares
issued, 14,516,042 and 13,965,461
shares outstanding 36,709 36,152
Retained earnings (deficit) (8,424) 89
Cumulative adjustment for foreign
currency translation (732) (738)
--------- ---------
27,553 35,503
Less cost of common shares acquired
for the treasury, 225,100 and
225,100 shares 777 777
--------- ---------
Total shareholders' equity 26,776 34,726
--------- ---------
$38,318 $49,083
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
Microware Systems Corporation
Consolidated Statements of Cash Flows
(unaudited)
($ in thousands)
<TABLE>
<CAPTION> Nine Months Ended December 31,
------------------------------
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) earnings $ (8,513) $ 899
Adjustments to reconcile net (loss)earnings to net
cash used in operating activities:
Depreciation and amortization 1,657 1,216
Write-off of intangible assets 940 -
Gain on disposal of assets (204) -
Deferred income taxes 26 (156)
Change in assets and liabilities:
Trade receivables, net 3,224 (3,556)
Inventories 22 (117)
Prepaid royalties (135) (848)
Other current assets (367) (186)
Income taxes receivable 87 132
Other assets (2,623) (703)
Accounts payable (1,129) 293
Accrued expenses (323) (320)
Deferred revenues (217) (161)
Income taxes payable 27 273
--------- ---------
Net cash used in operating activities (7,528) (3,234)
--------- ---------
Cash flows from investing activities:
Capital expenditures (4,317) (5,840)
Purchases of short-term investments (12,758) (25,900)
Maturities of short-term investments 22,434 10,468
Proceeds from sale of land and building, net 1,641 -
Purchase of investment, at cost - (5,004)
--------- ---------
Net cash provided by (used in) investing activities 7,000 (26,276)
--------- ---------
Cash flows from financing activities:
Principal payments on notes payable to banks and
long-term debt (11,782) (950)
Proceeds from issuance of notes payable to banks
and long-term debt 10,706 4,744
Proceeds from issuance of common stock 606 18,984
Cost of issuance of common stock (49) (410)
--------- ---------
Net cash (used in) provided by financing activities (519) 22,368
Effect of foreign currency exchange rate changes on cash 38 (99)
--------- ---------
Net decrease in cash and cash equivalents (1,009) (7,241)
Cash and cash equivalents at beginning of period 6,758 12,337
--------- ---------
Cash and cash equivalents at end of period $ 5,749 $ 5,096
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 554 $ 163
========= =========
Cash paid for taxes $ 13 $ 225
========= =========
</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 NINE MONTHS ENDED DECEMBER 31, 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 December 31, 1997 and for all periods
presented, have been made.
2. NET (LOSS) EARNINGS PER SHARE
The Company adopted SFAS No. 128, "Earnings per Share" during the three month
period ended December 31, 1997. This pronouncement establishes new standards
for computing and presenting earnings per share (EPS) on a basis that is more
comparable to international standards and provides for the presentation of
basic and diluted EPS, replacing the previously reported primary and fully
diluted EPS. Basic EPS has been computed by dividing net (loss) earnings by
the weighted average number of common shares outstanding during each period.
Diluted EPS has been computed by dividing net (loss) income by the weighted
average common and, when dilutive, common equivalent shares outstanding during
each 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. All prior period EPS calculations have been
restated.
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.
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2). SOP
97-2 is effective for transactions entered into in fiscal years beginning
after December 15, 1997. Retroactive application of the provisions of SOP 97-2
is prohibited. The Company has reviewed SOP 97-2 and believes that, given its
current policies, the application of SOP 97-2 when adopted effective April 1,
1998, will not have a material impact on the recording of future revenues.
<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. In particular, the economic conditions in certain countries in Asia
have worsened significantly in recent months. The majority of the Company's
Asian business is derived from Japan, where the down-turn has been less
significant, but the impact on the Company's future results is uncertain.
Additionally, the Company has recently experienced significant turnover in its
sales force in North America and Japan, which has had, and may continue to
have, an interim adverse affect on the Company's 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 nine month
period ended December 31, 1997, the Company's actual performance did not meet
market expectations. The company has experienced losses in recent quarters
and such losses may continue.
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, run-time 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 run-time license 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
Third Quarter of Fiscal 1998 Compared to the Third Quarter of Fiscal
1997
Revenues
Total revenues decreased 29% or $1.7 million from $5.9 million in the
third quarter of fiscal 1997 to $4.2 million in the third quarter of
fiscal 1998. During fiscal 1998, the Company experienced significant turnover
in its sales force in North America and Japan which has had, and may continue
to have, an adverse effect on revenues. Product revenues decreased 29% or
$1.2 million from $4.1 million in the third quarter of fiscal 1997 to $2.9
million in the third quarter of fiscal 1998. The decrease in product revenues
from the third 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 30% or $516,000 from $1.7 million
in the third quarter of fiscal 1997 to $1.2 million in the third quarter of
fiscal 1998. The decrease from the third 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 22% or $416,000 from $1.9 million in the
third quarter of fiscal 1997 to $1.5 million in the third quarter of
fiscal 1998. As a percentage of product revenues, cost of product revenues
increased from 21% in the third quarter of fiscal 1997 to 29% in the third
quarter of fiscal 1998. Although the Company made progress in reducing its
fixed salary costs between periods by increasing the efficiency and
utilization of personnel, these improvements were offset by an increase in the
amortization of purchased software and the overall decrease in product sales
between periods. As a percentage of services revenues, cost of services
revenues decreased from 62% in the third quarter of fiscal 1997 to 54% in the
third quarter of fiscal 1998. The percentage decrease between periods
primarily resulted from higher margin custom project work being performed
during the third quarter of fiscal 1998 as compared to the third quarter of
fiscal 1997.
Research and Development
Research and development expense increased 6% or $101,000 from $1.7
million in the third quarter of fiscal 1997 to $1.8 million in the third
quarter of fiscal 1998. The increase in overall dollars between periods
resulted primarily from an increase in support costs related to certain
acquired technology. In addition, the overall increase is a result of a
reduction in engineering costs transferred to cost of services revenues
between periods as a result of fewer services revenue project hours.
Sales and Marketing
Sales and marketing expense remained at $2.5 million in the third quarters
ended December 31, 1996 and 1997. During the third quarter of fiscal 1998 the
Company continued restaffing previously eliminated or vacated sales positions
in North America and Japan. The Company expects to continue investing in
sales and marketing over the remainder of fiscal 1998 to expand its sales
force and customer base and to introduce new products.
General and Administrative Expense
General and administrative expenses increased 46% or $392,000 from $861,000
to $1.3 million in the third quarters of fiscal 1997 and 1998, respectively.
The increase in general and administrative expenses resulted from
approximately $400,000 of recruiting and relocation costs associated with the
hiring of new executive management and sales personnel in the U.S. and Japan.
Other Income (Expense)
Other income remained approximately $0.3 million in the third quarters ended
December 31, 1996 and 1997, decreasing $32,000 between periods. Overall, the
decrease is attributable to a reduction of interest income due to cash used in
operations along with an increase in interest expense related to the Company's
long-term debt on its new headquarters facility, offset by a $215,000 gain
from the sale of the Company's former headquarters facility.
Nine Months Year-to-Date of Fiscal 1998 Compared to the Nine Months Year-to-
Date of Fiscal 1997
Revenues
Total revenues decreased 37% or $7.5 million from $20.0 million for the nine
month period ended December 31, 1996 to $12.5 million for the nine month
period ended December 31, 1997. During 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 $3.6 million from $12.1 million for the nine month period ended
December 31, 1996 to $8.5 million for the nine month period ended December 31,
1997. The decrease in product revenues from the nine month period ended
December 31, 1996 to the nine month period ended December 31, 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 49% or $3.9 million from $7.9 million for the nine
month period ended December 31, 1996 to $4.0 million for the nine month period
ended December 31, 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 12% or $600,000 from $4.9 million for the
nine month period ended December 31, 1996 to $4.3 million for the nine month
period ended December 31, 1997. As a percentage of product revenues, cost of
product revenues increased from 17% for the nine month period December 31,
1996 to 24% for the nine month period ended December 31, 1997. Although the
Company made progress in reducing its fixed salary costs between periods by
increasing the efficiency and utilization of personnel, these improvements
were offset by an increase in the amortization of purchased software and the
overall decrease in product sales between periods. As a percentage of
services revenues, cost of services revenues increased from 35% for the nine
month period ended December 31, 1996 to 57% for the nine month period ended
December 31, 1997. The percentage increase between periods primarily resulted
from small, lower margin custom work being performed during the nine month
period ended December 31, 1997 compared to large, higher margin custom work
being performed during the nine month period ended December 31, 1996.
Research and Development
Research and development expense increased 6% or $335,000 from $5.2 million
for the nine month period ended December 31, 1996 to $5.5 million for the nine
month period ended December 31, 1997. The increase in overall dollars resulted
primarily from an increase in support costs related to certain acquired
technology along with an overall reduction in engineering costs transferred to
cost of services due to the reduction in services revenue project hours
between periods.
Sales and Marketing
Sales and marketing expense remained at $7.2 million for each of the nine
month periods ended December 31, 1996 and 1997. The Company expects to
continue investing in sales and marketing over the remainder of fiscal 1998 to
expand its sales force and customer base and to introduce new products.
General and Administrative Expense
General and administrative expenses increased 39% or $975,000 from $2.5
million for the nine month period ended December 31, 1996 to $3.5 million
for the nine month period ended December 31, 1997. The increase in general
and administrative expenses resulted from costs incurred due to organizational
changes in the Company's operations during 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 and sales
personnel in the U.S. and Japan of approximately $700,000.
Special Charges
For the nine month period ended December 31, 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, taken in the quarter ended September 30, 1997, was approximately
$566,000 of deferred development costs in the form of prepaid 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 nine month period ended December 31, 1996 related to
severance and related benefits associated with the restructuring of operations
in France.
Other Income (Expense)
Other income decreased $530,000 from $951,000 for the nine month period ended
December 31, 1996 to $421,000 for the nine month period ended December 31,
1997. This decrease is primarily attributable to a reduction of interest
income due to cash used in operations, an increase in interest expense related
to the Company's long-term debt on its new headquarters facility, offset by a
$215,000 gain from the sale of the Company's former headquarters facility.
Liquidity and Capital Resources
At December 31, 1997, the Company had working capital of $10.6 million and
approximately $9.3 million in cash, cash equivalents and short-term
investments.
Net cash used in operating activities in the first nine months of fiscal 1998
and 1997 totaled $7.5 million and $3.2 million, respectively. In the first
nine months of fiscal 1998, the net loss of $8.5 million and an increase in
other assets of $2.6 million were partially offset by a decrease in trade
receivables of $3.2 million. The increase in other assets was due primarily to
additional purchases of third party software which is or will be bundled with
the Company's software products. An increase in trade receivables of $3.6
million, offset by net earnings of $899,000 were the primary reasons for the
cash used in operations for the nine month period ended December 31,
1996.
Net cash provided by (used in)investing activities in the first nine months of
fiscal 1998 and 1997 totaled $7.0 million and ($26.3) million, respectively.
In the first nine months of fiscal 1998, net maturities of short-term
investments and proceeds from the sale of the Company's former headquarters
facility were partially offset by construction expenditures made on the
Company's new headquarters facility. Uses of cash for the nine month period
ended December 31, 1996 resulted primarily from construction expenditures made
on the Company's new headquarters facility, along with net investment
purchases.
Net cash (used in) provided by financing activities in the first nine months
of fiscal 1998 and 1997 totaled ($519,000) and $22.4 million, respectively.
The cash used in financing activities by the Company for the nine month period
ended December 31, 1997 resulted primarily from the payoff of the Company's
$10.0 million construction note offset against the proceeds received on the
promissory note for the Company's new headquarters facility. The cash
provided by financing activities to the Company for the nine month period
ended December 31, 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.
On December 30, 1997, the Company, through a newly organized wholly-owned
subsidiary, Microware Systems Corporate Park, Inc., executed a promissory note
with GMAC Commercial Mortgage Corporation in the amount of $7.0 million. The
note is secured by the Company's headquarters facility and associated real
estate. Monthly payments are $49,000, including interest at 7.46 percent,
with the unpaid balance due January 1, 2008.
The Company believes its existing cash and short-term investments along with
other working capital will be sufficient to meet its operating and capital
expenditure needs for at least the next 12 months.
PART II - OTHER INFORMATION
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.) Reports on Form 8-K: Subsequent to the end of the quarter, on
January 14, 1998, the Company filed a Report on Form 8-K to
report a newly executed promissory note with GMAC Commercial
Mortgage Corporation.
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: February 13, 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 Nine months ended
December 31, December 31,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic EPS:
Net (loss) earnings ($2,745) ($615) ($8,513) $899
======== ======== ======== ========
Weighted average number of
common shares outstanding 14,508 13,859 14,327 13,339
======== ======== ======== ========
Basic (loss) earnings per share ($0.19) ($0.04) ($0.59) $0.07
======== ======== ======== ========
Diluted EPS:
Net (loss) earnings ($2,745) ($615) ($8,513) $899
======== ======== ======== ========
Weighted average number of
common and common equivalent
shares outstanding:
Common shares 14,508 13,859 14,327 13,339
Options (2) - - - 1,440
Warrants (2) - - - 387
-------- -------- -------- --------
14,508 13,859 14,327 15,166
======== ======== ======== ========
Diluted (loss) earnings per share ($0.19) ($0.04) ($0.59) $0.06
======== ======== ======== ========
<FN>
(1)See Note 1 of Notes to the Consolidated Financial Statements.
(2) Warrants and options are not assumed exercised in loss periods as they
would be antidilutive.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of 12/31/97 and Consolidated Statement of
Operations for the nine months ended 12/31/97 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 5,749
<SECURITIES> 3,527
<RECEIVABLES> 4,251
<ALLOWANCES> 516
<INVENTORY> 74
<CURRENT-ASSETS> 14,919
<PP&E> 19,273
<DEPRECIATION> 5,507
<TOTAL-ASSETS> 38,318
<CURRENT-LIABILITIES> 4,359
<BONDS> 0
0
0
<COMMON> 36,709
<OTHER-SE> (9,933)
<TOTAL-LIABILITY-AND-EQUITY> 38,318
<SALES> 8,488
<TOTAL-REVENUES> 12,522
<CGS> 2,010
<TOTAL-COSTS> 4,299
<OTHER-EXPENSES> 17,081
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> (8,437)
<INCOME-TAX> 76
<INCOME-CONTINUING> (8,513)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,513)
<EPS-PRIMARY> (.59)
<EPS-DILUTED> (.59)
</TABLE>
