<PAGE> 1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 24, 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 333-15109
PROCOM TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
California 33-0268063
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2181 Dupont Drive, Irvine, CA 92715
(Address of principal executive office) (Zip Code)
(714) 852-1000
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report.)
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 in 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 of Common Stock, $.01 par value, outstanding on
February 28, 1997, was 11,000,000.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JANUARY 24, JULY 26,
1997 1996
----------- -----------
(UNAUDITED) (AUDITED)
<S> <C> <C>
Current assets:
Cash ............................................. $ 217,000 $ 793,000
Marketable securities ............................ 9,388,000 --
Accounts receivable, less allowance
for doubtful accounts and sales
returns of $737,000 and
$373,000, respectively .......................... 10,878,000 9,234,000
Inventories, net ................................. 13,626,000 9,760,000
Deferred income taxes ............................ 824,000 605,000
Prepaid expenses ................................. 467,000 204,000
Other current assets ............................. 19,000 12,000
----------- -----------
Total current assets ....................... 35,419,000 20,608,000
Property and equipment, net ........................ 637,000 476,000
Other assets ....................................... 32,000 28,000
----------- -----------
Total assets ....................................... $36,088,000 $21,112,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit ................................... $ --- $ 4,185,000
Accounts payable ................................. 7,708,000 8,254,000
Accrued expenses and other current
liabilities .................................. 412,000 471,000
Accrued compensation ............................. 1,170,000 2,596,000
Capital lease obligations ........................ 29,000 34,000
Income taxes payable ............................. 1,640,000 436,000
----------- -----------
Total current liabilities .................. 10,959,000 15,976,000
----------- -----------
Total liabilities ........................ 10,959,000 15,976,000
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value;
10,000,000 shares authorized, no
shares issued and outstanding .................. -- --
Common stock, $.01 par value;
65,000,000 shares authorized,
9,000,000 and 11,000,000 shares
issued and outstanding,
respectively ................................... 110,000 9,000
Additional paid in capital ....................... 15,849,000 --
Retained earnings ................................ 9,170,000 5,127,000
----------- -----------
Total shareholders' equity ............... 25,129,000 5,136,000
----------- -----------
Total liabilities and shareholders'
equity ........................................... $36,088,000 $21,112,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
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PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
QUARTERS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
JANUARY 24, JANUARY 26, JANUARY 24, JANUARY 26,
1997 1996 1997 1996
-------------- -------------- -------------- --------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ....................... $ 26,611,000 $ 15,801,000 $ 51,526,000 $ 31,076,000
Cost of sales ................... 17,833,000 10,948,000 34,323,000 22,081,000
-------------- -------------- -------------- --------------
Gross profit ............... 8,778,000 4,853,000 17,203,000 8,995,000
Selling, general and
administrative
expenses ...................... 4,602,000 3,333,000 8,969,000 6,208,000
Research and development
expenses ...................... 846,000 386,000 1,534,000 678,000
-------------- -------------- -------------- --------------
Operating income ........... 3,330,000 1,134,000 6,700,000 2,109,000
Other income/expense
Interest income ................ 41,000 -- 41,000 --
Interest (expense) ............. (71,000) (61,000) (131,000) (121,000)
-------------- -------------- -------------- --------------
Income before income taxes ...... 3,300,000 1,073,000 6,610,000 1,988,000
Provision for income taxes ...... 1,278,000 418,000 2,573,000 774,000
-------------- -------------- -------------- --------------
Net income ................. $ 2,022,000 $ 655,000 $ 4,037,000 $ 1,214,000
============== ============== ============== ==============
Net income per share ............ $ 0.20 $ 0.07 $ 0.42 $ 0.13
============== ============== ============== ==============
Weighted average number of
shares ........................ 9,987,000 9,172,000 9,569,000 9,172,000
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------
JANUARY 24, JANUARY 26,
1997 1996
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,037,000 $ 1,214,000
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Depreciation and amortization 142,000 98,000
Changes in assets and
liabilities:
Accounts receivable (1,644,000) (1,418,000)
Inventories (3,866,000) (2,469,000)
Deferred income taxes (219,000) --
Prepaid expenses (263,000) 18,000
Other current assets (7,000) (237,000)
Other assets (4,000) 185,000
Accounts payable (546,000) 1,579,000
Accrued expenses (1,485,000) 242,000
Income taxes payable 1,204,000 381,000
-------------- --------------
Net cash used in
operating activities (2,651,000) (407,000)
-------------- --------------
Cash flows from investing
activities:
Purchase of property and
equipment (303,000) (171,000)
-------------- --------------
Cash flows from financing
activities:
Principal payments for capital
lease obligations (5,000) (4,000)
Public offering of 2,000,000
shares 15,956,000 --
Borrowings on line of credit 38,276,000 29,752,000
Payments made on line of credit (42,461,000) (29,158,000)
-------------- --------------
Net cash provided by
(used in) financing
activities 11,766,000 590,000
-------------- --------------
Increase in cash and marketable
securities 8,812,000 12,000
Cash at beginning of period 793,000 212,000
-------------- --------------
Cash and marketable securities at
end of period $ 9,605,000 $ 224,000
============== ==============
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest 134,000 86,000
Income taxes 1,150,000 372,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
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PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED
JANUARY 24, 1997 AND JANUARY 26, 1996
NOTE 1. GENERAL
The accompanying financial information is unaudited, but in the opinion of
management, reflects all adjustments (which include only normally recurring
adjustments) necessary to present fairly the financial position of Procom
Technology, Inc. and its consolidated subsidiary (the "Company") as of the dates
indicated and the results of operations for the periods then ended. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. While the Company believes that the disclosures are
adequate to make the information presented not misleading, the financial
information should be read in conjunction with the audited financial statements,
and notes thereto for the three years ended July 26, 1996 included in the
Company's Registration Statement on Form S-1 (Securities and Exchange Commission
File No. 333-15109). Results for the interim period are not necessarily
indicative of the results for the entire year.
NOTE 2. SHAREHOLDERS' EQUITY.
On December 23, 1996, the Company completed an offering of 2,000,000 shares of
its common stock at an offering price of $9 per share (the "Offering"). The net
proceeds from the offering were approximately $ 15,956,000 after the payment of
underwriting discounts and various offering expenses. Net proceeds were used to
pay down the Company's short-term line of credit, and the balance remaining has
been invested in commercial paper with short-term maturities. As set forth in
the Registration Statement, shareholders of the Company approved a 3 for 1 stock
split, effective November 13, 1996, and a change in common stock from no par
value to par value of $ .01 per share. During the quarter ended January 24,
1997, a net amount of $87,000 was transferred from retained earnings to common
stock to reflect the change in par value.
NOTE 3. NET INCOME PER SHARE.
Net income per share has been computed using the weighted average number of
shares outstanding during the periods presented. Following the principles of APB
No. 25, the Company has included the dilutive value of stock options outstanding
in the calculation of weighted average shares outstanding. Fully diluted net
income per share are not presented because the difference between primary and
fully dilutive net income per share is not material. The Company plans to adopt
SFAS No. 123, "Accounting for Stock Based Compensation," utilizing the
disclosure alternative under the Statement, for reporting periods beginning July
27, 1996.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL OVERVIEW
The Company was formed in 1987. The Company began producing aftermarket disk
drive upgrade products for computer products sold by other manufacturers, and
such upgrade products continue to be an important area of focus of the Company's
business. In fiscal 1994, the Company introduced its CD server and array product
line while continuing to provide a broad line of disk drive upgrade products. In
addition, during fiscal 1994, the Company began utilizing computer resellers and
VARs as its primary sales channel instead of mass merchants and national
distributors and commenced shipment of its first RAID arrays and fault tolerant,
high performance storage servers.
The Company generally records sales upon product shipment. The Company
presently maintains agreements with many of its computer resellers, VARs and
distributors that allow limited returns (including stock balancing) and price
protection privileges. The Company has in the past experienced high return
rates. The Company maintains reserves for anticipated returns (including stock
balancing) and price protection privileges. These reserves are adjusted at each
financial reporting date to state fairly the anticipated returns (including
stock balancing) and price protection claims relating to each reporting period.
Generally, the reserves will increase as sales and corresponding returns
increase. In addition, under a product evaluation program established by the
Company, computer resellers, VARs, distributors and end users generally are able
to purchase products on a trial basis and return the products within a specified
period if they are not satisfied. Evaluation units are not recorded as sales
until the customer has paid for such units.
All of the Company's sales are denominated in U.S. dollars, and accordingly,
the Company does not believe that fluctuations in foreign exchange rates have
had or will have a material adverse effect on the Company's results of
operations or financial condition, except to the extent that such fluctuations
could cause the Company's products to become relatively more expensive to end
users in a particular country, leading to a reduction of sales in that country.
Historically, the Company's gross margins have experienced significant
volatility. The Company's gross margins vary significantly by product line, and,
therefore, the Company's overall gross margin varies with the mix of products
sold by the Company. The Company's markets are also characterized by intense
competition and declining average unit selling prices as products mature over
the course of the relatively short life cycle of individual products, which have
often ranged from six to twelve months. In addition, the Company's gross margins
may be adversely affected by availability and price increases associated with
key products and components from the Company's suppliers, some of which have
been in short supply, and inventory obsolescence resulting from older generation
products or the unexpected discontinuance of third party components. Finally,
the Company's margins vary with the mix of its distribution channels and with
general economic conditions.
IMPORTANT FACTORS RELATED TO FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Management Discussion and Analysis contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 (the "Securities
Act") and Section 21E of the Securities Exchange Act of 1934 (the
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Exchange Act"), and the Company intends that such forward-looking statements be
subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward-looking statements
involve risks and uncertainties, including, without limitation, risks disclosed
in this Management Discussion and Analysis and other risks detailed from time to
time in the Company's filings with the Securities and Exchange Commission. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements.
The forward-looking statements and associated risks may include or relate to:
(a) the continuing increase in the company net sales and gross profits; (b) the
increases in the Company's efforts to expand product lines, sales channels and
existing infrastructure, and the costs of such efforts; (c) the increases in the
Company's efforts to develop new product categories and compatibilities of
existing products with a wide range of operating systems and the costs of such
efforts; and (d) other forward-looking statements included in the "General
Comments" section below and elsewhere herein.
The forward-looking statements are further qualified by important factors
that could cause actual results to differ materially from those in the
forward-looking statements, including, without limitation, the following: (a)
the Company's ability to successfully develop, market and sell its products in
an intensely competitive industry; (b) the Company's ability to manage and
finance the many challenges inherent in rapid growth; and (c) the factors and
risks included in the "General Comments" section below and elsewhere herein.
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RESULTS OF OPERATIONS
The following table sets forth the Company's statement of operations data as
a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JANUARY 24, JANUARY 26, JANUARY 24, JANUARY 26,
1997 1996 1997 1996
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales .............................. 100.0 100.0 100.0 100.0
Cost of sales .......................... 67.0 69.3 66.6 71.1
------------- ------------- ------------- -------------
Gross profit ......................... 33.0 30.7 33.4 28.9
Selling, general and
administrative expenses .............. 17.3 21.1 17.4 20.0
Research and development
expenses ............................. 3.2 2.4 3.0 2.1
------------- ------------- ------------- -------------
Operating income ..................... 12.5 7.2 13.0 6.8
Interest income/
expense, net ......................... 0.1 0.4 0.2 0.4
------------- ------------- ------------- -------------
Income before income
taxes .............................. 12.4 6.8 12.8 6.4
Provision for income
taxes ................................ 4.8 2.6 5.0 2.5
------------- ------------- ------------- -------------
Net income ............................. 7.6 4.2 7.8 3.9
============= ============= ============= =============
</TABLE>
QUARTER AND SIX MONTHS ENDED JANUARY 24, 1997 COMPARED TO QUARTER AND SIX MONTHS
ENDED JANUARY 26, 1996
Net sales
Net sales increased 68.4% from $15.8 million for the quarter ended January
26, 1996 to $26.6 million for the quarter ended January 24, 1997. This increase
was primarily due to increases in sales of CD servers and arrays and sales of
disk drive upgrade subsystems for desktop and notebook computers and, to a
lesser extent, increases in net sales of RAID high capacity storage devices. For
the quarter ended January 24, 1997, sales of CD servers and arrays, disk drive
upgrade products and RAID storage systems comprised approximately 43%, 51% and
6% of net sales, respectively. International sales increased slightly from $4.1
million, or approximately 13.3% of net sales, in the quarter ended January 26,
1996 to $4.4 million, or approximately 8.6% of net sales, in the quarter ended
January 24, 1997. The Company's fiscal second quarter sales have historically
remained relatively flat compared to the most recent prior quarter due primarily
to heavy reseller participation in trade shows that detract from reseller
selling efforts, end user budget constraints that restrict end user purchases
and a higher than average number of holidays during the fiscal second quarter.
Net sales for the six months ended January 24, 1997 increased approximately
65.8% over net sales for the same period in fiscal 1996 due primarily to
increases in sales of CD servers and arrays and sales of disk drive upgrade
subsystems for desktop and notebook computers.
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Gross profit
The Company's gross margins increased from 30.7% and 28.9% of net sales for
the quarter and six months ended January 26, 1996 compared to 33.0% and 33.4% of
net sales for the quarter and six months ended January 24, 1997. These increases
were primarily the result of higher margins on increased sales of recently
introduced CD servers and arrays. In addition, the Company realized higher
margins on increased sales of disk drive upgrade products for notebook computers
and RAID storage products, and such increases more than offset the effect of
competition and price erosion typical in the disk drive upgrade industry.
Selling, general and administrative expenses
Selling, general and administrative expenses increased from $3,333,000 for
the quarter ended January 26, 1996 to $4,602,000 for the quarter ended January
24, 1997, while such expenses increased from $6,208,000 for the first six months
of fiscal 1996 to $8,969,000 for the same period in fiscal 1997. These expenses
represented 21.1% and 17.3% of net sales in the quarters ended January 26, 1996
and January 24, 1997, respectively. The dollar increase in selling, general and
administrative expenses for the first quarter of fiscal 1997 was primarily a
result of increased marketing and promotional costs and increased personnel and
related costs necessary to support the Company's growth in net sales. The
decrease in selling, general and administrative expenses as a percentage of net
sales for the first six months of fiscal 1997 was due primarily to a decrease in
accrued management bonuses from $1,236,000 for the first six months of fiscal
1996 to $250,000 for the first six months of fiscal 1997. Bad debt expense for
the six months of fiscal 1997 was approximately $237,000 or .46% of net sales,
compared to approximately $150,000, or .48% of net sales, for the first six
months of fiscal 1996. The Company anticipates that the dollar amount of its
selling, general and administrative expenses will increase as the Company
continues to expand its efforts to penetrate certain sales channels and regions
and continues to strengthen and upgrade its existing management information and
telecommunications systems.
Research and development
Research and development expenses increased 119.2% from $386,000 for the
quarter ended January 26, 1996 to $846,000 for the quarter ended January 24,
1997. These expenses represented 2.4% and 3.2% of net sales for the each of the
quarters ended January 26, 1996 and January 24, 1997, respectively. Research and
development expenses also increased during the first six months of fiscal 1996
from $678,000, or 2.1% of net sales, to $1,534,000, or 3.0% of net sales, for
the first six months of fiscal 1997. These increases were primarily due to
continued increases in additional hardware developers and software programmers,
including the use of independent contract programmers, and due to increased
related support costs to develop additional products and enhance existing
product features. The Company anticipates that the dollar amount of its research
and development expenses will continue to increase, and also may increase as a
percentage of net sales, with the addition of dedicated engineering resources to
develop new product categories, to increase the likelihood that the Company's
products will be compatible with a wide range of hardware platforms and network
topologies and to further develop MESA, the Company's proprietary client/server
management storage architecture. In addition, the Company intends to continue to
update software drivers to increase the likelihood that the Company's CD servers
and arrays will function with a variety of hardware platforms and network
operating systems. To date, all of the Company's software development costs have
been expensed as
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incurred, as the impact of capitalizing software costs under Financial
Accounting Standard No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased or Otherwise Marketed" would have been immaterial to the Company's
financial statements.
Income taxes
The Company's effective tax rates for the quarters and six months ended
January 24, 1997 and January 26, 1996 were approximately 38.7% to 38.9% of
pretax income, respectively, which approximate the federal and state statutory
rates with modest reductions for benefits resulting from the Company's use of
its foreign sales corporation ("FSC") and benefits accruing from the increases
in research and development activity, causing an increased research and
development credit.
Interest income and expense
As a result of the initial public offering of 2,000,000 shares of the
Company's common stock completed in December 1996, the Company received net
proceeds, after underwriting discounts and offering costs, of approximately
$15,956,000. As a result of the offering net proceeds, the Company has, in late
December 1996, both reduced amounts outstanding under its line of credit,
thereby reducing interest expense, and invested the remaining proceeds in
short-term investment grade commercial paper, thereby earning interest income.
Accordingly, net interest expense for the first six months of fiscal 1996 was
$121,000, compared to $90,000 for the first six months of fiscal 1997.
General Comments
The Company's results of operations have in the past varied significantly and
are likely in the future to vary significantly as a result of a number of
factors, including the mix of products sold, the volume and timing of orders
received during the period, the timing of new product introductions by the
Company and its competitors, product line maturation, the impact of price
competition on the Company's average selling prices, the availability and
pricing of components for the Company's products, changes in distribution
channel mix and product returns or price protection charges from customers. Many
of these factors are beyond the Company's control. Although the Company has
experienced growth in sales in recent periods, there can be no assurance that
the Company will experience growth in the future or be profitable on an
operating basis in any future period. In addition, due to the short product life
cycles that characterize the Company's markets, a significant percentage of the
Company's sales each quarter may result from new products or product
enhancements introduced in that quarter. Since the Company relies on new
products and product enhancements for a significant percentage of sales, failure
to continue to develop and introduce new products and product enhancements or
failure of these products or product enhancements to achieve market acceptance
could have a material adverse effect on the Company's business, financial
condition and results of operations. Historically, as the Company has planned
and implemented new products, it has experienced unexpected reductions in sales
and gross profit of older generation products as customers have anticipated new
products. These reductions have in the past given and could continue to give
rise to charges for obsolete or excess inventory, returns of older generation
products by computer resellers, VARs and distributors or substantial price
protection charges. From time to time, the Company has experienced and may in
the future experience inventory obsolescence resulting from the unexpected
discontinuance of third party components, such as disk drives, included in the
Company's products. To the extent the Company is unsuccessful in managing
product transitions, it may
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have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company also has historically capitalized on short-term market
opportunities for volume purchases of certain components at favorable prices.
For example, in the three fiscal quarters ended January 24, 1997, the Company
has capitalized on several opportunities to sell a significant volume of high
capacity disk drive upgrade products purchased at below market prices, which
have resulted in price advantages to the Company that enhanced the Company's
sales and results of operations for that quarter. There can be no assurance that
the Company will be able to capitalize on such opportunities in the future. In
addition, the Company's fiscal second quarter sales, compared to sales in the
Company's fiscal first quarter, have historically remained relatively flat due
primarily to heavy reseller participation in trade shows that detract from
reseller selling efforts, end user budget constraints that restrict end user
purchases, and a higher than average number of holidays during that quarter.
LIQUIDITY AND CAPITAL RESOURCES
In November 1994, the Company instituted a revolving line of credit with
Finova Capital ("Finova"). The facility was amended in November 1996 to provide
the Company with up to $7.0 million in working capital loans, based upon the
Company's accounts receivable and inventory levels. The line of credit accrues
certain commitment fees, unused facility fees and interest on outstanding
amounts at the lender's prime rate (8.25% at January 24, 1997) plus 1.5%. Finova
also makes available to the Company various flooring commitments pursuant to
which the Company may finance the purchase of up to $13.0 million in inventory
(less any amounts outstanding in working capital loans) from certain of the
Company's vendors who have credit arrangements with Finova. As of January 24,
1997, there was no balance outstanding under the credit facility, and $ 4.75
million outstanding under the flooring arrangements. The agreement governing the
credit facility requires the Company to maintain certain financial covenants
(including the maintenance of working capital of at least $500,000), minimum
levels of tangible net worth and minimum levels of liquidity. As of January 24,
1997, the Company was in material compliance with the covenants of the Finova
line of credit. The line is secured by substantially all of the assets of the
Company. The initial term of the line of credit expires on November 29, 1996,
but automatically renews for successive one year periods unless terminated by
either party within a specified period in advance of the automatic renewal date.
As of January 24, 1997, the Company had cash balances of $ 9.6 million and
$7.0 million of availability under its line of credit. The Company believes that
the cash proceeds from its December 1996 public offering, together with existing
cash balances and available credit under its existing line of credit, will be
sufficient to meet anticipated cash requirements for at least the next twelve
months. As of January 24, 1997, the Company had no material commitments for
capital expenditures. However, the Company intends to spend approximately
$300,000 to acquire capital equipment to increase production capacity, to build
out new production space and to retain consultants to evaluate and make
recommendations regarding the efficiency of the Company's manufacturing
operations. While the Company has no present plans, agreements or commitments to
make any acquisitions, the Company may acquire businesses, products and
technologies that are complementary to those of the Company. In the event the
Company's plans require more capital than is presently anticipated, the
Company's remaining cash balances may be consumed and additional sources of
liquidity such as debt or equity financings may be required to meet working
capital needs. There can be no assurance that additional capital beyond the
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amounts currently forecasted by the Company will not be required nor that any
such required additional capital will be available on reasonable terms, if at
all, at such time or times as required by the Company.
PART I
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company has recently been threatened with a claim by Miradco
International Corporation, a private company based in Newport Beach, California,
consisting of two principals ("Miradco"), regarding a purported breach of an
alleged oral contract between the Company and Miradco. Miradco has asserted that
it is entitled to receive 280,000 shares of the Company's common stock as
payment for financial advisory services purportedly rendered to the Company by
Miradco. The Company unequivocally denies the existence of any oral contract
with Miradco, and believes any oral contract claim of Miradco is entirely
without merit. The Company intends to defend itself vigorously should Miradco
eventually file a lawsuit with respect to the oral contract claim and to assert
any and all rights the Company has related to such claim. The Company does not
believe the Miradco claim, or any lawsuit filed in connection therewith, will
have a material adverse effect on the Company's business, results of operations
or financial condition.
Item 6. Exhibits and Reports on Form 8-K.
(a) See Exhibit Index.
A Statement re Computation of Per Share Earnings is presented in
the Notes to the Consolidated Financial Statements dated January
24, 1997. No Statement re Computation of Ratios is presented as no
ratios are presented in this Report on Form 10-Q.
(b) No Reports on Form 8-K have been filed during the quarter for which
this Report on Form 10-Q is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Irvine, County of
Orange, State of California, on the 10th day of March, 1997.
PROCOM TECHNOLOGY, INC.
By: /s/ Alex Razmjoo
-----------------------------------------
Alex Razmjoo
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report on Form 10-Q has been signed below by the following persons
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
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<S> <C> <C>
/s/ Alex Razmjoo Chairman of the Board, President March 10, 1997
- --------------------------------- and Chief Executive Officer (Principal
Alex Razmjoo Executive Officer)
/s/ Alex Aydin Executive Vice President, Finance March 10, 1997
- --------------------------------- and Administration (Principal
Alex Aydin Financial Officer)
/s/ Frederick Judd Vice President, Finance and March 10, 1997
- --------------------------------- General Counsel (Principal
Frederick Judd Accounting Officer)
</TABLE>
13
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER
NUMBER DESCRIPTION PAGE
- ------------ ----------- ------
<S> <C> <C>
2.0 Plan of Acquisition (Not applicable).................................
3.1+ Amended and Restated Articles of Incorporation of the Company........
3.2+ Amended and Restated Bylaws of the Company...........................
10.3+ Amended and Restated Executive Employment Agreement, dated as of
October 28, 1996, between the Company and Alex Razmjoo.............
10.4+ Amended and Restated Executive Employment Agreement, dated as of
October 28, 1996, between the Company and Frank Alaghband..........
10.5+ Amended and Restated Executive Employment Agreement, dated as of
October 28, 1996, between the Company and Alex Aydin...............
10.6+ Amended and Restated Executive Employment Agreement, dated as of
October 28, 1996, between the Company and Nick Shahrestany.........
10.7+ Form of Registration Rights Agreement................................
10.8+ Lease, dated February 10, 1992, between 2181 Dupont Associates and
the Company, as amended............................................
10.9+ Loan and Security Agreement, dated November 18, 1994, by and
between the Company and FINOVA Capital Corporation, as amended.....
27.1 Financial Data Schedule..............................................
</TABLE>
+ Previously filed with the Company's Registration Statement on Form S-1 (SEC
File No. 333-15109), as amended.
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-25-1997
<PERIOD-START> JUL-27-1996
<PERIOD-END> JAN-24-1997
<CASH> 217,000
<SECURITIES> 9,388,000
<RECEIVABLES> 11,615,000
<ALLOWANCES> 737,000
<INVENTORY> 13,626,000
<CURRENT-ASSETS> 35,419,000
<PP&E> 1,970,000
<DEPRECIATION> 1,333,000
<TOTAL-ASSETS> 36,088,00
<CURRENT-LIABILITIES> 10,959,000
<BONDS> 0
0
0
<COMMON> 110,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 36,088,000
<SALES> 51,526,000
<TOTAL-REVENUES> 51,526,000
<CGS> 34,323,000
<TOTAL-COSTS> 34,323,000
<OTHER-EXPENSES> 10,503,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90,000
<INCOME-PRETAX> 6,610,000
<INCOME-TAX> 2,573,000
<INCOME-CONTINUING> 4,037,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,037,000
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
