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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 333-94873
ULTICOM, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2050748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1020 BRIGGS RD. MT. LAUREL, NJ 08054
(Address of principal executive offices) (Zip Code)
(856) 787-2700
(Registrant's telephone number, including area code)
NOT APPLICABLE
(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 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
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, no par value,
outstanding as of June 5, 2000 was 37,614,500.
Page 1 of 15 Total Pages
(Exhibit Index Appears on Page 13)
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Page
----
1. Condensed Consolidated Balance Sheets as
of January 31, 2000 and April 30, 2000 3
2. Condensed Consolidated Statements of Income
for the Three Month Periods
Ended April 30, 1999 and 2000 4
3. Condensed Consolidated Statements of Cash
Flows for the Three Month Periods Ended
April 30, 1999 and 2000 5
4. Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 8
Page 2 of 15 Total Pages
<PAGE>
ULTICOM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
------
JANUARY 31, APRIL 30,
2000* 2000
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,299 $ 46,631
Short-term investments - 19,428
Accounts receivable, net 3,162 3,984
Due from related parties 1,009 1,145
Inventories 1,812 1,769
Prepaid expenses and other current assets 740 578
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TOTAL CURRENT ASSETS 13,022 73,535
PROPERTY AND EQUIPMENT, net 3,190 3,140
OTHER ASSETS 1,152 1,035
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TOTAL ASSETS $ 17,364 $ 77,710
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,225 $ 5,338
Deferred revenue 7,438 7,671
Due to related parties 617 594
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TOTAL CURRENT LIABILITIES 12,280 13,603
LONG-TERM LIABILITIES:
Note payable, bank 3,800 3,800
Other liabilities 164 164
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TOTAL LONG-TERM LIABILITIES 3,964 3,964
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STOCKHOLDERS' EQUITY:
Common stock, no par value -
authorized, 200,000,000 shares;
issued and outstanding, 32,727,000 and 37,614,500 shares - -
Additional paid-in capital 10 58,072
Retained earnings 1,110 2,071
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TOTAL STOCKHOLDERS' EQUITY 1,120 60,143
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,364 $ 77,710
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</TABLE>
*The Condensed Consolidated Balance Sheet as of January 31, 2000 has been
summarized from the Company's audited Balance Sheet as of that date. The
accompanying notes are an integral part of these financial statements.
Page 3 of 15 Total Pages
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ULTICOM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, APRIL 30,
1999 2000
<S> <C> <C>
Sales $ 5,363 $ 8,826
Cost of sales 1,888 2,947
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Gross profit 3,475 5,879
Operating expenses:
Research and development 1,299 1,960
Selling, general and administrative 1,703 2,586
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Income from operations 473 1,333
Interest and other income (expense), net (66) 216
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Income before income tax provision 407 1,549
Income tax provision 156 588
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Net income $ 251 $ 961
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Earnings per share:
Basic $ .01 $ .03
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Diluted $ .01 $ .03
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 4 of 15 Total Pages
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ULTICOM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
APRIL 30, APRIL 30,
1999 2000
<S> <C> <C>
Cash flows from operating activities:
Net cash from operations after adjustment for non-cash items $ 508 $ 1,541
Changes in assets and liabilities:
Accounts receivable (1,753) (822)
Due from related parties 748 (136)
Inventories (236) 43
Prepaid expenses and other current assets 31 162
Other assets 2 (13)
Accounts payable and accrued expenses 891 1,113
Deferred revenue (536) 233
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Net cash provided by (used in) operating activities (345) 2,121
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Cash flows from investing activities:
Purchase of property and equipment (825) (400)
Purchase of short-term investments - (19,428)
Capitalization of software development costs (752) -
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Net cash (used in) investing activities (1,577) (19,828)
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Cash flows from financing activities:
Net proceeds from the sale of common stock - 58,062
Due to related parties 561 (23)
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Net cash provided by financing activities 561 58,039
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Net increase (decrease) in cash and cash equivalents (1,361) 40,332
Cash and cash equivalents, beginning of period 2,544 6,299
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Cash and cash equivalents, end of period $ 1,183 $ 46,631
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</TABLE>
The accompanying notes are an integral part of these financial statements.
Page 5 of 15 Total Pages
<PAGE>
ULTICOM, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION. The accompanying financial information should be
read in conjunction with the financial statements, including the notes thereto,
for the annual period ended January 31, 2000. The financial information included
herein is unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim periods.
The results of operations for the three month period ended April 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of Ulticom and its wholly owned subsidiary. All material
intercompany balances and transactions have been eliminated.
INITIAL PUBLIC OFFERING. On April 5, 2000, the Company issued 4,250,000
shares of common stock to the public at a price of $13.00 per share. The
underwriters exercised their option to purchase 637,500 additional shares to
cover over-allotments. The net proceeds of the offering were approximately
$58,062,000, which will be used for general corporate purposes and to repay
outstanding bank debt.
EMPLOYEE STOCK PURCHASE PLAN. Upon completion of our public offering,
the company adopted the 2000 Employee Stock Purchase Plan. Under the terms of
this plan, a full time employee, who has been employed for at least three
months, may purchase up to 10% of his or her base pay to purchase shares of the
Company's common stock. The price of the stock is 85% of the last sale price on
NASDAQ on the first or last day of the offering period. There are 600,000 shares
available under this plan and no shares have been issued as of April 30, 2000.
INVENTORIES. The composition of inventories at January 31 and April 30,
2000 is as follows:
JANUARY 31, APRIL 30,
2000 2000
(In thousands)
Work in process $ 709 $ 446
Finished goods 1,103 1,323
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$ 1,812 $ 1,769
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Page 6 of 15 Total Pages
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EARNINGS PER SHARE. For the three month period ended April 30, 1999 and
2000, the computation of basic earnings per share is based on the weighted
average number of outstanding common shares. Diluted earnings per share further
assumes the issuance of common shares for all dilutive potential common shares
outstanding. The shares used in the computations are as follows:
THREE MONTHS ENDED
APRIL 30,
1999 2000
(In thousands)
Basic 32,727 34,100
Diluted 33,534 36,420
Page 7 of 15 Total Pages
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS.
Sales. Sales for the three month period ended April 30, 2000 increased
by approximately $3,463,000 (65%), compared to the three month period ended
April 30, 1999. The increase is attributable primarily to a higher volume of
sales and deployments of our Signalware products worldwide. Sales to
international customers represented 65% of our sales in the 2000 period compared
to 72% of our sales in the 1999 period. Sales to our customers in the U.S.
represented 35% in the 2000 period compared to 28% in the 1999 period.
Cost of Sales. Cost of sales for the three month period ended April 30,
2000 increased by approximately $1,059,000 (56%) compared to the three month
period ended April 30, 1999. The increase in the cost of sales primarily is
attributable to an increase in materials costs of approximately $452,000,
personnel-related costs by approximately $284,000, and depreciation and
amortization by approximately $389,000 compared to the three month period ended
April 30, 1999. Gross margins (expressed as a percentage of sales) for the three
month period ended April 30, 2000 increased to approximately 67% from
approximately 65% in the corresponding 1999 period.
Research and Development Expenses. Research and development expenses
for the three month period ended April 30, 2000 increased by approximately
$661,000 (51%) compared to the three months ended April 30, 1999 due to the
overall growth of research and development operations. The increase primarily
was attributable to an increase in personnel-related costs of approximately
$261,000 due to the increased compensation and the hiring of additional
personnel. In addition, materials costs related to research and development
activities increased by approximately $307,000.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three month period ended April 30, 2000
increased by approximately $883,000 (52%) compared to the three months ended
April 30, 1999. The increase is due primarily to the growth and expansion of
activities in sales, marketing and administration. Personnel-related costs
increased by approximately $304,000, which primarily was due to the expansion of
our marketing and sales department. In addition, legal and consulting fees
increased by approximately $143,000 due to matters related to the expansion of
our international operations.
Interest and other income (expense), net. Interest and other income,
net for the three month period ended April 30, 2000 increased approximately
$282,000 as compared to the 1999 period. The increase was primarily a result of
increased interest income of approximately $253,000 resulting from the
additional funds raised in the Company's initial public offering.
Income Tax Provision. Provision for income taxes for the three month
period ended April 30, 2000 increased by $432,000 (277%) compared to the three
months ended April 30, 1999 due to increased pre-tax income. The overall
Page 8 of 15 Total Pages
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effective tax rate was approximately 38% in both the three month periods ended
April 30, 2000 and 1999.
Net Income. Net income, after taxes, for the three month period ended
April 30, 2000 increased by approximately $710,000 (283%), compared to the three
months ended April 30, 1999, primarily as a result of the factors described
above. Net income, after taxes, as a percentage of sales increased to
approximately 11% in the three month period ended April 30, 2000 from
approximately 5% in the three month period ended April 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES. The Company had working capital at
April 30, 2000 and January 31, 2000 of approximately $59,932,000 and $742,000,
respectively.
Operations for the three months ended April 30, 2000 and 1999, after
adding back non-cash items, provided cash of approximately $1,541,000 and
$508,000, respectively. Other changes in operating assets and liabilities
provided cash of approximately $580,000 in the 2000 period and used cash of
approximately $853,000 in the 1999 period.
Investment activities for the three month periods ended April 30, 2000
and 1999 used cash of approximately $19,828,000 and $1,577,000, respectively.
These amounts included (i) additions of property and equipment in the three
month periods ended April 30, 2000 and 1999 of approximately, $400,000 and
$825,000, respectively; (ii) purchase of short term investments in the three
months ended April 30, 2000 of approximately $19,428,000; and (iii)
capitalization of software costs of approximately $752,000 in the three months
ended April 30, 1999.
Financing activities for the three months ended April 30, 2000 and 1999
provided cash of approximately $58,039,000 and $561,000, respectively. These
amounts included (i) $58,062,000 of net proceeds from the issuance of common
stock in connection with the Company's initial public offering in the 2000
period; (ii) repayments to related parties of approximately $23,000 in the three
months ended April 30, 2000 and (iii) proceeds from related parties of $561,000
in the three months ended April 30, 1999.
The Company may pursue acquisitions of businesses, products or
technologies in the future to expand the business and the products we offer. Any
material acquisition could result in a decrease in working capital depending
upon the amount, timing and nature of the consideration paid.
The Company has a term loan with a bank that bears interest at LIBOR
plus .35%. The loan is due in July 2001 and we expect to repay the loan in June,
2000.
CERTAIN TRENDS AND UNCERTAINTIES. The Company has benefited from the
expansion of its business due to rapid growth of the wireless and Internet
industries as well as the introduction of new services by traditional service
providers and new competitive service providers. The Company intends to continue
to make significant investments in the expansion of its business, and to examine
Page 9 of 15 Total Pages
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opportunities for additional growth through acquisitions and strategic
investments. Future acquisitions could result in potentially dilutive issuances
of equity securities, the incurrence of debt and other acquisition-related
expenses. The impact of these decisions on future profitability cannot be
predicted with assurance, and the Company's commitment to growth may increase
its vulnerability to unforeseen downturns in its markets, technology changes and
shifts in competitive conditions. The Company believes that significant
opportunities exist in the market for its main product line, however, and that
continued strong investment in its technical product development and marketing
and sales capabilities will enhance its opportunities for long term growth and
profitability.
The telecommunications industry is subject to rapid technological
change. The introduction of new technologies in the telecommunications market
and new alternatives for the delivery of services are having, and can be
expected to continue to have, a profound effect on competitive conditions in the
market and the success of market participants, including the Company. The
Company's revenue stream will depend on its ability to correctly anticipate
technological trends, to react quickly and effectively to such trends and to
enhance its existing products and to introduce new products on a timely and
cost-effective basis.
The Company's products are dependent upon their operability to new
hardware and operating systems of other companies. Any modifications to our
software needed to adapt to these hardware and operating system changes may
prove to be costly, time-consuming and may not be successful. Undetected defects
could result in lost sales, adverse publicity and other claims against the
Company. In addition, the Company's ability to grow and enhance our products may
be limited due to the intense competition for new hires in the technology
fields. The Company has increased its expenditures in the areas of sales and
marketing and research and development during recent periods. The Company
believes that these expenditures are necessary to enhance our products in order
to remain competitive and enhance our future growth and presence in the market.
The Company is dependent on the sale of its Signalware product line.
All of our products are designed to support signaling system #7. If future
networks do not utilize this system and we are unable to adapt our products to
work with the appropriate system protocols, our products will become less
competitive or obsolete. A reduction in the demand for these products could
affect adversely our business and operating results. We are expanding our
product line with the development of a new line of service products called
Nexworx. The success of this product line is dependent primarily upon the
development of a market for these types of products and their acceptance by
existing and new customers. If a market for Nexworx or other product lines does
not develop or we are not successful in marketing these new product lines, our
continued growth could be adversely affected and our investment in these
products may be lost.
Historically, a limited number of customers have contributed a
significant percentage of the Company's revenues, with five customers accounting
for approximately 64% of our revenues for the fiscal year 1999. We anticipate
that our operating results in any given period will continue to depend
significantly upon revenues from a small number of customers. The loss of any of
these customers could have a materially adverse effect on our business. In order
to increase our revenues, we will need to attract additional customers on an
Page 10 of 15 Total Pages
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ongoing basis. In addition, since our products have long sales cycles that
typically range from six to twelve months, our ability to forecast the timing
and amount for specific sales is limited. The loss or deferral of one or more
significant sales could have a materially adverse effect on our operating
results in any fiscal quarter, especially if there are significant sales and
marketing expenses associated with the deferred or lost sales.
Our software products are primarily sold to equipment manufacturers
and application developers, who integrate our products with their products and
sell them to service providers. The success of our business and operating
results are dependent upon our channel and marketing relationships with these
manufacturers and developers and the successful development and deployment of
their products. If we cannot successfully establish channel and marketing
relationships with leading equipment manufacturers and application developers or
maintain these relationships on favorable terms, our business and operating
results may suffer.
Because the Company relies on a limited number of independent
manufacturers to produce boards for our products, if these manufacturers
experience financial, operational or other difficulties, we may experience
disruptions to our product supply. The Company may not be able to find alternate
manufacturers that meet our requirements and existing or alternative sources for
boards may not continue to be available at favorable prices. The Company also
relies on a limited number of suppliers for its board components and we do not
have any long term supply agreements. Thus, if there is a shortage of supply for
these components, we may experience an interruption in our product supply.
The Company operates in an industry characterized by the existence of a
large number of patents and frequent allegations of patent infringement. As the
number of communications network products increases and the functionality of
these product overlaps, we believe that we may become increasingly subject to
allegations of infringement. Defending and resolving infringement allegations
against the Company could be time consuming and expensive, result in a
substantial diversion of management resources, cause product delays or force us
to enter into unfavorable license agreements. We have agreed to indemnify some
of our customers should it be determined that our product infringes on the
proprietary rights of third parties. Litigation resulting on behalf of our
customers may be costly and may require us to obtain licenses, which, if not
obtained, could result in customers being prohibited from using our products.
Our success depends in part upon our proprietary technology. It is
possible that our proprietary software code has in the past and will be in the
future copied or used inappropriately. Policing the unauthorized use of our
products is difficult and litigation may be required in the future to enforce
our intellectual property rights. In addition, the laws of some foreign
countries do not protect our proprietary rights in our products to the same
extent, as do the laws in the U.S. We cannot be sure that we will be successful
in protecting our proprietary software and litigation may be time consuming,
expensive and cause diversion of management resources.
The trading price of the Company's shares may be affected by the
factors noted above as well as prevailing economic and financial trends and
conditions in the public securities markets. Share prices of companies in
Page 11 of 15 Total Pages
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technology businesses, and particularly smaller sized publicly traded companies
such as the Company, tend to exhibit a high degree of volatility. Shortfalls in
revenues or earnings from the levels anticipated by the public markets could
have an immediate and significant effect on the trading price of the Company's
shares in any given period. Such shortfalls may result from events that are
beyond the Company's immediate control and can be unpredictable. These factors
may contribute to the volatility of the trading value of its shares regardless
of the Company's long-term prospects. The trading price of the Company's shares
also may be affected by developments, including reported financial results and
fluctuations in trading prices of the shares of other publicly-held companies in
the telecommunications industry in general, and the Company's industry in
particular, which may not have any direct relationship with the Company's
business or prospects.
FORWARD-LOOKING STATEMENTS. From time to time, the Company makes
forward-looking statements. Forward-looking statements include financial
projections, statements of plans and objectives for future operations,
statements of future economic performance, and statements of assumptions
relating thereto.
The Company may include forward-looking statements in its periodic
reports to the Securities and Exchange Commission on Forms 10-K, 10-Q, and 8-K,
in its annual report to shareholders, in its proxy statements, in its press
releases, in other written materials, and in statements made by employees to
analysts, investors, representatives of the media, and others.
By their very nature, forward-looking statements are subject to
uncertainties, both general and specific, and risks exist that predictions,
forecasts, projections and other forward-looking statements will not be
achieved. Actual results may differ materially due to a variety of factors,
including without limitation those discussed under "Certain Trends and
Uncertainties" and elsewhere in this report. Investors and others should
carefully consider these and other uncertainties and events, whether or not the
statements are described as forward-looking.
Forward-looking statements made by the Company are intended to apply
only at the time they are made, unless explicitly stated to the contrary.
Moreover, whether or not stated in connection with a forward-looking statement,
the Company undertakes no obligation to correct or update a forward-looking
statement should the Company later become aware that it is not likely to be
achieved. If the Company were in any particular instance to update or correct a
forward-looking statement, investors and others should not conclude that the
Company will make additional updates or corrections thereafter.
Page 12 of 15 Total Pages
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PART II
Other Information
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ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibit Index.
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Item
Number Exhibit Page
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11. Statement re computation of
per share earnings. 15
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
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None
Page 13 of 15 Total Pages
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ULTICOM, INC.
Dated: June 14, 2000 /S/ Shawn Osborne
-------------------------------------
Shawn Osborne
President and Chief Executive Officer
Dated: June 14, 2000 /S/ David Kreinberg
-------------------------------------
David Kreinberg
Chief Financial Officer
Page 14 of 15 Total Pages
