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 July 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-30121
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.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares of Common Stock, no par value,
outstanding as of September 5, 2000 was 37,627,590
Page 1 of 17 Total Pages
37994.0009
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Page
----
1. Condensed Consolidated Balance Sheets as
of January 31, 2000 and July 31, 2000 (unaudited) 3
2. Condensed Consolidated Statements of Income
for the Three and Six Month Periods
Ended July 31, 1999 and 2000 (unaudited) 4
3. Condensed Consolidated Statements of Cash
Flows for the Six Month Periods Ended
July 31, 1999 and 2000 (unaudited) 5
4. Notes to Condensed Consolidated Financial
Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 8
2
<PAGE>
ULTICOM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
JANUARY 31, JULY 31,
2000* 2000
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,299 $ 67,460
Accounts receivable, net 3,162 5,027
Due from related parties 1,009 182
Inventories 1,812 1,563
Prepaid expenses and other current assets 740 398
--------------- -------------
TOTAL CURRENT ASSETS 13,022 74,630
PROPERTY AND EQUIPMENT, net 3,190 3,766
OTHER ASSETS 1,152 1,060
--------------- -------------
TOTAL ASSETS $ 17,364 $ 79,456
=============== =============
----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 4,225 $ 6,729
Deferred revenue 7,438 9,715
Due to related parties 617 963
--------------- -------------
TOTAL CURRENT LIABILITIES 12,280 17,407
--------------- -------------
LONG-TERM LIABILITIES:
Note payable, bank 3,800 -
Other liabilities 164 164
--------------- -------------
TOTAL LONG-TERM LIABILITIES 3,964 164
--------------- -------------
STOCKHOLDERS' EQUITY:
Common stock, no par value -
authorized, 200,000,000 shares;
issued and outstanding, 32,727,000 and 37,627,590 shares - -
Additional paid-in capital 10 58,098
Retained earnings 1,110 3,787
--------------- -------------
TOTAL STOCKHOLDERS' EQUITY 1,120 61,885
--------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 17,364 $ 79,456
=============== =============
</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.
3
<PAGE>
ULTICOM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31, JULY 31, JULY 31,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 11,432 $ 19,417 $ 6,069 $ 10,591
Cost of sales 3,964 6,443 2,076 3,496
--------- --------- -------- ---------
Gross profit 7,468 12,974 3,993 7,095
Operating expenses:
Research and development 2,704 4,285 1,405 2,325
Selling, general and administrative 3,662 5,636 1,959 3,050
--------- --------- -------- ---------
Income from operations 1,102 3,053 629 1,720
Interest and other income (expense), net (109) 1,263 (43) 1,047
--------- --------- -------- ---------
Income before income tax provision 993 4,316 586 2,767
Income tax provision 381 1,639 225 1,051
--------- --------- -------- ---------
Net income $ 612 $ 2,677 $ 361 $ 1,716
========= ========= ======== =========
Earnings per share:
Basic $ 0.02 $ 0.07 $ 0.01 $ 0.05
========= ========= ======== =========
Diluted $ 0.02 $ 0.07 $ 0.01 $ 0.04
========= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
ULTICOM, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31, JULY 31,
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net cash from operations after adjustment for non-cash items $ 1,189 $ 3,837
Changes in assets and liabilities:
Accounts receivable (652) (1,865)
Due from related parties 944 827
Inventories (799) 249
Prepaid expenses and other current assets (40) 342
Other assets (3) (34)
Accounts payable and accrued expenses 1,236 2,504
Deferred revenue (358) 2,277
---------- ---------
Net cash provided by operating activities 1,517 8,137
---------- ---------
Cash flows from investing activities:
Purchases of property and equipment (2,141) (1,476)
Capitalization of software development costs (765) (134)
---------- ---------
Net cash (used in) investing activities (2,906) (1,610)
---------- ---------
Cash flows from financing activities:
Net proceeds from the sale of common stock - 58,088
Due to related parties 510 346
Repayment of bank debt - (3,800)
---------- ---------
Net cash provided by financing activities 510 54,634
---------- ---------
Net increase (decrease) in cash and cash equivalents (879) 61,161
Cash and cash equivalents, beginning of period 2,544 6,299
---------- ---------
Cash and cash equivalents, end of period $ 1,665 $ 67,460
========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<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 and six
month periods ended July 31, 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, Inc. and its wholly owned subsidiary
(the "Company"). 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 is being used for general corporate purposes
and to repay outstanding bank debt.
EMPLOYEE STOCK PURCHASE PLAN. Upon completion of our
initial public offering, the Company adopted the 2000 Employee Stock Purchase
Plan. Under the terms of this plan, a regular 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 lower of the last sale price on the 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 July 31, 2000.
INVENTORIES. The composition of inventories at January 31
and July 31, 2000 is as follows:
JANUARY 31, JULY 31,
2000 2000
(In thousands)
Work in process $ 709 $ 557
Finished goods 1,103 1,006
------------- ----------
$ 1,812 $ 1,563
============= ==========
6
<PAGE>
EARNINGS PER SHARE. For the three and six month periods
ended July 31, 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:
SIX MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
1999 2000 1999 2000
---- ---- ---- ----
(In thousands)
Basic 32,727 35,886 32,727 37,614
Diluted 33,579 38,743 33,615 40,721
RECENT ACCOUNTING PRONOUNCEMENTS. In December 1999, the SEC
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements." SAB 101 summarizes certain of the SEC's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. Management does not expect the adoption of SAB 101 to have a
material effect on the Company's operations or financial position. The Company
is required to adopt SAB 101 in the fourth quarter of fiscal 2000.
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
RESULTS OF OPERATIONS.
Sales. Sales for the six month and three month periods
ended July 31, 2000 increased by approximately $7,985,000 (70%) and $4,522,000
(75%) respectively, from 1999. The increase is attributable primarily to a
higher volume of sales and deployments of our Signalware products worldwide,
especially to customers who provide wireless communication services or who sell
products enabling the convergence of voice data networks. Sales to international
customers represented 67% and 69% of our sales in the six and three month
periods ended July 31, 2000 compared to 67% and 63% respectively, of our sales
in the corresponding 1999 periods. Sales to our customers in the U.S.
represented 33% and 31% respectively, in the six and three month periods ended
July 31, 2000 compared to 33% and 37% in the corresponding 1999 periods.
Cost of Sales. Cost of sales for the six month and three
month periods ended July 31, 2000 increased by approximately $2,479,000 (63%)
and $1,420,000 (68%), respectively, compared to the corresponding periods in
1999. Material costs increased by approximately $899,000 and $447,000 for the
six and three month periods ended July 31, 2000, respectively. In addition,
personnel-related costs increased by approximately $905,000 and $653,000 for the
six and three month periods ended July 31, 2000. Depreciation and amortization
costs increased by approximately $583,000 and $200,000, respectively, for the
six and three month periods ended July 31, 2000. Gross margins (expressed as a
percentage of sales) for each of the six month and three month periods ended
July 31, 2000 increased to approximately 67% from approximately 65% and 66%,
respectively, in the corresponding 1999 periods.
Research and Development Expenses. Research and development
expenses for the six month and three month periods ended July 31, 2000 increased
by approximately $1,581,000 (58%) and $920,000 (65%), respectively, compared to
the corresponding periods in 1999 due to the overall growth of research and
development operations. The increase was primarily attributable to an increase
in personnel-related costs for the six and three month periods ended July 31,
2000 of approximately $786,000 and $524,000 respectively, due to the increased
compensation and the hiring of additional personnel. In addition, materials
costs related to research and development activities increased by approximately
$668,000 and $360,000, respectively, for the six and three month periods ended
July 31, 2000.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses for the six month and three month periods
ended July 31, 2000 increased by approximately $1,974,000 (54%) and $1,091,000
(56%), respectively, compared to the corresponding periods in 1999. The increase
is due primarily to the growth and expansion of activities in sales, marketing
and administration. Personnel-related costs increased by approximately $862,000
and $558,000, respectively, for the six and three month periods ended July 31,
2000 which primarily was due to the expansion of our marketing and sales
department. Legal and consulting fees increased by approximately $210,000 and
$68,000, respectively, for the six and three month periods ended July 31, 2000
due to matters related to the expansion of our international operations.
Marketing costs increased by approximately $123,000 and $86,000, respectively,
8
<PAGE>
for the six and three month periods ended July 31, 2000 due to the increased
activity in advertising and tradeshows.
Interest and other income (expense), net. Interest and
other income (expense), net, for the six month and three month periods ended
July 31, 2000 increased approximately $1,372,000 and $1,090,000, respectively,
as compared to the 1999 periods. The increase was primarily a result of
increased interest income of approximately $1,377,000 and $1,101,000,
respectively, for the six and three month periods ended July 31, 2000 resulting
from the additional funds raised in the Company's initial public offering.
Income Tax Provision. Provision for income taxes for the
six month and three month periods ended July 31, 2000 increased by $1,258,000
(330%) and $826,000 (367%), respectively, compared to the corresponding periods
in 1999 due to increased pre-tax income. The overall effective tax rate was
approximately 38% in each of the six month and three month periods ended July
31, 2000 and 1999.
Net Income. Net income for the six month and three month
periods ended July 31, 2000 increased by approximately $2,065,000 (337%) and
$1,355,000 (375%) , respectively, compared to the corresponding periods in 1999,
primarily as a result of the factors described above. Net income as a percentage
of sales increased to approximately 14% and 16%, respectively, in the six month
and three month periods ended July 31, 2000 from approximately 5% and 6%,
respectively, in the six month and three month periods ended July 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES. The Company had working capital at
July 31, 2000 of approximately $57,223,000. At July 31, 2000, the company had
cash and cash equivalents of approximately $67,460,000.
Operations for the six months ended July 31, 2000 and 1999, after
adding back non-cash items, provided cash of approximately $3,837,000 and
$1,189,000, respectively. Other changes in operating assets and liabilities
provided cash of approximately $4,300,000 and $328,000 for the six months
ended July 31, 2000 and 1999, respectively.
Investment activities for the six month periods ended July 31, 2000
and 1999 used cash of approximately $1,610,000 and $2,906,000, respectively.
These amounts include additions of property and equipment in the six month
periods ended July 31, 2000 and 1999 of approximately, $1,476,000 and
$2,141,000, respectively and capitalization of software costs of approximately
$134,000 and $765,000 in the six month periods ended July 31, 2000 and 1999,
respectively.
Financing activities for the six months ended July 31, 2000 and 1999
provided cash of approximately $54,634,000 and $510,000, 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) proceeds from the exercise of stock options in the amount of
$26,000 in the 2000 period; (iii) proceeds from related parties of $346,000 and
$510,000, respectively, in the six months ended July 31, 2000 and 1999 and (iv)
the repayment of bank debt of $3,800,000 in the six months ended July 31, 2000.
9
<PAGE>
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.
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
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
10
<PAGE>
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. 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 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
11
<PAGE>
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
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 factors 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.
12
<PAGE>
PART II
Other Information
-----------------
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibit Index.
-------------
Item
Number Exhibit Page
------ ------- ----
11(a) Statement re computation of
per share earnings for the
three months ended July 31, 1999
and July 31, 2000. 16
11(b) Statement re computation of
per share earnings for the
six months ended July 31, 1999
and July 31, 2000. 17
27. Financial data schedule Filed electronically
(b) Reports on Form 8-K.
-------------------
None
13
<PAGE>
SIGNATURES
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: September 7, 2000 /s/ Shawn Osborne
----------------------------------------
Shawn Osborne
President and Chief Executive Officer
Dated: September 7, 2000 /s/ David Kreinberg
----------------------------------------
David Kreinberg
Chief Financial Officer
14
<PAGE>
EXHIBIT INDEX
Item
Number Exhibit Page
------ ------- ----
11(a) Statement re computation of
per share earnings for the
three months ended July 31, 1999
and July 31, 2000. 16
11(b) Statement re computation of
per share earnings for the
six months ended July 31, 1999
and July 31, 2000. 17
27. Financial data schedule Filed electronically
15
