<PAGE>
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
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1996 Commission File Number 0-11560
------------------------------------ ------------------------------
WESTERN MICRO TECHNOLOGY, INC.
--------------------------------
(Exact name of registrant as specified in its charter)
California 94-2414428
-------------- --------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
254 E. Hacienda Avenue, Campbell, CA 95008
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(408) 379-0177 N/A
------------------ -------
(Registrant's telephone number, (Former name, former address and
including area code) 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 at least 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.
Class Outstanding at May 15, 1996
----- ----------------------------
Common Shares, without par value 4,204,645
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When used in this Report, the words "estimate," "project," "intend" and
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to risks and uncertainties that could
cause actual results to differ materially. For a discussion of certain of such
risks, see "Factors Affecting Future Results" on page 10. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date hereof. The Company undertakes no obligation to publicly
release updates or revisions to these statements.
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<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the Three Months
Ended March 31, 1996 and 1995 4
Consolidated Balance Sheets at March 31, 1996 and
December 31, 1995 5
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II - OTHER INFORMATION 12
Signatures 13
Index to Exhibits 14
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WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Net sales $27,617 $33,497
Cost of goods sold 24,037 29,454
------- -------
Gross profit 3,580 4,043
-------- --------
Gross profit as % of net sales 12.96% 12.07%
Selling, general and administrative expenses 2,991 4,550
-------- --------
Operating income (loss) 589 (507)
Interest expense 237 275
Other income 53 31
--------- ---------
Income (loss) before income taxes 405 (751)
Provision for income taxes 34 -
--------- ----------
Net income (loss) $ 371 $ (751)
======== ========
Net income (loss) per share $ 0.09 $ (0.20)
======== ========
Number of shares used in per share calculation 4,351 3,759
======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
-------- ------------
<S> <C> <C>
Current Assets:
Cash $ 262 $ 546
Trade accounts receivable, net of allowance for
doubtful accounts of $410 at March 31, 1996 and
$380 at December 31, 1995 18,757 14,258
Inventories, net 13,688 15,251
Other current assets 1,624 1,705
------- -------
Total current assets 34,331 31,760
Property and equipment, net 2,091 1,720
Goodwill, net of accumulated amortization 3,534 2,206
Other assets 206 213
------- -------
$40,162 $35,899
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 7,937 $ 7,040
Current portion of capital lease obligations 87 86
Accounts payable 18,021 15,950
Accrued expenses 1,459 1,372
------- -------
Total current liabilities 27,504 24,448
Capital lease obligations, less current portion 95 117
Other 305 330
Commitments and contingencies (Note 5)
Shareholders' Equity:
Preferred Stock, no par value, 10,000,000 shares
authorized; none issued and outstanding - -
Common Stock, no par value, 10,000,000 shares
authorized; issued and outstanding: 4,204,645 at
March 31, 1996 and 4,009,988 at December 31, 1995 16,470 15,587
Accumulated deficit (4,212) (4,583)
------- -------
Total shareholders' equity 12,258 11,004
------- -------
$40,162 $35,899
======= =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 371 $ (751)
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Depreciation and amortization 211 140
Gain on sale of equipment (22) -
Provision for doubtful accounts receivable - 68
Change in assets and liabilities:
Accounts receivable (3,690) (1,974)
Inventories 1,678 (248)
Other current assets 81 (13)
Other assets 7 (33)
Accounts payable 1,099 2,460
Accrued expenses and other 85 (36)
------ ------
Net cash used in operating activities (180) (387)
------ ------
Cash flows from investing activities:
Purchase of R&D, net of cash acquired (658) -
Proceeds from sale of equipment 22 -
Acquisition of property and equipment (524) (257)
------ ------
Net cash used in investing activities (1,160) (257)
------ ------
Cash flows from financing activities:
Net proceeds from short-term borrowings 897 669
Payments on lease obligations (44) (29)
Proceeds from exercise of stock options 203 2
Proceeds from equipment loan - 101
------- -------
Net cash provided by financing activities 1,056 743
Net (decrease) increase in cash (284) 99
Cash--beginning of period 546 138
------ -------
Cash--end of period $ 262 $ 237
====== =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
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<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
Note 1: The unaudited consolidated financial statements which include the
accounts of Western Micro Technology, Inc. and its subsidiaries have
been prepared in accordance with the instructions to Form 10-Q and
do not include all information and footnotes necessary to comply
with generally accepted accounting principles. In the opinion of
management, all normal recurring adjustments considered necessary
for a fair presentation have been included. The consolidated
statements of operations for the three months ended March 31, 1996
are not necessarily indicative of the results to be expected for a
full year or for any other period. It is suggested that these
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's latest
audited financial statements for the year ended December 31, 1995.
Note 2: The December 31, 1995 balance sheet was derived from audited
financial statements, but does not include all disclosures required
by generally accepted accounting principles.
Note 3: Inventories, consisting primarily of purchased product held for
resale, are stated at the lower of cost (first-in, first-out) or net
realizable value.
Note 4: Supplemental Cash Flow Information:
Cash paid for interest in the three-month periods ended March 31,
1996 and 1995 was $204,000 and $254,000, respectively.
Note 5: In the course of its business, the Company is sometimes named as a
defendant in litigation. The Company is currently a defendant in a
lawsuit and could incur an uninsured liability. However, in the
opinion of management, the outcome of such litigation will not have
a material adverse effect on the results of operations or financial
condition.
Note 6: On January 2, 1996, the Company acquired the assets of R&D Hardware
Systems Company of Colorado ("R&D"), a privately held company,
for $1,000,000 and 125,000 shares of the Company's common stock.
The agreement between the Company and R&D (the "Agreement") also
contains an earn-out provision which allows R&D to earn up to an
additional 142,500 shares of the Company's common stock based on
attainment of gross profit targets for certain fiscal year 1996 and
1997 sales (as defined in the Agreement) up to a cumulative value
not to exceed $292,500. The assets purchased primarily consisted of
certain inventories and trade accounts receivable of R&D. The
acquisition has been accounted for as a purchase
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<PAGE>
with the future results of R&D to be included in the Company's
financial statements from the date of purchase. In connection with
the acquisition, the Company recorded approximately $1,380,000 of
goodwill and other intangible assets. For the year ended
December 31, 1995, R&D had revenues of $9,557,000 with net income of
$446,000.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Events
- -------------
On January 2, 1996, the Company acquired the assets of R&D Hardware Systems
Company of Colorado ("R&D"), a privately held company, for $1,000,000 and
125,000 shares of the Company's common stock. The agreement between the Company
and R&D (the "Agreement") also contains an earn-out provision which allows R&D
to earn up to an additional 142,500 shares of the Company's common stock based
on attainment of gross profit targets for certain fiscal year 1996 and 1997
sales (as defined in the Agreement) up to a cumulative value not to exceed
$292,500. The assets purchased primarily consisted of certain inventories and
trade accounts receivable of R&D. The acquisition has been accounted for as a
purchase with the future results of R&D to be included in the Company's
financial statements from the date of purchase. In connection with the
acquisition, the Company recorded approximately $1,380,000 of goodwill and other
intangible assets. For the year ended December 31, 1995, R&D had revenues of
$9,557,000 with net income of $446,000.
Three Months Ended March 31, 1996 Compared to Three Months Ended March 31, 1995
- -------------------------------------------------------------------------------
The Company's revenues and gross profits for the quarter were generated
entirely from the computer systems distribution business, as the Company sold
its components distribution business in July 1995.
Net sales for the three months ended March 31, 1996 of $27,617,000 were 18%
lower than the net sales of $33,497,000 for the corresponding period in 1995.
Prior period results include components distribution sales of approximately
$16,188,000 and computer systems sales of approximately $17,309,000; indicating
a 60% increase in computer systems sales for the first quarter of 1996 compared
to the first quarter of 1995. Computer systems sales increased due to the
expansion of the Company's computer systems distribution business and the
acquisitions of International Parts, Inc. ("IPI") in November 1995 and R&D in
January 1996. Gross profit as a percentage of sales for the three months ended
March 31, 1996 was 13% compared to 12% for the same period one year ago. Gross
profit was depressed in the prior year due to increased competition among many
of the Company's component product lines.
Selling, general and administrative expenses decreased 34% in the three
months ended March 31, 1996 from the same period a year ago due to the sale of
the Company's components distribution assets and the corresponding transfer of
the components-related employees and infrastructure to the buyer. In relation
to the ongoing computer systems distribution business, the expenses saved as a
result of the sale of the components business have been partially offset by
necessary increases as a result of higher systems sales.
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Interest expense decreased 14% in the three months ended March 31, 1996
versus the same period in 1995 due to a reduction in bank borrowings, as a
result of the retirement of debt from the proceeds received from the sale of the
Company's components distribution assets.
The increase in other income is primarily a result of a gain recognized on
the sale of equipment.
Liquidity and Capital Resources
- -------------------------------
Net cash used in operating activities during the three months ended March
31, 1996 totaled $180,000 compared to the net cash used in operating activities
of $387,000 for the three months ended March 31, 1995.
The increase in the accounts receivable of $3,690,000 was primarily due to
increased sales volume and the purchase of assets from R&D. This was offset by
a decrease in inventory of $1,678,000 as a result of increased emphasis on
inventory management, and by an increase in accounts payable of $1,099,000 as a
result of the increased sales volume.
Net cash used in investing activities totaled $1,160,000 for the three
months ended March 31, 1996, compared to net cash used in investing activities
of $257,000 for the three months ended March 31, 1995. The significant
investing activities for 1996 consisted of the R&D asset purchase as well as
continuing leasehold and computer hardware and software investments made at the
Company's headquarters and sales office sites.
The Company has a $15,000,000 line of credit with a bank which expires in
April 1998. Borrowings under this line of credit are limited to 80% of eligible
accounts receivable and 40% of eligible inventories (up to a maximum of
$4,000,000), as defined in the agreement, and are collateralized by substan-
tially all of the Company's assets. Borrowings under this line were $7,937,000
at March 31, 1996.
The Company has required substantial working capital to finance inventories,
accounts receivable and capital expenditures and has financed its working
capital requirements, software upgrades and equipment requirements primarily
through bank borrowings. The Company believes it has the ability to obtain
sufficient resources to fund its operations through calendar 1996.
Factors Affecting Future Results
- --------------------------------
The Company's past operating results have been, and its future operating
results will be, subject to a variety of uncertainties. The Company's quarterly
operating results may be subject to fluctuations as a result of a number of
factors, including the addition or loss of key suppliers or customers, price
competition and changes in the supply and demand for computer products. Price
competition in the industries in which the Company competes is intense and could
result in gross margin declines, which could have a material adverse impact on
the Company's profitability. The Company's future success depends in part on
the continued service of its key personnel, and its ability to identify and hire
additional personnel. There is intense competition
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for qualified personnel in the areas of the Company's activities and there can
be no assurance that the Company will be able to continue to attract and retain
qualified personnel necessary for the development of its business. Loss of the
services of, or failure to recruit, key sales and management personnel could be
significantly detrimental to the Company.
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<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal proceedings. In the course of its business, the Company is
-----------------
sometimes named as a defendant in litigation. The Company is currently
a defendant in a lawsuit and could incur an uninsured liability.
However, in the opinion of management, the outcome of such litigation
will not have a material adverse effect on the results of operations or
financial condition.
Item 2 Changes in Securities. None.
---------------------
Item 3 Defaults on Senior Securities. None.
-----------------------------
Item 4 Submission of Matters to a Vote of Security Holders. None.
---------------------------------------------------
Item 5 Other Information. None.
-----------------
Item 6 Exhibits and Reports on Form 8-K.
--------------------------------
A. Exhibits.
--------
Exhibit - 11.1. Computation of Net Income (Loss) Per Share
B. Reports on Form 8-K.
-------------------
On January 17, 1996, the Registrant filed a Report on Form 8-K relating
to its acquisition of substantially all of the assets and the associated
goodwill of R&D on January 2, 1996 (the "R&D 8-K").
On January 31, 1996, the Registrant filed a Report on Form 8-K/A to
amend a Report on Form 8-K filed by the Company on December 4, 1995,
relating to its acquisition of all of the outstanding stock of IPI on
November 18, 1995.
On March 18, 1996, the Registrant filed a Report on Form 8-K/A to amend
the R&D 8-K, including the following financial statements: (1) financial
statements of R&D, and (2) financial statements of the Registrant,
showing the pro forma effects of the acquisition of R&D.
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<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.
Registrant:
WESTERN MICRO TECHNOLOGY, INC.
Dated: May 13, 1996 By /s/ P. SCOTT MUNRO
---------------------------------------
P. Scott Munro
Chief Executive Officer and President
Dated: May 13, 1996 By /s/ JAMES W. DORST
---------------------------------------
James W. Dorst
Chief Financial Officer
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT PAGE
------- ----
11.1 Statement Regarding Computation of Net Income 15
(Loss) Per Share
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<PAGE>
EXHIBIT 11.1
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-------------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average shares outstanding for the
period 4,180 3,759
Dilutive effect of stock options at average market
price 146 --
Average shares for computing primary net
income (loss) per share 4,326 3,759
Adjustment for dilutive effect of stock options at
ending market price 25 --
Average shares for computing fully diluted net
income (loss) per share 4,351 3,759
------ -------
Net income (loss) $ 371 ($ 751)
====== =======
Net income (loss) per primary share $ 0.09 ($0.20)
====== =======
Net income (loss) per fully diluted share $ 0.09 ($0.20)
====== =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This schedule contains summary information extracted from Western Micro
Technology, Inc.'s Consolidated Statements of Operations, Consolidated Balance
Sheets and Consolidated Statements of Cash Flows and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 262
<SECURITIES> 0
<RECEIVABLES> 19,167
<ALLOWANCES> 410
<INVENTORY> 13,688
<CURRENT-ASSETS> 34,331
<PP&E> 5,390
<DEPRECIATION> 3,299
<TOTAL-ASSETS> 40,162
<CURRENT-LIABILITIES> 27,504
<BONDS> 0
<COMMON> 16,470
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 40,162
<SALES> 27,617
<TOTAL-REVENUES> 27,617
<CGS> 24,037
<TOTAL-COSTS> 2,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237
<INCOME-PRETAX> 405
<INCOME-TAX> 34
<INCOME-CONTINUING> 371
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 371
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
