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 September 30, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File No. 0-11560
-------------
WESTERN MICRO TECHNOLOGY, INC.
------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-2414428
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
254 E. Hacienda Avenue, Campbell, CA
----------------------------------------
(Address of principal executive offices)
95008
-------
(Zip Code)
(408) 379-0177
----------------
(Registrant's telephone number,
including area code)
N/A
-----
(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 / /
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 November 5, 1997
----- -------------------------------
Common Shares, $0.01 par value 5,358,221
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WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1997 and 1996 3
Consolidated Balance Sheets at September 30, 1997 and December 31,
1996 4
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Other Information 18
Signatures 20
Index to Exhibits 21
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 such
risks, see "Factors That May Affect Future Results" beginning on page 13.
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>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
WESTERN MICRO TECHNOLOGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------------- -------------------------------
1997 1996 1997 1996
--------------- --------------- ------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 46,139 $ 33,940 $ 121,975 $ 93,921
Cost of goods sold 39,297 29,443 102,571 81,938
--------------- --------------- ------------- --------------
Gross profit 6,842 4,497 19,404 11,983
--------------- --------------- ------------- --------------
Gross profit as % of sales 14.83% 13.25% 15.91% 12.76%
Selling, general and
administrative expenses 5,602 3,654 16,205 9,914
--------------- --------------- ------------- --------------
Operating income 1,240 843 3,199 2,069
Interest expense 604 242 1,532 676
Other income 131 103 362 262
--------------- --------------- ------------- --------------
Income before income taxes 767 704 2,029 1,655
Provision for income taxes -- 61 312 155
--------------- --------------- ------------- --------------
Net income $ 767 $ 643 $ 1,717 $ 1,500
=============== =============== ============= ==============
Net income per common share $ 0.14 $ 0.14 $ 0.33 $ 0.33
=============== =============== ============= ==============
Number of shares used in per
share calculation 5,432 4,529 5,212 4,503
=============== =============== ============= ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
----------------- ---------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 5,112 $ 384
Trade accounts receivable, net of allowance for
doubtful accounts of $1,301 at September 30,
1997 and $411 at December 31, 1996 66,931 25,943
Inventories 22,721 26,142
Other current assets 5,989 2,254
----------------- ---------------
Total current assets 100,753 54,723
Property and equipment, net 4,261 3,276
Goodwill, net of accumulated amortization 59,491 4,937
Other assets 781 340
----------------- ---------------
$ 165,286 $ 63,276
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 19,410 $ 11,277
Current portion of long-term debt 8,443 58
Accounts payable 65,844 33,956
Accrued expenses 4,687 1,984
----------------- ---------------
Total current liabilities 98,384 47,275
Long-term debt, less current portion 22,106 53
Other 148 234
Commitments and contingencies -- --
Shareholders' Equity:
Preferred Stock, $0.01 par value, 10,000,000 shares
authorized; issued and outstanding: 2,242,500
Series A and 10 Series B at September 30, 1997 19,263 --
Common Stock, $0.01 par value, 25,000,000 shares
authorized; issued and outstanding: 5,310,655 at
September 30, 1997 and 4,488,131 at December 31,
1996 25,913 17,959
Accumulated deficit (528) (2,245)
----------------- ---------------
Total shareholders' equity 44,648 15,714
----------------- ---------------
$ 165,286 $ 63,276
================= ===============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<CAPTION>
For the Nine Months
Ended September 30,
-------------------------------
1997 1996
--------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,717 $ 1,500
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,253 699
Gain on sale of equipment -- (22)
Provision for doubtful accounts receivable 372 20
Changes in assets and liabilities:
Accounts receivable (14,449) (9,533)
Inventories 6,472 (925)
Other current assets (1,817) 80
Other assets (2,889) 7
Accounts payable 2,932 7,433
Accrued expenses and other (105) 133
--------------- -------------
Net cash used in operating activities (6,514) (608)
--------------- -------------
Cash flows from investing activities:
Acquisition of businesses, net of cash acquired (36,259) (662)
Proceeds from sale of equipment -- 22
Investments (500) --
Acquisition of property and equipment (917) (1,842)
--------------- -------------
Net cash used in investing activities (37,676) (2,482)
--------------- -------------
Cash flows from financing activities:
Net proceeds from short-term borrowings 3,933 2,773
Payments on long-term debt obligations (162) (137)
Proceeds from exercise of stock options 67 315
Proceeds from employee stock purchase plan 260 --
Proceeds from issuance of long-term debt 25,000 --
Proceeds from issuance of preferred stock 19,263 --
Proceeds from equipment loan 557 --
--------------- -------------
Net cash provided by financing activities 48,918 2,951
Net increase (decrease) in cash 4,728 (139)
Cash -- beginning of period 384 546
--------------- -------------
Cash -- end of period $ 5,112 $ 407
=============== =============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
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<PAGE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
Note 1: The unaudited consolidated financial statements, which include the
accounts of Western Micro Technology, Inc. and its subsidiaries (the
"Company"), 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 nine months ended
September 30, 1997 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,
1996.
Note 2: In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128),
EARNINGS PER SHARE, which specifies the computation, presentation
and disclosure requirements for earnings per share. SFAS 128
supersedes Accounting Principles Board Opinion No. 15 and is
effective for financial statements issued for periods ending after
December 15, 1997. SFAS 128 requires restatement of all prior-period
earnings per share data presented after the effective date. SFAS 128
will not have a material impact on the Company's financial position,
results of operations or cash flows.
Note 3: In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130 (SFAS 130),
REPORTING COMPREHENSIVE INCOME. This statement establishes
requirements for disclosure of comprehensive income and becomes
effective for the Company for fiscal years beginning after December
15, 1997, with reclassification of earlier financial statements for
comparative purposes. Comprehensive income generally represents all
changes in stockholders' equity except those resulting from
investments or contributions by stockholders. The Company is
evaluating alternative formats for presenting this information, but
does not expect this pronouncement to materially impact the
Company's results of operations.
Note 4: In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131 (SFAS 131),
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
This statement establishes standards for disclosure about operating
segments in annual financial statements and selected information in
interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. This statement supersedes Statement of Financial
Accounting Standards No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A
BUSINESS ENTERPRISE. The new standard becomes effective for fiscal
years beginning after December 15, 1997, and requires that
comparative information from earlier years be restated to conform to
the requirements of this standard. The Company is evaluating the
requirements of SFAS 131 and the effects, if any, on the Company's
current reporting and disclosures.
Note 5: The December 31, 1996 balance sheet was derived from audited
financial statements, but does not include all disclosures required
by generally accepted accounting principles.
Note 6: Revenue Recognition and Accounts Receivable: the Company records
revenue, net of allowances for estimated returns, at the time of
product shipment. To reduce credit risk, the Company performs
ongoing credit evaluations and has credit insurance.
Note 7: Inventories, consisting primarily of purchased product held for
resale, are stated at the lower of cost (first-in, first-out) or net
realizable value.
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Note 8: Supplemental Cash Flow Information: Cash paid for interest in the
nine-month periods ended September 30, 1997 and 1996 was $1,492,000
and $634,000, respectively. Common stock warrants issued in
connection with issuance of long-term debt in the nine-month period
ended September 30, 1997 was $1,330,000.
Note 9: Net income per share is computed using the weighted average
number of common and common equivalent shares (when dilutive)
outstanding during each period.
Note 10: On March 17, 1997, the Company acquired all of the common stock of
Target Solutions, Inc. ("TSI"), a privately held company, for
approximately $2,200,000, paid in common stock of the Company.
Additional consideration can be earned by TSI by meeting certain
defined gross profit targets through fiscal year 2000. The
acquisition has been accounted for as a purchase with the result
that TSI operations are included in the Company's financial
statements from the date of purchase. In connection with the
acquisition, the Company recorded approximately $2,600,000 of
goodwill and other intangible assets. The fair value of assets
acquired from TSI were approximately $1,141,000 and liabilities
assumed were approximately $1,484,000. For the year ended December
31, 1996, TSI had unaudited revenues of approximately $15,000,000
with net income of approximately $200,000.
Note 11: On June 3, 1997, the Company entered into a Mentor-Protege
Agreement with Q.I.V. Systems, Inc. ("QIV"), a Texas-based reseller
of mid-range systems and a participant in the Minority Small
Business and Capital Ownership Development Program under the Small
Business Act. In connection therewith, on June 4, 1997 the Company
acquired QIV common stock equal to a 9.99% equity interest in QIV
for a purchase price of $500,000 ($100,000 of the purchase price was
paid in June of 1997 and the balance was paid in July of 1997). In
addition, the Company and QIV entered into an Industry Remarketer
Affiliate ("IRA") Agreement pursuant to which QIV was appointed an
IRA to sell to end users certain International Business Machines
Corportion ("IBM") systems it acquires exclusively from the Company
and to sell to end users other computer products and services
acquired from the Company.
Note 12: On September 17, 1997, the Company completed the private placement
of 1,121,250 units (the "Units"). Each Unit consists of two shares
of the Company's Series A Preferred Stock, par value $0.01 per
share, for an aggregate of 2,242,500 shares, at a purchase price of
$9.5625 per share, and one common stock purchase warrant (which
expires in 5 years), par value $0.01 per share, for an aggregate of
1,125,250 shares, at a purchase price of $.125 per warrant and
exercisable at a price of $9.6875 per share for a total purchase
price of $19.25 per Unit. The Series A Preferred Stock has an eight
percent (8%) cumulative dividend, payable in cash or Company common
stock at the election of the Company and a potential special
dividend should the price of the Company's common stock fall below
$9.5625 on each anniversary of the private placement. The special
dividend may not exceed $1.9125 per share each year. The Series A
Preferred Stock is convertible at the option of the Holders, at any
time, into common stock of the Company. The conversion price is
$9.5625 and is subject to adjustment if the Company issues any stock
or securities at less than the conversion price. Subsequent to
September 19, 1998, the Company may redeem the Preferred Stock
provided that the Company's common stock is trading at one hundred
fifty percent (150%) of the conversion price ($9.5625) and the daily
trading volume of the Company's stock is in excess of 125,000
shares, as defined. The agreement between the unit holders and the
Company requires the Company to register the common stock issuable
on conversion of the Preferred Stock or upon exercise of the
warrants within one hundred twenty (120) days of the closing of the
sale of the Units. Net proceeds totaled approximately $19,300,000.
The Company used the proceeds to pay down its line of credit and for
general working capital purposes.
Note 13: On September 30, 1997, the Company acquired all of the capital
stock of Star Management Services, Inc. ("SMS") for an aggregate of
$42,149,535 in cash at closing and 460,000 shares of the Company's
common stock. Additional cash payments of $3,675,000 are to be paid
on each of the first and second anniversaries of the closing. In
addition, the selling stockholders can earn up to an additional
$5,000,000 in cash payments based upon attainment of certain
performance goals. The acquisition has
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<PAGE>
been accounted for as a purchase with the result that SMS operations
are included in the Company's financial statements from the date of
purchase. In connection with the acquisition, the Company recorded
approximately $49,520,000 of goodwill and other intangible assets.
The fair value of assets acquired from SMS were approximately
$38,300,000 and liabilities assumed were approximately $34,400,000.
SMS is a holding company for a family of companies including Star
Data Systems, Inc. dba Sirius Computer Solutions ("Sirius"), a
value-added distributor for high technology mid-range solutions in
the IBM AS/400 and RS/6000 systems market. Sirius also sells systems
directly to end-user customers as an industry remarketer. Prior to
the closing of the SMS acquisition, SMS completed a spin-off of the
Sirius end-user business as a separate unaffiliated company. Upon
acquiring SMS, the distribution arm was renamed Business Partner
Solutions, Inc. ("BPS"). Upon completion of the SMS acquisition, BPS
became a wholly-owned subsidiary of the Company. For the year ended
October 31, 1996, the distribution business of Sirius had revenues
of approximately $76,500,000 and income from operations of
approximately $5,500,000. The following presents unaudited pro forma
combined net sales, net income and earnings per share of the Company
and SMS (excluding the Sirius end-user business) for the fiscal year
ended December 31, 1996 and the nine month period ended September
30, 1997. The pro forma information is presented for informational
purposes only, and is not necessarily indicative of the operating
results that would have occurred if the SMS acquisition had been
consummated at the beginning of the period presented, nor is it
indicative of future operating results.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Net sales $ 229,000,000 $ 208,000,000
================== =================
Net income $ 1,400,000 $ 673,000
================== =================
Net income per share $ 0.25 $ 0.13
================== =================
</TABLE>
For purposes of the pro forma combined data, SMS's financial data
for its fiscal year ended October 31, 1996 and its nine months ended
July 31, 1997 have been combined with the Company's financial data
for the fiscal year ended December 31, 1996 and the nine months
ended September 30, 1997, respectively. The above amounts do not
include pro forma adjustments for sales that would have occurred
between the distribution business of SMS and the end-user business
if the spinoff of the end-user business had occurred at the
beginning of such period presented. Including these sales amounts,
pro forma combined net sales would have been approximately
$268,000,000 and $247,000,000 for the nine months ended September
30, 1997 and year ended December 31, 1996, respectively, pro forma
combined net income would have been $2,400,000 and $1,700,000,
respectively and pro forma combined net income per share would have
been $0.43 and $0.33, respectively.
Note 14: On September 30, 1997, the Company entered into a note purchase
agreement (the "Note Agreement") with Robert Fleming, Inc. and
Canpartners Investments IV, LLC, as purchasers (together, the
"Purchasers") and Canpartners Investments IV, LLC, as agent for the
Purchasers. Pursuant to the Note Agreement, the Company sold
$15,700,000 worth of secured notes to the Purchasers, granted to the
Purchasers warrants to purchase 400,000 shares of the Company's
common stock, and granted to the Purchasers 10 shares of newly
authorized and issued Series B Preferred Stock. The notes, which are
subordinated to the Company's primary lender, IBM Credit Corporation
("ICC"), bear interest at 13.5%, include an original issue discount,
fully earned upon funding, of $700,000 and are due September 30,
2000. The Company may prepay the notes at 107% of the principal
balance subsequent to September 30, 1997, 106% subsequent to
September 30, 1998 and 105% subsequent to September 30, 1999. On or
after March 31, 2000, the Purchasers may request redemption of up to
50% of the notes issued at 100% of the principal amount. The
warrants have a purchase price of $7.50 and expire in seven years.
On each anniversary the warrant price may be reset to 87.5% of the
price, as defined, of the Company's common stock if the price is
less than $7.50. The agreement
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between the purchasers and the Company requires the Company to
register the common stock underlying the warrants within 120 days of
the closing of the Note Agreement. The Series B Stock issued to the
purchaser allows the Series B shareholders to elect one member to
the Company Board of Directors if there is a default or event of
default, as defined, on the Note Agreement. The Note Agreement
contains restrictive covenants which include minimum fixed charge
coverage ratio, minimum income, minimum consolidated net worth and
maximum capital expenditures, as defined. The Company used the
proceeds for the SMS acquisition.
Note 15: On September 30, 1997, the Company executed an amendment to its
Inventory and Working Capital Financing Agreement ("IWCF") with ICC.
Pursuant to the amendment of the IWCF, the Company obtained an
additional loan of $10,000,000 to consummate the SMS transaction.
The loan bears interest at prime (8.50% as of September 30, 1997)
plus 2% and is due in four installments through September 30, 1999.
As part of the amendment, the Company granted ICC warrants to
purchase 100,000 shares of the Company's common stock. The warrants
issued to ICC are the same, in all respects, to the warrants issued
to the Purchasers of the Note Agreement.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECENT EVENTS
On March 17, 1997, the Company acquired all of the common stock of
Target Solutions, Inc. ("TSI"), a privately held company, for approximately
$2,200,000, paid in common stock of the Company. Additional consideration can be
earned by TSI by meeting certain defined gross profit targets through fiscal
year 2000. The acquisition has been accounted for as a purchase with the result
that TSI operations are included in the Company's financial statements from the
date of purchase. In connection with the acquisition, the Company recorded
approximately $2,600,000 of goodwill and other intangible assets. The fair value
of assets acquired from TSI were approximately $1,141,000 and liabilities
assumed were approximately $1,484,000. For the year ended December 31, 1996, TSI
had unaudited revenues of approximately $15,000,000 with net income of
approximately $200,000.
On June 3, 1997, the Company entered into a Mentor-Protege Agreement
with Q.I.V. Systems, Inc. ("QIV"), a Texas-based reseller of mid-range systems
and a participant in the Minority Small Business and Capital Ownership
Development Program under the Small Business Act. In connection therewith, on
June 4, 1997 the Company acquired QIV common stock equal to a 9.99% equity
interest in QIV for a purchase price of $500,000 ($100,000 of the purchase price
was paid in June of 1997 and the balance was paid in July of 1997). In addition,
the Company and QIV entered into an Industry Remarketer Affiliate ("IRA")
Agreement pursuant to which QIV was appointed an IRA to sell to end users
certain International Business Machines Corporation ("IBM") systems it acquires
exclusively from the Company and to sell to end users other computer products
and services acquired from the Company.
On September 17, 1997, the Company completed the private placement of
1,121,250 units (the "Units"). Each Unit consists of two shares of the Company's
Series A Preferred Stock, par value $0.01 per share, for an aggregate of
2,242,500 shares, at a purchase price of $9.5625 per share, and one common stock
purchase warrant (which expires in 5 years), par value $0.01 per share, for an
aggregate of 1,125,250 shares, at a purchase price of $.125 per warrant and
exercisable at a price of $9.6875 per share for a total purchase price of $19.25
per Unit. The Series A Preferred Stock has an eight percent (8%) cumulative
dividend, payable in cash or Company common stock at the election of the Company
and a potential special dividend should the price of the Company's common stock
fall below $9.5625 on each anniversary of the private placement. The special
dividend may not exceed $1.9125 per share each year. The Series A Preferred
Stock is convertible at the option of the Holders, at any time, into common
stock of the Company. The conversion price is $9.5625 and is subject to
adjustment if the Company issues any stock or securities at less than the
conversion price. Subsequent to September 19, 1998, the Company may redeem the
Preferred Stock provided that the Company's common stock is trading at one
hundred fifty percent (150%) of the conversion price ($9.5625) and the daily
trading volume of the Company's stock is in excess of 125,000 shares, as
defined. The agreement between the unit holders and the Company requires the
Company to register the common stock issuable on conversion of the Preferred
Stock or upon exercise of the warrants within one hundred twenty (120) days of
the closing of the sale of the Units. Net proceeds totaled approximately
$19,300,000. The Company used the proceeds to pay down its line of credit and
for general working capital purposes.
On September 30, 1997, the Company acquired all of the capital stock of
Star Management Services, Inc. ("SMS") for an aggregate of $42,149,535 in cash
at closing and 460,000 shares of the Company's common stock. Additional cash
payments of $3,675,000 are to be paid on each of the first and second
anniversaries of the closing. In addition, the selling stockholders can earn up
to an additional $5,000,000 in cash payments based upon attainment of certain
performance goals. The acquisition has been accounted for as a purchase with the
result that SMS operations are included in the Company's financial statements
from the date of purchase. In connection with the acquisition, the Company
recorded approximately $49,520,000 of goodwill and other intangible assets. The
fair value of assets acquired from SMS were approximately $38,300,000 and
liabilities assumed were approximately $34,400,000. SMS is a holding company for
a family of companies including Star Data Systems, Inc. dba Sirius Computer
Solutions ("Sirius"), a value-added distributor for high technology mid-range
solutions in the IBM AS/400 and RS/6000 systems market. Sirius also sells
systems directly to end-user customers as an industry
10 of 21
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remarketer. Prior to the closing of the SMS acquisition, SMS completed a
spin-off of the Sirius end-user business as a separate unaffiliated company.
Upon acquiring SMS, the distribution arm was renamed Business Partner Solutions,
Inc. ("BPS"). Upon completion of the SMS acquisition, BPS became a wholly-owned
subsidiary of the Company. For the year ended October 31, 1996, the distribution
business of Sirius had revenues of approximately $76,500,000 and income from
operations of approximately $5,500,000. The following presents unaudited pro
forma combined net sales, net income and earnings per share of the Company and
SMS (excluding the Sirius end-user business) for the fiscal year ended December
31, 1996 and the nine month period ended September 30, 1997. The pro forma
information is presented for informational purposes only, and is not necessarily
indicative of the operating results that would have occurred if the SMS
acquisition had been consummated at the beginning of the period presented, nor
is it indicative of future operating results.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Net sales $ 229,000,000 $ 208,000,000
================== =================
Net income $ 1,400,000 $ 673,000
================== =================
Net income per share $ 0.25 $ 0.13
================== =================
</TABLE>
For purposes of the pro forma combined data, SMS's financial data for
its fiscal year ended October 31, 1996 and its nine months ended July 31, 1997
have been combined with the Company's financial data for the fiscal year ended
December 31, 1996 and the nine months ended September 30, 1997, respectively.
The above amounts do not include pro forma adjustments for sales that would have
occurred between the distribution business of SMS and the end-user business if
the spinoff of the end-user business had occurred at the beginning of such
period presented. Including these sales amounts, pro forma combined net sales
would have been approximately $268,000,000 and $247,000,000 for the nine months
ended September 30, 1997 and year ended December 31, 1996, respectively, pro
forma combined net income would have been $2,400,000 and $1,700,000,
respectively and pro forma combined net income per share would have been $0.43
and $0.33, respectively.
On September 30, 1997, the Company entered into a note purchase
agreement (the "Note Agreement") with Robert Fleming, Inc. and Canpartners
Investments IV, LLC, as purchasers (together, the "Purchasers") and Canpartners
Investments IV, LLC, as agent for the Purchasers. Pursuant to the Note
Agreement, the Company sold $15,700,000 worth of secured notes to the
Purchasers, granted to the Purchasers warrants to purchase 400,000 shares of the
Company's common stock, and granted to the Purchasers 10 shares of newly
authorized and issued Series B Preferred Stock. The notes, which are
subordinated to the Company's primary lender, IBM Credit Corporation ("ICC"),
bear interest at 13.5%, include an original issue discount, fully earned upon
funding, of $700,000 and are due September 30, 2000. The Company may prepay the
notes at 107% of the principal balance subsequent to September 30, 1997, 106%
subsequent to September 30, 1998 and 105% subsequent to September 30, 1999. On
or after March 31, 2000, the Purchasers may request redemption of up to 50% of
the notes issued at 100% of the principal amount. The warrants have a purchase
price of $7.50 and expire in seven years. On each anniversary the warrant price
may be reset to 87.5% of the price, as defined, of the Company's common stock if
the price is less than $7.50. The agreement between the purchasers and the
Company requires the Company to register the common stock underlying the
warrants within 120 days of the closing of the Note Agreement. The Series B
Stock issued to the purchaser allows the Series B shareholders to elect one
member to the Company Board of Directors if there is a default or event of
default, as defined, on the Note Agreement. The Note Agreement contains
restrictive covenants which include minimum fixed charge coverage ratio, minimum
income, minimum consolidated net worth and maximum capital expenditures, as
defined. The Company used the proceeds for the SMS acquisition.
On September 30, 1997, the Company executed an amendment to its
Inventory and Working Capital Financing Agreement ("IWCF") with ICC. Pursuant to
the amendment of the IWCF, the Company obtained an additional loan of
$10,000,000 to consummate the SMS transaction. The loan bears interest at prime
(8.50% as of September 30, 1997) plus 2% and is due in four installments through
September 30, 1999. As part of the amendment, the Company granted ICC warrants
to purchase 100,000 shares of the Company's common stock. The
11 of 21
<PAGE>
warrants issued to ICC are the same, in all respects, to the warrants issued to
the Purchasers of the Note Agreement.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the three months ended September 30, 1997 of $46,139,000
were 36% higher than the net sales of $33,940,000 for the corresponding period
in 1996. The primary reason sales increased was due to the expansion of the
Company's mid-range computer systems distribution business as a result of hiring
additional sales persons, recruiting new customers and acquisitions. Sales were
also benefitted by increased integration orders from OEM customers and higher
storage revenue from the Company's computer and peripheral group. Gross profit
as a percentage of sales for the three months ended September 30, 1997 was
14.83% compared to 13.25% for the comparable quarterly period one year ago. The
increase in the gross profit percentage in 1997 is a result of a shift in the
relative mix of higher profit products being sold and additional value-added and
consulting services revenue resulting from additional sales derived from the
recent acquisitions of Star Technologies, Inc., International Data Products LLC
and Target Solutions, Inc.
Selling, general and administrative expense increased 53% in the three
months ended September 30, 1997 from the same period a year ago due to
acquisitions, necessary personnel increases as a result of higher sales, higher
depreciation costs incurred as a result of additions to the Company's
infrastructure, higher amortization expense as a result of increased goodwill
related to acquisitions and higher lease and other facility expenses as a result
of the Company opening a new sales and integration center in Irvine, California
and a new distribution and integration center in Fremont, California.
Interest expense increased 150% in the three months ended September 30,
1997 versus the same period in 1996 due to an overall increase in line-of-credit
borrowings. The increased borrowings were necessary in order to fund
acquisitions, infrastructure additions, expanded operations and overall Company
growth,
The Company did not have a tax provision in the three months ended
September 30, 1997, versus the statutory rate of 34%. This is due to the
utilization of net operating loss carryforwards and the result of the Company
providing for tax expense, in prior quarters, at a rate which anticipated
closing the SMS acquisition earlier in the year, which would have led to more
taxable income.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net sales for the nine months ended September 30, 1997 of $121,975,000
were 30% higher than the net sales of $93,921,000 for the corresponding period
in 1996. Sales increased due to the expansion of the Company's computer and
peripheral group and mid-range computer systems distribution business and
acquisitions. Gross profit as a percentage of sales for the nine months ended
September 30, 1997 was 15.91% compared to 12.76% for the comparable period one
year ago. The increase in the gross profit percentage in 1997 is a result of a
shift in the relative mix of higher profit products being sold and additional
value-added and consulting services revenue resulting from additional sales
derived from the recent acquisitions of Star Technologies, Inc., International
Data Products LLC and Target Solutions, Inc.
Selling, general and administrative expense increased 63% in the nine
months ended September 30, 1997 from the same period a year ago due to increased
labor costs, acquisitions, necessary personnel increases as a result of higher
systems sales, higher depreciation costs incurred as a result of additions to
the Company's infrastructure and higher amortization expense as a result of
increased goodwill related to acquisitions.
Interest expense increased 127% in the nine months ended September 30,
1997 versus the same period in 1996 due to an overall increase in line-of-credit
borrowings. The increased borrowings were necessary in order to fund
acquisitions, infrastructure additions, expanded operations and overall Company
growth.
The Company's effective tax rate is 15% for the nine months ended
September 30, 1997, versus the statutory rate of 34%. This is due to the
utilization of net operating loss carryforwards and the result of the
12 of 21
<PAGE>
Company providing for tax expense at a rate which anticipated closing the SMS
acquisition earlier in the year, which would have led to more taxable income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the nine months ended
September 30, 1997 totaled $6,514,000 compared to the net cash used in operating
activities of $608,000 for the nine months ended September 30, 1996. The
increase in the accounts receivable of $14,449,000 was primarily due to a
significant number of sales occurring during the last two weeks of the quarter.
This was partially offset by a decrease in inventory of $6,472,000 as a result
of increased emphasis on inventory management.
Net cash used in investing activities totaled $37,676,000 for the nine
months ended September 30, 1997 compared to $2,482,000 for the nine months ended
September 30, 1996. The investing activities for 1997 consisted of the SMS
acquisition, the TSI purchase, the QIV investment and continuing leasehold and
computer hardware and software investments made at the Company's headquarters
and sales office sites.
Net cash provided by financing activities totaled $48,918,000 for the
nine months ended September 30, 1997 compared to $2,951,000 for the nine months
ended September 30, 1996. Financing activities for 1997 consisted of the Note
Agreement and ICC Loan totaling $25,000,000 which was used to fund the SMS
acquisition and the $19,263,000 sale of preferred stock, which was used to pay
down the Company's line of credit and for general working capital purposes.
The Company has available a $75,000,000 line of credit with ICC that
bears interest at prime (8.50% as of September 30, 1997) plus 1.875%. Borrowings
under the line of credit are based on eligible accounts receivable and
inventory, as defined, and are collateralized by substantially all assets of the
Company. The facility expires in September 1999 and contains restrictive
covenants which include the maintenance of minimum current ratio, tangible net
worth and times interest earned ratios, as defined. Borrowings under this line
of credit were approximately $19,000,000 at September 30, 1997. Based on
eligible assets, as of September 30, 1997, the Company had borrowings available
of approximately $9,000,000.
The Company has required substantial working capital to finance
accounts receivable, inventories and capital expenditures and has financed its
working capital requirements, capital expenditures and acquisitions primarily
through bank borrowings, cash generated from operations and recently, the
issuance and sale of Series A Preferred Stock and subordinated debt. The Company
believes that its existing cash and available bank borrowings are sufficient to
fund the Company's operations through the end of 1998. The Company is actively
considering other alternatives for raising additional cash including public
equity, private equity, or appropriate alternative debt financing. There can be
no assurance that the Company will be able to obtain additional financing on
acceptable terms or at sufficient levels.
FACTORS THAT MAY AFFECT FUTURE RESULTS
INTEGRATION RISKS RELATING TO SMS ACQUISITION. The Company's ability to
achieve the anticipated benefits of the SMS acquisition depends in part
upon whether the integration of the businesses of the Company and SMS is
accomplished in an efficient and effective manner, and there can be no assurance
that this will occur. The combination of the two businesses requires, among
other things, integration of the Company's and SMS's respective management and
sales personnel, coordination of their sales and marketing efforts, conversion
of SMS's computer system (including inventory, order entry and financial
reporting) to the Company's system, and integration of the businesses' products
and physical facilities. Among other things, substantially all of the Company's
sales and marketing operations for IBM products are being relocated to SMS's
current facilities in San Antonio, Texas are to be managed primarily by former
SMS personnel. There can be no assurance that such coordination and integration
will be accomplished smoothly or successfully. The difficulties of such
integration may be increased by the necessity of coordinating geographically
separated organizations. The integration of certain operations will require the
dedication of management resources which may temporarily divert attention away
from the day-to-day business of the combined company. The inability of
Management to integrate the operations
13 of 21
<PAGE>
of the two businesses successfully could have a material adverse effect on the
business and the results of operations of the Company. In addition, as commonly
occurs with mergers and acquisitions of companies in the technology sector,
during the integration phase, aggressive competitors may undertake to attract
customers and to recruit key employees through various incentives. There can be
no assurance that the SMS acquisition will not materially and adversely affect
the selling and buying patterns of manufacturers and present and potential
customers of the Company and SMS.
INDUSTRY CONSOLIDATION; ABILITY TO MAINTAIN MOST FAVORABLE VOLUME
DISCOUNT STATUS. The systems distribution industry is currently experiencing a
consolidation of distributors, which has resulted in the mergers of certain of
the Company's major competitors. To the extent that any increased sales volumes
resulting from these mergers relate to the products of IBM, these mergers may
result in raising the sales volume threshold required to maintain most favorable
volume discount status with IBM. In furtherance of its business strategy, and in
order to maintain most favorable volume discount status with IBM, the Company
has recently completed several acquisitions and is actively engaged in an
ongoing search for additional acquisitions. The Company intends to continue to
seek additional acquisitions of service-oriented and other businesses that are
complementary to the Company's business in order to strengthen the Company's
business and market position. The Company is also assessing equity investments
in related businesses for similar purposes. However, there can be no assurance
that the Company will be successful in any other future acquisitions or in
making any such equity investments. The failure by the Company to complete
additional acquisitions, or to otherwise increase its sales volume through
internal growth, could result in the Company's inability to maintain most
favorable volume discount status with IBM, which would, in turn, have a material
adverse effect on the Company's relationship with IBM, its business, financial
condition and results of operations.
SUPPLIER CONCENTRATION. During the year ended December 31, 1996 and the
nine months ended September 30, 1997, approximately 50% of the Company's net
sales was generated from the sale of products purchased from IBM. On a pro forma
basis giving effect to the SMS acquisition, approximately 70% of the Company's
net sales was generated from the sale of IBM products during these periods. The
Company's business, financial condition and results of operations are dependent
upon the Company's relationship with IBM and upon the market for IBM products.
Any disruption or change in the Company's relationship with IBM or in the manner
in which IBM distributes its products, the failure of IBM to develop new
products which are accepted by the Company's customers or the failure by the
Company to maintain sufficient sales volumes of certain IBM products to maintain
most favorable volume discount status, would have a material adverse effect upon
the Company's business, financial condition and results of operations.
The balance of the Company's net sales is derived from products of a
relatively limited number of other suppliers, with approximately 25% derived
from systems products manufactured by Data General Corporation, NCR Corporation,
and Unisys Corporation. On a pro forma basis giving effect to the SMS
acquisition, approximately 15% of the Company's net sales are derived from
systems products manufactured by these three companies. The loss of a major
supplier or the interruption of certain supplier relationships, the inability of
any of these suppliers to successfully develop, manufacture or sell new
products, and any decrease in the sales or market acceptance of these suppliers'
products, could materially and adversely affect the Company's business,
financial condition and results of operations.
UNCERTAINTY OF FUTURE ACQUISITIONS AND EXPANSION. Acquisitions have
played an important role in the implementation of the Company's business
strategy and the Company believes that additional acquisitions are important to
the Company's growth, development and continued ability to compete effectively
in the marketplace. Prior acquisitions and investments have placed substantial
demands on the Company's management and financial resources. The integration of
the acquired companies' operations have on occasion been slower, more complex
and more costly than originally anticipated. There can be no assurance that the
combined companies will realize the full cost savings or revenue enhancements
the Company expects to realize as a result of the recent acquisitions and the
consolidation of certain of the operations of the acquired companies or that
such savings or enhancements will be realized at the points in time currently
anticipated. Furthermore, there can be no assurance that any cost savings which
are realized will not be offset by increases in other expenses or operating
losses. The Company will encounter similar uncertainties and risks with respect
to any future acquisitions and investments it may make.
14 of 21
<PAGE>
The Company evaluates potential acquisitions and investments on an
ongoing basis. No assurance can be given as to the Company's ability to compete
successfully at favorable prices for available acquisition or investment
candidates or to complete future acquisitions and investments, or as to the
financial effect on the Company of any acquired businesses or equity
investments. Future acquisitions and investments by the Company may involve
significant cash expenditures and may result in increased indebtedness and
interest and amortization expense and/or decreased operating income, any of
which could have a material adverse effect on the Company's future operating
results. If businesses are acquired through the issuance of equity securities,
the percentage ownership of the stockholders of the Company will be reduced and
stockholders may experience additional dilution. Should the Company be unable to
implement successfully its acquisition and investment strategy, its business,
financial condition and results of operations could be materially and adversely
affected.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL. Since the sale of
its semiconductor business in July 1995, the Company has experienced significant
growth in the number of its employees and in the scope of its operating and
financial systems, resulting in increased responsibilities for the Company's
management. In addition, the SMS acquisition has increased the Company's
employee base by approximately 140 persons. To manage future growth effectively,
the Company will need to continue to improve its operational, financial and
management information systems, procedures and controls, and expand, train,
motivate, retain and manage its employee base. There can be no assurance that
the Company will be able to manage its growth effectively, and failure to do so
could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company's future success depends in part on the continued service
of its key sales, marketing and executive personnel, and its ability to identify
and hire additional personnel. As a result of the SMS acquisition, sales of the
Company's IBM product line are being managed primarily by personnel presently
employed by SMS, and the Company's future success with respect to such sales
will depend on the continued service and competent performance of such
personnel. Competition for qualified sales, marketing and executive personnel is
intense and there can be no assurance that the Company can retain and recruit
adequate personnel to operate its business. The loss of key personnel could have
a material adverse effect on the Company's business and operating results.
SUBSTANTIAL COMPETITION. The Company competes with national, regional,
and local distributors such as Dickens Data Systems, Inc., Gates/Arrow
Commercial Systems, a division of Arrow Electronics, Inc., Hamilton Hall-Mark
Computer Products, a subsidiary of Avnet, Inc., SupportNet, Inc. and, in some
limited circumstances, competes with its own vendors. The Company has
experienced and expects to continue to experience increased competition from
current and potential competitors, many of which have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and a larger customer base, than the Company. Accordingly, such
competitors or future competitors may be able to respond more quickly to new or
emerging technologies and changes in customer requirements or devote greater
resources to the development, promotion and sales of their products than the
Company. Competitors which are larger than the Company may be able to obtain
pricing and terms from vendors that are more favorable than the pricing and
terms accorded to the Company. As a result, the Company may be at a disadvantage
when competing with these larger companies.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING; POTENTIAL
FUTURE DILUTION. The Company's operations to date have required substantial
amounts of capital and as a result the Company maintains a line of credit
secured by substantially all of the Company's assets. In order to pursue the
Company's expansion, acquisition and investment strategy, the Company will need
to obtain additional financing. Although the Company believes it has sufficient
funds, or alternate sources of funds, to carry on its business as presently
conducted through 1997, the Company will need to raise additional amounts
through public or private debt and/or equity financings. There can be no
assurance that additional financing of any type will be available on acceptable
terms, or at all and failure to obtain such financing, if necessary, could
adversely affect the Company's business, financial condition and results of
operations.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE REQUIREMENTS. The Company has
substantial indebtedness. As of September 30, 1997, the Company had total
indebtedness, including current maturities, of $121 million.
15 of 21
<PAGE>
The Company's high level of debt and debt service requirements will
have several important effects on its future operations, including the
following: (i) the Company will have significant cash requirements to service
debt, reducing funds available for operations and future business opportunities
and increasing the Company's vulnerability to adverse general economic and
industry conditions and competition; (ii) the Company's leveraged position will
increase its vulnerability to competitive pressures; (iii) the financial
covenants and other restrictions contained in agreements relating to the
Company's indebtedness will require the Company to meet certain financial tests
and will restrict its ability to borrow additional funds, to dispose of assets
or to pay cash dividends on, or repurchase any preferred or common stock; and
(iv) funds available for working capital, capital expenditures, acquisitions and
general corporate purposes will be limited. Any default under the documents
governing indebtedness of the Company could have a significant adverse effect on
the market value of the Company's stock. In addition, certain of the Company's
competitors currently operate on a less leveraged basis and may have greater
operating and financing flexibility than the Company.
FLUCTUATIONS IN OPERATING RESULTS. The Company's past operating results
have been, and its future operating results will be, subject to fluctuations
from quarter to quarter and on an annual basis due to a variety of factors,
including, without limitation, the cost and effect of acquisitions, the addition
or loss of a key supplier or customer, price competition, changes in the mix of
products sold through distribution channels and in the mix of products purchased
by OEMs, and changes in the supply and demand for mid-range computer systems,
peripheral equipment, software and related services. Operating results could
also be adversely affected by general economic and other conditions affecting
the timing of customer orders and capital spending, a downturn in the market for
computers, and order cancelations or rescheduling. In addition, a substantial
portion of the Company's sales are made in the last few days of a quarter.
Accordingly, the Company's quarterly results of operations are difficult to
predict and delays in the closings of sales near the end of a quarter could
cause quarterly revenues to fall substantially short of anticipated levels and,
to a greater degree, adversely affect profitability. The Company's future
operating results are expected to fluctuate as a result of these and other
factors, which could have a material adverse effect on the Company's business,
operating results and financial condition.
SEASONALITY. While the Company's business is not generally affected by
seasonal trends, its business is influenced by trends affecting its suppliers
and customers. For example, the Company's largest vendor, IBM, sells
approximately 40% of its products in the last calendar quarter, which in the
future could have an effect on the Company's revenues from quarter to quarter.
Due to the Company's recent significant growth through acquisitions, and IBM's
recent prominence as a supplier to the Company, the Company has not yet
experienced any material seasonal variations in its operating results, but such
seasonal variations may occur in the future, and could have a material adverse
effect on the Company's business, operating results and financial condition.
RAPID TECHNOLOGICAL CHANGES, PRICE REDUCTIONS AND INVENTORY RISK. The
market for products sold by the Company is extremely competitive and is
characterized by declining selling prices over the life of a particular product
and rapid technological changes. Since the Company acquires inventory in advance
of product shipments, and because the markets for the Company's products are
volatile and subject to rapid technological and price changes, there is a risk
that the Company will forecast incorrectly and stock excessive or insufficient
inventory of particular products. Although the Company has stock rotation rights
and price protection with certain vendors permitting it to return discontinued
products, or to receive price protection (should the vendor reduce the price of
product that is already in the Company's inventory) in the form of cash refunds
or credits for the purchase of additional product, if the Company is forced to
sell its inventory for less than its targeted or traditional margins it could
have a material adverse effect upon the Company's financial condition and
results of operations. The markets in which the Company competes currently are
subject to intense price competition and the Company expects additional price
and product competition as other companies enter these markets and new products
and technologies are introduced. Increased competition may result in further
price reductions, reduced gross margins and loss of market share, any of which
could materially and adversely affect the Company's business, financial
condition and results of operations.
LIMITATIONS UPON INCURRENCE OF ADDITIONAL INDEBTEDNESS. The Company's
credit facility with ICC is structured to provide, among other things, favorable
financing for the purchase of IBM products, and provides a limited amount of
additional financing to carry the inventory of third-party products. The Company
presently has
16 of 21
<PAGE>
no other facility for financing the purchase of products from third parties.
While the ICC credit facility is adequate for the Company's present purchases of
products of third-party vendors, if the Company increases the purchase of such
products, it may need to obtain additional inventory financing, in which case it
will need to obtain a modification, waiver or replacement of its credit facility
agreement with ICC (which is presently secured by all of the assets of the
Company, including all inventory purchased from third-party vendors). There can
be no assurance that such additional or replacement financing will be available
to the Company when needed or on acceptable terms, or that ICC will consent to
modifying the current credit facility agreement in order to allow such alternate
financing.
The terms of the IBM Credit Facility and the Note Agreement each
require that the Company obtain the consent of ICC and the holders of the notes
issued pursuant to the Note Agreement (the "Notes") prior to incurring certain
additional indebtedness. The IBM Credit Facility and the Company's anticipated
cash flow may not be sufficient to provide the necessary funding for future
acquisitions contemplated by the Company's business plan. Accordingly, the
Company may need to obtain the consent of ICC and the holders of the Notes prior
to incurring any additional indebtedness. While the Company has no reason to
believe that such consents will be withheld, there can be no assurance that the
Company will obtain such consents. Failure to obtain such consents and/or to
obtain an alternate credit facility or to refinance the Notes in order to allow
the Company to incur additional indebtedness in an amount sufficient to achieve
the goals set forth in the Company's business plan could have a material adverse
effect upon the Company's business, financial condition and results of
operations.
EXTENSION OF CREDIT TO CUSTOMERS WITHOUT REQUIRING COLLATERAL. The
Company sells products to a broad geographic and demographic base of customers,
extends trade credit, and generally does not require supporting collateral. To
reduce credit risk, the Company performs ongoing credit evaluations of its
customers, maintains an allowance for doubtful accounts and has credit
insurance. Both historically and on a pro forma basis, no single customer
accounted for more than 10% of the outstanding accounts receivable balance at
December 31, 1996 and September 30, 1997. Should the Company's customers
increase the rate at which they default on payments due to the Company, and
should the Company be unable to collect such amounts, it could have a material
adverse effect upon the Company's business, financial condition and results of
operations.
17 of 21
<PAGE>
PART II. OTHER INFORMATION
Item 1 Legal proceedings.
-----------------
None.
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
--------
11.1 Computation of Net Income Per Share
27 Financial Data Schedule
B. Reports on Form 8-K.
-------------------
1. A Current Report on Form 8-K, filed with the Securities and Exchange
Commission (the "Commission") on July 17, 1997 for the period dated July 16,
1997, related to a press release dated July 16, 1997, reflecting the possibility
that the Registrant would not complete its proposed acquisition of the mid-range
computer systems distribution business of Star Management Services, Inc (the
"Star Acquisition") as originally scheduled.
2. An Amendment No. 2 on Form 8-K/A to the Registrant's Current Report on
Form 8-K, filed with the Commission on June 5, 1997, as amended on Form 8-K/A
Amendment No. 1, filed with the Commission on June 19, 1997, filed with the
Commission on July 17, 1997 for the period dated July 16, 1997, related to the
Star Acquisition. This filing also included Unaudited Pro Forma Balance Sheet
Data and Unaudited Pro Forma Statement of Operations at March 31, 1997.
3. A Current Report on Form 8-K, filed with the Commission on July 28,
1997 for the period dated July 24, 1997, related to a Press Release dated July
24, 1997 discussing the Registrant's financial results for the quarter ended
June 30, 1997. This filing also included Consolidated Statements of Income at
June 30, 1997.
4. A Current Report on Form 8-K, filed with the Commission on August 6,
1997 for the period dated July 23, 1997, as amended on Form 8-K/A Amendment No.
1, filed with the Commission on August 11, 1997 and Form 8-K/A Amendment No. 2,
filed with the Commission on August 14, 1997, related to the Registrant's
completion of its Delaware reincorporation and a press release announcing an
extension of the closing
18 of 21
<PAGE>
date of the Star Acquisition. These filings also included Unaudited Pro Forma
Balance Sheet Data and Unaudited Pro Forma Statement of Operations at June 30,
1997.
5. A Current Report on Form 8-K, filed with the Commission on September
15, 1997 for the period dated August 29, 1997, related to an extension of the
closing date of the Star Acquisition. This filing also included Unaudited Pro
Forma Balance Sheet Data and Unaudited Pro Forma Statement of Operations at June
30, 1997.
6. A Current Report on Form 8-K, filed with the Commission on October 10,
1997 for the period dated October 10, 1997, related to several Item 5
transactions including: (i) the closing of the Star Acquisition; (ii) the
closing of the financing transactions related to the Star Acquisition; and (iii)
the closing of the sale of Units of the Registrant consisting of two shares of
Series A Preferred and one common stock purchase warrant.
7. A Current Report on Form 8-K, filed with the Commission on October 15,
1997 for the period dated September 30, 1997, related to several Item 2
transactions including: (i) the closing of the Star Acquisition; (ii) the
closing of the financing transactions related to the Star Acquisition; and (iii)
the closing of the sale of Units of the Registrant consisting of two shares of
Series A Preferred and one common stock purchase warrant.
19 of 21
<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: November 13, 1997 By /s/ P. Scott Munro
---------------------------------------
P. Scott Munro
Chief Executive Officer and President
Dated: November 13, 1997 By /s/ James W. Dorst
---------------------------------------
James W. Dorst
Chief Financial Officer
20 of 21
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
-------
11.1 Computation of Net Income Per Share
27 Financial Data Schedule
21 of 21
EXHIBIT 11.1
<TABLE>
WESTERN MICRO TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------------ ---------------------------
1997 1996 1997 1996
-------------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding for the period $ 4,842 $ 4,231 $ 4,751 $ 4,206
Dilutive effect of common equivalent
shares under the treasury stock method 302 245 387 249
-------------- -------------- ------------ -------------
Shares used for computing
primary net income per share 5,144 4,476 5,138 4,455
Adjustment for dilutive effect of
preferred stock, stock options and
warrants at ending market price 288 53 74 48
Shares used for computing fully
diluted net income per share 5,432 4,529 5,212 4,503
-------------- -------------- ------------ -------------
Net income $ 767 $ 643 $ 1,717 $ 1,500
============== ============== ============ =============
Net income per common share:
Primary net income per share $ 0.15 $ 0.14 $ 0.33 $ 0.34
============== ============== ============ =============
Fully diluted net income per share $ 0.14 $ 0.14 $ 0.33 $ 0.33
============== ============== ============ =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,112
<SECURITIES> 0
<RECEIVABLES> 68,232
<ALLOWANCES> 1,301
<INVENTORY> 22,721
<CURRENT-ASSETS> 100,753
<PP&E> 8,436
<DEPRECIATION> 4,175
<TOTAL-ASSETS> 165,286
<CURRENT-LIABILITIES> 98,384
<BONDS> 0
0
19,263
<COMMON> 25,913
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 165,286
<SALES> 46,139
<TOTAL-REVENUES> 46,139
<CGS> 39,297
<TOTAL-COSTS> 39,297
<OTHER-EXPENSES> 5,602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 604
<INCOME-PRETAX> 767
<INCOME-TAX> 0
<INCOME-CONTINUING> 767
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 767
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.14
</TABLE>
