13
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 .
For the quarterly period ended December 31, 1994
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. 0-14805
Microcom, Inc.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2710644
(State or other jurisdiction of (I.R.S.
Employer incorporation or organization) Identification Number)
500 River Ridge Drive 02062-5028
Norwood, Massachusetts (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (617) 551-1000
Securities registered pursuant to Section 12(b) of the Act:
None Securities registered pursuant to Section 12(g) of
the Act:
Common Stock, par value $.01
Indicate by check 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: As of December 31, 1994, 10,869,947.
<PAGE>
MICROCOM, INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEET 3
CONSOLIDATED STATEMENT OF OPERATIONS 4
CONSOLIDATED STATEMENT OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
<PAGE>
PART I. FINANCIAL INFORMATION
MICROCOM, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(In thousands)
DEC 31,1994 MAR 31, 1994
ASSETS
Current assets:
Cash and equivalents 732 5,342
Accounts receivable, less reserves of $317
and $246 at December 31, 1994 and March 31,1994,
respectively 17,109 13,282
Inventories (Note 2) 19,251 5,975
Prepaid expenses and other current assets 831 1,130
Total current assets 37,923 25,729
Property and equipment, net (Note 3) 5,640 5,357
Other assets, net 7,241 7,367
50,804 38,453
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases
and short-term debt 10,259 853
Accounts payable 6,627 7,999
Accrued expenses 1,669 1,353
Accrued restructuring costs 176 1,492
Income taxes 381 75
Total current liabilities 19,112 11,772
Long-term portion of capitalized leases 193 450
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized
30,000 shares,issued - 11,851 shares at
December 31, 1994 and 11,442 shares
at March 31, 1994 120 114
Capital in excess of par value 59,546 58,504
Stock loans - related parties (1,942) (1,612)
Unrealized loss on marketable securities (467) (534)
Accumulated deficit (23,260) (27,350)
Treasury stock, at cost, 981 shares (2,613) (2,613)
Cumulative translation adjustment 115 (278)
Total stockholders' equity 31,499 26,231
50,804 38,453
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
MICROCOM, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Unaudited)
(In thousands except per share amounts)
<CAPTION>
Three Mo Ended Nine Mo Ended
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Net sales 23,134 14,849 67,219 39,376
Cost of sales 12,770 7,384 37,110 20,070
Gross margin 10,364 7,465 30,109 19,306
Operating expenses:
Research and development 2,725 2,337 7,601 6,859
Sales and marketing 4,369 3,468 13,740 11,454
General and administrative 1,215 1,312 3,509 4,252
Restructuring costs (Note 5) _ _ _ 6,500
Total operating expenses 8,309 7,117 24,850 29,065
Income (loss) from operations 2,055 348 5,259 (9,759)
Interest income 3 1 66 36
Interest expense (199) (54) (390) (185)
Other expense, net (60) _ (124) _
Income (loss) before income taxes 1,799 295 4,811 (9,908)
Provision for income taxes 270 30 721 61
Net income (loss) 1,529 265 4,090 (9,969)
Net income (loss) per share $.13 $.03 $.34 $(1.01)
Weighted average number of shares
outstanding 11,921 10,363 12,002 9,913
<FN>
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
MICROCOM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1994 AND 1993
(Unaudited)
(In thousands)
1994 1993
Cash flows from operating activities:
Net income(loss) 4,090 (9,969)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 4,451 4,715
Changes in assets and liabilities:
Accounts receivable, net (3,827) 1,330
Inventories (13,276) 1,180
Prepaid expenses and other current assets 299 209
Other assets 380 5
Accounts payable and accrued expenses (936) (1,737)
Accrued restructuring costs (1,070) 2,140
Income taxes 306 (112)
Total adjustments (13,673) 7,730
Net cash used in operating activities (9,583) (2,239)
Cash flows from investing activities:
Disposition of divisions 1,000
Purchase of property and equipment (2,053) (759)
Capitalized software development costs (3,230) (2,687)
Net cash used in investing activities (5,283) (2,446)
Cash flows from financing activities:
Borrowings under credit agreement 9,920
Banker acceptance on inventory purchases, net (541)
Capitalized leases (230) (207)
Proceeds from exercise of stock options 1,107 958
Net cash provided by financing activities 10,256 751
Effect of exchange rates on cash 47
Net decrease in cash and equivalents (4,610) (3,887)
Cash and equivalents at beginning of period 5,342 9,108
Cash and equivalents at end of period 732 5,221
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Basis for Presentation
The consolidated balance sheet as of December 31, 1994 and the
related consolidated statement of operations and cash flows for the three
and nine months ended December 31, 1994 and 1993 are unaudited.
In the opinion of management, all adjustments necessary for
the fair presentation of such financial statements have been
included. Other than restructuring costs discussed in Note 5, such
adjustments consisted only of normal recurring items. Interim
results are not necessarily indicative of results for a full year.
The financial statements are presented as permitted by Form 10-Q and
do not contain certain information included in the Company's annual
consolidated financial statements.
Note 2. Inventories
(In thousands) DECEMBER 31, 1994 MARCH 31, 1994
Raw materials 4,798 2,391
Finished goods 14,453 3,584
19,251 5,975
Note 3. Property and Equipment
Depreciable
(In thousands) DEC 31, 1994 MAR 31, 1994 Life in Yrs
Computer equipment and
software 9,271 8,391 2-7
Manufacturing equipment 3,205 2,882 3-7
Furniture and fixtures 1,417 1,475 8
Leasehold improvements 1,661 1,802 Life of Lease
15,554 14,550
Accumulated depreciation and
amortization (9,914) (9,193)
5,640 5,357
<PAGE>
Note 4. Supplemental Cash Flow Information
For the nine months ended December 31, 1994 and 1993:
(In thousands) 1994 1993
Cash paid for:
Income taxes 65 171
Interest 390 96
Items not effecting cash:
Unrealized loss on marketable
securities 67 534
Note receivable, disposition of
division 500
Stock loans 330 1,317
Note 5. Restructuring Costs
The operating loss for the nine months ended December 31, 1993
includes a restructuring charge of $6,500,000 related primarily to
(i) a 12% workforce reduction in the areas of sales and marketing,
and general and administrative (resulting in a charge of $870,000),
(ii) the direct costs affecting the realizability of certain assets
associated with the implementation of a new sales, marketing and
distribution plan in the amount of $3,275,000 and (iii) the costs
associated with the disposition of the Company's Client Server
Technologies Group, which developed and marketed the LANlord
product line, in the amount of $1,850,000. Restructuring and
other costs accrued in the first quarter of 1994 were
paid and/or realized as follows: $3,400,000, $1,900,000, and
$1,200,000 in the second, third, and fourth quarters of 1994,
respectively. <PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Net Sales - Net sales for the three and nine month periods
ended December 31, 1994, were $23,134,000 and $67,219,000,
respectively, as compared to $14,849,000 and $39,376,000 for the same
periods last year. These increases were primarily attributable to
modem sales, and in particular, the V.fast HDMS network
management systems sales. A significant portion of the HDMS sales
were made to one customer which accounted for 30% of the first
quarter net sales, 24% of the second quarter net sales, and 11% of
the third quarter net sales. However, net sales to other customers
increased by $17,795,000 for the first nine months of this year as
compared to last year. These increases were also attributable to
the shipment of V.fast modems, a modem product not available in
the first or second quarter of 1994.
International sales for the three and nine month periods ended
December 31, 1994, were $7,235,000 and $18,188,000, respectively, as
compared to $2,822,000 and $8,259,000 for the same periods last
year. These increases were primarily due to new product offerings
in the international markets including V.fast modems and LANexpress remote
LAN access products.
Gross Margin - During the three and nine month periods ended
December 31, 1994, gross margins increased by $2,899,000 and
$10,803,000, respectively, an increase of 39% and 56% over the same
periods last year. The absolute dollar increases were primarily due
to an increase in net sales. Gross margins for both the three and
nine month periods ended December 31, 1994 were 45% of net sales, as
compared to 50% and 49% for the same periods last year. The
decrease in gross margins as a percentage of net sales was primarily
due to a decrease in the average selling price of the Company's modem
products and a higher percentage of the Company's product sales
consisting of modem, LANexpress, and HDMS sales.
Research and Development - For the three and nine month periods
ended December 31, 1994, research and development costs increased
$388,000 and $742,000, respectively, or 17% and 11% over the same
periods last year. These increases were primarily due to the
addition of personnel and their related costs. Research and
development expenses were 12% and 11% of net sales for the three
and nine month periods ended December 31, 1994, as compared to 16%
and 17% for the same periods last year. The decrease as a
percentage of sales was primarily due to the increase in net sales.
Sales and Marketing - For the three and nine month periods
ended December 31, 1994, sales and marketing expenses increased,
$901,000 and $2,286,000, respectively, increases of 26% and 20% over
the same periods last year. These increases were primarily
attributable to the growth in the domestic sales force during the
first six months of the year and, in the costs associated with
increased support requirements for the Company's newer product
offerings. Sales and marketing expenses were approximately 19% and
20% of net sales for the three and nine month
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
periods ended December 31, 1994, as compared to 23% and 29% for
the comparable periods last year. The decrease as a percentage of net
sales was primarily due to the increase in net sales offset by
increased spending as noted above.
General and Administrative - During the three and nine month
periods ended December 31, 1994, general and administrative expenses
decreased by $97,000 and $743,000, respectively, decreases of 7% and
17% over the same periods last year. These decreases were
primarily due to the second quarter reduction in personnel in the
prior year. General and administrative expenses were approximately
5% of net sales for both the three and nine month periods ended
December 31, 1994, as compared to 9% and 11% for the comparable
periods last year. These decreases as a percentage of net sales
were due to the increase in net sales and the second quarter
reduction in personnel in the prior year.
Interest Expense - During the three and nine month periods
ended December 31, 1994, interest expense increased by $145,000 and
$205,000, respectively. These increases were primarily due to
the Company utilizing it's line of credit during the first nine
months of the year. There were borrowings outstanding of aproximately
$10,000,000 at December 31, 1994 under the Company's line of credit.
Income Taxes - The Company's effective tax rate was 15% for the
three and nine month periods ended December 31, 1994. The primary
difference between the statutory rate and the Company's effective tax
rate reflects the utilization of a net operating loss carryforward.
In 1994, the Company did not record a benefit for income taxes due
to the uncertainty of being able to utilize it's net operating loss
carryforward.
Liquidity and Capital Resources
As of December 31, 1994, the Company had $732,000 in cash and
cash equivalents. In addition, the Company had a line of credit
agreement with a bank which allowed the Company to borrow up to the
lesser of (i) an amount equal to a percentage of certain eligible
accounts receivable of the Company, or (ii) $12,500,000 (which
amount may be decreased to $7,500,000 at the end of any fiscal
quarter if at such time the Company does not satisfy certain
financial requirements). The resulting limitation is further
reduced by amounts which may be drawn on letters of credit and
banker's acceptances outstanding for the account of the Company, and
by a percentage of the Company's exposure under any foreign currency
exchange contracts. Interest on the line of credit is the bank's
prime rate (8.5% at December 31, 1994) plus 2% (if the specified
financial requirements are not met the interest rate will be the
bank's then prime rate plus 1%). At December 31, 1994, the Company
had utilized $11,194,000 under it's line of credit with a
remaining availability of $1,306,000. Under the terms of the line of
credit, which expires in November 1995 and is secured by
substantially all of the Company's personal property, the
Company was required to maintain certain financial covenants and
was prohibited from paying dividends.
<PAGE>
Inventory levels at December 31, 1994 have increased by $13,276,000
to $19,251,000 since March 31, 1994. This increase was as a
result of planned increases to avoid stockouts in the distribution
channel and to provide adequate inventory for the Company's
largest customer. In addition, this increase also reflects a shift
from air to marine transportation, which requires higher inventory levels
due to increased in-transit times, for the Company's Far Eastern production.
Since its inception, the Company has met its liquidity
requirements through cash provided by operations, product line
dispositions, public and private stock offerings, lease
arrangements for facilities and equipment and short-term
borrowings from banks. Management believes that its cash and
equivalents, line of credit availability, and cash provided by
operations will be adequate to meet the Company's liquidity
requirements through fiscal 1995. The Company is currently
under negiotiations with two banks for a working capital line of
credit up to $16,000,000. This agreement, when finalized, is
anticipated to supersede the line of credit agreement in place as of
December 31, 1994. On a long-term basis, the Company does not
foresee the need for alternative financing arrangements other than
those currently utilized.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Continued)
Restructuring Costs
The operating loss for the nine months ended December 31, 1993
includes a restructuring charge of $6,500,000 related primarily to
(i) a 12% workforce reduction in the areas of sales and marketing,
and general and administrative (resulting in a charge of $870,000),
(ii) the direct costs affecting the realizability of certain assets
associated with the implementation of a new sales, marketing and
distribution plan in the amount of $3,275,000 and (iii) the costs
associated with the disposition of the Company's Client Server
Technologies Group, which developed and marketed the LANlord
product line, in the amount of $1,850,000. Restructuring and
other costs accrued in the first quarter of 1994 were paid and/or
realized as follows: $3,400,000, $1,900,000, and $1,200,000 in the
second, third, and fourth quarters of 1994, respectively.
Aquisition
On January 5, 1995, the Company acquired Extension Technology
Corp.("ETC") in a merger prusuant to which ETC became a wholly-owned
subsidiary of the Company and the shareholders of ETC received an
aggregate of 114,980 shares of the Company's common stock. The merger
has been accounted for as a purchase. ETC is a development-stage
enterprise which has devoted substantially all effort toward product
development and market research in the area of remote connectivity to
local area computer networks via Integrated Services Digital Network
technology.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit 11.0 - Calculation of net income per share.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during
the period covered by this report.
<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.
DATE: February 14, 1995 BY: /s/ Roland D. Pampel
Roland D. Pampel, President
Chief Executive Officer and Director
DATE: February 14, 1995 BY: /s/ Peter J. Minihane
Peter J. Minihane, Executive
Vice President, Chief Financial
Officer and Treasurer
EXHIBIT 11.0
MICROCOM, INC.
CALCULATION OF NET INCOME PER SHARE
FOR THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1994 AND 1993
(Unaudited)
(In thousands except per share amounts)
Three Months Ended Nine Months Ended
1994 1993 1994 1993
Net income (loss) $1,529 $265 $4,090 $(9,969)
Reconciliation of average number of
shares outstanding to amount used in
net income per share computation:
Weighted average number of shares
outstanding 10,792 10,171 10,697 9,913
Assumed exercise of stock options 1,129 192 1,305
Weighted average number of shares
outstanding as adjusted 11,921 10,363 12,002 9,913
Net income (loss) per share $.13 $.03 $.34 $(1.01)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1995 MAR-31-1995
<PERIOD-END> DEC-31-1994 DEC-31-1994
<CASH> 732 732
<SECURITIES> 0 0
<RECEIVABLES> 17,109 17,109
<ALLOWANCES> 317 317
<INVENTORY> 19,251 19,251
<CURRENT-ASSETS> 37,923 37,923
<PP&E> 15,554 15,554
<DEPRECIATION> 9,914 9,914
<TOTAL-ASSETS> 50,804 50,804
<CURRENT-LIABILITIES> 19,112 19,112
<BONDS> 193 193
<COMMON> 120 120
0 0
0 0
<OTHER-SE> 31,379 31,379
<TOTAL-LIABILITY-AND-EQUITY> 50,804 50,804
<SALES> 23,134 67,219
<TOTAL-REVENUES> 23,134 67,219
<CGS> 12,770 37,110
<TOTAL-COSTS> 8,309 24,850
<OTHER-EXPENSES> 60 124
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 199 390
<INCOME-PRETAX> 1,799 4,811
<INCOME-TAX> 270 721
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,529 4,090
<EPS-PRIMARY> .13 .34
<EPS-DILUTED> .13 .34
</TABLE>
