<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 Number 0-20215
MICROTOUCH SYSTEMS, INC.
(Exact name of Registrant as specified in its Charter)
Massachusetts 04-2802971
- ------------- ------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
300 Griffin Park, Methuen, MA 01844
- ----------------------------- ------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number
- -----------------------------
including area code: 978-659-9000
- ------------------- ------------
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 last 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practical date.
As of October 12, 1998 there were outstanding: 7,456,000 shares of common stock
of the Registrant.
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
INDEX
PAGE NO.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations - Three
and Nine Months Ended
September 30, 1998 and 1997 4
Consolidated Statement of Stockholders'
Equity - Nine Months Ended September 30, 1998 5
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
Exhibit Index 15
2
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN 000S EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ -----------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................... $ 956 $ 9,477
Marketable securities............................................... 31,675 25,274
Accounts receivable, net of allowances of $5,340 at September
30, 1998 and $ 5,169 at December 31, 1997 22,560 17,348
Inventories......................................................... 14,506 19,075
Deferred income taxes............................................... 5,661 6,869
Prepaid expenses and other current assets........................... 1,605 1,111
------ ------
Total current assets............................................. 76,963 79,154
Property and equipment, net............................................ 16,350 13,308
Other assets........................................................... 2,309 2,375
------ ------
$ 95,622 $ 94,837
====== ======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts and short-term notes payable............................... $ 6,604 $ 5,849
Accrued expenses..................................................... 10,690 10,040
------- ------
Total current liabilities..................................... 17,294 15,889
Long-term notes payable................................................ 105 --
------- ------
Total Liabilities............................................ 17,399 15,889
Stockholders' equity
Preferred stock, $.01 par value per share--
500,000 shares authorized, none issued and outstanding
at September 30, 1998 and December 31, 1997.................... -- --
Common stock, $.01 par value per share - 20,000,000 authorized
at September 30, 1998 and December 31, 1997; 8,236,255 issued
at September 30, 1998 and 8,220,623 issued at December 31, 1997..... 82 82
Additional paid-in capital............................................ 62,404 61,963
Treasury stock at cost 728,676 and 220,049 shares at
September 30, 1998 and December 31, 1997.......................... (10,326) (3,333)
Other comprehensive income............................................ (1,998) (1,007)
Retained earnings.................................................... 28,061 21,243
------- ------
Total stockholders' equity................................... 78,223 78,948
------- ------
$ 95,622 $ 94,837
======= ======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(AMOUNTS IN 000'S EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ -----------------------------
1998 1997 1998 1997
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Net sales....................................... $ 34,948 $ 32,829 $ 107,800 $ 95,180
Cost of sales................................... 21,503 20,749 67,276 59,765
------------ ------------ ------------- ------------
Gross profit.................................... 13,445 12,080 40,524 35,415
Operating expenses:
Research and development...................... 2,523 1,998 7,089 5,771
Sales and marketing........................... 5,167 4,488 16,155 13,746
General and administrative.................... 2,502 1,988 7,334 5,905
Amortization of intangible assets............. 121 119 381 357
------------ ------------ ------------- ------------
Total operating expenses................... 10,313 8,593 30,959 25,779
------------ ------------ ------------- ------------
Operating income................................ 3,132 3,487 9,565 9,636
Other income.................................... 311 139 538 872
Arbitration costs............................... ----- ---- ----- 595
------------ ------------ ------------- ------------
Income before provision for income taxes........ 3,443 3,626 10,103 9,913
Provision for income taxes...................... 1,102 1,256 3,233 3,519
------------ ------------ ------------
Net income...................................... $ 2,341 $ 2,370 $ 6,870 $ 6,394
============ ============ ============= ============
Earnings per share:
Basic........................................ $ 0.30 $ 0.30 $ 0.88 $ 0.81
Diluted...................................... $ 0.30 $ 0.28 $ 0.86 $ 0.77
Weighted average common and common
equivalent shares:
Basic........................................ 7,686 7,975 7,794 7,914
Diluted...................................... 7,815 8,447 7,960 8,349
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(AMOUNTS IN 000S EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock Additional Other Treasury Stock Total
----------------- Paid-in Comprehensive Retained -------------------- Stockholders'
Shares Amount Capital Income (loss) Earnings Shares Amount Equity
--------- ------ ---------- -------------- -------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 8,220,623 $ 82 $61,963 $(1,007) $21,243 (220,049) $ (3,333) $78,948
Exercise of stock options 15,632 -- 250 (52) 6,325 96 294
Employee stock purchase plan 15,048 227 227
Compensation expense related
to common stock options 191 191
Effect of exchange rate changes (986) (986)
Unrealized loss on securities
available for sale, net of tax (5) (5)
Purchase of treasury stock (530,000) (7,316) (7,316)
Net income 6,870 6,870
-----------------------------------------------------------------------------------------------
Balance September 30, 1998 8,236,255 $ 82 $62,404 $(1,998) $28,061 (728,676) $(10,326) $78,223
===============================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN 000S)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,870 $ 6,394
Adjustments to reconcile net income to net cash provided by
(used in) operating activities--
Depreciation and amortization 4,872 2,218
Deferred income taxes (13)
Compensation expense related to common stock options 191 23
(Increase) decrease in assets--
Accounts receivable (5,212) (6,986)
Inventories 4,569 (4,435)
Prepaid expenses and other assets 407 (1,036)
Increase (decrease) in liabilities--
Accounts payable 755 (777)
Accrued expenses 652 2,281
Net cash provided by (used in) operating activities 13,104 (2,331)
Cash flows provided by (used in) investing activities:
Purchase of property and equipment, net (7,431) (6,664)
Sale and maturity of marketable securities 5,180 11,948
Purchase of marketable securities (11,621) (9,386)
------------ ------------
Net cash (used in) investing activities (13,872) (4,102)
Cash flows provided by (used in) financing activities:
Exercise of stock options and employee stock purchase
Plan 521 2,221
Proceeds from long-term debt 105
Purchase of treasury stock (7,316) ----
Tax benefit from exercise of stock options and
disqualifying dispositions ---- 1,794
------------ ------------
Net cash provided by (used in) financing activities (6,690) 4,015
Effect of exchange rates and other on cash (1,063) (544)
------------ ------------
Net decrease in cash (8,521) (2,962)
Cash, beginning of period 9,477 9,818
Cash, end of period $ 956 $ 6,856
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 40 $ 99
============ ============
Income taxes paid $ 1,281 $ 3,032
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
MICROTOUCH SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(1) Nature of Business
------------------
MicroTouch Systems, Inc. develops, manufactures and sells touch
sensitive input systems, including touch-sensitive screens, digitizers for pen
computers and kiosk enclosures as well as electronic digital PC based
whiteboards.
(2) Consolidated Financial Statements
---------------------------------
The accompanying consolidated financial statements include the
accounts of MicroTouch Systems, Inc. and its wholly-owned subsidiaries
(together, "MicroTouch" or the "Company"). All significant intercompany
accounts, transactions and profits have been eliminated.
(3) Interim Consolidated Financial Statements
-----------------------------------------
The accompanying consolidated financial statements as of September 30,
1998 and for the three and nine-month periods ended September 30, 1998 and 1997
include the accounts of the Company, and have not been audited by independent
public accountants; however, these statements, prepared in accordance with
generally accepted accounting principles, reflect, in the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the financial position as of September 30, 1998, and the results
of operations for the three-month and nine-month periods ended September 30,
1998 and 1997. The results of operations for the three-month and nine-month
periods ended September 30, 1998 are not necessarily indicative of the results
to be expected for the entire year.
These consolidated financial statements do not include all disclosures
associated with annual consolidated financial statements and, accordingly,
should be read in conjunction with the footnotes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
(4) Earnings per Share
------------------
Basic earnings per share data are computed using the weighted average
number of common shares outstanding during the year. Diluted earnings per share
are computed using the weighted average number of common shares outstanding
during the year and dilutive potential common shares. Dilutive potential common
shares consist of stock options and are calculated using the treasury stock
method.
Effective January 1, 1997 the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
The calculation of basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
(Amounts in 000's except per THREE MONTHS ENDED NINE MONTHS ENDED
share data) ------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income: $2,341 $2,370 $6,870 $6,394
------ ------ ------ ------
Weighted Average Common Shares
Outstanding: 7,686 7,975 7,794 7,914
------ ------ ------ ------
Basic Earnings Per Share $ 0.30 $ 0.30 $ 0.88 $ 0.81
------ ------ ------ ------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ ---------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
DILUTED EARNINGS PER SHARE
Net Income: $2,341 $2,370 $6,870 $6,394
------ ------ ------ ------
Weighted Average Common Shares
Outstanding: 7,686 7,975 7,794 7,914
------ ------ ------ ------
Weighted Average Number of Dilutive
Potential Common Shares: 129 472 166 435
------ ------ ------ ------
Weighted Average Number of Shares
Outstanding as Adjusted: 7,815 8,447 7,960 8,349
------ ------ ------ ------
Diluted Earnings Per Share: $ 0.30 $ 0.28 $ 0.86 $ 0.77
------ ------ ------ ------
</TABLE>
(5) Recent Accounting Pronouncements
--------------------------------
Effective January 1, 1998 the Company adopted the provisions of SFAS
No. 130, Reporting Comprehensive Income, which establishes standards for the
reporting and display of comprehensive income and its components in the
financial statements. Comprehensive income includes all changes in a company's
equity including, among other things, foreign currency translation adjustments
and unrealized gains and losses on marketable securities classified as
available-for-sale. Because cumulative translation adjustments are considered a
component of permanently invested unremitted earnings of subsidiaries outside of
the United States, no taxes are provided on such amounts. The Company's
comprehensive earnings for the three months ended September 30, 1998 and 1997
were as follows ( in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $ 2,341 $2,370 $6,870 $6,394
Currency translation adjustment (1,153) (438) (986) (544)
Unrealized gain ( loss ) on marketable - 17 (5) (44)
securities, net of tax
------- ------- ------- -------
Comprehensive Income $ 1,188 $ 1,949 $ 5,879 $ 5,806
======= ======= ======= =======
</TABLE>
The accumulated balances for the components of Other Comprehensive Income are:
8
<PAGE>
<TABLE>
<CAPTION>
Unrealized Accumulated
Foreign Gain ( Loss) Other
Currency On Marketable Comprehensive
Translation Securities Income
----------- ------------- -------------
<S> <C> <C> <C>
Balance December 31, 1996 $ (533) $105 $ (428)
Change in Period (544) (44) (588)
------- ---- -------
Balance September 30, 1997 $(1,077) $ 61 $(1,016)
======= ==== =======
Balance December 31, 1997 $(1,091) $ 84 $(1,007)
Change in Period (986) (5) (991)
------- ---- -------
Balance September 30, 1998 $(2,077) $ 79 $(1,998)
======= ==== =======
</TABLE>
Effective January 1, 1998 the Company adopted the provisions of SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Financial statement disclosures for prior
periods are required to be restated. The Company is in the process of evaluating
the disclosure requirements but anticipates that touch input devices will be the
sole reportable segment in its future financial statements. The adoption of SFAS
No. 131 did not have a material impact on the Company's consolidated results of
operations, financial position or cash flows.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth, for the fiscal periods indicated, the percentage
of net sales represented by certain items in MicroTouch's statements of
operations:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
------------------------------------------------
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 61.5 63.2 62.4 62.8
------ ------ ------ ------
Gross Profit 38.5 36.8 37.6 37.2
Operating Expenses:
Research & Development 7.2 6.1 6.6 6.1
Sales & Marketing 14.8 13.7 14.9 14.4
General & Administrative 7.2 6.1 6.8 6.2
Amortization of Intangible Assets .3 .4 .4 .4
Total Operating Expenses 29.5 26.3 28.7 27.1
------ ------ ------ ------
Operating Income 9.0 10.5 8.9 10.1
Other Income 0.9 0.4 .5 0.9
Arbitration costs --- --- --- 0.6
------ ------ ------ ------
Income Before Provision for Income Tax 9.9 10.9 9.4 10.4
Net Income 6.7 7.1 6.4 6.7
</TABLE>
NET SALES Net sales in the quarter ended September 30, 1998 increased over the
corresponding period of 1997 by $2,119,000 or 6% to $34,948,000. For the nine-
month period ended September 30, 1998, net sales increased $12,620,000 or 13% to
$107,800,000. The increase in both the three and nine-month periods ended
September 30, 1998 reflected increases in international touchscreen sales, sales
to the domestic non-gaming markets and from the sale of electronic whiteboards.
For the three-month period ended September 30, 1998, international sales
accounted for 43% of net sales, a decrease from 49% of net sales for the
comparable period of 1997, reflecting an increased proportion of domestic
touchscreen non-gaming volume and domestic whiteboard volume. For the nine-
month period ended September 30, 1998, international sales accounted for 47% of
net sales as compared to 41% for the nine-month period ended September 30, 1997.
GROSS PROFIT Gross profit for the three and nine-month periods ended September
30, 1998 was $13,445,000 and $40,524,000, which represents increases of 11% and
14%, respectively, over the corresponding periods of 1997. As a percentage of
net sales, gross profit increased from 36.8% in the third quarter of 1997 to
38.5% in the third quarter of 1998. The increase in third quarter gross margins
primarily reflects improved revenue mix in the touchscreen business towards
higher margin kit sales as well as realization of operating efficiencies from
recent capital expenditure investments in the touchscreen business. For the
nine-month period ended September 30, 1998, gross profit, as a percentage of net
sales, increased slightly to 37.6% from 37.2% in the same period in 1997.
RESEARCH AND DEVELOPMENT Research and development expenses for the quarter
ended September 30, 1998 increased over the corresponding period of 1997 by
$525,000 or 26%. As a percentage of net sales, research and development
expenses increased from 6% in the third quarter of 1997 to 7% in the third
quarter of 1998. This increase reflects the continued investment in core
touchscreen technologies
10
<PAGE>
and new product initiatives, particularly in the resistive product area. For the
nine-month period ended September 30, 1998, research and development spending
increased $1,318,000 or 23% over the same period in 1997. The increase in
research and development expenses resulted primarily from continued development
projects in touchscreen technologies, especially resistive products.
SALES AND MARKETING Sales and marketing expenses in the quarter ended September
30, 1998 increased over the corresponding period of 1997 by $679,000 or 15%, to
$5,167,000. As a percentage of net sales, sales and marketing expenses
increased from 14% in the third quarter of 1997 to 15% in the third quarter of
1998. The increase in sales and marketing expenses resulted primarily from a
general increase in spending levels to support sales growth, including the
opening of a new sales office in Spain and the roll-out of new marketing
programs designed to generate additional market opportunities and increase
market share. For the nine-month period ended September 30, 1998, sales and
marketing expenses increased by $2,409,000 or 18% to $16,155,000. As a
percentage of net sales, sales and marketing expenses increased to 14.9% in the
first nine months of 1998 as compared to 14.4% in the first nine months of 1997.
The increase in sales and marketing expenses resulted primarily from a general
increase in spending levels to support sales growth, including commissions on
higher sales levels and increased marketing programs designed to generate new
opportunities and expand market share in the Company's core touchscreen
business.
GENERAL AND ADMINISTRATIVE General and administrative expenses for the quarter
ended September 30, 1998 increased from the corresponding period of 1997 by
$514,000 to $2,502,000. For the nine-month period ended September 30, 1998,
general and administrative expenses increased over the corresponding period of
1997 by $1,429,000 or 24% to $7,334,000. As a percentage of net sales, general
and administrative expenses increased to 7% from 6% for the three-month periods
ended September 30, 1998 and 1997, and for the nine-month periods ended
September 30, 1998 and 1997 G&A increased to 6.8% from 6.2%. The absolute
increase in spending reflects costs associated with expanding the infrastructure
to support domestic and international growth, especially with regard to the
Company's management information systems.
AMORTIZATION OF INTANGIBLE ASSETS For the quarter ended September 30, 1998,
operating expenses included $121,000 of amortization relating to various
acquisitions and purchases of technologies, as compared to $119,000 for the
quarter ended September 30, 1997. For the nine-month period ended September 30,
1998, amortization expense was $381,000 as compared to $357,000 for the
comparable period of 1997.
OPERATING INCOME Operating income in the quarter ended September 30, 1998 of
$3,132,000 represented a decrease of $355,000, or 10%, as compared to the third
quarter of 1997. For the nine-month period ended September 30, 1998, operating
income of $ 9,565,000 reflects a decrease of $71,000 or 1% versus the comparable
period of 1997.
ARBITRATION COSTS During the second quarter of 1997, the Company recorded
$595,000 in one-time special charges related to the final settlement of an
arbitration case against Nissha Printing Company Ltd. The Company has not
incurred any cost associated with the matter during 1998 and does not expect to
incur any additional cost in this matter.
PROVISION FOR INCOME TAXES The Company's effective tax rate for both the three
and nine-month periods ended September 30, 1998 was 32% as compared to 35% for
the comparable periods of 1997. The effective tax rates in all periods differed
from the federal statutory rate of 34% primarily as a result of the provision
for state income taxes and the inability of the Company to record a tax benefit
from certain foreign operating loss carryforwards, offset by the benefit related
to the Company's foreign sales corporation and tax-exempt interest income.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company had net working capital of $59.7 million,
including approximately $32.6 million in cash, cash equivalents and marketable
securities. The Company reported net cash generated by operating activities of
$13.1 million for the nine-months ended September 30, 1998. The cash was
generated in part by increased productivity from working capital.
In December 1997, the Board of Directors of the Company authorized a repurchase
program of the Company's common stock not to exceed $5 million. In August, 1998
the Board authorized an increase in this limit to $10 million. Under this
program the Company has repurchased approximately 530,000 shares at an aggregate
cost of $7.3 million. These shares have been and will be used for the Company's
stock option plan, employee stock purchase plan and for other corporate
purposes, possibly including acquisitions.
During 1998 the Company has invested $7.4 million in capital expenditures.
Major capital expenditures included investment in the Company's touchscreen
manufacturing operations and management information systems to support the
Company's infrastructure of its expanding worldwide operations.
Pending operating needs, the Company has invested its cash in investment grade,
interest bearing securities. The Company believes that these cash investments,
together with anticipated cash flows from operations pursuant to its current
operating plan, will be sufficient to meet the Company's working capital and
capital expenditure requirements, at least through 1999. While the Company
regularly evaluates acquisition candidates, conducts preliminary discussions
regarding acquisitions and intends to pursue acquisition opportunities available
to it, there can be no assurance that any such acquisition will be made or if
any such acquisition is completed, that cash consideration will be offered by
the Company.
The discussion contained in this section, as well as elsewhere in this Form 10-
Q, may contain forward-looking statements based on the current expectations of
the Company's management. Such statements are subject to certain risks and
uncertainties which could cause actual results to differ materially from those
projected. 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 any revisions to these forward-
looking statements which may be necessary to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
READINESS FOR YEAR 2000
The Company has taken actions to understand the nature and extent of the work
required to make its systems, products and infrastructure Year 2000 compliant.
The Company does not believe that any material year 2000 issues exist with
software or embedded technology contained within its' product offerings. System
hardware, software and microprocessor controlled equipment that support the
Company's infrastructure have been inventoried and assessed for Year 2000
compliance. To the extent necessary to address material Year 2000 issues, the
Company is in the process of obtaining and installing current releases or
upgrades from software vendors. All business systems have been upgraded and are
believed to be compliant. Work continues on international facilities systems
and these conversions are scheduled for completion by the end of the first
quarter of 1999. Because the upgrades are being installed by existing employees
and consultants of the Company in conjunction with their normal duties, and the
software upgrades would have been purchased in the normal course of business,
the Company has not been able to isolate the cost of making these systems
compliant. Based on available information, including assurances from software
vendors that their products are compliant, the Company believes that it will be
able to manage its total Year 2000 transition without any material adverse
effect on its business operations, products, operating results or financial
condition.
The Company has not fully determined the extent to which the systems of
customers and vendors with whom the Company has material relationships may not
be compliant. There can be no assurance that the systems of other companies
which the Company deals with will be converted on a timely basis. Such failure
to convert by another company could possibly have a material negative effect on
the Company's consolidated financial position, results of operations or cash
flows.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Organization, as Amended (1)
3.2 Amended and Restated By-Laws, as Amended (2)
4.1 Form of Stock Certificate (2)
27 Financial Data Schedule. Filed herewith.
(1) Filed as an Exhibit to the Annual Report on Form 10-K filed for
the year ended December 31, 1995 and incorporated herein by reference.
(2) Filed as an exhibit to the Registration Statement on Form S-1
filed with the Securities and Exchange Commission on June 26, 1992
(Registration Statement No. 33-47874) and incorporated herein by
reference.
(b) Reports on Form 8-K
The Company filed no current reports on Form 8-K during the quarter
ended September 30, 1998.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MicroTouch Systems, Inc.
Dated: November 5, 1998 BY: /s/Geoffrey P. Clear
------------------------
Geoffrey P. Clear
Vice President -
Finance & Administration,
Chief Financial Officer &
Treasurer
14
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- -------
3.1 Restated Articles of Organization, as Amended (1)
3.2 Amended and Restated By-laws (2)
4.1 Form of Stock Certificate (2)
27 Financial Data Schedules. Filed herewith
(1) Filed as an Exhibit to the Annual Report on Form 10-K filed
for the year ended December 31, 1995 and incorporated herein
by reference.
(2) Filed as an exhibit to the Registration Statement on Form S-1
filed with the Securities and Exchange Commission on June 26,
1992 (Registration Statement No. 33-47874) and incorporated
herein by reference.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 0 956
<SECURITIES> 0 31,675
<RECEIVABLES> 0 27,900
<ALLOWANCES> 0 5,340
<INVENTORY> 0 14,506
<CURRENT-ASSETS> 0 76,963
<PP&E> 0 26,229
<DEPRECIATION> 0 9,879
<TOTAL-ASSETS> 0 95,622
<CURRENT-LIABILITIES> 0 17,294
<BONDS> 0 0
0 0
0 0
<COMMON> 0 82
<OTHER-SE> 0 78,141
<TOTAL-LIABILITY-AND-EQUITY> 0 95,622
<SALES> 34,948 107,800
<TOTAL-REVENUES> 34,948 107,800
<CGS> 21,503 67,276
<TOTAL-COSTS> 21,503 67,276
<OTHER-EXPENSES> 9,983 30,340
<LOSS-PROVISION> 13 41
<INTEREST-EXPENSE> 6 40
<INCOME-PRETAX> 3,443 10,103
<INCOME-TAX> 1,102 3,233
<INCOME-CONTINUING> 2,341 6,870
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,341 6,870
<EPS-PRIMARY> .30<F1> .88<F1>
<EPS-DILUTED> .30<F1> .86<F1>
<FN>
<F1>PREPARED IN ACCORDANCE WITH FAS 128, USING BASIC AND DILUTED EPS IN PLACE
OF PRIMARY AND FULLY DILUTED EPS.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 6,856 0
<SECURITIES> 24,087 0
<RECEIVABLES> 28,158 0
<ALLOWANCES> 5,195 0
<INVENTORY> 19,511 0
<CURRENT-ASSETS> 80,541 0
<PP&E> 18,626 0
<DEPRECIATION> 6,439 0
<TOTAL-ASSETS> 96,541 0
<CURRENT-LIABILITIES> 17,527 0
<BONDS> 0 0
0 0
0 0
<COMMON> 82 0
<OTHER-SE> 78,932 0
<TOTAL-LIABILITY-AND-EQUITY> 96,541 0
<SALES> 32,829 95,180
<TOTAL-REVENUES> 32,829 95,180
<CGS> 20,749 59,765
<TOTAL-COSTS> 20,749 59,765
<OTHER-EXPENSES> 8,358 25,265
<LOSS-PROVISION> 92 226
<INTEREST-EXPENSE> 4 11
<INCOME-PRETAX> 3,626 9,913
<INCOME-TAX> 1,256 3,519
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,370 6,394
<EPS-PRIMARY> 0.30<F1> 0.81<F1>
<EPS-DILUTED> 0.28<F1> 0.77<F1>
<FN>
<F1>RESTATED IN ACCORDANCE WITH FAS 128, USING BASIC AND DILUTED EPS IN PLACE
OF PRIMARY AND FULLY DILUTED EPS.
</FN>
</TABLE>
