SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-20666
MICROTEST, INC.
---------------
(Exact name of registrant as specified in its charter)
Delaware 86-0485884
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
4747 N. 22nd Street, Phoenix, Arizona 85016
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(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (602) 952-6400
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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
----- -----
As of May 6, 1996, 8,116,227 shares of the registrant's common stock were
outstanding.
This document contains 12 pages
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<PAGE>
INDEX
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MICROTEST, INC.
Page
Facing Page 1
Index 2
PART I. FINANCIAL INFORMATION
- -----------------------------
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2 - Management's Discussion and Analysis of Financial
Conditions and Results of Operations 7-9
PART II. OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings 10
Item 2 - Changes in Securities 10
Item 3 - Defaults Upon Senior Securities 10
Item 4 - Submission of Matters to a Vote of Security Holders 10
Item 5 - Other Information 10
Signatures 11
Exhibit 11 - Statement regarding computation of per share earnings 12
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Microtest, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March 30, December 31,
1996 (unaudited) 1995
---------------- ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 22,052 $ 19,907
Accounts receivable - less allowance for doubtful
accounts of $526 and $521, respectively 12,652 15,857
Inventories - net 6,833 6,814
Prepaid expenses 662 681
Income taxes receivable 1,703 2,100
Deferred income taxes 1,819 1,819
-------- --------
Total current assets 45,721 47,178
PROPERTY, PLANT & EQUIPMENT - less accumulated
depreciation of $4,154 and $3,841, respectively 3,176 3,212
INTANGIBLES 336 448
DEFERRED INCOME TAXES 239 239
-------- --------
TOTAL $ 49,472 $ 51,077
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,759 $ 4,757
Accrued liabilities 1,814 2,411
Accrued payroll and employee benefits 1,064 882
-------- --------
Total current liabilities 5,637 8,050
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized,
15,000,000 shares; issued and outstanding,
8,159,619 and 8,159,058 shares, respectively 8 8
Additional paid-in capital 32,546 32,546
Retained income 12,110 11,455
Common stock in treasury at cost - 53,529 shares
and 63,834 shares, respectively (829) (982)
-------- --------
Total stockholders' equity 43,835 43,027
-------- --------
TOTAL $ 49,472 $ 51,077
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
Microtest, Inc.
Condensed Consolidated Statements of Income (Unaudited)
(In thousands, except per share data)
Three Months Ended
------------------
March 30, April 1,
1996 1995
--------- --------
TOTAL REVENUES $11,960 $12,643
TOTAL COST OF SALES 5,001 4,762
------- -------
GROSS PROFIT 6,959 7,881
OPERATING EXPENSES:
Sales and marketing 3,403 2,721
Research and development 1,611 1,546
General and administrative 1,060 960
------- -------
Total operating expenses 6,074 5,227
------- -------
INCOME FROM OPERATIONS 885 2,654
INVESTMENT INCOME - NET 215 281
------- -------
INCOME BEFORE INCOME TAXES 1,100 2,935
PROVISION FOR INCOME TAXES 393 1,059
------- -------
NET INCOME $ 707 $ 1,876
======= =======
NET INCOME PER COMMON AND
EQUIVALENT SHARE $ 0.09 $ 0.22
======= =======
SHARES USED IN PER SHARE
CALCULATION 8,200 8,556
======= =======
See notes to condensed consolidated financial statements
4
<PAGE>
Microtest, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 30, April 1,
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 707 $ 1,876
Adjustments to reconcile net income to net cash
provided by (used in) operating activites:
Depreciation and amortization 382 361
Changes in operating assets and liabilities:
Accounts receivable 3,205 (1,393)
Inventories (19) (1,136)
Prepaid expenses and other assets 63 (30)
Accounts payable (1,998) (153)
Accrued liabilities (598) (217)
Accrued payroll and employee benefits 182 33
Income taxes receivable 396 (386)
-------- --------
Net cash provided by (used in) operating activities 2,320 (1,045)
-------- --------
INVESTING ACTIVITES:
Purchases of equipment and leasehold
improvements (277) (672)
-------- --------
Net cash provided by (used in) investing activities (277) (672)
-------- --------
FINANCING ACTIVITIES:
Proceeds from sale of common stock and treasury stock 102 458
Reduction in income tax liability from disqualifying
dispositions of incentive stock options and
exercises of non-qualified stock options -- 819
-------- --------
Net cash provided by financing activities 102 1,277
-------- -- -----
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 2,145 (440)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 19,907 31,590
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 22,052 $ 31,150
======== ========
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
MICROTEST, INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Rule 10-01 of
Registration S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments and
reclassifications considered necessary for a fair and comparable presentation
have been included and are of a normal recurring nature. Operating results for
the three months ended March 30, 1996, are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. The
accompanying financial statements should be read in conjunction with the
Company's most recent Annual Report and Form 10-K.
1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
A. Principles of Consolidation - The consolidated financial statements
include the accounts of Microtest, Inc. and its wholly-owned subsidiaries.
The Company develops, markets, and supports products that make it easier
to install, service, and manage local area networks ("LANs").
B. For interim reporting purposes, the Company ends its quarters on the
Saturday closest to the calendar quarter end, with the fourth quarter
ending on December 31, 1996.
C. Reclassifications - Certain reclassifications have been made to the
1995 consolidated financial statements to conform to the 1996
presentation.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
Total Revenues $11,960 (5.4%) $12,643
- --------------------------------------------------------------------------------
During three months ended March 30, 1996, total revenues decreased compared to
the same period in 1995. The decrease was due primarily to inventory problems in
the North American channel for PentaScanner(TM).
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
Gross Profit $6,959 (11.7%) $7,881
% of Total
Revenues 58.2% 62.3%
- --------------------------------------------------------------------------------
Gross profit decreased during the three months ended March 30, 1996, compared to
the same period in 1995 primarily due to the Company's response to competitive
pricing pressures.
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
Sales & $3,403 25.1% $2,721
Marketing
% of Total
Revenues 28.5% 21.5%
- --------------------------------------------------------------------------------
For the three months ended March 30, 1996, sales and marketing expenses
increased in absolute dollars and as a percentage of total revenues compared to
the same period in 1995. The increase is due largely to an increased investment
in sales force and increased promotional costs related to the introduction of
enhancements of the Company's products.
7
<PAGE>
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
Research & $1,611 4.2% $1,546
Development
% of Total
Revenues 13.5% 12.2%
- --------------------------------------------------------------------------------
Research and development expenses increased in absolute dollars and as a
percentage of total revenues in the three months ended March 30, 1996, compared
with the same period in 1995. The increase in absolute dollars is due primarily
to increased compensation expense related to the hiring of a new executive as
well as the expansion of research and development facilities located in
California and Phoenix. To date, all of the Company's research and development
expenses, including software development costs, have been expensed as incurred.
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
General and
Administrative $1,060 10.5% $960
% of Total
Revenues 8.8% 7.6%
- --------------------------------------------------------------------------------
General and administrative expenses increased in absolute dollars and as a
percentage of revenues for the three months ended March 30, 1996, compared to
the same period in the preceding year. The increase resulted from the settlement
of a lawsuit originally filed in 1994.
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
Income Taxes $393 (62.8%) $1,059
Effective Tax Rate 35.7% 36.1%
- --------------------------------------------------------------------------------
The Company's effective tax rate decreased for the three months ended March 30,
1996, compared to the same period of the preceding year primarily due to the
increased proportion of income derived from tax-exempt sources. The Company
believes its effective tax rate would have been lower had the research and
development tax credit formerly afforded under Section 41 of the Internal
Revenue Code been renewed.
8
<PAGE>
Qtr. End Qtr. End
(In thousands) 3/30/96 Change 4/1/95
- --------------------------------------------------------------------------------
Net Income $707 (62.3%) $1,876
% of Total Revenues 5.9% 14.8%
- --------------------------------------------------------------------------------
Net income decreased in both absolute dollars and as a percentage of total
revenues for the quarter ended March 30, 1996, compared to the same period in
1995 due primarily to the Company's response to competitive pricing pressures as
well as increased sales and marketing costs.
Liquidity and capital resources
- -------------------------------
The Company has financed its operations primarily through operating cash flows
and equity financings. At March 30, 1996, the Company had cash and cash
equivalents of $22.1 million. This represents a $2.2 million increase in cash
equivalents during the three months ended March 30, 1996. The Company does not
anticipate significant capital expenditures and expects that existing cash
balances and anticipated cash flows from operations will satisfy the Company's
working capital requirements for the foreseeable future.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2. - Changes in Securities
None .
Item 3. - Defaults Upon Senior Securities
Not applicable
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) Exhibit 11 - Statement regarding computation of per share earnings
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MICROTEST, INC.
---------------
Registrant
Date: May 10, 1996 /s/ Richard G. Meise
--------------------
Richard G. Meise
Chief Executive Officer
Date: May 10, 1996 /s/ Richard R. Douglas
----------------------
Richard R. Douglas
Chief Financial Officer
11
MICROTEST, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Three Months Ended
------------------
March 30, April 1,
1996 1995
Net Income $ 707 $ 1,876
======= =======
Common shares outstanding at end of period 8,106 8,038
Adjustment to reflect weighted average for
shares issued during period (3) (39)
Adjustment for options and warrants calculated
under the treasury stock method:
Options 97 557
Warrants -- --
------- -------
Common and equivalent shares outstanding 8,200 8,556
======= =======
Net income per share $ 0.09 $ 0.22
======= =======
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 22,052
<SECURITIES> 0
<RECEIVABLES> 13,178
<ALLOWANCES> 526
<INVENTORY> 6,833
<CURRENT-ASSETS> 45,721
<PP&E> 7,330
<DEPRECIATION> 4,154
<TOTAL-ASSETS> 49,472
<CURRENT-LIABILITIES> 5,637
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 43,827
<TOTAL-LIABILITY-AND-EQUITY> 49,472
<SALES> 11,960
<TOTAL-REVENUES> 12,176
<CGS> 5,001
<TOTAL-COSTS> 11,075
<OTHER-EXPENSES> 75
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,100
<INCOME-TAX> 393
<INCOME-CONTINUING> 707
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 707
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
