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 September 27, 1997
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
-------------------------------------------
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (602) 952-6400
------------------------------------------------------------------
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 November 4, 1997, 8,201,769 shares of the registrant's common stock were
outstanding.
This document contains 16 pages
-------------------------------
<PAGE>
INDEX
-----
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 6-8
Item 2 - Management's Discussion and Analysis of Financial
Conditions and Results of Operations 8-11
PART II. OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings 12
Item 2 - Changes in Securities 12
Item 3 - Defaults Upon Senior Securities 12
Item 4 - Submission of Matters to a Vote of Security Holders 12
Item 5 - Other Information 12
Item 6 - Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 11 - Statement regarding computation of per share earnings 14
Exhibit 99 - Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward-Looking Statements 15-16
2
<PAGE>
PART I. FINANCIAL STATEMENTS
Microtest, Inc.
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
September 27, December 31,
1997 (unaudited) 1996
---------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,701 $ 10,282
Accounts receivable - net 13,580 17,544
Inventories - net 6,936 6,163
Prepaid expenses 1,521 823
Income taxes receivable 795 291
Deferred income taxes 3,121 3,121
-------- --------
Total current assets 33,654 38,224
PROPERTY, PLANT AND EQUIPMENT - less accumulated
depreciation of $5,604 and $4,943, respectively 3,391 3,642
INTANGIBLES AND OTHER ASSETS 1,163 832
DEFERRED INCOME TAXES 615 615
-------- --------
TOTAL $ 38,823 $ 43,313
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,457 $ 5,579
Accrued liabilities 2,909 4,983
Accrued payroll and employee benefits 933 1,079
-------- --------
Total liabilities 7,299 11,641
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized, 15,000,000 shares;
issued 8,159,540 and 8,159,058 shares, respectively 8 8
Additional paid-in capital 32,613 32,593
Deficit (1,097) (485)
Common stock in treasury at cost - 0 and 27,970
shares, respectively -- (444)
-------- --------
Total stockholders' equity 31,524 32,116
-------- --------
TOTAL $ 38,823 $ 43,757
======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE>
Microtest, Inc.
Condensed Consolidated Statements of Income (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 12,391 $ 12,136 $ 35,450 $ 36,762
TOTAL COST OF SALES 5,335 4,853 14,686 15,355
-------- -------- -------- --------
GROSS PROFIT 7,056 7,283 20,764 21,407
OPERATING EXPENSES:
Sales and marketing 3,695 3,323 12,490 10,150
Research and development 1,847 1,586 6,067 4,642
General and adminstrative 978 1,028 3,124 2,982
-------- -------- -------- --------
Total operating expenses 6,520 5,937 21,681 17,774
INCOME/(LOSS) FROM OPERATIONS 536 1,346 (917) 3,633
INVESTMENT INCOME 1 175 212 586
-------- -------- -------- --------
INCOME/(LOSS) BEFORE INCOME TAXES 537 1,521 (705) 4,219
INCOME TAX PROVISION/(BENEFIT) 205 530 (184) 1,539
-------- -------- -------- --------
NET INCOME/(LOSS) $ 332 $ 991 $ (521) $ 2,680
======== ======== ======== ========
NET INCOME/(LOSS) PER COMMON AND
EQUIVALENT SHARE $ 0.04 $ 0.12 $ (0.06) $ 0.32
======== ======== ======== ========
SHARES USED IN PER SHARE CALCULATION 8,298 8,291 8,168 8,255
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
Microtest, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------
September 27, September 28,
1997 1996
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net (loss)/income $ (521) $ 2,680
Adjustments to reconcile net (loss)/income to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,491 1,101
Changes in operating assets and liabilities:
Accounts receivable 3,964 (196)
Inventories (773) 2,040
Prepaid expenses and other assets (1,139) 525
Accounts payable (2,552) 197
Accrued liabilities (1,982) 790
Accrued payroll and employee benefits (146) 108
Income taxes receivable (504) 1,853
-------- --------
Net cash (used in) provided by operating activities (2,162) 9,098
INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (570) (933)
-------- --------
Net cash used in investing activities (570) (933)
FINANCING ACTIVITIES:
Proceeds from sale of common stock and treasury stock 151 180
Reduction in income tax liability from disqualifying dispositions
of incentive stock options and exercises of non-qualified stock
options 39
-------- --------
Net cash provided by financing activities 151 219
-------- --------
(DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,581) 8,384
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 10,282 19,907
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,701 $ 28,291
======== ========
</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
Regulation 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 and the nine months ended September 27, 1997, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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 condensed consolidated financial
statements include the accounts of Microtest, Inc. and its wholly-owned
subsidiaries (collectively, the "Company"). 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, 1997.
C. New Accounting Standards - In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Accounting
Standards No. 128 "Earnings Per Share," which is effective for both
interim and annual periods ending after December 15, 1997. The Company
does not believe the adoption of the standard will have a significant
effect on previously reported earnings per share.
The FASB recently issued SFAS No. 130 on "Reporting Comprehensive
Income" and SFAS No. 131 on "Disclosures about Segments of an
Enterprise and Related Information." The "Reporting Comprehensive
Income" standard is effective for fiscal years beginning after December
15, 1997. The standard changes the reporting of certain items currently
reported in the common stock equity section of the balance sheet. The
Company is currently evaluating what impact this standard will have on
the Company's financial statements.
6
<PAGE>
The "Disclosures about Segments of an Enterprise and Related
Information" standard is effective for fiscal years beginning after
December 15, 1997. This standard requires that public companies report
certain information about operating segments in their financial
statements. It also establishes related disclosures about products and
services, geographic areas, and major customers. The Company is
currently evaluating what impact this standard will have on its
disclosures.
D. Research and development expenditures are charged as incurred.
Software development costs incurred subsequent to the establishment of
technological feasibility are capitalized. Based on the Company's
product development process, technological feasibility is established
upon the completion of all planning, designing, coding and testing
activities that are necessary to establish that the product can be
produced to meet its design specifications including functions,
features and technical performance requirements. Costs incurred by the
Company between the completion of the above mentioned activities and
the point at which the product is ready for general release have
previously been insignificant. Accordingly, the Company has previously
charged all such costs to research and development expenses. During the
quarter ended September 27, 1997, the Company capitalized $524,000 of
such costs.
E. Reclassifications - Certain reclassifications have been made to the
1996 consolidated financial statements to conform to the 1997
presentation.
F. Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles necessarily
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
2. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments due under the Company's office operating
leases are as follows:
(Amounts in
Thousands)
Remainder of 1997 $ 254
1998 1,004
1999 995
2000 842
2001 148
2002 12
------
Total minimum rental payments $3,255
======
The Company is involved in certain legal matters, the outcome of which
is currently unknown. Management believes that the Company's liability,
if any, will not have a
7
<PAGE>
material adverse effect on the Company's financial condition and
results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Quarterly Report on Form 10-Q contains forward-looking statements.
The words "believe," "expect," "anticipate," and "project" and similar
expressions identify forward-looking statements, which speak only as of the date
the statement was made. Such forward-looking statements are within the meaning
of that term in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Such statements
may include, but not be limited to, projections of revenue, income or loss,
capital expenditures, plans for future operations, financing needs or plans, and
plans relating to products or services of the Company, as well as assumptions
relating to the foregoing.
Statements in Exhibit 99 to this Quarterly Report on Form 10-Q,
describe factors, among others, that could contribute to or cause such
differences. Additional factors that could cause actual results to differ
materially from those expressed in such forward-looking statements are set forth
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Results of Operations
- ---------------------
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
Total Revenues $12,391 2.1% $12,136 $35,450 (3.6%) $36,762
- --------------------------------------------------------------------------------
During the third quarter ended September 27, 1997, total revenues increased
compared to the same period in 1996 due primarily to an increase in domestic
sales. Sales decreased during the nine months ended September 28, 1997 as
compared to the nine months ended September 28, 1996. This decrease is mainly
the result of a general softness in network industry sales, which has impacted
the results of the entire industry segment, sluggish sales in Europe and
intensified competition.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
Gross Profit $ 7,056 (3.1%) $ 7,283 $20,764 (3.0%) $21,407
% of Total
Revenues 56.9% 60.0% 58.6% 58.2%
- --------------------------------------------------------------------------------
Gross profit decreased in both absolute dollars as a percentage of revenues
during the third quarter of 1997 compared to the same period in 1996. The
decrease in gross profit is due to a charge to the obsolete inventory reserve of
approximately $415,000. This charge was taken to account for potentially excess
inventory levels of several of the
8
<PAGE>
Company's products that may become obsolete with the introduction of new
products during the fourth quarter of 1997 and first quarter of 1998. Gross
profit as a percentage of total revenues remained relatively flat during the
nine months ended September 27, 1997 as compared to the same period in 1996. The
Company has introduced higher software content in several of its products which
has helped the Company maintain its gross margin on a year-to-date basis even
with the obsolete reserve booked in the third quarter, as previously discussed.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
Sales &
Marketing $ 3,695 11.2% $ 3,323 $12,490 23.1% $10,150
% of Total
Revenues 29.8% 27.4% 35.2% 27.6%
- --------------------------------------------------------------------------------
For both the quarter ended and the nine months ended September 27, 1997, sales
and marketing expenses increased in absolute dollars and as a percentage of
total revenues compared to the same period in 1996. The increase is due largely
to an increase in employees and other costs attributable to Logicraft
Information Systems ("Logicraft") acquired during the fourth quarter of 1996.
Additionally, the Company introduced a manufacturers' representative program in
late-1996. The manufacturers' representative program pays commissions to
selected representatives of the Company for selling the Company's products from
the shelves of the Company's distributors to end users. As a result of this
program, the Company lowered its discount structure to the distributors
represented by these selected manufacturers' representatives and, in turn,
increased commission expenses.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
Research &
Development $ 1,847 16.5% $ 1,586 $ 6,067 30.7% $ 4,642
% of Total
Revenues 14.9% 13.1% 17.1% 12.6%
- --------------------------------------------------------------------------------
Research and development expenses increased in absolute dollars and as a
percentage of total revenues in both the third quarter and the nine months ended
June 28, 1997, compared with the same periods in 1996. The increase stems
primarily from an increase in the number of employees due to the acquisition of
Logicraft during the fourth quarter of 1996, as well as the development of a
higher number of prototypes than experienced during the third quarter and nine
months ended September 28, 1996. During the first nine months of 1997, the
Company restructured its research and development work force to fully integrate
Logicraft into the research and development process. During the third quarter of
1997, the Company capitalized $524,000 of research and development costs
associated with the development of software of new products for which
technological feasibility has been determined. These costs will be amortized
over the life of the associated products of approximately two to four years as a
charge to cost of goods sold.
9
<PAGE>
These amortization charges may have result in lowering the Company's gross
profit in future quarters.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
General &
Administrative $ 978 (4.9%) $ 1,028 $ 3,124 4.8% $ 2,982
% of Total
Revenues 7.9% 8.5% 8.8% 8.1%
- --------------------------------------------------------------------------------
General and administrative expenses decreased in both absolute dollars and as a
percentage of total revenues during the third quarter of 1997 as compared with
the third quarter of 1996 primarily because of various cost control measures
implemented during the quarter. General and administrative expenses increased in
both absolute dollars and as a percentage of total revenues during the nine
months ended September 27, 1997 compared to the same period in 1996 mainly as a
result of the increase in personnel and other administrative costs attributable
to Logicraft acquired during the fourth quarter of 1996 and legal expenses
incurred to defend the Company against a class-action lawsuit that was dismissed
without prejudice during the second quarter of 1997.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
Income Taxes $ 205 (61.3%) $ 530 ($ 184) (112.0%) $ 1,539
Effective Tax
Rate 38.2% 34.9% (26.1%) 36.5%
- --------------------------------------------------------------------------------
The Company's effective tax rate experienced an increase during the third
quarter of 1997 but experienced a decrease during the nine months ended
September 27, 1997, compared to the same periods of the preceding year. The
increase during the third quarter and the decrease during the nine months ended
September 27, 1997 is due primarily to lower benefits expected to be derived
from research and development credits and Foreign Income Sales Corporation
benefits during 1997.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/27/97 Change 9/28/96 9/27/97 Change 9/28/96
- --------------------------------------------------------------------------------
Net Income/(Loss) $ 332 (66.5%) $ 991 ($ 521) (119.4%) $ 2,680
% of Total
Revenues 2.7% 8.2% (1.5%) 7.3%
- --------------------------------------------------------------------------------
Net income decreased in both absolute dollars and as a percentage of total
revenues for both the third quarter and the nine months ended September 27, 1997
as compared to the same periods in 1996. This decrease is due primarily to a
decrease in revenues coupled
10
<PAGE>
with an increase in personnel and other operating expenses relating to Logicraft
as discussed above. The Company has implemented cost control measures, including
headcount reductions, to fully integrate Logicraft into Microtest's operating
plan. In the third quarter of 1997, Logicraft was accretive
Liquidity and Capital Resources
- -------------------------------
The Company has financed its operations primarily through operating cash flows
and equity financings. At September 27, 1997, the Company had cash and cash
equivalents of $7.7 million. This represents a $2.6 million decrease in cash
equivalents compared to December 31, 1996, due primarily to increases in
inventory resulting from lower than expected sales and the timing of payables
and accrued liabilities.
As a result of the use of cash and cash equivalents over the past four
quarters, the Company obtained a $10 million unsecured revolving credit facility
with Bank of America during the second quarter of 1997 which will be used for
general corporate and working capital purposes. The credit facility carries an
interest rate equal to Bank of America's "Reference Rate" defined by Bank of
America as "the rate of interest in effect for such day as publicly announced
from time to time by the Bank in San Francisco, California as its `reference
rate'" or the Offshore Rate plus 1.50%. Major convenants of the credit facility
include: (i) the Company, on a consolidated basis, not incurring a net and
operating loss in two consecutive quarters; (ii) the Company maintaining a
modified quick ratio of no less than 1.50; (iii) the Company maintaining a
Tangible Net Worth of no less than 90% of the Company's Tangible Net Worth at
December 31, 1996; and (iv) the Company not permitting its total liabilities to
exceed 0.75 times Tangible Net Worth. No amounts were outstanding under this
credit facility and the Company was in compliance with all loan convenants at
September 27, 1997.
Capital expenditures for the nine months ended September 27, 1997 were
approximately $600,000. During the fourth quarter of 1997, the Company intends
to invest approximately $250,00 to upgrade computer hardware and software.
Additionally, the Company will be investing approximately $100,000 to build
additional space in their current facility in Phoenix, Arizona. No other major
capital expenditures are planned during the fourth quarter.
Cash flows from operations and available cash under the credit facility will be
sufficient to meet cash needs in the foreseeable future.
11
<PAGE>
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is from time to time involved in legal proceedings of a
character normally incident to its business, including various claims and
pending actions against the Company seeking damages.
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) Exhibits
Exhibit 11 - Statement regarding computation of per share earnings
Exhibit 99 - Private Securities Litigation Reform Act of 1995 Safe
Harbor Compliance Statement for Forward-Looking Statements
b) Reports on Form 8-K
No current reports on Form 8-K were filed during the three months
ended September 27, 1997.
12
<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: November 11, 1997 /s/ Richard G. Meise
-----------------------------
Richard G. Meise
Chief Executive Officer
Date: November 11, 1997 /s/ Charles V. Mihaylo
-----------------------------
Charles V. Mihaylo
President and Chief Operating
Officer
Date: November 11, 1997 /s/ Richard R. Douglas
-----------------------------
Richard R. Douglas
Chief Financial Officer
13
MICROTEST, INC.
EXHIBIT 11
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
September 27, September 28, September 27, September 28,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income/(loss) $ 332 $ 991 $ (521) $ 2,680
======= ======= ======= =======
Common shares outstanding at end of period 8,160 8,128 8,160 8,128
Adjustment to reflect weighted average for
shares issued during period 1 1 9 (25)
Adjustment for options and warrants calculated
under the treasury stock method:
Options 137 162 -- 152
Warrants -- -- -- --
------- ------- ------- -------
Common and equivalent shares outstanding 8,298 8,291 8,169 8,255
======= ======= ======= =======
Net income/(loss) per share $ 0.04 $ 0.12 $ (0.06) $ 0.32
======= ======= ======= =======
</TABLE>
14
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-27-1997
<EXCHANGE-RATE> 1
<CASH> 7,701
<SECURITIES> 0
<RECEIVABLES> 14,322
<ALLOWANCES> 742
<INVENTORY> 6,936
<CURRENT-ASSETS> 33,654
<PP&E> 9,155
<DEPRECIATION> 5,764
<TOTAL-ASSETS> 38,823
<CURRENT-LIABILITIES> 7,299
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 31,516
<TOTAL-LIABILITY-AND-EQUITY> 38,823
<SALES> 35,450
<TOTAL-REVENUES> 35,450
<CGS> 14,686
<TOTAL-COSTS> 36,367
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (212)
<INCOME-PRETAX> (705)
<INCOME-TAX> (184)
<INCOME-CONTINUING> (521)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (521)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
MICROTEST, INC.
EXHIBIT 99
Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking Statements
In passing the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"), Congress encouraged public companies to make "forward-looking
statements"1 by creating a safe-harbor to protect companies from securities law
liability in connection with forward-looking statements. Microtest, Inc. (the
"Company" or "Microtest") intends to qualify both its written and oral
forward-looking statements for protection under the PSLRA.
To qualify oral forward-looking statements for protection under the
PSLRA, a readily available written document must identify important factors that
could cause actual results to differ materially from those in the
forward-looking statements. Microtest provides the following information in
connection with its continuing effort to qualify forward-looking statements for
the safe harbor protection of the PSLRA.
Important factors currently known to management that could cause actual
results to differ materially from those in forward-looking statements include,
but are not limited to, the following: (i) changes in the Company's product and
customer mix; (ii) introduction of new products by the Company or its
competitors; (iii) pricing pressures and economic conditions in the United
States and Europe; (iv) the economic condition of the computer industry; (v)
failure of the Company to continue to enhance its current product line and to
continue to develop and introduce new products that keep pace with competitive
product introductions and technological advances, satisfy diverse and evolving
customer requirements, or otherwise achieve market acceptance; (vi) loss of or
reduction in purchases by certain of the Company's distributors and VARs; (vii)
any reduction in sales of the Company's PentaScanner or DiscPort products from
which the Company derives substantially all of its revenue; (viii) the inability
of the Company to accurately monitor end user demand for its products; (ix)
unanticipated product returns to the extent such returns exceed the Company's
reserves; (x) the cost, quality and availability of third-party components used
in the Company's systems; (xi) the loss of any of the Company's third-party
manufacturers or key suppliers; (xii) any disruption or reduction in the future
supply of key components currently obtained from limited sources; (xiii) defects
in the Company's products that could cause delays in product introductions and
shipments, cause loss of or delays in market acceptance, result in increased
costs, require design modifications or impair customer satisfaction; (xiv)
inventory writedowns, product returns or price protection credits that exceed
the Company's estimates; (xv) the inability of the Company to expand its
international operations in a timely and cost effective manner, as well as other
risks in conducting business internationally; (xvi) recruiting, hiring and
retaining the services of key engineering, sales and marketing, management and
manufacturing personnel; (xvii) the failure of the Company to protect its
proprietary information and technology; and (xviii)
- ------------------------
1 "Forward-looking statements" can be identified by use of words such as
"expect," "believe," "estimate," "project," "forecast," "anticipate," "plan,"
and similar expressions.
15
<PAGE>
the inability of the Company to collect a significant amount of the outstanding
accounts receivable.
Forward-looking statements express expectations of future events. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to these
inherent uncertainties, the investment community is urged not to place undue
reliance on forward-looking statements. In addition, Microtest undertakes no
obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to projections
over time.
