SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 26, 1998
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 2, 1998, 8,253,585 shares of the registrant's common stock were
outstanding.
This document contains 18 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 9-12
PART II. OTHER INFORMATION
Item 1 - Legal Proceedings 13
Item 2 - Changes in Securities 13
Item 3 - Defaults Upon Senior Securities 13
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 5 - Other Information 13
Item 6 - Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit 27 Financial Data Schedule 16
Exhibit 99 - Private Securities Litigation Reform Act of
1995 Safe Harbor Compliance Statement for
Forward-Looking Statements 17-18
2
<PAGE>
PART I. FINANCIAL STATEMENTS
Microtest, Inc.
Condensed Consolidated Balance Sheets
(In thousands, except share data)
September 26, December 31,
1998 (unaudited) 1997
---------------- ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,062 $ 11,547
Accounts receivable - less allowance for
doubtful accounts of $669 and $892,
respectively and less returns reserve of
$868 and $1,073, respectively 8,272 12,083
Inventories - less reserve for obsolescence
of $470 and $694, respectively 6,130 5,924
Prepaid expenses 2,054 1,459
Income taxes receivable 2,049 2,258
Deferred income taxes 2,216 2,216
-------- --------
Total current assets 33,783 35,487
PROPERTY, PLANT AND EQUIPMENT - less
accumulated depreciation of $7,169
and $6,200, respectively 3,533 3,543
INTANGIBLES AND OTHER ASSETS 3,679 2,777
DEFERRED INCOME TAXES 133 133
-------- --------
TOTAL $ 41,128 $ 41,940
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,120 $ 4,699
Accrued liabilities 3,466 4,130
Accrued payroll and employee benefits 1,164 1,017
-------- --------
Total liabilities 8,750 9,846
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized,
15,000,000 shares; issued 8,244,237 and
8,193,320 shares, respectively 8 8
Additional paid-in capital 32,941 32,710
Retained earnings/(deficit) 606 (186)
Common stock in treasury at cost - 225,020,
and 34,196, respectively (1,177) (438)
-------- --------
Total stockholders' equity 32,378 32,094
-------- --------
TOTAL $ 41,128 $ 41,940
======== ========
See notes to condensed consolidated financial statements
3
<PAGE>
Microtest, Inc.
Condensed Consolidated Statements of Income (unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
TOTAL REVENUES $ 10,111 $ 12,391 $ 30,951 $ 35,450
TOTAL COST OF SALES 4,090 5,335 12,316 14,686
-------- -------- -------- --------
GROSS PROFIT 6,021 7,056 18,635 20,764
OPERATING EXPENSES:
Sales and marketing 2,655 3,695 8,860 12,490
Research and development 1,698 1,847 5,210 6,067
General and administrative 1,403 978 3,513 3,124
-------- -------- -------- --------
Total operating expenses 5,756 6,520 17,583 21,681
INCOME/(LOSS) FROM OPERATIONS 265 536 1,052 (917)
INVESTMENT INCOME 81 1 258 212
-------- -------- -------- --------
INCOME/(LOSS) BEFORE INCOME TAXES 346 537 1,310 (705)
INCOME TAX PROVISION/(BENEFIT) (47) 205 205 (184)
-------- -------- -------- --------
NET INCOME/(LOSS) $ 393 $ 332 $ 1,105 $ (521)
======== ======== ======== ========
BASIC EARNINGS PER SHARE:
NET INCOME/(LOSS) PER SHARE $ 0.05 $ 0.04 $ 0.14 $ (0.06)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 8,068 8,157 8,132 8,168
======== ======== ======== ========
DILUTED EARNINGS PER SHARE:
NET INCOME/(LOSS) PER SHARE $ 0.05 $ 0.04 $ 0.14 $ (0.06)
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND
EQUIVALENT SHARES OUTSTANDING 8,068 8,297 8,132 8,257
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
Microtest, Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(In thousands)
Nine Months Ended
----------------------------
September 26, September 27,
1998 1997
------------- -------------
OPERATING ACTIVITIES:
Net income/(loss) $ 1,105 $ (521)
Adjustments to reconcile net income/(loss)
to net cash provided by/(used in) operating
activities:
Depreciation and amortization 897 1,491
Changes in operating assets and liabilities:
Accounts receivable 3,811 3,964
Inventories (206) (773)
Prepaid expenses and other assets (1,425) (1,139)
Accounts payable (579) (2,552)
Accrued liabilities (664) (1,982)
Accrued payroll and employee benefits 147 (146)
Income taxes receivable 209 (504)
-------- --------
Net cash provided by/(used in) operating activities 3,295 (2,162)
INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (959) (570)
-------- --------
Net cash used in investing activities (959) (570)
FINANCING ACTIVITIES:
Purchase of treasury stock (1,177) --
Proceeds from sale of common stock and
treasury stock 356 151
-------- --------
Net cash (used in)/provided by financing activities (821) 151
-------- --------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 1,515 (2,581)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,547 10,282
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,062 $ 7,701
======== ========
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 and the nine months ended September 26, 1998, are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. 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 (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, 1998.
2. COMMITMENTS AND CONTINGENCIES
Future minimum rental payments due under the Company's office operating
leases are as follows:
(Amounts in
Thousands)
----------
1998 $ 276
1999 1,164
2000 897
2001 144
-------
Total minimum rental payments $ 2,481
=======
The Company is involved in certain other legal matters, the outcome of
which is currently unknown. Management believes that the Company's
liability, if any, will not have a material adverse effect on the
Company's financial condition and results of operations.
6
<PAGE>
3. EARNINGS PER SHARE
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share, the following presents the computation of basic
and diluted earnings per share:
<TABLE>
<CAPTION>
Basic Earnings Per Share
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income/(loss) $ 393 $ 332 $1,105 $ (521)
====== ====== ====== ======
Weighted average shares of
common stock outstanding - basic 8,068 8,157 8,132 8,168
====== ====== ====== ======
Basic income/(loss) per share $ 0.05 $ 0.04 $ 0.14 $(0.06)
====== ====== ====== ======
Diluted Earnings Per Share
Three Months Ended Nine Months Ended
--------------------------- ----------------------------
September 26, September 27, September 26, September 27,
1998 1997 1998 1997
------------- ------------- ------------- -------------
Net income/(loss) $ 393 $ 332 $1,105 $ (521)
====== ====== ====== ======
Weighted average shares of
common stock outstanding 8,068 8,157 8,132 8,168
Add: dilutive potential of
common shares -- 140 -- 89
------ ------ ------ ------
Weighted average shares of
common stock outstanding - dilutive 8,068 8,297 8,132 8,257
====== ====== ====== ======
Dilutive income/(loss) per share $ 0.05 $ 0.04 $ 0.14 $(0.06)
====== ====== ====== ======
</TABLE>
4. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income, which is effective for financial
statement periods ending after December 15, 1997 and establishes standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Comprehensive income was $393,000 and $1,105,000 for
the three and nine months ended September 26, 1998, respectively.
5. SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which is effective for fiscal years
beginning after December 15, 1997 and 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. It also establishes
standards for related disclosures about products and services, geographic
7
<PAGE>
areas and major customers. The Company does not believe that the adoption
of SFAS No. 131 will have a significant effect on its reporting of segment
information.
6. STOCK REPURCHASE
On April 14, 1998, the Company's Board of Directors authorized the Company
to repurchase up to 800,000 shares of its common stock, or approximately
10% of all shares issued as of that date, for issuance under the Company's
stock option and purchase plans. The stock is to be purchased from time to
time on the open market as conditions permit. To date, the Company has
repurchased 225,020 shares at an average price of $5.23 per share.
8
<PAGE>
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 actual results to
differ materially from those expressed in such forward-looking statements.
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, 1997.
RESULTS OF OPERATIONS
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- -------------------------------------------------------------------------
Total Revenues $10,111 (18.4%) $12,391 $30,951 (12.7%) $35,450
- -------------------------------------------------------------------------
During both the quarter and nine months ended September 26, 1998, total revenues
decreased compared to the quarter and nine months ended September 27, 1997. A
major contributing factor to the decline is the Company's recent decision to
withdraw from the low-margin tower business which has not yet been offset by
sales of new higher-margin DiscPort 2, DiscPort VT and DiscZerver products.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- -------------------------------------------------------------------------
Gross Profit $6,021 (14.7%) $7,056 $18,635 (10.3%) $20,764
% of Total
Revenues 59.5% 56.9% 60.2% 58.6%
- -------------------------------------------------------------------------
Gross profit decreased in absolute dollars but increased as a percentage of
total revenues during the three months ended September 26, 1998, as well as the
nine months ended September 26, 1998, as compared to the same periods in 1997.
The decrease in absolute dollars was due to the decrease in revenues. Gross
profit as a percent of revenues improved slightly during the third quarter and
year-to-date due to a change in product mix.
9
<PAGE>
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- ---------------------------------------------------------------------------
Sales & Marketing $2,655 (28.1%) $3,695 $8,860 (29.1%) $12,490
% of Total
Revenues 26.3% 29.8% 28.6% 35.2%
- ---------------------------------------------------------------------------
For both the quarter and nine months ended September 26, 1998, sales and
marketing expenses decreased in absolute dollars and as a percentage of total
revenues compared to the same periods in 1997. These decreases are primarily due
to synergies created from the integration of Logicraft Information Systems, now
doing business as Microtest Enterprise Group ("MEG"). MEG was acquired during
the fourth quarter of 1996 and was not fully integrated into Microtest until the
third quarter of 1997. The integration of MEG into Microtest included a
significant reduction in headcount during the first and second quarters of 1997.
Additionally, the Company implemented new cost control measures during the
second half 1997, including the areas of sales and marketing.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- ---------------------------------------------------------------------------
Research &
Development $1,698 (8.1%) $1,847 $5,210 (14.1%) $6,067
% of Total
Revenues 16.8% 14.9% 16.8% 17.1%
- ---------------------------------------------------------------------------
Research and development expenses decreased in absolute dollars and as a
percentage of total revenues for the nine months ended September 26, 1998, but
for the quarter, they increased as a percentage of total revenues compared with
the same periods in 1997. The decrease stems primarily from the capitalization
of software development costs during 1998 for new products. The Company
capitalized approximately $947,000 and $524,000 during the nine months ended
September 26, 1998 and September 27, 1997, respectively. 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. These amortization charges may result
in lowering the Company's net income in future periods.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- ---------------------------------------------------------------------------
General &
Administrative $1,403 43.5% $978 $3,513 12.5% $3,124
% of Total
Revenues 13.9% 7.9% 11.4% 8.8%
- ---------------------------------------------------------------------------
General and administrative expenses increased in both absolute dollars and as a
percentage of total revenues for the quarter and nine months ended September 26,
1998, compared to the same periods in 1997. The increase during the third
quarter of 1998 was mainly the result of an increase in accounting fees and bad
debt expense as well as a restructuring of the European operations. Year over
year, the increase is primarily attributable to an increase in bad debt expense
as well as a restructuring of the European operations.
10
<PAGE>
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- -----------------------------------------------------------------------------
Income Taxes $ (47) 122.9% $205 $205 211.4% $ (184)
Effective Tax Rate (13.6%) 38.2% 15.6% (26.1%)
- -----------------------------------------------------------------------------
The difference between the effective tax rate and the statutory rate is mainly
attributable to foreign sales corporation tax benefits and research and
development income tax credits.
Qtr. End Qtr. End Y-T-D Y-T-D
(in thousands) 9/26/98 Change 9/27/97 9/26/98 Change 9/27/97
- ----------------------------------------------------------------------------
Net Income/(Loss) $393 18.4% $ 332 $1,105 312.1% $(521)
% of Total
Revenues 3.9% 2.7% 3.6% (1.5%)
- ----------------------------------------------------------------------------
Net income increased in both absolute dollars and as a percentage of total
revenues for both the quarter and nine months ended September 26, 1998 as
compared to the same periods of 1997. This increase is due primarily to a
significant decrease in operating expenses for the quarter and nine months ended
September 26, 1998 as compared with the quarter and nine months ended September
27, 1997. As discussed above, MEG was fully integrated into Microtest during the
second and third quarters of 1997. The integration included a significant
headcount reduction. Also, the Company's implementation of new cost control
measures during 1997 aided in the decrease in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through operating cash. At
September 26, 1998, the Company had cash and cash equivalents of $13.1 million.
This represents a $1.5 million increase in cash equivalents during the nine
months ended September 26, 1998, as compared to the same period ended September
27, 1997, due primarily to the collection of accounts receivable.
During the second quarter of 1997, the Company obtained a $10 million unsecured
revolving credit facility with Bank of America, which is to be utilized for
general corporate and working capital purposes. The credit facility carries an
interest rate equal to Bank of America's "Reference Rate" plus 1.50%. Major
covenants of the credit facility include: (i) the Company, on a consolidated
basis, not incurring a net loss 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 covenants at September 26, 1998.
11
<PAGE>
Capital expenditures during the nine months ended September 26, 1998 were
approximately $959,000, the majority of which was for computer hardware and
software and leasehold improvements. The Company's capital budget for the
remaining quarter of 1998 is approximately $50,000, which includes software,
hardware, leasehold improvements and other of $5,000, $20,000, $20,000, and
$5,000, respectively.
Management believes cash flows from operations and available cash under the
credit facility will be sufficient to meet the cash needs of the Company in the
foreseeable future.
YEAR 2000 ISSUES
Like many other organizations, the year 2000 computer issue creates risks for
the Company. Many computer systems were originally designed to recognize
calendar years by their last two digits. Calculations performed using these
truncated fields would not work properly with dates during or after the year
2000. To address these year 2000 issues, the Company has initiated a
comprehensive assessment and remediation program to resolve any year 2000 issues
with respect to its information technology ("IT") systems, its non-IT systems,
and the systems of third parties with which it has a material relationship.
With respect to its IT systems, the Company has completed the assessment phase
of its program. The Company's current IT systems which were determined not to be
compliant have entered the remediation phase during which the Company will
either replace or otherwise remedy such systems. The remediation phase for IT
systems is expected to be completed by June 30, 1999. Some minor systems may be
converted later in 1999.
In reference to its non-IT systems, the Company's building management has
provided the Company with a complete list of vendors indicating compliance. The
current telephone system will be compliant by the end of the first quarter of
1999. Long distance and local telephone service are compliant.
We believe that non-compliant systems related to our top suppliers would present
the greatest risk to the Company. Questionnaires have been sent to those
suppliers and they have stated that they are compliant or expect compliance by
the end of 1999.
Concurrent with the remediation of our systems and evaluation of third party
systems, the Company is developing remediation plans to mitigate the risks that
could occur in the event of disruption due to non-compliant systems. Contingency
plans may include looking for alternative suppliers, increasing inventory
levels, or other actions deemed prudent. It is expected that assessment,
remediation and contingency planning activities will be on going throughout 1998
and 1999 with the goal of appropriately resolving all material internal systems
and third party issues. Estimated costs associated with developing and
implementing contingency measures are not currently estimable.
All of the Company's current products and planned future releases, with minor
exception, are year 2000 compliant. Registered customers have been notified of
non-compliant products and any available upgrade. This information was also made
available on the Company's Web site as of June 1998.
12
<PAGE>
To date, the Company has incurred capital expenditures of approximately $289,000
related to this project and expects that the total cost will not exceed
$750,000. The Company does not expect that the incremental costs of this project
will have a material adverse effect on the Company's consolidated financial
statements or results of operations in any future periods.
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.
The Company is a defendant in an action in the Maricopa County Superior
Court in and for the State of Arizona entitled Chauncey Stephen Brambach et al.
v. Microtest, Inc., Case No. CV 94-18966. In July 1996, summary judgment was
entered in favor of the Company. In December 1997, summary judgment was
overturned at the appellate level. Mr. Brambach is a former employee of the
Company who claims that the Company breached a cost-of-living adjustment
provision under his employment agreement with the Company. The Company has
vigorously defended this claim and does not believe that it will have a material
adverse effect on the Company.
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
Not applicable.
ITEM 5. - OTHER INFORMATION
None
13
<PAGE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 99 - Private Securities Litigation Reform Act of 1995
Safe Harbor Compliance Statement for Forward-Looking
Statements
Exhibit 27 - Financial Data Schedule
b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the three months
ended September 26, 1998.
14
<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 10, 1998 /s/ Richard G. Meise
---------------------------
Richard G. Meise
Chief Executive Officer and
Chairman of the Board
Date: November 10, 1998 /s/ Charles V. Mihaylo
---------------------------
Charles V. Mihaylo
President and
Chief Operating Officer
Date: November 10, 1998 /s/ John J. O'Block
---------------------------
John J. O'Block
Chief Financial Officer
15
<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-26-1998
<EXCHANGE-RATE> 1
<CASH> 13,062
<SECURITIES> 0
<RECEIVABLES> 9,809
<ALLOWANCES> 1,537
<INVENTORY> 6,130
<CURRENT-ASSETS> 33,783
<PP&E> 10,702
<DEPRECIATION> 7,169
<TOTAL-ASSETS> 41,128
<CURRENT-LIABILITIES> 8,750
<BONDS> 0
0
0
<COMMON> 8
<OTHER-SE> 32,370
<TOTAL-LIABILITY-AND-EQUITY> 41,128
<SALES> 30,951
<TOTAL-REVENUES> 30,951
<CGS> 12,316
<TOTAL-COSTS> 29,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (258)
<INCOME-PRETAX> 1,310
<INCOME-TAX> 205
<INCOME-CONTINUING> 1,105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</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, Europe and the Pacific Rim; (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; (viii) any reduction in sales of the Company's PentaScanner or DiscPort
products from which the Company derives substantially all of its revenue; (ix)
the inability of the Company to accurately monitor end user demand for its
products; (x) unanticipated product returns to the extent such returns exceed
the Company's reserves; (xi) the cost, quality and availability of third-party
components used in the Company's systems; (xii) the loss of any of the Company's
third-party manufacturers or key suppliers; (xiii) any disruption or reduction
in the future supply of key components currently obtained from limited sources;
(xiv) 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; (xv) inventory writedowns, product returns or price protection
credits that exceed the Company's estimates; (xvi) 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; (xvii) recruiting,
hiring and retaining the services of key engineering, sales and marketing,
management and manufacturing personnel; (xviii) failure of the Company to
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(1) "Forward-looking statements" can be identified by use of words such as
"expect," "believe," "estimate," "project," "forecast," "anticipate,"
"plan," and similar expressions.
<PAGE>
protect its proprietary information and technology; and (xviv) the inability of
the Company or failure of the Company's vendors to become year 2000 complaint.
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.
