<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 1998
Commission File Number 0-23282
Natural MicroSystems Corporation
______________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 04-2814586
______________________________________________________________________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
100 Crossing Boulevard, Framingham, Massachusetts 01702
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(508) 620-9300
______________________________________________________________________________
(Registrant's telephone number, including area code)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 10,971,462 shares of Common
Stock, $.01 par value, outstanding at October 31, 1998.
The Index to Exhibits appears on Page 18 Total Number of Pages with Exhibits: 1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements and Notes
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Consolidated Statements of Comprehensive Income 6
Notes to Consolidated Financial Statements 7 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11 - 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
2
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(IN $000)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1997 1998
------ ------------- -------------
<S> <C> <C>
Current assets:
Cash and marketable securities $ 33,310 $ 23,381
Accounts receivable, net 19,519 18,032
Inventories 8,628 9,097
Prepaid expenses and other current assets 2,620 3,871
------------- -------------
Total current assets 64,077 54,381
Property and equipment, net 9,109 12,986
Other long-term assets 5,636 9,621
Goodwill, net 2,871 4,095
------------- -------------
$ 81,693 $ 81,083
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable 5,359 5,578
Accrued expenses 7,787 3,982
Other current liabilities 162 247
------------- -------------
Total current liabilities 13,308 9,807
Long-term obligations, less current portion 243 164
Stockholders' equity 68,142 71,112
------------- -------------
Total liabilities and stockholders' equity $ 81,693 $ 81,083
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements
3
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN $000'S EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
1997 1998 1997 1998
--------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues $ 20,076 $ 20,611 $ 54,002 $ 59,054
Cost of revenues 6,902 7,678 18,863 20,373
--------------- ---------------- ----------------- ----------------
Gross profit 13,174 12,933 35,139 38,681
Operating expenses:
Selling, general and administrative 5,860 7,975 15,610 21,444
Research and development 3,885 5,132 10,759 14,327
Provision for uncollectable receivable - - - 2,500
--------------- ---------------- ----------------- ----------------
Total operating expenses 9,745 13,107 26,369 38,271
--------------- ---------------- ----------------- ----------------
Operating income (loss) 3,429 (174) 8,770 410
Other income, net 357 265 935 719
--------------- ---------------- ----------------- ----------------
Income before income taxes 3,786 91 9,705 1,129
--------------- ---------------- ----------------- ----------------
Income tax expense 1,273 31 3,271 395
--------------- ---------------- ----------------- ----------------
Net income $ 2,513 $ 60 $ 6,434 $ 734
=============== ================ ================= ================
Basic net income per common share $ 0.24 $ 0.01 $ 0.62 $ 0.07
=============== ================ ================= ================
Weighted average shares outstanding 10,471,161 10,963,363 10,357,450 10,873,676
=============== ================ ================= ================
Diluted net income per common share $ 0.23 $ 0.01 $ 0.58 $ 0.06
=============== ================ ================= ================
Weighted average shares outstanding 11,144,484 11,156,109 11,057,743 11,452,342
=============== ================ ================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FlOWS
(IN $000's)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1997 1998
---------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net income $ 6,434 $ 734
Adjustments to reconcile net income to cash
Provided by (used in) operating activities:
Depreciation and amortization 2,158 3,766
Loss on sale of marketable securities - (2)
Deferred tax asset 4 -
Changes in assets and liabilities:
Accounts receivable (5,798) 1,701
Inventories (762) (380)
Prepaid expenses and other assets (1,015) (2,360)
Income tax receivable (218) 125
Accounts payable 352 151
Accrued expenses and other liabilities 2,124 (4,017)
--------- ---------
Cash provided by (used in) operating activities 3,279 (282)
--------- ---------
Cash flow from investing activities:
Additions to property and equipment (6,254) (6,473)
Additions to license agreements - (401)
Additions to goodwill - (1,875)
Purchases of marketable securities (22,808) (6,354)
Proceeds from the sale of marketable securities 24,871 24,071
Proceeds from the sale of property & equipment - 16
Investment in convertible debentures - (3,000)
Additions to other assets (51) -
--------- ---------
Cash (provided by) used in investing activities (4,242) 5,984
--------- ---------
Cash flow from financing activities:
Payments of refundable advances (50) (79)
Proceeds from issuance of common stock 3,110 2,002
Non-statutory stock options 14 3
--------- ---------
Cash provided by financing activities 3,074 1,926
--------- ---------
Effect of exchange rate changes on cash 283 155
Net increase (decrease) in cash and cash equivalents 2,394 7,783
Cash and cash equivalents, beginning of period 6,578 6,317
--------- ---------
Cash and cash equivalents, end of period $ 8,972 $ 14,100
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN $000's)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1998
---------- ----------
<S> <C> <C>
Net income $ 6,434 $ 734
Other comprehensive income (loss) items:
Foreign currency translation adjustment (256) 230
---------- ----------
Comprehensive income $ 6,178 $ 964
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of September 30, 1998 and the
condensed consolidated statements of operations and cash flow for the three
month periods ending September 30, 1998 and 1997 include the accounts of Natural
MicroSystems Corporation and its wholly owned subsidiaries (the "Company").
In the opinion of management, all adjustments necessary to present fairly the
financial position, results of operations and cash flows for all periods
presented have been made. The preparation of financial statements in conformity
with generally accepted accounting principles 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 dates of
the financial statements and the reported amounts of revenues and expenses
during the reported periods. Actual results could differ from those estimates.
The operating results for the nine month period ended September 30, 1998 are not
necessarily indicative of the operating results to be expected for the full
fiscal year.
The year end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The financial statements
should be read in conjunction with the consolidated financial statements of the
Company as of and for the year ended December 31, 1997.
B. STOCKHOLDERS' EQUITY (IN 100's)
<TABLE>
<CAPTION> Additional Other
Common Stock Paid-In Retained Equity
------------------------
Shares Amount Capital Earnings Adjustments Total
------------------------ ------------- -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 10,788 $ 108 $ 65,203 $ 2,833 $ (2) $ 68,142
Exercise of common stock options 161 2 1,444 1,446
Employee stock purchase plan 20 557 557
Grant of non-statutory stock options 3 3
Net income 734 734
Cumulative translation adjustment 230 230
======================== ============= ============== ============== ============
Balance at September 30, 1998 10,969 $ 110 $ 67,207 $ 3,567 $ 228 $ 71,112
======================== ============= ============== ============== ============
</TABLE>
7
<PAGE>
C. INDEBTEDNESS
At September 30, 1998, the Company had a $3.0 million bank line of credit
through December 8, 1998, all of which was available. Borrowings under the line
of credit bear interest at the bank's prime rate plus .25%. The Company is
subject to covenants requiring maintenance of certain profitability and equity
levels and leverage and liquidity ratios. At September 30, 1998, the Company
was in compliance with its debt covenants and no borrowings were outstanding
under the line. The Company believes that the net proceeds from its 1996
follow-on public stock offering, cash flow from operations and funds available
under the line of credit will be sufficient to fund ongoing operations.
At September 30, 1998, the Company had a 2.0 million French franc line of credit
with a bank for its European operations, all of which was available. The
Company also secured a research and development funding grant from a branch of
the French government. This represents an interest-free loan from the French
government repayable from the proceeds of export sales from France. The balance
at September 30, 1998 was $142,000.
8
<PAGE>
<TABLE>
<CAPTION>
Three months ended September 30, 1998
------------------------------------------------
Income Shares Per Share
(In 000's except per share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C>
Basic EPS (income available to all shareholders) $ 60 10,963 $ 0.01
Effect of dilutive securities (stock options) 193
- ------------------------------------------------------ ------------------------------------------------
Diluted EPS (income available to common
Stockholders + assumed conversions) $ 60 11,156 $ 0.01
================================================
</TABLE>
<TABLE>
<CAPTION>
Three months ended September 30, 1997
------------------------------------------------
Income Shares Per Share
(In 000's except per share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C>
Basic EPS (income available to all shareholders) $ 2,513 10,471 $ 0.24
Effect of dilutive securities (stock options) 674
- ------------------------------------------------------ ------------------------------------------------
Diluted EPS (income available to common
Stockholders + assumed conversions) $ 2,513 11,145 $ 0.23
================================================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1998
------------------------------------------------
Income Shares Per Share
(In 000's except per share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C>
Basic EPS (income available to all shareholders) $ 734 10,874 $ 0.07
Effect of dilutive securities (stock options) 578
- ------------------------------------------------------ ------------------------------------------------
Diluted EPS (income available to common
Stockholders + assumed conversions) $ 734 11,452 $ 0.06
================================================
</TABLE>
<TABLE>
<CAPTION>
Nine months ended September 30, 1997
------------------------------------------------
Income Shares Per Share
(In 000's except per share data) (Numerator) (Denominator) Amount
- ------------------------------------------------------ ------------------------------------------------
<S> <C> <C> <C>
Basic EPS (income available to all shareholders) $ 6,434 10,357 $ 0.62
Effect of dilutive securities (stock options) 701
- ------------------------------------------------------ ------------------------------------------------
Diluted EPS (income available to common
Stockholders + assumed conversions) $ 6,434 11,058 $ 0.58
================================================
</TABLE>
9
<PAGE>
E. INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out) or
market. Inventories as of December 31, 1997 and September 30, 1998 were
comprised of the following.
<TABLE>
<CAPTION>
December 31, September 30,
(In $000's) 1997 1998
--------------- --------------
<S> <C> <C>
Raw materials $ 558 $ 779
Work In process
4,277 4,511
Finished goods
3,793 3,807
--------------- --------------
$ 8,628 $ 9,097
=============== ==============
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Natural MicroSystems Corporation designs, manufactures and markets integrated
hardware and software products which enable its customers to develop and
implement high value telecommunications applications and systems based on open,
standards based, client-server architectures, collectively referred to as Open
Telecommunications/TM/. Use of these state-of-the-art hardware and software
products, combined with the Company's consulting and support services, enable
customers to shorten time to market for computer telephony systems including
Internet/IP voice and fax systems, integrated voice response (IVR) systems, and
call centers integrated with web sites. Specific examples of these applications
include long distance least-cost routing and bypass, cellular and other wireless
switching services, telephone banking, medical alert and prescription services,
hotel and hospital information systems, transaction card authorization,
telemarketing, help desks, school bulletin boards, security monitoring, and
automated operator services.
REVENUES
Revenues of $20.6 million for the three months ended September 30, 1998
increased 2.7% percent from $20.1 million for the three months ended September
30, 1997. Revenues of $59.1 million for the nine months ended September 30, 1998
increased 9.4% from $54.0 million for the nine months ended September 30, 1997.
In 1998, compared to 1997 there was an increase in revenue from sales of Fusion,
and high port count AG products, offset by lower revenues from sales of low port
count AG products and VBX products. AG products have supplanted and are
expected to continue to supplant sales of VBX products for higher port count and
more sophisticated applications.
Revenues from customers located outside of North America of $5.1 million for the
three months ended September 30, 1998 decreased 5.6% from $5.4 million for the
three months ended September 30, 1997 and represented 24.9% and 27.0% of total
revenues respectively. Revenues were down by 15.4% in Asia. The Asian economic
decline might adversely impact revenues in that region for future periods.
Revenues were down significantly in Latin America, due to the decrease in orders
from one customer in that region. The decline in Asia and Latin America was
offset by gains in revenues to European customers. Revenues from customers
located outside of North America of $15.2 million for the nine months ended
September 30, 1998 decreased 2.6% from $15.6 million for the nine months ended
September 30, 1997, and represented 25.7% and 28.9% of total revenues,
respectively.
COST OF REVENUES
Cost of revenues of $7.7 million for the three months ended September 30, 1998
increased 11.2% from $6.9 million for the three months ended September 30, 1997,
and represented 37.3% and 34.4% of total revenues, respectively. The increase is
primarily attributable to personnel related costs within the services
department, and additional manufacturing overhead expenditures, partially offset
by improved direct margins on product sales in 1998. Cost of revenues of $20.4
million for the nine months ended September 30, 1998 increased 8.0% from $18.9
million for the nine months ended September 30, 1997 and represented 34.5% and
34.9% of total revenues, respectively. In 1997 the Company had sales to a
European customer with lower margins associated with a system contract.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses of $8.0 million for the three
months ended September 30, 1998 increased 36.1% from $5.9 million for the three
months ended September 30, 1997, and represented 38.7% and 29.2% of revenues,
respectively. Selling, general and administrative expenses of $21.4 million for
the nine months ended September 30, 1998 increased 37.4% from $15.6 million for
the nine months ended September 30, 1997, and represented 36.3% and 28.9% of
revenues, respectively. These increases were due to costs associated with
increased selling activity as well as increased expenditures for marketing and
11
<PAGE>
international operations, specifically in Italy and China, where the Company has
begun operations. The Company expects that its selling, general and
administrative expenditures will continue to increase, but may vary as a
percentage of future product revenues in future periods.
RESEARCH AND DEVELOPMENT
Research and development expenditures of $5.1 million for the three months ended
September 30, 1998 increased 32.1% from $3.9 million for the three months ended
September 30, 1997 and represented 24.9% and 19.4% of revenues, respectively.
Research and development expenditures of $14.3 million for the nine months ended
September 30, 1998 increased 33.2% from $10.8 million for the nine months ended
September 30, 1997 and represented 24.3% and 19.9% of revenues, respectively.
The increases were due to increased personnel and development project related
costs for both periods. The Company expects that its research and development
expenditures will continue to increase, but may vary as a percentage of future
product revenues in future periods.
OTHER INCOME, NET
Other income, net was $265,000 and $357,000, respectively for the three months
ended September 30, 1998 and 1997, respectively. Other income, net was $719,000
and $935,000 for the nine months ended September 30, 1998 and 1997,
respectively. The decrease in interest income was due to lower average cash
balances from the use of cash reserves to purchase capital assets of the
Company, and to provide cash for operations.
INCOME TAX EXPENSE
Income tax expense was $31,000 and $1.3 million for the three months ended
September 30, 1998 and 1997, respectively. Income tax expense was $395,000 and
$3.3 million for the nine months ended September 30, 1998 and 1997,
respectively. Income taxes were computed based on an effective tax rate, which
differed from the U.S. federal statutory rate primarily due to state and foreign
income taxes and income tax credits.
OPERATING AND NET INCOME
As a result of the foregoing, operating (loss)income was ($174,000) and $3.4
million for the three months ended September 30, 1998 and 1997, respectively.
Net income was $60,000 and $2.5 million for the same periods, respectively.
Operating income was $410,000 and $8.8 million for the nine months ended
September 30, 1998 and 1997, respectively. Net income was $734,000 and $6.4
million for the same periods, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash (used in) provided by operations for the nine months ended September
30,1998 and 1997 was ($282,000) and $3.3 million respectively. Cash was used in
operations in 1998 due to a decrease in accrued expenses and an increase in
prepaid expenses, offset by significant increases in depreciation expense. Cash
was provided in operations in 1997 from increases in revenues and increases in
accounts payable offset by increases in inventory, accounts receivable and
prepaid expenses.
Cash provided by (used in) investing activities for the nine months ended
September 30, 1998 and 1997 was $6.0 million and ($4.2 million), respectively.
Proceeds of $6.4 million were generated from the sale of marketable securities.
Cash was used in 1998 to make a payment of $1.9 million in association with the
acquisition of Teknique Incorporated and PSR Incorporated. For both periods cash
was used to purchase property and equipment of $6.5 million and $6.3 million,
respectively. A significant portion of the property and equipment purchased in
1998 and 1997 was attributable to investments related to the Company's new
headquarters and increased personnel requirements. In 1998 the Company invested
$3.0 million in the convertible debentures of a company to support current and
future product offerings.
Cash provided by financing activities for the nine months ended September 30,
1998 and 1997 was $1.9 million and $3.1 million, respectively. Cash provided by
financing activities in both
12
<PAGE>
periods primarily represent proceeds from issuance of common stock under the
Company's employee stock option and stock purchase plans of $2.0 million and
$3.1 million, respectively.
Current assets at September 30, 1998 were $54.4 million, 15.1% less than current
assets of $64.1 million at December 31, 1997. Cash and marketable securities
were reduced by $10.0 million in support of the Companies operating and
investing activities. Prepaid expenses and other current assets increased by
$1.3 million. Current liabilities at September 30, 1998 were $9.8 million, 26.3%
less than current liabilities of $13.3 million at December 31, 1997. Lower
compensation related accruals, accounts payable and tax related accruals
totaling $3.7 million accounted for the decrease in liabilities in 1998.
For U. S. federal income tax purposes the Company has net operating loss
carryforwards available to reduce future income of approximately $6.0 million at
June 30, 1998. These carryforwards expire beginning in 2004. Utilization of
net operating loss carryforwards are subject to an annual limitation of
approximately $1.0 million under Internal Revenue Code section 382.
OTHER
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 98-1, "Internal Use Software," which provides
guidance on the accounting for the costs of software developed or obtained for
internal use. SOP 98-1 is effective for fiscal years beginning after December
15, 1998. Management does not expect the statements to have a material impact on
its financial position or results of operations.
YEAR 2000
The year 2000 issue encompasses the inability of certain computer programs and
equipment that utilize embedded chips to perform accurately after the year 2000.
Concerns relating to the Year 2000 issue generally arise out of the potential
that this issue will affect business operations on an ongoing basis, as well as
the costs to correct possible system failures.
The Company has been implementing a Year 2000 compliance program to address the
Year 2000 issue. This program is designed to ensure that the Company's current
product offerings are Year 2000 compliant, that Year 2000 disruptions of vendors
and other third party relationships will not affect the Company's operations,
and that the Company's internal systems will continue to function properly. As
part of this implementation, since February, 1998, the Company has been
publishing on its external web site Year 2000 information concerning the
Company's product offerings and other information relating to the Company's Year
2000 compliance program. Furthermore, an external consulting firm has been
working on-site with the Company since September 1998, to assess the Company's
program, as well as to recommend changes and additions to the program in order
to provide the optimum assurance of Year 2000 readiness that can be obtained.
The Company is pursuing its Year 2000 compliance program in accordance with the
following five phases: (1) Conduct an inventory to determine all potential Year
2000 problem areas having a material impact on the Company; (2) Prioritize the
identified Year 2000 problem areas; (3) Formally test or assess material items
for Year 2000 readiness; (4) Repair or replace material items determined not to
be Year 2000 compliant; and (5) Design and implement a contingency and business
continuation plan for items not to be repaired or replaced.
Phases 1 and 2 for all functions of the Company's program have been completed.
The Company is currently working on phase 3. During this phase the Company will
assess whether any Year 2000 non-compliant items can be remediated, replaced or
upgraded.
The Company has established testing criteria for all functions of the project.
Testing will involve an integration of both remediation and stress testing of
the Company's product offerings and internal systems. Final procedures will be
established during the fourth quarter of 1998, and formal testing is scheduled
to begin immediately thereafter.
13
<PAGE>
The Company anticipates that (i) by March 31, 1999, it will have tested 80% of
the Company's major products and 50% of its legacy products and (ii) by June 30,
1999, will have tested 100% of its major products and 80% of current legacy
products.
Although formal testing has not been completed, the Company believes that its
major product offerings are Year 2000 compliant in their current form. Certain
older legacy products, which the Company no longer sells, may not be Year 2000
compliant. The Company will address this issue by notifying customers who
purchased these products from the Company that these products may not be Year
2000 compliant, and that each customer should test, repair and/or replace any of
these products if they are still in use.
The Company's enterprise wide business system is the Company's primary internal
management information system. This system is warranted to be Year 2000
compliant by the vendor. The Company believes that its other internal systems
and equipment will not pose a significant operational problem from a Year 2000
standpoint, but some will require additional modifications.
The Company is verifying the readiness of its suppliers by issuing
questionnaires relating to Year 2000 issues. The Company will audit the
responses of top tier suppliers and any other supplier who could have a material
impact on the Company's operations. Where the Company believes that a
particular supplier poses an unacceptable risk, the Company will identify an
alternative source. The mailing of questionnaires to suppliers has been
completed, and the Company is reviewing the responses as they are submitted.
This process will be ongoing as new vendors are added as suppliers to the
Company's operations.
The Company is addressing the Year 2000 readiness of significant customers. On
an on-going basis, the Company is reviewing their publicly available published
information relating to their Year 2000 status.
Costs incurred in the Company's Year 2000 effort will be expensed as incurred.
While the Company's final evaluation of total costs has not yet been determined,
it has been estimated based upon the Company's current Year 2000 program and
information to be approximately $1 million. Should these estimates prove to be
correct, it is believed that the expense will not have a material impact on its
business, operating results or ongoing operations resulting from Year 2000
issues.
The Company is addressing concerns relating to its products, internal facilities
and material relationships with third parties. At this time, the Company cannot
assure that there will not be any material effect on the Company's business,
results of operations or financial condition as a result of (i) products from
third parties that have not become Year 2000 compliant or (ii) currently unknown
information. However, the Company is reducing its risks relating to the Year
2000 issue by implementing its Year 2000 program.
Readers should be cautioned that forward-looking statements contained in the
Year 2000 update should be read in conjunction with the Company's disclosure
under the heading "Cautionary Statement" for the purposes of the safe harbor
provisions of the Private Securities Litigation Reform Act.
CAUTIONARY STATEMENT
When used anywhere in this Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result", "the company expects", "will
continue", "is anticipated", "estimated", "project", or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such forward-
looking statements, which speak only as of the date made. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical earnings and those
14
<PAGE>
presently anticipated or projected. Such risk factors are set forth in Part I of
the Company's annual report on Form 10-K for the year ended December 31, 1997.
The Company specifically declines any obligation to publicly release the result
of any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
15
<PAGE>
PART II - OTHER INFORMATION
ITEMS 1 - 3
Not applicable.
ITEM 4
Not applicable.
ITEM 5.
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits
No. 27.1 - Financial Data Schedule
B. Not applicable.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Natural MicroSystems Corporation
Dated: November 10, 1998 By: /S/ Robert P. Schechter
-----------------------
Robert P. Schechter
President and Chief Executive Officer
Dated: November 10, 1998 By: /S/ Robert E. Hult
------------------
Robert E. Hult
Chief Financial Officer
17
<PAGE>
NATURAL MICROSYSTEMS CORPORATION
EXHIBIT INDEX
Page
----
No. 27.1 Financial Data Schedule 19
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTERLY
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<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 5,670
<SECURITIES> 0 17,711
<RECEIVABLES> 0 18,637
<ALLOWANCES> 0 605
<INVENTORY> 0 9,097
<CURRENT-ASSETS> 0 54,381
<PP&E> 0 20,727
<DEPRECIATION> 0 7,741
<TOTAL-ASSETS> 0 81,083
<CURRENT-LIABILITIES> 0 9,807
<BONDS> 0 0
0 0
0 0
<COMMON> 0 110
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 0 81,083
<SALES> 20,611 59,054
<TOTAL-REVENUES> 20,611 59,054
<CGS> 7,678 20,373
<TOTAL-COSTS> 7,678 20,373
<OTHER-EXPENSES> 13,107 38,271
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 91 1,129
<INCOME-TAX> 31 395
<INCOME-CONTINUING> 60 734
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 60 734
<EPS-PRIMARY> 0.02 0.06
<EPS-DILUTED> 0.01 0.06
</TABLE>
