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Previous: PARAMARK ENTERPRISES INC, 10QSB, EX-27, 2000-08-10 |
Next: NATURAL MICROSYSTEMS CORP, 10-Q, EX-27.1, 2000-08-10 |
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 June 30, 2000
Commission File Number 0-23282
Natural MicroSystems Corporation
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
04-2814586 (IRS Employer Identification Number) |
|
| 100 Crossing Boulevard, Framingham, Massachusetts (Address of principal executive offices) |
|
01702 (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: 17,222,323 shares of Common Stock, $.01 par value, outstanding at July 31, 2000.
The Index to Exhibits appears on Page 17 Total Number of Pages with Exhibits: 1
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Page |
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| PART I | FINANCIAL INFORMATION | |||||
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Item 1. |
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Financial Statements and Notes |
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| Condensed Consolidated Balance Sheets | 3 | |||||
| Condensed Consolidated Statements of Operations | 4 | |||||
| Condensed Consolidated Statements of Cash Flow | 5 | |||||
| Notes to Consolidated Financial Statements | 6-9 | |||||
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Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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10-14 |
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Item 4. |
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Submission of Matters to a Vote of Security Holders |
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14 |
| PART II |
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OTHER INFORMATION |
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Item 6. |
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Exhibits and Reports on Form 8-K |
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16 |
2
Natural MicroSystems Corporation
Condensed Consolidated Balance Sheets
(In $000s)
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June 30, 2000 |
December 31, 1999 |
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|---|---|---|---|---|---|---|---|---|
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(unaudited) |
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||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 103,941 | $ | 16,617 | ||||
| Marketable securities | 97,618 | 6,837 | ||||||
| accounts receivable, net of allowance for uncollectable accounts of $1,179 and $1,408, respectively | 15,536 | 11,604 | ||||||
| Inventories | 7,156 | 5,393 | ||||||
| Prepaid expenses and other current assets | 6,962 | 5,044 | ||||||
| Total current assets | 231,213 | 45,495 | ||||||
| Property and equipment, net of accumulated depreciation $15,329 and $12,384, respectively | 16,020 | 14,871 | ||||||
| Other long-term assets | 3,326 | 6,883 | ||||||
| Intangible assets, net | 2,847 | 3,460 | ||||||
| Total assets | $ | 253,406 | $ | 70,709 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY |
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| Current liabilities: | ||||||||
| Account payable | $ | 6,487 | $ | 7,211 | ||||
| Accrued expenses and other liabilities | 11,591 | 9,772 | ||||||
| Current portion of long term obligations | 6 | 2,907 | ||||||
| Total current liabilities | 18,084 | 19,890 | ||||||
| Long-term obligations, less current portion |
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306 |
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| Stockholders' equity |
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235,322 |
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50,513 |
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| Total liabilities and stockholders' equity | $ | 253,406 | $ | 70,709 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements
3
Natural MicroSystems Corporation
Condensed Consolidated Statements of Operations
(In $000s except share and per share data)
(Unaudited)
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For the Three Months Ended June 30, |
For the Six Months Ended June 30, |
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2000 |
1999 |
2000 |
1999 |
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| Revenues | $ | 32,125 | $ | 17,565 | $ | 59,847 | $ | 34,186 | |||||||
| Cost of revenues |
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11,991 |
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6,953 |
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22,580 |
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13,578 |
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| Gross profit | 20,134 | 10,612 | 37,267 | 20,608 | |||||||||||
| Operating expenses: |
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| Selling, general and administrative | 11,806 | 9,775 | 22,817 | 19,518 | |||||||||||
| Research and development | 6,940 | 6,258 | 13,924 | 12,183 | |||||||||||
| Total operating expenses | 18,746 | 16,033 | 36,741 | 31,701 | |||||||||||
| Operating income (loss) |
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1,388 |
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(5,421 |
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526 |
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(11,093 |
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| Other income (loss), net |
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3,989 |
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191 |
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5,965 |
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(17 |
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| Income (loss) before income taxes and merger costs |
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5,377 |
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(5,230 |
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6,491 |
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(11,110 |
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| Income tax expense (benefit) |
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376 |
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(1,580 |
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454 |
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(3,438 |
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| Net income (loss) |
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$ |
5,001 |
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$ |
(3,650 |
) |
$ |
6,037 |
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$ |
(7,672 |
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| Basic net income (loss) per common share |
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$ |
0.30 |
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$ |
(0.32 |
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$ |
0.40 |
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$ |
(0.68 |
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| Weighted average shares outstanding |
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16,517,272 |
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11,405,050 |
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15,227,072 |
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11,214,585 |
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| Diluted net income (loss) per common share |
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$ |
0.29 |
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$ |
(0.32 |
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$ |
0.37 |
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$ |
(0.68 |
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| Weighted average shares outstanding |
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17,455,662 |
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11,405,050 |
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16,144,864 |
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11,214,585 |
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The accompanying notes are an integral part of these condensed consolidated financial statements
4
Natural MicroSystems Corporation
Condensed Consolidated Statements of Cash Flow
(In $000s)
(Unaudited)
| |
Six Months Ended June 30, 2000 |
Six Months Ended June 30, 1999 |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash flow from operating activities: | ||||||||||||
| Net income (loss) | $ | 6,037 | $ | (7,672 | ) | |||||||
| Adjustments to reconcile net income to cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 3,866 | 3,189 | ||||||||||
| Gain on sale of investment | (915 | ) | ||||||||||
| Deferred income taxes | 413 | |||||||||||
| Changes in assets and liabilities: | ||||||||||||
| Accounts receivable | (4,169 | ) | 3,972 | |||||||||
| Inventories | (1,850 | ) | 948 | |||||||||
| Prepaid expenses and other assets | (1,398 | ) | (195 | ) | ||||||||
| Accounts payable | (717 | ) | (867 | ) | ||||||||
| Accrued expenses and other liabilities | 1,376 | 1,943 | ||||||||||
| Cash provided by operating activities | 2,230 | 1,731 | ||||||||||
| Cash flow from investing activities: | ||||||||||||
| Additions to property and equipment | (4,623 | ) | (2,885 | ) | ||||||||
| Additions to license agreements | (64 | ) | (26 | ) | ||||||||
| Additions to intangible assets | (515 | ) | ||||||||||
| Purchases of marketable securities | (113,705 | ) | (6,571 | ) | ||||||||
| Proceeds from the sale of marketable securities | 22,793 | 6,371 | ||||||||||
| Proceeds from the sale of property & equipment | 228 | 52 | ||||||||||
| Proceeds from the sale of investment | 3,915 | |||||||||||
| Additions to other assets | 2 | (80 | ) | |||||||||
| Cash used in investing activities | (91,454 | ) | (3,654 | ) | ||||||||
| Cash flow from financing activities: | ||||||||||||
| Repayment on stockholders notes receivable | 4 | 34 | ||||||||||
| Payments on government advances | (102 | ) | (101 | ) | ||||||||
| Payments of note payable | (2,477 | ) | (27 | ) | ||||||||
| Payments of capital lease obligations | (9 | ) | ||||||||||
| Proceeds from the issuance of notes payable | 1,025 | |||||||||||
| Proceeds from follow-on offering, net of issuance costs | 174,931 | |||||||||||
| Proceeds from issuance of common stock, net of issuance cost | 4,006 | 453 | ||||||||||
| Cash provided by financing activities | 176,362 | 1,375 | ||||||||||
| Effect of exchange rate changes on cash | 186 | 427 | ||||||||||
| Net increase (decrease) in cash and cash equivalents | 87,324 | (121 | ) | |||||||||
| Cash and cash equivalents, beginning of period | 16,617 | 12,172 | ||||||||||
| Cash and cash equivalents, end of period | $ | 103,941 | $ | 12,051 | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
5
Natural MicroSystems Corporation
Notes to Condensed Consolidated Financial Statements
A. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated balance sheet as of June 30, 2000 and the condensed consolidated statements of income, operations and cash flow for the three month and six month periods ending June 30, 2000 and 1999 include the accounts of Natural MicroSystems Corporation and its wholly owned subsidiaries (the "Company").
In the opinion of management, all adjustments, which are of a normal recurring nature, 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 six month period ended June 30, 2000 are not necessarily indicative of the operating results to be expected for the full fiscal year.
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, 1999.
B. STOCKHOLDERS' EQUITY: (in 000s)
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Common Stock |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Income (loss) |
Notes Receivable from Common Stockholders |
Treasury Stock |
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Comprehensive Income (Loss) |
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Shares |
Amount |
Total |
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| Balance at December 31, 1999 | 12,766 | $ | 128 | $ | 72,923 | $ | (21,980 | ) | $ | (391 | ) | $ | (99 | ) | $ | (68 | ) | $ | 50,513 | $ | (19,031 | ) | ||||||
| Exercise of common stock options |
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335 |
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3 |
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3,026 |
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3,029 |
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| Stock issued in follow-on offering |
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3,450 |
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35 |
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174,896 |
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174,931 |
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| Warrants excerised |
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6 |
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| Issuance of common stock under employee purchase plan |
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42 |
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913 |
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68 |
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981 |
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| Foreign currency translation adjustment |
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(79 |
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(79 |
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(79 |
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| Change in market value of securities available for sale |
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(93 |
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(93 |
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(93 |
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| Payment of notes receivable from common stockholders |
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3 |
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3 |
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| Net income (loss) |
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6,037 |
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6,037 |
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6,037 |
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| Balance at June 30, 2000 |
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16,599 |
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$ |
166 |
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$ |
251,758 |
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$ |
(15,943 |
) |
$ |
(563 |
) |
$ |
(96 |
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$ |
— |
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$ |
235,322 |
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$ |
5,865 |
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C. INDEBTEDNESS
The Company established a $7.5 million bank line of credit for working capital purposes effective May 14, 1999. Borrowings under the line of credit bear interest at the bank's floating rate of prime plus one percent. The Company is subject to covenants requiring maintenance of certain profitability, equity and liquidity ratios. The Company is currently compliant with all covenants under the line, and there are no amounts currently outstanding.
6
D. EARNINGS PER SHARE
The following is a reconciliation of basic to the diluted earning per share (EPS) computations for net income (loss). The shares outstanding calculation for the three months ended June 30, 1999 do not include 62,000 anti-dilutive shares:
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Three months ended June 30, 2000 |
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|---|---|---|---|---|---|---|---|---|---|
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Income (loss) |
Shares |
Per Share Amount |
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| (In $000's except per share data) | |||||||||
| Basic EPS (income available to all shareholders) | $ | 5,001 | 16,517 | $ | 0.30 | ||||
| Effect of dilutive securities (stock options) | 939 | ||||||||
| Diluted EPS (income available to common stockholders + assumed conversions) | $ | 5,001 | 17,456 | $ | 0.29 | ||||
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Three months ended June 30, 1999 |
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Income (loss) |
Shares |
Per Share Amount |
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| (In $000's except per share data) | ||||||||||
| Basic EPS (income available to all shareholders) | $ | (3,650 | ) | 11,405 | $ | (0.32 | ) | |||
| Effect of dilutive securities (stock options) | ||||||||||
| Diluted EPS (income available to common stockholders + assumed conversions) | $ | (3,650 | ) | 11,405 | $ | (0.32 | ) | |||
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Six months ended June 30, 2000 |
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Income (loss) |
Shares |
Per Share Amount |
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| (In $000's except per share data) | ||||||||||
| Basic EPS (income available to all shareholders) | $ | 6,037 | 15,227 | $ | 0.40 | |||||
| Effect of dilutive securities (stock options) | 918 | |||||||||
| Diluted EPS (income available to common stockholders + assumed conversions) | $ | 6,037 | $ | 16,145 | $ | 0.37 | ||||
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Six months ended June 30, 1999 |
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Income (loss) |
Shares |
Per Share Amount |
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| (In $000's except per share data) | ||||||||||
| Basic EPS (income available to all shareholders) | $ | (7,672 | ) | 11,215 | $ | (0.68 | ) | |||
| Effect of dilutive securities (stock options) | ||||||||||
| Diluted EPS (income available to common stockholders + assumed conversions) | $ | (7,672 | ) | 11,215 | $ | (0.68 | ) | |||
7
E. INVENTORIES
Inventories are stated at the lower of cost (principally first-in, first-out) or market. Inventories, as of December 31, 1999 and June 30, 2000 were comprised of the following:
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June 30, 2000 |
December 31, 1999 |
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|---|---|---|---|---|---|---|---|
| (In $000's) | |||||||
| Raw materials | $ | 583 | $ | 517 | |||
| Work in process | 3,781 | 2,611 | |||||
| Finished goods | 2,792 | 2,265 | |||||
| $ | 7,156 | $ | 5,393 | ||||
F. SEGMENT INFORMATION
The following table presents the Company's revenues and operating income by geographic segment:
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Three Months ended June 30, |
Six Months ended June 30, |
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2000 |
1999 |
2000 |
1999 |
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| (In $000's) | |||||||||||||||
| Revenues | |||||||||||||||
| North America | $ | 21,464 | $ | 12,634 | $ | 41,846 | $ | 24,171 | |||||||
| Europe | 4,980 | 3,525 | 8,749 | 6,952 | |||||||||||
| Other | 5,681 | 1,406 | 9,252 | 3,063 | |||||||||||
| Total revenues | $ | 32,125 | $ | 17,565 | $ | 59,847 | $ | 34,186 | |||||||
| Operating Income (loss) | |||||||||||||||
| North America | $ | (1,475 | ) | $ | (5,112 | ) | $ | (3,112 | ) | $ | (10,374 | ) | |||
| Europe | 392 | (281 | ) | (50 | ) | (726 | ) | ||||||||
| Other | 2,471 | (28 | ) | 3,688 | 7 | ||||||||||
| Total operating income (loss) | $ | 1,388 | $ | (5,421 | ) | $ | 526 | $ | (11,093 | ) | |||||
8
G. COMPREHENSIVE INCOME
The following table represents the Company's comprehensive income for the stated periods.
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Three Months ended June 30, |
Six Months ended June 30, |
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|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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2000 |
1999 |
2000 |
1999 |
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| (In $000's) | |||||||||||||||
| Net income (loss) | $ | 5,001 | $ | (3,650 | ) | $ | 6,037 | $ | (7,672 | ) | |||||
| Other comprehensive income (loss) Items: | |||||||||||||||
| Foreign currency translation adjustment | (60 | ) | (45 | ) | (79 | ) | (234 | ) | |||||||
| Change in market value of securities available for sale | (93 | ) | |||||||||||||
| Comprehensive income (loss) | $ | 4,941 | $ | (3,695 | ) | $ | 5,865 | $ | (7,906 | ) | |||||
H. SUBSEQUENT EVENTS
On May 19, 2000 the Company announced that they had a definitive agreement to acquire InnoMediaLogic, Inc., ("IML") a privately held company headquartered in Canada. IML is a leading provider of enabling technology used in Voice over Digital Subscriber Line (VoDSL) gateways and other New Network solutions. The agreement calls for the Company to issue stock in the aggregate of 1,317,650 shares and pay cash totaling $69.1 million of total consideration for all outstanding shares and options of IML. The acquisition closed on July 7, 2000 and will be accounted for as a purchase.
On July 11, 2000 the Company's Board of Directors also declared a two-for-one stock split, to be paid on August 7, 2000 as a 100% distribution of its common stock. The stock distribution will entitle each shareholder of record at the close of business on July 24, 2000 to one additional share for every one share of Natural Microsystems common stock held on that date. Shares in this quarterly report have not been adjusted to reflect this stock split.
9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
We provide enabling technologies to the world's leading suppliers of networking and communications equipment. Our customers incorporate our software and hardware products and technologies into their solutions in order to enable service providers and enterprises to rapidly, and cost-effectively deploy data, voice and fax applications and enhanced services in converged networks. Over the past two years, we have been strategically repositioning our business to address new, high growth markets resulting from the growth in the converged network build out. To support this repositioning, we made significant investments in our sales force, built a service organization, expanded our research and development and strengthened our management team.
Our revenues consist primarily of product sales and, to a lesser extent, services provided to our customers. We sell our products worldwide principally through direct sales focusing on large original equipment manufacturer and significant system supplier customers. We use indirect channels to focus on all other customers and prospects. This strategy allows us to focus our resources on customers that offer us the largest revenue opportunities.
Our revenue is recognized from product sales upon of delivery, provided that collection is deemed probable. Service revenues are recognized ratably over applicable contract periods or as the services are performed.
Our cost of revenues consists primarily of product cost, cost of services provided to our customers and the overhead associated with testing and fulfillment operations.
Sales, general and administrative expenses consist primarily of salaries, commissions and related personnel expenses for those engaged in our sales, marketing, promotional, public relations, executive accounting and administrative activities and other general corporate expenses. As we add personnel, launch new products and incur additional costs related to the growth of our business, we expect these expenses to increase.
Research and development expenses consist primarily of salaries, personnel expenses and prototype fees related to the design, development, testing and enhancement of our products. As of June 30, 2000, all research and development costs have been expensed as incurred. We believe that continued investment in research and development is critical to attaining our strategic product and cost reduction objectives, and that these expenses will increase in the future.
Results of Operations
Revenues
Revenues of $32.1 million for the three months ended June 30, 2000 ("2000"), increased 82.9% percent from $17.6 million for the three months ended June 30, 1999 ("1999"). Revenues of $59.9 million for the six months ended June 30, 2000 increased 75.1% from $34.2 million for the six months ended June 30, 1999. The increase from 2000 to 1999 was attributable to increased revenues in North America, Europe and Asia, increased revenues from our strategic, major and emerging accounts and growth in the service sector.
Revenues from customers located outside of North America of $10.7 million for the three months ended June 30, 2000 increased 116.2% from $4.9 million for the three months ended June 30, 1999 and represented 33.2% and 28.1% of revenues for 2000 and 1999, respectively. The increase was attributed primarily to growth in Asia, where revenues increased 396.5% from $1.1 million to $5.7 million. Revenues from customers located outside of North America of $18.0 million for the six months ended June 30, 2000 increased 79.7% from $10.0 million for the six months ended June 30, 1999. The increase was due to larger sales volume in both the European and Asian markets.
10
Gross Profit
Gross profit for the three months ended June 30, 2000 of $20.1 million, increased 89.7% from $10.6 million for the three months ended June 30, 1999, and represented 62.7% and 60.4% of revenues for 2000 and 1999, respectively. The percentage increase was created by greater efficiencies in operations. Gross profit for the six months ended June 30, 2000 of $37.3 million increased 80.8% from $20.6 million for the six months ended June 30, 1999. The increase in gross profit is directly related to the additional revenue growth.
Selling, General and Administrative
Selling, general and administrative expenses of $11.8 million for the three months ended June 30, 2000 increased 20.8% from $9.8 million for the three months ended June 30, 1999, and represented 36.8% and 55.7% of total revenues for 2000 and 1999, respectively. Selling, general and administrative expenses of $22.8 million for the six months ended June 30, 2000 increased 16.9% from $19.5 million for the six months ended June 30, 1999 and represented 38.1% and 57.1% of revenues, respectively. The increase in expenses was due to costs associated with increased selling activity and other revenue based expenses. The Company expects that its selling, general and administrative expenditures will vary as a percentage of product revenues in future periods.
Research and Development
Research and development expenditures of $6.9 million for the three months ended June 30, 2000 increased 10.9% from $6.3 million for the three months ended June 30, 1999, and were 21.6% and 35.6% of total revenues for 2000 and 1999, respectively. Research and development expenditures of $13.9 million for the six months ended June 30, 2000 increased 14.3% from $12.2 million for the six months ended June 30, 1999 and represented 23.3% and 35.6% of revenues, respectively. The increases were due to increased personnel and development project related cost associated with the Convergence Generation and Alliance Generation product lines and associated software. The Company expects that its research and development expenditures will continue to increase, but may vary as a percentage of product revenues in future periods.
Restructuring and Other Special Charges
In the fourth quarter of 1998, in response to changes in our business environment we took several actions to create efficiency, to decrease cash outflows and to manage our business more effectively that resulted in restructuring and other special charges. To eliminate payroll and other related expenditures, we reduced our headcount by three senior international managers. The accrued cost to implement this reduction was approximately $951,000 (of which approximately $65,000 was paid in 1998). We also committed to reduce future lease commitments for a new corporate office and engineering space, neither of which will be occupied. The accrued cost to reduce or terminate these lease commitments was approximately $2.1 million, with a projected avoidance of future costs of approximately $10.2 million over ten years.
We were able to buy out the lease commitment at one of the locations and sublease the other location at an aggregate cost of approximately $958,000, resulting in a savings of approximately $1.1 million from our original estimate. These savings resulted in credits against our accruals in 1999. The savings in the first quarter were partially offset by an additional accrual of approximately $288,000 for unexpected delays in disposing of the other lease commitment. There is no remaining balance for the lease accruals at December 31, 1999.
In the first quarter of 1999, we completed our management reorganization and terminated two additional senior managers. The severance costs were approximately $441,000, with an anticipated savings of approximately $327,000 a year.
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In addition, in the fourth quarter of 1999, we incurred a special charge of approximately $557,000 for payroll-related taxes on an option exercise by one of the terminated managers. At June 30, 2000 the aggregate severance accruals have a remaining accrued balance of approximately $115,000, which will be fully paid in the fourth quarter of 2000.
Operating Income (Loss)
As a result of the foregoing, operating income (loss), for the three months ended June 30, was $1.4 million and ($5.4) million for 2000 and 1999, respectively. Net income (loss) was $5.0 million and ($3.7) million for the same periods, respectively. Operating income (loss) for the first six months ended June 30, was $526,000 and ($11.1) million for 2000 and 1999, respectively. Net income (loss) for the six months ended June 30, was $6.0 million and ($7.7) million for 2000 and 1999, respectively.
Other Income (Expense), Net
Other income (expense), net for the three months ended June 30, 2000 and 1999 was $4.0 million and $191,000, respectively. Other income (expense) for the six months ended June 30, 2000 and 1999 was $6.0 million and ($17,000), respectively. The increase was due to both investment income on cash raised in conjunction with the Company's follow-on stock offering in January, 2000 as well as the sale of two investments that the Company had in various privately held companies. There was a recognized gain of $982,000 in the first quarter and $916,000 in the second quarter of the Company's fiscal year to date.
Income Tax Expense (Benefit)
Income tax expense (benefit) for the three months ended June 30, was $376,000 and ($1.6) million, respectively. Income tax expense (benefit) for the six months ended June 30, was $454,000 and ($3.4) million, respectively. The Company's current effective tax rate is 7.0%, on a worldwide basis. For U.S. federal income tax purposes, the Company has net operating loss carryforwards available to reduce income of approximately $16.4 million at December 31, 1999. These carryforwards will begin to expire in 2004 and $2.9 million of such carryforwards are subject to an annual limitation of $772,000 under Internal Revenue Code Section 382. There may be further Section 382 limitations as a result of changes in ownership. The Company also has a foreign net operating loss carryforward of approximately $845,000. The Company has $1.5 million of tax credits which are composed of federal research and development credits and state and local credits. These credits expire beginning in 2004. Under applicable accounting standards, management believes that the realization of the net deferred tax asset is more unlikely than not and, accordingly, a full valuation has been established.
Liquidity and Capital Resources
Cash provided by (used in) operations for the six months ended June 30, 2000 and 1999 was $2.2 million and $1.7 million, respectively. Cash provided by operations in 2000, was the result of an increase in net income, depreciation expense and accrued expenses and other liabilities offset by increases in accounts receivable, inventory and prepaid and other expenses. Cash provided by operations in 1999, was the result of reductions in accounts receivable generated through better collection rates, reductions in inventory through better management and increases in accrued expenses and other liabilities
Cash used in investing activities for the six months ended June 30, 2000 and 1999 was ($91.5) million and ($3.7) million, respectively. Cash was used in 2000 and 1999 for purchases of property and equipment of $4.6 million and $2.9 million respectively. In 2000, the Company purchased additional marketable securities totaling $113.7 million. In 1999, the Company had increases in intangible assets of $515,000.
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Cash provided by financing activities in 2000 and 1999 was $176.4 million and $1.4 million, respectively. In 2000, cash was provided by issuance of stock pursuant to a follow-on offering of $175 million. An additional $4.0 million was raised from issuance of common stock upon the exercise of common stock options and the employee stock purchase plan. Cash was used in the amount of $2.5 million, for the same period, to repay debt incurred in connection with the acquisition of QWES.com. In 1999, cash proceeds were from borrowings and the issuance of common stock upon the exercise of common stock options.
Current assets at June 30, 2000, were $231.2 million, 408.2% more than current assets of $45.5 million at December 31, 1999. Issuance of common stock accounted for the majority of this increase. Current liabilities at June 30, 2000 were $18.1 million, 9.0% less than current liabilities of $19.9 million at December 31, 1999. Payment of QWES.com short-term notes accounted for the decrease in liabilities in 2000.
Public Stock Offering
On March 3, 2000 the Company had an additional stock offering of 3.45 million shares available to the public for $53.50 a share. This offering yielded an additional $175 million in additional capital for general corporate purposes, including working capital, capital expenditures and potential acquisitions. Shares were issued on March 8, 2000 following the sale of all 3.45 million shares.
Acquisition of Foreign Corporation
On May 19, 2000 the Company announced that they had a definitive agreement to acquire InnoMediaLogic, Inc., ("IML") a privately held company headquartered in Canada. IML is a leading provider of enabling technology used in Voice over Digital Subscriber Line (VoDSL) gateways and other New Network solutions. The agreement calls for the Company to issue stock in the aggregate of 1,317,650 shares and pay cash totaling $69.1 million of total consideration for all outstanding shares and options of IML. The acquisition closed on July 7, 2000 and will be accounted for as a purchase.
Year 2000 Readiness Disclosure
We believe that all of our current major product offerings are Year 2000 compliant. Certain older legacy products, which we no longer sell, may not be Year 2000 compliant. We have addressed the issue of legacy products by publishing on our external website a notice to the effect that certain of these products may not be Year 2000 compliant and that each customer who purchased these products should test and, as needed, repair or replace any of them to the extent that they are still in use. We spent approximately $1.0 million during 1999 in addressing Year 2000 compliance issues. To this date, we are not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems or the products and services of third parties.
European Union Currency Conversion
On January 1, 1999, eleven member nations of European Economic and Monetary Union began using a common currency, the Euro. For a three-year transition period ending June 30, 2002, both the Euro and each of the currencies for such member nations will remain in circulation. After June 30, 2002, the Euro will be the sole legal tender for those countries. The adoption of the Euro will affect many financial systems and business applications as the commerce of those countries will be transacted in the Euro and the existing national currency during the transition period. Of the eleven currently using the Euro, the Company has subsidiary operations in France, Germany and Italy, and branch operations in Spain. The Company has assessed the potential impact of the Euro conversion in a number of areas, particularly including the potential impact upon pricing and other marketing strategies, and upon product development. Although the Company does not currently expect that the
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conversion, either during or after the transition period, will adversely affect its operations of financial condition, the conversion has only recently been implemented and there can be no assurance that it will not have some unexpected adverse impact.
A significant portion of the Company's revenues are subject to the risks associated with international sales. Although most of the Company's product prices are denominated in United States currency, customers in other geographic regions generally evaluate purchases of products, such as those sold by the Company, based on the purchase price expressed in the customer's currency. Therefore, changes in foreign currency exchange rates may adversely affect the demand for the Company's products.
The Company believes that its revenues and results of operations have not been significantly impacted by inflation during the past three fiscal years.
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 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, 1998. 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.
PART II—OTHER INFORMATION
| ITEMS 1-5 |
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Not Applicable. |
| ITEM 4 |
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Submission of Matters to a vote of Security Holders |
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Exhibit 3.3 By-laws of Registrant, as amended. |
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NATURAL MICROSYSTEMS CORPORATION
CERTIFICATE OF AMENDMENT
OF
FOURTH RESTATED CERTIFICATE OF INCORPORATION
NATURAL MICROSYSTEMS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
1. The name of the Corporation (the "Corporation") is Natural MicroSystems Corporation.
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2. The Corporation filed its Fourth Restated Certificate of Incorporation with the Secretary of State of Delaware on February 25, 1994 (as amended through the date hereof, the "Certificate of Incorporation").
3. The Board of Directors of the Corporation duly adopted the following:
It is hereby proposed and declared advisable that the Certificate of Incorporation of this Corporation, as heretofore restated and amended, be further amended to increase the number of shares of common stock which it is authorized to issue so that the first sentence of Article Fourth thereof shall read as follows:
"The total number of shares of capital stock which the corporation shall have authority to issue is 128,000,000, of which 125,000,000 shall be Common Stock, $.01 par value per share, and 3,000,000 shall be Preferred Stock, $.05 par value per share."
4. The stockholders of the Corporation have duly approved said amendment at the Annual Meeting of the Stockholders of the Corporation held on April 28, 2000 by vote of a majority of the outstanding shares entitled to vote thereon in accordance with Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said Natural MicroSystems Corporation has caused this certificate to be signed under penalties of perjury by Robert P. Schechter, its President, and attested by Dianne L. Callan, its Secretary, this 28th day of April, 2000.
| NATURAL MICROSYSTEMS CORPORATION | |||
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By: |
/s/ ROBERT P. SCHECHTER Robert P. Schechter President |
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| /s/ DIANNE L. CALLAN Dianne L. Callan Secretary |
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| ITEM 6. |
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Exhibits and Reports on Form 8-K. |
| A. |
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Exhibits |
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No. 27.1—Financial Data Schedule |
| B. |
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Reports on Form 8-K |
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Not applicable. |
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.
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Natural MicroSystems Corporation |
| Dated: August 10, 2000 |
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By: /s/ ROBERT P. SCHECHTER Robert P. Schechter President and Chief Executive Officer And Chairman of the Board of Directors |
| Dated: August 10, 2000 |
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By: /s/ ROBERT E. HULT Robert E. Hult Vice President of Finance and Operations, Chief Financial Officer and Treasurer |
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Natural MicroSystems Corporation
Exhibit Index
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| No. 27.1 | Financial Data Schedule | 18 |
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