<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM 10-Q/A
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------------ ----------------
COMMISSION FILE NUMBER 0-25740
ACT NETWORKS, INC.
(Exact name of registrant as specified in its charter)
--------------------
DELAWARE 77-0396887
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
188 CAMINO RUIZ, CAMARILLO, CALIFORNIA 93012
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (805) 388-2474
- -------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT: Not Applicable
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 [checkmark] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
-------------- ---------------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
As of January 31, 1996, there were 7,371,235 shares of Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
December 31, 1995 and June 30, 1995............................................. 3
Condensed Consolidated Statements of Operations
for the Three and Six Month Periods Ended
December 31, 1995 and 1994...................................................... 4
Condensed Consolidated Statements
of Cash Flows for the Six Month Periods
Ended December 31, 1995 and 1994................................................ 5
Notes to Condensed Consolidated
Financial Statements............................................................ 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations.................................... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................... 12
SIGNATURES................................................................................................ 15
EXHIBIT INDEX ............................................................................................ 16
</TABLE>
2
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1995
-------------- --------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ....................... $ 11,352,192 $ 30,546,278
Short-term investments .......................... 7,403,959 ---
Accounts receivable, less allowances of $63,000
in December and $63,000 in June ............... 7,093,869 4,529,210
Accounts receivable from stockholder ............ 537,348 669,160
Inventory ....................................... 6,446,056 4,677,190
Prepaid expenses ................................ 445,850 244,315
Deposits ........................................ 71,685 68,100
Deferred income taxes ........................... 82,176 82,176
------------ ------------
Total current assets .......................... 33,433,135 40,816,429
Plant, equipment and other improvements:
Machinery and equipment ......................... 2,463,878 1,696,257
Furniture and fixtures .......................... 359,500 359,500
Computer software ............................... 665,279 411,438
Leasehold improvements .......................... 453,139 284,659
------------ ------------
3,941,796 2,751,854
Accumulated depreciation and amortization ............ 1,663,444 1,233,003
------------ ------------
2,278,352 1,518,851
Goodwill ............................................. 2,029,139 --
Other assets ......................................... 502,182 561,498
------------ ------------
Total assets .................................. $ 38,242,808 $ 42,896,778
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued payables ................................ $ 1,851,089 $ 1,475,020
Accrued expenses ................................ 831,768 625,627
Accrued vacation ................................ 255,917 239,888
Accrued commissions ............................. 94,992 153,656
Income taxes payable ............................ 88,539 86,958
------------ ------------
Total current liabilities ..................... 3,122,305 2,581,149
Notes payable and capital leases, less current portion 311,914 --
Stockholders' equity:
Common stock, $.01 par value
Authorized - 40,000,000
Issued and outstanding - 7,362,407 in
December and 7,149,830 in June ................ 7,158 7,150
Common stock paid-in capital in excess of par
value ......................................... 43,980,543 42,662,121
Promon secured deposit .......................... -- (45,000)
Accumulated deficit ............................. (9,175,468) (3,570,683)
Accumulated translation adjustment .............. (3,644) --
------------ ------------
Total stockholders' equity .................... 34,808,589 40,315,629
------------ ------------
Total liabilities and stockholders' equity $ 38,242,808 $ 42,896,778
============ ============
</TABLE>
See notes to condensed financial sheets
3
<PAGE> 4
ACT NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------- ---------------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ....................... $ 6,167,103 $ 4,876,632 $ 11,268,885 $ 9,288,089
Expenses:
Cost of goods sold .......... 3,691,219 2,150,904 6,333,550 4,147,171
Research and development .... 1,241,465 935,594 2,278,961 1,722,452
Sales and marketing ......... 1,752,413 1,050,999 3,158,452 2,077,392
General and administrative .. 806,818 461,355 1,407,036 879,929
In-process research and 5,600,000 -- 5,600,000 --
------------ ------------ ------------ ------------
development ................. 13,091,915 4,598,852 18,777,999 8,826,944
------------ ------------ ------------ ------------
Income (loss) from operations ... (6,924,812) 277,780 (7,509,114) 461,145
Other:
Interest and other income
(expense) ................... 307,918 1,453 681,718 1,453
-- (49,304) -- (61,484)
------------ ------------ ------------ ------------
Interest expense ............ 307,198 (47,851) 681,718 (60,031)
------------ ------------ ------------ ------------
Income (loss) before income taxes (6,616,894) 229,929 (6,827,396) 401,114
Provision for income taxes ...... 39,430 14,000 39,430 14,000
------------ ------------ ------------ ------------
Net income (loss) ............... $ (6,656,324) $ 215,929 $ (6,866,826) $ 387,411
============ ============ ============ ============
Net income (loss) per share ..... $ (0.92) $ 0.05 $ (0.96) $ 0.08
============ ============ ============ ============
Shares used in computing net
income (loss) per share ......... 7,206,296 4,751,479 7,164,184 4,696,310
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
ACT NETWORKS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------------- -----------------------------------
1995 1994 1995 1994
------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ............................ $ (6,656,323) $ 215,929 $ (6,866,825) $ 387,114
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization .............. 262,334 160,613 455,163 286,664
Provision for allowances on
accounts receivable ...................... -- -- -- --
Write-off of in-process
research and development .................. 5,600,000 -- 5,600,000 --
Changes in operating assets and liabilities:
Accounts receivable ...................... (236,709) (993,016) (1,402,738) (2,018,500)
Inventory ................................ 672,075 (1,015,511) (1,407,598) (1,626,326)
Prepaid expenses and
deposits ............................... (30,963) (145,696) (194,389) (35,618)
Accounts payable, accrued
expenses and income taxes
payable ................................ (1,422,944) 636,258 (634,166) (1,423,391)
------------ ------------ ------------ ------------
Net cash used in operations .................. (1,812,530) (1,141,423) (4,450,553) (1,583,275)
INVESTING ACTIVITIES
Decrease (Increase) in short-
term investments ............................. (6,923,887) -- (6,923,887) --
Purchase of plant, equipment
and other fixed assets ..................... (470,096) (215,839) (1,076,840) (865,232)
Acquisition of Presticom, Inc. ............... (6,880,470) -- (6,880,470) --
Other assets ................................. 9,165 (62,506) 59,316 (101,149)
------------ ------------ ------------ ------------
Net cash used in investing
activities ................................. (14,265,288) (278,345) (14,821,881) (966,381)
FINANCING ACTIVITIES
Payments on long-term debt ................... (533) -- (533) --
Stock warrants and options ................... 27,394 67,980 37,526 103,180
Shareholder secured research
and development deposit .................... 45,000 75,000 45,000 --
Borrowings on line of credit ................. -- 880,483 -- 1,500,000
------------ ------------ ------------ ------------
Net cash provided by financing
activities ................................. 71,861 1,023,463 81,993 1,603,180
Translation adjustment ....................... (3,644) -- (3,644) --
Net decrease in cash ......................... (16,009,602) (396,305) (19,194,086) (796,476)
Cash and cash equivalents at
beginning of period ........................ 27,361,794 396,305 30,546,278 796,476
------------ ------------
Cash and cash equivalents at
end of period .............................. 11,352,192 -- 11,352,192 --
Cash and cash equivalents paid
during the period for:
Interest ................................. 367 33,483 367 45,663
Income taxes ............................. 623 14,000 623 14,000
</TABLE>
See notes to condensed financial statements.
5
<PAGE> 6
ACT NETWORKS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended December 31, 1995 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended June 30, 1995.
The balance sheet at June 30, 1995 has been derived from the audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. See notes to condensed financial statements.
2. BUSINESS ACQUISITION
On November 30, 1995, ACT Networks, Inc. and Canada Inc., a wholly-owned
subsidiary of the Company, acquired all the issued and outstanding shares of
Presticom Inc., a Canadian corporation ("Presticom"). Presticom is a developer
of multiple protocol frame relay access devices with expertise in the SNA
environment. The aggregate purchase price paid by the Company was approximately
$8,568,346 consisting of $7,287,495 paid in cash and the issuance of 176,365
shares of common stock of the Company with an estimated fair market value of
$1,289,851, representing a discount from the quoted market price at the date of
acquisition due to certain trading restrictions placed on the stock pursuant to
the agreement.
The acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities were recorded at their estimated fair market values at
the date of acquisition. The purchase price plus costs directly attributable to
the completion of the acquisition have been allocated to the assets and
liabilities acquired. Approximately $5,600,000 of the total purchase price
represented the value of in-process research and development that had not yet
reached technological feasibility and was charged to the Company's operations.
The Company's consolidated results of operations include the operating results
of Presticom from the acquisition date. The following unaudited pro forma
information combines the consolidated results of operations of the Company and
Presticom as if the acquisition had occurred on July 1, 1995 and 1994.
Adjustments have been made to reflect the amortization of goodwill identified in
the purchase price allocation, the reduction in interest income earned or
increase in interest expense incurred due to the decrease in cash position or
increased borrowings resulting from the cash used as part of the acquisition
consideration, and the issuance of common stock as part of the acquisition
consideration. The pro forma information is presented for illustrative purposes
only, and is not necessarily indicative of what the actual results of operations
would have been during such periods or representative of future operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Net sales $ 12,146,966 $ 10,171,487
Net loss (1,765,351) (91,094)
Net loss per share (0.24) (0.02)
</TABLE>
The pro forma information presented above does not reflect the write off of
in-process research and development costs of $5,600,000 which was included in
the actual operating results for the six-months ended December 31, 1995.
6
<PAGE> 7
3. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 SEPTEMBER 30, 1995
----------------- ------------------
<S> <C> <C>
Purchased parts .............. $2,844,535 $1,364,240
Sub-assemblies; finished goods 3,601,521 5,392,623
---------- ----------
$6,446,056 $6,756,863
========== ==========
</TABLE>
4. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number of
shares of common stock outstanding. Common equivalent shares from stock options
and warrants (using the modified treasury stock method) have been included in
the computation when dilutive and common equivalents shares from the convertible
preferred stock outstanding during the quarter and the six months ended December
31, 1994 which was converted into common stock in connection with the Company's
initial public offering are included as if converted at the original date of
issuance even though inclusion is antidilutive. Pursuant to the Securities and
Exchange Commission (SEC) Staff Accounting Bulletins, all common and common
equivalent shares issued by the Company at an exercise price below the public
offering price during the twelve-month period prior to the offering (cheap
stock) have been included in the calculation as if they were outstanding for all
periods presented (using the treasury stock method at the initial public
offering price per share and the if-converted method for convertible preferred
stock).
Net income per share for the six months ended December 31, 1994 under
"Accounting Principles Bulletin No. 15" which excludes the cheap stock
adjustment pursuant to the SEC staff accounting bulletins is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1994 DECEMBER 31, 1994
----------------- -----------------
<S> <C> <C>
Net income (loss) per share .... $ 0.05 $ 0.09
================= =============
Shares used in computing
net income (loss) per share .... 4,509,445 4,454,276
================= =============
</TABLE>
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
ACT was founded in May 1987 to design, manufacture and market wide area
network communication products incorporating advanced compression and
integration technologies. Until September 1988, the Company was primarily
engaged in research and development. In fiscal 1989, the Company shipped its
first integrated product, the SDM-1, a point-to-point multiplexer designed for
use on a voice-band analog circuit. In fiscal 1991, the Company began shipping
the SDM-T, a point-to-point integrated multiplexer designed for use over digital
leased lines. The Company experienced significant growth in net sales and first
achieved profitability in fiscal 1991 as a result of the market acceptance of
its SDM-T product. In fiscal 1993, the Company introduced the SDM-FP, its first
integrated Frame Relay access product.
The Company's future operating results will be dependent upon the
development and growth of the public and private wide area network
communications markets for its products and, in particular, its integrated Frame
Relay access products. Certain of these markets are currently emerging and may
not continue to develop, whether as a result of competition, technological
change, market forces or otherwise.
The average sales price for each of the Company's products has tended
to decrease over time due to competition and other factors. The Company
anticipates that this trend will continue. Price erosion of existing products
and the introduction of less expensive networking alternatives by the Company or
competitors could adversely affect the Company's margins and results of
operations.
Sales to customers outside the United States accounted for
approximately 68%, 70% and 66% of the Company's net sales for the fiscal years
ended June 30, 1993, 1994 and 1995, respectively, and approximately 50% for the
six months ended December 31, 1995, and the Company expects that international
sales will continue to account for a significant portion of the Company's net
sales in future periods. In addition, the Company believes that a majority of
its sales to customers inside the United States represent sales of products
which are used or resold in markets outside the United States. International
sales are subject to certain inherent risks, including unexpected changes in
regulatory requirements and tariffs, problems and delays in collecting accounts
receivable and economic downturns in foreign markets. A significant number of
the Company's products are sold or installed in countries, including several in
South America, where political or economic issues could adversely affect the
purchasing decision of the customer. In addition, fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in sales
or profitability in that country.
A small number of customers have historically accounted for a
substantial portion of the Company's net sales. The Company's five largest
customers accounted for approximately 45% and 43% of the Company's net sales for
the fiscal years ended June 30, 1994 and 1995, respectively, and approximately
50% for the six months ended December 31, 1995. Any reduction, delay or change
in orders from such customers could have a material adverse effect on the
Company's business.
The Company's operating results have in the past, and may in the
future, fluctuate from quarter to quarter as a result of a number of factors.
The Company's sales in a particular quarter are typically characterized by
several large orders and a large number of small orders, primarily from
distributors. While it is difficult for the Company to accurately forecast the
timing and quantity of orders on a quarter to quarter basis, the Company intends
to increase expenses with the expectation of future sales. The failure of the
Company to accurately forecast the timing and volume of orders for a quarter
would adversely affect the results of operations for such quarter and,
potentially, for future periods.
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<PAGE> 9
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the
percentages of net sales represented by each item in the Company's statement of
operations.
<TABLE>
<CAPTION>
Six Months Ended December 31,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Net sales .................................. 100.0% 100.0%
Cost of goods sold ......................... 56.2% 44.7%
Gross profit ............................... 43.8% 55.3%
Operating expenses:
Research and development ................ 20.2% 18.5%
Sales and marketing ..................... 28.0% 22.4%
General and administrative .............. 12.5% 9.5%
In process research and development ..... 49.7% 0.0%
------ ------
Total operating expenses ................... 166.6% 50.4%
Income (loss) from operations .............. (66.6%) 4.9%
Net interest and other income (expense) .... 6.0% (0.6%)
------ ------
Income (loss) before taxes ................. (60.9%) 4.3%
Provision for income taxes ................. 0.0% 0.1%
------ ------
Net income (loss) .......................... (60.9%) 4.2%
====== ======
</TABLE>
Net sales
Net sales increased 21% to $11.3 million for the six months ended
December 31, 1995 from $9.3 million for the six months ended December 31, 1994.
This increase was primarily due to increased sales of the Company's Frame Relay
and OEM products. Net sales of Frame Relay products were $6.0 million and $1.2
million for the six month periods ended December 31, 1995 and December 31, 1994,
respectively. Net sales of point to point products decreased to $1.0 million
from $6.0 million for the six month periods ended December 31, 1995 and December
31, 1994, respectively. While the Company anticipated the continued decline of
sales of point-to-point products due primarily to the conversion of customers to
Frame Relay products, the decrease in such sales during the quarter was greater
than anticipated by the Company. Net sales of OEM products increased to $2.7
million for the six months ended December 31, 1995 from $1.1 million for the six
months ended December 31, 1994. The increase in OEM shipments was primarily due
to unusually large orders received from one customer and the Company does not
anticipate this level of OEM sales to continue in the future.
Gross Profit
Gross profit represents net sales less the cost of goods sold, which
includes cost of materials, manufacturing overhead costs and direct labor
expenses. The Company's gross profit was $4.9 million, or 43.8% of net sales,
for the six months ended December 31, 1995. The six months ended December 31,
1995 included a $0.7 million charge for obsolete inventory that was taken to
recognize the decreased demand for certain point-to-point products. Gross
profit, not including this charge, was $5.6 million or 50.0% of net sales, for
the six months ended December 31, 1995, as compared to 53.0% of net sales for
the comparable period in 1994. This decrease in gross profit as a percentage of
sales was primarily attributable to the change in product mix including
increased OEM sales and
9
<PAGE> 10
decreased sales of voice cards. The gross margins generated from OEM product
sales are considerably lower than those from Frame Relay or point-to-point
products. In the future, gross profit may be affected by price competition,
product mix, product configuration, changes in unit volume, cost of components
and manufacturing and other factors.
Operating Expenses
Research and development. Research and development expense increased to $2.3
million, or 20.2% of net sales, for the six months ended December 31, 1995 from
$1.7 million, or 18.5% of net sales, for the six months ended December 31, 1994.
These increases were primarily attributable to the costs of personnel for the
development of new products and enhancement of existing products, which
increased to approximately $1.5 million from approximately $1.2 million during
the preceding comparable period. While the actual amount expended will depend
upon a variety of factors, the Company anticipates increasing research and
development expenses in fiscal 1996.
Sales and marketing. Sales and marketing expense increased to $3.2 million, or
28.0% of net sales, for the six months ended December 31, 1995 from $2.1
million, or 22.4% of net sales, for the six months ended December 31, 1994. This
dollar increase was primarily attributable to the addition of personnel and
increased marketing activities. While actual amounts expended will depend upon a
variety of factors, the Company anticipates increasing sales and marketing
expenses in fiscal 1996.
General and administrative. General and administrative expense increased to $1.4
million, or 12.5% of net sales, for the six months ended December 31, 1995 from
$0.8 million, or 9.5% of net sales, for the six months ended December 31, 1994.
This increase in expense levels was primarily attributable to the addition of
administrative personnel and additional expenses incurred as a result of being a
public company.
The Company expects to continue to expand its operations, resulting in
dollar increases in each category of operating expenses. The Company's operating
results and net income will be adversely affected to the extent that net sales
and gross profits do not increase sufficiently to offset such increased
expenses.
Net interest and other income (expense)
Net interest income was approximately $682,000 for the six month
periods ended December 31, 1995 compared to net interest expense of
approximately $60,000 for the six months period ended December 31, 1994. This
change was primarily attributable to interest received on the proceeds from the
Company's public offering in May 1995.
Income Taxes
There was no provision for income taxes for the six month periods ended
December 31, 1994 or December 31, 1995. Subject to certain limitations, the
Company has a research and development tax credit carryforward and federal and
state operating loss due to net operating loss carryforwards, a portion of which
it expects to apply against its income tax liability for 1995. If the Company
generates profits, the net operating loss carryforwards and research and
development tax credit carryforward will be utilized and the Company's effective
tax rates will increase.
The Company adopted the provisions of the Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," effective July 1,
1993. The adoption of this statement did not have a material effect on the
Company's financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations primarily from the sale of
preferred stock and Common Stock, borrowings from investors, borrowings under a
bank facility and sales of the Company's products. Proceeds, net of offering
costs, from sales of preferred stock were $2.6 million and $2.1 million for the
fiscal years ended June 30, 1993 and 1994, respectively. Net proceeds from the
sale of Common Stock in the Company's initial public offering in May 1995 were
$33.8 million. For the six months ended December 31, 1995, the Company's
operating activities used cash of approximately $4.5 million. At December 31,
1995, the Company had approximately $30.0 million in working capital, including
$11.0 million in cash.
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<PAGE> 11
Capital expenditures relating primarily to the purchase of computer
equipment, test equipment, computer software and leasehold improvements amounted
to approximately $1.1 million for the six months ended December 31, 1995. The
Company currently has no material commitments for capital expenditures. However,
the Company anticipates spending between $1.5 million and $2.5 million during
the next 12 months to acquire test equipment, computer equipment, office
furniture, tooling and leasehold improvements.
On November 30, 1995, the Company, through its wholly-owned subsidiary,
acquired all of the issued and outstanding shares of Presticom. The aggregate
purchase price paid in cash and shares of the Company's Common Stock was
approximately $8.5 million. In connection with the acquisition, the Company took
a one-time in-process research and development charge to operations of $5.6
million.
In March 1993, May 1994 and March 1995, the Company entered into
agreements (the "Loan Agreements") with Silicon Valley Bank (the "Bank"), which
provided for two revolving credit facilities and a term loan secured by a
blanket lien on all of the Company's assets. Under the two revolving credit
facilities, the Company may borrow up to the lesser of $1.5 million or a total
of (i) 90% of the net amount of the Company's approved accounts receivable owing
from customers outside the United States plus (ii) 70% of the value of the
Company's inventory held for export outside the United States, provided that
such borrowings are guaranteed by the Export-Import Bank of the United States.
Alternatively, borrowings under the facilities may be made up to the lesser of
$3.0 million or 75% of the net amount of the Company's accounts receivable from
customers within the United States. The Bank may also issue up to $500,000 in
letters of credit for the account of the Company. The amount available for
borrowing under the revolving credit facilities is reduced by the aggregate
amount of such Letters of Credit outstanding from time to time. In no event may
the aggregate outstanding principal balance of all loans made to the Company
under the Loan Agreements exceed $3.0 million.
The Loan Agreements also require the Company to maintain certain
financial ratios and limit the Company's ability to incur additional debt, to
repurchase the Company's stock and to pay dividends. The Company is currently in
compliance with all such financial ratios and covenants. As of December 31,
1995, the Company had no outstanding balance under its revolving credit
facilities and under its term loan. As of December 31, 1995, an aggregate of
$3.0 million was available under the Loan Agreements. The Company believes that
available cash, together with amounts available under its credit facilities and
cash flow from operation, will be sufficient to meet its normal operating and
capital requirements through at least December 31, 1996.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit 3.1 - Certificate of Incorporation of the Company.
Incorporated by reference to Exhibit 3.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
Exhibit 3.2 - Bylaws of the Company. Incorporated by reference
to Exhibit 3.2 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
Exhibit 4.1 - Specimen certificate representing shares of
Common Stock of the Company. Incorporated by reference to Exhibit 4.1
to the Company's Registration Statement on Form S-1, Registration No.
33-90394.
Exhibit 4.2 - Form of Warrant of the Company. Incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
Exhibit 10.1 - Standard Industrial/Commercial Multi-Tenant
Lease-Modified Net dated May 23, 1994 by and between Herman Bennett and
the Company. Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
Exhibit 10.2 - Master Lease Agreement dated January 11, 1994
and between the Company and Leasetec Corporation, as amended and
supplemented. Incorporated by reference to Exhibit 10.2 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
Exhibit 10.3 - Loan and Security Agreement dated March 23,
1993, as amended, between Silicon Valley Bank and the Company and
related agreements and documents. Incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1, Registration
No. 33-90394.
Exhibit 10.4 - Loan and Security Agreement (Exim) dated May
11, 1994, as amended, between Silicon Valley Bank and the Company and
related agreements and documents. Incorporated by reference to Exhibit
10.4 to the Company's Registration Statement on Form S-1, Registration
No. 33-90394.
Exhibit 10.5 - Executive Employment Agreement dated December
23, 1992, by and between the Company and Martin Shum. Incorporated by
reference to Exhibit 10.5 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
Exhibit 10.6 - Form of Indemnification Agreement. Incorporated
by reference to Exhibit 10.6 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
12
<PAGE> 13
Exhibit 10.7 - 1987 Stock Option Plan (the "1987 Plan").
Incorporated by reference to Exhibit 10.7 to the Company's Registration
Statement on Form S-1, Registration No. 33-90394.
Exhibit 10.8 - Form of Amended Notice of Grant of Stock Option
with respect to holders of installment incentive stock options granted
under the 1987 Plan. Incorporated by reference to Exhibit 10.8 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
Exhibit 10.9 - Form of 1987 Installment Incentive Stock Option
Agreement, Immediately Exercisable Stock Option Agreement and
Immediately Exercisable Non-Qualified Stock Option Agreement generally
used in connection with the 1987 Plan. Incorporated by reference to
Exhibit 10.9 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
Exhibit 10.10 - Form of 1987 Stock Purchase Agreement
generally used in connection with the 1987 Plan. Incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
Exhibit 10.11 - 1993 Stock Option Plan as amended (the "1993
Plan"). Incorporated by reference to Exhibit 10.11 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
Exhibit 10.12 - Form of Notice of Grant of Stock Option
generally used in connection with the 1993 Plan. Incorporated by
reference to Exhibit 10.12 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
Exhibit 10.13 - Form of 1993 Stock Option Agreement generally
used in connection with the 1993 Plan. Incorporated by reference to
Exhibit 10.13 to the Company's Registration Statement on Form S-1,
Registration No. 33-90394.
Exhibit 10.14 - Form of 1993 Stock Purchase Agreement
generally used in connection with the 1993 Plan. Incorporated by
reference to Exhibit 10.14 to the Company's Registration Statement on
Form S-1, Registration No. 33-90394.
**Exhibit 10.15 - Cooperation and Supply Agreement dated as of
November 19, 1993 by and between StrataCom, Inc. and the Company.
Incorporated by reference to Exhibit 10.15 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
Exhibit 10.16 - Technical Information Escrow Agreement dated
July 18, 1994 by and between StrataCom, Inc., the Indianapolis Vault
Company and the Company. Incorporated by reference to Exhibit 10.16 to
the Company's Registration Statement on Form S-1, Registration No.
33-90394.
Exhibit 10.17 - Memorandum of Agreement dated January 19, 1995
by and between the Company, Promon International, Inc. and Pacific
Technology Fund. Incorporated by reference to Exhibit 10.17 to the
Company's Registration Statement on Form S-1, Registration No.
33-90394.
Exhibit 10.18 - Shareholder Rights Agreement dated as of April
23, 1992, as amended by Amendment No. 1 to Shareholder Rights Agreement
dated as of August 11, 1992, Amendment No. 2 to Shareholder Rights
Agreement dated as of October 19, 1992, Amendment No. 3 to Shareholder
Rights Agreement dated as of December 18, 1992, Amendment No. 4 to
Shareholder Rights Agreement dated as of March 15, 1993, Amendment No.
5 to Shareholder Rights Agreement dated as of November 16, 1993, and
Amendment No. 6 to Shareholder Rights Agreement dated as of December
15, 1994. Incorporated by reference to Exhibit 10.18 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
Exhibit 10.19 - Virtual DAMA Agreement dated December 31,
1993, by and between the Company and Promon Technical Services, Inc.,
as amended. Incorporated by reference to Exhibit 10.19 to the Company's
Registration Statement on Form S-1, Registration No. 33-90394.
13
<PAGE> 14
Exhibit 10.20 - 1995 Stock Option/Stock Issuance Plan (the
"1995 Plan"). Incorporated by reference to Exhibit 99.1 to the
Company's Registration Statement on Form S-8, Registration No.
33-80007.
Exhibit 10.22 - Form of Stock Option Agreement generally used
in connection with the Discretionary Option Grant Program of the 1995
Plan. Incorporated by reference to Exhibit 99.3 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
Exhibit 10.21 - Form of Addendum to Stock Option Agreement
(Limited Stock Appreciation Right). Incorporated by reference to
Exhibit 99.4 to the Company's Registration Statement on Form S-8,
Registration No. 33-80007.
Exhibit 10.24 - Form of Addendum to Stock Option Agreement
(Involuntary Termination Following Change of Control). Incorporated by
reference to Exhibit 99.5 to the Company's Registration Statement on
Form S-8, Registration No. 33-80007.
Exhibit 10.25 - Form of Addendum to Stock Option Agreement
(Special Tax Elections). Incorporated by reference to Exhibit 99.6 to
the Company's Registration Statement on Form S-8, Registration No.
33-80007.
Exhibit 10.26 - Form of Automatic Stock Option Agreement.
Incorporated by reference to Exhibit 99.9 to the Company's Registration
Statement on Form S-8, Registration No. 33-80007.
Exhibit 10.27 - Form of Stock Issuance Agreement generally
used in connection with the Discretionary Option Grant Program of the
1995 Plan. Incorporated by reference to Exhibit 99.10 to the Company's
Registration Statement on Form S-8, Registration No. 33-80007.
Exhibit 10.28 - Form of Addendum to Stock Issuance Agreement
(Involuntary Termination Following Change of Control). Incorporated by
reference to Exhibit 99.11 to the Company's Registration Statement on
Form S-8, Registration No. 33-80007.
Exhibit 10.29 - Form of Addendum to Stock Issuance Agreement
(Special Tax Elections). Incorporated by reference to Exhibit 99.12 to
the Company's Registration Statement on Form S-8, Registration No.
33-80007.
Exhibit 10.30 - Employee Stock Purchase Plan. Incorporated by
reference to Exhibit 99.13 to the Company's Registration Statement on
Form S-8, Registration No. 33-80007.
Exhibit 10.31 - The Share Purchase Agreement By and Among the
Company, Canada Inc. and Certain Presticom Stockholders, dated as of
November 24, 1995. Incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K, dated November 30, 1995.
Exhibit 11.1 - Statement Regarding Computation of Earnings Per
Share.
Exhibit 21.1 - List of Subsidiaries of the Company.
Exhibit 27 - Amended Financial Data Schedule.
- -----------
** The Company has received confidential treatment for certain portions of
this document filed with the Commission.
(b) REPORTS ON FORM 8-K.
A Current Report on Form 8-K dated November 30, 1995, was
filed in the quarter ended December 31, 1995, with disclosure under
Items 2 and 7. No financial statements were filed in conjunction
therewith as such were unavailable on the date of filing. Such
financial statements were filed by the Company on February 13, 1996 on
an amended Current Report on Form 8-K.
14
<PAGE> 15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Amendment No. 1 to the report on Form
10-Q/A to be signed on its behalf by the undersigned thereunto duly authorized.
Date: May 21, 1996 ACT NETWORKS, INC.
/s/ MELVIN L. FLOWERS
----------------------------------------------------
Melvin L. Flowers
Vice President, Finance and Administration, and
Chief Financial Officer
(Duly Authorized Officer and Principal Financial and
Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. NUMBERED PAGE
- ---------------------- ------------------------
<S> <C>
11.1 - Statement Regarding Computation
of Earnings Per Share
21.1 - List of Subsidiaries of the Company
27 - Amended Financial Data Schedule
</TABLE>
16
<PAGE> 1
Exhibit 11.1
Exhibit 11.1 - Statement Re: Computation of Per-Share Earnings
<TABLE>
<CAPTION>
Three Months Ended December 31 Six Months Ended December 31
------------------------------- ------------------------------
1994 1995 1994 1995
----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Primary
Average common shares outstanding 1,351,854 7,206,296 1,304,408 7,164,184
Effect of assumed conversion of preferred stock 2,722,619 -- 2,722,619 --
Options and warrants issued during
twelve-month period prior to the initial public
offering at an exercise price below the
assumed public offering price in accordance
with the staff accounting Bulletin No. 83 242,034 -- 242,034 --
Net effect of dilutive options and warrants --
based on the treasury stock method (or modified
treasury stock method if applicable)
using average market price 434,972 -- 427,249 --
----------- ------------- ----------- -----------
4,751,479 7,206,296 4,696,310 7,164,184
=========== ============= =========== ===========
Net income (loss) $ 216,000 $ (6,656,322) $ 387,000 $(6,866,825)
=========== ============= =========== ===========
Per Share amount $ 0.05 $ (0.92) $ (0.08) $ (0.96)
=========== ============= =========== ===========
Fully Diluted
Average common shares outstanding 1,351,854 7,206,296 1,304,408 7,164,184
Effect of assumed conversion of preferred stock 2,722,619 -- 2,722,619 --
Options and warrants issued during
twelve-month period prior to the initial public
offering at an exercise price in accordance
with staff accounting Bulletin No. 83 242,034 -- 242,034 --
Net effect of dilutive options and warrants --
based on the treasury stock method (or modified
treasury stock method if applicable)
using year-end market price 469,298 -- 546,773 --
----------- ------------- ----------- -----------
4,785,805 7,206,296 4,815,834 7,164,184
=========== ============= =========== ===========
Net Income (loss) $ 216,000 $ (6,656,322) $ 387,000 $(6,866,825)
=========== ============= =========== ===========
Per Share amount $ 0.05 $ (0.92) $ 0.08 $ (0.96)
=========== ============= =========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
ACT NETWORKS, INC.
LIST OF SUBSIDIARIES
Name of Subsidiary Jurisdiction of Organization
- ------------------ ----------------------------
Advanced Compression Technology China
(China) Limited
ACT-U.K. Limited United Kingdom
ACT Networks Pty Ltd. Australia
ACT Networks Foreign Sales Corporation Barbados
ACT - Presticom Inc. Canada
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,352,192
<SECURITIES> 7,403,959
<RECEIVABLES> 7,631,217
<ALLOWANCES> 0
<INVENTORY> 6,446,056
<CURRENT-ASSETS> 33,433,135
<PP&E> 3,941,796
<DEPRECIATION> 1,663,444
<TOTAL-ASSETS> 38,242,808
<CURRENT-LIABILITIES> 3,122,305
<BONDS> 0
0
0
<COMMON> 43,787,701
<OTHER-SE> (9,179,112)
<TOTAL-LIABILITY-AND-EQUITY> 38,242,808
<SALES> 11,268,885
<TOTAL-REVENUES> 11,268,885
<CGS> 6,333,550
<TOTAL-COSTS> 18,777,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (681,718)
<INCOME-PRETAX> (6,827,396)
<INCOME-TAX> 39,430
<INCOME-CONTINUING> (6,866,826)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,866,826)
<EPS-PRIMARY> (0.96)
<EPS-DILUTED> 7,164,184
</TABLE>
