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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 March 31, 1996
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 X 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 April 30, 1996, there were 7,469,532 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
March 31, 1996 and June 30, 1995...................... 3
Condensed Consolidated Statements of Operations
for the Three and Nine Month Periods Ended
March 31, 1996 and 1995............................... 4
Condensed Consolidated Statements
of Cash Flows for the Nine Month Periods
Ended March 31, 1996 and 1995......................... 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.......................... 13
SIGNATURES................................................................... 17
EXHIBIT INDEX ............................................................... 18
</TABLE>
2
<PAGE> 3
PART I.
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
ACT NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ............................................. $ 10,327,767 $ 30,546,278
Short-term investments ................................................ 7,076,470 --
Accounts receivable, less allowances of $64,875
in March and $63,000 in June ........................................ 7,983,417 4,529,210
Accounts receivable from stockholder .................................. 446,244 669,160
Inventory ............................................................. 7,268,784 4,677,190
Tax credits and grants receivable ..................................... 514,250 --
Other current assets .................................................. 667,875 394,591
------------ -----------
Total current assets ................................................ 34,284,807 40,816,429
Plant, equipment and other improvements:
Machinery and equipment ............................................... 2,627,750 1,696,257
Furniture and fixtures ................................................ 361,349 359,500
Computer software ..................................................... 720,389 411,438
Leasehold improvements ................................................ 543,667 284,659
------------ -----------
4,253,155 2,751,854
Accumulated depreciation and amortization .................................. 1,927,736 1,233,003
------------ -----------
2,325,419 1,518,851
Goodwill ................................................................... 1,955,797 --
Other assets ............................................................... 464,486 561,498
------------ -----------
Total assets ........................................................ $ 39,030,509 $ 42,896,778
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued payables ...................................................... $ 2,649,490 $ 1,475,020
Accrued expenses ...................................................... 320,985 625,627
Accrued vacation ...................................................... 281,078 239,888
Accrued commissions ................................................... 46,522 153,656
Income taxes payable .................................................. 270,089 86,958
------------ -----------
Total current liabilities ........................................... 3,568,164 2,581,149
Notes payable and capital leases, less current portion ..................... 187,547 --
Stockholders' equity:
Common stock, $.01 par value
Authorized - 40,000,000
Issued and outstanding - 7,456,830 in
March and 7,149,830 in June ......................................... 7,327 7,150
Common stock paid-in capital in excess of par
value ............................................................... 44,058,649 42,662,121
Promon secured deposit ................................................ -- (45,000)
Accumulated deficit ................................................... (8,781,175) (2,308,642)
Accumulated translation adjustment .................................... (10,003) --
------------ -----------
Total stockholders' equity .......................................... 35,274,798 40,315,629
------------ -----------
Total liabilities and stockholders' equity .......................... $ 39,030,509 $ 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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------- ----------------------------
1996 1995 1996 1995
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales ....................... $ 8,030,487 $ 5,535,332 $ 19,299,372 $ 14,823,421
Expenses:
Cost of goods sold .......... 3,687,135 2,444,879 10,020,685 6,592,050
Research and development .... 1,271,054 973,729 3,550,015 2,696,181
Sales and marketing ......... 1,910,100 1,305,515 5,068,552 3,382,907
General and administrative .. 904,226 411,812 2,311,262 1,291,741
In-process research and
development ................. -- -- 5,600,000 --
----------- ----------- ------------ ------------
7,772,515 5,135,935 26,550,514 13,962,879
----------- ----------- ------------ ------------
Income (loss) from operations ... 257,972 399,397 (7,251,142) 860,542
Other:
Interest and other income
(expense) ................... 269,532 (1,453) 951,250 (9,233)
Interest expense ............ (39,345) (80,706) (39,345) (132,957)
----------- ----------- ------------ ------------
230,187 (82,159) 911,905 (142,190)
----------- ----------- ------------ ------------
Income (loss) before income taxes 488,159 317,238 (6,339,237) 718,352
Provision for income taxes ...... 93,567 -- 132,997 14,000
----------- ----------- ------------ ------------
Net income (loss) ............... $ 394,592 $ 317,238 $ (6,472,234) $ 704,352
=========== =========== ============ ============
Net income (loss) per share ..... $ 0.05 $ 0.07 $ (0.89) $ 0.15
=========== =========== ============ ============
Shares used in computing net
income (loss) per share ......... 7,990,561 4,818,000 7,233,789 4,726,124
=========== =========== ============ ============
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 5
ACT NETWORKS, INC.
CONDENSED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) ................................ $ (6,472,233) $ 704,352
Adjustments to reconcile net
income (loss) to net cash
used in operating activities:
Depreciation and amortization .................. 792,797 421,415
Write-off of in-process research and development 5,600,000 --
Shareholder research and development ........... -- 225,000
Changes in operating assets
and liabilities:
Accounts receivable .......................... (2,201,182) (1,175,376)
Inventory .................................... (2,230,326) (2,172,820)
Prepaid expenses and
deposits ................................... (776,803) 28,331
Accounts payable, accrued
expenses and income taxes
payable .................................... (263,982) 720,532
------------ -----------
Net cash used in operations ...................... (5,551,729) (1,248,566)
INVESTING ACTIVITIES
Decrease (Increase) in short-term investments .... (6,596,398) --
Purchase of plant, equipment
and other fixed assets ......................... (1,388,199) (1,025,662)
Acquisition of Presticom, Inc. ...................
net of cash acquired ........................... (6,880,470) --
Other assets ..................................... 97,012 (633,251)
------------ -----------
Net cash used in investing
activities ..................................... (14,768,055) (1,658,913)
FINANCING ACTIVITIES
Payments on long-term debt ....................... (124,900) (2,150,000)
Stock warrants and options ....................... 115,801 128,319
Shareholder secured research
and development deposit ........................ 45,000 --
Borrowings on line of credit ..................... 75,675 4,350,000
------------ -----------
Net cash provided by financing
activities ..................................... 111,576 2,328,319
Translation adjustment ........................... (10,302) --
------------ -----------
Net decrease in cash ............................. (20,218,510) (579,160)
Cash and cash equivalents at
beginning of period ............................ 30,546,278 796,476
------------ -----------
Cash and cash equivalents at
end of period .................................. $ 10,327,768 $ 217,316
============ ===========
Cash and cash equivalents paid
during the period for:
Interest ..................................... $ 7,575 $ 141,031
Income taxes ................................. $ 12,012 $ 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 nine-month period ended March 31, 1996 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>
NINE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
----------------- -----------------
<S> <C> <C>
Net sales $ 20,177,453 $ 16,242,030
Net income (loss) (1,534,523) 55,327
Net income (loss) per share (0.21) 0.01
</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 nine-months ended March 31, 1996.
6
<PAGE> 7
1. TAX CREDITS
The Company receives foreign credits and grants from Canada and the Province of
Quebec related to research and development expenditures made by its Canadian
subsidiary. These amounts are reflected as a reduction of research and
development expense in the Company's Statement of Operations. Amounts receivable
as of March 31, 1996 of such credits and grants amounted to $514,250. For the
nine months ended March 31, 1996, $78,400 of these credits and grants were
reflected as a reduction of research and development expense.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1995
-------------- -------------
<S> <C> <C>
Purchased parts ......................................... $1,879,420 $2,177,590
Sub-assemblies; finished goods .......................... 5,389,364 2,499,600
---------- ----------
$7,268,784 $4,677,190
========== ==========
</TABLE>
3. 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. 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 the nine months
ended March 31, 1995 (using the treasury stock method at the initial public
offering price per share and the if-converted method for convertible preferred
stock).
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This report contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such difference include, but are not limited to, those discussed in the "Risk
Factors" section under "Other Information."
GENERAL
ACT Networks, Inc. (the "Company") 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.
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 the Company's Common Stock. 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 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 56% for the nine months
ended March 31, 1996, 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 49%
for the nine months ended March 31, 1996. Any reduction, delay or change in
orders from such customers could have a material adverse effect on the Company's
business.
8
<PAGE> 9
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.
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>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
---------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ............................. 100.0% 100.0% 100.0% 100.0%
Cost of goods sold .................... 45.9 44.2 51.9 44.5
Gross profit .......................... 54.1 55.8 48.1 55.5
Operating expenses:
Research and development ........... 15.8 17.6 18.4 18.2
Sales and marketing ................ 23.8 23.6 26.3 22.8
General and administrative ......... 11.3 7.4 12.0 8.7
In process research and development 0.0 0.0 29.0 0.0
------ ------ ------ ------
Total operating expenses .............. 50.9 48.6 85.6 49.7
Income (loss) from operations ......... 3.2 7.2 (37.6) 5.8
Net interest and other income (expense) 2.9 (1.5) 4.7 (1.0)
------ ------ ------ ------
Income (loss) before taxes ............ 6.1 5.7 (32.8) 4.8
Provision for income taxes ............ 1.2 0.0 0.7 0.1
------ ------ ------ ------
Net income (loss) ..................... 4.9% 5.7% (33.5)% 4.8%
====== ====== ====== ======
</TABLE>
Net sales
Net sales increased approximately 45% to $8.0 million for the three
months ended March 31, 1996 from $5.5 million for the corresponding period in
1995. The increase was primarily the result of shipments of the Company's Frame
Relay and OEM products. Frame Relay sales increased $1.2 million or 29% for the
three months ended March 31, 1996 over the corresponding period in 1995. Sales
of OEM products also increased $1.2 million primarily due to increased shipments
to one customer. Net sales of point-to-point products increased by approximately
$0.2 million for the three months ended March 31, 1996 over the corresponding
period in 1995. Net sales of products acquired as a result of the Presticom
acquisition totaled approximately $0.9 million for the three months ended March
31, 1996 and are included in the totals for Frame Relay and point-to-point
products.
Net sales increased 30% to $19.3 million for the nine month ended March
31, 1996 from $14.8 million for the nine months ended March 31, 1995. This
increase was primarily due to increased sales of the Company's Frame Relay and
OEM products and, to a lesser extent, shipments of products acquired in the
Presticom acquisition which accounted for $1.2 million, or 26.7% of the increase
in net sales. Net sales of Frame Relay products were $12.2 million and $6.3
million for the nine month periods ended March 31, 1996 and March 31, 1995,
respectively. Net sales of point to point products decreased to $3.0 million
from $7.3 million for the nine month periods ended March 31, 1996 and March 31,
1995, 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 period was greater than
anticipated by the Company. Net sales of OEM products increased to $4.1 million
for the nine months ended March 31, 1996 from $1.2 million for the nine months
ended March 31, 1995. 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.
9
<PAGE> 10
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 $4.3 million, or 54.1% of net sales,
for the three months ended March 31, 1996 compared to $3.1 million, or 55.8% of
net sales, for the corresponding period in 1995. The decrease in gross margins
was primarily due to shipment of a higher percentage of OEM products.
The Company's gross profit was $9.3 million, or 48.1% of net sales, for
the nine months ended March 31, 1996. The nine months ended March 31, 1996
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 $10.0 million, or 51.7%, of net sales,
for the nine months ended March 31, 1996, as compared to 55.5% of net sales for
the comparable period in 1995. This decrease in gross profit as a percentage of
sales was primarily attributable to the change in product mix including
increased OEM sales and 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. Engineering and development expense increased 30.0% to
$1.3 million for the three months ended March 31, 1996 from $1.0 million for the
three months ended March 31, 1995. These increases were primarily due to
increased personnel costs resulting from the addition of the Presticom
development team and the continued expansion required to maintain and develop
new products.
Research and development expense increased to $3.6 million, or 18.4% of
net sales, for the nine months ended March 31, 1996 from $2.7 million, or 18.2%
of net sales, for the nine months ended March 31, 1995. 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
$2.3 million from approximately $1.6 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 the near
term.
Sales and marketing. Sales and Marketing expense increased to $1.3 million, or
30.0% of net sales, for the three month period ended March 31, 1996 over the
corresponding period in 1995. This increase was primarily due to increased
personnel costs resulting from a 50% increase in sales and marketing personnel.
Sales and marketing expense increased to $5.1 million, or 26.3% of net
sales, for the nine months ended March 31, 1995 from $3.4 million, or 22.8% of
net sales, for the nine months ended March 31, 1995. 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 the near
term.
General and administrative. General and administrative expense increased 119% to
$0.9 million for the three months period ended March 31, 1996 from $0.4 million
for the three months ended March 31, 1995. This increase was primarily due to
additional expenses incurred as a result of being a public company, in addition
to increased personnel and other costs associated with the Presticom facility in
Montreal, Canada.
General and administrative expense increased to $2.3 million, or 12.0% of
net sales, for the nine months ended March 31, 1996 from $1.3 million, or 8.7%
of net sales, for the nine months ended March 31, 1995. 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.
10
<PAGE> 11
Net interest and other income (expense)
Net interest income was approximately $0.3 million for the three months
period ended March 31, 1996 and $0.9 million for the nine months period ended
March 31, 1996 compared to net interest expense of approximately $0.1 million in
both of the corresponding periods in 1995. 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 nine month periods ended
March 31, 1995, and the provision for March 31, 1996, totaled $0.1 million.
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 1996. 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 nine months ended March 31, 1996, the Company's operating
activities used cash of approximately $5.6 million. At March 31, 1996, the
Company had approximately $30.7 million in working capital, including $10.3
million in cash.
Capital expenditures relating primarily to the purchase of computer
equipment, test equipment, computer software and leasehold improvements amounted
to approximately $1.4 million for the nine months ended March 31, 1996. The
Company currently has no material commitments for capital expenditures. However,
the Company anticipates spending between $2.0 million and $3.0 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 a wholly-owned subsidiary,
acquired all of the issued and outstanding shares of Presticom. The aggregate
purchase was approximately $8.5 million which consisted of $7,287,495 in cash
and 176,365 in shares of the Company's Common Stock. 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 March 31, 1996,
the Company had no outstanding balance under its revolving credit facilities and
under its term loan. As of March 31, 1996, an aggregate of $3.0 million was
available under the Loan Agreements. The Company believes that available cash,
together with
11
<PAGE> 12
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 March 31, 1997.
12
<PAGE> 13
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.
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.
13
<PAGE> 14
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.
14
<PAGE> 15
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.
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.
15
<PAGE> 16
Exhibit 11.1 - Statement Regarding Computation of Earnings Per
Share.
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.
On February 13, 1996, an amended Current Report on Form 8-K dated
November 30, 1995, was filed in the quarter ended March 31, 1996, with
disclosure under Item 7. The amended Current Report on Form 8-K was filed to
include the financial statements which were not available for filing with the
Current Report on Form 8-K filed on December 7, 1995.
16
<PAGE> 17
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)
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. NUMBERED PAGE
- ------------- -------------------
<S> <C>
11.1 - Statement Regarding Computation of
Earnings Per Share
27 - Amended Financial Data Schedule
</TABLE>
18
<PAGE> 1
Exhibit 11.1
Exhibit 11.1 - Statement Re: Computation of Per-Share Earnings
<TABLE>
<CAPTION>
Three Months Ended March 31 Nine Months Ended March 31
------------------------------ ---------------------------------
1995 1996 1995 1996
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Primary
Average common shares outstanding 1,380,878 7,344,287 1,329,526 7,233,789
Effect of assumed conversion of preferred stock 2,721,416 -- 2,721,416 --
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 473,388 596,274 433,148
---------- ---------- ----------- -----------
4,817,716 7,940,561 4,726,124 7,233,789
========== ========== =========== ===========
Net income (loss) $ 317,238 $ 394,592 $ 704,352 $(6,472,234)
========== ========== =========== ===========
Per Share amount $ 0.07 $ 0.05 $ 0.15 $ (0.89)
========== ========== =========== ===========
Fully Diluted
Average common shares outstanding 1,380,878 7,344,287 1,329,526 7,233,789
Effect of assumed conversion of preferred stock 2,721,416 -- 2,721,416 --
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 501,875 717,372 533,982
---------- ---------- ----------- -----------
4,846,203 8,111,654 4,826,958 7,233,789
========== ========== =========== ===========
Net Income (loss) $ 317,238 $ 394,592 $ 704,352 $(6,472,234)
========== ========== =========== ===========
Per Share amount $ 0.07 $ 0.05 $ 0.15 $ (0.89)
========== ========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 10,327,767
<SECURITIES> 7,076,470
<RECEIVABLES> 8,429,661
<ALLOWANCES> 0
<INVENTORY> 7,268,784
<CURRENT-ASSETS> 34,284,807
<PP&E> 4,253,155
<DEPRECIATION> 1,927,736
<TOTAL-ASSETS> 39,030,509
<CURRENT-LIABILITIES> 3,568,164
<BONDS> 0
0
0
<COMMON> 44,065,976
<OTHER-SE> 8,791,178
<TOTAL-LIABILITY-AND-EQUITY> 39,030,509
<SALES> 19,299,372
<TOTAL-REVENUES> 19,299,372
<CGS> 10,020,685
<TOTAL-COSTS> 26,550,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (911,905)
<INCOME-PRETAX> (6,339,237)
<INCOME-TAX> 132,997
<INCOME-CONTINUING> (6,472,234)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,472,234)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> 7,233,787
</TABLE>
