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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995
COMMISSION FILE NUMBER 0-17393
MEGATEST CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-2422195
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1321 RIDDER PARK, SAN JOSE, CALIFORNIA 95131
(408) 437-9700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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
----- -----
The number of shares outstanding of the Registrant's Common Stock as of May 31,
1995, was 7,196,872.
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MEGATEST CORPORATION
FORM 10-Q
NINE MONTHS ENDED MAY 31, 1995
INDEX
Page
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
May 31, 1995 and August 31, 1994................................. 3
Condensed Consolidated Statements of Operations for
the three-month and nine-month periods ended
May 31, 1995 and May 31, 1994.................................... 4
Condensed Consolidated Statements of Cash Flows
for the nine-month periods ended May 31, 1995 and
May 31, 1994..................................................... 5
Notes to Condensed Consolidated Financial Statements............. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 9
PART II: OTHER INFORMATION
Item 1. Legal Proceedings................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................. 12
Signatures ................................................................. 13
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEGATEST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
ASSETS
May 31, AUGUST 31,
1995 1994
------- ----------
Current assets:
Cash and cash equivalents ................................................. $ 2,014 $ 19,404
Short-term investments..................................................... -- 10,069
Accounts receivable, less allowances of $261 and $262...................... 25,625 23,064
Inventories................................................................ 33,924 23,531
Deferred taxes............................................................. 4,132 3,532
Prepaid expenses and other current assets.................................. 697 668
-------- ----------
Total current assets................................................ 66,392 80,268
Property & equipment, net.................................................... 18,481 12,122
Other assets................................................................. 10,273 8,693
-------- ----------
Total assets...................................... $ 95,146 $ 101,083
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.............................................................. $ 8,500 $ --
Current portion of long-term obligations................................... 52 66
Accounts payable and accrued liabilities................................... 19,227 18,075
Income taxes payable....................................................... 1,938 4,198
Customer advances and deferred revenues.................................... 4,090 2,083
-------- ----------
Total current liabilities........................................... 33,807 24,422
-------- ----------
Long-term obligations ....................................................... 376 414
-------- ----------
Stockholders' equity:
Common stock: $0.001 par value per share;
Shares outstanding: 7,197 and 7,171..................................... 7 7
Additional paid-in capital................................................ 80,674 80,656
Accumulated deficit....................................................... (19,718) (4,416)
-------- ----------
Total stockholders' equity ......................................... 60,963 76,247
-------- ----------
Total liabilities and stockholders' equity........ $ 95,146 $ 101,083
======== ==========
The accompanying notes are an integral part of these financial statements.
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MEGATEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
(UNAUDITED)
THREE MONTHS ENDED MAY 31, NINE MONTHS ENDED MAY 31,
-------------------------- ---------------------------
1995 1994 1995 1994
---- ---- ---- ----
Product sales.................................... $ 28,941 $ 26,633 $ 59,390 $ 71,958
Development revenues............................. -- 376 -- 789
-------- --------- ---------- ---------
Net revenues............................ 28,941 27,009 59,390 72,747
-------- --------- ---------- ---------
Cost of sales ................................... 16,776 15,919 37,812 40,784
Engineering and product development.............. 5,200 3,918 14,674 11,498
Selling, general and administrative.............. 5,741 4,443 14,838 13,079
Write-off of acquired in-process technology...... -- -- 8,837 --
-------- --------- ---------- ---------
Total costs and expenses................ 27,717 24,280 76,161 65,361
-------- --------- ---------- ---------
Income (loss) from operations.................... 1,224 2,729 (16,771) 7,386
Other income/(expense)........................... (202) 321 151 825
-------- --------- ---------- ---------
Income (loss) before income taxes................ 1,022 3,050 (16,620) 8,211
(Provision) benefit for income taxes............. (230) (519) 1,318 (1,811)
-------- --------- ---------- ---------
Income (loss) before accounting change........... 792 2,531 (15,302) 6,400
Cumulative effect of adopting
new accounting for income taxes............... -- -- -- 1,700
-------- --------- ---------- ---------
Net income (loss)................................ $ 792 $ 2,531 $ (15,302) $ 8,100
======== ========= ========== =========
Income (loss) per share before
accounting change............................. $ 0.11 $ 0.34 $ (2.13) $ 0.90
======== ========= ========== =========
Net income (loss) per share...................... $ 0.11 $ 0.34 $ (2.13) $ 1.13
======== ========= ========== =========
Average common and common equivalent
shares outstanding............................. 7,361 7,381 7,180 7,149
======== ========= ========== =========
The accompanying notes are an integral part of these financial statements.
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MEGATEST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED MAY 31,
-------------------------
1995 1994
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................. ($15,302) $ 5,569
Reconciliation to net cash provided by (used for)
operating activities:
Cumulative effect of change in accounting for income taxes -- (1,700)
Write-off of acquired in-process technology .............. 8,837 --
Depreciation and amortization ............................ 3,274 2,266
Provision for deferred taxes ............................. (600) --
Other .................................................... 400 --
Changes in:
Accounts receivable .................................. (2,561) 884
Inventories .......................................... (4,732) (5,305)
Prepaid expenses and other current assets ............ (29) (881)
Accounts payable and accrued liabilities ............. (948) 3,663
Income taxes payable ................................. (2,260) --
Customer advances and deferred revenues .............. 2,007 (462)
Other ................................................ -- (541)
-------- --------
Net cash provided by (used for) operating activities .......... (11,914) 6,024
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of tester product line and related technology ..... (13,897) --
Investment in equity securities ............................... (1,500) --
Purchases of restricted investments ........................... -- (7,872)
Proceeds from sale of short-term investments .................. 10,069 6,419
Property and equipment purchases .............................. (8,479) (3,405)
Other assets, net ............................................. (135) --
-------- --------
Net cash used for investing activities ........................ (13,942) (4,858)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock .......................................... 18 13,616
Borrowings under notes payable ................................ 8,500 --
Repayments of long-term obligations ........................... (52) (4)
-------- --------
Net cash used for financing activities ........................ 8,466 13,612
-------- --------
Net increase (decrease) in cash and cash equivalents .......... (17,390) 14,778
CASH AND CASH EQUIVALENTS:
Beginning of the period ....................................... 19,404 17,278
-------- --------
End of the period ............................................. $ 2,014 $ 32,056
======== ========
The accompanying notes are an integral part of these financial statements.
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MEGATEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
as of May 31, 1995 and for the three-month and nine-month periods ended May 31,
1995 and May 31, 1994 have been prepared on substantially the same basis as the
annual consolidated financial statements and reflect all adjustments (consisting
of only normal recurring adjustments) which are necessary for a fair statement
of the results for the periods presented. The statements have been prepared in
accordance with the regulations of the Securities and Exchange Commission, but
omit certain information and footnote disclosures necessary to present the
statements in accordance with generally accepted accounting principles. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Form 10-K for the year ended August
31, 1994.
NOTE 2 - INVENTORIES
Inventories consisted of the following:
MAY 31, 1995 AUGUST 31, 1994
------------ ---------------
Purchased parts................................................ $11,153 $ 5,705
Assemblies in process.......................................... 7,442 8,285
Finished goods................................................. 15,329 9,541
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Inventories........................................... $33,924 $23,531
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NOTE 3 - INCOME TAXES
Effective September 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 (FAS 109), "Accounting for
Income Taxes." The cumulative effect of adopting FAS 109 resulted in a one-time
credit to net income of $1,700, or $0.24 per share for fiscal 1994. FAS 109 is
an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or income tax
returns. In estimating future tax consequences, FAS 109 generally considers all
expected future events other than enactments of changes in the tax law or rates.
In applying the provisions of FAS 109, management fully reserved net
deferred tax assets that may be realized beyond one year after the balance sheet
date because of the uncertainty regarding their realization. The resulting
reduction in the valuation allowance for deferred tax assets of $600 has been
reflected as an increase in the benefit for income taxes.
NOTE 4 - ACQUISITION
On November 22, 1994, the Company acquired the 1149 Tester product line
and follow-on in-process technology (the "Voyager") of Micro Component
Technology, Inc. ("MCT"). The assets acquired include substantially all of the
equipment, inventory and intellectual property including the follow-on
in-process technology, and the assumption of certain liabilities associated with
the Voyager. Of the amount paid, $2,000 was placed in escrow (i) to indemnify
the Company in the event of a breach of any of the representations and
warranties made by MCT in the purchase agreement, (ii) to secure performance of
MCT's obligations under the purchase agreement, and (iii) to insure against any
shortfalls discovered in the equipment or inventory intended to be acquired
through the Company's post-closing audit of the assets acquired.
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MEGATEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The acquisition of the Voyager has been accounted for as a purchase
and, accordingly, the results of operations and cash flows of the Voyager have
been included only from the date of acquisition. Excluding the one-time
write-off of in-process technology of $8,837, the results of operations for the
Voyager from the date of acquisition through May 31, 1995 increased Megatest's
loss from operations for the nine-month period ended May 31, 1995 approximately
$1,100. The total purchase price of the acquisition was as follows:
Cash paid to MCT $ 12,800
Other acquisition costs 1,097
---------
$ 13,897
=========
The allocation of the Company's purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed is based on
preliminary estimates from information currently available. A final allocation
of the purchase price will be determined during the year when appraisals and
other studies are completed. The preliminary purchase price allocation is
summarized as follows:
Inventories $ 5,661
Property and equipment 1,038
In-process technology 8,837
Goodwill 461
-------
Assets acquired 15,997
-------
Accounts payable 1,903
Accrued warranty 197
-------
Liabilities assumed 2,100
-------
Net assets acquired $13,897
=======
The in-process technology was charged to income during the quarter
ended November 30, 1994. In addition, the Company purchased 315,790 shares of
MCT's nonvoting Series A Preferred Stock at a price of $4.75 per share for a
total of $1,500 cash on November 23, 1994. The investment in equity securities
is included in other assets at May 31, 1995.
NOTE 5 - NOTES PAYABLE
On December 15, 1994, the Company obtained a $7,500 domestic bank line
of credit which expires in January 1996. The agreement provides for borrowings
up to the lesser of 80% of eligible domestic accounts receivable or the $7,500
committed credit amount. In addition, on February 9, 1995, the Company obtained
an additional $5,000 line of credit guaranteed by the Export-Import Bank of the
United States to support export sales. This agreement provides for borrowings up
to the lesser of 90% of eligible foreign accounts receivable plus 70% of
eligible inventory to support such receivables, or the $5,000 committed credit
amount. Borrowings under these lines bear interest at prime (9.0% at May 31,
1995) plus 1.0% and 0.5% for the domestic and foreign lines of credit,
respectively, and are collateralized by a security interest in substantially all
of the Company's previously unencumbered tangible and intangible assets. The
terms of the credit agreements require, among other terms, quarterly
profitability, minimum amounts of tangible net worth, a minimum ratio of current
assets to current liabilities, and a maximum ratio of indebtedness to net worth.
The credit agreements preclude the Company from taking certain actions without
prior bank approval. Transactions subject to such prohibition include the
declaration of cash dividends, certain significant asset acquisitions or
dispositions, incurrence of certain additional indebtedness, and changing the
nature of the Company's business. At May 31, 1995, the Company had borrowed
$8,500 under these lines of credit, but was in violation of certain covenants.
Subsequent to May 31, 1995, the Company received a waiver of such non-compliance
and increased the domestic line of credit to $10 million.
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MEGATEST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6 - LITIGATION
On March 27, 1995, Credence Systems Corporation ("Credence") named the
Company as a defendant in a patent infringement lawsuit originally filed by
Credence against MCT in the U.S. District Court for the Northern District of
California (the "Court"). The suit alleges that the Company's manufacture and
sale of certain Voyager assets acquired by the Company from MCT infringe a U.S.
patent held by Credence. On April 24, 1995, the Company filed with the Court a
counterclaim against Credence for a declaratory judgment that the Credence
patent is invalid and unenforceable, and that the manufacture and sale of
Voyager assets do not infringe the Credence patent. The Company intends to
vigorously defend the patent infringement claim and pursue its counterclaims
against Credence.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Overview
In the third quarter of fiscal 1995, Megatest reported net revenues of
$28.9 million and record orders and backlog for the second consecutive quarter.
The $28.9 million in revenue was a 58.6% increase from the $18.2 million in the
Company's second quarter of fiscal 1995 and a 7.2% increase over last year's
third fiscal quarter. As a result, the Company reported a return to
profitability, with net income totaling $0.8 million for the three months ending
May 31, 1995.
Acquisition of Product Line
On November 22, 1994, the Company acquired the 1149 Tester product line
and follow-on in-process technology (the "Voyager") from Micro Component
Technology, Inc. ("MCT") for $12.8 million. In addition, the Company incurred
acquisition related expenses of $1.1 million. The purchase of the product line
includes substantially all of the assets and intellectual property and the
assumption of certain liabilities, approximating $2.1 million, associated with
the Voyager. The Voyager features a lower cost logic IC test system that is
expected to complement the Company's Polaris logic test systems, and opens
markets in which the Company has not previously participated with its existing
products, such as FPGAs, PLDs and certain microcontrollers. As a result of the
acquisition of the Voyager, the Company incurred a one-time write-off of
in-process technology of $8.8 million, which contributed to the Company's first
quarter loss. Excluding the one-time write-off of in-process technology, the
results of operations for the Voyager from the date of acquisition through May
31, 1995 increased Megatest's loss from operations for the nine-month period
ended May 31, 1995 approximately $1.1 million.
Net Revenues
The Company's net revenues for the three-month period ended May 31,
1995 increased 58.6% from the prior quarter and 7.2% from the corresponding
period in the prior fiscal year. Net revenue for the nine months ended May 31,
1995 was 18.4% below the corresponding period last year. The decline in sales
experienced by the Company early in fiscal 1995 was attributed primarily to
order delays by its customers; both logic and memory sales have rebounded in all
geographic areas during the second and third quarters of fiscal 1995, with
record incoming orders achieved in each of those quarters. Service revenue,
which includes product revenue from sales of spare parts and service contracts,
returned to historical levels at 20% of total net revenue for the third quarter
of fiscal 1995.
Cost of Sales and Gross Margin on Product Sales
Gross margin as a percent of net revenues for the three-month and
nine-month periods ended May 31, 1995 was 42.0% and 36.3%, respectively. For the
third quarter, the 42.0% gross margin represents a 1.0 percentage point
improvement from the same period of fiscal 1994, and an improvement of 12.9
percentage points from the second quarter of fiscal 1995. The gross margin
improvement in the third quarter of fiscal 1995 resulted primarily from the
return to the shipment level anticipated in the Company's annual budget and
resource allocation plan and a favorable product mix. Margin improvement related
to strong sales of the Company's higher-margin memory products were partially
mitigated by additional costs incurred to expedite deliveries of critical
components and overtime charges incurred to complete products for timely
customer shipments.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Engineering and Product Development Expense
Engineering and product development expense for the three-month and
nine-month periods ended May 31, 1995 increased 32.7% and 27.6%, respectively,
from the corresponding periods in fiscal 1994. As a percentage of net revenue,
engineering and product development expenses increased 3 percentage points to
18.0% from the corresponding three-month period of fiscal 1994, and increased 9
percentage points to 24.7% from the corresponding nine-month period of fiscal
1994. The increase in engineering and product development expenditures includes
$0.8 million related to the Voyager, certain premium costs associated with
bringing the Company's recently introduced Vega series logic tester to market in
time to meet accelerating customer demands, and the Company's continuing
commitment to maintaining a high level of engineering and product development
effort. The Company intends to continue to invest significant resources in the
development of next generation products for both memory and logic applications.
Selling, General and Administrative Expenses
Selling, general and administrative expense for the third quarter of
fiscal 1995 increased 29.2% from the same quarter of the prior fiscal year. For
the nine months ended May 31, 1995, selling, general, and administrative
expenses increased 13.4% from the corresponding nine-month period of fiscal
1994. The year-to-year increase in dollar expenditures was attributable
primarily to increased hiring and employee compensation, and the addition of the
Voyager product line. Selling, general and administrative expenses are expected
to continue to increase both sequentially and year-to-year due to anticipated
headcount growth and costs associated with new product introductions.
Other Income and Expense
Other expense was $0.2 million for the quarter ended May 31, 1995,
compared to other income of $0.3 million for the same quarter in fiscal 1994.
Other expense consists primarily of interest expense on notes payable and the
amortization of goodwill related to the acquisition of the Voyager, offset by
interest income from the investment of the Company's cash balances. The increase
in net interest expense during fiscal 1995 is attributable to lower cash
balances and the interest expense incurred on line-of-credit borrowings.
Income Taxes
The Company's effective tax rate for the third quarter of fiscal 1995
was 22.5% compared to 17% for the same quarter of the prior fiscal year. The
Company anticipates that the quarterly effective tax rate for the remainder of
fiscal 1995 and for fiscal 1996 will be in the range of 20% to 25%. This
increasing rate trend is primarily related to the extent to which the Company
can offset projected taxable income with net operating loss and tax credit
carryforwards, and the extent to which such net operating loss and tax credit
carryforwards have previously been reflected in the Company's tax provision
under FAS 109.
Net Income/(Loss)
The Company returned to profitability in the third quarter of fiscal
1995, posting net income of $0.8 million compared to a net loss of $3.6 million
for the three-months ended February 28, 1995, and net income of $2.5 million for
the corresponding period in fiscal 1994. For the nine months ended May 31, 1995,
the Company reported a net loss of $15.3 million, which included an $8.8 million
write-off in the first quarter of in-process technology associated with the
purchase of the Voyager from MCT on November 22, 1994, compared to net income of
$8.1 million for the same period in the prior fiscal year. Net income (loss) per
share was $0.11 for the three-month period and ($2.13) for the nine-month period
ended May 31, 1995, versus net income per share of $0.34 and $1.13,
respectively, for the same periods in the prior fiscal year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets were 2.0 times current liabilities at May
31, 1995, compared to 3.3 times at August 31, 1994 and 4.1 times at May 31,
1994. The Company used $13.9 million of its available cash to acquire the
Voyager on November 22, 1994, and made a subsequent investment in preferred
stock of MCT of $1.5 million on November 23, 1994. The Voyager acquisition
included $5.7 million of inventory, $1.0 million of equipment and other fixed
assets, and the assumption of $2.1 million of trade payables, warranty and other
liabilities associated with the Voyager product line.
Accounts receivable increased $2.6 million during the first nine months
of fiscal 1995 due to the record revenue level recorded for the third quarter
and because shipments were disproportionately strong in the final month of the
quarter due to the lack of availability of certain components and sub-assemblies
earlier in the quarter. Excluding the $5.7 million of Voyager inventory acquired
from MCT, inventories increased $4.7 million during the first nine months of
fiscal 1995, primarily due to the manufacture and installation of strategic
demonstration units at certain customer sites. The Company continues to monitor
inventory levels carefully based on current and projected sales levels and has
implemented programs to improve inventory utilization going forward.
Investing activities used $13.9 million in the nine months ended May
31, 1995, compared to $4.9 million in the comparable period last year. Excluding
cash payments to acquire the Voyager and MCT Preferred Stock, investing
activities consisted primarily of purchases of $8.5 million of property and
equipment, offset by the sale of $10.1 million of short-term investments to fund
the Voyager acquisition. Financing activities provided $8.5 million in the first
half of fiscal 1995, representing draw-downs on the Company's lines of credit.
At May 31, 1995, the Company's cash, cash equivalents and short-term
investments were $2.0 million, compared to $29.5 million at August 31, 1994. The
decrease primarily reflects the cash used to acquire the Voyager from MCT and to
fund operations during fiscal 1995. On December 15, 1994, the Company obtained a
$7,500 domestic bank line of credit which expires in January 1996. The agreement
provides for borrowings up to the lesser of 80% of eligible domestic accounts
receivable or the $7.5 million committed credit amount. In addition, on February
9, 1995, the Company obtained an additional $5.0 million line of credit
guaranteed by the Export-Import Bank of the United States to support export
sales. This agreement provides for borrowings up to the lesser of 90% of
eligible foreign accounts receivable plus 70% of eligible inventory to support
such receivables, or the $5.0 million committed credit amount. Borrowings under
these lines bear interest at prime (9.0% at May 31, 1995) plus 1.0% and 0.5% for
the domestic and foreign lines of credit, respectively, and are collateralized
by a security interest in substantially all of the Company's previously
unencumbered tangible and intangible assets. The terms of the credit agreements
require, among other terms, quarterly profitability, minimum amounts of tangible
net worth, a minimum ratio of current assets to current liabilities, and a
maximum ratio of indebtedness to net worth. The credit agreements also preclude
the Company from taking certain actions without prior bank approval.
Transactions subject to such prohibition include the declaration of cash
dividends, certain significant asset acquisitions or dispositions, incurrence of
certain additional indebtedness, and changing the nature of the Company's
business. At May 31, 1995, the Company had borrowed $8,500 under these lines of
credit, but was in violation of certain covenants. Subsequent to May 31, 1995,
the Company received a waiver of such non-compliance and increased the domestic
line of credit to $10 million.
The Company believes that its cash flow from operations, together with
its cash balances and funds available under working capital lines of credit,
will provide sufficient financing resources to meet both working capital and
capital expenditure requirements through fiscal 1995 based on recent order rates
and anticipated revenue levels. However, the Company is also in discussions to
secure asset-based long-term debt financing to further enhance its liquidity and
to provide additional flexibility to fund future growth. It is anticipated that
such long-term borrowings could total up to $18 million by August 31, 1995, and
that a portion of the proceeds would be used to pay off amounts borrowed under
the Company's short-term lines of credit.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 27, 1995, Credence Systems Corporation ("Credence") named the
Company as a defendant in a patent infringement lawsuit originally filed by
Credence against MCT in the U.S. District Court for the Northern District of
California (the "Court"). The suit alleges that the Company's manufacture and
sale of certain Voyager assets acquired by the Company from MCT infringe a U.S.
patent held by Credence. On April 24, 1995, the Company filed with the Court a
counterclaim against Credence for a declaratory judgment that the Credence
patent is invalid and unenforceable, and that the manufacture and sale of
Voyager assets do not infringe the Credence patent. The Company intends to
vigorously defend the patent infringement claim and pursue its counterclaims
against Credence.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit No. Description
----------- -----------
10.11 Loan and Security Agreement between the Registrant and Bank of the West dated
July 6, 1995.
11.1 Statement regarding computation of per share earnings.
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
All other items specified by Part II of this report are
inapplicable and accordingly have been omitted.
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MEGATEST CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of San Jose and State of
California, on July 11, 1995.
MEGATEST CORPORATION
Date: July 11, 1995 By: \s\ John E. Halter
-------------------
John E. Halter
President
Chief Executive Officer
Date: July 11, 1995 By: \s\ Paul W. Emery II
---------------------
Paul W. Emery II
Vice President, Finance
Chief Financial Officer
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