-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G9EVf9hrkxBMjOb3gy/J6W6Zl/Ly1EDA+ifMOddVPTonGzf2tWnH/8ETdUPbbcg+ 9S2OQlxJFzr26Jz0p5aVoQ== 0000950005-98-000540.txt : 19980616 0000950005-98-000540.hdr.sgml : 19980616 ACCESSION NUMBER: 0000950005-98-000540 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTIGRAM COMMUNICATIONS CORP CENTRAL INDEX KEY: 0000877908 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 942418021 STATE OF INCORPORATION: DE FISCAL YEAR END: 1102 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19558 FILM NUMBER: 98648291 BUSINESS ADDRESS: STREET 1: 91 EAST TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134 BUSINESS PHONE: 4089440250 MAIL ADDRESS: STREET 1: 91 E TASMAN DR CITY: SAN JOSE STATE: CA ZIP: 95134 10-Q 1 FORM 10-Q 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 2, 1998 Commission File Number 0-19558 CENTIGRAM COMMUNICATIONS CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-2418021 (State of incorporation) (I.R.S. Employer Identification Number) 91 East Tasman Drive San Jose, California 95134 (Address of principal executive offices) Registrant's telephone number, including area code: (408) 944-0250 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 outstanding shares of the Registrant's Common Stock as of May 29, 1998, was 7,171,000. PART I - FINANCIAL INFORMATION Item 1. Financial Statements Centigram Communications Corporation Condensed Consolidated Balance Sheets
May 2, November 1, (In thousands, except share and per share data) 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents $ 11,723 $ 19,791 Short-term investments 34,667 32,262 Trade receivables, net 18,031 21,637 Inventories 8,399 9,060 Other current assets 1,543 2,370 -------- -------- Total current assets 74,363 85,120 Property and equipment, net 10,178 12,893 Intangible assets, net 1,332 1,468 Deposits and other assets 2,523 439 -------- -------- $ 88,396 $ 99,920 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 6,555 $ 6,925 Accrued compensation 4,060 5,141 Accrued expenses and other liabilities 4,187 4,069 Warranty and retrofit reserves 2,237 2,161 -------- -------- Total current liabilities 17,039 18,296 Commitments and contingencies Stockholders' equity: Preferred stock, $.001 par value, 1,000,000 authorized; none outstanding Common stock, $.001 par value, 25,000,000 authorized; 7,171,000 and 7,110,000 outstanding and capital in excess of par value 90,826 90,724 Treasury stock, at cost (2,333) (2,427) Accumulated deficit (17,292) (6,670) Unrealized gain on investments 203 68 Cumulative translation adjustments (47) (71) -------- -------- Total stockholders' equity 71,357 81,624 -------- -------- $ 88,396 $ 99,920 ======== ======== Note: The balance sheet at November 1, 1997 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 accompanying notes.
2 Centigram Communications Corporation Condensed Consolidated Statements of Operations (Unaudited)
Quarter Ended Six Months Ended May 2, May 3, May 2, May 3, (In thousands, except share and per share data) 1998 1997 1998 1997 - ----------------------------------------------------------------------------------------------------------------------------------- Net revenue $ 21,202 $ 24,899 $ 39,360 $ 52,812 Cost and expenses: Costs of goods sold 10,153 10,839 19,224 22,182 Research and development 5,115 5,451 10,087 11,144 Selling, general and administrative 11,081 11,917 21,822 22,535 Other expenses -- 3,563 -- 3,563 -------- -------- -------- -------- 26,349 31,770 51,133 59,424 -------- -------- -------- -------- Operating loss (5,147) (6,871) (11,773) (6,612) Other income and expense, net 606 567 1,329 1,064 -------- -------- -------- -------- Loss before income taxes (4,541) (6,304) (10,444) (5,548) Provision for income taxes 65 -- 140 76 -------- -------- -------- -------- Net loss $ (4,606) $ (6,304) $(10,584) $ (5,624) ======== ======== ======== ======== Basic earnings (loss) per share $ (.66) $ (.90) $ (1.51) $ (.81) ======== ======== ======== ======== Diluted earnings (loss) per share $ (.66) $ (.90) $ (1.51) $ (.81) ======== ======== ======== ======== See accompanying notes.
3 Centigram Communications Corporation Condensed Consolidated Statements of Cash Flows (Unaudited) Six Months Ended May 2, May 3, (In thousands) 1998 1997 - ------------------------------------------------------------------------------- Cash and equivalents, beginning of period $ 19,791 $ 12,668 -------- -------- Cash flows from operations: Net loss (10,584) (5,624) Depreciation and amortization 4,136 4,635 Trade receivables 3,606 2,358 Inventories 661 400 Other assets (1,257) 1,302 Accounts payable (370) (1,562) Accrued expenses and other liabilities (887) 865 -------- -------- (4,695) 2,374 -------- -------- Cash flows from investing: Purchase of short-term investments (25,179) (44,040) Proceeds from sales and maturities of short-term investments 22,909 43,178 Purchase of property and equipment (1,261) (4,145) Purchase of other assets -- (713) -------- -------- (3,531) (5,720) -------- -------- Cash flows from financing: Proceeds from sale of common stock 2,612 1,005 Purchase of treasury shares (2,454) -- -------- -------- 158 1,005 -------- -------- Net change in cash and equivalents (8,068) (2,341) -------- -------- Cash and equivalents, end of period $ 11,723 $ 10,327 ======== ======== See accompanying notes. 4 Centigram Communications Corporation Notes to Condensed Consolidated Financial Statements (Unaudited) Basis of Presentation The accompanying consolidated financial statements have been prepared by the Company without audit and reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary to reflect a fair statement of the results for the interim periods. For further information, refer to the audited Consolidated Financial Statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended November 1, 1997. The results of operations for the quarter ended May 2, 1998, may not necessarily be indicative of the results for the fiscal year ending October 31, 1998 or any future period. Inventories May 2, November 1, (In thousands) 1998 1997 - ----------------------------------------------------------------------------- Raw materials $3,570 $3,005 Work-in-process 2,956 2,274 Finished goods 1,873 3,781 ------ ------ $8,399 $9,060 ====== ====== Other Expenses During the second quarter ended May 3, 1997, the Company recorded other operating expenses of approximately $3,563,000, consisting of $2,352,000 in restructuring charges and $1,211,000 in direct expenses associated with the proposed acquisition of Voice Tel Enterprises and Voice-Tel Network ("Voice-Tel"). Software Revenue Recognition In October 1997 and March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position ("SOP") 97-2, "Software Revenue Recognition" and SOP 98-4, "Deferral of the Effective Date of a Provision of SOP 97-2, Software Revenue Recognition," respectively, which provide guidance on applying generally accepted accounting principles in recognizing revenue on software transactions. The statements will be effective for the Company in fiscal 1999. The adoption of the statements is not expected to have a material adverse affect on the Company's results of operations. Capitalized Software In March 1998, the AcSEC issued Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed for or Obtained for Internal Use" ("SOP 98-1"), which generally would require the capitalization of internal use software. The new SOP is effective for fiscal years beginning after December 15, 1998. The Company believes that the adoption of SOP 98-1 will not have a material impact on the Company's consolidated financial statements. Subsequent Event On May 8, 1998, the Company sold its Customer Premises Equipment (CPE) business unit to Mitel Corporation ("Mitel") for $26,800,000 in cash, including approximately $4,800,000 for 5 accounts receivable and inventory. This sale of the CPE business unit consisted of fixed assets, technology for the Company's NT product development program, and a perpetual license to the Company's products. As part of this transaction, Mitel assumed leases for two of the Company's facilities, certain other liabilities related to customer contracts and warranties, and hired 74 of the Company's employees primarily in sales, service, and engineering product development. Earnings (Loss) Per Share In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share," (FAS 128), which was required to be adopted on December 31, 1997. The Company adopted this statement in its first quarter ended January 31, 1998. The following table sets forth the computation of basic and diluted earnings (loss) per share. The quarter and six months ended May 3, 1997 have been restated in accordance with FAS 128.
Quarter Ended Six Months Ended May 2, May 3, May 2, May 3, (In thousands, except per share data) 1998 1997 1998 1997 - ------------------------------------------------------------------------------------------------------------------------ Numerator: Net loss $ (4,606) $ (6,304) $ (10,584) $ (5,624) ========== ========= ========== ========= Denominator: Denominator for basic EPS - weighted average shares 6,996 6,994 7,006 6,977 Effect of dilutive securities: Employee stock options -- -- -- -- ---------- --------- ---------- --------- Denominator for diluted EPS - adjusted weighted average shares 6,996 6,994 7,006 6,977 ---------- --------- ---------- --------- Basic earnings (loss) per share $ (.66) $ (.90) $ (1.51) $ (.81) ========== ========= ========== ========= Diluted earnings (loss) per share $ (.66) $ (.90) $ (1.51) $ (.81) ========== ========= ========== =========
Options were outstanding during the fiscal quarters and six months ended May 2, 1998 and May 3, 1997 but were excluded from the computation of diluted net loss per common share because the effect in these periods would have been anti-dilutive. 6 Centigram Communications Corporation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion contains forward-looking statements regarding future events or the future financial performance of Centigram that involve risks and uncertainties. These statements include but are not limited to statements related to changes in Centigram's research and development and selling, general and administrative expenses, Centigram's effective tax rate, Centigram's expenditures for capital equipment and sufficiency of Centigram's cash reserves. Actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in this Management's Discussion and Analysis of Financial Condition and Results of Operations under "Certain Trends and Uncertainties," and elsewhere herein. Centigram designs, manufactures and markets wireless and wireline messaging and communication systems that integrate voice, data and facsimile on the Company's communications server and provide access to this multimedia information through a telephone or a PC. Centigram's applications all operate on a common hardware and software platform based on industry-standard hardware and software which is the Company's implementation of its modular expandable system architecture. Centigram's system architecture enables a user generally to expand the capacity of a system in cost-effective increments from the Company's smallest to its largest system configuration. Centigram's systems can be integrated with central office, mobile switch and paging terminal systems as well as with most telephone PBX systems. Such systems are used for switching telephone calls in a variety of customer premises equipment (CPE) and service provider environments. On May 8, 1998, the Company licensed Mitel Corporation to sell its technology to CPE customers and agreed, until May 8, 2001, not to compete in the CPE market. This transaction is referred to now as the "CPE Sale." The Company's products can also connect with a broad range of host and local area network (LAN) - based computer systems, including systems based on widely-used mainframes and minicomputers and personal computers in LANs. In addition, Centigram systems located at different sites can be linked together in a digital network. Results of Operations Net revenue for the second quarter of fiscal 1998 ended May 2, 1998 was 15% lower than net revenue for the corresponding quarter of fiscal 1997. This decrease in net revenue reflects lower sales of both large system and small system products. Sales to export customers decreased 20% year over year, decreasing from 55% of net revenue in the second quarter of fiscal 1997 to 52% in the second quarter of fiscal 1998. This decrease in export sales resulted primarily from reduced sales to customers in Australia and Latin America. CPE sales also decreased over the prior year due to reduced orders from key distributors of the Company as they experienced lower levels of customer orders partially caused by deferral resulting from the Company's announcement that it was in active negotiations to sell its CPE business unit. During the quarter, the Company continued to experience increased competition from PC based system products in its CPE business unit. 7 Net revenue for the first six months of fiscal 1998 was 25% lower than net revenue for the comparable 1997 period. This decrease reflects lower sales of both large and small system products. Sales to export customers decreased 30% for the six months year over year, decreasing from 50% of revenue to 47% because of the same factors as noted above. During the first six months of fiscal 1998, sales to CPE customers declined approximately 44% from the same period of the prior year due to similar factors as previously noted in the second quarter comparison to the prior years second quarter. As a result of the CPE sale, the Company is no longer selling its products to CPE customers. Accordingly, the Company expects its revenue will decline in the third fiscal quarter of 1998. Gross margin was 52.1% and 56.5% of net revenue in the second quarter of fiscal 1998, and the second quarter of 1997, respectively. The Company experienced a reduction in its gross margin from the second quarter of last year primarily due to reduced sales of large systems sold to service provider customers, offset in part by a favorable mix of fewer small systems that typically have lower margins. Gross margins for the first six months of fiscal 1998 was 51.1% of net revenue as compared to 58.0% for the first six months of fiscal 1997. This decrease reflects reduced sales and margins of larger system products and text-to-speech products offset in part by higher margins on system upgrades and expansions and lower provisions for inventory obsolescence. As a result of the CPE sale, the Company expects lower sales of small system products which typically have smaller gross margins. There can be no assurance that the Company's gross margins will not continue to decline in future periods. See "Certain Trends and Uncertainties." Research and development (R&D) expenses decreased 6% in the second quarter as compared to the corresponding quarter of 1997. This decrease in expenses primarily results from lower salaries, benefits and travel due to a lower average headcount in the second quarter of fiscal 1998 as compared to the prior year. R&D expenses represented 24% and 22% of net revenue for the second quarter of 1998 and 1997, respectively. Research and development expenses decreased 9% in the first six months of fiscal 1998 as compared to the first six months of fiscal 1997 and represented 26% and 21% of net revenues for each respective period. These decreases are primarily related to the same factors as noted above. The Company's R&D headcount was reduced as a result of the CPE sale and, as a result, the Company expects R&D expenses to decline in the third fiscal quarter of 1998. The Company believes that ongoing development of new products and features is required to maintain and enhance its competitive position, and accordingly, the Company expects to continue to invest in R&D. Selling, general and administrative (SG&A) expenses for the second quarter were 7% below SG&A expenses for the second quarter of 1997. This decrease in SG&A expenses reflects decreased sales expenses including decreases in travel, recruiting, and outside services. SG&A expenses represented 52% and 48% of net revenue in the second quarter of 1998 and 1997, respectively. Selling, general and administrative costs for the first six months of fiscal 1998 were 3% less than the prior year six month period and represented 55% and 43% of net revenue for the respective periods. This decrease in expenses is attributable to the same cause noted above. The Company's SG&A headcount was reduced as a result of the CPE sale and, as a result, the Company expects SG&A expenses to decline in the third fiscal quarter of 1998. The Company believes that continued investments in sales and customer support, particularly in export markets, are essential to maintaining its competitive position. 8 Other expenses were $3.6 million in the second quarter and first six months of fiscal 1997 and zero for the comparable periods in fiscal 1998. These changes represented approximately $2.4 million in restructuring charges and $1.2 million in expenses associated with the proposed acquisition of Voice-Tel Enterprises and Voice-Tel Network ("Voice-Tel") which was terminated during the second quarter of fiscal 1997. The Company recorded a provision for income taxes in the first and second quarters of fiscal 1998 for anticipated foreign income tax liabilities. No income tax benefit has been recorded for the losses incurred in the first six months of fiscal 1998 and 1997, respectively, because realization of the deferred tax assets arising as a result of the losses sustained are dependent upon future taxable income, the amount and timing of which are uncertain. Accordingly, a valuation allowance has been established to fully offset the deferred tax assets resulting from the losses incurred. Liquidity and Capital Resources Cash and cash equivalents and short-term investments at the end of the second quarter were $46.4 million, decreasing $5.7 million from the November 1, 1997 balance of $52.1 million. For the six months ended May 2, 1998, the Company used cash from operating activities of $4.7 million. Trade receivables at the end of the second quarter decreased $3.6 million from the November 1, 1997 year-end balance primarily due to reduced revenues in the second quarter as compared to the fourth quarter. Days sales outstanding (computed using quarterly revenues) were 77 days at the second quarter as compared to 68 days at end of fiscal 1997. This increase in days sales outstanding was primarily due to extended payment terms to selected international service provider customers. Inventory levels at May 2, 1998 were down slightly from year-end balances. The Company expects receivables and inventories to continue to represent a significant portion of working capital. During the six months ended May 2, 1998, the Company purchased approximately $1.3 million in capital expenditures. These expenditures consisted primarily of computer equipment and engineering software. The Company currently expects to spend approximately $4.0 million for capital equipment during fiscal 1998. The Company presently believes, notwithstanding its accumulated deficit, that its existing cash and short-term investments will be sufficient to support the Company's working capital and capital equipment purchase requirements at least through fiscal 1998. The Company's principal sources of liquidity as of May 2, 1998 consisted of $46.4 million of cash and cash equivalents and short-term investments. The Company's bank line of credit expired on May 30, 1998. The Company expects to renew this line in the near term under similar terms and conditions which will require the Company to maintain certain financial ratios, minimum working capital, minimum tangible net worth, and financial performance, and requires the bank's consent for the payment of cash dividends. 9 Certain Trends and Uncertainties The Company has in the past experienced and will likely in the future experience substantial fluctuations in quarterly operating results. The Company generally has no long-term order commitments from its customers, and a significant portion of bookings and shipments in any quarter have historically occurred near the end of the quarter. Accordingly, the Company has historically operated with very little backlog, and net revenue has been difficult to predict. In addition, the portion of backlog shippable in the next quarter varies over time. As a result, revenue in future quarters will depend largely on the level of orders received during such quarters. If new order bookings do not meet expected levels, or if the Company experiences delays in shipments at the end of a quarter, operating results will be adversely affected, and these developments may not become apparent to the Company until near or at the end of a quarter. Net revenue can also be affected by product sales mix, distribution mix, the size and timing of customer orders and shipments, customer returns and reserves provided therefor, competitive pricing pressures, the effectiveness of key distributors and the Company's sales force in selling the Company's products, changes in distributor inventory levels, the ability of the Company's joint marketing partners to ship products during the quarter, the timing of new product introductions by the Company and its competitors, regulatory approvals, and the availability of components for the Company's products, each of which is difficult to predict accurately. Each of such factors has in the past affected the Company's revenue. The Company has in the past experienced higher than usual headcount turnover which has had an adverse effect on the Company's booking levels. There can be no assurance that such turnover will not continue in future periods. Any failure by the Company to attract, retain and train additional sales and other personnel could have a material adverse effect on the Company's business and results of operations. A significant portion of the Company's net revenue is attributable to a limited number of customers. The Company's top five customers, representing a combination of major distributors and service providers, accounted for approximately 40% of the Company's net revenue in the second quarter of fiscal 1998 and the second quarter of fiscal 1997, respectively, although the Company's five largest customers were not the same in the two periods. The Company has no long-term order commitments from any of its customers. Any material reduction in orders from one or more of such customers or the cancellation or deferral of any significant portion of backlog could have an adverse effect on net revenue and operating results. Such concentration of sales typically results in a corresponding concentration of accounts receivable. Although the Company has established reserves for uncollectible accounts, the inability of any large customer to pay the Company could have a material adverse impact on the Company's financial position, results of operations and cash flows. Approximately 52% of the Company's sales in the second fiscal quarter ended May 2, 1998 consisted of sales outside of the United States. The Company's international sales are subject to a number of additional risks generally associated with international sales, including the effect on demand for the Company's products in international markets as the results of any strengthening or weakening of the U.S. dollar, the effect of currency fluctuations on consolidated multinational financial results, state imposed restrictions on the repatriation of funds, import and export duties and restrictions, the need to modify products for local markets, and the logical 10 difficulties of managing multinational operations. In particular, the Company's sales in Asia have been adversely affected in recent quarters but to a lessor extent in the current quarter by financial difficulties in that region and may be so adversely affected in the future. The Company's gross margin can be affected by a number of factors, including changes in product configuration and mix including the volume of OEM products, distribution channel and customer mix, cost and availability of parts and components, royalty obligations to suppliers of licensed software, provisions for warranty, retrofits, and excess and obsolete inventory, customer returns, and competitive pressures on pricing. The Company has experienced increasing competitive pricing pressure in its markets and expects this pricing pressure to continue. Further, distributors purchase products at discounts, and the Company's margins can therefore vary depending upon the mix of distributor and direct end user sales in any particular fiscal period. The Company anticipates that its sales mix will continue to fluctuate in future periods. The Company's future success will depend in part upon the ability of the Company to continue to introduce new features and products as the Company's markets evolve, new technologies become available, and customers demand additional functionality. The Company's competitors continue to add functionality to their products, and any failure by the Company to introduce in a timely manner new products and features that meet customer requirements would adversely affect the Company's operating results and cash flows. The Company's ability to develop such new features and products depends in large measure on its ability to hire and retain qualified technical talent and outside contractors in highly competitive markets for such services. There can be no assurance that the Company's product development efforts will be successful, or that it will be able to introduce new products in a timely manner. Any material additional delays in the introduction and market acceptance of such products would be adverse to the Company's business. Moreover, customers' expectations of the introduction of new products by the Company or its competitors can adversely affect sales of current products. In addition, upon the introduction of new products, the Company could be subject to higher customer returns with respect to prior generations of products, which could adversely affect the Company's financial position, operating results and cash flows. The Company presently uses third parties to perform printed circuit board and subsystem assembly. In addition, although the Company has not experienced significant problems with third-party manufacturers in the past, there can be no assurance that such problems will not develop in the future. Although the Company generally uses standard parts and components for its products, certain microprocessors, line cards, application cards and other semiconductor devices and other components are available from sole sources. Other components, including power supplies, disk drives, certain other semiconductor devices and subcontracted line card assemblies, are presently available or acquired from a single source or from limited sources. The Company has been notified by suppliers that certain components will no longer be manufactured. To date, the Company has been able to obtain adequate supplies of these components in a timely manner from existing sources or, when necessary, from alternative sources of supply although such alternatives have resulted in increased costs to the Company. However, the inability to develop such alternative sources if and as required in the future, to obtain sufficient sole or limited source components as required, or to locate alternatives to discontinued parts would have a material adverse affect on the Company's operating results and cash flows. In addition, the Company's products are dependent on the QNX software operating system, a multitasking, real-time 11 operating system for Intel microprocessor-based computers. In future periods, the Company's products may become increasingly dependent on software licensed from third party suppliers. There can be no assurance such licenses will continue to be available to the Company as needed or at commercially reasonable prices. In addition, a number of other companies, including competitors of the Company, hold patents in the same general area as the technology used by the Company. The Company from time to time has received, and may receive in the future, letters alleging infringement of patent rights by the Company's products. For example, in December 1997, representatives of Lucent informed the Company that they believed that the Company's products may infringe upon certain patents issued to Lucent, and that Lucent was seeking compensation for any past infringement by the Company. The Company is in the process of evaluating the assertions of Lucent. Lucent, or any other third party, alleging infringement, could seek an injunction prohibiting the Company from selling some or all of its products, which would have an immediate, adverse impact in the Company's business, financial condition and results of operations. There can be no assurance that the Company would prevail in any litigation to enjoin the Company from selling its products on the basis of such alleged infringement, or that the Company would be able to license any valid and infringed patents on reasonable terms, or at all. The Company has conducted a review of its internal computer systems, as well as the Company's product line, to identify the systems that could be affected by the "Year 2000" issue and is developing an implementation plan to resolve the issue. The Year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Software programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure or miscalculations. The Company presently believes that, with modifications to existing software, the Year 2000 problem will not pose significant operational problems for the Company's computer systems or the Company's product line. However, if such modifications are not made in a timely manner, the Company or its customers may be unable to implement appropriate Year 2000 solutions, which could have a material adverse affect on the Company's business, financial condition or results of operations. In recent years, stock markets have experienced extreme price and volume trading volatility. This volatility has had a substantial effect on the market prices of securities of many high technology companies for reasons frequently unrelated to the operating performance of the specific companies. These broad markets fluctuations may adversely affect the market price of the Company's common stock. In addition, the trading price of the Company's common stock could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, announcements of new products or technological innovations by the Company or its competitors, and general conditions in the computer and communications industries. PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The Annual Meeting of Stockholders of the Company was held on March 31, 1998 (the "Annual Meeting"), at which there were 7,171,000 shares of common stock 12 issued and outstanding and entitled to vote. The vote of holders of record of shares of the Company's common stock outstanding at the close of business on February 6, 1998 was solicited by proxy pursuant to Regulation 14A under the Securities Exchange Act of 1934. (b) At the Annual Meeting, stockholders approved the following matters by the vote indicated:
VOTE ------------------------------------------------------------ For Against Abstained ------------------ ------------------ ---------------- Election of Class III Directors Doug Chance 6,346,854 -- 182,199 James F. Gibbons 6,346,025 -- 183,028 Edward R. Kozel 6,346,967 -- 182,086 Approval of the amendment to the Company's 1997 Stock Option Plan to increase the number of shares of the Common Stock reserved for issuance thereunder from 375,000 shares to 730,000 shares. 2,861,818 2,126,705 77,244 Approval of the amendment to the Company's 1991 Employee Stock Purchase Plan to increase the number of shares of Common Stock reserved for issuance thereunder from 675,000 shares to 775,000 shares. 4,798,577 230,738 48,652 Ratification of appointment of Ernst & Young LLP independent auditors for the fiscal year ended October 31, 1998. 6,460,544 23,971 44,538
Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule. (b) Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended May 2, 1998. 13 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. CENTIGRAM COMMUNICATIONS CORPORATION (Registrant) Date: June 15, 1998 By /s/ Robert L. Puette -------------------------------------- Robert L. Puette President and Chief Executive Officer Date: June 15, 1998 By /s/ Thomas E. Brunton -------------------------------------- Thomas E. Brunton Sr. Vice President and Chief Financial Officer 14 EX-27.1 2 FINANCIAL DATA SCHEDULE
5 This schedule contains summary information from the Company's Second fiscal quarter 10-Q. 1,000 6-MOS OCT-31-1998 NOV-02-1997 MAY-02-1998 11,723 34,667 18,722 691 8,399 74,363 44,480 34,302 88,396 17,039 0 0 0 7 71,350 88,396 39,360 39,360 19,224 19,224 31,909 0 0 (10,444) 140 (10,584) 0 0 0 (10,584) (1.51) (1.51)
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