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Network Computing Devices Inc – ‘10-Q/A’ for 9/30/95

As of: Friday, 8/23/96 · For: 9/30/95 · Accession #: 912057-96-18784 · File #: 0-20124

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 8/23/96  Network Computing Devices Inc     10-Q/A      9/30/95    4:44K                                    Merrill Corp/FA

Amendment to Quarterly Report — Form 10-Q
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q/A      Amendment to Quarterly Report                         15     72K 
 2: EX-11.1     Statement re: Computation of Earnings Per Share        2±     7K 
 3: EX-24.1     Power of Attorney                                      1      5K 
 4: EX-27       Financial Data Schedule (Pre-XBRL)                     2      7K

10-Q/A — Amendment to Quarterly Report
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Business Restructuring Exhibits and Reports on Form 8-K Financial Statements Management's Discussion and Analysis of Financial Condition and Results of Operations Net Software Revenues Other Information
1	1st Page - Filing Submission
2	Item 1:. Financial Statements
7	Business Restructuring
10	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
12	Net Software Revenues
15	Item 5. Other Information
"	Item 6. Exhibits and Reports on Form 8-K

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UNITED STATES       
SECURITIES AND EXCHANGE COMMISSION      

WASHINGTON, D.C.  20549       

_______________       

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 September 30, 1995 

or      

[ ]  Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.                                         

For the transition period from ______to ______  

Commission file number: 0-20124   

NETWORK COMPUTING DEVICES, INC.   
(Exact name of registrant as specified in its charter)  

        California                                  77-0177255
(State or other jurisdiction of                      (I.R.S. Employer   
incorporation or organization)                       Identification No.)

      350 North Bernardo Avenue, Mountain View, California 94043
     (Address of principal executive offices and zip code)

      Registrant's telephone number:  (415) 694-0650

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 was 15,802,142
at October  31, 1995.                                                           

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NETWORK COMPUTING DEVICES, INC.           

INDEX               

DESCRIPTION                                                 PAGE NUMBER   
-----------------------------------------------------------    -----------      
Cover Page                                                          1           

Index                                                               2           

Part I:   Financial Information                                                 

Item 1:   Financial Statements                                            

Condensed Consolidated Balance Sheets as of                   
 September 30, 1995 and December 31, 1994                3

Condensed Consolidated Statements of Operations               
for the Three- and Nine-Month Periods Ended             
 September 30, 1995 and 1994                             4

Condensed Consolidated Statements of Cash Flows               
for the Nine-Month Periods Ended September 30,          
 1995 and 1994                                           5

Notes to Condensed Consolidated Financial Statements       6  

Item 2:   Management's Discussion and Analysis of             
        Financial Condition and Results of Operations   10

Part II:   Other Information                                                    

Item 5:   Other Information                               15  

Item 6:   Exhibits and Reports on Form 8-K                15  

Signature                                                          17           

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NETWORK COMPUTING DEVICES, INC.   

PART I:  FINANCIAL INFORMATION    
ITEM 1.  FINANCIAL STATEMENTS     

CONDENSED CONSOLIDATED BALANCE SHEETS   
(IN THOUSANDS)    

ASSETS    

                                                   September 30,  December 31,
                                                    1995          1994
                                                   -------------  ------------
                                                     (unaudited)
Current assets:                                                                 
Cash and cash equivalents                             $12,497       $7,407  
Short-term investments                                 25,349       23,813  
Accounts receivable, net                               22,169       31,743  
Inventories                                            14,412       23,622  
Prepaid expenses and other                              4,380        1,325  
Deferred income taxes                                   1,976        2,535  
                                                    -------     --------
Total current assets                                     80,783       90,445    

Property and equipment, net                               6,564        6,052    
Other assets                                              5,154        4,532    
                                                    -------     --------
Total assets                                            $92,501     $101,029    
                                                    -------     --------
                                                    -------     --------

LIABILITIES AND SHAREHOLDERS' EQUITY                                            

Current liabilities:                                                            
Accounts payable                                       $9,093      $17,636  
Current installments of capital lease obligations       1,104        1,346  
Income taxes payable                                        -          833  
Accrued expenses                                       10,386        6,855  
Deferred revenue                                        5,580          973  
                                                    -------     --------
Total current liabilities                                26,163       27,643    

Capital lease obligations, excluding current portion      1,082        1,497    

Shareholders' equity:                                                           
Common stock                                           61,115       63,420  
Retained earnings                                       4,141        8,469  
                                                    -------     --------
Total shareholders' equity                               65,256       71,889    
                                                    -------     --------
Total liabilities and shareholders' equity              $92,501     $101,029    
                                                    -------     --------
                                                    -------     --------

See accompanying notes. 

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NETWORK COMPUTING DEVICES, INC. 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS   
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)  

                             Three Months Ended        Nine Months Ended
                               September 30,             September 30,
                               -------------------     ---------------------
                               1995       1994         1995         1994
                               -------     -------     --------     --------
Net revenues:                                                                   
Systems division               $24,410     $34,648     $ 85,839     $106,605
Software division                9,097       4,774       20,227       12,156
                               -------     -------     --------     --------
Total net revenues                33,507      39,422      106,066      118,761  
Cost of revenues:                                                               
Systems division                20,586      25,343       64,713       77,443
Software division                1,068         804        2,376        1,764
                               -------     -------     --------     --------
Total cost of revenues            21,654      26,147       67,089       79,207  
                               -------     -------     --------     --------
Gross profit margin               11,853      13,275       38,977       39,554  
Operating expenses:                                                             
Research and development         3,515       2,690        9,505        7,407
Marketing and selling            8,366       8,861       25,514       25,716
General and administrative       2,121       1,699        6,135        4,890
Charge for acquired in-process                                              
   research and development          -       2,421            -       17,452
Charge for business                                                         
   restructuring                 4,832           -        4,832            -
                               -------     -------     --------     --------
Total operating expenses          18,834      15,671       45,986       55,465  
                               -------     -------     --------     --------
Operating loss                    (6,981)     (2,396)      (7,009)     (15,911) 
Other income, net                    335         231          950        7,950  
                               -------     -------     --------     --------
Loss before income taxes          (6,646)     (2,165)      (6,059)      (7,961) 
Provision for income taxes                                                      
 (income tax benefit)           (1,927)         90       (1,729)       3,322
                               -------     -------     --------     --------
Net loss                         ($4,719)    ($2,255)     ($4,330)    ($11,283) 
                               -------     -------     --------     --------
                               -------     -------     --------     --------
Net loss per share:                                                             
 Primary                         ($0.30)     ($0.14)      ($0.27)      ($0.70)
                               -------     -------     --------     --------
                               -------     -------     --------     --------
 Fully diluted                   ($0.30)     ($0.22)      ($0.27)      ($0.77)
                               -------     -------     --------     --------
                               -------     -------     --------     --------
Shares used in per share computations:                                          
Primary                         15,851      15,638       15,783       16,082
                               -------     -------     --------     --------
                               -------     -------     --------     --------
Fully diluted                   15,851      15,770       15,783       16,136
                               -------     -------     --------     --------
                               -------     -------     --------     --------

See accompanying notes. 

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 NETWORK COMPUTING DEVICES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
  (UNAUDITED - IN THOUSANDS)

                                                     Nine Months Ended
                                                       September 30,
                                                       ---------------------
                                                       1995         1994
                                                       -------       -------
Cash flows from operations:                                                     
  Net loss                                              ($4,330)     ($11,283)
Reconciliation to cash provided by operations:                            
    Acquired in-process research and development             -        17,452
     Gain on sale of NetManage, Inc. common stock             -        (7,237)
    Noncash restructuring charges                        6,588             -
    Depreciation and amortization                        3,564         2,984
Changes in:                                                         
       Accounts receivable                               9,574         3,247
        Inventories                                       6,505        (9,735)
        Prepaid expenses and other                       (3,055)         (160)
       Deferred income taxes                               559             -
       Accounts payable                                 (8,543)        9,079
        Income taxes payable                               (833)         (668)
       Accrued expenses                                   (352)          192
       Deferred revenue                                  4,607           382
                                                       -------       -------
    Cash provided by operations                         14,284         4,253

Cash flows from investing activities:                               
        Short-term investment, net                       (1,536)       (1,044)
        Changes in other assets                          (1,056)         (317)
        Capitalization of software costs                   (392)       (1,265)
Acquisition of Z-Code Software Corp.,                         
          net of cash acquired                                -        (3,104)
Proceeds from sale of NetManage, Inc.                         
         common stock                                        -         9,237
        Property and equipment purchases                 (2,743)       (1,713)
                                                       -------       -------
    Cash provided by (used in) investing activities     (5,727)        1,794

Cash flows from financing activities:                               
        Principal payments on capital lease obligations  (1,162)       (1,091)
        Repurchases of stock                             (4,026)       (7,570)
Proceeds from issuance of stock, net                          
         of issuance costs                               1,721           694
                                                       -------       -------
     Cash used in financing activities                   (3,467)       (7,967)
     Increase (decrease) in cash and equivalents          5,090        (1,920)
Cash and equivalents:                                               
       Beginning of period                               7,407         6,879
                                                       -------       -------
       End of period                                   $12,497        $4,959
                                                       -------       -------
                                                       -------       -------
Noncash investing and financing activities:                         
Common stock issued for and accrued direct                    
          expenses of Z-Code acquisition                  $  -       $12,333
                                                       -------       -------
                                                       -------       -------
Property and equipment acquired under                         
          capital leases                                  $482        $1,022
                                                       -------       -------
                                                       -------       -------

See accompanying notes. 

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NETWORK COMPUTING DEVICES, INC.       

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      

BASIS OF PRESENTATION                                                           

The unaudited condensed consolidated financial information of Network Computing 
Devices, Inc. (the Company) furnished herein reflects all adjustments,          
consisting only of normal recurring adjustments, which in the opinion of        
management are necessary to fairly state the Company's consolidated financial   
position, the results of operations and cash flows for the periods presented.   
This Quarterly Report on Form 10-Q should be read in conjunction with the       
consolidated financial statements and notes thereto included in the Company's   
1994 Annual Report to Shareholders.  The consolidated results of operations for 
the three- and nine-month periods ended September 30, 1995 are not necessarily  
indicative of the results to be expected for any subsequent quarter or for the  
entire year ending December 31, 1995.  Certain financial statement amounts from 
1994 have been reclassified to conform with current year methods of             
presentation.                                                                   

PER SHARE INFORMATION                                                           

Net loss per share is computed using the weighted average number of shares of   
common stock and common stock equivalents determined to be outstanding during   
the periods.  Common stock equivalents are not considered in the calculation of 
net loss per share when their effect would be antidilutive.                     

INVENTORIES                                                                     

Inventories, stated at the lower of standard cost, which approximates actual    
cost on a first-in, first-out basis, or market, consisted of (in thousands):    

                                         September 30,  December 31,
                                        1995          1994
                                         -------------  ------------
Purchased components and sub-assemblies   $9,405        $17,282 
Work in process                            1,935          1,121 
Finished goods                             3,072          5,219 
                                        -------        -------
                                        $14,412        $23,622
                                        -------        -------
                                        -------        -------

ACQUISITION OF Z-CODE SOFTWARE CORP.                                            

In February 1994, the Company purchased all of the outstanding stock of Z-Code  
Software Corp. (Z-Code), a developer of electronic mail and messaging software. 
The initial consideration for the acquisition was approximately $3.2 million in 
cash and 3,000,000 shares of the Company's common stock (including approximately
269,000 shares issuable upon exercise of options).  Of these shares,            
approximately 1,183,000 (the Performance Shares) were held in escrow and subject
to release, in whole or in part, only upon the achievement of certain financial 
performance objectives over a 15-month period ending in the second quarter of   
1995.  Additional cash of up to $3.2 million was also contingently payable based
on the achievement of these objectives.                                         

The acquisition was accounted for using the purchase method and, accordingly,   
the operating results of Z-Code have been included in the consolidated financial
statements of the Company from the date of acquisition.  The initial cash       
payment, $1.5                                                                   

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NETWORK COMPUTING DEVICES, INC.       

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      

million of direct expenses and the value of the stock (excluding the Performance
Shares) was allocated as follows (in thousands):                                

Net liabilities assumed                              $  (245) 
Research and development in process                   15,031  
Purchased software technology and other intangibles    1,084  
Deferred income tax liability                           (293) 
                                                   -------
                                                   $15,577
                                                   -------
                                                   -------

The amounts allocated to purchased software technology and other intangibles are
being amortized over five years.  The research and development in-process was   
written off and charged to operations in the first quarter of 1994.             

In July 1994, the Company repurchased 1,361,802 shares of its common stock at   
fair market value from the former principal shareholder of Z-Code for           
approximately $5.0 million and paid approximately $2.5 million in exchange for  
his contingent rights to an additional 1,041,378 Performance Shares that were   
held in escrow as well as his contingent right to receive up to approximately   
$2.5 million in cash.  Substantially all of the payment for the contingent stock
and cash rights was allocated to in-process research and development acquired in
the Z-Code acquisition and was charged to operations in the third quarter of    
1994.  Up to approximately 142,000 Performance Shares and $700,000 in cash were 
contingently issuable to the other former Z-Code shareholder and option holders 
following this transaction.  In the second quarter of 1995, the Company         
determined that the performance objectives had not been achieved.  Accordingly, 
none of the remaining Performance Shares or contingent cash payments will be    
issued or paid.                                                                 

The following unaudited pro forma combined results of operations for the quarter
ended September 30, 1994 are presented as if the acquisition had occurred at the
beginning of the period, including the subsequent repurchase of the stock the   
Company issued.  The one-time charge for the write-off of research and          
development in-process has not been reflected in the following pro forma summary
as it is non-recurring, nor have adjustments been made for the assumption that  
any of the financial performance objectives have been achieved.  This pro forma 
summary does not necessarily reflect the results of operations as they would    
have been if the Company and Z-Code had constituted a consolidated entity during
the period.                                                                     

                                   Nine Months Ended
(IN THOUSANDS, EXCEPT PER SHARE DATA)   September 30, 1994    
                                    ------------------
Net revenues                                 $118,972         
                                    --------
                                    --------
Net income                                     $5,787         
                                    --------
                                    --------
Primary net income per share                   $ 0.35         
                                    --------
                                    --------
Fully diluted net income per share             $ 0.34         
                                    --------
                                    --------

BUSINESS RESTRUCTURING                                                          

In July 1995, the Company determined that it was appropriate to undertake a     
strategic restructuring plan to realign and consolidate its software businesses 
and reduce operating expenses, and intended to improve the operating performance
of its X-Terminal, or "Systems," operations in reaction to intense competition  
and slowness in the X-Terminal market.  The Company began implementing this plan
during the third quarter of 1995, and has streamlined its Systems operations as 
a result, including the termination of approximately fifty employees associated 
with such operations.                                                           

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NETWORK COMPUTING DEVICES, INC.       

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      

The plan's major components include:                                            

-   modifying the method of manufacturing and materials management to a "build- 
to-order" paradigm in order to increase the efficiency with which the   
 Company receives product orders and manufactures and delivers products to
its customers;                                                          

-   phasing out X-Terminal products that were currently yielding, or were       
anticipated to yield, profit margins that did not meet certain minimum  
requirements of the Company;                                            

-   reducing and consolidating facilities devoted to the conduct of the Systems 
portion of the business through a combination of sublease activities or 
negotiating early exits to existing lease agreements; and               

-   reducing the number of employees engaged in Systems business activities to  
a level deemed to be essential to reengineer the business for improved  
operating performance.                                                  

It is anticipated that the plan for restructuring will be completed by the end  
of the first quarter of 1996.                                                   

The costs associated with restructuring the business were accrued during the    
third quarter of 1995, the period in which the restructuring plan was finalized 
by the Company's management.  Such costs have been segregated into two          
fundamentally different classifications within the Statements of Operations for 
the three- and nine-month periods ended September 30, 1995:  cost of Systems    
revenues, and operating expenses.  Included in cost of Systems revenues is $2.7 
million related to products in inventory that are being phased out as part of   
the business restructuring.  Included in operating expenses under the caption,  
"Charge for business restructuring" is $4.8 million related to severance of     
approximately one hundred employees, the write-down of assets impaired by the   
restructuring plan, and exit costs for leased facility obligations.             

A description of the types and amounts (in thousands) of accruals made for      
restructuring costs is presented below.                                         

                                 Amounts   Amounts
                                 Accrued   Charged
                                 -------   -------
Reserve for the write-down of                                 
phase-out inventories               $2,706    $2,706    
Employee termination benefits           1,580       764       
Exiting facilities-related                                    
obligations                          2,256         -    
Asset impairment & other                  996       591       
                                ------    ------
Total                                  $7,538    $4,061       
                                ------    ------
                                ------    ------

STOCK REPURCHASE PLAN                                                           

In October 1994, the Company's Board of Directors adopted a program to          
repurchase from time to time at management's discretion up to 1,500,000 shares  
of the Company's common stock on the open market at prevailing market prices    
during the 12-month period ending October 31, 1995.  Repurchases are made under 
the program using the Company's own cash resources, and repurchased shares are  
restored to the status of "authorized but unissued."  During the third quarter  
and first nine months of 1995, the Company repurchased a total of 226,292 and   
571,162 shares, respectively, at an aggregate price of $1,654,104 and $4,026,754
for each of the respective periods.  As of September 30, 1995, the Company had  
repurchased a cumulative total under the program of 790,162 shares at an        
aggregate price of $4,972,754.                                                  

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NETWORK COMPUTING DEVICES, INC.       

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS      

INCOME TAXES                                                                    

The Company recognized an income tax benefit on net losses before income        
taxes during the three- and nine-month periods ended September 30, 1995.        
This compares to provisions for income taxes made during the comparable         
three- and nine-month periods of 1994, despite net losses before income taxes   
of $2.2 million and $8.0 million for each of the respective periods.  The       
provisions made during the periods of pre-tax losses for 1994 related to        
one-time charges for in-process research and development associated with the    
acquisition of Z-Code.  The acquisition was a tax-free reorganization, and      
therefore the charges were not deductible for income tax purposes.  Income      
taxes paid were $120,000 and $3,990,000 for the first nine months of 1995 and   
1994, respectively.                                                             

INTEREST PAYMENTS                                                               

Interest payments, primarily related to interest on capital lease liabilities,  
were $173,000 and $219,000 for the first nine months of 1995 and 1994,          
respectively.                                                                   

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NETWORK COMPUTING DEVICES, INC.       

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND        
RESULTS OF OPERATIONS                                         

THE FOLLOWING DISCUSSION INCORPORATES CERTAIN CORRECTIONS TO HISTORICAL         
FINANCIAL DATA BUT IS NOT INTENDED TO UPDATE ANY OTHER INFORMATION THAT WAS     
PRESENTED IN THIS REPORT WHEN IT WAS ORIGINALLY FILED.  THE FOLLOWING DISCUSSION
INCLUDES FORWARD-LOOKING STATEMENTS AND OTHER INFORMATION THAT MAY BE INACCURATE
AS OF THE DATE OF THIS AMENDMENT IN LIGHT OF SUBSEQUENT EVENTS, CHANGES IN      
CIRCUMSTANCES OR INFORMATION THAT HAS COME TO LIGHT SINCE THE ORIGINAL FILING OF
THIS REPORT.  FOR A MORE RECENT DISCUSSION OF THE MATTERS ADDRESSED IN THIS     
ITEM, SEE "PART I. ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL   
CONDITION AND RESULTS OF OPERATION" SET FORTH IN THE COMPANY'S FORM 10-Q REPORT 
FOR THE QUARTER ENDED JUNE 30, 1996.                                            

The following discussion should be read in conjunction with the unaudited       
condensed consolidated interim financial statements and notes thereto included  
in Part I -- Item 1 of this Quarterly Report and the audited consolidated       
financial statements and notes thereto and Management's Discussion and Analysis 
of Financial Condition and Results of Operations for the year ended December 31,
1994 contained in the Company's 1994 Annual Report to Shareholders.             

The Company designs, develops, manufactures and markets hardware and software   
products that provide information access to networks of heterogeneous computers.
The Company has increasingly segregated two separate operations of the business:
Systems (primarily focused on X-Terminal markets and products) and Software     
(primarily focused on PC-to-UNIX connectivity software, electronic mail and     
messaging software, and Internet connectivity software).  During and subsequent 
to the third quarter of 1995, the Company formed NCD Systems Corporation and NCD
Software Corporation, both wholly owned subsidiaries, to formalize this         
segregation of the two operations, and to bring greater focus to the basic      
enterprise of each separate business segment.                                   

The Company's common stock price has been and will continue to be subject to    
significant volatility.  For any given quarter, a shortfall in the Company's    
announced revenues or earnings from the levels expected by securities analysts  
could have an immediate and adverse effect on the trading price of the Company's
common stock.  The Company may not learn of, nor be able to confirm, revenue or 
earnings shortfalls until late in the quarter, or following the end of the      
quarter.  In addition, the Company participates in a very dynamic, high         
technology industry, which can result in significant fluctuations in the        
Company's common stock price at any time based on factors that may be unrelated 
to the Company's operating performance.                                         

In addition, the Company believes that changes in any of the following areas    
could have a negative impact on the Company in terms of its future financial    
position or results of operations:  general economic conditions affecting       
industry demand for computer products; the timing and market acceptance of new  
product introductions by the Company; the timing of significant orders from and 
shipments to large customers; fundamental underlying technology related to the  
X-Terminal market; competition including, but not limited to, pricing and       
products or product features; the timely sourcing of component supplies such as 
video monitors, integrated circuits (particularly memory, microprocessors and   
ASICs) and electronic subassemblies, some of which require substantial order    
lead times; the Company's success in developing and introducing new products,   
the product and customer mix comprising the Company's revenues base, the        
Company's success in entering the personal-computer-based software business, and
its ability to develop and maintain strategic business alliances; turnover of   
key management and other key personnel; and litigation and other claims against 
the Company, including, but not limited to, securities or patent claims.        

The Company's operating results have been affected by significant competition   
from other X-Terminal manufacturers, suppliers of workstations and personal     
computers, and software developers.  Competition within the X-Terminal market   
has intensified over the past several years, resulting in price reductions,     
reduced profit margins and the loss of the Company's leading market share       
position in the X-Terminal market.  This competition has adversely affected the 
Company's operating results.  In addition, intense competition from alternative 
desktop computing products, particularly personal computers, has resulted in a  
reduction in demand for X-Terminal products.  The Company expects this intense  
competition to continue and expects that overall market demand for X-Terminal   
products may continue to decline in the future.                                 

The Company relies significantly on independent distributors and resellers for  
the marketing and distribution of its products, especially for its software     
product lines.  There can be no assurance that these distributors and resellers 
will continue their current relationships with the Company, or that they will   
not give higher priority to the sale of other products, which could include     
products of  competitors.  A reduction in sales efforts or discontinuance of    
sales of the Company's products by its distributors and resellers could lead to 
reduced sales, and could adversely affect the Company's operating results.  In  
addition, there can be no assurance as to the continued viability or the        
financial stability of the Company's distributors and resellers, the            

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NETWORK COMPUTING DEVICES, INC.       

Company's ability to retain its existing distributors and resellers, or the     
Company's ability to add distributors and resellers in the future.  Although    
the Company monitors its distributors and resellers, there can be no            
assurance that they will not encounter problems of this type in the future.     
Any significant problems with distributors or resellers could lead to reduced   
sales and could adversely affect the Company's operating results.               

The Company's distributors and resellers have historically maintained limited   
inventory levels, and the Company has not experienced any significant product   
returns.  The Company does not believe that this is likely to change in the     
future.  However, in the event the Company's distributors and resellers were to 
change their inventory stocking practices with respect to the Company's         
products, the Company could face an increased risk of product returns or stock  
rotation from its distribution channels.  Such activity could have a material   
adverse effect on the Company's results of operations.                          

The Company has historically operated with a small backlog.  Revenues and       
operating results, therefore, generally depend on the volume and timing of      
orders received, which are difficult to forecast and may occur                  
disproportionately during any given quarter or year.  The Company has continued 
to experience an increasingly disproportionate amount of shipments occurring in 
the last month of the quarter.  This trend increases the risk of material       
quarter to quarter fluctuations in the Company's revenues and operating results.
The Company typically experiences reduced orders during the first and third     
quarters of each calendar year due to buying patterns common in the computer    
industry.                                                                       

The majority of the Company's international sales are denominated in U.S.       
dollars, and an increase or decrease in the value of the U.S. dollar relative to
foreign currencies could reduce the Company's price-competitiveness in those    
markets.  Significant portions of net revenues have been derived from sales to a
single customer in the United Kingdom and were denominated in pounds sterling.  
Sales denominated in a foreign currency, which may increase in the future, are  
subject to exchange rate fluctuations that could affect the Company's financial 
results negatively or positively, depending on the value of the U.S. dollar in  
comparison to the transaction currency.  Where the Company believes foreign-    
currency denominated sales create significant financial exposure, the Company   
acquires forward exchange contracts to minimize the related risks.              

RESULTS OF OPERATIONS                                                           

TOTAL NET REVENUES                                                              

Total net revenues for the third quarter of 1995 were $33.5 million,            
representing a decrease of 15% when compared with $39.4 million for the same    
period of 1994, and a decrease of 4% compared to the second quarter of 1995.    
Total net revenues for the first nine months of 1995 declined by 11% compared to
the same period in 1994.  The proportion of international revenues to total net 
revenues has remained relatively comparable for the periods presented.  Revenues
to related parties, and the proportion that such revenues bear to revenues      
derived from unrelated parties, is presented in the following table:            

                                 Three Months        Nine Months
                                  Ended September 30,  Ended September 30,
                                  -------------------  -------------------
                                   1995      1994      1995       1994
                                   -------   -------   --------   --------
Revenues from unrelated parties     $31,644   $35,051   $ 97,948   $107,896 
Revenues from related parties         1,863     4,371      8,118     10,865 
                                   -------   -------   --------   --------
Total net revenues                  $33,507   $39,422   $106,066   $118,761 
                                   -------   -------   --------   --------
                                   -------   -------   --------   --------

Revenues to related parties consisted of sales to Motorola, Inc., which is      
deemed a related party due to its ownership of approximately ten percent of the 
Company's common stock as of September 30, 1995 and 1994.                       

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NETWORK COMPUTING DEVICES, INC.       

NET SYSTEMS REVENUES                                                            

Systems revenues consist primarily of revenues from the sale of  X-Terminals and
the licensing of related software, in addition to revenues derived from the sale
of ongoing customer support agreements.  Such revenues were $24.4 million for   
the third quarter of 1995, compared to $34.6 million for the third quarter of   
1994 and $28.8 million for the second quarter of 1995.  Systems revenues for the
first nine months of 1995 were $85.8 million compared to $106.6 million for the 
same period during 1994.  Declines in Systems revenues were due to a combination
of conditions, including a decline in the overall market demand for X-Terminal  
products during the first half of 1995, new product offerings by certain of the 
Company's competitors, and a shortfall in the availability of certain products  
to ship to customers.                                                           

There can be no assurance that declines in the X-Terminal market will not       
continue in the future, nor that the Company will be able to stock adequate     
inventories to meet the demands that the X-Terminal market creates.             

NET SOFTWARE REVENUES                                                           

Software revenues consist primarily of revenues for PC-to-UNIX connectivity     
software, electronic mail and messaging software, and Internet connectivity     
software.  Such revenues were $9.1 million for the third quarter of 1995, an    
increase of 91% compared to the third quarter of 1994, and an increase of 47%   
compared to the second quarter of 1995.  Software revenues for the first nine   
months of 1995 were $20.2 million, an increase of 66% compared to the same      
period for 1994.  The growth in software revenues was primarily associated with 
a software development and licensing agreement with AT&T related to the         
Company's Internet connectivity technology.  Third quarter 1995 net revenues    
related to this agreement were $3.2 million ($4.0 million for the nine months   
ended September 30, 1995), while no revenues related to this agreement were     
recognized during 1994.  The Company anticipates that approximately $2.4 million
in revenues associated with the agreement will be recognized in the fourth      
quarter of 1995, and $2.0 million in 1996.  Exclusive of AT&T revenues, Software
division revenues would have grown by 9% over the second quarter of this year,  
and by 22% compared to the third quarter of 1994.                               

GROSS MARGIN ON SYSTEMS REVENUES                                                

The gross margin percentages on Systems revenues were 16% and 25%, respectively,
for the three- and nine-month periods ended September 30, 1995.  This compares  
to 27% for each of the same periods of 1994, and compares to 26% for the second 
quarter of 1995.  The decline in gross margin percentage was primarily due to a 
$2.7 million charge to cost of revenues associated with the restructuring of the
Systems portion of the business.  Such charges were related to products in      
inventory that are being phased out as part of the business restructuring (see  
"BUSINESS RESTRUCTURING").  Exclusive of this charge, the Systems gross margin  
percentage would have been 27% and 28%, respectively, for the three- and nine-  
month periods ended September 30, 1995.                                         

GROSS MARGIN ON SOFTWARE REVENUES                                               

The gross margin percentage on Software revenues was 88% for both the three- and
nine-month periods ended September 30, 1995.  This compares to 83% and 85% for  
the same periods of 1994, and to 88% for the second quarter of 1995.  The       
improvement in gross margin percentage on Software revenues was primarily       
related to the above-mentioned AT&T revenues, as such revenues carry a higher   
margin than other software revenues of the Company.                             

RESEARCH AND DEVELOPMENT EXPENSES                                               

Research and development ("R&D") expenses were $3.5 million and $9.5 million for
the third quarter and first nine months of 1995, respectively, representing     
increases of $0.8 million and $2.1 million (or 31% and 28% for each of the      
respective periods) over the comparable periods of 1994.  The increases were    
attributable to increased software product development efforts.  Included in R&D
expenses in the third quarter of 1995 was $0.8 million in costs and expenses    
associated with the software development and licensing agreement with AT&T.  As 
a percentage of net revenues, R&D spending increased to 10% for the third       
quarter of 1995 from 7% for the third quarter of 1994, and increased to 9% of   
net revenues for the first nine months of 1995 compared to 6% for the same      
period of 1994, reflecting the combined impact of increased spending and lower  
revenues.  The Company plans to continue investing in research and development  
in order to improve its competitive position in the market.  However, as a      
percentage of revenue such expenses may fluctuate.                              

MARKETING AND SELLING                                                           

Marketing and selling expenses were $8.4 million and $25.5 million for the third
quarter and first nine months of 1995, respectively, representing decreases of  
$0.5 million (6%) and $0.2 million (1%), respectively, over the same periods of 
1994.                                                                           

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NETWORK COMPUTING DEVICES, INC.       

The decreases were primarily related to lower labor costs associated with       
reduced permanent and contract personnel, in addition to lower costs associated 
with commissions and other performance-related compensation.  As a percentage of
total net revenues, marketing and selling expenses increased from 22% to 25%    
when comparing the third quarter of 1994 with the third quarter of 1995, and    
increased from 22% to 24% when comparing the first nine months of 1994 with the 
same period in 1995, reflecting the effect of lower revenues.  As a percentage  
of revenue, such expenses may fluctuate from quarter to quarter.                

GENERAL AND ADMINISTRATIVE                                                      

General and administrative ("G&A") expenses were $2.1 million and $6.1 million  
for the third quarter and first nine months of 1995, respectively, representing 
increases of $0.4 million (25%) and $1.2 million (25%), respectively, over the  
same periods of 1994.  This increase was primarily related to higher insurance  
costs related to director and officer insurance policies, higher professional   
fees, and higher consulting costs associated with the realignment and           
reengineering of the business for greater profitability.  As a percentage of net
revenues, G&A expenses increased to 6% for both the third quarter and first nine
months of 1995, compared to 4%  for the third quarter and first nine months of  
1994, respectively, reflecting the combined impact of increased spending and    
decreased revenues.  As a percentage of net revenues, such expenses may         
fluctuate from quarter to quarter.                                              

BUSINESS RESTRUCTURING                                                          

During the third quarter of 1995, the Company created and began implementing a  
plan to restructure the Systems portion of the business in order to improve the 
operating performance potential for that business segment.  The plan included   
substantial modifications to the Company's manufacturing processes, phasing out 
the activities related to less profitable products, a reduction in the          
facilities devoted to the conduct of the Systems portion of the business, and a 
reduction in the number of employees engaged in Systems business activities.    
During the third quarter, the Company recognized charges totaling $7.5 million  
for the implementation of this plan, which is anticipated to continue through   
the first quarter of 1996.  Included in restructuring charges were amounts      
related to the severance of personnel, reductions of inventory related to phase-
out products, and costs associated with exiting the lease obligations relating  
to certain facilities used in Systems operations.  See "BUSINESS RESTRUCTURING,"
in the Notes to Condensed Consolidated Financial Statements contained in this   
document.  The charge for business restructuring caused a net loss from         
operations for the three- and nine-month periods ended September 30, 1995, and  
it is likely to cause a net operating loss for the year ending December 31,     
1995.                                                                           

OTHER INCOME                                                                    

Other income, which consists primarily of interest income and realized gains on 
the sales of investments, net of interest expense, increased by $104,000 from   
the third quarter of 1994 to the third quarter of 1995.  Other income decreased 
by $7.0 million from the nine-month period ended September 30, 1994 to the same 
period in 1995, primarily related to gains recognized on the sale of NetManage, 
Inc. common stock in an underwritten public offering during February 1994.      

INCOME TAXES AND INCOME TAX BENEFIT                                             

The Company recognized an income tax benefit on net losses before income        
taxes during the three- and nine-month periods ended September 30, 1995.        
This compares to provisions for income taxes made during the comparable         
three- and nine-month periods of 1994, despite net losses before income taxes   
of $2.2 million and $8.0 million for each of the respective periods.  The       
provisions made during the periods of pre-tax losses for 1994 related to        
one-time charges for in-process research and development associated with the    
acquisition of Z-Code Software Corporation.  The acquisition was a tax-free     
reorganization, and the related charges were therefore not deductible for       
income tax purposes.                                                            

FINANCIAL CONDITION                                                             

Total assets as of September 30, 1995 decreased by $8.5 million, or eight       
percent, from December 31, 1994.  The change in total assets reflects the       
decrease in accounts receivable of $9.6 million, attributable primarily to lower
business volumes, and the decrease in inventory levels, due in part to the      
restructuring-related charge and in part to lower business volumes.  Such       
decreases were partially offset by growth in combined cash and short-term       
investments of $6.6 million generated from operations.                          

Total liabilities as of September 30, 1995 decreased by $1.9 million, or seven  
percent, from December 31, 1994.  The decrease was primarily associated with    
lower accounts payable balances related to reduced business volumes, partially  
offset                                                                          

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NETWORK COMPUTING DEVICES, INC.       

by an increase in deferred revenue, which was due to deferred revenues          
associated with a software development and licensing agreement with AT&T (see   
above, under "NET SOFTWARE REVENUES"), and an increase in accrued expenses,     
primarily due to accruals related to restructuring the business (see above,     
under "BUSINESS RESTRUCTURING").                                                

LIQUIDITY                                                                       

At September 30, 1995, the Company's primary sources of liquidity consisted of  
combined cash and equivalents and short-term investments of $37.8 million.  Cash
payments associated with the business restructuring that occurred during the    
third quarter of 1995 totaled approximately $1.0 million, and it is anticipated 
that an additional $0.5 million to $1.0 million in related cash outlays will be 
required during the fourth quarter of 1995.  The Company believes that its      
existing sources of liquidity are sufficient to meet operating cash requirements
and capital lease repayment obligations at least through the next twelve months.

CAPITAL RESOURCES                                                               

Capital spending requirements for the remainder of 1995 are estimated at        
approximately $1.0 million, and at September 30, 1995, the Company had          
commitments for material capital expenditures of approximately $150,000.  These 
commitments are primarily related to information technology and facilities.     

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NETWORK COMPUTING DEVICES, INC.     

PART II - OTHER INFORMATION     

ITEM 5. OTHER INFORMATION                                                       

On November 10, 1995, the Company announced that Edward L. Marinaro, who has    
served as the Company's President and Chief Executive Officer since September   
1994, will resign on December 31, 1995.  Mr. Marinaro will continue to serve as 
a member of the Company's Board of Directors and will be appointed Vice Chairman
of the Board, effective upon his resignation as President and Chief Executive   
Officer at the end of the year.  The Company has initiated a search for a new   
Chief Executive Officer.                                                        

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                        

(a)     The following exhibits are filed herewith:                              

  Exhibit 10.34*   Lease agreement by and between the Registrant and
                  Ravendale Investments, dated September 20, 1995.

  Exhibit 11.1     Statement Regarding Computation of Shares Used in
Loss per Share Computations.  

Exhibit 27       Financial Data Schedule.                       

*  Previously filed           

(b)     The Company filed no reports on Form 8-K during the three-month period  
ended September 30, 1995.                                       

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-Q/A’ Filing	Date	First	Last	Other Filings

Filed on:	8/23/96			10-Q/A
	6/30/96	10		10-Q, 10-Q/A
	12/31/95	6	15	10-K/A
	11/10/95	15
	10/31/95	1	8
For Period End:	9/30/95	1	15
	9/20/95	15
	12/31/94	10	13
	9/30/94	2	13
				List all Filings

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Network Computing Devices Inc – ‘10-Q/A’ for 9/30/95

As of: Friday, 8/23/96 · For: 9/30/95 · Accession #: 912057-96-18784 · File #: 0-20124

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