Revenue for the second quarter was $9.6 million, down 11% from $10.7 million in the same quarter last year. Exclusive of a special charge recorded in the quarter, the second quarter net loss was $2.2 million, or $.27 per share, compared to a net loss of $242,000, or $.03 per share, in the second quarter of 1998. After consideration of the special charge totaling $1.8 million, the reported net loss for the quarter was $3.9 million, or $.49 per share.
Revenue for the quarter was down year-over-year primarily because of product shipments originally scheduled for the second quarter were delayed at customer request into early July. As a result, revenue and gross profit for the second quarter were adversely affected. Gross profit was also adversely affected by a change in product mix and changes relating to the discontinuance of our high-end CD-ROM enterprise business described below. The Company also incurred an increase in operating expenses. The increase was primarily attributable to the Company's acceptance of work completed on a research and development project by a third party, and the resolution of outstanding sales tax issues. As result of cumulative losses, the Company also recognized income tax expense to eliminate the tax benefit taken in the first quarter.
The Company recorded a special charge related to its plan to exit the integrated high-end CD-ROM enterprise systems business. The pre-tax special charge primarily consists of $982,000 in employee severance and benefits, future lease payments, the write-off of fixed assets and capitalized software, and an increase in the allowances for evaluation units. The charge also includes $803,000 for the write-down of discontinued product inventories that was included as a component of cost of revenue.
Vincent C. Hren, Microtest's President and Chief Executive Officer said, "In June the Company announced its intention to consolidate its Enterprise Group into its corporate headquarters in Phoenix, Arizona from Nashua, New Hampshire. The discontinuation of operations in the high-end CD-ROM enterprise system business is a strategic decision for Microtest. The product line was not profitable in a shrinking competitive market. These actions will also reduce the Company's cost structure by approximately $400,000 per quarter. Exiting the enterprise business allows us to focus the Network Attached Storage Division (NAS) exclusively on entry level NAS thin-server appliances for the workgroup and remote office market. It also means that we will no longer compete with our value-added reseller customers."
Mr. Hren added, "The Company currently is in negotiations with several companies that are interested in Microtest's enterprise system customer base. A business deal would involve CD-ROM customer service maintenance contracts, support inventory, and source code. We hope to accomplish the transaction by the end of August 1999."
Mr. Hren concluded, "In my first six months with Microtest, we have replaced the management team, and restructured the Company into two business units: Network Test and Measurement, and Network Attached Storage. NTM is experiencing growth driven by OmniScanner sales and remains the world's only cable tester capable of certifying advanced cable systems to the Category 6 standard. Within NAS, we are exiting the CD-ROM enterprise systems business, and concentrating on NAS thin-server products. We will continue to execute the necessary strategies that we believe will return Microtest to profitable growth."
Founded in 1984, Microtest is a leading worldwide developer of network test and measurement and network attached storage products for local area and enterprise networks. Microtest's mission is to be the leader of easy-to-use networking products that bring value, convenience, and reliability to our customers. The Company has pioneered several networking products, such as OmniScanner™ , PentaScanner® , CertiFiber™ and DiscPort® . Microtest is headquartered at 4747 North 22nd Street, Phoenix, Arizona. Microtest's international offices are located in Munich, Germany, Crawley, United Kingdom and Singapore.
This press release includes statements, which may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements which are typically characterized by words as "expect," "believe," "anticipate," and the like (and in this release include references to future profitability), are subject to risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors which would cause or contribute to such differences include, but are not limited to, factors detailed in the Company's Securities and Exchange Commission filings, and include risks associated with the highly competitive nature of the industries in which it competes, the potential for downturns in economic or market conditions, the rapidly changing technology environment in which the Company competes, and the Company's ability to successfully develop and market products and services on an on-going basis.