<PAGE>
FORM 10-Q
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
or the transition period from ______ to _______
Commission file number 0-27302
___________________________________________
SPACETEC IMC CORPORATION
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(Exact name of registrant as specified in its charter)
Massachusetts 04-3116697
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(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) No.)
The Boott Mill, 100 Foot of John Street, Lowell, Massachusetts 01852
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(Address of principal executive offices) (Zip Code)
(508) 970-0330
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(Registrant's telephone number, including area code)
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 each of the issuer's classes of common stock
as of
Class Outstanding at June 30, 1996
----- ----------------------------
Common Stock, $.01 par value 7,349,908
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SPACETEC IMC CORPORATION
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of June 30, 1996 and
March 31, 1996.................................................................... 3
Condensed consolidated income statements for the three months
ended June 30, 1996 and 1995...................................................... 4
Condensed consolidated statements of cash flows for the three
months ended June 30, 1996 and 1995............................................... 5
Notes to condensed consolidated financial statements-June 30, 1996................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings-None
Item 2. Changes in Securities-None
Item 3. Defaults upon Senior Securities-None
Item 4. Submission of Matters to a Vote of Security Holders-None
Item 5. Other Information-None
Item 6. Exhibits and Reports on Form 8-K................................................. 11
SIGNATURES............................................................................... 12
</TABLE>
2
<PAGE>
ITEM I. FINANCIAL STATEMENTS (UNAUDITED)
Spacetec IMC Corporation
Condensed Consolidated Balance Sheets
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents - $ 417
Securities available-for-sale $ 15,097 15,620
Accounts receivable, net 2,017 2,112
Inventories 542 409
Prepaid expenses 408 332
Deferred income taxes 100 100
-------------- ---------------
Total current assets 18,164 18,990
Furniture and equipment, net of accumulated depreciation of $453
and $373 at June 30, and March 31, 1996, respectively 1,088 870
Intangible assets, net of accumulated amortization of $343 and $303
at June 30, and March 31, 1996, respectively 526 516
Software development costs, net of accumulated amortization of $238
and $172 at June 30, and March 31, 1996, respectively 743 695
Other assets 102 37
-------------- ---------------
2,459 2,118
-------------- ---------------
Total assets $ 20,623 $ 21,108
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 732 $ 1,475
Deferred revenue 30 12
-------------- ---------------
Total current liabilities 762 1,487
Deferred income taxes 320 320
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized
at June 30, and March 31, 1996 - -
Common stock, voting, $.01 par value; 20,000,000 authorized shares;
7,349,908 and 7,240,908 shares issued and outstanding at June 30,
and March 31, 1996, respectively 73 72
Additional paid-in capital 17,872 17,540
Retained earnings 1,596 1,689
-------------- ---------------
Total shareholders' equity 19,541 19,301
-------------- ---------------
Total liabilities and shareholders' equity $ 20,623 $ 21,108
============== ===============
</TABLE>
See accompanying notes
3
<PAGE>
Spacetec IMC Corporation
Condensed Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
JUNE 30,
1996 1995
---------- ----------
<S> <C> <C>
Revenues $ 1,852 $ 1,786
Cost of revenues 561 395
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1,291 1,391
Operating expenses:
Selling and marketing 735 598
Research and development 530 375
General and administrative 365 193
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Total operating expenses 1,630 1,166
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Income (loss) from operations (339) 225
Interest income (196) (7)
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Income (loss) before income taxes (143) 232
Income tax provision (benefit) (50) 81
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Net income (loss) $ (93) $ 151
========== ==========
Net income (loss) per share $ (0.01) $ 0.03
========== ==========
Weighted average common shares outstanding 7,277 6,017
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES
4
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Spacetec IMC Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (93) $ 151
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities:
Depreciation and amortization 186 123
Changes in operating assets and liabilities:
Accounts receivable, net 95 (294)
Inventories (133) (44)
Prepaid expenses and other assets (141) (44)
Accounts payable and accrued expenses (743) (66)
Deferred revenue 18 (14)
------------ ------------
Net cash used in operating activities (811) (188)
INVESTING ACTIVITIES
Net sales of securities available-for-sale 523 700
Purchase of furniture and equipment (298) (50)
Purchase of intangible assets (50) (32)
Software development costs (114) (53)
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Net cash provided by investing activities 61 565
FINANCING ACTIVITIES
Proceeds from exercise of stock options 338 -
Additional offering costs (5) -
Repayment of capital lease obligation - (2)
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Net cash provided by (used in) financing activities 333 (2)
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Net increase (decrease) in cash and cash equivalents (417) 375
Cash and cash equivalents at beginning of period 417 7
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Cash and cash equivalents at end of period - $ 382
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid $ 235 $ 98
============ ============
Interest paid - $ 1
============ ============
</TABLE>
See accompanying notes
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended March 31, 1997. The Company suggests that these interim condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended March 31, 1996.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1996 1996
----------------------
<S> <C> <C>
MATERIALS $268 $190
WORK-IN-PROCESS 132 116
FINISHED GOODS 142 103
----------------------
$542 $409
======================
</TABLE>
3. COMMITMENTS
In order to meet the seasonal demand of certain of the Company's products, the
Company had a non cancelable purchase commitment for inventory at June 30, 1996
totaling approximately $658. Such commitment expires in less than twelve
months.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996
REVENUES:
Revenues increased 3.7% to $1,852,000 for the three months ended June 30, 1996
("current quarter") from $1,786,000 for the three months ended June 30, 1995
("prior quarter"). International sales decreased 13.0% to $514,000 in the
current quarter from $591,000 in the prior quarter. During the current quarter,
the Company entered into an exclusive licensing and manufacturing agreement with
ACSII Entertainment Software, Inc. ("ASCII"), under which ASCII will purchase
the Company's proprietary and patented Spaceball PowerSensor and Eclipse-1 ASIC
technologies to be utilized in the development and manufacture of an advanced 3D
game controller for the Sony PlayStation.
Sales to the Industrial market were negatively impacted by slower than expected
sales to both domestic and international CAD customers. Additionally, the
introduction of the Spaceball 3003 ("3003"), a new lower priced input device for
workstation-based mechanical design and engineering applications, negatively
affected the sales of the higher priced Spaceball 2003 ("2003"), although the
Company had expected that the lower cost 3003 would encourage bundling by the
Company's OEM customers and increase unit sales enough to offset the negative
price impact. The Company is in the process of launching various marketing
programs for the lower priced 3003 to increase the unit sales of this product
through OEM and VAR channels.
Gross Profit:
Gross profit, representing revenues less cost of revenues (including costs of
materials, costs of manufacturing overhead, royalties, and amortization of
capitalized software) decreased 7.2% to $1,291,000 in the current quarter from
$1,391,000 in the prior quarter and represented 69.7% and 77.9% of revenues,
respectively. The decline in gross profit as a percentage of revenues was due
in part to increased amortization of capitalized software costs amounting to
$67,000 in the current quarter versus $30,000 in the prior quarter. In
addition, the Company recaptured approximately $45,000 in royalty expenses in
the prior quarter pursuant to a revised royalty agreement related to Panacea,
Inc., a wholly owned subsidiary of the Company.
As the Company shifts its sales mix from direct to OEM channels for industrial
products, and increases the percentage of sales derived from consumer products,
which have lower gross margins, it is expected that the gross profit percentage
will continue to decline. The decline is expected to be partially offset as the
Company begins to integrate a new generation of PowerSensor technology which is
anticipated to lower the cost of manufacturing under volume production. There
can be no assurance that unanticipated development issues will not arise with
respect to this new technology as the Company initiates volume production.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Selling and Marketing Expenses:
Selling and marketing expenses, which includes personnel costs, advertising
costs, sales commissions and trade show expenses increased 22.9% to $735,000 in
the current quarter from $598,000 in the prior quarter, and represented 39.7%
and 33.5% of revenues, respectively. The increase is primarily due to the costs
in the current quarter to develop the extensive launch program for the SpaceOrb
360 as well as increased advertising and promotion in the Industrial
marketplace.
The Company does not expect selling and marketing expenses to decline as a
percentage of revenues during the fiscal year ending March 31, 1997 due to the
increased selling and marketing activity in existing markets, and investments in
market development and sales and marketing infrastructure necessary to penetrate
new markets, particularly the PC CAD, Multimedia and Consumer markets.
General and Administrative Expenses:
General and administrative expenses, which include the costs of the Company's
finance, human resources and administrative functions increased 89.1% to
$365,000 in the current quarter from $193,000 in the prior quarter, and
represented 19.7% and 10.8% of sales for such periods, respectively. The
increase is associated with increased personnel costs in order to expand the
administrative infrastructure as well as an increase in professional fees
resulting from becoming a public company.
Research and Development Expenses:
Research and development expenses, which consist primarily of personnel and
equipment costs required to conduct the Company's software and hardware
development and engineering efforts, increased 41.3% to $530,000 for the current
quarter from $375,000 in the prior quarter, and represented 28.6% and 21.0% of
revenues, respectively. The increase reflects significant investments in
personnel and consultants necessary to expand the software product development
efforts, particularly in the Consumer, Multimedia and PC CAD market, engineering
efforts designed to lower the cost of manufacturing the Company's hardware
components and additional rent and depreciation expense allocated to research
and development. The Company capitalized software development expenditures of
$114,000 for the current quarter versus $53,000 in the prior quarter.
Provision for Income Taxes:
The Company's effective tax rate is estimated at 35.0% for the current quarter
versus 35.1% in the prior quarter.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company had cash and cash equivalents and securities
available for sale of $15,097,000 and working capital of $17,402,000 versus
$16,037,000 and $17,503,000, respectively at March 31, 1996.
The Company used $811,000 to fund operating activities in the current quarter
versus $188,000 in the prior quarter. The increase is primarily attributable to
the net loss of $93,000 and the decrease in accounts payable and accrued
expenses of $743,000 in the current quarter. As the Company enters the Consumer
marketplace, it expects that inventory levels will increase substantially in
order to meet the seasonal requirements of this market. As a consequence, the
Company has committed to purchase material amounts of inventories to meet
anticipated sales demand.
Net cash provided to the Company in the current quarter from investing
activities totaled $61,000 versus $565,000 in the prior quarter. The primary
reasons for the decrease was increased expenditures for furniture and equipment
(primarily computer equipment and additional investments in tools and dies for
high volume, low cost manufacturing of the Company's hardware components) and
increased expenditures for intangible assets (primarily patents) and increased
software development costs. These increases were offset by a decrease in
proceeds from securities available for sale.
Financing activities provided $333,000 of net cash in the current quarter
primarily from the proceeds from the exercise of employee stock options.
The Company believes that the proceeds from the sale of its Common Stock,
together with existing sources of liquidity and anticipated funds from
operations, will satisfy its projected working capital and other cash
requirements through the end of its fiscal year ending March 31, 1998.
Substantial funds will be required to continue software and hardware
development, as well as to develop the sales and marketing infrastructure,
distribution channels and market awareness to enter the PC Multimedia and
Consumer marketplaces. The Company believes the level of financial resources
available to it is an important competitive factor in its industry and may seek
additional capital prior to the end of that period. In addition, the Company
may consider potential acquisitions of technologies and businesses complementary
to the Company's business. There are not present agreements or commitments with
respect to any such acquisition; however, any such transaction may affect the
Company's future capital needs.
The Company's capital requirements will depend on many factors, including the
rate at which the Company can develop its products, the market acceptance of
such products, the levels of promotion and advertising required to launch such
products and attain a competitive position in the marketplace, and the amount of
capital necessary for potential acquisitions. Changes in technology or growth
in revenues beyond currently established capabilities will also require
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
further investment. To the extent that the Company's current financial resources
are insufficient to fund the Company's operating requirements, it may be
necessary for the Company to seek additional funding through public or private
financing. There can be no assurance that additional financing will be available
on acceptable terms or at all. If additional funds are raised by issuing equity
securities, further dilution to the existing stockholders may result. If
adequate funds are not available, the Company's business would be materially
adversely affected, and, as a result, the Company may be required to curtail its
operations significantly.
SAFE HARBOR STATEMENT
Statements which are not historical facts, including statements about our
confidence and strategies and our expectations about new and existing products,
technologies and opportunities, market and industry segment growth, demand and
acceptance of new and existing products, and return on investments in products
and markets are forward looking statements that involve risks and uncertainties.
These uncertainties include, but are not limited to, product demand and market
acceptance risks; the impact of competitive products and pricing; product
development, commercialization and technological delays or difficulties,
including delays or difficulties in developing, producing, testing and selling
new products and technologies; capacity and supply constraints or difficulties;
trade, legal, social, and economic risks, such as import, licensing, and trade
restrictions, including those affecting international trade; and other risks
detailed in the Company's Securities and Exchange Commission filings, including
its Proxy Statement and Form 10-K for the fiscal year ended March 31, 1996.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on form 8-K during the three months ended
June 30, 1996.
The following exhibits are included herein:
(II) Statement re: computation of earnings per share
11
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EXHIBIT (11)-STATEMENT RE: COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
JUNE 30,
1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRIMARY:
<S> <C> <C>
Average shares outstanding 7,277 1,364
Net effect of dilutive stock options-based on
the treasury stock method using average
market price - 502
Assumed conversion of Series A and B
preferred stock 4,152
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Totals 7,277 6,018
============= =============
Net income (loss) $ (93) $ 151
============= =============
Per share amount $ (0.01) $ 0.03
============= =============
FULLY DILUTED:
Average shares outstanding 7,277 1,364
Net effect of dilutive stock options-based on
the treasury stock method using average
market price which is greater than quarter-end
market price - 502
Assumed conversion of Series A and B
preferred stock - 4,152
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Totals 7,277 6,018
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Net income (loss) $ (93) $ 151
============= =============
Per share amount $ (0.01) $ 0.03
============= =============
</TABLE>
12
<PAGE>
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.
Spacetec IMC Corporation
__________________________________
(Registrant)
By /s/ Linda S. Linsalata 8/12/96
-------------------------------------------- ----------------
Linda S. Linsalata-Chief Financial Officer, Date
Senior Vice President of Finance and Director
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 15,097
<RECEIVABLES> 2,153
<ALLOWANCES> 136
<INVENTORY> 542
<CURRENT-ASSETS> 18,164
<PP&E> 1,541
<DEPRECIATION> 453
<TOTAL-ASSETS> 20,623
<CURRENT-LIABILITIES> 762
<BONDS> 0
0
0
<COMMON> 73
<OTHER-SE> 19,468
<TOTAL-LIABILITY-AND-EQUITY> 20,623
<SALES> 1,852
<TOTAL-REVENUES> 1,852
<CGS> 561
<TOTAL-COSTS> 561
<OTHER-EXPENSES> 1,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (143)
<INCOME-TAX> (50)
<INCOME-CONTINUING> (93)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (93)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
