<PAGE>
FORM 10-Q
- ---------
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, 1997
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
incorporation or organization) Identification No.)
The Boott Mill, 100 Foot of John Street, Lowell, Massachusetts 01852
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(Address of principal executive offices) (Zip Code)
(508)275-6100
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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, 1997
----- ----------------------------
Common Stock, $.01 par value 7,194,208
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SPACETEC IMC CORPORATION
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets as of June 30, 1997
and March 31, 1997........................................ 3
Condensed consolidated statements of operations for the
three months ended June 30, 1997 and 1996................. 4
Condensed consolidated statements of cash flows for the
three months ended June 30, 1997 and 1996................. 5
Notes to consolidated condensed financial statements as of
June 30, 1997............................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 8
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.......................... 12
SIGNATURES........................................................ 14
2
<PAGE>
Item I. Financial Statements
Spacetec IMC Corporation
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
June 30 March 31
1997 1997
----------------- ----------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 185 $ 170
Securities available-for-sale 9,864 10,059
Accounts receivable, net 1,814 2,285
Inventories 1,419 1,718
Prepaid expenses 241 275
Due from employees and officer 22 19
Income taxes receivable 353 438
-------- --------
Total current assets 13,898 14,964
Furniture and equipment, net 1,040 964
Intangible assets, net 346 382
Software development costs, net 217 265
Other assets 27 27
-------- --------
1,630 1,638
-------- --------
Total assets $ 15,528 $ 16,602
======== ========
Liabilities and shareholders' equity Current liabilities:
Accounts payable and accrued expenses $ 1,205 $ 1,267
Deferred revenue 65 75
-------- --------
Total current liabilities 1,270 1,342
Shareholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
7,369,208 and 7,366,508 shares issued and outstanding at June 30, 1997
and March 31, 1997, respectively 74 74
Additional paid-in capital 17,976 17,969
Deferred Compensation (40) (40)
Unrealized gain on available-for-sale securities 55 46
Accumulated deficit (2,757) (2,033)
Treasury stock, at cost; 175,000 shares and 100,000 shares at June 30, 1997
and March 31, 1997, respectively (1,050) (756)
-------- --------
Total shareholders' equity 14,258 15,260
-------- --------
Total liabilities and shareholders' equity $ 15,528 $ 16,602
======== ========
</TABLE>
Note: The balance sheet at March 31, 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 to condensed consolidated financial statements.
3
<PAGE>
Spacetec IMC Corporation
Condensed Consolidated Statements of Operations
Unaudited
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1997 1996
------- -------
<S> <C> <C>
Revenues $ 2,083 $ 1,852
Cost of revenues 662 561
------- -------
1,421 1,291
Operating expenses:
Selling and marketing 1,054 735
Research and development 862 530
General and administrative 368 365
------- -------
Total operating expenses 2,284 1,630
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Loss from operations (863) (339)
Interest income (139) (196)
------- -------
Loss before income taxes (724) (143)
Income tax benefit -- (50)
------- -------
Net loss $ (724) $ (93)
======= =======
Net loss per share $ (0.10) $ (0.01)
======= =======
Weighted average common shares outstanding 7,238 7,277
======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Spacetec IMC Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
(in thousands)
<TABLE>
<CAPTION>
Three months ended
June 30
1997 1996
----- -----
<S> <C> <C>
Operating activities
Net loss $(724) $ (93)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 195 186
Changes in operating assets and liabilities:
Accounts receivable, net 471 95
Inventories 299 (133)
Prepaid expenses and other assets 34 (141)
Due from employees and officer (3) --
Income taxes receivable 85 --
Accounts payable and accrued expenses (62) (743)
Deferred revenue (10) 18
----- -----
Net cash provided by (used in) operating activities 285 (811)
Investing activities
Net sales of securities available-for-sale 204 523
Purchase of furniture and equipment (187) (298)
Purchase of intangible assets -- (50)
Software development costs -- (114)
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Net cash provided by investing activities 17 61
Financing activities
Proceeds from exercise of stock options 7 338
Stock repurchase (294) --
Additional offering costs -- (5)
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Net cash provided by (used in) financing activities (287) 333
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Net increase in cash and cash equivalents 15 (417)
Cash and cash equivalents at beginning of period 170 417
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Cash and cash equivalents at end of period $ 185 $ --
===== =====
Supplemental disclosure of cash flow information:
Income taxes paid $ 4 $ 235
===== =====
Non-cash investing and financing activities:
Unrealized gain on available-for-sale securities $ 55 $ --
===== =====
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(IN THOUSANDS)
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 adjustments necessary for a fair presentation of the
financial condition, results of operations, and cash flows for the periods
presented have been included. Operating results for the three month period ended
June 30, 1997 are not necessarily indicative of the results that may be expected
for the year ended March 31, 1998. The Company suggests that these interim
consolidated condensed 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, 1997.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30 MARCH 31
1997 1997
-------------------
<S> <C> <C>
MATERIALS $1,014 $1,133
WORK-IN-PROCESS 28 31
FINISHED GOODS 377 554
-------------------
$1,419 $1,718
===================
</TABLE>
3. LOSS PER COMMON SHARE
Net loss per common share is based on the weighted-average number of common
shares outstanding during each of the periods. Common equivalent shares from
stock options are excluded as their effect is antidilutive.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings Per Share (FAS 128), which will be adopted on December 31, 1997.
FAS 128 requires companies to change the method currently used to compute
earnings per share and to restate all prior periods for comparability. The
adoption of FAS 128 is not expected to have any impact on the Company's earnings
per share as the Company continues to be in a net loss position and,
consequently, common equivalent shares from stock options are excluded as their
effect is antidilutive.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. ACQUISITION OF SPATIAL SYSTEMS LTD.
On April 19, 1997, the Company initiated a tender offer to purchase all of the
outstanding shares of Spatial Systems Ltd. ("SSL") from SSL's stockholders in
exchange for shares of Common Stock of the Company. For each fifteen shares of
SSL, the SSL shareholders will receive two shares of the Company's Common Stock,
and for every option to purchase twelve shares of SSL, the option holder will
receive one share of the Company's Common Stock. The tender offer ended on July
18, 1997. As a result of the tender offer, all shares of Common Stock of the
Company owned by SSL will be canceled. The tender offer, together with the
cancellation of the shares of the Company's Common Stock owned by SSL, will not
affect the number of shares outstanding of the Company.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
Revenues:
Revenues increased 12.5% to $2,083,000 for the three months ended June 30, 1997
(the "current quarter") from $1,852,000 for the three months ended June 30, 1996
(the "prior quarter"). Export sales, all of which are denominated in U.S.
dollars, increased 2.0% to $522,000 in the current quarter from $514,000 in the
prior quarter.
Sales to the industrial market grew by 13.3% to $1,700,000 in the current
quarter from $1,500,000 in the prior quarter. While revenues in the industrial
market increased slightly compared to the prior quarter, sales expectations were
not met as a result of slower than anticipated market penetration in the CAD
business.
Software and licensing revenues totaled $97,000 for the current quarter, a
decrease of 77.3% from the prior quarter revenues of $428,000. These revenues
are discrete in nature, and can vary from quarter to quarter. The prior quarter
included a one-time non-recurring license fee.
Consumer sector revenues of the SpaceOrb 360 Real Life 3D game controller and
other consumer related revenue totaled $251,000 for the first quarter of fiscal
1998.
As part of the corporate strategy, partnerships and Original Equipment
Manufacturer ("OEM") relationships with a number of companies are being
aggressively pursued. In the coming quarters, the Company will continue to place
an emphasis on attracting potential partners to assist in capitalizing on its
technology. However, there is no assurance that these relationships will be able
to generate substantial revenue.
Gross Profit:
Gross profit, representing revenues less cost of revenues (including costs of
materials, costs of manufacturing overhead, royalties, and amortization of
capitalized software) increased 10.1% to $1,421,000 in the current quarter from
$1,291,000 in the prior quarter, and represented 68.2% of current quarter
revenues versus 69.7% of prior quarter revenues. As the Company continues to
shift its sales mix from direct to OEM channels for industrial products, and
increases the percentage of sales derived from consumer products, it is expected
that the gross profit percentage will continue to be below the Company's
traditional levels. The Company's expectations regarding the decline in gross
profit percentage is a forward looking statement. There can be no assurance
that such decreases in profit will not be greater than anticipated.
8
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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 include personnel costs, advertising and
marketing costs, sales commissions and trade show expenses, increased 43.4% to
$1,054,000 in the current quarter from $735,000 in the prior quarter, and
represented 50.6% of current quarter revenues up from 39.7% of prior quarter
revenues. The increase is primarily due to expenses related to the Company's
entry into the consumer market, and the opening of additional sales offices in
Germany and North America. Going forward, the Company expects the change in
selling and marketing expenses to be more closely aligned with the change in
revenues.
General and Administrative Expenses:
General and administrative expenses, which include the costs of the Company's
finance, human resources and administrative functions increased less than 1% to
$368,000 in the current quarter from $365,000 in the prior quarter, and
represented 17.7% of current quarter revenues and 19.7% of prior quarter
revenues. Management anticipates that these costs will remain stable in future
quarters.
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 62.6% to $862,000 for the current
quarter from $530,000 in the prior quarter, and represented 41.4% of current
quarter revenues and 28.6% of prior quarter revenues. The increase reflects
significant investments in personnel necessary to expand the software product
development efforts, particularly in developing software for stand-alone revenue
generation, as well as engineering efforts designed to lower the cost of
manufacturing the Company's hardware components. The Company expects a slight
increase in its research and development expense throughout the next quarter,
and stabilization thereafter.
Provision for Income Taxes:
As the Company has recognized losses, it has not recorded a provision for income
taxes. The benefit attributable to carryback of losses to prior years was fully
utilized during the fiscal year ended March 31, 1997.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents and securities
available for sale of $10,049,000 and working capital of $12,628,000 versus
$10,229,000 and $13,622,000, respectively, at March 31, 1997.
Operating activities provided the Company with $285,000 in cash in the current
quarter, as compared to using $811,000 in the prior quarter. This increase in
cash was primarily due to a reduction in accounts receivable of $471,000, as
well as a $299,000 reduction in inventories. Additionally, $85,000 of income tax
refunds was also received in the current quarter.
Net cash provided to the Company in the current quarter from investing
activities totaled $17,000 versus $61,000 in the prior year. The primary reason
for the decrease was a decrease in proceeds from securities available for sale.
The decrease was offset by reduced expenditures for furniture and equipment
($187,000 in the current quarter versus $298,000 in the prior quarter), and the
absence of additions to intangible assets and any capitalization of software
development costs.
Financing activities used $287,000 of net cash in the current quarter primarily
as a result of the Company repurchasing its stock. The amount paid for the
repurchase of stock was partially offset by the proceeds from the exercise of
employee stock options.
The Company believes that its existing cash and investment securities together
with future 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 in 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 at present any agreements
or commitments other than the transaction disclosed in Note 4 to the condensed
consolidated financial statements with respect to any such additional
acquisitions; 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 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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1997.
11
<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/ Neil Rossen August 11, 1997
------------------------------------- ---------------
Neil Rossen-Chief Financial Officer, Date
Senior Vice President of Finance
12
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
During the quarter ended June 30,1997, the Company filed with the Commission on
May 15, 1997 a report on Form 8-K which reported that the Company's Board of
Directors authorized the repurchase of up to 1,000,000 shares of the Company's
common stock on the open market or in negotiated transactions, depending upon
market conditions and other factors.
The following exhibits are included herein:
(11) Statement re: computation of earnings per share
(27) Financial Data Schedule
13
<PAGE>
Exhibit (11)-Statement Re: Computation of Loss Per Share
<TABLE>
<CAPTION>
Three months ended
June 30
1997 1996
------- -------
(in thousands, except per share data)
<S> <C> <C>
Primary and Fully Diluted:
Average shares outstanding 7,267 7,277
Average treasury shares outstanding (29) --
Net effect of dilutive stock options-based on
the treasury stock method using average
market price -- --
------- -------
Totals 7,238 7,277
======= =======
Net loss $ (724) $ (93)
======= =======
Per share amount $ (0.10) $ (0.01)
======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 185
<SECURITIES> 9,864
<RECEIVABLES> 2,017
<ALLOWANCES> 203
<INVENTORY> 1,419
<CURRENT-ASSETS> 13,898
<PP&E> 1,720
<DEPRECIATION> 680
<TOTAL-ASSETS> 15,528
<CURRENT-LIABILITIES> 1,270
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 14,184
<TOTAL-LIABILITY-AND-EQUITY> 15,528
<SALES> 2,083
<TOTAL-REVENUES> 2,083
<CGS> 662
<TOTAL-COSTS> 662
<OTHER-EXPENSES> 2,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (724)
<INCOME-TAX> 0
<INCOME-CONTINUING> (724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (724)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
