<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
{x} QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
{ }TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From to
---- ----
---------------------
Commission File Number 1-14198
DIGITAL TRANSMISSION SYSTEMS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 58-2037949
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3000 NORTHWOODS PARKWAY, BUILDING 330, NORCROSS, GA 30071
(Address of principal executive office) (Zip Code)
(770) 798-1300
(Issuer's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
proceeding 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 as of
September 30, 1996 was 3,959,528.
Transitional Small Business Disclosure Format (check one): Yes { } No {x}
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DIGITAL TRANSMISSION SYSTEMS INC.
FORM 10-QSB
For the Quarter Ended September 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets at September 30, 1996 (Unaudited) and June 30, 1996 3
Statements of Operations for the Three Months
ended September 30, 1996 and 1995(Unaudited)
4
Statements of Cash Flows for the Three Months Ended
September 30, 1996 and 1995 (Unaudited)
5
Notes to Interim Financial Statements (Unaudited)
6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
7
PART II. OTHER INFORMATION
Items 1 - 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit 10.1 Employee Stock Purchase Plan 14
Exhibit 11.1 Statement of Computation of per share loss 22
Exhibit 27.0 Financial Data Schedule (SEC use only) 23
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
Digital Transmission Systems, Inc.
Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, 1996
Unaudited June 30, 1996
------------------ --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 654 $ 1,586
Investment securities 1,000 2,001
Trade accounts receivable, net of allowances of $65 and
$50 at September 30 and June 30, 1996, respectively 3,583 3,595
Other receivables 120 75
Inventories 3,822 2,341
Prepaid expenses 341 262
Deferred tax benefit 250 250
-------- --------
Total current assets 9,770 10,110
-------- --------
Property and equipment, net of accumulated
depreciation and amortization 585 445
-------- --------
Other Assets
Deferred tax benefit 35 35
Capitalized product development 760 207
Intangible assets 145 161
Other assets 26 26
-------- --------
Total assets $ 11,321 $ 10,984
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable - trade $ 2,783 $ 1,901
Accrued liabilities 475 376
Warranty accrual 95 102
-------- --------
Total current liabilities 3,353 2,379
-------- --------
Shareholders' equity:
Preferred stock; 3,000,000 shares authorized;
0 issued and outstanding -- --
Common stock -- $.01 par value; 15,000,000 shares authorized;
3,959,528 and 3,920,700 issued and outstanding
at September 30 and June 30, 1996, respectively 40 39
Additional paid-in capital 11,164 11,137
Deferred compensation (176) (188)
Accumulated deficit (3,060) (2,383)
-------- --------
Total shareholders' equity 7,968 8,605
Commitments and contingencies
-------- --------
7,968 8,605
-------- --------
Total liabilities and shareholders' equity $ 11,321 $ 10,984
======== ========
</TABLE>
See accompanying notes to financial statements.
Page 3
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Digital Transmission Systems, Inc.
STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------
1996 1995
Unaudited Unaudited
---------- ------------
<S> <C> <C>
Net sales $ 3,000 $ 1,905
Cost of sales 1,723 1,072
-------- --------
Gross profit 1,277 833
-------- --------
Selling, general and administrative 1,302 983
Product development 727 580
-------- --------
Total operating expenses 2,029 1,563
-------- --------
Operating income (loss) (752) (730)
Other income (expense), net 75 (9)
-------- --------
Income (loss) before income tax expense (677) (739)
Income tax benefit (expense) -- --
======== ========
Net loss $ (677) $ (739)
======== ========
Accretion of redemption value and
dividends accrued on redeemable convertible
preferred stock -- 85
-------- --------
Net loss attributable to
common shareholders (677) (824)
======== ========
Net loss per common and common
equivalent shares for 1996 and per pro forma
common shares for 1995 (see note 2) $ (0.17) $ (0.28)
======== ========
Weighted average common and common
equivalent shares outstanding for 1996 and
pro forma shares outstanding for 1995 3,921 2,655
======== ========
</TABLE>
See accompanying notes to financial statements.
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Digital Transmission Systems, Inc.
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------
1996 1995
Unaudited Unaudited
---------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (677) $ (739)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 138 89
Change in valuation reserves 15 --
Amortization of deferred compensation expense 12 --
Changes in assets and liabilities:
Trade and other accounts receivable (48) 434
Inventories (1,481) (32)
Prepaid expenses (79) 5
Trade accounts payable 882 240
Accrued liabilities 99 (170)
Warranty reserve (7) --
Other -- --
-------- --------
Net cash used in operating activities (1,146) (173)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (261) (77)
Additions to capitalized product development costs (554) --
Proceeds from maturity of investment securities 1,001 --
-------- --------
Net cash provided by (used in) investing activities 186 (77)
-------- --------
Cash flows from financing activities:
Net borrowings under
line of credit agreement -- 300
Proceeds from exercise of stock options 28 --
-------- --------
Net cash provided by financing activities 28 300
-------- --------
Net increase (decrease) in cash and cash equivalents (932) 50
Cash and cash equivalents at beginning of year 1,586 1,357
======== ========
Cash and cash equivalents at end of year $ 654 $ 1,407
======== ========
Supplemental disclosure of cash paid for income taxes and interest
Cash paid for income taxes $ 1 $ --
Cash paid for interest $ 1 $ 13
</TABLE>
See accompanying notes to financial statements.
Page 5
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DIGITAL TRANSMISSION SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 1996
Unaudited
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Digital Transmission Systems, Inc. (the "Company") designs, manufactures,
markets and services a broad range of products for the telecommunications
industry. The Company's primary customers are long distance carriers and
wireless service providers. The Company's products, consisting of proprietary
software and hardware modules, facilitate the control, monitoring and efficient
transmission of high-speed digital information through public or private
telecommunications networks.
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 to Form 10-QSB.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The financial information included herein is unaudited; however, the
information reflects all adjustments (consisting solely of normal recurring
adjustments) that are, in the opinion of management, necessary for a fair
presentation of the financial position, results of operations and cash flows
for the interim periods. Operating results for the three months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the year ended June 30, 1997. For further information, refer to
the financial statements and footnotes thereto included in the Company's Form
10-KSB for the year ended June 30, 1996.
There have been no changes to the accounting policies of the Company during the
periods presented. For a description of these policies, see Note 1 of the
Notes to Financial Statements in the Company's Annual Report on Form 10-KSB.
2. INCOME (LOSS) PER COMMON SHARE
Net income (loss) per share for the three months ended September 30, 1996, is
computed using the weighted average number of outstanding shares of common
stock and common stock equivalents (when dilutive). Common stock equivalents
consist of the Company's common stock issuable upon the exercise of stock
options and warrants using the treasury stock method. Net income (loss) per
share computed on a fully diluted basis is not significantly different than the
weighted average number of shares computed using the primary method described
above.
For the three months ended September 30, 1995, net income (loss) per share is
computed using pro forma shares outstanding, giving effect to the conversion of
1,813,289 shares of redeemable convertible preferred stock into an equal number
of shares of common stock in conjunction with the Company's public stock
offering on March 4, 1996. Additionally, the pro forma earnings per share
gives effect to the issuance of 69,383 shares of common stock in exchange as
partial consideration for accrued dividends on preferred stock.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Digital Transmission Systems, Inc. (DTS) designs, manufactures, markets and
services a broad range of telecommunications products worldwide. The Company's
primary customers are long distance carriers and wireless service providers.
The Company's products, consisting of proprietary software and hardware
modules, facilitate the control, monitoring and efficient transmission of
high-speed digital information through public or private telecommunications
networks.
DTS has been and currently is a major supplier for T1 and T3 network control
systems to MCI and T1 network control systems to Sprint. Sales to MCI have been
significant in each of the last four fiscal years. MCI sales accounted for
63% of net sales for the year ended June 30, 1996, down from 84% in the
previous year. The Company's strategy for the past two years, while maintaining
its established relationships with MCI and Sprint, has been to leverage its
technology and develop new network access products and sales channels for
domestic and international markets. As part of that strategy, the Company has
focused its direct sales force on the wireless infrastructure market in the
U.S. and has engaged resellers for the telecommunications markets of developing
countries in Latin America, Asia and Eastern Europe. The result of this
marketing strategy is reflected in the growth in sales of the newer network
access products - FlexT1/E1, SKYPLEX and SKYPLEX II/FlexAir.
Results of Operations
Three Months Ended September 30, 1996 and September 30, 1995
The following table sets forth certain financial data derived from the
Company's statement of operations for the three months ended September 30, 1996
and September 30, 1995.
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1996 September 30, 1995
----------------------- ------------------------
% of % of
$ Sales $ Sales
------ ----- ------ -----
<S> <C> <C> <C> <C>
Net sales $3,000 100 $1,905 100
Gross profit 1,277 43 833 44
Product development 727 24 580 30
Selling, general and administrative 1,285 43 983 52
Net income (loss) (677) (23) (739) (39)
</TABLE>
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Net Sales. Net sales increased by 57%, to $3,000,000 for the three months
ended September 30, 1996 from $1,905,000 for the three months ended September
30, 1995. The sales mix, and the corresponding percentage of total sales of the
Company's products, is set forth in the chart below:
<TABLE>
<CAPTION>
Percentage of
total
Three months ended Three months ended
September 30, September 30,
1996 1995 1996 1995
------ ----- ---- ----
<S> <C> <C> <C> <C>
MCI network control $1,340 $1,353 45 71
Other network control 371 235 12 12
FlexT1/E1 584 94 20 5
SKYPLEX and SKYPLEX II/FlexAir 605 26 20 2
DIV modem 94 173 3 9
Other products 6 24 0 1
</TABLE>
For the three months ended September 30, 1996 and 1995, MCI accounted for 45%
and 71% of net sales, respectively. Results for the three months ended
September 30, 1996 reflect a shift in product mix to the Company's newer
products- FlexT1/E1, SKYPLEX and SKYPLEX II/FlexAir. The Company's recently
developed FlexT1/E1 product accounted for 19% of sales for the three months
ended September 30, 1996, as compared to 5% for the three months ended
September 30, 1995. The SKYPLEX and SKYPLEX II/FlexAir line accounted for 20%
of sales for the three months ended September 30, 1996, reflecting sales to
markets in Latin America and Asia, up from 1% of sales for the three months
ended September 30, 1995.
Gross Profit. Cost of sales consists of component costs, compensation costs
and the overhead costs related to the production and shipping of the Company's
products, along with the support and warranty expense associated with such
products. Gross profit increased by 53%, to $1,277,000 for the three months
ended September 30, 1996 from $833,000 for the three months ended September 30,
1995. As a percentage of sales, gross profit decreased slightly to 43% for the
three months ended September 30, 1996 from 44% for the three months ended
September 30, 1995.
Product Development. Product development expense consists of personnel costs,
consulting, prototyping, supplies and depreciation expenses. Product
development expenses increased by 25%, to $727,000 for the three months ended
September 30, 1996 from $580,000 for the three months ended September 30, 1995.
Additionally, the Company incurred $520,000 of costs of sub-contracted
development that were capitalized. This increase resulted from increased
engineering investment in new products for the FlexT1/E1 and FlexAir product
lines. Management expects that this trend of increasing product development
expense will continue as the Company further develops its product lines. As a
percentage of sales, product development costs were 24% for the three months
ended September 30, 1996 and 30% for the three months ended September 30, 1995.
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Selling, General and Administrative. Selling expense consists primarily of
compensation costs for sales and marketing personnel, travel, consulting, trade
show and advertising expenses. General and administrative expense consists
primarily of compensation expenses for administrative and finance personnel, as
well as accounting, legal and consulting fees. Selling, general and
administrative expense increased by 28%, to $1,285,000 for the three months
ended September 30, 1996 from $1,005,000 for the three months ended September
30, 1995. Total selling, general and administrative costs were 43% of total
sales for the three months ended September 30, 1996, which was down from 53% of
sales for the three months ended September 30, 1995. Selling expense increased
by 70%, to $759,000 for the three months ended September 30, 1996 from $447,000
for the three months ended September 30, 1995. This increase was due primarily
to the hiring of international sales staff and expansion of the Company's
international sales efforts. Management expects to continue to expand the
Company's international and domestic sales and marketing effort and intends to
increase the Company's sales and marketing expenditures. Marketing
expenditures decreased from $340,000 to $247,000 during the same period,
primarily due to the timing of certain advertising costs which will occur later
in the fiscal year. General and administrative expenses increased by 28%, to
$279,000 for the three months ended September 30, 1996 from $218,000 for the
three months ended September 30, 1995. This increase is a result of recruiting
costs incurred in the first quarter for new management and staff, as well as
general increases in costs to support the 57% increase in revenues.
Net Loss. The net loss decreased to $677,000 for the three months ended
September 30, 1996 from $739,000 for the three months ended September 30, 1995.
This improvement was the result of an increase in gross profit of $444,000,
related to the increase in total sales, with a corresponding net increase in
all other expenses of only $382,000.
Page 9
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Liquidity and Capital Resources
At September 30, 1996, the Company had approximately $1,654,000 in cash and
short-term investments.
The Company has a bank line of credit in place with SunTrust Bank, Atlanta which
makes available $1,200,000 in borrowings secured by the Company's accounts
receivable and $600,000 of investment securities. At September 30, 1996, there
were no outstanding borrowings on the line of credit. A commitment fee of one
quarter of one percent is due on the unused portion of the facility. The line of
credit agreement expires on October 31, 1997.
For the three months ended September 30, 1996, the Company used $1,146,000 in
cash from operating activities as compared to $173,000 for the same period the
previous year. This change of $973,000 was primarily due to an increase in
inventory of $1,481,000. During the quarter, the Company accelerated shipments
from its primary supplier, Comptronix Corporation, upon learning that
Comptronix had filed for bankruptcy protection. On October 22, 1996,
Comptronix received approval to be purchased by Sanmina Corporation of
California. The Company does not expect to experience any disruption in its
supply of products from Comptronix or any of its other suppliers. In addition,
$512,000 of cash was used in the Company's net loss for the period, as adjusted
for changes in depreciation, amortization and reserves. Cash outflows were
partially offset by increases in accounts payable and accrued liabilities of
$981,000.
The Company purchased $261,000 and $77,000 of property, plant and equipment
during the three months ended September 30, 1996 and 1995, respectively. In
addition, the Company capitalized certain product development expenses paid to
outside contractors. During the three months ended September 30, 1996, the
Company capitalized $554,000 of such costs. The Company realized cash from the
maturities of $1,001,000 of short-term investments during the three months
ended September 30, 1996, resulting in net cash flows provided by investing
activities to $186,000.
The Company expects its cash balances and available borrowing facilities will
be sufficient to fund its currently anticipated level of cash needs for the
next twelve months.
Seasonality
The Company's sales are subject to quarterly fluctuations mainly due to the
purchasing cycle of the Company's primary customer, MCI. The Company's
business plan is to continue the diversification of its product offerings,
further develop its distribution channels and further expand its customer base.
The Company believes that the implementation of this plan will decrease the
seasonality of its sales. The Company typically operates with a backlog of
orders for its network control equipment, but carries little backlog for the
FlexTl/E1 and FlexAir and other products.
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Important Considerations Related to Forward-Looking Statements
It should be noted that this discussion contains forward-looking statements
which are subject to substantial known and unknown risks and uncertainties.
There are a number of factors which could cause actual results to differ
materially from those anticipated in statements made herein. Such factors
include, but are not limited to, changes in general economic conditions, the
growth rate of the market for the Company's products and services, the effect
of competitive products and pricing, and the irregular pattern of revenues, as
well as a number of other risk factors which could affect the future
performance of the Company.
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Part II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit
Number Description of Exhibits
----- -----------------------
10.1 Stock Purchase Plan
11.1 Statement of computation of per
share earnings (loss)
27.0 Financial Data Schedule (for SEC use only)
(B) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the three months
ended September 30, 1996.
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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.
Digital Transmission Systems, Inc.
Date: November 14, 1996 By: Andres C. Salazar,
--------------------------
Andres C. Salazar,
President and
Chief Executive Officer
Date: November 14, 1996 By: Roger E. Maloch
--------------------------
Roger E. Maloch, Chief
Financial Officer,
Vice President of Finance
and Administration
(Principal Financial
Officer and Principal
Accounting Officer
Page 13
<PAGE> 1
Exhibit 10.1
DIGITAL TRANSMISSION SYSTEMS, INC.
EMPLOYEE STOCK PURCHASE PLAN
Digital Transmission Systems, Inc., a Delaware corporation
(hereinafter referred to as the "Sponsoring Employer" or as an "Employer"), has
adopted the following Employee Stock Purchase Plan for the benefit of its
eligible employees.
The number of shares of the Sponsoring Employer's $.0l par value
common stock (the "Common Stock") presently reserved for issuance under the
plan is 150,000 shares.
The purpose of this plan is to provide an opportunity for eligible
employees of an Employer to share in the growth and prosperity of the
Sponsoring Employer through acquisition of shares of the Common Stock.
The Company intends that options issued under this plan (hereinafter
"Options") constitute options issued pursuant to an "employee stock purchase
plan" within the meaning of Section 423 of the internal Revenue Code of 1986,
as amended (the "Code").
ARTICLE I
TITLE
SECTON 1.01 This plan shall be known as the Digital Transmission
Systems, Inc. 1996 Employee Stock Purchase Plan (hereinafter referred to as the
"Plan").
ARTICLE II
DEFINITIONS
As used herein, the following words and phrases shall have the
meanings specified below, unless a different meaning is plainly required by the
context, viz.:
SECTION 2.01 The term "Board of Directors" or "Board" shall mean
the Board of Directors of the Sponsoring Employer.
SECTION 2.02 The term "Closing Market Price" shall mean the price
paid in the last sale in the Nasdaq Stock Market's SmallCap Market (hereinafter
referred to as "NASDAQ") as reported by NASDAQ as of the applicable date;
provided that, if there shall be any material alteration in the present system
of reporting prices of such stock, or if such stock shall no longer be reported
by NASDAQ, the fair market value of the stock as of a particular date shall be
determined by such method as shall be specified by the Compensation Committee
of the Board and, provided further, that for so long as the
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common stock is only traded as part of a unit, the price of the common stock
shall be determined by using the price paid for a unit as described above and
attributing a price to the warrant as determined through the use of a
Black-Scholes option pricing model.
SECTION 2.03 The term "Continuous Service" shall mean an
Employee's number of completed days or months of continuous employment with an
Employer from his last hiring date to his date of severance of employment for
any reason. Continuous Service shall not be broken by reason of and shall be
credited for absence due to vacation, temporary sickness or "injury".
SECTION 2.04 The term "Contribution Account" shall mean the
account established on behalf of a Member to which shall be credited the amount
of the Member's contribution, pursuant to Article IV.
SECTION 2.05 The term "Employee" shall mean each current or future
employee of an Employer, except highly compensated employees of the Employer
(within the meaning of Section 414(q) of the Code), whose customary employment
is at least twenty (20) hours a week and is or will be more than five (5)
months in a calendar year.
SECRION 2.06 The term "Employer" shall mean any corporation
designated by the Board of Directors of the Sponsoring Employer as an Employer
under this Plan and which is either the Sponsoring Employer or a Subsidiary of
the Sponsoring Employer.
SECTION 2.07 The term "Exercise Date" shall man the last NASDAQ
trading date of the Plan Period.
SECTION 2.08 The term "Grant Date" shall mean the first NASDAQ
trading date of the Plan Period.
SECTION 2.09 The "Issue Price" shall mean the price of the stock
to be charged to participating Members at the Exercise Date as provided in
Article IV.
SECTION 2.10 The term "Member" shall mean any Employee of an
Employer who has met the conditions and provisions for becoming a Member as
provided in Article III.
SECTION 2.11 The term "Member's Contribution Rate" shall be that
exact number of dollars a Member elects to contribute by regular payroll
deductions to his Contribution Account as provided by Section 4.02.
SECTION 2.12 For hourly Employees the term "Normal Monthly Pay"
shall be computed by annualizing the Employee's hourly base pay and his regular
scheduled hours of work as of the first day of the Plan Period in question and
dividing by twelve. For salaried Employees the "Normal Monthly Pay" shall be
the Employee's regular monthly base pay as of the first day of the Plan Period
in question.
SECTION 2.13 The term "Plan Period" shall mean the twelve (12)
month Period beginning on July 1 of a calendar year and ending on the next
succeeding June 30.
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<PAGE> 3
SECTION 2.14 The term "Sponsoring Employer" shall mean Digital
Transmission Systems, Inc., a Delaware corporation, the plan sponsor for all
purposes.
SECTION 2.15 The term "Sponsoring Employer Stock" shall mean those
shares of the Common Stock which pursuant to section 4.01 are reserved for
issuance upon the exercise of the options granted under this Plan.
SECTION 2.16 The term "Subsidiary" shall mean any corporation
having a relationship to the Sponsoring Employer described in Section 424(f) of
the Code, as amended.
SECTION 2.17 Any words herein used in the masculine shall be read
and construed in the feminine where they would so apply. Words in the singular
shall be read and construed as though in the plural in all cases where they
would so apply.
ARTICLE III
MEMBERSHIP IN PLAN
SECTION 3.01 Each employee will be eligible to become a Member in
the Plan for any Plan Period if he has completed ninety (90) days of Continuous
Service with an Employer on or before the first day of the Plan Period.
SECTION 3.02 Upon becoming a Member, said Member shall be bound by
the terms of this Plan, including any amendments hereto.
SECTION 3.03 Each Employee who becomes eligible to become a Member
shall be furnished a summary of the Plan and a request for participation. If
such Employee elects to participate hereunder for a Plan Period, he shall
complete such form and file it with his Employer prior to the first day of the
Plan Period (provided, however, that for the first Plan period under this Plan,
elections to participate may be filed by a date determined by the Board of
Directors). An Employee may only become a Member in the Plan at the beginning
of a Plan Period. The complete request for participation shall indicate the
Member's Contribution Rate authorized by the Member for such Plan Period.
ARTICLE IV
ISSUANCE OF STOCK OPTIONS
SECTION 4.01 The Sponsoring Employer shall reserve 150,000 shares
of Sponsoring Employer Stock for issuance upon the exercise of the options
granted hereunder. These shares may be either authorized and unissued shares,
issued shares held in or acquired
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for the treasury of the Sponsoring Employer, or shares of stock reacquired by
the Sponsoring Employer upon purchase in the open market or otherwise.
SECTION 4.02 Subject to the provisions of this Plan, including the
limitations contained in Section 4.06, on the Grant Date for each Plan Period
each Employee is hereby granted an Option for each Plan Period to purchase the
number of shares of Common Stock which may be purchased, at the Issue Price
determined under Section 4.04, with the aggregate amount of the Member's
contributions during the Plan Period. In order to participate in the Plan for
a Plan Period and be granted an option hereunder, an Employee must authorize
his Employer to deduct through payroll deduction an exact number of dollars
per month, but not less than $10.00 per month ("Member's Contribution Rate").
The maximum deduction shall be 10% of his Normal Monthly Pay from his Employer
as of the first day of the Plan Period. Such authorization shall be in writing
and on such forms as shall be provided by the Sponsoring Employer. Such
deductions shall begin as of the first pay period beginning on or after the
first day of the Plan Period. For all purposes of this Plan, such
contributions shall be deemed a part of the Member's Contribution Account.
Member contributions will not be permitted to begin at any time other than the
beginning of the Plan Period. No interest shall accrue on any amounts withheld
under this Plan.
At any time during the Plan Period, a Member may notify the Sponsoring
Employer that he wishes to discontinue his contributions. This notice shall be
in writing on such forms as provided by the Sponsoring Employer and shall
become effective as of a date specified by the Member but not more than (30)
days following its receipt by the Sponsoring Employer.
Members may elect to withdraw their contributions at any time during
the Plan Period. However, if contributions are withdrawn during the Plan
Period, no further contributions will be permitted during the Plan Period.
The fact that an Employee elects to participate for a Plan Period, or
fails so to elect, shall not affect his right to participate, or not to
participate, for any other Plan Period.
SECTION 4.03 If the total number of shares to be purchased under
options by all Members for any Plan Period exceeds the number of shares
remaining authorized under this Plan, a pro rata allocation of the available
shares will be made among all Members authorizing such payroll deductions based
on the amount of the respective aggregate payroll deductions up to the Exercise
Date.
SECTION 4.04 The Issue Price of the Sponsoring Employer Stock
under this Plan will be the lesser of (a) 85% of the Closing Market Price on
the last trading date of the Plan Period (being the Exercise Date for the Plan
Period) or (b) 85% of the Closing Market Price on the first trading date of the
Plan Period (being the Grant Date for the Plan Period).
SECTION 4.05 On the Exercise Date a Member's Contribution Account
shall be used to purchase the maximum number of whole shares of Sponsoring
Employer Stock determined by dividing the Issue Price, defined in Section 4.04,
into the Member's Contribution Account, unless the Member has notified the
Sponsoring Employer in writing ten (10) business days prior to the Exercise
Date that the Member does not want to exercise
Page 17
<PAGE> 5
any options. Notwithstanding the foregoing, no Member may purchase more than
2,000 shares of Sponsoring Employer Stock under the Plan during any Plan
Period. Any money remaining in a Member's Contribution Account that is not
used to purchase Sponsoring Employer Stock shall be returned to the Member.
Options granted under this Plan shall be subject to such amendment or
modification as the Sponsoring Employer shall deem necessary to comply with any
applicable law or regulation, and shall contain such other provisions as the
Sponsoring Employer shall from time to time approve and deem necessary.
SECTION 4.06 In no event may a Member (i) receive an option which
permits his rights to purchase stock under all employee stock purchase plans of
the Employer and its parent and subsidiary corporations to accrue at a rate
which exceeds $25,000 of fair market value of such stock (determined at the
time such option is granted) for each calendar year in which such option is
outstanding at any time, or (ii) receive an option if he owns (within the
meaning of Section 423(b)(3) of the Code), immediately after the option is
granted, stock possessing five percent (5 %) or more of the total combined
voting power or value of all classes of stock of the Sponsoring Employer or its
parent or subsidiary corporation, or (iii) transfer or otherwise alienate any
option granted to him under this plan, other than by will or the laws of
descent and distribution.
SECTION 4.07 The Sponsoring Employer stock certificates purchased
through the exercise of the option granted hereunder shall be issued to the
Member as soon as practicable after the date of such exercise. All shares of
Sponsoring Employer Stock purchased in accordance with Section 4.05 hereof
shall be issued in the name of the Member or former Member and shall be kept in
such name by the Member or former Member until the earlier of the date the
shares are disposed of or the expiration of both of the periods described in
Section 4.11 hereof.
SECTION 4.08 Any Employee whose employment with the Employer is
terminated for any reason, except death or retirement, during a Plan Period
shall cease being a Member immediately. The balance of the Member's
Contribution Account shall be paid to such Member, or his legal representative,
as soon as practicable after his termination. Any options granted to such
Member shall be deemed null and void.
SECTION 4.09 If a Member shall die during the Plan Period, no
further contributions on behalf of the deceased Member shall be made. The
Executor or administrator of the deceased Member may elect to withdraw the
balance in said Member's Contribution Account by notifying the Employer in
writing prior to the last day of the Plan Period. In the event no election to
withdraw has been made, the balance accumulated in the Member's Contribution
Account shall be used to purchase shares of Sponsoring Employer's Stock in
accordance with Section 4.05 hereof.
SECTION 4.10 If a Member shall retire during a Plan Period, no
further contributions on behalf of the retired Member shall be made. The
Member May elect to withdraw the balance in his Contribution Account by
notifying the Employer in writing prior to the last day of the Plan Period. In
the event no election to withdraw has been made, the balance accumulated in the
retired Member's Contribution Account shall be used to purchase shares of the
Sponsoring Employer's Stock in accordance with Section 4.05 hereof.
Page 18
<PAGE> 6
SECTION 4.11 If a Member or former Member disposes of a share of
Sponsoring Employer Stock obtained under this Plan (i) prior to two (2) years
after the Grant Date of such share, or (ii) prior to one (1) year after the
Exercise Date, then that Member or former Member must notify the Sponsoring
Employer immediately of such disposition in writing.
ARTICLE V
MISCELLANEOUS
SECTION 5.01 The Sponsoring Employer or an individual delegated
such authority by the Sponsoring Employer shall administer the Plan and keep
records of individual Member benefits. The Compensation Committee of the Board
shall interpret the terms and intent of the Plan and shall determine all
questions arising in the administration, interpretation and application of the
Plan, and all such determinations by the Compensation Committee shall be
conclusive and binding on all persons.
SECTION 5.02 Each Member, former Member, or any other person who
shall claim any right or benefit under this Plan, shall be entitled only to
look to the Employer for such benefit.
SECTION 5.03 The Compensation Committee of the Board may, at any
time or from time to time, amend the Plan in any respect, except that approval
of the stockholders of the Sponsoring Employer will be required for any
amendment for which stockholder approval is required under Section 423 of the
Code or any other applicable law. The Compensation Committee may at any time
terminate the Plan effective as of the last day of any Plan Period or may
terminate the right of Members to make contributions or further contributions
under the Plan during any Plan Period.
SECTION 5.04 The Employer will pay all expenses of administering
this Plan that may arise in connection with this Plan.
SECTION 5.05 Any rules, regulations, or procedures that may be
necessary for the proper administration or functioning of this plan that are
not covered in this Plan shall be promulgated and adopted by the Compensation
Committee of the Board.
SECTION 5.06 Any headings or subheadings in this Plan are inserted
for convenience of reference only and are to be ignored in the construction of
any Provisions hereof.
SECTION 5.07 This Plan shall be construed in accordance with the
laws of the State of Georgia.
Page 19
<PAGE> 7
SECTION 5.08 A misstatement of fact as to an Employee's length of
Continuous Service, date of employment or any such other matter shall be
corrected when it becomes known that any such misstatement of fact has
occurred.
SECTION 5.09 The options granted hereunder are not transferrable
by the Member otherwise than by will or the laws of descent and distribution,
and are exercisable during the Member's lifetime only by him. If a Member
attempts such assignment, transfer or alienation, his Employer shall disregard
that action.
SECTION 5.10 This Plan is intended to be an "employee stock
purchase plan" qualified under Section 423 of the Code, and it shall be
interpreted and administered by the Sponsoring Employer in such a manner as to
insure that the Members receive the benefits provided by such a plan.
SECTION 5.11 This Plan shall not be deemed to constitute a
contract between an Employer and any Member or to be a consideration or an
inducement for the employment of any Member or Employee. Nothing contained in
this Plan shall be deemed to give any Member or Employee the right to be
retained in the service of an Employer or to interfere with the right of an
Employer to discharge any Member or Employee at any time regardless of the
effect which such discharge shall have upon him as a Member of the Plan.
SECTION 5.12 No liability whatever shall attach to or be incurred
by any past, present or future shareholders, officers or directors, as such, of
the Employer, under or by reason of any of the terms, conditions or agreements
contained in this Plan or implied therefrom, and any and all liabilities of,
and any and all rights and claims against, the Employer, or any shareholder,
officer or director as such, whether arising at common law or in equity or
created by statute or constitution or otherwise, pertaining to this Plan, are
hereby expressly waived and released by every Member, as a part of the
consideration for any benefits by the Employer under this Plan.
SECTION 5.13 Notwithstanding any other provisions of this Plan, in
order for this plan to continue as effective, it must be approved by the
shareholders of the Sponsoring Employer during the period commencing twelve
(12) months prior to and ending twelve (12) months after it is adopted by the
Board.
SECTION 5.14 The aggregate number of shares of Sponsoring
Employer Stock reserved for purchase under the Plan as provided in Section 4.01
hereof, and the calculation of the Issue Price per share as provided in Section
4.04 hereof and the maximum number of shares which may be purchased by each
Member pursuant to Section 4.05 hereof shall be appropriately adjusted to
reflect any increases or decreases in the number of issued shares of Sponsoring
Employer Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or payment of a stock dividend, stock split, or other such
increase or decrease in such shares of Sponsoring Employer Stock. In the event
of a dissolution or liquidation of the Sponsoring Employer or a merger or
consolidation in which the Sponsoring Employer is not the surviving corporation
or survives only as a subsidiary of another corporation, each outstanding
option granted under this Plan shall terminate except to the extent that
another corporation assumes such option or substitutes another option therefor.
Page 20
<PAGE> 8
SECTION 5.15 The Sponsoring Employer's obligation to sell and
deliver stock under the Plan is at all times subject to all approvals of any
governmental authorities required in connection with the authorization,
issuance, sale or delivery of such stock.
SECTION 5.16 Any notice which the Sponsoring Employer or Member
may be required or permitted to give to each other shall be in writing, and may
be delivered personally or by mail, postage prepaid, addressed as follows: if
to the Sponsoring Employer to the Chief Financial Officer, Digital Transmission
Systems, Inc., 3000 Northwoods Parkway, Building 330, Norcross, Georgia 30071,
or at such other address as the Sponsoring Employer, by notice to the Members,
may designate in writing from time to time; if to any other Employer, to the
address designated by such Employer in a written notice to the Members; and if
to the Member, at the address shown on the records of the Sponsoring Employer,
or at such other address as the Member, by notice to the Sponsoring Employer,
may designate in writing from time to time.
Page 21
<PAGE> 1
Exhibit 11.1
DIGITAL TRANSMISSION SYSTEMS, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (LOSS)
For the quarter ended September 30, 1996
<TABLE>
<S> <C>
Net loss $ (677,000)
===============
Weighted average common and
common equivalent shares outstanding 3,921,268
===============
Net loss per common and common
equivalent shares $ (0.17)
===============
</TABLE>
Page 22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DIGITAL TRANSMISSION FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 654
<SECURITIES> 1,000
<RECEIVABLES> 3,768
<ALLOWANCES> 65
<INVENTORY> 3,822
<CURRENT-ASSETS> 9,770
<PP&E> 1,789
<DEPRECIATION> 1,204
<TOTAL-ASSETS> 11,321
<CURRENT-LIABILITIES> 3,353
<BONDS> 0
0
0
<COMMON> 40
<OTHER-SE> 7,928
<TOTAL-LIABILITY-AND-EQUITY> 11,321
<SALES> 3,000
<TOTAL-REVENUES> 3,000
<CGS> 1,723
<TOTAL-COSTS> 1,723
<OTHER-EXPENSES> 2,029
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (677)
<INCOME-TAX> 0
<INCOME-CONTINUING> (677)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (677)
<EPS-PRIMARY> (0.17)
<EPS-DILUTED> (0.17)
</TABLE>
