<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended: February 28, 1997
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From ___ To___
Commission File Number: 0-21367
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DATA TRANSLATION, INC.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3332230
- ---------------------------- ----------------------------
(State or other jurisdiction (I.R.S. Employer
of organization or incorporation) Identification Number)
100 Locke Drive
Marlborough, Massachusetts
------------------------------------------------------------
(Address of principal executive offices)
01752
------------------------------------------------------------
(Zip code)
(508) 481-3700
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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
------------- -------------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $.01 per share 2,024,821 shares
-------------------------------------- ---------------------------
Class Outstanding at March 31,1997
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Page 2 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information:
Consolidated Balance Sheet as of February 28, 1997 and
Pro Forma Consolidated Balance Sheet as of November 30, 1996.................................. 3
Consolidated Statement of Operations for the Three Months Ended
February 28, 1997 and Pro Forma Consolidated Statement of
Operations for the Three Months Ended February 29, 1996....................................... 4
Consolidated Statement of Stockholders' Equity
For the Three Months Ended February 28, 1997.................................................. 5
Consolidated Statement of Cash Flows for the Three Months
Ended February 28, 1997 and Pro Forma Consolidated
Statement of Cash Flows for the Three Months Ended
February 29, 1996............................................................................. 6
Notes to Consolidated Financial Statements...................................................... 7-8
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................................. 9-10
Part II - Other Information....................................................................... 11
Signatures........................................................................................ 12
</TABLE>
<PAGE>
Page 3 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
February 28, November 30,
1997 1996
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,245,000 $ 8,828,000
Accounts receivable, net of
reserves of
$123,000 in 1997 and $132,000 in 1996 2,835,000 2,741,000
Due from Media 100 Inc. 1,239,000 -
Inventories 1,065,000 1,490,000
Prepaid expenses 974,000 690,000
-------------- --------------
Total current assets 12,358,000 13,749,000
Equipment and Leasehold Improvements, net 2,330,000 2,352,000
Other Assets - net 255,000 260,000
-------------- --------------
Total Assets $ 14,943,000 $ 16,361,000
============== ==============
Current Liabilities:
Accounts payable $ 160,000 $ 377,000
Due to related party 273,000 -
Accrued expenses 2,110,000 1,939,000
-------------- --------------
Total current liabilities 2,543,000 2,316,000
Net liabilities of discontinued operations 1,424,000 1,424,000
Deferred Income Taxes 3,000 3,000
Stockholders' Equity:
Preferred Stock, $.01 par value,
Authorized - 5,000,000 shares, - -
none issued
Common Stock, $.01 par value,
Authorized - 30,000,000 shares,
issued -
2,022,121 in 1997 and 2,022,021 in
1996 pro forma 20,000 20,000
Capital in excess of par value 12,629,000 12,629,000
Retained earnings (1,659,000) -
Cumulative translation adjustment (17,000) (31,000)
-------------- --------------
Total stockholders' equity 10,973,000 12,618,000
-------------- --------------
Total Liabilities and Stockholders' Equity $ 14,943,000 $ 16,361,000
============== ==============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
Page 4 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
PRO FORMA
February 28, 1997 February 29, 1996
------------------- -------------------
<S> <C> <C>
Net sales $ 5,056,000 $ 5,694,000
Cost of sales 2,446,000 2,189,000
------------------- -------------------
Gross profit 2,610,000 3,505,000
Research and development expenses 969,000 899,000
Selling and marketing expenses 2,719,000 1,893,000
General and administrative expenses 640,000 434,000
------------------- -------------------
Operating income (loss) (1,718,000) 279,000
Interest income 95,000 138,000
Interest expense (1,000) -
Other expense (35,000) (43,000)
------------------- --------------------
Income (loss) from continuing
operations before tax provision (1,659,000) 374,000
Tax provision - 81,000
------------------- -------------------
Income (loss) from continuing operations (1,659,000) 293,000
Income from discontinued operations - 38,000
------------------- -------------------
Net (loss) income $ (1,659,000) $ 331,000
=================== ===================
Income (loss) from continuing
operations per common share $ (0.82) $ 0.14
Income from discontinued
operations per common share - 0.02
------------------- -------------------
Net income (loss) per common share $ (0.82) $ 0.16
=================== ===================
Weighted average number of common
and common equivalent shares
outstanding 2,022,000 2,101,000
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
Page 5 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value
---------------------- Capital in Cumulative Total
Issued Excess of Retained Translation Stockholders'
Shares Amount Par Value Earnings Adjustment Equity
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1996 - $ - $ - $ - $(31,000) $ (31,000)
Stock dividend (Note 9) 2,022,021 20,000 12,629,000 - - 12,649,000
Proceeds from stock plans 100 - - - - -
Translation adjustment - - - - 14,000 14,000
Net loss - - - (1,659,000) - (1,659,000)
-------------------------------------------------------------------------------
Balance, February 28, 1997 2,022,121 $20,000 $12,629,000 $(1,659,000) $(17,000) $10,973,000
================================================================================
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
Page 6 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
PRO FORMA
February 29,
February 28, 1997 1996
------------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,659,000) $ 331,000
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation and 225,000 199,000
amortization
Change in assets and
liabilities-
Accounts receivable (94,000) (519,000)
Due from Media 100 Inc. (1,239,000) -
Inventories 425,000 (415,000)
Prepaid expenses (284,000) (274,000)
Net assets of - 91,000
discontinued operations
Accounts payable (217,000) (452,000)
Due to related party 273,000 273,000
Accrued expenses 171,000 (344,000)
------------------- ----------------
Net cash used in
operating activities $ (2,399,000) $ (1,110,000)
------------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment
and leasehold improvements (183,000) (106,000)
Decrease (increase) in
other assets (10,000) 20,000
------------------- ----------------
Net cash used in
investing activities $ (193,000) $ (86,000)
------------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from bank - (39,000)
Increase in investment by
Media 100 Inc. - 1,276,000
------------------- ----------------
Net cash provided by
financing activities $ - $ 1,237,000
------------------- ----------------
EXCHANGE RATE EFFECTS 9,000 (41,000)
------------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (2,583,000) $ -
CASH AND CASH EQUIVALENTS, beginning of period 8,828,000 -
------------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 6,245,000 $ -
=================== ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
Page 7 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
In the opinion of management, these unaudited consolidated financial
statements and disclosures reflect all adjustments necessary for fair
presentation. The results of operations for the interim periods are not
necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission. These consolidated condensed
financial statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the Company's latest
audited financial statements, which are contained in the Company's 1996 Annual
Report on Form 10-K, filed with the Securities and Exchange Commission on
February 28, 1997.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. Cash Equivalents
Cash equivalents are carried at cost which approximates market value and
have maturities of less than three months. Cash equivalents include money market
accounts, overnight time deposits, and U.S. Treasury bills.
3. Inventories
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market and consist of the following:
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
------------ ------------
<S> <C> <C>
Raw material $ 697,000 $ 904,000
Work-in-process 69,000 181,000
Finished goods 299,000 405,000
---------- ----------
$ 1,065,000 $1,490,000
========== ==========
</TABLE>
Work-in-process and finished goods inventories include material, labor and
manufacturing overhead. Management performs periodic reviews of inventory and
disposes of items not required by their manufacturing and marketing plan.
4. Net Income (Loss) Per Common Share
Net income per common share is determined by dividing net income by the
weighted average number of common and common equivalent shares outstanding
during each period. Net loss per common share is determined by dividing net loss
by the weighted average number of shares outstanding during the period. Common
equivalent shares have not been included in loss years, as such amounts would be
antidilutive. Common equivalent shares have been calculated in accordance with
the treasury stock method and are included for all periods where their effect is
dilutive. Fully diluted net income (loss) per share has not been separately
presented, as the amounts would not be materially different from net income per
share.
5. Contingencies
From time to time the Company is involved in disputes and/or litigation
encountered in its normal course of business. The Company does not believe that
the ultimate impact of the resolution of such outstanding matters will have a
material effect on the Company's financial condition or results of operations.
<PAGE>
Page 8 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Such costs, net of accumulated amortization, were approximately $251,000 and
$256,000 as of February 28, 1997 and November 30, 1996, respectively and are
included in other assets. These costs are amortized on a straight-line basis
over two years which approximates the life of the product. Amortization expense,
included in cost of goods sold, was approximately $15,000 and $10,000 for the
three months ended February 28, 1997 and February 29, 1996, respectively.
7. Income Taxes
For the period ended February 29, 1996, the income tax provision in the
accompanying consolidated statement of operations has been calculated on a
separate tax return basis. Prior to the Company's spin-off from Media 100 Inc.
("Media") on December 2, 1996 (the "Spin-off"), the Company filed its return as
part of a consolidated group with Media.
8. Discontinued Operations
On November 11, 1996, Media sold certain assets of its networking
distribution business, primarily inventories, equipment and its ongoing
business, for approximately $1.3 million. The balance of Media's networking
distribution business was contributed to the Company in connection with the
Spin-off. The Company is in the process of discontinuing and winding-up the
remainder of such business.
The components of net liabilities of discontinued operations included in
the accompanying consolidated balance sheets at February 28, 1997 and November
30, 1996 follow:
<TABLE>
<CAPTION>
February 28, November 30,
1997 1996
------------- -------------
<S> <C> <C>
Accounts receivable, net $ 421,000 $ 1,563,000
Inventories 34,000 1,159,000
Prepaid expenses 3,000 433,000
Equipment and leasehold improvements, net 26,000 68,000
Accounts payable - (1,450,000)
Borrowings from a bank (524,000) (1,577,000)
Accrued expenses (1,384,000) (1,620,000)
----------- -----------
Net liabilities of discontinued operations $(1,424,000) $(1,424,000)
=========== ===========
</TABLE>
9. Pro Forma Results
The pro forma consolidated balance sheet as of November 30, 1996
reflects the financial position of the Company adjusted for a cash contribution
from Media 100 Inc. and the capitalization of the Company in connection with the
Spin-off effective December 2, 1996. The consolidated statement of
stockholder's equity is also reflective of a stock dividend in connection with
the Spin-off of the Company. The pro forma statement of operations and the
consolidated statement of cash flows for the three months ended February 29,
1996 reflects the results of the Company as a wholly owned subsidiary of Media
100 Inc. and does not necessarily reflect the actual results of operations had
the Company been a separate, independent company during the period. Included
are certain allocations of general corporate expenses which were not directly
related to the Company's business.
10. New Accounting Standard
In March 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 establishes standards for computing and presenting earnings per share and
applies to entities with publicly held common stock or potential common stock.
This statement is effective for fiscal years ending after December 15, 1997 and
early adoption is not permitted. When adopted, the statement will require
restatement of prior years' earnings per share. The Company will adopt this
statement for its fiscal year ended November 30, 1998. The Company believes
that the adoption of SFAS No. 128 will not have a material effect on its
financial statements.
<PAGE>
Page 9 of 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. The Company's actual results could differ materially from those set
forth in the forward-looking statements as a result of the following risk
factors: dependence on new products, impact of competitive products, ability of
the Company to meet its future capital requirements, ability to attract
qualified personnel, the absence of history as an independent company, and the
dependence on proprietary technology.
Results of Operations
The following table sets forth certain consolidated statement of operations
data as a percentage of total net sales.
<TABLE>
<CAPTION>
Three Months Ended
PRO FORMA
February 28, February 29,
1997 1996
------ ----
<S> <C> <C>
Net sales............................................. 100.0% 100.0%
Gross margin.......................................... 51.6 61.6
Research and development expenses..................... 19.2 15.8
Selling and marketing expenses........................ 53.8 33.3
General and administrative expenses................... 12.6 7.6
------ ------
Operating income (loss)............................... (34.0) 4.9
Interest income (expense) and other, net.............. 1.2 1.7
------ ------
Income (loss) from continuing operations
before tax provision........................ (32.8) 6.6
Tax provision......................................... - 1.4
------ ------
Income (loss) from continuing operations........ (32.8) 5.2
Income from discontinued operations............. - 0.6
------ -----
Net income (loss)..................................... (32.8)% 5.8%
====== =====
</TABLE>
Comparison of First Fiscal Quarter of 1997 to First Fiscal Quarter of 1996:
Total net sales for the fiscal quarter ended February 28, 1997 were
$5,056,000, a decrease of 11.2% or $638,000 from the same period a year ago. The
decrease was the result of a decline in sales of older, more mature products in
addition to lower average selling prices.
Gross margin for the fiscal quarter ended February 28, 1997 was 51.6%,
compared to 61.6% in the comparable quarter of the prior year. The decrease in
gross margin was the result of lower average selling prices and a less favorable
product mix.
The operating loss for the first fiscal quarter of 1997 was $1,718,000,
compared to operating income of $279,000 in the comparable quarter of the prior
year. An increase in operating expenses as well as the lower gross margins
contributed to this loss. Operating expenses increased $1,102,000 to 85.6% of
net sales compared to 56.7% in the prior year. Research and development
expenses were $969,000 or 19.2% of net sales compared to $899,000 or 15.8% of
net sales for the comparable period last year. The high level of research and
development expense is a result of the Company's continued investment in
Broadway, its MPEG based digital video product. Sales and marketing expenses
were $2,719,000 or 53.8% of net sales compared to $1,893,000 or 33.3% of net
sales in the prior year. This increase was due to the continued marketing
promotion and sales channel development for Broadway. General and
administrative expenses were $640,000 or 12.6% of net sales compared to $434,000
or 7.6% of net sales for the same period last year. This year's general and
administrative expenses are reflective of the Company on a stand-alone basis
compared to allocated expenses for fiscal 1996.
Net loss for the fiscal quarter ended February 28, 1997 was $1,659,000 or
$0.82 per share, compared to net income of $331,000 or $0.16 per share for the
same period in 1996.
<PAGE>
Page 10 of 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources
During the first three months of fiscal 1997, net cash used in operations was
$2,399,000. Net cash used in operations included an increase in receivable due
from Media 100 Inc., the Company's former parent, of $1,239,000, which has been
collected in the second quarter of this fiscal year, as well as a net loss of
$1,659,000. The Company believes that it will be able to fund and support a
business plan which includes continuing investment in channel development,
promotion and product development for Broadway and other new commercial
products, as well as other product areas, for the balance of this fiscal year.
<PAGE>
Page 11 of 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
Exhibit
Number Description
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27 Financial Data Schedule
b) Reports on Form 8-K
A report on Form 8-K was filed with the Securities and Exchange
Commission on December 23, 1996 regarding Item 5. Other Events.
<PAGE>
Page 12 of 13
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.
Data Translation, Inc.
Date: April 14, 1997 By: /s/ Gary B. Godin
------------------------
Gary B. Godin
Chief Financial Officer
<PAGE>
Page 13 of 13
Exhibits
Exhibits
Number Description Page
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27 Financial Data Schedule
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 6,245,000
<SECURITIES> 0
<RECEIVABLES> 2,835,000
<ALLOWANCES> 123,000
<INVENTORY> 1,065,000
<CURRENT-ASSETS> 12,358,000
<PP&E> 19,077,000
<DEPRECIATION> 16,747,000
<TOTAL-ASSETS> 14,943,000
<CURRENT-LIABILITIES> 2,543,000
<BONDS> 0
0
0
<COMMON> 20,000
<OTHER-SE> 10,953,000
<TOTAL-LIABILITY-AND-EQUITY> 14,943,000
<SALES> 5,056,000
<TOTAL-REVENUES> 5,056,000
<CGS> 2,446,000
<TOTAL-COSTS> 2,446,000
<OTHER-EXPENSES> 4,328,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,000
<INCOME-PRETAX> (1,659,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,659,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,659,000)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
