<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, 1998
-----------------
[_] 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
-------
DATA TRANSLATION, INC.
----------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3332230
-------- ----------
(State or other jurisdiction of organization (I.R.S. Employer
or incorporation) Identification Number)
100 Locke Drive
Marlborough, Massachusetts
----------------------------------------
(Address of principal executive offices)
01752
------------------
(Zip code)
(508) 481-3700
----------------
(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 2,076,167 shares
---------------------------------------- ----------------
Class Outstanding at March 31,1998
<PAGE>
Page 2 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information:
Consolidated Balance Sheets as of February 28, 1998 and
November 30, 1997................................................. 3
Consolidated Statements of Operations for the Three Months Ended
February 28, 1998 and 1997........................................ 4
Consolidated Statements of Stockholders' Investment for the Fiscal
Year Ended November 30, 1997 and for the Three Months
Ended February 28, 1998........................................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended February 28, 1998 and 1997.................................. 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
PART I - FINANCIAL INFORMATION
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
(Unaudited)
----------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,990,000 $ 3,922,000
Accounts receivable, net of reserves of
$401,000 in 1998 and $389,000 in 1997 2,880,000 2,754,000
Inventories 1,300,000 1,407,000
Prepaid expenses 598,000 430,000
------------ ------------
Total current assets 7,768,000 8,513,000
Equipment and Leasehold Improvements, net 1,646,000 1,851,000
Other Assets - net 175,000 195,000
------------ ------------
Total Assets $ 9,589,000 $ 10,559,000
============ ============
Current Liabilities:
Accounts payable $ 304,000 $ 174,000
Due to related party 273,000 546,000
Accrued expenses 1,897,000 1,683,000
------------ ------------
Total current liabilities 2,474,000 2,403,000
Net liabilities of discontinued operations 627,000 1,424,000
Deferred Income Taxes 3,000 3,000
Stockholders' Investment:
Preferred Stock, $.01 par value,
Authorized - 5,000,000 shares, none issued - -
Common Stock, $.01 par value,
Authorized - 30,000,000 shares, issued -
2,076,067 and 2,048,765 in 1998 and 1997,
respectively 21,000 20,000
Additional paid-in capital 12,736,000 12,691,000
Accumulated deficit (6,253,000) (5,979,000)
Cumulative translation adjustment (19,000) (3,000)
------------ ------------
Total stockholders' investment 6,485,000 6,729,000
------------ ------------
Total Liabilities and Stockholders' Investment $ 9,589,000 $ 10,559,000
============ ============
</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
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 4,556,000 $ 5,056,000
Cost of sales 2,230,000 2,446,000
------------ ------------
Gross profit 2,326,000 2,610,000
Research and development expenses 554,000 969,000
Selling and marketing expenses 1,570,000 2,719,000
General and administrative expenses 501,000 640,000
------------ ------------
Loss from operations (299,000) (1,718,000)
Interest income 42,000 95,000
Interest expense -- (1,000)
Other expense (17,000) (35,000)
------------ ------------
Net loss $ (274,000) $ (1,659,000)
============ ============
Basic and diluted net loss per share $ (0.13) $ (0.82)
============ ============
Basic and diluted weighted average
number of shares outstanding 2,067,000 2,022,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional Cumulative Total
Investment Number $.01 Par Paid-In Accumulated Translation Stockholders'
by Parent of Shares Value Capital Deficit Adjustment Investment
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, November 30, 1996 $ 3,822,000 -- $ -- $ -- $ -- $(31,000) $ 3,791,000
Contribution from Parent 8,827,000 -- -- -- -- -- 8,827,000
Dividend distribution of
Investment by Parent (12,649,000) 2,022,021 20,000 12,629,000 -- -- --
-------------------------------------------------------------------------------------------
Pro Forma balance,
November 30, 1996 $ -- 2,022,021 $20,000 $12,629,000 $ -- $(31,000) $12,618,000
Proceeds from stock plans -- 26,744 -- 62,000 -- -- 62,000
Translation adjustment -- -- -- -- -- 28,000 28,000
Net loss -- -- -- -- (5,979,000) -- (5,979,000)
-------------------------------------------------------------------------------------------
Balance, November 30, 1997 $ -- 2,048,765 $20,000 $12,691,000 $(5,979,000) $ (3,000) $ 6,729,000
Proceeds from stock plans -- 27,302 1,000 45,000 -- -- 46,000
Translation adjustment -- -- -- -- -- (16,000) (16,000)
Net loss -- -- -- -- (274,000) -- (274,000)
---------------------------------------------------------------------------------------------
Balance, February 28, 1998
(Unaudited) $ -- 2,076,067 $21,000 $12,736,000 $(6,253,000) $(19,000) $ 6,485,000
=============================================================================================
</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
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (274,000) $(1,659,000)
Adjustments to reconcile net loss to
net cash used in operating activities-
Depreciation and amortization 297,000 225,000
Change in assets and liabilities-
Accounts receivable (126,000) (94,000)
Due from Media 100 Inc. -- (1,239,000)
Inventories 107,000 425,000
Prepaid expenses (168,000) (284,000)
Accounts payable 130,000 (217,000)
Due to related party (273,000) 273,000
Accrued expenses 214,000 171,000
Net liabilities of discontinued operations (797,000) --
------------ ------------
Net cash used in operating activities $ (890,000) $ (2,399,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (55,000) (183,000)
Increase in other assets (20,000) (10,000)
------------ ------------
Net cash used in investing activities $ (75,000) $ (193,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution from Parent -- 8,827,000
Proceeds from stock plans 46,000 --
------------ ------------
Net cash provided by financing activities $ 46,000 $ 8,827,000
------------ ------------
EXCHANGE RATE EFFECTS (13,000) 9,000
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (932,000) $ 6,244,000
CASH AND CASH EQUIVALENTS, beginning of period 3,922,000 1,000
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,990,000 $ 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 Company's latest
audited consolidated financial statements and the notes thereto included in the
Company's 1997 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on February 27, 1998.
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,
1998 1997
------------ ------------
<S> <C> <C>
Raw material $ 806,000 $ 830,000
Work-in-process 73,000 10,000
Finished goods 421,000 567,000
---------- --------
$1,300,000 $1,407,000
========== ==========
</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 Loss Per Common Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 -- Earnings per Share. This
standard is effective for fiscal periods ending after December 15, 1997 and
requires presentation of both basic and diluted earnings per share on the face
of the Consolidated Statements of Operations. These financial statements have
been prepared and presented based on the new standard. Prior period amounts have
been restated to conform to current year presentation. For the three months
ended February 28, 1998 and 1997, 26,194 and 100,753 anti-dilutive weighted
shares, respectively, have been excluded from the weighted average number of
common and dilutive potential common shares outstanding.
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 $171,000 and
$191,000 as of February 28, 1998 and November 30, 1997, 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 $40,000 and $15,000 for the
three months ended February 28, 1998 and 1997, respectively.
7. Discontinued Operations
On November 11, 1996, Media 100 Inc. ("Media"), the Company's former
parent, 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 Media's spin-off of the Company on December 2, 1996
(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, 1998 and
November 30, 1997 follow:
<TABLE>
<CAPTION>
February 28, November 30,
1998 1997
------------- -------------
<S> <C> <C>
Accounts receivable, net $ 123,000 $ 123,000
Borrowings from a bank (383,000) (963,000)
Accrued expenses (367,000) (584,000)
--------- -----------
Net liabilities of discontinued operations $(627,000) $(1,424,000)
========= ===========
</TABLE>
8. Pro Forma Results
The consolidated statements of stockholder's equity is reflective of a
stock dividend in connection with the Spin-off of the Company from Media.
<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 a number of
factors, including without limitation the following: 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 statements of
operations data as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1998 1997
------------ ------------
<S> <C> <C>
Net sales.................................. 100.0% 100.0%
Gross margin............................... 51.1 51.6
Research and development expenses.......... 12.2 19.2
Selling and marketing expenses............. 34.5 53.9
General and administrative expenses........ 11.0 12.7
------------ ------------
Loss from operations....................... (6.6) (34.0)
Interest income (expense) and other, net... 0.6 1.2
------------ ------------
Net loss................................... (6.0)% (32.8)%
============ ============
</TABLE>
Comparison of First Fiscal Quarter of 1998 to First Fiscal Quarter of 1997:
Net sales for the fiscal quarter ended February 28, 1998 were $4,556,000, a
decrease of 9.9% or $500,000 from the same period a year ago. The decrease was
the result of a decline in unit sales and continued competitive pressure towards
lower average selling prices from the Company's data acquisition and imaging
products. Sales from these products were 12.6% lower than in the comparable
quarter of the prior year. Attributing factors for the decline include, lower
OEM sales for imaging products and lower overall international sales due, in
part, to the decline of the Asian financial markets. Currently, the Company
believes that its future quarter's sales may continue to be adversely impacted
by these factors. In an effort to improve data acquisition and imaging sales,
the Company began distributing its new 1998 Product Handbook in January,
launched a new advertising campaign and continues to introduce new products
within the Company's data acquisition and imaging product lines. Sales from the
Company's commercial products, Broadway(TM) and Broadway(TM) Beginner, increased
approximately 7.7% from the comparable quarter of the prior year.
Gross margin for the fiscal quarter ended February 28, 1998 was 51.1%,
compared to 51.6% 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 loss from operations for the first fiscal quarter of 1998 was $299,000,
compared to $1,718,000 in the comparable quarter of the prior year. Operating
expenses for the first fiscal quarter of 1998 were $2,625,000 or 57.6% of net
sales, a decrease of $1,703,000 compared to $4,328,000 or 85.6% of net sales in
the prior year. Prior year operating expenses include a significant investment
in product development, promotion, and sales channel development for the
Company's Broadway products. In the fourth quarter of fiscal 1997, the Company
took measures to lower its operating expenses and improve its operating results.
Research and development expenses were $554,000 or 12.2% of net sales compared
to $969,000 or 19.2% of net sales for the comparable period last year. Sales
and marketing expenses were $1,570,000 or 34.5% of net sales compared to
$2,719,000 or 53.9% of net sales in the prior year. General and administrative
expenses were $501,000 or 11.0% of net sales compared to $640,000 or 12.7% of
net sales for the same period last year.
Net loss for the fiscal quarter ended February 28, 1998 was $274,000 or
$0.13 per share, compared to $1,659,000 or $0.82 per share for the same period
in 1997.
<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 1998, net cash used in operations
was $890,000 which included a partial settlement of net liabilities from
discontinued operations of $797,000 and a net loss of $274,000. Given current
available funds, the Company believes that it will be able to meet its current
operating requirements for the balance of this fiscal year. If the Company is
unsuccessful in increasing revenues or its liquidity position continues to
deteriorate, the Company will need to secure external financing in order to meet
its ongoing operating expenses. Therefore, the Company is pursuing possible
financing alternatives but, there can be no assurance whether the Company will
be successful in obtaining any required financing.
In December, 1997, in connection with winding-up its networking business,
the Company placed into receivership its wholly owned English subsidiary, TFS
Wokingham, Limited f/k/a/ Data Translation Networking Limited ("Networking").
Networking has a credit facility with BankBoston, N.A. under which approximately
$383,000 was outstanding at February 28, 1998. The Company is a guarantor, on a
secured basis, of Networking's obligations to BankBoston, N.A. During the first
three months of fiscal 1998, the Company paid approximately $580,000 to
BankBoston, N.A. under Networking's credit facility. The Company expects that,
during the fiscal year, it will pay all amounts outstanding to BankBoston, N.A.
under Networking's credit facility. The Company expects to fund such payments
from available cash.
Impact of Year 2000 Issue
The Year 2000 issue results from computer programs written using two digits
rather than four to define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is in the process of conducting an assessment of its computer
information systems and is beginning to take the necessary steps to determine
the nature and extent of the work required to make its systems Year 2000
compliant, where necessary. These steps will require the Company to modify,
upgrade or replace some of its internal financial and operational systems. The
Company continues to evaluate the estimated cost of bringing all internal
systems, equipment and operations into Year 2000 compliance, but has not yet
finished determining the total cost of these compliance efforts. While these
efforts will involve additional costs, the Company believes, based upon
currently available information, that these costs will not have a material
adverse effect on its business, financial condition or results of operations.
However, if these efforts are not completed on time, or if the cost of updating
or replacing the Company's information systems exceeds the Company's current
estimates, the Year 2000 issue could have a material adverse impact on the
Company's business, financial condition or results of operations.
The Company also intends to determine the extent to which the Company may
be vulnerable to any failures by its major suppliers, distributors and service
providers to remedy their own Year 2000 issues, and is in the process of
initiating formal communications with these parties. At this time the Company is
unable to estimate the nature or extent of any potential adverse impact
resulting from the failure of third party suppliers, distributors and service
providers to achieve Year 2000 compliance, although the Company does not
currently anticipate that it will experience any material shipment delays from
its major product suppliers or any material sales delays from its major
distributors due to Year 2000 issues. However, there can be no assurance that
these third parties will not experience Year 2000 problems or that any problems
would not have a material effect on the Company's product supply and
distribution channels. Because the cost and timing of Year 2000 compliance by
third parties such as suppliers, distributors and service providers is not
within the Company's control, no assurance can be given with respect to the cost
or timing of such efforts or any potential adverse effects on the Company of any
failure by these third parties to achieve Year 2000 compliance.
<PAGE>
Page 11 of 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a) Exhibits
Exhibit
Number Description
------- -----------------------
27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-k were filed during the period covered by
this report.
<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, 1998 By: /s/ Gary B. Godin
------------------------
Gary B. Godin
Chief Financial Officer
<PAGE>
Page 13 of 13
Exhibits
Exhibits
Number Description Page
-------------------------------------------------------
27 Financial Data Schedule -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 2,990,000
<SECURITIES> 0
<RECEIVABLES> 2,880,000
<ALLOWANCES> 401,000
<INVENTORY> 1,300,000
<CURRENT-ASSETS> 7,768,000
<PP&E> 19,300,000
<DEPRECIATION> 17,654,000
<TOTAL-ASSETS> 9,589,000
<CURRENT-LIABILITIES> 2,474,000
<BONDS> 0
0
0
<COMMON> 21,000
<OTHER-SE> 6,464,000
<TOTAL-LIABILITY-AND-EQUITY> 9,589,000
<SALES> 4,556,000
<TOTAL-REVENUES> 4,556,000
<CGS> 2,230,000
<TOTAL-COSTS> 2,230,000
<OTHER-EXPENSES> 2,625,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (274,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (274,000)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
