<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, 1999
-----------------
[ ] 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)
<TABLE>
<S> <C>
Delaware 04-3332230
------------------------------------------- -------------------------------------
(State or other jurisdiction of organization (I.R.S. Employer Identification Number)
or incorporation)
</TABLE>
100 Locke Drive
Marlboro, 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 2,109,961 shares
- -------------------------------------- ------------------------------
Class Outstanding at March 31,1999
<PAGE>
PAGE 2 OF 14
DATA TRANSLATION, INC. AND SUBSIDIARIES
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - Financial Information:
Consolidated Balance Sheets as of February 28, 1999 and
November 30, 1998................................................. 3
Consolidated Statements of Operations for the Three Months Ended
February 28, 1999 and 1998........................................ 4
Consolidated Statements of Stockholders' Investment for the Fiscal
Year Ended November 30, 1998 and for the Three Months
Ended February 28, 1999........................................... 5
Consolidated Statements of Cash Flows for the Three Months
Ended February 28, 1999 and 1998.................................. 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 14
PART I - FINANCIAL INFORMATION
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
1999 1998
---------------- -----------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,225,000 $ 2,780,000
Accounts receivable, net of reserves of
$403,000 in 1999 and $397,000 in 1998 1,942,000 1,763,000
Inventories 1,190,000 1,202,000
Prepaid expenses 397,000 378,000
---------------- -----------------
Total current assets 6,754,000 6,123,000
Equipment and Leasehold Improvements, net 1,184,000 1,328,000
Other Assets - net 96,000 125,000
---------------- -----------------
Total Assets $ 8,034,000 $ 7,576,000
================ =================
Current Liabilities:
Accounts payable $ 529,000 $ 256,000
Accrued expenses 1,861,000 1,765,000
---------------- -----------------
Total current liabilities 2,390,000 2,021,000
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 -
2,108,088 and 2,096,920 in 1999 and 1998, 21,000 21,000
respectively
Additional paid-in capital 12,775,000 12,764,000
Accumulated deficit (7,129,000) (7,231,000)
Cumulative translation adjustment (26,000) (2,000)
---------------- -----------------
Total stockholders' investment 5,641,000 5,552,000
---------------- -----------------
Total Liabilities and Stockholders' Investment $ 8,034,000 $ 7,576,000
================ =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 4 of 14
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1999 1998
--------------- ---------------
<S> <C> <C>
Net sales $ 3,857,000 $ 4,556,000
Cost of sales 1,671,000 2,230,000
--------------- ---------------
Gross profit 2,186,000 2,326,000
Research and development expenses 611,000 554,000
Selling and marketing expenses 1,002,000 1,570,000
General and administrative expenses 499,000 501,000
--------------- ---------------
Loss from operations 74,000 (299,000)
Interest income 28,000 42,000
Other expense -- (17,000)
--------------- ---------------
Net income (loss) $ 102,000 $ (274,000)
=============== ===============
Basic and diluted net income (loss) per share $ 0.05 $ (0.13)
=============== ===============
Basic weighted average number of shares outstanding 2,104,000 2,067,000
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 5 of 14
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, 1997 $ -- 2,048,765 $ 20,000 $ 12,691,000 $(5,979,000) $ (3,000) $ 6,729,000
Proceeds from stock plans -- 48,155 1,000 73,000 -- -- 74,000
Translation adjustment -- -- -- -- -- 1,000 1,000
Net loss -- -- -- -- (1,252,000) -- (1,252,000)
------------------------------------------------------------------------------------------
Balance, November 30, 1998 $ -- 2,096,920 $ 21,000 $ 12,764,000 $(7,231,000) $ (2,000) $ 5,552,000
Proceeds from stock plans -- 11,168 -- 11,000 -- -- 11,000
Translation adjustment -- -- -- -- -- (24,000) (24,000)
Net income -- -- -- -- 102,000 -- 102,000
------------------------------------------------------------------------------------------
Balance, February 28, 1999 $ -- 2,108,088 $ 21,000 $ 12,775,000 $(7,129,000) $(26,000) $ 5,641,000
==========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 6 of 14
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1999 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 102,000 $ (274,000)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities-
Depreciation and amortization 171,000 297,000
Changes in assets and liabilities-
Accounts receivable (179,000) (126,000)
Inventories 12,000 107,000
Prepaid expenses (19,000) (168,000)
Accounts payable 273,000 130,000
Accrued expenses 96,000 214,000
Due to related party - (273,000)
Net liabilities of discontinued opertations - (797,000)
----------------- -----------------
Net cash provided by (used in) operating activities $ 456,000 $ (890,000)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (2,000) (55,000)
Increase in other assets 4,000 (20,000)
----------------- -----------------
Net cash provided by (used in) investing activities $ 2,000 $ (75,000)
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock plans $ 11,000 $ 46,000
----------------- -----------------
EXCHANGE RATE EFFECTS (24,000) (13,000)
----------------- -----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 445,000 $ (932,000)
CASH AND CASH EQUIVALENTS, beginning of period 2,780,000 3,922,000
----------------- -----------------
CASH AND CASH EQUIVALENTS, end of period $ 3,225,000 $ 2,990,000
================= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
Page 7 of 14
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 1998 Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 1, 1999.
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 at the time of purchase. 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,
1999 1998
------------ --------------
<S> <C> <C>
Raw material $ 929,000 $ 817,000
Work-in-process 99,000 54,000
Finished goods 162,000 331,000
---------- ----------
$1,190,000 $1,202,000
========== ==========
</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
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, 1999 and 1998, 6,169 and 26,194 anti-dilutive weighted
shares, respectively, have been excluded from the weighted average number of
common and dilutive potential common shares outstanding.
<PAGE>
Page 8 of 14
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Capitalized Software Development Costs
The Company capitalizes certain computer software development costs.
Such costs, net of accumulated amortization, were approximately $96,000 and
$121,000 as of February 28, 1999 and November 30, 1998, 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 sales, was approximately $25,000 and $40,000 for the three
months ended February 28, 1999 and 1998, respectively.
6. Recently Introduced Accounting Practices
The Company adopted SFAS 130, `Reporting Comprehensive Income",
effective December 1, 1998. SFAS 130 establishes standards for reporting and
display of comprehensive income and its components in financial statements. If
presented on the statement of stockholders' investment for the three months
ended February 28, 1999 and 1998 comprehensive income (loss) would be $78,000
and ($261,000), respectively.
Additionally, the Company has adopted SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information". SFAS No. 131 requires
certain financial and supplementary information to be disclosed on an annual and
interim basis for each reportable segment of an enterprise. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997.
<PAGE>
Page 9 of 14
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 statement of operations
data as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended
February 28, February 28,
1999 1998
---- ----
<S> <C> <C>
Net sales............................................... 100.0% 100.0%
Gross profit............................................ 56.7 51.1
Research and development expenses....................... 15.8 12.2
Selling and marketing expenses.......................... 26.0 34.6
General and administrative expenses..................... 12.9 11.0
----- ------
Income (loss) from operations........................... 1.9 (6.6)
Interest income (expense) and other, net................ 0.7 0.5
----- ------
Net income (loss)....................................... 2.6% (6.0)%
===== ======
</TABLE>
Comparison of First Fiscal Quarter of 1999 to First Fiscal Quarter of 1998:
Net sales for the fiscal quarter ended February 28, 1999 were $3,857,000, a
decrease of 15.3% or $699,000 from the same period a year ago. The decrease in
net sales was due primarily from lower orders for all products within all
geographies. Sales from the Company's commercial products, Broadway(TM)
decreased approximately 17.2% from the comparable quarter of the prior year. The
Company's data acquisition and imaging products decreased approximately 14.9%,
from the same period a year ago. Sales continue to be adversely impacted by
various market conditions including, a continued shift in the data acquisition
and imaging markets toward new, lower priced hardware and software solutions,
competitive pricing pressures and the decline of the worldwide financial
markets. In an effort to improve sales, the Company will begin distributing its
new 1999 Product Handbook in May, launch new advertising campaigns and continue
to introduce new products within the Company's data acquisition and imaging
product lines.
Gross margin for the fiscal quarter ended February 28, 1999 was 56.7%,
compared to 51.1% in the comparable quarter of the prior year. The increase in
gross margin was the result of improved internal cost efficiencies and a more
favorable product mix.
Income from operations for the first fiscal quarter of 1999 was $74,000,
compared to a loss from operations of $299,000 in the comparable quarter of the
prior year. Operating expenses for the first fiscal quarter of 1999 were
$2,112,000 or 54.7% of net sales, a decrease of $513,000 compared to $2,625,000
or 57.8% of net sales in the prior year. Research and development expenses were
$611,000 or 15.8% of net sales compared to $554,000 or 12.2% of net sales for
the comparable period last year. This increase is the result of a continued
effort to introduce new products in the data acquisition and imaging markets.
Sales and marketing expenses were $1,002,000 or 26.0% of net sales compared to
$1,570,000 or 34.6% of net sales in the prior year. The decrease is largely a
result of reduced headcount and a consolidation of the Company's marketing
programs. General and administrative expenses were $499,000 or 12.9% of net
sales compared to $501,000 or 11.0% of net sales for the same period last year.
Net income for the fiscal quarter ended February 28, 1999 was $102,000 or
$0.05 per share, compared to a net loss of $274,000 or $0.13 per share for the
same period in 1998.
<PAGE>
Page 10 of 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Liquidity and Capital Resources
During the first quarter of fiscal 1999, net cash provided by operations was
$452,000, which included net income of $102,000 and increases in accounts
payable and accrued expenses. Given currently 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.
YEAR 2000 COMPLIANCE DISCLOSURE
YEAR 2000 DEFINITION
The Year 2000 problem refers to computer programs that were written using
two digits rather than four to define the applicable year, and the resulting
inability of software to process date information later than December 31, 1999.
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.
COMPANY PRODUCTS
The firmware in the Company's hardware products does not carry out any date
manipulation and thus, by its very nature, is Year 2000 compliant. Similarly,
the Company's software products are Year 2000 compliant because they do not have
user interface for the input of date data. This compliance, however, depends on
whether the underlying operating system and other products used with the
Company's products are Year 2000 compliant. The Company has solicited the status
of Year 2000 compliance with respect to all of its third party product
offerings.
THE COMPANY'S INTERNAL SYSTEMS; STATE OF READINESS AND COSTS TO REMEDY
The Company has conducted an assessment of its computer information systems
and has implemented a Year 2000 Plan to modify, upgrade or replace some of its
internal financial and operational systems. The Company has estimated the cost
of bringing all internal systems, equipment and operations into Year 2000
compliance to be approximately $250,000. Currently, the Company is approximately
95% complete with the implementation process and has incurred approximately 90%
of the total estimated cost. The Company has funded its Year 2000 Plan from
operating cash flows. 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.
THIRD PARTY RELATIONSHIPS
The Company also intends to determine the extent to which it may be
vulnerable to any failures by its major suppliers, distributors and service
providers, as well as any third parties related to the Company's two foreign
sales offices, to remedy their own Year 2000 problems. The Company 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 problems. 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 adverse 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.
In addition, the Company does not currently have meaningful information
concerning the Year 2000 compliance status of its customers. As is the case with
other companies, if significant numbers of the Company's current and future
customers fail to achieve Year 2000 compliance, or if they divert technology
expenditures away from those that were reserved for engineering products to
address Year 2000 compliance issues, the Company's business, results of
operations, or financial condition could be materially adversely affected.
<PAGE>
Page 11 of 14
YEAR 2000 RISKS; CONTINGENCY PLAN
While the Company anticipates that its Year 2000 risks will be remedied
before the Year 2000, no assurance can be given that the Company's or its
material third parties' Year 2000 conversion will be completed by such time. 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 problem could have a material adverse impact on the Company's
business, financial condition or results of operations. Management has assessed
the most reasonably likely worst case scenario. Given its efforts to minimize
the risk of Year 2000 failures, the Company believes the worst case scenario
would occur if the Company were unable to process and fulfill customer orders
because of the Year 2000 problem. The Company has initiated the development of a
comprehensive contingency plan in the event that its Year 2000 conversion is not
successfully completed. The Company anticipates the contingency plan to be
completed during the third quarter of fiscal 1999.
POTENTIAL LIABILITY TO THIRD PARTIES
Some commentators have predicted significant litigation regarding Year 2000
compliance issues and because of the unprecedented nature of such litigation, it
is uncertain whether, or to what extent, the Company may be affected.
The preceding "Year 2000 Compliance Disclosure" contains various forward-
looking statements within the meaning of Section 21E of the Securities Exchange
Act of 1934 and Section 27A of the Securities Act of 1933. These forward-looking
statements represent the Company's beliefs or expectations regarding future
events. When used in the "Year 2000 Compliance Disclosure," the words
"believes," "expects," "estimates" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
installation and testing of its internal systems; its estimated cost of
achieving Year 2000 readiness; and the Company's belief that its internal
systems will be Year 2000 compliant in a timely manner. All forward-looking
statements involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results.
Factors that may cause these differences include, but are not limited to,
the availability of qualified personnel and other information technology
resources; the ability to identify and remediate all date sensitive lines of
computer code or to replace embedded computer chips in affected systems or
equipment; and the actions of third parties with respect to Year 2000 problems.
<PAGE>
Page 12 of 14
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 13 of 14
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 15, 1999 By: /s/ Michael A. DiPoto
---------------------------
Michael A. DiPoto
Chief Financial Officer
<PAGE>
Page 14 of 14
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-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 3,225,000
<SECURITIES> 0
<RECEIVABLES> 1,942,000
<ALLOWANCES> 403,000
<INVENTORY> 1,190,000
<CURRENT-ASSETS> 6,754,000
<PP&E> 19,668,000
<DEPRECIATION> 18,484,000
<TOTAL-ASSETS> 8,034,000
<CURRENT-LIABILITIES> 2,390,000
<BONDS> 0
0
0
<COMMON> 21,000
<OTHER-SE> 5,620,000
<TOTAL-LIABILITY-AND-EQUITY> 8,034,000
<SALES> 3,857,000
<TOTAL-REVENUES> 3,857,000
<CGS> 1,671,000
<TOTAL-COSTS> 1,671,000
<OTHER-EXPENSES> 2,112,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 102,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,000
<EPS-PRIMARY> 0.05
<EPS-DILUTED> 0.05
</TABLE>
