SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 1995 Commission File Number 0-10964
MAXWELL LABORATORIES, INC.
Delaware IRS ID #95-2390133
8888 Balboa Avenue,
San Diego, California 92123
Telephone (619) 279-5100
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 [ ]
As of November 30, 1995 Registrant had only one class of common stock of which
there were 2,702,499 shares outstanding.
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PART I - FINANCIAL STATEMENTS
Maxwell Laboratories, Inc.
Consolidated Condensed Balance Sheet
(in thousands)
Assets
______
<CAPTION>
October 31, July 31,
1995 1995
_________ _________
(Unaudited) (Note)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 884 $ 4,053
Accounts receivable - net 17,306 16,030
Inventories:
Finished products 1,740 1,181
Work in process 2,403 2,292
Parts and raw materials 4,199 3,766
_________ _________
8,342 7,239
Recoverable income taxes 852 861
Prepaid expenses 773 572
Deferred income taxes 2,090 2,090
_________ _________
Total current assets 30,247 30,845
Property, plant and equipment - net 19,928 20,315
Deposits and other assets 1,228 1,210
_________ _________
$ 51,403 $ 52,370
========= =========
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<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
____________________________________
<S> <C> <C> <C> <C>
Current Liabilities:
Accounts payable $ 8,863 $ 9,400
Accrued employee compensation 2,473 2,681
Current portion of long-term debt 909 909
_________ _________
Total current liabilities 12,245 12,990
Long-term debt 1,658 1,928
Deferred income taxes 805 805
Minority interest and additional amounts contributed 1,168 1,283
Shareholders' equity:
Common stock 270 269
Additional paid-in capital 18,991 18,889
Retained earnings 16,266 16,206
_________ _________
35,527 35,364
_________ _________
$ 51,403 $ 52,370
========= =========
<FN>
Note: The Balance Sheet at July 31, 1995 has been derived from the audited
financial statements at that date.
See notes to consolidated condensed financial statements.
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PART I - FINANCIAL STATEMENTS, continued
Maxwell Laboratories, Inc.
Consolidated Condensed Statement of Income - (Unaudited)
(in thousands except per share data)
<CAPTION>
Three Months
Ended October 31,
______________________
1995 1994
_________ _________
<S> <C> <C>
Sales $ 19,172 $ 17,918
Costs and expenses:
Cost of sales 15,046 12,946
Research and development expenses 983 1,354
Selling, administrative and general expenses 3,133 3,189
Other - net (90) (85)
_________ _________
19,072 17,404
_________ _________
Income before income taxes
and minority interest 100 514
Provision for income taxes 28 163
_________ _________
72 351
Minority interest in net income of subsidiary 12 28
_________ _________
Net income $ 60 $ 323
========= =========
Primary earnings per share of common stock $ .02 $ .12
========= =========
Weighted average number of shares 2,733,000 2,675,000
========= =========
<FN>
Note: Primary earnings per share is based upon weighted average number of
shares of common stock outstanding and all dilutive stock options. Per
share amounts are unchanged on a fully dilutive basis.
See notes to consolidated condensed financial statements.
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PART I - FINANCIAL STATEMENTS, continued
Maxwell Laboratories, Inc.
Consolidated Condensed Statement of Cash Flows - (Unaudited)
(in thousands)
<CAPTION>
Three Months
Ended October 31,
______________________
1995 1994
_________ _________
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 60 $ 323
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 734 685
Minority interest in net income of subsidiary 12 28
Changes in operating assets and
liabilities - net (3,334) (2,712)
_________ _________
NET CASH USED IN
OPERATING ACTIVITIES (2,528) (1,676)
_________ _________
INVESTING ACTIVITIES
Purchases of property and equipment (474) (705)
_________ _________
NET CASH USED IN
INVESTING ACTIVITIES (474) (705)
_________ _________
FINANCING ACTIVITIES
Principal payments on long-term debt (270) (259)
Proceeds from issuance of Company stock 103 --
_________ _________
NET CASH USED IN
FINANCING ACTIVITIES (167) (259)
_________ _________
DECREASE IN CASH AND
CASH EQUIVALENTS (3,169) (2,640)
Cash and cash equivalents at beginning of period 4,053 4,579
_________ _________
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 884 $ 1,939
========= =========
<FN>
See notes to consolidated condensed financial statements.
</TABLE>
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PART I - continued
NOTES TO FINANCIAL STATEMENTS
The preceding interim consolidated condensed financial statements
contain all adjustments (consisting of normal recurring accruals) which are,
in the opinion of management, necessary for a fair and accurate presentation
of financial position at October 31, 1995 and the results of operations for
the three month period then ended. These interim financial statements should
be read in conjunction with the Company's July 31, 1995 audited financial
statements included in its Proxy Statement for the 1995 Annual Meeting of
Shareholders. Interim results are not necessarily indicative of those to be
expected for the full year.
The consolidated financial statements include the accounts of Maxwell
Laboratories, Inc., and its majority-owned subsidiary, PurePulse Technologies,
Inc. All significant intercompany transactions and account balances are
eliminated in consolidation.
In January 1991, the California Department of Toxic Substances Control,
or DTSC, notified the Company that it had been identified as one of a number
of "potentially responsible parties" with respect to alleged hazardous
substances released into the environment at a recycling facility in San Diego
County. Although the Company was not involved in the transport or disposal of
the substances, Maxwell remains a potentially responsible party under
California and Federal "Superfund" laws. In 1992, the Company and
approximately 40 other potentially responsible parties signed a consent order
which had been negotiated with the DTSC, agreeing to pay $4 million of the
$7.9 million response costs previously incurred by the State, and to pay for
certain future site investigations and interim response actions outlined in
the consent order. The currently estimated cost of such activities is $9.1
million, and the Company's share of the cost, as allocated by the parties to
the consent order, is currently estimated at approximately 7.0%. The eventual
cost of all removal and remediation activities, for which the Company and the
other potentially responsible parties will share in additional reimbursements
to the State, and including the $9.1 million referred to above, is currently
estimated to be in the range of $15 - $20 million. The Company has accrued
its share of such estimated costs; on the basis of amounts accrued by the
Company, it is management's opinion that any additional liability resulting
from this situation will not have a material effect on the Company's financial
statements. There have been no material developments on this matter since the
date of issuance of the Company's audited financial statements for the year
ended July 31, 1995.
Backlog of unfilled orders at October 31, 1995 was $75.7 million, of
which $40.4 million is fully funded.
PART I - continued
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
POSITION
Results of Operations
Sales for the three months ended October 31, 1995 were $19,172,000, a 7%
increase over the $17,918,000 for the same period one year ago. This
increase occurred in the Company's commercial, industrial and scientific
products (CIS) business segment. Sales in the primarily Defense related
technology programs and services (TPS) business segment dropped relative to
last year's first quarter, although the decline is mostly attributable to
chemical analytical services rather than Defense sales, as further described
in the paragraphs below.
CIS sales increased by approximately $2.4 million, or 27% over last
year's first quarter, to $11.3 million. Contributing to this rise in CIS
sales were gains in two of the Company's strategic focus areas: Information
Technology and Power Conversion Systems/Components. In Information
Technology, the revenue gains are primarily attributable to increased sales of
the I-Bus division's PC-based controllers for original equipment manufacturers
and the S-Cubed division's new commercial software business area, in which
substantial work did not begin until after the first quarter of the prior
fiscal year. Currently, the commercial software business at S-Cubed consists
primarily of two long-term fixed price contracts, both of which are scheduled
for completion in calendar 1996. Sales in several product lines, primarily
pulsed power components, within the Power Conversion Systems/Components area
increased over the prior year. While these are positive results overall for
the CIS segment, it should be noted when making such comparisons that
fluctuations either upward or downward occur from time to time in many of the
Company's CIS groups.
TPS sales declined by approximately $1.1 million, or 13% from last
year's first quarter, to $7.9 million. While certain areas of the Defense
business were down compared to last year, primarily related to nuclear weapons
effects simulation work for the Defense Nuclear Agency, overall Defense sales
were slightly higher than in the prior year's first quarter. Although we
believe the Company may be approaching a level of Defense work that could
remain a stable core, the federal budget effect on future Defense spending and
the impact on the Company is not predictable and, therefore, previously
reported results are not necessarily indicative of those to be expected in the
future.
The major factors affecting TPS sales in this year's first quarter are a
significant decline in the flow of samples, primarily from the Department of
Energy (DOE) and the EPA, into the S-Cubed chemical analytical services
laboratory, and a delay in the funding for a DOE supported technology
development program, the follow-on funding for which is now expected in this
year's second quarter. The chemical analytical services laboratory's business
to this point has been focused on sample analysis for DOE and EPA. Due to
federal budget delays and a current shift in emphasis at federal levels from
characterization to remediation, DOE and EPA samples under the laboratory's
current contracts have been substantially curtailed. These low federal sample
volumes are likely to continue for at least some months, and the level of
their recovery is not currently known. The Company is following a dual
strategy of investing in additional marketing for the laboratory, with an
emphasis on commercial sample analysis, and exploring its possible sale. A
disposition of the laboratory, should it occur, may not result in realization
of the Company's full investment in the assets of the laboratory. The current
book value of this operation's assets is approximately $2.5 million.
PART I - continued
Cost of sales for the quarter ended October 31, 1995, was $15,046,000 or
78.5% of sales, as compared to $12,946,000 or 72.3% of sales for the same
period last year. While no one operation had a significant impact on cost of
sales as a percentage of sales in the CIS business segment, the Balboa,
S-Cubed, Business Systems and Sierra divisions all experienced a rise in the
CIS cost of sales percentage resulting in an aggregate increase of just under
5%. At S-Cubed this reflects the low profit margins associated with entry
into the commercial software market, and at Sierra it reflects the re-working
and re-design of products and manufacturing processes. The TPS cost of sales
percentage was primarily impacted by the previously mentioned large decrease
in chemical analytical services laboratory revenues. As the laboratory has a
relatively high amount of fixed costs associated with operations and
facilities, the lack of sample flow to cover these costs was the most
significant factor in the over 6% increase in the TPS cost of sales
percentage.
Research and development expenses were $983,000 during the three-month
period compared to $1,354,000 for the same period last year. This decrease is
primarily attributable to the planned high level of expenditures in last
year's first quarter in the S-Cubed division, which fell to a slightly less
than typical level in this year. It is currently anticipated that such
expenditures at S-Cubed over the remainder of the year will be more comparable
to the prior year's last three quarters.
As a result of the above factors, net income for the three months ended
October 31, 1995 was $60,000, as compared to $323,000 for the same period one
year ago.
Liquidity and Capital Resources
The ratio of current assets to current liabilities was 2.5 to 1 at
October 31, 1995, compared to 2.4 to 1 at the end of fiscal year 1995. The
Company's operations used $2.5 million in cash in the first quarter, due
primarily to inventory growth at I-Bus and an increase in receivables
associated with S-Cubed's commercial software projects. Management believes
the Company will continue to use cash in operating activities until later in
the fiscal year, when it is anticipated that there will be some recovery in
these areas. Cash requirements not met with funds on hand are planned to be
met with funds available through the Company's bank line of credit of $7.5
million.
In the Company's strategic planning process, business unit
performance is being analyzed to determine acceptable returns and strategic
investments. Business units not meeting internal requirements may be
targeted for disposition, or discontinuance of unprofitable or non-strategic
product lines, and the Company may not realize its full investment in the
assets of such business areas should a sale or discontinuance occur.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
No exhibits are included with the Form 10-Q for the period ended
October 31, 1995.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended October
31, 1995.
SIGNATURE
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.
MAXWELL LABORATORIES, INC.
December 15, 1995 Gary J. Davidson
Date Gary Davidson, Chief Financial Officer
and Authorized Officer
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<CASH> 884
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<RECEIVABLES> 17,306
<ALLOWANCES> 0
<INVENTORY> 8,342
<CURRENT-ASSETS> 30,247
<PP&E> 56,412
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<CURRENT-LIABILITIES> 12,245
<BONDS> 1,658
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<OTHER-SE> 35,257
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<SALES> 19,172
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<CGS> 15,046
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<OTHER-EXPENSES> 983
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