SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended May 30, 1997 or
( ) 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 0-10843
CSP Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2441294
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.
40 Linnell Circle, Billerica, Massachusetts
(Address of principal executive offices)
Registrant's telephone number, including area code: (508)663-
7598
NONE
(Former name, former address, former fiscal year, if changed sinc
e
last report)
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 ( )
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the
issuer's
classes of common stock as of the latest practicable date.
Class Outstanding July 11, 1997
Common stock, $.01 par value 2,679,870 shares
INDEX
PAGE
NUMBER
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets.............................3
Consolidated Statements of Operations...................4
Consolidated Statements of Cash Flows...................5
Notes to Consolidated Financial Statements..............6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................8
PART II. OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K...12
<TABLE>
<CAPTION>
CSP, INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
May 30, August 30,
1997 1996
(Unaudited)
<S>
ASSETS <C> <C>
Current assets:
Cash and cash equivalents $10,918 $10,928
Marketable securities 6,891 6,127
Accounts receivable, net 1,845 4,147
Inventories (Note 2) 2,377 2,405
Deferred income taxes 462 481
Prepaid expenses 1,054 351
Total current assets 23,550 24,439
Property, equipment and improvements, net 3,261 3,607
Other assets:
Land held for future development 163 163
Deferred income taxes 484 409
Other assets 1,025 918
Total other assets 1,672 1,490
Total assets $28,483 $29,536
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $758 $1,425
Income taxes payable 0 214
Total current liabilities 758 1,639
Deferred compensation and retirement 2,210 2,093
plans
Shareholders' equity:
Common stock,$.01 par,authorized
7,500,000 shares
30 29
Paid in capital 10,573 10,411
Retained earnings 16,979 17,397
27,582 27,837
Less treasury stock, at cost, 306,314
and 301,314 shares (Note 3) 2,067 2,033
Total shareholders' equity 25,515 25,804
Total liabilities and shareholders'equity $28,483 $29,536
</TABLE>
See notes to consolidated financial statements.
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands,except per share data)
(Unaudited)
/-For the three months--//-For the nine months-
/
May 30, May 31, May 30, May 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Sales $2,145 $4,007 $9,919 $12,392
Costs and expenses:
Cost of sales 852 1,802 4,132 5,186
Engineering and development 755 983 2,592 2,443
Marketing and sales 837 1,410 3,012 4,083
General and administrative 394 349 1,289 1,450
Restructuring expense(Note 105 --- 105 ---
4)
Total cost and expenses $2,943 $4,544 $11,130 $13,162
Operating loss ($798) ($1,211 ($770)
($537)
Other income $223 $222 $637 $636
Loss before income taxes ($575) ($574) ($134)
($315)
Income tax expense (benefit) ($148) ($156) ($52)
($147)
Net loss ($427) ($418) ($82)
($168)
Earnings per share ($0.16) ($0.06) ($0.16) ($.03)
Weighted average shares 2,684 2,706 2,682 2,716
outstanding
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
/---For the three-----//----For the nine--/
months ended months ended
May May May May
30, 31, 30, 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ($427) ($168)
($418) ($82)
Adjustments to reconcile net income to
net cash provided by(used
in)operating activities:
Depreciation 281 256 847
681
Deferred compensation and retirement 11 39 117
147
plans
Deferred income taxes (22) 7
(56) (13)
Other (8) 12 (2)
26
Changes in current assets and
liabilities:
Decrease in accounts receivable 1,330 426 2,302
172
(Increase)decrease in inventories (60) 255 28
(185)
(Increase)decrease in prepaid 126 16
expenses (703) 80
Increase(decrease) in accounts (233) 31
payable (667) 155
and accrued expenses
Increase(decrease) in income taxes (49) (142)
payable (214) (51)
Net cash provided by operating 949 732 1,234
activities 930
Cash flows from investing activities:
Purchase of marketable securities (46,736) (41,163) (151,936
) (148,973
)
Sale of marketable securities 45,581 40,286 151,171
148,354
Property,equipment and improvements (81) (351)
(501) (743)
Other assets (19) (49)
(107) (50)
Net cash provided by(used (1,255) (1,277)
in)investing 1,373) (1,412)
activities
Cash flows from financing activities:
Proceeds from stock options 130 11 163 225
Purchase of treasury stock (34) ----
(34) (253)
Net cash provided by(used
in)financing
activities 96 11 129
(28)
Net increase(decrease) in cash (210) (534)
(10) (509)
Cash and cash equivalents, beginning of 11,128 11,092 10,928
year 11,069
Cash and cash equivalents, end of year 10,918 $10,558 $10,918
$10,558
Supplementary cash flow information:
Cash paid for income taxes, net $75 ---- $150 ---
-
Cash paid for interest
</TABLE>
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company, without audit, and reflect all
adjustments which in the opinion of management, are necessary for
a fair statement of the results of the interim periods presented.
All adjustments were of a normal recurring nature. Certain
information and footnote disclosures normally included in the
annual consolidated financial statements which are prepared in
accordance with generally accepted accounting principles have
been condensed or omitted. Accordingly, the Company believes
that although the disclosures are adequate to make the
information presented not misleading, the consolidated financial
statements should be read in conjunction with the footnotes
contained in the Company's Annual Report on Form 10-K for the
fiscal year ended August 30, 1996.
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.
The Company's fiscal year end is on the last Friday in August.
Fiscal year 1996 is 53 weeks, with the first quarter being 14
weeks in length, and the remaining three quarters each 13 weeks
in length.
2. Inventories:
Inventories consist of the following:
May 30, August 30,
1997 1996
- ---------- ----------
($000's)
Raw materials $1,130 $1,083
Work-in-process 479 739
Finished goods 768 583
------ ------
Total $2,377 $2,405
====== ======
3. Restructuring Expenses:
In March 1997 the Company accrued approximately $105,000 of the
estimated costs to be incurred in reducing its work force. These
costs are comprised of severance costs.
4. Stock Repurchase:
On October 9, 1986 the Board of Directors authorized the Company
to repurchase up to 282,723 of the outstanding stock at market
prices. On September 28, 1995, the Board of Directors authorized
the Company to repurchase up to 150,000 additional shares of the
outstanding stock at market prices. The timing of stock purchases
are made at the discretion of management. Through May 30,1997
the Company has repurchased 306,314 or 71% of the total authorize
5. Subsequent events:
On June 13, 1997 the Company purchased the assets of Signal
Analytics Corporation of Vienna, Virginia for cash of $2.140
million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
A summary of the period to period changes in principal items
included in the Statement of Operations is shown in Schedules I
and II ( pages 12 and 13 ).
Results of Operations - 1997 Compared to 1996:
Sales revenues of $2,145,000 and $9,919,000 for the three and
nine month periods ended May 30, 1997 represent a decline of 46%
and 20%, respectively, from the prior comparable periods of
fiscal year 1996.
Sales of the CSP Computer product group were approximately
$1,631,000 and $5,702,000 for the three and nine month periods
ended May 30, 1997. This represents a decline of approximately
46% and 39% from the prior comparable periods of fiscal year
1996. A major portion of the decline was due to decreased
shipments of SuperCard family of products. The SuperCard family
of products represented approximately 88% and 87% of product
groups sales for the three and nine month periods ended May 30,
1997 compared to 87% and 92% in the prior comparable periods.
This decrease is mainly due to decline in shipments to various
U.S. based COTS programs and our current OEM customers. The
SuperCard product is being sold to primarily existing customers.
The opportunity for new customers is limited in part because of
Intel Corp. has discontinued any advanced development of the
i860 processor which is the main processor of the SuperCard
products. The new product, the MAP-2640, which is a highly
scaleable multi-computing product based on processor Power PC
from IBM/Motorola and Myrinet gigabit network technology from
Myricom, Inc. of Arcadia, CA. has been developed over the last
two years. The initial unit was shipped in June, 1997 to Hughes
Aircraft Corporation. The transition to the new product will take
several quarters for buildup in the market. The SuperCard product
still has numerous opportunities for existing military programs,
but the increased possibilities will come from the new MAP
product line.
The Scanalytics product line (bio-instrumentation for molecular
and cell biology) sales were $394,000 and $2,121,000 for the
three and nine month periods ended May 30, 1997, compared to
$563,000 and $2,234,000 for the prior comparable periods. This
decrease in revenue was primarily attributable to decreased Ambis
product, service and maintenance sales, which represented
approximately $52,000 and $250,000 for the three and nine month
periods ended May 30, 1997, compared to $196,000 and $573,000 for
prior comparable periods. Revenue generated from Cellscan
decreased for the quarter by approximately 6%, compared to last
year and had increased by 19% compared the prior year to date
totals. Year to date Cellscan sales for the current fiscal year
represented 47% and 64% of total product line revenue for the
three and nine month periods.
Vision Systems product line sales were approximately $119,000 and
$2,096,000 for the three and nine month periods ended May 30,
1997 compared to $429,000 and $829,000 in the prior comparable
periods. The decreased revenue during the quarter was due to no
significant orders from UPS or other customers for the machine
bar code readers. The increase in year to date revenue was due
to first and second quarter shipments to UPS.
North American sales represented 87% of total year to date sales
compared to 90% for the prior comparable nine month period.
Sales in the Far East accounted for approximately 8% for the nine
month period ended May 30, 1997 compared to 7% of total sales for
the comparable period of fiscal 1996. European and Middle East
sales were 5% of total sales compared to 3% in the prior
comparable period.
Cost of sales as a percentage of sales was approximately 40% and
42% for the three and nine month periods ended May 30, 1997
compared to 45% and 42% for the prior comparable periods. The
improvement in the quarter's gross margin was primarily due to
the change in sales mix towards CSP product group sales which
tend to carry more favorable gross profit margins. A significant
portion of the first two quarters sales were derived from sales
of machine bar code reader units which yield lower gross margins
than either the Scanalytics or CSP products.
The Company has reduced its over all operating expenses during
the quarter. In March, 1997, the Company consolidated and
restructured its operations by eliminating fourteen positions
primarily in manufacturing and Vision Systems. The annual savings
of this action will be approximately $1 million. A one time
restructure expense of $105,000 was recorded during the third
quarter.
Total engineering and development expense decreased approximately
23% for the three month period but had increased by 6% for the
nine month period ended May 30, 1997 compared to the prior
comparable fiscal periods. The increase in engineering and
development expense for the nine month period primarily
represented costs to enhance the performance of Lightening 500
bar code reader and to complete the MAP-2640 and 1000 products.
Approximately $151,000 of the increase for the nine month period
is attributable to the expanded effort to upgrade the processing
speed and camera of the Lightening 500 which included internal
engineering and outside consultants. The remaining increase in
expense was for the CSP product group related the completion of
the new MAP products. The increase was primarily for outside
consultants to assist in completion of the software and pre-
product units for testing and evaluation.
Sales and marketing expenses decreased to $838,000 and $3,013,000
for the three and nine months ended May 30, 1997 compared to
$1,410,000 and $4,083,000 for the same periods of prior fiscal
periods. This decrease is mainly attributable to the reduction
in staff of CSP product sales and marketing personnel, decreased
sales commissions expense, closure of French sales operations and
decreased staff in the Scanalytics customer support and sales
areas.
General and Administrative expenses increased by $46,000 for the
three month period ended May 30, 1997 compared to the same
period of fiscal 1996. The increase relates to the expenses for
the CEO and President position which was open during the third
quarter of the prior fiscal year. The year-to-date total
expenses were approximately $161,000 lower than the prior fiscal
year, due to reductions in staff in the administration and
finance area and cuts in the operating expenses.
Other income has increased compared to the prior year due to
change in the mix of investments from non-taxable securities to
fully taxable, which have higher rates of return.
The Company continues its conservative investment strategy of
maintaining a short-term liquid position, while maximizing
revenues on an after-tax basis with as limited an exposure of
principal as possible. The Company believes that as a result of
maintaining a liquid position, it has been able to avoid
borrowing for capital needs as well as augment its operating
results, and is well positioned to make an acquisition or a joint
venture if appropriate opportunities arise.
Financial Position, Capital Resources and Liquidity:
Working capital remained the same at $22.8 million on both May
30, 1997 and at the end of August 30, 1996. Net accounts
receivable decreased approximately $2,302,000 from August 30,
1996 due to lower sales volume and increase in collection
efforts.
Management believes that all of the Company's current and
foreseeable needs can be met through working capital generated by
operations and investments.
Inflation and Changing Prices:
Management does not believe that inflation and changing prices
had significant impact on either sales, revenues or income from
continuing operations during the three and nine month periods
ended May 31, 1996. There is no assurance, however, that the
Company's business will not be materially and adversely affected
by inflation and changing prices in the future.
Subsequent Event:
On June 13, 1997, the Company acquired the assets of Signal
Anayltics Corporation of Vienna, VA for cash of $2,140,000.
Signal Analytics was founded in 1988 and had $1.5 million in
revenue in 1996. The Company is a scientific imaging company
which specializes in imaging based software and systems solutions
for scientific and medical professionals. Signal Analytics will
be merged into a wholly owned subsidiary, Scanalytics Inc. This
acquisition is the first in CSP Inc.'s merger and acquisition
strategy to leverage the strong balance sheet to add new
businesses and product lines to accelerate growth and
profitability.
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES SCHEDULE I
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE OF SALES
(Dollars in thousands)
(Unaudited)
/--For the three months---/ /----For the nine months---/
ended ended
May May May May
30, 31, 30, 31,
1997 % 1996 % 1997 % 1996 %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $2,145 100% $4,007 100% $9,919 100% $12,39 100%
2
Costs and expenses:
Cost of sales 852 40% 1,802 45% 4,132 42% 5,186 42%
Engineering and 755 35% 983 25% 2,592 26% 2,443 20%
development
Marketing and sales 837 39% 1,410 35% 3,012 30% 4,083 33%
General and 394 18% 349 9% 1,289 13% 1,450 12%
administrative
Restructuring 105 5% --- -- 105 1% --- --
Expense
Total cost and 2,943 137% 4,544 113% 11,130 112% 13,162 106%
expenses
Operating loss (798) -37% (537) -13% (1,211 -12% (770) -6%
)
Other income 223 10% 222 6% 637 6% 636 5%
Income before loss (575) (27) (315) -8% (574) -6% (134) -1%
taxes %
Income tax expense (148) (7)% (147) -4% (156) -2% (52) 0%
(benefit)
Net loss ($427) (20) ($168) -4% -4% ($82) -1%
% ($418)
</TABLE>
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES SCHEDULE II
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars in thousands)
(Unaudited)
/-For the three months- /-For the nine months-
- -/
ended ended
May 30, 1997 vs May 31, 1996
$ % $ %
Change Change Change Change
<S> <C> <C> <C> <C>
Sales ($1,862) -46.5% -20.0%
$2,473)
Costs and expenses:
Cost of sales (950) -52.7% -20.3%
(1,054)
Engineering and development (228) -23.2% 149 6.1%
Marketing and sales (573) -40.6% -26.2%
(1,071)
General and administrative 45 14.6% -11.7%
(161)
Restructuring expense 105 100.00 105 100.0%
Total cost and expenses (1,601) -35.2% -15.4%
(2,032)
Operating income (loss) (261) -48.6% -57.2%
(441)
Other income 1 .5% 1 0.2%
Income before income taxes (260) -82.5% -328.4%
(440)
Income tax expense (benefit) (1) -.7% -200.0%
(104)
Net loss ($259) -154.2% -409.8%
($336)
</TABLE>
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security
Holders
None
Item 6. Exhibit and Reports on Form 8-K
a) Reports on Form 8-K
NONE
b) Exhibits
11.0 Data used in the calculation of net
income per share.
27.0 Financial Data Schedule
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.
CSP Inc.
(Registrant)
Date: July 11, 1997 By: s/s Alexander R. Lupinetti
Alexander R. Lupinetti
Chief Executive Officer and
President
Date: July 11, 1997 By: s/s Gary W. Levine
Gary W. Levine
Vice President of Finance and
Chief Financial Officer
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.
CSP Inc.
(Registrant)
Date:______________________ By:
Gary W. Levine
Chief Executive
Officer
and President, Acting
Date:______________________ By:
Vice President of
Finance
and Chief Financial
Officer
<TABLE>
<CAPTION>
CSP, INC. AND SUBSIDIARIES Exhibit 11.0
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
For the Three and Nine Month Periods Ended May 31, 1996 and May 26, 1995
(In thousands except for per share data)
(Unaudited)
/-For The Three Months Ended-//-For
the Nine Months Ended-/
May 30, May 31,
May 30, May 31,
1997 1996
1997 1996
--------- ---------
- ------- ----------
<S><C> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE - (PRIMARY)
- ----------------------------------------------
Net income (loss) ($427) ($168)
($418) ($82)
====== ======
====== ======
Average common shares outstanding 2,684 2,706
2,682 2,716
====== ======
====== ======
Reported net income (loss) per common share ($0.16) ($0.06)
($0.16) ($0.03)
====== ======
====== ======
NET INCOME (LOSS)PER COMMON SHARE - (FULL DILUTION)
- ---------------------------------------------------
Net income (loss) ($427) ($168)
($418) ($82)
====== ======
====== ======
Average common shares outstanding 2,684 2,706
2,682 2,716
====== ======
====== ======
Net income (loss) per common share-(Full Dilution) ($0.16) ($0.06)
($0.16) ( $0.03)
====== ======
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informtion extracted from Form-10Q
and is qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-29-1997
<PERIOD-END> MAY-30-1997
<CASH> 10,918
<SECURITIES> 6,894
<RECEIVABLES> 1,948
<ALLOWANCES> 103
<INVENTORY> 2,377
<CURRENT-ASSETS> 23,550
<PP&E> 12,959
<DEPRECIATION> 9,698
<TOTAL-ASSETS> 28,483
<CURRENT-LIABILITIES> 758
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 25,515
<TOTAL-LIABILITY-AND-EQUITY> 28,483
<SALES> 9,919
<TOTAL-REVENUES> 9,919
<CGS> 4,132
<TOTAL-COSTS> 6,998
<OTHER-EXPENSES> (637)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (574)
<INCOME-TAX> (156)
<INCOME-CONTINUING> (574)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (418)
<EPS-PRIMARY> (.16)
<EPS-DILUTED> (.16)
</TABLE>
