U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31,
1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM ____ TO ____.
Commission File Number 0-13870
Technology 80 Inc.
- -----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1373380
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
658 Mendelssohn Avenue North, Minneapolis, Minnesota 55427
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(612) 542-9545
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
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 [ ]
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Common Stock, $0.01 par value 1,694,858
----------------------------- --------------------
(Title of Class) (Shares Outstanding)
Part I - Financial Information
Item 1: Financial Statements
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
ASSETS
May 31, August 31,
1999 1998
---------- ----------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $3,645,392 $1,667,363
Short-term investments - 49,048
Accounts receivable (less allowance for doubtful
accounts: May 31 - $12,000; Aug. 31 - $12,000) 702,322 666,933
Inventories 1,014,583 1,357,461
Deferred taxes 41,000 41,000
Other current assets 142,913 82,972
---------- ----------
TOTAL CURRENT ASSETS 5,546,210 3,864,777
---------- ----------
PROPERTY AND EQUIPMENT
Furniture and equipment 538,268 524,035
Leasehold improvements 23,060 23,060
---------- ----------
561,328 547,095
Less accumulated depreciation 461,502 430,524
---------- ----------
99,826 116,571
---------- ----------
OTHER ASSETS
Investments 224,641 1,955,678
Deferred taxes 197,500 265,000
---------- ----------
422,141 2,220,678
---------- ----------
TOTAL ASSETS $6,068,177 $6,202,026
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 35,282 $ 87,418
Accrued payroll and payroll taxes 160,191 464,816
Accrued income taxes 84,500 -
Payable to investment company - 77,750
Accrued liabilities - other 31,247 217,950
---------- ----------
TOTAL CURRENT LIABILITIES 311,220 847,934
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value (authorized -
5,000,000 shares; issued and outstanding -
May 31, 1,694,733, Aug. 31, 1,646,733 shares) 16,947 16,468
Paid-in capital 3,523,204 3,450,732
Other - loans (162,809) (172,072)
Accumulated other comprehensive income (loss) (166,409) (491,238)
Retained earnings 2,546,024 2,550,202
---------- ----------
5,756,957 5,354,092
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,068,177 $6,202,026
========== ==========
See notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
Three months ended Nine months ended
May 31, May 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $1,233,119 $1,498,149 $3,297,161 $4,251,423
COST OF GOODS SOLD 466,895 536,652 1,285,440 1,633,858
---------- ---------- ---------- ----------
GROSS PROFIT 766,224 961,497 2,011,721 2,617,565
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and administrative 146,812 180,026 541,978 485,751
Research and development 223,482 185,895 629,619 566,785
Selling 177,657 224,852 484,067 607,911
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 547,951 590,773 1,655,664 1,660,447
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 218,273 370,724 356,057 957,118
OTHER INCOME (LOSS) (289,664) 40,889 (402,635) 265,618
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME
TAXES (71,391) 411,613 (46,578) 1,222,736
PROVISION (BENEFIT) FOR
INCOME TAXES (41,400) 143,000 (42,400) 422,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (29,991) $ 268,613 $ (4,178) $ 800,736
========== ========== ========== ==========
BASIC EARNINGS PER SHARE ($0.02) $0.16 ($0.00) $0.49
===== ===== ===== =====
DILUTED EARNINGS PER SHARE ($0.02) $0.15 ($0.00) $0.46
===== ===== ===== =====
See notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
Three months ended Nine months ended
May 31, May 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(29,991) $268,613 $ (4,178) $800,736
-------- -------- -------- --------
Other comprehensive income (loss):
Unrealized gain (loss) on
investments during the period
(net of (tax) benefit of
$31,900, ($37,300), $8,300
and ($48,000)) (56,707) 66,461 (14,916) 85,457
Less reclassification adjustment
for (gains) losses included in
net income
(net of (tax) benefit of
($119,000), $3,600,($192,000)
and $66,800) 211,534 (6,421) 339,745 (118,145)
-------- -------- -------- --------
154,827 60,040 324,829 (32,688)
-------- -------- -------- --------
Comprehensive income (loss) $124,836 $328,653 $320,651 $768,048
======== ======== ======== ========
See notes to condensed financial statements.
</TABLE>
<TABLE>
<CAPTION>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
May 31,
1999 1998
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (4,178) $ 800,736
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 37,371 31,644
Deferred taxes (37,250) 39,700
(Gain) loss on sale of investments 531,745 (184,945)
Gain on sale of fixed asset (218) (384)
Changes in operating assets and liabilities:
Accounts receivable (35,389) 165,539
Inventories 342,878 (174,119)
Other current assets (59,941) 6,792
Accounts payable (52,136) (46,059)
Accrued income taxes 84,500 84,010
Accrued liabilities (569,078) (623,001)
---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 238,304 99,913
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of equipment 2,430 1,350
Purchase of equipment (23,274) (50,582)
Proceeds from sales and maturities of investments 2,001,735 1,645,062
Purchases of investments (323,381) (1,826,252)
Loans for stock purchases (26,641) -
Payments on loans for stock purchases 35,904 -
---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES 1,666,773 (230,422)
---------- ----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 72,952 33,546
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 72,952 33,546
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,978,029 (96,963)
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE PERIOD 1,667,363 284,261
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $3,645,392 $ 187,298
========== ==========
See notes to condensed financial statements.
</TABLE>
TECHNOLOGY 80 INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
May 31, 1999
NOTE A - FINANCIAL INFORMATION
The unaudited interim financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission;
accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The condensed balance sheet at
August 31, 1998 has been derived from the audited financial statements at that
date but does not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These interim financial statements should be read in conjunction with the
financial statements and notes in the Company's 1998 Annual Report on Form 10-
KSB filed with the Securities and Exchange Commission.
In the opinion of management, the financial statements reflect all
adjustments (which include only normal recurring adjustments) necessary for a
fair presentation of the interim periods.
NOTE B - EARNINGS PER SHARE
Earnings per share are calculated in accordance with the provisions of
Statement of Financial Accounting Standards No. 128 - "Earnings per Share"
(SFAS No. 128). SFAS No. 128 requires the Company to report both basic
earnings per share which is based on weighted-average number of common shares
outstanding and diluted earnings per share which is based on the weighted-
average number of common shares outstanding and all dilutive potential common
shares outstanding. All earnings per share data in this report reflect basic
earnings per share, unless otherwise indicated. The details of the earnings
per share calculations for the three and nine months ending May 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
May 31, May 31,
-------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 1,687,619 1,640,420 1,671,916 1,627,451
========= ========= ========= =========
Net income (loss) $ (29,991) $ 268,613 $ (4,178) $ 800,736
========= ========= ========= =========
Per share amount ($0.02) $0.16 ($0.00) $0.49
===== ===== ===== =====
Diluted:
Average shares outstanding 1,687,619 1,640,420 1,671,916 1,627,451
Net effect of dilutive stock
options - based on
treasury stock method -0- 123,367 38,324 128,486
--------- --------- --------- ---------
1,687,619 1,763,787 1,710,240 1,755,937
========= ========= ========= =========
Net income (loss) $ (29,991) $ 268,613 $ (4,178) $ 800,736
========= ========= ========= =========
Per share amount ($0.02) $0.15 ($0.00) $0.46
===== ===== ===== =====
</TABLE>
NOTE C - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130), which establishes standards
for the reporting and presentation of changes in equity from nonowner sources
in the financial statements. Nonowner changes in stockholders' equity consist
of net income and unrealized holding gains and losses on marketable securities.
Prior year financial statements have been reclassified to conform to the
SFAS No. 130 requirements.
Item 2: Management's Discussion and Analysis
Results of Operations
- ---------------------
Revenues for the third quarter ended May 31, 1999 decreased 18% from the same
period the preceding year and decreased 22% for the nine months ended May 31,
1999, compared to the nine months ended May 31, 1998. The revenue decrease has
primarily resulted from a slow-down in the semi-conductor capital equipment
market relating primarily to the instability in Asian financial markets, delays
in the acceptance of next generation wafer-processing technology, and erosion
of DRAM margins.
Gross profit percentages for the third quarter ended May 31, 1999 and 1998 were
62% and 64%, respectively. Gross profit percentages for the nine months ended
May 31, 1999 and 1998 were 61% and 62%, respectively.
Operating expenses as a percentage of sales was 44% for the three months and
50% for the nine months ended May 31, 1999 compared to 39% for the same periods
the prior year. The increase in operating expenses as percentage of revenue
was due primarily to the decrease in revenue for the third quarter and nine
months.
Other income decreased $330,553 for the quarter ended May 31, 1999 and
decreased $668,253 for the nine months ended May 31, 1999 from the same periods
the preceding year. The decrease was primarily a result of liquidating a
substantial portion of the Company's investments in anticipation of the merger
that was terminated May 25, 1999.
The Company had a net loss of $29,991 for the quarter ended May 31, 1999
compared to net income of $268,613 for the quarter ended May 31, 1998. The
nine months ended May 31, 1999 resulted in a loss of $4,178 compared to net
income of $800,736 for the nine months ended May 31, 1998. The decrease was
primarily due to the decrease in revenue and losses on investments sold in
anticipation of the merger that was terminated May 25, 1999.
Liquidity and Capital Resources
- -------------------------------
Registrant's balance sheet shows a strong capital position. Operations
provided $238,304 in cash during the nine months compared to $99,913 the same
period the prior year. Cash and cash equivalents increased $1,978,029 since
August 31, 1998. Investing activities provided cash of $1,666,773 primarily
due to the liquidation of a substantial portion of the Company's investments in
anticipation of the merger terminated on May 25, 1999. Proceeds from the
exercise of stock options was $72,952 Registrant expects that there will be
sufficient capital to fund its operations during fiscal year 1999.
At May 31, 1999, the Company had investments with a cost and fair market value
of $485,050 and $224,641, respectively, consisting primarily of investments in
equity securities. This compares to a cost and fair market value of $2,772,464
and $2,004,726, respectively, at August 31, 1998. Approximately 95% of the
fair market value was represented by investments in two companies at May 31,
1999. Approximately 46% of the fair market value as of August 31, 1998 was
represented by investments in four companies.
Registrant has no long-term debt and does not anticipate, at this time, that it
will be necessary to seek any debt financing in the near future for ongoing
operations, but may consider some type of financing for other purposes.
Year 2000 Issue
- ---------------
The Company has completed an assessment of Year 2000 compliance for its
products and critical operating and application systems. This assessment
identified no material Year 2000 compliance issues. The Company expects to be
fully Year 2000 compliant prior to December 31, 1999. The costs associated
with the assessment and any modifications were less than $10,000.
The Company's controllers and encoder interface products are not affected by
the Year 2000. Depending on the customer's particular application, certain of
the Company's carrier boards may be susceptible to Year 2000 problems. Sales
of these carrier boards have represented as much as 10% of the Company's
revenues in recent periods. Customers may seek redress from the Company in the
event that the Company's products are not Year 2000 compliant.
Ultimately, the potential impact of the Year 2000 issue will depend not only on
the actions taken by the Company, but also how the Year 2000 issue is addressed
by customers, vendors, service providers, utilities, governmental agencies and
other entities with which the Company does business. The Company is
communicating with these parties to learn commitment dates from the various
parties as to their Year 2000 readiness and delivery of compliant software and
other products. This process will continue throughout fiscal year 1999. The
Year 2000 efforts of third parties are not within the Company's control,
however, and their failure to respond to Year 2000 issues successfully could
result in business disruption and increased operating cost for the Company. At
the present time, it is not possible to determine whether any such events are
likely to occur, or to quantify any potential negative impact they may have on
the Company's future results of operations and financial condition. The
Company expects to assess its need for contingency plans during 1999.
In the most reasonably likely worst case scenario, the failure of a material
vendor or system to be Year 2000 compliant could prevent or delay delivery of
the Company's product to its customers or have other unforeseen adverse
consequences. The Company believes that its continuing Year 2000 compliance
efforts minimize this risk, but such a scenario is possible and could result in
decreased revenues and damage to its customer relationships.
The foregoing discussion regarding the timing, effectiveness, implementation,
and cost of the Company's Year 2000 compliance efforts contains forward-looking
statements which are based on management's best estimates derived using
assumptions. These forward-looking statements involve inherent risks and
uncertainties, and actual results could differ materially from those
contemplated by such statements. Factors that might cause material differences
include, but are not limited to, the availability of key Year 2000 personnel,
the Company's ability to locate and correct all relevant computer codes, the
readiness of third parties, and the Company's ability to respond to unforeseen
year 2000 complications. Such material differences could result in, among
other things, business disruptions, operational problems, financial loss, legal
liability and similar risks.
Cautionary Statement
- --------------------
Statements included in this Management's Discussion and Analysis or Plan of
Operation and elsewhere in this Form 10-QSB, in future filings by the
Registrant with the Securities and Exchange Commission and in the Registrant's
press releases and oral statements made with the approval of authorized
executive officers, if the statements are not historical or current facts,
should be considered "forward-looking statements" made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
These statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from historical earnings and those
presently anticipated or projected. Registrant wishes to caution the reader
not to place undue reliance on any such forward-looking statements, which speak
only as of the date made.
Part II - Other Information
Item 1: Legal Proceedings
-----------------
None.
Item 2: Changes in Securities
---------------------
None.
Item 3: Defaults Upon Senior Securities
-------------------------------
None.
Item 4: Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5: Other Information
-----------------
None.
Item 6: Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
--------
None.
b. Reports on Form 8-K
-------------------
One report was filed on Form 8-K during the quarter.
On a report dated May 25, 1999, the Company announced that ACS
Electronics, Ltd. terminated its agreement to acquire Technology
80 Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Technology 80 Inc.
-------------------------------------
(Registrant)
July 9, 1999 /s/ Duane Markus, President, CEO
- ------------------------- -------------------------------------
(Date) Duane Markus, President, CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> MAY-31-1999
<CASH> 3645392
<SECURITIES> 0
<RECEIVABLES> 714322
<ALLOWANCES> 12000
<INVENTORY> 1014583
<CURRENT-ASSETS> 5546210
<PP&E> 561328
<DEPRECIATION> 461502
<TOTAL-ASSETS> 6068177
<CURRENT-LIABILITIES> 311220
<BONDS> 0
0
0
<COMMON> 16947
<OTHER-SE> 5740010
<TOTAL-LIABILITY-AND-EQUITY> 6068177
<SALES> 3297161
<TOTAL-REVENUES> 3297161
<CGS> 1285440
<TOTAL-COSTS> 1285440
<OTHER-EXPENSES> 1655664
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (46578)
<INCOME-TAX> (42400)
<INCOME-CONTINUING> (4178)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4178)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
