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 FEBRUARY
28, 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
---------------------------
(Issuer's telephone number)
N/A
----------------------------------------------------
(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 practible date.
Common Stock, $0.01 par value 1,683,983
- ----------------------------- -----------------------------
(Title of Class) (Shares Outstanding)
Part I - Financial Information
Item 1: Financial Statements
TECHNOLOGY 80 INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS February 28, August 31,
1999 1998
------------ -------------
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 2,078,643 $ 1,667,363
Short-term investments - 49,048
Accounts receivable (less allowance
for doubtful accounts:
Feb. 28 - $12,000; Aug. 31 - $12,000) 514,272 666,933
Inventories 1,217,769 1,357,461
Deferred taxes 41,000 41,000
Other current assets 17,988 82,972
----------- -----------
TOTAL CURRENT ASSETS 3,869,672 3,864,777
----------- -----------
PROPERTY AND EQUIPMENT
Furniture and equipment 530,149 524,035
Leasehold improvements 23,060 23,060
----------- -----------
553,209 547,095
Less accumulated depreciation 450,249 430,524
----------- -----------
102,960 116,571
----------- -----------
OTHER ASSETS
Investments 1,578,969 1,955,678
Deferred taxes 235,500 265,000
----------- -----------
1,814,469 2,220,678
----------- -----------
TOTAL ASSETS $ 5,787,101 $ 6,202,026
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 55,535 $ 87,418
Accrued payroll and payroll taxes 129,688 464,816
Payable to investment company - 77,750
Accrued liabilities - other 19,524 217,950
----------- -----------
TOTAL CURRENT LIABILITIES 204,747 847,934
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value (authorized -
5,000,000 shares; issued and outstanding:
Feb. 28 - 1,683,983; Aug. 31 - 1,646,733
shares) 16,840 16,468
Additional paid-in capital 3,504,546 3,450,732
Other - loans (193,811) (172,072)
Accumulated other comprehensive
income (loss) (321,236) (491,238)
Retained earnings 2,576,015 2,550,202
----------- -----------
5,582,354 5,354,092
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 5,787,101 $ 6,202,026
=========== ===========
See notes to condensed financial statements.
</TABLE>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28, February 28,
------------------------ -----------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $1,054,292 $1,429,677 $2,064,042 $2,753,274
COST OF GOODS SOLD 431,882 556,959 818,545 1,097,206
---------- ---------- ---------- ----------
GROSS PROFIT 622,410 872,718 1,245,497 1,656,068
---------- ---------- ---------- ----------
OPERATING EXPENSES
General and
administrative 227,235 156,026 395,166 305,725
Research and development 217,936 203,996 406,137 380,890
Selling 145,082 180,170 306,410 383,059
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 590,253 540,192 1,107,713 1,069,674
---------- ---------- ---------- ----------
INCOME FROM OPERATIONS 32,157 332,526 137,784 586,394
OTHER INCOME (LOSS) (175,338) 165,189 (112,971) 224,729
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (143,181) 497,715 24,813 811,123
PROVISION (BENEFIT) FOR
INCOME TAXES (46,700) 175,000 (1,000) 279,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
========== ========== ========== ==========
BASIC EARNINGS PER SHARE ($0.06) $0.20 $0.02 $0.33
===== ===== ===== =====
DILUTED EARNINGS PER SHARE ($0.06) $0.18 $0.01 $0.30
===== ===== ===== =====
See notes to condensed financial statements.
</TABLE>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28, February 28,
--------------------- --------------------
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
-------- --------- --------- ---------
Other comprehensive
income (loss):
Unrealized gain (loss)
on investments during
the period (net of (tax)
benefit of $75,000,
($81,600), ($23,100)
and ($10,800)) (133,398) 145,177 41,227 19,224
Less reclassification
adjustment for (gains)
losses included in net
income (net of (tax)
benefit of ($80,000),
$51,000, ($72,400) and
$62,900) 142,626 (90,697) 128,775 (111,952)
-------- --------- --------- ---------
9,228 54,480 170,002 (92,728)
-------- --------- --------- ---------
Comprehensive income
(loss) ($ 87,253) $ 377,195 $ 195,815 $ 439,395
======== ========= ========= =========
See notes to condensed financial statements.
</TABLE>
TECHNOLOGY 80 INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six months ended
February 28,
1999 1998
---------- ----------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 25,813 $ 532,123
Adjustments to reconcile net income to
net cash used by operating activities:
Depreciation and amortization 25,772 20,116
Deferred taxes 71,750 24,700
Gain (loss) on sale of investments 201,211 (174,924)
Gain on sale of fixed asset - (384)
Changes in operating assets and liabilities:
Accounts receivable 92,661 (7,322)
Inventories 139,692 40,019
Other current assets 64,984 (1,105)
Accounts payable (31,883) (3,207)
Accrued income taxes - 41,110
Accrued liabilities (611,304) (676,916)
---------- ----------
NET CASH USED BY OPERATING ACTIVITIES (21,304) (205,790)
---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of equipment - 1,350
Purchase of equipment (12,160) (37,906)
Proceeds from sales and maturities of investments 529,803 1,273,514
Purchases of investments (117,506) (1,219,219)
Loans for stock purchases (26,641) -
Payments on loans for stock purchases 4,902 -
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 378,398 17,739
---------- ----------
FINANCING ACTIVITIES
Proceeds from exercise of stock options 54,186 33,546
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 54,186 33,546
---------- ----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 411,280 (154,505)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
THE PERIOD 1,667,363 284,261
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $2,078,643 $ 129,756
========== ==========
See notes to condensed financial statements.
</TABLE>
TECHNOLOGY 80 INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
February 28, 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 six months ending February 28, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
February 28, February 28,
---------------------- ----------------------
1999 1998 1999 1998
----------- --------- ---------- ---------
Basic:
<S> <C> <C> <C> <C>
Average shares outstanding 1,681,397 1,635,651 1,664,065 1,625,411
========= ========= ========= =========
Net income (loss) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
========= ========= ========= =========
Per share amount ($0.06) $0.20 $0.02 $0.33
===== ===== ===== =====
Diluted:
Average shares outstanding 1,681,397 1,635,651 1,664,065 1,625,411
Net effect of dilutive
stock options-based on
treasury stock method -0- 124,655 106,820 126,601
--------- --------- --------- ---------
1,681,397 1,760,306 1,770,885 1,752,012
========= ========= ========= =========
Net income (loss) ($ 96,481) $ 322,715 $ 25,813 $ 532,123
========= ========= ========= =========
Per share amount ($0.06) $0.18 $0.01 $0.30
===== ===== ===== =====
</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 second quarter ended February 28, 1999 decreased 26% from
the same period the preceding year and decreased 25% for the six months
ended February 28, 1999, compared to the six months ended February 28,
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 second quarter ended February 28, 1999 and
1998 were 59% and 61%, respectively. Gross profit percentages for the six
months ended February 28, 1999 and 1998 were 60%.
Operating expenses as a percentage of sales was 56% for the three months
and 54% for the six months ended February 28, 1999 compared to 38% and 39%
for the same periods the prior year, respectively. The increase in
operating expenses as percentage of revenue was due primarily to the
decrease in revenue for the quarter and six months.
Other income decreased $340,527 for the quarter ended February 28, 1999 and
decreased $337,700 for the six months ended February 28, 1999 from the same
periods the preceding year. The decrease was primarily a result of
partially liquidating the Company's investments in anticipation of the
pending merger.
The Company had a net loss of $96,481 for the quarter ended February 28,
1999 compared to net income of $322,715 for the quarter ended February 28,
1998. Net income for the six months ended February 28, 1999 and February
28, 1998 was $25,813 and $532,123, respectively. The decrease was primary
due to the decrease in revenue for the three and six months.
Liquidity and Capital Resources
- -------------------------------
Registrant's balance sheet shows a strong capital position. Operations
used $21,304 in cash during the six months compared to $205,790 the same
period the prior year. Cash and cash equivalents increased $1,667,363
since August 31, 1998. Investing activities provided cash of $378,398
primarily due to the partial liquidation of the Company's investments in
anticipation of the pending merger. Proceeds from the exercise of stock
options was $54,186. Registrant expects that there will be sufficient
capital to fund its operations during fiscal year 1999.
At February 28, 1999, the Company had investments with a cost and fair
market value of $2,081,205 and $1,578,969, 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 45% of the fair market value was represented by
investments in three companies at February 28, 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
--------
Exhibit 27 - Financial data schedule.
b. Reports on Form 8-K
-------------------
Two reports were filed on Form 8-K during the quarter.
On a report dated December 11, 1998, the Company announced
that it had signed a letter of intent to sell the Company to
ACS Electronics.
On a report dated January 26, 1999, the Company announced
that it had signed an agreement and plan of merger and
reorganization with ACS Electronics.
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)
March 29, 1999 /s/ Duane Markus, President, CEO
- ------------------------- --------------------------------
(Date) Duane Markus, President, CEO
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 2078643
<SECURITIES> 0
<RECEIVABLES> 526272
<ALLOWANCES> 12000
<INVENTORY> 1217769
<CURRENT-ASSETS> 3869672
<PP&E> 553209
<DEPRECIATION> 450249
<TOTAL-ASSETS> 5787101
<CURRENT-LIABILITIES> 204747
<BONDS> 0
0
0
<COMMON> 16840
<OTHER-SE> 5565514
<TOTAL-LIABILITY-AND-EQUITY> 5787101
<SALES> 2064042
<TOTAL-REVENUES> 2064042
<CGS> 818545
<TOTAL-COSTS> 818545
<OTHER-EXPENSES> 1107713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 24813
<INCOME-TAX> (1000)
<INCOME-CONTINUING> 25813
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25813
<EPS-PRIMARY> .02
<EPS-DILUTED> .01
</TABLE>
