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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 September 30, 1996
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 0-16672
Power Spectra, Inc.
(Exact Name of Registrant as Specified in its Charter)
California 94-2687782
- --------------------------------- --------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
919 Hermosa Court
Sunnyvale, CA 94086-4103
- --------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(408) 737-7977
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(Registrant's telephone number, including area code)
Not applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since 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 Act of
1934 during the preceding 12 months (or for such shorter periods 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 of the latest practicable date.
Outstanding at
Class November 11
------ --------------
Shares of Common 16,098,499
Stock, no par value
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Power Spectra, Inc.
Item 1: Financial Statements
Balance Sheets
(In thousands)
<CAPTION>
September 30, December 31,
1996 1995
(Unaudited) (Note)
----------- -----------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 2,236 $ 2,395
Accounts receivable 7 291
Unbilled receivables 5 45
Inventories, principally purchased parts 151 125
Other current assets 78 73
-------- --------
Total current assets 2,477 2,929
Equipment, furniture and leasehold improvements 1,459 1,279
Less, accumulated depreciation (1,067) (860)
-------- --------
Net fixed assets 392 419
Patents, net of amortization 79 68
Other assets 26 26
======== ========
Total Assets $ 2,974 $ 3,442
======== ========
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 218 $ 203
Accrued compensation expense 200 178
Deferred contract revenue 690 311
Allowance for contract losses 100 100
Accrued professional fees 69 72
Financing costs payable -- 20
Preferred stock dividend payable 48 49
Other current liabilities 28 29
-------- --------
Total current liabilities 1,353 962
Stockholders' Equity:
Preferred stock 1,681 1,681
Common stock 14,010 11,878
Accumulated deficit (14,070) (11,079)
-------- --------
Total stockholers' equity 1,621 2,480
-------- --------
Total Liabilities and Stockholders' Equity $ 2,974 $ 3,442
======== ========
<FN>
Note: The balance sheet at December 31, 1995 has been derived from the audited financial statements at that date, but does not
include all the information and footnotes required by generally accepted accounting principles for complete financial statements.
See notes to finncial statements.
</FN>
</TABLE>
2
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
Statements of Operations
(In thousands, except per share data)
Nine Months Ended
-----------------
September 30, September 30,
1996 1995
(Unaudited) (Unaudited)
------- -------
Revenue $ 652 $ 1,015
Costs and expenses:
Cost of revenue 1,830 1,583
Sales and marketing 292 354
Research and development 523 112
General and administrative 928 797
------- -------
Total operating costs 3,573 2,846
------- -------
Operating loss (2,921) (1,831)
Other income 77 (15)
------- -------
Loss before income taxes (2,844) (1,846)
Provision for income taxes 1 1
------- -------
Net loss ($2,845) ($1,847)
======= =======
Net loss applicable to common shares ($2,991) ($1,989)
======= =======
Net loss per common share ($ 0.19) ($ 0.19)
======= =======
See notes to financial statements
3
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
Statements of Operations
(In thousands, except per share data)
Three Months Ended
------------------
September 30, September 30,
1996 1995
(Unaudited) (Unaudited)
------- -------
Revenue $ 294 $ 168
Costs and expenses:
Cost of revenue 634 463
Sales and marketing 63 135
Research and development 276 22
General and administrative 292 242
------- -------
Total operating costs 1,265 862
------- -------
Operating loss (971) (694)
Other income 23 (15)
------- -------
Loss before income taxes (948) (709)
Provision for income taxes -- --
------- -------
Net loss ($ 948) ($ 709)
======= =======
Net loss applicable to common shares ($ 997) ($ 764)
======= =======
Net loss per common share ($ 0.06) ($ 0.07)
======= =======
See notes to financial statements.
4
<PAGE>
<TABLE>
Power Spectra, Inc.
Item 1: Financial Statements
Statements of Cash Flows
(In thousands)
<CAPTION>
Nine Months Ending
September 30, September 30,
1996 1995
(Unaudited) (Unaudited)
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,845) ($1,847)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Depreciation and amortization 107 107
Common stock issued for services 69 66
Changes in assets and liabilities:
Accounts receivable 284 (69)
Unbilled receivables 40 56
Inventories (26) 88
Other current assets (5) 32
Accounts payable 15 310
Accrued compensation expense 22 23
Deferred contract revenue 379 14
Other current liabilities (25) 64
------- -------
Net cash used in operating activities (1,985) (1,156)
Cash flows from investing activities:
Furniture and equipment additions, net (60) (22)
Patents additions (25) --
(Increase) decrease in other assets (6) 9
------- -------
Net cash used in investing activities (91) (13)
Cash flows from financing activities:
Preferred stock dividend (146) (142)
Proceeds from sale of common stock 2,063 3,370
Proceeds from sale of preferred stock -- 1,010
------- -------
Net cash provided by financing activities 1,917 4,238
------- -------
Net increase (decrease) in cash and cash equivalents (159) 3,069
Cash and cash equivalents, beginning of period 2,395 215
------- -------
Cash and cash equivalents, end of period $ 2,236 $ 3,284
======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 1 $ 19
------- =======
Income taxes $ 1 $ 1
======= =======
<FN>
See notes to financial statements
</FN>
</TABLE>
5
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements
September 30, 1996
1. Basis of Presentation:
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended September 30, 1996,
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996. For further information, refer to the financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
2. Per Share Data
Per share information for the quarter ended September 30, 1996, is
computed based on the net loss after deducting Series A and Series B Preferred
Stock dividends in 1996. The weighted average number of shares outstanding
consists solely of common stock. The effect of common stock equivalents which
would arise from the exercise of common stock options outstanding (using the
treasury stock method) and the conversion of Series A and Series B Preferred
Stock have not been included for the quarter ended September 30, 1996, as their
effect is anti-dilutive. The weighted average number of shares outstanding at
September 30, 1996 was 15,402,445.
Per share information for the quarter ended September 30, 1995, is
computed based on the net loss after deducting Series A and Series B Preferred
Stock dividends in 1995. The weighted average number of shares outstanding
consists solely of common stock. The effect of common stock equivalents which
would arise from the exercise of common stock options outstanding (using the
treasury stock method) and the conversion of Series A and Series B Preferred
Stock have not been included for the quarter ended September 30, 1995, as their
effect is anti-dilutive. The weighted average number of shares outstanding at
September 30, 1995 was 10,350,343
6
<PAGE>
Power Spectra, Inc.
Item 2:
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act
of 1934. The forward-looking statements contained herein are subject to certain
risks and uncertainties, including those discussed herein and in the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995, that
could cause actual results to differ materially from those projected or
discussed. Investors are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly release the
results of any revision to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events. The Company has attempted to identify
forward-looking statements contained in this report with an asterisk (*).
Results of Operations:
Revenue for the third quarter and nine months ended September 30, 1996
was $294,000 and $652,000, respectively, compared to $168,000 and $1,015,000 for
the same periods ended September 30, 1995, an increase of $126,000 for the
quarterly period and a decrease of $363,000 for the nine month period. Revenues
from the Company's Phase I development for LandRay Technologies, Inc. accounts
for all of the quarterly increase over the same quarter in 1995. Lack of
revenues to offset the $485,000 contribution from Company's contract with the
Air Force (the "Air Force Contract"), which was completed in May 1995 caused the
decrease in the nine month period.
The 1996 second quarter net loss was $948,000, compared to a net loss
of $709,000 recorded in the 1996 second quarter. A net loss of $2,845,000 was
recorded for the first nine months of 1996 compared to a net loss of $1,847,000
for the same period in 1995. The increased losses were due primarily to
decreased revenues, increased research and development expenditures, and
unabsorbed overhead costs.
The cost of revenues increased by $171,000 for the second quarter of
1996 and increased by $247,000 for the first nine months of 1996 over the same
periods of 1995 due to increased salaries and materials mostly target at
improved process reliability in anticipation of the Company's transition to
manufacture of commercial products and services. Additionally, overhead costs
could not be decreased in proportion with decreased revenues without the loss of
essential skills, expertise, and capabilities as the Company continues its
transition from research and development of laboratory hardware to application
specific design and testing.
7
<PAGE>
Sales and marketing expense decreased by $72,000 and $62,000 for the
third quarter and first nine months ended September 30, 1996, respectively,
compared to the same periods in 1995, due primarily to the Company's shift in
emphasis to commercial products and services from government contract services.
This shift in market strategy resulted in increased research and development
costs. Research and development expense increased $254,000 for the third quarter
and increased by $411,000 for the first nine month period of 1996, respectively,
compared to the same periods in 1995 as consultants and outside services were
increasingly used to provide essential services and expertise in
Company-sponsored research and development effort, particularly the Company's
electro-optical sensors line which was introduced at Sensors Expo in
Philadelphia in October 1996. General and administrative expenses in 1996
increased by $50,000 and $131,000 for the third quarter and first nine months,
respectively, due to shifting of certain personnel from marketing to
administration and certain severance costs.
Liquidity and Capital Resources:
During the first nine months of 1996, cash and cash equivalents
decreased $159,000 due to the net loss from operations, which was largely offset
by the private placement of the Company's common stock completed in the 1996
first quarter. Accounts receivable and unbilled receivables decreased by
$284,000 and $40,000 respectively reflecting the reduced level of revenues and
the fact that most revenues in the third quarter were prepaid which accounts in
part for the $379,000 increase in deferred contract revenue. Inventories
increased 21% or $26,000 from December 31, 1995, in preparation for anticipated
increased production for certain customers.
Backlog at September 30, 1996 was $381,670 compared to $910,000. The
LandRay Technologies' development contract accounted for 67% of the backlog on
September 30, 1996, whereas the Air Force contract, completed in the second
quarter 1996, accounted for 84% of the September 30, 1995 amount. However,
because orders may be canceled by customers with little or no penalty or notice,
backlog may not be a reliable indicator of the Company's future sales. Although
the Company successfully raised additional operating capital during the first
quarter of 1996, the Company continues to seek and obtain other sources of
revenue to sustain operations.
The Company's current cash position, together with anticipated cash
flows from operations are expected by management to be sufficient to finance the
Company's operations through December 31, 1996*. However, if the Company is not
successful in replacing revenue and cash generated by the Air Force contract,
the Company, as presently sized, would continue to experience significant
operating losses, significant negative cash flow, and would be required to
significantly reduce its operations.
The Company's growth strategy includes the successful completion of
products under development, development of new applications, and development of
marketing strategies.
The Company must continue to seek and obtain other sources of revenue
to continue operations. The initail funding of the Company's announced joint
venture with EAC Helicopters, Inc., PEAC Airborne Technologies, Ltd. (PEAC) (see
Power Spectra's June 30, 1996 Form 10-Q),
8
<PAGE>
has not been consummated to date. In additon, the Phase I development effort of
the Company with LandRay Technologies, Inc. (LTI) (see Power Spectra's June 30,
1996 Form 10-Q) will be completed in the fourth quarter of 1996*, and additional
funding must be obtained in order for the joint venture to continue development.
There can be no assurances that the PEAC joint venture will obtain
initial funding, that the PEAC and LTI joint ventures will be able to raise
adequate funding on acceptable terms, that PSI will be able to successfully
enter into any additional suitable partnership, or joint venture arrangements,
or that such arrangements when entered into would prove to be beneficial for the
Company and its shareholders. There can also be no assurances that such proposed
joint venture agreements, if consummated, would generate sufficient revenues to
replace the revenues previously generated by the Air Force contract.
9
<PAGE>
Part II OTHER INFORMATION
Power Spectra, Inc.
September 30, 1996
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27.1 Financial Data Schedule
b. Reports on Form 8-K during the quarter ended September 30, 1996
None
10
<PAGE>
Power Spectra, Inc.
September 30, 1996
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.
Power Spectra, Inc.
Dated: November 14, 1996 By: /s/ Edward J. Lamb
-------------------------------
Edward J. Lamb
Controller, Chief Financial Officer, Secretary
(Principal Accounting and Finance Officer)
11
<PAGE>
Exhibit Index
Exhibit
No. Description
- ------- ------------
27.1 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements in the Quarterly Report on Form 10-Q of Power Spectra, Inc.
for the quarter ended September 30, 1996 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000777527
<NAME> Power Spectra, Inc.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,236
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 151
<CURRENT-ASSETS> 2,477
<PP&E> 1,459
<DEPRECIATION> 1,067
<TOTAL-ASSETS> 2,974
<CURRENT-LIABILITIES> 1,353
<BONDS> 0
<COMMON> 14,010
0
1,681
<OTHER-SE> (14,070)
<TOTAL-LIABILITY-AND-EQUITY> 2,974
<SALES> 652
<TOTAL-REVENUES> 652
<CGS> 1,830
<TOTAL-COSTS> 3,573
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,844)
<INCOME-TAX> 1
<INCOME-CONTINUING> (2,845)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,845)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
