================================================================================
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 June 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
- --------------------------------------------------------------------------------
(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 June 30, 1996
------------------- ---------------
Shares of Common 16,030,562
Stock, no par value
<PAGE>
TABLE OF CONTENTS
10-Q, June 30, 1996
PAGE
PART I FINANCIAL INFORMATION:
Item 1 -- Financial Statements -- Unaudited
Balance Sheets as of June 30, 1996
and December 31, 1995 3
Statements of Operations for the six months ended
June 30, 1996 and 1995 4
Statements of Operations for the three months ended
June 30, 1996 and 1995 5
Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION:
Item 4 -- Submission of Matters to a Vote of Security Holders 11
Item 5 -- Other Information 11
Item 6 -- Exhibits and Reports on Form 8-K 12
SIGNATURE 13
<PAGE>
PART I. FINANCIAL INFORMATION
Power Spectra, Inc.
Item 1: Financial Statements
<TABLE>
Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
1996 1995
(Unaudited) (Note)
----------- ------------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 2,650 $ 2,395
Accounts receivable 8 291
Unbilled receivables 71 45
Inventories, principally purchased parts 139 125
Other current assets 90 73
-------- --------
Total current assets 2,958 2,929
Equipment, furniture and
leasehold improvements 1,453 1,279
Less, accumulated depreciation (1,036) (860)
-------- --------
Net fixed assets 417 419
Patents, net of amortization 85 68
Other assets 32 26
-------- --------
Total Assets $ 3,492 $ 3,442
======== ========
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 95 $ 203
Accrued compensation expense 172 178
Deferred contract revenue 361 311
Allowance for contract losses 100 100
Accrued professional fees 74 72
Preferred stock dividend and financing costs payable 49 69
Other current liabilities 28 29
-------- --------
Total current liabilities 879 962
Stockholders' Equity:
Preferred stock 1,681 1,681
Common stock 14,006 11,878
Accumulated deficit (13,074) (11,079)
-------- --------
Total stockholders' equity 2,613 2,480
-------- --------
Total Liabilities and Stockholders'
Equity $ 3,492 $ 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 of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
Statements of Operations
(In thousands, except per share data)
Six Months Ended
---------------------------
June 30, June 30,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
Revenue $ 358 $ 846
Costs and expenses:
Cost of revenue 1,196 1,120
Sales and marketing 229 219
Research and development 247 90
General and administrative 636 555
------- -------
Total operating costs 2,308 1,984
------- -------
Operating loss (1,950) (1,138)
Other income 54 1
------- -------
Loss before income taxes (1,896) (1,137)
Provision for income taxes 1 1
------- -------
Net loss ($1,897) ($1,138)
======= =======
Net loss applicable to common shares ($1,994) ($1,224)
======= =======
Net loss per common share ($ 0.13) ($ 0.12)
======= =======
See notes to financial statements.
4
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
Statements of Operations
(In thousands, except per share data)
Three Months Ended
---------------------------
June 30, June 30,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
Revenue $ 186 $ 379
Costs and expenses:
Cost of revenue 617 532
Sales and marketing 126 120
Research and development 159 55
General and administrative 367 306
------- -------
Total operating costs 1,269 1,013
------- -------
Operating loss (1,083) (634)
Other income 34 1
------- -------
Loss before income taxes (1,049) (633)
Provision for income taxes -- --
------- -------
Net loss ($1,049) ($ 633)
======= =======
Net loss applicable to common shares ($1,097) ($ 684)
======= =======
Net loss per common share ($ 0.07) ($ 0.07)
======= =======
See notes to financial statements.
5
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
<TABLE>
Statements of Cash Flows
(In thousands)
Six Months Ending
---------------------------------
June 30, June 30,
1996 1995
(Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,897) ($1,138)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating activities:
Depreciation and amortization 62 70
Common stock issued for services 22 13
Changes in assets and liabilities:
Accounts receivable 283 (659)
Unbilled receivables (26) 106
Inventories (14) 110
Other current assets (17) 27
Accounts payable (108) 287
Deferred contract revenue 50 --
Other current liabilities (25) 61
------- -------
Net cash used in operating activities (1,670) (1,123)
Cash flows from investing activities:
Furniture and equipment additions, net (60) (8)
Patents additions, net (17) --
(Increase) decrease in other assets (6) 12
------- -------
Net cash provided by (used in) investing activities (83) 4
Cash flows from financing activities:
Preferred stock dividend (97) (86)
Proceeds from sale of common stock 2,105 (145)
Proceeds from sale of preferred stock -- 1,153
------- -------
Net cash provided by financing activities 2,008 922
------- -------
Net increase (decrease) in cash and cash equivalents 255 (197)
Cash and cash equivalents, beginning of period 2,395 215
------- -------
Cash and cash equivalents, end of period $ 2,650 $ 18
======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ 1 $ 1
------- =======
Income taxes $ 1 $ 1
======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
Power Spectra, Inc.
Notes to Financial Statements
June 30, 1996
1. Basis for 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 six-month period ended June 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 June 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 June 30, 1996, as their effect is
anti-dilutive. The weighted average number of shares outstanding at June 30,
1996 was 15,075,640.
Per share information for the quarter ended June 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 June 30, 1995, as their effect is
anti-dilutive. The weighted average number of shares outstanding at June 30,
1995 was 10,063,486.
7
<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 Exchange 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.
Results of Operations:
Revenue for the second quarter and six months ended June 30, 1996, was
$186,000 and $358,000, respectively, compared to $379,000 and $846,000,
respectively, for the same periods ended June 30, 1995, a decrease of $193,000
for the quarterly period and a decrease of $488,000 for the six-month period,
respectively. Revenues from the Company's contract with the Air Force (the "Air
Force Contract") decreased by $485,000 for the first six months of the year.
Revenues from standard product sales decreased by $9,000 for the first six
months over the same period of 1995.
The 1996 second quarter net loss was $1,049,000, an increase in the
loss of $416,000 over the net loss of $633,000 recorded in the 1995 second
quarter. A net loss of $1,897,000 was recorded for the first six months of 1996
compared to a net loss of $1,138,000 for the same period in 1995. The increased
losses were due primarily to decreased revenue from the Air Force Contract,
which expired on June 1, 1996.
The cost of revenues increased by $85,000 for the second quarter of
1996 and increased by $76,000 for the first six months of 1996 over the same
periods in 1995 as decreased sales volume in both periods was amplified by
increased overhead. 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.
Sales and marketing expense increased by $6,000 and $10,000 for the
second quarter and first six months ended June 30, 1996, respectively, compared
to the same periods in 1995, due primarily to continued expansion of the
Company's marketing efforts to meet changing marketing conditions. Reflecting an
increased emphasis on research and development, research and development expense
was up $104,000 for the second quarter and increased by $157,000 for the first
six months 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 efforts.
General and administrative expenses in 1996 increased by $61,000 and $81,000 for
the second quarter and first six months, respectively, due to increased
personnel costs compared to the same periods in 1995.
8
<PAGE>
Liquidity and Capital Resources:
During the first six months of 1996, cash and cash equivalents
increased by $255,000 due to the private placement of the Company's common stock
completed in the 1996 first quarter, which was largely offset by the net loss
from operations. Accounts receivable decreased by $283,000 as a result of
decreased revenues due to the expiration of the Air Force Contract. Unbilled
receivables increased by $26,000 as progress billings were withheld pending
approval of new government overhead billing rates. Inventories increased by 11%
or $14,000 from December 31, 1995, in preparation for anticipated increased
industrial activity. Other current assets increased by $17,000, primarily due to
the increase in prepaid insurance during the period.
Accounts payable decreased 53% from December 31, 1995, to $95,000 at
March 31, 1996, due primarily to the timing of vendor payments. Deferred
contract revenue increased $50,000 due to receipt of the down payment from the
LandRay Technologies, Inc. ("LTI") joint venture development (See "Factors
Affecting Future Results"). The $25,000 decrease in other current liabilities
was due primarily to the reversal of certain reserves associated with the
private placement of common stock completed in the first quarter of 1996.
Backlog at June 30, 1996 was $567,000, compared to $1,042,000 one year
earlier. The Air Force contract, which expired on June 1, 1996, made up 95% of
the June 1995 balance.
Factors Affecting Future Results:
The Company's current cash position, together with anticipated cash
flows from operations, is 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 the revenue and cash generated by the United States 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 product applications, and
development of marketing strategies.
The Company must continue to seek and obtain other sources of revenue
to continue operations. The Company negotiated a joint venture (PEAC Airborne
Technologies, Ltd. ("PEAC")) with EAC Helicopters, Inc. ("EAC"), recently
completed negotiations with LTI, and continues its efforts to seek new strategic
partners and other joint ventures.
PEAC is a Minnesota corporation which has been formed to develop and
exploit business opportunities arising from helicopter reconnaissance missions
which collect data through the use of video, infrared, and high-impulse,
ultra-wideband ground penetrating radar ("UWB GPR") technologies, and catalog
and analyze such through the use of CD-ROM based proprietary integrated
analytical software systems. Formed by EAC, a Minnesota corporation which
specializes in helicopter reconnaissance missions, PEAC believes its use of UWB
GPR will give it the unique ability to locate and identify items which lie
beneath the surface of the earth. PEAC's objective is to utilize helicopter
borne UWB GPR systems to locate land mines, unexploded ordnance, toxic waste,
and other buried items and substances, exclusive of minerals and petroleum, and
to utilize video, infrared, and UWB GPR, in conjunction with its analytical
software, in commercial applications such as mapping and recording data about
power lines, timber stocks, deer herds, and the like. Such commercial
applications are referred to as Asset Management Services ("AMS"). PSI's
proposed joint
9
<PAGE>
venture arrangement with EAC provides that PSI and EAC will initially each own
50% of PEAC's equity. PEAC intends to raise up to $7,000,000 in a private equity
placement. The net proceeds will be used in part by PSI to develop UWB GPR for
use from helicopter platforms, to develop integrated software programs to
analyze and report data collected, and for marketing costs and working capital.
PSI is planning to enter into license and development agreements with PEAC
pursuant to which PSI would develop a prototype of a radar system which may
eventually be marketed by PEAC.
LTI is a Delaware corporation which has been formed by PSI and European
Industries Associates to develop and market UWB GPR systems capable of locating
and identifying minerals and oil and gas formations. LTI believes its use of UWB
GPR will give it the unique ability to locate and identify such structures and
formations. LTI's objective is to prove the applicability of PSI's proprietary
impulse generator technology to such applications, to develop such systems, to
utilize such systems in conjunction with analytical software that it may
purchase or develop, and to market services utilizing such hardware and software
to the mining and petroleum industries. PSI has entered into a license and
development agreement with LTI pursuant to which PSI will develop a prototype of
the technology to be commercialized by LTI.
There can be no assurances that the proposed PEAC joint venture will be
consummated, 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 assurance that such proposed joint
venture agreements, if consummated, would generate sufficient revenues to
replace the revenues previously generated by the Air Force Contract.
10
<PAGE>
Part II OTHER INFORMATION
Power Spectra, Inc.
June 30, 1996
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on June 7,
1996.
(b) At the Annual Meeting, the following directors were elected: Drury
J. Gallagher, Michael I. Gamble, James A. Glaze, John Hewitt, Jr., Gene
J. Kennedy, John W. Pauly, Gordon H. Smith, and Richard A. Williams.
(c) The following matters were voted upon as indicated.
Election of Directors
Number of Votes Number of Votes
Name For Withheld
---------------------- --------------- ---------------
Drury J. Gallagher*+ 8,230,983 2,015,206
Michael I. Gamble* 9,424,821 821,368
James A. Glaze* 9,926,245 319,944
John Hewitt, Jr.* 8,584,195 1,661,994
Gene J. Kennedy* 9,865,440 380,749
John W. Pauly* 8,593,266 1,652,923
Gordon H. Smith* 9,919,710 326,479
Richard A. Williams* 8,596,940 1,649,249
*Elected to serve for one year.
+Subsequent to the end of the quarter, Mr. Gallagher resigned his
position as a director of the Company.
Approval of the 1996 Stock Plan and the Reservation of 1,500,000 Shares
of Common Stock
Number of Votes
-----------------------------------------------------------------------
For Against Abstained Not Voted
--------- --------- --------- ---------
5,801,384 1,913,404 97,043 2,434,358
Approval of 170,000 Shares Increase to the 1992 Director Option Plan
Number of Votes
-----------------------------------------------------------------------
For Against Abstained Not Voted
--------- --------- --------- ---------
5,321,059 1,961,358 171,154 2,792,618
Ratification of Grant Thornton as independent auditors for the year
ending December 31, 1996.
Number of Votes
-----------------------------------------------------------------------
For Against Abstained Not Voted
--------- --------- --------- ---------
10,127,421 66,575 37,193 15,000
11
<PAGE>
Item 5 On June 1, 1996, Michael I. Gamble resigned as President and Chief
Executive Officer of the Company. Gordon H. Smith, Chairman of the
Board, assumed the additional duties of President and Chief Executive
Officer . Mr. Gamble remains a member of the Board of Directors and
will perform certain consulting duties for the Company.
On July 26, 1996, Drury J. Gallagher resigned as member of the Board of
Directors, citing increased time demands from his other business
ventures and to preclude any conflict of interest stemming from his
potential participation in the LandRay Technologies, Inc., joint
venture with the Company. As a result of Mr. Gallagher's resignation,
there is currently one vacancy on the Board.
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 June 30, 1996--None
12
<PAGE>
Power Spectra, Inc.
June 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: August 13, 1996 By: /s/Edward J. Lamb
-----------------------------------------
Edward J. Lamb
Controller, Chief Financial Officer, Secretary
(Principal Accounting and Finance Officer)
13
<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 June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,260
<SECURITIES> 0
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 139
<CURRENT-ASSETS> 2,958
<PP&E> 1,453
<DEPRECIATION> 1,036
<TOTAL-ASSETS> 3,492
<CURRENT-LIABILITIES> 879
<BONDS> 0
<COMMON> 14,006
0
1,681
<OTHER-SE> (13,074)
<TOTAL-LIABILITY-AND-EQUITY> 3,492
<SALES> 358
<TOTAL-REVENUES> 358
<CGS> 1,196
<TOTAL-COSTS> 2,308
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,896)
<INCOME-TAX> 1
<INCOME-CONTINUING> (1,897)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,897)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
