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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 June 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 0-16672
Power Spectra, Inc.
(Exact Name of Registrant as Specified in its Charter)
California 94-2687782
- -------------------------------------------- ------------------------------
(State or other jurisdiction (IRS Employer
incorporation or organization) Identification No.)
919 Hermosa Court
Sunnyvale, CA 94086-4103
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(Address of principal executive offices) (Zip Code)
(408) 737-7977
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(Registrant's telephone number, including area code)
Not applicable
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(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 August 8, 1997
----- --------------
Shares of Common 20,711,415
Stock, no par value
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<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
<TABLE>
Balance Sheets
(In thousands)
<CAPTION>
June 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
Assets:
Current Assets:
Cash and cash equivalents $ 730 $ 843
Accounts receivable 136 70
Unbilled receivables 0 26
Inventories, principally purchased parts 335 218
Other current assets 33 49
-------- --------
Total current assets 1,234 1,206
Equipment, furniture and leasehold improvements 1,355 1,355
Less, accumulated depreciation (1,044) (987)
-------- --------
Net fixed assets 311 368
Patents (net of amortization) 85 73
Other assets 27 26
-------- --------
Total assets $ 1,657 $ 1,673
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $ 97 $ 161
Accrued compensation expense 161 145
Deferred contract revenue 433 433
Allowance for contract losses 100 100
Accrued professional fees 100 76
Preferred stock dividend payable 144 49
Other current liabilities 28 28
-------- --------
Total current liabilities 1063 992
Stockholders' equity:
Preferred stock 1,666 1,666
Common stock 15,128 14,078
Accumulated deficit (16,200) (15,063)
-------- --------
Total stockholders' equity 594 681
-------- --------
Total liabilities & stockholders' equity $ 1,657 $ 1,673
======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
2
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
<TABLE>
Statements of Operations
(In thousands except per Share data)
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue $ 587 $ 358 $ 230 $ 186
Costs and expenses:
Cost of revenue 905 1,196 407 617
Sales and marketing 88 229 47 126
Research and development 153 247 129 159
General and administrative 494 636 264 367
------- ------- ------- -------
Total operating costs 1,640 2,308 847 1,269
------- ------- ------- -------
Operating loss (1,053) (1,950) (617) (1,083)
Other income 13 54 9 34
------- ------- ------- -------
Loss before income taxes (1,040) (1,896) (608) (1,049)
Provision for income taxes 1 1 1 --
------- ------- ------- -------
Net loss $(1,041) $(1,897) $ (609) $(1,049)
======= ======= ======= =======
Net loss applicable to common shares $(1,136) $(1,994) $ (657) $(1,097)
======= ======= ======= =======
Net loss per common share $ (0.06) $ (0.13) $ (0.03) $ (0.07)
======= ======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
Power Spectra Inc.
Item 1: Financial Statements
<TABLE>
Statements of Cash Flows
(In thousands)
<CAPTION>
Six Months Ending
-----------------
June 30, June 30,
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,041) $(1,897)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 69 62
Common stock issued for services 38 22
Changes in assets and liabilities:
Accounts receivable (66) 283
Unbilled receivables 26 (26)
Inventories (117) (14)
Other current assets 16 (17)
Accounts payable (64) (110)
Accrued compensation expense 16 (6)
Preferred stock dividend payable 95 --
Deferred contract revenue -- 50
Other current liabilities 24 (17)
------- -------
Net cash used in operating activities (1,006) (1,670)
Cash flows from investing activities
Furniture and equipment additions and disposals, net -- (60)
Patent additions (23) (17)
Increase in other assets (1) (6)
------- -------
Net cash used in investing activities (24) (83)
Cash flows from financing activities
Preferred stock dividend (95) (97)
Proceeds from sale of common stock 1,012 2,105
------- -------
Net cash used in financing activities 917 2,008
------- -------
Net increase (decrease) in cash and cash equivalents (113) 255
Cash and cash equivalents, beginning of period 843 2,395
------- -------
Cash and cash equivalents, end of period $ 730 $ 2,650
======= =======
Supplemental schedule of cash flow information:
Cash paid during the period for:
Interest $ -- $ 1
======= =======
Income taxes $ 1 $ 1
======= =======
<FN>
See notes to financial statements
</FN>
</TABLE>
4
<PAGE>
Power Spectra Inc.
Notes to Financial Statements
June 30, 1997
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, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. For further information, refer to "Factors Affecting Future
Results, " and to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
2. Per Share Data:
Per share information for the quarter ended June 30, 1997 is computed based
on the net loss after deducting Series A and Series B Preferred Stock dividends
in 1997. The weighted average number of shares outstanding consists of the
common stock. The effect of common stock equivalents which would arise from the
exercise of common stock options and warrants outstanding (using the treasury
stock method) and the conversion of Series A and Series B Preferred Stock have
not been included for the quarter and for the six months ended June 30, 1997 and
June 30, 1996, as their effect is anti-dilutive. The weighted average number of
shares outstanding at June 30, 1997 and June 30, 1996 were 18,040,783 and
15,075,640, respectively for the six month periods, and were 19,901,452 and
16,006,705, respectively for the second quarter periods.
3. Common Stock:
On April 10, 1997 the Company closed on a private placement of 4,370,000
shares of its Common Stock with gross proceeds of $1,092,500. The Company agreed
to pay a selling agent a cash placement fee equal to 5% of the gross proceeds of
the offering. In addition, the Company has agreed to issue to the selling agent
Warrants to purchase Common Stock exercisable for a number of shares equal to 5%
of the total number of shares sold in the offering. The selling agent's Warrants
will be exercisable at $0.25 per share (equal to the offering price of the
shares) and will be exercisable for a period of five years. The Company has
agreed to register for resale the shares of Common Stock issued in the private
placement, as well as the shares issuable upon exercise of the selling agent's
warrants.
5
<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, 1996, 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:
Revenues for the three months and six months ended June 30, 1997 were
$230,000 and $587,000, respectively, compared to $186,000 and $358,000,
respectively, for the same periods ended June 30, 1996, an increase of $44,000
for the quarterly period and an increase of $229,000 for the six-month period,
respectively. Revenues in the first six months of 1997 from the Company's
$1,200,000 contract with LandRay Technologies, Inc. (LandRay), a joint venture
partially owned by the Company, were $500,000, or 85% of total revenues, whereas
revenues from a contract from the U.S. Air Force were $242,000, or 68% of total
revenues, in the first half of 1996. Revenues from other contracts and products
decreased by $29,000 in the first half of 1997 from the first half of 1996.
The 1997 second quarter net loss was $609,000, a decrease of $440,000 over
the net loss of $1,049,000 recorded in the 1996 second quarter. A net loss of
$1,041,000 was recorded for the first six months of 1997 compared to a net loss
of $1,897,000 for the same period in 1996. This decrease was attributable to a
$668,000 decrease in expenditures, and a $229,000 increase in revenues offset by
a $41,000 decrease in interest income.
The cost of revenue decreased by $210,000 for the second quarter of 1997
and decreased by $291,000 for the first six months of 1997 over the same periods
in 1996 due to reduced overhead expenditures. Sales and marketing expenses
decreased by $79,000 and $141,000 for the second quarter and first six months
ended June 30, 1997, respectively, over the same periods in 1996 as a result of
reduced personnel, consulting, and travel costs. The 1997 research and
development expenses decreased by $30,000 for the second quarter and decreased
by $94,000 for the first six months over the same periods in 1996 due to reduced
expenditures on consulting and other outside services. General and
administrative costs also decreased by $103,000 and $142,000 for the second
quarter and first half of 1997 from 1996 levels due primarily to reduced
personnel costs.
6
<PAGE>
Other income decreased in the second quarter and first half of 1997
compared to the same period of 1996 by $25,000 and $41,000, respectively, as a
result of lower interest income.
Liquidity and Capital Resources:
During the 1997 first half, cash and cash equivalents decreased by $113,000
due to the net loss from operations, increased receivables and inventories
offset by the sale of common stock. Accounts receivable and unbilled receivables
increased by $40,000 net, or 42%, as combination of product shipments, moving
unbilled to billed receivables, and milestone completion under the LandRay
contract. Inventories increased by 54%, or $117,000, from December 31, 1996, in
anticipation of increased industrial product sales. Other current assets
decreased by $16,000 primarily due to expiration of prepaid insurance during the
period.
Accounts payable decreased 40% from December 31, 1996, to $97,000 at June
30, 1997 due primarily to reduced operating costs. The accrued compensation
expense balance increased by $16,000, an 11% increase over the balance at
December 31, 1996, primarily due to the timing of payroll expenditures. The
$119,000 increase in other current liabilities was due primarily to deferral to
later periods of the accrued dividends on the Series A and Series B Preferred
Stock.
Backlog at June 30, 1997, was $727,000 of which 96% consisted of
commitments under the LandRay contract as opposed to the June 30, 1996 where
backlog was $567,000 of which 88% was commitments under a prior LandRay
contract. Management expects the current LandRay contract to be completed by
December 31, 1997.*
On April 10, 1997 the Company closed on a private placement of 4,370,000
shares of its Common Stock with gross proceeds of $1,092,500. The Company agreed
to pay a selling agent a placement fee equal to 5% of the gross proceeds of the
offering. In addition, the Company has agreed to issue to the selling agent
Warrants to purchase Common Stock in a number of shares equal to 5% of the total
number of shares sold in the offering. The selling agent's Warrants will be
exercisable at $0.25 per share (equal to the offering price of the shares) and
will be exercisable for a period of five years. The Company has agreed to
register for resale the shares of Common Stock issued in the private placement,
as well as the shares issuable upon exercise of the selling agent's warrants.
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, 1997.* However, the actual amount of
time that the Company's cash resources last is dependent upon a variety of
factors including the timing of obtaining new contracts, the timing of new
financings, the success of its current joint ventures and the competition with
other vendors. The Company has commenced efforts to obtain additional equity
financing. If any additional funds are raised throught the issuance of equity
securities, the percentage ownership of the shareholders of the Company will be
reduced, shareholders may experience significant dilution and such equity
securities may have rights, preferences or privileges senior to those of the
Company's Common Stock. There can be no assurance that additional financing will
be available, or that if available, such
7
<PAGE>
financing will have terms favorable to the Company or its present shareholders.
Any failure to secure adequate funding could result in the Company becoming
unable to meet its obligations as they come due. In addition, if the Company is
not successful in replacing the revenue and cash generated by the United States
Air Force contract or the LandRay contract when it expires, the Company as
presently sized, would continue to experience substantial operating losses. The
Company does not presently have access to any credit facilities.
History of Losses; Accumulated Deficit. Since its inception, the Company
has generally operated at a loss since government contract revenues, which
represent most of the historical revenues of the Company, and other sources of
income were insufficient to cover general and administrative, research and
development and other costs incurred by the Company. The Company recorded net
losses of ($3,788,299), ($2,562,230) and ($1,112,507) for the years ended
December 31, 1996, December 31, 1995 and December 31, 1994, respectively. At
December 31, 1996, the Company had an accumulated deficit of $15,062,956. The
Company expects that it will continue to incur losses for the foreseeable future
and does not expect to become profitable until its contract revenues increase
substantially from current levels or the Company begins to receive significant
product sales and license and/or royalty income. There is no assurance that the
Company will achieve profitable operations in the foreseeable future, if at all.
Expiration of Air Force Contract. The Company's contract with the United
States Air Force expired in June 1996, and such contract has been a significant
source of revenues since it was awarded to the Company in 1990. With the
termination of the Air Force Contract, it is necessary to find alternative
sources of revenue, and there is no assurance that the Company will be
successful in accomplishing this result. If the Company is not successful in
replacing the revenue and cash generated by the Air Force contract, the Company,
will continue to experience significant operating losses and significant
negative cash flow. Although the Company has substantially reduced the size of
its operations since expiration of the Air Force Contract, there can be no
assurance that the Company's revenues and proceeds from the equity financings
will be sufficient to allow the Company to support its operating expenses.
Need to Successfully Launch and Fund New Ventures. The Company believes it
must continue to seek and obtain other sources of revenue to continue
operations. As part of this strategy, the Company recently negotiated a joint
venture, called PEAC Airborne Technologies, Inc. and completed the formation of
the LandRay joint venture. Both ventures will require additional funding in
order to enable the Company and its joint venture partners to carry out their
respective plans of operations. PEAC is initially seeking $7,000,000 in equity
financing. If the offering is successfully completed, the Company will receive a
portion of the net proceeds to develop its ultra-wideband ground penetrating
radar ("UWB GPR") technologies. Failure of PEAC to raise the necessary financing
will have a material adverse impact on the Company's revenues and cash flows.
Although the Company has entered into the LandRay joint venture, its success is
dependent upon demonstrating the feasibility of UWB GPR systems capable of
locating and identifying minerals and oil and gas formations. There is no
assurance that LandRay and the Company will be successful in this regard.
Failure of LandRay and the Company to adequately demonstrate such feasibility
will have a material adverse impact on the Company's revenues and cash flows.
There can be no assurances that the proposed PEAC joint venture will be
consummated, that the PEAC and LandRay joint ventures will be able to raise
adequate funding on acceptable terms, that the Company will be
8
<PAGE>
able to successfully enter into any additional suitable partnership or joint
venture arrangements or that such arrangements, when entered into, will prove to
be beneficial for the Company and its shareholders. There also can be no
assurance that the proposed joint venture agreements, if consummated, will
generate sufficient revenues to replace the revenues previously generated by the
Air Force contract. Failure to succeed in one or more strategic partnerships or
joint venture relationships could have a material adverse effect on the
Company's plan of operations and results.
Volatility of Stock Price. The market price of the Common Stock is highly
volatile. Factors such as variations in the Company's operating results and
announcements of technological innovations or price reductions by the Company,
its competitors or providers of alternative products and processes may cause the
market price of the Common Stock to fluctuate substantially. In addition, the
securities markets have recently experienced substantial price and volume
fluctuations that have particularly affected technology-based companies, and
resulted in changes in the market prices of the stocks of many companies that
have not been directly related to the operating performance of those companies.
The price of the Company's Common Stock is particularly susceptible to extreme
fluctuation because of thin trading volume in the Common Stock and lack of
widely available pricing information.
Shares Eligible for Future Sale. Sales of the Company's Common Stock in the
public market after this offering could adversely affect the market price of the
Company's Common Stock. In April 1997, the Company sold 4,370,000 shares of its
Common Stock to certain investors. The Company is obligated to register such
shares under the Securities Act of 1933, as amended (the "Securities Act") prior
to October 10, 1997. Registration of such shares would result in such shares
becoming freely tradeable without restriction (except for shares purchased by
affiliates) immediately upon the effectiveness of such registration. The
availability of such shares for sale could adversely affect the market price of
the Common Stock.
9
<PAGE>
Power Spectra Inc.
Part II - Other Information
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
On April 10, 1997, the Company issued 4,370,000 shares of its
Common Stock to certain investors, for a aggregate gross
purchase price of $1,092,500. The investors included entities
affiliated with the Travelers Group, which purchased 2,000,000
shares for an aggregate purchase price of $500,000. The
Company employed multiple parties as placement agents in
connnection with this transaction. The Company agreed to pay
the selling agents a cash placement fee equal to 5% of the
gross proceeds of the transaction. In addition, the Company
has agreed to issue to the selling agents warrants exercisable
for a number of shares of Common Stock equal to 5% of the
total number of shares sold in the offering. The Common Stock
was issued without registration under the Securities Act in
reliance on Section 4(2) of the Securities Act and Regulation
D promulgated thereunder.
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
27.1 Financial Data Schedule
b. Reports on Form 8-K during the quarter ended June 30, 1997
During the period covered by this report, the Company did not
file any reports on Form 8-K.
10
<PAGE>
Power Spectra Inc.
June 30, 1997
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.
Date: Aug 11, 1997 By: /s/ Edward J. Lamb
------------------ ---------------------
Edward J. Lamb
Chief Financial 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 six months ended June 30, 1997 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-31-1997
<PERIOD-START> DEC-31-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 730
<SECURITIES> 0
<RECEIVABLES> 136
<ALLOWANCES> 0
<INVENTORY> 335
<CURRENT-ASSETS> 1,234
<PP&E> 1,355
<DEPRECIATION> 1,044
<TOTAL-ASSETS> 1,657
<CURRENT-LIABILITIES> 1,063
<BONDS> 0
<COMMON> 15,128
0
1,666
<OTHER-SE> (16,200)
<TOTAL-LIABILITY-AND-EQUITY> 1,657
<SALES> 587
<TOTAL-REVENUES> 587
<CGS> 905
<TOTAL-COSTS> 1,640
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,040)
<INCOME-TAX> 1
<INCOME-CONTINUING> (1,041)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,041)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
