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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 March 31, 1998
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
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(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 May 13, 1998
----- ------------
Shares of Common 24,088,108
Stock, no par value
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<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
<TABLE>
Balance Sheets
(In thousands)
<CAPTION>
March 31, December 31,
Assets: 1998 1997
-------- --------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 146 $ 441
Accounts receivable 14 13
Receivable from affiliate 0 250
Inventories, principally purchased parts 278 232
Other current assets 26 30
-------- --------
Total current assets 464 966
Equipment, furniture and
leasehold improvements 1,321 1,321
Less accumulated depreciation (1,091) (1,061)
-------- --------
Net fixed assets 230 260
Patents (net of amortization) 76 78
Other assets 27 27
-------- --------
Total assets $ 797 $ 1,331
======== ========
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable $ 387 $ 311
Accrued compensation expense 151 128
Deferred contract revenue 433 433
Allowance for contract losses 100 100
Accrued professional fees 82 74
Preferred stock dividend payable 285 241
Other current liabilities 28 28
-------- --------
Total current liabilities 1,466 1,315
Stockholders' equity:
Preferred stock 1,644 1,666
Common stock 16,278 16,253
Accumulated deficit (18,591) (17,903)
-------- --------
Total stockholders' equity (deficit) (669) 16
-------- --------
Total liabilities & stockholders' equity $ 797 $ 1,331
======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
2
<PAGE>
Power Spectra, Inc.
Item 1: Financial Statements
Statements of Operations
(In thousands except per share data)
Three Months Ended
March 31,
-------------------
1998 1997
----- -----
Revenue $ 254 $ 357
Costs and expenses:
Cost of revenue 406 498
Sales and marketing 21 41
Research and development 240 24
General and administrative 231 230
----- -----
Total operating costs 898 793
----- -----
Operating loss (644) (436)
Other income 1 4
----- -----
Loss before income taxes (643) (432)
Provision for income taxes 1 --
----- -----
Net loss $(644) $(432)
===== =====
Net loss applicable to common
shares $(688) $(479)
===== =====
Net loss per share basic and diluted $(0.03) $(0.03)
===== =====
See notes to financial statements.
3
<PAGE>
Power Spectra Inc.
Item 1: Financial Statements
<TABLE>
Statements of Cash Flows
(In thousands)
<CAPTION>
Three Months Ending
March 31,
---------------------
1998 1997
----- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(644) $(432)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 32 40
Common stock issued for services 19 10
Changes in assets and liabilities:
Accounts receivable (1) (16)
Receivable from affiliates 250 --
Inventories (46) (67)
Other current assets 4 22
Accounts payable 76 (26)
Accrued compensation expense 23 (43)
Other current liabilities 8 54
----- -----
Net cash used in operating activities (279) (458)
Cash flows from investing activities
Patent additions -- (9)
----- -----
Net cash used in investing activities -- (9)
Cash flows from financing activities
Preferred stock dividend -- (47)
Expenses of sale of common stock (14) --
----- -----
Net cash used in financing activities (14) (47)
----- -----
Net increase (decrease) in cash and cash equivalents (295) (514)
Cash and cash equivalents, beginning of period 441 843
----- -----
Cash and cash equivalents, end of period $ 146 $ 329
===== =====
Supplemental schedule of cash flow information: Cash paid during the period for:
Interest $-- $--
===== =====
Income taxes $ 1 $--
===== =====
<FN>
See notes to financial statements
</FN>
</TABLE>
4
<PAGE>
Power Spectra Inc.
Notes to Financial Statements
March 31, 1998
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 three month period ended March 31, 1998 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. 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,
1997.
2. Computation of Loss Per Share:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." The
Company has adopted SFAS 128 for the periods presented. The adoption of SFAS 128
had no impact on previously reported loss per share for the three months ended
March 31, 1997 . Under the provisions of SFAS 128, primary earnings per share is
replaced by basic earnings per share and the dilutive effect of stock options,
warrants, convertible stock, and contingent stock issuances are excluded from
the calculation. For companies like Power Spectra with potentially dilutive
securities such as stock options, warrants, convertible securities and
contingent stock issuances, fully diluted earnings per share is replaced by
diluted earnings per share. Loss per common share is based on the weighted
average of common shares outstanding for all periods presented, using the net
loss after deducting Series A and Series B Preferred Stock dividends in 1998 and
1997. The assumed exercise of options and warrants and assumed conversion of
convertible securities have not been included in the diluted loss per share
computation as the effect would be anti-dilutive.
The weighted average number of shares outstanding at March 31, 1998 and
March 31, 1997 was 24,026,950 and 16,159,440, respectively.
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net loss $ (644,000) $ (432,000)
Less: accrual of preferred dividends 44,000 47,000
------------ ------------
Net loss applicable to common shares $ (688,000) $ (479,000)
------------ ------------
Loss per share -- basic and diluted $ (0.03) $ (0.03)
------------ ------------
Weighted average shares of common stock outstanding
24,026,950 16,159,440
------------ ------------
Common stock equivalent shares from stock options using the treasury stock method -- --
------------ ------------
Number of shares used in the per share computation
24,026,950 16,159,440
------------ ------------
</TABLE>
3. Common Stock:
As of April 13, 1998 the Company is obligated to issue an additional 128,000
shares of Common Stock to participants of the Company's private placement of
Common Stock which closed on November 11, 1997, as penalties relating to the
registration of shares purchased in that placement. To date this stock has not
been issued.
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, as amended (the "Securities Act") and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). 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, 1997, 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. For the convenience of the reader, the
Company has attempted to identify forward-looking statements contained in this
report with an asterisk (*). However, the omission of an asterisk should not be
presumed to mean that a statement is not a forward looking statement within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act.
Results of Operations:
Revenues for the first quarter ended March 31, 1998 were $254,000 compared
to $357,000 for the same period ended March 31, 1997, a decrease of $103,000.
Revenues in the 1998 quarter from the Company's $1,200,000 contract (the
"LandRay Contract") with LandRay Technologies, Inc. (LandRay), a joint venture
partially owned by the Company, were $250,000, or 98% of total revenues compared
to $250,000 or 70% of revenues in the same period in 1997.
The 1998 first quarter net loss was $644,000, an increase of $212,000 over
the net loss of $432,000 recorded in the 1997 first quarter. This change was
attributable to a $103,000 decrease in revenues, and a $105,000 increase in
operating expenses.
In aggregate, operating expenses increased by $105,000 in the first quarter
of 1998 compared to the same period in 1997. The cost of revenue decreased by
$92,000 due to reduced overhead expenditures, and sales and marketing expenses
decreased by $20,000 as advertising and exhibition costs were reduced for the
three months ended March 31, 1998. Although general and administrative costs
remained at the same level as the 1997 first quarter, research and development
expenses increased over the first quarter 1997 by $216,000 to $240,000. The 1998
quarter research and development expenditures were for the development and build
of the vehicle mounted ground penetrating radar systems test vehicle, and
additional design and test work related to the laser-based measurement systems.
7
<PAGE>
Other income decreased $3,000 and income tax expense increased by $1,000 in
the first three months of 1998 compared to the same period of 1997.
Liquidity and Capital Resources:
During the 1998 first three months, cash and cash equivalents decreased by
$295,000 due to the net loss from operations offset primarily by collection of
$250,000 from LandRay.
Inventories increased by 20%, or $46,000, from December 31, 1997, in
anticipation of delivery of two production SEEKER(TM) systems scheduled for
delivery in the second quarter 1998.
Accounts payable increased 24% from December 31, 1997, to $387,000 at March
31, 1998 due to increased purchases related to the SEEKER(TM) and vehicle
mounted radar system. The accrued compensation expense balance increased by
$23,000, an 18% increase over the balance at December 31, 1997, due to the
timing of payrolls, and employees taking less paid time off resulting in larger
accruals on the books. Preferred stock dividend payable increased by $44,000
over December 31, 1997 as the Company did not meet California statutory criteria
for any dividend distribution.
Backlog at March 31, 1998, was $200,000 of which 100% consisted of
commitments under the LandRay contract, whereas at March 31, 1997, backlog was
$953,000 of which 99% consisted of commitments under a current LandRay contract.
Management expects the current LandRay contract to be completed in the 1998
second quarter*, although there is no assurance that the contract will be
completed on this schedule.
Factors Affecting Future Results:
Need for Additional Capital / Ability to Continue as a Going Concern. The
Company's independent accountants, in their report regarding the Company's
financial statements for the year ended December 31, 1997, have included an
explanatory paragraph noting the Company's recurring substantial losses from
operations raise substantial doubt about the Company's ability to continue as a
going concern. The ability of the Company to continue as a going concern is
contingent upon its ability to secure additional financings, as to which the
Company currently has plans but no specific or definitive commitments. There is
no assurance that the Company will be able to secure adequate financing or to
carry out its current business plan. 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 venture and the competition with other vendors. The Company
has commenced efforts to obtain additional equity and debt financing. If any
additional funds are raised through 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
8
<PAGE>
financing will be available, or that if available, such 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 LandRay Contract when it
expires, the Company's ability to operate in accordance with its plans, or at
all, will be severely jeopardized. 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 $2,647,399, $3,788,299, and $2,562,230 for the years ended December
31, 1997, December 31, 1996 and December 31, 1995, respectively. At December 31,
1997, the Company had an accumulated deficit of $17,902,959, which had increased
to $18,591,000 at March 31, 1998. The Company expects that it will continue to
incur losses 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. Although the Company
has substantially reduced the size of its operations over the last two years,
there can be no assurance that the Company's revenues and proceeds from the
equity or debt financings will be sufficient to allow the Company to support its
operating expenses.
Dependence upon the LandRay Contract. The Company's relationship with
LandRay has been a significant source of revenues since the first contract was
awarded to the Company in 1996. The Company's relationship with LandRay was an
extremely significant source of revenue during 1996 and 1997. The Company
recognized revenue from the LandRay Contract based upon attainment of milestones
delineated in the contract. The current LandRay Contract is scheduled to be
completed in the 1998 second quarter. If the current contract with LandRay is
not extended, the Company will have no significant current revenue source.
Need to Successfully Launch and Fund New Ventures. The Company must
continue to seek and obtain other sources of revenue to continue operations.
Since its inception nearly all of the Company's revenues have come from
defense-related research and development contracts related to the BASS(TM)
development and applications. The Company currently is seeking to exploit its
technology for applications in commercial and industrial markets to provide such
revenue. During 1996, the Company entered into two ventures, LandRay and PEAC
Airborne Technologies in order to develop and exploit new business opportunities
which the Company believes are possible based upon its ultra-wideband ground
penetrating radar ("UWB GPR") technology. As of the date thereof, the PEAC
venture has been suspended. The LandRay ventures and any future ventures will
require significant funding in order to enable the Company and its strategic
partners to carry out their respective plans of operations. There can be no
assurances that the LandRay venture will be able to raise adequate funding on
acceptable terms, that the Company will be able to successfully enter into any
additional suitable strategic
9
<PAGE>
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 existing LandRay
contract when it expires. Failure to succeed in one or more strategic
partnerships or joint venture relationships would have a material adverse effect
on the Company's plan of operations and results.
Expiration of Air Force Contract. The Company's contract with the United
States Air Force expired in June 1996 and final payments thereunder were
received by the Company during 1996. The Company is subject to an audit by the
Defense Contract Audit Agency for overhead rates applied to the contract for
fiscal years 1994, 1995, and 1996. As such, the Company may be subject to
adjustments up or down on contract revenues. While such audits are commonplace,
the timetable for the audit is unknown at present, and no assurances can be
given that such audit will not result in significant payment obligation to the
government.
Product Development and Enhancements. The development of GPR systems and
other remote sensing products as well as high power switching components and
products is a complex engineering effort involving significant risk. While the
Company believes it has completed development of its core technology,
significant additional development efforts must be made in order to achieve
commercial acceptance of its products. Such efforts will require substantial
additional capital, the source and timing of which is unknown. There is no
assurance that the Company will succeed in raising the needed capital or in the
product development efforts, even if the necessary funding is raised.
Complex Manufacturing Process; Manufacturing Capacity. The manufacture of
GPR systems and remote sensing products as well as semiconductor-based power
switching devices is highly complex and sensitive to a wide variety of factors,
including the level of contaminants in the manufacturing environment, impurities
in the materials used, and the performance of personnel as well as vendors and
suppliers. The Company has periodically experienced yield problems, and there
can be no assurance that these problems will no recur. Should the Company
experience protracted production delays attributable to manufacturing
complexity, its ability to deliver products would be materially affected. In the
event that the Company commences significant commercial shipments, it may be
required to obtain third party manufacturing services.
Dependence on Government Contracts; Limited Commercial Sales to Date.
Historically a material portion of the Company's business resulted from
contracts with or for government agencies. The Company expects that dependence
on such contracts for a portion of its revenues will decline in the foreseeable
future. Notwithstanding the fact that the applicability of both the Company's
BASS(TM) and PSIristor(TM) device technology to ground penetrating radar systems
has been technically demonstrated, with the exception of development contract
from LandRay, at this early stage of its shift in strategic business focus, the
Company has not yet generated significant revenues from sales of its commercial
products. The first GPR product developed for LandRay, the SEEKER(TM), is
currently entering into production. In addition, there can be on assurance that
potential future products and applications of the Company's core technologies
which the Company
10
<PAGE>
is considering pursuing, but which have not yet been developed, tested or
deployed, will be successfully developed or accepted in their target markets,
that revenues generated by such products will be sufficient to return the cost
of their development, that the Company will be successful in developing
additional new products, that the Company will not experience delays in
developing such products, or that such products will achieve commercial success.
A sustained failure to successfully develop and sell new products would have a
material adverse effect on the Company's business and its results of operations.
Limited Sales and Marketing Capability; Future Reliance on Distributors.
The Company currently as no marketing or sales force. The Company will be
required to establish such marketing and sales staff in order to execute its
plans for increasing commercial sales. In addition, in order to materially
increase revenues and achieve sustained profitability ( of which there is no
assurance) as the Company continues to commercialize its products, it expects
that it will be required to depend upon distributors. While any particular
distributor may have an extensive distribution network, distributors typically
represent other third-party suppliers, including competitors of the Company, to
whom they may devote greater time, effort, and attention. There can be no
assurance that the Company will successfully establish the requisite
distribution relationships or that those relationships will result in increased
revenues.
Competition. The markets for the Company's products are competitive and
characterized by rapid technological change and changes in market demand. The
Company's competitive position is affected by all of these factors and by
industry competition for effective sales and distribution channels. The
Company's potential and existing competitors include major ultrasonic proximity
sensor vendors, a small number of which dominate the market. Most of the
Company's competitors have substantially greater financial, technical, marketing
and other resources than does the Company. The Company expects that its markets
will become more competitive in the future, and there is no assurance that the
Company will be able to successfully compete in its selected markets.
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.
11
<PAGE>
Power Spectra Inc.
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
27.1 Financial Data Schedule
b. Reports on Form 8-K during the quarter ended March 31, 1998
During the period covered by this report, the Company did not
file any reports on Form 8-K.
12
<PAGE>
Power Spectra Inc.
March 31, 1998
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: May 13, 1998 By: /s/ Edward J. Lamb
------------------------------ ---------------------
Edward J. Lamb
Chief Financial
Officer
13
<PAGE>
Exhibit Index
Exhibit
No. Description
- -----------------------------
27.1 Financial Data Schedule
14
<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 three months ended March 31, 1998 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> DEC-31-1997
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 146
<SECURITIES> 0
<RECEIVABLES> 14
<ALLOWANCES> 0
<INVENTORY> 278
<CURRENT-ASSETS> 464
<PP&E> 1,321
<DEPRECIATION> 1,091
<TOTAL-ASSETS> 797
<CURRENT-LIABILITIES> 1,486
<BONDS> 0
<COMMON> 16,259
0
1,644
<OTHER-SE> (18,591)
<TOTAL-LIABILITY-AND-EQUITY> 797
<SALES> 254
<TOTAL-REVENUES> 254
<CGS> 406
<TOTAL-COSTS> 898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (643)
<INCOME-TAX> 1
<INCOME-CONTINUING> (644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (644)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
