<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended May 31, 1995
_ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-14843
DENSE-PAC MICROSYSTEMS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
CALIFORNIA 33-0033759
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
7321 LINCOLN WAY
GARDEN GROVE, CALIFORNIA, 92641
(Address of Principal Executive Offices)
(714) 898-0007
Issuer's Telephone Number, Including Area Code
Not Applicable
(Former Name, Former Address and Former Fiscal Year
if Changed Since Last Year)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the issuer was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock, no par value, outstanding as of June 23,
1995 was 14,634,781.
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TOTAL PAGES: 9
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Dense-Pac Microsystems, Inc.
Balance Sheets
<TABLE>
<CAPTION>
May 31, February 28,
1995 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 560,232 $ 356,787
Accounts receivable, net 1,539,700 1,901,762
Inventories 4,103,807 4,347,205
Other current assets 160,923 122,223
----------- -----------
Total current assets 6,364,662 6,727,977
Property, net 2,656,395 2,512,641
Technology and marketing rights, net 463,642 481,840
Other assets 67,262 67,262
----------- -----------
$ 9,551,961 $ 9,789,720
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt 375,553 375,553
Accounts payable 851,452 1,170,997
Deferred revenue 589,000 717,023
Accrued liabilities 307,710 332,955
----------- -----------
Total current liabilities 2,123,715 2,596,528
----------- -----------
Note payable to related parties 2,000,000 2,000,000
----------- -----------
Other long-term debt 947,037 993,201
----------- -----------
Shareholders' equity
Common stock 9,244,645 9,241,036
Accumulated deficit (4,763,436) (5,041,045)
----------- -----------
Total stockholders' equity 4,481,209 4,199,991
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$ 9,551,961 $ 9,789,720
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
2
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Dense-Pac Microsystems, Inc.
Summary of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the quarter ended
May 31, May 31,
1995 1994
----------- -----------
<S> <C> <C>
Net Sales $ 4,230,313 $ 2,705,330
Cost of Sales 3,152,712 2,423,028
----------- -----------
Gross profit 1,077,601 282,302
----------- -----------
Operating Expenses:
Selling, general and administrative 637,428 609,509
Research and development 102,583 198,503
----------- -----------
Income (loss) from operations 337,590 (525,710)
----------- -----------
Other expenses:
Interest, net 59,981 42,722
----------- -----------
Earnings (loss) before income taxes 277,609 (568,432)
Income tax expense 800
----------- -----------
Net income (loss) $ 277,609 $ (569,232)
=========== ===========
Net earnings (loss) per common share $ 0.02 $ (0.04)
=========== ===========
Weighted average common shares outstanding 15,222,000 14,588,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
Dense-Pac Microsystems, Inc.
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
May 31, May 31,
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 277,609 $(569,232)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 128,931 178,935
Changes in operating assets and liabilities:
Accounts receivable 362,062 365,299
Inventories 243,398 374,836
Other current assets (38,700) 59,547
Other assets 4,736
Accounts payable (319,545) (70,601)
Accrued liabilities (25,245) (139,769)
Deferred revenue (128,023)
Income taxes payable (9,000)
--------- ---------
Net cash provided by operating activities: 500,487 194,751
--------- ---------
CASH USED IN INVESTING ACTIVITIES:
Property additions (254,487) (177,183)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increases in short-term borrowings 118,427
Principal payments on other long-term debt (46,164) (22,118)
Proceeds from Issuance of common stock 3,609 3,000
--------- ---------
Net cash (used in) provided by financing activities (42,555) 99,309
--------- ---------
NET INCREASE IN CASH 203,445 116,877
--------- ---------
CASH AT BEGINNING OF YEAR 356,787 438,628
CASH AT END OF QUARTER $ 560,232 $ 555,505
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 50,532 $ 42,285
========= =========
Income taxes paid $ 0 $ 9,800
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
4
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CONDENSED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Dense-Pac Microsystems, Inc. (the Company) is engaged in the
design, development, manufacture and marketing of a full line of high density,
miniaturized memory surface mount components and subsystems for a variety of
commercial, industrial and military applications.
NOTE 2 - As contemplated by the Securities and Exchange Commission under Item
310 (b) of Regulation S-B, the accompanying financial statements and footnotes
have been condensed and therefore do no contain all disclosures required by
generally accepted accounting principles. This report on Form 10-QSB for the
period ended May 31, 1995 should be read in conjunction with the Company's
Annual Report to Shareholders for the previous year.
In the opinion of the Company, the accompanying unaudited condensed
financial statements contain all adjustments (none of which were other than
normal recurring accruals) necessary to present fairly its financial position
as of May 31, 1995, the results of operations and its cash flows for the
periods ended May 31, 1995 and 1994. Results for the interim period are not
necessarily indicative of those to be expected for the full year.
NOTE 3 - Inventories consisted of the following:
<TABLE>
<CAPTION>
May 31, 1995 February 28, 1995
------------- -----------------
<S> <C> <C>
Raw Materials $1,527,553 $1,235,939
Work-in-process 2,140,310 2,613,057
Finished Goods 435,944 498,209
---------- ----------
$4,103,807 $4,347,205
========== ==========
</TABLE>
NOTE 4 - Accounting for Income Taxes
The Company adopted Statement of Financial Accounting Standards (SFAS)
No.109, "Accounting for Income Taxes," effective March 1, 1993. This
Statement supersedes SFAS No. 96, "Accounting for Income Taxes," which was
adopted by the Company in 1987.
Deferred income taxes reflect the net tax effect of (a) temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, and (b)
operating loss and tax credit carryforwards. The tax effects of significant
items comprising the Company's net deferred tax asset as of February 28, 1995
are as follows:
5
<PAGE> 6
<TABLE>
<S> <C>
Deferred tax assets:
Operating loss carryforwards,
general business credits, etc. $ 1,925,360
Inventories 428,433
-----------
Total gross deferred assets $ 2,353,793
Deferred tax liability
Depreciation and amortization (203,185)
Valuation allowance (2,150,608)
-----------
Net deferred income taxes $ -
===========
</TABLE>
There was no change in the valuation allowance as of May 31, 1995.
The Company is unable to determine whether it will be able to utilize
the gross deferred tax assets in fiscal year 1996. Further evaluation will be
completed as part of the year end evaluation for the year ending February 28,
1996.
As of February 28, 1995, the Company had net operating loss
carryforwards of $4,650,000 for regular income tax and $4,725,000 for
alternative minimum tax available to offset future Federal taxable income
(principally subject to limitations of approximately $270,600), expiring at
various dates through 2008. As of February 28, 1995, the Company had available
tax credit carryforwards of approximately $153,000 to offset future Federal
income taxes, which expire at various dates through 2005.
NOTE 5 - Net income (loss) per common and common equivalent share is computed
by dividing net income by the weighted average number of common and common
equivalent shares (if applicable) outstanding during the periods. For the loss
periods, common equivalent shares were anti-dilutive and were not included in
the E.P.S. calculation.
NOTE 6 - In October 1994, the Company borrowed $2,000,000 from a principal
shareholder and a director evidenced by a five year, interest only, eight
percent note. The note is secured by all of the Company's assets. As
consideration for the loan, the Company issued 1,000,000 warrants exercisable
for five years at $2.00 per share for Company stock. The warrants are
callable when the Company's stock reaches a trading price of $4.50 for twenty
consecutive days.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
6
<PAGE> 7
RESULTS OF OPERATIONS
Net sales for the quarter ended May 31, 1995, increased $1,524,983 or
56% from the quarter ended May 31, 1994. Approximately $1,000,000 of this
increase was due to increased sales of 512K x 8 standard commercial products,
which represented 43% of sales in the first quarter of fiscal year 1996
compared to 30% of sales in the first quarter of fiscal year 1995. Increased
sales of the Company's patented stackable first generation product also
contributed to the increased sales. Due to expected technology advances, the
Company cannot predict how long the current strong demand for the 512K x 8
product will continue. However, the Company has developed a replacement
product which will incorporate the advanced technology. The Company began the
fiscal year with a record backlog of $7.1 million. The Company has not booked
any significant orders for the "second generation" product, but samples and
prototypes are being introduced to the marketplace. While an industry shortage
of semiconductor dies has hampered the Company's ability to aggressively market
the second generation product, this shortage should not affect the existing
backlog. The Company is developing new stackable technologies that will be
introduced to the market during fiscal year 1996, although marketing of these
products could be affected by the shortage of semiconductor dies.
Cost of sales as a percentage of sales, for the three month period
ended May 31, decreased from 90% in fiscal year 1995 to 75% in fiscal year
1996. During the first quarter of fiscal year 1995, approximately $450,000 was
expensed in development and preproduction costs associated with the second
generation product, facilities and related overhead which did not generate
revenues during the period. With the second generation product development
completed, these expenses were not incurred in the current fiscal year. The
balance of the decrease in cost of sales can be attributed to increased
operating efficiencies associated with the increase in the level of business.
Selling, general and administrative expense increased in the first
quarter of fiscal 1995 by $27,919 or 5% from the first quarter of the prior
fiscal year. The slight increase in these expenses was due to payroll costs at
full levels for the first quarter in fiscal year 1996 versus at pay-cuts for
the first quarter in the prior year first quarter. Additionally, the Company
began an advertising campaign and spent approximately $30,000 in the first
quarter of fiscal year 1996 introducing new products and existing technologies.
For the three months ended May 31, 1995, research and development
costs decreased $95,920 or 48% from the same quarter in the previous period.
The significant decrease is directly attributable to the efforts geared toward
the second generation technology development during the first quarter of the
prior fiscal year, which was completed in the prior fiscal year. The Company
is now developing new products that will benefit future periods.
For the three months ended May 31, 1995, net interest expense has
increased
7
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$17,259 or 40% from the same period in the prior year. This increase is due
to less invested capital and increased borrowings for fixed assets and working
capital in the current period as compared to the prior period as the Company
borrowed $2,000,000 in October 1994 as described in note 6 above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity for the first quarter of
fiscal 1996 were cash flow from operations, and use of the proceeds from the
$2,000,000 note.
In October 1994, the Company reached an agreement, with a major
shareholder and a director for a $2,000,000 loan. The loan has a five year
term with quarterly interest of 8%. The lenders received a security interest
in all of the Company assets and five year warrants to purchase one million
shares of Company stock at $2.00 per share. The warrants will be callable by
the Company at $.001 per warrant when the Company's stock price reaches
$4.50 per share, for 20 consecutive trading days. The proceeds were used to
repay outstanding borrowings under the bank line of credit, to expand marketing
of the second generation product and for general working capital. Management
believes that the Company's present working capital position, together with
operational cash flow and the loan will be sufficient to support planned
operations.
In the third quarter of fiscal year 1994, the Company received a
$600,000 lease facility to purchase manufacturing equipment. As of November
30, 1994, the Company had drawn all available funds against this facility.
Borrowings are repaid monthly over a three year period and bear interest at
rates of 8.88% to 9.35% per annum. The Company has no other material capital
expenditure plans.
The Company also has a loan from a Belgium bank due November 2000,
which provides for semi-annual principal payments of $70,533. The interest
rate is two points over the LIBOR rate in effect at the time of each principal
payment, and interest is payable semi-annually. At May 31, 1995 the
outstanding principal amount was $846,636.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K. None
8
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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.
DENSE-PAC MICROSYSTEMS, INC.
(Small Business Issuer)
July 10, 1995 /s/ JAMES G. TURNER
- ------------------------- --------------------------------------------
Date James G. Turner, Chairman of the Board
and Chief Executive Officer
July 10, 1995 /s/ WILLIAM M. STOWELL
- ------------------------- --------------------------------------------
Date William M. Stowell, Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED MAY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS FOR THE QUARTER ENDED MAY 31, 1995.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> MAY-31-1995
<CASH> 560,232
<SECURITIES> 0
<RECEIVABLES> 1,549,700
<ALLOWANCES> (40,000)
<INVENTORY> 4,103,807
<CURRENT-ASSETS> 160,923
<PP&E> 4,095,579
<DEPRECIATION> (1,439,184)
<TOTAL-ASSETS> 9,551,961
<CURRENT-LIABILITIES> 2,123,715
<BONDS> 0
<COMMON> 9,244,645
0
0
<OTHER-SE> (4,763,436)
<TOTAL-LIABILITY-AND-EQUITY> 9,551,961
<SALES> 4,230,313
<TOTAL-REVENUES> 4,230,313
<CGS> 3,152,712
<TOTAL-COSTS> 3,892,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,981
<INCOME-PRETAX> 277,609
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277,609
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
