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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 31, 2000
[ ] TRANSITION REPORT UNDER 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 92841
(Address of Principal Executive Offices)
(714) 898-0007
Issuer's Telephone Number
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
September 29, 2000 was 19,918,000.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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TOTAL PAGES: 10
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PART I- FINANCIAL INFORMATION
ITEM 1. Financial Statements
Dense-Pac Microsystems, Inc.
Consolidated Balance Sheet
<TABLE>
<CAPTION>
August 31, February 29,
2000 2000
------------ ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,959,746 $ 2,949,562
Accounts receivable, net 2,760,945 3,346,318
Inventories, net 2,128,578 1,778,959
Other current assets 234,655 200,120
------------ ------------
Total current assets 10,083,924 8,274,959
Property, net 5,446,139 5,819,824
Other assets 29,171 29,171
------------ ------------
$ 15,559,234 $ 14,123,954
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 560,586 $ 671,336
Accounts payable 1,258,876 1,152,151
Accrued compensation 443,773 782,996
Other accrued liabilities 91,333 353,393
Deferred revenue 300,000 450,000
------------ ------------
Total current liabilities 2,654,568 3,409,876
Other long-term debt 1,009,153 1,263,544
Stockholders' equity
Common stock 20,766,929 20,039,109
Unearned compensation expense (37,661) (116,131)
Accumulated deficit (8,833,755) (10,472,444)
------------ ------------
Total stockholders' equity 11,895,513 9,450,534
------------ ------------
$ 15,559,234 $ 14,123,954
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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Dense-Pac Microsystems, Inc.
Consolidated Statements
of Operations
( Unaudited )
<TABLE>
<CAPTION>
For the quarter ended Six months ended,
August 31, August 31, August 31, August 31,
2000 1999 2000 1999
----------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
NET SALES $ 7,204,949 $ 7,355,581 $ 18,185,152 $ 13,396,618
COST OF SALES 4,823,680 4,805,052 12,697,849 9,404,765
------------ ------------ ------------ ------------
GROSS PROFIT 2,381,269 2,550,529 5,487,303 3,991,853
COSTS AND EXPENSES:
Selling, general and administrative 1,557,898 1,499,289 2,975,212 2,526,515
Research and development 436,795 263,562 858,944 442,215
------------ ------------ ------------ ------------
Total costs and expenses 1,994,693 1,762,851 3,834,156 2,968,730
PROFIT FROM OPERATIONS 386,576 787,678 1,653,147 1,023,123
------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME)
Interest expense 33,950 94,996 70,805 133,586
Interest income (66,979) (7,813) (109,347) (14,451)
------------ ------------ ------------ ------------
Total other expense (income) (33,029) 87,183 (38,542) 119,135
PROFIT BEFORE INCOME TAX PROVISION 419,605 700,495 1,691,689 903,988
INCOME TAX PROVISION 13,000 20,800 53,000 20,800
------------ ------------ ------------ ------------
NET PROFIT $ 406,605 $ 679,695 $ 1,638,689 $ 883,188
============ ============ ============ ============
BASIC NET INCOME PER SHARE $ 0.02 $ 0.04 $ 0.08 $ 0.05
============ ============ ============ ============
DILUTED NET INCOME PER SHARE $ 0.02 $ 0.03 $ 0.08 $ 0.04
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
USED TO CALCULATE BASIC NET
INCOME PER SHARE 19,835,505 18,595,000 19,612,042 18,460,000
============ ============ ============ ============
WEIGHTED AVERAGE SHARES
USED TO CALCULATE DILUTED
NET INCOME PER SHARE 20,946,642 19,876,000 20,633,423 19,689,000
============ ============ ============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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Dense-Pac Microsystems, Inc.
Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
August 31, August 31,
2000 1999
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,638,689 $ 883,188
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization 726,618 679,704
Amortization of unearned compensation expense 78,470
Changes in operating assets and liabilities:
Accounts receivable 585,373 (1,424,690)
Inventories (349,619) 1,513,049
Other current assets (34,535) 51,104
Accounts payable 106,725 (478,256)
Accrued compensation (339,223) 252,945
Other Accrued liabilities (262,060) (41,453)
Deferred revenue (150,000)
----------- -----------
Net cash provided by operations 2,000,438 1,435,591
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property additions (352,933) (643,890)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long-term debt (365,141) (238,494)
Proceeds from issuance of common stock 727,820 81,209
----------- -----------
Net cash provided by (used in) financing activities 362,679 (157,285)
----------- -----------
...........
NET INCREASE IN CASH 2,010,184 634,416
CASH AT BEGINNING OF YEAR 2,949,562 1,273,887
----------- -----------
CASH AT END OF PERIOD $ 4,959,746 $ 1,908,303
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 70,413 $ 151,720
=========== ===========
Income taxes paid $ 61,000 $ 800
=========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Acquisition of property under capital leases $ 663,282
=========== ===========
Conversion of notes payable to related parties to common stock $ 1,200,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
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DENSE-PAC MICROSYSTEMS, INC.
CONDENSED NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - Dense-Pac Microsystems, Inc. (Dense-Pac or the Parent Company), a
California corporation, and its wholly-owned subsidiary, TypeHaus, Inc.
(TypeHaus) (together, the Company) designs and manufacturers proprietary
chip-stacking components and subsystems. The Company's revenues are generated
primarily from manufacturers of electronic components, as well as from
subcontracts where the primary contractor is the United States government. The
Company grants credit to customers included in the military, aerospace, and a
variety of commercial industries. TypeHaus provides printer media devices,
printer memory, and electronic laser products to a variety of OEM customers. It
also supplies custom memory subsystems and support software for OEM
manufacturers of laser printers.
NOTE 2 - As contemplated by the Securities and Exchange Commission ("SEC") under
Item 310 (b) of Regulation S-B, the accompanying financial statements and
footnotes have been condensed and therefore do not contain all disclosures
required by generally accepted accounting principles. This report on Form 10-QSB
for the period ended August 31, 2000 should be read in conjunction with the
Company's Annual Report on Form 10-KSB for the fiscal year ended February 29,
2000 filed with the SEC.
In the opinion of the Company management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the Company's financial position as of August 31, 2000 and the results of
its operations and its cash flows for the quarters ended August 31, 2000 and
1999. Results for the interim periods are not necessarily indicative of those to
be expected for the full year.
NOTE 3 - Recent Accounting Pronouncements - In June 1998, the Financial
Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. The Company
does not invest in derivative investments nor does it engage in hedging activity
and, therefore, does not believe that the adoption of SFAS No. 133 will have an
impact on the Company's financial statements.
In fiscal 1999, the Company adopted SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. This statement establishes standards for
the way companies report information about operating segments in annual
financial statements. It also establishes standards for related disclosure about
products and services, geographic areas, and major customers. The Company
engages in business activity primarily in two operating segments: the design and
manufacturing of proprietary and patented three-dimensional, high-density
semiconductor products and the design and manufacturing of memory and memory
related products for the laser printer industry (through its wholly-owned
subsidiary, TypeHaus, Inc.). The revenue and operational results for TypeHaus
are immaterial in the consolidated financial statements of Dense-Pac
Microsystems.
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NOTE 4 - The following table summarizes stock option activity under Dense-Pac's
1985 and 1996 Stock Option Plans for the six months ended August 31, 2000:
<TABLE>
<CAPTION>
Number of Price per Number of
Shares Share Options Exercisable
------------- --------------- -------------------
<S> <C> <C> <C>
Balance, February 29, 2000 2,071,500 $ .94 - $7.56 653,150
---------- --------------- ---------
Granted 466,000 $5.50 - $8.63
Exercised (543,900) $1.00 - $4.50
Canceled (127,000) $1.56 - $8.63
---------- --------------- ---------
Balance, August 31, 2000 1,866,600 $ .94 - $8.63 318,525
========== =============== =========
</TABLE>
NOTE 5 - The weighted average shares outstanding during the three and six month
period ended August 31, 2000 was 19,836,000 and 19,612,000. The fully diluted
shares outstanding for the three and six month period ended August 31, 2000 was
20,947,000 and 20,633,000. Options to purchase shares of common stock during
these periods were included in the above calculations.
ITEM 2 - Management's Discussion and Analysis or Plan of Operation
RESULTS OF OPERATIONS
Net sales for the quarter ended August 31, 2000 decreased $ 151,000 or 2%
compared to the quarter ended August 31, 1999. The decrease in net sales for the
quarter ended August 31, 2000, when compared to the same quarter in the prior
year was due primarily to a decrease in the industrial and defense portion of
the business, offset by an increase in the royalty revenue for the company.
Additionally, during the quarter, the overall units shipped for the commercial
stack business decreased by 30% as compared from the same quarter in the
previous year, but did not materially affect revenue due to the product mix.
During the second quarter ended August 31, 2000, the supply of the DRAM became
allocated to the end users because of output capacity and demand, and as a
result, many of the silicon suppliers were selling DRAM directly into the
marketplace versus stacking them. This resulted in a short-term delay in the
availability of the DRAM for the use in stacking, although the demand for
high-density technology did not go away.
The commercial product mix during the second quarter ended August 31, 2000,
changed as to the relationship between consigned material in the total revenue
versus the material purchased on behalf of the customer. For the commercial
high-density product, approximately 50% of the revenue for the quarter ended
August 31, 2000 was represented with the memory cost contained in the revenue.
In these cases, the Company will purchase material for the commercial order and
will determine the final purchase price prior to the order, in order to avoid
any price volatility in the components. This compares to no memory contained in
the stacked revenue for the same period in the prior year's record quarter. See
"Forward Looking Statements."
Net sales for the six months ended August 31, 2000 increased $4,789,000 or
36% compared to the same period in the previous year's period. The increase in
revenue for the six month period was primarily during the first quarter ended
May 31, 2000, when the commercial
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stacks sold during the quarter, was approximately 50% more during as compared to
the comparable period in the prior year. For the commercial high-density
product, approximately 50% of the commercial stack sales were comprised of
memory costs for the six months ended August 31, 2000 as compared to 14% in the
same period for the previous fiscal year.
For the second quarter ended August 31, 2000, approximately $538,000 of
revenue was generated from the Company's wholly-owned subsidiary (TypeHaus) as
compared to $428,000 in the previous year's second quarter. For the six month
period ended August 31, 2000, TypeHaus accounted for approximately $796,000 of
the total revenue as compared to $848,000 for the same period in the prior year.
TypeHaus' had a loss for the quarter and six month period ended August 31, 2000
of $1,200 and $38,000, respectfully.
Gross profit as a percentage of sales was 33% for the three month period
ended August 31, 2000, as compared to 35% for the three month period ended
August 31, 1999. For the six month period ended August 31, 2000 the gross margin
was 30% as compared to 30% for the six month period ended August 31, 1999. Any
change in the gross margins can typically be attributed to the type of products
that the company was selling during the comparable quarters as well as the
royalty income generated during the periods. The Company increased its
production during the first quarter of fiscal year 2001 creating an increase in
the economics of production with the variable of gross margin being the direct
labor force. During the slower periods the labor force is adjusted match the
production needs. The Company also shipped commercial orders for approximately
$2,585,000 for the three month period and $7,611,00 for the six month period
ended August 31, 2000, where the margin was lower due to the fact that the
Company procured the memory for the order as compared to none in the previous
years second quarter and $1,205,000 for the six months. The balance of the
commercial orders had consigned memory associated with the sale.
During the second quarter of fiscal year 2001, the Company continued its
offering of commercial products and focused on those products that relate to the
Company's proprietary packaging technology. In this manner, the Company believes
that the Company has been able to define a niche for the products that use a
unique proprietary stacking technology and has been marketing these products to
a defined market. The Company believes that margins should improve due to
increased production. See "Forward-Looking Statements."
Selling, general and administrative expenses increased in the second
quarter of fiscal 2001 by $59,000 or 4% from the second quarter of the prior
fiscal year. For the six month period ended August 31, 2000, these expenses
increased by $449,000 or 18% over the same period in the prior year. The
majority of the increase in selling general and administrative expenses can be
attributed to an increase in legal expense of $247,000 for the quarter ended
August 31, 2000 as compared to the same quarter in the prior year and an
increase of $470,000 for the six month period ended August 31, 2000 as compared
to the previous period. The legal increase is associated with a patent
infringement and trade secret theft lawsuit and other legal expenses. See the
Company's 10-QSB for the period ended May 31, 2000 for a current status of the
legal cases. Additionally, during the quarter and six months ended August 31,
2000, there was a decrease in the bonus/profit sharing expense which partially
offset the increase in legal expense.
For the quarter ended August 31, 2000, research and development costs
increased $173,000 or 66% from the same quarter in the previous fiscal year. For
the six months ended August 31, 2000 research and development costs increased
$417,000 or 94% for the same period in the prior fiscal year. The increase is
primarily due to continued efforts to allocate resources to the development and
production of unique new technologies into the commercial
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marketplace. The Company is continuing to invest in research and development for
new products in the aerospace and commercial marketplace. See "Forward Looking
Statements".
For the three months ended August 31, 2000, other expenses decreased
$120,000 and for the six months decreased $158,000 from the same period last
year. This decrease is due to additional interest income associated with the
increase in the cash reserves and a reduction in the interest expense due to
payments toward equipment leases. The Company additionally established a
relationship with a new bank during the period and established a investment
facility for available idle cash to be invested.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity for the second quarter of fiscal
2000 was the cash generated from the operations. The Company continued to
improve its operating performance and generate cash for operation purposes.
Assuming that the Company is successful in its efforts to continue its quarterly
financial performance, the Company believes that the cash from operations will
be sufficient to meet the Company's operating cash needs for the next twelve
months. Additionally, the Company has received a credit facility for three
million dollars from a financial institute if the need should arise for
additional working capital to support operations. See "Forward Looking
Statements."
Net cash provided by operations was approximately $2,000,000 during the
first six months of fiscal year 2001, which was mainly generated from the
profitable results of operations. These increases included depreciation and
amortization of $727,000, and a decrease in accounts receivable of $585,000. The
Company also generated cash from the exercise of employee stock options of
$728,000 during the six month period ended August 31, 2000.
The Company purchased approximately $353,000 in new equipment during the
first six months of fiscal year 2001. The Company is expecting that it may incur
additional lease debt with the purchase of additional equipment during the next
six months. The Company expects that it will not purchase more than one million
dollars in additional equipment for the remainder of the year. See
"Forward-Looking Statements".
FORWARD-LOOKING STATEMENTS
Included in the Notes to Consolidated Financial Statements, this Item 2.
Management's Discussion and Analysis or Plan of Operation and elsewhere in this
Report are certain statements that do not present historical information. These
forward-looking statements reflect the Company's current expectations. Although
the Company believes that its expectations are based on reasonable assumptions,
there can no assurance that the Company's financial goals or expectations will
be realized. Numerous factors may affect the Company's actual results and may
cause results to differ materially from those expressed in forward-looking
statements made by or on behalf of the Company.
Some of these factors include demand for and acceptance of new and existing
products, technological advances and product obsolescence, availability of
semiconductor devices at reasonable prices, competitive factors, costs and risks
concerning litigation, the ability to protect proprietary intellectual property,
and the availability of capital to finance growth. These and other factors which
could cause actual results to differ materially from those in the forward
looking statements are discussed in greater detail in the Company's Annual
Report on Form 10-KSB for the year ended February 29, 2000 under the heading
"Cautionary Statements". Investors are cautioned against ascribing undue weight
to any forward looking statements herein.
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PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders
1. (a) Annual Shareholders' Meeting - August 11, 2000.
<TABLE>
<CAPTION>
(b) Election of Directors: Votes For Withheld
<S> <C> <C>
Richard J. Dadamo 17,760,362 492,766
Ted Bruce 17,760,362 492,766
Roger Claes 17,759,862 493,266
Samuel W. Tishler 17,760,362 492,766
Gordon M. Watson 17,760,362 492,766
Richard H. Wheaton 17,760,362 492,766
</TABLE>
- Directors were elected
(c) Approval of amendment to the Company's 1996 Stock Option Plan to
increase the number of shares of Common Stock which may be subject to
options under the plan by 1,000,000 shares.
Votes For Against
8,183, 061 1,613,271
- Motion passed
(d) Proposal to approve the re-incorporation of the Company as a Delaware
corporation, which will also be named Dense-Pac Microsystems, Inc. pursuant
to a merger of the Company into a wholly-owned Delaware subsidiary and the
conversion of each share of the Common Stock of the Company into one share
of the common stock, par value $.01 per share, of the surviving
corporation.
Votes For Against Broker Non Votes
8,396,626 1,419.565 8,423,496
- Motion did not pass
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
The exhibits listed below are hereby filed with the Securities and
Exchange Commission as part of the Quarterly Report.
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K -
No reports on Form 8-K were filed during the second quarter of
fiscal 2001 covered by this Form 10-QSB.
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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)
October 11, 2000 /s/ Ted Bruce
----------------------------- -------------------------------------------
Date Ted Bruce, Chief Executive Officer
October 11, 2000 /s/ William M. Stowell
----------------------------- -------------------------------------------
Date William M. Stowell, Chief Financial Officer
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