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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
X Quarterly Report Under Section 13 or 15 (d)
- ------ of the Securities Exchange Act of 1934
For quarterly period ended September 30, 1995
or
- ------ Transition Report Pursuant To Section 13 or 15(d)
of The Securities and Exchange Act of 1934
For the transition period from _____ to ______.
Commission File No. 0-16227
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IMPACT SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2672923
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
1075 East Brokaw Road, San Jose, California 95131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (408) 453-3700
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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 Exchange Act of 1934
during the preceding 12 months (or for such shorter period 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
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At September 30, 1995 there were 10,290,376 shares of the Company's common stock
outstanding.
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IMPACT SYSTEMS, INC.
Quarterly Report on Form 10-Q
INDEX
<TABLE>
<CAPTION>
Part I: Financial Information Page Number
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<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Signature 10
Part II: Other Information
Item 8. Exhibits and Reports on Form 8-K 11
Exhibit 27 - Financial Data Schedule 11
</TABLE>
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PART I - FINANCIAL INFORMATION
IMPACT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Information)
(Unaudited)
<TABLE>
<CAPTION>
September 30, March 31,
1995 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,573 $ 3,247
Short-term investments 3,659 2,953
Trade and other accounts receivable 5,409 4,057
Inventories 3,140 2,858
Prepaid expenses and other 130 41
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Total current assets 13,911 13,156
Property and equipment, net of accumulated depreciation
and amortization of $4,302 ($4,241 at March 31, 1995) 247 239
Non-current trade receivables 695 865
Minority equity investment in and advances to foreign 1,002 676
affiliates
Other assets 214 198
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$16,069 $15,134
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,232 $ 757
Accrued installation and warranty costs 520 456
Accrued salaries, wages and employee benefits 178 477
Accrued commissions 259 335
Other liabilities 1,124 1,234
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Total current liabilities 3,313 3,259
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Stockholders' equity:
Preferred stock, no par: 2,000,000 shares authorized;
none outstanding
Common stock, no par value; 20,000,000 shares authorized;
10,290,376 and 10,203,500 shares issued and outstanding 24,844 24,776
Accumulated deficit (11,808) (12,616)
Cumulative translation adjustments (280) (285)
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Total stockholders' equity $12,756 $11,875
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$16,069 $15,134
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</TABLE>
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IMPACT SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
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September 30, September 30,
----------------------- -----------------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net revenues $3,964 $4,101 $7,693 $8,042
Cost of goods sold 1,913 1,998 $3,840 $3,978
------ ------ ------ ------
Gross margin 2,051 2,103 3,853 4,064
------ ------ ------ ------
Operating expenses:
Research and development 420 451 821 869
Selling,general and 1,400 1,285 2,679 2,612
administrative
------ ------ ------ ------
Total operating expense 1,820 1,736 3,500 3,481
Operating income 231 367 353 583
Interest income, net 87 38 185 78
Foreign currency gain (loss), net (2) 23 (5) 20
Equity in net income (loss) of 186 (53) 274 (31)
investee
------ ------ ------ ------
Net income before income taxes 502 375 807 650
Income taxes -- -- -- --
------ ------ ------ ------
Net income $ 502 $ 375 $ 807 $ 650
====== ====== ====== ======
Net income per common share and
equivalent:
Net income per common share $ .05 $ .04 $ .07 $ .06
====== ====== ====== ======
Common and common equivalent
shares used in calculating
income per share 10,973 10,643 10,910 10,606
====== ====== ====== ======
</TABLE>
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IMPACT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1995 1994
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 807 $ 650
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 90 82
Equity in net (income) loss of investee (274) 31
Cumulative translation effects 5 58
Changes in assets and liabilities:
Trade and other accounts receivable (1,182) (1,841)
Inventories (282) 34
Prepaid expenses and other (104) (133)
Accrued installation and warranty costs 197 (215)
Accounts payable 475 224
Accrued salaries, wages and employee benefits (299) (81)
Accrued commissions (76) 130
Other liabilities (243) 25
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Cash (Used) By Operating Activities (886) (1,036)
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Cash Provided (Used) By Investing Activities:
Purchase of short-term investments (706) (47)
Capital expenditures, net (98) (52)
Minority equity investment in and advances to affiliate (52) 19
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Cash (Used) by Investing Activities (856) (80)
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Cash Provided By Financing Activities:
Issuance of capital stock, net of expenses 68 78
Repayment of borrowings - -
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Cash Provided By Financing Activities 68 78
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Net (Decrease) in Cash and Cash Equivalents (1,674) (1,038)
Cash and Cash Equivalents At Beginning of Period 3,247 3,700
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Cash and Cash Equivalents at End of Period $1,573 $2,662
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</TABLE>
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IMPACT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(In Thousands, Unless Otherwise Noted)
(Unaudited)
NOTE 1 - Basis of Presentation
In the opinion of management, the consolidated financial statements
contain all adjustments necessary to present fairly the financial
position as of September 30, 1995, the results of operations for the
three months and six months ended September 30, 1995 and September 30,
1994 and cash flows for the six months ended September 30, 1995 and
September 30, 1994. These statements should be read in conjunction with
the March 31, 1995 financial statements and notes thereto incorporated
in the Company's Annual Report for the year ending March 31, 1995 (Form
10-K) previously filed with the Securities and Exchange Commission.
The interim financial results are not necessarily indicative of the
results to be expected for the full fiscal year.
NOTE 2 - Receivables From Affiliate
Trade and other accounts receivable include trade receivables from the
Company's minority owned affiliate - Impact Systems Asia KK - in the
amount of $1,064 and $76 at September 30, 1995 and March 31, 1995,
respectively. Such receivables arose from the sale of systems and spare
parts to the affiliate. Approximately $699 of the $1,064 is expected to
be collected in the quarter ending December 31, 1995.
NOTE 3 - Balance Sheet Details
Inventories
Inventories include material, labor, and overhead costs; are stated at
the lower of first-in, first-out cost or market; and consist of the
following components.
<TABLE>
<CAPTION>
September 30, 1995 March 31, 1995
------------------ --------------
<S> <C> <C>
Raw materials and components $2,471 $2,463
Work-in-process 540 353
Finished goods 42 42
Systems at customer sites for evaluation 87 -
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$3,140 $2,858
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</TABLE>
Minority Equity Investments in and Advances to Affiliates
The Company has a 40% interest in Impact Systems Asia, KK. Advances to
the affiliate were $595 at September 30, 1995 and $507 at March 31,
1995.
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<TABLE>
<CAPTION>
September 30, 1995 March 31, 1995
------------------ --------------
<S> <C> <C>
Other Assets
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Building rent deposits and other $ 214 $ 198
Other Liabilities
-----------------
Accrued liabilities and other reserves $ 797 $ 839
Customer deposits 327 395
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$1,124 $1,234
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</TABLE>
Note 4 - Income Per Common Share
Income per common and common equivalent share is computed using the
weighted average number of common and dilutive common equivalent shares
outstanding. Dilutive common equivalent shares consist of stock options
and warrants (using the treasury stock method).
Note 5 - Income Taxes
The Company prospectively adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"),
effective April 1, 1993. The adoption of SFAS 109 changes the Company's
method of accounting for income taxes from the deferred method (APB 11)
to an asset and liability approach. Previously, the Company deferred
the tax effects of differences between financial reporting and taxable
income. The asset and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities. Adoption of SFAS 109 did not
have a material effect on the consolidated financial statements.
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ITEM 2
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net Revenues
Net revenues for the current quarter (ended September 30, 1995), at $4.0
million, were comparable to the $4.1 million recorded in the year ago quarter
(ended September 30, 1994). On a year to date basis, the decrease from $8.0
million for the first six months of fiscal 1995 to $7.7 million for the
comparable period of fiscal 1996 was the result of longer delivery schedules on
certain orders received late fiscal 1995. The Company expects revenues for the
second half of fiscal 1996 to exceed those of the comparable period of fiscal
1995.
Gross Margins
Gross margins, as a percentage of net revenues, were approximately the same for
the second quarters of fiscal 1996 and fiscal 1995 at 51.7% and 51.3%
respectively. The increase from 48.3% in the previous quarter (ended June 30,
1995) to 51.7% in the current quarter was primarily the result of the effect of
fixed costs spread over a higher sales level as well as the mix of products
shipped.
Operating Expenses
Operating expenses increased from $1.7 million in the year ago quarter to $1.8
million in the current quarter primarily as the result of costs associated with
the Company's sales force expansion to serve primary markets and more
effectively promote its expanded product line. The Company expects the gradual
increase in operating expenses (over prior year levels) to continue through the
remainder of fiscal 1996. For the first six months of fiscal 1996 and fiscal
1995, spending levels were approximately the same at $3.5 million as lower
variable selling expenses (associated with lower net revenues) in fiscal 1996
were offset by sales force expansion costs.
Other Income and Expense
Net interest income increased to $87,000 in the current quarter compared to
$38,000 for the prior year quarter reflecting increased collections on the
Company's long-term contract receivables along with higher invested cash
balances and interest rates as compared to the prior year period.
As the result of its significantly larger revenues in the current quarter versus
the prior year quarter, the Company's minority owned affiliate, Impact Systems
Asia, recorded a profit of approximately $465,000 compared to a loss of
approximately $133,000 for the prior year quarter. The Company recognized
approximately $186,000 in income and $53,000 in losses on its investment in
Impact Systems Asia for the respective reporting periods. While the Company does
not anticipate Impact Systems Asia to sustain the current quarter's revenue
level, it does believe that the affiliate will continue to record improved
operating results versus prior year levels.
8
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Liquidity and Capital Resources
The Company had cash balances and short-term investments of approximately $5.2
million at September 30, 1995 and a current ratio of 4.2 to 1. There are no
outstanding borrowings under the Company's $6.0 million domestic credit facility
and the Company expects that existing cash balances together with cash flow from
operation and borrowings, if necessary, will be adequate to meet its working
capital requirements through at least fiscal 1996.
For the first six months of fiscal 1996 (ended September 30, 1995) cash and
investments declined approximately $968,000 as the result of the timing of
second quarter shipments (and associated payment terms). The Company expects to
realize a significant increase in trade receivable collections during the
quarter ended December 31, 1995 as proceeds from letters of credit and
collections from Impact Systems Asia are received on second quarter shipments.
Accounts payable balances increased by approximately $0.5 million during the
quarter as the result of the timing of inventory receipts and associated payment
terms.
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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.
IMPACT SYSTEMS, INC.
Registrant
Date: November 10, 1995 By: /s/ Robert M. Gorski
-----------------------------
Robert M. Gorski
Vice President, Finance &
Chief Financial Officer
(Principal Financial & Accounting Officer)
November 10, 1995
10
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PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,573
<SECURITIES> 3,659
<RECEIVABLES> 5,486
<ALLOWANCES> (77)
<INVENTORY> 3,140
<CURRENT-ASSETS> 13,911
<PP&E> 4,549
<DEPRECIATION> (4,302)
<TOTAL-ASSETS> 16,069
<CURRENT-LIABILITIES> 3,313
<BONDS> 0
<COMMON> 24,844
0
0
<OTHER-SE> (12,088)
<TOTAL-LIABILITY-AND-EQUITY> 16,069
<SALES> 7,693
<TOTAL-REVENUES> 7,693
<CGS> 3,840
<TOTAL-COSTS> 7,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 807
<INCOME-TAX> 0
<INCOME-CONTINUING> 807
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 807
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
