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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report Under Section 13 or 15 (d)
- ------- of the Securities Exchange Act of 1934
For quarterly period ended June 30, 1996
or
Transition Report Pursuant To Section 13 or 15(d)
- ------- of The Securities and Exchange Act of 1934
For the transition period from to .
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Commission File No. 0-16227
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: (408) 453-3700
--------------
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 June 30, 1996 there were 10,370,776 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>
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
Part II: Other Information
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 12
Exhibit 27 - Financial Data Schedule 12
Signature 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>
June 30, March 31,
ASSETS 1996 1996
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,068 $ 2,736
Short-term investments 4,152 3,752
Trade and other accounts receivable 6,651 6,203
Inventories 3,962 3,536
Prepaid expenses and other 101 38
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Total current assets 16,934 16,265
Property and equipment, net of accumulated depreciation 197 224
and amortization of $4,419 ($4,373 at March 31, 1996)
Non-current trade receivables 735 810
Minority equity investment in and advances to foreign 503 608
affiliates
Other assets 213 213
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$ 18,582 $ 18,120
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,524 $ 1,029
Accrued installation and warranty costs 1,254 957
Accrued salaries, wages and employee benefits 200 481
Accrued commissions 292 236
Other liabilities 891 1,442
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Total current liabilities 4,161 4,145
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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; 10,370,776 and 10,328,976 shares issued 24,888 24,850
and outstanding
Accumulated deficit (10,184) (10,587)
Cumulative translation adjustments (283) (288)
-------- --------
Total stockholders' equity $ 14,421 $ 13,975
-------- --------
$ 18,582 $ 18,120
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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
-----------------------
June 30,
-----------------------
1996 1995
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<S> <C> <C>
Net revenues $ 5,215 $ 3,729
Cost of goods sold 2,811 1,927
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Gross margin 2,404 1,802
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Operating expenses:
Research and development 500 401
Selling, general and administrative 1,605 1,279
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Total operating expense 2,105 1,680
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Operating income 299 122
Interest income, net 76 98
Foreign currency gain (loss), net 10 (3)
Equity in net income of investee 18 88
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Net income before income taxes 403 305
Income taxes -- --
-------- --------
Net income $ 403 $ 305
======== ========
Net income per common share and
equivalent:
Net income per common share $ .04 $ .03
======== ========
Common and common equivalent shares
used in calculating income per share
11,092 10,860
======== ========
</TABLE>
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IMPACT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------
1996 1995
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<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 403 $ 305
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 47 42
Equity in net income of investee (18) (88)
Cumulative translation effects 5 8
Changes in assets and liabilities:
Trade and other accounts receivable (373) (63)
Inventories (426) (230)
Prepaid expenses and other (63) (63)
Accrued installation and warranty costs 297 199
Accounts payable 495 489
Accrued salaries, wages and employee benefits (281) (245)
Accrued commissions 56 (102)
Other liabilities (551) (303)
Deferred income taxes -- --
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Cash Used By Operating Activities (409) (51)
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Cash Provided (Used) By Investing Activities:
Purchase of short-term investments (400) (774)
Capital expenditures, net (20) (45)
Minority equity investment in and advances to affiliate 123 2
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Cash Used By Investing Activities (297) (817)
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Cash Provided By Financing Activities:
Issuance of capital stock, net of expenses 38 52
Repayment of borrowings -- --
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Cash Provided By Financing Activities 38 52
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Net Decrease in Cash and Cash Equivalents (668) (816)
Cash & Cash Equivalents At Beginning of Period 2,736 3,247
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Cash & Cash Equivalents at End of Period $ 2,068 $ 2,431
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</TABLE>
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IMPACT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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 June 30,
1996, the results of operations for the three months ended June 30, 1996 and
June 30, 1995 and cash flows for the three months ended June 30, 1996 and June
30, 1995. These statements should be read in conjunction with the March 31, 1996
financial statements and notes thereto incorporated in the Company's Annual
Report for the year ending March 31, 1996 (Form 10-K) previously filed with the
Securities and Exchange Commission.
The preparation of financial statements in accordance with generally accepted
accounting principals requires management to make estimates and assumptions that
effect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period. Actual
amounts could differ from those estimates.
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 $160 at
June 30, 1996 and $311 at March 31, 1996. Such receivables arose from the sale
of systems and spare parts to the affiliate.
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>
June 30, 1996 March 31, 1996
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<S> <C> <C>
Raw materials and components $3,493 $2,964
Work-in-process 357 530
Finished goods 112 42
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$3,962 $3,536
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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 $157 at June 30, 1996 and $269 at March 31, 1996.
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<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
<S> <C> <C>
Other Assets
------------
Building rent deposits and other $ 213 $ 213
Other Liabilities
-----------------
Accrued liabilities and other reserves $ 534 $ 585
Customer deposits 357 857
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$ 891 $1,442
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</TABLE>
Note 4 - Income Taxes
The Company accounts for income taxes using the liability method. Under this
method, deferred taxes are determined by applying current tax rates to the
differences between the financial reporting and tax bases of the Company's
assets and liabilities. The Company has provided a valuation reserve for its net
deferred tax assets at June 30, 1996 and March 31, 1996 due to uncertainty as to
the realization of such assets. The Company provides U.S. and foreign income
taxes on the portion of the accumulated earnings of the Company's foreign
subsidiaries which are intended to be remitted to the parent company within the
foreseeable future.
Note 5 - Earnings Per Share
Primary earnings per common and common equivalent share is computed using the
weighted average number of common stock shares outstanding during the period and
for incremental shares assumed issued for dilutive common stock equivalents.
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Introduction
The Company's results are highly dependent upon economic conditions effecting
the paper industry and, consequently, orders tend to reflect the cyclical demand
for paper products worldwide. Although the Company has benefited from the
relatively recent turnaround of the paper industry, there is no certainty that
economic conditions will be sustained in future fiscal periods. In calendar
1996, paper demand and prices weakened considerably. This downturn could
negatively affect capital equipment purchases by paper manufacturing companies
and hence the Company's performance.
Net Revenues
Net revenues for the current quarter (ended June 30, 1996) were $5.2 million
compared to $3.7 million for the prior year quarter (ended June 30, 1995) and
$5.6 million for the prior quarter (ended March 31, 1996). The increase from the
fiscal 1996 first quarter to the fiscal 1997 first quarter reflects primarily
the growing contribution of the Company's AdvantagePlus sensor product line.
Shipments of these sensor systems increased over the prior year quarter as this
product line has matured to become an integral and increasing part of the
Company's business.
The decrease in revenue from the $5.6 million for the prior quarter is primarily
the result of customer delivery schedules and the slackening of demand in the
paper industry which has begun to adversely effect certain potential customers'
capital improvement budgets. The Company expects revenues to be higher for the
first six months of fiscal 1997 versus fiscal 1996 as a result of a strong
fiscal 1996 year end backlog. However, first half fiscal 1997 net income is
anticipated to approximate that of the fiscal 1996 first half due to higher
operating expenses and lower gross margins as discussed below.
Gross Margins
Gross margins, as a percentage of net revenues, decreased from 48.3% for the
prior year quarter to 46.1% for the current quarter as a result of product mix
and costs associated with newer product shipments. The decline in the current
quarter from the 50.9% for the prior quarter (ended March 31, 1996) is primarily
related to the 7.4% decline in net revenues as fixed overhead costs were spread
over a lower revenue base.
Given the current volatility in the paper industry market, the Company is
uncertain with respect to the effect of pricing pressures on short term margins.
Operating Expenses
Operating expenses increased from $1.7 million in the prior year quarter to $2.2
million in the prior quarter (ended March 31, 1996) and $2.1 for the current
quarter. The increase from fiscal 1996 to fiscal 1997 primarily reflects
increased variable selling expenses associated with higher revenues and
increased sales and marketing costs caused by the expansion of the Company's
sales force in primary markets to more effectively promote its expanded product
line.
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Research and development costs increased to $.5 million in the current as well
as prior quarter compared to $.4 million for the prior year quarter as resources
were directed toward product integration enhancements and the Company's newer
product line.
Other Income and Expense
Interest income and foreign currency gains and losses were relatively consistent
in each of the three fiscal quarters - the current, prior and prior year.
The Company recorded income of $18,000 in the current quarter on its 40%
investment in Impact Systems Asia compared to income of $88,000 in the prior
year quarter as the result of the anticipated decline in shipment levels on a
year to year basis..
Liquidity and Capital Resources
The Company had cash balances and short-term investments of $6.1 million at June
30, 1996 and a current ratio of 4.1 to 1, which were virtually identical to the
prior year's numbers. The Company is in the process of renewing its $6.0 million
short term credit facility (which expires August, 1996) and expects the terms
and conditions to remain substantially unchanged from those currently in place
with the same lender. As of June 30, 1996, there were no advances outstanding
under the line. The Company expects that existing cash balances together with
cash flow from operations and borrowings, if necessary, will be adequate to meet
its working capital requirements through at least the current fiscal year.
Accounts receivables balances increased by approximately $0.4 million during the
current quarter as the result of the timing of first quarter system shipments as
well as terms and conditions associated with customer letters of credit.
Inventories increased $426,000 during the same fiscal period as the result of
increased orders and shipments of the Company's newer sensor product line and
residual fiscal 1996 year end backlog. Accounts payable balances increased
$495,000 during the current quarter as the result of inventory receipt timing
along with payment timing differences. Other liabilities decreased by
approximately $0.5 million during the current quarter reflecting the substantial
liquidation of fiscal year end customer deposits on subsequent system shipments.
Risk Factors
Certain statements contained in this discussion are forward looking and involve
risks and uncertainties. There can be no assurance that the Company's actual
performance will meet the Company's expectations. Specific risks are discussed
in the Company's Form 10-K for the year ended March 31, 1996.
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PART II - OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
On June 7, 1996, the Company filed a patent infringement action against ABB
Industrial Systems, Inc. in federal court in San Jose, California. In its suit,
the Company has alleged that ABB has infringed and continues to infringe an
Impact Systems, Inc. patent covering the manufacture, use, and sale of a caliper
control system and method. Among other things, the Company seeks to enjoin the
manufacture and sale of ABB's MICROSET Thermo-Profiler and to recover damages
resulting from ABB's earlier sales of the product.
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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: August 13, 1996 By: /s/ Robert M. Gorski
--------------------
Robert M. Gorski
Vice President, Finance &
Chief Financial Officer
(Principal Financial & Accounting Officer)
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PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,068
<SECURITIES> 4,152
<RECEIVABLES> 6,699
<ALLOWANCES> (48)
<INVENTORY> 3,962
<CURRENT-ASSETS> 16,934
<PP&E> 4,616
<DEPRECIATION> (4,419)
<TOTAL-ASSETS> 18,582
<CURRENT-LIABILITIES> 4,161
<BONDS> 0
0
0
<COMMON> 24,888
<OTHER-SE> (10,467)
<TOTAL-LIABILITY-AND-EQUITY> 18,582
<SALES> 5,215
<TOTAL-REVENUES> 5,215
<CGS> 2,811
<TOTAL-COSTS> 4,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 403
<INCOME-TAX> 0
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
