<PAGE> 1
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 September 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 ______.
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
At September 30, 1996 there were 10,380,776 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
-----------
Item 1. Financial Statements
<S> <C>
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 4. Submission of Matters to a Vote of Security Holders 10
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
Exhibit 27 - Financial Data Schedule 13
</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,
ASSETS 1996 1996
--------- --------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,385 $ 2,736
Short-term investments 4,712 3,752
Trade and other accounts receivable 6,472 6,203
Inventories 3,878 3,536
Prepaid expenses and other 72 38
-------- --------
Total current assets 16,519 16,265
Property and equipment, net of accumulated depreciation and 170 224
amortization of $4,465 ($4,373 at March 31, 1996)
Non-current trade receivables 629 810
Minority equity investment in and advances to foreign affiliates 624 608
Other assets 259 213
-------- --------
$ 18,201 $ 18,120
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,127 $ 1,029
Accrued installation and warranty costs 1,010 957
Accrued salaries, wages and employee benefits 192 481
Accrued commissions 294 236
Other liabilities 843 1,442
-------- --------
Total current liabilities 3,466 4,145
-------- --------
Stockholders' equity:
Preferred stock, no par: 2,000,000 shares authorized;
none outstanding
Common stock, no par value; 20,000,000 shares authorized;
10,380,776 and 10,328,976 shares issued and outstanding 24,897 24,850
Accumulated deficit (9,882) (10,587)
Cumulative translation adjustments (280) (288)
-------- --------
Total stockholders' equity $ 14,735 $ 13,975
-------- --------
$ 18,201 $ 18,120
======== ========
</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
------------------------- -----------------------
September 30, September 30,
------------------------- -----------------------
1996 1995 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Net revenues $ 4,434 $ 3,964 $ 9,649 $ 7,693
Cost of goods sold 2,327 1,913 $ 5,139 $ 3,840
-------- -------- ------- --------
Gross margin 2,107 2,051 4,510 3,853
-------- -------- ------- --------
Operating expenses:
Research and development 432 420 931 821
Selling,general and administrative 1,463 1,400 3,069 2,679
-------- -------- ------- --------
Total operating expense 1,895 1,820 4,000 3,500
Operating income 212 231 510 353
Interest income, net 84 87 160 185
Foreign currency gain (loss), net (4) (2) 7 (5)
Equity in net income (loss) of investee 11 186 29 274
-------- -------- ------- --------
Net income before income taxes 303 502 706 807
Income taxes -- -- -- --
-------- -------- ------- --------
Net income $ 303 $ 502 $ 706 $ 807
======== ======== ======= ========
Net income per common share and equivalent:
Net income per common share $ .03 $ .05 $ .06 $ .07
======== ======== ======= ========
Common and common equivalent
shares used in calculating income
per share 10,955 10,973 11,025 10,910
======== ======== ======= ========
</TABLE>
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IMPACT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1996 1995
---- ----
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 706 $ 807
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 90 90
Equity in net (income) loss of investee (29) (274)
Cumulative translation effects 7 5
Changes in assets and liabilities:
Trade and other accounts receivable (88) (1,182)
Inventories (342) (282)
Prepaid expenses and other (80) (104)
Accrued installation and warranty costs 53 197
Accounts payable 98 475
Accrued salaries, wages and employee benefits (289) (299)
Accrued commissions 58 (76)
Other liabilities (599) (243)
------- -------
Cash (Used) By Operating Activities (415) (886)
------- -------
Cash Provided (Used) By Investing Activities:
Purchase of short-term investments (960) (706)
Capital expenditures, net (36) (98)
Minority equity investment in and advances to affiliate 13 (52)
------- -------
Cash (Used) by Investing Activities (983) (856)
------- -------
Cash Provided By Financing Activities:
Issuance of capital stock, net of expenses 47 68
Repayment of borrowings -- --
------- -------
Cash Provided By Financing Activities 47 68
------- -------
Net (Decrease) in Cash and Cash Equivalents (1,351) (1,674)
Cash and Cash Equivalents At Beginning of Period 2,736 3,247
------- -------
Cash and Cash Equivalents at End of Period $ 1,385 $ 1,573
======= =======
</TABLE>
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IMPACT SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 September 30, 1996, the results of operations for the
three months and six months ended September 30, 1996 and September 30,
1995 and cash flows for the six months ended September 30, 1996 and
September 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 $130 and $311 at September 30, 1996 and March 31, 1996,
respectively. 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>
September 30, 1996 March 31, 1996
------------------ --------------
<S> <C> <C>
Raw materials and components $2,673 $2,964
Work-in-process 1,038 530
Finished goods 167 42
------ ------
$3,878 $3,536
====== ======
</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 $270 at September 30, 1996 and $269 at March 31,
1996.
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<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ --------------
Other Assets
- ------------
<S> <C> <C>
Building rent deposits and other $ 259 $ 213
Other Liabilities
- -----------------
Accrued liabilities and other reserves $ 586 $ 585
Customer deposits 257 857
------ ------
$ 843 $1,442
====== ======
</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 September 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 DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Unaudited)
Results of Operations
Introduction
The following discussion contains forward-looking statements that are subject to
certain risks and uncertainties. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including without limitation, those described in this
section, in the Company's Annual Report on Form 10-K for the year ended March
31, 1996, and in other documents the Company files from time-to-time with the
Securities and Exchange Commission.
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 and related paper prices. The paper industry is subject to
substantial cyclicality and economic cycles which affects the Company's order
rate and results of operations. Although the Company benefited from a
short-lived recovery of the paper industry in its fiscal 1996, the industry is
currently experiencing lower demand and paper prices.
Net Revenues
Net revenues for the current quarter (ended September 30, 1996) were $4.4
million compared to $4.0 million for the prior year quarter (ended September 30,
1995) and $5.2 million for the prior quarter (ended June 30, 1996). The increase
from the prior year quarter is the result of the level of system backlog at
March 31, 1996. The decline from the prior quarter is the result of the timing
of system shipments and the slowdown in paper industry demand and related paper
pricing which has affected capital equipment budgets of papermakers. Although
first half fiscal 1997 revenues significantly exceeded those of the comparable
fiscal 1996 period, the Company is not certain the trend will continue for the
remainder of fiscal 1997 due to the uncertainty of the paper market, customer
installation schedules, and possible effect on factory scheduling.
Gross Margins
Gross margins, as a percentage of net revenues, decreased from 51.7% in the
prior year quarter to 47.5% in the current quarter as the result of product mix
and costs associated with newer product shipments. On a first half basis, fiscal
1997 margins were 46.7% compared to 50.1% for fiscal 1996 reflecting similar
product mix cost variations. The current quarter margin percentage is comparable
to the 46.1% registered for the preceding quarter as the newer AdvantagePlus(TM)
sensor product line shipments constitute a greater portion of the Company's net
revenues than in prior fiscal years.
Operating Expenses
Operating expenses increased slightly from $1.8 million in the prior year
quarter to $1.9 million in the current quarter as the result of higher variable
costs associated with the higher revenue levels. Research and development costs
were $0.4 million for each of the aforementioned periods. Current quarter
operating expenses were lower, however, than the $2.1 million for the prior
quarter reflecting lower selling expenses on a lower revenue level.
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Other Income and Expense
The Company recorded income of $11,000 in the current quarter on its 40%
investment in Impact Systems Asia KK compared to $186,000 for the prior year
quarter as the result of the anticipated decline in shipment levels due to lower
system orders.
Liquidity and Capital Resources
On September 30, 1996 the Company had cash balances and short term investments
of $6.1 million and a current ratio of 4.8 to 1. During the current quarter, the
Company renewed its $6.0 million short term credit facility with its domestic
lender. The terms and conditions of the line remain substantially identical to
those already in place. As of September 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.
Inventories increased by approximately $0.3 million for the first half of fiscal
1997 as the result of certain inventory receipts for subsequent fiscal period
shipments and increased orders for the Company's newer sensor product line.
Other liabilities decreased approximately $0.6 million during the first half of
fiscal 1997 primarily as the result of the decline in customer deposits on
subsequent system shipments as compared to March 31, 1996.
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PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 16, 1996, the Company's shareholders took the following actions at
the Company's Annual Meeting of Shareholders.
1) Proxies were solicited pursuant to Regulation 14 under the Securities and
Exchange Act of 1934, there was no solicitation in opposition to management's
nominees for the Company's Board of Directors as listed in the proxy statement
and all such nominees were elected to serve as directors for the ensuing year.
2) Price Waterhouse LLP was ratified as independent accountants for the current
fiscal year.
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PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
11
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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 13, 1996 By: /s/ Robert M. Gorski
----------------------
Robert M. Gorski
Vice President, Finance &
Chief Financial Officer
(Principal Financial & Accounting Officer)
November 13, 1996
12
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
27 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,385
<SECURITIES> 4,712
<RECEIVABLES> 6,520
<ALLOWANCES> (48)
<INVENTORY> 3,878
<CURRENT-ASSETS> 16,519
<PP&E> 4,635
<DEPRECIATION> (4,465)
<TOTAL-ASSETS> 18,201
<CURRENT-LIABILITIES> 3,466
<BONDS> 0
0
0
<COMMON> 24,897
<OTHER-SE> (10,162)
<TOTAL-LIABILITY-AND-EQUITY> 18,201
<SALES> 9,649
<TOTAL-REVENUES> 9,649
<CGS> 5,139
<TOTAL-COSTS> 9,139
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 706
<INCOME-TAX> 0
<INCOME-CONTINUING> 706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>