<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------------------------------
FORM 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
---- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 1-12200
Electronic Designs, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3298416
-----------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Research Drive, Westborough, Massachusetts 01581
(Address of Principal Executive Offices) (Zip Code)
(508) 366-5151
(Registrant's Telephone Number, Including Area Code)
-------------------------------------------------------------------------
(Former Name, Former Address and Formal Fiscal Year, if Changed Since Last
Report)
Check whether 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 past l2
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
--- ---
The number of shares of Registrant's Common Stock outstanding on June 30, 1996
was 6,125,478
Page 1 of 26, including exhibits
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Exhibit Index is located on Page 17
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
<TABLE>
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<CAPTION>
JUNE 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,303,000 $ 2,045,000
Accounts receivable, net 7,517,000 588,000
Inventories 7,125,000 83,000
Prepaid expenses 144,000 84,000
------------ ------------
16,089,000 2,800,000
Property and equipment, net 4,092,000 2,455,000
Other assets 78,000 1,079,000
Intangible assets 1,978,000 -
------------ ------------
$ 22,237,000 $ 6,334,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit facility $ 1,860,000 $ -
Current portion of long-term debt 4,413,000 545,000
Notes payable to shareholders - 900,000
Accounts payable 4,747,000 878,000
Accrued expenses and other current liabilities 2,207,000 760,000
------------ ------------
13,227,000 3,083,000
Deferred rent 130,000 104,000
Long-term debt, net of current portion 1,080,000 648,000
Long-term note payable to shareholder - 1,035,000
------------ ------------
14,437,000 4,870,000
------------ ------------
Shareholders' equity:
Convertible preferred stock; $0.01 par
value; 8,000,000 shares authorized; 2,323
and 3,985 shares issued and outstanding at
June 30, 1996 and September 30, 1995,
respectively 1,000 1,000
Common stock; $0.01 par value; 20,000,000
shares authorized; 6,125,000 and 3,595,000
shares issued and outstanding at June 30,
1996 and September 30, 1995, respectively 61,000 36,000
Additional paid in capital 26,892,000 22,095,000
Accumulated deficit (19,154,000) (20,668,000)
------------ ------------
7,800,000 1,464,000
------------ ------------
$ 22,237,000 $ 6,334,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE> 3
<TABLE>
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED INE MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $16,052,000 $ 446,000 $45,246,000 $ 1,165,000
Cost of revenues 11,228,000 365,000 32,813,000 919,000
----------- ---------- ----------- -----------
Gross profit 4,824,000 81,000 12,433,000 246,000
Operating expenses:
Research and development 588,000 402,000 1,996,000 1,345,000
Selling, general and administrative 2,378,000 502,000 6,920,000 1,484,000
Restructuring - - 590,000 -
Amortization of intangible assets 117,000 - 353,000 -
----------- ---------- ----------- -----------
3,083,000 904,000 9,859,000 2,829,000
----------- ---------- ----------- -----------
Income (loss) from operations 1,741,000 (823,000) 2,574,000 (2,583,000)
----------- ---------- ----------- -----------
Other income (expense):
Interest income - 3,000 47,000 35,000
Interest expense (222,000) (89,000) (740,000) (273,000)
----------- ---------- ----------- -----------
(222,000) (86,000) (693,000) (238,000)
----------- ---------- ----------- -----------
Income (loss) before income taxes 1,519,000 (909,000) 1,881,000 (2,821,000)
Provision for income taxes 241,000 - 367,000 -
----------- ---------- ----------- -----------
Net income (loss) $ 1,278,000 $ (909,000) $ 1,514,000 $(2,821,000)
=========== ========== =========== ===========
Net income (loss) per share $ 0.15 $ (0.28) $ 0.24 $ (0.88)
=========== ========== =========== ===========
Weighted average common shares and equivalents 9,876,000 3,197,000 8,229,000 3,198,000
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
<TABLE>
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
-----------------------------
JUNE 30, JULY 1,
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
<S> <C> <C>
Net income (loss) $ 1,514,000 $(2,821,000)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 1,187,000 314,000
Noncash portion of restructuring expenses 57,000 -
Increase in deferred rent 26,000 76,000
Common stock issued in payment of interest and other
expenses 37,000 -
Changes in assets and liabilities, net of acquired
amounts:
(Increase) decrease in accounts receivable (1,442,000) 74,000
(Increase) decrease in inventories 1,290,000 (132,000)
(Increase) decrease in prepaid expenses 21,000 (4,000)
(Increase) decrease in other assets 17,000 (21,000)
Increase (decrease) in accounts payable (262,000) (370,000)
Increase (decrease) in accrued expenses (2,446,000) 293,000
----------- -----------
Net cash flows used in operating activities (1,000) (2,591,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital equipment expenditures (281,000) (421,000)
Cash paid for Electronic Designs, Inc., net of cash
acquired (8,088,000) -
----------- -----------
Net cash flows used in investing activities (8,369,000) (421,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net 2,221,000 11,000
Proceeds from sale of preferred stock, net - 884,000
Proceeds from issuance of long-term debt 5,500,000 83,000
Principal repayments on long-term debt (1,663,000) (473,000)
Net borrowings on revolving credit facility 1,860,000 -
Repayment of notes payable to officers (290,000) -
----------- -----------
Net cash flows from financing activities 7,628,000 505,000
----------- -----------
Net decrease in cash and cash equivalents (742,000) (2,507,000)
Cash and cash equivalents at beginning of period 2,045,000 2,962,000
----------- -----------
Cash and cash equivalents at end of period $ 1,303,000 $ 455,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
Electronic Designs, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Basis of Presentation
In March 1996, Crystallume reincorporated in Delaware and changed its name
to Electronic Designs, Inc. The accompanying unaudited interim consolidated
financial statements reflect the financial position, results of operations and
cash flows of Electronic Designs, Inc. (the "Company") and its wholly-owned
subsidiaries.
In the opinion of management, the financial statements contain all of the
necessary adjustments (all being of a normal and recurring nature) to fairly
present the financial position, results of operations and cash flows of the
Company for the interim periods presented. These statements do not include all
of the information and footnotes required by generally accepted accounting
principles, although the Company believes that the disclosures made are adequate
to make the information presented not misleading. These financial statements
should be read in conjunction with the Company's audited financial statements
for the three years in the period ended September 30, 1995 and the audited
consolidated balance sheet as of October 10, 1995 included in the Company's 1995
Form 10-KSB/A2.
The operating results for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. Acquisition of Electronic Designs, Inc.
Effective October 10, 1995, the Company acquired all of the outstanding
stock of Electronic Designs, Inc., a Massachusetts corporation ("EDI-MA"),
pursuant to an Agreement and Plan of Reorganization, for $13,000,000 less
certain expenses incurred by EDI-MA as a result of the transaction. The
aggregate purchase price of $12,210,000 consisted of cash consideration of
$11,322,000, notes payable of $290,000 and fully-vested options to purchase
315,000 shares of the Company's common stock at $0.22 per share that were valued
at $598,000. The cash portion of the purchase price was financed primarily
through bank borrowings and, to a lesser extent, private placements of equity
securities.
The acquisition of EDI-MA has been recorded in accordance with the purchase
method and, accordingly, the purchase price plus the Company's direct
acquisition costs of $290,000 have been allocated to the assets and liabilities
acquired based on their estimated fair values at the date of acquisition. The
fair value of assets acquired was $20,622,000, including cash of $2,508,000, and
the liabilities assumed totaled $8,122,000. The results of operations and cash
flows of EDI-MA are included in the results of operations and cash flows of the
Company from the date of acquisition.
The following pro forma data has been prepared as if the acquisition was
completed at the beginning of the periods presented, is presented for
illustrative purposes only and is not necessarily indicative of results of
operations which would have actually been achieved had the acquisition of EDI-
5
<PAGE> 6
<TABLE>
MA occurred at the beginning of the periods. The pro forma data does not include
$1,100,000, relating to the revaluation of inventories acquired to their
estimated fair value, which was included in cost of revenues in the first
quarter of fiscal 1996 as the acquired inventories were sold. Only those pro
forma adjustments which are expected to have a continuing impact on the results
of operations of the combined companies have been included.
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
----------------------------- -----------------------------
JUNE 30, JULY 1, JUNE 30, JULY 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $16,052,000 $10,956,000 $45,815,000 $26,958,000
Cost of revenues 11,228,000 7,574,000 32,002,000 18,412,000
----------------------------- -----------------------------
Gross profit 4,824,000 3,382,000 13,813,000 8,546,000
Operating expenses:
Research and development 588,000 862,000 2,096,000 2,787,000
Selling, general and administrative 2,378,000 2,161,000 7,232,000 5,955,000
Restructuring - - 590,000 -
Amortization of intangible assets 117,000 117,000 353,000 353,000
----------------------------- -----------------------------
3,083,000 3,140,000 10,271,000 9,095,000
----------------------------- -----------------------------
Income (loss) from operations 1,741,000 242,000 3,542,000 (549,000)
Other expense, net (222,000) (343,000) (708,000) (1,007,000)
----------------------------- -----------------------------
Income (loss) before income taxes 1,519,000 (101,000) 2,834,000 (1,556,000)
Income taxes 241,000 - 367,000 -
----------------------------- -----------------------------
Net income (loss) $ 1,278,000 $ (101,000) $ 2,467,000 $(1,556,000)
============================= =============================
Net income (loss) per share $ 0.15 $ (0.02) $ 0.34 $ (0.36)
============================= =============================
</TABLE>
3. Restructuring
The restructuring charge is primarily associated with the costs of
severance benefits for six employees provided in connection with restructuring
activities at the Company's diamond operations following the acquisition of
EDI-MA. Duplicate managerial and administrative positions were eliminated,
occupied space in the Santa Clara, California facility was reduced, and the
corporate offices and related functions were consolidated in Westborough,
Massachusetts. At June 30, 1996, $58,000 remained accrued with respect to
completion of the restructuring actions.
4. Net Income (Loss) Per Share
Net income (loss) per share represents earnings per common and common
equivalent share which is determined on the basis of the weighted average number
of shares outstanding during the respective period after giving effect to (i)
all options and warrants using the modified treasury stock method, if dilutive;
and (ii) the conversion of preferred stock using the if-converted method, if
dilutive. Primary and fully-diluted earnings per share are the same.
6
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5. Inventories
<TABLE>
Inventories consisted of the following:
JUNE 30, SEPTEMBER 30,
1996 1995
<S> <C> <C>
Raw materials $4,118,000 $26,000
Work-in-process 1,231,000 -
Finished goods 1,776,000 57,000
-------------------------
$7,125,000 $83,000
=========================
</TABLE>
6. Common Stock
In connection with the acquisition of EDI-MA, long-term and short-term
notes of $1,935,000 and related interest of $19,000 due to shareholders were
converted into 782,000 shares of common stock on October 10, 1995.
During the nine month period ended June 30, 1996, 951,000 shares of common
stock were issued in private placements of securities for net proceeds of
$2,191,000.
During the nine month period ended June 30, 1996, approximately 50,000
shares of common stock were issued to underwriters and consultants for services
performed in connection with the issuance of the Series A convertible preferred
stock and the acquisition of EDI-MA.
During the nine month period ended June 30, 1996, 77,000 shares of common
stock were issued pursuant to the exercise of employee options for proceeds of
$25,000.
During the nine month period ended June 30, 1996, 665,000 shares of common
stock were issued in conversion of 1,662 shares of Series A convertible
preferred stock.
During the nine month period ended June 30, 1996, 5,000 shares of common
stock were issued upon exercise of warrants for proceeds of $16,000.
7. Supplemental Disclosures of Cash Flow Information
In October 1995, the Company issued warrants to purchase 277,000 shares of
common stock at an exercise price of $3.50 per share in order to secure the bank
borrowings related to the acquisition of EDI-MA. These warrants expire in
October 1998.
During the three month period ended June 30, 1996, the Company acquired
equipment under a capital lease for $375,000.
7
<PAGE> 8
ITEM 2:
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 13 of this Form 10-QSB.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Since its inception in 1984 through October 10, 1995, Electronic Designs,
Inc. (formerly Crystallume) (the "Company") had been primarily engaged in
research and development related to diamond coatings using a process called
chemical vapor deposition. Its principal source of revenue was research and
development contracts with the U.S. government, industry consortia and
commercial organizations and, on a limited basis, from the sale of prototype and
limited distribution products.
Effective October 10, 1995, the Company acquired all of the outstanding
stock of Electronic Designs, Inc. ("EDI-MA") in a purchase transaction (the
"Acquisition"). As a result of the Acquisition, the results of operations and
cash flows of EDI-MA are included in the results of operations and cash flows of
the Company from the date of the Acquisition. EDI-MA manufactures high density
memory components used in commercial and military systems, and also designs and
manufactures flat panel display units suitable for avionics and other specialty
applications using active matrix liquid crystal displays.
In March 1996, the Company changed its state of incorporation from
California to Delaware and changed its name to Electronic Designs, Inc.
RESULTS OF OPERATIONS
Revenues increased to $16,052,000 and $45,246,000 in the third quarter and
first nine months, respectively, of fiscal 1996 from $446,000 and $1,165,000,
respectively, in the same periods in fiscal 1995. This substantial increase in
revenues was due to the results of operations of EDI-MA being included in
results of operations of the Company from October 10, 1995.
On a pro forma basis (see Note 2 to unaudited consolidated financial
statements), combined revenues of the Company and EDI-MA increased by 47% and
70% to $16,052,000 and $45,815,000 in the third quarter and nine month period,
respectively, of fiscal 1996 as compared to $10,956,000 and $26,958,000 in the
same quarter and nine month period, respectively, of fiscal 1995. These
increases were due to increases in memory product unit volumes and average
selling prices in the three months and nine months of fiscal 1996 versus the
same periods in fiscal 1995. In the three month period ended June 30, 1996,
average selling prices increased from the same period in the prior year as a
result of market conditions and increased sales of higher density products which
have higher selling prices. For the year to date, average selling prices
8
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also increased as a result of the increased proportion of commercial memory
modules sold, which generally have higher selling prices compared to the
Company's military memory products.
9
<PAGE> 10
In the third quarter of fiscal 1996, the semiconductor industry has
continued to see price erosion in semiconductor memories and the book to bill
ratio remained below parity for the second quarter in a row for the first time
in a four year period. The effects of these developments on the Company's
results to date have been: declines in the average selling prices and the value
of orders of its commercial memory module products; a slowdown in the rate of
new orders received for its commercial memory module products; and reductions in
cost and the increased availability of most memory devices which the Company
purchases for incorporation in its products.
While the increased availability of memory devices has allowed the Company
to increase its unit volumes and shorten its lead-times to its customers,
revenues from commercial memory products declined in the current quarter from
the quarter ended March 31, 1996.
The Company believes that, in the near term, it may be unable to increase
its volumes in commercial memory products sufficiently to offset declines in
selling prices and maintain its current revenue levels in these products. The
Company, however, may be able to offset any such declines as it continues to
introduce new products and has seen substantial new demand for its flat panel
display products.
As a result of the increased availability of commercial memory products
there can be no assurance that new competitors will not enter the Company's
markets or that existing competitors, particularly those who manufacture their
own semiconductor devices, will not reduce selling prices of products to a level
at which the Company cannot economically compete.
The Company derives a substantial portion of its revenues and earnings from
sales to defense contractors and subcontractors of memory products manufactured
as compliant to military specifications. Trends in the defense industry include
reductions in spending from year to year and the movement toward the purchase of
commercial off-the-shelf ("COTS") products rather than those manufactured as
compliant to specified military standards. To date, these changes have not had a
materially adverse effect on the Company's results due to increased demand
resulting from upgrading of existing military systems and the slow rate of
adoption of the COTS program.
Gross profit for the third quarter and year to date of fiscal 1996 was
$4,824,000 and $12,433,000, respectively, compared to $81,000 and $246,000,
respectively, in the same periods of fiscal 1995 due to the results of
operations of EDI-MA being included in results of operations of the Company from
October 10, 1995. Gross profit for the nine month period ended June 30, 1996
included a nonrecurring charge of $1,100,000 related to the revaluation, to
their estimated fair value, of inventories acquired as part of the Acquisition.
This amount was charged to cost of revenues in the first quarter of fiscal 1996
as the acquired inventories were sold.
On a pro forma basis, combined gross profit increased to $4,824,000 and
$13,813,000, or 30.0% and 30.1% of revenues ("gross margin"), in the third
quarter and year to date in fiscal 1996, respectively, from $3,382,000 and
$8,546,000, or 30.9% and 31.7% gross margin, in the same periods in the prior
year. In the third quarter of fiscal 1996, a significant inventory writedown
taken as a result of declining memory prices offset increases in gross margin
10
<PAGE> 11
realized as a result of the higher mix of military memory products and display
products and the benefit of reductions in purchase prices of commercial memory
devices. Recent declines in average selling prices of the Company's commercial
memory products have generally to date followed declines in the Company's raw
material costs and have not had a significant impact on the Company's gross
profits. The decrease in gross margin for the nine month period resulted from
the higher mix of commercial module products which traditionally have had lower
gross margins as a consequence of their higher purchased material content.
Due to the pass-through nature of its commercial memory business, the
Company believes that, in the near term, it will continue to be able to offset
future declines in selling prices with decreases in costs of raw materials.
However, in the event of prolonged or sudden declines in selling prices there
can be no assurance that the Company will continue to be able to maintain its
gross margins by offsetting future declines in selling prices with decreases in
its product costs.
The Company purchases its semiconductor components from a small number of
large suppliers, including foreign suppliers who are regularly the target of
threatened or pending trade disputes and sanctions which, if realized, could
impact the ability of the Company to obtain critical raw materials. The Company
has not been materially adversely affected by this situation in the past and
does not anticipate experiencing any material adverse impact in the future.
The Company does not have specific contractual arrangements with its
suppliers. While the Company believes it has good relationships with its
vendors, in the event that product availability becomes more limited in the
future, there is no assurance that these sources of supply will continue under
terms that permit the Company to compete in its targeted markets.
Research and development expenses in the third quarter and first nine
months of fiscal 1996 increased 46% and 48%, respectively, to $588,000 and
$1,996,000 from $402,000 and $1,345,000 in the respective periods in fiscal
1995. The increase primarily reflects research and development expenses related
to memory and display products associated with the acquired operations of
EDI-MA.
Due to a reduction in headcount and a redirection of diamond development
efforts, pro forma research and development expenses decreased $274,000 or 32%
and $691,000 or 25% to $588,000 and $2,096,000, respectively, in the third
quarter and first nine months of fiscal 1996 from $862,000 and $2,787,000,
respectively, in the same periods in the prior year.
Selling, general and administrative ("S, G & A") expenses were $2,378,000
and $6,920,000 in the third quarter and first nine months of fiscal 1996,
respectively, compared to $502,000 and $1,484,000, respectively, in the same
periods in fiscal 1995. This increase reflects expenses associated with EDI-MA.
On a pro forma basis, combined S, G & A expenses increased by $217,000 or
10% and $1,277,000 or 21% to $2,378,000 and $7,232,000 in the third quarter and
first nine months of fiscal 1996, respectively, from $2,161,000 and
11
<PAGE> 12
$5,955,000, respectively, in the same periods in the prior year. The majority of
this increase was attributed to higher commissions to outside sales
representatives due to the increase in revenues of the Company on a pro forma
basis. In addition, increased legal and accounting fees associated with the
Company's reincorporation in Delaware and efforts to register common stock
issued or issuable as a result of recent private placements contributed to this
increase. Savings realized from reductions in salaries and other expenses as a
result of the restructuring of the Company's operations, discussed below, were
approximately $200,000 and $450,000 in the third quarter and nine month period,
respectively.
The restructuring charge of $590,000 relates primarily to severance costs
associated with restructuring activities at the Company's diamond operations to
eliminate duplicative managerial and administrative positions and to consolidate
the Company's executive offices in Westborough, Massachusetts.
The Company had no interest income in the current quarter as all excess
cash was used to repay advances on the revolving credit facility or to offset
bank charges. Interest expense increased $133,000 and $467,000 in the third
quarter and first nine months, respectively, of fiscal 1996 to $222,000 and
$740,000 from $89,000 and $273,000, respectively, in the same periods in fiscal
1995 primarily due to approximately $200,000 and $625,000, respectively, of
interest on the $10,000,000 in bank loans incurred for the Acquisition, less net
repayments of $4,140,000 over the period from the Acquisition. This increase was
partially offset by reduced expense as a result of the conversion of a
$1,035,000 convertible secured note payable to a shareholder to common stock on
October 10, 1995, lower equipment financing costs and a refund in the first
quarter of fiscal 1996 of interest previously paid on an income tax assessment.
On a pro forma basis, other expense, net, decreased $121,000 and $299,000
in the third quarter and nine month period of fiscal 1996 to $222,000 and
$708,000 from $343,000 and $1,007,000, respectively, in the same periods in
fiscal 1995 due to the repayments of the loans noted above.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, cash and cash equivalents were $1,303,000 representing a
decrease of $742,000 from September 30, 1995.
In the first nine months of fiscal 1996, the Company used $1,000 of cash
for operating activities compared to $2,591,000 in the same period in fiscal
1995. In the fiscal 1996 period accounts receivable increased $1,442,000 due
primarily to increased revenues since the date of the Acquisition. Inventories
decreased as a result of the sale of inventories acquired at the Acquisition
which included $1,100,000 related to the revaluation to their estimated fair
value and of reductions in purchase prices of commercial memory devices. Accrued
expenses decreased after the Acquisition primarily due to the payment of
expenses related to the Acquisition that had been incurred by EDI-MA. In the
same period of fiscal 1995 cash used for operating activities was primarily to
fund the loss incurred in the quarter.
12
<PAGE> 13
The Company used $8,369,000 for investing activities in the first nine
months of fiscal 1996 primarily because of $8,088,000 of net cash paid for the
Acquisition. The Company used $281,000 of cash for capital equipment
expenditures. In addition, the Company acquired test equipment under a financing
lease of $375,000 payable over four years. Capital additions were primarily
related to memory products in the first nine months of fiscal 1996 as compared
to $421,000, for diamond operations, in the same period of fiscal 1995.
The Company anticipates that it will continue to incur capital expenditures
to increase its test and manufacturing capacity and may seek to obtain lease
financing for a portion of these capital expenditures. The Company does not
anticipate significant capital expenditures for diamond operations in fiscal
1996. The Company and EDI-MA had pro forma combined capital expenditures of
approximately $950,000 in fiscal 1995 and it is now expected that capital
expenditures will not likely exceed that amount in fiscal 1996. With regard to
the utilization of the Company's facilities, it is currently operating three
shifts per day in its memory test operations and two shifts per day in its
module assembly operations. The Company has sublet a portion of its facility in
Santa Clara, California as a result of the restructuring referred to above and
believes that its facilities are generally adequate and suitable for its
operations in the next 12 months.
In the first nine months of fiscal 1996, the Company generated $7,628,000
in cash from financing activities. Net short-term and long-term borrowings under
a credit facility discussed below generated $7,360,000, net proceeds from the
sale of common stock generated $2,221,000 and repayments of long-term debt and
notes payable to officers used $1,953,000. In the same period of fiscal 1995,
the Company used $234,000 for financing activities primarily for the repayment
of equipment financing debt.
In connection with the Acquisition, the Company entered into a Loan and
Security Agreement with a bank, whereby the Company was allowed to borrow on
October 10, 1995, (i) up to $5,500,000 in the form of a term loan and (ii) up to
$6,500,000 under a revolving credit facility; however, aggregate borrowings are
limited to $10,000,000. The Loan and Security Agreement requires payments of
principal on the term loan of $500,000 on December 31, 1995 and $750,000 per
quarter beginning March 31, 1996 (or the first business day thereafter).
Interest on the term loan is payable at 11.125% at June 30, 1996 (prime plus
2.875%) and interest on revolving loans is payable at 8.75% at June 30, 1996
(prime plus 0.05%). The Company believes that it is in compliance with all
material covenants as of June 30, 1996. Borrowings under the revolving credit
facility are limited to a borrowing base which is calculated on a formula which
currently includes domestic and foreign accounts receivable and certain
inventories. The Company has availability under the facility for an additional
$3,890,000 of revolving loans as of June 30, 1996. In the original commitment
letter to the Company, the bank indicated that, if renewed in September, 1996,
the borrowing base may be modified to exclude foreign accounts receivable and
inventories. While the Company's borrowing base at June 30, 1996 is $6,082,000,
in the event that inventories and foreign receivables had been excluded from the
formula at that date, the borrowing base would have been approximately
$2,330,000.
13
<PAGE> 14
The Company anticipates that, if it remains in compliance with all material
covenants of its Loan and Security Agreement, the bank will renew its revolving
credit facility in September, 1996 under terms that will allow the Company to
make advances based on some portion of its foreign receivables and/or
inventories.
The Company anticipates that the combination of its current cash balance,
accounts receivable balance, revolving credit facility and its cash flow from
operations will be sufficient to meet the Company's liquidity requirements for
the next 12 months.
If cash generated from operations is insufficient to meet the Company's
requirements for the service of its loans, its working capital needs and its
anticipated capital expenditures, or if the Company's bank fails to renew the
revolving credit facility under terms that provide the Company with a sufficient
borrowing base, the Company may be required to raise additional capital through
the sale of additional equity securities or seek alternative methods of
financing. There can be no assurance that such additional financing, if
required, can be obtained on acceptable terms, if at all.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include the following: the cyclicality in the Company's
targeted markets, particularly for its semiconductor related products; absence
of firm contractual relationships with certain key suppliers of significant raw
materials for its memory and display products; the recent growth and expansion
of operations and resultant strain on its limited personnel and management,
manufacturing and other resources; the rapidity of technological change and
highly competitive nature of the semiconductor packaging industry; competition
from larger public companies in the commercial module market; dependence on
contracts with defense related companies for its memory and display products;
significant customer concentration; regulatory, political, economic and currency
risks associated with international sales which accounted for more than 30% of
net sales in the first nine months of fiscal 1996; risks related to the
financial condition and success of the Company's customers, the Company's
customers' products and the general economy; the likelihood that steep declines
in sales, pricing and gross margins of commercial memory products will occur
toward the end of a product's life cycle; the Company's dependence on key
personnel and ability to attract and retain qualified management, manufacturing,
quality assurance, engineering, marketing, sales and support personnel; the
possibility that subsequent changes in ownership may limit the Company's use of
net operating loss and research and development tax credit carryforwards;
uncertainty regarding the Company's ability to integrate CVD diamond technology
into its electronic products; market acceptance of diamond coated tool inserts;
risks related to returns on diamond research and development; and risks relating
to the Company's ability to achieve full scale manufacturing of its diamond
coated tool inserts.
14
<PAGE> 15
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On July 27, 1996, Electronic Designs, Inc., a Massachusetts corporation and a
wholly-owned subsidiary of the Registrant, merged with and into the Registrant.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1 Articles of Merger of parent and subsidiary corporations, effective
July 27, 1996, merging Electronic Designs, Inc., a Massachusetts
corporation, with and into Electronic Designs, Inc., a Delaware
corporation.
11 Statement re: computation of per share earnings
27 Financial Data Schedule
(b) Reports on Form 8-K:
Reports on Form 8-K were filed with the Securities and Exchange
Commission on the following dates during the quarter ended June 30:
(1)May 16, 1996 - ITEM 5 - OTHER EVENTS - At or about the close of
business on May 16, 1996, a registration statement on Form S-3 for
the sale of 3,775,388 shares of common stock by certain
shareholders became effective.
15
<PAGE> 16
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 hereunto duly authorized.
Electronic Designs, Inc.
----------------------------------------
(Registrant)
/s/ Frank D. Edwards
Dated: August 8, 1996 ----------------------------------------
Frank D. Edwards, Senior Vice
President and Chief Financial
Officer (Principal Financial
and Accounting Officer and
Duly Authorized Officer)
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------ ------------- ----
2.1 Articles of Merger of parent and subsidiary
corporations, effective July 27, 1996, merging
Electronic Designs, Inc., a Massachusetts
corporation, with and into Electronic Designs,
Inc., a Delaware corporation. 18
11 Statement re: computation of per share earnings 26
27 Financial Data Schedule
17
<PAGE> 1
Exhibit 2.1
FEDERAL IDENTIFICATION
NO. 04-3298416
----------
FEE: $250.00
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
(General Laws, Chapter 156B, Section 82)
We, Frank D.Edwards , *Senior Vice President
-------------------------------
and Frank D. Edwards , *Clerk
--------------------------
of Electronic Designs, Inc.
-----------------------------
organized under the laws of Delaware and hereinafter called the parent
corporation certify as follows:
1. That the subsidiary corporation(s) to be merged into the parent corporation
is:
NAME STATE OF ORGANIZATION DATE OF ORGANIZATION
Electronic Designs, Inc. Massachusetts 3/14/86
2. The parent corporation, at the date of the vote, owned not less than ninety
percent (90%) of the outstanding shares of each class of stock of the subsidiary
corporation or corporations with which it has voted to merge.
ITEM 3 BELOW MAY BE DELETED IF ALL THE CORPORATIONS ARE ORGANIZED UNDER THE LAWS
OF MASSACHUSETTS AND IF GENERAL LAWS, CHAPTER 156B IS APPLICABLE TO THEM.
3. That in the case of each of the above named corporations, the laws of the
state of its organization, if other than Massachusetts, permit the merger herein
described, and that all action required under the laws of each such state in
connection with this merger has been duly taken.
18
<PAGE> 2
*Delete the inapplicable words. In case the parent corporation is organized
under the laws of a state other than Massachusetts, these articles are to be
signed by officers having corresponding powers and duties.
19
<PAGE> 3
4. That a meeting of the directors of the parent corporation, the following
vote, pursuant to General Laws, Chapter 156, Section 82, subsection (a) was duly
adopted:
ELECTRONIC DESIGNS, INC.
(a Delaware corporation)
Board of Directors Meeting
July 26, 1996
VOTED: That the Corporation, a parent corporation, merge its
wholly owned subsidiary corporation, Electronic Designs, Inc., a Massachusetts
corporation ("EDI-MA"), with and into the Corporation pursuant to and in
accordance with the provisions of Section 253 of Title 8 of the Delaware General
Corporation Law, with the Corporation being the surviving corporation in the
merger (the "Merger").
VOTED: That the effective date of the Merger shall be July 27, 1996.
VOTED: To authorize, direct and empower the President and Senior
Vice President of the Corporation, and each of them acting singly, with the
assistance of officers, employees, agents and attorneys of the Corporation to
prepare, execute and file or cause others to prepare, execute and file, any and
all applications, reports, notices, requests, certifications, commitments and
other instruments (and any amendments or supplements thereto) which may be
necessary or advisable in connection with the execution, delivery and
performance of any documents relating to the Merger, the necessity or
advisability of each such action being conclusively established by the action so
taken.
20
<PAGE> 4
Note: Votes, for which the space provided above is not sufficient, should be
listed on additional sheets to be numbers 4A, 4B, etc. Additional sheets must be
8 1/2 x 11 and have a left hand margin of 1 inch. Only one side should be used.
21
<PAGE> 5
5. The effective date of the merger shall be the date approved and filed by the
Secretary of the Commonwealth. If a later effective date is desired, specify
such date, which shall not be more than thirty days after the date of filing:
The effective date of the Merger shall be July 27, 1996
SECTION 5 BELOW MAY BE DELETED IF THE PARENT CORPORATION IS ORGANIZED UNDER THE
LAWS OF MASSACHUSETTS.
6. The parent corporation hereby agrees that it may be sued in the Commonwealth
of Massachusetts for any prior obligation of any corporation organized under the
laws of Massachusetts with which it has merged, and any obligation hereafter
incurred by the parent corporation, including the obligation created by General
Laws, Chapter 156B, Section 82, Subsection(e) so long as any liability remains
outstanding against the parent corporation in the Commonwealth of Massachusetts,
and it hereby irrevocably appoints the Secretary of the Commonwealth as its
agent to accept service of process in any action for the enforcement of any such
obligations, including taxes, in the same manner as provided in Chapter 181.
SIGNED UNDER THE PENALTIES OF PERJURY, THIS 26TH day of July, 1996,
_______________________, Sr. Vice President,
22
<PAGE> 6
_______________________, *Clerk.
*Delete the inapplicable words. In case the parent corporation is organized
under the laws of the state other than Massachusetts, these articles are to be
signed by officers having corresponding powers and duties.
23
<PAGE> 7
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF MERGER OF PARENT AND SUBSIDIARY CORPORATIONS
(General Laws, Chapter 156B, Section 82)
------------------------------------------
------------------------------------------
I hereby approve the within Articles of Merger of Parent and
Subsidiary Corporations, and the filing fee in the amount of
$__________________, having been paid, said articles are
deemed to have been filed with me this _________day of
_______________, 19____.
Effective date:______________________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Mark A. Weiss, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
24
<PAGE> 8
Boston, MA 02109
Telephone: (617) 570-1931
25
<PAGE> 1
ELECTRONIC DESIGNS, INC.
EXHIBIT 11 Statement re: computation of per share earnings
<TABLE>
Net Income (Loss) Per Share
<CAPTION>
Three Months Eended Nine Months Ended
------------------------- ------------------------
June 30, July 1, June 30, July 1,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income (loss) $1,278,000 (909,000) 1,514,000 (2,821,000)
Adjustments thereto (1) 214,000 - 491,000 -
---------- ---------- ---------- -----------
Adjusted net income (loss) 1,492,000 (909,000) 2,005,000 (2,821,000)
========== ========== ========== ===========
Weighted average shares
outstanding 5,660,000 3,197,000 5,315,000 3,198,000
Adjustments thereto (2) 4,216,000 - 2,914,000 -
---------- ---------- ---------- -----------
Shares used in computation 9,876,000 3,197,000 8,229,000 3,198,000
========== ========== ========== ===========
Net income (loss) per share $ 0.15 $ (0.28) $ 0.24 $ (0.88)
========== ========== ========== ===========
<FN>
(1) In accordance with the modified treasury stock method, the proceeds
from the exercise of stock options and warrants are first used to buy
back up to 20% of the Company's common stock at the average price for
the period. Any remaining proceeds are used to retire outstanding
debt, which adjusts income for interest assumed to be saved (net of
income tax effect), and, to the extent there are proceeds remaining
after the assumed debt retirement, used to invest in commercial paper,
which further adjusts income for interest assumed to be earned (net of
income tax effect).
(2) Adjusts the weighted average number of shares outstanding for (i) all
stock options and warrants using the modified treasury stock method,
if dilutive; and (ii) the conversion of preferred stock using the
if-converted method, if dilutive.
(3) Primary and fully-diluted earnings per share are the same.
</TABLE>
26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,303,000
<SECURITIES> 0
<RECEIVABLES> 7,517,000
<ALLOWANCES> 0
<INVENTORY> 7,125,000
<CURRENT-ASSETS> 16,089,000
<PP&E> 4,092,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 22,237,000
<CURRENT-LIABILITIES> 13,227,000
<BONDS> 0
<COMMON> 61,000
0
1,000
<OTHER-SE> 7,738,000
<TOTAL-LIABILITY-AND-EQUITY> 22,237,000
<SALES> 16,052,000
<TOTAL-REVENUES> 16,052,000
<CGS> 11,228,000
<TOTAL-COSTS> 14,311,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 222,000
<INCOME-PRETAX> 1,519,000
<INCOME-TAX> 241,000
<INCOME-CONTINUING> 1,278,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,278,000
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
