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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition Period from ______ to ______.
Commission file number 0-18511
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DIGITAL SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1273645
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6464 185TH AVE. N.E.
REDMOND, WASHINGTON 98052
(Address of principal executive offices) (Zip Code)
(206) 881-7544
(Registrant's telephone number including area code)
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
Common stock, par value $0.01 per share: 9,439,688 shares outstanding as of
September 30, 1996.
Page 1 of 17 sequentially numbered pages.
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DIGITAL SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
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<S> <C> <C>
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 8
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
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PART I:
ITEM 1. FINANCIAL STATEMENTS
DIGITAL SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
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CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS) SEPT. 30, 1996 DEC. 31, 1995
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents and short-term investments $ 30,043 $ 39,762
Trade accounts receivable, net 24,420 22,206
Inventories 2,175 2,958
Current installments of contracts receivable 2,064 2,797
Prepaid expenses and other current assets 3,623 2,228
-------- --------
Total current assets 62,325 69,951
Furniture, equipment, and leasehold improvements, net 6,019 5,508
Contracts receivable, less current installments 946 1,793
Capitalized software costs, net 2,141 2,870
Other assets 5,269 1,069
-------- --------
Total assets $ 76,700 $ 81,191
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of long-term obligations $ 81 $ 77
Accounts payable 3,412 4,270
Accrued compensation 3,289 2,082
Other accrued expenses 4,760 5,583
Customer deposits and unearned revenue 3,695 9,730
--------- --------
Total current liabilities 15,237 21,742
Deferred federal income taxes 739 1,199
Other long-term liabilities 453 738
--------- --------
Total liabilities 16,429 23,679
Shareholders' equity 60,271 57,512
--------- --------
Total liabilities and shareholders' equity $ 76,700 $ 81,191
========= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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<TABLE>
<CAPTION>
DIGITAL SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA) THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 (UNAUDITED) 1996 1995
<S> <C> <C> <C> <C>
Revenue:
Product sales $ 15,103 $ 11,128 $ 42,694 $ 32,093
Service and miscellaneous 6,556 5,516 19,807 16,274
-------- --------- -------- --------
21,659 16,644 62,501 48,367
-------- --------- -------- --------
Cost of product sales and service:
Product sales 4,559 4,324 14,044 12,824
Service and miscellaneous 3,518 2,043 9,301 6,387
-------- --------- -------- --------
8,077 6,367 23,345 19,211
-------- --------- -------- --------
Gross profit 13,582 10,277 39,156 29,156
Operating expenses:
Selling, general and administrative 7,682 5,966 21,661 18,055
Research and development 2,393 1,591 7,728 5,034
Write-off of capitalized software costs -- -- 705 --
Purchase of in-process research
and development -- -- 4,307 --
-------- --------- -------- --------
Total operating expenses 10,075 7,557 34,401 23,089
-------- --------- -------- --------
Operating income 3,507 2,720 4,755 6,067
Other income, net 438 517 1,309 1,624
-------- --------- -------- --------
Earnings before income taxes 3,945 3,237 6,064 7,691
Income tax expense 1,188 1,186 3,480 2,807
-------- --------- -------- --------
Net earnings $ 2,757 $ 2,051 $ 2,584 $ 4,884
======== ========= ======== ========
Net earnings per share $ 0.28 $ 0.21 $ 0.26 $ 0.50
======== ========= ======== ========
Weighted average common shares and
common share equivalents outstanding 9,901 9,777 9,843 9,814
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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<TABLE>
<CAPTION>
DIGITAL SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) NINE MONTHS ENDED SEPT. 30,
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1996 1995
(UNAUDITED)
<S> <C> <C>
Net cash provided by (used in) operating activities: $ (1,792) $ 8,343
---------- --------
Cash flows from investing activities:
Purchase of short-term investments (32,373) (35,282)
Proceeds from the maturity of short-term investments 38,686 --
Purchase of furniture, equipment, and leasehold improvements (2,696) (1,622)
Additions to capitalized software costs (902) (1,444)
Increase in long term notes receivable (4,000) --
Other (443) 414
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Net cash used in investing activities (1,728) (37,934)
---------- --------
Effect of exchange rate changes on cash 82 50
Cash flows from financing activities:
Repayment of long-term obligations (56) (922)
Purchase of treasury stock (1,226) (4,048)
Issuance of additional common shares 1,314 289
---------- --------
Net cash provided by (used in) financing activities 32 (4,681)
---------- --------
Decrease in cash and cash equivalents (3,406) (34,222)
Cash and cash equivalents at beginning of period 5,914 40,971
---------- --------
Cash and cash equivalents at end of period 2,508 6,749
Short-term investments at end of period 27,535 35,468
---------- --------
Cash and cash equivalents and
short-term investments at end of period $ 30,043 $ 42,217
========== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
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DIGITAL SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include
the accounts of Digital Systems International, Inc. and its wholly
owned subsidiaries, collectively referred to as the "Company". The
unaudited interim condensed consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations
of the Securities and Exchange Commission. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations.
The accompanying condensed consolidated financial statements and
related notes should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31,
1995.
The information furnished reflects, in the opinion of management, all
adjustments, consisting of only normal recurring items, necessary for a
fair presentation of the results for the interim periods presented.
Interim results are not necessarily indicative of results for a full
year.
2. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPT. 30, 1996 DEC 31, 1995
-------------- ------------
(UNAUDITED)
<S> <C> <C>
Raw materials $ 898 $ 838
Work in process 491 1,269
Finished goods 245 26
Installations in progress 212 610
Spare parts 329 215
------ ------
Total $2,175 $2,958
====== ======
</TABLE>
3. EARNINGS PER SHARE
Net earnings per share is computed using the weighted average number of
common shares outstanding plus dilutive common equivalent shares
outstanding during the period. Common equivalent shares are calculated
under the treasury stock method and consist of unexercised stock
options. Fully diluted earnings per share for all periods presented
were not materially different from primary earnings per share.
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4. NEW ACCOUNTING STANDARD
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123, Accounting for Stock-Based Compensation. This
pronouncement establishes accounting and reporting standards for
stock-based employee compensation plans, including: stock purchase
plans, stock options and stock appreciation rights. This new
pronouncement defines a fair value based method of accounting for these
equity instruments. This method measures compensation cost based on the
value of the award and recognizes that cost over the service period.
Companies may elect to adopt this standard or to continue accounting
for these types of equity instruments under current guidance, APB
Opinion No. 25, Accounting for Stock Issued to Employees. Companies
which elect to continue using the rules of Opinion No. 25 must make pro
forma disclosures of net income and earnings per share as if this new
pronouncement had been applied. This new reporting standard is required
for fiscal years beginning after December 15, 1995.
The Company has elected to continue accounting for such types of equity
instruments in accordance with the rules of APB Opinion No. 25 and will
make the required pro forma disclosures in its December 31, 1996
audited consolidated financial statements.
5. RECLASSIFICATIONS
Certain reclassifications have been made to the prior period financial
statements to conform with the current quarter presentation.
6. SUBSEQUENT EVENT
In October 1996, the Company announced it had entered into a Merger
Agreement with ViewStar Corporation ("ViewStar"), an enterprise
business process and document management software provider . Pursuant
to the Merger Agreement, which is subject to approval of both company's
shareholders, ViewStar would become a wholly-owned subsidiary of the
Company through the exchange of 0.693 shares of the Company's common
stock for each share of ViewStar stock. The proposed merger will be
submitted to a vote of shareholders in December 1996. The merger is
expected to be accounted for as a pooling-of-interests.
The Company has filed a proxy statement with the Securities and
Exchange Commission relating to the merger proposal which more fully
describes the proposed merger.
In September 1996, prior to negotiation of the Merger Agreement , the
Company and ViewStar entered into a Joint Marketing and Product
Development Agreement. In addition the Company entered into a loan
agreement under which the Company provided ViewStar with $4.0 million
of debt financing to fund joint product development efforts. This loan
to ViewStar is included in Other Assets in the September 30, 1996
Condensed Consolidated Balance Sheet.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
OVERVIEW
For the third quarter of 1996, the Company reported an increase in
revenue to $21.7 million compared with $16.6 million reported in the
third quarter of 1995. The Company reported third quarter 1996 net
earnings of $2.8 million, or $.28 per share, compared with net earnings
of $2.1 million, or $.21 per share, for the comparable quarter of 1995.
For the nine months ended September 30, 1996, the Company reported net
earnings of $2.6 million, or $.26 per share. In February 1996, the
Company acquired Caleo Software, Inc. and wrote-off $4.3 million of
in-process research and development costs associated with the
acquisition. In addition, the Company wrote-off $0.7 million of
previously capitalized software costs. Excluding these charges, net
earnings for the first nine months of 1996 would have been $7.3
million, or $.75 per share, compared to $4.9 million, or $.50 per
share, for the first nine months of 1995.
REVENUE
Revenue of $21.7 million for the third quarter of 1996 represented a
30% increase over revenue of $16.6 million reported in the comparable
quarter of the prior year. Product sales increased $4.0 million or 36%
to $15.1 million in 1996 versus $11.1 million in 1995. Service and
miscellaneous revenue increased by $1.1 million or 20% to $6.6 million
from $5.5 million as a result of increased professional service
revenues and larger installed base. International revenue decreased to
$2.9 million in the third quarter of 1996 from $3.6 million in the
comparable quarter for 1995, due to decreased product sales in Europe,
Africa and Asia.
Revenues of $62.5 million for the nine months ended September 30, 1996
represented a 29% increase over revenue of $48.4 million reported in
the comparable period of the prior year. Product sales increased $10.6
million or 33% to $42.7 million in 1996 versus $32.1 million in 1995.
Service and miscellaneous revenue increased by $3.5 million or 22%, to
$19.8 million from $16.3 million as a result of increased professional
service and customer support revenues. International revenue increased
to $9.9 million in 1996 from $8.6 million in 1995, due to increased
product sales in Europe, Africa and Asia. The overall revenue increase
was influenced by continuing acceptance of the MOSAIX 5300 Series
products by customers in the telecommunications, financial services,
and retailing industries.
In the third quarter of 1996, the sale of MOSAIX systems to three
customers accounted for 32% of the total product revenue, while three
customers accounted for 35% in the third quarter of 1995. For the first
nine months of 1996, the sales of MOSAIX systems to three customers
accounted for 21.5% of that period's total product revenue, while three
customers accounted for 30.6% for the first nine months of 1995.
GROSS MARGIN
Total gross margin remained constant at approximately 63% of revenue
for both the third quarter of 1996 and the comparable period last year.
Product gross margin, however, was
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70% in the third quarter of 1996 compared to 61% in the comparable
period of the prior year. Product gross margins are influenced, in
part, by the increase in sales volume as well as changes in product
mix, overhead coverage, and software amortization expense. During the
third quarter of 1996, the Company sold a greater proportion of
larger-scale, complex telemarketing and financial services application
products in the MOSAIX 5300 Series, which typically carry higher
margins. In addition, certain systems component costs were reduced and
software amortization expense was approximately $.3 million versus $.5
million for the comparable quarter a year ago. The reduction in service
and miscellaneous gross margin to 46% compared to 63% in the comparable
period of the prior year was related to the increased revenue
contribution of lower margin professional service revenues and
increased customer support expenses as a result of increased costs in
providing customer support (people) and increased costs from an
expansion of the Company's customer support infrastructure (software
and systems).
Gross margin improved to 63% for the first nine months of 1996 from 60%
for the first nine months of 1995. Gross margin on product sales was
67% for the first nine months of 1996 compared to 60% in the comparable
period of the prior year. This change in product gross margins was
influenced, in part, by the increase in sales volume as well as product
mix, overhead coverage, and software amortization expense. During the
first nine months of 1996, the Company sold a greater proportion of
large scale, complex telemarketing and financial services application
products in the MOSAIX 5300 Series which contributed to the increase in
gross margins. Gross margin in 1995 included accelerated software
amortization expense resulting from the replacement of earlier versions
of MOSAIX software with the MOSAIX 5000 Series products. For the first
nine months of 1996 the Company expensed $1.9 million related to
software amortization, compared to $2.4 million in the comparable
period a year ago. Gross margin on service and miscellaneous revenue
for the first nine months of 1996 was 53% compared to 61% in the
comparable period of the prior year, due to a higher mix of lower
margin professional service revenues and lower customer support margins
as a result of increased costs mentioned above.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were $7.7 million or 35%
of revenue in the third quarter of 1996, compared to $6.0 million or
36% of revenue in the comparable period of the prior year. For the nine
months ended September 30, 1996, selling, general and administrative
expenses were $21.7 million or 35% of revenue compared to $18.1 million
or 37% in 1995. While selling, general and administrative expenses
decreased as a percentage of revenue, the increase in spending resulted
from increased travel expenses, an expansion of marketing related
activities, advertising from personnel costs.
RESEARCH AND DEVELOPMENT
Research and development expense, net of amounts capitalized as
software development costs, was $2.4 million or 11% of revenue in the
third quarter of 1996, compared to $1.6 million or 10% of revenue in
the comparable quarter of the prior year. Research and development
spending increased to $2.7 million from $2.0 million, and software
costs capitalized as a percent of spending were 10% (or $0.3 million)
in the third quarter of 1996 compared to 22% (or $0.5 million) in the
third quarter of 1995. The increase in research and development
expenses is due to increased investment in the development of software
applications and a decrease in the amount of capitalized research and
development costs.
For the nine months ended September 30, 1996, research and development
expenses net of amounts capitalized, were $7.7 million, or 12% of
revenue, compared with $5.0 million or
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10% of revenue in the comparable period of the prior year. Gross
research and development spending increased to $8.8 million from $6.5
million due primarily to increases in engineering staff and outside
contractors. Software costs capitalized as a percentage of research and
development spending were 11% ($0.9 million) in the first nine months
of 1996 and 22% ($1.4 million) in the first nine months of 1995.
The Company remains committed to the ongoing development of new
products and improvements to existing products as a key source of
future revenue. The Company expects to invest approximately 10-12% of
revenue in new product development. However, from time to time, the
Company may exceed the current level of investment in product
development.
In February 1996, the Company acquired Caleo Software, Inc. and
wrote-off $4.3 million of in-process research and development costs
associated with the acquisition. In addition, the Company wrote-off
$0.7 million of previously capitalized software costs due to rapidly
changing technology. Capitalized software costs continue to decrease,
and as of September 30, 1996, has been reduced to $2.1 million compared
to $2.9 million at December 31, 1995.
OTHER INCOME, NET
Net other income is comprised primarily of interest income, and was
$0.4 million in the third quarter of 1996, compared with $0.5 million
in the comparable period of the prior year. Year-to-date other income
totaled $1.3 million versus $1.6 million in 1995. Interest income was
slightly lower in 1996 compared to the prior year due to a decrease in
cash and short-term investments.
INCOME TAXES
The effective tax rate for the third quarter of 1996 was 30% compared
to 37% in 1995. The rate difference was primarily due to a lower actual
1995 tax rate than previously estimated. This tax credit will be
recognized over both the third and fourth quarters of 1996. This lower
rate resulted from additional Foreign Sales Corporation commissions and
a favorable change in the tax rules for research and development
credits. The year-to-date effective tax rate, including the effect of
the in-process research and development write-off related to the Caleo
acquisition in the first quarter of 1996 was 57% in 1996 versus 36% in
1995. This unusually high tax rate is the result of the in-process
research and development write-off not being deductible for tax
purposes. Excluding the $4.3 million charge, the Company's nine-month
1996 effective tax rate would have been 34% compared to 36% in the
comparable period of the prior year.
FINANCIAL CONDITION
LIQUIDITY & CAPITAL RESOURCES
The Company's combined cash and cash equivalents and short-term
investments were $30.0 million at September 30, 1996 versus $39.8
million at December 31, 1995. The short-term investment portfolio is
invested in municipal securities, corporate notes and bonds, and
commercial paper, and is diversified among security types and issuers.
It does not include any derivative products. At September 30, 1996, the
Company's working capital was $47.1 million compared to $48.2 million
at December 31, 1995.
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During the first nine months of 1996, the Company used $1.8 million in
cash from operations compared to $8.3 million generated in 1995. The
use of cash from operating activities in the nine months ended
September 30, 1996 was due primarily to the purchase of Caleo Software,
Inc. for $4.8 million in cash during February 1996, as well as a
decrease in customer deposits and an increase in accounts receivable.
Of the $4.8 million Caleo purchase price, $4.3 million was charged to
operations as in-process research and development costs.
During the first nine months of 1996, the Company invested $2.7 million
to purchase furniture, equipment, and leasehold improvements compared
to $1.6 million for the first nine months of the prior year. The
increase is primarily due to the investment in internal customer
management hardware and software systems. The Company made repayments
on long-term obligations of $0.1 million in 1996 versus $0.9 million in
1995. As discussed in Note 6 to the Condensed Consolidated Financial
Statements, the Company's cash position was reduced in 1996 by a $4.0
million loan to ViewStar.
The Board of Directors has authorized management to repurchase, from
time to time, subject to certain conditions and limitations, up to
1,600,000 shares of common stock of the Company. During the third
quarter of 1996, the Company repurchased 83,000 shares at a cost of
$1.2 million. As of September 30, 1996, a total of 691,000 shares have
been repurchased at a cost of approximately $5.5 million. The
repurchase plan was suspended on October 2, 1996.
In addition to its cash and short term investment balances, the Company
has available a $10 million domestic line of credit to meet cash flow
needs. The Company has elected not to renew a second $10 million
line of credit at this time. Management believes that existing cash and
short-term investments and cash flow from operations, together with its
available credit line, will continue to be sufficient to meet ongoing
operating requirements as well as the Company's investment in capital
additions and research and development activities. In connection with
research and development and market expansion, cash may be used to
acquire technology or to fund strategic ventures.
FACTORS AFFECTING FUTURE RESULTS AND REGARDING FORWARD-LOOKING
STATEMENTS
The Company, in its annual report to shareholders, its annual report on
Form 10-K, its quarterly reports on Form 10-Q and in other documents
filed with the Securities and Exchange Commission, as well as its press
releases and oral communications, has made and may in the future
continue to make forward-looking statements. When used in these
contexts, the words "believes", "anticipates", "expects" and similar
expressions are intended to identify forward-looking statements.
Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of such
statement. The Company undertakes no obligation to publicly release
results of any revisions of such forward looking statements that may be
made to reflect events or circumstances after the date of any such
statement or to reflect the occurrence of unanticipated events.
As indicated in Note 6 of notes to the Condensed Consolidated Financial
Statements, in October 1996, the company entered into a merger
agreement with ViewStar. On October 25, 1996, the Company filed a
registration statement on Form S-4 with the Securities and Exchange
Commission (the "Registration Statement"), which also sets forth
information
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about such business combination and the risks and uncertainties which
could, in addition to the factors set forth below, have a material
impact on the Company's operations and its ability to achieve the
results expressed in forward-looking statements. Reference is made to
the Registration Statement for a full description of such risks and
uncertainties.
Within the foregoing limitations, the following important factors,
among others, could cause the Company's actual results to differ
materially from those expressed in the Company's forward-looking
statements in the contexts in which they are made.
FUTURE OPERATING RESULTS AND QUARTERLY FLUCTUATIONS. The Company
believes that its quarterly operating results could be subject to
fluctuations for a variety of reasons. The Company currently operates
with a small backlog relative to its revenue; thus, most of its sales
in each quarter result from orders received in the current or prior
quarter. In addition, because prices for the Company's products are
relatively substantial, a significant portion of net sales for each
quarter is attributable to a relatively small number of orders and
customers. Sales in a quarter depend in part on the configuration of
systems sold and on the volume and timing of bookings received during
the current and prior quarter. In addition, the Company's operating
expenses are relatively fixed in the short term. As a result,
variations in timing of revenue can cause significant variations in
quarterly results of operations. The Company's operating results for
any quarter are, accordingly, not necessarily indicative of results for
any future period.
COMPETITION. The market for call processing systems and software is
intensely competitive. The Company competes directly with three
principal competitors and indirectly with a number of other
competitors, some of whom have substantially greater financial,
technical and marketing resources than the Company.
PRODUCT CONCENTRATION, TECHNOLOGICAL CHANGE. The market for the
Company's products and services is subject to rapid technological
changes, requiring continual research and development expenditures by
the Company. Competitors or new market entrants may introduce new
products, features or services, or changes in communication technology
could develop, that could adversely affect the competitive position of
the Company's products and services in some or all of its markets.
During the past two years, the Company's products have changed rapidly
and significantly. Though the Company continues to invest significantly
in research and development, there is no assurance that the Company
will be able to maintain its competitive position.
MARKET. The Company's future financial performance will depend on the
size and rate of growth of the call center customer management market.
Future development of this market will depend upon the expansion of
current applications, successful creation of new applications for
existing markets, and the increasing acceptance of call processing
technology.
REGULATORY ENVIRONMENT. While existing industry legislation does not
directly regulate the manufacture and sale of the Company's products,
certain existing legislation affects the ability of the Company's
customers to use some of its products in certain ways. For example, The
Company's MOSAIX systems may not be used for certain prohibited debt
collection and remote telephone solicitation practices, nor may they be
used under certain circumstances to leave or play artificial or
prerecorded messages. The adoption of legislation at the federal or
state level and the promulgation of regulations under such statutes
could have adverse affects on the Company's results by regulating the
use of the Company's products and services.
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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information the Company regards as proprietary. Although the Company
has not registered its copyrighted software, the Company's software is
protected by copyright and trade secrets laws. There can be no
assurance that steps taken by the Company to protect its proprietary
rights will be adequate to deter misappropriation or independent
third-party development of its technology.
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PART II: OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
None
Items 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share is on page 14.
(b) Reports on Form 8-K. There were no reports on Form 8-K filed
during the three months ended September 30, 1996.
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SIGNATURE
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.
DIGITAL SYSTEMS INTERNATIONAL, INC.
(Registrant)
DATE: November 14, 1996 BY: Richard L. Anderson
______________________________
Richard L. Anderson
Vice President - Controller
(Chief Accounting Officer)
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Exhibit 11
<TABLE>
<CAPTION>
DIGITAL SYSTEMS INTERNATIONAL, INC. AND SUBSIDIARIES
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EXHIBIT 11: COMPUTATION OF EARNINGS PER SHARE
THREE MONTHS ENDED SEPT. 30, NINE MONTHS ENDED SEPT. 30,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Weighted average number of common shares 9,460 9,227 9,389 9,425
outstanding
Dilutive common equivalent shares from outstanding
stock options using the treasury stock method 441 550 454 389
--------------------- ---------------------
Weighted average common shares and common
share equivalents outstanding 9,901 9,777 9,843 9,814
===================== =====================
Net earnings $ 2,757 $2,051 $ 2,584 $4,884
===================== =====================
Net earnings per share $ 0.28 $ 0.21 $ 0.26 $ 0.50
===================== =====================
</TABLE>
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0
0
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