<PAGE>
FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Period July 1, 1998 to September 30, 1998
SPECTRUM SIGNAL PROCESSING INC.
-------------------------------
(Translation of Registrant's Name into English)
8525 BAXTER PLACE, BURNABY, B.C. V5A 4V7
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(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file
annual reports under cover Form 20-F or Form 40-F:
Form 20-F [X] Form 40-F [ ]
Indicate by check mark whether the registrant by furnishing the
information contained in this Form is also thereby furnishing the information
to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act
of 1934:
Yes [ ] No [X]
If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-___.
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Part I FINANCIAL INFORMATION
Item 1 Financial Statements
SPECTRUM SIGNAL PROCESSING INC.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
September 30, December 31,
1998 1997
(Unaudited) (Audited)
ASSETS
- ------------------------------------------------------------------------------
Current assets
Cash and cash equivalents $ 1,137 $ 1,383
Accounts receivable 7,137 6,549
Inventories 3,976 4,061
Prepaid expenses 397 220
- ------------------------------------------------------------------------------
12,647 12,213
Property and equipment 2,430 2,447
Other assets 2,425 1,823
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$ 17,502 $ 16,483
==============================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Current liabilities
Bank indebtedness $ 2,333 $ --
Accounts payable 4,388 2,990
Accrued liabilities 1,117 1,690
Deferred revenue -- 19
Current portion of long-term debt -- --
- ------------------------------------------------------------------------------
7,838 4,699
Long-term debt 119 75
Deferred income taxes 83 1,223
Shareholders' equity
Share capital 16,439 11,373
Authorized: 50,000,000 common shares
with no par value
Issued: 10,270,621 common shares
(1997 - 9,459,397)
Warrants 141 --
Additional paid-in capital 76 76
Treasury stock, at cost, 233,300 shares (1,232) (1,232)
(1997 - 233,300)
Retained earnings (deficit) (4,763) 1,237
Accumulated other comprehensive income
Cumulative translation adjustments (1,198) (967)
- ------------------------------------------------------------------------------
9,462 10,486
- ------------------------------------------------------------------------------
$ 17,502 $ 16,483
==============================================================================
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SPECTRUM SIGNAL PROCESSING INC.
Consolidated Statements of Operations & Retained Earnings (Deficit)
(Expressed in thousands of United States dollars, except per share amounts)
<TABLE>
<CAPTION>
3 months ended September 30, 9 months ended September 30,
1998 1997 1998 1997
- ------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 7,077 $ 7,584 $ 19,497 $ 18,304
Cost of sales 3,169 3,475 8,302 8,044
- ------------------------------------------------------------------------------------------------------------
Gross profit 3,908 4,109 11,195 10,260
Expenses
Administrative 760 842 2,396 2,256
Sales & marketing 1,771 1,414 5,495 3,295
Amortization 181 188 596 452
Research & development 1,329 776 3,366 1,615
Acquired in-process research &
development charge -- -- 6,168 872
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4,041 3,220 18,021 8,490
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Earnings (loss) from operations (133) 889 (6,826) 1,770
Other
Interest & bank charges (62) (6) (120) (14)
Other income 16 4 17 25
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Earnings (loss) before income taxes and (179) 887 (6,929) 1,781
discontinued operations
Deferred income taxes (190) 337 (929) 996
- ------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations 11 550 (6,000) 785
Earnings (loss) from discontinued operations -- (163) -- (500)
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Net earnings (loss) for the period 11 387 (6,000) 285
Retained earnings (deficit), beginning of period (4,774) 130 1,237 232
- ------------------------------------------------------------------------------------------------------------
Retained earnings (deficit), end of period $ (4,763) $ 517 $ (4,763) $ 517
============================================================================================================
Earnings (loss) per share
Basic
From continuing operations $ 0.00 $ 0.06 ($ 0.61) $ 0.09
After discontinued operations $ 0.00 $ 0.04 ($ 0.61) $ 0.03
Diluted
From continuing operations $ 0.00 $ 0.06 ($ 0.61) $ 0.08
After discontinued operations $ 0.00 $ 0.04 ($ 0.61) $ 0.03
============================================================================================================
Weighted average shares outstanding (000's)
Basic 10,028 9,243 9,801 9,229
Diluted 10,245 9,616 9,801 9,580
</TABLE>
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SPECTRUM SIGNAL PROCESSING INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
<TABLE>
<CAPTION>
3 months ended September 30, 9 months ended September 30,
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) from continuing operations $ 11 $ 713 $(6,000) $ 1,285
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Depreciation and amortization 181 188 596 452
Deferred income taxes (190) 337 (929) 996
Deferred share issue costs -- -- -- --
Acquired in-process R&D charge -- -- 6,168 872
Changes in operating assets and liabilities
Accounts receivable (1,142) (1,242) 48 1,615
Inventories 611 (1,223) 545 (1,868)
Prepaid expenses 29 64 (177) 433
Accounts payable 814 1,280 490 2,091
Accrued liabilities (5) -- (1,715) (1,098)
Deferred revenue -- -- (19) (635)
Translation adjustment 179 (126) (211) (526)
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Cash provided by continuing operations 488 (9) (1,204) 3,617
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Net earnings (loss) from discontinued operations -- (163) -- (500)
Deferred income taxes -- (104) -- (318)
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Cash provided by discontinued operations -- (267) -- (818)
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488 (276) (1,204) 2,799
Cash flows from financing activities:
Increase (decrease) in bank indebtedness (444) -- 2,333 --
Payment of deferred share issue costs (30) -- (30) --
Issue (purchase) of shares, net of share issue expenses 89 35 149 141
Increase (decrease) in long-term debt (32) (1) 44 74
Purchase of treasury shares -- (123) -- (1,022)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (417) (89) 2,496 (807)
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Total cash generated for investing activities 71 (365) 1,292 1,992
- -----------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (106) (594) (495) (1,883)
Software and related development costs, net 154 -- (85) --
Acquisition of Alex -- -- (958) --
Cash received on acquisition of 3L Limited, net of expenses -- -- -- 188
- -----------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) investing activities 48 (594) (1,538) (1,695)
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash during the period 119 (959) (246) 297
Cash, beginning of period 1,018 2,733 1,383 1,477
- -----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 1,137 $ 1,774 $ 1,137 $ 1,774
=======================================================================================================================
</TABLE>
3
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Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The statements and information contained in this Report on Form 6-K
that are not purely historical constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward looking statements
included in this document are based on information available to the Company on
the date herof, and the Company assumes no obligation to update any such
forward-looking statements. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company, or developments in the
Company's industry, to differ materially from the anticipated results,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, but are not limited to: the Company's
history of losses, lengthy sales cycles, the Company's dependence upon large
contracts and relative concentration of customers, risks involving the
management of growth and integration of acquisitions, intense competition,
product development risks, risks of technological change and product
obsolescence, dependence on selected vertical markets and third-party
marketing relationships, suppliers and software providers, the Company's
ability to protect its intellectual property rights and the other risks and
uncertainties detailed in the Company's Securities and Exchange Commission
filings, including the Company's Annual Report on Form 20-F for the year ended
December 31, 1997.
The Company was founded in 1987 to manufacture and market products
for the military/aerospace and commercial market in North America using DSP
technologies licensed from Loughborough Sound Images Ltd.
The Company devotes significant resources toward product development
and related research and development activities. In recent years, the Company
has sought to enter into agreements with its OEM customers and others under
which the Company receives fees in connection with the development of products
in anticipation of production ("development contract fees"), and uses these
fees to fund such product development. Under the terms of a typical
development contract, Spectrum is obligated to deliver a finished DSP system
or product consisting of hardware, custom chip set and software, all to meet
performance specifications established between the parties. The Company first
derived revenues from development contract fees in 1994. Development contract
fees are recognized as revenue upon the achievement of predetermined
development milestones, which also typically coincide with invoicing and
payments. See Note 1 of the Notes to the Company's financial statements. Costs
associated with development contract fees are generally included in research
and development expenses. The timing and amount of development contract fees
and the relative mix between products sold to the military/aerospace and
commercial markets has affected and will continue to affect period-to-period
comparisons of gross profit and income from operations.
Beginning with the first quarter of 1998, the Company adopted a
policy of publishing its financial statements in US$ and preparing all such
statements in accordance with U.S. GAAP. In accordance with the views of the
Commission, the Company has re-stated the historical financial statements and
data contained herein to U.S. GAAP and using US$.
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Results of Operations
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30 September 30
------------------- -------------------
(Unaudited) (Unaudited)
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 44.8 45.8 42.6 43.9
----- ----- ----- -----
Gross margin 55.2 54.2 57.4 56.1
Expenses
Administrative, sales and marketing 35.7 29.7 40.5 30.3
Amortization 2.6 2.5 3.1 2.5
Research and development 18.8 10.2 17.3 8.8
Acquired in-process research and development charge 0.0 0.0 31.6 4.8
----- ----- ----- -----
57.1 42.4 92.5 46.4
----- ----- ----- -----
Earnings (loss) from operations (1.9) 11.8 (35.1) 9.7
Interest and bank charges (0.8) (0.1) (0.6) (0.1)
Other income 0.2 0.1 0.1 0.1
----- ----- ----- -----
Earnings (loss) before income taxes and discontinued operations (2.6) 11.8 (35.6) 9.7
Deferred income taxes (2.7) 4.4 (4.8) 5.4
----- ----- ----- -----
Earnings (loss) from continuing operations 0.1 7.4 (30.8) 4.3
Earnings (loss) from discontinued operations 0.0 (2.1) 0.0 (2.7)
----- ----- ----- -----
Net earnings (loss) for the period 0.1% 5.3% (30.8)% 1.6%
===== ===== ===== =====
</TABLE>
Quarter Ended September 30, 1998 Compared to Quarter Ended September 30, 1997
Sales. Sales from continuing operations in the quarter ended
September 30, 1998 were $7,077,000, a decrease of $507,000 or 6.7%, over sales
in the quarter ended September 30, 1997. Included in third quarter sales were
development contract fees of $143,000, or 2.0% of sales for the quarter,
compared to development contract fees in the third quarter of 1997 of
$779,000. The decrease in the Company's sales in the third quarter of 1998 was
due primarily to order delays on several key programs in which the Company is
the selected vendor. Sales for the third quarter of 1998 also reflect the
inclusion of $1,672,000 of sales from Alex Computer.
Gross profit. Gross profit decreased to $3,908,000 for the quarter
ended September 30, 1998 from $4,109,000 for the quarter ended September 30,
1997, a decrease of 4.9%. Gross margin (gross profit as a percentage of sales)
increased to 55.2% in the third quarter of 1998 from 54.2% in the third
quarter of 1997. The increase in gross margin was due primarily to higher
development contract fees in the third quarter of 1998.
Administrative, Sales and Marketing. Administrative, sales and
marketing ("AS&M") expenses consist primarily of salaries, sales commissions
and benefits related to the Company's sales, marketing and administrative
personnel and independent sales representatives. AS&M
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expenses for the third quarter of 1998 were $2,531,000, or 35.7% of sales for
the quarter, compared to $2,256,000 in the third quarter of 1997, or 29.7% of
sales for the quarter. AS&M expenses as a percentage of sales were higher in
the third quarter of 1998 due to the costs associated with increased European
and Asian sales and marketing initiatives (approximately $114,000) and the
inclusion of AS&M expenses of Alex computer (approximately $130,000).
Amortization. Amortization consists of the depreciation of the
Company's fixed assets and amortization of acquired technology. Amortization
expenses in the third quarter of 1998 were $181,000, an decrease of $7,000 or
3.7%, over the third quarter of 1997. The decrease in depreciation and
amortization was due primarily to decreased investment in fixed assets.
Research and Development. Research and development expenses consist
primarily of salaries, related personnel benefits, engineering service costs
relating to development contract fees and direct overhead costs. Research and
development expenses were $1,329,000 in the third quarter of 1998, or 18.8% of
sales for the quarter, compared to $776,000 in the third quarter of 1997, or
10.2% of sales for the quarter. The expenses in the third quarter of 1998
consisted primarily of costs associated with new product developments
undertaken by the Company. Total research and development expenditures for
continuing operations and those capitalized as software and related
development costs were $1,412,000 in the third quarter of 1998, or 20.0% of
sales for the quarter, compared to $1,195,000 in the third quarter of 1997, or
15.8% of sales for the quarter.
Other Income. Other income, consisting primarily of interest income
on short-term deposits and interest expense on bank indebtedness, was an
expense of $46,000 in the third quarter of 1998, compared to an expense in the
third quarter of 1997 of $2,000. This change was due primarily to working
capital borrowings from the Company's bank in the third quarter of 1998.
Income Taxes. Deferred income taxes (recovery) for the third quarter
of 1998 were $(190,000) or (106.1)% of earnings before taxes and discontinued
operations, compared to $337,000, or 38.0% of earnings before taxes and
discontinued operations for the third quarter of 1997. This percentage is
unusually high because of an adjustment to the tax effect on the acquired
in-process research and development charge in the first quarter of 1998. The
majority of this charge is non-deductible for tax purposes.
Net Earnings. The Company had earnings from continuing operations in
the third quarter of 1998 of $11,000 compared to earnings from continuing
operations of $550,000 in the third quarter of 1997. Earnings per share
(basic) from continuing operations in the third quarter of 1998 was Nil per
share, compared to earnings per share (basic) from continuing operations of
$0.06 per share in the third quarter of 1997.
Nine months Ended September 30, 1998 Compared to Nine months ended September
30, 1997
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Sales. Sales from continuing operations in the nine months ended
September 30, 1998 were $19,497,000, an increase of $1,193,000 or 6.5%, over
sales in the nine months ended September 30, 1997. Included in sales for the
nine months ended September 30, 1998 were development contract fees of
$635,000, or 3.3% of sales, compared to development contract fees for the nine
months ended September 30, 1997 of $1,426,000 or 7.8% of sales. Sales for the
first nine months of 1998 reflect the inclusion of the business of Alex
Computer (accounting for sales of $3,601,000) which was acquired in the first
quarter of 1998. Sales for the nine months also reflect a decline in sales of
traditional `C3x and `C4x products due to the introduction of the next
generation `C6x product.
Gross profit. Gross profit increased to $11,195,000 for the nine
months ended September 30, 1998 from $18,304,000 for the nine months ended
September 30, 1997, an increase of 6.5%. Gross margin (gross profit as a
percentage of sales) increased to 57.4% in the first nine months of 1998 from
56.1% in the first nine months of 1997. The increase in gross margin was due
primarily to the mix of higher gross margin, internally-developed products
compared to licensed products.
Administrative, Sales and Marketing. AS&M expenses for the first nine
months of 1998 were $7,891,000, or 40.5% of sales, compared to $5,551,000 in the
first nine months of 1997, or 30.3% of sales. AS&M expenses as a percentage of
sales were higher in the first nine months of 1998 due to the costs associated
with increased European and Asian sales and marketing initiatives (approximately
$410,000 excluding salaries and benefits), the inclusion of AS&M expenses of
Alex Computer (approximately $370,000), the inclusion of the AS&M expenses of
3L Limited (approximately $260,000), and an increase in sales and marketing
staff levels (approximately $470,000).
Amortization. Amortization expenses in the first nine months of 1998
were $596,000, an increase of $144,000 or 31.9%, over the first nine months of
1997. The increase in depreciation and amortization was due primarily to
increased investment in fixed assets and acquired technology.
Research and Development. Research and development expenses were
$3,366,000 in the first nine months of 1998, or 17.3% of sales for the period,
compared to $1,615,000 in the first nine months of 1997, or 8.8% of sales for
the period. The expenses in the first nine months of 1998 consisted primarily
of costs associated with new product developments undertaken by the Company.
Total research and development expenditures for continuing operations and
those capitalized as software and related development costs were $3,844,000 in
the first nine months of 1998, or 19.7% of sales, compared to $2,844,000 in
the first nine months of 1997, or 15.5% of sales for the period.
Other Income. Other income, consisting primarily of interest income
on short-term deposits and interest expense on bank indebtedness, was an
expense of $103,000 in the first nine months of 1998, compared to other income
in the first nine months of 1997 of $11,000. This change was due primarily to
working capital borrowings from the Company's bank in the first nine months of
1998.
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Income Taxes. Deferred income taxes (recovery) for the first nine
months of 1998 were $(929,000) or (13.4)% of earnings before taxes and
discontinued operations, compared to $996,000, or 55.9% of earnings before
taxes and discontinued operations for the first nine months of 1997. The
percentage for the first nine months of 1998 is unusually low because of the
significant impact of the acquired in-process research and development charge
in the first quarter of 1998. The majority of this charge is non-deductible
for tax purposes.
Net Earnings. The Company had earnings (loss) from continuing
operations in the first nine months of 1998 of $(6,000,000) compared to
earnings (loss) from continuing operations of $785,000 in the first nine
months of 1997. Earnings (loss) per share (basic) from continuing operations
in the first nine months of 1998 was $(0.61) per share, compared to earnings
(loss) per share (basic) from continuing operations of $0.09 per share in the
first nine months of 1997. Earnings from continuing operations before acquired
in-process research and development charge for the first nine months of 1998
was $(301,000), or earnings (loss) per share (basic) of $(0.03) per share,
compared to earnings (loss) of $1,157,000, or earnings (loss) per share
(basic) of $0.13 for the first nine months of 1997.
Liquidity and Capital Resources
The Company historically has met its operating and capital
requirements from cash flow from operations and funds generated by sale of its
equity securities.
The Company has a credit facility with the Bank of Montreal (the
"Bank") consisting of a Cdn $7,000,000 (approximately US$ 4,575,000) operating
line of credit (the "Line of Credit"). The Company's US dollar borrowing
capacity under its Canadian dollar-denominated Line of Credit will vary period
to period based on exchange rate fluctuations. Borrowings under the Line of
Credit bear interest at the Bank's US base rate plus 1/2%, unless the
borrowings are denominated in Canadian dollars, in which case the rate of
interest is the Bank's prime rate plus 1/2%. Borrowings are due on demand and
interest is to be paid monthly. Borrowings may not exceed certain percentages
of a specified borrowing base consisting of domestic and foreign accounts
receivable. The Line of Credit agreement requires the Company to maintain
certain financial ratios and limits capital expenditures. Borrowings under the
Line of Credit are secured by substantially all of the Company's current
assets. At November 30, 1998, the Company had net outstanding borrowings under
the Line of Credit of approximately US $715,000. In July 1998, the Company
initiated an increase to the credit facility with the Bank and an increase was
granted from $ 3,500,000 to $4,575,000, subject to completion by the Bank of
its review.
At September 30, 1998, the Company's cash position was $1,137,000,
offset by Bank indebtedness of $2,333,000. Net cash provided by (used in)
operations, financing and investments was $(246,000) and $297,000 in the nine
months ended September 30, 1998 and 1997 respectively. For the nine months
ended September 30, 1998, cash used in operations, financing and investments
consisted primarily of cash generated from the issuance of Common Shares,
warrants, and the incurrence of bank indebtedness and long term debt which was
used primarily for the acquisition of the net assets of Alex Computer, funding
operations and the purchase of property and equipment and software and related
development costs. For the nine months ended September 30, 1997, cash used in
operations, financing, and investments consisted primarily of cash from
operations and was used primarily to increase inventories, to fund
8
<PAGE>
discontinued operations, to purchase treasury shares and for the purchase of
property and equipment and software and related development costs.
Accounts receivable, net, at September 30, 1998 and December 31, 1997
was $7,137,000 and $6,549,000 respectively. The Company's standard collection
terms are net 30 days, subject to adjustment for certain customers.
The Company made capital expenditures of $580,000 during the nine
months ended September 30, 1998, and $1,883,000 during the nine months ended
September 30, 1997 primarily for computer equipment and software and related
developments costs. In the first nine months of 1997, the Company invested
$1,022,000 for the purchase of treasury shares and invested $746,000 in the
acquisition of 100% of the shares of 3L Limited, net of $193,000 in cash
acquired. On March 17, 1998, the Company effectively acquired, pursuant to an
acquisition agreement, all the assets of Alex Computer Systems Inc.. The
consideration paid and assets acquired in connection with such acquisition
were transferred on May 1, 1998. The consideration paid by Spectrum for such
acquisition consisted of $677,000 in cash, the assumption of $2,050,000 in
liabilities, and the issuance of 772,626 Common Shares and a two year warrant
to purchase 110,375 Common Shares of an exercise price of $6.34 per share.
The Company believes that cash generated from operations and
borrowings available under the Line of Credit will be sufficient to meet its
working capital and capital expenditure requirements in 1998. However, the
Company may in the future require additional equity or debt financing to meet
its working capital, fixed asset and acquisition requirements. There can be no
assurance that additional financing will not be required sooner or, if
required, that it will be available on a timely basis or on terms satisfactory
to the Company.
Effects of Inflation and Foreign Currency Fluctuations
The Company believes that inflation and other changes in prices have
not had a material effect on the Company. The Company intends to continue to
sell the majority of its products in US dollars while incurring costs in
varying proportions in Canadian dollars, US dollars and other currencies.
Thus, the Company's operations are susceptible to fluctuations in the currency
exchange rates. In addition, if the Canadian dollar rises relative to the US
dollar, the Company's reported operating expenses and net income may be
materially and adversely affected. Since 1995, the Company has entered into
futures contracts to attempt to reduce a portion of its exposure to foreign
exchange rate fluctuations. Such contracts typically have maturities of no
greater than three months when entered into. The market price of such
contracts generally approaches the spot exchange rates as the contract
approaches expiration of its term. The maximum amount the Company has hedged
under such futures contracts at any one time is Cdn $3 million. While the
Company does attempt to mitigate some of the risks of exchange rate
fluctuations between the US dollar and the Canadian dollar by denominating
many of its payment obligations in US dollars and, to a lesser extent, through
its use of exchange-traded or over-the-counter contracts, there can be no
assurance that these strategies will substantially reduce the potential
adverse effect of exchange rate fluctuations on the Company's business,
financial condition or results of operations.
Year 2000 Issue
9
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The Company has established a Year 2000 program to coordinate and
monitor the assessment, conversion or replacement, and testing of computer
systems throughout the Company to ensure key business information and process
control systems will function successfully after December 31, 1999. Potential
Year 2000 risks could include, without limitation, a temporary inability to
engage in normal business activities such as conducting general banking tasks,
invoicing, and materials planning and purchasing. The Company has determined
that its major internal system, the MRP system, is Year 2000 compliant, which
means that internal order processing and filing will be unaffected.
The Company has committed internal and external resources to address its
potential Year 2000 problems. Progress on Year 2000 issues is centrally
coordinated, with regular reporting to the Audit Committee and the full Board
of Directors. The Company does not expect to incur any costs in remediating
(where required) any Year 2000 issues relating to its business, other than the
time spent by employees on ensuring compliance. In any case, the total costs
to the Company with respect to its Year 2000 compliance activities are not
anticipated to be material to the Company's financial condition or results of
operations in any given year. These costs and the date on which the Company
plans to complete Year 2000 modification and testing processes are based on
management's best estimates, which were derived utilizing numerous
assumptions. However, there can be no guarantee that these estimates will
prove to be accurate and actual results could differ significantly.
As the Company relies on third party suppliers for utilities,
transportation, and other key services, interruption of supplier operations
could affect the Company's operations, however, this risk is being assessed
and contingency plans being developed. The Company has initiated
communications with suppliers with which it does significant business to
determine the extent to which the Company may be vulnerable to such parties'
failure to remedy their own Year 2000 problems. There can be no assurance that
the systems of such suppliers will be converted on a timely basis. The
Company's Year 2000 contingency plans are as follows: (I) all "critical path"
systems are being identified and testing will be continuous, (ii) back-up
systems are being put in place for alternate suppliers for all aspects of
production and delivery, and (iii) the Company already has in place a
redundant system of supply for its manufactured products. Continuing
monitoring and risk management are taking place and the Company's contingency
plans will be updated as new issues are identified. Based on its current
assessment, management believes the Year 2000 issue will not have a material
adverse effect on the Company's business, financial conditions, or results of
operations.
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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.
Spectrum Signal Processing Inc.
Date: December 8, 1998 By: /s/ Martin C. McConnell
-----------------------
Name: Martin C. McConnell
Title: VP Finance & Chief
Financial Officer & Secretary
11
