SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Period January 1, 1999 to March 31, 1999
SPECTRUM SIGNAL PROCESSING INC.
(Translation of the Registrant's Name Into English)
One Spectrum Court, 2700 Production Way, Suite 200,
Burnaby, B.C., Canada, V5A 4X1
(Address of Principal Corporate Offices)
Indicate by check mark whether the registrant files or will file annual
reports under cover Form 20-F of 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-___.
<PAGE>
SPECTRUM SIGNAL PROCESSSING INC.
FOR THE QUARTER ENDED MARCH 31, 1999
The Company hereby incorporates by reference the contents of this Report on Form
6-K into its registration statement on Form F-3 (File No.333-58115).
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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SPECTRUM SIGNAL PROCESSING INC.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars)
(Prepared in accordance with United States generally accepted accounting principles, unaudited)
December 31, March 31,
ASSETS 1998 1999
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(Restated)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,693 $ 2,732
Accounts receivable 5,404 3,678
Inventories 4,935 5,140
Prepaid expenses 203 197
- ------------------------------------------------------------------------------------------
12,235 11,747
Property and equipment 2,287 2,233
Other assets 4,925 4,597
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$19,447 $18,577
==========================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------
Current liabilities
Bank indebtedness $ 2,202 $ 2,965
Accounts payable 3,680 2,572
Accrued liabilities 1,303 1,050
Current portion of long-term debt 80 57
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7,265 6,644
Long-term debt 75 73
Deferred income taxes 346 434
Shareholders' equity
Share capital
Authorized: 50,000,000 common shares, no par value
Issued: 10,268,954 (1998 - 10,268,954) 16,309 16,309
Outstanding: 10,035,654 (1998 - 10,035,654)
Warrants 140 140
Additional paid-in capital 76 76
Treasury stock, at cost, 233,300 shares (1998 - 233,300) (1,232) (1,232)
Retained earnings (deficit) (1,671) (1,827)
Accumulated other comprehensive income
Cumulative translation adjustments (1,861) (2,040)
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11,761 11,426
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$19,447 $18,577
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</TABLE>
<PAGE>
SPECTRUM SIGNAL PROCESSING INC.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(Expressed in thousands of United Statesdollars, except numbers of shares)
(Prepared in accordance with United States
generally accepted accounting principles, unaudited)
3 months ended March 31,
1998 1999
- --------------------------------------------------------------------------------
(Restated)
Sales $ 5,276 $ 5,638
Cost of sales 1,950 2,165
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Gross profit 3,326 3,473
Expenses
Administrative 774 926
Sales and marketing 1,716 1,456
Amortization 171 359
Acquired in-process research and development charge 2,640 --
Research and development 841 832
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6,142 3,573
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Earnings (loss) from operations (2,816) (100)
Other
Interest income (expense) and bank charges (14) (45)
Other income (expense) (8) 56
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Earnings (loss) before income taxes (2,838) (89)
Income tax expense (recovery) (554) 67
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Net earnings (loss) for the period (2,284) (156)
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Retained earnings (deficit), beginning of period 1,237 (1,671)
- ------------------------------------------------------------------------------
Retained earnings (deficit), end of period $ (1,047) $ (1,827)
==============================================================================
Earnings (loss) per share
Basic $ (0.24) $ (0.02)
Diluted $ (0.24) $ (0.02)
EBITDA (13) 315
EBITDA
Basic $ (0.00) $ 0.03
Diluted $ (0.00) $ 0.03
Weighted average shares (in thousands)
Basic 9,356 10,036
Diluted 9,356 10,036
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<CAPTION>
SPECTRUM SIGNAL PROCESSING INC.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
(Prepared in accordance with United States generally accepted accounting principles, unaudited)
3 months ended March 31,
1998 1999
- ------------------------------------------------------------------------------------------------------------------
(Restated)
<S> <C> <C>
Cash flows from operating activities
Net earnings (loss) from operations $(2,284) $ (156)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities
Amortization 225 518
Acquired in-process research and development 2,640 --
Deferred income taxes (554) 67
Changes in operating assets and liabilities
Accounts receivable 936 1,745
Inventories (653) (43)
Prepaid expenses (134) 9
Accounts payable 2,003 (1,760)
Accrued liabilities (589) 5
Deferred revenue (18) --
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Net cash provided by operating activities 1,572 385
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Cash flows from investing activities
Purchase of property and equipment (229) (85)
Software and related development costs (294) --
Acquisition of net assets of Alex Computer, net of cash received (2,204) --
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Net cash used in investing activities (2,727) (85)
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Cash flows from financing activities
Increase in bank indebtedness -- 763
Issue of shares from share options 29 --
Repayment of long-term debt -- (23)
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Net cash provided by financing activities 29 740
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Effect of foreign currency exchange rates on cash and cash equivalents (198) (1)
- ------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents during the period (1,324) 1,039
Cash and cash equivalents, beginning of period 1,383 1,693
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Cash and cash equivalents, end of period $ 59 $ 2,732
==================================================================================================================
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
When used in this Report, the words "believes", "anticipates", "expects",
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. In addition to
quarterly fluctuations, the Company's operating results are affected by a wide
variety of other factors that could materially and adversely affect actual
results, including: general economic conditions; dependence on significant
customers, suppliers and licenses; success of and requirements of original
equipment manufacturers; revenues from development contracts; rapid changes in
technology; competition; ability to manage growth and integrate acquisitions;
actions by governmental authorities; and foreign currency and exchange rate
fluctuations. As a result of these and other factors, the Company may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition, operating results and stock price. Furthermore, this document and
other documents filed by the Company with the SEC contain certain
forward-looking statements with respect to the business of the Company,
including prospective financing arrangement. These forward-looking statements
are subject to certain risks and uncertainties, including those mentioned above,
which may cause actual results to differ significantly from these
forward-looking statements. The Company undertakes no obligation to publicly
release the results of any revisions to these forward-looking statements that
may be to reflect events or circumstances after the date hereof or to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. An investment in the Company involves various risks,
including those mentioned above and those that are detailed from time to time in
the Company's SEC filings.
All financial information in this Form is expressed in United States
dollars unless otherwise noted.
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. 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
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.
<PAGE>
The following table expresses the Company's statements of operations as a
percentage of net sales.
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<CAPTION>
3 months ended March 31,
1998 1999
- --------------------------------------------------------------------------------------------
(Restated)
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 37.0% 38.4%
- --------------------------------------------------------------------------------------------
Gross profit 63.0% 61.6%
Expenses
Administrative, sales and marketing 47.2% 42.2%
Amortization 3.2% 6.4%
Acquired in-process research and development charge 50.0% 0.0%
Research and development 15.9% 14.8%
- --------------------------------------------------------------------------------------------
116.4% 63.4%
- --------------------------------------------------------------------------------------------
Earnings (loss) from operations -53.4% -1.8%
Other
Interest income (expense) and bank charges -0.3% -0.8%
Other income (expense) -0.2% 1.0%
- --------------------------------------------------------------------------------------------
Earnings (loss) before income taxes -53.8% -1.6%
Income tax expense (recovery) -10.5% 1.2%
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Net earnings (loss) for the period -43.3% -2.8%
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<PAGE>
Results of operations for the three months ended March 31, 1999 compared to the
three months ended March 31, 1998
Sales. Sales for the first three months of 1999 were $5,638,000, an
increase of $362,000, or 6.9% relative to sales for the first three months of
1998. Included in sales for the first three months of 1998 were revenues from
the Company's internally developed Texas Instruments-based products of
$2,676,000, or 47.5% of sales for the period, compared to $1,822,000, or 34.5%
of sales for the first three months of 1998. Included in sales for the first
three months of 1999 were revenues from the Company's Analog Devices-based
products of $612,000, or 10.9% of sales, compared to $197,000, or 3.7% of sales,
for the first three months of 1998. Also included in sales for the first three
months of 1999 were revenues from sales of products produced by or manufactured
under license from Blue Wave Systems Inc. (formerly Loughborough Sound Images)
of $885,000, or 15.7% of sales compared to $1,180,000, or 22.4% of sales for the
first three months of 1998. Also included in sales for the first three months of
1999 were development contract fees of $291,000, or 5.2% of sales for the
period, compared to development contract fees of $702,000, or 13.3% of sales for
first three months of 1998.
Gross Profit. Gross profit increased to $3,473,000 for the first three
months of 1999 from $3,326,000 for the first three months of 1998, an increase
of 4.4%. Gross margin (profit as a percentage of sales) decreased to 61.6% for
the first three months of 1999 from 63.0% for the first three months of 1998.
The decrease in gross margin was due primarily to decreased development contract
fees that typically have higher margins. The Company's historical gross margin
percentage has also varied by quarter in both a positive and negative fashion
due to volume-related efficiencies, changes in product and customer mix,
amortization of deferred software and related development costs, and provisions
for manufacturing scrap and obsolescence.
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 expenses for the first three months of
1999 were $2,382,000, or 42.2% of sales for the period, compared to $2,490,000,
or 47.2% of sales for the first three months of 1998. AS&M expenses as a
percentage of sales were lower for the first three months of 1999 due to a
reduction in travel and direct marketing expenses.
Amortization. Amortization consists of the depreciation of the Company's
fixed assets and amortization of goodwill and other intangibles. Amortization
expense for the first three months of 1999 was $359,000, an increase of
$188,000, or 109.9% over the first three months of 1998. The increase in
amortization expense was due primarily to increased amortization of goodwill and
other intangibles related to the acquisition of the net assets of Alex Computer
Systems in March 1998.
Acquired In-process Research and Development Charge. Acquired In-process
research and development ("IPR&D") represents the value assigned in a purchase
business combination to research and development projects of the acquired
business that were commenced but not yet completed at the date of acquisition
and which, if unsuccessful, have no alternative future use in research and
development activities or otherwise. An IPR&D charge of $2,640,000 (restated)
was expensed in the first quarter of 1998 in conjunction with the purchase of
the net assets of Alex Computer Systems based on management's discounted cash
flow valuation.
Although the Company previously reported its quarterly and annual results
for 1998 in accordance with established accounting practice, in April 1999 it
adjusted certain amounts stated in its 1998 consolidated financial statements in
response to new guidance recently provided by the Securities and Exchange
Commission to the accounting profession related to the valuation of IPR&D in
purchase transactions. None of these adjustments impact the Company's net
operating cash flow.
Research and Development. Research and development ("R&D") expenses consist
primarily of salaries, related personnel benefits, engineering service costs
relating to development contract fees and direct overhead costs. R&D expenses
were $832,000 for the first three months of 1999, or 14.8% of sales
<PAGE>
for the period, compared to $841,000 for the first three months of 1998, or
15.9% of sales for the period. The expenses in the first three months of 1999
consisted primarily of costs associated with new product developments undertaken
by the Company including both Texas Instruments-based and Analog Devices-based
products. Total research and development expenditures including those
capitalized as software and related development costs were $832,000 for the
first three months of 1999, or 14.8% of sales for the period, compared to
$1,136,000, or 21.5% of sales for the first three months of 1998. R&D
expenditures of $295,000 were capitalized in the first three months of 1998 in
relation to development activities around Texas Instrument's C6X processor.
These development projects were completed in 1998.
Other Income. Other income, consisting primarily of interest income on
short-term deposits and interest expense on bank indebtedness was an expense of
$45,000 for the first three months of 1999 compared to an expense of $14,000 for
the first three months of 1998. This change was due primarily to increased
working capital borrowings under the Company's line of credit during 1999.
Income Taxes. The Company's income tax provision (recovery) for the first
three months of 1999 was $67,000 compared to $(554,000) for the first three
months of 1998.
Net Loss. The Company had a net loss for the first three months of 1999 of
$156,000, compared to a net loss for the first three months of 1998 of
$2,284,000. The Company's loss per share (basic) for the first three months of
1999 was $0.02, compared to a loss per share (basic) of $0.24 for the first
three months of 1998 (restated).
Liquidity and Capital Resources
The Company historically has met its operating and capital requirements
from cash flow from operations, from borrowings under its line of credit and
from 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$5,000,000 (approximately US$3,300,000) 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, including a
current ratio of 1.50 to 1.00 and a debt to tangible net worth ratio of 1.25 to
1.00. The Company believes it is in compliance with the terms of the Line of
Credit. Borrowings under the Line of Credit are secured by substantially all of
the Company's current assets. The Company had net borrowings under the Line of
Credit as of March 31, 1999 of $233,000.
At March 31, 1999 and December 31, 1998, the Company's net cash deficit was
$233,000 and $509,000 respectively. Net cash provided by (used in) operations,
financing and investments was $1,039,000 and $310,000 in the three months ended
March 31, 1999 and year ended December 31, 1998 respectively. For the first
three months of 1999, cash generated from operating and financing activities was
used primarily for the purchase of property and equipment and the generation of
cash reserves.
Accounts receivable, net at March 31, 1999 and December 31, 1998 was
$3,678,000 and $5,404,000 respectively. The Company's standard collection terms
are net 30 days, subject to adjustment for certain customers.
The Company made capital expenditures of $85,000 during the three months
ended March 31, 1999 relating primarily to the purchase of computer equipment
and furniture and fixtures.
In March 1999, the Company entered into an agreement with Technology
Partnerships Canada ("TPC") an agency of the Canadian government, providing for
an investment in the Company to finance
<PAGE>
approximately one-third of the Company's research and development costs to
develop a new product line targeted to the telecommunications market. The
agreement provides for a maximum commitment by TPC of $4.4 million ($6.3 million
CAD) through 2002. The Company plans to use the funds to accelerate development
of next-generation hardware and software systems that can be deployed in
high-end commercial applications, such as telecommunications servers and
wireless base stations. The investment is structured as a repayable investment,
with repayment beginning no earlier than 2001, by way of a 2.5% royalty on the
new products being financed by the investment. If the Company has not paid at
least $7.4 million ($11.4 million CAD) in royalties to TPC by December 31, 2006,
royalties shall continue to be due at a rate of 2.5% until an aggregate of $7.4
million ($11.4 million CAD) in royalties has been paid. The investment is also
repayable immediately upon the occurrence of certain events of default, which
include bankruptcy events. Otherwise, the Company is not required to repay the
investment except by way of royalties, if any, on the products financed by the
investment. TPC did not receive an equity participation in the Company in
connection with its investment.
The Company believes that cash generated from operations and borrowings
available under the Line of Credit, as well as funds received from TPC, will be
sufficient to meet its working capital and capital expenditure requirements for
at least the next twelve months. However, the Company may in the future require
additional equity or debt financing to meet its working capital, property and
equipment 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.
Recent Announcements
The Company recently announced that it has been exploring strategic
alternatives as part of its ongoing mandate to enhance shareholder value. The
Company stressed that no agreements or understandings have been reached with any
third party, none appears to be imminent, and there can be no assurance that the
Company will come to any agreements.
The Company also recently announced that Barry Jinks has resigned as
President and Chief Executive Officer of the Company. Mr. Jinks will remain a
member of the Board of Directors. Martin McConnell, the Company's Vice President
of Finance and Chief Financial Officer, was appointed Acting Chief Operating
Officer and will be responsible for Mr. Jinks' duties on an interim basis.
Charges Related to Acquired In-process Research and Development
During 1997 and 1998, the Company completed two acquisitions, some of the
assets of which included in-process research and development. The Company
regarded its acquisition of 3L Limited as an opportunity to provide more
complete DSP software solutions. The Company regarded its acquisition of Alex
Computer as an opportunity to expand its product offerings to include products
based on the Analog Devices ("AD") processor. The acquisitions of 3L Limited and
Alex Computer were accounted for using the purchase method of accounting. A
portion of the purchase price for each acquisition was allocated to in-process
research and development, which resulted in a charge of approximately $872,000
related to the 3L Limited acquisition in 1997 and a charge of $2,640,000 related
to the Alex Computer acquisition in 1998.
The efforts required to develop the acquired in-process research and
development into commercially viable products principally relate to the
completion of all planning, designing and testing activities that are necessary
to establish that the products can meet their design requirements, including
function, features and technical performance requirements.
The Company based its determination of the acquired in-process research and
development allocation on recently issued guidance by the Securities and
Exchange Commission and considered such factors as degree of completion,
technological and market uncertainties, costs incurred and projected costs to
complete. Other than one 3L Limited project discontinued due to poor market
conditions, acquired
<PAGE>
in-process research and development projects continue to progress, in all
material respects, consistent with management's original assumptions used to
value the acquired in-process research and development.
Alex Computer Systems, Inc.
The acquired in-process research and development was valued using a cash
flow model, under which projected income and expenses attributable to the
purchased research and development were identified and discounted to arrive at a
present value. Cash flows related to the acquisition of Alex Computer were
discounted using discount rates ranging from 21% to 28% depending on risks,
probabilities and uncertainties, including inherent technical, market acceptance
and other risks. The Company assumed revenues would occur evenly throughout each
relevant period. and assumed direct overhead costs as percentage of revenues of
15% for 1999, 14% for 2000 and 14% for 2001.
As of the acquisition date, Alex Computer was conducting significant
in-process research and development into five new software and hardware projects
to which a portion of the Alex Computer purchase price was allocated. At the
date of acquisition, these projects had not reached technological feasibility
and had no alternative future uses. The five in-process research and development
projects included:
Rugged Impedance Cables - an inter-processor connect scheme designed to
significantly increase the distance over which high bandwidth signals may
be reliably transmitted. At the time of the acquisition, Alex Computer was
in the design/testing stage of completion. The Company estimated the fair
value of the IPR&D at $60,000 and the cost of completion at $5,000. The
project was completed in July 1998. At the time of the acquisition, the
Company regarded technical feasibility as the principal risk relating to
the project.
Hammerhead Development System - a development platform for generation
two-based systems, an AD processor offering an improvement in performance
to then-existing technologies. At the time of the acquisition, Alex
Computer was at the concept/pre-design stage of completion. The Company
estimated the IPR&D had nominal value and the cost of completion at
$380,000. The Company expects to complete the project in late 1999. At the
time of the acquisition, the Company regarded technical feasibility and
market acceptance as the principal risks relating to the project.
Hammerhead VME, PCI, cPCI boards and PMC Modules - circuit board
architectures built around AD's generation two processor. At the time of
the acquisition, Alex Computer was at the concept/pre-design stage of
completion. The Company estimated the fair value of the IPR&D at $1,570,000
million and the cost of completion at $705,000. Company expects to complete
the project in late 1999. At the time of the acquisition, the Company
regarded technical feasibility, accurately estimating future costs and
market acceptance as the principal risks relating to the project.
Apex Software - a comprehensive programming environment that simplifies the
development of user parallel applications while retaining efficient,
optimized code. At the time of the acquisition, Alex Computer was at the
design stage of completion. The Company estimated the fair value of the
IPR&D at $590,000 and the cost of completion at $120,000. The project was
completed in late 1998. At the time of the acquisition, the Company
regarded technical feasibility as the principal risk relating to the
project.
Apex Trace Software - a visualization tool to provide developers with
accurate non-intrusive timings of system operation and multiple processor
interaction. At the time of the acquisition, Alex Computer was at the
design/testing stage of completion. The Company estimated the fair value of
the IPR&D at $430,000 and the cost of completion at $140,000. The project
was completed in late 1998. At the time of the acquisition, the Company
regarded technical feasibility and accurately estimating future costs as
the principal risks relating to the project.
<PAGE>
3L Limited
The acquired in-process research and development was valued using a cash
flow model, under which projected income and expenses attributable to the
purchased research and development were identified and discounted to arrive at a
present value. Cash flows related to the acquisition of 3L Limited were
discounted using a 20% discount rate for risks, probabilities and uncertainties,
including inherent technical, market acceptance and other risks. The Company
assumed revenues would occur evenly throughout each relevant period and assumed
direct overhead costs as percentage of revenues of 15% for each of 1998, 1999
and 2000.
As of the acquisition date, 3L Limited was conducting significant
in-process research and development into two significant new software products
to which a portion of the 3L Limited purchase price was allocated. At the date
of acquisition, these projects had not reached technological feasibility and had
no alternative futures. Descriptions of the in-process research and development
projects are as follows:
SHARC Parallel C Software - a programming environment for the SHARC
processor which simplifies the development of user parallel applications
while retaining efficient, optimized code. At the time of the acquisition,
3L Limited was at the concept/pre-design stage of completion. The Company
estimated the fair value of the IPR&D at $525,000 and the cost of
completion at $95,000. The project was completed in April 1998. At the time
of the acquisition, the Company regarded technical feasibility and market
acceptance as the principal risks related to the project.
C4x 3.0 Parallel C - a multi-processor upgrade to the C compiler tools for
Texas Instruments' C4x processor. At the time of the acquisition, 3L was at
the design stage of completion. The Company estimated the fair value of the
IPR&D at $347,000 and the cost of completion at $85,000. The project was
discontinued in December 1997 due to poor market conditions. At the time of
the acquisition, the Company regarded technical feasibility and market
acceptance as the principal risks related to the project.
Inflation, Foreign Currency Fluctuations and Hedging
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 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. These contracts typically have maturities of no greater than three
months when entered into. The market price of these contracts generally
approaches the spot exchange rates as the contracts approach the expiration of
their term. The maximum amount the Company has hedged under these futures
contracts at any one time is Cdn$8,000,000. 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
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. In addition, the
Company is taking steps to ensure that all relevant non-information technology
systems will be Year 2000 compliant. Potential Year 2000 risks could include,
without limitation, a temporary inability to engage
<PAGE>
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 has completed its assessment of internal Year 2000
issues. 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, 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. The Company has yet to receive a certificate from several of
its third party suppliers stating their systems are Year 2000 compliant. The
Company expects to complete its assessment of third party Year 2000 risks by
September 30, 1999. There can be no assurance that the systems of such suppliers
will be converted on a timely basis.
The Company believes its worst case scenario would be the failure of one or
more of its material third party suppliers to continue to supply the Company
with products. This failure would lead to an interruption of the Company's
business for an indeterminate length of time. The Company is continuing to
monitor this situation, as well as any other potential problem areas it is able
to identify.
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.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Incorporated by reference from the Company's registration statement on Form
F-3 (File No. 333-58115).
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports
Exhibit 27. Financial Data Schedule
<PAGE>
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: August 17, 1999 By: /s/ Martin C. McConnell
---------------------------
Name: Martin C. McConnell
Title: Vice President of Finance, Chief
Financial Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Spectrum Signal Processing Inc. as of March 31, 1999 and
for the three months then ended and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,732
<SECURITIES> 0
<RECEIVABLES> 3,851
<ALLOWANCES> 173
<INVENTORY> 5,140
<CURRENT-ASSETS> 11,747
<PP&E> 5,466
<DEPRECIATION> 3,233
<TOTAL-ASSETS> 18,577
<CURRENT-LIABILITIES> 6,644
<BONDS> 0
0
0
<COMMON> 16,309
<OTHER-SE> (4,883)
<TOTAL-LIABILITY-AND-EQUITY> 18,577
<SALES> 5,638
<TOTAL-REVENUES> 5,638
<CGS> 2,165
<TOTAL-COSTS> 2,165
<OTHER-EXPENSES> 3,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (89)
<INCOME-TAX> 67
<INCOME-CONTINUING> (156)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (156)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
