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, 2000 to September 30, 2000
SPECTRUM SIGNAL PROCESSING INC.
--------------------------------------
(Translation of Registrant's Name into English)
2700 Production Way, Burnaby, British Columbia, V5A 4X1 Canada
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(Address of Principal Executive 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-_____________________
<PAGE>
SPECTRUM SIGNAL PROCESSING INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
PART I. FINANCIAL INFORMATION
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).
Item 1. Financial Statements
Spectrum Signal Processing, Inc.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except share
amounts) Prepared in accordance with United States generally
accepted accounting principles
<TABLE>
<CAPTION>
December 31, September 30,
ASSETS 1999 2000
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(Audited) (Unaudited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 1,422 $ 1,779
Cash held in escrow
- 4,977
Accounts receivable
6,461 6,442
Inventories
2,402 3,156
Deferred income taxes
- 60
Prepaid expenses
69 155
-------------------------------------------------------------------------------------------------------------
10,354 16,569
Property and equipment
2,545 2,864
Other assets
3,669 2,375
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$ 16,568 $ 21,808
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------------------------------------------------------------------------------
Current liabilities
Bank indebtedness $ - $ 2,847
Accounts payable
3,319 3,404
Accrued liabilities
1,618 1,996
Current portion of long-term debt
73 -
-------------------------------------------------------------------------------------------------------------
5,010 8,247
Deferred income taxes
89 -
Stockholders' equity
Share capital
Authorized: 50,000,000 common shares, no par value
Issued: 10,546,294 (1999 - 10,395,204)
Outstanding: 10,312,994 (1999 -
10,161,904) 16,374 16,905
Warrants
140 -
Special Warrants
- 4,639
Additional paid-in capital
76 216
Treasury stock, at cost, 233,300 shares (1999 - 233,300)
(1,232) (1,232)
Deficit
(2,513) (5,294)
Accumulated other comprehensive income
Cumulative translation adjustments
(1,376) (1,673)
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11,469 13,561
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$ 16,568 $ 21,808
=============================================================================================================
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<PAGE>
Spectrum Signal Processing, Inc.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(Expressed in thousands of United States dollars, except per
share amounts) Prepared in accordance with United States generally
accepted accounting principles
3 months ended September 9 months ended September
30, 30,
1999 2000 1999 2000
-------------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 5,238 $ 7,353 $ 18,677 $ 18,825
Cost of sales
2,268 2,939 7,951 7,513
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2,970 4,414 10,726 11,312
Expenses
Administrative
1,150 1,248 2,951 3,641
Sales and marketing
1,610 1,427 4,692 4,341
Research and development
850 1,743 2,595 5,052
Amortization
345 357 1,082 1,070
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3,955 4,775 11,320 14,104
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Loss from operations
(985) (361) (594) (2,792)
Other
Interest expense and bank charges
(31) (42) (121) (56)
Other income
14 4 92 17
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(17) (38) (29) (39)
Loss before income taxes
(1,002) (399) (623) (2,831)
Income tax expense (recovery)
(454) 67 (252) (50)
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Net loss
(548) (466) (371) (2,781)
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Deficit, beginning of period
(1,494) (4,828) (1,671) (2,513)
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Deficit, end of period $ (2,042) $ (5,294) $ (2,042) $ (5,294)
=============================================================================================================
Loss per share
Basic $ (0.05) $ (0.05) $ (0.04) $ (0.27)
Diluted $ (0.05) $ (0.05) $ (0.04) $ (0.27)
EBITDA
(445) 197 1,057 (1,115)
EBITDA per share
Basic $ (0.04) $ 0.02 $ 0.11 $ (0.11)
Diluted $ (0.04) $ 0.02 $ 0.11 $ (0.11)
Weighted average shares (in thousands)
Basic
10,077 10,306 10,049 10,263
Diluted
10,077 10,306 10,049 10,263
Diluted (EBITDA)
10,077 10,498 10,128 10,263
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<PAGE>
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
3 months ended September 30, 9 months ended September 30,
1999 2000 1999 2000
-----------------------------------------------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities
Net loss from operations $ (548) $ (466) $ (371) $ (2,781)
Adjustments to reconcile net loss to net
cash
provided by operating activities
Amortization
540 555 1,651 1,674
Deferred income taxes
(418) (83) (197) (122)
Changes in operating assets and liabilities
Cash held in escrow
- (5,082) - (5,082)
Accounts receivable
2,953 201 1,458 (259)
Inventories
482 207 2,279 (873)
Prepaid expenses
(5) 18 (6) (91)
Accounts payable
184 929 (2,224) 228
Accrued liabilities
665 (75) 771 466
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Net cash provided by (used in) operating
activities
3,853 (3,796) 3,361 (6,840)
-----------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property and equipment
(346) (307) (549) (944)
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Net cash used in investing activities
(346) (307) (549) (944)
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Cash flows from financing activities
Increase in bank indebtedness
- 910 763 2,907
Repayment of bank indebtedness
(2,302) - (2,672) -
Issue of shares from share options
63 8 63 526
Issue of special warrants
- 4,741 - 4,741
Repayment of long-term debt
(32) - (80) (72)
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Net cash provided by (used in) financing
activities
(2,271) 5,659 (1,926) 8,102
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Effect of foreign currency exchange rates on
cash and cash equivalents
54 15 78 39
-----------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents
1,290 1,571 964 357
during the period
Cash and cash equivalents, beginning of
period 1,367 208 1,693 1,422
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Cash and cash equivalents, end of period $ 2,657 $ 1,779 $ 2,657 $ 1,779
===========================================================================================================
</TABLE>
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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. These 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. 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 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.
General
The Company was founded in 1987 to manufacture and market digital
signal processing products for the North American military/aerospace and
commercial markets. Beginning in January 2000, the Company began focusing its
sales, marketing and development resources on three business units: Network
Solutions, Wireless Systems and Sensor Systems.
The Company devotes significant resources toward product development
and related research and development activities. The Company also enters into
agreements with its Original Equipment Manufacturer, or 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 the related 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. Costs
associated with development contract fees generally are 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.
The Company publishes its financial statements in United States dollars
("US$") and prepares all such statements in accordance with United States
generally accepted accounting principles.
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<PAGE>
The following table expresses the Company's unaudited Consolidated
Statements of Operations as a percentage of net sales:
<TABLE>
<CAPTION>
3 months ended September 30, 9 months ended September 30,
1999 2000 1999 2000
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(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 43.3% 40.0% 42.6% 39.9%
----------------------------------------------------------------------------------------------------------
Gross profit 56.7% 60.0% 57.4% 60.1%
Expenses
Administrative 22.1% 17.1% 15.8% 19.3%
Sales and marketing 30.7% 19.4% 25.1% 23.1%
Research and development 16.2% 23.7% 13.9% 26.8%
Amortization 6.6% 4.9% 5.8% 5.7%
----------------------------------------------------------------------------------------------------------
75.5% 64.9% 60.6% 74.9%
----------------------------------------------------------------------------------------------------------
Loss from operations -18.8% -4.9% -3.2% -14.8%
Other
Interest income (expense) and bank -0.6% -0.6% -0.6% -0.3%
charges
Other income (expense) 0.3% 0.1% 0.5% 0.1%
----------------------------------------------------------------------------------------------------------
Loss before income taxes -19.1% -5.4% -3.3% -15.0%
Income tax expense (recovery) -8.7% 1.0% -1.3% -0.3%
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Net loss for the period -10.5% -6.3% -2.0% -14.8%
==========================================================================================================
</TABLE>
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<PAGE>
Recent Developments
In August 2000, the Company entered into an agreement providing for the
private offering in Canada of special warrants for aggregate gross proceeds to
the Company of approximately $5.1 million. The special warrants are exercisable
without the payment of further consideration for an aggregate of 1,764,705
common shares plus warrants to purchase an additional 1,764,705 common shares at
$3.20 per common share exercisable until March 12, 2002. If these warrants are
fully exercised, it will result in an aggregate of 3,529,410 common shares being
issued. In addition, the underwriter working with the Company in connection with
the offering received an additional agent's warrant for an aggregate of 117,583
common shares at $2.86 per share, exercisable at any time up to six months
following the clearance of a prospectus in Canada relating to the private
offering. The payment of the proceeds from the offering to the Company is
contingent on the clearance of a prospectus covering the offering with Canadian
Securities Commissions by January 10, 2001, as well as approval by relevant
regulatory authorities. The Company's shareholders approved the private offering
on November 2, 2000.
Results of operations for the three months ended September 30, 2000 compared to
the three months ended September 30, 1999
Sales. Sales in the quarter ended September 30, 2000 were $7,353,000,
an increase of $2,115,000, or 40.4%, compared to sales in the quarter ended
September 30, 1999. Included in third quarter sales for 2000 were revenues from
the Company's internally developed Texas Instruments-based products of
$4,987,000, or 67.8% of sales for the quarter, compared to $2,162,,000, or 41.3%
of sales for the third quarter of 1999. Also included in sales for the third
quarter of 2000 were revenues from the Company's Analog Devices-based products
of $1,221,000, or 16.6% of sales, compared to $1,228,000, or 23.4% of sales for
the third quarter of 1999. Also included in sales for the third quarter of 2000
were revenues from sales of products produced by or manufactured under license
from Blue Wave Systems Inc. of $201,000, or 2.7% of sales, compared to $284,000,
or 5.4% of sales for third quarter of 1999. Included in third quarter sales for
2000 were development contract fees of $309,000, or 4.2% of sales for the
quarter, compared to development contract fees of $458,000, or 8.7% of sales for
the third quarter of 1999. The increase in the Company's sales for the third
quarter of 2000 compared to sales for the third quarter of 1999 was attributable
primarily to ordinary course fluctuations in the timing and value of orders.
Gross Profit. Gross profit increased to $4,414,000 for the third
quarter of 2000 from $2,970,000 for the third quarter of 1999, an increase of
48.6%. Gross margin (profit as a percentage of sales) increased to 60.0% for the
third quarter of 2000 from 56.7% for the third quarter of 1999. The lower gross
margin in 1999 was due primarily to the write-down of certain legacy inventory.
The Company's historical gross margin has also varied by quarter due to
volume-related efficiencies, changes in product and customer mix, amortization
of deferred software and related development costs.
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 third quarter of
2000 were $2,675,000, or 36.5% of sales for the period, compared to $2,760,000,
or 52.8% of sales for the third quarter of 1999. As a percentage of sales, AS&M
expenses decreased in the third quarter of 2000 due to higher sales for the
quarter without a corresponding increase in AS&M expenses.
Amortization. Amortization consists of the depreciation of the
Company's fixed assets and amortization of goodwill and other intangibles.
Amortization expense for the third quarter of 2000 was $357,000, an increase of
$12,000, or 3.5% over the third quarter of 1999.
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 $1,743,000 for the third quarter of 2000, or 23.7% of sales for
the quarter, compared to $850,000, or 16.2% of sales for the third quarter of
1999. The expenses in the third quarter of 2000 consisted primarily of costs
-7-
<PAGE>
associated with new product developments undertaken by the Company including
both Texas Instruments-based and Analog Devices-based products. The increase in
R&D expenditures results from increased prototype development activity in the
third quarter of 2000 and the addition of the Company's Network Solutions
business unit research and development team.
Other Income(Expense). Other income (expense), consisting primarily of
interest income on short-term deposits and interest expense on bank
indebtedness, was a net expense of $38,000 for the third quarter of 2000
compared to a net expense of $17,000 for the third quarter of 1999.
Income Taxes. The Company's income tax expense for the third quarter of
2000 was $67,000 compared to an income tax recovery of $454,000 for the third
quarter of 1999.
Net Income(Loss). The Company had a net loss for the third quarter of
2000 of $466,000 compared to a net loss of $548,000 for the third quarter of
1999. The Company's loss per share (basic) for the third quarter of 2000 was
$0.05 compared to a loss per share (basic) of $0.05 for the third quarter of
1999.
Results of operations for the nine months ended September 30, 2000 compared to
the nine months ended September 30, 1999
Sales. Sales in the nine months ended September 30, 2000 were
$18,825,000, an increase of $148,000, or 0.8%, compared to sales for the nine
months ended September 30, 1999. Included in sales for the period were revenues
from the Company's internally developed Texas Instruments-based products of
$12,479,000, or 66.3% of sales for the period, compared to $8,150,000, or 43.6%
of sales for the nine months ended September 30, 1999. Also included in sales
for the nine months ended September 30, 2000 were revenues from the Company's
Analog Devices-based products of $4,348,000, or 23.1% of sales, compared to
$4,312,000, or 23.1% of sales for the nine months ended September 30, 1999. Also
included in sales for the nine months ended September 30, 2000 were revenues
from sales of products produced by or manufactured under license from Blue Wave
Systems Inc. of $281,000, or 1.5% of sales, compared to $1,604,000, or 8.6% of
sales for nine months ended September 30, 1999. Included in sales for the nine
months ended September 30, 2000 were development contract fees of $582,000, or
3.1% of sales for the period, compared to development contract fees of $961,000,
or 5.1% of sales for the nine months ended September 30, 1999. The increase in
the Company's sales for the nine months ended September 30, 2000 compared to
sales for the nine months ended September 30, 1999 was attributable primarily to
ordinary course fluctuations in the timing and value of orders.
Gross Profit. Gross profit increased to $11,312,000 for the nine months
ended September 30, 2000 from $10,726,000 for the nine months ended September
30, 1999, an increase of 5.5%. Gross margin (profit as a percentage of sales)
increased to 60.1% for the nine months ended September 30, 2000 from 57.4% for
the nine months ended September 30, 1999. The lower gross margin in 1999 was due
primarily to the write-down of certain legacy inventory. The Company's
historical gross margin has also varied by quarter due to volume-related
efficiencies, changes in product and customer mix, amortization of deferred
software and related development costs.
Administrative, Sales and Marketing. AS&M expenses for the nine months
ended September 30, 2000 were $7,982,000, or 42.4% of sales for the period,
compared to $7,643,000, or 40.9% of sales for the nine months ended September
30, 1999. AS&M expenses were higher for the nine months ended September 30, 2000
due to increased facilities-related expenses associated with the Company's move
to new premises in July 1999, as well as increased AS&M staff levels. As a
percentage of sales, AS&M expenses increased in the nine months ended September
30, 2000 due to increased AS&M expenses during the period without a
corresponding increase in sales.
Amortization. Amortization expense for the nine months ended September
30, 2000 was $1,070,000, a decrease of $12,000, or 1.1% over the nine months
ended September 30, 1999.
-8-
<PAGE>
Research and Development. R&D expenses were $5,052,000 for the nine
months ended September 30, 2000, or 26.8% of sales for the period, compared to
$2,595,000, or 13.9% of sales for the nine months ended September 30, 1999. The
expenses in the nine months ended September 30, 2000 consisted primarily of
costs associated with new product developments undertaken by the Company
including both Texas Instruments-based and Analog Devices-based products. The
increase in R&D expenditures results from increased prototype development
activity in the nine months ended September 30, 2000 and the addition of the
Company's Network Solutions research and development team.
Other Income(Expense). Other income(expense) was a net expense of
$39,000 for the nine months ended September 30, 2000 compared to a net expense
of $29,000 for the nine months ended September 30, 1999.
Income Taxes. The Company's income tax recovery for the nine months
ended September 30, 2000 was $50,000 compared to an income tax recovery of
$252,000 for the nine months ended September 30, 1999.
Net Income(Loss). The Company had a net loss for the nine months ended
September 30, 2000 of $2,781,000, compared to a net loss of $371,000 for the
nine months ended September 30, 1999. The Company's loss per share (basic) for
the nine months ended September 30, 2000 was $0.27, compared to loss per share
(basic) of $0.04 for the nine months ended September 30, 1999.
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 a Canadian Chartered Bank (the
"Bank") consisting of a Cdn$5,000,000 (approximately US$3,320,000) 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's net borrowings under the Line
of Credit as of September 30, 2000 were $2,847,000.
At September 30, 2000 the Company's net cash deficit, excluding cash in
escrow, was $1,068,000 compared to a net cash surplus of $1,422,000 at December
31, 1999. Net cash used in operations, financing and investments was $357,000
and $271,000 in the nine months ended September 30, 2000 and year ended December
31, 1999 respectively.
Accounts receivable, net at September 30, 2000 and December 31, 1999
was $6,442,000 and $6,461,000 respectively. The Company's standard collection
terms are net 30 days, subject to adjustment for certain customers.
The Company made capital expenditures of $944,000 during the nine
months ended September 30, 2000 relating primarily to the purchase of computer
equipment, furniture and fixtures, and leasehold improvements.
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<PAGE>
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 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 $4,200,000 (Cdn$6,300,000) 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 contingently repayable investment, with repayment beginning no
earlier than 2001, if new products are developed and offered for sale by the
Company, by way of a 2.5% royalty on the new products being financed by the
investment. If the Company has not paid at least $7,600,000 (Cdn$11,400,000) in
royalties to TPC by December 31, 2006, royalties shall continue to be due at a
rate of 2.5% until an aggregate of $7,600,000 (Cdn$11,400,000) 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.
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 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.
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<PAGE>
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 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 2000. 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 and the cost of completion at $705,000. The Company expects
to complete the project in 2001. 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 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 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.
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
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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 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 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.
The company divested itself of the acquired in-process research and
development related to 3L Limited in a transaction which became effective April
30, 2000.
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 currency derivative
contracts to attempt to reduce a portion of its exposure to foreign exchange
rate fluctuations. These contracts typically have maturities of no greater than
one year 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 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.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
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
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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 6, 2000 By: /s/ Martin C. McConnell
-----------------------------------
Name: Martin C. McConnell
Title: Vice President of Finance, Chief
Financial Officer and Secretary
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