UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
___________________
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended December 31, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 0-10843
CSP Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2441294
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
43 Manning Road, Billerica, Massachusetts 01821-3901
(Address of principal executive offices) (Zip Code)
(978) 663-7598
(Registrant's telephone number, including area code)
August 31, 2001
(Former name, former address, former fiscal year, if changed since last report)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). And (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class Outstanding February 12, 2002
Common Stock, $.01 par value 3,523,095 shares
INDEX | ||
PAGE | ||
NUMBER | ||
PART I. | FINANCIAL INFORMATION: | |
Item 1. | Financial Statements | |
Consolidated Balance Sheets | 3 | |
Consolidated Statements of Operations | 4 | |
Consolidated Statements of Cash Flows | 5 | |
Notes to Consolidated Financial Statements | 6 | |
Item 2. | Management's Discussion and Analysis of Financial | |
Condition and Results of Operations | 10 | |
PART II. | OTHER INFORMATION: | |
Item 4. | Submission of Matters to a vote of Security Holders | 16 |
Item 6. | Exhibits & Reports on Form 8-K | 16 |
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except par value)
December 31, | August 31, | |
2001 | 2001 | |
(Unaudited) | (Audited) | |
Assets | ||
Current assets: | ||
Cash and cash equivalents | $1,392 | $1,398 |
Short-term investments | 12,262 | 12,330 |
Accounts receivable, net | 3,517 | 5,731 |
Inventories | 4,762 | 5,312 |
Deferred income taxes | 1,053 | 942 |
Other current assets | 912 | 921 |
Total current assets | 23,898 | 26,634 |
Property, equipment and improvements, net | 1,258 | 1,417 |
Other assets: | ||
Long-term investments | 173 | 350 |
Deferred income taxes | 2,172 | 1,602 |
Goodwill, net | 693 | 754 |
Other assets | 1,540 | 1,592 |
Total other assets | 4,578 | 4,298 |
Total assets | $29,734 | $32,349 |
Liabilities and Shareholders' Equity | ||
Current liabilities: | ||
Accounts payable and accrued expenses | $3,353 | $4,221 |
Income taxes payable | 323 | 485 |
Total current liabilities | 3,676 | 4,706 |
Deferred compensation and retirement plans | 3,930 | 3,869 |
Commitments and contingencies | ||
Shareholders' equity: | ||
Common stock, $.01 par; authorized, 7,500 shares; issued 4,094 | ||
and 4,085 shares | 41 | 41 |
Additional paid-in capital | 11,263 | 11,235 |
Retained earnings | 14,760 | 16,359 |
Accumulated other comprehensive income | (1,075) | (1,000) |
24,989 | 26,635 | |
Less treasury stock, at cost, 571 shares | 2,861 | 2,861 |
Total shareholders' equity | 22,128 | 23,774 |
Total liabilities and shareholders' equity | $29,734 | $32,349 |
See accompanying notes to consolidated financial statements. |
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except for per share data)
(Unaudited)
/-----------For the three months ended--------/
December 31, | November 30, | |||
2001 | 2000 | |||
Sales: | ||||
Systems | $1,650 | $2,571 | ||
System and service integration | 4,159 | 7,758 | ||
E-Commerce software | 311 | 617 | ||
Other software | 380 | 476 | ||
Total sales | 6,500 | 11,422 | ||
Cost of Sales: | ||||
Systems | 1,125 | 1,201 | ||
System and service integration | 3,128 | 6,611 | ||
E-Commerce software | 257 | 208 | ||
Other software | 119 | 142 | ||
Total cost of sales | 4,629 | 8,162 | ||
Gross profit | 1,871 | 3,260 | ||
Operating expenses: | ||||
Engineering and development | 964 | 1,074 | ||
Selling, general & administrative | 2,252 | 2,320 | ||
Total operating expenses | 3,216 | 3,394 | ||
Operating loss | (1,345) | (134) | ||
Other income(expense): | ||||
Loss on disposal of French operation | -- | (327) | ||
Other income | 49 | 79 | ||
Total other income (expense), net | 49 | (248) | ||
Loss before income taxes | (1,296) | (382) | ||
Income tax benefit | 353 | 170 | ||
Net loss | ($943) | ($212) | ||
Net loss per share - basic | ($0.27) | ($0.06) | ||
Weighted average shares outstanding - basic | 3,523 | 3,569 | ||
Net loss per share - diluted | ($0.27) | ($0.06) | ||
Weighted average shares outstanding - diluted | 3,523 | 3,569 | ||
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
/----------For the three months ended---------/
December 31, | November 30, | |||
2001 | 2000 | |||
Cash flows from operating activities: | ||||
Net loss | ($943) | ($212) | ||
Adjustments to reconcile net loss to net cash | ||||
provided by operating activities: | ||||
Depreciation and amortization | 218 | 255 | ||
Loss on disposal of fixed assets | 5 | 227 | ||
Deferred compensation and retirement plans | 53 | 139 | ||
Deferred income taxes | (290) | -- | ||
Income tax benefit related to exercise of stock options | -- | 102 | ||
Other | 39 | (51) | ||
Changes in current assets and liabilities: | ||||
Decrease in accounts receivable, net | 799 | 1,374 | ||
Decrease (increase) in inventories | 573 | (226) | ||
Increase in other current assets | (9) | (92) | ||
Decrease in accounts payable and accrued expenses | (186) | (1,207) | ||
Increase (decrease) in income taxes payable | 91 | (194) | ||
Net cash provided by operating activities | 350 | 115 | ||
Cash flows from investing activities: | ||||
Purchases of available-for-sale securities | (164) | (78) | ||
Purchases of held-to-maturity securities | (7,698) | (10,311) | ||
Sales of available-for-sale securities | 202 | 132 | ||
Maturities of held-to-maturity securities | 7,256 | 7,681 | ||
Purchase of property, equipment and improvements, net | (54) | (289) | ||
Net cash used in investing activities | (458) | (2,865) | ||
Cash flows from financing activities: | ||||
Proceeds from stock options | -- | 37 | ||
Proceeds from issuance of shares under employee | ||||
stock purchase plan | 28 | 6 | ||
Purchase of treasury stock | -- | (186) | ||
Net cash provided by (used in) financing activities | 28 | (143) | ||
Effects of exchange rate on cash | (38) | (112) | ||
Net decrease in cash | (118) | (3,005) | ||
Cash and cash equivalents, beginning of period | 1,510 | 3,923 | ||
Cash and cash equivalents, end of period | $1,392 | $918 | ||
Supplementary cash flow information: | ||||
Cash paid for income taxes, net | $110 | $192 | ||
Cash paid for interest | $ 5 | $ -- | ||
Non-cash distribution of dividends | $ -- | $718 | ||
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements, which are prepared in accordance with generally accepted accounting principles, have been condensed or omitted. Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the financial statements should be read in conjunction with the footnotes contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 2001.
1.Change inFiscal Year
Effective on September 1, 2001 the Company changed its fiscal year end from August 31 to September 30. This change was effective for the one-month period ended September 30, 2001. The following table presents the (unaudited) condensed results of operations for the one-month ended September 30, 2001:
Condensed Consolidated Statements of Operations | One month ended | |
(in thousands, except per share amounts) | September 30, | |
2001 | ||
(unaudited) | ||
Sales | $1,497 | |
Cost of sales | 1,382 | |
Gross profit | 115 | |
Engineering and development | 291 | |
Selling, general & administrative | 704 | |
Total operating expenses | 995 | |
Operating loss | (880) | |
Other expense | (142) | |
Loss before income taxes | (1,022) | |
Income tax benefit | 366 | |
Net loss | ($656) | |
Net loss per share - basic and diluted | ($0.19) | |
Weighted average shares outstanding- basic and diluted | 3,513 | |
2. Inventories
Inventories consist of the following (amounts in thousands):
December 31, | August 31, | ||||
2001 | 2001 | ||||
Raw materials | $2,588 | $2,957 | |||
Work in process | 460 | 439 | |||
Finished goods | 1,714 | 1,916 | |||
Total | $4,762 | $5,312 | |||
3. Stock repurchase
On October 9, 1986, the Board of Directors authorized the Company to repurchase up to 344,892 additional shares of the outstanding stock at market price. On September 28, 1995, the Board of Directors authorized the Company to repurchase up to 199,650 additional shares of the outstanding stock at market price. The timing of stock purchases are made at the discretion of management. On October 19, 1999, the Board of Directors authorized the Company to repurchase up to 200,000 additional shares of the outstanding stock at market price. At December 31, 2001, the Company has repurchased 570,875 or 77% of the total shares authorized to be purchased.
4. Earnings Per Share Reconciliation
The reconciliation of the numerators and denominators of the basic and diluted net loss per share computations for the Company's reported net loss is as follows:
/-------Three Months Ended------/
December 31, | November 30, | ||
(Amounts in thousands, except per share) | 2001 | 2000 | |
Basic net loss | ($943) | ($212) | |
Weighted average number of shares outstanding - basic | 3,523 | 3,569 | |
Incremental shares from the assumed exercise of stock options | -- | -- | |
Weighted average number of shares outstanding - dilutive | 3,523 | 3,569 | |
Net loss per share - basic | ($0.27) | ($0.06) | |
Net loss per share - diluted | ($0.27) | ($0.06) |
Options to purchase 435,339 and 379,516 shares of common stock at December 31, 2001 and November 30, 2000, respectively, were outstanding during the periods then ended, but were not included in the year-to-date calculation of diluted net loss per share because the option exercise price was greater than the average market price of the common shares during those periods.
5. Accumulated Other Comprehensive Income
The components of Accumulated Other Comprehensive Income are as follows:
(Amounts in thousands)
Unrealized | Accumulated | |||
Gain(loss) | Foreign | Other | ||
on | Translation | Comprehensive | ||
investments | Adjustment | Income | ||
Balance August 31, 2001 | $67 | ($1,067) | ($1,000) | |
Change in period | (8) | 21 | 13 | |
Balance September 30, 2001 | 59 | (1,046) | (987) | |
Change in period | 2 | (90) | (88) | |
Balance December 31, 2001 | $61 | ($1,136) | ($1,075) | |
Balance August 31, 2000 | 135 | (1,214) | (1,079) | |
Change in period | (44) | (112) | (156) | |
Balance November 30, 2000 | $91 | ($1,326) | ($1,235) |
6. Segment and Geographical Information
The following table presents certain operating segment information (Amounts in thousands):
System and | |||||
Service | E-Commerce | Other | |||
Systems | Integration | Software | Software | Total | |
Quarter Ended 12/31/01 | |||||
Net Sales | $1,650 | $4,159 | $311 | $380 | $6,500 |
Loss from operations | (771) | (9) | (424) | (141) | (1,345) |
Identifiable assets | 18,611 | 9,488 | 689 | 1,222 | 30,010 |
Capital expenditures | 36 | 12 | 1 | 5 | 54 |
Depreciation | 72 | 87 | 7 | 6 | 172 |
Quarter Ended 11/30/00 | |||||
Net Sales | $2,571 | $7,758 | $617 | $476 | $11,422 |
Profit(loss) from operations | (182) | 234 | (160) | (26) | (134) |
Identifiable assets | 21,783 | 10,444 | 866 | 1,574 | 34,667 |
Capital expenditures | 241 | 39 | 3 | 6 | 289 |
Depreciation | 120 | 74 | 6 | 8 | 208 |
Each segment is broken down by related business activities, which crosses different business operations. These segments are based on the different customer activity of the Company. CSPI has four major segments: systems which includes company manufactured hardware products, systems and service integration which includes maintenance of the Company and other systems sold and integration and sale of third party hardware products and services, E-Commerce software, and other software products which are developed by the Company.
Profit from operations is sales less cost of sales, engineering and development, selling, general and administrative expenses, but is not affected by either non-operating charges/income or by income taxes. Non operating charges/income consists principally of investment income and interest expense for the quarter ended December 31, 2001 and loss on disposal of French operations, investment income and interest expense for the quarter ended November 30, 2000. In calculating profit from operations for individual operating segments, sales and administrative expenses incurred at the operating level for CSP and Scanalytics are allocated to Systems and Other software segments, respectively. Sales and administrative expenses incurred at the operating level for MODCOMP are allocated to the E-Commerce software segment based upon employee headcount and the remaining balance is allocated to the Systems and System and Service Integration segments based upon sales revenue.
All intercompany transactions have been eliminated.
Identifiable assets include deferred income tax assets and other financial instruments managed by the Company. Capital expenditures common to more than one segment are allocated on a sales basis.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
A summary of the period to period changes in principal items included in the Statements of Operations is shown in Schedules I and II (pages 17 and 18).
The discussion below contains certain forward-looking statements related to, among others, but not limited to, statements concerning future revenues and future business plans. Actual results may vary from those contained in such forward-looking statements.
Results of Operations - 2002 Compared to 2001
Revenue
The following table details the Company's sales by operating segment for the three months ended December 31, 2001 and November 30, 2000.
December 31, | % of | November 30, | % of | |||
Sales Revenue: | 2001 | Total | 2000 | Total | ||
Operating Segment: | ||||||
Systems | $1,650 | 25% | $2,571 | 23% | ||
System and Service Integration | 4,159 | 64% | 7,758 | 68% | ||
E-Commerce Software | 311 | 5% | 617 | 5% | ||
Other Software | 380 | 6% | 476 | 4% | ||
Total | $6,500 | 100% | $11,422 | 100% | ||
CSPI considers its products to be in four segment classifications. Each segment is broken down by related business activities, which crosses different business operations. These segments are based on the different customer activity of the Company. CSPI has four major segments: Systems which includes company manufactured hardware products, System and Service Integration which includes maintenance of the Company and other systems sold and integration and sale of third party hardware products and services, E-Commerce software which includes WAP66™ and ViewMax®, and Other Software products which are developed by the Company primarily in the Scanalytics operation.
The Company reported net sales of $6.5 million for the three-month period ended December 31, 2001 compared to $11.4 million for the three months ended November 30, 2000. This represented a decrease of 43% or $4.9 million. The reduced revenue was due to the following factors: reductions in system and integration sales due to the reduction in revenue from our key European telecom customers, delays in US defense procurements which has caused a decline in our systems sales, and no revenue from MODCOMP France, which was sold in November 2001, which represents 2% of the decline.
System sales were $1.6 million or 25% of total sales for the quarter ended December 31, 2001, compared to $2.6 million for the three-month period ended November 30, 2000. This represents a decrease of approximately 36%. The decrease in system sales was due primarily to the continued decline in Department of Defense procurements. The widely anticipated improvement in Defense spending has yet to be realized due to the protracted approval process for the fiscal year 2002 Appropriation bill in Congress, extended deployment incubation periods and uncertainties concerning funding for new Homeland Security programs. The CSPI SuperCard and Series 2000 product lines accounted for 33% and 53 % of system sales, respectively, for the quarter ended December 31, 2001 compared to 14% and 52%, respectively, for the prior comparable quarter. The MultiComputer Division FastCluster™ system, a Linux based product, is currently being evaluated for use on a variety of m ilitary platforms where its rugged, compact and high-performance functionality adds significant value. MODCOMP announced an end-of-life for the Classic legacy systems, its real-time process control products, for which the Company will accept orders up to January 31, 2002. Those orders will be shipped over the remainder of the fiscal year. This Classic systems product line represented 14 % of the current quarter system sales compared to 32% for the prior comparable quarter.
Sales for System and Service Integration were $4.2 million or 64% of total sales for the quarter ended December 31, 2001, compared to $7.8 million or 68% for the three-month period ended November 30, 2000. This represents a decrease from the prior comparable quarter of $3.6 million or 46%. This decrease was due to a decline in European business where our customers have dramatically reduced their technology budgets. In addition, one customer initiated a temporary capital spending freeze due to the retrenchment of IT spending after the events of September 11, 2001.
E-Commerce Software sales were $311,000 or 5% of total sales for the quarter ended December 31, 2001 compared to $617,000 or 5% for the three-month period ended November 30, 2000. This represents a decrease of $306,000 or 50%. This segment's revenue decline is mainly due to market conditions.
Other Software sales were $380,000 or 6% of total sales for the quarter ended December 31, 2001 compared to $476,000 or 4% for the three-month period ended November 30, 2000. This represents a decline of $96,000 or 20%. This decline is mainly due to seasonal fluctuations and market conditions. The other software sales are primarily from sales of life sciences software.
The following table details the Company's sales by geographic region for the three months ended December 31, 2001 and November 30, 2000:
/--------Three months ended-----------------/ | ||||||
December 31, | November 30, | |||||
2001 | 2000 | |||||
Europe | $3,637 | 56% | $7,640 | 67% | ||
North America | 2,543 | 39% | 3,692 | 32% | ||
Far East | 320 | 5% | 90 | 1% | ||
Totals | $6,500 | 100% | $11,422 | 100% | ||
European sales account for 56% of total sales for the quarter ended December 31, 2001 compared to 67% for the three-month period ended November 30, 2000. European sales were primarily from MODCOMP's subsidiaries in Germany and the United Kingdom.
|
Cost of Sales
The following table details the Company's sales and gross margin by operating segment for the quarters ended December, 31, 2001 and November 30, 2000 (amounts in thousands):
|
Systems | System and Service Integration | E- Commerce Software | Other Software |
Total |
Qtr Ended 12/31/01 | |||||
Sales | $1,650 | $4,159 | $311 | $380 | $6,500 |
Cost of sales | 1,125 | 3,128 | 257 | 119 | 4,629 |
Gross margin $ | 525 | 1,031 | 54 | 261 | 1,871 |
Gross margin % | 32% | 25% | 17% | 69% | 29% |
Qtr Ended 11/30/00 | |||||
Sales | $2,571 | $7,758 | $617 | $476 | $11,422 |
Cost of sales | 1,201 | 6,611 | 208 | 142 | 8,162 |
Gross margin $ | 1,370 | 1,147 | 409 | 334 | 3,260 |
Gross margin % | 53% | 15% | 66% | 70% | 29% |
Cost of sales as a percentage of revenue remained consistent at 71% for the three months ended December 31, 2001 compared three months ended November 30, 2000. The decrease in the absolute dollar amount of cost of sales resulted primarily from the significant revenue decline. The system and service integration segment that has higher costs due to the large component of third party products. The lower sales volume has also added costs in the system segment because of the decrease in production of inventory which has resulted in unabsorbed overhead costs. During the quarter the company wrote off approximately $150,000 of obsolete inventory reserve due to end of life status of certain systems products. The e-commerce software had increased costs due to cost overruns on a project which was completed during the quarter.
Engineering and Development
The following table details engineering and development expenses by operating segment and subsidiary for the quarters ended December 31, 2001 and November 30, 2000 (amounts in thousands):
Dec. 31 | % of | Nov. 30 | % of | ||
Engineering & Development Expense: | 2001 | Total | 2000 | Total | |
By Operating Segment: | |||||
Systems | $384 | 40% | $562 | 52% | |
System and Service Integration | 266 | 27% | 308 | 29% | |
E-Commerce Software | 173 | 18% | 106 | 10% | |
Other Software | 141 | 15% | 98 | 9% | |
Total | $964 | 100% | $1,074 | 100% | |
By Subsidiary: | |||||
MODCOMP, Inc. | $453 | 47% | $447 | 42% | |
CSP MultiComputer Division | 370 | 38% | 528 | 49% | |
Scanalytics, Inc. | 141 | 15% | 99 | 9% | |
Total | $964 | 100% | $1,074 | 100% |
Engineering and development expenses decreased 10% for the three months ended December 31, 2001 compared to the three-month period ended November 30, 2000. Decrease was due to a) lower labor costs from attrition, b) lower depreciation resulting from more fully depreciated capital equipment, c) a decrease in materials used in product development, and d) decreased outside consulting services in Systems. The increase in other software engineering and development was due to the addition of personnel.
Selling, General and Administrative
The following table sets forth selling, general and administrative expense by Company subsidiary for the three months ended December 31, 2001 and November 30, 2000.
/-------------------For the three months ended----------------/
(Amounts in thousands)
Dec. 31 | % of | Nov. 30 | % of | |
S, G & A Expense | 2001 | Total | 2000 | Total |
By Operating Segment: | ||||
Systems | $912 | 40% | $990 | 43% |
System and Service Integration | 774 | 34% | 604 | 26% |
E-Commerce Software | 305 | 14% | 464 | 20% |
Other Software | 261 | 12% | 262 | 11% |
Total | $2,252 | 100% | $2,320 | 100% |
By Subsidiary: | ||||
MODCOMP, Inc. | $1,120 | 50% | $1,128 | 49% |
CSP MultiComputer Division | 871 | 39% | 931 | 40% |
Scanalytics, Inc. | 261 | 11% | 261 | 11% |
Total | $2,252 | 100% | $2,320 | 100% |
Selling, general and administrative expense decreased $68,000 or 3% for the quarter ended December 31, 2001 compared to the three-month period ended November 30, 2000. This decline was due to decreases in commission expense, trade show expenses, and depreciation on fully depreciated capital equipment which was offset by increased occupancy costs of the new corporate facility.
MODCOMP's selling, general and administrative expense for the three months ended December 31, 2001 remained consistent with the three-month period ended November 30, 2000.
CSP MultiComputer division selling, general and administrative expense for the three-month period ended December 31, 2001 decreased $60,000 or 6% from the three-month period ended November 30, 2000. This decrease is mainly due to a reduction in audit and tax services related to the corporate restructure in fiscal 2001 of approximately $30,000, a reduction in commission expense of $16,000 and a reduction in depreciation expense of $9,000.
Scanalytics selling, general and administrative expense for the three-month period ended December 31, 2001 remained consistent with the three-month period ended November 30, 2000.
During the quarter the Company had a reduction of 8 positions due to the reduction in sales and recorded $118,000 restructuring expense related to the severance and other costs associated with the reduction. The annual savings for this action will be approximately $493,000.
Other Income/Expenses
Other income/expenses, exclusive of the loss on disposal of French operation, for the three-month period ended December 31, 2001 was $49,000, representing a decline of $30,000 from the three-month period ended November 30, 2000. This decline was due in part to the reduction in the rate of interest received on short-term investments due to the decline in rates from last year.
In July 2000, the Company sold substantially all of the assets and transferred the personnel of MODCOMP's French subsidiary to France-based-Eurilogic. A loss on disposal of French operation of $240,000 was recognized as other expense in the fourth quarter of fiscal year 2000. In November 2000, the Company sold the remaining assets of the French operation to Eurilogic and incurred additional expenses for the disposal of assets, primarily leasehold improvements and severance costs of $327,000 for the period ended November 30, 2000. The decision to sell the assets and transfer its personnel was based on the fact that the French legacy business no longer represented a good strategic fit with CSPI and had incurred a loss. The sale allowed CSPI to exit the business without incurring restructuring costs that could have exceeded $2 million.
The Company has an effective tax rate of 27%. The Company's effective tax rate has declined from 45% for last fiscal year.
The Company recorded the federal tax benefit for the current period and the related increase in deferred tax assets as it believes it is more likely than not, considering the level of historical taxable income and expectations for future taxable income, that the operating loss will be utilized in the future to offset taxable income. No benefit has been reflected for state taxes since the Company does not believe it will generate sufficient taxable income through the state carryforward period. If the Company is unable to generate sufficient federal taxable income in future periods it may be necessary to provide a valuation allowance against the deferred tax asset. Through December 31, 2001, the Company had net losses to offset taxable income for federal purposes of $1,470,000. The expiration date for the utilization of these losses range from 2002 to 2021.
Liquidity and Capital Resources
Working capital at December 31, 2001 decreased to $20.2 million compared to $21.9 million at August 31, 2001. This decline relates mainly to reductions in Accounts receivables and inventories due to lower sales volume.
The Company's consolidated net capital expenditures were $ 54,000 for the three-month period ended December 31, 2001 compared to $289,000 in the three-month period ended November 30, 2000. The majority of the expenditures for the three-month period ended November 30, 2000 related to leasehold improvements at the new corporate facility.
Management believes that the Company's available cash and cash generated from operations and investments will be sufficient to provide for the Company's working capital and capital expenditure requirements for the foreseeable future.
Inflation and Changing Prices
Management does not believe that inflation and changing prices had significant impact on sales, revenues or income from continued operations during the three-month periods ended December 31, 2001 or November 30, 2000. There is no assurance that the Company's business will not be materially and adversely affected by inflation and changing prices in the future.
Factors That May Affect Future Performance
This document contains forward-looking statements based on current expectations that involve a number of risks and uncertainties. The factors that could cause actual results to differ materially include the following: general economic conditions and growth rates in the peripheral and computer products, biological imaging software, and the instruments and machine code readers industries; competitive factors and pricing pressures; changes in product mix; the timely development and acceptance of new products; inventory risks due to shifts in market demand; and component constraints and shortages. In response to competitive pressures or new product introductions, the Company may take certain pricing or marketing actions that could adversely affect the Company's operating results. In addition, changes in the mix of old products may cause fluctuations in the Company's gross margin. Due to the potential quarterly fluctuations in operating results, the C ompany believes that quarter-to-quarter comparisons of its results of operations are not necessarily an indicator of future performance.
Markets for the Company's products are characterized by rapidly changing technology, new product introductions and short product life cycles. These changes can adversely affect the business and operating results. The Company's success will depend upon its ability to enhance its existing products and to develop and introduce, on a timely and cost effective basis, new products that keep pace with technological developments and address increasing customer requirements. The inability to meet these demands could adversely affect the Company's business and operating results.
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security Holders
The Company held its Annual meeting of Stockholders on Tuesday, January 29, 2002. The following matter was approved by the shareholders:
1) C. Shelton James and Alexander R. Lupinetti were elected as Class III directors for a term of three years.
2) Approval for the amendment of the Company's By-Laws relative to changing the date of the Annual Meeting of Stockholders from the second Tuesday in January to the last Tuesday in January in each year.
Item 6. Exhibit and Reports on Form 8-K
- Exhibits
- Reports on Form 8-K
None
None
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.
CSP Inc.
(Registrant)
Date: February 12, 2002 By: /s/ Alexander R. Lupinetti
Chief Executive Officer,
President and Chairman
Date: February 12, 2002 By: /s/ Gary W. Levine
Vice President of Finance,
Chief Financial Officer
SCHEDULE I
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE OF SALES
(Amounts in thousands, except percentage information)
(Unaudited)
/-------------------For the three months ended-----------------------/
December 31, | November 30, | |||||
2001 | % | 2000 | % | |||
Sales | $6,500 | 100.0% | $11,422 | 100.0% | ||
Costs and expenses: | ||||||
Cost of sales | 4,629 | 71.2% | 8,162 | 71.5% | ||
Engineering and development | 964 | 14.8% | 1,074 | 9.4% | ||
Selling, general, & administrative | 2,252 | 34.6% | 2,320 | 20.3% | ||
Total costs and expenses | 7,845 | 120.7% | 11,556 | 101.2% | ||
Operating loss | (1,345) | (20.7)% | (134) | (1.2)% | ||
Other income (expense) | 49 | 0.8% | (248) | (2.2)% | ||
Loss before income taxes | (1,296) | (19.9)% | (382) | (3.3)% | ||
Income tax benefit | 353 | 5.4% | 170 | 1.5% | ||
Net loss | (943) | (14.5)% | ($212) | (1.9)% | ||
SCHEDULE II
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars in thousands)
(Unaudited)
/--For the three months ended---/
December 31, 2001 vs. November 30, 2000
$ | % | |||||
Change | Change | |||||
Sales | ($4,922) | (43.1)% | ||||
Costs and expenses: | ||||||
Cost of sales | (3,533) | (43.3)% | ||||
Engineering and development | (110) | (10.2)% | ||||
Selling, general, & administrative | (68) | (2.9)% | ||||
Total costs and expenses | (3,711) | (32.1)% | ||||
Operating loss | (1,211) | (903.7)% | ||||
Other income (expense) | 297 | 119.8% | ||||
Loss before income taxes | (914) | (239.3)% | ||||
Income tax benefit | 183 | 107.6% | ||||
Net loss | ($731) | (344.8%) | ||||