SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-Q
(Mark One)
(X) Quarterly report pursuant to Section 13 of 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended February 28, 1997 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.
40 Linnell Circle, Billerica, Massachusetts
(Address of principal executive offices)
Registrant's telephone number, including area code:(508)663-7598
NONE
(Former name, former address, former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
APPLICABLE ONLY TO CORPORATE USERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class Outstanding April 11, 1997
Common stock, $.01 par value 2,678,3470 shares
INDEX
PAGE
NUMBER
PART 1. 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................7
PART II. OTHER INFORMATION:
Item 6. Exhibits & Reports on Form 8-K.........................11
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
February 28, August 30,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $11,128 $10,928
Marketable securities 5,731 6,127
Accounts receivable, net 3,175 4,147
Inventories (Note 2) 2,317 2,405
Deferred income taxes 438 481
Prepaid expenses 1,180 351
Total current assets 23,969 24,439
Property, equipment and improvements, net 3,461 3,607
Other assets:
Land held for future development 163 163
Deferred income taxes 486 409
Other assets 1,006 918
Total other assets 1,655 1,490
Total assets $29,085 $29,536
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $991 $1,425
Income taxes payable 49 214
Total current liabilities 1,040 1,639
Deferred compensation and retirement 2,199 2,093
plans
Shareholders' equity:
Common stock, $.01 par, authorized
7,500,000 shares; issued 2,962,284
and 2,957,284 shares 30 29
Paid in capital 10,443 10,411
Retained earnings 17,406 17,397
27,879 27,837
Less treasury stock, at cost, 301,314
shares (Note 3) 2,033 2,033
Total shareholders' equity 25,846 25,804
Total liabilities and shareholders' equity $29,085 $29,536
See notes to consolidated financial statements.
3
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
/-For the three months--/ /-For the six months-
/
February March Februar March
28, 1, y 1,
28,
1997 1996 1997 1996
Sales $3,765 $4,014 $7,774 $8,383
Costs and expenses:
Cost of sales 1,555 1,629 3,280 3,383
Engineering and development 995 757 1,837 1,460
Marketing and sales 980 1,472 2,175 2,674
General and administrative 453 578 895 1,101
Total cost and expenses $3,983 $4.437 $8,186 $8,618
Operating loss (218) (412) (234)
(422)
Other income 216 191 414 414
Income before income taxes ($2) $ 2 $180
($231)
Income tax expense (benefit) (4) (8) 95
(98)
Net income $2 $9 $85
($133)
Earnings per share $0.00 ($0.05) $0.00 $0.03
Weighted average shares 2,708 2,715 2,678 2,721
outstanding
See accompanying notes to consolidated financial statements.
4
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
/---For the three-----//----For the six---/
months ended months ended
February March February March
28, 1, 28, 1,
1997 1996 1997 1996
Cash flows from operating activities:
Net income $2 ($133) $9
$85
Adjustments to reconcile net income to
net cash provided by(used
in)operating activities:
Depreciation 280 188 566
425
Deferred compensation and retirement 46 50 106
108
plans
Deferred income taxes (36) (7)
(34) (20)
Other
Changes in current assets and
liabilities:
Decrease in accounts receivable (257) (608) 972
(254)
Increase in inventories 301 (247) 88
(440)
(Increase)decrease in prepaid (747) 10
expenses (829) 64
Increase(decrease) in accounts (412) 113
payable (434) 124
and accrued expenses
Increase(decrease) in income taxes (44) (96)
payable (165) 91
Net cash provided by operating (864) (716) 285
activities 197
Cash flows from investing activities:
Purchase of marketable securities (45,679) (52,656) (105,200
) (107,810
)
Sale of marketable securities 47,376 51,326 105,590
108,068
Property, equipment and improvements (234) (193)
(420) (392)
Other assets (87) ----
(88) (1)
Net cash provided by(used 1,376 (1,523)
in)investing (118) (135)
activities
Cash flows from financing activities:
Proceeds from stock options 21 5 33
(39)
Purchase of treasury stock ---- ---- ---
- (253)
Net cash provided by(used
in)financing
activities 21 5 33
(39)
Net increase(decrease) in cash 535 (2,234) 200
23
Cash and cash equivalents, beginning of 10,593 13,326 10,928
year 11,069
Cash and cash equivalents, end of year $11,128 $11,092 $11,128
$11,092
Supplementary cash flow information:
Cash paid for income taxes, net $75 ---- $75 ---
-
Cash paid for interest
See accompanying notes to consolidated financial statements.
5
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 30, 1996.
1. Inventories:
Inventories consist of the following:
February 28, March 1,
1997 1996
Raw materials $1,045 $1,083
Work in process 534 739
Finished goods 738 583
Total $2,317 $2,405
2. Stock Repurchase:
On October 9, 1986 the Board of Directors authorized the Company
to repurchase up to 282,723 of the outstanding stock at market
prices. On September 28, 1995, the Board of Directors
authorized the Company to repurchase up to an additional 150,000
shares of the outstanding stock at market prices. The timing of
stock purchases are made at the discretion of management.
Through February 28, 1997, the Company has repurchased 301,314 or
70% of the total authorized.
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 Statement of Operations is shown in Schedules I
and II ( pages 12 and 13 ).
Results of Operations - 1997 Compared to 1996:
Sales revenues of $3,765,000 and $7,774,000 for the three and six
months periods ended February 28, 1997 represent a decline of
6.2% and 7.3%, respectively, from the prior comparable periods of
fiscal year 1996 of $4,015,000 and $8,384,000.
Sales of the Embedded Computer products represented
approximately 58% of and 52% of total sales revenue for the three
and six months periods ended February 28, 1997. This represents
a decrease of approximately 28% and 35% from the prior comparable
three and six months periods sales, respectively. The Supercard
family of products represented 87% of current year product group
revenues compared to 94% in the prior year. Sales of older
attached processor products increased nominally with the MAP-
4000, MiniMap, and RTS, which are only sold to existing
customers. These products represented less than 2% of total
sales compared to 1% in the prior comparable six month period.
The Scanalytics product group (bio-instrumentation for molecular
and cell biology) sales were $618,000 and $1,727,000 for the
three and six months periods ended February 28, 1997 compared to
$595,000 and $1,670,000 for the prior comparable periods. This
increase is primarily attributable to shipments of the Cellscan
and gel software products which increased 5% and 17%, and
accounted for 4% and 3.5% of total revenue for the six months
ended February 28, 1997, compared to the prior six months. Sales
of the Ambis products were approximately the same for the six
months ended February 28, 1997 compared with the prior year
comparable period, accounting for approximately 4% of total
sales. Revenue generated from service contracts for the six
months period ended February 28, 1997 dropped from 2% to 1% of
sales.
Vision Systems sales were $969,000 compared to $377,000 for the
three months period compared to the prior year and $1,976,000
and $400,000 for the six months period compared to the prior
year. This represented 25% of the Company's total revenue for the
six months period. The increased revenue was for machine code
readers shipped to UPS. The shipments during the quarter
completed all the existing orders from UPS.
North American sales were approximately 90% of total revenue
for the six months periods in both fiscal years. Sales in the
Far East accounted for approximately 4% of total revenue for the
six months period ended February 28, 1997 compared to 7% of total
sales for the comparable period of fiscal 1996. European sales
increased to 5% of total sales compared to 3% in the prior
comparable period.
Cost of sales as a percentage of sales was approximately 41% and
42% for the three and six months periods ended February 28, 1997
compared to 41% and 40% for the prior comparable periods. The
improvement in gross margin was due to a change in sales mix
with increased software content in both Scanalytic and Embedded
Computer products which have more favorable margins. This offset
the higher cost of sales from machine code reader units which
yield lower gross margins than either the Scanalytics or Embedded
Computer products.
Total engineering and development expense increased approximately
31% and 26% for the three and six months periods ended February
28, 1997 compared to the prior comparable fiscal periods. The
increase was primarily in Embedded Computer product group for
costs related to the completion of the new MAP 1000 and MAP
2610 hardware and software products offering, which are based on Analog
Devices' 21060 and Motorola's Power PC and represented
approximately 67% of the total increase. The major components of
the increase were for consultants which assisted in the
completion of both the new software and hardware products,
prototype and preproduction units and continued efforts on the next product
release for the MAPfamily of product to be announced in the third quarter. The
balance of the Engineering and development increase was for
additional costs to improvements performance of the machine
code reader and reduce it's cost. Scanalytics engineering and
development expense decreased by 18% and 14% for the three and
six month periods ended February 28, 1997 compared to the prior
comparable periods of fiscal 1996.
Sales and marketing expenses as a percentage of sales for the
three and six months ended February 28, 1997 decreased to 26% and
28% from 37% and 32% for the prior comparable periods. Total
sales and marketing expense decreased approximately $492,000 and
$499,000 for the three and six months periods ended February 28,
1997 compared to the three and six months periods ended March 1,
1996. Embedded Computer product sales group and marketing expense
accounted for approximately 48% and 50% of total sales and
marketing expense for the three and six months periods ended
February 28, 1997. The decreased Embedded Computer product expense sales
and marketing expense were $399,000 and $435,000 for the
three and six months periods ended March 1, 1996 compared to the
prior comparable periods. The decrease for the three and six
months periods was mainly attributable to the restructure and
attrition in personnel in the department, reduced promotional and
commission expenses. This represents 87% of the toal reduction
in expenses. The Scanalytics division sales and marketing
expense accounted for approximately 38% and 37% of the total
sales and marketing expense for the three and six months periods
ended February 28, 1997 compared to 28% and 30% for the prior
comparable periods. The total Scanalytics sales and marketing
expense decreased $38,000 to $377,000 and $804,000 for the three
and six months periods ended February 28, 1997 compared to
$415,000 and $804,000 for the prior comparable periods. This
decrease was primarily attributable to reduction in staff in the
customer support and sales areas. Vision Systems sales and
marketing expense accounted for approximately 14% and 13% of the
total sales and marketing expense for the three and six months
periods ended February 28, 1997 compared to 13% and 13% for the
prior comparable periods. This represented a decrease for both
the three and six months periods due to a decrease in promotional
activities, travel, reduction in staff and redeployment of
senior staff to the Embedded Computer group.
General and administrative expenses as a percentage of sales
decreased 2% to 12% and 12% for the three and six months periods
ended February 28, 1997 compared to the comparable periods. The
main reason for the reduction was the in the prior year
approximately $220,000 was expensed for the one time charges
related to the departure of the Chief Executive Officer
Other income which is principal from income on the securities
held by the Company was approximately the same as the prior year.
The Company continues its conservative investment strategy of
maintaining a short-term liquid position while maximizing
revenues on an after-tax basis with as limited an exposure of
principal as possible. The Company believes that as a result of
maintaining a liquid position, it has been able to avoid
borrowing for capital needs as well as augment its operating
results, and is well positioned to make an acquisition or a joint
venture if appropriate opportunities arise
Subsequent event:
The Company announced on March 25, 1997 that it had consolidated
and restructured it`s operations. This action was taken by
management today because of the anticipated fluctuating revenue
over the next several quarters of this product transition. CSPI
eliminated fourteen positions, primarily in its manufacturing
and Vision Systems operations. The Company, also consolidated
the Embedded Computer and Vision Systems product groups into one
organization. These actions will represent an annual savings of
approximately $1 million and there is a one-time restructuring
third quarter expense of approximately $125,0000. This action
was deemed necessary to reduce the operating expenses during
this period of transition to our next generation MAP-1000 and
2000 product lines. The new products will not significantly
effect revenues in the current fiscal year, but will begin to
ramp up in 1998.
Financial Positions and Capital Resources and Liquidity:
Working capital increased to $22.9 million at February 28, 1997
from $22.8 million at the end of August 1996. Net accounts
receivable decreased approximately $972,000 from August 30, 1996.
The decrease was mainly due to collection efforts and decreased
revenue. Inventory decreased $88,000 from the level reported at
August 30, 1996. The Prepaid expenses increased due to the end
of life purchase of real time software runtime licenses from a
Canadian vendor which are needed for certain real time
applications such as the Machine Coded readers and other COT
programs. The purchase was approximately $700,000. Management
believes that it has an adequate quantities to fulfill the
requirements of our customers.
Management believes that all of the Company's current and
foreseeable needs can be met through working capital generated by
operations and investments.
Inflation and Changing Prices:
Management does not believe that inflation and changing prices
had significant impact on either sales or revenues or income from
continuing operations during the three and six month periods
ended February 28, 1997. There is no assurance, however, that
the Company's business will not be materially and adversely
affected by inflation and changing prices in the future.
CSP, INC. AND SUBSIDIARIES SCHEDULE I
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE OF SALES
(Dollars in thousands)
(Unaudited)
/--For the three months---/ /----For the six months---/
ended ended
Feb. Mar. Feb. Mar.
28, 1, 28, 1,
1997 % 1996 % 1997 % 1996 %
Sales $3,765 100% $4,015 100% $7,774 100% $8,384 100%
Costs and expenses:
Cost of sales 1,555 41% 1,629 41% 3,280 42% 3,383 40%
Engineering and 995 26% 757 19% 1,837 24% 1,460 17%
development
Marketing and sales 980 26% 1,472 37% 2,174 28% 2,673 32%
General and 453 12% 579 14% 895 12% 1,102 13%
administrative
Total cost and 3,983 106% 4,437 111% 8,186 105% 8,618 103%
expenses
Operating income (218) -6% (422) -11% (412) -5% (234) -3%
(loss)
Other income 216 6% 191 5% 414 5% 414 5%
Income before income (2) 0% (231) -6% 2 0% 180 2%
taxes
Income tax expense (4) 0% (98) -2% (7) 0% 95 1%
(benefit)
Net income $2 0% ($133) -3% $9 0% $85 1
CSP, INC. AND SUBSIDIARIES SCHEDULE II
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD TO PERIOD DOLLAR AND PERCENTAGE CHANGE
(Dollars in thousands)
(Unaudited)
/-For the three months-/ /-For the six months--
/
ended ended
February 28, 1997 vs March 1, 1996
$ % $ %
Change Change Change Change
Sales ($250) -6.2% -7.3%
($610)
Costs and expenses:
Cost of sales (74) -4.5% -3.0%
(103)
Engineering and development 238 31.4% 377 25.8%
Marketing and sales (492) -33.4% -18.7%
(499)
General and administrative (126) -21.8% -18.8%
(207)
Total cost and expenses (454) -10.2% -5.0%
(432)
Operating income (loss) 204 -48.3% 76.1%
(178)
Other income 25 13.1% 0 0.0%
Income before income taxes 229 -99.1% -98.9%
(178)
Income tax expense (benefit) 94 -95.9% -107.4%
(102)
Net income $135 -101.5% -89.4%
($76)
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security
Holders
The Company held its Annual Meeting of
Stockholders on December 10, 1996. The
following matter was approved at the meeting.
1) Boruch B. Frusztajer and Sandford D. Smith
were elected as Class I members for a term of
three years and Alexander R. Lupinetti was
elected as a Class III member of the Board of
Directors for a two-year term.
Item 6. Exhibit and Reports on Form 8-K
a) Reports on Form 8-K
NONE
b) Exhibits
11.0 Data used in the calculation of net income
per share.
27.0 Financial Data Schedule
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: April 11, 1997 By: s/s Alexander R. Lupinetti
Chief Executive Officer
and President
Date: April 11, 1997 By: s/s Gary W. Levine
Vice President of Finance
and Chief Financial Officer