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 November 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:(978)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 January 9, 1998
Common stock, $.01 par value 2,681,370 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)
November 28, August 29,
1997 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $3,220 $4,344
Marketable securities 8,384 5,581
Accounts receivable, net 12,585 8,584
Income tax receivable 37
Inventories (Note 1) 5,954 6,227
Deferred income taxes 514 504
Prepaid expenses 1,207 1,301
Total current assets 31,864 26,578
Property, equipment and improvements, net 3,698 3,856
Other assets:
Land held for future development 163 163
Deferred income taxes 934 880
Goodwill, net 1,329 1,562
Other assets 2,125 1,960
Total other assets 4,551 4,565
Total assets $40,113 $34,999
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $12,237 $7,738
Income taxes payable 333 0
Total current liabilities 12,570 7,738
Deferred compensation and retirement 2,306 2,240
plans
Shareholders' equity:
Common stock, $.01 par, authorized
7,500,000 shares; issued 2,987,684
and 2,957,284 shares 30 30
Paid in capital 10,593 10,593
Retained earnings 16,836 16,676
Equity adj.from foreign currency trans (155) (211)
27,304 27,088
Less treasury stock, at cost, 301,314
shares (Note 2) 2,067 2,067
Total shareholders' equity 25,237 25,021
Total liabilities and shareholders' equity $40,113 $34,999
See notes to consolidated financial statements
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
/-For the three months--/
November November
28, 29,
1997 1996
Sales
Systems 3,269 3,639
Software 1,148 236
Service 12,389 135
Total sales 16,806 4,010
Costs and expenses, net:
Cost of sales
Systems 1,333 1,686
Software 494 29
Service 10,708 10
Total cost of sales 12,535 1,725
Engineering and development 910 842
Marketing and sales 2,321 1,194
General and administrative 929 442
Total costs and expenses,net 16,695 4,203
Operating income (loss) 111
(193)
Other income 215 198
Income before income taxes 326 5
Income tax expense (benefit) 166
(3)
Net income $160 $8
Earnings per share $0.06 $0.00
Weighted average shares 2,700 2,686
outstanding
See accompanying notes to consolidated financial statements.
CSP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
/---For the three-----/
months ended
November November
28, 29,
1997 1996
Cash flows from operating
activities:
Net income $160 $8
Adjustments to reconcile net income
to
net cash provided by operating
activities:
Unreal.(gain)loss on mark. sec. (3) 1
Depreciation 333 286
Deferred compensation and 66 60
retirement
plans
Deferred income taxes (64) 2
Changes in current assets and
liab.:
(Increase)decrease in accounts (4,001) 1,229
receivable
(Increase)decrease in inventories 273 (213)
(Increase)decrease in prepaid 94 (82)
expenses
Increase(decrease) in accounts 4,499 (22)
payable
and accrued expenses
Increase(decrease) in income 370 (121)
taxes
payable 1,727 1,148
Net cash provided by operating
activities
Cash flows from investing
activities:
Purchase of marketable securities (6,573) (59,565)
Sale of marketable securities 3,773 58,214
Property, equipment and 58 (186)
improvements
Other assets (165) (1)
Net cash used in investing (2,907) (1,538)
activities
Cash flows from financing
activities:
Proceeds from stock options 0 11
Purchase of treasury stock ---- ----
Net cash provided by financing
activities 0 11
Effect of exchange rate on cash 56 0
Net decrease in cash (1,124) (379)
Cash and cash equivalents, beg. of 4,344 10,928
year
Cash and cash equivalents, end of $3,220 $10,549
year
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 29, 1997.
1. Inventories:
Inventories consist of the following:
November 28, August 29,
1997 1997
Raw materials $1,703 $3,922
Work in process 1,079 918
Finished goods 3,172 1,387
Total $5,954 $6,227
2. Stock Repurchase:
On October 9, 1986 the Board of Directors authorized the Company
to repurchase up to 282,723 shares 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 November 28, 1997 the Company has repurchased 306,314 or
71% 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 Statements of Operations is shown in Schedules I
and II ( pages 12 and 13 ).
Results of Operations - 1998 Compared to 1997:
Revenues of $16,806,000 for the three month period ended
November 28, 1997 increased by $12,796,000 over the prior fiscal
year. The dramatic increase was primarily due to the June 27,
1997 acquisition of MODCOMP Inc.(MODCOMP). This is the first
reporting period that CSP Inc. had full three months of revenue
and expense for the recent acquisitions of MODCOMP and Signal
Analytics Corp. (consolidated into wholly-owned subsidiary
Scanalytics Inc. (Scanalytics) which were completed in the
fourth quarter. During the current three month period ended
November 28, 1997, MODCOMP's German subsidiary made a systems
integration sale of $5,600,000 to VIAG Intercom, a mobile
Telecommunication Company located in Germany.
MODCOMP sales represented 84% of the revenues for the quarter.
Sales of integrated systems and services represented 88%
of MODCOMP's total sales.
Sales of the CSP Multicomputing products (CSP) represented
approximately 13% of total sales revenue for the three month
period ended November 28, 1997. This represents a 23% decrease
in sales from the prior comparable three month period. The
SuperCard family of products continues to be the major source of
revenue and represented 77% of current year product groups
revenue compared to 44% in the prior year. SuperCards are sold
only to existing customers. Sales of the new 2000 series products
were approximately 11% of product group revenue for the first quarter.
The new product, which was initially shipped during the fourth quarter
of the prior fiscal year, will take some time to gain sales momentum
and acceptance in the market. It traditionally takes a year or two
for new products to gain acceptance and deployment by customers.
Initial sales have been for development units that are to be tested
and qualified for future deployment into various defense and commercial
programs. Sales of the Lighting 500 machine code readers (formerly
called Vision Systems, is currently consolidated into the CSP
Multicomputing product group) was less than one percent of total revenue
for the current quarterly period, compared to approximately 25% of total
revenue for the comparable period of the prior year. There are no
current orders for machine code readers from UPS, but we
anticipate an order for units during the second quarter of
fiscal year 1998.
Scanalytics (which sells hardware and software products for
imaging for scientific applications) represented 2% of total
revenue for the quarter. Scanalytics is currently selling
primarily software products to the scientific community. The
sales volume has declined by approximately 50% from the first
quarter of the prior fiscal year. The decline in sales was due to
the reduction in orders for CellScan imaging systems.
Scanalytics has changed its focus on offering the software for
the CellScan products rather than reselling the hardware
components in an effort to sell large volume of the product and
reduce the selling cycle, which was approximately one year. The
strategy is to increase the software content and thus improve the
profitability of the Company. This will mean a reduction in total
sales dollars due to the elimination of the sale of third party products
at lower gross profit margins.
Geographic sales have changed dramatically due to the MODCOM
acquisition. MODCOMP has significant European sales through its
wholly-owned subsidiaries in Germany, France and Great Britain.
European sales for all Companies was 67% of total revenue. North
American sales were approximately 32% of total revenue for the three
month period. Sales in the rest of the world accounted for
approximately 1% for the three month period ended November 28,
1997
Cost of sales as a percentage of sales was approximately 75% for
the three months ended November 28, 1997, compared to 43% for the
prior comparable period. The significant change in cost of sales
was primarily due to the change in business mix after the recent
acquisition of MODCOMP. The sales mix has significantly increased
with increased systems integration, third party products sales
and service revenues which have lower margins than our
traditional computer product sales. We have broken out the sales
and cost of sales in the major product categories to better show
the relationship between sales and cost of sales under the new
organization. It should be noted that future cost of sales will
be at lower levels than historical rates due to the addition of
MODCOMP, but each period's cost of sales will depend on the sales
mix.
Engineering and development expense were $910,000 for the three
month period ended November 28, 1997 which was an increase
of $68,000 over the comparable period of the prior fiscal year.
During the quarter the Company licensed technology from Sanders,
a Lockheed Martin Company. This one-time charge represented
approximately 11% of the total expense. When the product begins
to be shipped, royalties will be remitted to Sanders. Expenses
for CSP, which represented approximately 66% of the total,
decreased by approximately 18% from the completion of 1000 and
2000 Series products hardware and software offering based on
Analog Devices' 21060 and Motorola's/IBM Power PC due to
reductions in outside services and consultants to assist in the
completion of the projects. CSP had a reduction in the
engineering staff of two individuals as compared to the prior
fiscal year. Engineering and development expenses for MODCOMP
represented 29% of the total. Scanalytics had a decrease in
engineering expenses for the period due to increased sales &
marketing efforts and consolidation of operations. Scanalytics
engineering expenses represented approximately 5% of the total.
Sales and marketing expenses increased by $1,127,000 to
$2,321,000 for the three months ended November 28, 1997 as
compared to the first quarter of the prior fiscal year. MODCOMP
expenses represented 57% of the total sales and marketing expense
for the period. Scanalytics expenses were approximately 18% of
the total and were approximately at the same level as the prior
fiscal year. CSP represented 25% of the total sales and marketing
expenses and decreased by 23% from the prior year. The decrease
was due to lower sales commissions and reduction in staff of
approximately four employees.
General and administrative expenses increased by $487,000 over
the comparable period of the prior year. MODCOMP's general and
administrative expenditures represented 47% of the total expenses
and represented approximately 90% of the increase over the prior
year. The general and administrative expenses for CSP represented
53% of the total. CSP general and administrative expenses
increased by approximately 12% from the prior year due to
additional expenses for the legal and accounting services
required for the new organization which more than offset
reductions in staff.
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.
The Company had a high tax rate of approximately 51% for the
quarter due to the significant income of the foreign operations
of MODCOMP. The subsidiaries are foreign corporations which don't
have any tax credits or loss carryovers to offer current
benefits. In addition, the subsidiaries can't be consolidated
into the U.S. Corporation tax returns.
Financial Positions and Capital Resources and Liquidity:
Working capital increased to $19.3 million at November 28, 1997,
from $18.8 million at the end of August 1997. Net accounts
receivable increased approximately $4,001,000 from August 29,
1997. The increase was due to the large shipment of $5.6 million
by the German subsidiary of MODCOMP at the end of November, 1997.
Inventory decreased $273,000 from the level reported at August
29, 1997. Management believes that it has adequate quantities
to fulfill the requirements of customer's needs for the end of
their programs.
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, revenues or income from
continuing operations during the three month period ended
November 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.
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 peripherals and computer
products, biological imaging software and 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.
Management has reviewed the Company's systems relating to the
year 2000 concerns and believes that the costs for compliance
will not be material to the Company.
CSP, INC. AND SUBSIDIARIES SCHEDULE I
CONSOLIDATED STATEMENTS OF OPERATIONS
PERCENTAGE OF SALES
(Dollars in thousands)
(Unaudited)
/--For the three months---/
ended
Nov. Nov.
28, 29,
1997 % 1996 %
<C)
Sales 16,806 100% 4,010 100%
Costs and expenses:
Cost of sales 12,535 75% 1,725 43%
Engineering and 910 5% 842 21%
development
Marketing and sales 2,321 14% 1,194 30%
General and 929 6% 442 11%
administrative
Total costs and 16,695 99% 4,203 105%
expenses
Operating income 111 1% (193) -5%
(loss)
Other income 215 1% 198 5%
Income before income 326 2% 5 0%
taxes
Income tax expense 166 1% (3) 0%
(benefit)
Net income 160 1% 8 0%
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-/
ended
November 28, 1997 vs November 29, 1996
$ %
Change Change
Sales 12,796 319%
Costs and expenses:
Cost of sales 10,810 627%
Engineering and development 68 8%
Marketing and sales 1,127 94%
General and administrative 487 110%
Total costs and expenses 12,492 297%
Operating income (loss) 304 312%
Other income 17 9%
Income before income taxes 321 6420%
Income tax expense (benefit) 169 5633%
Net income $152 1900%
PART II. OTHER INFORMATION
Item 4. Submissions of Matters to a vote of Security
Holders
The Company will hEld a Special Meeting in
Lieu of Annual Meeting of Stockholders on January
8, 1997. Various matters were submitted to the
shareholders for approval in a Proxy dated
November 28, 1997
Item 6. Exhibit and Reports on Form 8-K
a) Reports on Form 8-K
Acquired all assets and subsidiaries of
MODCOMP/Cerplex L.P. of Ft. Lauderdale, Florida
and included audited financial statements for
MODCOMP as indicated in Amendment 1, dated
September 11, 1997.
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: January 9, 1998 By: s/s Alexander R. Lupinetti
Chief Executive Officer
and President
Date: January 9, 1998 By: s/s Gary W. Levine
Vice President of Finance
and Chief Financial Officer