SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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: February 28, 1995
-----------------
[ ] 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: 0-14779
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DATA TRANSLATION, INC.
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(Exact name of registrant as specified in its charter)
Massachusetts 04-2532613
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of organization or incorporation)
100 Locke Drive
Marlborough, Massachusetts
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(Address of principal executive offices)
01752
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(Zip code)
(508) 481-3700
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(Registrant's telephone number, including area code)
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 ________
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, par value $.01 per share 2,998,612 shares
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Class Outstanding at March 31, 1995
Page 2 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
INDEX
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Page No.
Financial Information: --------
Consolidated Balance Sheets as of
November 30, 1994 and February 28, 1995 ................ 3
Consolidated Statements of Operations for the
Three Months Ended February 28, 1994 and
February 28, 1995 .................................... 4
Consolidated Statements of Stockholders' Equity
For the Fiscal Year Ended November 30, 1994
and the Three Months Ended February 28, 1995 ......... 5
Consolidated Statements of Cash Flows for the
Three Months Ended February 28, 1994 and
February 28, 1995 .................................... 6
Notes to Consolidated Financial Statements ............... 7-9
Management's Discussion and Analysis of
Financial Condition and Results of Operations .......... 10-11
Part II - Other Information ................................ 12
Signatures ................................................. 13
Page 3 of 13
DATA TRANSLATION, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
November 30 February 28
1994 1995
----------- -----------
(unaudited)
Current Assets:
Cash and cash equivalents $ 1,592,000 $ 2,517,000
Marketable securities (Note 2) 2,487,000 9,747,000
Accounts receivable, net of reserves of
$435,000 in 1994 and $495,000 in 1995 9,045,000 9,675,000
Inventories 2,759,000 4,237,000
Prepaid expenses 647,000 1,010,000
Prepaid income taxes 61,000 61,000
---------- ----------
Total current assets 16,591,000 27,247,000
Equipment and Leasehold Improvements, net 2,367,000 2,320,000
Other Assets - net 241,000 261,000
---------- ----------
Total Assets $19,199,000 $29,828,000
========== ==========
Current Liabilities:
Accounts payable $ 3,745,000 $ 4,502,000
Due to related party 546,000 273,000
Accrued expenses 3,922,000 4,332,000
---------- ----------
Total current liabilities 8,213,000 9,107,000
Deferred Income Taxes 2,000 3,000
Stockholders' Equity:
Preferred Stock, $.01 par value,
Authorized - 1,000,000 shares, none issued - -
Common Stock, $.01 par value,
Authorized - 10,000,000 shares, issued -
3,383,000 in 1994 and 3,421,000 in 1995 34,000 34,000
Capital in excess of par value 8,773,000 14,893,000
Retained earnings 6,894,000 7,601,000
Cumulative translation adjustment 64,000 110,000
Less treasury stock, at cost, 1,127,000
shares in 1994 and 435,000 shares in 1995 (4,781,000) (1,843,000)
Reserve for unrealized investment losses - (77,000)
---------- ----------
Total stockholders' equity 10,984,000 20,718,000
---------- ----------
Total Liabilities and Stockholders' Equity $19,199,000 $29,828,000
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 4 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
-----------------------
February 28, February 28,
1994 1995
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Net sales:
Digital media $ 1,623,000 $ 5,207,000
Data acquisition and imaging 5,943,000 5,775,000
Networking distribution 3,386,000 3,855,000
---------- ----------
Total net sales 10,952,000 14,837,000
Cost of sales 5,890,000 7,711,000
---------- ----------
Gross profit 5,062,000 7,126,000
Research and development expenses 1,697,000 1,683,000
Selling and marketing expenses 2,811,000 3,936,000
General and administrative expenses 805,000 916,000
---------- ----------
Income (loss) from operations (251,000) 591,000
Interest income 35,000 143,000
Interest expense (1,000) (8,000)
Other expense (27,000) (5,000)
---------- ----------
Income (loss) before income taxes (244,000) 721,000
Income tax expense 12,000 14,000
---------- ----------
Net income (loss) $ (256,000) $ 707,000
========== ==========
Net income (loss) per common share $ (0.12) $ 0.22
===== =====
Weighted average number of common and
common equivalent shares outstanding 2,162,000 3,211,000
The accompanying notes are an integral part of these
consolidated financial statements.
Page 5 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock
$.01 Par Value
------------------------------- Reserve for
Capital in Cumulative unrealized Total
Issued Excess of Retained Translation Treasury investment Stockholders'
Shares Amount Par Value Earnings Adjustment Stock losses Equity
--------- -------- ---------- --------- ----------- ---------- ---------- -------------
Balance November 30, 1993 3,282,000 $33,000 $8,322,000 $6,574,000 ($102,000) ($4,781,000) - 10,046,000
Proceeds from stock plans 124,000 1,000 762,000 - - - - 763,000
Effect of stock-for-stock
exercise (23,000) - (311,000) - - - - (311,000)
Translation adjustment - - - - 166,000 - - 166,000
Net income - - - 320,000 - - - 320,000
--------- -------- ---------- -------------------- ---------- -------- -----------
Balance November 30, 1994 3,383,000 $34,000 $8,773,000 $6,894,000 $64,000 ($4,781,000) - $10,984,000
Proceeds from stock plans 38,000 - 256,000 - - - - 256,000
Public sale of treasury stock, net
of issuance costs of $375,000 - - 5,864,000 - - 2,938,000 - 8,802,000
Translation adjustment - - - - 46,000 - - 46,000
Net income - - - 707,000 - - - 707,000
Reserve for unrealized
investment losses - - - - - - ($77,000) (77,000)
--------- -------- ---------- -------------------- ---------- -------- -----------
Balance February 28, 1995 3,421,000 $34,000 $14,893,000 $7,601,000 $110,000 ($1,843,000) ($77,000) $20,718,000
========= ======== ========== ==================== ========== ======== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 6 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended:
February 28, February 28,
1994 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (256,000) $ 707,000
Adjustments to reconcile net income (loss) to
net cash used in operating activities-
Depreciation and amortization 434,000 418,000
Gain on sale of equipment (1,000) (2,000)
Loss on sale of marketable securities 1,000 -
Change in assets and liabilities-
Accounts receivable (1,378,000) (630,000)
Inventories (285,000) (1,478,000)
Prepaid expenses (30,000) (363,000)
Prepaid income taxes 3,000 -
Bank overdraft 78,000 -
Accounts payable 624,000 757,000
Due to related party (273,000) (273,000)
Accrued expenses 172,000 410,000
--------- ---------
Net cash used in operating activities $ (911,000) $ (454,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (240,000) (340,000)
Proceeds from sale of equipment - 5,000
Increase in other assets (62,000) (45,000)
Purchases of marketable securities (557,000) (7,345,000)
Proceeds from sales of marketable securities 660,000 8,000
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Net cash used in investing activities $ (199,000) $ (7,717,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock plans 88,000 256,000
Net proceeds from public sale of treasury stock - 8,802,000
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Net cash provided by financing activities $ 88,000 $ 9,058,000
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EXCHANGE RATE EFFECTS 29,000 38,000
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (993,000) $ 925,000
CASH AND CASH EQUIVALENTS, beginning of period 1,528,000 1,592,000
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 535,000 $ 2,517,000
========= =========
OTHER TRANSACTIONS NOT PROVIDING (USING) CASH
Decrease in marketable securities - 77,000
Increase in reserve for unrealized investment loss - (77,000)
--------- ---------
$ - $ -
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ - $ 1,000
========= =========
Cash paid for interest $ 1,000 $ 8,000
========= =========
The accompanying notes are an integral part of these
consolidated financial statements.
Page 7 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
In the opinion of management, these unaudited consolidated
financial statements and disclosures reflect all adjustments necessary
for fair presentation. The results of operations for the interim periods
are not necessarily indicative of the results to be expected for the
full year.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is
suggested that these consolidated condensed financial statements be
read in conjunction with the consolidated financial statements and the
notes thereto included in the Company's latest audited financial
statements, which are contained in the Company's 1994 Annual Report
on Form 10-K, filed with the Securities and Exchange Commission on
February 28, 1995.
2. Cash Equivalents and Marketable Securities
Cash equivalents are carried at cost which approximates
market value and have maturities of less than three months. Cash
equivalents include money market accounts and U.S. Treasury bills.
Marketable securities held as of February 28, 1995, consist
of the following:
Maturity Market Value
---------------------------------
Investments held to maturity:
U.S. Treasury Bills 4-10 months $7,330,000
Investments available for sale:
U.S. Treasury Strips less than 1 year $ 377,000
U.S. Treasury Notes 1 - 5 years 1,168,000
U.S. Agency Bonds 1 - 5 years 380,000
U.S. Agency Bonds 6 - 10 years 180,000
--------
Total U.S. Agency Bonds 560,000
Utility Bonds 1 - 5 years 286,000
U.S. Agency Passthroughs 6 - 10 years 10,000
U.S. Agency Passthroughs 10+ years 16,000
--------
Total Investments Available for Sale $2,417,000
=========
Marketable securities had a cost of $2,600,000 and $9,824,000
at November 30, 1994 and February 28, 1995, respectively, and a market
value of $2,487,000 and $9,747,000, respectively. To reduce the carrying
amount of the portfolio to market value, a valuation allowance in the
amount of $113,000 and $77,000 for November 30, 1994 and February 28,
1995 was established with a corresponding charge to net income on
November 30, 1994 and as a separate component of shareholders' equity
on February 28, 1995 due to the Company's adoption of the provisions
of Statement of Financial Accounting Standard (SFAS) No. 115,
"Accounting of Certain Investments in Debt and Equity Securities" as
of December 1, 1994.
Page 8 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. Inventories
Inventories are stated at the lower of first-in,
first-out (FIFO) cost or market and consist of the following:
November 30, February 28,
1994 1995
----------- -----------
Raw materials $ 617,000 $ 982,000
Work-in-process 434,000 670,000
Finished goods 1,708,000 2,585,000
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$ 2,759,000 $ 4,237,000
========= =========
Work-in-process and finished goods inventories include material,
labor and manufacturing overhead. Management performs periodic
reviews of inventory and disposes of items not required by their
manufacturing plan.
4. Net Income (Loss) Per Common Share
Net income (loss) per common share is based upon dividing net
income (loss) by the weighted average number of common shares out-
standing during each period. Common equivalent shares have been
included for any period where their effect is dilutive. Fully diluted
net income (loss) per common share has not been separately presented,
as the amounts would not be materially different from the amounts
presented.
5. Contingencies
From time to time the Company is involved in disputes and/or
litigation encountered in its normal course of business. The Company
does not believe that the ultimate impact of the resolution of any
outstanding matters will have a material effect on the Company's
financial condition or results of operations.
6. Capitalized Software Development Costs
The Company capitalizes certain computer software development
costs. Such costs, net of accumulated amortization, were approximately
$215,000 and $235,000 as of November 30, 1994 and February 28, 1995,
respectively and are included in other assets. These costs are
amortized on a straight-line basis over two years which approximates
the life of the product. Amortization expense, included in cost of
goods sold, was approximately $45,000 and $25,000 for the three months
ended February 28, 1994 and 1995, respectively.
7. Income Taxes
In February 1992, the Financial Accounting Standards Board
issued SFAS No. 109, "Accounting for Income Taxes." The Company
adopted the provisions of SFAS No. 109 on December 1, 1993. There was
no effect on net income of adopting the provisions of SFAS No. 109.
Page 9 of 13
DATA TRANSLATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
7. Income Taxes (continued)
The tax provision of $14,000 for the first quarter of fiscal
1995 compares to a tax provision of $12,000 in fiscal 1994. Any
potential tax provision resulting from operating income by the
Company's domestic operations has been offset by net operating loss
carryforwards.
The components of the net deferred tax amount recognized in
the accompanying balance sheets are:
November 30, February 28,
1994 1995
------------ -------------
Deferred tax assets $ 3,563,000 $ 3,392,000
Deferred tax liabilities (271,000) (275,000)
Valuation allowance (3,294,000) (3,120,000)
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$ (2,000) $ (3,000)
========== ==========
The approximate tax effect of each type of temporary difference
and carryforward before allocation of the valuation allowance is:
Net operating losses $ 1,638,000 $ 1,313,000
Other temporary differences 989,000 1,099,000
Alternative minimum tax credits 50,000 50,000
General business credits 615,000 655,000
---------- ----------
$ 3,292,000 $ 3,117,000
========== ==========
The tax credit and net operating loss carryforwards expire
at various dates through 2008. Due to the uncertainty surrounding
the timing of realizing the benefits of its favorable tax attributes
in future tax returns, the Company has placed a valuation allowance
against its otherwise recognizable net deferred tax assets.
The United States Tax Reform Act of 1986 contains provisions
which may limit the net operating loss and tax credit carryforwards
available to be used in any given year in the event of significant
changes in ownership, as defined.
Page 10 of 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table shows certain consolidated statement
of operations data as a percentage of total net sales.
Three Months
Ended
February 28,
--------------------
1994 1995
---- ----
Net sales:
Digital media........................... 14.8% 35.1%
Data acquisition and imaging............ 54.3 38.9
Networking distribution................. 30.9 26.0
----- -----
Total net sales............................. 100.0 100.0
Gross margin................................ 46.2 48.0
Research and developement expenses.......... 15.5 11.3
Selling and marketing expenses.............. 25.7 26.5
General and administrative expenses......... 7.3 6.2
----- -----
Income (loss) from operations............... (2.3) 4.0
Interest income (expense) and other, net.... 0.1 0.9
Provision for income taxes.................. 0.1 0.1
----- -----
Net income (loss)........................... (2.3)% 4.8%
===== =====
Comparison of First Fiscal Quarter of 1995 to
First Fiscal Quarter of 1994:
Total net sales for the fiscal quarter ended February 28, 1995
were $14,837,000, which was an increase of 35.5% or $3,885,000 from
the same period a year ago. This increase was primarily a result of
higher net sales from the Company's digital media product, Media
100(R), which accounted for $5,207,000 or 35.1% of the Company's total
net sales compared to $1,623,000 or 14.8% in the same period a year
ago. This marks the seventh consecutive quarter of increased sales
from Media 100 which began shipping in August of 1993. Networking
distribution sales increased $469,000 or 13.9% from the comparable
quarter in 1994 to $3,855,000 or 26% of the Company's total net sales.
Net sales from the Company's data acquisition and imaging products were
down 2.8% or $168,000 compared to the first quarter of fiscal 1994.
While total net sales increased 35.5%, cost of sales increased
only by 30.9% of total net sales. As a result, the gross margin
increased to 48.0% of total net sales compared to 46.2% in the
comparable quarter of the prior year. The increase in gross margin
was primarily a result of higher gross margins on networking
distribution sales as compared to the previous year. The gross margin
improvement was also attributable, to a lesser extent, to the decrease
in networking distribution sales as a percentage of total net sales as
the margin on networking distribution sales are much lower than the
Company's own manufactured product sales.
Page 11 of 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Comparison of First Fiscal Quarter of 1995 to
First Fiscal Quarter of 1994 (continued):
The income from operations for the first fiscal quarter of
1995 was $591,000, compared to a loss of $251,000 in the comparable
quarter of the prior year. The operating income reflects the higher
net sales and gross margins as mentioned above, offset by an increase
in operating expenses of $1,222,000. Selling and marketing expenses
increased by $1,125,000 largely due to the additional cost associated
with the sales and promotion of Media 100. General and administrative
expenses were up slightly from the comparable quarter while research
and development expenses remained relatively the same.
The tax provision of $14,000 for the first fiscal quarter of
1995 compares to a tax provision of $12,000 in fiscal 1994. Any
potential tax provision resulting from operating income by the
Company's domestic operations has been offset by net operating loss
carryforwards.
The net income for the fiscal quarter ended February 28, 1995
was $707,000 compared to a net loss of $256,000 for the same period
in 1994. As a result, net income per share was $0.22 compared to a
net loss per share of $0.12 for the first quarter of 1994.
Liquidity and Capital Resources
During the first fiscal quarter of 1995, the Company's
cash and cash equivalents balance increased by $925,000. This
increase was primarily a result of a public stock offering generating
net proceeds of approximately $8,802,000. The net proceeds were
invested in U.S. Treasury bills with maturities ranging from three
months to less than one year. Net cash used by operations was $454,000
reflecting higher working capital requirements for the Company's
growing operations.
At the end of February, the Company had available an unused
line of credit in the United Kingdom equivalent to approximately
$600,000.
The Company plans to fund and support a business plan which
includes continuing investment in research and development for both
the digital media and other product areas. The Company believes that
the net proceeds from its recent stock offering, together with cash
generated from future operations, will be sufficient to meet the
Company's cash requirements for the foreseeable future.
Page 12 of 13
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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a) Exhibits
Exhibit
Number Description
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27 Financial Data Schedule
b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter
for which this report is filed.
Page 13 of 13
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.
Data Translation, Inc.
Date: April 13, 1995 By: /s/ Ellen W. Harpin
--------------------------------
Ellen W. Harpin
Vice President & Treasurer
(Principal Financial Officer)
Date: April 13, 1995 By: /s/ Gary B. Godin
--------------------------------
Gary B. Godin
Chief Accounting Officer &
Corporate Controller