Exhibit 13.1
CSP INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
FISCAL YEAR ENDED AUGUST
-------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
OPERATING STATEMENT DATA:
Sales $ 63,468 $ 19,540 $ 16,520 $ 18,526 $ 19,460
Costs and expenses 61,262 21,590 17,169 18,725 17,425
Operating income (loss) 2,206 (2,050) (649) (199) 2,035
Other income 470 885 886 821 478
Income (loss) before income taxes 2,676 (1,165) 237 622 2,513
Provision (benefit) for income taxes 1,314 (444) 129 237 794
Net income (loss) $ 1,362 ($ 721) $ 108 $ 385 $ 1,719
-------- -------- -------- -------- --------
Net income (loss) per share - basic $ 0.42 ($ 0.22) $ 0.03 $ 0.12 $ 0.52
-------- -------- -------- -------- --------
Weighted average number of shares - basic 3,265 3,246 3,226 3,223 3,323
-------- -------- -------- -------- --------
Net income (loss) per share - diluted $ 0.41 ($ 0.22) $ 0.03 $ 0.12 $ 0.50
-------- -------- -------- -------- --------
Weighted average number of shares - diluted 3,340 3,246 3,267 3,276 3,406
-------- -------- -------- -------- --------
BALANCE SHEET DATA:
Cash and marketable securities $ 13,548 $ 9,925 $ 17,055 $ 17,651 $ 15,611
Working capital 22,096 19,882 22,800 22,862 23,085
Total assets 37,528 34,999 29,536 29,279 29,936
Long term obligations 3,363 3,282 2,093 1,943 1,804
Total liabilities 11,137 9,978 3,732 3,554 3,695
Retained earnings 18,032 16,670 17,397 17,224 16,839
Shareholders' equity 26,391 25,021 25,804 25,725 26,241
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
The following table sets forth certain information which is based on
Operations Statements Data:
PERIOD-TO-PERIOD
DOLLAR CHANGES
(AMOUNTS IN THOUSANDS)
PERCENTAGE OF SALES -----------------------------
FISCAL YEAR ENDED AUGUST 1998 1997
------------------------------------------- COMPARED TO COMPARED TO
1998 1997 1996 1997 1996
-------- -------- -------- ----------- -----------
SALES: 100.0 %100.0% 100.0% $43,928 $3,020
COSTS AND EXPENSES:
Cost of sales 67.5% 54.0% 40.3% 32,305 3,887
Engineering and development 6.4% 17.2% 20.1% 712 35
In process research and development -- 2.8% -- (550) 550
Selling, general & administrative 22.3% 35.5% 43.5% 7,230 (244)
Restructuring 0.3% 1.0% -- (25) 193
------- ------- ------ ------ ------
Total costs and expenses 96.5% 110.5% 103.9% 39,672 4,421
------- ------- ------ ------ ------
Operating income (loss) 3.5% (10.5)% (3.9)% 4,256 (1,401)
Other income 0.7% 4.5% 5.4% (415) (1)
------- ------- ------ ------ ------
Income (loss) before taxes 4.2% (6.0)% 1.5% 3,841 (1,402)
Provision (benefit) for income taxes 2.1% (2.3)% 0.8% 1,758 (573)
------- ------- ------ ------ ------
Net income (loss) 2.1% (3.7)% 0.7% $2,083 ($829)
------- ------- ------ ------ ------
------- ------- ------ ------ ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
ACQUISITIONS
During fiscal 1997, the Company added new businesses and product lines to
accelerate growth by acquiring the assets of MODCOMP/Cerplex, L.P. (MODCOMP),
which sells integrated services, Internet software products (legacy-to-Web
integration solutions), real-time computer systems/software and services, as
well as Signal Analytics Corp. (Signal) a software company that provides
products for scientific imaging to the life science fields. Signal was
consolidated with CSP 's Scanalytics product group (biotechnology products) and
set up as a wholly-owned subsidiary, Scanalytics, Inc.
RESULTS OF OPERATIONS - 1998 COMPARED TO 1997
REVENUE
In fiscal 1998, the Company's sales increased to $63,468,000 due primarily
to a full year of operations of MODCOMP, compared to $19,540,000, which
included two months of revenue from MODCOMP in 1997. This was the highest
sales level achieved in the history of the Company. MODCOMP accounted for 78%
of total revenue and CSP MultiComputer Division (CSPI) products accounted for
18% of total revenues during fiscal 1998. Scanalytics revenues were 4% of the
total. Sales for systems integration and services represented 66% of product
sales for the fiscal year. MODCOMP secured several outsourcing orders
primarily through its German subsidiary, which had two large systems
integration orders that were installed during the year. The systems were sold
in the German telecommunications market. The two customers were newly
organized companies in January, 1998, created as a result of deregulation of
the telecommunications industry in Germany. MODCOMP installed and integrated
20 Sun 3000 and 4000 servers in ten locations around Germany to build an IP
backbone network for ARCOR. The order and other services represented 22% of
the total integration service revenue for fiscal 1998. MODCOMP also completed
the installation of a Mobile Communications Antenna Planning System to
another telecommunication company, VIAG, for their mobile network. This
represented 24% of the total revenue. These two large integration service
sales included installation of third-party computer equipment and software
systems as well as training of personnel. The sales of large integration
systems are individual orders. MODCOMP has secured other market opportunities
both internationally and domestically to utilize their expertise and know-how
in the systems integration field.
Systems sales represents 27% of total revenue, which include software and
hardware products designed and developed by CSPI and MODCOMP. The CSPI SuperCard
family of products continues to represent the major source of revenue,
accounting for approximately 60% of total sales for the MultiComputing products,
an increase of 12%
over the prior fiscal year. The increase in systems sales was due to continued
procurement of SuperCards by the various COTS (commercial-off-the-shelf)
programs and shipments to existing customers. The changes in current technology,
coupled with the recent announcement of the discontinued manufacturing of
certain Intel 860 processors, which are used by CSPI in SuperCard 4 products,
will decrease future revenues. CSPI 's newest products, the 2000 SERIES, will
provide the future source of revenue growth. The 2000 SERIEShad numerous
successes during the fiscal year. Sales of new products represented 28% of total
revenue for CSPI for the fiscal year. These systems are either based on the
Power PC from IBM/Motorola or Analog Devices SHARC processor and Myrinet
networking technology from Myricom Inc. These systems have been purchased for
use in applications used to upgrade military aircraft and vessels for radar,
sonar, voice recognition and surveillance capabilities. During the year, CSPI
received an order for more than $2.5 million from a large international defense
customer for a 400 computer node 2640 MultiComputer systems. These systems will
be used by military ships and aircraft using Towed Array Sonar Systems and sonar
buoys simultaneously to locate submarines. The order began shipping in July,
1998 but most of the order will be shipped in October, 1998. The 2641
MultiComputer System, our most powerful system to date, shipped first to
Raytheon in May, 1998 with a second shipment in August to Computing Devices
Canada, a General Dynamics Co., for a sonar system for the Swedish Navy. Sales
of machine code readers primarily for United Parcel Service (UPS), represented
1% of total sales for the year. UPS continues use of machine code readers in
their distribution centers, but the quantities and deployment of units are still
under review by UPS. MODCOMP continues to ship its real-time process control
classic product line to its existing customers, which represent 31% of systems
sales. MODCOMP has increased its product offering with the addition of the
AccessPoint supervisory control system, licensed in August from AccessWare. This
product will be coupled with MODCOMP's current REAL/IX real-time operating
system so we can capitalize on opportunities such as the deregulation of the US
power utility industry. Sales of systems software represent 2% of revenue.
Software sales represented 7% of sales. Scanalytics account for 53% of the
total sales for this product, which decreased by 20% from the prior year. The
decreased sales were due, in part, to the discontinued sales of certain
proprietary hardware products, primarily CellScan, as the Company transitions to
a complete software solutions provider. This was done to meet the changing
demands of the scientific research market. The MODCOMP Internet product,
ViewMAX, accounts for 24% of the total software sales for the year. ViewMAX is a
legacy-to-Web internet software bridge that allows organizations to connect
their legacy mainframe data bases to their new intranet, extranet, or Internet
applications.
European sales account for 64% of the total revenue. Sales were primarily
from MODCOMP's subsidiaries in Germany, France and the United Kingdom. The
significant outsourcing orders in Germany contributed greatly to the increased
volume, representing 62% of European sales. Historically, 50% of MODCOMP's
revenues have come from the international market. North American sales represent
33% of total sales. Other International sales represent 3% of total sales. The
other geographic areas for CSPI products have been decreasing during the past
few years due to the decline in military procurements and slow economic
conditions in the foreign market segments where our products are sold.
COST OF SALES
Cost of sales as a percentage of sales increased to 68% from 54% in the prior
year. The increased cost of sales was due to the increased sales volume of
integration services sales in Germany, which had significant third-party
products. This included the resale of computer and peripheral products from Sun
Microsystems, Hewlett-Packard, Cisco Systems and Cabletron Systems. These
products are sold at lower gross profit margins than the proprietary products
sold by MODCOMP, CSPI and Scanalytics. In addition, the continuing pressure from
our direct competitors has required larger discounts to secure business with
both new and existing customers. The Company will continue to take steps to
lower the manufacturing overhead and improve the overall efficiency to lower the
cost of goods sold. The future cost of sales as a percentage of sales will
fluctuate based on the mix of the business, but most probably will increase from
the levels we have historically experienced if MODCOMP integration systems sales
remain a large percentage of total revenue.
OPERATING EXPENSES
Engineering and development expenditures were slightly higher, about 21% over
the prior fiscal year. The major portion of the engineering and development
expenses were for CSPI, representing 57% of the total expense. This was a
reduction of approximately 20% from the prior fiscal year for CSPI. The
reduction was due to decreases in outside service and consulting expenses that
were needed to complete software and hardware for the 2000 SERIES product. There
was also a reduction in staff due to attrition. MODCOMP's engineering and
development expenses represented 35% of total engineering and development
expenses. The major portion of the expenses was for continued development of the
ViewMAX Internet software product in both the US and United Kingdom, which
represented approximately 40%. The remaining expenses were for costs to complete
work on the modifications to the REAL/IX operating system and Year 2000 solution
for software on the proprietary products. Scanalytics expenses were down by
approximately 18% and represented 8% of the total cost. The reduction in
expenses was due primarily to consolidation of the two groups (Signal Analytics
and CSPI Scanalytics Division), which resulted in staff reductions compared to
the prior year.
Sales, general and administrative expenses doubled from the previous fiscal
year. The primary reason for the increase was the full year of expenses for
MODCOMP, which accounted for 90% of the total increase. CSPI's expenses
accounted for the remaining 10%, increasing 19% over the prior fiscal year. The
Company had increased bonus expense for the entire group, which represented 39%
of the entire increase over the prior year. Bonuses for the executives are based
on Company revenue and profitability, coupled with individual goals based on the
duties and responsibilities of the individual. Professional fees related to
legal, audit and shareholder services increased by 96% and represented 23% of
the total increase. Another large increase was due to the addition of staff -
three individuals in sales and one in finance - plus added sales commissions for
the increased business, which increased by 41%. Scanalytics sales and marketing
expenses decreased by approximately 40% due to the reduction in staff from the
consolidation of the two organizations.
In March, 1998, MODCOMP had a corporate reorganization to reduce costs in the
US operation. The primary areas included were manufacturing, operations and a
senior financial manager. The restructure
eliminated twenty positions at a cost of approximately $168,000 for severance
benefits. This restructure will save approximately $1.0 million in expenses in
fiscal 1999.
OTHER - INCOME EXPENSES
Other income - expenses decreased by approximately $415,000 as compared to
the prior year. There was lower investment income for the Company due to the
reduction in cash utilized for the purchase of MODCOMP and Signal and lower
investment income rates for the fiscal year. This represented 90% of the reduced
amount. In addition, there was a full year of other expenses for MODCOMP, which
represented the balance of the total decrease. The Company continued to invest a
larger percentage of its cash in taxable instruments, which have a higher rate
of return on a pre-tax basis than our investments in prior years.
The Company had a high effective tax rate of 49%, which is above the normal
US statutory rate. This was due to the large portion of foreign-based revenue
and profits from France and Germany, which have high statutory tax rates. The
Company will continue to review strategies with its advisors to reduce our
effective rate.
RESULTS OF OPERATIONS - 1997 COMPARED TO 1996
The Company's sales increased by approximately 18% to $19,540,000 from
$16,520,000 in fiscal 1996. This was primarily due to the inclusion of two
months of revenue from the acquisition of MODCOMP, which represented
approximately 34% of the total revenue, and Signal which accounted for
approximately 2% of sales for the fiscal year. CSPI products accounted for 51%
of total revenue during fiscal 1997. SuperCard products continued to represent
the major source of revenue, accounting for approximately 62% of total sales.
That was a decrease of 48% over the prior fiscal year. The decrease in sales was
due, in part, to reduced procurement to the various COTS
(commercial-off-the-shelf) programs. The CSP MultiComputing group had initial
shipments of its newest product, the 2000 SERIES high-performance Multicomputer
system. Sales represented about 3.5% of total sales for the year. Sales of
machine code readers to United Parcel Service (UPS) represented 11% of total
sales for the year. This was a significant increase of 240% in shipments from
the prior year. Sales of the older products, such as SuperCards SC-1, RTS-860,
MAP-4000 and MiniMAP, represented approximately 5% of total sales.
Scanalytics represented approximately 15% of total revenues, with a 10%
increase over the prior fiscal year. The increased sales volume was due to the
shipment of software products and CellSCAN shipments in the first half of the
fiscal year.
North American sales represented 68% of total sales. This was a 8% decrease
compared to the prior year. The decrease was due, in part, to the decline in CSP
MultiComputing product procurements from the US military and OEM customers.
International sales increased by $4.2 million due to the sales of products by
MODCOMP's European subsidiaries. The increased sales were primarily in Germany
and France. The sales of both CSP MultiComputer products and Scanalytics
products to Japan (the largest international markets for their products)
decreased by 47% over the prior fiscal year.
Cost of sales as a percentage of sales increased to 54%. The increased cost
of sales was due to the system and service sales of MODCOMP, which sells at
lower gross profit margins than the CSP MultiComputing and Scanalytics software
products.
Engineering and development expenditures were slightly higher, about 1% compared
to the prior fiscal year. The major engineering and development expenses
resulted from the completion of the new 2000 SERIES MultiComputer systems.
Expenses for the improvement of the machine code reader product doubled and were
approximately 13% of the total engineering and development expenses. Scanalytics
expenses were down by 18% compared to the prior year due to staff reductions.
Sales, general and administrative expenses were approximately the same as the
prior year. CSPI and Scanalytics expenses dropped by approximately 33% and 40%
respectively, with reductions in staff. The large declines in expenses by CSP
and Scanalytics were offset by the expenses related to MODCOMP activity, which
represented 21% of the total expenses for the year. In March, 1997, CSP had a
corporate reorganization to reduce costs. The primary focus was a restructuring
of manufacturing operations and the consolidation of the Vision Systems product
group and MultiComputing group. This restructure eliminated 13 positions at a
cost of approximately $125,000 in severance benefits. The restructure will save
approximately $1.0 million in expenses. In fiscal 1998, MODCOMP had a
restructuring charge of $68,000 for the elimination of two positions. Other
income was consistent with the the prior year. The Company realized a tax
benefit for both federal and state taxes due to the net loss for the year.
FINANCIAL POSITIONS, CAPITAL RESOURCES AND LIQUIDITY
The Company still has a solid financial position as working capital increased
to $22.1 million in fiscal 1998. Cash and marketable securities increased by
$3.6 million. The Company's accounts receivable decreased by $886,000 to
$7,698,000. The Company's inventory increased to $6.3 million from $6.2 million.
The Company's purchase of the two subsidiaries for net of $8.5 million in fiscal
year 1997 reduced working capital to $19.9 million at August 29, 1997 from $22.8
million at August 30, 1996.
The Company spent $698,000, $1,111,000 and $1,144,000, on capital
improvements during fiscal 1998, 1997 and 1996, respectively.
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 sales, revenues or income from continued operations during
fiscal 1998, 1997 or 1996. 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 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 Company 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.
YEAR 2000
Historically, certain computer programs have been written using two digits
rather than four digits to define year. This could result in computers
recognizing a date of "00" as the year 1900 rather than the year 2000, resulting
in potential major system failures or miscalculations. This problem will be
referred to as "Year 2000."
The Company has reviewed both its internal computer systems and its products
that could be affected by the "Year 2000" issue and has identified some systems
and a few products that will be affected. The Company presently believes with
modification to existing software and conversion to new software, the "Year
2000" issues related to internal computer systems and products will not cause
significant operational or computer problems. Furthermore, the cost of
implementing these solutions is not anticipated to be material to the financial
position or results of operations. The costs of such conversions and updates are
based on management's best estimates, which were based on numerous assumptions
of future activities such as, but not limited to, availability and cost of
personnel needed to correct and train, as well as the ability to locate and
correct relevant computer codes.
The Company has not identified alternative remediation if upgrade or
replacement does not correct the "Year 2000" issue. The Company will consider
the need for such plans as it continues to assess the "Year 2000" risk.
The Company has initiated and will continue a formal communication with all
of its significant suppliers and large customers to determine the extent to
which the Company is vulnerable to those third-parties failure to correct their
own "Year 2000" issues. Where practicable, the Company will attempt to mitigate
its risks with respect to the failure of suppliers to be "Year 2000" ready. In
the event that suppliers are not "Year 2000" compliant, the Company will seek
alternative sources of supply. There can be no guarantee that the systems of
other companies upon which significant supplies and large customers rely will be
converted in a timely fashion nor can there be any guarantee that failure to
convert by another, will not have a material impact on the Company.
CSP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
August 28, 1998 and August 29,1997
(Amounts in thousands, except for par value)
August 28, August 29,
1998 1997
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,913 $ 4,344
Marketable securities 9,635 5,581
Accounts receivable, net 7,698 8,584
Income tax receivable -- 37
Inventories 6,308 6,227
Deferred income taxes 1,068 504
Prepaid expenses 1,248 1,301
---------- ----------
Total current assets 29,870 26,578
---------- ----------
Property, equipment and improvements, net 3,367 3,856
---------- ----------
Other assets:
Land held for future development 163 163
Deferred income taxes 1,168 880
Goodwill, net 1,142 1,562
Other assets 1,818 1,960
---------- ----------
Total other assets 4,291 4,565
---------- ----------
Total assets $37,528 $34,999
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses 6,399 6,696
Income taxes payable 1,375 --
---------- ----------
Total current liabilities 7,774 6,696
---------- ----------
Deferred compensation and retirement plans 3,363 3,282
---------- ----------
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par; authorized, 7,500 shares issued
3,624 and 3,613 shares (including 328 shares related
to the October 14, 1998 stock dividend) 36 36
Additional paid-in capital 10,631 10,593
Retained earnings 18,032 16,670
Equity adjustment from foreign currency translation (248) (211)
---------- ----------
28,451 27,088
Less treasury stock, at cost 351 and 352 shares 2,060 2,067
---------- ----------
Total shareholders' equity 26,391 25,021
---------- ----------
Total liabilities and shareholders' equity $37,528 $34,999
---------- ----------
---------- ----------
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended August 28, 1998, August 29, 1997 and August 30, 1996
(Amounts in thousands, except for per share data)
1998 1997 1996
------- ------- -------
SALES:
Systems $17,266 $12,448 $15,207
Software 4,220 1,050 618
Service and system integration 41,982 6,042 695
------- ------- -------
Total Sales 63,468 19,540 16,520
------- ------- -------
COST OF SALES:
Systems 8,075 6,111 6,613
Software 1,555 210 41
Service and system integration 33,217 4,221 1
------- ------- -------
Total Cost of sales 42,847 10,542 6,655
------- ------- -------
Gross profit 20,621 8,998 9,865
------- ------- -------
OPERATING EXPENSES:
Engineering and development 4,072 3,360 3,325
In process research and development -- 550 --
Selling, general & administrative 14,175 6,945 7,189
Restructuring 168 193 --
------- ------- -------
Total operating expenses 18,415 11,048 10,514
------- ------- -------
OPERATING INCOME (LOSS): 2,206 (2,050) (649)
------- ------- -------
Other income (expense):
Dividend income 24 94 23
Interest income 549 783 869
Interest expense (30) (89) (24)
Other (73) 97 18
------- ------- -------
Total other income, net 470 885 886
------- ------- -------
Income (loss) before income taxes 2,676 (1,165) 237
------- ------- -------
Provision (benefit) for income taxes 1,314 (444) 129
------- ------- -------
Net income (loss) $1,362 ($721) $108
------- ------- -------
Net income (loss) per share - basic $0.42 ($0.22) $0.03
------- ------- -------
Weighted average shares outstanding - basic 3,265 3,246 3,226
------- ------- -------
Net income (loss) per share - diluted $0.41 ($0.22) $0.03
------- ------- -------
Weighted average shares outstanding - diluted 3,340 3,246 3,267
------- ------- -------
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended August 28, 1998, August 29, 1997
and August 30, 1996 (Amounts in thousands)
EQUITY
ADJUSTMENT
COMMON STOCK ADDITIONAL $ FROM FOREIGN TOTAL
-------------------- PAID-IN RETAINED CURRENCY TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS TRANSLATION STOCK EQUITY
-------- -------- ------------ ---------- -------------- ---------- -------------
Balance, August 25, 1995 3,536 $35 $10,187 $ 17,283 -- $(1,780) $25,725
Net income -- -- -- 108 -- 108
Exercise of stock options 42 -- 224 -- -- -- 224
Purchase of treasury stock -- -- -- -- -- (253) (253)
-------- -------- ------------ ---------- -------------- ---------- -------------
Balance, August 30, 1996 3,578 35 10,411 17,391 -- (2,033) 25,804
Net loss -- -- -- (721) -- -- (721)
Exercise of stock options 35 1 182 -- -- -- 183
Foreign currency translation
adjustment (211) (211)
Purchase of treasury stock -- -- -- -- -- (34) (34)
-------- -------- ------------ ---------- -------------- ---------- -------------
Balance, August 29, 1997 3,613 36 10,593 16,670 (211) (2,067) 25,021
Net income 1,362 1,362
Exercise of stock options 11 -- 38 -- -- -- 38
Foreign currency translation
adjustment (37) (37)
Issuance of treasury stock -- -- -- -- -- 7 7
-------- -------- ------------ ---------- -------------- ---------- -------------
Balance, August 28, 1998 3,624 $36 $10,631 $18,032 $(248) $(2,060) $26,391
-------- -------- ------------ ---------- -------------- ---------- -------------
-------- -------- ------------ ---------- -------------- ---------- -------------
See accompanying notes to consolidated financial statements.
CSP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended August 28, 1998, August 29, 1997 and August 30, 1996
(Amounts in thousands)
1998 1997 1996
---------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,362 $ (721) $ 108
Adjustments to reconcile net income (loss) to Net cash provided by
operating activities:
Depreciation and amortization 1,512 1,680 983
In process research and development -- 550 --
Deferred compensation and retirement plans 81 147 150
Deferred income taxes (852) (625) (167)
Acquisition costs -- 150 --
Other 237 (564) 24
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable, net 923 2,007 (214)
Increase in inventories (81) (192) (255)
Decrease in prepaid expenses 53 187 120
Decrease in accounts payable and accrued expenses (297) (549) (36)
Increase (decrease) in income taxes payable 1,375 (120) 64
---------- ----------- -----------
Net cash provided by operating activities 4,313 1,950 777
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (52,309) (198,789) (188,892)
Sales of marketable securities 48,255 199,335 189,247
Businesses acquired -- (8,011) --
Property, equipment and improvements (698) (1,111) (1,144)
Other -- -- (100)
---------- ----------- -----------
Net cash used in investing activities (4,752) (8,576) (889)
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock options 38 183 224
Issuance (purchase) of treasury stock 7 (34) (253)
---------- ----------- -----------
Net cash provided by (used in) financing activities 45 149 (29)
---------- ----------- -----------
Effects of exchange rate change on cash (37) (107) --
Net decrease in cash (431) (6,584) (141)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR: 4,344 10,928 11,069
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR: $ 3,913 $ 4,344 $ 10,928
---------- ----------- -----------
Supplementary cash flow information:
Cash paid for income taxes, net $ 386 $ 75 $ 183
---------- ----------- -----------
Cash paid for interest $ 60 $ 89 $ 24
---------- ----------- -----------
Fair Value of assets acquired -- $ 17,913 --
Less: liabilities assumed -- (7,045) --
---------- ----------- -----------
Cash paid -- $ 10,868 --
Less: Cash acquired -- (2,857) --
---------- ----------- -----------
NET CASH PAID -- $ 8,011 --
---------- ----------- -----------
---------- ----------- -----------
See accompanying notes to consolidated financial statements
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Years ended August 28, 1998, August 29, 1997 and August 30, 1996
ORGANIZATION AND BUSINESS
The Company designs, manufactures and markets high-performance
multiprocessing systems for real-time applications, which are small, low-power
special-purpose computers that enhance a system's ability to perform high-speed
arithmetic. The Company also sells Internet software solutions, real-time
process control systems, systems integration and services as well as develops
and markets hardware and software for scientific imaging and over-the-belt
industrial bar-code readers.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year end is the last Friday in August.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant inter-company accounts and transactions have
been eliminated.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of the Company's foreign operations are translated
into US dollars at the exchange rate in effect on the balance sheet date.
Revenue and expenses are translated at average rates in effect during the
period. The resultant translation adjustment is reflected as a separate
component of shareholders' equity on the consolidated balance sheets.
MARKETABLE SECURITIES
Investments consist of corporate bonds and notes, government agency bonds,
and money market funds. Most investments mature within a two-year period. The
Company classifies its marketable securities as held-to-maturity based on its
ability and intent to hold these securities until maturity. Held-to-maturity
securities are recorded at amortized cost, which approximates market value.
Interest income is accrued as earned. Dividend income is recognized as income
on the date the stock trades "ex-dividend." The cost of marketable securities
sold is determined by the specific identification method and realized gains or
losses are reflected in income.
ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standard No. 121 ("SFAS
No. 121"), the Company assesses the need to record impairment losses on
long-lived assets when indicators of impairment are present. On an ongoing
basis, management reviews the value and period of amortization or depreciation
of long-lived assets. During this review, the Company reevaluates the
significant assumptions used in determining the original cost of long-lived
assets, including costs in excess of net assets of businesses acquired. Although
the assumptions may vary from transaction to transaction, they generally include
revenue growth, operating results, cash flows and other indicators of value.
Management then determines whether there has been a permanent impairment of the
value of long-lived assets based upon events or circumstances that have occurred
since acquisition.
GOODWILL
The excess of fair value over net assets acquired (goodwill) is principally
amortized over 15 years. Management assesses impairments of goodwill on a
periodic basis by comparing discounted future cash flows to the carrying value
of goodwill.
INVENTORIES
Inventories are stated at the lower of cost or market; with cost determined
principally by the average-cost method, which approximates the first-in,
first-out method.
PROPERTY, EQUIPMENT AND IMPROVEMENTS
The components of property, equipment and improvements are stated at cost.
The Company provides for depreciation by use of the straight-line method over
the estimated useful lives of the related assets.
PRODUCT WARRANTY
The Company ordinarily provides a one-year warranty. In addition, certain
major customers are granted extended warranties. The Company accrues estimated
warranty costs at the time of sale.
REVENUE RECOGNITION
Revenues from product sales are recognized at the time of shipment. Revenue
from service contracts are recognized ratably over the period the service is
performed. In the case of installation, consulting and support services,
revenues are recognized upon completion of such products and services.
ENGINEERING AND DEVELOPMENT EXPENSES
Engineering and development expenditures for company-sponsored projects are
charged to expenses as incurred.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
EARNINGS PER SHARE OF COMMON STOCK
On March 16, 1998 the Company announced an eleven-for-ten stock split in the
form of a common stock dividend distributed on April 24, 1998 to stockholders of
record on March 24, 1998. All per share data and number of common stock shares
contained in the annual report reflect the stock dividends of March and
October 14, 1998 (see note 13).
The Company adopted Statement of Financial Accounting Standard No. 128
("SFAS No. 128") "Earnings per Share" in its fiscal quarter ending
February 27, 1998, and all historical net income per share data has been
restated to conform to the provisions of SFAS No. 128.
Under SFAS No. 128, basic net income (loss) per common share is computed by
dividing net income (loss) available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted net income (loss) per common share reflects the maximum dilution that
would have resulted from the assumed exercise and share repurchase related to
dilutive stock options and is computed by dividing net income (loss) by the
weighted average number of common stock outstanding.
The reconciliation of the denominators of the basic and diluted net income
(loss) per share computations for the Company's reported net income (loss) is as
follows:
1998 1997 1996
------- ------- -------
Weighted average number of shares outstanding - basic 3,265 3,246 3,226
Incremental shares from the assumed exercise of stock options 75 -- 41
------- ------- -------
Weighted average number of shares outstanding - diluted 3,340 3,246 3,267
------- ------- -------
------- ------- -------
(Amounts in thousands)
USE OF ESTIMATES:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard No. 130 ("SFAS No.130"),
"Reporting Comprehensive Income," which requires the reporting of additional
financial information in a complete set of financial statements. SFAS No. 130
is effective for fiscal years begining after December 15, 1997 and the
Company will adopt this statement in fiscal 1999. Reclassification for
earlier periods is required for comparative purposes. The Company believes
that the adoption of SFAS No.130 will not have a material effect on the
consolidated financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 131 ("SFAS No. 131"), "Disclosures About Segments of an Enterprise and
Related Information," specific disclosures require segment reporting of
information about products and services, major customers, and the material
countries in which the entity holds assets and reports revenues. SFAS No. 131 is
effective for fiscal years beginning after December 15, 1997 and the Company
will adopt this provision in fiscal 1999. The Company believes that the adoption
of SFAS No.131 will not have a material effect on the disclosures in the
company's consolidated
financial statements.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) No. 97-2 "Software Revenue Recognition,"
which supersedes SOP No. 91-1. SOP No. 97-2, is effective for the Company's
fiscal year beginning in August 29, 1998 and provides guidance on applying
generally accepted accounting principles for software revenue recognition
transactions. The Company does not anticipate any material impact on revenues,
results of operations or financial condition as a result of adopting
SOP No. 97-2.
In February 1998, the Financial Accounting Standards Board issued Statement
No. 132("SFAS No.132"), "Employers' Disclosures about Pensions and Other
Postretirement Benefits," which standardizes the disclosure requirements for
pensions and other postretirement benefits, requires additional information on
changes in benefit obligations and fair values of plan assets to facilitate
financial analysis and eliminates certain disclosures that are no longer as
useful as they were under preceding pronouncements. The Statement is effective
for fiscal years beginning after December 15, 1997. Management plans to adopt
SFAS 132 in fiscal year 1999 and does not anticipate any material impact on the
disclosures in the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities," which requires that all derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. The Company currently expects to adopt SFAS No.133 for the
year ending August 27, 1999. Management has determined there will be no impact
on its results of operations or financial position resulting from the adoption
of SFAS No.133 because the Company currently does not hold derivative
instruments.
RECLASSIFICATIONS
Certain reclassifications were made to the 1996 and 1997 financial statements
to conform to the 1998 presentation.
2. BUSINESS COMBINATION
For acquisitions accounted for as purchases, CSP Inc. consolidated results of
operations include the operating results of the acquired companies from the
acquisition dates. The acquired assets were recorded at their estimated fair
market value at the acquisition date and the aggregate purchase price plus costs
directly attributable to the completion of the acquisitions have been allocated
to the assets acquired.
On June 13, 1997 the Company acquired the assets of Signal Analytics Corp.,
a privately held company developing imaging software products targeted for the
biological science field. The total purchase price was $2,159,000, which was
paid for in cash, included a charge of $550,000 for in-process research and
development and resulted in $1,200,000 in goodwill.
On August 27, 1997 the Company completed the acquisition of MODCOMP/Cerplex,
L.P., a wholly owned subsidiary of The Cerplex Group Inc., which sells
legacy-to-Web integration solutions for real-time computer systems. The
transaction was effective as of June 27, 1997. The total purchase price for the
assets of MODCOMP was $8,709,000, which was paid in cash and resulted in
goodwill of $473,000.
The following unaudited pro forma financial information is not necessarily
indicative of results of operations that would have occurred had the
transactions taken place at the beginning of periods presented or of the future
results of the combined companies.
UNAUDITED
YEAR ENDED AUGUST
---------------------------
1997 1996
--------- ---------
Total revenues $47,311 $59,860
--------- ---------
Operating income (loss) $ (493) $ 6,108
--------- ---------
Net income (loss) $ (233) $ 3,062
--------- ---------
Income (loss) per share (diluted) $ (.07) $ .94
--------- ---------
(Amounts in thousands, except per share data)
3. MARKETABLE SECURITIES
At August 28, 1998 and August 29, 1997, marketable securities consisted of the
following:
1998 1997
--------- ---------
Marketable equity securities, at cost $ 332 $274
Less: valuation allowance 50 7
--------- ---------
Marketable equity securities, at market 282 267
Bonds and municipal revenue notes, at cost 6,420 5,000
Money market funds and commercial paper 2,661 42
U.S. treasury bills 272 272
--------- ---------
Total $9,635 $5,581
--------- ---------
--------- ---------
(Amounts in thousands)
Assets of $733,000 and $660,000 at August 28, 1998 and August 29, 1997,
respectively, which are held in a rabbi trust and generally are available only
to pay certain retirement benefits of a former employee, are included in the
above schedule.
4. INVENTORIES
Inventories consist of the following:
1998 1997
------ ------
Raw materials $1,502 $3,922
Work-in-process 1,138 918
Finished goods 3,668 1,387
------ ------
Total $6,308 $6,227
------ ------
------ ------
(Amounts in thousands)
5. INCOME TAXES
Reconciliations of expected income tax expense (benefit) to actual income tax
expense (benefit) are as follows:
1998 1997 1996
----------------- -------------------- ----------------
Computed expected tax expense (benefit) $ 910 34.0% $(396) (34.0%) $ 81 34.0%
Increases (reductions) in taxes resulting from:
Dividend exclusion (6) (0.2) (22) (1.8) (6) (2.5)
Tax exempt interest (52) (1.9) (72) (6.2) (64) (27.0)
State income taxes, net of
federal tax benefit (10) (0.4) (107) (9.2) (7) ( 2.9)
Amortization of goodwill 45 1.7 -- --
Foreign operations 264 9.9 123 10.6 72 30.4
Nondeductible life insurance 63 2.3
Change in valuation allowance (17) (0.6) 35 3.0 25 10.6
Other items 117 4.3 (5) (0.5) 28 11.8
------- ------- -------- -------- ------ -------
Income tax expense (benefit) $1,314 49.1% $(444) (38.1%) $129 54.4%
------- ------- -------- -------- ------ -------
------- ------- -------- -------- ------ -------
(Amounts in thousands)
For the years ended August 28, 1998 and August 29, 1997, temporary differences
which give rise to deferred tax assets (liabilities) are as follows:
1998 1997
--------- ---------
DEFERRED TAX ASSETS:
Deferred compensation $1,048 $ 962
Other accruals 158 77
Bad debt reserves 91 41
In process research and development 203 --
Inventory capitalization and reserves 819 451
Research and development credits 340 69
Unrealized loss on securities 20 --
Accumulated depreciation and reserves -- 156
Other -- 5
--------- ---------
Gross deferred tax assets 2,679 1,761
Less: valuation allowance (360) (377)
--------- ---------
Deferred tax asset less valuation allowance 2,319 1,384
DEFERRED TAX LIABILITY:
Accumulated depreciation and amortization (83) --
--------- ---------
Net deferred tax asset $2,236 $1,384
--------- ---------
--------- ---------
(Amounts in thousands)
The valuation allowance was $360,000 and $377,000 at August 28, 1998 and
August 29, 1997, respectively. The valuation allowance was established due to
the long-term nature of certain deferred compensation and retirement obligations
for which the tax benefit will be realized over an extended period of time. In
assessing the realizability of deferred tax assets, management considers whether
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Based upon the level of historical taxable income and
projections for future taxable income over the period which the deferred tax
assets are deductible, management believes it is more likely than not that the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowance at August 28, 1998.
The provisions for income taxes are comprised of the following:
1998 1997 1996
-------- -------- --------
CURRENT:
Federal $ 372 $ (45) $ 267
State 462 (28) 28
Foreign 1,333 123 --
-------- -------- --------
2,167 50 295
DEFERRED:
Federal (378) (360) (128)
State (475) (134) (38)
-------- -------- --------
(853) (494) (166)
-------- -------- --------
$1,314 $(444) $ 129
-------- -------- --------
-------- -------- --------
(Amounts in thousands)
6. PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET
Property, equipment and improvements, net consist of the following:
1998 1997
--------- ---------
Land $ 587 $ 587
Building and improvements 1,356 1,356
Equipment 12,201 11,503
Automotive equipment 48 48
--------- ---------
14,192 13,494
Less accumulated depreciation and amortization 10,825 9,638
--------- ---------
Property, equipment and improvements, net $3,367 $3,856
--------- ---------
--------- ---------
(Amounts in thousands)
7. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
1998 1997
--------- --------
Accounts payable $1,846 $2,325
Commissions 256 367
Compensation and fringe benefits 2,704 1,587
Customer advances 86 534
Professional fees and shareholders' reporting costs 348 546
Taxes, other than income 757 869
Other, individually less than 5% of current liabilities 402 468
--------- --------
$6,399 $6,696
--------- --------
--------- --------
(Amounts in thousands)
8. SHAREHOLDERS' EQUITY
In 1997, the Company adopted the 1997 Stock Option Plan covering 181,500
shares, which was ratified by the shareholders in January 1998. In 1991, the
Company adopted the 1991 Stock Option Plan covering 302,500 shares of common
stock. Under the Plans, both incentive stock options and non-qualified stock
options may be granted to officers, key employees and other persons providing
services to the Company. The stock option plans provide for issuance of options
at their fair market value on the date of grant. These options vest over a
period of five years, do not vest in the first year, and expire ten years
from the date of grant. In the 1991 plan, up to 24,200 shares are allocated for
annual non-discretionary grants of 1,210 shares each to non-employee directors
of the Company who are serving on the last business day of January in each year.
The 1991 Plan supersedes three earlier plans, each of which was terminated in
1991.
The following is a summary of common stock option activity for the three years
ended August 28, 1998:
NUMBER OF SHARES
-----------------------------------------------------------------------------------
WEIGHTED AVERAGE
EXERCISE PRICE OF 1997 1991 1981 TOTAL
SHARES UNDER PLANS PLAN PLAN PLAN PLAN
------------------ ------- ------- ------- -------
Outstanding August 25, 1995 $5.84 -- 167,041 125,991 293,032
Granted $6.92 -- 7,260 -- 7,260
Exercised $5.27 -- -- (42,653) (42,653)
Expired & terminated $6.00 -- (71,572) (756) (72,328)
Outstanding August 30, 1996 $5.99 -- 102,729 82,582 185,311
Granted $6.01 -- 140,663 -- 140,663
Exercised $4.66 -- -- (36,784) (36,784)
Expired & terminated $6.34 -- (36,119) (28,163) (64,282)
Outstanding August 29, 1997 $6.20 -- 207,273 17,635 224,908
Granted $6.66 -- 56,870 -- 56,870
Exercised $6.50 -- (4,949) (4,084) (9,033)
Expired & terminated $5.32 -- (33,953) (1,210) (35,163)
Outstanding August 28, 1998 $5.72 -- 225,241 12,341 237,582
Available for future grants -- 181,500 72,309 -- 253,809
Exercisable $6.33 -- 86,815 12,341 99,156
The grant date fair value of each stock option is estimated using the
following assumptions: an expected life of 5 years, expected volatility and
dividend yields of 0% and a weighted average risk-free interest rate of 5.75% in
1998 and 6.19% in 1997. The weighted average grant date fair values of options
granted in 1998 and 1997 were $6.46 and $5.23, respectively.
The Company applies Accounting Principles Board Opinion No.25, "Accounting
for Stock Issued to Employees," and related interpretations in accounting for
its stock option plans. Accordingly no compensation expenses have been
recognized in the consolidated financial statements for such plans. The
following assumptions were used in the calculation of these values for fiscal
1997 and 1998, respectively: risk free interest rate of 6.19% and expected life
of 5 years. Had compensation costs for the Company's stock option plans been
determined based on the fair value at the grant date for awards under these
plans consistent with the methodology prescribed under SFAS No.123, "Accounting
for Stock based Compensation," the Company's net income (loss) would have been
adjusted to the pro forma amounts indicated below:
The effects of applying SFAS No.123 as shown in the above pro forma
disclosure is not representative of the pro forma effect on net income in future
years because it does not take into consideration pro forma compensation
expenses related to grants made prior to fiscal 1996.
1998 1997
------ ------
Net income (loss) as reported $1,362 $(721)
Pro forma $1,304 $(723)
Income (loss) per share diluted as reported $ .41 $(.22)
Pro forma $ .39 $(.22)
(Amounts in thousands, except per share data)
STOCK PURCHASE PLAN
In October, 1997 the Company adopted an Employee Stock Purchase Plan (the
1997 Purchase Plan), which was ratified by the shareholders. The 1997 Purchase
Plan reserved 302,500 shares of Common Stock for issuance thereunder. Under the
stock purchase plan, the Company's employees may purchase shares of Common Stock
at a price per share that is 85% of the lesser of the fair market value as of
the beginning or end of the semi-annual option period. No shares have been
issued under the plan at August 28, 1998.
9. DEFERRED COMPENSATION AND RETIREMENT PLANS
The Company has a 401(k) Retirement Plan under which the Company matches a
portion of the employee's salary reduction contributions and may make
discretionary contributions to the plan. All full-time employees with 90 days of
continuous service are eligible for the plan. All Company contributions are
fully vested. Contributions by the Company were $136,000, $94,000 and $145,000
for 1998, 1997, and 1996, respectively.
The Company has a Supplemental Retirement Plan for certain employees that
provides for payments (generally over 15 years) upon retirement, death or
disability. The annual benefit is based upon a percentage of salary at the
inception of the plan, plus an annual percentage increase, plus interest. In
addition, the Company adopted deferred compensation plans for former key
executives that provide for payments, over a ten-year period, upon retirement,
death or disability based upon a percentage of salary at that time. The charge
to expense for the plans for 1998, 1997 and 1996 amounted to $336,000,
$302,000 and $277,000, respectively.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company occupies office space under lease agreements expiring at various
dates during the next five years. The leases are classified as operating leases,
and provide for the payment of real estate taxes, insurance, utilities and
maintenance.
At August 28, 1998, the Company was obligated under noncancelable operating
leases as follows:
FISCAL YEAR ENDING AUGUST OPERATING LEASES:
------------------------- ----------------------
(Amounts in thousands)
1999 $1,157
2000 1,023
2001 929
2002 483
2003 474
thereafter 728
Occupancy costs under the operating leases approximated $1,221,000 in 1998,
$221,000 in 1997 and $52,000 in 1996.
STOCK REPURCHASES:
On October 9, 1986 the Board of Directors authorized the Company to
repurchase up to 313,538 of the outstanding stock at market price. On September
28, 1995, the Board of Directors authorized the Company to repurchase up to
181,500 additional shares of the outstanding stock at market price. The timing
of stock purchases are made at the discretion of management. On August 28, 1998,
the Company repurchased 351,477 or 71% of the total shares authorized to be
purchased.
11. SALES BY MAJOR CUSTOMERS AND GEOGRAPHIC AREAS:
Sales to individual customers constituting 10% or more of total sales were as
follows:
1998 1997 1996
------------- ------------ ------------
Customer A -- $2,370 12% $3,394 21%
Customer B -- $2,114 11% --
Customer C $10,105 16% -- --
Customer D $ 9,294 15% -- --
(Amounts in thousands)
The Company anticipates that, for the foreseeable future, a significant
percentage of its sales will be dependent upon a relatively small number of
customers.
The Company's sales by geographic area are as follows:
1998 1997 1996
------- ------- -------
North America $21,245 $13,324 $14,474
Far East 1,515 1,039 1,407
Europe 40,594 5,090 574
Other 114 87 65
------- ------- -------
Totals $63,468 $19,540 $16,520
------- ------- -------
------- ------- -------
(Amounts in thousands)
12. RESTRUCTURING EXPENSES:
In March 1998, MODCOMP had a reduction of 20 individuals in its domestic
workforce. The expenses related to the action were approximately $168,000 for
severance costs. In March 1997, CSP Inc. had a reduction in its workforce of
thirteen positions primarily in manufacturing operations and Vision Systems. The
expenses related to this action were approximately $125,000 for severance costs.
The entire amounts have been disbursed by the Company.
13. SUBSEQUENT EVENTS:
On October 14, 1998, the Company announced an eleven-for-ten stock split in
the form of a Common Stock dividend distribution on November 16, 1998 to
stockholders of record on October 26, 1998.
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of CSP Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of CSP Inc. and
subsidiaries as of August 28, 1998 and August 29, 1997 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended August 28, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of CSP Inc. and
subsidiaries as of August 28, 1998 and August 29, 1997 and the results of their
operations and their cash flows for each of the years in the three year period
ended August 28, 1998, in conformity with generally accepted accounting
principles.
October 5, 1998, except as to note 13,
which is dated as of October 14, 1998
Boston, Massachusetts
INTERNATIONAL OFFICES
CANADA FRANCE GERMANY NORTHERN EUROPE
AND INTERNATIONAL
MODCOMP Canada, Ltd MODCOMP France, S.A. Modular Computer System, GmbH Modular Computer Services, Inc.
1415 Lawrence Avenue West Centrale Parc-B/ootiment 7 Oskar-JSger-Strasse 125-143 Centennial Court
Suite 102 Avenue Sully Prud'homme D-50825 Ksln Easthampstead Road
North York, Ontario 92298 Chatenay Malabry Cedex Germany Bracknell, Bershire RG12 1YQ
Canada M61 1A9 France Tel: 49-221-954466-0 England
Tel: (416) 240-7906 Tel: (33)-1 41 87 30 00 Fax: 49-221-954466-1 Tel: 44-1344-484-400
Fax: (416) 240-9065 Fax: (33)-1 46 61 96 81 www.modcomp.de Fax: 44-1344-484-333
www.modcomp.com www.modcomp.com www.modcomp.co.uk
CORPORATE INFORMATION
DIRECTORS OFFICERS CORPORATE OFFICES GENERAL INFORMATION
GENERAL INFORMATION
Alexander R. Lupinetti Alexander R. Lupinetti CSP Inc. General Counsel
Chairman of the Board, Chairman of the Board, 40 Linnell Circle Foley, Hoag & Eliot
President and Chief Executive President and Chief Executive Billerica, MA 01821-3901 Boston, MA
Officer Officer Tel: (978) 663-7598
CSP Inc. CSP Inc. Fax: (978) 663-0150 Transfer Agent
www.cspi.com American Stock Transfer Company
C. Shelton James John P. Clary New York, NY
President President Staranalytics, Inc.
Fundamental Management Corp. MODCOMP, Inc. 8550 Lee Highway, Suite 400 Auditors
Fairfax, VA 22031-1515 KPMG Peat Marwick LLP
J. David Lyons Gary W. Levine Tel: (703) 206-2230 Boston, MA
President Vice President of Finance, Fax: (703) 208-1960
Autin International Inc. Chief Financial Officer and www.staranalytics.com Stock Information
Clerk Stock Traded Over the Counter
Sanford Smith CSP Inc. MODCOMP, Inc. Headquarters NASDAQ symbol: CSPI
President, Therapeutics 1650 West McNali Road
Incorporated Michael Most, PhD. Ft. Lauderdale, FL 33309
Genzyme Corp. President Tel: (954) 974-1830
Staranalytics, Inc. Fax: (954) 977-1900
Robert M. Williams www.modcomp.com
Vice President Bradley E. Stamp
International Executive Vice President of Sales and
Service Corp. Support
MultiComputer Division
CSP Inc. Form 10-K
A copy of the Company's Annual Report on Form 10-K
Michael M. Stern for the fiscal year 1993 as filed with the Securities
Vice President of Operations, and Exchange Commission will be furnished without
MultiComputer Division and charge to any stock-holder upon written request to
Treasurer the Vice President of Finance, CSP Inc., 40 Linnell
CSP Inc. Circle, Billerica, MA 01821.
James A. Waggett
Vice President of Business
Development
MultiComputer Division
CSP Inc.