-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UdNEuXD4mF5Xh8m9xJWslGvseVH5YIxK2/eW9gvnLqq03+Exct9PjgbPmiwE2U9U eB6pVYPEQlCBTdEQZp4+Sg== 0000950148-96-001419.txt : 19960716 0000950148-96-001419.hdr.sgml : 19960716 ACCESSION NUMBER: 0000950148-96-001419 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960531 FILED AS OF DATE: 19960715 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: DENSE PAC MICROSYSTEMS INC CENTRAL INDEX KEY: 0000784770 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 330033759 STATE OF INCORPORATION: CA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-14843 FILM NUMBER: 96594793 BUSINESS ADDRESS: STREET 1: 7321 LINCOLN WAY CITY: GARDEN GROVE STATE: CA ZIP: 92641 BUSINESS PHONE: 7148980007 MAIL ADDRESS: STREET 2: 7321 LINCOLN WAY CITY: GARDEN GROVE STATE: CA ZIP: 92641 10QSB 1 FORM 10-QSB FOR PERIOD ENDING 5/31/96 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB ( Mark One ) X Quarterly report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 For the quarterly period ended May 31, 1996 - 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 0-14843 DENSE-PAC MICROSYSTEMS, INC. (Exact Name of Small Business Issuer as Specified in Its Charter) CALIFORNIA 33-0033759 ( State or other Jurisdiction of ( IRS Employer Incorporation or Organization) Identification No.) 7321 LINCOLN WAY GARDEN GROVE, CALIFORNIA, 92641 ( Address of Principal Executive Offices ) (714) 898-0007 Issuer's Telephone Number, Including Area Code Not Applicable ( Former Name, Former Address and Former Fiscal Year if Changed Since Last Year ) Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15 (d) of the Exchange Act during the past 12 months ( or for such shorter period that the issuer 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 ISSUERS The number of shares of common stock, no par value, outstanding as of outstanding as of July 10, 1996 was 16,909,681. - -------------------------------------------------------------------------------- TOTAL PAGES: 9 2 DENSE-PAC MICROSYSTEMS, INC. Balance Sheet
May 31, February 29, 1996 1996 --------------- --------------- (unaudited) ASSETS Curent Assets: Cash and cash equivalents $4,246,282 $4,579,840 Accounts receivable, net 2,880,922 3,574,822 Inventories 6,192,133 5,151,106 Deferred income taxes 150,000 150,000 Other current assets 363,132 287,075 --------------- --------------- Total current assets 13,832,469 13,742,843 Property, net 3,828,914 3,448,860 Technology and marketing rights, net 390,850 409,048 Other assets 73,948 67,262 --------------- --------------- $18,126,181 $17,668,013 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt 435,685 413,851 Accounts payable 1,777,528 1,568,907 Accured compensation 343,874 572,499 Other accrued liabilities 74,966 61,982 --------------- --------------- Total current liabilities 2,632,053 2,617,239 Note payable to related parties 1,900,000 1,900,000 --------------- --------------- Other long-term debt 786,598 699,134 --------------- --------------- Stockholders' equity Common stock 16,005,564 15,795,004 Accumlated deficit (3,198,034) (3,343,364) --------------- --------------- Total stockholders' equity 12,807,530 12,451,640 --------------- --------------- $18,126,181 $17,668,013 =============== ===============
See accompanying notes to condensed financial statements. 2 3 DENSE-PAC MICROSYSTEMS, INC. Summary of Operations (Unaudited)
For the quarter ended May 31, May 31, 1996 1995 --------------- --------------- Net Sales $4,064,422 $4,230,313 Cost of Sales 2,947,620 3,152,712 --------------- --------------- Gross Profit 1,116,802 1,077,601 --------------- --------------- Operating Expenses: Selling, general aand administrative 818,547 637,428 Research and development 126,186 102,583 --------------- --------------- Income from operations 172,069 337,590 --------------- --------------- Other expenses: Interest expense, net 26,739 59,981 --------------- --------------- Income before income tax provision 145,330 277,609 Income tax provision --------------- --------------- Net income 145,330 277,609 Net income per common and common equivalent share $0.01 $0.02 =============== =============== Weighted average shares outstanding 16,814,000 15,222,000 =============== ===============
See accompanying notes to condensed financial statements. 3 4 DENSE-PAC MICROSYSTEMS, INC. Statements of Cash Flow (Unaudited)
For the quarter ended May 31, May 31, 1996 1995 --------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $145,330 $277,609 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 206,578 128,931 Changes in operating assets and liabilites: Accounts receivable 693,900 362,062 Inventories (1,041,027) 243,398 Other current assets (76,057) (38,700) Other assets (6,686) Accounts payable 208,621 (319,545) Accrued compensation (228,625) (26,890) Accured liabilities 12,984 1,645 Deferred revenue (128,023) --------------- ------------- Net cash provided by (used in) operating activities (84,982) 500,487 --------------- ------------- CASH USED IN INVESTING ACTIVITIES: Property additions (568,434) (254,487) --------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on other long-term debt (47,227) (46,164) Proceeds from issuance on other long-term debt 156,525 Proceeds from issuance of common stock 210,560 3,609 --------------- ------------- Net cash provided by (used in) financing activities 319,858 (42,555) --------------- ------------- NET INCREASE (DECREASE) IN CASH (333,558) 203,445 CASH AT BEGINNING OF YEAR 4,579,840 356,787 --------------- ------------- CASH AT END OF QUARTER $4,246,282 $560,232 =============== ============= SUPPLEMENTAL CASH FLOW INFORMATION: Interest paid $75,621 $50,232 =============== ============= Income taxes paid $0 $0 =============== =============
See accompanying notes to condensed financial statments. 4 5 DENSE-PAC MICROSYSTEMS, INC. CONDENSED NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - Dense-Pac Microsystems, Inc. (the Company) is engaged in the design, development, manufacture and marketing of a full line of high density, miniaturized memory surface mount components and subsystems for a variety of commercial, industrial and military applications. NOTE 2 - As contemplated by the Securities and Exchange Commission under Item 310(b) of Regulations S-B, the accompanying financial statements and footnotes have been condensed and therefore do not contain all disclosures required by generally accepted accounting principles. This report on Form 10-QSB for the period ended May 31, 1996 should be read in conjunction with the Company's Annual Report to Shareholders for the previous year. In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments (none of which were other than normal recurring accruals) necessary to present fairly its financial position as of May 31, 1996, the results of operations and its cash flows for the periods ended May 31, 1996 and 1995. Results for the interim period are not necessarily indicative of those to be expected for the full year. NOTE 3 - Inventories consisted of the following:
May 31, 1996 February 29, 1996 Raw materials $1,166,041 $1,338,472 Work-in-process 3,812,615 2,650,086 Finished goods 1,213,477 1,162,548 ---------- ---------- $6,192,133 $5,151,106 ========== ==========
NOTE 4 - Net income per common and common equivalent share is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the periods. Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS Net sales for the quarter ended May 31, 1996, decreased $165,891 or 4% from the quarter ended May 31, 1995. The sales decrease was due to a $1,200,000 decline in sales of the 512kx8 standard commercial product due to product life cycle. This decrease was partially off-set by increased sales of other products, including a $231,000 increase in first generation product sales and $138,000 of sales of the new third generation products. The 512kx8 product accounted for 34% of sales in fiscal year 1996, but sales in fiscal year 1997 are expected to be insignificant. While the Company has developed a replacement for the 512kx8 product which incorporates advanced technology, the Company cannot predict whether such new product will achieve market acceptance. The Company has introduced a third generation super memory board with up to four times the memory of boards available today known as the SuperSIMM (TM). The Company is also marketing this technology in a subsystem arrangement for stackable plastic memory devices. The Company believes that the new third generation commercial stacking products will contribute 5 6 to sales in the second half of the fiscal year, although anticipated sales prices of these new products have been negatively effected by the recent decrease in DRAM prices. On June 17, 1996, the Company announced a purchase agreement with Odetics, Inc. which, based on Odetics' estimated product requirements, could generate up to $6.4 million of sales of the third generation products in the next 12 months. The Company is currently producing qualification units for Odetics' approval. Cost of sales as a percentage of sales for the three month period ended May 31, decreased from 75% in fiscal year 1996 to 73% in fiscal year 1997. During the first quarter of fiscal year 1997, inventory levels increased as compared to the previous first quarter resulting in an increase in a capitalization of overhead costs which would have otherwise been included in cost of sales. The result was a slight decrease in cost of sales as a percentage of sales. Selling, general and administrative expense increased in the first quarter of fiscal 1997 by $181,119 or 28% from the first quarter of the prior fiscal year. The increase in these expenses was primarily due to an increase in commissions to independent sales representatives who accounted for a greater percentage of revenues in the current first quarter. Additionally, expenses associated with the Company being listed on the NASDAQ National Market increased as compared to the same period in the previous fiscal quarter. For the three months ended May 31, 1996, research and development costs increased $23,603 or 23% from the same quarter in the previous period as the Company is continuing to developing numerous new products for the military as well as the commercial marketplace. For the three months ended May 31, 1996, net interest expense decreased $33,242 or 55% from same period in the prior year. This decrease was due to more invested capital, resulting in interest income of $47,000 for the quarter as compared to $2,000 in the first quarter of the previous year. The increase in the interest expense was due to additional leases entered into during the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES The Company's primary sources of liquidity for the first quarter of fiscal 1997 were the $4.3 million net proceeds from the private placement of stock completed in February 1996; the proceeds from the issuance of long term debt; and the proceeds from the issuance of common stock. The Company believes that existing working capital, together with a commitment for a $2.5 million line of credit will be sufficient to meet the Company's cash needs for the foreseeable future. CAUTIONARY STATEMENT Statements regarding the Company's expectations about new and existing products and its future financial performance are forward looking statements which are subject to various risks and uncertainties, including, without limitation, demand for and acceptance of new and existing products, technological advances and product obsolescence, availability of semiconductor devices at reasonable prices, competitive factors and the availability of capital to finance growth. These and other factors which could cause actual results to differ materially from those in the forward looking statements are discussed in greater detail in the Company's Form 10-KSB for the year ended February 29, 1996. The semiconductor and memory module industries are characterized by rapid technological change and are highly competitive with respect to timely product innovation. The Company's memory products are subject to obsolescence or price erosion because semiconductor manufacturers are continuously introducing chips with the same or greater 6 7 memory density as the Company's modules. As a result, memory products typically have a product life of only three to five years. PRODUCT DEVELOPMENT AND TECHNOLOGICAL CHANGE The Company's future success depends on its ability to develop new products and product enhancements to keep up with technological advances and to meet customer needs. Any failure by the Company to anticipate or respond adequately to technological developments and customer requirements, or any significant delays in product development or introduction, could have a material adverse effect on the Company's financial condition and results of operations. For example, pre-production delays associated with the second generation Dense-Stack product line caused the Company to lose its source of acceptable SRAM die because the supplier discontinued production of the die that the second generation product had been designed for. The Company believes that the second generation technology remains valid and it may redesign this product to incorporate new die technology when market conditions are appropriate. There can be no assurance that the Company will be successful in its product development or marketing efforts, or that the Company will have adequate financial or technical resources for future produce development and promotion. UNCERTAINTY OF MARKET ACCEPTANCE OR PROFITABILITY OF NEW PRODUCTS The introduction of the SuperSIMM (TM) product or other new products which the Company may introduce in the future will require the expenditure of funds for research and development, tooling, manufacturing processes, inventory and marketing. In order to achieve high volume production of the SuperSIMM (TM) product, the Company will have to make substantial investments in inventory and increase production rates. The Company has limited marketing capabilities and resources and is dependent upon internal sales and marketing personnel and a network of independent sales representatives for the marketing and sales of its products. There can be no assurance that the SuperSIMM (TM) product or future new products will achieve market acceptance, result in increased revenues, or be profitable. Such products could also be subject to technological obsolescence or price erosion resulting from competition or other factors. PARTS SHORTAGES AND DEPENDENCE ON SUPPLIERS The semiconductor industry is characterized by periodic shortages of parts which have in the past and may in the future negatively affect the Company's operations. The Company is dependent on a limited number of suppliers for semiconductor devices used in its products, but it has no long-term supply contracts with any of them. For example, the Company was not able to market its second generation Dense-Stack product when it lost its source of SRAM die. Due to the cyclical nature of the semiconductor industry and meeting its supply requirements in the future. Any inability to obtain adequate deliveries of parts, either due to the loss of a supplier or industry-wide shortages, could delay shipments of the Company's products, increase its cost of goods sold and have a material adverse effect on its business, financial condition and results of operations. DEPENDENCE OF DEFENSE-RELATED BUSINESS The Company has historically derived a substantial portion of its revenues from defense-related contracts. As a result, the Company's business has been impacted by reductions in the federal defense budget and will continue to be subject to risks affecting the defense industry, including changes in governmental appropriations and changes in national defense policies and priorities. The Company has sought to reduce its dependence on defense-related business by 7 8 developing products with commercial applications, although such products generally have lower margins than defense-related products. PATENT RIGHTS The Company's ability to compete effectively is dependent on its proprietary know-how, technology and patent rights. The Company holds U.S. patents on certain aspects of its 3-D stacking technology and has applied for additional patents. There can be no assurance that the Company's patent applications will be approved, that any issued patents will afford the Company's products any competitive advantage or will not be challenged or circumvented by third parties, or that patents issued to others will not adversely affect the development or commercialization of the Company's products. MANAGEMENT OF GROWTH The Company intends to use the net proceeds of approximately $4.3 million from a private offering of Common Stock completed in February 1996 to finance expected growth. Successful expansion of the Company's operations will depend on, among other things, the ability to obtain new customers, to attract and retain skilled management and other personnel, to secure adequate sources of supply on commercially reasonable terms and to successfully manage growth. To manage growth effectively, the Company will have to continue to implement and improve its operational, financial and management information systems, procedures and controls. As the Company expands, it may from time to time experience constraints that will adversely effect its ability to satisfy customer demand in a timely fashion. Failure to manage growth effectively could adversely effect the Company's financial condition and results of operations. COMPETITION Numerous memory companies are in the process of developing three-dimensional products, including IBM, Irvine Sensors, Texas Instruments, Mitsubishi, Motorola, Staktek, Cubic memory and Thompson CSF in France such companies have substantially greater financial, manufacturing and marketing capabilities than the Company. The Company could also experience competition from established and emerging computer memory companies. There can be no assurance that the Company's products will be competitive with existing or future products, or that the Company will be able to establish or maintain a profitable price structure for its products. MANUFACTURING LICENSES In order to obtain large orders for the its commercial products from OEMs, the Company may be required to provide royalty-free manufacturing licenses to third parties as second sources to ensure that the customer's requirements are met. Such second sources could then compete directly with the Company could become dependent on the efforts and abilities of its licensees, if any, to manufacture and market its products. 8 9 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 of the undersigned thereunto duly authorized. DENSE-PAC MICROSYSTEMS, INC. (Small Business Issuer) July 11, 1996 s/s James G. Turner - ---------------------------- ------------------------------------ Date James G. Turner, Chairman of the Board and Chief Executive Officer July 11, 1996 s/s William M. Stowell - ---------------------------- ------------------------------------ Date William M. Stowell, Chief Financial Officer 9 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A) BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDING MAY 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FORM 10-QSB-QUARTERLY REPORT PURSUANT TO SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 1996. 3-MOS FEB-28-1997 MAR-01-1996 MAY-31-1996 4,246,282 0 2,880,922 40,000 6,192,133 13,832,469 5,657,651 1,828,737 18,126,181 2,632,053 0 0 0 16,005,564 (3,198,034) 12,807,530 4,064,422 4,064,422 2,947,620 2,947,620 944,733 0 26,739 145,330 0 145,330 0 0 0 145,330 .01 .01
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