-----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, TT6YcfPRn2peW+hhOthQXXON5IdRfM9ZLXDOAQAef6PI9MUr5bcBuvJy+YgbmQFi 7I4SaLQ470qH8FS4elEr0g== 0001047469-98-042277.txt : 19981126 0001047469-98-042277.hdr.sgml : 19981126 ACCESSION NUMBER: 0001047469-98-042277 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980828 FILED AS OF DATE: 19981125 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSP INC /MA/ CENTRAL INDEX KEY: 0000356037 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 042441294 STATE OF INCORPORATION: MA FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10843 FILM NUMBER: 98759142 BUSINESS ADDRESS: STREET 1: 40 LINNELL CIRCLE CITY: BILLERICA STATE: MA ZIP: 01821 BUSINESS PHONE: 5086637598 MAIL ADDRESS: STREET 2: 40 LINNELL CIRCLE CITY: BILLERICA STATE: MA ZIP: 01821 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended August 28, 1998 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _____ to____ Commission file number 0-10843 CSP Inc. ---------------------------------------------------- (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2441294 ----------------------------- ------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 40 Linnell Circle, Billerica, Massachusetts 01821 -------------------------------------------- ------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (978)663-7598 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $.01 (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ ----- The aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing selling price as reported on NASDAQ on November 16, 1998, was $26,057,616. The number of shares outstanding of the registrant's Common Stock, $.01 par value, was 3,257,202 at November 16, 1998. DOCUMENTS INCORPORATED BY REFERENCE The information required by Part II, Items 5, 6, 7 and 8 is incorporated by reference to the Registrant's 1998 Annual Report to Stockholders. The information required by Part III, Items 10,11,12 and 13 is incorporated by reference to the Registrant's Proxy Statement dated November 30, 1998 filed with respect to the Annual Meeting of Stockholders of the Registrant to be held on January 12, 1999. CSP Inc. Form 10-K Year Ended August 28, 1998
Item Number in Form 10-K Table of Contents Page - ------------ ----------------- ---- Part I 1 Business........................................ 3 2 Properties...................................... 15 3 Legal Proceedings............................... 16 4 Submission of Matters to a Vote of Security Holders............................ 16 4A Executive Officers of the Registrant............. 16 Part II 5 Market for Registrant's Common Equity and Related Stockholder Matters................ 17 6 Selected Financial Data......................... 17 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.. 17 8 Financial Statements and Supplementary Data..... 17 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......... 17 Part III 10 Directors and Executive Officers of the Registrant...................................... 18 11 Executive Compensation........................... 18 12 Security Ownership of Certain Beneficial Owners and Management.................................. 18 13 Certain Relationships and Related Transactions... 18 Part IV 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K............................. 18 2
Part I Item 1. Business General CSP Inc. (the "Company" or "CSPI") was founded in 1968 and is located in Billerica, Massachusetts, just off Route 128 in the Boston computer corridor. CSPI develops, manufactures, markets, installs and supports a range of standard high performance multi- computer products and systems with specific strengths in digital signal processing for real time applications in defense and commercial markets. The Company also commercializes technology developed by United Parcel Service (UPS) to automate parcel sortation capabilities. In 1994 a separate product group was established, Vision Systems product group, and in March 1997, it was consolidated with the computer product group. The Company, in 1988, established Scanalytics product group to develop and market imaging systems for molecular and cell biology. In June 1997, this product group was consolidated with the assets acquired from Signal Analytics Corp. and was setup as a wholly-owned subsidiary called Scanalytics Inc.(Scanalytics). Scanalytics which specializes in the development and marketing of highly sophisticated image analysis software products used by bio-technology scientists. By integrating these software products with a diverse group of image-capture devices, Scanalytics is able to solve application-specific problems for bio-technology research. Applications include forensics, fluorescence microscopy, pharmaceutical assays and 3D imaging and visualization. On June 27, 1997, CSPI acquired the assets of MODCOMP/Cerplex L.P. MODCOMP is the premier provider of systems integration and outsourcing network services, Internet solutions and real-time process control systems. This multi-national subsidiary provides network integration services including consulting, systems integration and outsourcing. ViewMax, MODCOMP's newest product, is an Internet software tool that allows organizations to connect their legacy mainframe databases to their new Intranet, Extranet or Internet applications. CSPI and MODCOMP sell all products through its own direct sales force in the U.S. and MODCOMP sell directly in Germany, France and United Kingdom. The two companies sell via a world-wide organization of distributors in the rest of the world. Scanalytics sells both direct and through a network of distributors and resellers. Product Line Acquisitions: Effective June 27, 1997, the Company acquired Modcomp/Cerplex L.P. (MODCOMP), a wholly-owned subsidiary of The Cerplex Group Inc. MODCOMP sells legacy-to-web integration solutions and real-time computer systems software and service. CSPI purchased MODCOMP for $8,709,000 in cash. This transaction was accounted for as a purchase. In June 1997, the Company acquired Signal Analytics Corp., (Signal) a software company that provides products for scientific imaging to the life science field. CSPI purchased Signal for $2,159,000 in cash. This transaction was accounted for as a purchase. 3 Current Products CSPI MultiComputer Division Products With decades of application experience, CSPI understands the needs of high-performance computing and real-time I/O applications. Applications expertise, product innovation, technical support, and dedication to customer support makes CSPI one of the industry's leading providers of high-performance computing systems. CSPI's MultiComputer Group's business is helping its customers solve high-performance computing problems by supplying multiprocessing systems with powerful real-time I/O capabilities that require minimum physical space or power. CSPI's unique commitment to open system designs, seamless upgradability of software, and superior scaleable multiprocessing architectures provides the unparalleled price performance products that are needed to solve complex real-time problems. The Company's products consist of both hardware and software, each optimized for the other. A typical OEM/volume end user will employ one or more units in an embedded system for defense, medical imaging, advanced vision and seismic applications. 2000 SERIES MultiComputer Products In fiscal year 1998, the MultiComputer Division introduced several new product additions to the 2000 SERIES MultiComputer Systems, its latest generation of products designed specifically for high-performance computing applications. 2000 SERIES MultiComputer Systems offer application developers the most comprehensive high-performance system in the industry. The Company differentiates itself from its major competitors by its use of standard interfaces and the interoperability this affords its OEM customers. The 2000 Series High-performance MultiComputer Systems use the best of open systems technologies. They are implemented using Myrinet networking technology, Message Passing Interface (MPI) software for interprocessor communications, and the VxWorks real-time operating system. Computational nodes based on PowerPCs, from Motorola/IBM and SHARCs, from Analog Devices, provide a heterogeneous processor architecture. The incorporation of open, proven, and established technologies in the 2000 Series MultiComputer Systems ensures that customers receive systems using the latest technology while reducing the risks associated with proprietary technology. 2000 Series products have been shipped in a variety of configurations, including multiple-chassis systems. These systems are being used for several different applications including radar, sonar, and surveillance signal processing. The entry level price for a 2000 Series High-Performance MultiComputer System is approximately $70,300. Volume discounts are offered. MAP-1310/11 Products The MultiComputer group continues to market and sell the MAP-1300 series of VME board level products. The MAP-1310 and the MAP-1311 boards, are designed using Analog Devices' 21060 DSP chip and the PowerPC RISC processor from Motorola/IBM. The 1310 and the 1311 delivers 1 and 2 Gigaflops of DSP computational power, respectively, using either 4 or 8 21060's on a daughterboard and a PowerPC 603 RISC processor. The 1310/1311 incorporate the VxWorks real-time operating system (from Wind 4 River Systems), C Compilers and CSPI's Standard Signal Processing Library for the 21060 DSP chip's operation. The 1310/11 also support third party PMC(PCI) modules offering a large set of standard I/O options. The MAP-1310 and MAP-1311 are priced from $6,000 to $30,000, depending upon the model and quantity purchased. SuperCard Products SuperCards are VME-based boards which are incorporated into customized signal processing systems by OEM customers. Now in its fourth generation, the SuperCard family is a complete product line of embedded signal processors employing multiple Intel i860 RISC microprocessors. The most recent version, the SuperCard-4SLX, employs eight 40MHz i860's and provides 640 MFLOPS of computational power, incorporates 64MB of high speed memory and a high bandwidth interboard connection scheme based upon National Semiconductor's QuickRing components. SuperCard-3 utilizes one or two of the 50MHz version of the i860 and is available for the VME bus, the S-Bus and Turbochannel markets. The earlier SuperCard-2 and 1 are still supplied to a limited number of existing customers. SuperCard products are priced from $5,000 to $45,000 (depending upon model and quantity). Sortation Reader Products CSPI MultiComputer Division's Vision Systems product group has been integrated with the MultiComputer Group. The Lightning family of over-the-belt industrial barcode readers commercialize technology developed by United Parcel Service (UPS) to automate UPS's parcel sortation capabilities. The next generation of readers is currently in production and includes upgraded technology to address more applications. CSPI's MultiComputer Group's business is helping its customers solve high-performance computing problems by supplying multiprocessing systems with powerful real-time I/O capabilities that require minimum physical space or power. CSPI's unique commitment to open system designs, seamless upgradibility of software, and superior scaleable multiprocessing architectures provides the unparalleled price performance products that are needed to solve complex real-time problems. Scanalytics, Incorporated Scanalytics specializes in the development and marketing of highly sophisticated image analysis software products used in the scientific research community. By integrating these software products with a diverse group of image capture devices, Scanalytics is able to solve application-specific problems in a variety of scientific disciplines. Applications range from astronomy to microscopy, and include specialized modules for the analysis of images in fluorescence, emission and electron microscopy, bio-medical and 3D imaging, laser beam analysis, and remote sensing. In the biotechnology and bio-medical research markets, Scanalytics offers a complete line of gel analysis software packages used primarily in quantifying DNA, RNA, and protein. Investigators involved in DNA fingerprinting, forensic analysis, paternity testing, genetic linkage analysis, and identification of pathogenic and environmental micro-organisms utilize Scanalytics analytical systems in their laboratories. Scanalytics software modules are used by hundreds of university, 5 pharmaceutical and government labs, worldwide. In the field of cell biology, Scanalytics' 3D, high resolution, fluorescence microscopy software is being used to image and analyze microscopic cellular structures, in living cells, that were previously impossible to visualize by any other technique. Scanalytics software products are available for both the Macintosh and PC, and are compatible with a wide variety of image capture devices, including wide-field fluorescence microscopes, confocal microscopes, CCD cameras, storage phosphor imaging devices, scanners and densitometers. EPR and 3D Deconvolution Based upon technology developed by the University of Massachusetts Medical Center in over ten years of research, EPR (Exhaustive Photon Reassignment) is a software product designed to allow extremely high-resolution imaging of cellular and subcellular structures with minimal damage to the specimen. The Company offers this deconvolution software, for use with desktop Pentium computers, or with a multi-use server with SuperCards for higher-speed processing option. The software alone is priced at $5,000, with server hardware prices starting at $46,600 with additional SuperCard pricing available. The Company also sells complete image acquisition and analysis systems ($6,000 to $100,000 exclusive of microscope) to individual researchers in government, academia and industry. These systems use third-party, off-the-shelf hardware components such as cameras, z-axis positioners, light shutters and filter wheels. Electrophoresis products Electrophoresis is the most widely used technique for the separation of proteins and nucleic acids in the life sciences. Active components are separated by charge and molecular weight in thin gels and capillaries and then detected using inherent properties or reporter molecules. These reporter molecules can be chemiluminescent, radioactive labels, colored stains or fluorescent dyes. Images derived by the scanning these gels and capillaries are then analyzed for pertinent data using gel analysis software. Significant methodologies using this data include large-scale DNA sequencing, DNA fragment analysis for microbial identification, genotyping, population genetics, forensics, and routine QC/QA of protein and nucleic acids in the biopharmaceutical industry. The Scanalytics product group markets several software products for electrophoresis analysis priced from $1,000 to $6,500. These packages were developed in cooperation with various university and research institute collaborators. GELLAB II+, a product for the analysis of 2-D electrophoresis was developed as a direct result of a Cooperative Research and Development agreement with the National Cancer Institute. These packages are sold directly to individual researchers and via a number of distributors and OEM suppliers of scanner and capillary electrophoresis instruments. IPLab Products IPLab is a more general purpose image processing package used in microscopy, astronomy, laser beam analysis, and material science. The software is offered in modules with upgrades available for multi-probe fluorescence microscopy, calcium-ratio imaging, 3-D microscopy, time-lapse studies, and microscope automation. There is also a separate package used in microscopy, astronomy, available for gel analysis. IPLab scripts allow end-users to write customized functions 6 for their individual applications. The IPlab foundation product was introduced in 1988 on the Macintosh and is now available on Windows. The base product is priced at $2,000, and modules range in price from $500 to $3,000. The software is sold directly and through a network of international and domestics dealers, OEMs and VARs. MODCOMP, Inc. Integration Services In recent years, MODCOMP's product offering has shifted away from the sales of MODCOMP produced (proprietary and open architecture) hardware toward integration solutions including hardware, software, special engineering, and third party hardware and software. MODCOMP's value proposition is integrating these components together into a complete computer system and installing that system at the customer site. These services are offered by all MODCOMP locations. In particular, the German subsidiary has had significant successes in the telecommunication market with the recent deregulation of the industry. MODCOMP continues to sell MODCOMP produced systems and components, especially as it relates to servicing current customers with replacement and/or upgraded systems. MODCOMP's computer systems generally can be expanded without major redesign as customer requirements change. The purchase prices of MODCOMP's computers and computer systems vary in accordance with the requirements of the customer. Typically their computer systems are priced from $6,000 to $250,000, depending on configuration and peripheral equipment. MODCOMP's computer systems are generally utilized in industrial plants, research laboratories and data processing applications and operate in real-time. Computer Hardware In 1988, MODCOMP began selling RealStar family of computers, based on open systems VME and Motorola 68 and 88k processor technology. This was a direct result of faster processing technology and customer demand. MODCOMP provides migration paths for CLASSIC proprietary customers with these systems. Prices range from $15,000 to $100,000. In July 1997, MODCOMP began the launch of its RealStar II line of computer systems. This is a line of third party hardware based on Pentium processor technology. This hardware is specially configured for optimum performance with MODCOMP's REAL/IX PX operating system. MODCOMP adds additional components and software to these systems such as RAID subsystems, interface cards, disks, video displays, to optimize them for real-time, process control market place. During the year MODCOMP purchased a license for AccessPoint from Access Ware in order to complement the capabilities of the REAL/IX operating system. Prices for these systems range from $6,000 to $25,000. MODCOMP also continues to offer its proprietary CLASSIC and MODACS systems, parts and services, which it manufactures in its Fort Lauderdale headquarters. The CLASSIC systems are mini and supermini computers designed specifically to support real-time applications. The MODACS and MODACSX products are data acquisition and control systems. Prices range from $15,000 to $250,000. 7 Computer Software and Computer Programming MODCOMP's computers are supported by high-level operating software, referred to as MAX, REAL/IX, REAL/IX PX and Access Point. This software is designed specifically for optimum real-time performance. MODCOMP's software enables customers to write their own real-time application software. These applications, when combined with MODCOMP computers or third party computers, create systems which simultaneously perform different control functions, program tests and a batch processing operation with response and interrupt times that are competitive in the marketplace. Prices range from $3,000 to $35,000 and up. The Company also offers specialized programming and software engineering services to supply customers with customized solutions. Legacy-Web Internet Integration Solutions In fiscal year 1997, MODCOMP launched ViewMax in the United States. ViewMax software is a development environment that allows companies to re-engineer and integrate legacy systems such as mainframe, midrange, and other diverse host systems with Internet technology. ViewMax can be used to extend corporate data to a much wider audience via a corporate intranet, extranet, or the Internet. ViewMax can also, integrate Electronic Commerce transactions with existing legacy systems. Although the product has a broad potential, the early adopters of this technology have used it primarily for facilitating Electronic Commerce and creating extranets, current customers are in the following markets insurance, financial, health services, governmental, and manufacturing/ distribution. Prices for ViewMax range from $40,000 to $250,000. MODCOMP's Internet Products Division will be releasing, in early 1999, ViewTerm-a software product that provides instant access to legacy systems via the web using only HTML. Since ViewTerm does not use Java or JavaScript, it is an ideal tool for quickly deploying an extranet that can be secured using the standard web secure socket layer (SSL). ViewTerm is a low cost product designed to facilitate immediate access via the web without providing the re-engineering capabilities found in ViewMax. Prices for ViewTerm will range from $5,000 to $50,000. MODCOMP markets ViewMax both directly to end-users and through indirect channels. The direct market is cross industry, to companies of substantial size, and it is not dependent on the fluctuations of any particular industry segments. ViewMax is positioned primarily as an integration tool, with a strong focus on Electronic Commerce, Intranet and Extranet implementations. In the US and UK, a wide range of companies from a broad spectrum of industry have signed up, including insurance, system integrators, automotive and consumer electronics. Markets, Marketing and Dependence on Certain Customers CSPI MultiComputer Division Applications for Multicomputing products include primarily sonar and radar systems and simulators. It also services other areas such as medical imaging, package sortation, speech recognition, and image processing. The Company addresses these widely diverse markets as an OEM supplier to system integrators primarily in the military and defense area and other high volume end-users. In the case of Scanalytics, MODCOMP and over-the- belt products, the Company offers complete application solutions to end-users. The following table sets forth the 8 amount (in thousands of dollars) and percentage of sales revenues attributable to OEM-volume and individual end-users during fiscal years 1998, 1997 and 1996.
Year Ended August ------------------------------------------------ 1998 1997 1996 -------------- -------------- -------------- OEM-volume sales $ 8,320 13% $ 8,662 44% $13,338 81% End-user sales 55,148 87% 10,878 56% 3,182 19% ------- ---- ------- ---- ------- ---- $63,468 100% $19,540 100% $16,520 100% ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ----
The shift in business from OEM volume sales to end-user was due primarily to the business from MODCOMP in 1998 which was all end-user sales and presented 78% of total sales and approximately 90% of end-user sales. While military markets are generally shrinking overall, military signal and image processing systems continue to be strong as they are considered very important for maintaining military readiness. CSPI works with prime contractors that are being encouraged to seek commercial-off-the-shelf (COTS) design solutions rather than build in-house, custom products. The COTS effort is in response to government pressure to reduce defense expenditures, from the various procurement agencies around the world. These agencies have embraced the concept of Commercial-Off-The-Shelf based systems as a method to reduce costs. Prime contractors are being directed to employ relatively inexpensive commercial components whenever possible, replacing custom, fully militarized designs. This also adds another benefit in that commercial products are estimated to be several years ahead of militarized equivalents. The Company continues to ship products for several COTS based programs. The new MultiComputer series 2000 product has been shipped to a number of customers developing COTS based systems or evaluating its use in future COTS programs. Such systems are mainly for radar, sonar and night vision applications. The evaluation periods vary based on the program, but it takes six to eighteen months for many of the programs to complete their evaluation and begin deployment. Several currently deployed programs utilize SuperCards incorporated into the U.S. Navy's sonar computers, which are used to co-ordinate information from hydraphone sensor arrays in both ship-based and shore-based installations. These programs have continued, but their deployment is nearing completion. Currently SuperCards are sold to medical imaging equipment suppliers on an OEM basis. The market demand for medical imaging and the variety of non-invasive technologies (e.g. MRI, PET, Ultrasound, Biomagnetics) is holding steady. The Multicomputing 2000 series system is more powerful than required for these products. Barcodes are familiar to anyone shopping at the local supermarket. Designed simply for product identification or zip code encryption, these one-dimensional codes have limited information storage capacity. The trend is towards optical character recognition and high-density, two-dimensional, machine codes capable of carrying sufficient information for decisions to be made locally. Typical of these modern machine codes is MaxiCode, which is designed specifically for high speed sortation tasks. However, until recently, the widespread use of two-dimensional machine codes has been limited by the lack of an accurate over-the-belt 9 reader, an essential element in any automation scheme. The machine-code reader developed by UPS, and manufactured and marketed by the Company, addresses the need for an accurate, affordable unit capable of unattended operation which can read bar codes and the latest two-dimensional codes and do optical character recognition as well. CSPI has had limited success in its sales efforts of this product to other companies besides UPS, but it continues to market the product through the CSPI distribution channel. UPS is the primary customer for the product. Sales to individual customers constituting 10% or more of total sales consisted of sales to VIAG of $10,105,000 (16%)in 1998. The other significant customer was ARCOR with sales of $9,294,000 (15%). Both customers are German Telecommunication companies. MODCOMP, a German subsidiary, installed system hardware and software for a large mobile communication antenna planning system and IP backbone network systems. 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 markets its products through sales offices in Billerica, Massachusetts, Laurel, Maryland, and Los Angeles, California. Elsewhere in the U.S. and throughout the remainder of the world, these offices coordinate the activities of independent distributors and manufacturers representatives who represent other company's product lines not competitive with CSPI and are either paid a commission on units sold or are permitted to buy units at a discount for subsequent resale. MODCOMP supplies and integrates network solutions and designs, manufactures, services and markets worldwide, high-speed mini-computers and mini-computer systems principally for use in demanding real-time applications. These computer systems are used in operations involving process measurement and control, power production and distribution, manufacturing test and inspection, scientific data collection and monitoring, as well as financing and other communications networks. MODCOMP has been expanding its product line by including third-party equipment to their sales and servicing efforts. Their new focus is as a total solutions company that can meet the needs of customers with a variety of products including internally produced and those of third-party manufacturers. Geographically, Europe accounts for approximately 64% of total sales. The significant increase in European sales was due to MODCOMP business. Historically, approximately 50% of MODCOMP's revenue is generated internationally. During the year, MODCOMP had significant sales from system integration customers in Germany. Accordingly, changes in market conditions in these countries may significantly affect MODCOMP's performance. 10 The following table sets forth the amounts (in thousands of dollars) and percentage of sales by geographical area during fiscal years 1998, 1997 and 1996.
Year Ended August ------------------------------------------------ 1998 1997 1996 -------------- -------------- -------------- North America $21,245 33% $13,324 68% $14,474 88% Far East 1,515 3% 1,034 5% 1,407 8% Europe 40,594 64% 5,090 26% 574 3% Other 144 % 87 1% 65 1% ------- ----- ------- ---- ------- ---- $63,468 100% $19,540 100% $16,520 100% ------- ---- ------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Competition CSPI MultiComputer Division The MultiComputer, bar-code reader and bio-instrumentation markets are very competitive. The Company believes its products to be among the leaders in performance and price. All the markets are characterized by rapid technological change, and the introduction of new products with superior capabilities or lower pricing could adversely affect the Company's business. The Company's principal direct competitors in CSPI's MultiComputer Division market are Mercury Computer Inc. and Sky Computers, Inc. In the specialized DSP market direct competitors include DY4 Inc., Pentek, Ariel, and Alacron. New companies enter the field periodically, and larger companies with greater technical resources and marketing organizations could decide to compete in the future. The future growth of the MultiComputer systems market depends upon providing high density and scalability, in a compact, low power, and inexpensive package that can be easily integrated into an OEM customer's design for high performance computation for a specific range of signal processing and computer server systems. Other companies may offer computer systems designed for particular applications not addressed by the Company or for attachment to computers incompatible with the Company's products. Since the majority of sales are to OEM volume users, the principal barrier to competition is the reluctance of established users to redesign their product once it is in production and the strength of the Company's relationship with its customers. Direct competitors to the Company's machine code reader are AccuSort Systems, Inc., which has also licensed the relevant technology from UPS, and Intermec, and has developed their own CCD based reader. Machine code readers of conventional laser design, which have some of the same performance characteristics, are available from Computer Identics, PSC Automation, and Datalogic. The Company's competitive advantage stems from the use of its SuperCards in the reader, its superior signal processing expertise and its proven capability as a quality supplier. In the microscopy market, Scanalytics' major competitors are Media Cybernetics, Universal Imaging and ImproVision. Other competitors include Applied Precision Instruments, Noran, Innovision, Compix, Carl Zeiss and Intelligent Imaging. In the gel analysis market, major competitors include Genetic Solutions (formerly Biolmage), Media Cybernetics, and BioRad. These competitors range from small, single product companies to large multinational instrument and microscope 11 companies. Scanalytics maintains its competitive advantage through the internal development of sophisticated software applications to offer low-cost solutions in the 3D microscopy market. MODCOMP's competition in its Process Control and Data Acquisition business crosses product line boundaries. Competition in its proprietary product line is with third party companies that have developed technical expertise with the CLASSIC computer system family. Direct competitors include Accurate Computers, Queue Systems, Protostar, and Electronic Visions. Competitors for both MODCOMP's proprietary and open systems product lines also include systems integrators with process control skills in markets such as primary metals, oil and gas, power, rubber and plastics, pharmaceuticals, chemicals, pulp and paper, and food and beverages. These competitors offer alternate open systems hardware platforms and industry-specific tailored application software packages. MODCOMP's direct competition with its real-time UNIX operating system include VxWorks, HP-UX, PowerMAX, WindowsNT, Lynx, QNX, and Linux. As performance in microprocessor technology rapidly advances, real-time capabilities of competing operating systems narrows. Competing products are differentiated by hardware platform support and operating system robustness. The Legacy Extension market space is very competitive, but ViewMax technology has been reviewed by independent industry analysts and positioned as Visionary within our market segment. The Company believes it products to be among the leaders in terms of performance and price. This market space is characterized by rapid technological change, but our commitment to PERL as the development language will allow us to rapidly respond to any technical advances made by competitors that may adversely affect our business. The Company's principal direct competitors in the Legacy Extension market space are Clientsoft, Sterling Software, Mozart, CST, Simware, Intelligent Environments, and Enterprise Link. New companies with backgrounds in emulation have begun to enter the market space. These companies such as WallData, Attachmate, and IBM have greater technical resources and marketing organizations, but are currently behind in technology. Substantial development efforts on their part could adversely affect our position. In the system integration service business MODCOMP competitors are extensive and are difference in each of the geographical markets but they include such competitors as EDS, IBM , Sun Microsystems, and Compaq. Manufacturing, Assembly and Testing All of the CSPI Multicomputing Division's manufacturing is performed at its plant in Billerica, Massachusetts. The primary manufacturing process is the assembly and test of printed circuit boards and systems, designed by the Company and fabricated by other vendors. The Company endeavors to build for inventory and offers products in a variety of standard formats. A small percentage of sales reflect products customized to a particular customer's specification, and even these products are easily reconfigurable should the customer cancel the order for any reason. 12 Upon receipt of material by the Company from outside suppliers, products and components are inspected by the Company's QC/QA technicians. During manufacture and assembly, both subassemblies and completed systems are subjected to extensive testing, including burn-in and vibration procedures designed to minimize equipment failure. The Company also uses diagnostic programs to detect and isolate potential component failures. A comprehensive log is maintained of all past failures to monitor quality procedures and improve design standards. The Company is solely dependent upon Myricom Inc., Arcadia, CA for the networking technology integrated circuit devices used in 2000 SERIES MultiComputer products. The Company has sufficient quantities of these components on hand to satisfy anticipated demand. The Company has been assured by Myricom that supplies will continue to be available for reasonable quantities required. SuperCard products were designed using the Intel i860 RISC microprocessor. CSPI was recently informed that Intel would be discontinuing production of the i860 at the end of the 1998 calendar year. CSPI has made provisions to accommodate the future needs of all its SuperCard customers for this product. No new application development programs will be initiated incorporating SuperCard products, however, SuperCard products will continue to be shipped into existing programs that have completed the SuperCard end-of-life plan. The CSPI MultiComputer Division does not consider the risk of interruption of supply to be significant to meet its projected revenue requirements for the immediate future. The CSPI MultiComputer Division provides a warranty covering defects arising from products sold and service performed, which varies from 90 days to one year depending upon the particular unit. However, warranties of substantially greater scope have been extended to certain major customers for financial and other considerations. The CSPI MultiComputer Division maintains a reserve for warranty repairs equal approximately to 2% of product sales for the last 90 days. The CSPI MultiComputer Division is approved for registration to ANSI/ASQC-Q9001 under RAB and RvC accreditation. The ISO9001 category is the most comprehensive, and incorporates every aspect of business from design, through sales, to manufacturing and customer support. Scanalytics ships all of its software products and manuals form the Fairfax Virginia facility. They perform system integration of computers equipment with various image capture devices such as a microscopes or digital camera at their facilities in Virginia before installation at the customer site. MODCOMP's computer system production starts with the procurement of raw materials, components, pcb's, cables, and prefabricated sheet metal. System configurations can include a wide selection of peripheral subsystems built or purchased under the original equipment manufacturer agreements. MODCOMP's manufacturing facility is located in Fort Lauderdale, Florida. The process is controlled by various quality steps throughout the manufacturing phases. The production cycle of an individual system generally takes between 30 and 45 days, depending on its complexity. MODCOMP's manufacturing operations requires a wide variety of mechanical and electronic components, raw materials and other 13 supplies. MODCOMP has more than one commercial source of supply for most of the components and raw materials which it uses, but is dependent on certain single-source suppliers for a certain number of items. The supply situation is cyclical and shortages or extended lead times for delivery have developed from time to time. Although to date the Company has had no significant problems in procuring its material requirements as needed, MODCOMP's operations could be seriously affected should shortages become acute. Customer Support The CSPI MultiComputer Division and Scanalytics support its customers in a number of ways: telephone assistance, on-site service, installation of systems, training and education. Customers are able to call a support unit and report problems which are reviewed by an analyst. The analyst will research the problem and will assist the customer, most commonly via telephone, in an effort to correct the problem. Service of this kind is available during the warranty period, and is also available to report "bugs" in the software. Customers may purchase software and hardware maintenance and on-site service contracts after the warranty period. The CSPI MultiComputer Division offers training courses at either corporate headquarters or the customer site, should the customer request it. Field and customer service support is provided through Billerica, Massachusetts, Los Angeles, California, Laurel, Maryland and Scanalytics through its Fairfax, Virginia site. MODCOMP supports its customers in a number of ways; telephone assistance, on-site service, installation of systems, training and education. Service and parts warranty, generally of 90 days duration, is provided on all products. In addition, MODCOMP sells maintenance service contracts to customers. MODCOMP also conducts customer training classes of one to three weeks duration on a fee basis either at their site or the customer's location. MODCOMP offers training courses at corporate headquarters. Field and customer service support is provided through offices strategically located throughout the world. Engineering and Development During fiscal 1998, CSPI MultiComputer Division's expenses (including depreciation) for engineering and development were approximately $4,072,000 (6% of sales) compared to approximately $3,360,000 (17% of sales) and $3,325,000 (20% of sales) in fiscal years 1997 and 1996, respectively. Expenditures for engineering and development are expensed as they are incurred. The CSPI MultiComputer Division expects to continue substantial expenditures, both in additional applications software development and development of hardware and software for multicomputers. Scanalytics Inc. will continue to expand its product offering in software with its various products in gel and cell analysis for life sciences and complete new releases of the PC version of the IP Lab software product. CSPI MultiComputer Division's products and development currently in process are intended to extend the usefulness and marketability of existing products and introduce new products into existing market segments. MODCOMP will continue development of the View Max product, Real/IXPR and AccessPoint for SCADA solutions. Of CSPI MultiComputer Division's and Scanalytics have 74 employees, 20 14 professional and staff employees were engaged in software and hardware engineering and development activities as of August 28, 1998. The CSPI MultiComputer Division does not have any patents that are material to its business. The Company does not have any patents that are material to its business. MODCOMP's Engineering and Development staff has developed various computers, computer peripherals and software since 1970, which it continues to maintain and enhance. MODCOMP's principal products are the CLASSIC hardware and software line, REAL/IX PX and special one-of-a-kind products requested by customers. The CLASSIC hardware and software line is a proprietary line of computers and related software especially designed for the hard real-time market and has been in existence since 1970. REAL/IX PX is a modified version of the AT&T System V UNIX. It has been modified to add determinism, fast interrupt handling, and fast context switching required by the hard real-time market. REAL/IX PX runs on he Intel 486 and Pentium line of computers. Engineering works directly with customers to develop special one- of-a-kind products such as the MODCOMP-VME-II, which moves the design of one of the early CLASSIC systems onto a VME board to go into a VME chassis. MODCOMP's 171 employees, 13 professional and staff employees are engaged in software and hardware engineering and development. Backlog The Company's backlog of customer orders and contracts was approximately $9,781,000 at August 28, 1998 as compared to $9,550,000 at August 29, 1997. The backlog of the Company can fluctuate greatly. These fluctuation can be due to the timing of receiving large orders for integration services and OEM purchases. Employees On August 28, 1998, the Company had 245 full time employees. None of the Company's employees is represented by a labor union and the Company had no work stoppages. The Company considers relations with its employees to be good. Item 2. Properties The Company owns the land and building at 40 Linnell Circle, Billerica, Massachusetts. The Company owns approximately 2.8 acres of land adjacent to the Company's current facility. The Company believes space at its current location, combined with space that will be available if the Company proceeds to build on the adjacent land, will be sufficient for future growth. 15 MODCOMP's corporate headquarters, manufacturing operations and training facility in Fort Lauderdale, Florida are located in a leased building, totaling approximately 77,483 square feet. In addition, they lease the following office spaces in the United States, Canada and foreign countries; Cincinnati - 1,958 sq. feet, Atlanta - 787 sq. feet, Houston - 1,450 sq. feet, Ontario, France - 11,066 sq. feet, Hamburg, Germany - 29 sq. feet, Hannover, Germany - 748 sq. feet, Cologne, Germany - 6,048 sq. feet and Karlsruhe, Germany - 1,782 sq. feet. Item 3. Legal Proceedings MODCOMP is currently defendant in certain lawsuits which arose in the ordinary course of business. Based in part on the opinion of legal counsel representing the Company in these lawsuits, management is of the opinion that the outcome of such litigation will not have a material adverse effect on the Company's financial position. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted for a vote of security holders. Item 4A. Executive Officers Information about the executive officers of the Company is set forth below.
Name and Age Business Affiliations - -------------------------- ------------------------------------------ Alexander R. Lupinetti(53) Chairman, Chief Executive Officer and President of CSPI since October 1996; President and Chief Executive Officer of each of the TCAM Systems Inc., Shared Systems Corporation and SoftCom Systems, Inc. subsidiaries of Stratus Computer Inc. from November 1987 to September 1996; Northeastern General Manager for the Engineering and Scientific Division of International Business Machines, Inc. from 1984 to 1987. Michael M. Stern(61) Director of CSPI from 1968 to January 1984; Vice President of Operations and Treasurer of CSPI since 1968. Gary W. Levine(50) Vice President of Finance and Chief Financial Officer of CSPI since September 1983; Controller of CSPI from May 1983 to September 1983. James A. Waggett(61) Director of CSPI from 1968 to January 1984; Vice President of Advanced Development from 1974 to the present; Business Element Manager of the Embedded Computing Product Group from August 1995 to October 1996; Clerk from 1971 to March 1983; Assistant Clerk from March 1983 to the present.
16 Bradley E. Stamp (46) Vice President of Sales and Support for MultiComputer Group from October 1996 to present; General Manager of Vision System Product Group May 1994 to September 1996; Director of Customer Support September 1988 to May 1994. Michael Mort(47) President of Scanalytics June, 1997; President and owner of Signal Analytics Corp. June, 1997-1987, John P. Clary(61) President of MODCOMP Inc. and Vice President of CSPI from August 1997 to present, Modcomp/Cerplex L.P. President and Chief Executive Officer December 1994 to August 1997, Vice President of Customer Support, Manufacturing and Facilities, Modular Computer Systems Inc., January 1991 to December 1994
PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters The information required by this Item is incorporated by reference from "Common Stock Data" on page XX of the Company's 1998 Annual Report to Stockholders. American Stock Transfer Company is the Transfer Agent and Registrar for the Company's Common Stock. There were approximately 152 Stockholders of record as of November 16, 1998. The Company believes the number beneficial owners of shares (including shares held in street name) at that date were approximately 1,000. Item 6. Selected Financial Data The information required by this Item is incorporated by reference from "Selected Financial Data" on page 17 of the Company's 1998 Annual Report to Stockholders. Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations The information required by this Item is incorporated by reference from "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 18-24 of the Company's 1998 Annual Report to Stockholders. Item 8. Financial Statements and Supplementary Data The information required by this Item is incorporated by reference from pages 25 to 42 and from "Independent Auditor's Report" on page 43 of the Company's 1998 Annual Report to Stockholders. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure NONE 17 PART III Item 10. Directors and Executive Officers of the Registrant The information for Directors required by this Item is incorporated by reference from the Company's Proxy Statement dated November 30, 1998 filed with respect to the Annual Meeting of Stockholders of the Company on January 12, 1999. Item 11. Executive Compensation The information required by this Item is incorporated by reference from the Proxy Statement. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this Item is incorporated by reference from the Proxy Statement. Item 13. Certain Relationships and Related Transactions The information required by this Item is incorporated by reference from the Proxy Statement. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8K A) The following are filed as part of this report: 1) Financial Statements (See item 8): The following financial statements of the Company are included in Part II of this report through incorporation by reference from the Company's 1998 Annual Report to Stockholders.
Annual Report Page ------------- Independent Auditors' Report..............................................43 Consolidated Balance Sheets at August 28, 1998 and August 29, 1997...........................................................25 Consolidated Statements of Operations for years ended August 28, 1998, August 29, 1997 and August 30, 1996.......................................26 Consolidated Statements of Shareholders' Equity for years ended August 28, 1998, August 29, 1997 and August 30, 1996................27 Consolidated Statements of Cash Flows for years ended August 28, 1998, August 29, 1997 and August 30, 1996.......................................28 Notes to Consolidated Financial Statements.............................29-42
18 2) Consolidated Financial Statement Schedules Schedule VIII - Valuation and Qualifying Accounts 3) Exhibits Certain of the Exhibits listed hereunder have previously been filed with the Commission and are hereby incorporated by reference pursuant to Rule 12b-32 under the Securities Exchange Act of 1934 and Rule 24 of the Commission's Rules of Practice. The location of each document so incorporated by reference is noted parenthetically. 3.1 Articles of Organization and amendments thereto, of the Company as of the end of Fiscal 1986 (Exhibit 3.1 to the Form 10-K for the year ended August 31, 1990) 3.2 By-Laws of the Company, as amended through March 21, 1995 10.1 1981 Incentive Stock Option Plan as amended (Exhibit 10.3 to the Form S-8, File No. 2-79414, 1987 Registration Statement) 10.2 Mr. Ochlis' Employment and Deferred Compensation Agreement dated January 5, 1987 (Exhibit 10.5 to the Form S-8, File No. 2-79414, 1987 Registration Statement) 10.3 Form of Invention Agreement between the Company and certain of its employees 10.4 CSPI Supplemental Retirement Income Plan (Exhibit 10.13 to Form 8 amendment 2 to Form 10-K for year ended August 31, 1986, dated February 23, 1987) 10.5 Trust Agreement (between CSP Inc. and Bank of Boston) dated January 5, 1987 as amended (Exhibit 10.11 to Form 10-K for year ended August 31, 1990) 10.6 Amendment to Mr. Ochlis' Employment and Deferred Compensation Agreement dated March 20, 1989 (Exhibit 10.9 to Form 10-K for year ended August 31, 1991) 10.7 1991 Incentive Stock Option Plan (the Plan is included in the Company's Proxy Statement dated November 10, 1991 with respect to the Annual Meeting of Stockholders of the Company on December 10, 1991) 10.8 Retirement Agreement for Edmund U. Cohler (Exhibit 10.9 to Form 10-K for the year ended August 26, 1994) 10.9 Symbology Reader License Agreement between UPS and CSPI (Exhibit 10.9 to Form 10-K for the year ended August 26, 1994) 10.10 Software License Agreement between UPS and CSPI (Exhibit 10.12 to Form 10-K for the year ended August 26, 1994) 10.11 Patent Agreement between UPS and CSPI (Exhibit 10.13 to Form 10-K for the year ended August 26, 1994)
19 10.12 Amendment to Mr. Ochlis' Employment Deferred Compensation Agreement dated February 6, 1995 10.13 Employment Agreement between CSP Inc. and Mr. Lupinetti dated September 12, 1996 10.14 Signal Analytics Purchase Agreement 10.15 Modcomp/Cerplex L.P. Purchase Agreement 11.0 Computation of Earnings (loss) Per Share for the years ended August 28, 1998, August 29, 1997, and August 30, 1996 13.1 1998 Annual Report to Stockholders 22.1 Subsidiaries of the Registrant (Exhibit 22.1 to Form 10-K for the year ended August 29, 1997) 23.0 Consent of Independent Certified Public Accountants 27.1 Financial Data Schedule
20 INDEPENDENT AUDITORS' REPORT The Board of Directors and Shareholders of CSP Inc. and Subsidiaries Under date of October 5, 1998, except as to Note 13, which is dated as of October 14, 1998, we reported on the consolidated balance sheet of CSP Inc. and Subsidiaries as of August 28, 1998 and August 29, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the years in the three-year period ended August 28, 1998, as contained in the 1998 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the financial statement schedule on page 22 of this report. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG Peat Marwick LLP Boston, Massachusetts October 5, 1998 21 CSP INC. AND SUBSIDIARIES Schedule VIII-Valuation and Qualifying Accounts
Allowance For Warranty Doubtful Description Reserve Accounts - ----------- -------- ---------- Balance August 25, 1995 $92 $103 Additions Charged to Costs and Expenses 92 -- Additions Charged to Other Accounts 23 -- Deductions: Write off of assets -- -- ------------------------------- Balance August 30, 1996 69 103 Additions Charged to Costs and Expenses -- -- Additions for MODCOMP 144 154 ------------------------------- Balance August 29, 1997 213 257 Additions Charged to Costs and Expenses -- -- Additions Charged to Other Accounts -- l02 Deductions -- -- ------------------------------- Balance August 28, 1998 $213 $359 ------------------------------- -------------------------------
22 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CSP INC. (Registrant) Alexander R. Lupinetti November 23, 1998 - ---------------------- ------------------- Alexander R. Lupinetti Date Chief Executive Officer, President and Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
NAME TITLE DATE - ---- ----- ---- Alexander R. Lupinetti Chief Executive Officer, November 23, 1998 - ---------------------- President and Chairman Alexander R. Lupinetti Gary W. Levine Vice President of Finance, November 23, 1998 - ---------------------- Chief Financial Offcier Gary W. Levine J. David Lyons Director November 23, 1998 - ---------------------- J. David Lyons Shelton James Director November 23, 1998 - ---------------------- Shelton James Sandford Smith Director November 23, 1998 - ---------------------- Sandford Smith Robert Williams Director November 23, 1998 - ---------------------- Robert Williams
23 EXHIBIT INDEX
Exhibit Form 10-K Number Exhibit Page - ------- ------- --------- 11.0 Computation of Earnings (loss) Per Share for the years ended August 28, 1998, August 29, 1997, and August 30, 1996 13.1 1998 Annual Report to Stockholders 23.0 Consent of Independent Certified Public Accountants 27.1 Financial Data Schedule
24 EX-11.0 2 EXHIBIT 11.0 Exhibit 11.0 CSP, INC. AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS For the years ended August 28, 1998, August 29, 1997, and August 30, 1996 (in thousands except for per share amounts)
1998 1997 1996 --------------- -------------- --------------- Net income (Loss) Per Common Share--(Basic) Net Income (Loss) $1,362 $ (721) $ 108 --------------- -------------- --------------- Weighted average common shares outstanding 3,265 3,246 3,226 --------------- -------------- --------------- Net income per common share--(Basic) $ 0.42 $(0.22) $ 0.03 --------------- -------------- --------------- --------------- -------------- --------------- Net Income (Loss) Per Common Share--(Diluted) Net Income (Loss) $1,362 $ (721) $ 108 --------------- -------------- --------------- --------------- -------------- --------------- Weighted average common shares outstanding 3,265 3,246 3,226 Add: Net additional common shares upon exercise of stock options 75 -- 41 --------------- -------------- --------------- Weighted average common shares outstanding 3,340 3,246 3,267 --------------- -------------- --------------- --------------- -------------- --------------- $ 0.41 $(0.22) $ 0.03 --------------- -------------- --------------- --------------- -------------- ---------------
EX-13.1 3 EXHIBIT 13.1 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.
EX-23.0 4 EXHIBIT 23.0 Exhibit 23.0 Consent of Independent Certified Public Accountants The Board of Directors CSP Inc. We consent to incorporation by reference in the registration statements (Nos. 2-79414 and 33-11815) on Form S-8 of CSP Inc. of our report dated October 5, 1998, except as to Note 13, which is dated as of October 14, 1998, relating to the consolidated balance sheets of CSP Inc. and Subsidiaries as of August 28, 1998 and August 29, 1997, and the related consolidated statements of operations, shareholder's equity and cash flows and related schedule for each of the years in the three-year period ended August 28, 1998, which reports appear or are incorporated by reference in the August 28, 1998 report on Form 10-K of CSP Inc. KPMG PEAT MARWICK LLP Boston, Massachusetts November 23, 1998 EX-27.1 5 EXHIBIT 27.1
5 0000356037 CSP INC 1,000 12-MOS 12-MOS AUG-29-1997 AUG-28-1998 AUG-31-1996 AUG-30-1997 AUG-29-1997 AUG-28-1998 4,344 3,913 5,581 9,635 8,878 8,057 257 (359) 6,227 6,308 26,578 29,870 13,494 14,192 (9,638) (10,825) 34,999 37,528 7,738 7,774 0 0 0 0 0 0 30 36 24,991 26,355 34,999 37,528 19,540 63,468 19,540 63,468 10,542 42,841 11,048 18,415 974 500 0 0 89 30 (1,165) 2,676 444 1,314 (721) 1,362 0 0 0 0 0 0 (721) 1,362 (.22) .42 (.22) .41
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