VANCOUVER, BRITISH COLUMBIA- (Nov. 2, 2005) – Spectrum Signal
Processing Inc. (TSX:SSY)(NASDAQ:SSPI) today announced its financial results
for its third quarter ended September 30, 2005. Spectrum reports all results in
US dollars and in accordance with US GAAP. Key third quarter financial metrics
include:
– Revenues of $3.5 million;
– Gross profit of $2.0 million, or 58% of revenue;
– Net operating expenses of $2.5 million;
– Net loss of $469,000, or $0.02 per share; and,
– A cash balance of $2.7 million at September 30, 2005.
“Our results illustrate the sharp dichotomy between our short term revenue
challenges and our strong long term strategic progress,” stated Pascal
Spothelfer, Spectrum’s President and Chief Executive Officer. “While our
packet-voice revenues have declined approximately $3.0 million year-to-date
2005 versus 2004, our wireless revenues have grown over $700,000 during this
same period. In addition, we have closed significant new agreements with
General Dynamics C4 Systems, General Dynamics Canada and Globalstar LLC. All
three accounts have the potential to produce meaningful long-term revenues.”
Mr. Spothelfer added, “Currently, we believe that our revenue outlook for the
next twelve to fifteen months will not be influenced by these larger
opportunities. We continue to focus on increasing our flexComm(TM) product and
service revenues through new design-ins and maximizing revenues from our
existing production wins. We expect a strong new design-in pace throughout 2006
with the introduction of our SDR 4000 product line, our next generation family
of small form factor, ruggedized software defined radio products. These new
products are specifically targeted at large volume production opportunities and
are expected to become important revenue generators in the years to come.”
Financial Results
Revenues for the third quarter of 2005 were $3.5 million, an increase of 3%
compared to revenues of $3.4 million for the second quarter of 2005 and a
decrease of 27% compared to revenues of $4.8 million for the third quarter of
2004.
Wireless revenues were $3.4 million for the third quarter of 2005, compared to
$3.1 million for the second quarter of 2005 and $3.8 million for the third
quarter of 2004. Packet-voice revenues were $77,000 in the third quarter of
2005, down from $255,000 for the second quarter of 2005 and down from
packet-voice revenues of $1.0 million for the third quarter of 2004. The
continued decline in packet-voice revenues is attributable to a decision by the
company in January 2004 to cease all new development in its packet-voice
product line. This decision was made in light of significant critical component
supply risk and general market uncertainty pertaining to its packet-voice
products. The Company expects its packet-voice product and service revenues to
be nominal in future periods.
The company’s gross profit for the third quarter of 2005 was $2.0 million, or a
gross margin of 58% of revenues, compared to $2.1 million, or a gross margin of
61% of revenues, for the second quarter of 2005 and $2.7 million, or a gross
margin of 56% of revenues, for the third quarter of 2004.
Operating expenses for the third quarter of 2005 were $2.5 million, compared to
$2.5 million for the second quarter of 2005 and $2.4 million for the third
quarter of 2004. Operating expenses for the third quarter of 2005 included a
$231,000 expense offset recorded pursuant to the company’s funding agreement
with Technology Partnerships Canada (“TPC”).
Spectrum recorded a net loss of $469,000 for the third quarter of 2005, or
$0.02 per share, compared to a net loss of $396,000, or $0.02 per share, for
the second quarter of 2005 and net earnings of $309,000, or $0.02 per share,
for the third quarter of 2004.
Spectrum’s cash position, net of bank indebtedness, at September 30, 2005 stood
at $2.7 million, compared to $3.3 million at December 31, 2004.
On September 22, 2005 the Company was notified by Industry Canada that in the
opinion of the Minister of Industry, the Company is in default of the
non-solicitation provisions of its TPC contribution agreement dated March 31,
1999 due to its related engagement of two outside consultants. The Company paid
Cdn$948,000 in contingent fees to these consultants for contractually specified
services. Industry Canada has agreed to financial remedies with other companies
found in breach of their TPC agreements’ non-solicitation provisions equal to
contingency fees paid for solicitation services.
In accordance with the terms of the Company’s agreement, Industry Canada
complained of, or demonstrated to the satisfaction of the Minister that it had
of the rectification within 30 days. The Minister has since granted relief of
this term in light of the Company’s good faith engagement to resolve this
matter.
solicitation services was a breach of the terms of the agreement. In order to
remedy this breach, the Company has remitted a payment of Cdn$60,000 ($52,000)
to Industry Canada. The Company, however, disagrees with the Minister’s
allegation of a breach regarding the second consultant. The Company has
requested that Industry Canada either provide supporting documentation for the
documentation. While Industry Canada has not provided supporting documentation
to date, it has invited the Company to discuss this matter and to review its
available documentation.
For more information on the terms of Spectrum’s TPC contribution agreement
dated March 31, 1999, please refer to Spectrum’s historical regulatory filings.
Subsequent to the release of its second quarter results on July 27, 2005,
Spectrum announced:
– The addition of its next generation SDR-4000 software defined radio products
to its flexComm product line. This product line is designed to meet the size,
weight, power consumption and production cost requirements of military
communications systems designed for harsh tactical environments. Spectrum has
already shipped its SDR-4000 products to a number of prime contractor and
government customers;
– The listing of its products and services in the U.S. government’s General
Services Administration (GSA) catalogue. The GSA helps federal agencies acquire
standard services and commercial-off-the-shelf products including a wide range
of communications electronics products and professional engineering services.
Spectrum expects its GSA listing to streamline direct sales to the U.S.
government and serve to shorten the sales cycle for such transactions;
– The addition of the SDR-3000 SMRDP, an “RF to Ethernet” wideband military
communications rapid-prototyping and development platform, to its flexComm
product line. The SDR-3000 SMRDP is a turnkey black-side processing system
other MILCOM developers;
– A $1.0 million contract with Globalstar LLC to provide a software defined
radio upgrade to Globalstar’s satellite gateway infrastructure. The gateway
required to provide enhanced asset tracking services and to enable a variety of
Radio Frequency Identification (RFID) based asset tracking applications;
– A contract with the German armed forces to supply two SDR-3002 IMRDP
(International Military Communications Rapid-prototyping and Development
Platform) platforms. The platforms will enhance the software defined radio
waveform tools necessary to support the Software Communications Architecture
(SCA);
– That Industry Canada had notified the Company that, in the opinion of the
Minister of Industry, the Company was in breach of the non-solicitation terms
its TPC contribution agreement dated March 31, 1999 as a result of the
Company’s utilization of consultants in securing the agreement;
– An agreement with General Dynamics Canada to supply software defined radio
technology and assist General Dynamics Canada in the development and
demonstration of enhanced tactical military communication solutions. Spectrum’s
technology will be used to enhance the flexibility, interoperability and
performance of General Dynamics Canada’s MESHnet(R) family of tactical
communications products;
– The addition of the HCDR-1000 CRDP, a communications intelligence
rapid-prototyping and development platform, to its flexComm product line. This
software defined radio platform is designed to assist developers of
signals;
– The addition of the XMC-3311, a high speed transceiver XMC/enhanced PMC
(ePMC) module, to its flexComm product line. The XMC-3311 is targeted at wide
communications, signals intelligence and electronic warfare;
– The addition of the SDR-3002 IMRDP, an international version of Spectrum’s
existing military communications rapid-prototyping and development platform, to
its flexComm product line. The SDR-3002 IMRDP is the industry’s first “RF to
Ethernet” commercial-off-the-shelf solution specifically targeting
international MILCOM programs; and,
– A contract to provide software defined radio technology, training and support
services to the French Ministry of Interior to support the development of new
communications platform for a homeland security application.
Spectrum will conduct a conference call and live audio webcast on November 2,
2005 at 4:30 pm Eastern / 1:30 pm Pacific time. The call can be accessed via
telephone or audio web cast. The conference call dial-in number is
1.866.497.3339. The live audio web cast can be accessed on Spectrum’s web site
at www.spectrumsignal.com. A conference call replay will be available via
Spectrum’s web site until November 16, 2005.
Forward-looking Safe Harbour Statement
Business Outlook are forward-looking statements that involve a number of risks
and uncertainties. In addition to factors discussed above, among other factors
that could cause actual results to differ materially are the following: change
in business strategy, liquidity and capital resources, reliance on significant
customers, inflation and foreign exchange fluctuations, political, business and
economic conditions, growth rates of the defense and commercial wireless
markets, government budget cycles, changes in customer order patterns, the cost
and availability of key components, successful contract negotiations,
competitive factors, technology changes, the ability to successfully develop
and market new products, the acceptance of new products, pricing pressures, and
the ability to grow new defense and commercial wireless business. Readers are
referred to Spectrum’s assumptions and other risk factors set out in the most
current Annual Report filed on Form 20-F with the Securities and Exchange
Commission and with the British Columbia Securities Commission. The company
wishes to caution readers not to place undue reliance upon any such
forward-looking statements, which reflect management’s best effort to provide
guidance based on all known conditions on the date the statements are made. The
company may or may not update these forward-looking statements in the future.
About Spectrum Signal Processing Inc.
Spectrum Signal Processing Inc. (TSX:SSY)(NASDAQ:SSPI) is a leading supplier of
software defined platforms for defense electronics applications. Spectrum’s
products and services are optimized for military communications, signals
intelligence, surveillance, electronic warfare and satellite communications
applications. Spectrum’s integrated, application-ready products provide its
customers with compelling time-to-market and performance advantages while
mitigating program risk and cost parameters. Spectrum Signal Processing (USA)
Inc., based in Columbia, MD, provides application engineering services and
modified commercial-off-the-shelf platforms to the US Government, its allies
and its prime contractors. More information on Spectrum and its flexComm
product line is available at www.spectrumsignal.com.
(TM) flexComm is a trademark of Spectrum Signal Processing Inc.
(R) MESHnet is a registered trademark of General Dynamics Canada.
/t/
Spectrum Signal Processing Inc.
Consolidated Statements of Operations and Deficit
(Expressed in thousands of United States dollars, except per share
amounts and numbers of shares)
in the United States of America
September 30, September 30,
——————————————————————–
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $ 4,794 $ 3,509 $ 13,261 $ 11,006
Cost of sales 2,100 1,480 5,570 4,326
——————————————————————–
2,694 2,029 7,691 6,680
Expenses
Administrative 805 899 2,799 2,712
Sales and
marketing 622 725 1,852 2,472
Research and
development 794 675 1,901 2,198
Amortization 144 173 431 500
Write-down of
capital assets – – 270 –
other charges 23 47 2,318 55
——————————————————————–
2,388 2,519 9,571 7,937
Earnings (loss)
from operations 306 (490) (1,880) (1,257)
Interest expense 2 – 12 –
Other income (5) (21) (6) (40)
——————————————————————–
(3) (21) 6 (40)
——————————————————————–
Net earnings
(loss) 309 (469) (1,886) (1,217)
Deficit,
beginning of
period (22,148) (22,293) (19,953) (21,545)
——————————————————————–
Deficit, end of
period $ (21,839) $ (22,762) $ (21,839) $ (22,762)
——————————————————————–
——————————————————————–
Earnings (loss)
per share
Basic $ 0.02 $ (0.02) $ (0.11) $ (0.06)
Diluted $ 0.02 $ (0.02) $ (0.11) $ (0.06)
shares
Basic 17,612,467 18,812,699 16,607,318 18,782,731
Diluted 18,661,468 18,812,699 16,607,318 18,782,731
——————————————————————–
——————————————————————–
Spectrum Signal Processing Inc.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars, except numbers of
shares)
in the United States of America
December 31, September 30,
Assets 2004 2005
——————————————————————–
(Unaudited)
Cash and cash equivalents $ 3,326 $ 2,723
Trade receivables, net of
of $273 (2004 – $403) 3,736 2,893
Partnerships Canada 257 488
Inventories 1,784 1,686
Prepaid expenses 157 278
——————————————————————–
9,333 8,092
Capital assets 1,370 1,222
Other assets 274 251
——————————————————————–
$ 10,977 $ 9,565
——————————————————————–
——————————————————————–
Liabilities And Stockholders’ Equity
——————————————————————–
Current liabilities
Accounts payable $ 1,770 $ 1,637
current liabilities 1,814 1,187
——————————————————————–
3,800 3,004
Long-term obligations 905 887
Stockholders’ equity
Share capital
Authorized: 50,000,000 common
shares, no par value
Issued and outstanding:
18,878,122 (2004 – 18,369,644) 28,857 29,481
Additional paid-in capital 667 688
Warrants 114 88
Deficit (21,545) (22,762)
Accumulated other comprehensive
Cumulative translation
adjustments (1,821) (1,821)
——————————————————————–
6,272 5,674
——————————————————————–
$ 10,977 $ 9,565
——————————————————————–
——————————————————————–
Spectrum Signal Processing Inc.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
in the United States of America
September 30, September 30,
——————————————————————–
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from
activities
(loss) $ 309 $ (469) $ (1,886) $ (1,217)
reconcile net
earnings (loss)
to net cash
operating
Amortization 149 180 452 523
Write-down of
capital assets – – 270 –
on foreign
instruments – (14) – (14)
Non-cash portion
of restructuring
charges (348) 47 326 55
Changes in
and liabilities
Restricted cash (19) (24) (62) 49
Accounts
receivable (521) (197) (192) 612
Inventories (18) (90) (177) 98
Prepaid expenses 21 54 (63) (107)
Accounts payable (428) (126) (222) (133)
liabilities and
liabilities 464 (52) 248 (700)
Deferred revenue – (60) – (36)
——————————————————————–
Net cash used for
operating
activities (391) (751) (1,306) (870)
——————————————————————–
Cash flows from
investing
Purchase of
capital assets (21) (61) (136) (352)
——————————————————————–
Net cash used for
investing
activities (21) (61) (136) (352)
——————————————————————–
Cash flows from
financing
Issue of shares
share purchase
options, net of
Issue of shares
for cash, net of
issue costs – – 1,978 –
——————————————————————–
Net cash provided
activities 137 88 2,779 619
——————————————————————–
Net increase
(decrease) in
cash and cash
during the period (275) (724) 1,337 (603)
equivalents,
period 2,070 3,447 458 3,326
——————————————————————–
Cash and cash
equivalents, end
of period $ 1,795 $ 2,723 $ 1,795 $ 2,723
——————————————————————–
——————————————————————–
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.
/T/
– 30 –
For Further Information Please Contact:
Spectrum Signal Processing Inc.
Business Media and Investor Relations
(604) 676-6733
[email protected]
INDUSTRY: CMT – Communications Technology
SUBJECT: ERN – EARNINGS
FOR: Spectrum Signal Processing Inc.
TSX SYMBOL: SSY