CSP INC /MA/ — Interim / Quarterly Report 2000

Apr 17, 2000

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 10549 _______ FORM 10-Q/A

Amendment Number 1

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended February 29, 2000

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 01821-3901 (Address of principal executive offices) (Zip Code)

(978) 663-7598 (Registrant's telephone number, including area code)

None (Former name, former address, former fiscal year, if changed since last report)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 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. [X] Yes [ ] No

APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class Outstanding April 11, 2000 Common Stock, $.01 par value 3,587,415 shares

This amendment is being filed to correct Part I, Item I, Financial Statements. We are amending Part I, Item 1, Financial Statements, solely to correct a typographical error in Note 4 to the Financial Statements. For convenience, the entire text of the Financial Statements is set forth below.

As originally filed, Note 4, "Stock Repurchase", stated that at February 29, 2000, the Company had repurchased 480,996 or 65% of the total shares authorized to be purchased. The figure of 480,996 was stated in error. The correct number was 482,823 or 65% of the total shares authorized to be purchased.

As a result, the number of shares repurchased by the Company during the second fiscal quarter, when the cumulative total of shares purchased increased from 481,645 to 482,823, was 1,178 shares.

CSP INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Amounts in thousands, except par value)

	February 29,	August 27,
	2000	1999
	(Unaudited)	(Audited)
Assets
Current assets:
Cash and cash equivalents	$1,351	$3,749
Short-term investments	10,701	10,046
Accounts receivable, net	12,023	7,395
Inventories	5,933	5,805
Deferred income taxes	1,104	1,104
Prepaid expenses	1,273	1,545
Total current assets	32,385	29,644
Property, equipment and improvements, net	3,336	3,497
Other assets:
Long-term investments	468	470
Land held for future development	163	163
Deferred income taxes	735	735
Goodwill, net	1,103	1,226
Other assets	1,399	1,378
Total other assets	3,868	3,972
Total assets	$39,589	$37,113
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses	$8,155	$6,128
Income taxes payable	468	47
Total current liabilities	8,623	6,175
Deferred compensation and retirement plans	3,603	3,573
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par; authorized, 7,500 shares; issued 4,051
and 4,020 shares	41	40
Additional paid-in capital	11,031	10,812
Retained earnings	19,582	19,287
Accumulated other comprehensive income	(794)	(456)
	29,860	29,683
Less treasury stock, at cost, 483 and 449 shares	2,497	2,318
Total shareholders' equity	27,363	27,365
Total liabilities and shareholders' equity	$39,589	$37,113
See accompanying notes to consolidated financial statements.

CSP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Amounts in thousands, except for per share data) (Unaudited)

/--For the three months ended-/ /-For the six months ended-/

	February 29,	February 26,	February 29,	February 26,
	2000	1999	2000	1999
Sales:
Systems	$3,988	$4,376	$6,247	$9,420
Service and system integration	13,264	10,252	25,889	16,136
E-Commerce software	480	220	887	346
Other software	628	737	1,071	1,198
Total sales	18,360	15,585	34,094	27,100
Cost of Sales:
Systems	1,522	1,999	2,627	3,963
Service and system integration	10,748	8,141	21,508	12,099
E-Commerce software	284	66	445	126
Other software	207	197	370	292
Total cost of sales	12,761	10,403	24,950	16,480
Gross profit	5,599	5,182	9,144	10,620
Operating expenses:
Engineering and development	957	976	2,050	2,105
Selling, general & administration	3,492	3,498	6,681	6,846
Total operating expenses	4,449	4,474	8,731	8,951
Operating income	1,150	708	413	1,669
Other income	64	143	142	229
Income before income taxes	1,214	851	555	1,898
Provision for income taxes	589	416	260	987
Net income	$625	$435	$295	$911
Net income per share - basic	$0.18	$0.12	$0.08	$0.25
Weighted average shares outstanding - basic	3,567	3,597	3,566	3,589
Net income per share - diluted	$0.16	$0.12	$0.08	$0.25
Weighted average shares outstanding - diluted	3,825	3,664	3,809	3,645

See accompanying notes to consolidated financial statements.

CSP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (Unaudited)

/---Three months ended---/ /--Six Months Ended--/

	February	February	February	February
	29, 2000	26, 1999	29, 2000	26, 1999
Cash flows from operating activities:
Net income	$625	$435	$295	$911
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization	334	154	680	609
Deferred compensation and retirement plans	46	--	30	202
Deferred income taxes	--	(94)	--	(138)
Other	42	169	(21)	3
Changes in current assets and liabilities:
Increase in accounts receivable, net	(2,244)	(3,976)	(4,628)	(4,060)
(Increase) decrease in inventories	(245)	298	(128)	816
(Increase) decrease in prepaid expenses	235	(44)	272	(219)
Increase (decrease) in accounts payable and
and accrued expenses	(162)	3,859	2,027	2,802
Increase (decrease) in income taxes payable	1,033	(727)	421	(885)
Net cash (used in) provided by operating activities	(336)	74	(1,052)	41
Cash flows from investing activities:
Purchases of available-for-sale securities	(68)	(180)	(147)	(180)
Purchases of held-to-maturity securities	(19,622)	(6,468)	(28,364)	(12,895)
Sales of available-for-sale securities	98	147	145	147
Maturities of held-to-maturity securities	18,839	7,312	27,713	12,758
Property, equipment and improvements	(285)	(371)	(396)	(512)
Net cash (used in) provided by investing activities	(1,038)	440	(1,049)	(682)
Cash flows from financing activities:
Proceeds from issuance of shares under employee
stock purchase plan	--	81	36	81
Proceeds from stock options	184	36	184	36
Purchase of treasury stock	(6)	--	(179)	--
Net cash provided by financing activities	178	117	41	117
Effects of exchange rate on cash	(314)	(183)	(338)	(109)
Net increase (decrease) in cash	(1,510)	448	(2,398)	(633)
Cash and cash equivalents, beginning of period	2,861	2,832	3,749	3,913
Cash and cash equivalents, end of period	$1,351	$3,280	$1,351	$3,280
Supplementary cash flow information:
Cash paid for income taxes, net	$333	$2,527	$626	$2,602
Cash paid for interest	$63	$47	$80	$47

See accompanying notes to consolidated financial statements.

CSP INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The accompanying financial statements have been prepared by the Company, without audit, and reflect all adjustments which, in the opinion of management, are necessary for a fair statement of the results of the interim periods presented. All adjustments were of a normal recurring nature. Certain information and footnote disclosures normally included in the annual financial statements, which are prepared in accordance with generally accepted accounting principles, have been condensed or omitted. Accordingly, the Company believes that although the disclosures are adequate to make the information presented not misleading, the financial statements should be read in conjunction with the footnotes contained in the Company's Annual Report on Form 10-K for the fiscal year ended August 27, 1999.

	February 29,	August 27,
	2000	1999
Raw materials	$1,641	$1,422
Work in process	268	227
Finished goods	4,024	4,156
Total	$5,933	$5,805

Stock Repurchase:

On October 9, 1986 the Board of Directors authorized the Company to repurchase up to 344,892 additional shares of the outstanding stock at market price. On September 28, 1995 the Board of Directors authorized the Company to repurchase up to 199,650 additional shares of the outstanding stock at market price. The timing of stock purchases are made at the discretion of management. On October 19, 1999 the Board of Directors authorized the Company to repurchase up to 200,000 additional shares of the outstanding stock at market price. At February 29, 2000, the Company has repurchased 482,823 or 65% of the total shares authorized to be purchased.

Earnings Per Share Reconciliation

The reconciliation of the numerators and denominators of the basic and diluted net income (loss) per common share computations for the Company's reported net income (loss) is as follows:

/-------Three months ended------/ /------Six months ended-----/

	February 29,	February 26,	February 29,	February 26,
(In thousands, except per share	2000	1999	2000	1999
Amounts)
Basic net income	$625	$435	$295	$911
Weighted average number of shares
Outstanding - basic	3,567	3,597	3,566	3,589
Incremental shares from the assumed
Exercise of stock options	258	67	243	56
Weighted average number of shares
Outstanding - dilutive	3,825	3,664	3,809	3,645
Net income per share - basic	$0.18	$0.12	$0.08	$0.25
Net income per share - diluted	$0.16	$0.12	$0.08	$0.25

Comprehensive Income:

The Company's comprehensive income (loss) is as follows:

/----Three months ended-----/ /------Six months ended--------/

	February 29,	February 26,	February 29,	February 26,
	2000	1999	2000	1999
Net income	$625	$435	$295	$911
Other comprehensive income (loss):
Foreign translation adjustment	(293)	(184)	(391)	(109)
Unrealized gain (loss) on investments	(21)	(43)	53	28
Total comprehensive income (loss)	$311	$208	($43)	$830

Segment Information:

The following table presents certain operating segment information (Amounts in thousands).

		System and — Service	E-Commerce	Other
	Systems	Integration	Software	Software	Total
Quarter ended 2/29/00
Net Sales	$3,988	$13,264	$480	$628	$18,360
Profit(loss) from operations	486	1,183	(523)	4	1,150
Identifiable assets	21,720	15,436	556	1,877	39,589
Capital expenditures	66	212	7	--	285
Depreciation	180	82	3	7	272
Quarter ended 2/26/99
Net Sales	$4,376	$10,252	$220	$737	$15,585
Profit(loss) from operations	125	509	(17)	91	708
Identifiable assets	22,432	15,807	293	2,211	40,743
Capital expenditures	279	84	2	6	371
Depreciation	75	43	2	10	130
Six months ended 2/29/00
Net Sales	$6,247	$25,889	$887	$1,071	$34,094
Profit(loss) from operations	19	1,731	(1,117)	(220)	413
Identifiable assets	21,720	15,436	556	1,877	39,589
Capital expenditures	128	243	8	17	396
Depreciation	377	158	5	17	557
Six months ended 2/26/99
Net Sales	$9,420	$16,136	$346	$1,198	$27,100
Profit(loss) from operations	976	880	(254)	67	1,669
Identifiable assets	22,432	15,807	293	2,211	40,743
Capital expenditures	319	177	4	12	512
Depreciation	349	151	3	20	523

Each segment is broken down by related business activities, which cross different business operations. These segments are based on the different customer activity of the Company. CSPI has four major segments: systems which includes company manufactured hardware products, systems integration and services which includes maintenance of the Company and other systems sold and integration and sale of third party hardware products and services, E-Commerce software, and other software products which are developed by the Company.

Profit from operations is sales less cost of sales, engineering and development, selling, general and administrative expenses but is not affected by either non-operating charges/income or by income taxes. Non operating charges/income consists principally of investment income and interest expense.

In calculating profit from operations for individual operating segments, substantial administration expenses incurred at the operating level are common to more than one segment and are allocated based on a sales basis except for those related to E-Commerce software which is allocated based upon employee headcount.

All intercompany transactions have been eliminated.

Identifiable assets include deferred income tax assets and other financial instruments managed by the Company. Capital expenditures common to more than one segment are allocated on a sales basis.

Subsequent Event:

On March 2, 2000 the Company made a $2 million investment in exchange for two million shares of VerticalBuyer, Inc. which represents a 11.7% ownership interest. VerticalBuyer is a privately held holding company for a network of Internet sites formed to capitalize on business to business e-commerce opportunities. VerticalBuyer commenced initial operations in February 2000 in the global commercial lighting and electrical markets estimated to be approximately a $140 billion market. The Company has warrants to purchase an additional three million shares for $1 each. The warrants are callable at $.001 per warrant. The first 1,000,000 warrants are callable thirty days after the effective date of the registration. The second 1,000,000 warrants are callable thirty days after the stock has traded at $2 per share for twenty consecutive days. The third 1,000,000 warrants are callable after the stock has traded at $3 per share for twenty consecutive days.

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)

Date: April 17, 2000 By: /s/ Alexander R. Lupinetti Chief Executive Officer, President and Chairman

Date: April 17, 2000 By: /s/ Gary W. Levine Vice President of Finance, Chief Financial Officer