Spectrum Signal Processing Inc.
TSX : SSY
NASDAQ : SSPI

Spectrum Signal Processing Inc.

July 27, 2005 16:05 ET

Spectrum Signal Processing Reports Second Quarter 2005 Results

BURNABY, BRITISH COLUMBIA--(CCNMatthews - July 27, 2005) - Spectrum Signal Processing Inc. (TSX:SSY)(NASDAQ:SSPI) today announced its financial results for its second quarter ended June 30, 2005. These results fall within the estimated ranges previously released by the company. Spectrum reports all results in US dollars and in accordance with US GAAP. Key second quarter financial metrics include:

- Revenues of $3.4 million;

- Gross profit of $2.1 million, or 61% of revenue;

- Net operating expenses of $2.5 million;

- Net loss of $396,000, or $0.02 per share; and,

- A cash balance of $3.4 million at June 30, 2005.

"The trend of rapidly declining packet-voice revenues, partially offset by the growth of our core software defined radio revenues, continued in our second quarter. With expenses under control and adequate cash on hand, we are able to manage our revenue transition while maintaining our strong pace of new product releases and technology advancement," stated Pascal Spothelfer, Spectrum's President and CEO. "Our challenge remains clear: we must secure new design-ins, convert existing design-ins to production and grow the service component of our business. We expect increased activity in the second half of the year with stronger visibility both on the design-in and revenue front."

Mr. Spothelfer added, "Strategically, our progress is well illustrated by our recent announcement of a teaming agreement with General Dynamics C4 Systems to introduce an upgrade for the Digital Modular Radio, or DMR. Our products and technologies are making the transition into production and deployment programs that we believe will fuel our future growth. This conversion from design-in to production remains our declared focus for 2005 and beyond."

FINANCIAL RESULTS

Revenues for the second quarter of 2005 were $3.4 million, a decrease of 17% compared to revenues of $4.1 million for the first quarter of 2005 and a decrease of 19% compared to revenues of $4.2 million for the second quarter of 2004.

Wireless revenues were $3.1 million for the second quarter of 2005, compared to $3.7 million for the first quarter of 2005 and $3.0 million for the second quarter of 2004. Packet-voice revenues were $255,000 in the second quarter of 2005, down from $389,000 for the first quarter of 2005 and down markedly from packet-voice revenues of $1.2 million for the second 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 continue to decline over the remainder of 2005.

The company's gross profit for the second quarter of 2005 was $2.1 million, or a gross margin of 61% of revenues, compared to $2.6 million, or a gross margin of 63% of revenues, for the first quarter of 2005 and $2.5 million, or a gross margin of 60% of revenues, for the second quarter of 2004.

Operating expenses for the second quarter of 2005 were $2.5 million, compared to $2.9 million for the first quarter of 2005 and $2.4 million for the second quarter of 2004. Spectrum's first quarter 2005 operating expenses included a non-recurring distributor sales commission and a sales management related severance charge. Operating expenses for the second quarters of 2005 and 2004 also included $213,000 and $248,000 expense offsets, respectively, recorded pursuant to the company's funding agreement with Technology Partnerships Canada.

Spectrum recorded a net loss of $396,000 for the second quarter of 2005, or $0.02 per share, compared to a net loss of $352,000, or $0.02 per share, for the first quarter of 2005 and net earnings of $153,000, or $0.01 per share, for the second quarter of 2004.

Spectrum's cash position, net of bank indebtedness, at June 30, 2005 stood at $3.4 million, compared to $3.3 million at December 31, 2004.

OPERATIONAL HIGHLIGHTS

Subsequent to the release of its first quarter results on April 26, 2005, Spectrum announced:

- The extension of its flexComm™ line of software defined radio platforms to include advanced integrated wireless algorithms. These high-performance, small footprint algorithms are designed to provide functions commonly used by waveform developers and are expected to reduce the time, cost and technical risks of their development initiatives;

- The promotion of Mark Briggs to the position of Vice President of Marketing. Mr. Briggs previously served Spectrum in a number of marketing roles including, most recently, Director of Marketing. Prior to joining Spectrum in 2001, Mr. Briggs was Director of Switch Products for the Wireless Messaging Group of Glenayre R&D Inc. Mr. Briggs holds a Bachelors degree in Electrical Engineering from McMaster University and a Masters in Business Administration degree from the University of British Columbia;

- A teaming agreement with Booz Allen Hamilton Inc. to pursue an Engineering, Technical and Operational Support Services (ETOSS) Omnibus support service contract with the US Army. The ETOSS contract is expected to provide a broad range of operational, program management, technical engineering, integration, prototype development and fabrication support services and products to the Information and Intelligence Warfare Directorate (I2WD) of the US Army Communications-Electronics Command (CECOM);

- An agreement with Zeligsoft Inc. to add its leading Software Communications Architecture (SCA) development tool to Spectrum's flexComm line of software defined radio platforms. The integrated offering is expected to expedite the development and deployment of end-customer software defined radio solutions;

- A teaming agreement with General Dynamics C4 Systems, a business unit of General Dynamics, to introduce and market an upgraded wideband modem for the U.S. Navy's AN/USC-61(C) Digital Modular Radio (DMR). The upgrade will allow the DMR, a software-defined radio, to host new wideband Joint Tactical Radio System (JTRS) waveform, in addition to the existing range of supported waveforms; and,

- The appointment of David E. Scott to Spectrum's Board of Directors and as a member of its Compensation and Nomination Committee. Mr. Scott is the former Chief Executive Officer of General Dynamics Canada and brings to Spectrum a wide breadth of experience in the international defense electronics industry. Spectrum also announced the concurrent resignation of director Glen Myers.

CONFERENCE CALL INFORMATION

Spectrum will conduct a conference call and live audio webcast on July 27, 2005 at 4:30 pm Eastern / 1:30 pm Pacific time. The call can be accessed via telephone or audio webcast. The conference call dial-in number is 1.866.898.9626. 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 telephone from July 27, 2005 to August 10, 2005 and can be accessed by dialing 1.416.695.5800 followed by the access code 3159150#. A conference call replay via audio webcast will be available via Spectrum's web site until August 10, 2005.

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.

FORWARD-LOOKING SAFE HARBOUR STATEMENT

The statements by Pascal Spothelfer and the above statements contained in this 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.

™ flexComm is a trademark of Spectrum Signal Processing Inc.



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)
Prepared in conformity with accounting principles generally accepted
in the United States of America


Three months ended Six months ended
June 30, June 30,
2004 2005 2004 2005
--------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Sales $ 4,187 $ 3,397 $ 8,467 $ 7,497
Cost of sales 1,667 1,311 3,470 2,846
--------------------------------------------------------------------
2,520 2,086 4,997 4,651

Expenses
Administrative 896 827 1,994 1,813
Sales and
marketing 551 711 1,230 1,747
Research and
development 799 801 1,107 1,523
Amortization 155 164 287 327
Write-down of
capital assets - - 270 -
Restructuring
charges (34) (14) 2,295 8
--------------------------------------------------------------------
2,367 2,489 7,183 5,418

Earnings (loss)
from operations 153 (403) (2,186) (767)

Other
Interest expense 1 - 10 -
Other income (1) (7) (1) (19)
--------------------------------------------------------------------
(0) (7) 9 (19)

--------------------------------------------------------------------
Net earnings (loss) 153 (396) (2,195) (748)

Deficit, beginning
of period (22,301) (21,897) (19,953) (21,545)
--------------------------------------------------------------------
Deficit, end of
period $ (22,148) $ (22,293) $ (22,148) $ (22,293)
--------------------------------------------------------------------
--------------------------------------------------------------------

Earnings (loss)
per share
Basic $ 0.01 $ (0.02) $ (0.14) $ (0.04)
Diluted $ 0.01 $ (0.02) $ (0.14) $ (0.04)

Weighted average
shares
Basic 17,252,239 18,805,849 16,099,221 18,767,498
Diluted 18,619,916 18,805,849 16,099,221 18,767,498
--------------------------------------------------------------------
--------------------------------------------------------------------


Spectrum Signal Processing Inc.
Consolidated Balance Sheets
(Expressed in thousands of United States dollars,
except numbers of shares)
Prepared in conformity with accounting principles generally
accepted in the United States of America

December 31, June 30,
ASSETS 2004 2005
--------------------------------------------------------------------
(Unaudited)
Current assets
Cash and cash equivalents $ 3,326 $ 3,447
Restricted cash 73 -
Trade receivables, net of allowance for
doubtful accounts of $274 (2004 - $403) 3,736 2,711
Receivable from Technology
Partnerships Canada 257 473
Inventories 1,784 1,596
Prepaid expenses 157 318
--------------------------------------------------------------------
9,333 8,545

Capital assets 1,370 1,334
Other assets 274 258
--------------------------------------------------------------------

$ 10,977 $ 10,137
--------------------------------------------------------------------
--------------------------------------------------------------------

LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------------------------------------

Current liabilities
Accounts payable $ 1,770 $ 1,763
Accrued liabilities and
other current liabilities 1,814 1,223
Deferred revenue 216 240
--------------------------------------------------------------------
3,800 3,226

Long-term obligations 905 856

Stockholders' equity
Share capital
Authorized: 50,000,000 common shares,
no par value
Issued and outstanding: 18,805,849
(2004 - 18,369,644) 28,857 29,391
Additional paid-in capital 667 667
Warrants 114 111
Deficit (21,545) (22,293)
Accumulated other comprehensive income
Cumulative translation adjustments (1,821) (1,821)
--------------------------------------------------------------------
6,272 6,055
--------------------------------------------------------------------

$ 10,977 $ 10,137
--------------------------------------------------------------------
--------------------------------------------------------------------


Spectrum Signal Processing Inc.
Consolidated Statements of Cash Flows
(Expressed in thousands of United States dollars)
Prepared in conformity with accounting principles generally accepted
in the United States of America

Three months ended Six months ended
June 30, June 30,
2004 2005 2004 2005
--------------------------------------------------------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from
operating activities
Net earnings (loss) $ 153 $ (396) $ (2,195) $ (748)
Adjustments to
reconcile net
earnings (loss) to
net cash provided
by (used for)
operating activities
Amortization 170 170 303 342
Write-down of
capital assets - - 270 -
Non-cash portion of
restructuring charges (652) (14) 674 8
Changes in operating
assets and
liabilities
Restricted cash 56 - (43) 73
Accounts receivable 971 475 329 809
Inventories (274) (130) (159) 188
Prepaid expenses (52) (189) (84) (160)
Accounts payable (291) 85 206 (7)
Accrued liabilities
and other current
liabilities 20 (168) (216) (648)
Deferred revenue - (210) - 24
--------------------------------------------------------------------
Net cash provided by
(used for) operating
activities 101 (377) (915) (119)
--------------------------------------------------------------------

Cash flows from
investing activities
Purchase of capital
assets (11) (124) (115) (291)
--------------------------------------------------------------------
Net cash used for
investing activities (11) (124) (115) (291)
--------------------------------------------------------------------

Cash flows from
financing activities
Issue of shares on
exercise of share
purchase warrants and
options, net of issue
costs 664 - 664 531
Issue of shares for
cash, net of issue
costs - - 1,978 -
--------------------------------------------------------------------
Net cash provided by
financing activities 664 - 2,642 531
--------------------------------------------------------------------

Net increase (decrease)
in cash and cash
equivalents during
the period 754 (501) 1,612 121
Cash and cash
equivalents, beginning
of period 1,316 3,948 458 3,326
--------------------------------------------------------------------
Cash and cash
equivalents, end of
period $ 2,070 $ 3,447 $ 2,070 $ 3,447
--------------------------------------------------------------------
--------------------------------------------------------------------
Certain comparative figures have been reclassified to conform to the
presentation adopted in the current year.


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