<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
------------------------
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 27, 1999
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 0-26946
------------------------
INTEVAC, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
CALIFORNIA 94-3125814
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
3550 BASSETT STREET
SANTA CLARA, CALIFORNIA 95054
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (408) 986-9888
------------------------
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
On March 27, 1999 approximately 11,943,145 shares of the Registrant's
Common Stock, no par value, were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INTEVAC, INC.
INDEX
<TABLE>
<CAPTION>
NO. PAGE
--- ----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets....................... 3
Condensed Consolidated Statements of Income and
Comprehensive Income........................................ 4
Condensed Consolidated Statements of Cash Flows............. 5
Notes to Condensed Consolidated Financial Statements........ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 9
ITEM 3. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings........................................... 18
ITEM 2. Changes in Securities....................................... 18
ITEM 3. Defaults Upon Senior Securities............................. 18
ITEM 4. Submission of Matters to a Vote of Security-Holders......... 18
ITEM 5. Other Information........................................... 18
ITEM 6. Exhibits and Reports on Form 8-K............................ 18
SIGNATURES............................................................ 19
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEVAC, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 27, DECEMBER 31,
1999 1998
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,610 $ 3,991
Short-term investments.................................... 54,893 56,925
Accounts receivable, net of allowances of $1,655 and
$1,629 at March 27, 1999 and December 31, 1998,
respectively........................................... 9,799 10,169
Inventories............................................... 24,505 22,102
Prepaid expenses and other current assets................. 842 658
Deferred tax asset........................................ 7,008 7,008
-------- --------
Total current assets.............................. 100,657 100,853
Property, plant, and equipment, net......................... 10,904 13,131
Investment in 601 California Avenue LLC..................... 2,431 2,431
Goodwill and other intangibles.............................. 3,142 3,543
Debt issuance costs......................................... 1,618 1,700
Deferred tax assets and other assets........................ 1,261 1,318
-------- --------
Total assets...................................... $120,013 $122,976
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,596 $ 2,034
Accrued payroll and related liabilities................... 1,765 1,880
Other accrued liabilities................................. 6,327 7,535
Customer advances......................................... 12,044 11,630
-------- --------
Total current liabilities......................... 22,732 23,079
Convertible notes........................................... 57,500 57,500
Long-term notes payable..................................... 1,960 1,961
Shareholders' equity:
Common stock, no par value................................ 18,335 17,917
Accumulated other comprehensive income.................... 74 122
Retained earnings......................................... 19,412 22,397
-------- --------
Total shareholders' equity........................ 37,821 40,436
-------- --------
Total liabilities and shareholders' equity........ $120,013 $122,976
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
Net revenues................................................ $11,749 $34,235
Cost of net revenues........................................ 10,762 23,574
------- -------
Gross profit................................................ 987 10,661
Operating expenses:
Research and development.................................. 4,067 3,562
Selling, general and administrative....................... 1,899 3,105
Restructuring expense (gain).............................. (17) 1,164
------- -------
Total operating expenses.......................... 5,949 7,831
------- -------
Operating income (loss)..................................... (4,962) 2,830
Interest expense............................................ (1,015) (1,016)
Interest income and other, net.............................. 1,162 771
------- -------
Income (loss) from continuing operations before income
taxes..................................................... (4,815) 2,585
Provision for (benefit from) income taxes................... (1,830) 855
------- -------
Income (loss) from continuing operations.................... (2,985) 1,730
Gain from discontinued operations, net of applicable income
taxes..................................................... -- 532
------- -------
Net income (loss)........................................... $(2,985) $ 2,262
======= =======
Other comprehensive income:
Unrealized foreign currency translation adjustment........ (48) (10)
------- -------
Total adjustments........................................... (48) (10)
------- -------
Total comprehensive income.................................. $(3,033) $ 2,252
======= =======
Basic earnings per share:
Income (loss) from continuing operations.................. $ (0.25) $ 0.14
Net income (loss)......................................... $ (0.25) $ 0.19
Shares used in per share amounts.......................... 11,924 12,190
Diluted earnings per share:
Income (loss) from continuing operations.................. $ (0.25) $ 0.14
Net income (loss)......................................... $ (0.25) $ 0.18
Shares used in per share amounts.......................... 11,924 12,511
</TABLE>
See accompanying notes.
4
<PAGE> 5
INTEVAC, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)........................................... $(2,985) $ 2,262
Adjustments to reconcile net income to net cash and cash
equivalents provided by (used in) operating activities:
Depreciation and amortization.......................... 1,423 1,614
Gain on foreign exchange contracts..................... (641) --
Gain on sale of discontinued operations................ -- (794)
Foreign currency (gain) loss........................... 5 (12)
Loss on IMAT investment................................ 57 37
Restructuring charge -- non-cash portion............... -- 194
Loss on disposal of equipment.......................... 14 94
Changes in assets and liabilities...................... (331) (7,685)
------- --------
Total adjustments................................. 527 (6,552)
------- --------
Net cash and cash equivalents used in operating
activities................................................ (2,458) (4,290)
INVESTING ACTIVITIES
Purchase of investments..................................... (968) (23,037)
Proceeds from sale of investments........................... 3,000 7,995
Purchase of leasehold improvements and equipment............ (373) (884)
------- --------
Net cash and cash equivalents provided by (used in)
investing activities...................................... 1,659 (15,926)
FINANCING ACTIVITIES
Proceeds from issuance of common stock...................... 418 551
Repurchase of common stock.................................. -- (808)
------- --------
Net cash and cash equivalents provided by (used in)
financing activities...................................... 418 (257)
------- --------
Net decrease in cash and cash equivalents................... (381) (20,473)
Cash and cash equivalents at beginning of period............ 3,991 24,431
------- --------
Cash and cash equivalents at end of period.................. $ 3,610 $ 3,958
======= ========
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid (received) for:
Interest.................................................. $ 1,869 $ 1,900
Income taxes.............................................. -- 950
Income tax refund......................................... (432) --
Other non-cash changes:
Inventories transferred to (from) property, plant and
equipment.............................................. $(1,641) $ 1,159
</TABLE>
See accompanying notes.
5
<PAGE> 6
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS ACTIVITIES AND BASIS OF PRESENTATION
Intevac, Inc.'s ("Intevac" or the "Company") primary business is the
design, manufacture and sale of complex capital equipment that is used to
manufacture products such as thin-film disks for computer disk drives and flat
panel displays (the "Equipment Business"). The Company also develops highly
sensitive electro-optical devices under government sponsored R&D contracts (the
"Photonics Business").
The Equipment Business is a leading supplier of sputtering systems used to
manufacture thin-film disks for computer hard disk drives. Sputtering is a
complex vacuum deposition process used to deposit multiple thin-film layers on a
disk. The Equipment Business also realizes revenues from the sales of disk
lubrication equipment, contact stop-start ("CSS") test equipment, flat panel
display ("FPD") manufacturing equipment and electron beam processing equipment.
Spare parts and after-sale service are also sold to purchasers of the Company's
equipment, and sales of components are made to other manufacturers of vacuum
equipment.
The Photonics Business began in 1995 when the Company's night vision
business was sold. The terms of the sale permitted Intevac to utilize the night
vision technology for non-competitive products. The majority of Photonics
Business revenues are from government sponsored R&D contracts. The Photonics
Business has been developing technology that permits highly sensitive detection
in the short-wave infrared spectrum in electron sources with very precise
characteristics. This development work is aimed at creating new products for
both military and industrial applications.
The financial information at March 27, 1999 and for the three-month periods
ended March 27, 1999 and March 28, 1998 is unaudited, but includes all
adjustments (consisting only of normal recurring accruals) that the Company
considers necessary for a fair presentation of the financial information set
forth herein, in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, it does not include all of the information and
footnotes required by generally accepted accounting principles for annual
financial statements. For further information, refer to the Consolidated
Financial Statements and footnotes thereto included or incorporated by reference
in the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1998.
The preparation of 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 reported amounts of revenue and expenses during the reporting
period. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
The results for the three-month period ended March 27, 1999 are not
considered indicative of the results to be expected for any future period or for
the entire year.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
MARCH 27, DECEMBER 31,
1999 1998
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.......................................... $ 4,780 $ 6,907
Work-in-progress....................................... 14,976 11,653
Finished goods......................................... 4,749 3,542
------- -------
$24,505 $22,102
======= =======
</TABLE>
A significant portion of the finished goods inventory is represented by
completed units at customer sites undergoing installation and acceptance
testing.
6
<PAGE> 7
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INCOME TAXES
The effective tax rates used for the three-month periods ending March 27,
1999 and March 28, 1998 were 38% and 33% of pretax income (loss), respectively.
These rates are based on the estimated annual tax rate complying with Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes".
4. NET INCOME (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Numerator:
Income (loss) from continuing operations.................. $(2,985) $ 1,730
======= =======
Net income (loss)......................................... $(2,985) $ 2,262
======= =======
Numerator for basic earnings per share -- income (loss)
available to common stockholders....................... (2,985) 2,262
Effect of dilutive securities:
6 1/2% convertible notes(1)............................ -- --
------- -------
Numerator for diluted earnings per share -- income (loss)
available to common stockholders after assumed
conversions............................................ $(2,985) $ 2,262
======= =======
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....................... 11,924 12,190
Effect of dilutive securities:
Employee stock options(2).............................. -- 321
6 1/2% convertible notes(1)............................ -- --
------- -------
Dilutive potential common shares.......................... -- 321
------- -------
Denominator for diluted earnings per share -- adjusted
weighted-average shares and assumed conversions........ 11,924 12,511
======= =======
</TABLE>
- ---------------
(1) Diluted EPS for the three-month periods ended March 27, 1999 and March 28,
1998 excludes "as converted" treatment of the Convertible Notes as their
inclusion would be anti-dilutive.
(2) Diluted EPS for the three-month period ended March 27, 1999 excludes the
effect of employee stock options as their inclusion would be anti-dilutive.
5. SEGMENT REPORTING
Segment Description
Intevac, Inc. has two reportable segments: equipment and photonics. The
Company's equipment business sells complex capital equipment used in the
manufacturing of thin-film disks, flat panel displays, shrink-wrap films and for
in-line sterilization. The Company's photonics business is developing products
utilizing electron sources that permit highly sensitive detection in the
short-wave infrared spectrum.
Included in corporate activities are general corporate expenses,
elimination of inter-segment revenues, the equity in net loss of equity investee
and amortization expenses related to certain intangible assets, less an
allocation of corporate expenses to operating units equal to 1% of net revenues.
7
<PAGE> 8
INTEVAC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Business Segment Net Revenues
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Equipment
Trade..................................................... $10,309 $32,826
Inter-Segment............................................. -- 13
------- -------
10,309 32,839
Photonics
Trade..................................................... 1,440 1,409
Corporate Activities........................................ -- (13)
------- -------
Total............................................. $11,749 $34,235
======= =======
</TABLE>
Business Segment Profit & Loss
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 27, MARCH 28,
1999 1998
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Equipment................................................... $(4,267) $ 3,104
Photonics................................................... (101) 157
Corporate activities........................................ (594) (431)
------- -------
Operating income (loss)..................................... (4,962) 2,830
Interest expense............................................ (1,015) (1,016)
Interest income............................................. 591 705
Other income and expense, net............................... 571 66
------- -------
Income (loss) from continuing operations before income
taxes..................................................... $(4,815) $ 2,585
======= =======
</TABLE>
6. RESTRUCTURING
On March 26 1999, as a result of continued weak demand for its disk
equipment, the Company's management implemented a reduction in force of 17
employees out of the Company's staff of contract and regular personnel. The
reductions took place at the Company's facilities in Santa Clara, CA. In the
first quarter of 1999, the Company incurred a restructuring charge of $115,000
related to severance costs for the affected employees.
During the first quarter of 1998, the Company's management adopted a plan
to reduce expenses. The expense reduction plan included a reduction in force of
90 employees out of the Company's staff of contract and regular personnel. The
reductions took place at the Company's facilities in Santa Clara, CA; Los Gatos,
CA; Rocklin, CA; and Taiwan. Additionally, the Company relocated its RTP
Operation from Rocklin to the Company's Santa Clara headquarters and closed the
Rocklin facility. The Company incurred a restructuring charge of $1,164,000
related to the expense reduction plan. The significant components of this charge
include $290,000 for closure of the Rocklin facility, $462,000 for the balance
of the rent due on the lease for such facility and $392,000 for employee
severance costs.
In the fourth quarter of 1998, $147,000 of the restructuring reserve was
reversed due to lower than expected costs incurred on the closure of the Rocklin
facility. During the first quarter of 1999, the Company negotiated an early
termination of its lease commitment in Rocklin, CA. This resulted in the Company
reversing the remaining $132,000 of the restructuring reserve established in
1998 for closure of the Rocklin facility.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements
which involve risks and uncertainties. Words such as "believes", "expects",
"anticipates" and the like indicate forward-looking statements. The Company's
actual results may differ materially from those discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, the risk factors set forth elsewhere in this Quarterly Report on
Form 10-Q under "Certain Factors Which May Affect Future Operating Results" and
in other documents the Company files from time to time with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K filed in
March 1999, Form 10-Q's and Form 8-K's.
RESULTS OF OPERATIONS
Three Months Ended March 27, 1999 and March 28, 1998
Net revenues. Net revenues consist primarily of sales of the Company's disk
sputtering systems and related equipment used to manufacture thin-film disks for
computer hard disk drives, system components, electron beam processing
equipment, flat panel display manufacturing equipment and related equipment and
components ("Equipment') and contract research and development related to the
development of highly sensitive electro-optical devices under government
sponsored R&D contracts ("Photonics"). Net revenues from system sales are
recognized upon customer acceptance. Net revenues from sales of related
equipment and system components are recognized upon product shipment. Contract
research and development revenue is recognized in accordance with contract
terms, typically as costs are incurred. Net revenues decreased by 66% to $11.8
million for the three months ended March 27, 1999 from $34.2 million for the
three months ended March 28, 1998. Net revenues from Equipment sales declined to
$10.3 million for the three months ended March 27, 1999 from $32.8 million for
the three months ended March 28, 1998. The decrease in net revenues from
Equipment was due primarily to a decrease in sales of disk manufacturing
equipment, and to a lesser extent, a decrease in sales of electron beam
processing equipment. Net revenues from Photonics were $1.4 million in each of
the three-month periods ended March 27, 1999 and March 28, 1998. The Company
expects that total revenues will continue in the $10 million to $15 million
range for each of the next two quarters.
International sales decreased by 59% to $7.5 million for the three months
ended March 27, 1999 from $18.3 million for the three months ended March 28,
1998. The decrease in international sales was primarily due to a decrease in net
revenues from disk manufacturing equipment, and to a lesser extent, a decrease
in net revenues from electron beam processing equipment. International sales
constituted 64% of net revenues for the three months ended March 27, 1999 and
53% of net revenues for the three months ended March 28, 1998.
Backlog. The Company's backlog of orders for its products was $26.1 million
at March 27, 1999 and $53.6 million at March 28, 1998. The reduction in backlog
was primary the result of a lower backlog of orders for Equipment. The Company
includes in backlog the value of purchase orders for its products that have
scheduled delivery dates.
Gross margin. Cost of net revenues consists primarily of purchased
materials, fabrication, assembly, test, installation, warranty costs, scrap and
costs attributable to contract research and development. Gross margin was 8.4%
for the three months ended March 27, 1999 as compared to 31.1% for the three
months ended March 28, 1998. Gross margins declined as the result of
underabsorbtion of manufacturing overhead due to low manufacturing volume,
establishment of a $0.4 million cost to market reserve on a used MDP-250B disk
sputtering system and establishment of a $0.4 million cost to market reserve
related to higher than expected costs to install and integrate the Company's
first production rapid thermal processing system into its customer's production
environment. The Company expects that gross margins for the next two quarters
will be less than 20% as the result of low manufacturing volume.
Research and development. Research and development expense consists
primarily of prototype materials, salaries and related costs of employees
engaged in ongoing research, design and development activities for disk
manufacturing equipment, flat panel manufacturing equipment, electron beam
processing
9
<PAGE> 10
equipment and research by the Photonics Division. Company funded research and
development expense increased by 14% to $4.1 million for the three months ended
March 27, 1999 from $3.6 million for the three months ended March 28, 1998,
representing 34.6% and 10.4%, respectively, of net revenue. This increase was
primarily the result of increased expense for the development of disk
manufacturing equipment, which was partially offset by decreased expense for the
development of flat panel manufacturing equipment.
Research and development expenses do not include costs of $1.2 million and
$1.0 million for the three-month periods ended March 27, 1999 and March 28, 1998
related to contract research and development performed by the Company's
Photonics business. These expenses are included in cost of goods sold.
Research and development expenses also do not include costs of $0.1 million
in the three months ended March 27, 1999, reimbursed under the terms of a
research and development cost sharing agreement with the Company's Japanese flat
panel manufacturing equipment development partner. Since 1993 the Company has
received $9.5 million of funds under this cost sharing agreement.
Selling, general and administrative. Selling, general and administrative
expense consists primarily of selling, marketing, customer support, financial,
travel, management, legal and professional services. Domestic sales are made by
the Company's direct sales force, whereas international sales are made by
distributors that typically provide sales, installation, warranty and ongoing
customer support. The Company also has a subsidiary in Singapore and a branch
office in Taiwan to support customers in Southeast Asia. The Company markets its
flat panel manufacturing equipment to the Far East through its Japanese joint
venture, IMAT. Selling, general and administrative expense decreased by 39% to
$1.9 million for the three months ended March 27, 1999 from $3.1 million for the
three months ended March 28, 1998, representing 16.2% and 9.1%, respectively, of
net revenue. The primary reason for the decrease was a lower level of selling,
general and administrative expense in the Equipment Business implemented as a
result of reduced revenues. The decrease was primarily due to a decline in
selling, general and administrative headcount to 45 employees at March 27, 1999
from 91 employees at March 28, 1998 as the result of reductions in force in the
Company's staff of contract and regular employees implemented in March and
August of 1998 and the reallocation of certain administrative employees to
operations.
Restructuring expense (gain). Restructuring expense (gain) was ($17,000)
and $1.2 million in the three-month periods ended March 27, 1999 and March 28,
1998, respectively. In March 1998, the Company's management adopted a
restructuring plan to relocate its Rapid Thermal Processing Operation from
Rocklin, California to the Company's Santa Clara, California headquarters and to
close the Rocklin facility. The restructuring plan also included an approximate
20% reduction in the worldwide staff of the Company's contract and regular
employees. As a result of this plan, the Company expensed approximately $1.2
million of restructuring expense in the three months ended March 28, 1998. The
restructuring expense included approximately $0.8 million related to closure of
the Rocklin facility and approximately $0.4 million of severance pay for
terminated employees. In March 1999 the Company completed a reduction in force
of approximately 10% of its worldwide staff and incurred employee severance
costs of approximately $115,000. In March 1999 the Company also negotiated an
early termination to its lease commitment in Rocklin which resulted in a
$132,000 reduction to previously expensed closure costs. This $132,000 credit to
restructuring costs was partially offset by the $115,000 of restructuring costs
related to the Company's March 1999 reduction in force.
Interest expense. Interest expense consists primarily of interest on the
Company's convertible notes, and to a lesser extent, interest on approximately
$2.0 million of long-term debt related to the purchase of Cathode Technology in
1996. Interest expense was $1.0 million in each of the three-month periods ended
March 27, 1999 and March 28, 1998.
Interest income and other, net. Interest income and other, net consists
primarily of interest income on the Company's investments, foreign currency
hedging gains and losses, early payment discounts on the purchase of
inventories, goods and services and the Company's 49% share of the loss incurred
by IMAT. Interest income and other, net increased by 51% to $1.2 million for the
three months ended March 27, 1999 from $0.8 million for the three months ended
March 28, 1998 primarily as the result of $0.6 million of gains on foreign
currency hedging which were partially offset by lower interest income.
10
<PAGE> 11
Discontinued operations. In the three month period ended March 28, 1998 the
Company recorded a gain from discontinued operations of $0.5 million resulting
from the reversal of excess warranty reserves related to the sale of the
Company's night vision business in 1995.
Provision for(benefit from) income taxes. The Company's estimated effective
tax rate for the three months ended March 27, 1999 was a benefit rate of (38%)
compared to a 33% effective tax rate for the three months ended March 28, 1998.
The Company's estimated effective tax rates are based on estimated effective tax
rates for the respective years. The Company's projected annual effective tax
rates for 1999 and 1998 differ from the applicable statutory rates primarily due
to benefits from the Company's foreign sales corporation and tax exempt interest
income partially offset by nondeductible goodwill amortization.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of $2.5 million for the three
months ended March 27, 1999. The cash used was due primarily to the net loss
incurred by the Company, which was partially offset by depreciation and
amortization.
The Company's investing activities provided cash of $1.7 million for the
three months ended March 27, 1999 as a result of the net sale of investments,
which was partially offset by the purchase of fixed assets.
The Company's financing activities provided cash of $0.4 million for the
three months ended March 27, 1999 as the result of the sale of the Company's
stock to its employees through the Company's employee benefit plans.
YEAR 2000
The Company is preparing for the impact of the arrival of the Year 2000 on
its business, as well as on the business of its customers, suppliers and
business partners. The "Year 2000 Issue" is a term used to describe the problems
created by systems that are unable to accurately interpret dates after December
31, 1999. These problems are derived predominately from the fact that many
software programs have historically categorized "years" in a two-digit format.
The Year 2000 Issue creates potential risks for the Company, including potential
problems in the Company's products as well as in the Information Technology
("IT") and non-IT systems that the Company uses in its business operations. The
Company may also be exposed to risks from third parties with which the Company
interacts who fail to adequately address their own Year 2000 Issues.
Intevac is in the process of implementing plans to address Year 2000 Issues
both within and outside the Company. In addressing the Year 2000 issues and
risks, the Company has focused, and will continue to focus, its efforts on the
Company's enterprise-wide and departmental operations, products, critical
suppliers (including service providers) and key customers. Within Intevac, these
efforts are intended to encompass all major categories of computer systems in
use by the Company, including those utilized in manufacturing, engineering,
sales, finance and human resources. The Company's risk assessment includes
understanding the Year 2000 readiness of its critical suppliers. The Company's
risk assessment process associated with critical suppliers includes soliciting
and analyzing responses to questionnaires, and, where necessary, follow-up with
the supplier.
The Company is utilizing a phased approach to identifying and remediating
Year 2000 Issues. The first phase, compiling an inventory of all systems that
face risks from Year 2000 Issues, was substantially completed by year-end 1998.
The evaluation, remediation and validation & implementation phases are expected
to be complete by mid-1999 for all areas. The Company is acting to remedy issues
as they are revealed, while it simultaneously completes its assessment of Year
2000 risks.
Corrective actions completed to date include the implementation of system
upgrades to the Company's materials and financial software, upgrades to file
server operating systems and replacement of payroll and human resource software.
The Company also issued a Product Information Bulletin to customers outlining
the Year 2000 Issues faced by the Company's principal product, the MDP-250
sputtering system, and proposed fixes.
11
<PAGE> 12
Cost incurred to date in addressing Year 2000 Issues have not been
material. Based on assessment and correction projects underway, the Company does
not expect the total cost of addressing the Year 2000 Issue to be material. As
the Company's risk assessment and correction activities continue, these cost
estimates may change. In addition, the Company's total cost estimate does not
include potential costs related to any customer or other claims resulting from
the Company's failure to adequately correct Year 2000 issues.
Although the Company does not currently expect any significant disruption
to its operations or operating results as a result of Year 2000 Issues, the
Company is taking all steps it believes are appropriate to identify and resolve
any Year 2000 Issues. However, there can be no assurance that the Company will
be able to identify, assess and correct Year 2000 Issues in a timely or
successful manner. The Company's failure to identify, assess and correct Year
2000 Issues in a timely manner could have a material, adverse effect on the
Company's business, financial condition and results of operations.
The Company currently believes that its most reasonably likely worst case
Year 2000 scenario would relate to problems with systems of third parties which
would create the greatest risks with infrastructure, including water and sewer
services, electricity, transportation, telecommunications and critical suppliers
of materials and supplies. The Company has not yet prepared a contingency plan
for dealing with these potential problems. The Company will be assessing various
scenarios and will prepare the necessary contingency plan over the course of
1999.
The foregoing statements regarding the Company's Year 2000 plans and the
Company's expectation for resolving these issues and costs associated therewith
are forward-looking statements and actual results could vary. The Company's
success in addressing Year 2000 Issues could be impacted by the severity of the
problems to be resolved within the Company, by Year 2000 Issues affecting its
suppliers and service providers and by the costs associated with third party
consultants and software necessary to address these issues.
CERTAIN FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
Cyclical Nature of the Disk Drive Industry
The disk drive industry is cyclical and historically has experienced
periods of under- and over-supply of product. Periods of oversupply result in
significantly reduced demand for thin-film disks and for the capital equipment
used to manufacture such disks, including the systems manufactured and marketed
by the Company. A number of manufacturers of hard disk drives and a number of
their suppliers have been reporting substantial losses. Many of these
manufacturers attribute their problems to an excess supply of hard drives, or in
the case of component suppliers, an excess supply of components for hard drives
(including thin film disks). As a result, during the second half of 1998 the
Company experienced significant reductions in quarterly revenues and incurred
net losses in the third and fourth quarters of 1998 and the first quarter of
1999. The Company expects to continue to incur net losses through at least the
second and third quarters of 1999.
Additionally, the Company has derived a significant proportion of its net
revenues from sales of its disk sputtering systems to manufacturers constructing
new thin-film disk fabrication facilities. The construction of new thin-film
disk fabrication facilities involves extremely large capital expenditures,
resulting in few thin-film disk fabrication facilities being constructed
worldwide at any particular time. A substantial investment is also required by
disk manufacturers to install and integrate additional thin-film disk
manufacturing equipment in connection with upgrading or expanding their existing
fabrication facilities. These costs are far in excess of the cost of purchasing
the Company's system. The magnitude of such capital expenditures has caused
certain thin-film disk manufacturers to forego purchasing significant additional
thin-film disk manufacturing equipment.
Rapid Technical Change
The Company's ability to remain competitive requires substantial
investments in research and development to advance its technologies. The failure
to develop, manufacture and market new systems, or to enhance existing systems,
would have a material adverse effect on the Company's business, financial
condition and results of operations. In the past, the Company has experienced
delays from time to time in the
12
<PAGE> 13
introduction of, and certain technical difficulties with, certain of its systems
and enhancements. In addition, the Company's competitors can be expected to
continue to develop and introduce new and enhanced products, any of which could
cause a decline in market demand for the Company's systems or a reduction in the
Company's margins as a result of intensified price competition.
The Company's success in developing and selling equipment depends upon a
variety of factors, including accurate prediction of future customer
requirements, technology advances, cost of ownership, introduction of new
products on schedule, cost-effective manufacturing and product performance in
the field. The Company's new product decisions and development commitments must
anticipate continuously evolving industry requirements significantly in advance
of sales. Any failure to accurately predict customer requirements and to develop
new generations of products to meet those requirements would have a sustained
material adverse effect on the Company's business, financial condition and
results of operations. New product transitions could adversely affect sales of
existing systems, and product introductions could contribute to quarterly
fluctuations in operating results as orders for new products commence and orders
for existing products decline. There can be no assurance that the Company will
be successful in selecting, developing, manufacturing and marketing new products
or enhancements of existing products.
For example, changes in the manufacturing processes for thin-film disks
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company anticipates continued rapid
changes in the requirements of the disk drive industry and thin-film disk
manufacturing technologies. There can be no assurance that the Company will be
able to develop, manufacture and sell systems that respond adequately to such
changes. In addition, the computer disk drive industry is subject to constantly
evolving technological standards. There can be no assurance that future
technological innovations will not reduce demand for thin-film disks. The
Company's business, financial condition and results of operations could be
materially adversely affected by any trend toward technology that would replace
thin-film disks as a storage medium.
Competition
The Company experiences intense competition in the Equipment Business. For
example, the Company's disk sputtering business experiences competition
worldwide from two principal competitors, Balzers A.G. ("Balzers") and Anelva
Corporation ("Anelva"), each of which is a large manufacturer of complex vacuum
equipment and thin-film disk manufacturing systems and has sold a substantial
number of thin-film disk sputtering machines worldwide. Both Balzers and Anelva
have substantially greater financial, technical, marketing, manufacturing and
other resources than the Company. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that will offer superior price or performance features or
that new competitors will not enter the Company's markets and develop such
enhanced products.
Given the lengthy sales cycle and the significant investment required to
integrate equipment into the manufacturing process, the Company believes that
once a manufacturer has selected a particular supplier's equipment for a
specific application, that manufacturer generally relies upon that supplier's
equipment and frequently will continue to purchase any additional equipment for
that application from the same supplier. Accordingly, competition for customers
in the equipment industry is intense, and suppliers of equipment may offer
substantial pricing concessions and incentives to attract new customers or
retain existing customers.
International Operations and Foreign Exchange Exposure
Sales and operating activities outside of the United States are subject to
certain inherent risks, including fluctuations in the value of the United States
dollar relative to foreign currencies, tariffs, quotas, taxes and other market
barriers, political and economic instability, restrictions on the export or
import of technology, potentially limited intellectual property protection,
difficulties in staffing and managing international operations and potentially
adverse tax consequences. The Company earns a significant portion of its revenue
from international sales, and these sales have included the installation of the
Company's products in European countries and Far Eastern countries such as
Japan, Singapore, Malaysia, Korea, Thailand, and Taiwan. All of
13
<PAGE> 14
the Far Eastern countries with which the Company does business have banking
systems and foreign currencies that have experienced serious troubles and
therefore subject the Company's customers to substantial business risks. There
can be no assurance that any of these factors will not have a material adverse
effect on the Company's business, financial condition or results of operations.
In particular, although the Company's international sales have historically been
denominated in United States dollars, such sales will not all be denominated in
dollars in the future, and currency exchange fluctuations in countries where the
Company does business could materially adversely the Company's business,
financial condition and results of operations.
The Company's two principal competitors for disk sputtering equipment are
based in foreign countries and have cost structures based on foreign currencies.
Accordingly, currency fluctuations could cause the Company's products to be
more, or less, competitive than its competitors' products. Currency fluctuations
will decrease, or increase, the Company's cost structure relative to those of
its competitors, which could impact the Company's gross margins. For example,
during 1998 the exchange rate for Japanese Yen fluctuated between approximately
113 Yen/$ and 147 Yen/$. The Company generally quotes and sells its products in
US dollars. However, for certain Japanese customers, the Company quotes and
sells its products in Japanese Yen. The Company, from time to time, enters into
foreign currency contracts in an effort to reduce the overall risk of currency
fluctuations to the Company's business. However, there can be no assurance that
the offer and sale of products in foreign denominated currencies, and the
related foreign currency hedging activities will not materially adversely affect
the Company's financial condition and results of operations.
Fluctuation in Operating Results
Over the last nine quarters the Company's operating income or (loss) as a
percentage of net revenues has fluctuated between approximately (47%) to 16% of
net revenues. The Company anticipates that its operating margin will continue to
fluctuate. As a result, the Company believes that period-to-period comparisons
of its results of operations are not necessarily meaningful and should not be
relied upon as indications of future performance.
Diversification and Potential Acquisitions
The Company routinely evaluates acquisition candidates and other
diversification strategies. There can be no assurance that the Company's efforts
in these areas will be successful. The Company completed one acquisition in 1997
and three acquisitions in 1996. Any future acquisition may result in potentially
dilutive issuance of equity securities, the write-off of in-process research and
development and the assumption of debt and contingent liabilities, any of which
could materially adversely affect the Company's business, financial condition
and results of operations. Additionally, as a result of the Company's ongoing
repurchase of its stock in the open market, the Company may not be able to use
the "pooling of interests" method of accounting in some acquisitions, and the
Company may therefore be required to amortize any intangible assets acquired in
connection with any acquisition.
Additionally, unanticipated expenses may be incurred relating to the
integration of technologies, research and development, and administrative
functions. Any acquisition will involve numerous risks, including difficulties
in the assimilation of the acquired company's employees, operations and
products, uncertainties associated with operating in new markets and working
with new customers, and the potential loss of the acquired company's key
employees.
Manufacturing
The Company's Equipment products have a large number of components and are
highly complex systems. The Company's Photonics products are complex devices
that require highly sophisticated manufacturing techniques utilizing advanced
materials science and vacuum processing. The Company may experience delays and
technical and manufacturing difficulties in future introductions or volume
production of new systems and devices. In addition, some of the systems built by
the Company must be customized to meet individual customer site or operating
requirements. The Company has limited manufacturing capacity and may be unable
to complete the development or meet the technical specifications of its new
systems and
14
<PAGE> 15
devices or to manufacture and ship these systems and devices in a timely manner.
Such an occurrence would materially adversely affect the Company's business,
financial condition and results of operations as well as its relationships with
customers. In addition, the Company may incur substantial unanticipated costs
early in a product's life cycle, such as increased cost of materials due to
expediting charges, other purchasing inefficiencies and greater than expected
installation and support costs which cannot be passed on to the customer. In
certain instances, the Company is dependent upon a sole supplier or a limited
number of suppliers, or has qualified only a single or limited number of
suppliers, for certain complex components or sub-assemblies utilized in its
products. Any of such events could materially adversely affect the Company's
business, financial condition and results of operations.
Intellectual Property
There can be no assurance that any of the Company's patent applications
will be allowed or that any of the allowed applications will be issued as
patents. There can be no assurance that any patent owned by the Company will not
be invalidated, deemed unenforceable, circumvented or challenged, that the
rights granted thereunder will provide competitive advantages to the Company or
that any of the Company's pending or future patent applications will be issued
with claims of the scope sought by the Company, if at all. Furthermore, there
can be no assurance that others will not develop similar products, duplicate the
Company's products or design around the patents owned by the Company. In
addition, there can be no assurance that foreign patent rights, intellectual
property laws or the Company's agreements will protect the Company's
intellectual property rights. Failure to protect the Company's intellectual
property rights could have a material adverse effect upon the Company's
business, financial condition and results of operations.
There has been substantial litigation in the technology industry regarding
intellectual property rights. The Company has from time to time received claims
that it is infringing third parties' intellectual property rights. In August
1993, Rockwell International Corporation ("Rockwell") sued the Federal
government alleging infringement of certain patent rights with respect to the
contracts the Federal government has had with a number of companies, including
Intevac. The Federal government has notified Intevac that it may be liable in
connection with contracts for certain products in the Company's discontinued
night vision business. In January 1999, a settlement was negotiated between the
Federal government and Rockwell and approved by the court. Under the settlement,
all of Intevac's exposure related to government sales is eliminated. Rockwell
has not pursued any claims related to non-governmental sales of the products in
question.
In July 1998, CVC Products, Inc. ("CVC") indicated that they believed that
the Company was infringing one of their patents relating to sputter source
design. Upon investigation, Intevac's patent attorney advised the Company that
it was not infringing on CVC's patent. In response to CVC's threats of legal
action, Intevac filed a complaint for declaratory judgement of non-infringement
and patent invalidity against CVC on December 1, 1998. CVC filed a counterclaim
on January 14, 1999. Although the Company believes that it has meritorious
defense against the CVC counterclaim, there can be no assurance that the
resolution of the claims by CVC will not have a material adverse effect on the
Company's business, operating results and financial condition.
There can be no assurance that third parties will not in the future claim
infringement by the Company with respect to current or future patents,
trademarks, or other proprietary rights relating to the Company's disk
sputtering systems, flat panel manufacturing equipment or other products. Any
present or future claims, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require the Company to
enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company, or at all. Any of the foregoing could have a material adverse effect
upon the Company's business, operating results and financial condition.
In addition, the Company believes that one of its competitors may be
infringing the Company's patent rights in connection with products currently
being offered by this competitor. Although the Company has not undertaken formal
legal proceedings, the Company has informed this competitor that the Company
believes its patent rights are being infringed and that the Company may
undertake litigation to protect its patent rights if necessary. If undertaken,
such litigation could be costly, time-consuming and result in legal claims being
15
<PAGE> 16
made against the Company. This could have a material adverse effect on the
Company's business, operating results and financial condition, and, in addition,
there could be no assurance that the Company would ultimately prevail in any
such litigation.
Retention of Employees
The Company believes that it has good relations with its employees. None of
the Company's employees is represented by a labor union, and the Company has
never experienced a work stoppage. The Company's operating results will depend
in significant part upon its ability to retain and attract qualified management,
engineering, marketing, manufacturing, customer support, sales and
administrative personnel. Competition in northern California for such personnel
is intense and there can be no assurance that the Company will be successful in
attracting and retaining such personnel. The failure to attract and retain such
personnel could make it difficult to undertake or could significantly delay the
Company's research and development efforts and any necessary expansion of its
manufacturing capabilities or other activities, which could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Leverage
In connection with the sale of $57.5 million of its 6 1/2% Convertible
Subordinated Notes Due 2004 in February 1997, the Company incurred a substantial
increase in the ratio of long-term debt to total capitalization (shareholders'
equity plus long-term debt). The ratio at December 31, 1998 and 1997 was
approximately 59.5% and 58.4%, respectively. As a result of this indebtedness,
the Company incurred substantial principal and interest obligations. The degree
to which the Company is leveraged could have a material adverse effect on the
Company's ability to obtain additional financing for working capital,
acquisitions or other purposes and could make it more vulnerable to industry
downturns and competitive pressures. The Company's ability to meet its debt
service obligations will be dependent on the Company's future performance, which
will be subject to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control.
Possible Volatility of Stock Price
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, failure to meet securities analysts' expectations, general conditions
in the disk drive and thin-film media manufacturing industries and the worldwide
economy, announcements of technological innovations, new systems or product
enhancements by the Company or its competitors, fluctuations in the level of
cooperative development funding, acquisitions, changes in governmental
regulations, developments in patents or other intellectual property rights and
changes in the Company's relationships with customers and suppliers could cause
the price of the Company's Common Stock to fluctuate substantially. In addition,
in recent years the stock market in general, and the market for small
capitalization and high technology stocks in particular, has experienced extreme
price fluctuations which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely affect the market price
of the Company's Common Stock.
Concentration of Stock Ownership
Based on the shares outstanding on December 31, 1998, the present directors
and their affiliates and executive officers, in the aggregate, own beneficially
approximately 56.7% of the Company's outstanding shares of Common Stock. As a
result, these shareholders, acting together, are able to effectively control all
matters requiring approval by the shareholders of the Company, including the
election of a majority of the directors and approval of significant corporate
transactions.
Environmental Regulations
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling, emission, generation, manufacture,
treatment and disposal of toxic or other hazardous substances,
16
<PAGE> 17
chemicals, materials or waste. Any failure to comply with current or future
regulations could result in substantial civil penalties or criminal fines being
imposed on the Company or its officers, directors or employees, suspension of
production, alteration of its manufacturing process or cessation of operations.
Such regulations could require the Company to acquire expensive remediation or
abatement equipment or to incur substantial expenses to comply with
environmental regulations. Any failure by the Company to properly manage the
use, disposal or storage of, or adequately restrict the release of, hazardous or
toxic substances could subject the Company to significant liabilities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Part III, Item 7, Quantitative and Qualitative
Disclosures About Market Risk, in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1998.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is a party or
to which any of its property is subject.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K:
None.
18
<PAGE> 19
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.
INTEVAC, INC.
Date: May 10, 1999 By: /s/ NORMAN H. POND
------------------------------------
Norman H. Pond
Chairman of the Board, President and
Chief
Executive Officer (Principal
Executive Officer)
Date: May 10, 1999 By: /s/ CHARLES B. EDDY III
------------------------------------
Charles B. Eddy III
Vice President, Finance and
Administration,
Chief Financial Officer, Treasurer
and Secretary
(Principal Financial and Accounting
Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 27, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 27, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-27-1999
<CASH> 3,610
<SECURITIES> 54,893
<RECEIVABLES> 11,454
<ALLOWANCES> 1,655
<INVENTORY> 24,505
<CURRENT-ASSETS> 100,657
<PP&E> 21,453
<DEPRECIATION> 10,549
<TOTAL-ASSETS> 120,013
<CURRENT-LIABILITIES> 22,732
<BONDS> 59,460
0
0
<COMMON> 18,335
<OTHER-SE> 19,486
<TOTAL-LIABILITY-AND-EQUITY> 120,013
<SALES> 11,749
<TOTAL-REVENUES> 11,749
<CGS> 10,762
<TOTAL-COSTS> 10,762
<OTHER-EXPENSES> 5,919
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 1,015
<INCOME-PRETAX> (4,815)
<INCOME-TAX> (1,830)
<INCOME-CONTINUING> (2,985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,985)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
