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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1997
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 0-27460
PERFORMANCE TECHNOLOGIES, INCORPORATED
(Exact name of registrant as specified in its charter)
-------------------
Delaware 16-1158413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
315 Science Parkway, Rochester New York 14620
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (716) 256-0200
-----------------------------
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 .
The number of shares outstanding of the registrant's common stock was
4,810,191 as of May 6, 1997.
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Cover Page of 12 Pages
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and December 31, 1996 3
Consolidated Statements of Income For The Three Months
Ended March 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows For The Three Months
Ended March 31, 1997 and 1996 (unaudited) 5
Notes to Consolidated Financial Statements For The Three
Months Ended March 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 12
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1997 1996
(unaudited)
------------- -------------
Current assets:
Cash and cash equivalents $ 6,503,000 $ 10,027,000
Marketable securities 10,100,000 6,102,000
Accounts receivable, net 4,119,000 3,234,000
Inventories, net - - Note C 4,724,000 4,032,000
Prepaid expenses and other 302,000 284,000
Deferred taxes 419,000 419,000
------------- -------------
Total current assets 26,167,000 24,098,000
Equipment and improvements, net 1,021,000 1,267,000
Software development, net 615,000 549,000
Other assets 162,000 175,000
------------- -------------
Total assets $ 27,965,000 $ 26,089,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 12,000 $ 26,000
Accounts payable 1,638,000 953,000
Income taxes payable 612,000 23,000
Accrued expenses 1,624,000 2,131,000
------------- -------------
Total current liabilities 3,886,000 3,133,000
Long term debt, less current portion 27,000 30,000
Deferred taxes 219,000 219,000
------------- -------------
Total liabilities 4,132,000 3,382,000
------------- -------------
Stockholders' equity
Preferred stock
Common stock - - Note B 49,000 49,000
Additional paid-in capital 12,899,000 12,885,000
Retained earnings 11,042,000 9,930,000
Treasury stock (157,000) (157,000)
------------- -------------
Total stockholders' equity 23,833,000 22,707,000
------------- -------------
Total liabilities and stockholders' equity $ 27,965,000 $ 26,089,000
============= =============
</TABLE>
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
1997 1996
------------- -------------
Sales $ 7,434,000 $ 5,537,000
Cost of goods sold 3,332,000 2,363,000
------------- -------------
Gross profit 4,102,000 3,174,000
------------- -------------
Operating expenses:
Selling and marketing 909,000 680,000
Research and development 942,000 594,000
General and administrative 688,000 587,000
------------- -------------
Total operating expenses 2,539,000 1,861,000
------------- -------------
Income from operations 1,563,000 1,313,000
Other income (expense), net 230,000 131,000
------------- -------------
Income before taxes and minority interest 1,793,000 1,444,000
Provision for income taxes 681,000 528,000
------------- -------------
Income before minority interest 1,112,000 916,000
Minority interest (19,000)
------------- -------------
Net income $ 1,112,000 $ 897,000
============= ==============
Earnings per share - - Note D $ .23 $ .20
============= ==============
Weighted average common and common
Equivalent shares 4,917,000 4,500,000
============= ==============
</TABLE>
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
1997 1996
------------- -------------
Cash flows from operating activities
Net income $ 1,112,000 $ 897,000
Non-cash adjustments:
Depreciation and amortization 554,000 137,000
Reserve for inventory obsolescence 50,000 150,000
Other 5,000 (79,000)
Changes in operating assets and liabilities:
Accounts receivable (890,000) (468,000)
Inventories (742,000) (1,601,000)
Prepaid expenses and other (18,000) 102,000
Accounts payable 685,000 647,000
Accrued expenses (507,000) (14,000)
Income taxes payable 589,000 492,000
------------- -------------
Net cash provided by operating activities 838,000 263,000
------------- -------------
Cash flows from investing activities
Cash purchases of equipment and improvements (168,000) (466,000)
Capitalized software development (193,000) (114,000)
Purchase of marketable securities (3,998,000)
Purchase of additional shares in subsidiary (44,000)
------------- -------------
Net cash used by investing activities (4,359,000) (624,000)
------------- -------------
Cash flows from financing activities
Payments on capital lease obligations (15,000) (15,000)
Repayment of notes payable (2,000) (3,000)
Proceeds from issuance of common stock 14,000 11,421,000
------------- ------------
Net cash provided (used) by financing activities (3,000) 11,403,000
------------- ------------
Net increase (decrease) in cash (3,524,000) 11,042,000
Cash and cash equivalents at beginning of period 10,027,000 2,466,000
------------- -------------
Cash and cash equivalents at end of period $ 6,503,000 $ 13,508,000
============= =============
</TABLE>
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
For The Three Months Ended March 31, 1997
(Unaudited)
Note - A The unaudited consolidated financial statements of Performance
Technologies, Incorporated and subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, the
consolidated financial statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The results for the
interim periods are not necessarily indicative of the results to be expected for
the year. The accompanying consolidated financial statements should be read in
conjunction with the audited Consolidated Financial Statements of the Company as
of December 31, 1996, as reported in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note - B There were 4,807,981 and 4,801,301 shares issued and outstanding(net of
treasury shares held) at March 31, 1997 and December 31, 1996, respectively, of
the Company's $.01 par value Common Stock. During the three months ended March
31, 1997, 6,680 common shares were issued upon the exercise of stock options.
Note - C Inventories consisted of the following at March 31, 1997 and
December 31, 1996:
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
1997 1996
----------- -----------
Purchased parts and components $ 1,630,000 $ 1,601,000
Work in process 3,093,000 2,641,000
Finished goods 447,000 292,000
----------- -----------
5,170,000 4,534,000
Less: reserve for inventory obsolescence (446,000) (502,000)
----------- -----------
Net $ 4,724,000 $ 4,032,000
=========== ===========
</TABLE>
Note - D The provisions of Statement of Financial Accounting Standards No. 128
("SFAS 128"), "Earnings per Share" are effective for financial statements issued
for interim and annual periods ending after December 15, 1997. SFAS 128
simplifies the standards for computing earnings per share and makes the United
States accounting standard comparable to international standards. The Company
does not believe that the adoption of SFAS 128 would have resulted in a
significant difference in the calculation of earnings per share as currently
reported, which indicates the dilutive effect of common equivalent shares
attributable to outstanding options and warrants.
<PAGE>
-
Performance Technologies, Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Company's operating performance is subject to various risks and
uncertainties. This report on Form 10-Q should be read in conjunction with the
consolidated financial statements, the notes thereto, Management's Discussion
and Analysis of Financial Condition and Results of Operations as of December 31,
1996 and "Risk Factors" as reported in the Company's Annual Report on Form 10-K
filed with the Securities and Exchange Commission.
Matters discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations in this Form 10-Q include forward looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended and
Section 21E of the Securities Act of 1934, as amended, and are subject to the
safe harbor provisions of those Sections. The Company's future operating results
could differ materially from those discussed in the forward looking statements
and may be affected by various trends and factors which are beyond the Company's
control. These include, among other factors, general business and economic
conditions, rapid or unexpected changes in technologies, cancellation or delay
of customer orders, changes in the product or customer mix of sales, delays in
new product development, customer acceptance of new products and customer delays
in qualification of products.
Overview
The Company achieved record sales and net income for the first quarter of 1997.
Revenues for the first quarter increased by 34% and net income increased by 24%.
At March 31, 1997, the Company had approximately $16.6 million in cash and
marketable securities and no significant debt.
The Company's revenues are generated from products designed to enhance the
performance of network systems based on varied computer architectures including
VMEbus, SBus and PCIbus. The Company's products operate on various operating
systems including UNIX, Windows NT(TM), VxWorks and most recently LINUX. During
the first half of 1997, the Company plans to focus on delivering a new ULTRA
SCSI product for the PCI market and expanding the remote access software
capabilities of the Company's Wide Area Network products including software
support for Frame Relay, SS7, Primary Rate ISDN on Windows NT and Broad Band
Protocols through a combination of internal development and third party
strategic relationships. During the second half of 1997, the Company will focus
on the development of products for the emerging Compact PCI market. It appears
that this technology is being embraced by the defense and telecommunications
industries as the new platform of choice to replace more mature standards such
as the VMEbus. In addition, the Company expects to introduce its new family of
network switching products during the fourth quarter of 1997.
As part of the Company's effort to broaden its position in the SBus and PCI
product areas, the Company announced in March the purchase of Artecon
Corporation's SBus and PCIbus controller product line. The integration of these
PCI and SBus asynchronous controllers for high speed support of remote access
and Internet connectivity, along with the Company's existing family of high
performance products, results in the ability to provide the Sun and UNIX
marketplaces with one of the most comprehensive suites of communications, mass
storage and network interface solutions available in the industry.
Quarter Ended March 31, 1997, compared with the Quarter Ended March 31, 1996
Sales. Sales for the quarter ended March 31, 1997 increased by 34.3% to
$7,434,000, from $5,537,000 for the first quarter of 1996. The Company's
products are grouped into five categories: WAN Interface adapter products, LAN
Interface adapter products, Network Systems products, Mass Storage Interface
products and Inter-system Connectivity products. WAN Adapter products
represented 49% of total sales in the first quarter, compared to 45% for the
same quarter of the prior year. The Company introduced several new WAN products
during the past twelve months and more than 60% of the increase in sales
reported is attributable to the escalating demand for the Company's WAN
communications products. Shipments of Network systems products represented 15%
of total sales for the first quarter, compared to 8% for the same period a year
earlier. This increased revenue is primarily attributable to higher shipments of
the Company's "front-end" communications subsystems to Cray Research and greater
sales by the Company's UCONx subsidiary of its communication server products.
Mass Storage products represented 16% and 15% of sales in the first quarters of
1997 and 1996, respectively. The introduction of the Ultra SCSI interface
products in June, 1996 accelerated the revenue growth of this group. LAN Adapter
product shipments for the first quarter of 1997 amounted to 14% of sales,
compared to 24% for the first quarter of 1996. There are two distinct segments
in the Company's LAN business: those products provided for commercial
applications and those provided for Commercial Off the Shelf (COTS) Defense
applications. The COTS applications account for the largest shipments of the two
segments. This business is project oriented and is very difficult to predict on
a quarterly basis. Management expects that the volume of this business will show
an increase during 1997. Inter-system Connectivity product revenues decreased
from 8% of sales in the first quarter of 1996 to 6% for the first quarter of
1997. The Company is not investing in this group of products and a further
decline in these revenues is expected.
Gross Profit. Gross profit consists of sales, less cost of goods sold including
materials costs, manufacturing expenses and amortization of software development
costs. Gross profit for the first quarter of 1997 increased to $4,102,000, from
$3,174,000 for the first quarter 1996. Gross margin was 55.2% of sales for the
first quarter, compared to 57.3% in the first quarter 1996 and 56.3% for all of
1996. Gross margin for the first quarter of 1996 was unusually high on a
historical basis and the gross margin for the current quarter was affected by
acceleration of the amortization of certain capitalized software development
costs.
Total Operating Expenses. Total operating expenses increased to $2,539,000, or
34.2 % of sales for the first quarter 1997, from $1,861,000, or 33.6% of sales
for the comparable 1996 quarter. The Company is making significant investments
in sales, marketing, research and development while reducing its general and
administrative expenses as a percentage of sales.
Selling and marketing expenses increased to $909,000, or 12.2% of sales for the
first quarter 1997, from $680,000, or 12.3% of sales for the same quarter in
1996. This increase is primarily attributable to greater personnel costs and
sales commissions due to higher sales levels. In addition, the marketing staff
has been bolstered to better promote the Company's products domestically and
internationally. In February, the Company presented its products at the Comnet
trade show in Washington DC and in April, the Company attended the PCI Plus
trade show in Santa Clara, California. PCI Plus was the first of many PCI trade
shows the Company expects to participate in the future. In May, the Company
presented its products at InterOp in Las Vegas. This is one of the largest shows
offered for the networking and communications marketplace. During the second
half of 1997, management expects that sales and marketing expenses will
accelerate as a percentage of sales in an effort to promote many of the new
products being introduced in the latter part of the year.
Research and development expenses were $942,000, or 12.7% of sales for the first
quarter of 1997, compared to $594,000, or 10.7% of sales for the comparable 1996
quarter. Research and development expenses consist primarily of employee
salaries and benefits costs, cost of materials consumed in developing and
designing new products and, to a lesser extent, contract development and
equipment rental. Certain engineering expenses associated with the development
of software are capitalized and amortized to cost of goods sold. The increase in
research and development expenses in the current quarter reflects the Company's
ongoing commitment to research and development efforts, including the expansion
of both hardware and software related to WAN communication adapter products, the
continued enhancement of the current LAN/FDDI offerings, the next generation
Ethernet switch, expansion of mass storage interface products to encompass Fiber
Channel and expanded communication server products provided by UCONx. A
significant portion of the increased expense during the quarter was attributable
to the number of engineers hired during the past twelve months. In addition, the
product development costs associated with new products, including a new ASIC,
were significantly higher during the current quarter. During the first half of
1997, management expects that research and development expenses will be higher
as a percentage of sales than in 1996 and will decline somewhat, as a percentage
of sales, during the second half of the year. General and administrative
expenses were $688,000, or 9.3% of sales for the first quarter of 1997 compared
to $587,000, or 10.6% of sales for the first quarter of 1996. The Company
continues to maintain tight control over its general and administrative
expenses.
Other income (expense), net. Other income consists primarily of interest income.
Available cash is invested in money market funds, high quality short term
commercial paper and United States Treasury securities maturing within twelve
months.
Income Taxes. The provision for income taxes for the first quarter of 1997 is
based upon the combined federal and state effective tax rate of 38%, compared to
36.6% for the first quarter of 1996.
Liquidity and Capital Resources
At March 31, 1997, the Company's primary source of liquidity included cash and
cash equivalents of $6,503,000, marketable securities with a maturity of less
than one year of $10,100,000 and available borrowings of $3,000,000 under a
revolving credit facility with a bank. No amounts were outstanding under this
credit facility as of March 31, 1997. The Company had working capital of
$22,281,000 at March 31, 1997, compared to $20,965,000 at December 31, 1996 and
$18,408,000 at March 31, 1996.
Cash generated from operating activities was $838,000 for the quarter ended
March 31, 1997, compared to $263,000 for the first quarter of 1996.
Cash used in investing activities was $4,359,000 for the quarter ended March 31,
1997, compared to $624,000 for the quarter ended March 31, 1996. During the
quarter ended March 31, 1997, investing activities included the purchase of
marketable securities of $3,998,000 and capital equipment purchases of $168,000.
Capital equipment purchases consist primarily of manufacturing equipment, office
equipment and computer and related equipment used in engineering. In addition,
the Company capitalized certain software development costs amounting to $193,000
for the quarter ended March 31, 1997, compared to $114,000 for the same period
in 1996.
Cash used by financing activities for the quarter ended March 31, 1997 was
$3,000 as compared to $11,403,000 of cash provided by financing activities for
the same period in 1996. During the first quarter of 1996, the Company completed
its initial public offering of Common Stock and the net proceeds of the Public
Offering were approximately $11,421,000.
Assuming there is no significant change in the Company's business, management
believes that its current cash and marketable securities together with cash
generated from operations and available borrowings under the Company's loan
agreement will be sufficient to meet the Company's anticipated needs, including
working capital and capital expenditure requirements, for at least the next
twelve months. However, it is the Company's intention to continue aggressive new
product introduction throughout 1997 for a variety of markets served by the
Company. Management has also initiated a strategic acquisition program to
further accelerate new product and market penetration efforts. This program
could have an impact on the Company's working capital requirements, liquidity or
capital resources.
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
Exhibit 11 - Computation of earnings per share.
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the
three month period ended March 31, 1997.
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Exhibit 11 - Computation of Earnings Per Share
For the Three Months Ending March 31, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
March 31,
1997 1996
---------- ----------
Weighted average common and common share equivalents:
Weighted average common shares
outstanding during the period 4,804,000 4,358,000
Weighted average common share equivalents 113,000 142,000
---------- ----------
4,917,000 4,500,000
========== ==========
Net Income $1,112,000 $ 897,000
========== ==========
Earnings per share $ .23 $ .20
========== ==========
</TABLE>
<PAGE>
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.
PERFORMANCE TECHNOLOGIES, INCORPORATED
May 13, 1997 By: s/ Charles E. Maginness
--------------------------
Charles E. Maginness
Chairman of the Board of Directors and
Chief Executive Officer
May 13, 1997 By: s/ Dorrance W. Lamb
--------------------------
Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE MARCH 31, 1997 FINANCIAL STATEMENTS OF PERFORMANCE
TECHNOLOGIES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001003950
<NAME> PERFORMANCE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,503
<SECURITIES> 10,100
<RECEIVABLES> 4,119
<ALLOWANCES> 0
<INVENTORY> 4,724
<CURRENT-ASSETS> 26,167
<PP&E> 3,535
<DEPRECIATION> 2,514
<TOTAL-ASSETS> 27,965
<CURRENT-LIABILITIES> 3,886
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0
0
<COMMON> 49
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<SALES> 7,434
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<CGS> 3,332
<TOTAL-COSTS> 2,539
<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 1,793
<INCOME-TAX> 681
<INCOME-CONTINUING> 1,112
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</TABLE>
