- --------------------------------------------------------------------------------
UNITED STATES
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 Quarter Ended June 30, 1998
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 7,306,450
as of July 27, 1998.
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Cover Page of 13 Pages
1
<PAGE>
-
Performance Technologies, Incorporated and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997 3
Consolidated Statements of Income For The Three
Months Ended June 30, 1998 and 1997 (unaudited) 4
Consolidated Statements of Income For The Six
Months Ended June 30, 1998 and 1997 (unaudited) 5
Consolidated Statements of Cash Flows For The Six
Months Ended June 30, 1998 and 1997 (unaudited) 6
Notes to Consolidated Financial Statements For The Six
Months Ended June 30, 1998 (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
June 30, December 31,
1998 1997
------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 13,503,000 $ 8,833,000
Marketable securities 10,002,000 12,010,000
Accounts receivable, net 3,978,000 4,956,000
Inventories, net - Note C 3,466,000 3,329,000
Prepaid expenses and other 300,000 346,000
Deferred taxes 466,000 466,000
------------- -------------
Total current assets 31,715,000 29,940,000
Equipment and improvements, net 877,000 982,000
Software development, net 958,000 579,000
Other assets 125,000
------------- -------------
Total assets $ 33,550,000 $ 31,626,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 12,000 $ 12,000
Accounts payable 977,000 824,000
Income taxes payable 260,000 255,000
Accrued expenses 1,841,000 2,265,000
------------- -------------
Total current liabilities 3,090,000 3,356,000
Long term debt, less current portion 12,000 18,000
Deferred taxes 220,000 220,000
------------- -------------
Total liabilities 3,322,000 3,594,000
------------- -------------
Stockholders' equity
Preferred stock
Common stock - Note B 75,000 74,000
Additional paid-in capital - Note B 13,136,000 13,055,000
Retained earnings 17,341,000 15,061,000
Treasury stock - Note B (324,000) (158,000)
------------- -------------
Total stockholders' equity 30,228,000 28,032,000
------------- -------------
Total liabilities and stockholders' equity $ 33,550,000 $ 31,626,000
============= =============
</TABLE>
3
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended
June 30,
1998 1997
------------- -------------
Sales $ 6,051,000 $ 7,539,000
Cost of goods sold 2,482,000 3,025,000
------------- -------------
Gross profit 3,569,000 4,514,000
------------- -------------
Operating expenses:
Selling and marketing 1,041,000 1,102,000
Research and development 907,000 972,000
General and administrative 600,000 740,000
------------- -------------
Total operating expenses 2,548,000 2,814,000
------------- -------------
Income from operations 1,021,000 1,700,000
Other income, net 303,000 237,000
------------- -------------
Income before income taxes 1,324,000 1,937,000
Provision for income taxes 463,000 737,000
------------- -------------
Net income $ 861,000 $ 1,200,000
============= =============
Per share of common stock - Note D
Basic earnings per share $ .12 $ .17
============= =============
Diluted earnings per share $ .11 $ .16
============= =============
</TABLE>
4
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
June 30,
1998 1997
------------- -------------
Sales $ 13,462,000 $ 14,973,000
Cost of goods sold 5,345,000 6,357,000
------------- -------------
Gross profit 8,117,000 8,616,000
------------- -------------
Operating expenses:
Selling and marketing 1,934,000 2,010,000
Research and development 1,970,000 1,915,000
General and administrative 1,286,000 1,429,000
------------- -------------
Total operating expenses 5,190,000 5,354,000
------------- -------------
Income from operations 2,927,000 3,262,000
Other income, net 614,000 467,000
------------- -------------
Income before income taxes 3,541,000 3,729,000
Provision for income taxes 1,261,000 1,417,000
------------- -------------
Net income $ 2,280,000 $ 2,312,000
============= =============
Per share of common stock - Note D
Basice earnings per share $ .31 $ .32
============= =============
Diluted earnings per share $ .30 $ .31
============= =============
</TABLE>
5
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Six Months Ended
June 30,
1998 1997
------------ --------------
Cash flows from operating activities
Net income $ 2,280,000 $ 2,312,000
Non-cash adjustments:
Depreciation and amortization 394,000 729,000
Other 13,000 10,000
Changes in operating assets and liabilities:
Accounts receivable 968,000 (419,000)
Inventories (137,000) (265,000)
Prepaid expenses and other 48,000 (134,000)
Accounts payable 153,000 100,000
Accrued expenses (424,000) (314,000)
Income taxes payable 5,000 61,000
------------ ------------
Net cash provided by operating activities 3,300,000 2,080,000
------------ ------------
Cash flows from investing activities
Cash purchases of equipment and improvements, net (145,000) (416,000)
Capitalized software development (403,000) (400,000)
Purchase of marketable securities (4,000,000) (4,998,000)
Maturities of marketable securities 6,008,000
------------ ------------
Net cash provided (used)
by investing activities 1,460,000 (5,814,000)
------------ ------------
Cash flows from financing activities
Repayment of notes payable (6,000) (5,000)
Proceeds from issuance of common stock 59,000 39,000
Purchase of treasury stock (143,000)
Payments on capital lease obligations (15,000)
------------ ------------
Net cash (used) provided
by financing activities (90,000) 19,000
------------ ------------
Net increase (decrease) in
cash and cash equivalents 4,670,000 (3,715,000)
Cash and cash equivalents at beginning of period 8,833,000 10,027,000
------------ ------------
Cash and cash equivalents at end of period $ 13,503,000 $ 6,312,000
============ ============
</TABLE>
6
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
For The Six Months Ended June 30, 1998
(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, 1997, as reported in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note - B There were 7,289,650 and 7,267,450 shares issued and outstanding (net
of treasury shares held) at June 30, 1998 and December 31, 1997, respectively,
of the Company's $.01 par value Common Stock. During the six months ended June
30, 1998, 38,400 common shares were issued upon the exercise of stock options
and 16,200 common shares were added to the number of treasury shares held.
Note - C Inventories consisted of the following at June 30, 1998 and December
31, 1997:<TABLE> <CAPTION>
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
Purchased parts and components $ 1,362,000 $ 954,000
Work in process 2,552,000 2,580,000
Finished goods 196,000 333,000
----------- ------------
4,110,000 3,867,000
Less: reserve for inventory obsolescence (644,000) (538,000)
----------- ------------
Net $ 3,466,000 $ 3,329,000
=========== ============
</TABLE>
Note - D The following table illustrates the calculation of both basic and
diluted earnings per share for the three months and six months ending June 30,
1998 and 1997: <TABLE> <CAPTION>
Three Months Ended
June 30,
1998 1997
<S> <C> <C>
----------- -------------
Basic earnings per share
Net income available to common stockholders $ 861,000 $ 1,200,000
=========== =============
Weighted average common shares 7,296,000 7,220,000
=========== =============
Basic earnings per share $ .12 $ .17
=========== =============
Diluted earnings per share
Net income available to common stockholders $ 861,000 $ 1,200,000
=========== =============
Weighted average common and common
equivalent shares 7,595,000 7,400,000
=========== =============
Diluted earnings per share $ .11 $ .16
=========== =============
Six Months Ended
June 30,
1998 1997
------------------------------
Basic earnings per share
Net income available to common stockholders $ 2,280,000 $ 2,312,000
=========== =============
Weighted average common shares 7,284,000 7,213,000
=========== =============
Basic earnings per share $ .31 $ .32
=========== =============
Diluted earnings per share
Net income available to common stockholders $ 2,280,000 $ 2,312,000
=========== =============
Weighted average common and common
equivalent shares 7,634,000 7,389,000
=========== =============
Diluted earnings per share $ .30 $ .31
=========== =============
</TABLE>
7
<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,
1997 and "Risk Factors" as reported in the Company's Annual Report on Form 10-K,
and as of March 31, 1998, as reported in its Form 10-Q, 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 Exchange 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
For the six months ended June 30, 1998, the Company's after-tax profit improved
to 16.9% of sales based on sales of $13,462,000, compared to a 15.4% return on
sales for the same period in 1997 based on sales of $14,973,000. An improvement
in gross margin over the past twelve months has contributed to a higher return
on sales this year. For the second quarter 1998, the Company's after-tax profit
as a percentage of sales was 14.2% based on sales of $6,051,000, compared to
15.9% for the second quarter 1997 based on sales of $7,539,000. Sales and
earnings for the second quarter 1998 were affected because a significant
follow-on Department of Defense contract was delayed and not received during the
quarter. Management believes it will receive this contract award but is
disappointed that the delay in its award impacted the second quarter's operating
results. Management remains optimistic about the Company's future prospects
because of the breadth of new products it continues to introduce which address
rapidly expanding markets. For the six months ended June 30, 1998, the Company
generated cash from operating activities of $3.3 million, compared to $2.1
million for the same period in 1997. At June 30, 1998, the Company had
approximately $23.5 million in cash and marketable securities, and no
significant debt.
Management believes that the Company's key factors for continued growth for the
second half of 1998 and beyond will be its Data Communications products for Wide
Area Networks and its Network Switching products for Local Area Networks.
The Company is focusing a substantial amount of resources on the Data
Communications market where computer and telephony technologies are converging
in the advanced intelligent network being built worldwide. Through a combination
of internal development, licensing and strategic partnering, the Company has
created one of the most comprehensive groups of Data Communications products for
Wide Area Networks (WAN) in its market segment. These products encompass a
comprehensive family of communications software protocols and WAN hardware
products for PCI and CompactPCI platforms. The communication protocols include:
Frame Relay, Signaling System #7 (SS7), X.25, High-Level Data Link Control
(HDLC) and a variety of protocols to facilitate high and low speed
communications. The Company's "add-in" hardware products function on all
standard PCI and CompactPCI platforms. In this arena, the Company has
established strategic partnering relationships with a number of major PCI server
and workstation manufacturers including Sun Microsystems and Digital
Equipment/Compaq, as well as several of the leading CompactPCI platform
manufacturers. In addition, the Company has a line of specialized stand-alone
communication server platforms.
8
<PAGE>
For the past eighteen months, the Company has been developing its second
generation family of high performance 100Mbit/Gigabit Network Switch products
for the Local Area Network market. At the end of June, the Company completed
production releases of its new Nebula(TM) 4000 Workgroup Switch and its new
Nebula 6000 High Density switch. The Nebula 4000 is ideal for demanding
workgroup applications such as imaging, CAD/CAM and multimedia development. The
Nebula 6000 is the highest density department switch on the market and has been
specifically designed for Internet/Intranet applications where installation
space is a premium and overall cost is a critical component in the buying
decision. The Company's new Fault Tolerant Switch, Nebula 8000, is the first
100/1000 Ethernet switch to offer true fault tolerance at an affordable price.
The Nebula 8000 has been engineered for maximum availability and is targeted
toward the financial community and those commercial, industrial and government
operations that must have their networks available on a 7 days-a-week, 24
hours-a-day basis. This model was demonstrated at Networld+Interop98 in May, is
currently in Beta Testing and is expected to start generating revenue in the
fourth quarter of this year. This new Nebula Family of network switches features
Pulsar(TM), PTI's innovative new ASIC technology as well as StarGazerII(TM),
PTI's platform independent Web-based network management system. The Company is
pursuing a patent on certain aspects of the Nebula 8000 fault tolerant design.
Quarter and Six Months Ended June 30, 1998, compared with
the Quarter and Six Months Ended June 30, 1997
Sales. Sales for the second quarter 1998 were $6,051,000, compared to $7,539,000
for the second quarter 1997. The decrease in second quarter revenue was
attributable to a delay in receiving a significant follow-on contract with the
Department of Defense discussed below. Sales for the six months ended June 30,
1998 were $13,462,000, a decrease of $1,511,000, from $14,973,000 for the first
six months of 1997. The Company's products are grouped into five categories:
Data Communications products, LAN Interface Adapter products, Network Systems
products, Mass Storage Interface products and Inter-system Connectivity
products.
Shipments of Data Communications products for WAN applications were 60% of sales
during the second quarter 1998, compared to 43% for second quarter 1997.
Shipments were 62% of sales for the first six months of 1998, compared to 46% of
sales for the comparable 1997 period. Sales of WAN products increased 20% during
the first six months of 1998 over the respective 1997 period primarily because
during the past fifteen months, the Company has introduced numerous new WAN
products for the PCI and CompactPCI markets.
Shipments of LAN Adapter products for the second quarter 1998 amounted to 12% of
sales as compared to 23% for the second quarter 1997, and were 11% of sales for
the six months ended June 30, 1998, compared to 18% for the first six months
1997. The largest share of the Company's LAN business is in connection with
Commercial Off-the-Shelf (COTS) Defense applications. The decrease of LAN
adapter revenue during the first half of 1998 was attributable to a delay in
receiving a significant follow-on contract with the Department of Defense. The
Company has been a supplier on this program since 1994 and the second phase of
this project is in the process of being re-awarded. The contract was scheduled
for award in February 1998 and then in June 1998. While management believes that
the Company will be awarded this follow-on contract, there continues to be no
specific information available on the timetable for this award; therefore, the
Company's estimated revenue for the third quarter does not include shipments for
this contract.
Shipments of Network Systems products represented 4% of total sales in the
second quarter 1998 and 8% for the same period in 1997. Network shipments were
6% of total sales for the six months ended June 30, 1998, compared to 12% during
the same period in 1997. Network Systems are primarily comprised of shipments of
I/O subsystems to a major OEM customer and sales of protocol software for
specialty WAN applications. The decrease in revenue during the first and second
quarters in this product group, from the previous year, is primarily
attributable to significantly lower shipments to the OEM customer. This customer
appears to be experiencing a slowdown in orders for the product that
incorporates the Company's I/O subsystem. Shipments to this customer of the I/O
subsystem amounted to approximately $100,000 during the first half of 1998,
compared to $870,000 during the first half of 1997. This customer has placed an
order for shipment in the fourth quarter but no meaningful revenue is expected
prior to that time. Revenue from the sales of protocol software is project
oriented and is not expected to grow appreciably because the engineering staff
for these products has been reassigned to develop software protocols for Data
Communications solutions and products.
9
<PAGE>
Shipments of Mass Storage Interface products for the second quarter of 1998
amounted to 13% of sales, compared to 17% in the second quarter of 1997. For the
six months ended June 30, 1998, Mass Storage products were 12% of total sales,
compared to 16% for the same 1997 period. Revenue for the second quarter 1998 is
consistent with the amount of revenue for the first quarter. The decrease in
sales volume from 1997 is believed to be primarily attributable to technology
changes occurring in this market. These changes include customers transitioning
from SBus to PCIbus applications and from the slower SCSI adapters to faster
Fibre Channel adapters. The Company has been transitioning its products and
customers into these new technologies, however, the decline in the SBus business
has been greater than the increase in the PCI business. Both the PCI SCSI and
Fibre Channel markets are very competitive.
Shipments of Inter-system Connectivity products represented 11% of sales for the
second quarter 1998 and 9% of sales for the six months ended June 30, 1998,
compared to 9% for the second quarter 1997 and 7% for the six months ended June
30, 1997. The Company is not investing in this group of products and a decline
in revenue for the year is expected.
International sales amounted to 15% of sales in the first half of 1998, compared
to 10% of sales for all of 1997. International markets represent a significant
untapped opportunity for the Company. During the second quarter, a senior
management position, based in Europe, was created to direct market development
of PTI's complete line of communications and network switching products
throughout that region of the world.
Gross Profit. Gross profit for the second quarter 1998 was $3,569,000, or 59% of
sales, compared to $4,514,000, or 60% of sales for the second quarter 1997.
Gross profit for the first half of 1998 was $8,117,000, or 60.3% of sales from
$8,616,000, or 57.5% of sales for the same period in 1997. The slight decline in
gross margin for the second quarter 1998 is primarily attributable to the lower
sales volume during the quarter. The increase in gross margin for the first six
months of 1998 over the comparable 1997 period is primarily attributable to
management's focus on reducing its material costs and on improving its
manufacturing efficiencies during the past eighteen months.
Operating Expenses. Total operating expenses were $2,548,000, or 42.1% of sales
for the second quarter 1998, compared to $2,814,000, or 37.3% of sales for the
second quarter 1997. Total operating expenses were $5,190,000, or 38.6% of sales
for the first half of 1998, compared to $5,354,000, or 35.8% of sales for the
six months ended June 30, 1997.
Selling and marketing expenses were $1,041,000, or 17.2% of sales for the second
quarter 1998, compared to $1,102,000, or 14.6% of sales for the same quarter in
1997. Selling and marketing expenses amounted to $1,934,000, or 14.4% of sales
for the six months ended June 30, 1998, compared to $2,010,000, or 13.4% of
sales for the same period in 1997. Selling and marketing expenses for the
remainder of 1998 are expected to continue at the same percentage of sales in an
effort to promote the new products being introduced during the later half of the
year, particularly the Nebula Network Switch Family. During the second quarter,
the Company demonstrated its Nebula Family of network switches at
Networld+Interop98 in Las Vegas and the Company's new Data Communication
products and strategies at SuperComm '98 in Atlanta.
Research and development expenses were $907,000, or 15.0% of sales for the
second quarter 1998, compared to $972,000, or 12.9% of sales for the comparable
quarter of 1997. Research and development expenses were $1,970,000, or 14.6% of
sales for the six months ended June 30, 1998, compared to $1,915,000, or 12.8%
of sales for the six months ended June 30, 1997. The increase of research and
development expenses during the first half of 1998 is primarily attributable to
the development of the new Nebula product line introduced in June. Management
expects research and development to continue to increase during the second half
of 1998 as the Company continues to make significant investments in the
development of new products.
General and administrative expenses were $600,000, or 9.9% of sales for the
second quarter 1998, compared to $740,000, or 9.8% of sales for the second
quarter 1997. General and administrative expenses were $1,286,000, or 9.6% of
sales for the six months ended June 30, 1998, compared to $1,429,000, or 9.5% of
sales for the first half of 1997. General and administrative expenses declined
in the second quarter primarily because of the reduced accrual for the corporate
bonus program which is based on profitability.
10
<PAGE>
Income Taxes. The provision for income taxes was $463,000 in the second quarter
1998, compared to $737,000 for the same quarter in 1997. The effective corporate
income tax rate for the second quarter 1998 was 35.0%, compared to 38% for the
second quarter 1997. For the six months ended June 30, 1998, the provision for
income taxes amounted to $1,261,000, compared to $1,417,000 for the first six
months of 1997. The effective corporate income tax rate was 35.6%, compared to
38.0% for the first six months of 1997.
Liquidity and Capital Resources
At June 30, 1998, the Company's primary source of liquidity included cash and
cash equivalents of $13,503,000, marketable securities with a maturity of less
than one year of $10,002,000 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 June 30, 1998. The Company had working capital of
$28,625,000 at June 30, 1998, compared to $26,584,000 at December 31, 1997, and
$23,223,000 at June 30, 1997.
Cash provided by operating activities for the six months ended June 30, 1998 was
$3,300,000 compared to $2,080,000 for the same period in 1997. The increase in
cash provided by operating activities for the six months ended June 30, 1998 is
primarily attributable to changes in the components of working capital.
Capitalization of certain software development costs amounted to $403,000 for
the six months ended June 30, 1998, compared to $400,000 for the same period in
1997.
Many companies are facing a potential issue regarding the ability of information
systems to accommodate the coming year 2000. The Company has evaluated its
information systems and believes that an appropriate plan is in place to ensure
that all critical systems can, or will be able to, accommodate the coming
century without material adverse effect on the Company's financial condition,
results of operations, capital spending or competitive position. Such plan
consists of obtaining upgrades of its information systems from the Company's
software vendor to be year 2000 compatible. The current products sold by the
Company do not require any programming date changes to function as intended,
however, the new switching products do require date sensitive programming and
are being developed to be year 2000 compatible.
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 introductions throughout 1998 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.
11
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds
The following table summarizes the proceeds from the sale of securities and use
of proceeds therefrom in connection with the Registrant's Initial Public
Offering on January 24, 1996. Amounts reported represent an estimate of the
amount of these expenditures.
<TABLE>
<CAPTION>
Proceeds from the sale of securities:
<S> <C>
Gross proceeds $ 12,800,000
Less: Underwriter's commission 896,000
Finder's fees 0
Underwriter's expenses 27,000
Payments to Directors, Officers, General Partners 0
Other 461,000
------------
Net proceeds $ 11,416,000
============
Use of Proceeds:
Construction of facilities $ 0
Purchase of machinery 1,733,000
Purchase of real estate 0
Acquisition of other business(es) 0
Repayment of debt 0
General working capital purposes 0
Temporary investments 931,000
Inventory for new products 1,265,000
Software development 1,487,000
Product development 6,000,000
------------
Total use of proceeds $ 11,416,000
============
</TABLE>
Item 4. Submission of Matters to a Vote of Security Holders
The 1998 Annual Meeting of Stockholders was held on June 3, 1998. The Directors
elected at the meeting were as follows:
Votes Cast
Nominees For Abstain
-----------------------------------------------------
John E. Mooney 5,375,572 6,880
John M. Slusser 5,372,777 9,675
The stockholders voted to approve an amendment to the Performance Technologies,
Incorporated Stock Option Plan to provide that formula options to Outside
Participating Directors shall be granted on the date of the Annual Meeting and
shall vest and become fully exercisable one year from the date of grant.
5,299,580 shares of common stock voted in favor of the proposal, 54,222 shares
of common stock voted against the proposal, and 28,650 shares of common stock
abstained.
The stockholders also voted to ratify the appointment of Price Waterhouse LLP as
independent accountants for 1998. 5,371,832 shares of common stock were voted in
favor of the proposal, 7,870 shares of common stock voted against the proposal,
and 2,750 shares of common stock abstained.
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None.
B. Reports on Form 8-K
There were no reports on Form 8-K filed during the
three month period ended June 30, 1998.
13
<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
August 11, 1998 By: s/ Donald L. Turrell
------------------------
Donald L. Turrell
President and
Chief Executive Officer
August 11, 1998 By: s/ Dorrance W. Lamb
-----------------------
Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE JUNE 30, 1998 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.
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<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1998
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<SECURITIES> 10002
<RECEIVABLES> 3978
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<CURRENT-ASSETS> 31715
<PP&E> 3888
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0
0
<COMMON> 75
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<NET-INCOME> 2280
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