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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, 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 0-27460
PERFORMANCE TECHNOLOGIES, INCORPORATED
(Exact name of registrant as specified in its charter)
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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
7,320,131 as of July 30, 1999.
________________________________________________________________________________
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 (unaudited) and
December 31, 1998 1
Consolidated Statements of Income For The Three
Months Ended June 30, 1999 and 1998 (unaudited) 2
Consolidated Statements of Income For The Six
Months Ended June 30, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows For The Six
Months Ended June 30, 1999 and 1998 (unaudited) 4
Notes to Consolidated Financial Statements For The Six
Months Ended June 30, 1999 (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 6
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
1999 1998
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,712,000 $25,627,000
Marketable securities 21,016,000
Accounts receivable, net 5,403,000 4,799,000
Inventories, net - Note C 4,644,000 4,425,000
Prepaid expenses and other 614,000 679,000
Deferred taxes 549,000 549,000
----------- -----------
Total current assets 39,938,000 36,079,000
Equipment and improvements, net 772,000 934,000
Software development, net 714,000 822,000
----------- -----------
Total assets $41,424,000 $37,835,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 12,000 $ 12,000
Accounts payable 1,437,000 1,932,000
Income taxes payable 474,000 507,000
Accrued expenses 2,518,000 1,838,000
----------- -----------
Total current liabilities 4,441,000 4,289,000
Long term liabilities:
Long term debt, less current portion 6,000
Deferred taxes 288,000 288,000
----------- -----------
Total liabilities 4,729,000 4,583,000
----------- -----------
Stockholders' equity - Note B:
Preferred stock
Common stock 75,000 75,000
Additional paid-in capital 13,897,000 13,250,000
Retained earnings 24,161,000 20,844,000
Treasury stock (1,438,000) (917,000)
----------- -----------
Total stockholders' equity 36,695,000 33,252,000
----------- -----------
Total liabilities and stockholders' equity $41,424,000 $37,835,000
=========== ===========
</TABLE>
1
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Sales $ 8,923,000 $ 6,051,000
Cost of goods sold 3,239,000 2,482,000
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Gross profit 5,684,000 3,569,000
----------- -----------
Operating expenses:
Selling and marketing 1,306,000 1,041,000
Research and development 1,405,000 907,000
General and administrative 670,000 600,000
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Total operating expenses 3,381,000 2,548,000
----------- -----------
Income from operations 2,303,000 1,021,000
Other income, net 339,000 303,000
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Income before income taxes 2,642,000 1,324,000
Provision for income taxes 925,000 463,000
----------- -----------
Net income $ 1,717,000 $ 861,000
=========== ===========
Per Share of Common Stock - Note D
Basic earnings per share $ .24 $ .12
=========== ===========
Diluted earnings per share $ .22 $ .11
=========== ===========
</TABLE>
2
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PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------- -----------
<S> <C> <C>
Sales $17,036,000 $13,462,000
Cost of goods sold 6,374,000 5,345,000
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Gross profit 10,662,000 8,117,000
----------- -----------
Operating expenses:
Selling and marketing 2,366,000 1,934,000
Research and development 2,630,000 1,970,000
General and administrative 1,227,000 1,286,000
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Total operating expenses 6,223,000 5,190,000
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Income from operations 4,439,000 2,927,000
Other income, net 664,000 614,000
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Income before income taxes 5,103,000 3,541,000
Provision for income taxes 1,786,000 1,261,000
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Net income $ 3,317,000 $ 2,280,000
=========== ===========
Per Share of Common Stock - Note D
Basic earnings per share $ .46 $ .31
=========== ===========
Diluted earnings per share $ .44 $ .30
=========== ===========
</TABLE>
3
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PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,317,000 $ 2,280,000
Non-cash adjustments:
Depreciation and amortization 458,000 394,000
Other 113,000 13,000
Changes in operating assets and liabilities:
Accounts receivable (715,000) 968,000
Inventories (219,000) (137,000)
Prepaid expenses and other 65,000 48,000
Accounts payable (495,000) 153,000
Accrued expenses 680,000 (424,000)
Income taxes payable (33,000) 5,000
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Net cash provided by operating activities 3,171,000 3,300,000
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Cash flows from investing activities:
Purchases of equipment and improvements, net (126,000) (145,000)
Capitalized software development (64,000) (403,000)
Purchase of marketable securities (21,016,000) (4,000,000)
Maturities of marketable securities 6,008,000
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Net cash (used) provided by investing
activities (21,206,000) 1,460,000
------------ ------------
Cash flows from financing activities:
Repayment of notes payable (6,000) (6,000)
Proceeds from issuance of common stock 126,000 59,000
Purchase of treasury stock (143,000)
------------ ------------
Net cash provided (used) by financing
activities 120,000 (90,000)
------------ ------------
Net (decrease) increase in cash
and cash equivalents (17,915,000) 4,670,000
Cash and cash equivalents at beginning of period 25,627,000 8,833,000
------------ ------------
Cash and cash equivalents at end of period $ 7,712,000 $ 13,503,000
============ ============
Non-cash financing activity:
Exercise of stock options using 29,066 and 1,200
shares of Common Stock in 1999 and 1998,
respectively $ 627,000 $ 23,000
============ ============
</TABLE>
4
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Performance Technologies, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
For The Six Months Ended June 30, 1999
(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, 1998, as reported in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note - B There were 7,319,781 and 7,239,493 shares issued and outstanding (net
of treasury shares held) at June 30, 1999 and December 31, 1998, respectively,
of the Company's $.01 par value Common Stock. During the six months ended June
30, 1999, 109,354 common shares were issued upon the exercise of stock options
and 29,066 common shares were added to the number of treasury shares held.
Note - C Inventories consisted of the following at June 30, 1999 and December
31, 1998:
June 30, December 31,
1999 1998
----------- -----------
(unaudited)
Purchased parts and components $ 1,841,000 $ 1,905,000
Work in process 3,247,000 3,011,000
Finished goods 281,000 130,000
----------- -----------
5,369,000 5,046,000
Less: reserve for inventory obsolescence (725,000) (621,000)
----------- -----------
Net $ 4,644,000 $ 4,425,000
=========== ===========
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,
1999 and 1998 (unaudited):
Three Months Ended
June 30,
1999 1998
----------- -----------
Basic earnings per share
Net income available to common stockholders $ 1,717,000 $ 861,000
=========== ===========
Weighted average common shares 7,277,819 7,296,177
=========== ===========
Basic earnings per share $ .24 $ .12
=========== ===========
Diluted earnings per share
Net income available to common stockholders $ 1,717,000 $ 861,000
=========== ===========
Weighted average common and common
equivalent shares 7,675,231 7,594,633
=========== ===========
Diluted earnings per share $ .22 $ .11
=========== ===========
Six Months Ended
June 30,
1999 1998
----------- -----------
Basic earnings per share
Net income available to common stockholders $ 3,317,000 $ 2,280,000
=========== ===========
Weighted average common shares 7,260,206 7,284,343
=========== ===========
Basic earnings per share $ .46 $ .31
=========== ===========
Diluted earnings per share
Net income available to common stockholders $ 3,317,000 $ 2,280,000
=========== ===========
Weighted average common and common
equivalent shares 7,580,817 7,634,137
=========== ===========
Diluted earnings per share $ .44 $ .30
=========== ===========
5
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
The Company achieved record revenue of $8.9 million for the second quarter of
1999 as net income for the quarter increased 99% and diluted earnings per share
doubled from a year earlier. The Company also achieved record revenue of $17.0
million for the first half of 1999 and posted record six months earnings of $3.3
million, an increase of 45% from the same period in 1998. An increase in revenue
and an improvement in gross margin resulted in a higher return on sales during
the second quarter and the first six months of 1999, compared to 1998. On the
balance sheet at June 30, 1999, the Company had no debt, approximately $28.7
million in cash and marketable securities, and average weighted common shares
outstanding of 7.7 million. At June 30, 1999, net assets per share was $4.77, of
which $3.74 was cash. For the six months ended June 30, 1999, the Company
generated income from operations, excluding depreciation and amortization
(EBITDA) of $4.9 million, compared to $3.3 million for the same period in 1998.
International sales amounted to 20% of revenue in the first half of 1999,
compared to 15% of revenue in the same period in 1998.
During 1999, the Company's development and delivery of new products was focused
on two distinct communications markets, Wide Area Networking and Local Area
Network Switching.
Wide Area Network communications: The Company's overall Wide Area Networking
strategy is to provide customers with hardware and software product solutions
that support a variety of open system platforms and operating systems. The
growth in the Wide Area Network (WAN) communications market is being driven by
the expansion of the Internet, cellular communications and the convergence
occurring between data and voice communications. At the same time, the
technologies for Wide Area Networking products are changing dramatically.
Server, workstation, and telecommunications providers are migrating their
platforms and applications to newer industry standard hardware bus
architectures: PCIBus and CompactPCI. These technology changes offer a
significant opportunity for the Company. PTI began shipping WAN communications
products for the PCIBus market in 1996. In 1998, PCIBus products represented 48%
of the Company's WAN revenue. The next emerging hardware form factor the Company
is addressing is CompactPCI (cPCI). cPCI is a new standard bus architecture that
combines the attributes of the VMEbus and PCIBus hardware into a ruggedized
industrial hardware system for the embedded OEM marketplace. The
telecommunications and defense industries are expressing great interest in the
cPCI system architecture for meeting their application requirements. Currently,
the Company's cPCI WAN products are being evaluated for more than thirty
potential integration opportunities and the Company has received orders for
shipment of cPCI products during the second half of 1999.
To complement the Company's hardware development, communication software
protocols have been developed for the PCIBus and cPCI WAN product lines
including: Frame Relay, Signaling System #7 (SS7), X.25, High-Level Data Link
Control (HDLC) and a variety of specialized protocols to facilitate high and low
speed communications. In June, the Company introduced Channel7(TM), a
comprehensive hardware and SS7 software MTP-2 solution that provides telecom
equipment manufacturers and developers with enabling technology for a broad
range of applications and systems. While Channel7 has superior competitive
features, the product is also significant from a strategic perspective as it
represents the Company's first major milestone in offering Advanced Intelligent
Network (AIN) software for its WAN products. SS7 technology is a basic building
block for applications such as Voice over IP Gateways, Cellular Roaming support,
Caller ID and call routing to Call Centers.
Local Area Network Switching: The Company has been developing its
second-generation family of high performance 100Mbit/Gigabit Network Switches
for Local Area Networks. The centerpiece of the Company's Local Area Network
switch strategy is the Nebula 8000 Fault Tolerant Switch. The Nebula 8000's
redundant switch fabric has been engineered for maximum availability and minimal
mean time to repair. Its innovative design ensures that no single point of
failure will shut down a network. The Company currently has a patent application
pending for a variety of aspects associated with the fault tolerant design.
6
<PAGE>
The market demands for fault tolerant computing and networking are rising
rapidly. Management believes that deployment of its fault tolerant technologies
in the new Nebula 8000 Network Switch is a logical extension of the market
demand for high availability server clusters and ultra reliable network
infrastructure. Prospective customers in the banking, brokerage, medical imaging
and defense industries are expressing serious interest in this product.
As of the end of the second quarter, the Nebula 8000 Ethernet Switch had been in
the full beta testing stage, at multiple sites, for more than sixty days. By the
end of July, the Nebula Switch was performing well in certain networking
environments and limited shipments began to customers with these environments.
In order for the switch to operate in a wider range of networking environments,
additional software engineering and beta testing is required. This could take up
to sixty days, or possibly longer.
Quarter and Six Months Ended June 30, 1999, compared with
the Quarter and Six Months Ended June 30, 1998
Sales. Sales for the second quarter 1999 increased 47% to $8,923,000, compared
to $6,051,000 for the second quarter 1998. Sales for the six months ended June
30, 1999 were $17,036,000, an increase of $3,574,000 or 27%, from $13,462,000
for the first six months of 1998. The Company's products are grouped into four
categories: WAN communications products, LAN interface products, Network
Switching products, and Other products (combining Network System products, Mass
Storage Interface products, and Inter-System Connectivity products).
WAN communications product revenue increased 23% to $4,448,000 during the second
quarter of 1999, compared to $3,613,000 for the second quarter 1998. During the
first half of 1999, shipments to a large OEM customer who represented 13% of
revenue in 1998, were less than $400,000 because the customer appeared to have
inventory issues. The Company has received new orders for third quarter
shipments as well as better visibility for future orders and believes this
customer will increase shipments during the second half of the year.
Shipments of LAN interface products for the second quarter 1999 amounted to
$3,338,000, or 37% of sales, compared to $737,000, or 12% of sales for the
second quarter 1998. For the first six months of 1999, sales of LAN interface
products were $6,213,000, or 36% of sales, compared to $1,431,000, or 11% of
sales for the respective period in 1998. The largest component of the Company's
LAN business is generated from Commercial Off the Shelf (COTS) Defense
applications. During 1998, a large follow-on Department of Defense contract,
which had been delayed for most of 1998, was awarded in September. Total LAN
revenue in 1999 is expected to be greater than in 1998 due to the impact (on
1998) of the delay in the award of the follow-on contract and because the
Company received a new $8.3 million order for LAN products in April 1999, all of
which is now a firm order. Delivery began on this order in the second quarter
and the balance of this order is expected to ship to the customer over the next
twelve months. In June 1999, the customer placed an additional contingent order
of $2.6 million for LAN products and confirmation should be received before the
end of September 1999.
Network Switching products: The centerpiece of the Company's network switching
product strategy is the Nebula 8000 Fault Tolerant Network Switch. This product
had not been released as of the end of June 1999. Network switch revenue was
negligible during the second quarter 1999.
Other products represented $1,137,000, or 13% of total sales in the second
quarter 1999, compared to $1,701,000 for the same period in 1998. Shipments were
12% of total sales for the first six months of 1999, compared to 28% during the
same period in 1998. Other products include the Company's older/legacy products
previously grouped in Network System products, Mass Storage Interface products
and Inter-System Connectivity products. Many of these products are project
oriented and shipments can fluctuate on a quarterly basis.
Gross Profit. Gross profit for the second quarter 1999 was $5,684,000, or 63.7%
of sales, compared to $3,569,000, or 59.0% of sales for the second quarter 1998.
Gross profit for the first half of 1999 was $10,662,000, or 62.6% of sales,
compared to $8,117,000, or 60.3% of sales for the same period in 1998. The
increase in gross margin for the second quarter and the first six months of 1999
over the comparable 1998 periods is attributable to management's focus on
reducing its material costs, favorable product mix and manufacturing
efficiencies based on higher volumes.
7
<PAGE>
Operating Expenses. Total operating expenses were $3,381,000, or 37.9% of sales
for the second quarter 1999, compared to $2,548,000, or 42.1% of sales for the
second quarter 1998. Total operating expenses were $6,223,000, or 36.5% of sales
for the first half of 1999, compared to $5,190,000, or 38.6% of sales for the
six months ended June 30, 1998.
Selling and marketing expenses were $1,306,000, or 14.6% of sales for the second
quarter 1999, compared to $1,041,000, or 17.2% of sales for the same quarter in
1998. Selling and marketing expenses amounted to $2,366,000, or 13.9% of sales
for the six months ended June 30, 1999, compared to $1,934,000, or 14.4% of
sales for the same period in 1998. During the second quarter 1999, the Company
demonstrated its Nebula Family of network switches at Networld+Interop99 in Las
Vegas and its new WAN Communication products at SuperComm '99 in Atlanta.
Selling and marketing expenses for the remainder of 1999 are expected to be
greater than the first half of the year as more resources are being committed to
promote the Company's new products, particularly the Network Switching,
CompactPCI products and Channel7 (SS7) products.
Research and development expenses were $1,405,000, or 15.7% of sales for the
second quarter 1999, compared to $907,000, or 15.0% of sales for the comparable
quarter of 1998. Research and development expenses were $2,630,000, or 15.4% of
sales for the six months ended June 30, 1999, compared to $1,970,000, or 14.6%
of sales for the six months ended June 30, 1998. Even though a number of
engineers have been hired during the past twelve months, the Company is actively
recruiting to fill new positions and has engaged outside engineering consultants
to assist on engineering projects. The increase in research and development
expenses for the second quarter 1999 and the first half of 1999 is primarily
attributable to these factors. Management expects research and development
expenses to increase during the second half of 1999, compared to the first half
of the year, as the Company continues development of the Network Switching and
WAN products.
General and administrative expenses were $670,000, or 7.5% of sales for the
second quarter 1999, compared to $600,000, or 9.9% of sales for the second
quarter 1998. General and administrative expenses were $1,227,000, or 7.2% of
sales for the six months ended June 30, 1999, compared to $1,286,000, or 9.6% of
sales for the first half of 1998. The Company continues to maintain tight
control over its general and administrative expenses. Management expects general
and administrative expenses will decline as a percentage of sales in 1999,
compared to 1998.
Income Taxes. The provision for income taxes was $925,000 in the second quarter
1999, compared to $463,000 for the same quarter in 1998. The effective corporate
income tax rate for the second quarter 1999 and 1998 was 35.0%. For the six
months ended June 30, 1999, the provision for income taxes amounted to
$1,786,000, compared to $1,261,000 for the first six months of 1998. The
effective corporate income tax rate was 35.0%, compared to 35.6% for the first
six months of 1998.
Liquidity and Capital Resources
At June 30, 1999, the Company's primary source of liquidity included cash and
cash equivalents of $7,712,000, marketable securities with a maturity of less
than one year of $21,016,000 and available borrowings of $5,000,000 under a
revolving credit facility with a bank. No amounts were outstanding under this
credit facility as of June 30, 1999. The Company had working capital of
$35,497,000 at June 30, 1999, compared to $31,790,000 at December 31, 1998, and
$28,625,000 at June 30, 1998.
Cash provided by operating activities for the six months ended June 30, 1999 was
$3,171,000, compared to $3,300,000 for the same period in 1998. The difference
in cash provided by operating activities for the six months ended June 30, 1999
and 1998 is primarily attributable to changes in the components of working
capital.
Capitalization of certain software development costs amounted to $64,000 for the
six months ended June 30, 1999, compared to $403,000 for the same period in
1998.
Impact of the Year 2000 Issue
Many companies are facing a potential issue regarding the ability of information
systems to accommodate the coming year 2000. The Year 2000 issue is the result
of computer programs using only the last two digits to indicate the year. If
8
<PAGE>
uncorrected, such computer programs will be unable to interpret dates beyond the
year 1999, which could cause computer system failure or other computer errors
disrupting operations. The Company recognizes the importance of the Year 2000
issue and has been giving it high priority. The Company created a corporate-wide
Year 2000 project team and the team's objective is to ensure an uninterrupted
transition into the Year 2000. The scope of the Year 2000 readiness effort
includes (i) information technology ("IT") such as software and hardware; (ii)
non-IT systems or embedded technology; and (iii) readiness of key third parties,
including suppliers and customers, and the electronic data interchange (EDI)
with those key third parties. If needed modifications and conversions are not
made on a timely basis, the Year 2000 issue could have a material adverse effect
on Company operations.
The Company has completed Phase I and II of its readiness plan for its IT
systems and non-IT systems. These phases consisted of evaluating and testing its
IT systems and non-IT systems. The Company is in the process of completing Phase
III which consists of upgrading and/or replacing IT system and non-IT system
components specifically required for Year 2000 readiness. Phase IV, planned
during the fourth quarter of 1999, will consist of finalizing contingency plans
for temporary operation should unexpected difficulties with IT systems and
non-IT systems occur. The development of these contingency plans began in
conjunction with upgrading its IT system.
In addition to internal Year 2000 IT and non-IT remediation activities, the
Company has contacted key suppliers and customers to assure no interruption in
the relationship between the Company and these important third parties from the
Year 2000 issue. The Company has received many responses of its inquiries and is
waiting for the remaining responses from these suppliers and customers to
conclude its assessment if such third parties have any known Year 2000 issues.
If third parties do not convert their systems in a timely manner and in a way
that is compatible with the Company's systems, the Year 2000 issue could have a
material adverse effect on Company operations. The Company believes that its
diligent actions with key suppliers and customers will minimize these risks.
The vast majority of the Company's products are not date-sensitive and this
information has been available to customers since November 1998.
While the Company expects its internal IT and non-IT systems to be Year 2000
compliant by the dates specified within its internal plan, the Company is
working on a contingency plan specifying what the Company will do if it or
important third parties are not Year 2000 compliant by the required dates. The
Company expects to have such a contingency plan finalized by the second half of
1999.
Through June 1999, the Company has not incurred significant incremental costs
related to the Year 2000 issue. The total projected incremental cost is
estimated to be $150,000. The Company is expensing as incurred all costs related
to the assessment and remediation of the Year 2000 issue unless the nature of
the item is an upgrade or replacement of a system with a useful life that meets
the capitalization policy of the Company. These costs are being funded through
operating cash flows. The Company's total cost for the Year 2000 issue includes
estimated costs and time associated with interfacing with third parties' Year
2000 issues. These estimates are based on currently available information.
The Company's current estimates of the amount of time and costs necessary to
remediate and test its computer systems are based on the facts and circumstances
existing at this time. The estimates were made using assumptions of future
events including the continued availability of certain resources, Year 2000
modification plans, implementation success by key third-parties, and other
factors. New developments may occur that could affect the Company's estimates of
the amount of time and costs necessary to modify and test its IT and non-IT
systems for Year 2000 compliance. These developments include, but are not
limited to: (i) the availability and cost of personnel trained in this area;
(ii) the ability to locate and correct all relevant computer codes and
equipment, and (iii) the planning and Year 2000 compliance success that key
customers and suppliers attain.
Year 2000 compliance is an issue for virtually all businesses whose computer
systems and applications may require significant hardware and software upgrades
or modifications. Companies owning and operating such systems may plan to devote
a substantial portion of their information systems' spending to fund such
upgrades and modifications. It is the Company's intention to fulfill its plan
and become Year 2000 compliant; however, uncertainties exist about the
thoroughness of how other companies, vendors, customers and other service
providers that the Company does business with will be successful at also
becoming Year 2000 compliant. These other companies, regardless of the dollar
9
<PAGE>
volume transacted with the Company, may significantly affect either directly or
indirectly the operations of the Company. Where practicable, the Company will
attempt to mitigate its risks with respect to the failure of suppliers to be
Year 2000 compliant. In the event that suppliers are not Year 2000 compliant,
the Company will seek alternative sources of supplies. However, such failures
remain a possibility and could have an adverse impact on the Company's results
of operations or financial condition.
Forward-Looking Statements AND RISK FACTORS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain forward-looking statements. This Quarterly Report on Form 10-Q
contains forward-looking statements which reflect the Company's current views
with respect to future events and financial performance, 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 is subject to the safe harbor provisions
of those Sections.
These forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believes,"
"anticipates," "plans," "may," "intend," "estimate," "will," should," "could,"
and other expressions which indicate future events and trends also identify
forward-looking statements. However, the absence of such words does not mean
that a statement is not forward-looking.
The Company's future operating results are subject to various risks and
uncertainties and 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. 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, 1998 and "Risk Factors" as reported in
the Company's Annual Report on Form 10-K, and as of March 31, 1999, as reported
in its Form 10-Q, as filed with the Securities and Exchange Commission.
10
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
The 1999 Annual Meeting of Stockholders was held on June 8, 1999. The Directors
elected at the meeting were as follows:
Votes Cast
Nominees For Abstain
--------------------------------------------------------------------
Charles E. Maginness 6,148,762 3,400
Bernard Kozel 6,148,762 3,400
The stockholders also voted to ratify the appointment of PricewaterhouseCoopers
LLP as independent accountants for 1999. 5,937,480 shares of common stock were
voted in favor of the proposal, 4,330 shares of common stock voted against the
proposal, and 210,352 shares of common stock abstained.
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, 1999.
11
<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 12, 1999 By: s/ Donald L. Turrell
-----------------------------------
Donald L. Turrell
President and
Chief Executive Officer
August 12, 1999 By: s/ Dorrance W. Lamb
-----------------------------------
Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE JUNE 30, 1999 FINANCIAL STATEMENTS OF PERFORMANCE
TECHNOLOGIES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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