-------------------------------------------------------------------------------
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 September 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)
-------------------
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
11,059,249 as of November 2, 1999.
- --------------------------------------------------------------------------------
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Income For The Three
Months Ended September 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Income For The Nine
Months Ended September 30, 1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows For The Nine
Months Ended September 30, 1999 and 1998 (unaudited) 6
Notes to Consolidated Financial Statements For The Nine
Months Ended September 30, 1999 (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,645,000 $ 25,627,000
Marketable securities 22,011,000
Accounts receivable, net 7,095,000 4,799,000
Inventories, net 4,845,000 4,425,000
Prepaid expenses and other 541,000 679,000
Deferred taxes 632,000 549,000
------------- -------------
Total current assets 43,769,000 36,079,000
Equipment and improvements, net 763,000 934,000
Software development, net 658,000 822,000
------------- -------------
Total assets $ 45,190,000 $ 37,835,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 9,000 $ 12,000
Accounts payable 1,194,000 1,932,000
Income taxes payable 777,000 507,000
Accrued expenses 3,584,000 1,838,000
------------- -------------
Total current liabilities 5,564,000 4,289,000
Long-term liabilities:
Long-term debt, less current portion 6,000
Deferred taxes 211,000 288,000
------------- -------------
Total liabilities 5,775,000 4,583,000
------------- -------------
Stockholders' equity:
Preferred stock
Common stock 112,000 75,000
Additional paid-in capital 14,131,000 13,250,000
Retained earnings 26,509,000 20,844,000
Treasury stock (1,337,000) (917,000)
------------- -------------
Total stockholders' equity 39,415,000 33,252,000
------------- -------------
Total liabilities and stockholders' equity $ 45,190,000 $ 37,835,000
============= =============
</TABLE>
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
------------- -------------
<S> <C> <C>
Sales $ 11,024,000 $ 7,857,000
Cost of goods sold 3,963,000 2,947,000
------------- -------------
Gross profit 7,061,000 4,910,000
------------- -------------
Operating expenses:
Selling and marketing 1,400,000 1,088,000
Research and development 1,678,000 1,240,000
General and administrative 776,000 565,000
------------- -------------
Total operating expenses 3,854,000 2,893,000
------------- -------------
Income from operations 3,207,000 2,017,000
Other income, net 406,000 337,000
------------- -------------
Income before income taxes 3,613,000 2,354,000
Provision for income taxes 1,265,000 824,000
------------- -------------
Net income $ 2,348,000 $ 1,530,000
============= =============
Per Share of Common Stock - Note B & D
Basic earnings per share $ .21 $ .14
============= =============
Diluted earnings per share $ .20 $ .14
============= =============
</TABLE>
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------- -------------
<S> <C> <C>
Sales $ 28,060,000 $ 21,319,000
Cost of goods sold 10,337,000 8,292,000
------------- -------------
Gross profit 17,723,000 13,027,000
------------- -------------
Operating expenses:
Selling and marketing 3,766,000 3,022,000
Research and development 4,308,000 3,210,000
General and administrative 2,003,000 1,851,000
------------- -------------
Total operating expenses 10,077,000 8,083,000
------------- -------------
Income from operations 7,646,000 4,944,000
Other income, net 1,070,000 951,000
------------- -------------
Income before income taxes 8,716,000 5,895,000
Provision for income taxes 3,051,000 2,085,000
------------- -------------
Net income $ 5,665,000 $ 3,810,000
============= =============
Per Share of Common Stock - Note B & D
Basic earnings per share $ .52 $ .35
============= =============
Diluted earnings per share $ .49 $ .33
============= =============
</TABLE>
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,665,000 $ 3,810,000
Non-cash adjustments:
Depreciation and amortization 675,000 646,000
Other (142,000) 18,000
Changes in operating assets and liabilities:
Accounts receivable (2,311,000) 135,000
Inventories (420,000) (561,000)
Prepaid expenses and other 138,000 (17,000)
Accounts payable (738,000) 848,000
Accrued expenses 1,746,000 113,000
Income taxes payable 270,000 420,000
------------- -------------
Net cash provided by operating activities 4,883,000 5,412,000
------------- -------------
Cash flows from investing activities:
Purchases of equipment and improvements, net (217,000) (274,000)
Capitalized software development (126,000) (491,000)
Purchase of marketable securities (23,011,000) (6,000,000)
Maturities of marketable securities 1,000,000 12,010,000
------------- -------------
Net cash (used) provided by investing
activities (22,354,000) 5,245,000
------------- -------------
Cash flows from financing activities:
Repayment of notes payable (9,000) (9,000)
Proceeds from issuance of common stock 498,000 71,000
Purchase of treasury stock (444,000)
------------- -------------
Net cash provided (used) by financing
activities 489,000 (382,000)
------------- -------------
Net (decrease) increase in cash
and cash equivalents (16,982,000) 10,275,000
Cash and cash equivalents at beginning of period 25,627,000 8,833,000
------------- -------------
Cash and cash equivalents at end of period $ 8,645,000 $ 19,108,000
============= =============
Non-cash financing activity:
Exercise of stock options using 46,849 and 1,800
shares (split-adjusted) of common stock
in 1999 and 1998, respectively $ 719,000 $ 23,000
============= =============
</TABLE>
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
For The Nine Months Ended September 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 A three-for-two stock split on the Company's Common Stock was effected
in the form of a stock dividend on September 1, 1999. Common stock and
Additional paid-in capital as of September 30, 1999 and all share and per share
data have been restated to reflect this split. There were 11,059,249 shares and
7,239,493 (pre-split) shares issued and outstanding (net of treasury shares
held) at September 30, 1999 and December 31, 1998, respectively, of the
Company's $.01 par value Common Stock. During the nine months ended September
30, 1999, 246,884 common shares (split-adjusted) were issued upon the exercise
of stock options and 46,849 shares (split-adjusted) were added to the number of
treasury shares held.
Note - C Inventories consisted of the following at September 30, 1999 and
December 31, 1998:
September 30, December 31,
1999 1998
------------ ------------
(unaudited)
Purchased parts and components $ 1,499,000 $ 1,905,000
Work in process 4,049,000 3,011,000
Finished goods 88,000 130,000
------------ ------------
5,636,000 5,046,000
Less: reserve for inventory obsolescence (791,000) (621,000)
------------ ------------
Net $ 4,845,000 $ 4,425,000
============ ============
Note - D The following table illustrates the calculation of both basic and
diluted earnings per share for the three months and nine months ending September
30, 1999 and 1998 (split-adjusted):
Three Months Ended
September 30,
1999 1998
------------ ------------
(unaudited) (unaudited)
Basic earnings per share
Net income available to common stockholders $ 2,348,000 $ 1,530,000
============ ============
Weighted average common shares 11,007,357 10,930,188
============ ============
Basic earnings per share $ .21 $ .14
============ ============
Diluted earnings per share
Net income available to common stockholders $ 2,348,000 $ 1,530,000
============ ============
Weighted average common and common
equivalent shares 11,784,408 11,248,271
============ ============
Diluted earnings per share $ .20 $ .14
============ ============
Nine Months Ended
September 30,
1999 1998
------------ ------------
(unaudited) (unaudited)
Basic earnings per share
Net income available to common stockholders $ 5,665,000 $ 3,810,000
============ ============
Weighted average common shares 10,929,325 10,927,739
============ ============
Basic earnings per share $ .52 $ .35
============ ============
Diluted earnings per share
Net income available to common stockholders $ 5,665,000 $ 3,810,000
============ ============
Weighted average common and common
equivalent shares 11,508,953 11,383,560
============ ============
Diluted earnings per share $ .49 $ .33
============ ============
<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 and net income for the third quarter and for
the nine months ended September 30, 1999. Revenue for the third quarter
increased 40% to $11.0 million, compared to the same period in 1998. Net income
for the third quarter increased 53% to $2.3 million and diluted earnings per
share increased 43% to $.20 per share, when compared to third quarter 1998
results. The Company also achieved record revenue of $28.0 million for the first
nine months of 1999 and record earnings of $5.7 million, an increase of 49%,
from the same period in 1998. A more rapid increase in revenue, compared to
expenses, and an improvement in gross margin resulted in a higher return on
sales during the third quarter and for the first nine months of 1999, compared
to the same periods for 1998. At September 30, 1999, the Company had no
significant debt and approximately $30.7 million of cash and marketable
securities. For the nine months ended September 30, 1999, the Company generated
income from operations, excluding depreciation and amortization (EBITDA), of
approximately $8.3 million, compared to $5.6 million for the same period in
1998. International sales amounted to 20% and 19% of revenue for the first nine
months of 1999 and 1998, respectively.
On September 1, 1999, the Company effected a three-for-two stock split in the
form of a 50% stock dividend, which increased the number of common shares
outstanding to 11.0 million shares. Management believes that increasing the
number of shares available in the financial market will benefit the Company's
stockholders and is part of an active program to broaden the Company's
stockholder base. At end of the third quarter, the Company's market
capitalization was approximately $250 million, compared to $95 million at the
end of 1998. During the third quarter, the average daily trading volume
increased to approximately 230,000 shares, compared to 48,000 shares in the
second quarter.
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 Networking: 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
technological changes offer significant opportunities 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 architecture form 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.
<PAGE>
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. During the third quarter, the
Company continued aggressive deployment of its Channel7 strategy as two new
Channel7 partners, teleSys Software, Inc. and Hughes Software Systems Ltd., were
announced. In addition, the Company's Channel7 MTP-2 product was also verified
for use on Sun Microsystems' new NEBS certified Netra ft 1800 fault-tolerant
servers sold in Sun's telecom market segment.
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.
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.
During the third quarter 1999, the Company began limited shipments of Nebula
units to customers with certain networking environments while engineering
continued to extend the Nebula software to a broader range of networking
environments. By the end of October, the next generation of Nebula software had
been completed and installed at multiple beta test sites, and was performing
well. If the beta testing continues to go well, the next release of the Nebula
8000 Fault Tolerant Switch will soon follow.
The Company has recently been featured in a number of publications including
articles in the Investors Business Daily. Additionally, in its November 1 issue,
Forbes Magazine acknowledged Performance Technologies as one of the "200 Best
Small Companies in America." This is the third year the Company was recognized
on the Forbes' list of growth oriented, small public companies.
Quarter and Nine Months Ended September 30, 1999, compared with
the Quarter and Nine Months Ended September 30, 1998
Sales. Sales for the third quarter 1999 increased to $11,024,000, (40.3%), from
$7,857,000 for the third quarter 1998. Sales for the nine months ended September
30, 1998 were $28,060,000, compared to $21,319,000 for the comparable 1998
period. 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 revenue increased 38% to $5,680,000 (52% of sales) during the
third quarter 1999, compared to $4,120,000 (53% of sales) for the third quarter
1998. WAN communications revenue amounted to $14,483,000 (52% of sales) during
the first nine months of 1999, compared to $12,422,000 (58% of sales) for the
same period in 1998. During the third quarter 1999, the Company shipped more
than $1 million of WAN product to a large OEM customer who represented 13% of
revenue in 1998. This represented a significant increase in shipments to this
customer, compared to shipments during the first half of 1999.
Shipments of LAN interface products in the third quarter 1999 amounted to 35% of
sales, compared to 32% of sales for the third quarter 1998. Shipments for the
nine months ended September 30, 1999 were 36% of sales, compared to 19% of sales
for the same 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 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 new Defense orders in 1999
totaling $10.9 million for LAN products. Deliveries began on these new orders
during the second quarter 1999 and are expected to be completed by June 30,
2000.
<PAGE>
Network Switching products: Network switch revenue was 1% of total sales for the
third quarter 1999, compared to zero percent for the same period in 1998.
Other products represented 13% of sales in the third quarter 1999, compared to
15% of sales for the same period in 1998. Shipments were 12% of sales for the
first nine months of 1999, compared to 23% 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 consists of sales, less cost of goods sold including
material costs, manufacturing expenses and amortization of software development
costs. Gross margin improved to 64.1% of sales for the third quarter, from 62.5%
in the third quarter of 1998. For the first nine months of 1999, gross margin
improved to 63.2% of sales, compared to 61.1% for the same period in 1998. The
improvement in gross margin is primarily attributable to manufacturing
efficiencies based on higher volumes and growing sales of separately priced
communications software that has higher gross margins.
Operating Expenses. Total operating expenses increased to $3,854,000, or 35.0%
of sales for the third quarter 1999, from $2,893,000, or 36.8% of sales for the
comparable 1998 quarter. Total operating expenses increased to $10,077,000, or
35.9% of sales for the first nine months of 1999, from $8,083,000, or 37.9% of
sales for the nine months ended September 30, 1998.
Selling and marketing expenses increased to $1,400,000, or 12.7% of sales for
the third quarter 1999, from $1,088,000, or 13.8% of sales for the same quarter
in 1998. Selling and marketing expenses for the nine months ended September 30,
1999 were $3,766,000, or 13.4% of sales, compared to $3,022,000, or 14.2% of
sales, for the same period in 1998. During the third quarter 1999, the Company
participated in three significant trade shows: Comdex, Networld+Interop in
Toronto and the BroadBand show in San Diego. Live demonstrations of the Nebula
8000 Fault Tolerant Switch were performed at Comdex and Networld+Interop. At the
BroadBand show, the Company's WAN communications products were presented.
Research and development expenses were $1,678,000, or 15.2% of sales for the
third quarter of 1999, compared to $1,240,000, or 15.8% of sales for the
comparable 1998 quarter. Research and development expenses were $4,308,000, or
15.4% of sales for the nine months ended September 30, 1999, compared to
$3,210,000, or 15.1% of sales for the same period in 1998. The Company continues
to focus the majority of its development efforts on WAN communication products
and the Nebula 8000 Fault Tolerant Network Switch.
General and administrative expenses were $776,000, or 7.0% of sales for the
third quarter 1999, compared to $565,000, or 7.2% of sales for the third quarter
1998. General and administrative expenses were $2,003,000, or 7.1% of sales for
the nine months ended September 30, 1999, compared to $1,851,000, or 8.7% of
sales for the first nine months of 1998. The Company continues to maintain tight
control over its general and administrative expenses and management expects
general and administrative expenses to decline as a percentage of sales as
revenue increases.
Income taxes. The provision for income taxes was $1,265,000 in the third quarter
of 1999, compared to $824,000 for the same quarter in 1998. The effective
corporate income tax rate for the third quarter 1999 and 1998 was 35.0%. For the
nine months ended September 30, 1999, the provision for income taxes amounted to
$3,050,000, compared to $2,085,000 for the first nine months of 1998. The
effective corporate income tax rate was 35.0%, compared to 35.4% for the first
nine months of 1998.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's primary source of liquidity included cash
and cash equivalents of $8,645,000, marketable securities with a maturity of
less than one year of $22,011,000 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 September 30, 1999. The Company had working capital of
$38,205,000 at September 30, 1999, compared to $31,790,000 at December 31, 1998.
Cash provided by operating activities for the nine months ended September 30,
1999 was $4,883,000, compared to $5,412,000 for the same period in 1998. The
decrease in cash provided by operating activities for the nine months ended
September 30, 1999 is primarily attributable to changes in the components of
working capital.
Capitalization of certain software development costs amounted to $126,000 for
the nine months ended September 30, 1999, compared to $491,000 for the same
period in 1998.
Assuming there is no significant change in the Company's business, management
believes that its current cash, cash equivalents, 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 for the remainder of 1999 and beyond 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, liquidity or capital resources.
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
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, II and III 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. 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 and are virtually complete
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.
<PAGE>
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 end of 1999.
Through September 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
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, 1997 and "Risk Factors" as reported in
the Company's Annual Report on Form 10-K, and as of March 31 and June 30, 1998
as reported in its Form 10-Q, as filed with the Securities and Exchange
Commission.
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
None.
B. Reports on Form 8-K
Reports on Form 8-K dated September 1, 1999 was filed
during the three-month period ended September 30,
1999. Item 5 - Other items; reported the declaration
of the three-for-two stock split in the form of a
stock dividend and distribution on shares of the
Registrant's Common Stock.
<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
November 12, 1999 By: s/ Donald L. Turrell
-------------------------------------
Donald L. Turrell
President and
Chief Executive Officer
November 12, 1999 By: s/ Dorrance W. Lamb
-------------------------------------
Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE SEPTEMBER 30, 1999 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> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Sep-30-1999
<EXCHANGE-RATE> 1
<CASH> 8,645
<SECURITIES> 22,011
<RECEIVABLES> 7,095
<ALLOWANCES> 0
<INVENTORY> 4,845
<CURRENT-ASSETS> 43,769
<PP&E> 4,222
<DEPRECIATION> 3,459
<TOTAL-ASSETS> 45,190
<CURRENT-LIABILITIES> 5,564
<BONDS> 0
0
0
<COMMON> 112
<OTHER-SE> 39,303
<TOTAL-LIABILITY-AND-EQUITY> 45,190
<SALES> 28,060
<TOTAL-REVENUES> 28,060
<CGS> 10,337
<TOTAL-COSTS> 10,077
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,716
<INCOME-TAX> 3,051
<INCOME-CONTINUING> 5,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,665
<EPS-BASIC> 0.52
<EPS-DILUTED> 0.49
</TABLE>
