----------------------------------------------------------------------
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 March 31, 2000
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)
14620
315 Science Parkway, Rochester New York (Zip Code)
(Address of principal executive offices)
-------------------
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
13,247,763 as of May 1, 2000.
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1
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Index
Page
Part I. Financial Information
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999 3
Consolidated Statements of Income For The Three Months
Ended March 31, 2000 and 1999 (unaudited) 4
Consolidated Statements of Cash Flows For The Three
Months Ended March 31, 2000 and 1999 (unaudited) 5
Notes to Consolidated Financial Statements For The Three
Months Ended March 31, 2000 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
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
2
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
2000 1999
------------ ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $19,087,000 $ 9,792,000
Marketable securities 14,966,000 22,007,000
Accounts receivable, net 8,780,000 9,474,000
Inventories, net 3,840,000 3,910,000
Prepaid expenses and other 555,000 684,000
Deferred taxes 1,129,000 1,129,000
------------ ------------
Total current assets 48,357,000 46,996,000
Equipment and improvements, net 1,792,000 1,695,000
Software development, net 501,000 451,000
------------ ------------
Total assets $50,650,000 $49,142,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 3,000 $ 6,000
Accounts payable 1,587,000 904,000
Income taxes payable 1,798,000 1,990,000
Accrued expenses 3,425,000 5,087,000
------------ ------------
Total current liabilities 6,813,000 7,987,000
Deferred taxes 327,000 327,000
------------ ------------
Total liabilities 7,140,000 8,314,000
------------ ------------
Stockholders' equity:
Preferred stock
Common stock 132,000 132,000
Additional paid-in capital 12,899,000 12,665,000
Retained earnings 30,439,000 28,003,000
Cumulative translation adjustments 40,000 28,000
------------ ------------
Total stockholders' equity 43,510,000 40,828,000
------------ ------------
Total liabilities and stockholders' equity $50,650,000 $49,142,000
============ ============
</TABLE>
3
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
------------ ------------
(restated)
<S> <C> <C>
Sales $11,594,000 $8,689,000
Cost of goods sold 3,801,000 3,192,000
------------ ------------
Gross profit 7,793,000 5,497,000
------------ ------------
Operating expenses:
Selling and marketing 1,255,000 1,134,000
Research and development 2,268,000 2,164,000
General and administrative 803,000 905,000
------------ ------------
Total operating expenses 4,326,000 4,203,000
------------ ------------
Income from operations 3,467,000 1,294,000
Other income, net 461,000 325,000
------------ ------------
Income before income taxes 3,928,000 1,619,000
Provision for income taxes 1,492,000 674,000
------------ ------------
Net income $ 2,436,000 $ 945,000
============ ============
Basic earnings per share $ .18 $ .07
=========== ============
Diluted earnings per share $ .17 $ .07
============ ============
Net income available to common
stockholders $ 2,436,000 $ 945,000
============ ============
Weighted average number of
common shares used in basic
earnings per share 13,234,016 13,029,622
Common equivalent shares 909,887 365,717
------------ ------------
Weighted average number of
common shares used in diluted
earnings per share 14,143,903 13,395,339
============ ============
</TABLE>
4
<PAGE>
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(unaudited)
<TABLE>
<CAPTION> Three Months Ended
March 31,
2000 1999
------------ ------------
(restated)
<S> <C> <C>
Cash flows from operating activities:
Net income $2,436,000 $ 945,000
Non-cash adjustments:
Depreciation and amortization 221,000 243,000
Other 5,000 2,000
Compensation expense 715,000
Changes in operating assets and liabilities:
Accounts receivable 695,000 (1,101,000)
Inventories 71,000 (900,000)
Prepaid expenses and other 129,000 610,000
Accounts payable 684,000 (300,000)
Accrued expenses (1,661,000) 441,000
Income taxes payable (192,000) 539,000
------------ ------------
Net cash provided by operating activities 2,388,000 1,194,000
------------ ------------
Cash flows from investing activities:
Purchases of equipment and improvements, net (268,000) (118,000)
Capitalized software development (98,000) (73,000)
Purchase of marketable securities (5,959,000) (15,008,000)
Maturities of marketable securities 13,000,000
------------ ------------
Net cash provided (used) by investing 6,675,000 (15,199,000)
activities ------------ ------------
Cash flows from financing activities:
Repayment of notes payable (3,000) (3,000)
Proceeds from issuance of common stock 235,000 34,000
------------ ------------
Net cash provided by financing activities 232,000 31,000
------------ ------------
Net increase (decrease) in cash
and cash equivalents 9,295,000 (13,974,000)
Cash and cash equivalents at beginning of period 9,792,000 25,741,000
------------ ------------
Cash and cash equivalents at end of period $19,087,000 $11,767,000
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash financing activity:
Exercise of stock options using 100 shares of
common stock in 2000 $ 4,000
============ ============
</TABLE>
5
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Notes to Consolidated Financial Statements
For The Three Months Ended March 31, 2000
(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, 1999, as reported in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note - B There were 13,237,488 shares and 13,186,526 shares issued and
outstanding at March 31, 2000 and December 31, 1999, respectively, of the
Company's $.01 par value Common Stock. During the three months ended March 31,
2000, 50,962 common shares were issued upon the exercise of stock options.
Note - C Inventories consisted of the following at March 31, 2000 and December
31, 1999:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
Purchased parts and components $ 2,042,000 $ 1,822,000
Work in process 2,392,000 2,893,000
Finished goods 232,000 113,000
------------ ------------
4,666,000 4,828,000
Less: reserve for inventory obsolescence (826,000) (918,000)
------------ ------------
Net $ 3,840,000 $ 3,910,000
============ ============
</TABLE>
6
<PAGE>
Performance Technologies, Incorporated and Subsidiaries
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
All 1999 financial information contained herein has been restated to reflect the
December 1999 acquisition of MicroLegend Telecom Systems, Inc., accounted for as
a pooling of interests. Furthermore, per share amounts have been adjusted to
reflect a three-for-two stock split effected in September 1999.
The Company's first quarter revenue increased 33% to $11.6 million, compared to
$8.7 million for the same period in 1999. Net income for the first quarter
increased to $2.4 million, from $945,000 in the first quarter 1999 and diluted
earnings per share rose to $.17 per share, from $.07 per share in the respective
1999 period. During the first quarter 1999, MicroLegend Telecom Systems, Inc.
recorded compensation expense of $715,000, or $.05 per share for the issuance of
stock options. At March 31, 2000, the Company had $34.1 million of cash, cash
equivalents and marketable securities and no long-term debt. For the three
months ended March 31, 2000, the Company generated income from operations,
excluding depreciation and amortization (EBITDA), of $3.7 million, compared to
$1.5 million for the same period of 1999. International sales amounted to 29% of
total sales for the first quarter 2000, compared to 24% for the same period in
1999.
The Company is primarily focused on providing enabling technology for wireless
telecommunications and for next-generation networks to support Voice-over-IP
(VoIP). During 2000, management expects the Company's revenue growth will
primarily be derived from its Signaling System 7 and WAN communications
products. These products are positioned to take advantage of opportunities
presented by the convergence of voice and data communications, the growth of the
Internet and new wireless telephone services. These products are primarily
targeted at telecommunications equipment manufacturers, telecommunications
service providers and operators, and international wireless carriers. Signaling
System 7 and WAN communications products represented $8.9 million of revenue in
the first quarter of 2000, compared to $6.9 million in the fourth quarter of
1999 and $4.9 million in the first quarter a year ago.
As the next-generation telecom platform architecture is implemented for
Voice-over-IP, there is a requirement to handle IP traffic. Management expects
its capabilities in fault tolerant Ethernet switch architectures, cPCI packaging
and "Hot Swap" availability to be implemented into a third generation switch
subsystem. This subsystem will initially find application as a data aggregation
device integrated in carrier-class Voice-over-IP systems or in network edge
access devices. Management expects these new switch products to contribute to
revenue growth in late 2000 and beyond.
Quarter Ended March 31, 2000, compared with the Quarter Ended March 31, 1999
Sales. Sales for the quarter March 31, 2000 increased 33.4% to $11.6 million,
from $8.7 million for the first quarter 1999. Beginning in 2000, the Company's
products are being grouped into three distinct categories in one market segment:
Signaling System 7 and WAN communications products, LAN interface products (U.S.
Government/COTS), and other products (combining LAN interface products
(non-COTS), Network Switching and older/legacy products). During the first
quarter of 2000, Signaling System 7 and WAN communications products, LAN
interface products (U. S. Government/COTS), and other products represented 77%,
9% and 14% of revenue, respectively.
7
<PAGE>
Signaling System 7 and WAN communications revenue increased 81% to $8.9 million
during the first quarter 2000, from $4.9 million for the first quarter 1999. The
markets for the Company's Signaling System 7 Gateways and WAN communications
products appear to be expanding rapidly and the Company is gaining greater
recognition for its enabling technology in these markets.
Shipments of LAN interface products (U. S. Government/COTS) in the first quarter
2000 amounted to $1 million, or 9% of sales, compared to $2.4 million, or 27% of
sales for the first quarter 1999. First quarter shipments completed performance
on the $10.9 million Department of Defense procurement contract awarded in early
1999 which is the sole source of revenue for this product category. Discussions
are currently being held to determine the customer's procurement requirements
after this contract expires in June 2000. At the present time, management does
not expect any additional funds to be allocated to this contract before it
expires and is not projecting additional revenue from this customer during the
remainder of 2000.
Other products represented $1.7 million, or 14% of sales in the first quarter
2000, compared to $1.4 million, or 16% of sales for the same period in 1999.
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 67.2% of sales for the first quarter 2000, from
63.3% in the first quarter of 1999. The improvement in gross margin is primarily
attributable to increased revenue from higher margin Signaling System 7 (SS7)
Gateway products, higher communications software sales and manufacturing
efficiencies, based on higher volumes.
Operating expenses. Total operating expenses were $4.3 million, or 37.3% of
sales for the first quarter 2000, compared to $4.2 million, or 48.4% of sales
for the comparable 1999 quarter. During the first quarter of 1999, MicroLegend
recorded compensation expense of $715,000, or $.05 per share for the issuance of
stock options.
Selling and marketing expenses were $1.3 million, or 10.8% of sales for the
first quarter 2000 compared to, $1.1 million, or 13.1% of sales for the same
quarter in 1999. Management intends to aggressively market its Signaling System
7 Gateway and WAN communications products during 2000 and expects selling and
marketing expenses to increase as a percentage of sales for the year. During the
first quarter 2000, the Company participated in one significant trade show,
Comnet in Washington, D.C., and is preparing to attend two major trade shows
during the second quarter: the Networld+Interop Networking Conference in Las
Vegas and the SuperComm trade show in Atlanta.
Research and development expenses were $2.3 million, or 19.6% of sales for the
first quarter 2000, compared to $2.2 million, or 24.9% of sales for the
comparable 1999 quarter. During 2000, the Company's development efforts will be
focused on new SS7 Gateway applications, integrating the Signaling Gateway with
CompactPCI (cPCI) to enhance its applicability in the marketplace and to expand
its WAN product offerings. In addition, the Company is applying its fault
tolerant Ethernet switch architectures, cPCI packaging and "Hot Swap" capability
to a third generation switch subsystem for Voice-over-IP gateway systems.
General and administrative expenses were $800,000, or 6.9% of sales for the
first quarter 2000, compared to $900,000, or 10.4% of sales for the first
quarter 1999. 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.
Other income, net. Other income consists primarily of interest income from
marketable securities and cash equivalents. The funds are primarily invested in
high quality Municipal and U.S. Treasury securities with maturities of less than
one year.
8
<PAGE>
Income taxes. The provision for income taxes for the first quarter 2000 is based
on the combined federal, state and foreign effective tax rate of 38%, compared
to 41.6% for the first quarter 1999.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's primary source of liquidity included cash and
cash equivalents of $19.1 million, marketable securities with a maturity of less
than one year of $15.0 million and available borrowings of $5.0 million under a
revolving credit facility with a bank. No amounts were outstanding under this
credit facility as of March 31, 2000. The Company had working capital of $41.5
million at March 31, 2000, compared to $39.0 million at December 31, 1999.
Cash provided by operating activities for the first quarter 2000 was $2.4
million, compared to $1.2 million for the same period in 1999. The increase in
cash provided by operating activities for the three months ended March 31, 2000,
over the respective 1999 period, is primarily attributable to the increase in
net income and changes in working capital.
Capitalization of certain software development costs amounted to $98,000 for the
three months ended March 31, 2000, compared to $73,000 for the same period in
1999.
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, management is continuing its 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
The Company has not experienced any material Year 2000 issues internally, nor
with key suppliers or customers and it appears that such organizations have
successfully transitioned to the Year 2000. However, there can be no assurance
that problems will not arise for the Company, its suppliers, its customers or
others with whom the Company does business later in 2000, or with systems that
have not yet been fully tested. The Company intends to continue to monitor its
compliance, as well as the compliance of others whose operations are material to
the Company's business.
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.
9
<PAGE>
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, 1999 and "Risk Factors"
as reported in the Company's Annual Report on Form 10-K, 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
A special meeting of stockholders was held on February 9, 2000. The stockholders
voted to approve an amendment to the Restated Certificate of Incorporation to
increase of the number of authorized shares of Common Stock from 15,000,000
shares, to 50,000,000 shares. 11,129,185 shares of common stock voted in favor
of the proposal, 557,033 shares of common stock voted against the proposal, and
28,726 shares of common stock abstained.
The stockholders also voted to approve an amendment to the Performance
Technologies, Incorporated Stock Option Plan increasing the number of shares of
the Company's common stock reserved for issuance under the Option Plan to
3,200,000. 10,699,460 shares of common stock voted in favor of the proposal,
869,728 shares of common stock voted against the proposal, and 145,756 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 filed on Form 8-K during the three month period ended
March 31, 2000.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFORMANCE TECHNOLOGIES, INCORPORATED
May 10, 2000 By:/s/ DONALD L. TURRELL
------------------------
Donald L. Turrell
President and
Chief Executive Officer
May 10, 2000 By:/S/ DORRANCE W. LAMB
------------------------
Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE MARCH 31, 2000 FINANCIAL STATEMENTS OF PERFORMANCE
TECHNOLOGIES, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001003950
<NAME> PERFORMANCE TECHNOLOGIES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 19,087
<SECURITIES> 14,966
<RECEIVABLES> 8,780
<ALLOWANCES> 0
<INVENTORY> 3,840
<CURRENT-ASSETS> 48,357
<PP&E> 5,959
<DEPRECIATION> 4,167
<TOTAL-ASSETS> 50,650
<CURRENT-LIABILITIES> 6,813
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 43,378
<TOTAL-LIABILITY-AND-EQUITY> 50,650
<SALES> 11,594
<TOTAL-REVENUES> 11,594
<CGS> 3,801
<TOTAL-COSTS> 4,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,928
<INCOME-TAX> 1,492
<INCOME-CONTINUING> 2,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,436
<EPS-BASIC> 0.18
<EPS-DILUTED> 0.17
</TABLE>
