<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended January 31, 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 0-21695
Manchester Equipment Co., Inc.
(Exact name of registrant as specified in its charter)
New York 11-2312854
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
160 Oser Avenue
Hauppauge, New York 11788
(Address of registrant's principal executive offices)
(516) 435-1199
(Registrant's telephone number, including area code)
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
There were 8,096,600 outstanding shares of COMMON STOCK at March 12,
1999.
<PAGE>
MANCHESTER EQUIPMENT CO., INC. AND SUBSIDIARIES
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Balance Sheets
January 31, 1999 (unaudited) and July 31, 1998 3
Condensed Consolidated Statements of Income
Three months and six months ended
January 31, 1999 and 1998 (unaudited) 4
Condensed Consolidated Statements of Cash Flows
Six months ended January 31, 1999
and 1998 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 5. Other information 15
Item 6. Exhibits and Reports 15
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands except share amounts)
<TABLE>
<CAPTION>
January 31, 1999 July 31, 1998
(Unaudited)
----------- -----------
<S> <C> <C>
Assets:
Cash and cash equivalents $ 7,431 $ 7,816
Investments - 1,501
Accounts receivable, net 26,388 26,296
Inventory 8,907 9,167
Deferred income taxes 482 482
Prepaid income taxes 245 -
Prepaid expenses and other current assets 283 290
--- ---
Total current assets 43,736 45,552
Property and equipment, net 6,071 5,975
Goodwill, net 5,065 4,325
Deferred income taxes 475 475
Other assets 541 567
--- ---
$55,888 $56,894
======= =======
Liabilities:
Current maturities under capital lease obligation $ 26 $ 82
Accounts payable and accrued expenses 17,119 18,358
Deferred service revenue 599 775
Income taxes payable - 225
-- ---
Total current liabilities 17,744 19,440
Deferred compensation payable 109 109
--- ---
Total liabilities 17,853 19,549
------ ------
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000
shares authorized, none issued - -
Common stock, $.01 par value; 25,000,000
shares authorized, 8,096,600 issued and outstanding 81 81
Additional paid-in capital 18,803 18,767
Deferred compensation (51) (64)
Retained earnings 19,202 18,561
------ ------
Total shareholders' equity 38,035 37,345
------ ------
$55,888 $56,894
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)
Unaudited
<TABLE>
<CAPTION>
Three months ended January 31, Six months ended January 31,
1999 1998 1999 1998
---- ---- ---- -----
<S> <C> <C> <C> <C>
Revenue
Products $51,778 $48,308 $107,453 $94,416
Services 1,611 1,064 3,435 2,012
----- ----- ----- -----
53,389 49,372 110,888 96,428
------ ------ ------- ------
Cost of revenue
Products 45,066 41,665 93,448 81,266
Services 1,061 803 2,165 1,466
----- --- ----- -----
46,127 42,468 95,613 82,732
------ ------ ------ ------
Gross profit 7,262 6,904 15,275 13,696
Selling, general and
administrative expenses 7,224 6,705 14,409 12,404
----- ----- ------ ------
Income from operations 38 199 866 1,292
Interest expense (3) (23) (5) (33)
Interest income 105 203 220 404
---- ---- ---- ---
Income before income taxes 140 379 1,081 1,663
Provision for income taxes 67 148 440 670
-- ---- --- ---
Net income $73 $ 231 $641 $ 993
=== ====== ==== =====
Net Income per share
Basic $0.01 $0.03 $0.08 $0.12
===== ===== ===== =====
Diluted $0.01 $0.03 $0.08 $0.12
===== ===== ===== =====
Weighted average
shares outstanding
Basic 8,096,600 8,531,304 8,096,600 8,528,152
========= ========= ========= =========
Diluted 8,096,600 8,531,304 8,096,600 8,528,152
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Manchester Equipment Co., Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
For the six months ended January 31,
1999 1998
(Unaudited)
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 641 $993
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 877 550
Allowance for doubtful accounts 74 192
Non cash compensation and commission expense 49 27
Change in assets and liabilities net of the effects
of the purchase of Coastal:
Increase in accounts receivable (166) (4,522)
Decrease in inventory 260 3,500
Increase in prepaid income taxes (245) -
(Increase) decrease in prepaid expenses and
other current assets 7 (715)
(Increase) decrease in other assets 26 (90)
Decrease in accounts payable and
accrued expenses (2,110) (2,647)
Decrease in deferred service contract revenue (176) (22)
Decrease in income taxes payable (225) -
Sale of investments 1,501 4,408
----- -----
Net cash provided by operating activities 513 1,674
--- -----
Cash flows from investing activities:
Capital expenditures (842) (1,648)
Payment for the purchase of Coastal, net of cash acquired - (2,921)
--- -----
Net cash used in investing activities (842) (4,569)
--- -----
Cash flows from financing activities:
Net repayments of borrowings - (1,274)
Payments on capital lease obligation (56) (53)
Payments on notes payable - other - (415)
--- ----
Net cash used in financing activities (56) (1,742)
--- ------
Net decrease in cash and cash equivalents (385) (4,637)
Cash and cash equivalents at beginning of period 7,816 15,049
----- ------
Cash and cash equivalents at end of period $7,431 $10,412
====== =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Manchester Equipment Co., Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Manchester Equipment Co., Inc. (the "Company") is a network integrator
and reseller of computer hardware, software and networking products,
primarily for commercial customers. The Company offers its customers
single-source solutions customized to their information systems needs by
combining value-added services with hardware, software, networking
products and peripherals from leading vendors.
Sales of hardware, software and networking products comprise the
majority of the Company's revenue. The Company has entered into agreements
with certain suppliers and manufacturers which provide the Company
favorable pricing and price protection in the event the vendor reduces its
prices.
In the opinion of the Company, the accompanying unaudited Condensed
Consolidated Financial Statements contain all adjustments (consisting of
only normal and recurring accruals) necessary to present fairly the
financial position of the Company as of January 31, 1999 and the results
of operations for the three and six months ended January 31, 1999 and 1998
and cash flows for the six months ended January 31, 1999 and 1998.
Although the Company believes that the disclosures herein are adequate to
make the information not misleading, these financial statements should be
read in conjunction with the audited financial statements and the notes
thereto for the year ended July 31, 1998, included in the Company's Annual
Report on Form 10-K as filed with the Securities and Exchange Commission.
2. Net Income Per Share
Basic net income per share has been computed by dividing net income by
the weighted average number of common shares outstanding. Diluted net
income per share has been computed by dividing net income by the weighted
average number of common shares outstanding, plus the assumed exercise of
dilutive stock options and warrants, less the number of treasury shares
assumed to be purchased from the proceeds of such exercises using the
average market price of the Company's common stock during each respective
period. Stock options and warrants are excluded from the calculation of
diluted net income per share when the result would be antidilutive.
3. Acquisition of Coastal Office Products, Inc.
On January 2, 1998, the Company acquired all of the outstanding shares
of Coastal Office Products, Inc. ("Coastal"), a reseller and provider of
microcomputer services and peripherals to companies in the greater
Baltimore, Maryland area. The acquisition, which has been accounted for as
a purchase, consisted of a cash payment of $3.1 million plus potential
future contingent payments. Contingent payments of up to $1,050 for each
of calendar 1998 and 1999 will be determined based upon Coastal achieving
certain agreed upon increases in revenue and pretax income for calendar
1998 and 1999 over calendar 1997 amounts. The cash payment was made from
the Company's cash balances. Contingent payments, if any, would be paid in
cash (or, under certain conditions, in Company common stock) on March 15,
1999 and March 15, 2000. As of January 31, 1999, the Company has recorded
additional purchase price of $871,000, of which $800,000 represents a
contingent payment due on March 15, 1999. The selling shareholders
received employment agreements that also provided for the issuance of
20,000 shares of common stock. The fair value of the common stock,
amounting to $80,000 was recorded as deferred compensation and is being
expensed over the three-year vesting period.
Operating results of Coastal are included in the Condensed Consolidated
Statements of Income from the date of acquisition. The acquisition
resulted in goodwill of $3,836,000 which is being amortized on the
straight-line basis over 20 years.
6
<PAGE>
The following unaudited pro forma consolidated results of operations
for the six months ended January 31, 1998 assume that the Coastal
acquisition occurred on August 1, 1997 and reflect the historical
operations of the purchased business adjusted for lower interest on
invested funds, contractually revised officer compensation and rent and
increased amortization, net of applicable income taxes, resulting from the
acquisition:
Six months ended
January 31, 1998
----------------
(in thousands,
except per share amounts)
Revenue $100,003
=======
Net income $1,019
======
Net income per share $0.12
====
The pro forma results of operations are not necessarily
indicative of the actual results that would have occurred had the
acquisition been made at the beginning of the period, or of results which
may occur in the future.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and
results of operations of the Company should be read in conjunction with
the condensed consolidated financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and with the Company's
Annual Report on Form 10-K. This discussion and analysis contains certain
forward-looking statements within the meaning of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from
the results anticipated in those forward-looking statements. These risks
and uncertainties include, but are not limited to, those set forth below,
those set forth in the Company's Annual Report on Form 10-K for the year
ended July 31, 1998, and those set forth in the Company's other filings
from time to time with the Securities and Exchange Commission.
General
The Company is a network integrator and reseller of computer
hardware, software and networking products, primarily for commercial
customers. The Company offers its customers single-source solutions
customized to their information systems needs by combining value-added
services with hardware, software, networking products and peripherals from
leading vendors. To date, most of the Company's revenue has been derived
from product sales. The Company generally does not develop or sell
software products. However, certain computer hardware products sold by the
Company are loaded with pre-packaged software products.
As a result of intense price competition within the computer industry
as well as other industry conditions, the Company has experienced
increasing pressure on per unit prices as well as on its gross profit and
operating margins with respect to the sale of products. The Company's
strategy includes increasing its focus on providing value added services
with operating margins that are higher than those obtained with respect to
the sale of products. The Company has experienced a significant increase
in selling, general and administrative expenses, primarily in the form of
increased personnel costs, in connection with the implementation of this
strategy. The Company's future performance will depend in part on its
ability to manage successfully a continuing shift in its operations to
value-added services.
The Company directly competes with local, regional and national
systems integrators, value-added resellers ("VARs") and distributors as
well as with certain computer manufacturers that market through direct
sales forces and/or the Internet. In the future, the Company may face
further competition from new market entrants and possible alliances
between existing competitors. In addition, certain suppliers and
manufacturers may choose to market products directly to end users through
a direct sales force and/or the Internet rather than or in addition to
channel distribution. Some of the Company's competitors have, or may have,
greater financial, marketing and other resources, and may offer a broader
range of products and services, than the Company. As a result, they may be
able to respond more quickly to new or emerging technologies or changes in
customer requirements, benefit from greater purchasing economies, offer
more aggressive hardware and service pricing or devote greater resources
to the promotion of their products and services. There can be no assurance
that the Company will be able to compete successfully in the future with
these or other current or potential future competitors.
The Company's business is dependent upon its relationships with major
manufacturers in the computer industry. There can be no assurance that the
pricing and related terms offered by major manufacturers will not
adversely change in the future. The failure to obtain an adequate supply
of products, the loss of a major manufacturer, the deterioration of the
Company's relationship with a major manufacturer or the Company's
inability in the future to develop new relationships with other
manufacturers could have a material adverse effect on the Company's
business, results of operations and financial condition.
8
<PAGE>
The Company's largest customer accounted for approximately 8% and 8%
(or $8,376,000 and $7,698,000, respectively) of the Company's revenue for
the six months ended January 31, 1999 and 1998, respectively,
substantially all of which revenue was derived from the sale of hardware
products. This customer accounted for 7% of revenue for the fiscal year
ended July 31, 1998. There can be no assurance that the Company will
continue to derive substantial revenue from this customer.
The Company's profitability has been enhanced by its ability to
obtain volume discounts from certain manufacturers, which has been
dependent, in part, upon the Company's ability to sell large quantities of
products to computer resellers, including VARs. There can be no assurance
that the Company will be able to continue to sell products to resellers
and thereby obtain the desired discounts from the manufacturers or that
the Company will be able to increase sales to end-users to offset the need
to rely upon sales to resellers.
The markets for the Company's products and services are characterized
by rapidly changing technology and frequent introductions of new hardware
and software products and services, which render many existing products
noncompetitive, less profitable or obsolete. The Company believes that its
inventory controls have contributed to its ability to respond effectively
to these technological changes. As of January 31, 1999 and July 31, 1998,
inventories represented 16% of total assets. For the six months ended
January 31, 1999 and 1998, annualized inventory turnover was 21 and 15
times, respectively. Inventory turned 17 times in the fiscal year ended
July 31, 1998. The failure of the Company to anticipate technology trends
or to continue to effectively manage its inventory could have a material
adverse effect on the Company's business, results of operations and
financial condition.
The Company believes its controls on accounts receivable have
contributed to its profitability. The Company's bad debt expense
represented less than 0.2% of total revenues in each of the six month
periods ended January 31, 1999 and 1998. For the fiscal year ended July
31, 1998, bad debt expense represented 0.2% of total revenues.
The Company's quarterly revenue and operating results have varied
significantly in the past and are expected to continue to do so in the
future. Quarterly revenue and operating results generally fluctuate as a
result of the demand for the Company's products and services, the
introduction of new hardware and software technologies with improved
features, the introduction of new services by the Company and its
competitors, changes in the level of the Company's operating expenses, the
timely availability of product supply, competitive conditions and economic
conditions. In particular, the Company currently is increasing certain of
its fixed operating expenses, including a significant increase in
personnel, as part of its strategy to increase its focus on providing
higher margin, value-added services. Accordingly, the Company believes
that period-to-period comparisons of its operating results should not be
relied upon as an indication of future performance. In addition, the
results of any quarterly period are not indicative of results to be
expected for a full fiscal year.
As a result of rapid changes which are taking place in computer and
networking technologies, product life cycles are short. Accordingly, the
Company's product offerings change constantly. Prices of products change
with generally higher prices early in the life cycle of the product and
lower prices near the end of the product's life cycle. Recently the
computer industry has experienced rapid declines in average selling prices
of personal computers. In some instances, the Company has been able to
offset these price declines with increases in units shipped. There can be
no assurance that average selling prices will not continue to decline or
that the Company will be able to offset declines in average selling prices
with increases in units shipped.
Most of the personal computers shipped by the Company utilize
operating systems developed by Microsoft Corporation. The United States
Department of Justice has brought an antitrust action against Microsoft,
which could delay the introduction and distribution of Microsoft products.
The potential unavailability of Microsoft products could have a material
adverse effect on the Company's business, results of operations and
financial condition.
9
<PAGE>
Year 2000 Issue
Many existing computer systems, including certain of the Company's
internal systems as well as those that the Company sells to customers, use
only the last two digits to identify years in the date field. As a result,
those systems may not accurately distinguish years in the 21st century
from years in the 20th century, or may not function properly when faced
with years later than 1999. This problem is generally referred to as the
"Year 2000 Issue." Computer systems that are able to deal correctly with
dates after 1999 are referred to as "Year-2000-Compliant."
Year 2000 Readiness Disclosure
The Company has undertaken a complete and thorough review of all of
its operations to determine those aspects which involve or are dependent
upon a computer application. The Company is reviewing the software and
operating systems for each such application to determine if it is
Year-2000-Compliant. Any such system or application which is not
Year-2000-Compliant is being modified or upgraded to assure the Company's
continued ability to operate without interruption. This process has been
underway since before January 1, 1998 and is currently on schedule for
completion by March 31, 1999. The Company is in the process of obtaining
assurances regarding Year 2000 compliance from other companies upon which
it may rely for products or services.
The Company expects to implement successfully the systems and
programming changes necessary to address the Year 2000 Issue. The Company
expects to implement these changes using primarily internal information
technology and other personnel. Moreover, the Company does not expect the
costs associated with that implementation to be material to the Company's
financial position or results of operations.
With respect to products sold to customers, the Company does not
warrant any products sold as Year-2000-Compliant. Instead, the Company
refers customers to any warrantees provided by the product's
manufacturers.
The Company believes the most reasonably likely worst case Year 2000
scenario would include a combination of some or all of the following:
o Internal information technology modules or systems may fail to operate
or may give erroneous information. Such failure could result in
shipping delays, inability to generate or delays in generation of
financial reports and statements, inability of the Company to
communicate among its various offices, and computer network downtime
resulting in inefficiencies and higher payroll expenses.
o Components in HVAC, lighting, telephone, security and similar systems
might fail, causing such systems to fail.
o Communications with customers and vendors that the Company depends
upon may fail or give erroneous information. These types of problems
could result in such difficulties as the inability to receive or
process customer orders, shipping delays, or sale of products at
erroneous prices. Furthermore, customers may be unable to, or may
suffer delays, in remitting payments to the Company on a timely basis.
o The unavailability of products as a result of Year 2000 problems
experienced by one or more key vendors of the Company, or as a result
of changes in inventory levels at aggregators, VARs and similar
providers in response to an anticipated Year 2000 problem and/or the
inability of the Company to develop alternative sources for products
may result in the inability of the Company to obtain an adequate
supply of products.
o Products sold to some of the Company's customers could fail to perform
some or all of their intended functions. In such a situation, the
Company's maximum obligation would be to repair or replace the
defective products to the extent the Company is required to do so
under manufacturer warranty.
10
<PAGE>
The Company believes its plans for addressing the Year 2000 Issue as
outlined above are adequate to handle the most reasonably likely worst
case scenario. The Company does not believe it will incur a material
financial impact for the risk of failure, or from the costs associated
with assessing the risks of failure, arising from the Year 2000 Issue.
Consequently, the Company does not intend to create a contingency plan
other than as set forth above. In addition, if the Company's assessment of
its vendors, when completed, indicate that certain product shortages can
be anticipated, the Company may adjust its plans accordingly, although the
Company does believe that it has the capacity to maintain significant
levels of inventory.
The statements above describing the Company's plans and objectives
for handling the Year 2000 Issue and the expected impact of the Year 2000
Issue on the Company are forward-looking statements. Those statements
involve risks and uncertainties that could cause actual results to differ
materially from the results discussed above. Factors that might cause such
a difference include, but are not limited to, delays in executing the plan
outlined above and increased or unforeseen costs associated with the
implementation of the plan and any necessary changes to the Company's
systems. Any inability on the part of the Company to implement necessary
changes in a timely fashion could have an adverse effect on future results
of operations. Moreover, even if the Company successfully implements the
changes necessary to address the Year 2000 Issue, there can be no
assurance that the Company will not be adversely affected by the failure
of others to become Year-2000-Compliant.
Recent Acquisition
On January 2, 1998, the Company acquired all of the outstanding
shares of Coastal Office Products, Inc. ("Coastal"), a Maryland
corporation and a reseller and provider of microcomputer services and
peripherals to companies in the greater Baltimore, Maryland area. The
acquisition, which has been accounted for as a purchase, consisted of a
cash payment of approximately $3.1 million plus potential future
contingent payments. The cash payment was made from the Company's cash
balances. Contingent payments of up to $1,050,000 in each of calendar 1998
and 1999 will be determined based upon Coastal achieving certain agreed
upon increases in revenues and pretax income for calendar 1998 and 1999
over calendar 1997 amounts. Contingent payments, if any, would be paid in
cash (or, under certain conditions, in Company common stock) on March 15,
1999 and March 15, 2000. Operating results of Coastal are included in the
Consolidated Statements of Income from the date of acquisition. The
acquisition resulted in goodwill of $3,836,000, which is being amortized
on the straight-line basis over 20 years.
E-Commerce
On January 18, 1999 the Company officially launched its new website and
electronic commerce system. The new site, located at
www.manchesterequipment.com allows both existing customers, corporate
shoppers and others to find product specifications, compare products,
check price and availability and place and track orders quickly and easily
24 hours a day seven days a week. The Company has made, and expects to
continue to make, significant investments and improvements in its
e-commerce capabilities. There can be no assurance that the Company will
be successful in enhancing and increasing its business through its
expanded Internet presence.
11
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated,
information derived from the Company's Condensed Consolidated Statements
of Income expressed as a percentage of related revenue or total revenue.
<TABLE>
<CAPTION>
Percentage of Revenue
Three Months Ended Six Months Ended
January 31, January 31,
----------- -----------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Product Sales 97.0% 97.8% 96.9% 97.9%
Services 3.0 2.2 3.1 2.1
--- --- --- ---
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of Product Sales 87.0 86.2 87.0 86.1
Cost of Services 65.9 75.5 63.0 72.9
---- ---- ---- ----
Cost of revenue 86.4 86.0 86.2 85.8
----- ----- ---- ----
Product Gross Profit 13.0 13.8 13.0 13.9
Services Gross Profit 34.1 24.5 37.1 27.1
---- ---- ---- ----
Gross Profit 13.6 14.0 13.8 14.2
---- ---- ---- ----
Selling, general and
administrative expenses 13.5 13.6 13.0 12.9
----- ---- ---- ----
Income from operations 0.1 0.4 0.8 1.3
Interest and other income, net 0.2 0.4 0.2 0.4
---- --- --- ----
Income before income taxes 0.3 0.8 1.0 1.7
Provision for income taxes 0.1 0.3 0.4 0.7
------ ---- --- ---
Net income 0.2% 0.5% 0.6% 1.0%
====== ===== === ===
</TABLE>
Three Months Ended January 31, 1999 Compared to Three Months Ended January
31, 1998
Revenue. The Company's revenue increased $4.0 million or 8.1% from
$49.4 million for the three months ended January 31, 1998 to $53.4 million
for the three months ended January 31, 1999. Product revenue increased by
$3.5 million (7.2%) due primarily to increases in shipments of personal
computers and displays, as well as revenue generated by Coastal, partially
offset by lower per unit prices for personal computers. Service revenue
increased $547,000 (51.4%) as a result of the Company's continued emphasis
on providing value-added services.
Gross Profit. Cost of revenue includes the direct costs of products
sold, freight and the personnel costs associated with providing technical
services, offset in part by certain market development funds provided by
manufacturers. All other operating costs are included in selling, general
and administrative expenses. Gross profit increased $358,000 or 5.2% from
$6.7 million for the second quarter of fiscal 1998 to $7.2 million for the
most recent fiscal quarter. Gross profit from the sale of products
increased by $69,000 while gross profit from the sale of services
increased by $289,000. The changes in gross profit primarily result from
the changes in revenue discussed above. As a percentage of revenue, gross
profit decreased to 13.6% in the second quarter of fiscal 1999 as compared
to 14.0% in fiscal 1998. Competitive pressures, changes in types of
products or services sold and product availability result in fluctuations
in gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $519,000 or 7.7% from $6.7 million in
the second quarter of fiscal 1998 to $7.2 million in the second quarter of
fiscal 1999. This increase is principally a result of higher salaries and
12
<PAGE>
personnel costs as well as higher depreciation and amortization costs. In
addition, the Company incurred higher operating costs associated with the
Company's new subsidiary, Coastal.
Interest Income. Interest income decreased from $203,000 in the second
quarter of 1998 to $105,000 in the second quarter of 1999 due to lower cash
balances available for investment.
Provision for Income Taxes. The effective income tax rate
increased to 48% in the current period compared to 39% of pre-tax income
in the prior year period principally as a result of certain non deductible
expenses.
Six Months Ended January 31, 1999 Compared to Six Months Ended January 31,
---------------------------------------------------------------------------
1998
----
Revenue. The Company's revenue increased by $14.5 million or 15.0%
from $96.4 million for the six months ended January 31, 1998 to $110.9
million for the six months ended January 31, 1999. Revenue from the sale
of products increased by $13.0 million (13.8%) while revenue from service
offerings increased by $1.4 million (70.7%). The increases in revenue were
largely attributable to growth at the Company's Electrograph and Coastal
subsidiaries. Coastal was acquired on January 2, 1998. The Company
continued to experience lower average selling prices for personal
computers offset partially by increases in units shipped.
Gross Profit.Gross profit increased by $1.6 million (11.5%) to
$15.3 million for the first six months of fiscal 1999 from $13.7 million
in the comparable period a year ago. Gross profit from product sales
increased by 6.5% ($855,000) from $13.1 million in the first six months of
fiscal 1998 to $14.0 million in the most recent six month period. Service
offerings generated $1.3 million of gross profit in the first six months
of fiscal 1999 versus $546,000 in gross profit generated in the comparable
period a year ago. The growth in gross profit dollars is principally due
to the increase in revenue discussed above. Gross margin percentages
declined in the recent period due to generally lower vendor incentives
including market development funds, co-op advertising, and rebate
programs.
Selling, General and Administrative Expenses. Selling general and
administrative expenses increased by $2.0 million or 16.2% from $12.4
million for the first six months of fiscal 1998 to $14.4 million for the
first six months of fiscal 1999. The increase is principally due to higher
salaries and personnel costs, higher advertising costs associated with the
Company's strategy of focusing on providing value added services and costs
associated with enhancing the Company's e-commerce capabilities.
Additionally, the Company incurred higher depreciation and amortization
costs and other operating costs associated with the Company's new
subsidiary, Coastal.
Interest Income. Interest income decreased due to lower cash balances
available for investment.
Provision for Income Taxes. The effective income tax rate
increased slightly from 40.3% for the first six months of fiscal 1998 to
40.7% in the most recent fiscal period.
Liquidity and Capital Resources
-------------------------------
The Company's primary sources of financing have been internally
generated working capital from operations and a line of credit from
financial institutions.
For the six months ended January 31, 1999, cash provided by operating
activities was $513,000 consisting primarily of net income, depreciation
and amortization and the sale of investments, partially offset by a
decrease in accounts payable and accrued expenses. The Company's accounts
receivable and accounts payable and accrued expenses balances as well as
its investment in inventory can fluctuate significantly from one period to
the next due to the receipt of large customer orders or payments or
variations in product availability and vendor shipping patterns at any
particular date. Generally, the Company's experience is that increases in
13
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accounts receivable, inventory and accounts payable and accrued expenses
will coincide with growth in revenue and increased operating levels. In
addition, during the six months ended January 31, 1999 the Company used
approximately $842,000 for capital expenditures.
The Company has available a line of credit with financial
institutions in the aggregate amount of $15.0 million. No amounts were
outstanding under this line as of January 31, 1999.
The Company believes that its current balances in cash and cash
equivalents and investments, expected cash flows from operations and
available borrowings under the line of credit will be adequate to support
current operating levels for the foreseeable future, specifically through
at least the end of fiscal 1999. The Company currently has no material
commitments for capital expenditures. Future capital requirements of the
Company include those for the growth of working capital items such as
accounts receivable and inventory and the purchase of equipment and
expansion of facilities, the possible opening of new offices, potential
acquisitions, and expansion of the Company's e-commerce capabilities.
New Accounting Standards
------------------------
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosure About Segments of an
Enterprise and Related Information," which the Company has adopted
effective August 1, 1998. This statement establishes standards for
reporting information about operating segments, and related disclosures
about product and services, geographic areas and major customers. The
adoption of this statement did not have an impact on the Company's
financial statements.
The Company will implement the provisions of Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in fiscal 2000. The Company believes that the
implementation of this new pronouncement will have no impact on the
financial position and results of operations of the Company.
14
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PART II - OTHER INFORMATION
Item 5. Other Information
As permitted by a recent amendment to the New York Business
Corporation Law, on March 12, 1999, the Board of Directors amended the
By-Laws to permit notices of meetings of shareholders to be given not less
than ten nor more than sixty days before the meeting, and to permit the
Board to set a record date for meetings of shareholders that is not more
than sixty nor less than ten days prior to the date of such meeting. In
each case, the prior outside date had been fifty days.
Item 6. Exhibits and Reports
(a) Exhibits
--- --------
Exhibit No. Description
----------- -----------
3(ii) Amended and Restated By-Laws
27 Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
MANCHESTER EQUIPMENT CO., INC.
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.
MANCHESTER EQUIPMENT CO., INC.
(Registrant)
DATE: March 12, 1999 s/s Barry Steinberg
-------------------
Barry Steinberg
President and Chief Executive Officer
DATE: March 12, 1999 s/s/ Joseph Looney
------------------------------
Joseph Looney
Chief Financial Officer
16
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12
BY-LAWS
OF
MANCHESTER EQUIPMENT CO., INC.
As Amended March 12, 1999
ARTICLE I - OFFICES
-------------------
The principal office of the Corporation shall be in the County of
Suffolk, State of New York. The Corporation may also have offices at such other
places within or without the State of New York as the Board may from time to
time determine or the business of the Corporation may require.
ARTICLE II - SHAREHOLDERS
-------------------------
1. PLACE OF MEETING. Meetings of shareholders may be held at the
Corporation's office in the State of New York or elsewhere within or without the
State of New York as the Board of Directors from time to time may determine.
2. ANNUAL MEETING. The annual meeting of shareholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time as
shall be designated by the Board of Directors and stated in the notice of such
meeting.
3. PROPOSED BUSINESS AT ANNUAL MEETING. No business may be
transacted at any annual meeting of shareholders, other than business that is
either (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors (or any duly authorized
committee thereof), which shall include shareholder proposals contained in the
Corporation's proxy statement made in accordance with Rule 14a-8 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or any
successor thereto, or (b) otherwise properly brought before the annual meeting
by or at the direction of the Board of Directors (or any duly authorized
committee thereof).
4. SPECIAL MEETINGS. Special Meetings of the Shareholders, for
any purpose or purposes, may be called at any time by resolution of the Board of
Directors or by the President, and shall be called by the President or by the
Secretary upon the written request of the holders of record of the issued and
outstanding shares entitled to cast at least thirty percent (30%) of the total
number of votes entitled to be cast by shareholders at such meeting, at such
times and at such place either within or without the State of New York as may be
stated in the call or in the waiver of notice thereof. Business transacted at
any special meeting shall be limited to the purposes stated in the notice.
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5. NOTICE OF MEETING. Notice of the time, place, and purpose of
every meeting of shareholders, and if a special meeting, at whose direction such
meeting is being called, shall be personally delivered to each shareholder of
record entitled to vote at such meeting or delivered by first class mail, not
less than ten (10) days nor more than sixty (60) days before the meeting, or by
third class mail, not less than twenty-four (24) days nor more than sixty (60)
days before the meeting, at the address of such shareholder as it appears on the
records of the Corporation, or at such other address as shall be furnished by
shareholder in writing to the Corporation for such purpose. Such further notice
shall be given as may be required by law or by these By-laws. Any meeting may be
held without notice if all shareholders entitled to vote are present in person
or by proxy or if notice is waived in writing, either before, at, or after the
meeting, by those not present. The attendance of any shareholder at a meeting,
in person or by proxy, without protesting prior to the conclusion of the meeting
lack of notice of such meeting, shall constitute a waiver of notice by such
shareholder.
6. ORGANIZATION OF MEETINGS. Meetings of the shareholders shall
be presided over by the Chairman of the Board, if there be one, or if there is
no Chairman or he is not present, by the President, or if he is not present, by
a chairman to be chosen at the meeting. The Secretary of the Corporation, or in
his absence, an Assistant Secretary, shall act as Secretary of the meeting, if
present.
7. QUORUM. Except as otherwise provided by law or in the
Certificate of Incorporation of the Corporation, at all meetings of shareholders
the holders of record of a majority of the issued and outstanding shares of the
Corporation entitled to vote at such meeting, present in person or by proxy,
shall constitute a quorum for the transaction of business. In the absence of a
quorum, a majority in interest of those present or represented may adjourn the
meeting by resolution to a date fixed therein, and no further notice thereof
shall be required, except as may be required by the provisions of Section 605(b)
of the Business Corporation Law. At any such adjourned meeting at which a quorum
may be present, any business may be transacted which might have been transacted
at the meeting as originally called, but only those shareholders who would have
been entitled to vote at the meeting as originally called shall be entitled to
vote at such adjourned meeting.
8. VOTING. At each meeting of shareholders, except as otherwise
provided by statute, every holder of record of stock entitled to vote shall be
entitled to cast the number of votes to which shares of such class or series are
entitled as set forth in the Certificate of Incorporation or any Certificate of
Amendment with respect to any preferred stock, in person or by proxy for each
share of such stock standing in his name on the records of the Corporation.
Elections of directors shall be determined by a plurality of the votes cast at
such meeting and, except as otherwise provided by statute, the Certificate of
Incorporation, or these By-laws, all other action shall be determined by a
majority of the votes cast at such meeting.
At all elections of directors, the voting shall be by ballot
or in such other manner as may be determined by the shareholders present in
person or by proxy entitled to vote at such election. With respect to any other
matter presented to the shareholders for their consideration at a meeting, any
shareholder entitled to vote may, on any question, demand a vote by ballot.
2
<PAGE>
A complete list of the shareholders as of the record date,
certified by the Secretary or Transfer Agent of the Corporation, shall be
produced at any meeting of shareholders upon the request of any shareholder made
at or prior to such meeting.
9. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of shareholders may be taken without a meeting, if, prior
to such action, a written consent or consents thereto setting forth such action,
is signed by the holders of record of all of the stock of the Corporation,
issued and outstanding and entitled to vote.
10. PROXIES. Every shareholder entitled to vote at any meeting of shareholders
may vote by proxy. Every proxy must be executed in writing by the shareholder or
by his duly authorized attorney. No proxy shall be voted after the expiration of
eleven months from the date of its execution unless the shareholder executing it
shall have specified a longer duration. Every proxy shall be revocable at the
pleasure of the person executing it or of his personal representatives or
assigns except as otherwise provided by law.
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
1. GENERAL POWERS. The property, affairs and business of the
Corporation shall be managed by the Board of Directors.
2. NUMBER. The number of directors of the Corporation shall be
fixed in the manner provided in the Certificate of Incorporation.
3. QUALIFICATIONS; TERM OF OFFICE. Directors need not be
shareholders. Directors shall be elected to hold office until the next annual
election of directors and shall hold office until their successors have been
elected and shall have qualified.
4. NOMINATION OF DIRECTORS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Corporation, except as may otherwise be provided in any
Certificate of Amendment of the Corporation with respect to the right of holders
of certain specified classes of preferred stock of the Corporation to nominate
and elect a specified number of directors in certain circumstances. Nominations
of persons for election to the Board of Directors may be made at any annual
meeting of shareholders, or at any special meeting of shareholders called for
that purpose, (a) by or at the direction of the Board (or any duly authorized
committee thereof) or (b) by any shareholder of the Corporation who is a
shareholder of record on the record date for determination of shareholders
entitled to vote at such meeting.
5. CHAIRMAN OF THE BOARD. The Board of Directors may elect a
Chairman of the Board from among its members to serve at its pleasure, who shall
preside at all meetings of the Board of Directors and shareholders shall have
such other duties as from time to time may be assigned to him by the Board of
Directors.
3
<PAGE>
6. VACANCIES. Any vacancy on the Board of Directors that results
from an increase in the number of directors and any other vacancy on the Board
may be filled by vote of the shareholders or by the Board provided that a quorum
is then in office and present, or by a majority of the Directors then in office,
if less than a quorum is then in office, or by a sole remaining director. A
director elected to fill a newly created directorship or other vacancy, unless
elected by the shareholders, shall hold office until the next meeting of
shareholders at which the election of directors is in the regular course of
business, and until his successor has been elected and qualified. Where a
vacancy is created as a result of the resignation of a director from the Board
of Directors, which resignation is not effective until a future date, such
director shall not have the power to vote to fill such vacancy.
7. PLACE OF MEETING. The Board of Directors shall hold its
meetings at such places within or without the State of New York as it may
decide.
8. REGULAR MEETINGS; NOTICE. Regular meetings of the Board of
Directors shall be held at such time and place as may be fixed from time to time
by the Board of Directors. Notice need not be given of regular meetings of the
Board.
9. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be held at any time upon the call of two directors, the Chairman of the
Board, if one be elected, or the President, by oral, facsimile, telegraphic or
written notice, duly served on or sent or mailed to each director not less than
two (2) days before such meeting. A meeting of the Board may be held, without
notice, immediately after the annual meeting of shareholders at the same place
at which such meeting was held. Notice of a meeting need not be given to any
director who submits a signed waiver of notice whether before, at, or after the
meeting or who attends the meeting, without protesting prior thereto or at its
commencement, the lack of notice.
10. QUORUM; ADJOURNMENTS. Except as otherwise provided by law or
in the Certificate of Incorporation of the Corporation, a majority of the
members of the Board of Directors then holding office shall be present at any
meeting of directors to constitute a quorum for the transaction of any business
or any specified item of business and the vote of a majority of the members of
the Board of Directors present at a meeting, at which a quorum is present shall
be necessary for the transaction of any business or specified item of business
at any meeting of directors. In the absence of a quorum of the Board of
Directors, a majority of the members present may adjourn the meeting from time
to time until a quorum be had. Notice of the time and place of such adjourned
meeting shall be given to all the directors.
11. REMOVAL. The directors of the Corporation may be removed for
cause by action of the Board of Directors or by vote of the shareholders at the
Annual Meeting of Shareholders or at any special meeting of Shareholders called
by the Board of Directors or by the Chairman of the Board or by the President
for this purpose. No director may be removed without cause.
12. COMPENSATION. The Board of Directors may determine, from time
to time, the amount of compensation which shall be paid to its members. The
Board of Directors shall also have the power, in its discretion, to allow a
fixed sum and expenses for attendance at each regular or special meeting of the
Board, or any committee of the Board; the Board of Directors shall also have
4
<PAGE>
power, in its discretion, to provide for any pay to directors rendering services
to the Corporation, not ordinarily rendered by directors, as such, special
compensation appropriate to the value of such services, as determined by the
Board from time to time. Nothing herein contained shall be construed to preclude
any director from serving the Corporation in any other capacity as an officer,
agent or otherwise, and receiving compensation therefor.
13. ACTION BY CONSENT. Any action required or permitted to be
taken by the Board of Directors or any committee thereof may be taken without a
meeting if all members of the Board of Directors or committee consent in writing
to the due adoption of a resolution authorizing the action. The resolutions and
the written consents thereto by the members of the Board of Directors or
committee thereof shall be filed with the minutes of the proceedings of the
Board of Directors or such committee.
14. ACTION BY TELEPHONE COMMUNICATION. Any one or more members of the Board
of Directors or any committee thereof may participate in a meeting of the Board
of Directors or such committee by means of a conference telephone or similar
communications equipment, allowing all persons participating in the meeting to
hear each other at the same time, and participation by such means shall
constitute presence in person at such meeting.
ARTICLE IV - INTERESTED TRANSACTIONS
------------------------------------
1. CONTRACTS OR TRANSACTIONS. (a) No contract or other
transaction between the Corporation and one or more of its directors, or between
the Corporation and any other corporation, firm, association or other entity in
which one or more of its directors are directors or officers, or have a
substantial financial interest, shall be either void or voidable for this reason
alone or by reason that such director or directors are present at the meeting of
the Board, or of a committee thereof, which approves such contract or
transaction, or that the votes of such director or directors are counted for
such purposes:
(i) If the material facts as to such director's
interest in such contract or transaction and as to
any common directorship, officership or financial
interest are disclosed in good faith or known to the
Board or committee, and the Board or committee
approves such contract or transaction by a vote
sufficient for such purpose without counting the vote
or votes of such interested director or directors or,
if the votes of the disinterested directors are
insufficient to constitute an act of the Board, by
unanimous vote of disinterested directors; or
(ii) If the material facts as to such director's
interest in such contract or transaction and as to
any common directorship, officership or financial
interest are disclosed in good faith or known to the
shareholders entitled to vote thereto, and such
contract or transaction is approved by vote of the
shareholders.
5
<PAGE>
(b) If such good faith disclosure of the material facts as
to the director's interest in the contract or transaction and as to any common
directorship, officership or financial interest is made to the directors or
shareholders, or known to the Board or committee or shareholders entitled to
vote thereon, the contract or transaction may not be avoided by the Corporation
for the reason set forth in Section 1(a) of this Article IV. If there was no
such disclosure or knowledge, or if the vote of such interested director or
directors was necessary for approval of a contract or transaction at a meeting
of the Board or committee at which it was approved, the Corporation may avoid
the contract or transaction unless the parties thereto shall establish
affirmatively that the contract or transaction was fair and reasonable as to the
Corporation at the time it was approved by the Board or committee or the
shareholders.
ARTICLE V - COMMITTEES
----------------------
1. HOW CONSTITUTED AND THE POWERS THEREOF. The Board of
Directors, by the vote of the entire Board, may designate three or more
directors to constitute one or more executive or other committees, who shall
serve during the pleasure of the Board of Directors. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee.
Except as otherwise provided by law, by the Certificate of Incorporation of the
Corporation, by these By-laws, or by resolution adopted by a majority of the
same Board of Directors, and excepting the powers enumerated in Section 712 (1)
- - (5) of the Business Corporation Law, the committees shall possess and may
exercise such powers as shall be conferred or authorized by the resolution
appointing them.
2. QUORUM AND MANNER OF ACTING. A majority of the members of any
such committee shall constitute a quorum for the transaction of any business or
any specified item of business, and the vote of a majority of the members of the
committee present at a meeting at which a quorum is present shall be necessary
for the transaction of any business or any specified item of business at any
meeting of such committee.
3. MEETINGS. A majority of any such committee shall fix the time
and place of its meetings, unless the Board of Directors shall otherwise
provide. Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when requested. Notice of each committee
meeting shall be sent to each committee member by mail at least two (2) days
before the meeting is to be held, or, if given by the Chairman, may be given
personally or by telegraph or telephone at least one (1) day before the day on
which the meeting is to be held. Notice of a meeting need not be given to any
committee member who submits a signed waiver of notice whether before, at, or
after the meeting or who attends the meeting, without protesting prior thereto
or at its commencement, the lack of notice.
4. REMOVAL. The Board shall have the power, at any time, to
change the membership of any committee, to fill vacancies in it, or to
dissolve it.
6
<PAGE>
ARTICLE VI - OFFICERS
---------------------
1. OFFICERS; NUMBERS. The officers of the Corporation shall be
the President, one or more Vice Presidents (if the Board of Directors so
determines), a Treasurer (if the Board of Directors so determines) and a
Secretary. The Board of Directors may from time to time appoint one or more
Assistant Secretaries and Assistant Treasurers, and such other officers and
agents as it shall deem necessary, and may define their powers and duties. The
same person may hold any two or more offices except those of President and
Secretary.
2. SALARIES. The Board of Directors shall from time to time fix
the salary of the President, as well as the salaries of other officers of the
Corporation.
3. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. All officers of
the Corporation shall be elected or appointed annually (unless otherwise
specified at the time of election) by the Board of Directors and each officer
shall hold office until the meeting of the Board of Directors following the next
annual meeting of shareholders and until his successor shall have been duly
chosen and shall have qualified, or until he shall resign or shall have been
removed in the manner hereinafter provided.
4. VACANCIES. If any vacancy shall occur in any office of the
Corporation, such vacancy shall be filled by the Board of Directors, and such
successor officer shall hold office for the unexpired term in respect of which
such vacancy occurred.
5. REMOVAL. Any officer of the Corporation may be removed,
with or without cause, by the Board of Directors.
6. PRESIDENT. The President shall be the chief executive of the
Corporation and, subject to the control of the Board of Directors, shall have
general direction of its business, affairs and property and over its several
officers. He shall be entitled to preside at all meetings of the shareholders
and directors in the absence of the Chairman of the Board or if there is no
Chairman of the Board. He shall appoint and discharge employees and agents of
the Corporation (other than officers elected by the Board of Directors) and fix
their compensation; and shall see that all orders and resolutions of the Board
of Directors are carried into effect. The President shall have the power to
execute, in the name and on behalf of the Corporation, all authorized deeds,
bonds, mortgages and other contracts, agreements and instruments, except in
cases in which the signing and execution thereof shall have been expressly
delegated to some other officer or agent of the Corporation; and in general, he
shall perform all duties incident to the office of a president of a corporation,
and such other duties as from time to time may be assigned to him by the Board
of Directors.
7. VICE PRESIDENTS. The Vice President or Vice Presidents of the
Corporation, under the direction of the President, shall have such powers and
perform such duties as the Board of Directors or President may from time to time
prescribe, and shall perform such other duties as may be prescribed in these
By-laws. In each case of the absence or inability of the President to act, the
Vice Presidents, in the order of seniority, shall have the powers and discharge
the duties of the President.
7
<PAGE>
8. TREASURER. The Treasurer, under the direction of the
President, shall have charge of the funds, securities, receipts and
disbursements of the Corporation. He shall deposit all moneys and other valuable
effects in the name and to the credit of the Corporation in such banks or trust
companies or with such other depositories as the Board of Directors may from
time to time designate. He shall supervise and have charge of keeping correct
books of account of all the Corporation's business and transactions. If required
by the Board of Directors, he shall give a bond in such sum as the Board of
Directors may designate, conditioned upon the faithful performance of the duties
of his office and the restoration to the Corporation, at the expiration of his
term of office, or upon his death, resignation or removal from office, of all
books, papers, vouchers, money or other property of whatever kind in his
possession belonging to the Corporation. He shall render to the President, the
Board of Directors and any committee or committees, if any, at its regular
meetings, or when the Board of Directors so requires, an account of all of the
Treasurer's transactions and of the financial condition of the Corporation. The
Treasurer shall also have such other powers and perform such other duties as
pertain to his office, or as the Board of Directors or the President may from
time to time prescribe.
9. ASSISTANT TREASURER. In the absence or disability of the
Treasurer, the Assistant Treasurers, in the order designated by the Board of
Directors, shall perform the duties of the Treasurer, and, when so acting, shall
have all the powers of, and be subject to all restrictions upon, the Treasurer.
They shall also perform such other duties as from time to time may be assigned
to them by the Board of Directors or the President.
10. SECRETARY. The Secretary shall attend all meetings of the
shareholders of the Corporation and of its Board of Directors, shall keep the
minutes of all such meetings in a book or books kept by him for that purpose,
and shall give, or cause to be given, notice of all meetings of the shareholders
and of the Board of Directors. He shall keep in safe custody the seal of the
Corporation, and, when authorized by the Board of Directors, he shall affix such
seal to any instrument requiring it. When the seal is so affixed, it shall be
attested by the signature of the Secretary or Assistant Secretary or the
Treasurer or an Assistant Treasurer who may affix the seal to any such
instrument in the event of the absence or disability of the Secretary. In the
absence of a Transfer Agent or a Registrar, the Secretary shall have charge of
the stock certificate books, and the Secretary shall have charge of such other
books and papers as the Board of Directors may direct. He shall also have such
other powers and perform such other duties as pertain to his office, or as the
Board of Directors or the President may from time to time prescribe.
11. ASSISTANT SECRETARIES. In the absence or disability of the Secretary,
the Assistant Secretaries, in the order designated by the Board of Directors,
shall perform the duties of the Secretary, and, when so acting, shall have all
the powers of, and be subject to all the restrictions upon, the Secretary. They
shall also perform such other duties as from time to time may be assigned to
them by the Board of Directors or the President.
12. DUTIES OF OFFICERS MAY BE DELEGATED. In case of the absence or
disability of any officer of the Corporation, or for any other reason that the
Board may deem sufficient, the Board may delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officers, or to
any other director.
8
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ARTICLE VII - DRAFTS, CHECKS, ETC.
----------------------------------
All checks, drafts or other orders for the payment of money out of
the funds of the Corporation and all notes or other evidences of indebtedness
issued in the name of the Corporation shall be signed by such officer or
officers, agent or agents, or person or persons to whom the Board of Directors
shall have delegated the power, but under such conditions and restrictions as in
said resolutions may be imposed. The signature of any officer upon any of the
foregoing instruments may be a facsimile whenever authorized by the Board of
Directors.
ARTICLE VIII - SHARES AND THEIR TRANSFER
----------------------------------------
1. ISSUES OF CERTIFICATES OF STOCK. The Board of Directors shall
provide for the issue and transfer of the certificates of stock of the
Corporation and prescribe the form of such certificates. Every owner of shares
of the Corporation shall be entitled to a certificate of stock, which shall be
under the seal of the Corporation (which seal may be a facsimile, engraved or
printed), specifying the number of shares owned by him, and which certificate
shall be signed by the President or a Vice President, or by the Chairman of the
Board of Directors, and by the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer of the Corporation. Where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or registered by a registrar other than the Corporation or its
employee, or where the shares are listed on a registered national security
exchange, the signature of any officer or officers upon the certificates may be
facsimiles. In case any officer or officers who shall have signed, or whose
facsimile signatures shall have been used on, any such certificate or
certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates may nevertheless be issued and delivered as though the person or
persons who signed such certificate or certificates or whose facsimile signature
or signatures shall have been used thereon had not ceased to be such officer or
officers of the Corporation.
2. TRANSFER AGENTS AND REGISTRARS. The Board of Directors shall
have power to appoint a Transfer Agent and/or Registrar of its stock; to
prescribe their respective duties; and to require the countersignature of such
Transfer Agent and/or Registrar upon stock certificates. The duties of the
Transfer Agent and Registrar may be combined.
3. TRANSFER OF SHARES. Subject to any restrictions on transfer of
shares of stock of the Corporation of any class, series or designation contained
in the Certificate of Incorporation, the shares of stock of the Corporation
shall be transferred only upon the books of the Corporation by the holder
thereof in person or by such person's attorney, upon surrender for cancellation
of certificates for the same number of shares, with an assignment and power of
transfer endorsed thereon or attached thereto, duly executed, with such proof of
the authenticity of the signature as the Corporation or its agents may
reasonably require.
9
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4. ADDRESSES OF SHAREHOLDERS. Every shareholder shall furnish the
Transfer Agent, or in the absence of a Transfer Agent, the Registrar, or in the
absence of a Transfer Agent and a Registrar, the Secretary, with an address at
or to which notices of meetings and all other notices may be served him or
mailed to him, and in default thereof, notices may be addressed to him at the
office of the Corporation.
5. RECORD DATE. The Board of Directors may set a date not
exceeding sixty (60) days and not less than ten (10) days prior to the date of
any meetings of shareholders nor more than sixty (60) days prior to any other
action as the time as of which shareholders entitled to notice of and to vote at
such meeting or whose consent or dissent is required or may be expressed for any
purpose, as the case may be, shall be determined, and all persons who were then
holders of record of such shares and no others shall be entitled to notice of or
to vote at such meeting or to express their consent or dissent, as the case may
be.
The Board of Directors shall also have power to fix a date
not exceeding sixty (60) days preceding the date fixed for the payment of any
dividend or the making of any distribution or for the allotment of any evidence
of right or interest, or the date when any change, conversion or exchange of
capital stock shall go into effect, or for any other purpose, as a record time
for the determination of the shareholders entitled to receive any such dividend,
distribution, right or interest, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, or to participate in any
such other action, and in such case only shareholders of record at the time so
fixed shall be entitled to receive such dividend, distribution, right or
interest, or to exercise such rights, or to participate in such other action.
6. LOST AND DESTROYED CERTIFICATES. The Board of Directors may
direct a new certificate or certificates of stock to be issued in the place of
any certificate or certificates theretofore issued and alleged to have been lost
or destroyed; but the Board of Directors when authorizing such issue of a new
certificate or certificates, may in its discretion require the owner of the
shares represented by the certificate so lost or destroyed or his legal
representative to furnish proof by affidavit or otherwise to the satisfaction of
the Board of Directors of the ownership of the shares represented by such
certificate alleged to have been lost or destroyed and the facts which tend to
prove its loss or destruction. The Board of Directors may also require such
person to execute and deliver to the Corporation a bond, with or without
sureties, in such sum as the Board of Directors may direct, indemnifying the
Corporation, its Transfer Agents and Registrars, if any, against any claim that
may be made against them, or any of them, by reason of the issue of such
certificate. The Board of Directors, however, may in its discretion refuse to
issue any such new certificate, except pursuant to court order.
10
<PAGE>
ARTICLE IX - SEAL
-----------------
The corporate seal of the Corporation shall be circular in form and
shall contain the name of the Corporation, the year of its creation and the
words "Corporate Seal New York", or words of similar import. Said seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
manner reproduced, and said seal may be altered from time to time at the
discretion of the Board of Directors.
ARTICLE X - MISCELLANEOUS
-------------------------
1. EXAMINATION OF BOOKS AND RECORDS. There shall be kept at such
office of the Corporation as the Board of Directors shall determine, within or
without the State of New York, correct books and records of account of all its
business and transactions, minutes of the proceedings of its shareholders, Board
of Directors and committees, and the stock book, containing the names and
addresses of the shareholders, the number of shares held by them and the class
or series thereof, respectively, and the dates when they respectively became the
owners of record thereof, and in which the transfer of stock shall be
registered, and such other books and records as the Board of Directors may from
time to time determine. The Board of Directors may determine from time to time
whether, and to what extent, and at what times and places and under what
conditions and regulations, the accounts and books of the Corporation, or any of
them, shall be open to the inspection of the shareholders, and no shareholder
shall have any right to inspect any account or book or document of the
Corporation, except as provided by the statutes of the State of New York or
authorized by the Board of Directors.
2. VOTING OF STOCK IN OTHER CORPORATIONS. Any shares in any other
corporations, which may from time to time be held by the Corporation, may be
represented and voted on at any of the shareholders' meetings thereof by the
President or one of the Vice Presidents of the Corporation, or by proxy or
proxies appointed by the President or one of the Vice Presidents of the
Corporation. The Board of Directors, however, may, by resolution, appoint any
other person or persons to vote such shares, in which case such other person or
persons shall be entitled to vote such shares upon the production of a certified
copy of such resolution.
3. FISCAL YEAR. The fiscal year of the Corporation shall end on
July 31st in each year unless otherwise fixed by resolution of the Board of
Directors.
ARTICLE XI - AMENDMENTS
-----------------------
1. BY SHAREHOLDERS. The vote of the holders of at least a majority
of the shares that are issued and outstanding and entitled to vote, shall be
necessary at any meeting of shareholders to amend or repeal the By-laws or to
adopt new By-laws.
2. BY DIRECTORS. The Board of Directors shall have the power to
alter, amend or repeal any of these By-laws by the vote of at least a majority
of the entire Board at any meeting of the Board of Directors, provided that any
By-law adopted by the Board may be amended or repealed by the shareholders.
3. NOTICE. Any proposal to amend or repeal these By-laws or to
adopt new By-laws shall be stated in the notice of the meeting of the Board of
Directors or shareholders, or in the waiver of notice thereof, as the case may
be, unless all of the directors or the holders of all of the shares of the
Corporation, issued and outstanding and entitled to vote, are present at such
meeting.
11
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