1996 Annual Report
EMCEE Broadcast Products, Inc.
Corporate Information
Corporate Headquarters
Susquehanna Street Extension, P. O. Box 68
White Haven, PA 18661-0068
Phone:(800) 233-6193
Fax:(717) 443-9257
Annual Meeting
The 1996 Annual Meeting of shareholders will be held at 11:00 AM
EDST on Monday, August 26, 1996 at:
Pocono Ramada Inn
Route 940, White Haven, PA 18661
(717) 443-8471
A buffet luncheon will be served immediately after the annual
meeting. If you are planning to attend this meeting, it is
important that you provide advance notice to Linda Teberio at the
Company (either in writing or by phone) so that an accurate count
can be obtained for the luncheon portion of the meeting. Your
cooperation will be appreciated.
Management urges all shareholders, regardless of the number of
shares held, to vote their proxies and thus participate in the
decisions that will be made at this meeting.
Independent Auditors
Kronick Kalada Berdy & Co.
190 Lathrop Street
Kingston, PA 18704
Availability of Form 10-KSB
The Company's annual report on Form 10-KSB for the fiscal year
ended March 31, 1996, required to be filed with the Securities
and Exchange Commission, may be obtained without charge upon
written request to Linda Teberio at the offices of the Company.
Registrar & Transfer Agent
Harris Trust and Savings Bank
311 West Monroe, 11th Floor
P.O. Box 755
Chicago, Illinois 60690
Phone:(312) 461-6509
Fax:(312) 765-8052
<PAGE>
Shareholders of record needing a change of name and/or address or
to replace lost certificates should write or call our transfer
agent listed above.
Shareholders holding shares in "street name" who wish to receive
information directly from the Company should request their broker
to register their stock certificates in their names.
General Counsel
Martin D. Cohn, Esquire
Laputka Bayless Ecker & Cohn, P.C.
2 East Broad Street, 6th Floor
Hazleton, PA 18201
Phone:(717) 455-4731
Fax:(717) 459-0729
Contents
Financial Highlights 1
Report to Shareholders 2
Selected Financial Data 4
Management's Discussion and Analysis 4
Consolidated Financial Statements 8
Independent Auditors' Report 13
Notes to Consolidated Financial Statements 14
Executive Officers and Directors 17
<PAGE>
Financial Highlights
<TABLE>
<S> <C> <C> <C>
Year ended March 31, 1996 1995 change
- --------------------------------------------------------------
Net sales $14,292,562 $16,365,326 -12.7%
Income from operations 1,918,856 4,014,243 -52.2%
Other income (expense),net (17,770) (33,128) -46.4%
Net income $1,595,086 $ 3,152,115 -49.4%
Net income per common share $.36 $.71 -49.3%
</TABLE>
<TABLE>
<S> <C> <C> <C>
At March 31, 1996 1995 change
- --------------------------------------------------------------
Total assets $9,937,249 $9,172,120 +8.3%
Net working capital $6,711,743 $5,208,743 +28.9%
Long-term obligations, net of
current portion $ 938,217 $1,044,243 -10.2%
Backlog of orders $10,912,000 $3,162,000 +245.1%
Corporate Profile
Emcee Broadcast Products, Inc. ("Emcee", the "Company")
manufactures, installs and services television broadcast
equipment for commercial, educational and private television
systems. Principal products are UHF, VHF and wireless cable
transmitters. Wireless cable brings cable programming to the home
by means of microwave frequencies, which can be received on a
standard home television set. During the past two years, the
market for wireless cable products has expanded substantially.
Emcee is a major beneficiary of this expanding market, as
evidenced by a $10.9 million backlog at March 31, 1996, the
largest in the Company's history.
At fiscal year end 1996, the Company's common stock was owned by
1,724 shareholders of record. Since many of the shares are held
in "street name,"Emcee's management believes the actual number of
individual shareholders is substantially larger than the number
of shareholders of record.
<PAGE>
Report to Shareholders
Last year's financial performance was just about what we
expected: a reduction in domestic sales because operators slowed
building headends in anticipation of digital compression becoming
available for the wireless cable industry.
After the first rush of domestic wireless cable business, which
occurred in 1994-95 and brought us $9.5 million in U.S. sales,
domestic demand slumped in fiscal 1996 to approximately $6.2
million annually, a level of domestic business we expect will
begin to pick up by the end of 1996. Our international sales
increased 19 percent last year to $8.1 million. Thus a $3.4
million decline in domestic shipments and a $1.3 million increase
in international business resulted in shipments of $14.3 million
for fiscal 1996, a decline of 12.8 percent from the previous
year. In comparing our year-to-year performance, it should be
noted that the majority of the sales decline last year occurred
during the first six months of fiscal 1996, and that shipments
rose steadily as the year progressed.
Earnings Analysis: Net earnings for fiscal 1996 were $1.6
million, or 36 cents a share, compared with $3.2 million for
fiscal 1995, or 71 cents a share. Earnings were off in fiscal
1996 for two reasons. As previously indicated, (1) the domestic
market was down in anticipation of digital compression
technology; and (2) we spent more last year on sales promotion
(trade shows, primarily) and on general and administrative
expenses (increased computerization of our entire operation, for
example) than previously.
These expenditures were made to enhance Emcee's visibility
worldwide and to increase its ability to produce in quantity now
that wireless technology is emerging as a viable alternative to
traditional cable service.
Strength Overseas: The highlight of our international business
last year was the receipt of a $10.1 million order for our
transmitters. These are now being installed as part of a larger
communications complex in Saudi Arabia. Approximately $1 million
of this order was shipped in fiscal 1996, and the balance is
expected to ship in fiscal 1997 and fiscal 1998. Consequently, we
expect to show sales growth for fiscal 1997.
Domestic vs. International: While we believe our domestic
business will provide us with a solid and reasonably predictable
sales base year after year, we firmly believe our potential for
growth is overseas. This is because the communications
<PAGE>
infrastructure overseas is far less established than it is in the
U.S. Consequently, wireless communications are often chosen
because they can be completed quickly and at a much lower cost
than stringing wires or burying cable.
The growth of the overseas market is especially rewarding to us
simply because we have been working there for over 30 years, long
before others saw its potential. While large U.S. companies were
casting long shadows domestically, we were making sales calls,
setting up distributorships and building lasting relationships
overseas. We have international salesmen in place and have
established relationships with distributors in Europe (including
the former Warsaw Pact nations), Central and South America,
Africa, the Middle East, China and Australia.
Demand for product to support the wireless cable industry is
very strong here and abroad. It is presently stretching Emcee to
its productive limits. We need more output. And to that end, we
expect to have a second production shift up and operating prior
to year-end.
Business Outlook: Our long-term business outlook is promising.
Presently, about 90 percent of our business is wireless cable
products, the low-cost alternative to cable TV. That segment of
wireless communications alone could keep Emcee busy for many
years. Presently, nearly 200 communities in the U.S. are being
served by wireless cable TV. By the year 2000, that number is
expected to expand to 600. Digital compression, a technique that
will enable wireless cable operators to overcome wireless cable's
present 33 channel capacity limitation, is expected to become a
reality later this year when conversion devices should become
available. As this occurs, wireless cable will be able to offer
as many channels as conventional cable - and likely at reduced or
at least competitive prices.
Industry Permanence: Perhaps the most satisfying aspect of
wireless cable is that it has grown to a size where it has
attracted major players and important money. Wireless cable is
supported by major telephone companies and satellite
communicators. Millions of dollars have been raised in public
stock offerings by wireless cable operators in the past several
years. There is now sufficient technology, corporate interest
and money invested in wireless communications to certify it as a
permanent, major communications industry. It is no longer a
question of whether the industry will make it. It is now a
question of to what extent Emcee can build the kind of products
the wireless communications industry will want and need over the
next several decades.
Near Term Outlook: Emcee is looking at a very good year for
fiscal 1997, largely because of the shipments we will make for
<PAGE>
the Saudi Arabian installation. In addition, we expect to
introduce several important products late this year.
Long Term Outlook: It is difficult not to be bullish on the long
term prospects of the wireless communication industry. Wireless
communications offer impressive cost advantages and speed of
installation over land line installations. Now that the industry
has attracted major players with deep pockets, technological
advances are almost certain. Thus Emcee's objective is to make
superior products that remain at the core of what is almost
certainly a bonafide growth industry.
James L. DeStefano, President and CEO
White Haven, PA
July 15, 1996
<PAGE>
Selected Financial Data
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year ended
March 31 1996 1995 1994 1993 1992
Net sales $14,292,562 $16,365,326 $9,913,602 $7,948,297$7,501,093
Net income 1,595,086 3,152,115 873,327 152,909 303,495
Earnings
per share $.36 $.71 $.20 $.04 $.07
Total
assets 9,937,249 9,172,120 5,957,814 4,289,527 4,370,450
Net working
capital 6,711,743 5,208,743 2,231,171 1,641,055 1,783,500
Long term
obligations,
net of
current
portion 938,217 1,044,243 1,045,979 1,295,880 1,205,398
Cash dividends
declared per
common share None None None None None
</TABLE>
Management's Discussion and Analysis
Results of Operations
Net sales for fiscal year ended March 31, 1996 totaled
$14,293,000, a reduction of $2,072,000, or 13%, from fiscal
year ended March 31, 1995.
The Company's management believes that the decrease in sales was
primarily a result of MMDS domestic operators restricting
expansion until additional knowledge and testing of digital and
compression technology was completed. While, as indicated below,
foreign sales increased in fiscal year 1996, the company's
management believes that there was delayed purchasing by foreign
customers, due to the increasing size and complexity of foreign
projects and the lengthening of contract negotiations for these
projects, which also contributed to the decrease in overall sales
in fiscal year 1996. However, this reduction in sales, which
appears to have begun in December, 1994, seems to have begun to
reverse itself, at least for the foreign markets, in October,
1995. As evidence of this reversal, fourth quarter net sales for
fiscal year 1996, which consisted of 67% foreign sales, totaled
$4,769,000, as compared to $2,698,000 for the fourth quarter of
fiscal year 1995, of which 19% came from foreign sales.
<PAGE>
For fiscal year 1996, foreign sales totaled $8,132,000 (57% of
net sales), as compared to $6,829,000 (42% of net sales) for the
immediately preceding fiscal year. Domestic sales for fiscal year
1996 totaled $6,161,000, as compared to $9,536,000 for fiscal
year 1995. The largest sale to any one customer during fiscal
year 1996 totaled 19% of the Company's net sales. This sale was
with respect to a contract with a Pacific Rim country which was
concluded in the first quarter of fiscal year 1997. Also included
in the Company's sales for fiscal year 1996 were approximately $1
million of shipments destined for Saudi Arabia under a purchase
order mentioned below. The company's largest domestic customer in
fiscal year 1996 accounted for 16% of the Company's net sales.
The same customer accounted for 28% of the Company's net sales
for fiscal year 1995. However, the Company believes that its
future growth is not dependent on any one customer, with the
exception of the previously mentioned sales to Saudi Arabia in
which the Company is a subcontractor to the prime contractor for
the project. The Company's management believes that the
successful completion of that project will enhance its
opportunities with the other participating companies for future
orders throughout the world market.
With the Regional Bell Operating Companies (RBOC's) investing in
MMDS operators, additional funding for domestic expansion is
anticipated for the next three to four years. The capital and
technological investments in certain wireless cable operators
over the last two years by RBOC's, such as Bell Atlantic, NYNEX
and Pacific Telesis Group, should contribute to further growth in
the domestic wireless cable industry. The Company has planned for
this growth by increasing research and development, as well as
its marketing efforts, to maintain its strong technological and
product quality reputation in the industry.
In the high technology environment in which the Company does
business, it is difficult, if not impossible, to fully anticipate
or accurately predict future sales. However, the Company expects
and is planning for sales growth in both the domestic and foreign
MMDS markets, with the majority of such growth to occur in the
foreign markets over the next ten years. For approximately the
next twelve months, the company's foreign sales growth will be
sustained by a purchase order for Saudi Arabia with a remaining
value of approximately $8.8 million.
Gross profit for fiscal year ended March 31, 1996 was $5,191,000,
a decrease of 25% from the $6,893,000 realized in the immediately
preceding fiscal year. This constitutes a reduction of gross
profit as a percent to net sales of 42% for fiscal year ended
March 31, 1995, to 36% for fiscal year ended March 31, 1996.
While the reduction in volume contributed primarily to the
decrease in gross profit, the change in product mix was also a
significant factor. More specifically, sales of products which
<PAGE>
are manufactured by others (O.E.M. products), for which the gross
profit is less than products manufactured by the Company,
increased from $2,530,000 (15.5% of net sales) for fiscal year
ended March 31, 1995, to $3,174,000 (22.2% of net sales) for
fiscal year ended March 31, 1996.
Total operating expenses of $3,272,000 in fiscal year 1996
represented a 14% increase over fiscal year 1995. Additional
expenditures were made for research and development, from
$366,000 for fiscal year 1995 to $461,000 for fiscal year 1996,
in order to maintain the Company's leadership position in the
MMDS industry. Also included in this expense were costs incurred
by the Company as a result of its participation in an informal
alliance with five other non-competing companies from the MMDS
industry.
That alliance, which was formed towards the end of the first
quarter of fiscal year 1995, has as its purpose the development
of wireless digital technology designed to compress five or more
television programs so that the consumer will be able to receive
from 150 to 300 channels, including near video-on-demand and Pay
Per View programs. The Company's management believes that the
testing which the alliance has been conducting on such technology
has been very successful thus far because it has: (1) validated
the engineering theory that digital compression will allow video
programs in the same spectrum with enhanced picture quality; (2)
enabled the Company to acquire additional technical knowledge of
this technology; (3) enabled the Company to determine that its
present transmitters, with minor modifications, can be used for
transmitting digital television signals; and (4) enhanced
operator interest in utilizing this technology for its MMDS
systems and thus providing a potential avenue for sales growth in
the domestic MMDS market.
The Company has provided demonstrations of this technology at
trade shows and industry conventions and plans to continue to do
so through fiscal year 1997. In the meantime, the Company,
through synthesizer enhancement, has developed a product, which
it calls "DigaCom", which will enable MMDS operators to convert
their current analog transmitters to digital technology when it
becomes available to the wireless cable industry.
Total selling expenses for fiscal year 1996 increased by
approximately $172,000, or 12%, over the immediately preceding
fiscal year. This was due primarily to additional personnel
costs, product promotion and travel expenses, the latter of which
resulted from the increase in sales in the international market.
The Company's management believes these expenditures must be
continued in order to properly develop the international market.
General and administrative expenses totaled $1,214,000 for fiscal
year ended March 31, 1996, as compared to $1,087,000 for the
<PAGE>
previous year. Personnel costs, including total Company related
expenses, increased by approximately $50,000, and legal expenses
increased from $72,000 to $147,000. The increase in legal
expenses was due primarily to the corporate name change approved
by the stockholders at the Company's 1995 Annual Meeting of
Stockholders and litigation costs associated with litigation
initiated by an individual during fiscal year 1996, which was
subsequently dismissed as being without merit. In addition,
certain one-time charges were incurred for consulting fees
related to the upgrading of the Company's electronic data
processing systems and in transferring the Company from the
NASDAQ Small Cap Market to the NASDAQ National Market.
Interest expense for fiscal year ended March 31, 1996 totaled
$141,000, an increase of $25,000 over fiscal year ended 1995.
Although principal payments of $172,000 were made during fiscal
year 1996, additional equipment was financed on a 5-year Note in
the amount of $115,000, in June, 1995. In addition, a large
foreign account receivable on a commercial letter of credit was
discounted at an interest cost of $23,000.
Aided by a cash and cash equivalent balances of $1,440,000
carried over from March 31, 1995 and a high average of deposits
on future orders, the Company was able to transfer its cash to
government securities and other investments to accumulate
interest income during fiscal year 1996 of $105,000, which was an
increase of $44,000 over fiscal year ended March 31, 1995.
In the "Other Income (expense)" category on the consolidated
statement of income of the financial statements accompanying this
report, "other", which consisted primarily of the rental of a
transmitter, netted $18,000 for fiscal year 1996, as compared to
$21,000 for fiscal year 1995.
Net income before provision for federal and state income taxes
totaled $1,901,000 for the twelve months ending on March 31,
1996, as compared to $3,981,000 for the immediately preceding
period. The Company was able to reduce federal and state income
taxes due on its net income for fiscal year 1995 by utilizing net
operating loss and tax credit carry forwards, and for fiscal year
1996 by utilizing a foreign sales corporation (FSC) and other tax
credits. There is no state tax liability for fiscal year ended
March 31, 1996, since all profitable companies in the
consolidated reporting group are domiciled in jurisdictions that
do not impose income taxes.
Net income for fiscal year ended March 31, 1996 was $1,595,000, a
decrease of 49% from the amount of $3,152,000 for fiscal year
ended March 31, 1995. Earnings per share of common and common
<PAGE>
equivalent shares outstanding equal $.36 for fiscal year 1996 and
$.71 ($.70, assuming full dilution) for fiscal year 1995.
Liquidity and Capital Resources
In fiscal year 1996, the Company's cash requirements were
satisfied principally from cash flow from operations, cash on
hand and customer deposits. These funds were sufficient to meet
the Company's working capital needs, capital expenditures and
required debt payments.
Cash, cash equivalents and U.S. Treasury Bills totaled $3,107,000
as of March 31, 1996, an increase of $1,086,000 from March 31,
1995. Cash generated from income and deposits from customers for
future orders during fiscal year 1996, the latter of which
decreased by $38,000 from fiscal year 1995, has enabled the
Company to increase its investments in T-Bills by $988,000 during
fiscal year 1996. In addition, cash and cash equivalents, with
the exception of approximately $150,000, earned interest under a
cash management agreement the Company has with its primary
lending institution.
Accounts receivable totaled $1,819,000 as of March 31, 1996, as
compared to $1,667,000 as of March 31, 1995. This increase is
attributable to the increase in sales volume in the fourth
quarter of fiscal year 1996. The Company's management believes
that its reserve for bad debts of $95,000, as of March 31, 1996,
is adequate.
Although inventories were reduced by 17%, from $4,048,000 at
March 31, 1995, to $3,376,000 at March 31, 1996, inventory turns
decreased from 2.49 to 2.45. The Company has been focusing on the
reduction of inventory as a percent to sales by utilizing
enhanced data processing hardware and software.
The "Note Receivable" shown on the balance sheet in the financial
statements accompanying this report in the amount of $2,100,000
for both fiscal years ended 1995 and 1996 represents the
principal balance due and owing the Company on a Promissory Note
for the sale of a cellular license. That Note accrues interest on
the unpaid balance of principal at the rate of 7% per annum. As
the Note will mature on December 16, 1996, it is shown as a
current asset for fiscal year ended March 31, 1996. The amount of
the Note and the related interest income has not been recognized
by the Company because there is no reasonable basis to evaluate
the likelihood of collection. However, as of the date of this
report, the Company is not aware of the occurrence of any
material event or change in the obligor of the Note that would
affect the Company's ability to collect the sums that will become
due thereunder (See Note 1 of the footnotes to the financial
statements accompanying this report).
<PAGE>
Prepaid expenses, as shown on the financial statements
accompanying this report, include deferred federal income taxes
of $226,000, prepaid taxes of $140,000, prepaid insurance of
$29,000, and prepaid expenses of $79,000.
The accrued income tax amount of $1,041,000 as of March 31, 1995,
was eliminated for March 31, 1996 as a result of tax payments for
fiscal year 1995. There is no accrued income tax expense as of
March 31, 1996, because the Company was required to remit
quarterly estimated tax payments for that year. Accounts Payable
increased from $632,000 at March 31, 1995 to $785,000 as of March
31, 1996 as a result of the increase in sales for the fourth
quarter of fiscal year 1996 and the increased backlog of orders
as of March 31, 1996, as compared to the immediately preceding
fiscal year end.
Capital expenditures for fiscal year 1996 were $231,000, of which
$161,000 was incurred for upgrading the Company's electronic data
processing systems. Capital assets of $91,000 that were fully
depreciated were "scrapped" and written off, and an additional
$53,000 of equipment with a depreciated value of $23,000 was
transferred to inventory. Depreciation expense for fiscal year
1996 totaled $199,000. Planned capital expenditures for fiscal
year 1997 are $248,000, with approximately 50% of that amount
being earmarked for factory and test equipment. Plans are being
formulated for future expansion of the production and office
portions of the Company's facility in White Haven, Pennsylvania.
The Company expects to finance these capital expenditures through
loans and income from operations.
"Other Assets" shown on the consolidated balance sheet of the
financial statements accompanying this report represent the
Company's equity investment in a wireless cable operator in the
amount of $212,000 for fiscal years 1995 and 1996, with the
remainder associated with organizational costs of certain
subsidiaries of the Company. The market value of the equity
investment of $212,000 was approximately $359,000 as of March 31,
1996. In the first quarter of fiscal year 1997, the Company sold
approximately 29% of this equity investment.
In November, 1995, the Company, by agreement with its primary
lending institution, increased its available line of credit from
$975,000 to $2 million, at a rate of interest per annum equal to
the lending institution's prime rate of interest minus one-half
of a percentage point. There has been no borrowing against the
line of credit since December, 1993; however, the line was
restricted as of March 31, 1996 by $25,000 in order to
collateralize a stand-by letter of credit issued by the Company
in the ordinary course of its business.
The balance of long-term debt of $1,195,000 as of March 31, 1995
was reduced during fiscal year 1996 through scheduled repayments
<PAGE>
of principal of $172,000, which included a $50,000 accelerated
principal payment on a debt the Company owes to the White Haven
Municipal Authority. As mentioned above, in June, 1995, the
Company obtained a loan of $115,000 from its primary lending
institution in order to finance the purchase of certain data
processing equipment and software. That loan, as of March 31,
1996, had an outstanding principal balance of $96,000.
The Company believes that its existing working capital and
borrowing capacity, coupled with the cash flow generated from its
operations, including advance deposits on sales orders, will be
sufficient to fund its anticipated working capital and debt
payments required for fiscal year 1997.
Inflation has not had a significant impact on cost or price in
the two fiscal years under review. However, it is important to
note that a significant portion of component parts that are
integrated into the Company's products are obtained from sources
outside of the United States, primarily the Far East.
The value of common stock and additional paid-in capital shown on
the financial statements accompanying this report increased by
$47,000 in fiscal year 1996 as a result of the exercise of
employee stock options (See Note 9 to the financial statements
for a further discussion). The value of the Company's Treasury
Stock (a deduction from common stock) increased from $21,000 as
of March 31, 1995, to $52,000 as of March 31, 1996, due to the
Company's purchase of stock from former employees under its KSOP
Plan Agreement.
In May, 1996, the Company, through a subsidiary, purchased
200,000 shares of the Company's stock from the Estate of a former
director through an agreement negotiated with the beneficiary. In
consideration of this agreement, the Company has issued a
Non-Negotiable, Non-Transferrable Stock Warrant to the
beneficiary that expires on May 22, 2001, for 200,000 shares of
the Company's stock at an exercise price of $9.46875 per share.
The sales order backlog, which the Company anticipates will be
filled in fiscal year 1997, was $10,912,000 as of March 31, 1996,
as compared to $3,162,000 at March 31, 1995. The current backlog
includes approximately $8.8 million of a contract being performed
by the Company in which it is a subcontractor for a 40-city
wireless cable system in Saudi Arabia. As previously mentioned,
the Company believes that the successful completion of this
contract, together with the Company's prior and continuing
participation in the international marketplace, will enhance its
reputation and initiate the potential for additional sales volume
in the Middle East and in other parts of the world.
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Assets
<S> <C> <C>
March 31, 1996 1995
- ----------------------------------------------------------
Current assets:
Cash and equivalents $1,537,759 $1,440,080
U.S. Treasury Bills 1,569,026 580,528
Accounts receivable, net of
allowance for doubtful accounts
(1996, $95,000; 1995, $120,000) 1,818,988 1,667,495
Inventories 3,375,901 4,047,946
Prepaid expenses and deferred
income taxes 473,933 276,047
Note receivable 2,100,000
Less deferred portion (2,100,000)
------------------------
Total current assets 8,775,607 8,012,096
Note receivable 2,100,000
Less deferred portion (2,100,000)
------------------------
0
------------------------
Property, plant and equipment:
Land and land improvements 246,841 246,841
Building 621,215 621,215
Machinery 2,060,799 1,972,808
------------------------
2,928,855 2,840,864
Less accumulated depreciation 1,982,113 1,896,040
------------------------
946,742 944,824
------------------------
Other assets 214,900 215,200
------------------------
Total assets $9,937,249 $9,172,120
========================
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Shareholders' Equity
<S> <C> <C>
March 31, 1996 1995
Current liabilities:
Current portion of long-term debt $200,000 $150,500
Accounts payable 785,159 632,052
Accrued expenses 552,506 415,598
Deposits from customers 526,199 564,203
Accrued income taxes 1,041,000
---------------------
Total current liabilities 2,063,864 2,803,353
---------------------
Long-term debt, net of current
portion 938,217 1,044,243
---------------------
Shareholders' equity:
Common stock, $.01-2/3 par;
authorized 9,000,000 shares;
issued 4,359,381 shares, 1996;
4,300,155 shares, 1995 72,653 71,670
Additional paid-in capital 3,517,778 3,472,200
Retained earnings 3,396,801 1,801,715
---------------------
6,987,232 5,345,585
Less shares held in treasury,
at cost (1996, 7,325;
1995, 3,211) 52,064 21,061
---------------------
6,935,168 5,324,524
---------------------
Total liabilities and equity $9,937,249 $9,172,120
=====================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Income
<S> <C> <C>
Years ended March 31, 1996 1995
- -------------------------------------------------------------
Net sales $14,292,562 $16,365,326
Costs of products sold 9,101,277 9,472,302
------------------------
Gross profit 5,191,285 6,893,024
------------------------
Operating expenses:
Selling 1,597,549 1,425,980
General and administrative 1,213,996 1,087,181
Research and development 460,884 365,620
------------------------
3,272,429 2,878,781
------------------------
Income from operations 1,918,856 4,014,243
------------------------
Other income (expense), net:
Interest expense (140,723) (115,785)
Interest income 105,279 61,319
Other 17,674 21,338
------------------------
(17,770) (33,128)
------------------------
Income before income taxes 1,901,086 3,981,115
Income taxes 306,000 829,000
------------------------
Net income $1,595,086 $3,152,115
========================
Earnings per common and common
equivalent share:
Primary $.36 $.71
=======================
Assuming full dilution $.36 $.70
=======================
Shares used in computing earnings
per common share and
common share equivalent:
Primary 4,403,500 4,468,100
=======================
Assuming full dilution 4,405,500 4,479,300
<FN>
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Shareholders' Equity
Common stock Additional
----------------
Years ended March 31 Shares Amount paid-in capital
- --------------------------------------------------------------
<S> <C> <C> <C>
Balance, March 31, 1994 4,246,826 $70,782 $3,451,836
Common stock issued
under stock option plan 53,329 888 20,364
Treasury stock purchased
Net income for the year
----------------------------------
Balance, March 31,1995 4,300,155 71,670 3,472,200
Common stock issued
under stock option plan 59,226 983 45,578
Treasury stock purchased
Net income for the year
----------------------------------
Balance, March 31,1996 4,359,381 $72,653 $3,517,778
==================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Retained
Earnings Treasury Stock
Years ended March 31 (deficit) Shares Amount Total
- --------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, March 31,1994 $(1,350,400) 466 $ (976) $2,171,242
Common stock issued
under stock option plan 21,252
Treasury stock purchased 2,755(20,085) (20,085)
Net income for the year 3,152,115 3,152,115
-------------------------------------
Balance, March 31,1995 1,801,715 3,221 (21,061) 5,324,524
Common stock issued
under stock option plan 46,561
Treasury stock purchased 4,104 (31,003) (30,003)
Net income for the year 1,595,086 1,595,086
--------------------------------------
Balance, March 31,1996 $3,396,801 7,325 $(52,064)$6,935,168
======================================
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
<S> <C> <C>
Years ended March 31, 1996 1995
Cash flows from operating activities:
Net income $1,595,086 $3,152,115
Adjustments:
Depreciation 198,632 171,911
Provision for doubtful accounts (25,000)
Disposal of fixed assets 30,647
(Increase) decrease in:
Accounts receivable (126,493) (1,193,443)
Inventory 672,045 (1,207,166)
Prepaid expenses (159,886) (15,044)
Deferred income tax asset, net (38,000) (188,000)
Other assets 300 (3,200)
Increase (decrease) in:
Accounts payable 153,107 (154,595)
Accrued expenses and income taxes (904,093) 1,090,499
Deposits from customers (38,004) (738,343)
-----------------------
Net cash provided by operating
activities 1,358,341 914,734
---------------------
Cash flows from investing activities:
Acquisition of property, plant
and equipment (231,197) (342,685)
Purchase of U.S. Treasury Bills (2,388,498) (775,422)
Proceeds from maturities of U.S.
Treasury Bills 1,400,000 194,894
-----------------------
Net cash used in investing
activities (1,219,695) (923,213)
-----------------------
Cash flows from financing activities:
Acquisition of treasury stock (31,003)( 20,085)
Proceeds from issuance of:
Long-term debt 115,000 150,000
Common stock 46,561 21,252
Repayment of:
Long-term debt (171,525) (136,537)
Notes payable, related parties (150,000)
----------------------
Net cash used in financing
activities (40,967) (135,370)
----------------------
Net increase (decrease) in cash
and equivalents 97,679 (143,849)
Cash and equivalents, beginning 1,440,080 1,583,929
----------------------
Cash and equivalents, ending $1,537,759 $1,440,080
======================
<PAGE>
<FN>
Supplemental disclosures of cash flow information:
Cash paid for interest expense amounted to $142,000 and
$115,000 in 1996 and 1995, respectively. Cash paid for income
taxes was $1,473,000 and $11,000 in 1996 and 1995, respectively.
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
Independent Auditors' Report
Board of Directors
EMCEE Broadcast Products, Inc.
White Haven, Pennsylvania
We have audited the consolidated balance sheets of EMCEE
Broadcast Products, Inc. and subsidiaries as of March 31, 1996
and 1995 and the related consolidated statements of income,
shareholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of EMCEE Broadcast Products, Inc. and subsidiaries as of
March 31, 1996 and 1995, and the results of their operations and
their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Kronick Kalada Berdy & Co.
Kingston, Pennsylvania
May 21, 1996
<PAGE>
Notes to Consolidated Financial Statements
Years ended March 31, 1996 and 1995
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of
EMCEE Broadcast Products, Inc. (previously Electronics, Missiles
& Communications, Inc.) and its wholly-owned subsidiaries
(together, the Company). All significant intercompany accounts
and transactions have been eliminated.
Revenue recognition, sale of license:
During 1992, a rural cellular license was sold for $3,100,000.
The initial payment was $845,000, net of closing costs of
$155,000. The balance, which bears interest at 7% payable at
maturity, is due December 1996. Security for the note consists of
the personal guarantee of an individual. The deferred payment and
the related interest income was not recognized because of its
extended collection period and because there is no reasonable
basis to evaluate the likelihood of collection. It is at least
reasonably possible that a change in this estimate will occur in
the near term. Revenue will be recognized upon receipt. Based
upon the information available to the Company, the license holder
was operating a cellular system at March 31, 1996.
Cash and U.S. Treasury Bills:
The Company considers cash equivalents to be all highly liquid
investments purchased with an original maturity of three months
or less. U.S. Treasury Bills with an original maturity of more
than three months are considered to be investments. All U.S.
Treasury Bills are stated at cost which approximates market and
are considered as available for sale. All U.S. Treasury Bills at
March 31, 1996 not included as cash equivalents had contracted
maturities of either six or twelve months.
Inventories:
Inventories are stated at the lower of standard cost which
approximates current actual cost (on a first-in, first-out basis)
or market (net realizable value).
Property, plant and equipment and depreciation:
Property, plant and equipment are stated at cost. Depreciation is
provided on the straight-line method over the estimated useful
lives of the assets.
Use of estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, the disclosure of contingent
assets and liabilities and the reported revenues and expenses.
<PAGE>
Advertising:
These expenses are recorded when incurred. They amounted to
$93,000 and $69,000 for 1996 and 1995, respectively.
Earnings per share:
Primary earnings per common and common equivalent share and
earnings per common and common equivalent share assuming full
dilution are computed using the weighted average number of shares
outstanding adjusted for the incremental shares attributed to
outstanding options to purchase common stock.
2.Industry, sales and accounts receivable concentration
information:
The Company's primary activity is in one segment which consists
of the assembly and sale of equipment for the domestic and
foreign television broadcasting industry. Major customers are
those that individually account for more than 10% of the
Company's consolidated revenues. For the years ended March 31,
1996 and 1995, two customers with total sales of $4,864,000 and
one with total sales of $4,567,000, respectively, qualified as
major customers. World wide export sales amounted to $8,132,000
and $6,829,000 for 1996 and 1995, respectively. At March 31,
1996, the Company had two customers who owed the Company $784,000
and $513,000 from the sale of television broadcasting equipment.
The Company performs ongoing credit evaluations of its customers
and typically requires deposits and a letter of credit on foreign
sales and deposits on domestic sales. Historically, the Company's
uncollectible accounts receivable have been immaterial.
3.Cash and equivalents:
At March 31, 1996, cash held at a financial institution is in
excess of the Federal Deposit Insurance coverage by $163,000. In
addition, $198,000 of U.S. Treasury Bills were recorded as cash
equivalents.
4.Inventories:
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Finished goods $554,000 $533,000
Work-in-process 681,000 1,111,000
Raw materials 1,614,000 1,589,000
Manufactured components 526,901 814,946
-------------------------
$3,375,901 $4,047,946
=========================
</TABLE>
<PAGE>
5. Line of credit:
The Company has a line of credit agreement with a bank
aggregating $2,000,000 collateralized by inventories, accounts
receivable and all property, plant and equipment. Inventories and
accounts receivable must be maintained at specific levels in
relation to the outstanding principal balance. At March 31, 1996
the Company had outstanding letters of credit totaling $25,000
which reduce the aggregate amount available under the line of
credit agreement. The line of credit agreement requires monthly
interest payments at .50% below the bank's prime rate of interest
which was 8.25% at March 31, 1996. There were no principal
borrowings during the years ended March 31, 1996 and 1995.
The loan agreement contains restrictive covenants which, among
other things, require the Company to maintain a maximum total
liabilities to net worth ratio, a minimum current ratio and a
debt coverage ratio. The Company is allowed to pay dividends on
its common stock if it is in compliance with the financial
covenants and ratios.
6.Long-term debt:
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
Term loans, bank $823,369 $872,000
Due to municipal authority 83,155 143,800
Equipment loans 231,693 178,943
-------------------------
1,138,217 1,194,743
Less current portion 200,000 150,500
-------------------------
$938,217 $1,044,243
=========================
</TABLE>
Term loans, bank consist of two loans at March 31, 1996. One loan
in the current amount of $739,805 matures in 2008 and requires
monthly payments of $7,939, including interest. Interest is
calculated at .375% above the bank's base rate of 8.25% at March
31, 1996. The other loan, with a current balance of $83,564,
matures in 1998 and requires monthly principal and interest
payments of $4,600. The interest rate on this loan is .25% above
the bank's base rate. The bank has the option of adjusting the
monthly payments required under these loans to provide for
changes in the interest rates. The long-term debt is
cross-collateralized with and has the same restrictive covenants
as the line of credit (see Note 5).
The amount due to the municipal authority is payable in monthly
installments of approximately $1,300 and additional principal
payments of ten percent of net income in excess of $100,000 up to
<PAGE>
a maximum additional payment of $50,000 per annum. This liability
had been recorded at its present value using an interest rate of
8%.
Principal payments on long-term debt, based on current interest
rates, are as follows:
1997 $200,000
1998 154,000
1999 125,000
2000 61,000
2001 46,000
Thereafter 552,217
----------
$1,138,217
7.Fair value of financial instruments:
At March 31, 1996, the fair value of long-term debt that is
variable rate debt that reprices regularly and U.S. Treasury
Bills approximates the amounts recorded in the financial
statements. It is not practicable to estimate the fair value of
the note receivable because the Company is unable to estimate the
timing and form of the ultimate settlement of the amounts due to
it. The Company has fully provided for any potential loss
resulting from the non-payment of the receivable.
8. Defined contribution pension plan:
A defined contribution pension plan covers all full time
employees who meet age and service requirements. Contributions to
the plan, determined at the discretion of the Board of Directors,
were $29,000 and $24,000 in 1996 and 1995, respectively.
9.Nonqualified stock option plans:
Nonqualified stock option plans provide for the grant of options
to purchase up to 350,000 shares. Upon the termination or
expiration of any stock options granted, the shares covered by
such terminated or expired stock options will be available for
further grant; 22,750 options were available for grant at March
31, 1996 and 1995. The Board of Directors, at the date of grant
of an option, determines the number of shares subject to the
grant and the terms of such option.
<PAGE>
Stock option activity is shown below:
<TABLE>
<CAPTION>
1996 1995
---------------------
<S> <C> <C>
Outstanding at beginning
of year 145,920 144,499
Granted 182,750
Exercised (prices ranging
from $.34 to $3.4375
per share) (59,226) (53,329)
Cancelled/forfeited (128,000)
--------------------
Outstanding at end of year
(prices ranging from $.34
to $3.4375 per share) 86,694 145,920
====================
Exercisable at end of year 65,611 92,754
</TABLE>
10.Income taxes:
The following table sets forth the current and deferred amounts
of the provision for income taxes for the years ended March 31,
1996 and 1995:
<TABLE>
<CAPTION> 1996 1995
----------------------
<S> <C> <C>
Current $344,000 $1,017,000
Deferred (38,000) (188,000)
----------------------
$306,000 $829,000
</TABLE>
The provision for income taxes at the Company's effective rate
differed from the provision for income taxes at the statutory
rate of 34% for the years ended March 31, 1996 and 1995 as
follows:
<TABLE>
<CAPTION> 1996 1995
----------------------
<S> <C> <C>
Federal income tax at the
statutory rate $646,000 $1,354,000
Foreign sales corporation benefit (173,000)
State taxes, net of federal effect 94,000
Federal income tax credit (49,000) (36,000)
Change in valuation allowance (597,000)
Other, net (118,000) 14,000
----------------------
Provision for income taxes $306,000 $829,000
======================
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to
deferred income taxes at March 31, 1996 and 1995 are presented in
the table below:
<TABLE>
<CAPTION>
1996 1995
--------------------
<S> <C> <C>
Deferred tax assets:
Inventory $124,000 $157,000
Other differences 102,000 84,000
--------------------
Total gross deferred tax assets 226,000 241,000
Deferred tax liabilities,
depreciable assets (53,000)
--------------------
Net deferred tax asset $226,000 $188,000
====================
</TABLE>
11.Subsequent event:
Subsequent to March 31, 1996, the Company purchased 200,000
shares of its common stock using available cash. This purchase
represents approximately 5% of outstanding shares.
<PAGE>
Directors, Officers and Shareholder Information
Executive Officers
James L. DeStefano
President/CEO
Allan J. Harding
Vice President-Finance
Robert G. Nash
Vice President-Director of Engineering
John Saul
Vice President--Director of Systems Engineering
Perry Spooner
Vice President--International Sales
Martin D. Cohn, Esquire
Secretary
Laputka Bayless Ecker & Cohn, P.C.
Attorneys-at-Law
Sharon L. Barry
Assistant Secretary
Board of Directors
James L. DeStefano
Scranton, Pennsylvania
Joe B. Hassoun
Berwyn, Illinois
Michael J. Leib
Weatherly, Pennsylvania
Richard J. Nardone
Wapwallopen, Pennsylvania
Evagelia R. Rogiokos
Oak Lawn, Illinois
Leonard S. Teven
Lake Forest, Illinois
<PAGE>
Common Stock Data
Trading: Listed on the NASDAQ National Market - ticker symbol:
(NASDAQ) ECIN.
Daily stock prices are carried in The Wall Street Journal -
NASDAQ National Market section.
Price Range of Common Stock
Fiscal Year 1996
- --------------------------------------------------------------
Quarter ended June 30 September 30 December 31 March 31
- --------------------------------------------------------------
Common Share:
High 7.750 8.375 8.250 8.125
Low 5.000 5.375 6.250 5.875
Fiscal Year 1995
- --------------------------------------------------------------
Quarter ended June 30 September 30 December 31 March 31
- --------------------------------------------------------------
Common Share:
High 3.625 8.000 8.625 8.000
Low 1.000 2.675 6.250 5.000
EMCEE Broadcast Products, Inc.
Susquehanna Street Extension
P.O. BOX 68
White Haven,
Pennsylvania 18661-0068
Phone: (800) 233-6193
fax: (717) 443-9257
