U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
------ SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended March 31, 1999
------- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [No Fee
Required]
For the transition period from _________
_________________ to ___________________
Commission file number 1-6299
EMCEE BROADCAST PRODUCTS, INC.
(Name of small business issuer in its charter)
DELAWARE 13-1926296
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
SUSQUEHANNA STREET EXTENSION,
PO BOX 68, WHITE HAVEN, PA 18661-0068
(Address of principal executive (Zip Code)
offices)
Issuer's telephone number: (570) 443-9575
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange on which
registered:
Common NASDAQ National Market
Securities registered under Section 12(g) of the Exchange Act:
None
(TITLE OF CLASS)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve (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 ninety (90)
days.
Yes X No
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. __
State issuer's revenues for its most recent fiscal year, $5,895,567.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant is $7,521,680 computed by reference to the closing bid price of the
stock at June 24, 1999. This computation is based on the number of issued and
outstanding shares held by persons other than directors and officers of the
Registrant.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
CLASS OUTSTANDING AT JUNE 24, 1999
Common stock, par value $.01-2/3 3,760,840
per share
DOCUMENTS INCORPORATED BY REFERENCE
Items 9, 10, 11 and 12 in Part III of this report are incorporated
by reference from the Proxy Statement expected to be filed within one hundred
twenty (120) days of the close of the Registrant's fiscal year ended March 31,
1999.
Transitional Small Business Disclosure Format (Check One)
Yes ; No X
<PAGE>
EMCEE BROADCAST PRODUCTS, INC.
FORM 10-KSB
FISCAL YEAR ENDED MARCH 31, 1999
TABLE OF CONTENTS
PART I.
ITEM 1. DESCRIPTION OF BUSINESS 1
ITEM 2. DESCRIPTION OF PROPERTY 6
ITEM 3. LEGAL PROCEEDINGS 7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 8
PART II.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION 9
ITEM 7. FINANCIAL STATEMENTS 27
ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURES 27
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT 28
ITEM 10. EXECUTIVE COMPENSATION 28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURES 31
<PAGE> PART I
ITEM 1. DESCRIPTION OF BUSINESS
The Registrant (sometimes alternatively referred to in this report
as the Company or EMCEE) is a corporation, organized and existing under the
laws of the State of Delaware, having been incorporated in 1960.
The Registrant is engaged principally in the manufacture and sale of
Multichannel Multipoint Distribution Service (MMDS) microwave transmitters and
related equipment for the wireless cable industry and low power television
(LPTV) transmitters and related equipment for the television broadcast
industry. These principal products are distributed primarily through the
Registrant's sales staff and independent representatives, with most sales
occurring in the commercial, educational and private television system
markets. The Registrant also provides all services relative to the design,
procurement and installation of television broadcast stations, with the
exception of licensing submissions.
For more than the past three years, the Company's primary sales and
marketing focus has been on the wireless cable industry. While the Company was
also involved in the manufacture and sale of products to the LPTV market
during the same period of time, LPTV product sales have been overwhelmingly
subordinate to the Company's MMDS products. The Company anticipates that its
MMDS sales will continue to dominate in both domestic and foreign markets.
At March 31, 1999, the Registrant employed 45 people, of whom 43
were full time employees.
The Registrant has a variety of raw material sources available to
conduct its present business. However, substantial periods of lead time for
delivery are sometimes experienced by the Registrant, making it necessary to
inventory varied quantities of materials.
Significant portions of the Registrant's revenues come from
contracts with customers who generally do not place orders on a regular basis.
In addition, the timing of these contracts relate to economic and regulatory
developments over which the Registrant has little or no control.
In fiscal year 1999, purchases by the United States government
constituted, in the aggregate, $718,000, or approximately 12.2% of the
Company's net sales. Although these purchases were significant in both amount
and as a percentage of sales, the Company is not dependent on the federal
government for future sales.
The Registrant's principal suppliers are Andrew Corporation,
Scientific Atlanta, Inc. and Microwave Filter Company, Inc.
Substantially all of the Registrant's domestic products must receive
Federal Communications Commission (FCC) approval prior to being marketed and
sold. As of the date of this report, the Registrant is awaiting approval of a
TTV 500ES 500 watt VHF transmitter and a TTS100DS 100 watt digital transmitter
(MMDS).
<PAGE>
While FCC regulations can have an effect on the demand for the
Registrant's domestic products, the Registrant does not presently know of any
existing governmental regulation and does not anticipate any probable
governmental regulation which would have a material effect on its business.
However, recently issued FCC regulations concerning high definition television
(HDTV) may, for an interim period ending as early as 2006, have created a
temporary market for a 2.5 kilowatt UHF transmitter developed by the
Registrant and an unaffiliated entity which will facilitate the simulcasting
of HDTV and ordinary television signals. In fact, in April 1999, the Company
exhibited this transmitter at the annual National Association of Broadcasters
Convention and sold the first unit in fiscal year 1999.
Through a subsidiary, the Registrant is involved in a joint venture
with another entity to provide wireless high speed Internet access. Wireless
high speed Internet access involves connecting to the Internet using MMDS
transmitters. Although more expensive than traditional telephone Internet
access, wireless high speed Internet access technology, like its name
suggests, enables the user to access and utilize the Internet much faster than
through the telephone, so much so that a user can download information and
data from the Internet approximately 47 times faster than can be done using a
regular telephone modem. While the joint venture is not presently selling this
service to consumers or businesses, an application for experimental 2-way
service in Utah has been approved by the FCC. If this business eventually
proves successful, the Registrant will seek to become involved in providing
the service to other areas of the United States as well.
By way of a partially owned subsidiary, EMCEE Broadcast Products
(Chengdu) Company, Ltd., and an agreement with an independent Chinese company,
the Registrant is seeking to increase sales in China. At present, the
Registrant sells both companies MMDS transmitter assembly kits. Eventually,
the Registrant hopes that these companies will be able to carry out
approximately 40% of the manufacturing process. However, due to current
competitive conditions in China, sales results thus far have been less than
initially expected.
The amount of money spent on the Registrant's research and
development activities in fiscal years 1998 and 1999 was,
respectively,$377,557 and $422,426. An additional $20,000 and $9,000 of
research and development costs were funded by customers in fiscal years 1998
and 1999, respectively.
In the MMDS industry, the Registrant occupies a strong position
among its competitors. However, the Company has been experiencing significant
pricing pressures in the MMDS industry, primarily as a result of a reduction
in demand for MMDS products, both domestically and internationally.
The primary methods of competition in the Registrant's industry are
product pricing, the ready availability of quality products to accommodate
demand, offering quality service of products after sale, and maintaining a
reputation for having a high degree of technical knowledge.
There has been no material effect on the Registrant as a result of
compliance with federal, state or local environmental laws.
<PAGE>
The Registrant's principal corporate logos, EMCEE and EMCEE
Broadcast Products, are registered in the United States Patent and Trademark
Office and are used by the Registrant pursuant to a license with its wholly
owned subsidiary corporation, EMCEE Cellular Inc., which owns the marks. In
the same manner, the Registrant also uses the trademark, Site Lock, which is a
mark associated with a product sold by the Registrant that enhances picture
quality for MMDS systems in close proximity to systems operating on the same
frequency, and utilizes a patent for a solid state S-band transmitter.
ITEM 2. DESCRIPTION OF PROPERTY
The Registrant conducts operations at its facility located on 25
acres, which the Registrant owns, in White Haven, Pennsylvania.
The building was constructed specifically for the Registrant in 1968
and consists of approximately 27,000 square feet, with the majority of the
area devoted to manufacturing. The front portion of the building, consisting
of two floors, houses administrative, engineering and sales offices. The land,
building and improvements are well maintained and in good condition.
The Registrant's land, building and improvements are subject to
encumbrances held by the Registrant's primary lending institution, First Union
National Bank. These encumbrances secure the Registrant's working line of
credit, mortgage loan and two term loans with the lender. As of the date of
this report, the aggregate principal balance of these encumbrances is
$752,422.
Presently, the Registrant also leases a warehouse in White Haven,
Pennsylvania, in which it stores equipment and archival documents.
ITEM 3. LEGAL PROCEEDINGS
There is no information relevant to the Registrant which must be
disclosed under this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of fiscal year 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The NASDAQ National Market is the principal market on which the
Registrant's common stock is traded.
<PAGE>
MARKET INFORMATION
STOCK PRICE
The table below presents the high and low bid prices of the
Registrant's common equity for the two most recent fiscal years:
FISCAL YEAR 1999 FISCAL YEAR 1998
QTR ENDED: JUNE 30 SEPT 30 DEC 31 MAR 31 JUNE 30 SEPT 30 DEC 31 MAR 31
(BID) HIGH $2.875 $1.438 $1.219 $2.375 $4.25 $4.375 $4.375 $3.25
(BID) LOW $2.875 $1.125 $1.125 $2.125 $1.97 $2.03 $2.625 $2.813
The above high/low bid information was obtained from the NASDAQ
Stock Market, Inc.
HOLDERS
At March 31, 1999, the number of holders of the Registrant's common
stock was 1,543.
DIVIDENDS
No dividends were declared during fiscal year 1998 or fiscal year
1999. The Registrant's loan documents with its primary lending institution
contain certain financial covenants with which the Registrant must comply in
order to declare and pay dividends on its common stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995:
Any statements contained in this report which are not historical
facts are forward looking statements; and, therefore, many important factors
could cause actual results to differ materially from those in the forward
looking statements. Such factors include, but are not limited to, changes
(legislative, regulatory and otherwise) in the Multichannel Multipoint
Distribution Service (MMDS) or Low Power Television (LPTV) industries, demand
for the Company's products both domestically and internationally, the
development of competitive products, competitive pricing, the timing of
foreign shipments, market acceptance of new product introductions (including,
but not limited to, the Company's digital and Internet products),
technological changes, economic conditions(both foreign and domestic),
litigation and other factors, risks and uncertainties identified in the
Company's Securities and Exchange Commission filings.
<PAGE>
Net sales totaled $5,896,000 for the fiscal year ended March 31,
1999, a decrease of 35.8% compared to the fiscal year ended March 31, 1998.
This downward trend in sales has continued since fiscal year 1995 as funding
for domestic sales has decreased and currency, economic and political problems
have had a detrimental effect in the international market. Included in the
prior year's sales of $9,188,000 was a non-recurring cancellation fee of
$218,000 net of direct costs which represented 2.4% of total sales. The
Company required a cancellation fee for this foreign contract because the
Company incurred certain direct costs (included in cost of sales), which
otherwise would not have been necessary.
Domestic demand has weakened as operators in the Multichannel
Multipoint Distribution Service (MMDS) have received so little new financing
that several had to declare bankruptcy and/or merge with other operators.
Domestic sales for the year ended March 31, 1999, of which approximately 82%
was to the MMDS industry, totaled $2,904,000 (or 49% of total sales) compared
to domestic sales of $3,625,000 (or 39% of total sales) for the fiscal year
ended March 31, 1998.
Foreign shipments, which were expected to keep the Company
profitable until several new products were introduced to the market, decreased
from $5,563,000 for fiscal 1998 to $2,992,000 for fiscal 1999. Unlike the
domestic market, the demand for EMCEE equipment is high in the foreign
markets; however, the collapse of currency values, especially in the Pacific
Rim countries, and the concomitant political crisis decreased the ability to
complete sales.
The Registrant has historically been dependent on foreign sales for
more than half of total shipments. Foreign shipments comprised 51%, 61% and
56%of total sales for fiscal years 1999, 1998 and 1997. The composition of
those shipments to the following geographic regions is as follows:
Region 1999* 1998* 1997*
- ------------------------------------------------------------------------
Asia/Pacific Rim $1,015 $2,118 $2,689
Middle East $372 $479 $2,113
South America $140 $893 $686
North America $368 $573 $377
Central America $102 $427 $91
Caribbean $423 $11 $52
Europe $365 $249 $182
Africa $52 $206 $137
Other $155 $607 $729
---------------------------------------
$2,993 $5,563 $7,056
*Based on customers having $10,000 or more of sales; amounts in thousands
Gross profit on foreign sales have historically carried higher gross
profit margins than domestic sales. The gross profit for fiscal 1999 amounted
to $768,000 or 57% of total gross profit. Comparable gross profit margins as
a percent of total gross profit for prior fiscal years were 67% for fiscal
1998 and 55% for fiscal 1997.
<PAGE>
The largest customer for fiscal 1999 included several divisions of a
Federal government contract which totaled $718,000 or 12% of total sales and
was for low power transmitters of a special design. No single foreign
customer aggregated more than 5.6% of total sales. It is significant that
there were no large single foreign contracts (i.e. in excess of $375,000) for
fiscal 1999.
The Company has reason to believe that foreign shipments will
increase in fiscal 2000 (year ended March 31, 2000) as foreign economies
recover. While the domestic market for MMDS television transmitters is not
expected to improve, the Registrant has developed products for high speed
Internet and High Definition Television (HDTV) which it believes will produce
sales volume in fiscal 2000 to provide a budgeted profit margin.
Wireless transmission of high speed Internet communications has been
proven to have significant cost advantages over other high speed methods. The
Company has invested and plans to continue to invest in high speed Internet
providers to control and promote this relatively new service.
HDTV will provide a strong demand for a low cost low power
television transmitter to provide simulcast of analog and digital
transmissions as required by the Federal Communications Commission(FCC)
regulations. The Company's TTU2500HD transmitter, which uses digital
protocol, was well received at the National Association of Broadcasting
Convention held in April of 1999.
Gross profit for the fiscal year ended March 31, 1999 totaled
$1,352,000, a decrease of 55.9% from the prior year. Besides the reduction
due to the reduced sales volume, this reduction in sales produced additional
unfavorable manufacturing variances of $716,000 for fiscal 1999 compared to
unfavorable manufacturing variances of $394,000 for fiscal 1998. The standard
margin percent (Net Sales Minus Standard Cost) for equipment and O.E.M.
shipments for the year ended March 31, 1999 was at 35.1% which was nominally
less than the 35.3% standard margin percent for the year ended March 31, 1998.
A cancellation fee of $240,000 ($218,000 net of direct costs) included in the
prior year sales and the higher manufacturing variances for the current year,
reduced gross profit as a percent of sales from 33.4% for fiscal 1998 to 22.9%
for fiscal 1999. Original equipment manufactured by others, or O.E.M., in
which the Registrant does not add value, carry significantly lower margin
percentages. Sales of O.E.M. totaled $894,000 (15% of total sales) for fiscal
1999 and $1,811,000 (20% of total sales) for fiscal 1998.
The Company has continued to control costs during the period of
decreasing sales. Total operating expenses were $2,572,000 for fiscal 1999
compared to $2,886,000 for fiscal 1998. Selling expense totaled $997,000 for
the year ended March 31, 1999, a decrease of $413,000 or 29% from the amount
of $1,410,000 for the year ended March 31, 1998. General and administrative
expense increased $53,000 and research and development costs increased 12% to
$422,000 for the year ended March 31, 1999 compared to the year ended March
31, 1998.
The decrease in selling expenses is a continuation of cost controls
initiated in fiscal 1997 as management recognized the decrease in demand for
its products. Salaries and salary related expense (including commissions)
were reduced by $180,000; shows and conventions by $106,000; sales travel by
$44,000 and advertising by $25,000 for the fiscal year 1999 compared to the
prior fiscal year.
<PAGE>
General and administrative expense totaled $1,152,000 for the year
ended March 31, 1999 compared to $1,099,000 for the year ended March 31, 1998.
Legal and related fees for the fiscal year 1999 totaled $170,000 compared to
$70,000 for fiscal year 1998. Included in this total for the most recent year
was approximately $80,000 expended to evaluate a merger initiated by a third
party. A determination was made by management that the offer was inadequate.
An additional amount of approximately $25,000 was used for evaluating the
Registrant's plans for expansion into high speed Internet services.
Other than the forgoing legal and related expense, reductions were
achieved in all major general and administrative expenses with the exception
of computer expenses which increased $20,000 (54%) compared to fiscal 1998 due
primarily to the costs associated with Y2K preparedness and virus defensive
software.
Research and development expenses totaled $422,000 for the year
ended March 31, 1999, an increase of $45,000 or 12% over the expense for the
year ended March 31, 1998. Although expenses in the prior year contained a
credit of $20,000 for expense recovered for non-recurring engineering (NRE)
from a customer versus $9,000 credit in the latter fiscal year, the Company
has committed to additional expenditures in order to remain competitive for
the emerging technology in HDTV and MMDS (including high speed Internet
products).
A loss from operations of $1,220,000 resulted for the twelve months
ended March 31, 1999 compared to income from operations of $183,000 for the
same period one year ago.
Interest expense for the year ended March 31, 1999 amounted to
$72,000 compared to $84,000 for the prior year as total long-term debt,
including the current portion, was reduced from $864,000 as of March 31, 1998
to $768,000 as of March 31, 1999.
Interest income totaled $227,000 for fiscal 1999, a decrease of
$33,000 from fiscal 1998 due to a decrease in both the amount of funds
available for investment in Treasury Bills and money markets and in interest
rates received.
For the year ended March 31, 1998, a gain on the sale of the
Company's remaining investment in a Company involved in wireless television
communications was sold for a gain of $277,000.
In the year ended March 31, 1999 other income, which was comprised
primarily of cancellation fees on canceled orders of $43,000 and equipment
rental fees of $10,000 (offset by approximately $3,000 on a loss on a
conversion of US dollars to French Francs), netted $48,000 compared to other
income of $25,000 for the year ended March 31, 1998.
This net other income of $204,000 for the twelve months ended March
31, 1999 decreased net loss before federal income tax benefit to $1,015,000
compared to net income before federal income taxes expense of $662,000 for the
twelve months ended March 31, 1998.
A tax benefit for fiscal 1999 amounted to $433,000 and reduced the
net loss to $583,000 or $(.15) per share of stock outstanding both for basic
and diluted shares. A tax accrual of $146,000 for the fiscal year ended March
31, 1998 reduced net income to $515,000 or $.12 cents per share of outstanding
stock for basic and diluted shares.
<PAGE>
Additional taxes were levied by the Internal Revenue Services for
examination of the prior years Foreign Sales Corporation (FSC) and
approximately $54,000 was paid in fiscal 1999. As this amount has been accrued
in fiscal 1998, no additional adjustments were necessary.
There is no state tax liability for periods under review since all
profitable companies in the consolidated reporting group are domiciled in
jurisdictions that do not impose income taxes.
Selected financial data by quarter for the year ended March 31, 1999
and 1998 is as follows:
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1999 1998 1999 1998 1999 1998 1999 1998
(Thousands of Dollars, except per share amounts)
-------------------------------------------------------------
Net Sales $2,199 $1,823 $2,166 $2,246 $807 $2,794 $724 $2,235
Gross
profit(loss) $656 $498 $713 $818 $64 $1,035 ($81) $718
Net income(loss) $16 $20 $40 $134 ($377) $305 ($262) $56
Per Share:
Basic Nil $.01 $.01 $.03 $(.09) $.07 $.07 $ 01
Diluted Nil $.01 $.01 $.03 $(.09) $.07 $.07 $.01
Net Income $16 $20 $40 $134 ($377) $305 ($262) $56
Currency valuation changes decreased foreign sales commencing in the
third quarter of fiscal 1999 and coupled with the inability of funding
projects for our core business in the MMDS industry, resulted in the decrease
in shipments in the third and fourth quarter.
IMPACT OF YEAR 2000
The Registrant has had annual maintenance agreements with its
primary hardware and software vendors which includes a warranty that these
systems will be Year 2000 compliant. Approximately $37,000 was expended in
both years under discussion for the maintenance coverage. In addition, the
Company utilized software programs in fiscal 1999 costing less than $1,000
which, in management's opinion, will ensure Year 2000 compliance for personal
computers and inter and intra-communications equipment. All costs have been
expensed as incurred.
Contingency plans for the Year 2000 related interruptions are being
developed and will include, but not limited to, the development of emergency
backup and recovery procedures, the staffing of a centralized team to react to
unforseen events, replacing electronic applications with mutual
<PAGE>
processes, identification of alternate suppliers and increasing raw material
and finished goods inventory levels. The potential failure of a power grid or
public telecommunication system, particularly internationally, will be
considered in our contingency planning. All plans are expected to be
completed by the end of the second quarter in calendar year 1999.
Liquidity and Capital Resources
The Company believes that the domestic demand for MMDS television
transmitters will be almost non-existent for the fiscal year 2000 due to the
transition of this spectrum to high speed Internet and telephony service.
However, the application of high speed Internet service using the same type of
digital equipment will have a favorable impact on product demand in the latter
parts of calendar year 1999.
The Registrant has developed products for the HDTV transition as
promulgated by the FCC which requires domestic television stations to transmit
a digital signal by the year 2006.
Foreign shipments for both analog and digital transmitters for MMDS
service is anticipated to increase in the next several quarters as foreign
countries are stabilizing the economic and currency abnormalities.
Finally, the Company has invested and is planning to increase
investments in the high speed Internet providers industry which it believes
has potential for profitable returns as is indicated by the recent purchase of
MMDS spectrum by such corporations as MCI WorldCom and Sprint.
The Company's cash requirements were satisfied in fiscal 1999 from
cash on-hand and customer deposits. These funds were sufficient to met the
Company's working capital requirements and required debt payments. Along with
the mortgage and equipment loans of $768,000, the Company has an available
line of credit of $2,000,000 from its primary lending institution. The line
has not been utilized since 1993.
The Registrant was in violation of two covenants with its primary
lending institution as of March 31, 1999. One covenant requires the
Registrant to maintain a cash flow to debt service coverage ratio of 3.00 to
1.00. The debt service coverage ratio as of March 31, 1999 was (3.39). In
addition, this loan agreement requires the Company to obtain the
Institution's written consent prior to investing in or making payments to
third parties other than in the normal course of business. During fiscal year
1999 the Registrant made advances to two affiliated third parties for a total
of $514,000 without such consent. The Registrant received notice of waiver of
the loan covenant violations that occurred in fiscal 1999.
Cash and cash equivalents decreased $957,000 to $1,572,000 as of
March 31, 1999 compared to March 31, 1998. Treasury Bills totaled $1,776,000
as of March 31, 1999, a decrease of $494,000 from the date one year earlier.
Funds from cash, cash equivalents and T-Bills were used in part to invest in
high speed Internet companies which are included in other assets and total
$384,000. Also included in this category is a note receivable and accrued
interest of $107,000 due from a principal of one of the partners in the
investment enterprise and organization costs of subsidiaries of less than
$1,000. The note receivable, which bears interest at 1/2% above the prime
rate as published by the Wall Street Journal, is collateralized by a security
interest of a 30% ownership interest in a limited liability corporation (LLC).
The note receivable and related interest is due June 2000. If there is a
<PAGE>
major refinancing of the LLC or a change in the borrower's ownership interest
in the LLC the note receivable and related interest is due immediately.
Accounts receivable totaled $603,000 as of March 31, 1999, down
approximately 50% from the balance at March 31, 1998 due to reduction of
shipments. In the fourth quarters, the Company had shipments of $2,235,000
for the fourth quarter of fiscal 1998 versus $724,000 for the fourth quarter
of fiscal 1999.
Approximately $31,000 of accounts receivable was charged to bad debt
expense in fiscal 1999 compared to $25,000 for the previous fiscal year.
Reserves for doubtful accounts at March 31, 1999 is $35,000, the same as at
March 31, 1998. The Company performs ongoing credit evaluations of its
customers and typically requires deposits and a letter of credit on its
foreign sales and deposits on its domestic sales. Historically, the Company's
uncollectible accounts receivable have been immaterial.
Inventories increased from $3,439,000 as of March 31, 1998 to
$3,523,000 as of March 31, 1999 Effective February 1, 1998, inventories,
which are based on standard costs, were increased to reflect higher labor and
overhead rates resulting in an increased valuation of $157,000 (4%) valuation.
Prepaid expenses as of March 31, 1999 which totaled $661,000 included an
amount of $582,000 for federal tax credits, $20,000 of prepaid insurance;
$26,000 prepaid software maintenance and $26,000 prepaid convention expense.
Prepaid expenses as of March 31, 1998 totaled $115,000 with the federal tax
benefit amount being the major difference. Deferred income taxes totaled
$132,000 as of March 31, 1999 compared to $80,000 for March 31, 1998, the
difference due to timing of the federal tax liability.
Property, plant and equipment, net after accumulated depreciation,
decreased $94,000 from March 31, 1998 to March 31, 1999. Additions for the
fiscal year totaled $180,000, which included $85,000 of inventory that was and
will continue to be used for demonstration purposes. Depreciation and
amortization expense was $274,000 for the twelve months ended March 31, 1999
or $10,000 more than the previous twelve month period.
Other assets increased from $211,000 as of March 31, 1998 to
$492,000 as of March 31, 1999. As detailed in its 10KSB of March 31, 1998,
the Company had invested $210,000 in a limited liability company (LLC) as of
March 31, 1998 which was formed to operate a high speed Internet system. This
investment was temporarily increased in fiscal 1999 to $470,000 and, as of
March 31, 1999 totaled $130,000 which represents a ten percent equity
ownership of the LLC. The Registrant also invested $254,000 in another LLC
formed to operate a high speed Internet system. In this LLC, the Registrant is
a 50% owner; however, operations are not expected to commence until calendar
year 2000. These investments (done through a subsidiary) are the beginning of
the Company's planned entry into the operation of high speed Internet systems
nationwide.
The balance of other assets as previously mentioned, include a note
receivable plus interest and unamortized organization costs.
Note receivable and accrued interest of $510,000, which is offset by
a like amount, increased by $10,000 for interest accrued as of March 31, 1999.
The note receivable is fully reserved because it has no definite maturity and
there is no reasonable basis to evaluate the likelihood of collection. (See
Notes to Consolidated Financial Statements: Note 1, paragraph 2 & 3).
<PAGE>
Long-term debt, including current portion totaled $768,000 as of
March 31, 1999 compared to $864,000 as of March 31, 1998. The decrease was
due to the contractual payments of two equipment loans and a mortgage. No
additional loans were executed in fiscal 1999.
In addition to the long-term debt made available by the primary
lending facility, there is available a $2,000,000 line of credit from the same
institution. This additional financing, which carries, at the Registrant's
option, an interest rate of LIBOR plus 175 basis points or the Bank's prime
rate less percent, has not been utilized since December, 1993.
Accounts payable decreased $23,000 from March 31, 1998 to $288,000
as of March 31, 1999; the difference is not significant between the two
periods.
Payroll and payroll related expenses liability decreased
significantly from $277,000 as of March 31, 1999 to $183,000 as of March 31,
1999, the decrease due to the reduction of employees at the end of the
respective periods from 66 to 45.
Retained earnings decreased from $6,928,000 as of March 31, 1998 to
$6,345,000 as of March 31, 1999, due to the net loss for the year ended March
31, 1999.
Treasury stock increased $211,000 as the Company, through a
subsidiary, purchased 81,000 shares of the Company's common stock on the open
market.
Inflation has not had a significant impact on cost or price in the
past two fiscal years under review. However, as a significant portion of
component materials are obtained from sources outside the United States, and,
especially from Asia, financial problems in these countries could have a
significant impact on the business of the Registrant for the next fiscal year.
The currency fluctuations and ensuing political instability that commenced in
the fiscal year beginning on April 1, 1998, especially in the Pacific Rim and
Russia, but also in Brazil and other South American countries had a noticeable
effect on sales in fiscal 1999 and is expected to continue at least for the
first two quarters of fiscal 2000. The political and currency problems have
also delayed the Registrant's entry in manufacturing in China, at least for
the next six months.
The backlog of unsold orders totaled $239,000 compared to $2,421,000
at the beginning of the fiscal year. As mentioned above, management does not
anticipate a significant increase in the rate of orders until the later part
of the second quarter or early third quarter of fiscal year 2000.
ITEM 7. FINANCIAL STATEMENTS
See pages 32 to 48 of this report for the financial statements
required by this Item.
ITEM 8. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURES
There is no information relevant to the Registrant which must be
disclosed under this Item 8.
<PAGE> PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this Item 9 is incorporated herein from
the Proxy Statement expected to be filed within one hundred twenty (120) days
of the close of the Registrant's fiscal year.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this Item 10 is incorporated herein from
the Proxy Statement expected to be filed within one hundred twenty (120) days
of the close of the Registrant's fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 11 is incorporated herein from
the Proxy Statement expected to be filed within one hundred twenty (120) days
of the close of the Registrant's fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 12 is incorporated herein from
the Proxy Statement expected to be filed within one hundred twenty (120) days
of the close of the Registrant's fiscal year.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following constitutes an Exhibit Index of the applicable
Exhibits to this report:
DESCRIPTION OF EXHIBIT EXHIBIT NUMBER PAGE NUMBER
--------------------------------------------------------------
Articles of Incorporation and Bylaws
Restated Certificate
of Incorporation 3 i (1)
Bylaws 3 ii (2)
Material Contracts
1996 Stock Option Plan 10 (1)
1988 Stock Option Plan 10 (2)
Officers Incentive Compensation
Plan 10 (1)
Agreement (Change in Control
Agreements for certain Executive
Officers) 10 (3)
Non-Negotiable, Non-Transferable
Stock Warrant 10 (3)
Settlement and Release Agreement 10 (1)
Subsidiaries 21 49
Financial Data Schedule 27 (4)
(1) Incorporated by reference from the Form 10-KSB filed by the
Registrant with the U.S. Securities and Exchange Commission for fiscal year
ended 1997.
(2) Incorporated by reference from the Form 10-KSB filed with the U.S.
Securities and Exchange Commission for fiscal year 1998.
(3) Incorporated by reference from the Form 10-KSB filed with the U.S.
Securities and Exchange Commission for fiscal year ended 1996.
(4) This Exhibit was filed electronically, but is not included in the
paper copy of this report.
(b) Form 8-K filings: The Registrant did not file any reports on
Form 8-K during the last quarter of the period covered by this report.
<PAGE>
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EMCEE BROADCAST PRODUCTS, INC.
/s/ JAMES L. DESTEFANO
James L. DeStefano, President/CEO
Date: June 29, 1999
/s/ ALLAN J. HARDING
Allan J. Harding, Vice President-
Finance
Date: June 29, 1999
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ JAMES L. DESTEFANO Date: June 29, 1999
James L. DeStefano, Director
/s/ JOE B. HASSOUN Date: June 29, 1999
Joe B. Hassoun, Director
/s/ MICHAEL J. LEIB Date: June 29, 1999
Michael J. Leib, Director
/s/ RICHARD J. NARDONE Date: June 29, 1999
Richard J. Nardone, Director
/s/ EVAGELIA ROGIOKOS Date: June 29, 1999
Evagelia Rogiokos, Director
<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, 1999 and 1998 and the related
consolidated statements of income (loss), 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, 1999
and 1998, and the results of their operations and their cash flows
for the years then ended, in conformity with generally accepted
accounting principles.
/S/ Kronick, Kalada,Berdy & Co.
- --------------------------------
Kingston, Pennsylvania
May 14, 1999
<PAGE>
<TABLE>
<CAPTION> EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - MARCH 31, 1999 AND 1998
ASSETS
1999 1998
---------------------------
<C> <S> <S>
Current assets:
Cash and equivalents $ 1,572,423 $ 2,529,594
U.S. Treasury Bills 1,775,933 2,269,549
Accounts receivable, net of allowance
for doubtful accounts ($35,000 for
1999 and 1998) 603,248 1,214,651
Inventories 3,522,579 3,438,599
Prepaid expenses 660,842 115,292
Deferred income taxes 132,000 80,000
--------------------------
Total current assets 8,267,025 9,647,685
--------------------------
Property, plant and equipment:
Land and land improvements 246,841 246,841
Building 617,670 618,686
Machinery 2,017,084 1,956,085
--------------------------
2,881,595 2,821,612
Less accumulated depreciation 2,150,315 1,995,946
--------------------------
731,280 825,666
--------------------------
Other assets 492,149 211,450
--------------------------
Note receivable and accrued interest 510,000 500,000
Less deferred portion ( 510,000) ( 500,000)
--------------------------
0 0
----------------------------
Total assets $ 9,490,454 $10,684,801
===========================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
------------------------------
<C> <S> <S>
Current liabilities:
Current portion of long-term debt $ 119,000$ 117,000
Accounts payable 288,029 311,424
Accrued expenses:
Payroll and related expenses 183,254 276,826
Other 114,500 118,625
Deposits from customers 76,745 260,048
---------------------------
Total current liabilities 781,528 1,083,923
---------------------------
Long-term debt, net of current portion 649,287 746,888
--------------------------
Shareholders' equity:
Common stock, $.01 - 2/3 par;
authorized 9,000,000 shares; issued
4,384,161 shares 73,084 73,084
Additional paid-in capital 3,502,092 3,502,092
Retained earnings 6,345,114 6,927,987
--------------------------
9,920,290 10,503,163
Less shares held in treasury, at cost
(1999, 401,764; 1998, 319,000) 1,860,651 1,649,173
----------------------------
8,059,639 8,853,990
----------------------------
Total liabilities and equity $ 9,490,454 $10,684,801
===========================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED MARCH 31, 1999 AND 1998
1999 1998
--------------------------
<C> <S> <S>
Net sales $ 5,895,567 $ 9,187,868
Costs of products sold 4,543,418 6,118,332
---------------------------
Gross profit 1,352,149 3,069,536
---------------------------
Operating expenses:
Selling 997,115 1,409,927
General and administrative 1,152,195 1,098,909
Research and development 422,426 377,557
------------------------------
2,571,736 2,886,393
-----------------------------
Income (loss) from operations (1,219,587) 183,143
-----------------------------
Other income (expense), net:
Interest expense ( 71,641) ( 83,714)
Interest income 227,337 259,704
Gain on sale of equity securities 277,324
Other 48,418 25,237
-----------------------------
204,114 478,551
-----------------------------
Income (loss) before income taxes (1,015,473) 661,694
Income tax expense (benefit) ( 432,600) 146,410
-----------------------------
Net income (loss)$ ( 582,873 $ 515,284
=============================
Basic income per share $(.15) $.12
=============================
Diluted income per share $(.15) $.12
=============================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION> EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1999 AND 1998
Common stock Additional
Shares Amount paid-in capital
-------------------------------------------------
<C> <S> <S> <S>
Balance, March 31, 1997 4,378,364 $ 72,987 $ 3,562,523
Common stock issued 5,797 97 ( 60,431)
Treasury stock purchased
Net income for the year --------------------------------------------------
Balance, March 31, 1998 4,384,161 73,084 3,502,092
Treasury stock purchased
Net loss for the year
Balance, March 31, 1999 4,384,161 $ 73,084 $3,502,092
==================================================
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
<TABLE>
Retained Treasury stock
earnings Shares Amount Total
- -------------------------------------------------------
<S> <S> <S> <S>
$ 6,412,703 212,763$ (1,362,274) $ 8,685,939
(12,763) 99,774 39,440
119,000 ( 386,673) ( 386,673)
515,284 515,284
- ----------------------------------------------------------
6,927,987 319,000 (1,649,173) 8,853,990
82,764 ( 211,478) ( 211,478)
( 582,873) ( 582,873)
- ---------------------------------------------------------
$ 6,345,114 401,764$ (1,860,651) $ 8,059,639
=========================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION> EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1999 AND 1998
1999 1998
-------------------
<C> <S> <S>
Cash flows from operating activities:
Net income (loss) $( 582,873)$ 515,284
Adjustments:
Depreciation 274,359 264,313
Provision for doubtful accounts 31,000 25,000
Common stock issued for
compensation 39,440
Gain from sale of equity securities ( 277,324)
(Increase) decrease in:
Accounts receivable 580,403 ( 306,116)
Inventory ( 169,450) 189,204
Prepaid expenses ( 545,550) 264,066
Deferred income taxes ( 52,000)( 80,000)
Other assets 724 723
Increase (decrease) in:
Accounts payable ( 23,395)( 43,977)
Accrued expenses ( 97,697) 58,667
Deposits from customers ( 183,303) 138,853
Deferred income taxes ( 554,000)
-------------------------
Net cash (used in) provided by
operating activities ( 767,782) 234,133
-------------------------
Cash flows from investing activities:
Purchases of:
Property, plant and equipment ( 94,503) ( 30,839)
U.S. Treasury Bills (3,506,384) (3,990,385)
Proceeds from maturities of:
U.S. Treasury Bills 4,000,000 3,400,000
Note receivable 2,500,000
Proceeds from sale of equity securities 383,324
-------------------------
Other assets ( 281,423) ( 210,000)
Net cash provided by investing activities 117,690 2,052,100
--------------------------
Cash flows from financing activities:
Acquisition of treasury stock ( 211,478)( 386,673)
Proceeds from issuance of long-term
debt 70,000
Repayment of long-term debt ( 95,601) ( 121,301)
------------------------
<PAGE>
1999 1998
--------------------------
Net cash used in financing activities s ( 307,079) ( 437,974)
--------------------------
Net increase (decrease) in cash and equivalents ( 957,171) 1,848,259
Cash and equivalents, beginning 2,529,594 681,335
--------------------------
Cash and equivalents, ending $ 1,572,423 $ 2,529,594
==========================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 72,000 $ 84,000
===========================
Income taxes $ 160,000 $ 646,000
===========================
Non-cash items:
Transfer of inventory to fixed assets $ 85,470
=============
<FN>
See notes to consolidated financial statements
</FN>
</TABLE>
<PAGE>
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999 AND 1998
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of EMCEE
Broadcast Products, Inc. and its subsidiaries, all of which are
wholly-owned (together, the Company). All significant intercompany accounts and
transactions have been eliminated.
Revenue recognition:
Revenue from product sales of equipment is recognized at the time of delivery
and after consideration of all the terms and conditions of the customers'
contract (purchase order). None of the customers' contracts are
considered long-term contracts.
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 $2,100,000
balance, which bore interest at 7% payable at maturity, was due
in December 1996. None of the deferred payment and the related interest
income was recognized prior to 1997 because of their extended collection
period and because there was not a reasonable basis to evaluate the likelihood
of collection. On April 3, 1997 the Company collected $2,500,000 and
received a non-interest bearing, unsecured $500,000 note receivable as
settlement of the original note.
The $500,000 note receivable is due and payable upon the occurrence of any one
or more of certain specified events involving the debtor including, but not
limited to, acquisition, merger, bankruptcy, and insolvency. Effective July
1, 1998 it accrues interest at 3% per annum. None of the specified events
relate to the debtor's normal operations. The note receivable is fully
reserved because it has no definite collection period and because there is not
a reasonable basis to evaluate the likelihood of collection.
Cash, equivalents 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 not included as cash equivalents had contracted
maturities of six months or one year.
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).
<PAGE>
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1999 AND 1998
1. Summary of significant accounting policies (continued):
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.
Advertising:
These expenses are recorded when incurred. They amounted to $52,000 and
$78,000 for 1999 and 1998, respectively
Fair value:
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 was not practicable to estimate the
Fair value of the $500,000 note receivable because the Company was unable
to estimate the timing and form of the ultimate settlement of the amount
due to it. The Company has fully provided for any potential loss resulting
from the non-payment of this receivable.
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.
Reclassifications:
Certain items in the 1998 financial statements have been reclassi-
fied to conform to current year classifications.
2. Income per share:
Basic income per share is computed by dividing earnings applicable to common
shareholders by the weighted average number of common shares outstanding.
Diluted income per share is similar to basic income per share except that the
weighted average of common shares outstanding is increased to include the
number of additional common shares that would have been outstanding if the
dilutive potential common shares had been issued.
There were no dilutive potential common shares in 1999 or 1998 because the
assumed exercise of the options would be anti-dilutive.
<PAGE>
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1999 AND 1998
2. Income per share (continued):
The following table presents the basic and diluted EPS computations:
1999
Net Per-share
loss Shares amount
--------------------------------------
Basic and diluted EPS
Net loss which is
available to common
stockholders $( 582,873) 4,007,305 $(.15)
1998
Net Per-share
income Shares amount
-------------------------------------
Basic and diluted EPS
Net income which is
available to common
stockholders $ 515,284 4,134,780 $ .12
3. Cash and equivalents concentration:
At March 31, 1999, cash held at a brokerage corporation in the amount
of $1,331,000 is not insured.
4. 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. To determine segments to be reported, management has
considered products and services. Management believes that the
Company's business requires similar technology and marketing strategies.
Major customers are those that individually account for more than 10% of
the Company's consolidated revenues. For the years ended March 31, 1999
and 1998, one customer, consisting of four divisions of a Federal government
agency, with total sales of $718,000 and a different customer with
total sales of $939,000, respectively, qualified as major customers. At
March 31, 1999 and 1998, there were no significant accounts receivable
concentrations. 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.
<PAGE>
EMCEE BROADCAST PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED MARCH 31, 1999 AND 1998
4. Industry, sales and accounts receivable concentration information
(continued):
Foreign shipments comprised $2,992,000 and $5,563,000 for 1999 and
1998, respectively. The composition of these shipments is comprised of the
Following foreign geographic regions:
1999 1998
---------------------------
Asia/Pacific Rim $1,015,000 $2,118,000
Caribbean 423,000 11,000
Middle East 372,000 479,000
North America 368,000 573,000
Europe 365,000 249,000
South America 140,000 893,000
Central America 102,000 427,000
Africa 52,000 206,000
Other 155,000 607,000
---------------------------
$2,992,000 $5,563,000
===========================
Revenues are attributed to regions based on location of customers. All
long-lived assets and deferred tax assets are attributable to the United
States. All foreign sales are contracted in United States Currency; therefore
there is no impact from foreign currency rates.
5. Inventories:
1999 1998
--------------------------
Finished goods $ 266,000 $ 454,000
Work-in-process 686,000 777,000
Raw materials 1,008,000 1,323,000
Manufactured components 1,562,579 884,599
--------------------------
$3,522,579 $3,438,599
============================
6. 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. The line of credit agreement requires monthly
interest payments at .50% below the bank's prime rate of interest or 1.75%
above LIBOR which was 5.00% at March 31, 1999. There were no principal
borrowings during the years ended March 31, 1999 and 1998.
<PAGE>
The loan agreement contains restrictive covenants when amounts are
outstanding 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 did not meet the debt coverage ratio as of
March 31, 1999. In addition, the loan agreement requires the Company to
obtain the Bank's written consent prior to investing in or making payments to
third parties other than in the usual and ordinary course of business. The
Company did not obtain the Bank's written consent for its investments in two
affiliated third parties during 1999. The Bank waived both covenant
violations. The Company is allowed to pay dividends on its common stock if it
is in compliance with the financial covenants and ratios.
7. Long-term debt:
1999 1998
----------------------------
Term loan, bank $ 637,000 $ 686,000
Equipment loans, bank 131,287 177,888
---------------------------
768,287 863,888
Less current portion 119,000 117,000
---------------------------
$ 649,287 $ 746,888
===========================
The term loan, bank at March 31, 1999 matures in 2012 and requires
principal payments of $4,083, plus interest. Interest is calculated at
2.25% above LIBOR which was 5.00% at March 31, 1999. The bank has the
option of adjusting the monthly payments required under this loan to
provide for changes in the interest rates. The term and equipment loans
are cross-collateralized with and have the same restrictive covenants as
the line of credit (see Note 6).
Principal payments on long-term debt, based on current interest
rates, are as follows:
2000 $ 119,000
2001 79,400
2002 79,400
2003 49,000
2004 49,000
Thereafter 392,487
-----------
$ 768,287
===========
<PAGE>
8. Common stock:
Nonqualified stock option plans provide for the grant of options to purchase
up to 300,000 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; 168,825
options were available for grant at March 31, 1999. 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. All outstanding
options granted expire after 5 years and vest over two year
Changes in outstanding common stock options granted are summarized
below:
1999 1998
Number Average Number Average
of exercise of exercise
shares price shares price
----------------------------------------------
Balance at beginning
of year 151,875 $ 5.50 163,250 $ 5.36
Options expired 11,375 3.44
Balance at end of
year 151,875 $ 5.50 151,875 $ 5.50
Options exercisable
at year-end 151,875 $ 5.50 36,675 $ 3.44
At March 31, 1999, 115,200 and 36,675 options had an exercise
price of $6.16 and $3.44, respectively. Such options had remaining
contractual lives of 2.67 years and 1.5 years, respectively.
The Company in accordance with an election under generally accepted
accounting principles for stock options has recorded no compensation
cost for its stock options in the accompanying consolidated financial
statements.
Had compensation cost for stock options been determined based on the fair
value at the grant dates for awards under the plans, the Company's net income
(loss) and per share amounts would have been changed to the proforma amounts
disclosed below:
<PAGE>
1999 1998
---------------------------------
Net (loss) income:
As reported $( 582,873) $ 515,284
Proforma ( 615,735) 445,284
Basic income (loss)
per share: As reported $( .15) $ .12
Proforma ( .15) .11
Diluted income (loss)
per share:
As reported $( .15) $ .12
Proforma ( .15) .11
The fair values were determined using the Black-Scholes option pricing model
with the following weighted average assumptions:
1999 1998
------------------------------
Dividend yield .0% .0%
Risk free interest rate 5.84% 5.84%
Expected life 5 Years 5 Years
Volatility 104.83% 17.54%
During 1997, warrants to purchase 200,000 shares of common stock at $9.76 a
share were issued and remain outstanding at March 31, 1999.
9. Income taxes:
The following table sets forth the current and deferred amounts of the
provision (benefit) for income taxes for the years ended March31, 1999 and
1999 1998
---------------------------
Current $( 380,600) $780,410
Deferred ( 52,000) ( 634,000)
---------------------------
$( 432,600)$ 146,410
===========================
The provisions for income taxes at the Company's effective rate differed from
the provision for income taxes at the statutory Federal rate of 34% for the
years ended March 31, 1999 and 1998 as follows:
<PAGE>
1999 1998
--------------------------------
Federal income tax provision
(benefit) at the statutory rate $( 345,000) $ 225,000
Foreign sales corporation ( 69,000) ( 74,000)
Federal income tax credit ( 16,000) ( 15,000)
Stock compensation ( 43,590)
Other ( 2,600)
Adjustment to prior year's
tax liability 54,000
Provision (benefit) for income
taxes $( 432,600) $ 146,410
==============================
The tax effects of temporary differences that give rise to deferred income
taxes at March 31, 1999 and 1998 are presented in the table below:
1999 1998
---------------------------
Deferred tax assets:
Inventory $ 74,000 $ 41,000
Employee benefits 46,000 51,000
Other differences 14,000 11,000
--------------------------
Total gross deferred tax assets 134,000 103,000
Deferred tax liabilities,
Property and equipment ( 2,000) ( 23,000)
--------------------------
Net deferred tax asset $ 132,000 $ 80,000
===========================
10. Litigation:
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the consolidated financial statements of the Company will not be
materially affected by the outcome of such legal proceedings.
11. Year 2000:
The Company recognizes the need to ensure its operations will not be adversely
impacted by Year 2000 software failures. Software failures due to processing
errors potentially arising from calculations using the Year 2000 date are a
known risk. The Company executes annual maintenance agreements with its
hardware and software vendors, which include a warranty that the Company's
internal data processing system is Year 2000 compliant. Total costs recorded
in fiscal 1999 and 1998 for the agreements aggregated $37,000 per annum, which
is recorded in general and administrative expenses as incurred. Year 2000
compliance was completed in the second quarter of fiscal 1999. All costs
incurred with Year 2000 compliance procedures are expensed as incurred.
[ARTICLE] 5
[CIK] 0000032312
[NAME] EMCEE BROADCAST PRODUCTS
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] MAR-31-1999
[PERIOD-START] APR-01-1998
[PERIOD-END] MAR-31-1999
[CASH] 1,572,423
[SECURITIES] 1,775,933
[RECEIVABLES] 638,248
[ALLOWANCES] 35,000
[INVENTORY] 3,522,579
[CURRENT-ASSETS] 8,267,025
[PP&E] 2,881,595
[DEPRECIATION] 2,150,315
[TOTAL-ASSETS] 9,490,494
[CURRENT-LIABILITIES] 781,528
[BONDS] 0
[COMMON] 73,084
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[OTHER-SE] 7,986,555
[TOTAL-LIABILITY-AND-EQUITY] 9,490,454
[SALES] 5,895,567
[TOTAL-REVENUES] 5,895,567
[CGS] 4,543,418
[TOTAL-COSTS] 7,115,154
[OTHER-EXPENSES] (275,755)
[LOSS-PROVISION] 30,820
[INTEREST-EXPENSE] 71,641
[INCOME-PRETAX] (1,015,473)
[INCOME-TAX] (432,600)
[INCOME-CONTINUING] (582,873)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (582,873)
[EPS-BASIC] (.15)
[EPS-DILUTED] (.15)
</TABLE>
EMCEE BROADCAST PRODUCTS, INC.
AND SUBSIDIARIES
YEARS ENDED
MARCH 31, 1999 AND 1998
SUBSIDIARIES OF EMCEE BROADCAST PRODUCTS, INC.
The following constitute all of the Registrant's subsidiary corporations:
1. EMCEE Cellular Inc., a Delaware corporation;
2. EMCEE Export Sales Company, Inc., a Delaware corporation (this corporation
is a wholly owned subsidiary of EMCEE Cellular Inc.);
3.R.F. Systems, Inc., a Delaware corporation (this corporation is a wholly
owned subsidiary of EMCEE Cellular Inc.);
4.R.F. Internet Systems, Inc., a Nevada corporation (this corporation is a
wholly owned subsidiary of EMCEE Cellular Inc.);
5.Universal Rapid Access, LLC (this limited liability company is a
partially owned subsidiary of R.F. Internet Systems, Inc., which
owns 10% of the outstanding equity of the limited liability
company);
6. EMCEE Broadcast Products (Chengdu) Company, Ltd. (the Registrant
owns 25% of the issued and outstanding capital stock of this corporation); and
7. Grand Forks Wireless, L.L.C. (this limited liability company is a
partially owned subsidiary of R.F. Internet Systems, Inc., which owns
50% of the outstanding equity of the limited liability company).
1.All subsidiaries are wholly owned by the Registrant unless otherwise
indicated.
