<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1999
Commission File No. 0-9877
MSI ELECTRONICS, Inc.
---------------------
(Exact name of Registrant as specified in its Charter)
Delaware 11-1969354
-------- ----------
(State or other Jurisdiction of (I.R.S. Employer Identification Number)
Incorporation or Organization)
3100 47th Avenue, Long Island City, New York 11101
--------------------------------------------------
(Address of principal executive offices with Zip Code)
Registrant's telephone number, including area code 718 937-3330
------------
Title of Each Class Name of each Exchange on which registered
------------------- -----------------------------------------
None None
Securities Registered Section 12(g) of the Act
----------------------------------------------
Common Stock $.03 Par Value Pursuant to Per Share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been the subject to such filing
requirements for the past 90 days. Yes [Check Mark] No [ ]
Aggregate market value of Common Stock held by non-affiliates of the Registrant
at December 20, 1999 (computed by reference to the last reported average closing
bid price for the Common Stock as reported through NASDAQ: $271,573.
Number of Shares of Common Stock outstanding at September 30, 1999: 957,572 shs.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement to be filed in connection with the Registrant's 1999
Annual Meeting of Shareholders is incorporated by reference into Items 10, 11,
12 and 13 of Part II of this report, to the extent indicated therein.
<PAGE>
Item 1 - BUSINESS
MSI Electronics Inc. (the "Registrant") is a Delaware corporation
organized on September 29, 1960 under the name Microwave Instruments Inc. On
January 18, 1962 Microwave Instruments Inc. was changed to its present name, MSI
Electronics Inc. The business of the Registrant is:
a) to manufacture and sell electronic products to test and measure the
properties of semiconductors;
b) to develop and sell products and services in interactive media;
c) to distribute specialized electronic products manufactured by others; and
d) to develop and manufacture products for medical applications.
Products to Characterize Semiconductors
MSI Instruments are used by manufacturers of integrated circuits,
transistors, diodes and other semiconductor components to measure the electrical
properties of wafers used in these devices. MSI instruments are used by
industrial, governmental, and university laboratories for research and
development and are also used in industrial production environments. The
instruments are used in research and development to measure known materials to
improve both device performance and manufacturing yields as well as in research
on new or innovative materials to develop devices with expanded or entirely new
capabilities. Competition for the Registrant's semiconductor measurements
products comes primarily from Hewlett-Packard, Keithley Instruments, Inc.,
Materials Development Corp., and Solid State Measurements Corp. The Registrant
competes on quality, innovation and delivery.
Products and Services in Interactive Media
The Registrant has developed hardware and software products for the
Internet, television broadcast and telephone systems. The Registrant has
licensed its 1994 patent on telephone advertising and will receive royalties on
it in the upcoming year. The Registrant has focused its efforts on large scale
database-driven interactive products that can be licensed to other companies as
well as exploited by the Registrant.
Distributor of Specialized Electronic Components
The Registrant sells electronic components and allied products that it
purchases from other manufacturers and suppliers. The Registrant is continually
seeking to increase this portion of the business by seeking suppliers of new
components and products as well as additional customers.
Products for Medical Applications
The Registrant is continuing to develop products aimed at consumers
for this market. However, the Registrant has not yet developed a product that it
deemed marketable.
Sales of Product Lines
The amount of sales to unaffiliated customers and the profits or losses of
the Registrant's product lines for fiscal 1999 are set forth in the Schedule
-1-
<PAGE>
of Industry Segments of Business on Page F-10 appended. Sales were conducted
under the supervision of the principal operating officer who monitored the
activities of the two subsidiaries, one independent domestic sales
representative and four independent foreign sales representatives.
Backlog
As of November 30, 1999 the Registrant had no backlog of orders.
Research and Development Expenses
All costs and expenses for research and development are charged to earnings
in the year disbursed. The table below sets forth the amount spent by the
Registrant during the last two fiscal years on research and development leading
to new products.
Year Ended Persons Engaged on a
Sept. 30 Amount Spent Full Time* Basis
-------- ------------ ----------------
1999 $157,214 2
1998 $137,964 2
* or equivalent inasmuch as there are both part-time and full-time employees
so engaged.
Employees
- ---------
As of September 30, 1999, the Registrant had four full time and two part
time employees and one outside consultant. The full time employees perform
technical, administrative and marketing functions and the part time employees
perform administrative and manufacturing functions. The Registrant has never
entered into a collective bargaining agreement with any union, has never had a
work stoppage and considers its relations with its employees to be satisfactory.
The Registrant believes it is in compliance with all civil rights statutes and
with applicable laws regulating the discharge of materials into the environment,
or otherwise relating to the protection of the environment.
Item 2. - Properties
The Registrant had its lease extended for an additional year to expire
October 31, 2000 for its occupancy of 1650 sq. ft. premises, 1350 sq. ft. of
factory and 300 sq. ft. of office, in a building located at 3100 47th Avenue,
Long Island City, New York. The rental is $20,000.00 per annum. The Registrant
rents 180 sq. ft. of office space located at 122 East 42nd Street, New York, NY
at $1,000.00 per month on a month to month basis and 480 sq. ft. of office space
at 89b. London Road in East Grinstead, England at $9,600 per annum.
Item 3 - Legal Proceedings
There are no legal proceedings or threatened proceedings against the
Registrant.
Item 4. - Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the shareholders during the fourth
quarter of the Fiscal Year ended September 30, 1999 through the solicitation of
proxies or otherwise.
PART II
Item 5 - Markets for the Registrant's Common Equity and Related Stockholder
Matters
(a) The Common Stock of the Company now trades on the OTC Bulletin Board
under the symbol MSTE. On Janaury 20, 1994, the shares of the Registrant were
delisted from the NASDAQ SmallCap Market due to the failure to meet the bid
price requirement as set forth in the NASDAQ By-Laws.
<PAGE>
(b) The following table sets forth the quarterly high and low bid prices
for the Registrant's Common Stock. $.03 par value per share for the year ended
September 30, 1999 as reported by NASDAQ. These quotations reflect inter-dealer
prices, without mark-up, mark-down or commission and may not necessarily
represent actual transactions.
Fiscal Year Ended September 30,
1999 1998
High Low High Low
---- --- ---- ---
First Quarter $.75 $.65 $.70 $.68
Second Quarter .75 .65 .70 .68
Third Quarter .90 .65 .73 .70
Fourth Quarter .63 .50 .88 .74
(c) Approximate Number of Holders of Common Stock
As of September 30, 1999, there were approximately 246 holders of record of
the Registrant's Common Stock, $.03 par value per share.
(d) Dividends
There are no contractual restrictions on the present or future ability of
the Registrant to pay cash dividends. The Registrant has no present intentions
to pay cash dividends in the foreseeable future.
Item 6 - Selected Financial Data
The selected financial data required by this Item 6 are set forth at the
pages indicated in Item 14(a)(1) below.
<TABLE>
<CAPTION>
For the Years Ended September 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales $611,558 $645,275 $687,438 $668,613 $749,916
Net Loss (235,081) (264,928) (270,730) (249,413) (201,807)
Net Loss Per share (.25) (.28) (.26) (.26) (.21)
Total Assets $1,492,244 $1,713,368 $1,941,838 $2,234,903 $2,548,634
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The net sales of the Registrant for the fiscal years ended September 30,
1999, 1998 and 1997 were, $611,558, $645,275 and 687,438 respectively. The
decrease of $33,717 or 5.2% for the fiscal year 1999 over 1998 was due to a
decrease in sales of the semiconductor product line offset by an increase in the
sales of the instrument product line. The decrease of $42,163 or 6.1% in 1998
over 1997 was due to the decrease in sales of the instrument product line.
The cost of sales for the years ended September 30, 1999, 1998 and 1997
were $435,504, $461,593 and $532,392 respectively. Costs expressed as a
percentage of sales for the respective years were 71.2%, 71.5% and 77.5%. The
decrease of $26,089 or 5.65% for the fiscal year 1999 over 1998 was due to a
decrease in sales. The decrease of $70,799 or 13.3% for the fiscal year 1998
over 1997 was due to the decrease in sales and a decrease in factory overhead.
Selling and administrative expenses were $480,617 for the fiscal year ended
September 30, 1999, $438,571 for the fiscal 1998 year and $513,175 for the
fiscal 1997 period. The decrease of $2,954, or 0.6% for the fiscal year 1999
over 1998 and the decrease of $29,604, or 5.8% for the fiscal year 1998 over
1997 were due to a decrease in sales.
Investment and other income for the fiscal years ended September 30, 1999
was $73,225, $46,775 for fiscal year 1998 and $101,572 for fiscal year 1997. The
increase of $26,450 for fiscal 1999 from fiscal 1998 was due to a net increase
in value of marketable securities offset by a decrease in investment income due
to a decrease in the availability of investment funds. The decrease of $54,797
for fiscal 1997 over fiscal 1997 was due to a decrease in the value of
marketable securities and the decrease in investment income due to a decrease in
the availability of investment funds.
<PAGE>
Income tax was $3,743 for the fiscal year ended September 30, 1999, $11,814
for fiscal 1998 and $14,173 for fiscal 1997. The decrease in taxes of $8,071 in
1999 from 1998 and the decrease in taxes of $2,359 in 1998 and 1997 were
principally due to a decrease in taxes paid by the Company's foreign subsidiary.
The net loss for fiscal years ended September 30, 1999, 1998 and 1997 were
$235,081, $264,928, and $270,730, respectively. The decrease in the loss in
fiscal 1999 over 1998 was due primarily to the increase in investment and other
income. The decrease in the loss in fiscal 1998 over 1997 was due the decrease
in the cost of goods sold offset by the decrease in investment and other income.
The Company has completed an assessment of the impact of the year 2000
issue. The Company will not have to modify or replace any portions of its
hardware and software so that its computer systems will function properly with
respect to dates in the year 2000 and thereafter.
The Company has no material relationship with any of their customers,
vendors and suppliers so that there would be no material effect on the Company's
business, results of operations or financial condition if they do not timely
become year 2000 compliant.
Liquidity and Capital Resources
Of its total assets at September 30, 1999 the Registrant had 76.3% or an
aggregate of $1,137,868 cash and cash equivalents including certificates of
deposits, money market funds and marketable securities. The major application of
the Registrant's liquid position is to fund the development of hardware and
software products for sale to consumer and industrial markets and to finance the
sale of the products developed. It is anticipated that the expenses for product
development, testing and marketing will be financed in the foreseeable future
from cash and liquid investments on hand but should there be increase demands
for cash, the Registrant may seek other sources of financing, including public
offerings. If additional financing is required, there can be no assurance that
funds will be available on terms acceptable to the Registrant. Should funds not
be available, new product development would be delayed which could have an
adverse affect on the Registrant. The Registrant does not intend to become an
investment company as defined in the Investment Companies Act of 1940.
For the first quarter fiscal 2000 or the three month period ended December
31, 1999, sales are estimated to decrease by 10% from sales for the comparable
period ended December 31, 1998. For the full fiscal year ended September 30,
2000, sales are estimated to decrease by 10% as compared to fiscal year ended
September 30, 1999.
<PAGE>
Item 8 - Financial Statements and Supplementary Data
The financial statements as of September 30, 1999 and for previous years
are submitted on Pages F-1 thru F-13 in the section appended to this report.
Item 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
No Form 8-K has been filed within the 24 months prior to the date of the
most recent financial statements reporting a change of accountants and/or
reporting disagreements on any matter of accounting principle or financial
statement disclosure.
Part III
Item 10 - Directors and Executive Officers of the Registrant
Information regarding directors and executive officers of the Registrant is
set forth on Page 2 of the 1999 Proxy Statement which is incorporated herein by
reference.
Item 11 - Executive Compensation
Information regarding executive compensation is set forth on Page 3 of the
1999 Proxy Statement which is incorporated herein by reference.
-4-
<PAGE>
Item 12 - Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners and
management is set forth on Page 4 of the 1999 Proxy Statement which is
incorporated herein by reference.
Item 13 - Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is set
forth on Page 3 of the 1999 Proxy Statement which is incorporated herein by
reference.
Part IV
Item 14 - Exhibits. Financial Statement Schedules and Reports on Form 8-K
a) 1. Financial Statements Page
----
1. Report of Independent Certified Public Accounts F-1
2. Consolidated Balance Sheet as of September 30, 1999 and 1998 F-2
3. Consolidated Statement of Income for the fiscal years
ended September 30, 1999, 1998 and 1997 F-3
4. Consolidated Statement of Retained Earnings at September
30, 1999, 1998 and 1997 F-4
5. Consolidated Statement of Changes in Financial Position
for the fiscal years ended September 30, 1999, 1998 and 1997 F-5
6. Notes to Consolidated Financial Statements F-6 to F-12
7. Financial Highlights for the years ended September 30,
1999, 1998 and 1997 F-13
Financial schedules are omitted because they are not required or are
not material or the required information is included in the notes to
financial statements.
3. Exhibits
3a. Certificate of incorporation of the Registrant (filed September 19,
1960) previously filed as Exhibit 4(a) to the Registrant's Form S-1
Registration Statement No. 2-18113, which became effective on
August 30, 1961 (thereafter the "Registration Statement") is
incorporated by reference.
3b. Certificate of Amendment to Certificate of Incorporation of
Registrant (filed March 3, 1961) previously filed as Exhibit 4(b) to
the Registration Statement is incorporated herein by reference.
3c. Certificate of Amendment to Certificate of Incorporation of
Registrant (filed April 19, 1961) previously filed as Exhibit 4(c)
to the Registration Statement is incorporated herein by reference.
-5-
<PAGE>
3d. Certificate of Amendment to Certificate of Incorporation of
Registrant (filed January 18, 1962), previously filed as Exhibit
3(d) to the Registrant's Form 10 Registration Statement No. 0-9877,
which became effective on October 6, 1981 (hereinafter the "Form 10
Registration Statement") is incorporated herein by reference.
3e. By-laws of Registrant previously filed as Exhibit 4(d) to the
Registration Statement is incorporated herein by reference.
3f. Certificate of Amendment to Certificate of Incorporation of
Registrant filed February 24, 1984 is incorporated herein by
reference.
4. Specimen of Common Stock of the Registrant previously filed as Exhibit 5
to the Registration Statement incorporated herein by reference.
10a. Profit Sharing Plan of Registrant adopted October 1, 1973 previously
filed as Exhibit 10a to the Registration Statement is incorporated
herein by reference.
10a(1) Restated Profit Sharing Plan of Registrant adopted October 1, 1982
previously filed as Exhibit 10(a)1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended September 30, 1983 is incorporated
herein by reference.
10b. Deferred Compensation Plan of Registrant adopted December 10, 1979,
previously filed as Exhibit 10 to the Form 10 Registration Statement is
incorporated herein by reference.
10b(1) Amendment to the Deferred Compensation Plan of the Registrant previously
filed as Exhibit 10b(1) to the Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1989 is incorporated herein by
reference.
10c. Pension Plan of Registrant dated October 1, 1982 previously filed as
Exhibit 10c to the Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1983 is incorporated herein by
reference.
22 Subsidiaries of Registrant herewith
(b) Reports of Form 8-K
There were no reports on Form 8-K filed during the last quarter of the
fiscal year ended September 30, 1999.
Exhibit 22 Subsidiaries of MSI Electronics Inc.
The following table sets forth information pertaining to the Registrant's
subsidiaries and includes the jurisdiction of incorporation, the percentage of
voting securities of such subsidiaries owned by the Registrant and the method of
financial reporting.
<TABLE>
<CAPTION>
State or Country of Percentage of Voting Consolidated Financial
Name Incorporation Securities Owned Statements
- --------------------- ------------------- -------------------- ----------------------
<S> <C> <C> <C>
Elyon Electronics Ltd. England 100% Yes
Xadax Inc. New York 100% Yes
</TABLE>
-6-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: December 29, 1999
MSI ELECTRONICS Inc.
By: /s/ ALbert Lederman
--------------------
Albert Lederman
Chairman of the Board
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on December 29, 1999.
Signature Title
--------- -----
/s/ Albert Lederman President and Director
- ------------------- Chief Executive and Chief
Albert Lederman Financial Officer
/s/ Theodore R. Bashkow Secretary and Director
- -----------------------
Theodore R. Bashkow
/s/ Robert W. Keene
- ----------------------- Director
Robert W. Keene
-7-
<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
FINANCIAL STATEMENTS
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDING SEPTEMBER 30, 1999
MSI ELECTRONICS INC. AND SUBSIDIARIES
LONG ISLAND CITY, NEW YORK
<PAGE>
FORM 10-K -- ITEM 14(a)(1) AND (2)
MSI ELECTRONICS INC. AND SUBSIDIARIES
SEPTEMBER 30, 1999
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of MSI Electronics Inc. and
Subsidiaries are included in Item 8:
Page No.
Consolidated Balance Sheets
September 30, 1999 and 1998 F-2
Consolidated Statements of Income
For the years ending September 30, 1999, 1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity
For the years ending September 30, 1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows
For the years ending September 30, 1999, 1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
The following consolidated financial statement schedule, of MSI Electronics Inc.
and Subsidiaries are included in Item 14(d):
Financial Highlights
For the years ending September 30, 1999, 1998, 1997, 1996 and 1995 F-13
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
<PAGE>
Weissman and Rudnitsky, CPA's P.C.
CERTIFIED PUBLIC ACCOUNTANTS
IRWIN WEISSMAN, CPA 570 SEVENTH AVENUE
CRAIG RUDNITSKY, CPA NEW YORK, NEW YORK 10018
--------
212.869.9911
Fax. 212.819.9465
MSI ELECTRONICS INC.
Long Island City, New York
To the Board of Directors and Shareholders:
Independent Auditors' Report
We have audited the accompanying consolidated balance sheet of MSI
ELECTRONICS INC. and its subsidiaries as of September 30, 1999, 1998 and the
related consolidated statements of income, shareholders' equity, and cash flows
for the three years in the period ending September 30, 1999. Our audits also
included the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MSI ELECTRONICS INC. and its
subsidiaries as of September 30, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
WEISSMAN AND RUDNITSKY, CPA'S
-----------------------------
WEISSMAN AND RUDNITSKY, CPA'S
New York, New York
December 3, 1999
<PAGE>
MSI ELECTRONICS INC, AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
ASSETS
1999 1998
---------- ----------
Current assets
Cash $ 428,327 $ 325,065
Temporary cash investments 318,721 751,769
Receivables 177,943 96,148
Inventories 87,233 105,231
Marketable securities 336,820 355,770
Prepaid expenses 66,193 45,212
---------- ----------
Total current assets 1,471,237 1,679,195
Property, plant and equipment 20,441 33,607
Other assets 566 566
---------- ----------
Total assets $1,492,244 $1,713,368
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 193,423 $ 162,014
Taxes payable 88 5,610
---------- ----------
Total current liabilities 193,511 167,624
---------- ----------
Shareholders' equity
Common stock - par value $.03
Authorized - 5,000,000 shares
Issued - 1,418,448 shares 42,554 42,554
Capital in excess of par value 420,201 420,201
Retained earnings 1,518,190 1,753,271
Currency translation adjustments 20,691 32,621
---------- ----------
2,001,636 2,248,647
Less treasury stock at cost:
460,876 shares in 1998 and 1999 702,903 702,903
---------- ----------
Total shareholders' equity 1,298,733 1,545,744
---------- ----------
Total liabilities and shareholders'
equity $1,492,244 $1,713,368
========== ==========
See accompanying notes.
F-2
<PAGE>
MSI ELECTRONICS INC, AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDING SEPTEMBER 30, 1999, 1998 AND 1997
1999 1998 1997
-------- -------- ---------
Net sales $611,558 $645,275 $ 687,438
Cost of goods sold 435,504 461,593 532,392
-------- -------- ---------
Gross profit 176,054 183,682 155,046
Sellling and administrative
expenses 480,617 483,571 513,175
-------- -------- ---------
Net losss before investment and
other income and taxes (304,563) (299,899) (358,129)
Investment and other income 73,225 46,775 101,572
-------- -------- ---------
Net loss before income taxes (231,338) (253,114) (256,557)
Provision for income taxes 3,743 11,814 14,173
-------- -------- ---------
Net loss $(235,081) $(264,928) $(270,730)
======== ======== =========
Loss per share $ (.25) $ (.28) $ (.28)
========= ========= =========
See accompanying notes
F-3
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in Currency
Common Treasury Excess of Retained Translation
Stock Stock Par Value Earnings Adjustments Total
----- ----- --------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 $42,554 $(689,086) $420,201 $2,288,929 $4,102 $2,066,700
Purchase of 9,750 shares (9,340) (9,340)
Net loss for year (270,730) (270,730)
Currency translation adjustment 8,862 8,862
-------- -------- --------- -------- ------- ---------
Balance at September 30, 1997 $42,554 $(698,426) $420,201 $2,018,199 $12,964 $1,795,492
Purchase of 6,626 shares (4,477) (4,477)
Net loss for year (264,928) (264,928)
Currency translation adjustment 19,657 19,657
-------- -------- --------- -------- ------- ---------
Balance at September 30, 1998 $42,554 $(702,903) $420,201 $1,753,271 $ 32,621 $1,545,744
Net loss for year (235,081) (235,081)
Currency translation adjustment (11,930) (11,930)
-------- -------- --------- -------- ------- ---------
Balance at September 30, 1999 $42,554 $(702,903) $420,201 $1,518,190 $ 20,691 $1,298,733
======= ========= ======== ========== ========= ==========
</TABLE>
See accompanying notes
F-4
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDING SEPTEMBER 30, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net loss $ (235,081) $ (264,928) $ (270,730)
Adjustments to reconcile not loss to not cash
(used) by operating activities:
Depreciation and amortization 14,219 16,006 11,620
Unrealized loss (Gain) on marketable (4,819) 37,241 (16,980)
(Gain) on sale of marketable securities (2,007) 5,631 4,337
(Increase) Decrease in current assets
Receivables (81,795) 7,761 84,317
Inventories 17,998 (45,037) 18,768
Prepaid expenses (22,981) 13,260 (10,119)
Increase (Decrease) In current liabilities
Accounts payable 31,409 36,510 (28,114)
Taxes payable (5,522) (14,232) 6,257
----------- ----------- -----------
Total adjustments (53,498) 56,140 70,086
----------- ----------- -----------
Net cash (used) by operating activities (288,579) (208,788) (200,644)
----------- ----------- -----------
Investing activities;
Purchases of property, plant and
equipment (1,053) (6,622) (26,754)
Purchase of marketable securities (68,393) (238,161) (123,350)
Proceeds from sale of marketable
securities 94,169 286,138 136,491
----------- ----------- -----------
Not cash provided (used) by Investing
activities 24,723 41,355 (13,613)
----------- ----------- -----------
Financing activities:
Purchase of treasury stock 0 (4,477) (9,340)
----------- ----------- -----------
Net cash (used) by financing activities 0 (4,477) (9,340)
----------- ----------- -----------
Effect of exchange rate changes on cash (11,930) 19,657 8,862
----------- ----------- -----------
Net (decrease) in cash and cash equivalents (275,786) (152,253) (214,735)
Cash and cash equivalents at beginning of
year 1,076,834 1,229,087 1,443,822
----------- ----------- -----------
Cash and cash equivalents at September 30, $ 801,048 $ 1,076,834 $ 1,229,087
=========== =========== ===========
</TABLE>
See accompanying notes
F-5
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
1. Organization and Summary of Significant Accounting Policies:
(a) Organization:
The Company is a Delaware corporation organized on September 29, 1960. The
Company sells, electronic instruments designed to measure semiconductor
properties, semiconductors, and electronic components.
(b) Principles of Consolidation:
The consolidated financial statements include the accounts of the Company,
Elyon Electronics Limited, a United Kingdom subsidiary, and XADAX Inc.,
both wholly-owned subsidiaries. Significant Intercompany accounts and
transactions have been eliminated in consolidation.
(c) Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(d) Translation of Foreign Currencies:
The accounts of the Company's foreign subsidiary have been translated to
U.S. Dollars as follows: at rates prevailing during the year for sales and
expenses (except depreciation); at year-end rates for monetary assets and
liabilities; and at historical rates for Inventories, plant and equipment
and related accumulated depreciation.
(e) Depreciation:
The Company's policy is to depreciate its fixed assets over the useful
lives of 3 to 7 years.
Expenditures for maintenance, repairs and betterments which did not
materially prolong the normal useful life of the assets are charged to
operations as incurred.
See accompanying notes
F-6
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
1. Organization and Summary of Significant Accounting Policies (Continued):
(f) Income Taxes:
The Company provides for income taxes on pretax accounting income at rates
in effect under existing tax law.
At September 30, 1999, the Company had net operating loss carryforwards of
approximately $1,424,000 for Federal income tax reporting purposes, which
expire in the years 2008 to 2014. The ultimate realization of the tax
benefits from the net operating loss carryforwards is dependent upon future
taxable earnings of the Company.
The foreign subsidiary has recorded provision for income taxes at
applicable foreign tax rates.
The provision for income taxes consisted of.
YEAR ENDED SEPTEMBER 30,
------------------------
1999 1998 1997
------ ------- -------
Federal $ 0 $ 0 $ 0
State and local 4,496 6,597 7,210
Foreign (753) 5,217 6,963
------ ------- -------
Total $3,743 $11,814 $14,173
====== ======= =======
(g) Temporary Cash Investments:
The Company has a cash management program which provides for the investment
of excess cash balances in short term money market instruments. For
purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
(h) Research and Development Costs:
Research and development expenditures are charged to operations as
incurred. During 1999, 1998 and 1997, research and development costs
aggregated $157,214, $137,964, and $145,087, respectively.
F-7
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
1. Organization and Summary of Significant Accounting Policies (Continued):
(i) Basic Earnings per Share:
Basic earnings per share are computed by dividing earnings available to
common stockholders by the weighted average number of common shares
outstanding during the period. The Company has only one class of stock and
all earnings (losses) are available to common stockholders. For the fiscal
years ending September 30, 1999, 1998 and 1997, basic earnings (loss) per
share is computed based on weighted average common shares outstanding of
957,572, 959,511, and 966,421, respectively.
(j) Stock Options:
In June 1993, the Board of Directors of the Company granted a stock option
to a key employee to purchase up to 50,000 shares of the Company's common
stock at an exercise price of $1.344 per share. After five years of the
date of the grant no options were exercised. As of September 30, 1999 there
are no options outstanding.
(k) Marketable Securities:
Marketable securities consist of mutual funds and common stock. Marketable
securities are stated at market value. All marketable securities are
defined as trading securities under the provision of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" (SFAS 115) and unrealized gains and losses are
reflected in earnings. Market value is determined by the most recently
traded price of the security at the balance sheet date. Net realized gains
or losses are determined on the FIFO cost method.
2. Temporary Cash Investments:
Temporary cash investments consisted of the following:
September 30,
----------------------
1999 1998
-------- --------
Certificates of Deposit $318,721 $751,769
======== ========
F-8
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
3. Receivables:
September 30,
----------------------
1999 1998
-------- --------
Receivables consists of:
Trade receivables: $177,943 $96,148
======== =======
4. Inventories:
Inventories were taken by physical count and are valued at the lower of
cost (first-in, first-out method), or market and consisted of the
following:
September 30,
----------------------
1999 1998
------- --------
Finished goods $84,125 $102,374
Work in progress 0 0
Raw materials 3,108 2,857
------- --------
Total $87,233 $105,231
======= ========
5. Marketable Securities:
Marketable securities are defined as trading securities under the provision
of Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115). Unrealized
gains and (losses) were $4,819 and ($37,241) for the years 1999 and 1998
respectively.
F-9
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
6. Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Major categories are as
follows:
September 30,
------------------------
1999 1998
-------- --------
Patents $ 3,592 $ 3,592
Machinery and equipment 42,538 41,616
Office furniture and equipment 101,312 101,181
Sales equipment 37,031 37,031
-------- --------
184,473 183,420
Less accumulated depreciation 164,032 149,813
-------- --------
Total $ 20,441 $ 33,607
======== ========
7. Retirement Plans:
For the year ending September 30, 1993, the Company implemented a 401K
plan for all eligible employees, in which the Company may elect to match
employees' contributions up to a maximum of $500 per employee.
401K Plan:
For the years ended September 30, 1999, 1998 and 1997, contributions were
$0, $0, and $0 respectively.
8. Industry Segment Information:
Depreciation
Operating Identifiable Capital and
Net Sales Income Assets Expenditures Amortization
--------- --------- ---------- ------------ ------------
1999
Semiconductors
and Electronic
Components $390,465 $ (20,268) $ 68,478 $ 0 $ 2,938
Instruments 221,093 (284,295) 211,267 922 3,811
General 0 0 1,402,499 131 7,470
-------- --------- ---------- ------ -------
Total $611,558 $(304,563) $1,492,244 $1,053 $14,219
======== ========= ========== ====== =======
F-10
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
8. Industry Segment Information (continued):
Depreciation
Operating Identifiable Capital and
Net Sales Income Assets Expenditures Amortization
--------- --------- ---------- ------------ ------------
1998
Semiconductors
and Electronic
Components $459,175 $ 7,910 $ 80,977 $5,336 $ 1,004
Instruments 186,105 (307,799) 31,015 1,092 3,317
General 0 0 1,601,376 194 11,685
-------- --------- ---------- ------ -------
Total $645,275 $(299,889) $1,713,368 $6,622 $16,006
======== ========= ========== ====== =======
1997
Semiconductors
and Electronic
Components $439,518 $ 26,973 $ 42,338 $ 322 $ 1,690
Instruments 247,920 (385,102) 26,842 1,737 5,857
General 0 0 1,872,658 24,695 4,073
-------- --------- ---------- ------- -------
Total $687,438 $(358,129) $1,941,838 $26,754 $11,620
======== ========= ========== ======= =======
Export Sales:
Sales to foreign customers amounted to $119,904 in fiscal 1999, $30,028 in
fiscal 1998, and $91,947 in fiscal 1997.
Major Customers:
No customer accounted for more than 10% of net instrument sales or net
semiconductor sales in fiscal 1999,1998, 1997.
F-11
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
Geographic Information - Sales:
Years ended September 30, United States Foreign Total
------------------------- ------------- ------- -----
1999 $101,189 $510,369 $611,558
1998 $156,076 $489,199 $645,275
1997 $151,712 $535,726 $687,438
9. Statements of Cash Flows:
For the years ended September 30, 1999 1998 1997
------ ------ ------
The company paid:
Income taxes $6,637 $7,939 $9,339
Interest 0 0 0
10. Contingencies and Commitments:
Significant concentrations of credit risk:
The company has cash and temporary cash investments deposits at banks of
18,721 in 1999 and in 1998 $75,406 in excess of what would be covered by
the Federal Deposit Insurance Company.
Lease:
The Company has various leases for equipment and buildings which are
classified as operating leases. Total rent expense for all operating leases
for 1999 and 1998 were $37,372, and $42,369, respectively.
Future minimum lease payments under the noncancelable operating losses with
initial or remaining terms for one year or more are as follows:
Year ending September 30:
2000 $20,004
<PAGE>
MSI ELECTRONICS INC. AND SUBSIDIARIES
FINANCIAL HIGHLIGHTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $ 611,558 $645,275 $687,438 $668,613 $749,916
(Loss) before taxes (231,336) (253,114) (256,557) (226,395) (178,538)
Net (loss) (235,081) (264,928) (270,730) (249,413) (201,807)
Net (loss) per share (1) (.25) (.28) (.28) (.26) (.21)
Total assets 1,492,244 1,713,368 1,941,838 2,234,903 2,548,634
Current assets 1,471,237 1,679,195 1,698,281 2,206,480 2,516,180
Current liabilities 193,511 167,624 146,346 168,203 255,017
Shareholders' equity 1,298,733 1,545,744 1,795,492 2,066,700 2,323,617
Number of shares outstanding(1) 957,572 959,511 966,421 975,568 978,210
Shareholders' equity per share(1) 1.36 1.61 1.86 2.19 2.38
</TABLE>
(1) Based upon weighted average number of shares outstanding.
F-13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<CASH> 801,048
<SECURITIES> 336,820
<RECEIVABLES> 177,943
<ALLOWANCES> 0
<INVENTORY> 87,233
<CURRENT-ASSETS> 1,471,237
<PP&E> 184,473
<DEPRECIATION> 169,032
<TOTAL-ASSETS> 1,492,244
<CURRENT-LIABILITIES> 193,511
<BONDS> 0
0
0
<COMMON> 42,554
<OTHER-SE> 1,256,179
<TOTAL-LIABILITY-AND-EQUITY> 1,492,244
<SALES> 611,558
<TOTAL-REVENUES> 684,783
<CGS> 435,504
<TOTAL-COSTS> 916,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (231,338)
<INCOME-TAX> 3,743
<INCOME-CONTINUING> (235,081)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (235,081)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
</TABLE>
