<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For Fiscal Year Ended Commission File Number
December 31, 1998 0-4671
ISOMET CORPORATION
------------------
State of Incorporation IRS Employer Identification
New Jersey No. 22-1591074
Address of Principal Executive Offices
5263 Port Royal Road
Springfield, VA 22151
Company's Telephone Number: (703) 321-8301
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock Par Value $1.00
1,927,590 Shares Were Outstanding on January 31, 1999
Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Section 13 or 15(d) of The Securities Exchange Act of 1934 during
the preceeding 12 months (or for such shorter period the Company was required to
file such report(s)) and (2) has been subject to such filing requirements for
the past ninety (90) days. Yes X No _____
- - ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation SB is not contained herein and will not be contained, to the best
of registrant 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. (x)
Revenues for most recent fiscal year $9,412,539
On January 31, 1999 the approximate aggregate market value of the voting stock
held by non-affiliates of the Company was $4,555,000.
<PAGE>
DOCUMENTS INCORPORATED HEREIN BY REFERENCE
------------------------------------------
Portions of the Company's Annual Report to Stockholders for fiscal year 1998 are
incorporated by reference into Part II of this Form 10-KSB and portions of the
Company's definitive proxy statement for the annual meeting of stockholders to
be held on June 3, 1999, are incorporated by reference into Part III of this
Form 10-KSB.
-2-
<PAGE>
PART I
ITEM 1 DESCRIPTION OF BUSINESS
(a) General Development of Business
-------------------------------
Isomet Corporation (hereinafter referred to as "Isomet" or "Company") was
incorporated in 1956. The Company is a manufacturer of laser control devices,
systems and equipment for color image reproduction applications.
(b) Financial Information About Industry Segments
---------------------------------------------
See Note 10 (Segment Information) of the Notes to the Consolidated Financial
Statements.
(c) Narrative Description of Business/Business Done and Intended
-------------------------------------------------------------
to be Done
----------
(1) Principal Products and Services
(a) Principal Products
Isomet's acousto-optic line is comprised of laser control devices and systems
for applications that make use of lasers to process or communicate information
through various forms of recorded images. Acousto-optics is the interaction
between light and sound within a crystalline material that can be used to
manipulate laser light for practical purposes. Acousto-optic technology is an
essential element of image processing systems such as laser printers, laser film
recorders, phototypesetters and laser-based inspection systems.
Isomet's graphic arts systems product line consists of high resolution digital
color scanners, laser film recorders, laser plotters and specialized interface
software and electronics packages.
Isomet has one operating overseas subsidiary. Isomet UK, Ltd. in Wales, UK
markets and services graphic arts equipment and laser control devices in Europe.
Through its subsidiary and a network of sales representatives, the Company
conducts business in most industrially developed countries.
-3-
<PAGE>
The following table shows for each of the last three fiscal years the
approximate amount of total revenue attributable to the Company's commercial
product lines and Government contracts:
<TABLE>
<CAPTION>
Revenue - Sales 1998 1997 1996
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Acousto-Optic Laser Components
and Graphic Arts Equipment $9,268,588 $8,622,544 $5,754,818
Government Agencies 56,966 10,075 42,970
---------- ---------- ----------
Total: $9,325,554 $8,632,619 $5,797,788
</TABLE>
(b) Method of Distribution
----------------------
The Company distributes its products domestically through its own salesmen and
value-added resellers and to foreign customers primarily through independent
agents or through its foreign subsidiary.
(2) New Products
------------
Product enhancement effort during 1998 was directed primarily to hardware and
software upgrades for existing products and new acousto-optic device designs.
(3) Source and Availability of Raw Materials
----------------------------------------
Precious metals and various chemicals are raw materials essential to various
phases of the Company's business. Precious metals and chemicals are readily
available and are obtained from domestic commercial suppliers, such as Johnson
Matthey and AAA Molybdenum.
(4) Patents, Trademarks, Licenses, Franchises and Concessions
---------------------------------------------------------
For its acousto-optic component product line, the Company holds several patents;
none of which materially affect its present business. The Company protects many
of its crystal growing processes and acousto-optic device manufacturing
processes as trade secrets; they are important to the Company's competitive
market position.
In 1989, the Company entered into a license agreement with Patlex Corporation
covering the use of certain lasers in its systems and sub-systems product line.
The Company's obligation under this agreement terminated in 1996 due to the
expiration of applicable patents.
-4-
<PAGE>
(5) Seasonal Operations
-------------------
The Company's business is not seasonal.
(6) Practices Re Certain Working Capital Items
------------------------------------------
None
(7) Customers
---------
In 1998, of $9,325,554 in total sales, one systems customer accounted for
$4,782,641 or approximately 51%. In 1997, of $8,632,619 in total sales, one
systems customer accounted for $3,083,799 or approximately 36% and one
components customer accounted for $1,415,206 or 16%.
(8) Backlog
-------
Backlog of orders believed to be firm was $3,327,000 as of December 31, 1998 and
$3,451,000 as of December 31, 1997. It is expected that all of the backlog
orders will be filled during fiscal years 1999 and 2000.
(9) Description of Material Business Subject to Renegotiation or
------------------------------------------------------------
Termination
- -----------
The Company has no material business subject to renegotiation or termination.
(10) Competitive Conditions and Competitive Position
-----------------------------------------------
To its knowledge, the Company competes principally against two U.S. companies
and three foreign companies, two of which are substantially larger than the
Company in the manufacture and commercial sales of acousto-optic laser
components and sub-systems. No single company dominates the market in the
Company's product line. The Company competes with these companies on the basis
of price and product performance. The Company is well known and has an
established position in the market for these products.
For the graphic arts pre-press equipment, the Company competes principally
against four foreign companies and two domestic companies, four of which are
substantially larger than the Company. No single company dominates the market
for sales of this equipment. The Company has an established position in the
market for these products.
(11) Research and Development
------------------------
The following amounts were expended for Company sponsored research and
development for the fiscal years indicated:
1998 $ 2,745
1997 $ -0-
1996 $ 37,736
-5-
<PAGE>
(12) Compliance with Environmental Regulations
-----------------------------------------
The Company's business is not materially affected by federal, state or local
laws regulating the discharge of materials into the environment or otherwise
relating to the protection of the environment.
(13) Employees
---------
On December 31, 1998 the Company employed forty-nine(49) full-time employees, of
whom five (5) were employed by the Company's foreign subsidiary.
(d) Financial Information About Foreign and Domestic Operations and
---------------------------------------------------------------
Export Sales
------------
See Note 10 (Segment Information) of the Notes to the Consolidated Financial
Statements.
ITEM II PROPERTIES
The Company leases 19,724 square feet at 5263 Port Royal Road, Springfield,
Virginia for corporate offices, manufacturing facilities and engineering
laboratories at an annual rental of $190,224, plus adjustments for increases or
decreases in real estate taxes and in the cost-of-living index. This lease
expires on August 31, 2001 and provides for two successive three year renewal
periods at the same terms and conditions as the present lease. Management
believes that the facilities are adequate for its present level of business.
In the United Kingdom, the Company leases 3,113 square feet for acousto-optic
products and scanner marketing and service activities. the annual rental amount
is $21,212. The lease expires in April 2000 and is renewable.
ITEM III LEGAL PROCEEDINGS
There are no material legal proceedings pending against the Company.
ITEM IV SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders in the fourth
quarter.
-6-
<PAGE>
PART II
ITEM V MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Common stock market prices, dividends and related security holder matters set
forth in the Company's 1998 Annual Report to stockholders are hereby
incorporated by reference.
ITEM VI SELECTED FINANCIAL DATA
Selected Financial Data set forth by the Company's 1998 Annual Report to
stockholders is hereby incorporated by reference.
ITEM VII MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's 1998 Annual Report to stockholders is
hereby incorporated by reference.
ITEM VIII FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See pages F-1 through F-23 of this Annual Report on Form 10-KSB.
ITEM IX DISAGREEMENT IN ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has not had any disagreements on accounting or financial disclosure
with its accountants required to be reported hereunder.
-7-
<PAGE>
PART III
ITEM X DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information called for by this Item is incorporated by reference from the
Company's definitive proxy statement for the 1999 Annual Meeting of
stockholders.
ITEM XI MANAGEMENT/RENUMERATION
The information called for this Item is incorporated by reference from the
Company's definitive proxy statement for the 1999 Annual Meeting of
stockholders.
ITEM XII SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this Item is incorporated by reference from the
Company's definitive proxy statement for the 1999 Annual Meeting of
stockholders.
ITEM XIII CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated by reference from the
Company's definitive proxy statement for the 1999 Annual Meeting of
stockholders.
PART IV
ITEM XIV EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS
ON FORM 8-K
(1) Financial Statements
--------------------
A Table of Contents to the Financial Statements appears on Page F-1.
(2) Exhibits
--------
The exhibits, if any, filed with this report are listed on the Index to Exhibits
on page E-1.
(3) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of the year ended
December 31, 1998.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirement of The Securities and Exchange Act of 1934, the
Registrant has duly caused this Annual Report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISOMET CORPORATION
(Registrant)
Date: March 25, 1999 By: /s/ Jerry W. Rayburn
------------------ ---------------------
Jerry W. Rayburn
Executive Vice President, Finance
Treasurer and Director
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 this 25th day of March 1999.
/s/ Henry Zenzie /s/ Leon Bademian /s/ Lee R. Marks
- ------------------- ------------------ -----------------
Henry Zenzie Leon Bademian Lee R. Marks
Director Director Director
-9-
<PAGE>
INDEX TO EXHIBITS
3.1 Certificate of Incorporation of Registrant filed May 9, 1956. *
3.2 Certificate of Amendment of Certificate of Incorporation of Registrant
filed April 8, 1959. *
3.3 Certificate of Amendment of Certificate of Incorporation of Registrant
filed February 8, 1961. *
3.4 Certificate of Amendment of Certificate of Incorporation of Registrant
filed June 15, 1966. *
3.5 Certificate of Amendment of Certificate of Incorporation of Registrant
filed December 28, 1967. *
3.6 Certificate of Amendment of Certificate of Incorporation of Registrant
filed April 7, 1969. *
3.7 Certificate of Incorporation of Registrant (Restated) filed April 7,
1969. *
3.8 Certificate of Amendment of Certificate of Incorporation of Registrant
(Restated) filed June 22, 1988. **
3.9 By-laws of Registrant. *
3.10 Subsidiaries of the Company. ***
27 Financial Data Schedule
* Incorporated by reference to Exhibits to the Registrant Report on Form 10-K
for the year ended December 31, 1987.
** Incorporated by reference to Exhibits to the Registrant Report on Form 10-K
for the year ended December 31, 1988.
*** Incorporated by reference to Exhibits to the Registrant Report on Form 10-K
for the year ended December 31, 1990.
E-1
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PAGE
----- ----
<S> <C>
INDEPENDENT AUDITOR'S REPORT...................... F-2
AUDITED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS...................... F-3 - 4
CONSOLIDATED STATEMENTS OF INCOME................ F-5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME.. F-6
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY.. F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS............ F-8 - 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....... F-10 - 23
</TABLE>
F-1
<PAGE>
[LETTERHEAD OF ARONSON, FETRIDGE & WEIGLE APPEARS HERE]
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Stockholders and Board of Directors
ISOMET CORPORATION
Springfield, Virginia
We have audited the accompanying Consolidated Balance Sheets of ISOMET
CORPORATION AND SUBSIDIARIES as of December 31, 1998 and 1997, and the related
Consolidated Statements of Income, Comprehensive Income, Stockholders' 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 consolidated financial position of ISOMET
CORPORATION AND SUBSIDIARIES as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ Aronson, Fetridge & Weigle
Rockville, Maryland
March 5, 1999
F-2
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,426,814 $ 1,534,380
Accounts and notes receivable (Note 5)
Trade 1,837,763 1,487,796
Other 39,701 36,200
Refundable income taxes 232,855 -
Notes receivable - officers (Note 2) 45,000 -
Precious metals 187,727 186,283
Inventories (Notes 3 and 5) 3,785,733 3,381,171
Prepaid expenses and other 43,084 43,464
Deferred income tax asset, net (Note 7) 123,210 189,566
------------ -----------
Total current assets 7,721,887 6,858,860
------------ -----------
PROPERTY AND EQUIPMENT, AT COST (NOTES 4 AND 5) 2,625,753 2,541,334
Accumulated depreciation and amortization (2,340,904) (2,263,966)
------------ -----------
Net property and equipment 284,849 277,368
------------ -----------
OTHER ASSETS
Notes receivable - officers (Note 2) -
Deposits 7,357 7,357
------------ -----------
Total other assets 7,357 52,357
------------ -----------
TOTAL ASSETS $ 8,014,093 $ 7,188,585
============ ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-3
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1997
---------- -----------
CURRENT LIABILITIES
<S> <C> <C>
Notes payable (Note 5) $ 339,265 $ 364,336
Accounts payable 813,771 316,422
Accrued liabilities (Note 6) 242,952 218,231
Income taxes payable 18,178 686,958
Deferred revenue - 10,000
---------- -----------
Total current liabilities 1,414,166 1,595,947
---------- -----------
LONG-TERM LIABILITIES
Deferred rent payable - 4,378
Notes payable, net of current portion (Note 5) 387,543 633,121
---------- -----------
Total long-term liabilities 387,543 637,499
---------- -----------
Total liabilities 1,801,709 2,233,446
---------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
STOCKHOLDERS' EQUITY (NOTE 9)
Common stock, par value $1 per share; 2,500,000 shares authorized, 1,927,590 1,909,090
1,927,590 and 1,909,090 shares issued and outstanding in 1998 and
1997, respectively
Capital contributed in excess of par value 4,232,623 4,223,003
Retained earnings (accumulated deficit) 29,328 (1,169,991)
Unamortized deferred compensation from stock options - (32,500)
Accumulated other comprehensive income
Foreign currency translation adjustment 22,843 25,537
---------- -----------
Total stockholders' equity 6,212,384 4,955,139
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,014,093 $ 7,188,585
========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-4
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
REVENUE
<S> <C> <C>
Sales $9,325,554 $8,632,619
Interest and other income 86,985 20,410
---------- ----------
Total revenue 9,412,539 8,653,029
---------- ----------
EXPENSES (NOTES 4, 8, 9 AND 11)
Cost of sales 6,211,351 5,272,730
Selling expenses 267,518 302,192
General and administrative 1,052,702 965,486
Product development 2,745 -
Interest expense 84,515 118,726
---------- ----------
Total expenses 7,618,831 6,659,134
---------- ----------
INCOME BEFORE INCOME TAXES 1,793,708 1,993,895
INCOME TAX EXPENSE (NOTE 7) 594,389 663,227
---------- ----------
NET INCOME $1,199,319 $1,330,668
========== ==========
NET INCOME PER SHARE OF COMMON STOCK (NOTE 12)
Basic net income per share $ .62 $ .70
========== ==========
Diluted net income per share $ .61 $ .68
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-5
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
NET INCOME $ 1,199,319 $ 1,330,668
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment, net of tax of $1,648 and $724 (2,694) (1,184)
in 1998 and 1997, respectively ------------- ------------
COMPREHENSIVE INCOME $ 1,196,625 $ 1,329,484
============= ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-6
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- --------------
<S> <C> <C>
COMMON STOCK
Shares issued and outstanding, beginning of year 1,909,090 1,905,590
Shares issued - exercise of incentive stock options 18,500 3,500
------------- --------------
Shares issued and outstanding, end of year 1,927,590 1,909,090
============= ==============
Amount issued and outstanding at $1 par value, beginning of year $ 1,909,090 $ 1,905,590
Amount issued - exercise of incentive stock options 18,500 3,500
------------- --------------
Amount issued and outstanding at $1 par value, end of year 1,927,590 1,909,090
------------- -------------
CAPITAL CONTRIBUTED IN EXCESS OF PAR VALUE
Balance, beginning of year 4,223,003 4,221,183
Capital contributed - exercise of incentive stock options 9,620 1,820
------------- -------------
Balance, end of year 4,232,623 4,223,003
------------- -------------
RETAINED EARNINGS (ACCUMULATED DEFICIT)
Balance, beginning of year (1,169,991) (2,500,659)
Net income 1,199,319 1,330,668
------------- -------------
Balance, end of year 29,328 (1,169,991)
------------- -------------
UNAMORTIZED DEFERRED COMPENSATION FROM STOCK OPTIONS (NOTE 9)
Balance, beginning of year (32,500) (65,266)
Amortization of deferred compensation 32,500 32,766
------------- -------------
Balance, end of year - (32,500)
------------- -------------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment
Balance, beginning of year 25,537 26,721
Foreign currency translation adjustment (2,694) (1,184)
------------- -------------
Balance, end of year 22,843 25,537
------------- -------------
TOTAL STOCKHOLDERS' EQUITY $ 6,212,384 $ 4,955,139
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-7
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,199,319 $1,330,668
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 89,118 92,933
Loss on disposal of property and equipment 371 3,123
Amortization of deferred compensation 32,500 32,766
(Increase) decrease in:
Accounts, notes and other receivables (353,468) (6,653)
Refundable income taxes (232,855) -
Precious metals (1,444) 12,843
Inventories (404,562) 348,523
Prepaid expenses and other current assets 380 (18,863)
Deferred income tax asset 66,356 (28,079)
Increase (decrease) in
Accounts payable 497,349 (361,641)
Accrued liabilities 24,721 (55,488)
Income taxes payable (668,780) 681,078
Deferred revenue (10,000) (446,000)
Deferred rent payable (4,378) (6,569)
---------- ----------
Net cash provided by operating activities 234,627 1,578,641
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (105,708) (57,590)
Proceeds from disposal of property and equipment 8,738 -
---------- ----------
Net cash used by investing activities (96,970) (57,590)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of debt (270,649) (242,566)
Proceeds from notes payable - 50,857
Proceeds from exercise of incentive stock options 28,120 5,320
Effect of exchange rate changes on cash ( 2,694) (1,184)
---------- ----------
Net cash used in financing activities (245,223) (187,573)
---------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (107,566) 1,333,478
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,534,380 200,902
---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR $1,426,814 $1,534,380
========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-8
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 84,515 $ 118,726
============= =============
Cash paid for income taxes $ 1,447,846 $ 10,228
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these Financial Statements.
F-9
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) Organization
Isomet Corporation and its Subsidiaries (the Company) produce and sell
laser equipment, systems and laser accessory components for color image
reproduction applications. The Company also performs sponsored research
and development in the general field of laser technology.
(B) Basis of consolidation
The Company has a wholly owned subsidiary in Barbados which has
elected to be a Foreign Sales Corporation, and has wholly-owned and
majority-owned subsidiaries in the United Kingdom. The consolidated
financial statements include the accounts of Isomet and these subsidiaries.
All material intercompany accounts and transactions have been eliminated in
consolidation.
(C) Revenue recognition
The Company recognizes revenue at the time goods are shipped and title
passes to the customer, including goods shipped under multiple delivery
fixed-price contracts.
(D) Inventories
Inventories of parts are stated at cost determined on a first-in,
first-out basis, which does not exceed market. Work-in-process and
finished goods are stated at the lower of standard costs (which approximate
average costs) or market.
(E) Property and equipment
Depreciation and amortization of property and equipment is recorded
using the straight-line method over estimated useful lives as follows:
Years
---------------
Plant equipment 10
Furniture 10
Transportation equipment 3-5
Leasehold improvements Remaining term
of lease
F-10
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(F) Foreign currency translation
The assets and liabilities of the Company's foreign operations are
translated at rates of exchange in effect at year end, and revenue,
expenses, gains and losses are translated at the average rates of exchange
for the year. Gains and losses resulting from translation are accumulated
as a separate component of stockholders' equity until the foreign entity is
sold or liquidated.
(G) Income per share of common stock
Basic net income per share of common stock has been computed on the
weighted average number of shares of common stock outstanding during the
period. Diluted net income per share of common stock has been computed on
the weighted average number of shares of common stock and common stock
equivalents outstanding during the year. The diluted net income per share
in 1998 and 1997 includes stock options as common stock equivalents.
(H) Statements of cash flows
The statements of cash flows are prepared on the basis of cash on hand
and in banks which is subject to withdrawal on demand and items considered
to be cash equivalents. The Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents. At times during the year the Company has amounts on deposit
with financial institutions that may exceed federally insured limits. The
Company does not believe that this results in any significant credit risk.
(I) Fair value of financial instruments
The fair market values of the financial instruments included in the
consolidated financial statements approximate their carrying value.
(J) Financial statement 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
disclosures of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-11
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(K) Changes to 1997 financial statements
Certain 1997 amounts have been reclassified to be comparative with
the 1998 presentation. In addition, during 1998, the Company adopted
Statement of Financial Accounting Standards No. 131 Disclosures About
-----------------
Segments of an Enterprise and Related Information (SFAS 131). The
-------------------------------------------------
information required by SFAS 131 is presented in Note 10 to the Financial
Statements. As required by the Statement, the Company has included
disclosures as of an for the year ended December 31, 1997 that were not
previously reported in the Company's financial statements.
NOTE 2 - NOTES RECEIVABLE - OFFICERS
The Company holds unsecured notes receivable from certain officers of the
Company in the amount of $45,000 that bear interest at 6%. These loans are to be
paid-off in 1999.
NOTE 3 - INVENTORIES
Inventories are summarized as follows:
1998 1997
--------------- ---------------
Parts $1,029,601 $ 684,080
Work-in-process 2,262,973 2,226,354
Finished goods 493,159 470,737
--------------- ---------------
Total $3,785,733 $3,381,171
=============== ===============
F-12
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 4 - PROPERTY AND EQUIPMENT
The following is a summary of property and equipment
<TABLE>
<CAPTION>
1998 1997
------------------------------- -------------------------------
Accumulated Accumulated
Depreciation Depreciation
and and
Cost Amortization Cost Amortization
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Plant equipment $2,044,524 $1,883,343 $2,038,728 $1,827,731
Furniture 337,471 231,652 266,005 224,160
Transportation equipment 44,349 32,403 44,062 21,142
Leasehold improvements 199,409 193,506 192,539 190,933
-------------- -------------- -------------- --------------
$2,625,753 $2,340,904 $2,541,334 $2,263,966
============== ============== ============== ==============
</TABLE>
Depreciation and amortization of property and equipment charged to
operations amounted to $89,118 and $92,933 in 1998 and 1997, respectively.
NOTE 5 - NOTES PAYABLE
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
NationsBank - Promissory note with interest payable monthly at
the Bank's prime rate plus .5%. The rate in effect on
December 31, 1998 was 8.25%. The loan is payable in monthly
installments of $12,000 plus interest, with final payment due
June 1, 2002. The collateral for this loan is a blanket lien
on all assets. $497,604 $641,604
NationsBank - Promissory note with interest due at the Bank's
prime rate plus .5%. The rate at December 31, 1998 was 8.25%.
The loan is payable in monthly installments of $8,000 plus
interest, with final payment due May 1, 2000. The collateral
for this loan is a blanket lien on all assets. 126,497 222,497
</TABLE>
F-13
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 5 - NOTES PAYABLE (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Lloyds Bank, United Kingdom - Overdraft line of credit with
interest payable monthly at 4% above the bank's base rate.
The rate in effect at December 31, 1998 was 10%. Collateral
for this loan is a blanket lien on the assets of the Company's
wholly owned United Kingdom subsidiary, and has a maximum
borrowing base of 75,000 pounds sterling (approximately
$124,000 at December 31, 1998) $ 93,695 119,307
Ford Motor Credit Corp. - Loan payable in monthly installments
of $520 including interest at 10.25%, with final payment due
August 28, 2000. The collateral for the loan is a truck. 9,012 14,049
----------- -----------
726,808 997,457
Less: Current portion 339,265 364,336
----------- -----------
Total $ 387,543 $ 633,121
=========== ===========
</TABLE>
The NationsBank loan agreements contain various covenants as to certain
financial ratios and limits borrowings to amounts outstanding on certain
receivables. All loan covenants were met at December 31, 1998.
Future debt maturities are as follows:
Year Ending
December 31 Amount
-------------- ---------
1999 $ 339,265
2000 177,939
2001 144,000
2002 65,604
---------
Total $ 726,808
=========
In 1998, the Company entered into a $750,000 revolving line of credit
agreement with Nations Bank which is available through April 1, 1999. Interest
is payable at the bank's prime rate. The Company made no draws against the line
in 1998.
F-14
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - ACCRUED LIABILITIES
A summary of accrued liabilities follows:
1998 1997
--------------- ---------------
Salaries and payroll taxes $ 66,874 $ 6,391
Commissions 8,838 6,185
Compensated absences 145,112 52,156
Warranty service - 1,642
Other 22,128 51,857
--------------- ---------------
Total $ 242,952 $ 218,231
=============== ===============
NOTE 7 - INCOME TAXES
The domestic and foreign components of income before income taxes are as
follows:
1998 1997
--------------- ---------------
Domestic $ 1,617,292 $ 1,769,414
Foreign 176,416 224,481
--------------- ---------------
Income before income taxes $ 1,793,708 $ 1,993,895
=============== ===============
The components of income tax expense (benefit) are as follows:
1998 1997
--------------- ---------------
Current
Domestic $ 527,373 $ 691,306
Foreign 660 -
--------------- ---------------
Total 528,033 691,306
Deferred
Domestic 66,356 (28,079)
--------------- ---------------
Income tax expense $ 594,389 $ 663,227
=============== ===============
F-15
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 7 - INCOME TAXES (CONTINUED)
Significant items attributable to the calculation of the deferred income
tax asset are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Net operating loss carryforwards $ - $ 6,945
Difference in the timing of expenses for tax and financial 324,579 (256,401)
reporting purposes
General business credits - 66,615
--------------- ---------------
</TABLE>
A reconciliation of income taxes computed at the statutory Federal rate and
the effective income tax expense is as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Federal income taxes at statutory rate $ 609,861 $ 677,924
Increases (decreases) in taxes from:
State income taxes, net 49,551 73,820
Income tax applicable to income of UK subsidiary (66,717) (60,789)
Difference in expense recognition 1,694 (27,728)
--------------- ---------------
Tax expense $ 594,389 $ 663,227
=============== ===============
</TABLE>
The components of deferred tax asset at December 31, 1998 and 1997 are as
follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets (liabilities)
Depreciation differences $ (14,782) $ -
Inventory capitalization adjustment 49,406 45,422
Other inventory adjustments 22,767 75,920
Vacation pay differences 55,085 57,758
Allowance for doubtful accounts 2,145 215
Capital loss carryforwards 8,589 8,589
Deferred rent - 1,662
--------------- ---------------
Total $ 123,210 $ 189,566
=============== ===============
</TABLE>
The Company has net operating loss carryforwards for tax reporting purposes
of approximately 670,100 pounds sterling ($1,112,000) in the United Kingdom.
These losses may be carried forward indefinitely. The Company has provided an
allowance for 100% of the tax benefit related to this loss because of the
uncertainty of realization.
F-16
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company leases its plant and office facilities under various long-
term operating leases which expire in 2001. The leases require minimum annual
rental payments plus additional amounts based upon future increases in property
taxes and the consumer price index. The Company has two three-year renewal
options under one lease with the same terms.
Following is a schedule of future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms in
excess of one year as of December 31, 1998:
<TABLE>
<CAPTION>
Year Ending
December 31 Amount
--------------- -----------
<S> <C>
1999 $ 211,439
2000 197,296
2001 126,816
-----------
Total $ 535,551
===========
</TABLE>
Total rent expense for all operating leases amounted to $220,734 and
$211,142 in 1998 and 1997, respectively.
The Company is contingently liable for severance pay under employment
agreements with certain officers.
NOTE 9 - COMMON STOCK
During 1988, 1989 and 1990, the Company granted options to certain
employees to purchase 12,000 shares of the Company's common stock at $1.75 per
share. To the extent not previously exercised, options under the agreement
expire seven years from the date of issuance. Exercise of the options granted is
restricted, therefore, the difference between the option price and the market
price at the date the options were granted, if any, is recorded as deferred
compensation in stockholders' equity, and is amortized ratably over the seven
year life of the options. Options for 7,000 shares expired in 1997. All of the
options to purchase shares under the employee grants have expired as of December
31, 1997.
F-17
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - COMMON STOCK (CONTINUED)
During 1988, the Company granted options to certain officers and directors
to purchase 97,500 shares of the Company's common stock at $1.75 per share. To
the extent not previously exercised, the options terminate in ten years. Options
under the agreement may be exercised only upon the occurrence of certain
specified events. Since exercise of the options is contingent upon the
occurrence of a future event, the difference between the option price and the
market price at the date the options were granted was recorded as deferred
compensation in stockholders' equity, and is being amortized ratably over the
ten year life of the options. These options expired in 1998.
The total amount of deferred compensation amortized to expense during 1998
and 1997 as a result of the above described options was $32,500 and $32,766,
respectively.
In 1992, the Company adopted a stock option plan covering up to 275,000
shares of the Company's stock, which includes all previously issued options, and
has a term of ten years. Isomet's Board of Directors shall determine the number
of shares and to whom options are to be granted. Options granted under the plan
are exercisable at an exercise price to be determined by the board and terminate
ten years from the date said options are granted. At December 31, 1998, there
are no non-qualified options and 21,000 incentive options outstanding under the
plan. In 1998, a total of 18,500 incentive options were exercised at a price of
$1.52 per share. In 1997, a total of 3,500 incentive options were exercised at a
price of $1.52 per share and 500 incentive options were forfeited.
NOTE 10 - SEGMENT INFORMATION
The Company is a manufacturer of laser control devices, systems and
equipment for color image reproduction applications. The Company has two
reportable segments, identified as systems and components. The systems segment
produces high resolution digital color scanners, laser film recorders, laser
plotters and specialized interface software and electronics packages. The
components segment produces laser control devices for applications that make use
of lasers to process or communicate information through various forms of
recorded images.
The accounting policies of the segments are the same as those described in
the summary of significant accounting policies. The Company evaluates
performance based on the gross profit of each segment.
The Company's reportable segments are units that offer different product
lines. They are managed separately because the products under each unit require
different manufacturing processes and there are no significant intersegment
sales or transfers.
F-18
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - SEGMENT INFORMATION (CONTINUED)
The Company's operations by reporting segment are as follows:
<TABLE>
<CAPTION>
1998
-----------------------------------------------
Systems Components Total
----------- ---------- -----------
<S> <C> <C> <C>
Sales $5,015,360 $4,310,194 $ 9,325,554
Cost of sales 3,924,600 2,286,751 6,211,351
----------- ---------- -----------
Gross profits $1,090,760 $2,023,443 3,114,203
=========== ========== ===========
General corporate:
Interest income and other revenue 86,985
Selling expenses (267,518)
General and administrative (1,052,702)
Product development (2,745)
Interest expense (84,515)
-----------
Net income before income taxes $ 1,793,708
===========
1997
-----------------------------------------------
Systems Components Total
----------- ---------- -----------
Sales $ 3,569,043 $5,063,576 $ 8,632,619
Cost of sales 3,363,264 1,909,466 5,272,730
----------- ---------- -----------
Gross profit $ 205,779 $3,154,110 3,359,889
=========== ==========
General corporate:
Interest income and other revenue 20,410
Selling expenses (302,192)
General and administrative (965,486)
Interest expense (118,726)
-----------
Net income before income taxes $ 1,993,895
===========
</TABLE>
F-19
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - SEGMENT INFORMATION (CONTINUED)
The Company's assets by reporting segment are as follows:
<TABLE>
<CAPTION>
1998
--------------------------------------------------------------------
General
Systems Components Corporate Total
--------------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Accounts receivable $ 1,298,230 $ 539,533 $ - $ 1,837,763
Precious metals - 187,727 - 187,727
Inventories 1,207,717 2,578,016 - 3,785,733
Other 28,485 227,879 1,946,506 2,202,870
--------------- ------------- ----------- -------------
Total assets $ 2,534,432 $ 3,533,155 $ 1,946,506 $ 8,014,093
=============== ============= =========== =============
1997
--------------------------------------------------------------------
General
Systems Components Corporate Total
--------------- ------------- ----------- -------------
Accounts receivable $ 647,710 $ 840,086 $ - $ 1,487,796
Precious metals - 186,283 - 186,283
Inventories 886,297 2,494,874 - 3,381,171
Other 27,737 221,894 1,883,704 2,133,335
--------------- ------------- ----------- -------------
Total assets $ 1,561,744 $ 3,743,137 $ 1,883,704 $ 7,188,585
=============== ============= =========== =============
The Company's operations in different geographic areas were as follows:
1998 1997
----------- -----------
Sales to unaffiliated customers
North America $ 6,869,938 $ 6,149,799
Europe 1,610,317 1,632,775
Far East 845,299 850,045
----------- -----------
Total sales 9,325,554 8,632,619
Transfers between geographic areas
United States 1,132,584 1,193,821
Europe 303,255 265,245
Eliminations (1,435,839) (1,459,066)
----------- -----------
Total sales $ 9,325,554 $ 8,632,619
=========== ===========
</TABLE>
F-20
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Operating profit
United States $ 1,689,427 $ 1,952,482
United Kingdom 188,796 160,139
Eliminations - -
-------------- -------------
Total operating profit 1,878,223 2,112,621
Interest expense 84,515 118,726
-------------- -------------
Income before income taxes $ 1,793,708 $ 1,993,895
============== =============
Identifiable assets
United States $ 5,918,306 $ 5,118,658
United Kingdom 698,553 915,987
Eliminations (74,580) (425,440)
-------------- -------------
Total identifiable assets 6,542,279 5,609,205
General corporate assets 1,471,814 1,579,380
-------------- -------------
Total assets $ 8,014,093 $ 7,188,585
============== =============
Liabilities
United States $ 1,635,718 $ 1,900,647
United Kingdom 760,162 1,150,469
Eliminations (594,171) (817,670)
-------------- -------------
Total liabilities $ 1,801,709 $ 2,233,446
============== =============
</TABLE>
Transfers between geographic areas are accounted for on a cost plus mark-up
basis. Expenses directly identified with an area are used to determine operating
profit by geographic areas.
In 1998, of $9,325,554 in total sales, one systems customer accounted for
$4,782,641, or approximately 51%. In 1997, of $8,632,619 in total sales, one
systems customer accounted for $3,083,799, or approximately 36% and one
components customer accounted for $1,415,206 or 16%.
The Company does not normally require its customers to provide collateral
for outstanding balances. The Company maintains insurance for collection of
accounts receivable on its ten largest domestic customers.
F-21
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 10 - SEGMENT INFORMATION (CONTINUED)
The Company's products are sold principally in North America, Europe and
the far east. Accounts and notes receivable from sales in these areas of the
world at December 31, 1998 and 1997, were as follows:
1998 1997
---------- ----------
North America $1,604,755 $1,132,623
Europe 202,988 327,225
Far East 30,020 27,948
---------- ----------
Total $1,837,763 $1,487,796
========== ==========
The accounts receivable in North America at December 31, 1998 were due from
39 different unrelated customers, of which two customers accounted for
$1,440,183. The amount due from these customers is expected to be collected in
the normal course of business.
The accounts receivable in Europe at December 31, 1998 were due from eleven
different unrelated customers, of which two customers accounted for $158,066.
All such debts are expected to be collected in the normal course of business.
NOTE 11 - RETIREMENT PLANS
One subsidiary maintains a defined contribution retirement plan which is
available to all employees of the subsidiary. The plan is funded through the
purchase of a group annuity insurance policy. Employer contributions are
discretionary. Employees may contribute to the plan in an amount that does not
exceed 15% of the employee's annual compensation and vest 100% in their own
contributions. Vesting in the employer contributions does not occur until the
participant's normal retirement date, as defined. The plan is cancelable upon
thirty days notice. Pension expense (credit) was $7,070 and $7,682 for the years
ended December 31, 1998 and 1997, respectively.
The parent company maintains a contributory plan pursuant to Section 401(k)
of the Internal Revenue Code. The Plan is available to all employees of the
parent company who have completed one year of service. Participants may elect to
make 401(k) contributions to the Plan in an amount not to exceed the lesser of
15% of annual compensation or the maximum amount specified by law. The Company
matches employee contributions in an amount not to exceed 2% of annual
compensation. The Company may make additional contributions at its discretion.
All contributions are held by a trustee and invested at the participant's
direction under the options available. Participants are vested 100% in their
contributions. Vesting in employer contributions is 20% per year with 100%
vesting after five years. Pension expense related to this plan totaled $34,701
and $30,339 for the years ended December 31, 1998 and 1997, respectively.
F-22
<PAGE>
ISOMET CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 12 - NET INCOME PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income per share computations for 1998 and 1997:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------- -------------- ---------------
<S> <C> <C> <C>
Net income $ 1,199,319
---------------
Basic net income per share
Income available to stockholders 1,199,319 1,921,715 $ .62
===============
Effect of dilutive securities
Stock options - 48,656
--------------- --------------
Diluted net income per share $ 1,199,319 1,970,371 $ .61
=============== ============== ===============
1997
-------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------------- -------------- ---------------
Net income $ 1,330,668
---------------
Basic net income per share
Income available to stockholders 1,330,668 1,906,757 $ .70
===============
Effect of dilutive securities
Stock options - 64,552
--------------- --------------
Diluted net income per share $ 1,330,668 1,971,309 $ .68
=============== ============== ===============
</TABLE>
F-23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
_____________________ AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,427
<SECURITIES> 0
<RECEIVABLES> 1,838
<ALLOWANCES> 0
<INVENTORY> 3,786
<CURRENT-ASSETS> 7,722
<PP&E> 2,626
<DEPRECIATION> 2,341
<TOTAL-ASSETS> 8,014
<CURRENT-LIABILITIES> 1,414
<BONDS> 0
0
0
<COMMON> 1,928
<OTHER-SE> 4,284
<TOTAL-LIABILITY-AND-EQUITY> 8,014
<SALES> 9,326
<TOTAL-REVENUES> 9,413
<CGS> 6,211
<TOTAL-COSTS> 7,619
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85
<INCOME-PRETAX> 1,793
<INCOME-TAX> 594
<INCOME-CONTINUING> 1,199
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,199
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
