<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Isomet Corporation
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Isomet Corporation
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
ISOMET CORPORATION
5263 Port Royal Road
Springfield, VA 22151
Notice of
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
June 3, 1999
NOTICE IS HEREBY GIVEN THAT, the Annual Meeting of Stockholders of Isomet
Corporation, a New Jersey Corporation (the "Corporation") will be held at the
principal office of the Corporation, 5263 Port Royal Road, Springfield,
Virginia, on Thursday, June 3, 1999, at 10:30 a.m., Eastern Standard Time, for
the following purposes:
1. To elect five directors of the Corporation to serve for the term of
one year and until their respective successors have been elected and
qualified; and
2. To transact such other business as may be properly brought before the
meeting
or any adjournment or adjournments thereof.
Only holders of record shares of Common Stock of the Corporation at the
close of business on April 15, 1999 will be entitled to notice of and to vote at
the meeting or any adjournment thereof.
All stockholders of the Corporation are invited to attend the annual
meeting. Whether or not you plan to attend the Annual Meeting of Stockholders in
person, it is important that your shares be represented and voted. After reading
the enclosed Notice of Annual Meeting and Proxy Statement, please complete,
sign, date and return the enclosed Proxy in the envelope to which no postage
need be affixed if mailed in the United States. Any stockholder who chooses to
attend and vote in person has the power to revoke his proxy at any time before
it is used by giving written notice of such revocation to the Secretary of the
meeting.
By Order of The Board of Directors
Jerry W. Rayburn
Secretary
April 30, 1999
Springfield, Virginia
<PAGE>
ISOMET CORPORATION
5263 Port Royal Road
Springfield, Virginia 22151
PROXY STATEMENT
The enclosed Proxy is being solicited by the Board of Directors of
Isomet Corporation (the "Corporation) in connection with the Annual Meeting of
Stockholders of the corporation to be held at the main office of the
Corporation, on Thursday, June 3, 1999, at 10:30 a.m., Eastern Standard Time,
and at any adjournment or adjournments thereof. Only record holders of shares
of Common Stock, $1.00 par value ("Common Stock") of the Corporation at the
close of business on April 15, 1999 will be entitled to notice of or to vote at
the Annual Meeting or any adjournments of such meeting. On that date there were
1,927,590 shares of Common Stock outstanding and entitled to vote at the
meeting.
Any stockholder who executes and returns the enclosed form of proxy
may revoke it at any time before it is voted by giving written notice to the
Secretary of the Corporation or by voting in person at the meeting. Unless so
revoked, the shares represented by the proxy will be voted in accordance with
the instructions specified therein at the Annual Meeting, if the proxy is
properly executed and is received in time for voting. If no instructions are
specified, the shares represented by the Proxy will be voted FOR all of the
matters described herein.
All expenses attributable to this solicitation will be borne by the
Corporation. Further solicitation of Proxies may be made by telephone or in
person by officers, directors and regular employees of the Corporation.
The Corporation's Annual Report for the fiscal year ended December 31,
1998, is transmitted herewith. None of the statements or information in said
Annual Report is intended or shall be construed to be part of the proxy
soliciting material of the Corporation.
The approximate mailing date of the Proxy Statement and accompanying
form of Proxy is April 30, 1999.
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
Stockholders are entitled to one vote for each share of Common Stock.
However, in the election of directors, a stockholder has the right to cumulate
his shares by giving one candidate as many votes as shall equal the number of
directors to be elected, multiplied by the total number of shares or to
distribute them, on the same principle, among any number of candidates as the
stockholder wishes. There are no prerequisites to the exercise of these
cumulative voting rights. Persons named as proxies intend to cast votes equally
among the five nominees for directors, but they reserve the right to cumulate
and cast votes for less than all nominees or to distribute the votes among
nominees at their discretion.
The following table sets forth as of February 28, 1999 the number of
shares and percentage of outstanding Common Stock owned by (I) each person known
to the Corporation to be the beneficial owner of more than 5% of the
corporation's outstanding Common Stock, (ii) each director and director nominee
who owns Common Stock and (iii) all directors and officers of the Corporation as
a group. The address for the directors and officers is the same of the
Corporation's address unless otherwise indicated.
<PAGE>
<TABLE>
<CAPTION>
Common Stock
------------
Name of Amount and Nature Percent
Beneficial Owner OF BENEFICIAL OWNERSHIP/1/ OF CLASS/2/
- ---------------- -------------------------- -----------
<S> <C> <C>
Leon Bademian 16,050 .83
Director and Nominee
Jerry W. Rayburn 15,000/3/ .77
Officer, Director and Nominee
Lee R. Marks 2,333 .12
Director and Nominee
Thomas P. Meloy 131,103 6.80
Director and Nominee
413 Jefferson Street
Morgantown, WV 26505
Henry Zenzie 538,088/4/ 27.92
Officer, Director and Nominee
All Directors and Officers as a
Group (8 persons) 719,174 36.95
</TABLE>
/1/ Unless otherwise indicated, each person has sole voting and investment power
with respect to the shares beneficially owned.
/2/ Calculated on the basis of 1,927,590 shares of Common Stock outstanding at
April 15, 1999, plus in the case of the individual option holder, additional
shares of Common Stock deemed to be outstanding because such shares may be
acquired within 60 days of that date through the exercise of outstanding
options.
/3/ Includes 15,000 shares that Mr. Rayburn has an option to acquire within 60
days of April 15, 1999.
/4/ Includes 93,060 shares as to which Mr. Zenzie, as Nominee under certain
Nominee and Option Agreements dated as of March 9, 1993, shares investment power
for a maximum term of ten (10) years, but holds no voting powers hereto.
Pursuant to these agreements, Mr. Zenzie also has an option to immediately
acquire 18,612 of such shares.
<PAGE>
ELECTION OF DIRECTORS
At the annual meeting of stockholders five (5) directors are to be
selected to hold office until the next annual meeting or until their successors
are elected and qualified. Should the nominees be unable to serve or refuse to
serve as directors (an event that Management does not anticipate), proxies
solicited hereunder will be voted for substituted nominees.
The enclosed form of proxy provides a means for a stockholder to vote
for one or more of the proposed nominees or to withold authority to vote for all
of such proposed nominees. Each properly executed proxy received in time for
the meeting will be voted as specified herein. If a stockholder executes and
returns a proxy, but does not specify otherwise, the shares represented by such
stockholder's proxy will be voted FOR each of the proposed nominees listed
therein or should any one or more of such proposed nominees become unavailable,
for another nominee or other nominees to be selected by the Board of Directors.
THE CORPORATION'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE NOMINEES IDENTIFIED BELOW.
Identification of Directors and Nominees for Directors:
The following table sets forth certain information regarding each
director and nominee.
<TABLE>
<CAPTION>
POSITION WITH DIRECTOR
Nominee AGE THE CORPORATION SINCE
------- --- --------------- -----
<S> <C> <C> <C>
Leon Bademian 67 Director of Technology and 1981
Development and Director
Lee R. Marks 63 Director 1987
Thomas P. Meloy 73 Director 1977
Jerry W. Rayburn 58 Executive Vice President Finance, 1977
Treasurer, Secretary and Director
Henry Zenzie 69 President and Director 1968
</TABLE>
Business Experience:
The principal occupation of each director and nominee for the last
five years and directorships held by each such person is as follows:
Leon Bademian is Director of Technology and Development for the
Corporation. Previously, Mr. Bademian was Executive Vice President, Operations
and Technical Director for the Corporation.
Lee R. Marks is a member of the law firm of Greenberg, Traurig.
Previously, Mr. Marks was a member of the law firm of Ginsburg, Feldman and
Bress, Chartered.
Thomas P. Meloy, PhD is Benedum Professor, West Virginia University.
Jerry W. Rayburn is Executive Vice President, Finance, Treasurer and
Secretary of the Corporation.
Henry Zenzie is President of the Corporation. He is also a private
investor in Henry Zenzie & Company, Princeton, New Jersey. Prior to joining the
Corporation as President in 1981, Mr. Zenzie was Senior Vice President of
Prescott, Ball and Turben, New York, New York from 1978.
<PAGE>
FAMILY RELATIONSHIPS
There are no family relationships between any director, executive
officer or director nominee.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Greenberg, Traurig, of which Lee R. Marks, a Director
and Nominee Director of the Corporation, is a member, received fees in fiscal
1998 for legal services rendered to the Corporation. It is anticipated that
Greenberg, Traurig will continue to provide legal services to the Corporation,
to be billed at the law firms usual hourly rates in 1999.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held two meetings in the fiscal year ended
December 31, 1998. Thomas P. Meloy did not attend one of the meetings.
The Board of Directors has an audit committee consisting of Lee R.
Marks, Thomas P. Meloy and Jerry W. Rayburn.
<PAGE>
EXECUTIVE COMPENSATION
(a) The following information is furnished with respect to the President of the
Corporation and the other five Executive Officers and Director of the
Corporation. These individuals are the highest paid employees of the
Corporation for the fiscal year ended December 31, 1998.
(b) Summary Compensation Table
Long Term Compensation
<TABLE>
<CAPTION>
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (I)
Other
Name Annual Restricted Securites All
And Compe Stock Underlying LTIP Other
Principal Salary Bonus ensation Award(s) Options/ Payouts Comp
Position Year ($) ($) (1) ($) SARs (#) ($) ($) ($)
- ---------------- ------ ---------- ------- ------------ ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Henry Zenzie 1998 76,294 -0- -0- -0- -0- -0- -0-
President 1997 79,229 -0- -0- -0- -0- -0- -0-
1996 76,551 -0- -0- -0- -0- -0- -0-
Jerry Rayburn 1998 127,000 2,540 -0- -0- -0- -0- -0-
Exec Vice 1997 128,326 2,567 -0- -0- -0- -0- -0-
President of 1996 123,573 2,471 -0- -0- -0- -0- -0-
Finance and
Treasurer
Leon Bademian 1998 138,403 2,768 -0- -0- -0- -0- -0-
Director of 1997 139,163 2,783 -0- -0- -0- -0- -0-
Technology & 1996 123,573 2,471 -0- -0- -0- -0- -0-
Development
Robert Bonner 1998 86,221 1,724 -0- -0- -0- -0- -0-
Vice President 1997 82,859 1,657 -0- -0- -0- -0- -0-
1996 73,570 1,471 -0- -0- -0- -0- -0-
Frank Hamby 1998 86,221 1,724 -0- -0- -0- -0- -0-
Vice President 1997 82,859 1,657 -0- -0- -0- -0- -0-
1996 73,570 1,471 -0- -0- -0- -0- -0-
Delmar Rader 1998 86,221 1,724 -0- -0- -0- -0- -0-
Vice President 1997 82,859 1,657 -0- -0- -0- -0- -0-
1996 73,570 1,471 -0- -0- -0- -0- -0-
</TABLE>
(1) This amount represents Corporation's annual contribution to 401(k) plan.
(c) Option/SAR Grants in Last Fiscal Year Table
There were no Option/SAR Grants in the last fiscal year.
<PAGE>
(D) AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUE TABLE
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SAR's Options/SAR's
at FY-End (#) at FY-End($)(1)
Shares Acquired Value
Name on Exercise (#) Realized ($) $Exercisable Exercisable
<S> <C> <C> <C> <C>
Henry Zenzie -0- -0- -0- -0-
Jerry W. Rayburn -0- -0- 15,000 22,200
Leon Bademian 15,000 63,450 -0- -0-
Robert Bonner -0- -0- 3,500 5,180
Frank Hamby -0- -0- -0- -0-
Delmar R. Rader 3,500 11,760 -0- -0-
</TABLE>
(1) Closing price on December 31, 1998 was above the exercise price for
exercisable option shares.
<PAGE>
(e) Long-Term Incentive Plans - Awards in Last Fiscal Year
None. The Corporation does not maintain any long-term incentive plan.
(f) Defined Benefit or Actuarial Plan Disclosure - Pension Plan Table
Not applicable.
(g) Compensation of Directors
Standard Arrangements: The Corporation does not pay director's fees.
Other Arrangements: On January 11, 1993, the Board of Directors approved
the grant of incentive stock options under the 1992 Isomet Corporation
Incentive Stock Option Plan to certain employees of the Corporation. The
officers receiving such options under this grant were as follows: (i) Leon
Bademian, 15,000 option shares; (ii) Jerry W. Rayburn, 15,000 option
shares; (iii) Frank Hamby, 3,500 option shares; (iv) Robert Bonner, 3,500
option shares; and (v) Delmar R. Rader, 3,500 option shares. The option
exercise price of these qualified shares is $1.52 per share (the fair
market value of the shares on the date of grant). In 1997, Frank Hamby
exercised the option for 3,500 shares. In 1998, Leon Bademian and Delmar
R. Rader exercised their options for 15,000 shares and 3,500 shares,
respectively. The remaining options expire on January 12, 2003 and are
exercisable according to the following formula: 33 1/3% of the shares may
be exercised on January 12, 1994, 66 2/3% of the shares may be exercised on
January 12, 1995 and 100% of the shares may be exercised on January 12,
1996.
(h) Employment Contracts and Termination of Employment and Change-in-Control
Arrangements
Termination of Employment Arrangement: Effective as of June 1, 1994, the
Corporation entered into severance agreements, identical in their terms and
conditions, with two of its executive vice presidents, Leon Bademian and
Jerry W. Rayburn. The terms of each severance agreement provide that in
the event the Corporation terminates the executive's employment with the
Corporation for any reason, the executive shall be entitled to receive
severance pay equal to twelve months compensation based upon his then
annual base salary only (i.e., exclusive of any bonus or other
compensation), but in no event shall the severance pay be less than the
total amount of $123,573, his annual base salary in effect as of the
effective date of the severance agreement(s). Based upon the foregoing,
the executive will not be entitled to severance in the event he voluntarily
terminates his employment with the Corporation (which by way of
illustration, but not limiation, includes death, disability, retirement or
resignation). The severance agreements provide that the severance pay
shall be paid in twelve equal monthly installments commencing one month
after the Corporation terminates the executive's employment with the
Corporation, provided however, that the Corporation can within it's sole
discretion prepay all or any part of such severance pay. The severance
agreeements also contain covenants restricting each executive from engaging
in competing businesses or certain conduct with the Corporation's vendors;
requiring the executive to return all Corporation owned materials and
equipment; prohibiting the disclosure of confidential information of the
Corporation; and requiring the executive to assist the Corporation in
acquiring intellectual property rights in any invention the executive may
have made or conceived while employed by the Corporation. The severance
agreements also provide for injunctive relief as well as other remedies for
breach.
Employee Contracts: In 1998, Leon Bademian, previously Executive Vice
President of Operations, assumed the position of Director of Technology and
Development under a three year employment agreement with the Corporation
dated July 21, 1998. The agreement provided for the cancellation of the
June 1, 1994 severance agreement referred to above.
<PAGE>
(i) Report on Repricing of Options/SARs
None. The Corporation did not adjust or amend the exercise price of
stock options or SARs previously awarded to any of the named executive
officers during the last fiscal year.
(j) Additional information with Respect to Compensation Committee
Interlocks and Insider Participation in Compensation Decisions
In 1998, four of the Corporation's directors participated in
deliberations and decisions regarding executive officer compensation.
They were Mr. Zenzie, Mr. Bademian, Mr. Rayburn and Mr. Marks.
(k) Board Compensation Committee Report on Executive Compensation
Not applicable.
(l) Performance Graph
Not applicable.
<PAGE>
INDEPENDENT ACCOUNTANTS
The Board of Directors has responsibility for selecting its independent
auditors and engaged the firm of Aronson, Fetridge & Weigle, Certified Public
Accountants, for the current calendar year. The Corporation has requested that
a representative of Aronson, Fetridge & Weigle be present at the Annual Meeting
of Stockholders with the opportunity to make a statement, if he desires to do so
and is expected to be available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Any stockholders wishing to submit a proposal for action at the 2000 Annual
Meeting of Stockholders, pursuant to and in accordance with the requirement of
Securities and Exchange Commission Regulation 240.14a-8, must present the
proposal in writing to the Corporation no later than January 15, 2000.
OTHER MATTERS
At the date of this Proxy Statement the Corporation does not know of any
business to be presented for consideration at the Annual Meeting other than
stated in the Notice of such meeting. It is intended, however, that the persons
authorized under management proxies may, in the absence of instruction to the
contrary, vote or act in accordance with their best judgement with respect to
any other proposal presented for action at such meeting.
REPORTS TO STOCKHOLDERS
A copy of the Corporation's Annual Report on Form 10-KSB for the year ended
December 31, 1998, including the financial statements and financial statement
schedules, as filed with the Securities and Exchange Commission, may be obtained
without charge by sending a written request therefor to Jerry W. Rayburn,
Executive Vice President, Finance, Isomet Corporation, 5263 Port Royal Road,
Springfield, Virginia 22151.
BY ORDER OF THE BOARD OF DIRECTORS
Jerry W. Rayburn
Secretary
April 30, 1999
Springfield, Virginia
<PAGE>
PROXY
ISOMET CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Lee R. Marks and Jerry W. Rayburn as
Proxies, with the power to appoint his substitute, and hereby authorizes them to
represent and to vote as designated hereon all the shares of common stock of
Isomet Corporation held on record by the undersigned on April 15, 1999, at the
annual meeting of shareholders to be held on Thursday, June 3, 1999, or any
adjournment thereof.
(Continued on reverse side)
.FOLD AND DETACH HERE.
<PAGE>
PLEASE MARK
your votes as
indicated in
this example [X]
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDERS.
I NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSAL 1.
<TABLE>
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS Leon Bademian, Lee R. Marks, Thomas P. Meloy, Jerry W. Rayburn and Henry Zenzle
For all WITHHOLD
nominees AUTHORITY
listed to vote for all (INSTRUCTION: TO WITHHOLD AUTHORITY IS VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S
to the right nominees listed NAME ON THE LINE PROVIDED BELOW.)
(except as to the right _____________________________________________________________________________________________
marked to the
contrary
[_] [_]
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON.
2. IN THEIR DISCRETION, THE PROXIES ______________________________________________________________
ARE AUTHORIZED TO VOTE SUCH OTHER
BUSINESS AS MAY PROPERLY COME ______________________________________________________________
BEFORE THE MEETING. Signature
DATED: _________________________________________________, 1999
When shares are held by tenants, both should sign. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation
name, by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
______________________________________________________________
Signature if held Jointly
Dated: _________________________________________________, 1999
PLEASE SIGN DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
</TABLE>
.FOLD AND DETACH HERE.
<PAGE>
ISOMET CORPORATION
1998 ANNUAL REPORT
<PAGE>
Isomet, founded in 1956, is headquartered in Springfield, Virginia with an
operating subsidiary in the United Kingdom. The Company designs and
manufactures acousto-optic laser control components and electronics for
information handling and other applications. It also produces high resolution
digital color scanners, film recorders, laser plotters and related equipment for
color image reproduction markets.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
1998 1997 % of Change
---------------------------------------------
<S> <C> <C> <C>
Revenue $9,413,000 $8,653,000 + 9
Net Income $1,199,000 $1,331,000 -10
Number of Shares of Common
Stock and Common Stock
Equivalents Outstanding 1,970,000 1,971,000 -
Diluted Net Income Per Share $ .61 $ .68 -10
Inventory December 31 $3,786,000 $3,381,000 +12
Working Capital $6,308,000 $5,263,000 +20
Current Ratio 5.46:1 4.3:1 -
Number of Employees 49 50 - 2
Revenue Per Employee $ 192,100 $ 173,100 +11
New Orders $9,606,000 $7,568,000 +27
Unfilled Orders at 12/31 $3,327,000 $3,451,000 - 4
</TABLE>
<PAGE>
TO SHAREHOLDERS AND EMPLOYEES
Fiscal year 1998 was another strong year for Isomet. We closed the year
with revenue at $9.4 million, a nine percent increase over $8.7 million in 1997.
Net income for the year of $1.2 million or $.61 per share, was down somewhat
from 1997 results of $1.3 million or $.68 per share. We experienced declines in
gross margins in some product areas due to a change in product revenue mix.
The revenue increase for the year came entirely from systems sales of laser
plotters to Polaroid Corporation for their ongoing program. Component sales
decreased for the year by approximately $790,000, reflecting the decline in
demand from customers in the semiconductor industry.
New orders in 1998 totaled $9.6 million vs. $7.6 million in 1997. The new
orders in 1998 included substantial new quantities of laser plotters from
Polaroid Corporation. Unfilled total orders at year-end 1998 were $3.3 million
compared to $3.5 million the previous year.
On December 31, 1998 our loans from Nations Bank totaled $624,000 after our
repayment of $240,000 during the year. In April 1998 the notes were renewed
with a fixed repayment schedule of $20,000 per month through May 2000 and
$12,000 per month thereafter through June 2002. Currently our cash and
equivalents position is approximately $2.0 million, which equates to about $1.00
per share.
Our program for diversification and growth is continuing in both the
graphic arts systems area and new product development of acousto-optic
components. In the components area, we are developing higher frequency devices
and expanding our line of acousto-optic tunable filters and related products.
Systems development involves other products for the graphic arts industry that
builds on our success with Polaroid Corporation. Acquisitions that would be a
good fit with our size and technology areas are also being considered.
Henry Zenzie
President
This letter contains forward-looking statements that involve risks and
uncertainties. Actual results, events and performance could vary materially
from those contemplated by these forward-looking statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
REVENUE
Consolidated net revenue in 1998 totaled $9,413,000, an increase of
$760,000 from $8,653,000 in 1997. The following table reflects the sales and
total revenue comparisons for both years by product line and operating entity:
<TABLE>
<CAPTION>
1998
Components 1998 1997 Increase/(Decrease)
- ---------------- ---------- ---------- -------------------
<S> <C> <C> <C>
Isomet US (1) $2,760,000 $3,616,000 $ (856,000)
Isomet UK 1,551,000 1,484,000 67,000
---------- ---------- ----------
Total: $4,311,000 $5,100,000 $ (789,000)
Systems
- -------
Isomet US (1) $4,953,000 $3,380,000 $1,573,000
Isomet UK 62,000 153,000 (91,000)
---------- ---------- ----------
Total: $5,015,000 $3,533,000 $1,482,000
Total Sales: $9,326,000 $8,633,000 $ 693,000
Other Income 87,000 20,000 67,000
---------- ---------- ----------
Total Revenue: $9,413,000 $8,653,000 $ 760,000
</TABLE>
(1) - Includes sales to foreign countries other than in Europe.
As shown above, the net sales increase in 1998 of $693,000 is composed of
an increase in systems sales of $1,482,000 and a decline in components of
$789,000. A higher level of shipments to Polaroid Corporation under a contract
received in May 1998, caused the systems increase in 1998. Component deliveries
declined in 1998 due, primarily, to a decrease in demand from customers in the
semiconductor industry.
COSTS AND EXPENSES
On a consolidated basis, the Company had net earnings in 1998 of $1,199,000
or $.61 per share (diluted). This compares to a net income in 1997 of
$1,331,000 or $.68 per share (diluted).
<PAGE>
1. The cost of sales percentage increased in 1998 to 66.6% from 61.1% in 1997.
Resultant gross profit decreased by approximately $246,000 in 1998. The
increase in the cost of sales percentage is due, primarily to the
following:
1. A decline in per unit selling prices for systems products in 1998 vs.
1997.
2. A decrease in sales of components in 1998 of acousto-optic devices
that traditionally produce higher margins.
2. Selling and G & A expenses in 1998 increased by $53,000 from 1997. As
a percentage of revenue, these expenses decreased to 14.0% from 14.7%
in 1997.
3. Interest expense declined in 1998 to $85,000 from $119,000 in 1997, as
the Company continued to reduce its borrowing level.
4. Expensed product development and improvement costs were $3,000 in 1998
compared to $0 in 1997. During 1998 and 1997, most of the Company's
engineering effort was applied to systems contracts and accounted for in
cost of sales.
5. For the two years ended December 31, 1998, the Company's revenue and cost
of sales were not significantly impacted by the effects of inflation. In
addition, the Company's sales and costs have not been materially affected
by changing prices due to inflation. Lower unit sales prices, however,
have been experienced in the systems product line due to competitive
pressures.
FOREIGN EXCHANGE RISKS
In 1998 $2,627,000 of the $9,326,000 Company total sales were to customers
in foreign countries, primarily Japan and Europe. From the United States, all
sales to foreign customers are invoiced in US dollars. The Company's operating
subsidiary in the United Kingdom imports products from the Parent Company and
resells to customers in various European countries; the majority of these sales
are in US dollars. As a result, the Company's foreign currency risks are limited
to pound sterling - US dollar relationship, which has been relatively stable
over time. Consequently, the Company has not had and does not expect to have a
material exposure to foreign exchange risks.
YEAR 2000
The Company is in the process of assessing the potential impact of the year
2000 on the ability of the Company's computerized information systems to
accurately
<PAGE>
process information that may be date-sensitive. The purpose of this
assessment is to determine whether any of the Company's programs that recognize
a date using "00" as the year 1900 rather than the year 2000 could result in
errors or system failures, since the Company utilizes a number of computer
programs in its operations. The Company has not completed its assessment, but
currently believes that costs of addressing this issue will not have a material
adverse impact of the Company's financial position. However, if third parties
upon which the Company relies are unable to address this issue in a timely
manner, it could result in a material financial risk to the Company.
LIQUIDITY AND CAPITAL RESOURCES
Unrestricted cash and cash equivalent balances on December 31, 1998 of
$1,427,000 is a $108,000 decrease from the previous year. The major elements
constituting this decline are as follows:
1. Operating Activities
--------------------
Increase in Inventories $ (405,000)
Increase in Accounts Receivable (353,000)
Net Income 1,199,000
Refundable Income Taxes (233,000)
Depreciation and Amorization 89,000
Decrease in Income Taxes Payable (669,000)
Increase in Accounts Payable 497,000
Other 110,000 $ 235,000
----------
2. Investing Activities
--------------------
Purchase of Property and Equipment (106,000)
Other 9,000 (97,000)
----------
3. Financing Activities
--------------------
Repayment of Debt (271,000)
Other-Exercise of Stock Options 28,000 (243,000)
----------
4. Exchange Rate Effect (3,000) (3,000)
-------------------- ---------- ----------
Total: $ (108,000)
The Company has no material commitments for capital expenditures as of
December 31, 1998 and accordingly, no funds from sources other than internally
generated funds are considered necessary.
<PAGE>
A summary of working capital and order backlog over the Company's 1998 fiscal
year by quarterly period is as follows:
3/31/98 6/30/98 9/30/98 12/31/98
---------- ---------- ---------- ----------
Current Assets $6,843,000 $7,074,000 $7,246,000 $7,722,000
Current Liabilities 1,315,000 1,291,000 1,226,000 1,414,000
---------- ---------- ---------- ----------
Working Capital $5,528,000 $5,783,000 $6,020,000 $6,308,000
Order Backlog $3,608,000 $6,119,000 $5,383,000 $3,327,000
---------- ---------- ---------- ----------
As shown above, working capital increased consistently over the course of
1998, reflecting the profitable operations. Order backlog rose substantially in
the June 30 quarter as a result of the receipt of a major contract for laser
plotters. This backlog level then declined over the last two quarters of the
year as increased shipments of plotters occurred.
BANK ARRANGEMENTS
Pursuant to the Nations Bank loan agreement extension of April 1, 1998, the
Company paid $240,000 of principal in 1998. According to the provisions of the
agreement, the Company was in compliance with all terms, conditions and
operating ratios. The two notes that constitute the debt to Nations Bank
continue to be payable in monthly installments of $8,000 and $12,000
respectively and will be fully repaid in May 2000 and June 2002 respectively.
The interest rate applicable to both notes is the Bank's prime rate plus .5%.
In 1998, the Company also entered into a $750,000 revolving line of credit
agreement with Nations Bank, which is available through April 1, 1999, with
interest at the Bank's prime rate. The Company did not utilize this line in
1998.
WORKING CAPITAL
In 1999, additional working capital, if required, is expected to be generated
from operations.
<PAGE>
REVENUE
Total Revenue for 1998 and 1997 was distributed as follows:
<TABLE>
<CAPTION>
1998 % 1997 %
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Sales
Foreign $2,627,000 27.9 $2,807,000 32.5
Domestic 6,642,000 70.6 5,816,000 67.2
Government Sales Direct 57,000 .6 10,000 .1
Interest and Other Income 87,000 .9 20,000 .2
----------------------------------------------------------------------
Total Revenue: $9,413,000 100.0 $8,653,000 100.0
</TABLE>
COST AND EXPENSES
An analysis of costs and expenses as a percentage of revenue is shown below:
1998 1997
----------------------------------
Revenue 100.0% 100.0%
Cost and Expenses
Cost of Sales 66.0 60.9
Selling, General and Admin 14.0 14.7
Product Development - -
Interest .9 1.4
Non-Recurring Charges - -
----------------------------------
Total Cost and Expenses: 80.9 77.0
Income (Loss) Before Tax 19.1 23.0
Income Tax (6.3) (7.7)
----------------------------------
Net Income 12.8% 15.3%
SELECTED FINANCIAL DATA
For the Years Ended December 31,
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $9,413,000 $8,653,000 $5,804,000 $4,800,000 $5,746,000
Net Income (Loss) $1,199,000 $1,331,000 $ 682,000 $ (44,000) $ 23,000
Weighted Avg #
Shares Outstanding 1,970,000 1,971,000 1,949,000 1,906,000 1,906,000
Income (Loss) Per
Share (Diluted) $ .61 $ .68 $ .35 $ (.02) $ .01
Working Capital $6,308,000 $5,263,000 $4,095,000 $3,595,000 $3,824,000
Total Assets $8,014,000 $7,189,000 $6,201,000 $4,991,000 $5,289,000
Long Term Liabilities $ 388,000 $ 637,000 $ 876,000 $1,122,000 $1,405,000
Stockholders' Equity $6,212,000 $4,955,000 $3,588,000 $2,901,000 $2,905,000
</TABLE>
<PAGE>
CORPORATE INFORMATION
Corporate Headquarters: 5263 Port Royal Road, Springfield, Virginia 22151
Tel: 703-321-8301 e-mail: [email protected]
Fax: 703-321-8546 Web Site: http://www.isomet.com
Officers: Henry Zenzie - President
Robert G. Bonner - Vice President, Components Mfg
Frank V. Hamby - Vice President, Systems Mfg
Delmar R. Rader - Vice President, Product Engineering
Jerry W. Rayburn - Executive Vice President, Finance,
Treasurer and Secretary
Transfer Agent: ChaseMellon Shareholder Services
Four Station Square, Pittsburgh, Pennsylvania 15219
General Counsel: Greenberg Traurig
8180 Greensboro Drive, Suite 850
McLean, VA 22102
Directors: Leon Bademian - Director Technology and Dev, Isomet
Lee R. Marks - Member, Greenberg Traurig, McLean, VA
Thomas P. Meloy - Benedum Professor, West VA University
Jerry W. Rayburn - Exec Vice President, Finance, Isomet
Henry Zenzie - President, Isomet, Private Investor,
Henry Zenzie and Co., Princeton, New Jersey
Auditors: Aronson, Fetridge & Weigle
6116 Executive Boulevard, Rockville, Maryland 20852
Market Information: The Company's common stock trades on the Nasdaq
Smallcap Market (SM) tier of the Nasdaq Stock Market
(SM) under the symbol IOMT.
Price Range High Low
--------------------------------------
1996 3 1 /1/4/
1997 7 1 /1/2/
1998 5 7/8 2 3/8
<PAGE>
<TABLE>
<S> <C>
10K Report: A copy of Isomet's annual report on form 10-KSB for the
fiscal year ended December 31, 1998, including financial
statements and schedules, as filed with the Securities
Exchange Commission, will be provided without charge to
those stockholders who request one.
Write: Executive Vice President, Finance
Isomet Corporation, 5263 Port Royal Road
Springfield, Virginia 22151
Operating Subsidiary: Isomet UK, Ltd., 18 John Baker Close, Llantarnam
Industrial Park, Cwmbran Gwent NP44 3AX United Kingdom
Tel: (44) 16338-72721 Fax: (44) 16338-74678
REPRESENTATIVES AND DISTRIBUTORS
Components: Isramex, 16 Hazaz Street, Tel-Aviv 69407 ISRAEL
Tel: (972) 3-6474440 Fax: (972) 3-6473773
Indeco, Inc., 11-14 Kasuga, 1-Chome Bunkyo-Ku,
Tokyo 112 JAPAN
Tel: (03) 3818-4011 Fax: (03) 3818-4015
BFI Optilas B.V., P.O. Box 222, 2400 AE Alphen A/D,
Rijn Huygensweg, HOLLAND
Tel: (31) 172-446060 Fax: (31) 172-443414
BFI Optilas GmbH, Boschstrasse 12, D82178 Pucheim
GERMANY
Tel: (49) 8989-01350 Fax: (49) 89800-2561
BFI Optilas SA, Maria Tubau, 5 Edificio Auge VI,
28050 Marid, SPAIN
Tel: (34) 91-358-8611 Fax: (34) 1-358-9271
BFI Optilas, Ltd., Mill Square, Featherstone Road,
Wolverton Mill South, Milton Keynes MK12 5ZY
Buckinghamshire, ENGLAND
Tel: (44) 1908-326326 Fax: (44) 1908-221110
BFI Optilas SA, 4 Allee Du Cantal, ZI LaPetite
Montagne,
Sud CE 1834 91018 Evry Cedex, FRANCE
Tel: (33) 1-607-98600 Fax: (33) 1-608-69633
</TABLE>
<PAGE>
BFI Optilas, Chaussee de Charleroi 95, 6060
Charleroi, BELGIUM
Tel: (32) 71-285100 Fax: (32) 71-488444
Optilas, Billedvej 2, DK-2100 Copenhagen, DENMARK
Tel: (45) 354-30133 Fax: (45) 354-38334
Crisel Instruments SRL, Clivo di Cinna, 196-00136
Rome, ITALY
Tel: (396) 354-02933 Fax: (396) 354-02879
Systems: Graphic Arts Trading (GmbH), Uhlenhorst 81, 21435
Stelle, GERMANY
Tel: (49) 41-74-5041 Fax: (49) 41-74-4885
MIG, SRL, Via Toselli 25/B, 20091 Bresso, ITALY
Tel: 392-610-4809 Fax: 392-614-1015
