********************************************************************************
ANTENNA PRODUCTS, INC. FILED THE 10-KSB FOR FISCAL YEAR 1999 ON AUGUST 20, 1999.
DURING THE DISSEMENTATION OF THE FILE THE FINANCIAL INFORMATION WAS LOST.
THE FOLLOWING AMENDED FILING IS SIMPLY A RE-FILING OF THE ORIGINAL TEXT
AND FINANCIAL INFORMATION. THERE HAVE BEEN NO CHANGES, ADDITIONS OR DELETIONS
TO THE ORIGINAL SUBMITTAL.
********************************************************************************
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended May 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE EXCHANGE ACT OF 1934
Commission file number 0-12866
ANTENNA PRODUCTS, INC.
(fka Cabre Corp)
(Exact name of registrant as specified in its charter)
Delaware 75-1907070
(State or other jurisdiction of (IRS Employer Identification No.)
Incorporation or organization)
1209 Orange St., Wilmington, Delaware 19801 (940) 325-3301
(Address of principal executive offices) (Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities 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 subject to such filing
requirements for the past 90 days. Yes X No___
As of August 10, 1999, there were outstanding 1,862,928
shares of the registrant's common stock, par value $0.01, which
is the only class of common stock of the registrant. As of that
date, and based on the closing bid price, the aggregate market
value of the shares of common stock held by non-affiliates of the
registrant was approximately $1,375,128.
Documents Incorporated by Reference
Proxy Statement
PART 1
Item 1. BUSINESS
General
Antenna Products, Inc. (the Company) was formerly known as Cabre
Corp. The name change was effective close of business January
30, 1998.
Antenna Products, Inc. operates as a holding company with Antenna
Products Corporation, and Thirco, Inc. as its current operating
subsidiaries. Antenna Products, Inc. has no other business
activity. Antenna Products, Inc.'s address is 1209 Orange
Street, Wilmington, Delaware 19801. Telephone Number, (940) 325-
3301.
Antenna Products Corporation
- ----------------------------
Antenna Products Corporation was incorporated in Texas in 1984 to
continue a business started in 1972 and operated as a closely
held "C" corporation until January 24, 1992. Thereafter, Antenna
Products has operated as a wholly owned subsidiary of Antenna
Products, Inc.. Antenna Products' address is 101 S.E. 25th
Avenue, Mineral Wells, Texas 76067. The telephone number is
(940) 325-3301.
Antenna Products Corporation designs, manufactures and markets
standard and custom antennas, guyed and self supported towers,
monopoles, support structures, masts and communication
accessories worldwide. Customers include the U.S. Government,
both military and civil agencies, U.S. Government prime
contractors and commercial clients. Examples of Antenna Products
Corporation's U.S. Government supplied products include ground to
air collinear antennas, instrument landing antennas and towers,
fixed system multi-port antenna arrays, tactical quick erect
antennas and masts, shipboard antenna tilting devices, transport
pallets, surveillance antennas, antenna rotators, positioners and
controls, and high power broadcast baluns. Examples of the
company's commercial products include panel, sector,
omnidirectional and closed loop PCS antennas, automatic meter
reading (AMR), cellular, paging and yagi antennas, guyed towers,
self supported towers and monopoles.
Antenna Products Corporation's customer base is primarily
government and government prime contractor focused, but this is
slowly changing as Antenna Products Corporation continues to
develop and market new commercial products. Antenna Products
Corporation's market is international in scope. The company
currently focuses on exploiting the domestic market and has a
limited amount of foreign sales. The specialized need of the
company's customers and the technology required to meet those
needs change constantly. Accordingly, the company stresses its
engineering, installation, service and other support
capabilities. The Company uses its own sales and engineering
staff to service its principal markets. Some of the Company's
contracts are large relative to total annual sales volume and
therefore the composition of the customer base is different year
to year. In 1999 AIRSYS ATM, Inc. (fka Wilcox Electric) was the
single largest customer, and accounted for 21% of the sales
volume. The U.S. Government totaled 18% of sales and Raytheon
totaled 14% of sales. Orders for equipment in some of these
product categories are in backlog and, therefore, AIRSYS ATM,
Inc., Raytheon and the U.S. Government are expected to be major
clients again in 2000.
Antenna Products Corporation is one of many suppliers of antennas
and related manufacturing services to the government and
government prime contractors. The Company competes on the basis
of cost and product performance in a market with no dominant
supplier. Due to fixed-price contracts and pre-defined contract
specifications prevalent within this market, the company competes
primarily on the basis of its ability to provide state-of-the-art
solutions in the technologically demanding marketplace while
maintaining its competitive pricing.
Antenna Products Corporation is primarily a build to order
company and most manufacturing requirements are established on a
contract basis. For this reason, the majority of the inventory
is work in process. Less than 18% of total inventory,
approximately $469,000, is currently maintained in stock for
delivery to customers. Some raw materials are also inventoried
to support customer delivery schedules. The Company performs
work for the United States Government primarily under fixed-price
prime contracts and subcontracts. Under fixed-price contracts,
Antenna Products realizes any benefit or detriment occasioned by
lower or higher costs of performance.
Antenna Products Corporation is subject to certain risks common
to all companies that derive a portion of their revenues from the
United States government. These risks include rapid changes in
technology, changes in levels of government spending, and
possible cost overruns. Recognition of profits on major
contracts is based upon estimates of final performance, which may
change as contracts progress. Contract prices and costs incurred
are subject to Government Procurement Regulations, and costs may
be questioned by the Government and are subject to disallowance.
United States Government contracts contain a provision that they
may be terminated at any time for the convenience of the
Government. In such event, the contractor is entitled to recover
allowable costs plus any profits earned to the date of
termination. Collections are generally set in accordance with
federal acquisition standards which require payment in accordance
with "Net 30" terms after acceptance of goods. The Company is
not directly regulated by any governmental agency in the United
States. Most of Antenna Products Corporation's customers, and
the antenna and tower industries in general, are subject to
meeting various government standards. These performance
standards necessitate Antenna Products' ability to produce
antenna designs, which can be updated to conform to customer
requirements in a changing regulatory environment. These
regulations have not adversely affected operations.
Antenna Products Corporation plans to reinvest from 2% to 5% of
sales in research and development projects, and bid and proposal
activities. The mix of expenditures between the two areas in any
given year is a function of the demand for new independently
developed innovative systems and the level of requirements
solicited. In 1999 the Company invested 3.4% of sales to
independent research and development (R&D). The level of
expenditures as a ratio to sales is expected to continue at this
level in 2000. The level of expenditures for R&D as a ratio to
sales was 2.8% of sales in 1998 and 1997. The company does not
consider patents to be material to its operations nor would the
loss of any patents adversely affect operations.
Metal Finishing Corp
- --------------------
Metal Finishing Corporation is a metal finishing and plating
operation that was sold effective February 28, 1998 and has been
accounted for in the accompanying financials as a discontinued
operation. The losses from the operation and disposal of Metal
Finishing Corp in 1998 totaled $266,528.
Thirco, Inc.
- ------------
Thirco, Inc. was formed on November 1, 1993 as a Delaware company
to purchase and lease equipment and facilities to the other
operating units of Antenna Products, Inc. The primary lease
arrangements are with Antenna Products. Thirco will occasionally
assist in servicing the banking needs of Antenna Products, Inc.'s
operating units. Since all activity is internal to Antenna
Products, Inc. and its operating subsidiaries, financial data is
consolidated with Antenna Products, Inc. Thirco does not employ
any full time employees and does not intend to employ any in the
foreseeable future. Thirco does not intend to engage in any
outside business transactions.
Seasonality
- -----------
Antenna Products, Inc.'s businesses are not dependent on seasonal
factors.
Backlog
- -------
The backlog of orders at Antenna Products Corporation was $3.3
million at year-end. This compares to $4.2 million in backlog at
the end of fiscal year 1998. In August, an increase in orders
pushed the backlog above $4.0 million. About 80% of this backlog
will be delivered in the 2000 fiscal year.
Raw Material Source and Supply
- ------------------------------
Antenna Products, Inc.'s operating subsidiaries' principal raw
materials are steel, aluminum, other metal alloys, plastic and
composite tubing, hardware, electrical wire, wire rope, and
electronic or electro-mechanical components. The materials are
commonly available from numerous sources, including local
distributors in quantities sufficient to meet the needs of the
subsidiaries. The availability and supply of raw materials is
not considered to be a problem for Antenna Products.
Employees
- ---------
As of August 10, 1999 Antenna Products Corporation employed a
total of 75 employees. Of the 75, 10 were employed in
administration and sales, 10 in engineering and technical
support, and 55 in manufacturing. None of the company's
employees are subject to collective bargaining agreements.
Foreign Sales
- -------------
Antenna Products Corporation's sales in international markets are
primarily to foreign governments or prime contractors to foreign
governments, and as such represent a small percentage of the
overall company annual volume. The level of profits from the
commitment of assets to this portion of the business is no
greater or no less than that of other market segments.
International sales for 1999, 1998, and 1997 were 9.8%, 6.0%, and
8.6%, respectively, of total sales.
Item 2. PROPERTIES
- --------------------
Antenna Products Corporation owns a ten acre industrial site
located along US Highway 180 in Mineral Wells, Texas. The
facility consists of a main building containing 60,000 square
feet of manufacturing area and 10,000 square feet of
administrative and engineering offices, a second building
containing 20,000 square feet of manufacturing and shipping area;
and a third building containing 15,000 square feet utilized for
receiving and material control. Three additional auxiliary
buildings, which total in excess of 13,350 square feet, are
utilized for chemical etching, painting and storage. The
facilities are in good condition and with the current compliment
of machinery and equipment are suitable and more than adequate to
meet production requirements. Dependent on the mix of product
types in process in any given time period, the company could
potentially more than double output with current and planned
plant, property and equipment. Antenna Products carries a bank
note on the manufacturing facility that is amortized over twenty
years ending in the year 2011.
Thirco owns a fifty-acre test site in Mineral Wells, Texas. The
site includes three buildings with 28,000 square feet of space.
The space is currently being leased to Antenna Products for test
activity with some storage of inventory. The two larger
buildings, if needed, are suitable with rearrangement and some
conversion expense, for additional manufacturing utilization.
Item 3. LEGAL PROCEEDINGS
- ---------------------------
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
No matters were submitted to a vote of security holders through
the solicitation of proxies or otherwise during the fourth
quarter of fiscal year 1999.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------
The Executive Officers of Antenna Products, Inc. are selected
and/or reaffirmed by the Board of Directors at the first meeting
after the annual shareholders meeting to serve at the discretion
of the Board of Directors.
Name Age Position
- ---- --- --------
Gary W. Havener 58 President and Chief
Executive Officer
Clark D. Wraight 55 Vice President and
Secretary Treasurer
The Board of Directors elected Gary W. Havener as President and
Chief Executive Officer of Antenna Products, Inc. on January 24,
1992. Mr. Havener has served as the Sole Director of Antenna
Products Corporation since 1986. Mr. Havener served as the
President of Antenna Products Corporation from 1996 until April
1999.
Clark D. Wraight was appointed by the Board of Directors as Vice
President and Secretary Treasurer of Antenna Products, Inc. in
January 1996. Mr. Wraight currently serves as President and
General Manager of Antenna Products Corporation. Mr. Wraight
joined Antenna Products Corporation in September 1979 and was
appointed Vice President of Engineering in May 1981. Mr. Wraight
also serves as Sole Director and President of Thirco, Inc.
PART II
-------
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
--------------------------------------------------------------
The information in this item should be read in conjunction with
the Management Discussion and Analysis of Financial Condition and
Results of Operations in Item 6, and the Consolidated Financial
Statements and the Related Notes thereto in Item 7.
Market Information For The Common Stock
- ---------------------------------------
Antenna Products, Inc.'s common stock is traded in the NASDAQ
Smallcap Market and is quoted under the symbol "ANTP".
Since August 6, 1998 trading is based on 1,862,928 outstanding
shares.
The table below presents the high and low prices for the last two
fiscal years and reflect inter-dealer prices, without retail mark-
up, mark-down or commission and may not represent actual
transactions.
BID
Quarter Ended High Low
- ------------- ---- ---
August 1997 1 7/16 13/16
November 1997 1 3/16 15/16
February 1998 2 5/8 13/16
May 1998 3 1/2 1 3/4
August 1998 2 1
November 1998 1 3/8 1 5/16
February 1999 4 11/32 1 1/8
May 1999 2 3/16 1 7/16
Holders
- -------
At August 10, 1999 there were approximately 545 holders of record
of common stock.
Dividends
- ---------
Antenna Products, Inc. has never paid a regular cash dividend on
common stock and has no plans to institute payment of regular
dividends.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
--------------------------------------------------
Selected Financial Data
- -----------------------
The following table presents selected financial data of Antenna
Products, Inc. This historical data should be read in
conjunction with Consolidated Financial Statements and the
Related Notes thereto in Item 7.
FISCAL YEAR ENDING MAY 31
-------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Net Sales $7,786,911 $9,003,408 $7,975,962 $10,572,140 $13,099,671
Income (loss)
from continuing
Operations $234,369 $351,239 $333,429 ($57,861) $141,679
Income per share
from continuing
operations (1) $.13 $.19 $.18 ($.03) $.08
Total Assets $6,869,002 $7,122,529 $6,918,687 $7,728,707 $10,102,631
Long Term Debt $1,646,900 $1,690,585 $2,200,942 $2,668,367 $2,814,895
Dividends $0.00 $0.00 $0.00 $0.00 $0.00
- -----
(1) Adjusted to give retroactive effect of the 2 for 1 stock split dated
February 12, 1998.
Results of Operation
- --------------------
Antenna Products, Inc.'s on-going operation is that of its
subsidiaries, Antenna Products Corporation and Thirco, Inc. as
previously discussed in Item 1. The management discussion
presented in this item relates to the operations of subsidiary
units and the associated Consolidated Financials as presented in
Item 7.
Year ended May 31, 1999 ("1999") Compared with Year Ended May 31,1998 ("1998")
- -----------------------------------------------------------------------------
Antenna Products Corporation
- ----------------------------
Antenna Products Corporation experienced lower sales than
projected in the third and fourth quarter of fiscal year 1999,
resulting in overall sales of $7.8 million in 1999. This is $1.2
million or 13% less than the $9.0 million in sales in 1998.
Orders were down in both military and commercial markets from a
total of $9.3 million in 1998 to $6.6 million in 1999. This
resulted in an ending backlog of firm orders at year-end of only
$3.3 million, down 21% from the prior year end backlog of $4.2
million.
Changes in a major customer's requirements for commercial ILS
equipment delayed deliveries of equipment completed in the third
and fourth quarters of 1999. This equipment remained in Antenna
Products Corporation's inventory at year-end.
The reduced backlog and continued customer delays in accepting
delivery of completed ILS equipment will have a negative affect
on the sales performance in the first quarter of fiscal year
2000. Sales for the first quarter of fiscal year 2000 are
currently estimated to be approximately $1.5 million.
The gross profit margin for fiscal year 1999 was 24% compared
to 19% in 1998. Sales and administrative expenses as a ratio to
sales were 17% of sales in 1999 compared to 11% in 1998. The
Company's operating margin for 1999 was 7.1% compared to 7.5% in
1998. Warranty charges of $109 thousand were higher than last
year's rate of $88 thousand, but averaged less than 2% of sales.
Discretionary products development spending was $263 thousand, or
3.4% of sales in 1999. This was an increase from $255 thousand
or 2.8% of sales in 1998.
Marketing of the new line of commercial antennas for the wireless
telecommunications industry continued in 1999 with small sales to
license holders and system integrators in the "C", "E", and "F"
frequency blocks. Many of these license holders are still in the
planning stage and Antenna Products Corporation is providing
digital patterns for the PCS panel and omni antennas to assist
the design phase.
During the fourth quarter, a new 2.4 - 2.5 GHz ISM panel antenna
and two new models of automatic meter reading (AMR)
omnidirectional and directional antennas that operate in the
frequency range of 1410 - 1450 MHz were developed. The first
production antennas will be delivered in the first quarter of
fiscal year 2000.
More information on new products at Antenna Products Corporation
is available on the Internet web page at:
//WWW.antennaproducts.com.
Interest expense for Antenna Products Corporation decreased from
$253 thousand in 1998 to $246 in 1999. The Subsidiary
experienced a pre-tax profit of $308 thousand in 1999 compared to
a pre-tax profit of $434 thousand in 1998. The Subsidiary is
expected to continue to be profitable in 2000.
Antenna Products, Inc. consolidated sales from operations were
$7.8 million with an income from continuing operations before
taxes of $359 thousand in 1999. This compares to $9.0 million in
consolidated sales with an income from continuing operations
before taxes of $531 thousand in 1998. Net income for 1999 was
$234 thousand compared to a net income of $85 thousand in 1998.
The lower net earnings in 1998 were the result of the sale of
Metal Finishing Corporation in March 1998 that resulted in a loss
of $267 thousand and the settlement of a lawsuit with a customer
of Antenna Products Corporation in August 1998. The settlement
resulted in the Company being required to pay the customer an
aggregate of $382 thousand in cash and 50,000 shares of Company
common stock. The settlement amount was approximately the amount
that had been reserved for this contingency and was recorded by
the Company in accrued liabilities as of May 31, 1998.
Year ended May 31, 1998 ("1998") Compared With Year Ended May 31,1997 ("1997")
- ------------------------------------------------------------------------------
Antenna Products, Inc. consolidated sales from operations were
$9.0 million with an income before taxes from continuing
operations of $531 thousand in 1998. This compares to $8.0
million in consolidated sales with an income from continuing
operations of $510 thousand before taxes in 1997. Net income for
1998 was $85 thousand compared to a net income of $263 thousand
in 1997. Orders for the year were $9.3 million compared to $9.9
million in 1997. Gross margin rates decreased from 21% in 1997
to 19% in 1998. Sales and administrative expenses decreased from
$930 thousand in 1997 to $909 thousand in 1998. Research and
Development expenses increased from $224 thousand or 2.8% of
sales in 1997 to $255 thousand or 2.8% of sales in 1998. Net
interest expense was $273 thousand in 1998 compared to $235
thousand in 1997.
Liquidity and Capital Resources
- -------------------------------
Funds generated from company operations are the major internal
sources of liquidity and are supplemented by funds derived from
capital markets, principally bank facilities. The Company has
available for the funding of its operations a $2.0 million
revolving demand line of credit guaranteed by a principal
shareholder. The credit line is regulated under a borrowing base
formula using inventories and accounts receivable as collateral.
The interest rate is established as one percentage point over
Wall Street prime and is subject to a loan agreement with
restrictive covenants. The most restrictive financial covenant
requires Antenna Products Corporation to maintain $1.5 million in
tangible net worth and $1.0 million of working capital. At May
31, 1999 Antenna Products Corporation had equity of $1.8 million
and working capital of $2.2 million. As of August 10, 1999 the
Company had drawn $685 thousand of the $2.0 million line of
credit with $1.3 million available and unused. The revolving
credit line agreement is renewable in September 1999. The
Company anticipates renewal of this credit line and has projected
that the credit available is sufficient to cover the financing
needs of the Company in 2000.
Net cash flow from operations was a positive $135 thousand in
1999 compared to a positive $112 thousand in 1998. Inventory
decreased $57 thousand in 1999 compared to an increase of $297
thousand in 1998. Accounts payable and accrued liabilities
decreased $536 thousand and accounts receivable decreased $53
thousand in 1999. In 1998 accounts payable and accrued
liabilities increased $133 thousand and accounts receivable
increased $309 thousand. Cash flow from financing activities in
1999 decreased $39 thousand compared to an increase of $19
thousand in 1998. Cash and cash equivalents at the end of 1999
were $270 thousand, an increase from $221 thousand at the end of
the prior year.
There were minimal capital expenditures for 1999. In 1998, there
were no capital expenditures. The Company anticipates that the
existing facilities and equipment are adequate to handle the
projected volumes in 2000 and intends to limit the 2000 capital
program to less than $100 thousand for improvements and
replacement items.
The Company has a long-term bank note for $1.2 million
collateralized by the Antenna Products plant, property, and
equipment. The current balance is $895 thousand with payments
amortized over 20 years ending in 2011. The interest is variable
at one half point over prime interest rate with the note
supported by an FmHA guarantee under the federal guidelines of a
rural business industry loan. The note is guaranteed by a
principal shareholder. Antenna Products also has an $800
thousand note to a principal stockholder on which it pays
interest only at the prime interest rate. The commencement of
principal payments on the subordinated note is prohibited under
the terms of the bank note until the bank debt is paid in full.
The company does not expect any changes in payments or other
provisions of the loan agreements now in place.
Year 2000 Readiness
- -------------------
Antenna Products Corporation has completed a product line
assessment and none of the products sold by the Company are at
risk for Year 2000 compliance. The computer system at Antenna
Products has been tested and the hardware will accurately
recognize Year 2000 dates. The Company utilizes a number of
computer programs internally. An assessment of these programs
has been completed and where problems were identified, software
upgrades have been purchased and installed. The computer
numerical controlled (CNC) machines in the manufacturing areas
have been checked and the controls for the machines will
accurately recognize Year 2000 dates. Assessment of all vendors
continues, with good results. Approximately 95% of the vendors
surveyed have responded that they are working to resolve the
potential impact of the Year 2000 on their business.
Management believes that the costs of addressing this issue will
not materially affect the financial position or results of
operation of the Company. Antenna Products plans to commit the
resources required to resolve any significant Year 2000 issues in
a timely manner.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The consolidated financial statements listed in Item 14 are
included in this report on pages F-1 through F-15.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
-----------------------------------------------------------------
None.
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
---------------------------------------------------
This information is included in Part I as Item 4A., entitled
"Executive Officers of the registrant", and will be included in
the definitive Proxy Statement dated August 16, 1999 as filed
with the Securities and Exchange Commission, and is incorporated
herein by reference.
Item 10. EXECUTIVE COMPENSATION
----------------------
This information will be included in the Company's definitive
Proxy Statement dated August 16, 1999 filed with the Securities
and Exchange Commission and is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
This information will be included in the Company's definitive
Proxy Statement dated August 16, 1999 filed with the Securities
and Exchange Commission and is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
This information will be included in the Company's definitive
Proxy Statement dated August 16, 1999 filed with the Securities
and Exchange Commission and is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements. The following consolidated financial
statements of Antenna Products, Inc. and subsidiaries and
independent auditors' reports are presented on pages F-1 through
F-15:
Independent Auditor's Report
Consolidated Balance Sheets - May 31, 1999 and
1998
Consolidated Statements of Income - Years Ended
May 31, 1999 and 1998
Consolidated Statement of Shareholders' Equity -
Years Ended May 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years
Ended May 31, 1999 and 1998
Notes To Consolidated Financial Statements
2. Financial Statement Schedules. Not applicable.
All other schedules have been omitted because the
required information is shown in the consolidated
financials or notes thereto, or they are not
applicable.
3. Exhibits.
None
(b) Reports on Form 8-K.
On April 22, 1999 the registrant filed a Form 8-K
for the purpose of disclosing the changes in the
registrant's certifying accountant. On April 22,
1999, the Board of Directors of Antenna Products,
Inc. adopted a resolution appointing Weaver &
Tidwell, L.L.P., 307 West Seventh, Suite 1500 Fort
Worth, Texas as the Company's principal accounting
firm to audit the Company's financial statements.
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.
DATE: August 16, 1999
Antenna Products, Inc.
s/o/f: Gary W. Havener
Principal Executive
Officer 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 and on
the dates indicated.
Signature Title Date
- ----------- ----- ----
s/o/f:Clark D. Wraight Principal Financial Officer August 16, 1999
And Director
s/o/f:Sam B. Ligon Director August 16, 1999
s/o/f:William D. Poulin Director August 16, 1999
ANTENNA PRODUCTS, INC
____________
CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1999 and 1998
INDEPENDENT AUDITOR'S REPORT
To The Board of Directors and Stockholders
Antenna Products, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheet of
Antenna Products, Inc. and subsidiaries as of May 31, 1999, and
the related consolidated statements of income, shareholders'
equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audit.
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 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Antenna Products, Inc. and subsidiaries as of May 31,
1999 and the results of their operations and their cash flows for
the year then ended, in conformity with generally accepted
accounting principles.
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
August 9, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Antenna Products, Inc. and Subsidiaries
We have audited the consolidated balance sheet of Antenna
Products, Inc. and subsidiaries as of May 31, 1998, and the
related statements of income, changes in shareholders' equity and
cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
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 consolidated
financial position of Antenna Products, Inc. and subsidiaries as
of May 31, 1998 and the results of their operations and their
cash flows for the year then ended, in conformity with generally
accepted accounting principles.
Jackson & Rhodes P.C.
Dallas, Texas
July 16, 1998
ANTENNA PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, 1999 and 1998
ASSETS
------
1999 1998
Current assets: ---- ----
Cash and cash equivalents $ 270,175 $ 221,041
Accounts receivable:
Trade, net of allowances
for doubtful accounts
of $7,021 in 1999 and
1998 1,077,917 1,009,350
United States Government 210,360 332,230
Inventories 2,638,172 2,695,470
Prepaid expenses and other
assets 33,368 9,229
Income taxes receivable 186,212 15,592
Deferred income taxes 65,880 199,057
---------- ----------
Total current assets 4,482,084 4,481,969
Property and equipment, net 2,386,918 2,640,560
---------- ---------
$ 6,869,002 $7,122,529
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 1,300,000 $1,300,000
Current portion of long-term
debt 48,535 43,688
Accounts payable 247,407 436,504
Accrued expenses 323,489 670,295
----------- -----------
Total current liabilities 1,919,431 2,450,487
Long-term debt 846,900 890,585
Note payable to shareholder 800,000 800,000
Deferred income taxes 460,462 448,617
----------- ---------
Total long-term liabilities 2,107,362 2,139,202
----------- ---------
Total liabilities 4,026,793 4,589,689
Commitments and contingencies
(Note 10) - -
Shareholders' equity:
Preferred stock, $1.00 par,
2,000,000 shares authorized,
no shares issued and outstanding - -
Common stock, $0.01 par,
8,000,000 shares authorized,
1,862,928 shares in 1999
and 1,812,928 shares in 1998
issued and outstanding 18,630 18,130
Additional paid-in capital 1,995,951 1,921,451
Retained earnings 827,628 593,259
---------- ----------
Total shareholders' equity 2,842,209 2,532,840
---------- ---------
$6,869,002 $7,122,529
========== ==========
See accompanying notes to consolidated financial statements.
ANTENNA PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended May 31, 1999 and 1998
1999 1998
Sales and contract revenues $7,786,911 $9,003,408
Cost of sales and contracts 5,896,240 7,307,587
---------- ----------
Gross profit 1,890,671 1,695,821
Sales and administrative expenses 1,311,583 908,743
---------- ----------
Operating profit 579,088 787,078
Other income and (expense):
Interest expense (246,120) (272,669)
Interest income 4,560 1,901
Other 21,242 14,938
---------- ----------
Total other income and (expense) (220,318) (255,830)
---------- -----------
Income from continuing operations
before income taxes 358,770 531,248
Provision for income taxes 124,401 180,009
---------- --------
Income from continuing operations 234,369 351,239
Discountinued operations (Note 3):
Loss from operations of discontinued
metal finishing segment, net of
$36,572 tax benefit - (70,993)
Loss on disposal of metal finishing
segment, net of $100,730 tax benefit - (195,535)
--------- -----------
Net income $ 234,369 $ 84,711
========== ==========
Earnings (loss) per common share:
Continuing operations $ 0.13 $ 0.19
Discontinued operations - (0.14)
---------- -----------
Net income $ 0.13 $ 0.05
========== ===========
See accompanying notes to consolidated financial statements.
ANTENNA PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended May 31, 1999 and 1998
Common Stock
------------
Additional
Number Paid In Retained
of Shares Amount Capital Earnings Total
--------- ------ ------- -------- -----
Balance, May 31, 1997 1,813,038 18,130 $1,921,451 $ 508,558 $2,448,139
Retirement of stock (110) - - (10) (10)
Net income - - - 84,711 84,711
--------- ------ ----------- ----------- ----------
Balance, May 31, 1998 1,812,928 18,130 1,921,451 593,259 2,532,840
Issuance of common stock 50,000 500 74,500 75,000
Net income - - - 234,369 234,369
--------- ------- --------- ----------- ----------
Balance, May 31, 1999 $1,862,928 18,630 $1,995,951 $ 827,628 $2,842,209
========== ====== ========== =========== ==========
See accompanying notes to consolidated financial statements.
ANTENNA PRODUCTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended May 31, 1999 and 1998
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 234,369 $ 84,711
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 298,187 301,999
Loss on disposal of assets 2,850
Net liabilities from discontinued operations - 283,807
Deferred federal income tax 145,022 (57,475)
Changes in assets and liabilities:
Accounts receivable 53,303 (308,937)
Inventory 57,298 (297,027)
Prepaid expenses (24,139) (1,067)
Income taxes receivable (170,620) (26,816)
Accounts payable (189,097) (66,225)
Accrued expenses (271,806) 199,091
---------- ----------
Net cash provided by operating activities 135,367 112,061
---------- ----------
Cash flows from investing activities:
Proceeds from disposal of assets 1,252 -
Purchase of property and equipment (48,647) -
---------- ----------
Net cash used in investing activities (47,395) -
Cash flows from financing activities:
Net borrowings under bank lines of credit - 685,000
Principal payments on long-term debt (38,838) (666,471)
Purchase of common stock (10)
--------- ----------
Net cash (used in) provided by financing activities (38,838) 18,519
--------- ----------
Net increase in cash and cash equivalents 49,134 130,580
Cash and cash equivalents at beginning of period 221,041 90,461
---------- ----------
Cash and cash equivalents at end of period $ 270,175 $ 221,041
========== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (none capitalized) $ 246,120 $ 272,669
Income taxes 150,000 127,000
Schedule of non-cash investing and financing
activities
Issuance of common stock in settlement of
lawsuit $ 75,000 -
See accompanying notes to consolidated financial statements.
ANTENNA PRODUCTS, INC
____________
CONSOLIDATED FINANCIAL STATEMENTS
Years ended May 31, 1999 and 1998
ANTENNA PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business and Nature of Operations
Antenna Products, Inc. changed its name from Cabre
Corp on January 30, 1998.
The Company operates as a "Holding" company with
Antenna Products Corporation, and Thirco, Inc. as
its wholly owned subsidiaries. Antenna Products
Corporation is the operating subsidiary with
Thirco serving as an equipment leasing company to
Antenna Products, Inc.'s operating unit.
Antenna Products Corporation designs, manufactures
and markets antenna systems, towers, and
communications accessories worldwide. The U.S.
Government, military and civil agencies, and prime
contractors represent Antenna Products' principal
customers.
Following is a schedule of the Company's sales to major
customers, as a percentage of total sales:
YEAR ENDED MAY 31
1999 1998
---- ----
Federal Government 18% 17%
AIRSYS ATM, Inc. 21% 38%
Raytheon 14%
2. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant
intercompany balances and transactions are eliminated in
consolidation.
Sales and Contract Revenues and Related Costs
Antenna Products manufactures and markets standard and
custom antennas, guyed and self-supported towers, monopoles,
support structures, masts and communication accessories
worldwide. Customers include the U.S. Government, military
and civil agencies, U.S. Government prime contractors and
commercial clients. Examples of Antenna Products' U.S.
Government supplied products include ground to air collinear
antennas, instrument landing antennas and towers, fixed
system multi-port antenna arrays, tactical quick erect
antennas and masts, shipboard antenna tilting devices,
transport pallets, surveillance antennas, antenna rotators,
positioners and controls, and high power broadcast baluns.
Examples of the company's commercial products include panel,
sector, omnidirectional and closed loop PCS antennas,
automatic meter reading (AMR), cellular, paging and yagi
antennas, guyed towers, self supported towers and monopoles.
Antenna Products is primarily a build to order company. As
such, most orders are negotiated firm fixed-price contracts.
Most commercial contracts are single order and single
delivery firm fixed-price contracts. Some government
contracts are multi-year performance with established option
dates with a predetermined escalated price for delivery in
that outyear. These types of contracts can be valid from
two to five years. Other types of government contracts are
called supply contracts where the government buys a
particular product and has estimated the quantity required
over an expected period. Antenna Products has contracts
with major prime contractors who negotiate contracts based
on large quantities with set escalation rates for future
prices. The Government is attempting to procure more and
more products that have commercial equivalents to military
standards. These purchases are for off-the-shelf products
and therefore use credit cards and accept commercial terms
and shipping methods. Antenna Products recognizes an order
or resultant sale when official notification is received
that an option is being exercised.
Revenue from short-term contracts calling for delivery of
products is recognized as the product is shipped. Revenue
and costs under certain long-term fixed price contracts with
governments are recognized on the units of delivery method.
This method recognizes as revenue the contract price of
units of the product delivered during each period and as the
cost of earned revenue the costs allocable to the delivered
units; costs allocable to undelivered units are reported in
the balance sheet as inventory. Amounts in excess of agreed
upon contract price for customer directed changes,
constructive changes, customer delays or other causes of
additional contract costs are recognized in contract value
if it is probable that a claim for such amounts will result
in additional revenue and the amounts can be reasonably
estimated. Revisions in cost and profit estimates are
reflected in the period in which the facts requiring the
revision become known and are estimable. Losses on
contracts are recorded when identified.
INVENTORIES
Inventories are stated at the lower of first-in, first-out
cost or market, net of any applicable progress payments.
Property and Equipment
Property and equipment are recorded at cost and
depreciated by the straight-line method over the
expected useful lives of the assets. Expenditures
for normal maintenance and repairs are charged to
income, and significant improvements are
capitalized. The cost of assets sold or abandoned
and the related accumulated depreciation are
eliminated from the accounts and the net amount,
less proceeds from disposal, is charged or
credited to income.
Reclassification
Certain amounts in the 1998 financial statements have been
reclassified to conform to the 1999 presentation.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted
accounting principles. Those estimates and assumptions
affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the
reported revenues and expenses. Actual results could vary
from the estimates that were used.
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of
Financial Accounting Standards No.109, "Accounting for Income Taxes"
(SFAS 109) which utilizes the asset and liability method of
computing deferred income taxes. The objective of the asset and
liability method is to establish deferred tax assets and
liabilities for the temporary differences between the
financial reporting basis and the tax basis of the Company's
assets and liabilities at enacted tax rates
expected to be in effect when such amounts are realized or settled.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to
operations when incurred and are included in
operating expenses. The amounts charged for the
years ended May 31, 1999 and 1998 were $263,339
and $254,810, respectively.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash
equivalents include cash and certificates of deposit with
original maturities of three months or less.
Shares, Per Share Data, Earnings Per Share, and Stock Split, and
Common Stock Par Value
Earnings per share are computed by dividing net income
available for common stock by the weighted average number of
common shares outstanding during the year. Weighted average
shares outstanding were 1,852,650 and 1,813,083 for the
years ended May 31, 1999 and 1998, respectively. No
dilutive securities exist in the company's capital
structure.
All share and per share information herein has been
retroactively adjusted for a 2 for 1 stock split approved by
shareholders on April 20, 1998. Common stock par value
herein has also been retroactively adjusted for the decrease
in par value from $1.00 to $0.01.
3. Discontinued Operations
On November 30, 1994, the Company's subsidiary,
Metal Finishing Corp, purchased the assets of
Edd's Metal Finishes Corp. for cash of $315,000
and a note payable to the seller of $340,000.
Metal Finishing Corp. as a wholly owned subsidiary
of Antenna Products, Inc., operates in the metal
finishes market.
The Company sold Metal Finishing Corp back to its former
owner on March 2, 1998 for $100 and the $229,500 note
payable. The Company has reflected the operations of Metal
Finishing Corp in the accompanying 1998 financial statements
as a discontinued operation. The loss from sale was
recognized in the Company's third fiscal quarter of the 1998
fiscal year.
4. Inventories
The major components of inventories are as follows:
1999 1998
---- ----
Raw Materials $ 646,355 $ 857,014
Work in process 1,523,201 1,085,000
Finished Goods 468,616 753,456
----------- ------------
$ 2,638,172 $ 2,695,470
=========== ============
Certain allocable overhead costs such as
depreciation, insurance, property taxes and
utilities are included in inventory based upon
percentages developed by the Company. The
aggregate amount of these costs included in
inventory during the years ended May 31, 1999 and
1998 were $952,301 and $883,636, respectively.
5. Property and Equipment
The following is a summary of the Company's property and equipment:
Estimated
Useful Life 1999 1998
----------- ---- ----
Land $ 375,136 $ 375,136
Buildings and improvements 15-30 years 1,873,216 1,873,217
Machinery and equipment 10 years 2,934,342 2,923,249
Automobiles and trucks 3 years 97,328 97,328
Office furniture and fixtures 10 years 586,788 605,788
----------- -----------
$5,866,810 $ 5,874,718
Less accumulated depreciation 3,479,892 3,234,158
---------- -----------
Net property and equipment $2,386,918 $ 2,640,560
========== ===========
6. Notes Payable
At May 31, 1999 and 1998 notes payable consist of a
revolving note payable to a bank, with a maximum amount not
to exceed the lesser of $2,000,000 or a calculated borrowing
base determined by a formula based upon the amount of
certain qualified receivables and inventories as defined in
the loan agreement. Interest is payable monthly at the
prime rate (7.75 % and 8.5% at May 31, 1999 and 1998,
respectively) plus 1% until September 30, 1999, when any
unpaid principal and interest shall be due. Borrowings
under the revolving note payable are collateralized by
accounts receivable and inventories and are guaranteed by a
principal shareholder. Under the agreement, the Company
must maintain minimum net worth of $1,500,000 and working
capital of $1,000,000.
At May 31, 1999 and 1998, note payable to shareholder
consist of subordinated note to a principal shareholder of
the company. In the initial years, only interest at the
prime rate (7.75% and 8.5% at May 31, 1999 and 1998,
respectively) is payable, with monthly principal payments
scheduled to begin in June 2002, and maturing in May 2007.
Interest charged to operations under the note were $64,345
and 68,000 for the years ended May 31, 1999 and 1998,
respectively.
7. Long-Term Debt
At May 31, 1999 and 1998, long-term debt consists of the following:
1999 1998
---- ----
Mortgage note to a bank, guaranteed 80% by a
U.S. government agency, payable $10,050 per
month, including interest at the prime rate
(7.75% and 8.5% at May 31, 1999 and 1998,
respectively) plus 1/2%; collateralized by
certain real estate, fixtures and assignment
of life insurance policy with a principal
shareholder. The note is also guaranteed
by a principal shareholder and the Company
is required to maintain certain covenants
including $1,000,000 in working capital and a
ratio of maximum debt to net worth of seven
to one. $ 895,435 $ 934,273
Less current portion of long-term debt 48,535 43,688
---------- ----------
$ 846,900 $ 890,585
========== ==========
Maturities of long-term debt for each of the five years
subsequent to May 31, 1999 are as follows (including
$160,000 per year beginning in June 2002 for the shareholder
note, although it is subordinated to the note payable to a
bank):
2000 $ 48,535
2001 52,694
2002 57,209
2003 222,111
2004 227,434
Thereafter 1,087,452
-----------
$ 1,695,435
===========
8. Income Taxes
Components of the provision for income tax are as follows:
1999 1998
---- ----
Income taxes at statutory rate on income before
income taxes $ 121,982 $ 43,300
Non-deductible expenses 2,419 (593)
--------- ---------
Total provision $ 124,401 $ 42,707
========= =========
Deferred portion (benefit) of provision $ 145,022 $ (57,475)
Current portion (benefit) (20,621) 100,182
--------- ---------
Total provision $ 124,401 $ 42,707
========= =========
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities are presented below:
1999 1998
---- ----
Deferred tax assets:
Accounts receivable due to allowance
for doubtful accounts $ 2,387 $ 2,387
Inventories, due to estimated losses on
contracts 17,000 54,400
Inventories, due to additional costs
inventoried for tax purposes pursuant
to the Tax Reform Act of 1986 10,367 10,367
Accrued expenses, due to warranty accrual 17,000 108,800
Accrued expenses, due to vacation accrual 19,126 23,103
--------- ---------
Total deferred tax assets 65,880 199,057
Deferred tax liabilities:
Property and equipment, principally due
to difference in depreciation (460,462) (448,617)
---------- ----------
Net deferred tax liability $(394,582) $(249,560)
========== ==========
9. Profit Sharing Plan
The Company has adopted an employee profit sharing plan
under Section 401(k) of the Internal Revenue Code. All
employees with a minimum of one year of employment are
eligible to participate. The Company will match employee
contributions for an amount up to 3% of each employee's
salary if certain earnings requirements are met.
Contributions are invested at the direction of the employee
in one or more funds. Company contributions vest after
three years of service. Company contributions amounted to
$22,013 and $46,672 for the years ended May 31, 1999 and
1998, respectively.
10. Commitments and Contingencies
During the year ended May 31, 1999, the Company settled a
lawsuit with a customer. The settlement resulted in the
Company being required to pay the customer an aggregate of
$382,000 in cash ($297,000 in August 1998 and $85,000 in
November 1998) and 50,000 shares of the Company's common
stock valued at $75,000 (issued in August 98). The
settlement amount was recorded by the Company in accrued
expenses as of May 31, 1998.
The Company is involved in certain other legal actions
arising from normal business activities. Outside counsel
and management believe that the outcome of such proceedings
will not materially affect the financial position or results
of operations of the Company.
Concentration of Credit Risk
The Company deposits its cash primarily in deposit accounts
with major banks. Certain cash deposits may occasionally be
in excess of federally insured limits. The Company has not
incurred losses related to its cash.
The Company sells many of its products to the US Government,
both military and civil agencies, and prime contractors.
Although the Company might be directly affect by the well
being of the defense industry, management does not believe
significant credit risk exists at May 31, 1999.
Ongoing credit evaluations of customer's financial condition
are performed and, generally, no collateral is required.
The Company maintains reserves for potential credit losses
and such losses have not exceeded management's expectations.
Fair Value of Financial Instruments
The following disclosure of the estimate fair value of
financial instruments is made in accordance with the
requirements of SFAS No. 107, Disclosures about Fair Value
of Financial Instruments. The estimated fair value amounts
have been determined by the Company, using available market
information and appropriate valuation methodologies.
The fair value of financial instruments classified as
current assets or liabilities including cash and cash
equivalents, receivables and accounts payable approximate
carrying value due to the short-term maturity of the
instruments. The fair value of short-term and long-term
debt approximate carrying value based on their effective
interest rates compared to current market rates.
11. New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board
issued two new disclosure standards. Results of operations
and financial position will be unaffected by implementation
of these new standards.
Statement of Financial Accounting Standards (SFAS) 130,
"Reporting Comprehensive Income" establishes standards for
reporting and display of comprehensive income, its
components and accumulated balances. Comprehensive income
is defined to include all changes in equity except those
resulting from investments by owners and distributions to
owners. Among other disclosures, SFAS 130 requires that all
items that are required to be recognized under current
accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS 131, "Disclosure about Segments of a Business
Enterprise", establishes standards for the way that public
enterprises report information about operating segments in
annual financial statements and requires reporting of
selected information about operating segments in interim
financial statements issued to the public. It also
establishes standards for disclosures regarding products and
services, geographic areas and major customers. SFAS 131
defines operating segments as components of an enterprise
about which separate financial information is available that
is evaluated regularly by the chief operating decision maker
in deciding how to allocate resources and in assessing
performance.
Both of these new standards were effective for financial
statements for periods beginning after December 15, 1997 and
require comparative information for earlier years to be
restated. The implementation of these new standards had no
effect on financial statement disclosures.
12. Year 2000 Issue
The Company is working to resolve the potential impact of
the Year 2000 on the ability of the Company's computerized
information systems to accurately process information that
may be date sensitive. 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. The
Company utilizes a number of computer programs across its
entire operation. The Company has completed its assessment,
and currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's
financial position. However, if the Company and third
parties upon which it relies are unable to address this
issue in a timely manner, it could result in a material
financial risk to the Company. In order to assure that this
does not occur, the Company plans to devote all resources
required to resolve any significant Year 2000 issues in a
timely manner.
Because of the unprecedented nature of the Year 2000 issue,
its effects and the success of related remediation efforts
will not be fully determinable until the year 2000 and
thereafter. Management cannot assure that the Company is or
will be Year 2000 ready, that the Company's remediation
efforts will be successful in whole or in part, or that
parties with whom the Company does business will be Year
2000 ready.
13. Stock Options
In March 99, the Board of Directors approved a stock option
plan which provided the option to purchase 60,000 shares at
$2 over a 2 year period to an officer of the Company. The
Company applies APB opinion 25 and related Interpretations
in accounting for its plan. Accordingly, no compensation
has been recognized in operations as of May 31, 1999. Had
compensation cost for the Company's stock-based compensation
been determined based on fair value at the grant date for
awards under the plan consistent with the method of FASB
Statement 123, the Company would have recognized total
compensation of $42,000 under the stock based employee
compensation award.
The Company's net income and earnings per share as of May
31, 1999, would have been reduced to the pro forma amounts
indicated below:
Net Income As Reported $ 234,369
Pro Forma $ 206,623
Primary earnings per share As Reported .13
Pro Forma .11
The compensation cost was estimated using the Black-Scholes
model with the following assumptions for 1999: $1.75 stock
price at grant date; expected life of 2 years; expected
volatility of 76 percent; and risk free interest rate of 5.6
percent.
A summary of the status of the Company's stock option plan
as of May 31, 1999 and changes for the year then ended is as
follows:
Weighted Average
Shares Exercise Price
------ ----------------
Outstanding at beginning of year - $ -
Granted 60,000 2
Exercised - -
Forfeited - -
------ ----------
Outstanding at end of year 60,000 2
======
Exercisable at year end 60,000
======
Weighted average fair value of
options granted during the year $ .70
======
Weighted averaged remaining
contractual life (in years) 1.8
======
