SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _____________
To _____________
--------------------------
Commission File Number 0-25309
VMIC, INC
(Exact name of registrant as specified in its charter)
----------------------------
DELAWARE 63-0917261
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification
no.)
12090 S. Memorial Parkway Huntsville Alabama 35803-3308
(256) 880-0444
(Address, including zip code and telephone number of principal offices)
----------------------------
NO CHANGE
(Former name, address and fiscal year if changed since last report)
----------------------------
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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
COMMON STOCK, $.10 PAR VALUE
4,623,581 shares outstanding on March 31, 2000
<PAGE>
FORM 10-Q
VMIC, Inc.
QUARTERLY REPORT FOR THE PERIOD ENDED MARCH 31, 2000
INDEX
Page
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets as of March 31, 2000 (Unaudited)
and September 30, 1999...............................................1
Statements of Operations for the Three and Six Months Ended
March 31, 2000 and March 31, 1999 (Unaudited)........................2
Statements of Cash Flows for the Six Months Ended March 31, 2000
and March 31, 1999 (Unaudited)......................................3
Notes to Condensed Financial Statements (Unaudited)................4-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................8-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk.......16-22
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.................23
Signatures..........................................................24
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VMIC, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
March 31, September 30,
2000 1999
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 996,609 $ 582,883
Accounts receivable (includes allowance for doubtful accounts of
$250,381 at March 31, 2000 and September 30, 1999)
5,083,187 5,080,529
Inventories 6,014,112 4,658,243
Prepaid expenses 116,762 110,483
Deferred income taxes 992,758 0
Income tax receivable 5,238 106,553
-------------------- -----------------
Total current assets 13,208,666 10,538,691
Property, plant, and equipment, net 8,002,442 8,165,822
Purchased product and software costs, net 640,165 728,630
Software development costs, net 1,045,740 836,363
Deferred income taxes 2,105,509 0
-------------------- ------------------
$ 25,002,522 $ 20,269,506
==================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
liabilities:
Accounts payable $ 2,181,746 $ 1,977,284
Current portion of notes, mortgages, and capital leases 5,315,990 5,753,110
Accrued liabilities 2,662,111 2,201,069
-------------------- -----------------
Total current liabilities 10,159,847 9,931,463
Notes, mortgages, and capital leases, less current portion above 6,294,560 6,447,808
-------------------- ------------------
Total liabilities 16,454,407 16,379,271
-------------------- -----------------
Stockholders' equity:
Common stock, par value $.10 (10,000,000 shares authorized; 4,623,581
and 4,580,016 shares issued and outstanding at March 31, 2000
and September 30, 1999, respectively) 462,358 458,002
Additional paid-in capital 7,032,643 6,810,314
Retained earnings (accumulated deficit) 1,053,114 (3,378,081)
-------------------- -----------------
Total stockholders' equity 8,548,115 3,890,235
-------------------- -----------------
$ 25,002,522 $ 20,269,506
==================== =================
See notes to condensed financial statements.
</TABLE>
1
<PAGE>
VMIC, Inc.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31, March 31, March 31, March 31
2000 1999 2000 1999
<S> C> <C> <C> <C>
Sales:
Hardware sales $ 8,953,659 $ 6,500,062 $ 17,106,284 $ 14,004,649
Software sales 297,909 171,635 498,463 372,146
----------------- ---------------- ------------- ---------------
Total sales 9,251,568 6,671,697 17,604,747 14,376,795
----------------- ---------------- ------------- ---------------
Cost and expenses:
Cost of products sold 3,366,713 2,461,357 6,384,288 5,312,637
Research and development expense 1,280,096 1,469,988 2,565,687 3,047,625
Selling, general, and administrative expense 3,257,352 3,124,715 6,228,418 6,664,855
----------------- ---------------- -------------- ------------------
7,904,161 7,056,060 15,178,393 15,025,117
----------------- ---------------- -------------- ------------------
Operating income (loss) 1,347,407 (384,363) 2,426,354 (648,322)
Other expense (233,863) (173,915) (466,170) (312,217)
----------------- ---------------- -------------- ------------------
Income (loss) before income taxes 1,113,544 (558,278) 1,960,184 (960,539)
Benefit for income taxes (2,471,008) (148,235) (2,471,008) (259,345)
----------------- ---------------- -------------- ------------------
Net income (loss) $ 3,584,552 $ (410,043) $ 4,431,192 $ (701,194)
================= ================ ============== ==================
Net income (loss) per common and common equivalent share:
Basic $0.78 $(0.09) $0.96 $(0.16)
================= ================ ============== ==================
Diluted $0.78 $(0.09) $0.96 $(0.16)
================= ================ ============== ==================
Weighted average common and common equivalent
shares outstanding:
Basic 4,600,058 4,538,118 4,606,422 4,519,100
================= ================ ============== ==================
Diluted 4,625,454 4,566,442 4,640,192 4,519,100
================= ================ ============== ==================
See notes to condensed financial statements.
</TABLE>
2
<PAGE>
VMIC, Inc.
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
March 31, March 31,
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 4,431,192 $ (701,193)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,518,922 1,486,745
Provision for losses on accounts receivable 0 24,000
Stock issued in lieu of cash compensation 29,813 21,794
Gain on disposal of property and equipment 0 (39,957)
Change in operating assets and liabilities:
Accounts receivable (2,657) (461,112)
Inventories (1,355,870) (422,476)
Prepaid expenses (6,279) 39,623
Income tax receivable 101,315 354,317
Income tax payable 627,279 0
Deferred income tax (3,098,287) 0
Accounts payable 154,179 (1,162,900)
Accrued liabilities (641,076) (435,662)
---------------- ---------------
Total adjustments (2,672,661) (595,628)
---------------- ---------------
Net cash provided by (used in) operating activities 1,758,531 (1,296,821)
---------------- ---------------
Cash flows from investing activities:
Capital expenditures (822,197) (725,221)
Software development costs and purchased product and software costs (120,813) (1,712,505)
Proceeds from dispositions of property, plant,
and equipment 0 39,957
---------------- ---------------
Net cash used in investing activities (943,010) (2,397,769)
---------------- ---------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 827,995 3,167,704
Principal payments on long-term debt (1,427,602) 0
Proceeds from issuance of common stock 197,812 237,190
---------------- ---------------
Net cash (used in) provided by financing activities (401,795) 3,404,894
---------------- ---------------
Net increase (decrease) in cash and
cash equivalents 413,726 (289,696)
Cash and cash equivalents, beginning of period 582,883 527,972
---------------- ---------------
Cash and cash equivalents, end of period $ 996,609 $ 238,276
================ ===============
</TABLE>
See notes to condensed financial statements.
3
<PAGE>
VMIC, Inc.
Notes to Condensed Financial Statements
1. Basis of Presentation
The accompanying unaudited condensed financial statements of VMIC, Inc. (the
Company) have been prepared by management in accordance with generally accepted
accounting principles for interim financial information and in conjunction with
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, all adjustments necessary for a fair presentation of the
interim condensed financial statements have been included, and all adjustments
are of a normal and recurring nature. The condensed financial statements as of
and for the interim period ended March 31, 2000 should be read in conjunction
with the Company's financial statements as of and for the year ended September
30, 1999 included in the Company's Form-10K filed January 13, 2000. Operating
results for the six months ended March 31, 2000 are not necessarily indicative
of the results that may be expected for the year ended September 30, 2000. The
September 30, 1999 balance sheet data presented herein was derived from audited
financial statements but does not include all disclosures required by generally
accepted accounting principles.
2. Stock Options
28,200 options to purchase shares of common stock were granted on varying dates
throughout the quarter to employees under the Employee Stock Option Plan, at the
market price as of the effective date. Also options to purchase 23,380 shares of
common stock were exercised during the quarter.
4
<PAGE>
VMIC, Inc.
Notes to Condensed Financial Statements (Continued)
<TABLE>
<CAPTION>
3. Earnings Per Share
<S> <C> <C> <C>
Earnings Per Share:
A summary of the calculation of basic and diluted
earnings per share is as follows:
Income (Loss) Shares Per-Share
(Numerator) (Denominator) Amount
--------------------- ------------------ ----------------
Three months ended
March 31, 2000
Basic EPS:
Income available to common stockholders $ 3,584,552 4,600,058 $ 0.78
Effect of dilutive securities:
Stock options 25,396
Diluted EPS $ 3,584,552 4,625,454 $ 0.78
--------------------- ------------------ ----------------
Three months ended
March 31, 1999
Basic EPS:
Loss available to common stockholders $ (410,041) 4,538,118 $ (0.09)
Effect of dilutive securities:
Stock options 0
Diluted EPS $ (410,041) 4,538,118 $ (0.09)
Income (Loss) Shares Per-Share
(Numerator) (Denominator) Amount
--------------------- ------------------ ----------------
Six months ended
March 31, 2000
Basic EPS:
Income available to common stockholders $ 4,431,192 4,606,422 $ 0.96
Effect of dilutive securities:
Stock options 33,770
Diluted EPS $ 4,431,192 4,640,192 $ 0.96
--------------------- ------------------ ----------------
Six months ended
March 31, 1999
Basic EPS:
Loss available to common stockholders $ (701,193) 4,519,100 $ (0.16)
Effect of dilutive securities:
Stock options 0
Diluted EPS $ (701,193) 4,519,100 $ (0.16)
</TABLE>
5
<PAGE>
4. Inventories
At March 31, 2000 and September 30, 1999, inventories consist of the following:
March 31, September 30,
2000 1999
------------------- ------------------
Raw Materials $ 2,972,506 $ 2,511,460
Work in Process 2,214,428 1,232,573
Finished Goods 1,462,393 1,549,425
------------------- ------------------
6,649,327 5,293,458
Less Reserve for Inventory
Obsolescence (635,215) (635,215)
------------------- ------------------
$ 6,014,112 $ 4,658,243
=================== ==================
5. Segment Reporting
The Company's reportable segments are based on the Company's method of internal
reporting which is disaggregated operationally. The two reportable segments,
U.S. and International, are evaluated based on gross profit; therefore, selling,
general, and administrative costs, as well as research and development expense,
interest income, interest expense, and provision for taxes is reported on an
entity-wide basis only. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies to the extent
such policies affect the reported segment information. The operational
distributions of the Company's revenues and gross margin for the three and six
months ended March 31, 2000 and 1999 are summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
------------------ ----------------- --------------- --------------
<S> <C> <C> <C> <C>
Total Sales:
U.S. $ 6,697,350 $ 5,224,114 $ 13,519,309 $ 10,866,158
International 2,554,218 1,447,583 4,085,438 3,510,637
----------------- ----------------- -------------------- ---------------
$ 9,251,568 $ 6,671,697 $ 17,604,747 $ 14,376,795
================== ================= ==================== ===============
Gross Profit:
U.S. $ 4,363,255 $ 3,362,605 $ 8,885,580 $ 7,115,206
International 1,521,600 847,735 2,334,879 1,948,952
------------------ ----------------- -------------------- ---------------
$ 5,884,855 $ 4,210,340 $ 11,220,459 $ 9,064,158
================== ================= ==================== ===============
The Company's identifiable assets as of December 31, 1999 and 1998 relate to the U.S. Segment only.
</TABLE>
6
<PAGE>
6. Recently Issued Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides guidance
over accounting for computer software developed or obtained for internal use
including the requirement to capitalize specified costs and amortization of such
costs over the estimated useful life of the software SOP 98-1 was effective for
the Company's current fiscal year. The adoption of this standard did not have a
material impact on the Company's results of operations, financial position or
cash flows.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities," which will be effective for fiscal years
beginning after June 15, 2000. SFAS 133 establishes new standards of accounting
and reporting for derivative instruments and hedging activities. SFAS 133
requires that all derivatives be recognized at fair value in the statement of
financial position, and that the corresponding gains or losses be reported
either in the statement of operations or as a component of comprehensive income,
depending on the type of hedging relationship that exists. The Company currently
does not hold derivative instruments or engage in hedging activities.
7. Income Taxes
The benefit for income taxes for the three months and six months ended March 31,
2000 consists of the following:
Income tax expense $ (627,279)
Reversal of valuation allowance 3,098,289
------------
$ 2,471,008
=============
The ultimate realization of the net deferred income tax assets depends on the
Company's ability to generate sufficient taxable income in the future. Based on
the Company's results of operations during the quarter ended March 31, 2000,
management believes that it is more likely than not that the deferred income tax
asset will be realized. Accordingly, the valuation allowance was reversed during
the quarter ended March 31, 2000.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with the
Company's financial statements and notes thereto.
Except for historical information contained herein, this quarterly report
contains forward-looking statements as defined in Section 21E of the Securities
Exchange Act of 1934. Such forward-looking statements are subject to various
risks and uncertainties that could cause actual results to differ materially
from those projected in the forward-looking statements. These risks and
uncertainties are discussed in more detail in the following Management's
Discussion and Analysis of Financial Condition and Results of Operations section
and the Quantitative and Qualitative Disclosures About Market Risk section of
this quarterly report. These forward-looking statements can be generally
identified as such because the content of the statements will usually contain
such words as the Company or management "Believes," "Anticipates," "Expects,"
"Plans," or words of similar import. Similarly, statements that describe the
Company's future plans, objectives, goals, or strategies are forward-looking
statements.
The forward-looking statements included in this Form 10K are also subject to a
number of risks and uncertainties, including, but not limited to, economic,
competitive, governmental, and technological factors affecting the Company's
operations, markets, products, services, prices, and other risk factors listed
in the Company's Form 10K for the year ended September 30, 1999. These
forward-looking statements are not guarantees of future performance and actual
results; developments and business decisions may differ from those expressed or
implied by these forward-looking statements.
Overview
VMIC is a supplier of standard bus boards, software, and systems products which
are used in applications involving markets such as telecommunications, Fibre
Channel storage area networks (SANs), medical, industrial automation, test and
measurement, and defense. VMIC supplies a variety of products to all of these
markets; however, the Company's focus for the future is high-volume OEM
applications involving the PC single-board computers (SBCs) and
communications/networking products. VMIC has recently entered the SAN market and
the computer networking industry with Fibre Channel products that are also used
throughout these markets. SAN and computer networking have wide applications
throughout the computer industry.
The Company has focused its attention on two key product revenue areas that are
experiencing high growth:
o Embedded Intel(R) central processing units or CPUs
o Communications/networking products, such as Fibre Channel,
gigabit Ethernet, and Reflective Memory networks
8
<PAGE>
VMIC specializes in open architecture, nonproprietary, standard computer buses,
such as VMEbus, PCI bus, CompactPCI(R), PMC, PCI-X, and PCoMIP. Companies such
as Motorola, Intel, Hewlett-Packard, Sun, Microsoft, Dell, Compaq, and other
leaders in the industry support these open architecture buses. The Company
manufactures its own products to enable it to meet its customers' demands for
high quality, responsiveness, reliability, and low cost, while reducing
time-to-market and life cycle costs. The Company's manufacturing facility
supports medium-volume, high-mix production and high-volume production using
state-of-the-art equipment. The Company markets its products in more than 60
countries through a direct sales staff and a network of manufacturers'
representatives, international distributors, and remote offices in Texas, the
Carolinas, and Paris, France.
The Company's objective is to become a leading supplier of standard bus
board-level products and software to the embedded computer and SAN markets with
a focus on high-volume OEM applications. Embedded computers are different from
general-purpose computers in that embedded computers are designed to perform
repetitive tasks, whereas other computers are more flexible in their use and
applications. Embedded computer products are used throughout markets such as
telecommunications, SAN, defense, medical, industrial automation, and test and
measurement. The Company differentiates itself in these markets through a
feature-rich hardware product line and supporting software that obviates the
need for customers to invest in VMIC product-specific software development.
VMIC, headquartered in Huntsville, Alabama, is a 14-year-old company with 215
employees, and operates from more than 76,000 square feet in four buildings on a
campus of ten acres.
Management's Discussions and Analysis of Financial Conditions and Results of
Operation
Revenues were $9,251,568 for the quarter and $17,604,747 for the six months
ended March 31, 2000 compared to $6,671,697 for the quarter and $14,376,795 for
the six months ended March 31 1999, for increases of 38.7 percent and 22.5
percent, respectively. Gross profits for the quarter and six months ended March
31, 2000 were $5,884,855 and $11,220,459 compared to $4,210,340 and $9,064,158
for the quarter and six months ended March 31, 1999, for increases of 39.8
percent and 23.8 percent, respectively.
Net income (excluding $3,098,287 income tax benefit arising from a reduction of
the deferred tax asset valuation allowance) was $757,198 and $1,332,905 for the
quarter and six months ended March 31, 2000 compared to a net loss of ($410,043)
and ($701,194) for the quarter and six months ended March 31, 1999. Earnings
(excluding $3,098,287 income tax benefit arising from a reduction of the
deferred tax asset valuation allowance) per common share (diluted) were $0.16
and $0.29 for the quarter and six months ended March 31, 2000 compared to a net
loss of ($0.09) and ($0.16) for the quarter and six months ended March 31, 1999.
Net income (including $3,098,287 income tax benefit arising from a reduction of
the deferred tax asset valuation allowance) was $3,584,552 and $4,431,192 for
the quarter and six months ended March 31, 2000 compared to a net loss of
($410,043) and ($701,194) for the quarter and six months ended March 31, 1999.
Earnings (including $3,098,287 income tax benefit arising from a reduction of
the deferred tax asset valuation allowance) per common share (diluted), were
$0.78 and $0.96 for the quarter and six months ended March 31, 2000 compared to
a net loss of ($0.09) and ($0.16) for the quarter and six months ended March 31,
1999.
9
<PAGE>
International sales for the second quarter increased 85.7 percent to $2.6
million compared to $1.4 million for the quarter ended March 31, 1999. Domestic
sales for the second quarter increased 28.8 percent to $6.7 million compared to
$5.2 million for the quarter ended March 31, 1999. Systems sales increased some
66.7 percent to $2.5 million for the second quarter compared to $1.5 million for
the quarter ended March 31, 1999. Systems sales include the sale of a mixture of
products involving input/output hardware and software typically preconfigured to
customers' specifications. Our investment in PC-based control software has been
instrumental in expanding our I/O systems business into the industrial
automation market arena.
The Company announced 11 new products during the second quarter. Of these
products, five were new SBC products, two Fibre Channel products, three software
products, and one new I/O controller product based on our PC-based control
software. One of the new software products involved VMIC SBC support for the
popular Linux operating system.
The Company was awarded a patent involving performance enhancements for VMEbus
computer technology during the second quarter and we announced a new CompactPCI
850 MHz SBC. The CompactPCI architecture has been chosen by the telecom market
as its primary platform for embedded computers.
VMIC achieved eight design wins in the second quarter. The Company characterizes
a design win as a project estimated to produce $500,000 or more in revenue per
year when in production. Of the eight design wins, four are estimated to produce
$1 million or more in revenue per year once in full production. Of the four
design wins, one is for a Fibre Channel product, two are computer boards, and
the fourth involves SBCs, I/O products, and our IOWorks PC-based control
software.
Design wins ramp into production volume over time intervals which range from 3
to 9 months after the win occurs. A variety of risks can affect these programs
before the start of production, such as schedule delays, changes in customer
markets, and customer product sales volumes.
The Company's gross margin for the second quarter increased to 63.6 percent from
63.1 percent in the quarter ended March 31, 1999. This increase was primarily
the result of decreased software amortization costs and an inventory adjustment.
R&D expenses for the second quarter decreased to 13.8 percent of sales from 22.0
percent of sales for the quarter ended March 31, 1999. SG&A decreased as a
percentage of revenue to 35.2 percent from 46.8 percent for the quarter ended
March 31, 1999. Operating income as a percentage of revenue for the second
quarter was 14.6 percent compared to an operating loss of 5.8 percent for the
quarter ended March 31, 1999.
The Company's cash flow was sufficiently positive during the second quarter to
reduce our borrowings on our working line of credit from $4.1 million to $3.5
million. During the second quarter, we renewed our $8 million working line of
credit and negotiated a $2 million open, unused line of credit for capital
equipment procurements.
10
<PAGE>
Inventory for the second quarter increased 27.7 percent to $6.0 million compared
to $4.7 million for the year ended September 30, 1999. Inventory increased
primarily because of increased requests from customers for quicker deliveries
and new hardware products focused on SBCs and Fibre Channel host bus adapters.
Stockholder equity increased 117.9 percent from $3.9 million as of September 30,
1999 to $8.5 million as of March 31, 2000.
We are pleased with this quarter's performance and expect the benefits from
recent new business awards and our continued cost containment program to provide
strong support for achieving our financial goals for fiscal year 2000.
Results of Operations
(Six Months Ended March 31, 2000 Compared to Six Months Ended March 31, 1999.)
Sales
For the six-month period ended March 31, 2000, sales increased 22.2 percent to
$17.6 million compared to $14.4 million for the six-month period ended March 31,
1999. Sales were generated primarily from four product areas involving
input/output, communications/networking, SBCs, and software. Sales for
input/output products increased 8.2 percent to $7.9 million for the six-month
period ended March 31, 2000 compared to $7.3 million for the same period in
1999. Sales for communications/network products increased 17.4 percent to $5.4
million for the six-month period ended March 31, 2000 compared to $4.6 million
for the same period ended in 1999. The increase in sales for
communications/network products was primarily from the new Fibre Channel product
line. Sales for SBCs increased 17.4 percent to $5.4 million for the six-month
period ended March 31, 2000 compared to $4.6 million for the same period in
1999. The increase in sales was generated as a result of new design wins in
telecommunications, medical, defense, and industrial automation.
Sales for software increased 33.9 percent to $498 thousand for the six-month
period ended March 31, 2000 compared to $372 thousand for the same period in
1999. This increase in sales was generated because of improved acceptance of our
PC-based control software coupled with higher shipments of software modules
associated with our SBC product line.
Gross Profits
For the six-month period ended March 31, 2000, gross profit increased 23.1
percent or $2.1 million to $11.2 million from $9.1 million for the six-month
period ended March 31, 1999. Gross profits as a percentage of sales increased to
63.7 percent from 63.1 percent for the six-month period ended March 31, 2000.
The increase resulted from lower amortized software costs and an inventory
adjustment.
11
<PAGE>
Gross margins as a percentage of sales are expected to decrease as the Company's
lower margin products business becomes a larger portion of the total sales mix.
Selling, General, and Administrative Expenses
For the six-month period ended March 31, 2000, selling, general, and
administrative (SG&A) expenses decreased 7.5 percent to $6.2 million from $6.7
million for the six-month period ended March 31, 1999. This decrease was
primarily due to the reductions in sales and marketing expenses.
Research and Development
For the six-month period ended March 31, 2000, Research and Development (R&D)
expenses decreased 13.3 percent to $2.6 million from $3 million for the
six-month period ended March 31, 1999. This decrease resulted from the reduction
in staff and reductions in amortized expenses. Capitalized software development
expenses for the six-month period ended March 31, 2000 decreased 64.3 percent to
$0.5 million compared to $1.4 million for the same period in 1999.
Capitalized Software Development Costs
During the six-month period ended March 31, 2000, VMIC had two categories of
capitalized software products under development as follows:
Software Product Category | Capitalized | Write-Down | Balance of Capitalized
================================================================================
IOWorks (PC-Based Control) $287,485 $217,400 $70,085
- --------------------------------------- -------------------------------------
Board Drivers* $169,268 $86,519 $82,749
- --------------------------------------- -------------------------------------
*Includes software drivers for products such as CPUs, communications/networks,
and I/O products.
The Company elected, after a study of historical and forecasted sales of certain
software modules, to write-off some modules and expense future development of
some products.
Earnings Per Share
Net income (excluding $3,098,287 income tax benefit arising from a reduction of
the deferred tax asset valuation allowance) was $1,332,905 for the six months
ended March 31, 2000 compared to a net loss of $701,194 for the six months ended
March 31, 1999. Earnings (excluding $3,098,287 income tax benefit arising from a
reduction of the deferred tax asset valuation allowance) per common share
(diluted) were $0.29 for the six months ended March 31, 2000 compared to a net
loss of $0.16 for the quarter and six months ended March 31, 1999.
Net income (including $3,098,287 income tax benefit arising from a reduction
of the deferred tax asset valuation allowance) was $4,431,192 for the six months
ended March 31, 2000 compared to a net loss of $701,194 for the six months ended
March 31, 1999. Earnings (including $3,098,287 income tax benefit arising from
a reduction of the deferred tax asset valuation allowance) per common share
(diluted), were $0.96 for the six months ended March 31, 2000 compared to a net
loss of $0.16 for the quarter and six months ended March 31, 1999.
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Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Sales
Revenues for the second quarter ended March 31, 2000 were $9.3 million, a 38.8
percent increase from revenues of $6.7 million for the quarter ended March 31,
1999.
International sales for the second quarter increased 85.7 percent to $2.6
million compared to $1.4 million for the quarter ended March 31, 1999. Domestic
sales for the second quarter increased 28.8 percent to $6.7 million compared to
$5.2 million for the quarter ended March 31, 1999. Systems sales increased 66.7
percent to $2.5 million for the second quarter compared to $1.5 million for the
quarter ended March 31, 1999. Systems sales include the sale of a mixture of
products involving input/output hardware and software typically preconfigured to
customers' specifications. Our investment in PC-based control software has been
instrumental in expanding our I/O systems business into the industrial
automation market arena.
Sales were generated primarily from four product areas involving input/output,
communications/networking, SBCs, and software. Sales for input/output products
increased 28.1 percent to $4.1 million for the second quarter compared to $3.2
million for the same period in 1999. Sales for communications/network products
increased 38.1 percent to $2.9 million for the second quarter compared to $2.1
million for the same period in 1999. The sales increase for
communications/network products was primarily due to the success of our new
Fibre Channel product line. Sales for SBCs increased 58.3 percent to $1.9
million for the second quarter compared to $1.2 million for the same period in
1999.
Sales for software increased 73.3 percent to $298 thousand for the second
quarter compared to $172 thousand for the same period in 1999.
Sales increases were generated because of new products, our focus on new
markets, OEM accounts, and generally better business conditions.
Gross Profits
For the three-month period ended March 31, 2000, gross profits increased 40.5
percent or $1.7 million to $5.9 million from $4.2 million for the three-month
period ended March 31, 1999. The increase was generated because of increases in
revenues.
The Company's gross margin increased to 63.6 percent for the second quarter from
63.1 percent in the quarter ended March 31, 1999. The increase was primarily the
result of decreased software amortization costs and an inventory adjustment.
Gross margins as a percentage of sales are expected to decrease as the Company's
lower margin products business becomes a larger portion of the total sales mix.
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Selling, General, and Administrative Expenses
For the three-month period ended March 31, 2000, selling, general, and
administrative (SG&A) expenses increased 6.4 percent to $ 3.3 million from $3.1
million for the three-month period ended March 31, 1999.
SG&A for the second quarter decreased as a percentage of revenues to 35.2
percent from 46.8 percent for the quarter ended March 31, 1999.
Research and Development Expenses
For the three-month period ended March 31, 2000, Research and Development
expenses (R&D) decreased 13.3 percent to $1.3 million from $1.5 million for the
three-month period ended March 31, 1999.
R&D expenses decreased to 13.8 percent of sales for the second quarter from 22.0
percent of sales for the quarter ended March 31, 1999.
Capitalized Software Development Costs
During the three-month period ended March 31, 2000, VMIC had two categories of
capitalized software products under development as follows:
- --------------------------------------------------------------------------------
Software Product Category Capitalized Write-Down Balance of Capitalized
- --------------------------------------------------------------------------------
IOWorks (PC-Based Control) $135,534 $203,150 ($67,616)
- --------------------------------------------------------------------------------
Board Drivers* $69,850 $62,383 $7,467
- --------------------------------------------------------------------------------
*Includes software drivers for products such as CPUs, communications/networks,
and I/O products.
The write-downs for capitalized software were taken because of recent studies
that indicated historical sales and forecasted sales were insufficient to
continue capitalization of certain software modules. Accordingly, the Company
elected to write-down the capitalized value of some software modules, and
discontinue the R&D capitalization of several software modules.
Income Taxes
Income taxes for the three and six month periods ended March 31, 2000 were a net
benefit of $2.5 million. Provision for taxes was $0.6 million offset by a $3.1
million valuation benefit resulting from the previous year's loss carry forward.
Income tax benefits for the three and six month periods ended March 31, 1999
were $0.2 million and $0.3 million respectively.
Earnings Per Share
Net income (excluding a valuation allowance of $3,098,287) was $757,198 for the
quarter ended March 31, 2000 compared to a net loss of $410,043 for the quarter
ended March 31, 1999. Earnings (excluding $3,098,287 valuation allowance) per
common share (diluted) were $0.16 for the quarter ended March 31, 2000 compared
to a net loss of $0.09 for the quarter ended March 31, 1999.
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Net income (including a $3,098,287 valuation allowance) was $3,584,552 for the
quarter ended March 31, 2000 compared to a net loss of $410,043 for the quarter
ended March 31, 1999. Earnings (including a $3,098,287 valuation allowance) per
common share (diluted), were $0.78 for the quarter ended March 31, 2000 compared
to a net loss of $0.09 for the quarter ended March 31, 1999.
Liquidity and Capital Resources
Historically, VMIC's cash flow from operations and available credit facilities
has provided adequate liquidity and working capital to fully fund VMIC's
operational needs. As of March 31, 2000, VMIC's variable line of credit for
working capital was $8.0 million, of which $3.5 million was used. The Company's
cash flow was sufficiently positive during the second quarter to reduce our
borrowings on our working line of credit from $4.1 million to $3.5 million.
During the second quarter, we renewed our $8 million working line of credit and
negotiated a $2 million open, unused line of credit (as of March 31, 2000) for
capital equipment procurements. The variable line of credit expires March 31,
2001.
The lines of credit require the Company to maintain certain loan covenants and,
as of March 31, 2000, the Company was either in compliance with such covenants
or had obtained waivers.
Working capital was $3.0 million at March 31, 2000 and $0.6 million at September
30, 1999. Included in working capital are cash and cash equivalents of $1.0
million at March 31, 2000 compared to $0.6 million at September 30, 1999. Total
working capital increased as a result of the profit experienced for the six
months ended March 31, 2000 and changes in operating assets and liabilities.
Current liabilities were $10.2 million at March 31, 2000 compared to $9.9
million at September 30, 1999. Operating activities for the six-month period
ended March 31, 2000 provided $1.8 million of cash. Cash used for investing
activities was $0.9 million for the six months ended March 31, 2000, of which
$0.8 million was used for capital expenditures. Cash used for financing
activities was $0.4 million for the six months ended March 31, 2000.
Inventory turnover for the six months ended March 31, 2000 was approximately 170
days compared to approximately 182 days for the same period in 1999. This
decrease is attributable to higher sales and improved inventory management.
Accounts receivable from customers were outstanding on average approximately 50
days for the six months ended March 31, 2000 compared to approximately 56 days
for the same period in 1999.
VMIC believes that its financial resources, including its internally generated
funds and debt capacity, will be sufficient to finance its current operations
and capital expenditures for the next 12 months. However, management is
examining several options to raise additional working capital.
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Item 3: Quantitative and Qualitative Disclosures About Market Risk
The Company's business and financial performance are subject to risks and
uncertainties, including those discussed below.
The Company may not be able to compete effectively in its current or future
markets.
The standard bus embedded computer industry is highly competitive and
fragmented, and the Company faces significant competition in each of its product
markets. The Company's competitors differ depending on product type, geographic
market, and application type. Several of VMIC's competitors are well established
and have greater assets and financial resources than the Company, and have
larger marketing and research and development budgets. Several of the Company's
competitors also have larger service organizations.
Competition in the Company's business areas is influenced by technical capacity,
customer support, product longevity, supplier stability, breadth of product
offerings, reliability, performance, and price. Accordingly, even small
competitors who develop technologically similar or advanced products could
successfully compete with the Company. Other competitors have established
relationships with customers or potential customers that afford them a
competitive advantage. There can be no assurance that the Company will be able
to compete effectively in its current or future markets or whether the Company's
technology and designs will be viable in the marketplace in the future.
The Company recently entered into new product markets and may be unable to
develop the technologies or market presence necessary to succeed in these
markets.
VMIC's recent entry into vertically integrated markets such as Industrial
Automation and storage area networks has required the Company to develop new
hardware and software products. However, these new products, while offering
potential new revenue sources, may not achieve market acceptance, and the
failure to succeed in these markets could materially impact the financial
condition of VMIC.
The Company has diverted research and development resources from core products
to new technologies.
The Company has recently undertaken substantial research and development efforts
outside of its core business with the intent of increasing its revenue base and
growth potential. This is reflected in the Company's strategy of offering
PC-based control software or IOWorks, embedded PC board products, and
communication products, such as Fibre Channel and Reflective Memory to the
Storage Area Network, Industrial Automation and Telecommunications markets and
other more vertically integrated markets. To implement this strategy, the
Company reduced its research and development investments in its core business
while significantly increasing its investment in the new products designed to
address these more vertical markets. If the Company is unsuccessful in these new
markets, it will be dependent on its core business to maintain historical
operating results. VMIC may not be able to maintain its historical operating
results, however, because it has substantially reduced its research and
development investments in its core business.
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<PAGE>
Sales of the Company's new products may not meet the growth objectives of the
Company.
Some of the Company's new hardware products will be sold at lower profit
margins, and the Company requires significant market acceptance of these
products to meet the growth objectives of the Company. While there has been
significant customer interest in these new products, Reflective Memory, Fibre
Channel, and PC-based products generated a significant percentage of the
Company's revenues in 1999. There can be no assurance that these new products
will be successful to the extent necessary to meet VMIC's growth objectives. If
these new products are not successful, the Company's operating results and
financial condition could be materially adversely affected.
The Company has increased its debt level and working capital requirements.
Traditionally, the Company has utilized long-term liabilities as a major
financing source. Long-term debt of the Company rose from $200,000 in 1986 to
approximately $6.3 million as of March 31, 2000. The Company's utilization of
long-term debt is somewhat higher than the average company in this industry A
primary reason for the increase in long-term debt was the need for the Company
to manage its growth. The Company believes its current revenue level will be
sufficient to service its long-term debt. However, if the revenues and profits
of the Company substantially decrease, it will be more difficult for the Company
to service its long-term debt, meet its current obligations, and continue with
its current business plan. As of March 31, 2000 the Company had sufficient
current assets to liquidate all of its current liabilities.
The Company's products may become obsolete and the Company may be unable to
respond to future market needs.
Most of the Company's products are developed to meet certain industry standards.
These standards continue to develop and are subject to change. Elimination or
obsolescence of all or some of these standards could affect the design,
manufacture, and sale of the Company's products and require costly redesign to
meet new or emerging standards.
In general, technology in the computer industry, and the computer bus board
industry specifically, is subject to rapid technological change. The
introduction of new technology and products by others could adversely affect the
Company's business. There is no assurance that future advances in technology may
not make the Company's existing product line obsolete, resulting in increased
competition, and requiring the Company to undertake costly redesign efforts.
There can be no assurance that the Company will be able to incorporate new
technology into its product lines or redesign its products to compete
effectively.
Moreover, because new products and technologies require commitments well in
advance of sales, decisions with respect to those commitments must accurately
anticipate both future demand and the technology that will be available to meet
that demand. There can be no assurance that the Company will be able to
successfully anticipate or adapt to future technological changes, and failure to
do so may materially adversely affect the Company's business, financial
condition, or results of operations.
17
<PAGE>
The Company may experience reduced cash flows as a result of selling products
with smaller margins, fluctuations in operating results and increases in
expenses.
The Company is dependent upon the success of its recently developed IOWorks
software to increase the sales of I/O system products. The Company has also made
significant investments in embedded PC board products and communications
products such as Reflective Memory and Fibre Channel to substantially increase
revenue growth. Embedded PC boards products and communications products
typically yield smaller margins than the Company's traditional product mix and
the Company's profits could therefore erode in the future.
In addition, the Company has experienced reduced net cash flows, attributable to
substantial software development, inventory expansion, building expansion,
purchased technologies associated with PC SBCs, the Company's expanded use of
internal products for software development, and fluctuations in the Company's
operating results. Moreover, because of the Company's high level of current
fixed expenses and working capital requirements, and because the Company
believes it should continue its current business strategy of expending
substantial resources on research and development, VMIC may experience a
negative cash flow position in the future.
The Company may not be able to successfully protect its intellectual property
and confidential information.
The Company's success is, to a significant degree, attributable to the unique
features of its software, proprietary technology and other confidential
information. Unfortunately, software and information technology industries have
experienced widespread unauthorized reproduction of software products and other
proprietary technology. While the Company has some patent protection for its
hardware products, the Company's software is not patented, and existing
copyright law offers only limited practical protection. For most of its
intellectual property protection, VMIC relies on a combination of trade secret
laws, copyright protection, common law intellectual property rights, license
agreements, nondisclosure, and other contractual provisions. The Company does
not, however, sell its software source code, or provide its customers access to
the source code associated with its software products.
There is no assurance that the Company will be able to protect its trade secrets
or that others will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to the Company's
trade secrets. There is no assurance that foreign intellectual property laws
will protect the Company's intellectual property rights. In addition, the
computer industry is characterized by frequent litigation regarding patent and
other intellectual property rights, and litigation has been, and may in the
future be necessary to enforce the Company's trade secrets or to defend against
claims of patent infringement. While VMIC believes that its proprietary rights
do not infringe upon the proprietary rights of others, third parties may assert
infringement claims against the Company in the future and such assertion could
cause the Company to enter into a license agreement or royalty arrangement with
the party asserting the claim. The Company may also be required to indemnify its
customers for claims made against them. Responding to and defending any such
claims, developing noninfringing intellectual property or acquiring licenses
could have a material adverse affect on the Company's business, financial
condition or results of operations.
18
<PAGE>
The Company may not be able to adequately finance its continued growth
The Company has been growing since 1986, during which time the Company has
experienced increased debt, sales growth, high research and development
expenditures, and an increased asset base. There are certain risks inherent in
any growing company arising from such factors as increased working capital and
capital expenditure requirements. Moreover, the Company's business strategy
calls for substantial continued investment in new products. The Company also
anticipates expanding its inventory and increasing investments in equipment and
other fixed assets. There is no assurance that the Company will be successful in
obtaining additional long-term debt or equity financing, or if obtained, there
can be no assurance that the debt or equity financing will be on terms favorable
to the Company or its shareholders. The failure of the Company to obtain
additional funds or the obtaining of such funds on unfavorable terms could
adversely affect the financial performance and prospects of the Company and any
equity investment on unfavorable terms could cause substantial dilution to the
shareholders.
The Company will be required to expense certain software development costs if
software sales are not sufficient to amortize the capitalized software
development costs over a five-year period.
The Company, in fiscal year 1996, began to capitalize development costs
associated with its IOWorks software and certain other products. The Company is
required to amortize its capitalized software costs against future sales of the
software products over a five-year period after the release of the products. The
Company accounts for these software development costs in accordance with
Statement of Financial Accounting Standards No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased or Otherwise Marketed. The Company
capitalizes certain costs incurred in the production of computer software once
technological feasibility of the product to be marketed has been established.
Capitalization of these costs ceases when the product is considered available
for general release to customers.
The establishment of technological feasibility and the ongoing assessment of
recoverability of capitalized software development costs require considerable
judgment by VMIC.
If software sales are not sufficient to amortize the capitalized costs over the
five-year period, the Company is required to expense those capitalized costs. In
1999, the Company recorded a $5.3 million write-down of certain software
development costs and purchased product and software costs.
19
<PAGE>
The Company relies on suppliers for many of its electronic components, some of
which can only be obtained from a single source.
Most of the Company's products contain state-of-the-art digital electronic
components and integrated circuits. The Company is dependent upon third parties
for the continuing supply of most of these components and all of its integrated
circuits. Some of these components are obtained from a sole supplier, such as
QLogic, Altus, Triquent, Intel, AMD, Tundra, Cypress; or a limited number of
suppliers, for which alternative sources would be difficult to locate. Recently,
the Company has experienced difficulties in purchasing components for its Fibre
Channel products from QLogic. The Company has also experienced shortages of
integrated circuits and other key components from time to time, and this has
resulted in delays in product deliveries. The Company has also had to terminate
its marketing of certain products, even newly developed products, when a
component supplier terminated its production of a critical component. Moreover,
suppliers may discontinue or upgrade some of the components incorporated into
the Company's products, which could require the Company to redesign a product to
incorporate newer or alternative technology. Although the Company believes it
maintains good relationships with its suppliers, and has arranged for an
adequate supply of components to meet its short-term requirements, any
unavailability of components could cause delayed shipments and lead to customer
dissatisfaction. Any sustained unavailability of components could materially
adversely affect the Company's operating results and financial condition.
The Company has limited manufacturing facilities and must rely on subcontractors
to complete some of the Company's products.
The Company relies on subcontractors for manufacturing some of the Company's
products. The contractors may experience delays because of quality problems,
backlog, component availability, financial difficulty, or other situations which
could have an adverse effect on the Company's operating results and customer
relationships. In this event, the Company may be required to find alternative
subcontractors, and there can be no assurance that the Company could find
suitable subcontractors.
The loss of one or more major customers or a number of smaller customers could
adversely affect the Company's revenues and profits.
Sales to two major customers accounted for approximately 12.7 percent of VMIC's
sales in 1999 and 9.6 percent of VMIC's sales during 2000. If either or both of
these customers discontinued purchasing products from the Company, the Company's
operating results and financial condition could be materially adversely
affected. In addition, in fiscal year 1999, approximately 31 percent of the
Company's sales were derived directly or indirectly from various agencies of the
U. S. Department of Defense. Although the percentage of the Company's sales
derived from governmental contracts has decreased from a high of 75 percent in
1986, the Company expects that the government will continue to be a significant
source of sales. It is possible that changes in national policy or other factors
could result in reduced defense spending which could materially adversely affect
the operating results and financial condition of the Company.
Lack of a Public Market and Certain Transfer Restrictions.
There presently exists no public market for the shares of the Company's stock,
nor is there any likelihood of one developing in the near future. A holder of
the Company's Common Stock may not be able to liquidate his or her position when
liquidity is needed and may be required to retain the securities indefinitely.
20
<PAGE>
Control by Existing Shareholders.
Carroll E. Williams and Mary W. Williams own 36 percent of the Company's Common
Stock. Together, all of the current officers and directors of the Company
(including Carroll E. Williams and Mary W. Williams) own a substantial majority
of its Common Stock. Consequently, these individuals, and particularly Carroll
E. Williams and Mary W. Williams, will control virtually all aspects of the
Company's business by virtue of their ability to nominate and elect the Board of
Directors and officers of the Company. As directors and officers of the Company,
they will, subject to their fiduciary duties, be entitled to develop and
implement the Company's course of business. Neither the Company's Articles of
Incorporation nor its Bylaws permit cumulative voting. Consequently, the
remaining shareholders will not be entitled to elect a representative to the
Company's Board of Directors.
The Company Does Not Anticipate Paying Dividends.
Since its incorporation, the Company has never paid dividends and does not
anticipate paying cash dividends in the foreseeable future. The Company projects
that it will retain future earnings, if any, to provide working capital and
implement the Company's business strategy. Also, pursuant to its loan agreement,
the Company's ability to pay dividends is substantially limited because the loan
agreement requires the Company to maintain certain financial ratios that the
Company believes would not be maintained if dividends were paid.
The Company may not be able to make acquisitions and the Company's acquisitions
may not be successful.
Part of the Company's strategy for growth includes acquisitions of complementary
technologies or businesses that would enhance the Company's capabilities or
increase the Company's customer base. The Company's ability to expand
successfully through acquisitions depends on many factors, including business
and management's ability to effectively integrate and operate acquired
companies. The Company may compete for acquisition opportunities with other
companies that have significantly greater financial and management resources.
There can be no assurance that the Company will be successful in acquiring or
integrating any such technologies or businesses.
The Company may be subject to product liability claims.
The Company's products and services may be subject to product liability or
electronics manufacturing errors or omissions liability claims. The Company
maintains product recall insurance with an aggregate limit of $1.0 million,
primary product liability and electronics errors or omissions liability
insurance with a general aggregate limit of $2.0 million, and $1.0 million per
occurrence, with a $2.0 million excess policy. While the Company has never been
the subject of any such claims, given the wide use of the Company's products and
the propensity of claimants to initially pursue all possible contributors in a
legal action, there can be no assurance that such coverage will be adequate to
protect the Company from liability. Further, the Company may be unable to obtain
insurance in the future at rates acceptable to the Company. In the event of a
successful lawsuit against the Company, insufficiency of insurance coverage
could have a material adverse effect upon the Company.
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<PAGE>
The Company may not be able to retain and recruit key employees and skilled
personnel necessary to maintain or grow the business.
The Company's success will depend in large part on the continued services of its
key management, and technical personnel. The loss of the services of one or more
of the Company's key employees or the inability to hire additional key personnel
as needed could have a material adverse effect on the Company's business,
financial condition and results of operations. There can be no assurance that
the Company will be successful in attracting and retaining needed personnel.
While the Company is currently experiencing relatively low rates of turnover for
skilled employees; there can be no assurance that these rates of turnover will
not increase in the future. The inability of the Company to hire, train, and
retain a sufficient number of qualified employees could impair the Company's
ability to compete in its markets resulting in a material adverse effect on the
Company's business, financial condition and results of operations.
The VMIC logo is a registered trademark of VMIC. Intel is a registered trademark
of Intel Corporation. CompactPCI is a registered trademark of PCI Industrial
Computer Manufacturer's Group. Other registered trademarks are the property of
their respective owners.
22
<PAGE>
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
On Saturday, February 19, 2000, the annual meeting of the Company's stockholders
was held at the Radisson Hotel, 6000 Memorial Parkway, S.W., Huntsville, Alabama
35802. Proxies were solicited on behalf of the Board of Directors of VMIC, Inc.
and cast by Carroll E. Williams, and Mary W. Williams. Matters put to vote and
acted upon were the proposal to elect the Board of Directors and the proposal to
ratify the appointment of PricewaterhouseCoopers, L.L.P. as the Company's
independent auditors for the current fiscal year.
All directors were elected for a term of one year and will serve until the next
annual meeting. Directors elected were as follows:
For Withheld
Carroll E. Williams 2,788,189 1,809,702
Mary W. Williams 2,788,189 1,809,702
Arthur Faulkner 2,788,189 1,809,702
Alfred F. Casteleyn 2,788,189 1,809,702
Ernest Potter 2,788,189 1,809,702
R. Gary Saliba 2,788,189 1,809,702
Jim Caudle, Sr. 2,788,189 1,809,702
PricewaterhouseCoopers, L.L.P. was ratified to serve as the Company's
independent auditors for the fiscal year ending September, 30, 2000. Voting for
ratification were 2,837,300 shares 1,760,591 shares abstained.
23
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Signatures
Management Representation
The accompanying Balance Sheets at March 31, 2000, and September 30, 1999 as
well as the Statements of Income, Statements of Changes in Stockholders' Equity,
and Statements of Cash Flows for the three months March 31, 2000 and September
30, 1999 have been prepared in accordance with instructions to Form 10Q and do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting only of normal recurring accruals,
considered necessary for a fair presentation have been included.
May 12, 2000
By: Gordon Hubbert
Date
Gordon Hubbert
Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 12, 2000 By: Carroll E. Williams
Date Carroll E. Williams
President and Chief
Executive Officer
24
