<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
----------------------------
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1998
OR
- --- TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-21305
Electronic Designs, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3298416
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Research Drive, Westborough, Massachusetts 01581
(Address of Principal Executive Offices) (Zip Code)
(508) 366-5151
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether 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
past l2 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
--- ---
The number of shares of Registrant's Common Stock outstanding as of August 6,
1998 was 7,096,700
Page 1 of 14, including exhibits
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 30,
1998 1997
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,163,000 $ 4,212,000
Accounts receivable, net 5,350,000 7,393,000
Inventories 6,505,000 6,903,000
Assets of discontinued operations -- 1,522,000
Deferred income taxes 950,000 1,400,000
Prepaid expenses and other current assets 448,000 185,000
------------ ------------
Total current assets 16,416,000 21,615,000
Property and equipment, net 2,063,000 2,117,000
Deferred income taxes 250,000 --
Other assets 449,000 10,000
Intangible assets, net 1,045,000 1,395,000
------------ ------------
$ 20,223,000 $ 25,137,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,075,000 $ 1,059,000
Accounts payable 4,629,000 5,723,000
Accrued expenses and other liabilities 2,144,000 2,334,000
Provision for loss on disposal of discontinued
operations $ 135,000 $ 776,000
------------ ------------
Total current liabilities 7,983,000 9,892,000
Deferred income taxes -- 200,000
Long-term debt, net of current portion 1,525,000 2,208,000
------------ ------------
Total liabilities 9,508,000 12,300,000
------------ ------------
Shareholders' equity:
Common stock: $0.01 par value;
20,000,000 shares authorized;
7,148,295 shares issued at June 28, 1998
and September 30, 1997 72,000 72,000
Additional paid in capital 26,798,000 26,968,000
Accumulated deficit (15,969,000) (14,084,000)
Treasury stock: 51,595 and 34,994 shares at June 28,
1998 and September 30, 1997, respectively, at cost (186,000) (119,000)
------------ ------------
Total shareholders' equity 10,715,000 12,837,000
------------ ------------
$ 20,223,000 $ 25,137,000
============ ============
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE> 3
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ---------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues $8,054,000 $10,422,000 $25,364,000 $31,011,000
Cost of revenues 6,354,000 6,719,000 19,311,000 18,968,000
---------- ----------- ----------- -----------
Gross profit 1,700,000 3,703,000 6,053,000 12,043,000
---------- ----------- ----------- -----------
Operating expenses:
Research and development 575,000 608,000 1,863,000 1,586,000
Selling, general and administrative 1,597,000 1,648,000 5,634,000 5,562,000
Merger related expenses 336,000 -- -- --
Amortization of intangible assets 117,000 117,000 350,000 350,000
---------- ----------- ----------- -----------
2,625,000 2,373,000 7,847,000 7,498,000
---------- ----------- ----------- -----------
Income (loss) from operations $ (925,000) $ 1,330,000 $(1,794,000) $ 4,545,000
---------- ----------- ----------- -----------
Other income (expense):
Interest income 36,000 54,000 115,000 163,000
Interest expense (67,000) (77,000) (206,000) (236,000)
---------- ----------- ----------- -----------
(31,000) (23,000) (91,000) (73,000)
---------- ----------- ----------- -----------
Income (loss) before taxes and
discontinued operations $ (956,000) $ 1,307,000 $(1,885,000) $ 4,472,000
Provision for income taxes -- 132,000 -- 449,000
---------- ----------- ----------- -----------
Income (loss) from continuing operations $ (956,000) $ 1,175,000 $(1,885,000) $ 4,023,000
Discontinued operations:
Loss from discontinued of Diamond Products
Division through May 13, 1997, net of
applicable taxes (189,000) (699,000)
Provision for loss on disposal of Diamond
Products Division including provision of
operating losses during the phase-out
period, net of applicable income taxes -- (965,000) -- (965,000)
---------- ----------- ----------- -----------
Net income (loss) $ (956,000) $ 21,000 $(1,885,000) $ 2,359,000
========== =========== =========== ===========
Basic earnings (loss) per share:
Income (loss) from continuing operations $ (0.14) $ 0.17 $ (0.27) $ 0.58
Loss from discontinued operations $ 0.00 $ (0.17) $ 0.00 $ (0.24)
---------- ----------- ----------- -----------
Net income (loss) per share $ (0.14) $ 0.00 $ (0.27) $ 0.34
========== =========== =========== ===========
Diluted earnings (loss) per share:
Income (loss) from continuing operations $ (0.14) $ 0.16 $ (0.27) $ 0.53
Loss from discontinued operations $ 0.00 $ (0.16) $ 0.00 $ (0.22)
---------- ----------- ----------- -----------
Net income (loss) per share $ (0.14) $ 0.00 $ (0.27) $ 0.31
========== =========== =========== ===========
Basic weighted average common shares 7,048,000 7,106,000 7,063,000 6,937,000
---------- ----------- ----------- -----------
Diluted weighted average
common share and equivalents 7,048,000 7,447,000 7,063,000 7,595,000
---------- ----------- ----------- -----------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE> 4
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------
JUNE 28, SEPTEMBER 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) $ (1,885,000) $ 2,359,000
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,029,000 1,324,000
Provision for loss on disposal of discontinued operations -- 776,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 2,043,000 (1,461,000)
(Increase) decrease in inventories 398,000 (458,000)
(Increase) decrease in prepaid expenses (13,000) 42,000
(Increase) decrease in other assets (64,000) 33,000)
Decrease in accounts payable (1,094,000) (401,000)
Decrease in accrued expenses and other
liabilities (411,000) (599,000)
------------ ------------
Net cash flows provided by operating activities 3,000 1,615,000
------------ ------------
Cash flows from investing activities:
Capital equipment expenditures (625,000) (795,000)
Cash proceeds from the sale of discontinued operations 500,000 --
------------ ------------
Net cash flows used in investing activities (125,000) (795,000)
------------ ------------
Cash flows from financing activities:
Sale of common stock, net 50,000 29,000
Repurchase of common stock (310,000) (27,000)
Proceeds from issuance of long-term debt 150,000 1,012,000
Principal repayments on long-term debt (817,000) (1,051,000)
------------ ------------
Net cash flows used in financing activities (927,000) (37,000)
------------ ------------
Net (decrease) increase in cash and cash equivalents (1,049,000) 783,000
Cash and cash equivalents at beginning of period 4,212,000 3,290,000
------------ ------------
Cash and cash equivalents at end of period $ 3,163,000 $ 4,073,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
ELECTRONIC DESIGNS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect
the financial position, results of operations and cash flows of Electronic
Designs, Inc. (the "Company") and its wholly-owned subsidiaries.
In the opinion of management, the financial statements contain all of
the necessary adjustments (all being of a normal and recurring nature) to fairly
present the financial position, results of operations and cash flows of the
Company for the interim periods presented. These statements do not include all
of the information and footnotes required by generally accepted accounting
principles, although the Company believes that the disclosures made are adequate
to make the information presented not misleading. These financial statements
should be read in conjunction with the Company's audited consolidated financial
statements for the two fiscal years in the period ended September 30, 1997,
included in the Company's 1997 Annual Report on Form 10-KSB.
The operating results for the interim periods presented are not
necessarily indicative of the results to be expected for the full year.
2. INVENTORIES
Inventories consisted of the following:
JUNE 28, SEPTEMBER 30,
1998 1997
Raw materials $3,551,000 $3,756,000
Work-in-process 858,000 1,534,000
Finished goods 2,096,000 1,613,000
---------- ----------
$6,505,000 $6,903,000
========== ==========
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128, "Earnings Per Share" which changed the method of calculating
earnings per share. SFAS No. 128 requires the presentation of "basic" earnings
per share and "diluted" earnings per share. Basic earnings per share is computed
by dividing the net income available to common shareholders by the weighted
average shares of outstanding common stock. For purposes of calculating diluted
earnings per share, the denominator includes both the weighted average shares of
common stock outstanding and dilutive common stock equivalents. The Company
adopted SFAS No. 128 in the first quarter of fiscal 1998. All prior period
earnings per share amounts have been restated to comply with SFAS No. 128.
Dilutive common stock equivalents include outstanding stock options,
warrants and convertible preferred stock. The effect of including stock options
and warrants was 165,000 and 13,000 shares, respectively, in the third quarter
of fiscal 1998 and 267,000 and 80,000 shares, respectively, for the nine months
ended June 28, 1998. The effect of the common stock equivalents for both periods
in fiscal 1998 are not reflected in the diluted loss per share calculation as
their inclusion would be antidilutive. The dilutive effect of stock options and
warrants was 294,000 and 47,000 shares, respectively, for the three months ended
June 29, 1997 and 399,000 and 106,000 shares, respectively, for the nine months
ended June 29, 1997. In addition, the dilutive effect of 1,826 shares of
convertible preferred stock was 153,000 shares for the nine months ended
June 29, 1997.
5
<PAGE> 6
Options to purchase 1,557,000 shares of common stock at prices
ranging from $3.38 to $5.13 and warrants to purchase 983,000 shares of common
stock at prices ranging from $3.25 to $7.90 were outstanding during the nine
month period ended June 28, 1998 and were not included in the computation of
dilutive options and warrants as the exercise prices exceeded the average market
price of the common shares during the period. Such options, which expire on
various dates through January 2006, and warrants, which expire on various dates
through December 1999, were outstanding at June 28, 1998.
4. SHAREHOLDERS' EQUITY
On May 12, 1997, the Board of Directors authorized the repurchase of up to
350,000 shares of the Company's common stock. During the first nine months of
fiscal 1998, the Company repurchased 85,404 shares for total consideration of
$310,000. At June 28, 1998, 207,946 shares remained authorized to be repurchased
by the Company under this plan.
5. BORROWINGS
LINE-OF-CREDIT
As of June 28, 1998, the Company was in default of certain covenants
relating to profitability which the bank waived subsequent to June 28, 1998 in
exchange for the Company agreeing that the borrowing base under the Revolver
would be reduced by amounts outstanding under the equipment loan. As a result,
combined borrowings and letters of credit under the Revolver are limited to a
borrowing base, as amended, calculated on a formula based on total domestic and
foreign accounts receivable less amounts outstanding under the term loan and the
equipment loan.
EQUIPMENT LEASE LINE
On March 31, 1998, the Company obtained a commitment for an Equipment
Lease Line with a third party to lease up to $1,000,000 of equipment which was
subject to review after 90 days and each 30 days thereafter through January 31,
1999. No drawings were made under the Equipment Lease Line which was terminated
on July 1, 1998.
6. MERGER AGREEMENT WITH BOWMAR INSTRUMENT CORPORATION
On May 3, 1998, and as amended on June 9, 1998, the Company, Bowmar
Instrument Corporation ("Bowmar") and Bravo Acquisition Subsidiary ("Acquisition
Subsidiary"), a wholly owned subsidiary of Bowmar, entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which Acquisition Subsidiary
will merge with and into the Company (the "Merger"), with the Company being the
surviving corporation, and thus wholly owned by Bowmar. Pursuant to the Merger
Agreement, at the effective time of the Merger, each outstanding share of common
stock of the Company will be converted into the right to receive 1.375 shares of
common stock of Bowmar. The merger, which is expected to be accounted for as a
pooling-of-interests, is expected to be completed during the fourth quarter of
fiscal 1998.
6
<PAGE> 7
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 10 of this Form 10-Q.
Electronic Designs, Inc. (the "Company") designs, manufactures and
sells to specialty niche markets high density memory components used in
commercial and military systems and flat panel display units suitable for
avionics and other specialty applications using active matrix liquid crystal
displays.
RESULTS OF OPERATIONS
Revenues:
Revenues decreased 23% to $8,054,000 in the third quarter of fiscal
1998 from $10,422,000 in the same period in fiscal 1997. This decrease in
revenue was caused approximately equally by a decline in display product sales
and a decline in memory product sales primarily to defense related customers due
to declines in average selling prices. For the nine month period, revenues
decreased 18% to $25,364,000 in the first nine months of fiscal 1998 from
$31,011,000 in the same period in fiscal 1997. This decreases in revenues was
due substantially to declining average selling prices for the Company's memory
products reflecting declines in market prices of semiconductor memory
components.
The Company has historically derived less than 10% of its revenues
from Asian customers, particularly in South Korea. Recent economic conditions
and uncertainty in that region have caused delays in the receipt of expected
orders, have had a negative effect on revenue and operating results during the
first nine months of fiscal 1998 and may negatively affect future revenues and
operating results in the near term.
Since 1996, the semiconductor industry experienced significant over
capacity, reduced demand and price erosion in semiconductor memories. The
effects of these developments on the Company's results to date have been
declines in the average selling prices and the value of orders received for its
memory products and reductions in cost and increased availability of most memory
devices which the Company purchases for incorporation in its products. The
increased availability of memory devices has caused an increase in competition
and shorter lead times for the Company's customers. The Company may be unable to
increase its volumes for its existing and new products at a rate sufficient to
offset declines in selling prices and, therefore, to maintain current revenue
levels.
As a result of the increased availability of commercial memory
products, there can be no assurance that new competitors will not enter the
Company's markets or that existing competitors, particularly those who
manufacture their own semiconductor devices, will not reduce selling prices of
products to a level at which the Company cannot compete.
The Company derives a substantial portion of its revenues and
earnings from sales to defense contractors and subcontractors of memory products
manufactured as compliant to military specifications. Trends in the defense
industry include reductions in spending from year to year and the movement
toward the purchase of commercial off-the-shelf ("COTS") products rather than
those manufactured as compliant to specified military standards. Despite the
slow rate of adoption of the COTS program, these changes have had a negative
effect on the Company's results due to lower average selling prices of these
products. There can be no assurance that the continued reduction in spending and
slow rate of adoption of the COTS program will not accelerate in the future and
have a further adverse effect on the Company's results.
7
<PAGE> 8
Gross profit:
Gross profit for the third quarter of fiscal 1998 was $1,700,000
compared to $3,703,000 for the same period of fiscal 1997. Gross profit for the
first nine months of fiscal 1998 was $6,053,000 compared to $12,043,000 in the
same period of fiscal 1997. The Company recorded a charge in the second quarter
of fiscal 1998 of $860,000 related to lower of cost or market provisions on
certain inventory items that had been purchased in anticipation of the receipt
of orders for the related product from a customer in South Korea. As a result of
not having received these orders and the expectation that no significant orders
would be received from this customer for at least six months, the related
inventory was written down to its estimated realizable value. Gross profit as a
percentage of revenues ("gross margin") decreased to 21% and 24% (or 27%
excluding the effect of the lower of cost or market provisions) for the three
and nine month periods of fiscal 1998, respectively, from 36% and 39% in the
same periods in the prior year. In the third quarter of fiscal 1998, gross
margin decreased as a result of a decreased mix of higher margin display product
revenues and military memory product revenues and higher material costs and
fixed manufacturing overhead costs in fiscal 1998 as a percentage of revenues.
For the first nine months of fiscal 1998, gross margin decreased as a result of
the effect of the lower of cost or market provisions and higher material costs
and fixed manufacturing overhead costs in fiscal 1998 as a percentage of
revenues. In addition, the Company realized higher margins in the Company's
military memory products in fiscal 1997 as a result of lower costs of purchased
materials, which had not yet fully resulted in lower selling prices for these
products.
In the event of prolonged or sudden declines in selling prices, there
can be no assurance that the Company will continue to be able to maintain its
gross margins by offsetting future declines in selling prices with decreases in
its product costs.
The Company purchases its semiconductor components from a small
number of large suppliers, including U.S. subsidiaries of foreign suppliers who
are regularly the target of threatened or pending trade disputes and sanctions
which, if realized, could affect the ability of the Company to obtain critical
raw materials. On April 17, 1998, the U.S. Department of Commerce issued
antidumping duties on all Taiwan SRAM Die imported into the U.S. The imposition
of this tariff could have an adverse impact on the Company's ability to obtain
SRAM die at competitive rates in the future. The Company has not been materially
adversely affected by this situation in the past and does not anticipate
experiencing any material adverse impact in the future. The Company generally
does not have specific contractual arrangements with its suppliers. While the
Company believes it has good relationships with its vendors, in the event that
product availability becomes more limited in the future, there is no assurance
that these sources of supply will continue under terms that permit the Company
to compete effectively in its targeted markets.
Operating expenses:
Research and development expenses in the third quarter and nine month
periods of fiscal 1998 were $575,000 and $1,863,000, respectively, as compared
to $608,000 and $1,586,000 for the same periods in fiscal 1997. The decrease in
the third quarter of fiscal 1998 compared to 1997 was the result of a decrease
in salaries while the increase in the first nine months of fiscal 1998 compared
to 1997 was due primarily to increases in salaries and project costs associated
with new product development.
Selling, general and administrative expenses were $1,933,000 and
$5,634,000 in the third quarter and nine months, respectively in 1998 as
compared to $1,648,000 and $5,562,000 in the same periods in fiscal 1997. The
increases of $285,000 and $72,000 in the third quarter and nine month periods of
fiscal 1998, respectively compared to the same periods in fiscal 1997 were due
primarily to $336,000 of legal, accounting and investment banking expenses
associated with the proposed merger transaction with Bowmar Instrument
Corporation offset primarily by reductions in sales commissions.
8
<PAGE> 9
Other income (expense):
Interest income in the current quarter was $36,000 and $115,000 for
the nine months of fiscal 1998 as compared to $54,000 and $163,000 for the same
periods in the prior year due to lower cash and cash equivalent balances in
fiscal 1998. Interest expense decreased $10,000 and $30,000 in the third quarter
and first nine months of fiscal 1998, as compared to the same periods in the
prior year, to $67,000 and $206,000, respectively, due to decreases in average
outstanding debt balances.
Provision (benefit) for income taxes:
There was no provision (benefit) for income taxes in the current
quarter and first nine months of fiscal 1998 as compared to $132,000 and
$449,000, respectively, or 10% of income before income taxes, for the same
periods in fiscal 1997. A tax benefit related to the pre-tax loss in 1998 was
not recognized as the Company increased its deferred tax valuation allowance to
offset the increase in total deferred tax assets. The effective tax rate in
fiscal 1997 reflected recognition of the income tax benefits of net operating
loss and tax credit carryforwards as they were utilized.
Loss from discontinued operations:
As a result of the Company's decision in May 1997 to divest its
Crystallume Diamond Products Division, its results were retroactively separated
from the Company's ongoing operations in the consolidated statement of
operations. The Company completed the divestiture in October 1997 in the form of
a sale of assets. In fiscal 1998, there was no gain or loss recorded from
discontinued operations compared to a loss of $1,154,000 and $1,664,000 in the
third quarter and first nine months of fiscal 1997, respectively.
Net income (loss):
The net loss for the third quarter and nine months of fiscal 1998 was
$956,000 and $1,885,000, respectively, compared to net income of $21,000 and
$2,359,000, respectively, in the same periods in fiscal 1997 due primarily to
the decreases in gross profit and expenses associated with the proposed merger
with Bowmar offset primarily by the loss from discontinued operations incurred
in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 28, 1998, cash and cash equivalents were $3,163,000,
representing a decrease of $1,049,000 from September 30, 1997.
In the first nine months of fiscal 1998, the Company generated $3,000
of cash from operating activities, primarily due to decreases in accounts
receivable, substantially offset by the net loss and decreases in accounts
payable. For the same period in fiscal 1997, cash of $1,615,000 was generated
from operations primarily due to the Company's net income. The Company invested
$625,000 of cash in capital equipment expenditures during the first nine months
of fiscal 1998 and received $500,000 related to the sale of its Crystallume
Diamond Products Division. The Company used $927,000 for financing activities in
the first nine months of fiscal 1998 as a result of the regular repayments of
its loans and lease facilities and the repurchase of common stock under the
Company's stock repurchase program.
Under the terms of an amended Loan and Security Agreement ("the
Agreement") with a bank, the Company has outstanding at June 28, 1998,
$2,042,000 in the form of a term loan and $363,000 in the form of an equipment
loan. In addition, the Agreement, as amended, provides that the Company can
borrow up to $3,000,000 under a revolving credit facility (including up to
$3,000,000 for letters of credit) (the "Revolver") which expires on January 21,
1999. There were no letters of credit or amounts outstanding under the Revolver
at June 28, 1998. As of June 28, 1998, the Company was in default of certain
covenants relating to profitability which the bank waived subsequent to June 28,
1998 in exchange for the Company agreeing that the borrowing base under the
Revolver would be reduced by amounts outstanding under the equipment loan. As a
result, combined borrowings and letters of credit under the Revolver are limited
to a borrowing base, as amended, calculated on a formula based on total
9
<PAGE> 10
domestic and foreign accounts receivable less amounts outstanding under the term
loan and the equipment loan. Under the terms of the amended Agreement,
availability under the Revolver at June 28, 1998 was limited to $1,404,000.
On March 31, 1998, the Company obtained a commitment for an Equipment
Lease Line with a third party to lease up to $1,000,000 of equipment which was
subject to review after 90 days and each 30 days thereafter through January 31,
1999. No drawings were made under the Equipment Lease Line which was terminated
on July 1, 1998.
The Company anticipates that the combination of its current cash
balance, accounts receivable balance, Revolver and its cash flow from operations
will be sufficient to meet the Company's liquidity requirements for at least the
next 12 months.
EDI has undertaken an assessment of its vulnerability to the
so-called "Year 2000 issue" with respect to its computer systems. EDI has in
recent years relied almost entirely on purchased off-the-shelf software packages
for both business and engineering purposes, and has not materially customized
these packages for its purposes. The assessment was based upon formal and
informal communications with the software vendors, literature supplied with the
software, literature received in connection with the maintenance contracts, and
test evaluations of the software. In addition, EDI expects to upgrade its major
systems software which will have the effect of bringing such systems into Year
2000 compliance. As a result of the assessment and expected upgrades, EDI
believes that all of its major systems software is or will prior to the closing
of the Merger be Year 2000 compliant and that the Year 2000 issue is not likely
to have a material impact on its operations.
RECENT DEVELOPMENTS
On May 3, 1998, and as amended on June 9, 1998, the Company, Bowmar
Instrument Corporation ("Bowmar") and Bravo Acquisition Subsidiary ("Acquisition
Subsidiary"), a wholly owned subsidiary of Bowmar, entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which Acquisition Subsidiary
will merge with and into the Company (the "Merger"), with the Company being the
surviving corporation. Pursuant to the Merger Agreement, at the effective time
of the Merger each outstanding share of common stock of the Company will be
converted into the right to receive 1.375 shares of common stock of Bowmar. The
merger, which is expected to be accounted for as a pooling-of-interests, is
expected to be completed during the fourth quarter of fiscal 1998.
SEASONALITY AND INFLATION
EDI's business is not seasonal in nature. Management believes that
EDI's operations have not been materially affected by inflation.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures about Segments of and
Enterprise and Related Information." EDI will implement SFAS No. 130 and No. 131
as required in fiscal 1999 which will require EDI to report and display certain
information related to comprehensive income and operating segments.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference
10
<PAGE> 11
include the following: economic, regulatory, political and currency risks
associated with international sales which accounted for approximately 30% of
total revenues in fiscal 1997 and about 27% in the first nine months of fiscal
1998; the cyclicality of product supply and demand and pricing in the Company's
targeted markets, particularly for its memory products; the Company's ability to
develop new products; the rapidity of technological change and highly
competitive nature of the semiconductor packaging industry; competition from
larger companies in the commercial module market; the rapidity of the display
transition from cathode ray tubes ("CRT") to active matrix liquid crystal
displays ("AMLCD"); dependence on contracts with defense related companies for
its memory and display products; the movement toward the purchase of COTS
products rather than those manufactured as compliant to specified military
standards; risks related to the financial condition and success of the Company's
customers, the Company's customers' products and the general economy; the
likelihood that steep declines in sales, pricing and gross margins of commercial
memory products will occur toward the end of a product's life cycle; absence of
firm contractual relationships with certain key suppliers of significant raw
materials for its memory and display products; the Company's dependence on key
personnel and ability to attract and retain qualified management, manufacturing,
quality assurance, engineering, marketing, sales and support personnel; trends
in outsourcing; and the Year 2000 issue. In addition, the Company's announcement
of the Merger could have an impact on the Company's ability to market its
products to its customers, possibly causing actual operating results to vary
from expected performance. There is no assurance that the Company will
successfully complete the Merger and integrate its operations with Bowmar, and
failure to consummate this Merger could have a material adverse effect on the
Company's continuing operations and cash flow.
11
<PAGE> 12
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
An 8-K was filed on May 5, 1998, announcing that, on May 3, 1998,
the Company, Bowmar Instrument Corporation and Bravo Acquisition
Subsidiary entered into an Agreement and Plan of Merger.
12
<PAGE> 13
SIGNATURES
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.
Electronic Designs, Inc. (Registrant)
----------------------------------------
Dated: August 12, 1998
/s/ Frank D. Edwards
----------------------------------------
Frank D. Edwards, Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer and
Duly Authorized Officer)
13
<PAGE> 14
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
11 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
14
<PAGE> 1
EXHIBIT 11
Statemet re: Computation of Per Share Earnings
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ---------------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ (956,000) $ 1,175,000 $(1,885,000) $ 4,023,000
Loss from discontinued operations -- (1,154,000) -- (1,664,000)
---------- ----------- ----------- -----------
Net income (loss) $ (956,000) $ 21,000 $(1,885,000) $ 2,359,000
========== =========== =========== ===========
Weighted average common shares
outstanding - basic 7,048,000 7,106,000 7,063,000 6,937,000
Adjustments thereto (1)(2) -- 341,000 -- 658,000
---------- ----------- ----------- -----------
Weighted average common shares
and equivalents 7,048,000 7,447,000 7,063,000 7,595,000
========== =========== =========== ===========
BASIC PER SHARE:
Income (loss) from continuing operations
per share $ (0.14) $ 0.17 $ (0.27) $ 0.58
========== =========== =========== ===========
Net income (loss) per share $ (0.14) $ 0.00 $ (0.27) $ 0.34
========== =========== =========== ===========
DILUTED PER SHARE:
Income (loss) from continuing operations
per share $ (0.14) $ 0.16 $ (0.27) $ 0.53
=========== =========== =========== ===========
Net income (loss) per share $ (0.14) $ 0.00 $ (0.27) $ 0.31
=========== =========== =========== ===========
</TABLE>
(1) Adjusts the weighted average number of shares outstanding for (i) dilutive
stock options and warrants using the treasury stock method and (ii) the
conversion of preferred stock using the if-converted method.
(2) The effects of common stock equivalents in fiscal 1998 have not been
presented as they are antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDING JUNE 28, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTERLY REPORT FILED
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED JUNE 28,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-28-1998
<CASH> 3,163,000
<SECURITIES> 0
<RECEIVABLES> 5,350,000
<ALLOWANCES> 0
<INVENTORY> 6,505,000
<CURRENT-ASSETS> 16,416,000
<PP&E> 2,063,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 20,223,000
<CURRENT-LIABILITIES> 7,983,000
<BONDS> 1,525,000
0
0
<COMMON> 72,000
<OTHER-SE> 10,643,000
<TOTAL-LIABILITY-AND-EQUITY> 20,223,000
<SALES> 8,054,000
<TOTAL-REVENUES> 8,054,000
<CGS> 6,354,000
<TOTAL-COSTS> 6,354,000
<OTHER-EXPENSES> 2,625,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,000
<INCOME-PRETAX> (956,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (956,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (956,000)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
