<PAGE>
UNITED STATES 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 July 4, 1999
-----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-4184
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MATEC Corporation
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 06-0737363
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification Number)
75 South St., Hopkinton, Massachusetts 01748
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(508) 435-9039
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of August 6, 1999, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,680,048.
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MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
July 4, 1999 and December 31, 1998 ...................... 3
Consolidated Statements of Operations - Three Months and
Six Months Ended July 4, 1999 and July 5, 1998 .......... 4
Consolidated Condensed Statements of Cash Flows -
Six Months Ended July 4, 1999 and July 5, 1998 .......... 5
Consolidated Statements of Comprehensive Income -
Three Months and Six Months ended July 4, 1999
and July 5, 1998 ........................................ 6
Notes to Consolidated Condensed Financial Statements ..... 7-8
Management's Discussion and Analysis of Financial
Condition and Results of Operations ..................... 9-12
Quantitative and Qualitative Disclosures about
Market Risk ............................................. 12
PART II. OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 13
Item 6 - Exhibits and Reports on Form 8-K ................ 13
Signatures ..................................................... 14
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MATEC Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except share data) (Unaudited)
7/4/99 12/31/98
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 3,135 $ 4,516
Receivables, net ..................................... 2,412 1,772
Inventories .......................................... 3,458 2,793
Deferred income taxes and other current assets ....... 832 1,311
------- -------
Total current assets ............................... 9,837 10,392
------- -------
Property, plant and equipment, at cost ................. 8,254 7,916
Less accumulated depreciation ........................ 5,576 5,264
------- -------
2,678 2,652
------- -------
Marketable equity securities ........................... 3,590 3,138
Other assets ........................................... 263 320
------- -------
$16,368 $16,502
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................... $ 996 $ -
Accounts payable ..................................... 1,618 411
Accrued liabilities .................................. 963 1,165
Income taxes ......................................... 79 894
------- -------
Total current liabilities .......................... 3,656 2,470
------- -------
Deferred income taxes .................................. 1,728 1,547
Long-term debt ......................................... - 1,993
Stockholders' equity:
Preferred stock, $1.00 par value-
Authorized 1,000,000 shares; issued none ............ - -
Common stock, $.05 par value-
Authorized 10,000,000 shares; Issued and outstanding:
2,680,848 and 2,716,948 shares ..................... 134 136
Capital surplus ...................................... 4,518 4,641
Retained earnings .................................... 4,277 3,932
Net unrealized gain on marketable equity securities .. 2,055 1,783
------- -------
Total stockholders' equity ...................... 10,984 10,492
------- -------
$16,368 $16,502
======= =======
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
Three Months Ended Six Months Ended
7/4/99 7/5/98 7/4/99 7/5/98
------- ------- -------- --------
Net sales ..................... $ 3,355 $ 3,397 $ 5,755 $ 6,896
Cost of sales ................. 2,775 2,583 4,814 5,267
------- ------- ------- -------
Gross profit ................ 580 814 941 1,629
Operating expenses:
Selling and advertising ..... 557 500 1,078 992
General and administrative .. 262 251 527 522
------- ------- ------- -------
819 751 1,605 1,514
Operating profit (loss) ....... (239) 63 (664) 115
Other income (expense):
Interest income .............. 49 45 142 50
Interest expense ............. (51) (51) (102) (102)
Gain on sale of assets ....... - - - 386
Other, net ................... 24 (2) 42 5
------- ------- ------- -------
22 (8) 82 339
Earnings (loss) from continuing
operations before income taxes (217) 55 (582) 454
Income tax (expense) benefit .. 73 (22) 193 (182)
------- ------- ------- -------
Earnings (loss) from continuing
operations ................... (144) 33 (389) 272
Earnings from discontinued
operations, net of taxes ..... 705 207 735 309
------- ------- ------- -------
Net earnings .................. $ 561 $ 240 $ 346 $ 581
======= ======= ======= =======
Basic and diluted earnings
(loss) per share:
Continuing operations ....... $(.05) $ .02 $(.14) $ .10
Discontinued operations ..... .26 .07 .27 .11
----- ----- ----- -----
$ .21 $ .09 $ .13 $ .21
===== ===== ===== =====
Weighted average shares:
Basic ....................... 2,688 2,747 2,702 2,740
Diluted ..................... 2,688 2,748 2,702 2,741
Cash dividends per share ...... $ - $1.75 $ - $1.75
===== ===== ===== =====
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
7/4/99 7/5/98
-------- --------
Cash flows from operating activities:
Net earnings (loss) from continuing operations ... $ (389) $ 272
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization .................. 312 268
Deferred income taxes .......................... 40 (200)
Gain on sale of assets ......................... - (386)
Other .......................................... 3 2
Changes in operating assets and liabilities .... (1,165) (70)
------- -------
Net cash (used) by operating activities (1,199) (114)
- ----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets ..................... - 1,862
Capital expenditures ............................. (339) (314)
Collection of note receivables ................... 65 -
Other, net........................................ (8) (8)
------- -------
Net cash provided (used) by investing activities (282) 1,540
- ----------------------------------------------------------------------
Cash flows from financing activities:
Dividend paid .................................... - (4,827)
Payments on long-term debt ....................... (1,000)
Purchases of common stock ........................ (125) (164)
Stock options exercised .......................... - 101
------- -------
Net cash (used) by financing activities ........... (1,125) (4,890)
- ----------------------------------------------------------------------
Net cash provided by discontinued operations ...... 1,225 6,833
- ----------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,381) 3,369
Cash and cash equivalents:
Beginning of period .............................. 4,516 885
------- -------
End of period .................................... $ 3,135 $ 4,254
======= =======
Noncash investing and financing activities:
During 1998, the Company retired all of its treasury stock. The
total cost of the treasury shares of $5,527,000 reduced common stock,
capital surplus and retained earnings by $56,000, $1,901,000 and
$3,570,000, respectively.
In connection with the sale of a discontinued operation in 1998, the
Company recorded a $1,250,000 note receivable less a deferred gain on
sale of $1,250,000.
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended
7/4/99 7/5/98
------- -------
Net earnings ................................. $ 561 $ 240
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable
equity securities, net of tax expense
of $246 in 1999 and a tax benefit of $77
in 1998 ..................................... 369 (116)
------- -------
Comprehensive income ......................... $ 930 $ 124
======= =======
Six Months Ended
7/4/99 7/5/98
------- -------
Net earnings ................................ $ 346 $ 581
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable
equity securities, net of tax expense
of $181 in 1999 and a tax benefit of $284
in 1998 .................................... 272 (427)
------- -------
Comprehensive income ........................ $ 618 $ 154
======= =======
See notes to consolidated condensed financial statements.
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MATEC Corporation and Subsidiaries
Notes to Consolidated Condensed Financial Statements
1. Financial Presentation:
The interim financial statements are unaudited but, in the opinion of
management, reflect all adjustments necessary for fair presentation of
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These interim financial statements should be read in conjunction with
the financial statements and related notes thereto included in the
Company's 1998 Annual Report on Form 10-K as filed with the Securities
and Exchange Commission.
2. Receivables, net:
Receivables, net of allowances, consist of the following:
7/4/99 12/31/98
-------- --------
(in thousands)
Accounts receivable, less allowance for doubtful
accounts of $90 and $75 ........................ $ 2,058 $ 1,649
Recoverable Federal income taxes ................ 233 -
Amounts due from the sales of discontinued
operations, less deferred gain of $ 0 and $1,250 361 428
Less: amounts due after one year, less deferred
gain of $ 0 and $1,175 ....................... (240) (305)
------- -------
Current amounts due, less deferred gain of $ 0
and $75 ...................................... 121 123
------- -------
$ 2,412 $ 1,772
======= =======
3. Inventories:
Inventories consist of the following:
7/4/99 12/31/98
------- --------
(in thousands)
Raw materials ....................... $ 1,752 $ 1,529
Work in process ..................... 1,377 848
Finished goods ...................... 329 416
------- -------
$ 3,458 $ 2,793
======= =======
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4. Discontinued Operations:
On April 15, 1998, the Company sold the assets of its Bergen Cable
Technologies, Inc. ("BCT") subsidiary. The purchase price received
consisted of $7.5 million in cash, a 12% subordinated promissory note
in the principal amount of $1,250,000, a 10% stock and membership
interest in the acquiring entities, and assumption of certain
liabilities including trade payables. On August 3, 1998, the Company
sold certain assets of its Matec Instruments, Inc. ("MII") and Matec
Applied Sciences, Inc. ("MASI") subsidiaries. The purchase price
received consisted of approximately $605,000 in cash, a subordinated
promissory note in the principal amount of $250,000, a $250,000
noninterest bearing receivable, and the assumption of certain
liabilities including trade payables. As a result, the operating
results of BCT, MII, and MASI have been reported as discontinued
operations.
Since the acquiring entity of BCT had significant third-party debt
compared to its equity and the Company's note was subordinated to the
third party debt, the Company had deferred any gain on the note and had
not assigned any value to the stock portions of the sale until cash
payments were received by the Company. In May 1999, the Company
received $1,175,000 in cash as payment in full for the $1.2 million
outstanding note receivable balance and recorded a $1,175,000 pre-tax
gain on disposal of discontinued operations. In March 1999, the
Company received a $50,000 note payment and recorded a $50,000 pre-tax
gain on disposal of discontinued operations in the first quarter of
1999.
Net sales of BCT, MII and MASI for the three months and six months
ended July 5, 1998 amounted to $1,523,000 and $7,748,000,
respectively. The earnings relating to the above discontinued
operations are presented in the Consolidated Statements of Operations
under the caption "Earnings from discontinued operations" and include:
Three Months Ended Six Months Ended
7/4/99 7/5/98 7/4/99 7/5/98
------- ------- ------- -------
(in thousands)
Earnings from operations (less
applicable taxes of $ 0, $5,
$ 0 and $73) $ - $ 9 $ - $ 111
Gain on sale (less applicable
taxes of $470, $132, $490, and
$132) 705 198 735 198
------ ------ ------ ------
$ 705 $ 207 $ 735 $ 309
====== ====== ====== ======
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents decreased $1,381,000 during the six
months ended July 4, 1999. During this period, the Company's continuing
operations used $2,606,000 of cash while the discontinued operations
generated $1,225,000 of cash.
Operating activities used $1,199,000 of cash mainly due to a
$1,165,000 net increase in working capital. Inventories increased
$665,000 to support the current sales backlog and customer delivery
requirements. Trade accounts receivable increased $409,000 mainly as a
result of the increased sales level. The $1,207,000 increase in accounts
payable is mainly due to the timing of inventory and machinery and
equipment purchases. Income tax payments during the six months ended
July 4, 1999 amounted to $815,000.
During the six months ended July 4, 1999, capital expenditures
amounted to $339,000 as the Company added new and increased existing
production capabilities and processes.
The Company made a $1,000,000 payment on its outstanding long-term
debt during the quarter ended July 4, 1999.
During the six months ended July 4, 1999, discontinued operations
generated cash of $1,225,000 as the Company received note payments of
$1,225,000 from the sale of its Bergen Cable Technologies subsidiary in
1998. This note amount had been deferred pending collection.
Management believes that based on its current working capital, the
expected cash flows from operations and its $1,850,000 lines of credit
availability, the Company's resources are sufficient to meet its
financial needs in 1999 including a remaining capital expenditures budget
of approximately $260,000.
Results of Operations
- ---------------------
Net sales from continuing operations for the quarter ended July 4,
1999 decreased 1% from the comparable quarter in 1998. The sales
decrease during quarter was due to a 35% decrease in sales of imported
product that was partially offset by increased sales of domestically
produced products. During the six months ended July 4, 1999, the sales
decrease of 17% from 1998 was mainly due to lower sales of imported
products. The sales decreases of imported product during both periods
resulted mainly from a lower backlog at the beginning of each period as
compared to 1998 and lower bookings during both periods in 1999. The
sales increase of domestically produced product during the quarter ended
July 4, 1999, results from both the higher beginning backlog and
increased bookings over the 1998 period. During the six months ended
July 4, 1999, sales of domestically produced products declined slightly
from 1998 mainly as a result of a lower beginning backlog compared to
1998. Sales in 1999 have also been negatively impacted by the Company
experiencing late deliveries on some of its domestically produced
products. The Company continues to work with its supplier base and to
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increase its manufacturing capacity to improve its delivery
performance.
The backlog at the beginning of 1999 was $1.6 million (42%) lower
than the backlog at the beginning of 1998. This lower backlog level
resulted from a 23% decrease in bookings in 1998 versus 1997 and
negatively impacted sales during the first quarter of 1999. During the
six months ended July 4, 1999, the Company has experienced a positive
change in its bookings as bookings have increased 49% over 1998. At July
4, 1999, the backlog is $5.2 million, compared to $2.3 million and $2.7
million at December 31, 1998 and July 5, 1998, respectively.
During the quarter ended July 4, 1999, the gross profit percentage
was 17% compared to 24% in 1998. For the six months ended July 4, 1999,
the gross profit percentage was 16% versus 24% in 1998. The lower
margins in 1999 result mainly from the unfavorable effect of allocating
the fixed overhead expenses over the lower sales volumes, an increased
inventory obsolescence provision in 1999 and increased labor costs due to
changes in product mix.
During the quarter and six months ended July 4, 1999, selling
expenses increased $57,000 (11%) and $86,000 (9%), respectively, over the
comparable periods in 1998. These expense increases result mainly from
higher advertising, travel and personnel costs offset in part, by lower
sales commissions paid to the Company's manufacturers' representatives.
General and administrative expenses during the quarter and six months
ended July 4, 1999, remained fairly level with the 1998 levels.
During the quarter and six months ended July 4, 1999, interest income
increased $4,000 and $92,000, respectively, over the 1998 periods as a
result of the higher cash levels in 1999 and the interest income received
on the notes receivable generated from the sales of the discontinued
operations. Interest expense remained constant with the 1998 amounts.
During the six months ended July 5, 1998, the Company sold its real
estate complex in Delaware and realized a $386,000 pre-tax gain on the
sale.
Other income (expense), net includes the following (in thousands):
Quarter Ended Six Months Ended
7/4/99 7/5/98 7/4/99 7/5/98
------- ------- ------- -------
Dividend income ........... $ 26 $ 16 $ 51 $ 31
Real estate operations .... (2) (18) (9) (26)
------- ------- ------- -------
$ 24 $ (2) $ 42 $ 5
======= ======= ======= =======
The reductions in the real estate operations losses are due to both a
decrease in operating expenses and increased rental income.
The estimated effective income tax rate for 1999 is 33% compared to
40% in 1998. The difference in the rates is mainly due to the limited
state tax benefit of operating losses within a state.
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During the quarter ended July 4, 1999, based on the lower sales
level, the decrease in gross margin and the increase in operating
expenses, the Company reported an operating loss of $239,000 compared to
an operating profit of $63,000 in 1998. Other income (expense), net
amounted to $22,000 of income in 1999 compared to $8,000 of expense in
the corresponding 1998 period. As a result, the Company reported a
pre-tax loss from continuing operations of $217,000 during the quarter
July 4, 1999 compared to pre-tax earnings of $55,000 in 1998. Earnings
from discontinued operations during 1998 amounted to $705,000 compared to
$207,000 during the comparable 1998 period. In total, the Company
reported net earnings of $561,000 during the quarter ended July 4, 1999
versus $240,000 in 1998.
As a result of the decrease in sales and gross profit, and the
increase in operating expenses, the Company reported an operating loss of
$664,000 for the six months ended July 4, 1999 compared to an operating
profit of $115,000 during the comparable period in 1998. The six months
ended July 4, 1999 includes nonoperating income of $82,000 compared to
$339,000 of income in 1998 mainly as a result of the gain on sale of real
estate. During the six months ended July 4, 1999, the Company reported a
pre-tax loss from continuing operations of $582,000 compared to earnings
of $454,000 during the 1998 period. During the six months ended July 4,
1999, earnings from discontinued operations amounted to $735,000 versus
$309,000 in 1998. In total, the Company reported net earnings of
$346,000 during the six months ended July 4, 1999 compared to $581,000 in
1998.
Year 2000
- ---------
The Company is continuing to monitor the Year 2000 issue. The
current accounting software is in the process of being modified to be
Year 2000 compliant and the Company expects these changes to be completed
by the end of the 3rd quarter 1999. Based on the responses to date, the
Company's major suppliers have assured the Company that they are
currently or that they will be Year 2000 compliant. The Company is
continuing to review its manufacturing equipment and facility to assess
and minimize Year 2000 issues. At this time, the Company does not
believe there is any major obstacle that would effect its manufacturing
equipment or its facility in the Year 2000. The Company expects that the
estimated costs to resolve the Company's Year 2000 issues will not exceed
$75,000.
The Company does not have a formalized contingency plan if the
software changes are not completed and working before 2000. The Company
will continue to monitor progress on these changes and will determine by
the end of the 3rd quarter if a contingency plan is required.
The Company believes that it will not experience significant
operational problems as a result of the Year 2000 issue. However, the
Company could experience operational problems or disruptions if
third-party vendors are unable to provide their services or materials due
to Year 2000 issues.
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Forward-Looking Statements
- --------------------------
Certain statements made herein contain forward-looking statements
that involve risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Words
such as "expects", "believes", "estimates", "plans" or similar
expressions are intended to identify such forward-looking statements.
Factors that could cause such differences include, but are not limited to
those discussed in this section and those discussed in the Company's Form
10-K for the year ended December 31, 1998 under the section
"Forward-Looking Statements" included under the caption "Management's
Discussion and Analysis", is herein incorporated by reference.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
There have been no material changes in the Company's market risk
during the six months ended July 4, 1999.
The information set forth on page 5 of the 1998 Annual Report to
Stockholders under the section "Qualitative and Quantitative Disclosures
about Market Risk" included under the caption "Management's Discussion
and Analysis" is incorporated by reference.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Special in Lieu of Annual Meeting of Stockholders was held
on May 13, 1999. Listed below are the matters submitted to stockholders
and the results of the stockholder votes.
(i) Election of six directors:
Nominee "For" "Withheld"
--------------------------- --------- ----------
Eli Fleisher 2,107,553 401,636
Lawrence Holsborg 2,109,204 399,985
John J. McArdle III 2,109,053 400,136
Robert W. Muir, Jr. 2,109,904 399,285
Joseph W. Tiberio 2,109,299 399,890
Ted Valpey, Jr. 2,108,903 400,286
(ii) To approve the Company's 1999 Stock Option Plan:
"For" 2,043,842
"Against" 444,195
"Abstain" 21,152
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement re Computation of Per Share Earnings. Filed
herein.
13. Annual report to security holders, Form 10-Q or 10-QSB,
or quarterly report to security holders. Filed for
electronic purposes only.
27. Financial Data Schedule. Filed for electronic purposes
only.
(b) Reports on Form 8-K - None
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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.
MATEC Corporation
------------------------------------
Date: August 13, 1999 By /s/ Ted Valpey, Jr.
---------------------------------
Ted Valpey, Jr.
Chairman of the Board and
President
Date: August 13, 1999 By /s/ Michael J. Kroll
---------------------------------
Michael J. Kroll,
Vice President and Treasurer
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MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Three Months Ended
7/4/99 7/5/98
------- -------
Net earnings (loss) from continuing operations ... $ (144) $ 33
Discontinued operations:
Net earnings from operations ................... - 9
Gain on sale ................................... 705 198
------ ------
Net earnings (loss) .............................. $ 561 $ 240
====== ======
Calculation of basic earnings (loss) per share:
- -----------------------------------------------
Weighted-average shares ......................... 2,688 2,747
===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ (.05) $ .02
Discontinued operations:
Operations .................................. - -
Gain on sale ................................ .26 .07
------ ------
$ .21 $ .09
====== ======
Calculation of diluted earnings (loss) per share:
- -------------------------------------------------
Weighted average common shares outstanding ...... 2,688 2,747
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the average market prices (A) (B) ... - 1
----- -----
Adjusted weighted-average shares ................ 2,688 2,748
===== =====
Diluted earnings per common share:
Continuing operations ......................... $ (.05) $ .02
Discontinued operations:
Operations .................................. - -
Gain on sale ................................ .26 .07
------ ------
$ .21 $ .09
====== ======
(A) The dilutive effect of stock options and warrants was not considered
in 1999 since the Company reported a loss from continuing operations.
(B) The dilutive effect of outstanding warrants to purchase 85,000 shares
of common stock was not included in the 1998 computation since the
exercise price was greater than the average market price of the common
shares.
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MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Six Months Ended
7/4/99 7/5/98
------- -------
Net earnings (loss) from continuing operations ... $ (389) $ 272
Discontinued operations:
Net earnings from operations ................... - 111
Gain on sales .................................. 735 198
------ ------
Net earnings ..................................... $ 346 $ 581
====== ======
Calculation of basic earnings per share:
- ----------------------------------------
Weighted-average shares ......................... 2,702 2,740
===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ (.14) $ .10
Discontinued operations:
Operations .................................. - .04
Gain on sales ............................... .27 .07
------ ------
$ .13 $ .21
====== ======
Calculation of diluted earnings per share:
- ------------------------------------------
Weighted-average shares ......................... 2,702 2,740
Increase from assumed exercise of stock options
and investment of proceeds in treasury stock,
based upon the average market prices (A) (B) ... - 1
----- -----
Adjusted weighted-average shares ................ 2,702 2,741
===== =====
Diluted earnings (loss) per common share:
Continuing operations ......................... $ (.14) $ .10
Discontinued operations:
Operations .................................. - .04
Gain on sales ............................... .27 .07
------ ------
$ .13 $ .21
====== ======
(A) The dilutive effect of stock options and warrants was not considered
in 1999 since the Company reported a loss from continuing operations.
(B) The dilutive effect of outstanding warrants to purchase 85,000 shares
of common stock were not included in the 1998 computations since the
exercise price was greater than the average market price of the common
shares.
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Exhibit 13
1998 Annual Report
Management's Discussion and Analysis
- ------------------------------------
Forward-Looking Statements
- --------------------------
This Annual Report, including Management's Discussion and Analysis,
the Letter to Stockholders and Operations, contain forward-looking
statements that involve risks and uncertainties that could cause
actual results to differ materially from those in the forward-looking
statements. Words such as "expects", "believes", "estimates",
"plans" or similar expressions are intended to identify such
forward-looking statements. The forward-looking statements are based
on the Company's current views and assumptions and involve risks and
uncertainties that include, but not limited to: the ability to
develop, market and manufacture new innovative products
competitively, the ability of the Company's suppliers to produce and
deliver materials competitively, and the ability to limit the amount
of the negative effect on operating results caused by pricing
pressures.
Quantitative and Qualitative Disclosures about Market Risk
- ----------------------------------------------------------
The Company's cash balances in excess of operating requirements are
currently invested in money market accounts. These money market
accounts are subject to interest rate risk and interest income will
fluctuate in relation to general money market rates. Based on the
cash and cash equivalent balance at December 31, 1998, and assuming
the balance was totally invested in money market instruments for the
full year, a hypothetical 1% decline in interest rates would result
in an approximate $45,000 decrease in interest income.
The Company's investment in marketable equity securities, which are
classified as available-for-sale, represents 517,527 shares of
MetroWest Bank common stock and are subject to equity price risk.
These securities are recorded on the balance sheet at fair market
value with unrealized gains (losses) reported as a separate component
of stockholders' equity under the caption "accumulated other
comprehensive income". Accordingly, while a hypothetical 10% decline
in the market value of these securities would reduce total assets by
approximately $314,000, this decrease would not have an effect on the
statement of operations unless the securities were actually sold.
At December 31, 1998, the Company has a $2 million face amount term
note at a 10% fixed interest rate. A hypothetical 10% adverse change
(i.e. decrease) in interest rates, would result in a $30,000 increase
in the fair value of the term note at December 31, 1998.
The Company purchases certain inventory from and sells product to
foreign countries. As these activities are currently transacted in
U.S. dollars, they are not subject to foreign currency exchange
risk. However, significant fluctuation in the currencies where the
Company purchases inventory or sell product could make the U.S.
dollar equivalent of such transactions more or less favorable to the
Company and the other involved parties.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUL-04-1999
<CASH> 3,135
<SECURITIES> 0
<RECEIVABLES> 2,502
<ALLOWANCES> 90
<INVENTORY> 3,458
<CURRENT-ASSETS> 9,837
<PP&E> 8,254
<DEPRECIATION> 5,576
<TOTAL-ASSETS> 16,368
<CURRENT-LIABILITIES> 3,656
<BONDS> 0
0
0
<COMMON> 134
<OTHER-SE> 10,850
<TOTAL-LIABILITY-AND-EQUITY> 16,368
<SALES> 5,755
<TOTAL-REVENUES> 5,755
<CGS> 4,814
<TOTAL-COSTS> 4,814
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 102
<INCOME-PRETAX> (582)
<INCOME-TAX> (193)
<INCOME-CONTINUING> (389)
<DISCONTINUED> 735
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 346
<EPS-BASIC> .13
<EPS-DILUTED> .13
</TABLE>
