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 October 3, 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
--------------------------------------------------
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 November 9, 1999, the number of shares outstanding of Registrant's
Common Stock, par value $.05 was 2,651,348.
-1-
MATEC Corporation
Index
Page
----
PART I. FINANCIAL INFORMATION
Consolidated Condensed Balance Sheets -
October 3, 1999 and December 31, 1998 ................... 3
Consolidated Statements of Operations - Three Months and
Nine Months Ended October 3, 1999 and October 4, 1998 ... 4
Consolidated Condensed Statements of Cash Flows -
Nine Months Ended October 3, 1999 and October 4, 1998 ... 5
Consolidated Statements of Comprehensive Income -
Three Months and Nine Months ended October 3, 1999
and October 4, 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 6 - Exhibits and Reports on Form 8-K ................ 13
Signatures ..................................................... 14
-2-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MATEC Corporation and Subsidiaries
Consolidated Condensed Balance Sheets
(In thousands, except share data) (Unaudited)
10/3/99 12/31/98
-------- --------
ASSETS
Current assets:
Cash and cash equivalents ............................ $ 2,598 $ 4,516
Receivables, net ..................................... 2,716 1,772
Inventories .......................................... 3,242 2,793
Deferred income taxes and other current assets ....... 712 1,311
------- -------
Total current assets ............................... 9,268 10,392
------- -------
Property, plant and equipment, at cost ................. 8,340 7,916
Less accumulated depreciation ........................ 5,719 5,264
------- -------
2,621 2,652
------- -------
Marketable equity securities ........................... 3,428 3,138
Other assets ........................................... 364 320
------- -------
$15,681 $16,502
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................... $ 997 $ -
Accounts payable ..................................... 913 411
Accrued liabilities .................................. 1,006 1,165
Income taxes ......................................... 76 894
------- -------
Total current liabilities .......................... 2,992 2,470
------- -------
Deferred income taxes .................................. 1,663 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:
2,653,948 and 2,716,948 shares ..................... 133 136
Capital surplus ...................................... 4,417 4,641
Retained earnings .................................... 4,518 3,932
Net unrealized gain on marketable equity securities .. 1,958 1,783
------- -------
Total stockholders' equity ...................... 11,026 10,492
------- -------
$15,681 $16,502
======= =======
See notes to consolidated condensed financial statements.
-3-
<PAGE>
MATEC Corporation and Subsidiaries
Consolidated Statements of Operations
(In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended
10/3/99 10/4/98 10/3/99 10/4/98
------- ------- -------- --------
Net sales ..................... $ 3,974 $ 2,580 $ 9,729 $ 9,476
Cost of sales ................. 2,975 2,071 7,789 7,338
------- ------- ------- -------
Gross profit ................ 999 509 1,940 2,138
Operating expenses:
Selling and advertising ..... 534 511 1,612 1,503
General and administrative .. 247 277 774 799
------- ------- ------- -------
781 788 2,386 2,302
Operating profit (loss) ....... 218 (279) (446) (164)
Other income (expense):
Interest income .............. 36 42 178 92
Interest expense ............. (26) (51) (128) (153)
Gain on sale of assets ....... - - - 386
Other, net ................... 27 18 69 23
------- ------- ------- -------
37 9 119 348
Earnings (loss) from continuing
operations before income taxes 255 (270) (327) 184
Income tax (expense) benefit .. (89) 113 104 (69)
------- ------- ------- -------
Earnings (loss) from continuing
operations ................... 166 (157) (223) 115
Earnings from discontinued
operations, net of taxes ..... 74 251 809 560
------- ------- ------- -------
Net earnings .................. $ 240 $ 94 $ 586 $ 675
======= ======= ======= =======
Basic and diluted earnings
(loss) per share:
Continuing operations ....... $ .06 $(.06) $(.08) $ .04
Discontinued operations ..... .03 .09 .30 .21
----- ----- ----- -----
$ .09 $ .03 $ .22 $ .25
===== ===== ===== =====
Weighted average shares:
Basic ....................... 2,670 2,717 2,692 2,733
Diluted ..................... 2,765 2,717 2,692 2,734
Cash dividends per share ...... $ - $ - $ - $1.75
===== ===== ===== =====
See notes to consolidated condensed financial statements.
-4-
<PAGE>
MATEC Corporation and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended
10/3/99 10/4/98
-------- --------
Cash flows from operating activities:
Net earnings (loss) from continuing operations ... $ (223) $ 115
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization .................. 455 424
Deferred income taxes .......................... 66 (175)
Gain on sale of assets ......................... - (386)
Other .......................................... 4 3
Changes in operating assets and liabilities .... (1,874) (80)
------- -------
Net cash (used) by operating activities (1,572) (99)
- ----------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sale of assets ..................... - 1,862
Capital expenditures ............................. (424) (538)
Collection of note receivables ................... 88 10
Other, net........................................ (8) (8)
------- -------
Net cash provided (used) by investing activities (344) 1,326
- ----------------------------------------------------------------------
Cash flows from financing activities:
Dividend paid .................................... - (4,827)
Payments on long-term debt ....................... (1,000) -
Purchases of common stock ........................ (227) (164)
Stock options exercised .......................... - 101
------- -------
Net cash (used) by financing activities ........... (1,227) (4,890)
- ----------------------------------------------------------------------
Net cash provided by discontinued operations ...... 1,225 7,256
- ----------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (1,918) 3,593
Cash and cash equivalents:
Beginning of period .............................. 4,516 885
------- -------
End of period .................................... $ 2,598 $ 4,478
======= =======
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 recognized a $124,000 investment in common stock in 1999 and a
$1,250,000 note receivable less a deferred gain on sale of $1,250,000 in
1998.
See notes to consolidated condensed financial statements.
-5-
<PAGE>
MATEC Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
Three Months Ended
10/3/99 10/4/98
------- -------
Net earnings ................................. $ 240 $ 94
Other comprehensive income, net of tax:
Unrealized (loss) on marketable
equity securities, net of a tax benefit
of $66 in 1999 and $332 in 1998 ............. (97) (497)
------- -------
Comprehensive income ......................... $ 143 $ (403)
======= =======
Nine Months Ended
10/3/99 10/4/98
------- -------
Net earnings ................................ $ 586 $ 675
Other comprehensive income, net of tax:
Unrealized gain (loss) on marketable
equity securities, net of tax expense
of $115 in 1999 and a tax benefit of $616
in 1998 .................................... 175 (924)
------- -------
Comprehensive income ........................ $ 761 $ (249)
======= =======
See notes to consolidated condensed financial statements.
-6-
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:
10/3/99 12/31/98
-------- --------
(in thousands)
Accounts receivable, less allowance for doubtful
accounts of $90 and $75 ........................ $ 2,425 $ 1,649
Recoverable Federal income taxes ................ 169 -
Amounts due from the sales of discontinued
operations, less deferred gain of $ 0 and $1,250 339 428
Less: amounts due after one year, less deferred
gain of $ 0 and $1,175 ....................... (217) (305)
------- -------
Current amounts due, less deferred gain of $ 0
and $75 ...................................... 122 123
------- -------
$ 2,716 $ 1,772
======= =======
3. Inventories:
Inventories consist of the following:
10/3/99 12/31/98
------- --------
(in thousands)
Raw materials ....................... $ 2,025 $ 1,529
Work in process ..................... 870 848
Finished goods ...................... 347 416
------- -------
$ 3,242 $ 2,793
======= =======
-7-
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, common stock in the acquiring
entity, representing a 10% interest on a fully diluted basis, 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
stock interest and had not assigned any value to the common stock
portion of the sale until cash payments were received by the Company in
1999. After full payment of the note receivable balance, in the
quarter ended October 3, 1999, the Company recognized the fair value of
the common stock received of $124,000 and the corresponding pre-tax
gain on the disposal of discontinued operations. In the second quarter
of 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 the
first quarter of 1999, the Company received a $50,000 note payment and
recorded a $50,000 pre-tax gain on disposal of discontinued operations.
Net sales of BCT, MII and MASI for the three months and nine months
ended October 4, 1998 amounted to $246,000 and $6,994,000,
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 Nine Months Ended
10/3/99 10/4/98 10/3/99 10/4/98
------- ------- ------- -------
(in thousands)
Earnings from operations (less
applicable taxes of $ 0, $(8)
$ 0 and $65) $ - $ (5) $ - $ 106
Gain on sale (less applicable
taxes of $50, $146, $540, and
$278) 74 256 809 454
------ ------ ------ ------
$ 74 $ 251 $ 809 $ 560
====== ====== ====== ======
-8-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents decreased $1,918,000 during the nine
months ended October 4, 1999. During this period, the Company's
continuing operations used $3,143,000 of cash while the discontinued
operations generated $1,225,000 of cash.
Operating activities used $1,572,000 of cash mainly due to a
$1,874,000 net increase in working capital. Trade accounts receivable
increased $776,000 mainly as a result of the increased sales level.
Inventories increased $449,000 to support the current sales backlog and
customer delivery requirements. The $502,000 increase in accounts
payable is mainly due to the timing of inventory and machinery and
equipment purchases. Income tax payments during the nine months ended
October 3, 1999 amounted to $818,000.
During the nine months ended October 3, 1999, capital expenditures
amounted to $424,000 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 nine months ended October 3, 1999.
During the nine months ended October 3, 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 $176,000.
Results of Operations
- ---------------------
Net sales from continuing operations for the quarter ended October 3,
1999 increased $1,394,000 or 54% over the comparable quarter in 1998.
This sales increase was mainly due to the increased sales of domestically
produced products. During the nine months ended October 3, 1999, net
sales increased $253,000 or 3% over 1998. This sales increase results
mainly from a 26% increase in sales of domestically produced products
offset in part by a 34% decrease in sales of imported products. The
sales increase of domestically produced products during the quarter ended
October 3, 1999 results mainly from a higher beginning backlog compared
to the 1998 quarter. On a year-to-date basis, the 1999 sales increase of
domestically produced products is mainly due to the higher sales booking
level in 1999 compared to 1998. The sales decrease of imported product
on a year-to-date basis results mainly from a lower beginning backlog.
While 1999 sales of domestically produced products are 26% higher than
the 1998 levels, sales in 1999 have 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
-9-
<PAGE>
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
nine months ended October 3, 1999, the Company's bookings have increased
50% over the comparable period in 1998. At October 3, 1999, the backlog
is $4.7 million, compared to $2.3 million and $2.5 million at December
31, 1998 and October 4, 1998, respectively.
During the quarter ended October 3, 1999, the gross profit percentage
was 25% compared to 20% in 1998. For the nine months ended October 3,
1999, the gross profit percentage was 20% versus 23% in 1998. The higher
margin during the 1999 quarter results mainly from the favorable effect
of allocating the fixed overhead expenses over the increased sales
volumes. The 1999 lower gross margin on a year-to-date basis is mainly
due to an increased inventory obsolescence provision and increased labor
costs due to changes in product mix.
During the quarter ended October 3, 1999, selling expenses increased
$23,000 (5%) over the comparable quarter in 1998. Higher sales
commission expense to the Company's manufacturers' representatives,
partially offset by lower personnel expenses due to a reduction in
employees, were the main reasons for this expense increase. During the
nine months ended October 3, 1999, selling expenses increased $109,000
(7%) over the comparable period in 1998. Higher advertising, travel and
entertainment expenses, offset in part by lower sales commissions expense
to the Company's manufacturers' representatives, were the primary reasons
for the expense increase.
General and administrative expenses during the quarter and nine
months ended October 3, 1999, decreased slightly from the 1998 levels.
During the quarter ended October 3, 1999, interest income decreased
$6,000 from the 1998 comparable period as a result of the lower cash
levels in 1999 offset in part by increased interest income received on
the notes receivable generated from the sales of the discontinued
operations. For the nine months ended October 3, 1999, interest income
increased $86,000 over 1998 mainly due to the interest income received on
the notes receivable generated from the sales of discontinued
operations. Interest expense decreased $25,000 during both the three
months and nine months ended October 3, 1999 as a result of the Company
paying off $1 million of debt on July 2, 1999. During the nine months
ended October 4, 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 Nine Months Ended
10/3/99 10/4/98 10/3/99 10/4/98
------- ------- ------- -------
Dividend income ........... $ 32 $ 26 $ 83 $ 57
Real estate operations .... (5) (8) (14) (34)
------- ------- ------- -------
$ 27 $ 18 $ 69 $ 23
======= ======= ======= =======
-10-
The reductions in the real estate operations losses are due mainly to
increased rental income.
The estimated effective income tax rate for 1999 is 32% compared to
38% in 1998. The difference in the rates is mainly due to the limited
state tax benefit of operating losses within a state.
During the quarter ended October 3, 1999, based on the increased
sales level, the increase in gross margin and the decrease in operating
expenses, the Company reported an operating profit of $218,000 compared
to an operating loss of $279,000 in 1998. Other income (expense), net
amounted to $37,000 of income in 1999 compared to $9,000 of income in the
corresponding 1998 period. As a result, the Company reported pre-tax
earnings from continuing operations of $255,000 during the quarter
October 3, 1999 compared to a pre-tax loss of $270,000 in 1998. Earnings
from discontinued operations during 1999 amounted to $74,000 compared to
$251,000 during the comparable 1998 period. In total, the Company
reported net earnings of $240,000 during the quarter ended October 3,
1999 versus $94,000 in 1998.
As a result of the decrease in gross profit and the increase in
operating expenses, the Company reported an operating loss of $446,000
during the nine months ended October 3, 1999 compared to an operating
loss of $164,000 during the comparable period in 1998. The nine months
ended October 3, 1999 includes nonoperating income of $119,000 compared
to $348,000 of income in 1998 mainly as a result of the gain on sale of
real estate. During the nine months ended October 3, 1999, the Company
reported a pre-tax loss from continuing operations of $327,000 compared
to earnings of $184,000 during the 1998 period. During the nine months
ended October 3, 1999, earnings from discontinued operations amounted to
$809,000 versus $560,000 in 1998. In total, the Company reported net
earnings of $586,000 during the nine months ended October 3, 1999
compared to $675,000 in 1998.
Year 2000
- ---------
The Company is continuing to monitor the Year 2000 issue. The
changes to the current accounting software to be Year 2000 compliant have
recently been substantially completed. The Company will be testing the
modifications during November. 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
completed software changes do not work before 2000. The Company will be
testing these changes during November and will determine by the end of
November if a contingency plan is required.
-11-
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.
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 on page 5 in the
Company's 1998 Annual Report to Stockholders 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 nine months ended October 3, 1999.
The information set forth on pages 4 and 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.
-12-
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Amendment to Article III, Section 1 of the By-Laws
effective September 10, 1999. Filed herein.
3.2 Amendment to Article III, Section 1 of the By-Laws
effective October 28, 1999. Filed herein.
3.3 By-Laws effective October 28, 1999. Filed herein.
11. Statement re Computation of Per Share Earnings. Filed
herein.
13. Pages 4 and 5 of the 1998 Annual Report to Stockholders
Filed for electronic purposes only.
27. Financial Data Schedule. Filed for electronic purposes
only.
(b) Reports on Form 8-K - None
-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.
MATEC Corporation
------------------------------------
Date: November 10, 1999 By /s/ Ted Valpey, Jr.
---------------------------------
Ted Valpey, Jr.,
Chairman of the Board and
President
Date: November 10, 1999 By /s/ Michael J. Kroll
---------------------------------
Michael J. Kroll,
Vice President and Treasurer
-14-
<PAGE>
MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Three Months Ended
10/3/99 10/4/98
------- -------
Net earnings (loss) from continuing operations ... $ 166 $ (157)
Discontinued operations:
Net earnings (loss) from operations ............ - (5)
Gain on sale ................................... 74 256
------ ------
Net earnings ..................................... $ 240 $ 94
====== ======
Calculation of basic earnings (loss) per share:
- -----------------------------------------------
Weighted-average shares ......................... 2,670 2,717
===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ .06 $ (.06)
Discontinued operations:
Operations .................................. - -
Gain on sale ................................ .03 .09
------ ------
$ .09 $ .03
====== ======
Calculation of diluted earnings (loss) per share:
- -------------------------------------------------
Net earnings (loss) from continuing operations ... $ 166 $ (157)
Plus: interest impact, net of tax from the assumed
reduction of debt from the conversion of
warrants ................................... 4 -
------ ------
Adjusted net earnings (loss) from continuing
operations ...................................... 170 (157)
Discontinued operations:
Net earnings (loss) from operations ............ - (5)
Gain on sale ................................... 74 256
------ ------
Adjusted net earnings ............................ $ 244 $ 94
====== ======
Weighted average common shares outstanding ...... 2,670 2,717
Increase from the assumed:
exercise of stock options and investment of the
proceeds in treasury stock, based upon the
average market prices (A) ..................... 10 -
conversion of warrants (A) ..................... 85 -
----- -----
Adjusted weighted-average shares ................ 2,765 2,717
===== =====
-15-
<PAGE>
<PAGE>
MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share, continued
(amounts in thousands, except per share data)
Three Months Ended
10/3/99 10/4/98
------- -------
Diluted earnings (loss) per common share:
Continuing operations ......................... $ .06 $ (.06)
Discontinued operations:
Operations .................................. - -
Gain on sale ................................ .03 .09
------ ------
$ .09 $ .03
====== ======
(A) The dilutive effect of stock options and warrants was not considered
in 1998 since the Company reported a loss from continuing operations.
-16-
<PAGE>
<PAGE>
MATEC Corporation and Subsidiaries Exhibit 11
Calculation of Earnings Per Share
(amounts in thousands, except per share data)
Nine Months Ended
10/3/99 10/4/98
------- -------
Net earnings (loss) from continuing operations ... $ (223) $ 115
Discontinued operations:
Net earnings from operations ................... - 106
Gain on sales .................................. 809 454
------ ------
Net earnings ..................................... $ 586 $ 675
====== ======
Calculation of basic earnings (loss) per share:
- -----------------------------------------------
Weighted-average shares ......................... 2,692 2,733
===== =====
Basic earnings (loss) per common share:
Continuing operations ......................... $ (.08) $ .04
Discontinued operations:
Operations .................................. - .04
Gain on sales ............................... .30 .17
------ ------
$ .22 $ .25
====== ======
Calculation of diluted earnings (loss) per share:
- -------------------------------------------------
Weighted-average shares ......................... 2,692 2,733
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 ................ 2,692 2,734
===== =====
Diluted earnings (loss) per common share:
Continuing operations ......................... $ (.08) $ .04
Discontinued operations:
Operations .................................. - .04
Gain on sales ............................... .30 .17
------ ------
$ .22 $ .25
====== ======
(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.
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> OCT-03-1999
<CASH> 2,598
<SECURITIES> 0
<RECEIVABLES> 2,806
<ALLOWANCES> 90
<INVENTORY> 3,242
<CURRENT-ASSETS> 9,268
<PP&E> 8,340
<DEPRECIATION> 5,719
<TOTAL-ASSETS> 15,681
<CURRENT-LIABILITIES> 2,992
<BONDS> 0
0
0
<COMMON> 133
<OTHER-SE> 10,893
<TOTAL-LIABILITY-AND-EQUITY> 15,681
<SALES> 9,729
<TOTAL-REVENUES> 9,729
<CGS> 7,789
<TOTAL-COSTS> 7,789
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> (327)
<INCOME-TAX> 104
<INCOME-CONTINUING> (223)
<DISCONTINUED> 809
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 586
<EPS-BASIC> .22
<EPS-DILUTED> .22
</TABLE>
<PAGE>
Exhibit 3.1
Amendment to By-Laws - effective September 10, 1999
ARTICLE III
DIRECTORS
Section 1. Number, Qualification and Term. The property and
business of the Corporation shall be managed by its Board of Directors
consisting of not less than Five (5) nor more than Thirteen (13)
persons. The number of directors constituting the entire Board shall
be Seven (7); provided, however, that from time to time, such number
may be decreased to not less than Five (5) or increased to not more
than Thirteen (13) persons by amendment of this section of the By-laws
by a majority of the entire Board of Directors. Directors need not be
stockholders. They shall be elected at the Annual Meeting of
Stockholders and each director shall be elected to serve until his
successor shall be elected and shall qualify.
<PAGE>
Exhibit 3.2
Amendment to By-Laws - effective October 28, 1999
ARTICLE III
DIRECTORS
Section 1. Number, Qualification and Term. The property and
business of the Corporation shall be managed by its Board of Directors
consisting of not less than Five (5) nor more than Thirteen (13)
persons. The number of directors constituting the entire Board shall
be Eight (8); provided, however, that from time to time, such number
may be decreased to not less than Five (5) or increased to not more
than Thirteen (13) persons by amendment of this section of the By-laws
by a majority of the entire Board of Directors. Directors need not be
stockholders. They shall be elected at the Annual Meeting of
Stockholders and each director shall be elected to serve until his
successor shall be elected and shall qualify.
<PAGE>
Exhibit 3.3
MATEC Corporation
By-Laws - effective October 28, 1999
ARTICLE I
OFFICES
Section 1. Offices. The Corporation shall maintain a registered
office in Maryland. The Corporation may maintain such other offices
and keep its books, documents and records at such other places both
within and without the State of Maryland as the Board of Directors may
from time to time determine or the business of the Corporation may
require.
ARTICLE II
STOCKHOLDERS
Section 2. Annual Meetings. Annual meetings of stockholders shall
be held on the last Wednesday in April, in each year, if not a legal
holiday, and if a legal holiday, then on the next secular day
following, or on such other day as shall be fixed by the Board of
Directors and stated in the notice of the meeting, when stockholders
shall elect by a plurality vote a Board of Directors, and transact such
other business as may properly be brought before the meeting. The
annual meeting shall be held at a time determined by the Board of
Directors and stated in the notice of the meeting.
Section 3. Notice of Annual Meeting. Written or printed notice of
the annual meeting stating the place, date and hour of the meeting
shall be delivered not less than ten nor more than ninety days before
the date of the meeting, by mail, by or at the direction of the chief
executive officer, the Secretary, or the officer or persons calling the
meeting, to each stockholder of record entitled to vote at such
meeting.
Section 4. Special Meetings. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed
by statute or by the Articles of Incorporation, may be called by the
chief executive officer or the Board of Directors. The business
transacted at any special meeting of stockholders shall be limited to
the purposes stated in the notice of the meeting.
Section 5. Notice of Special Meetings. Written or printed notice
of a special meeting stating the place, date and hour of the meeting
and the purpose or purposes for which the meeting is called, shall be
delivered not less than ten nor more than ninety days before the date
of the meeting, by mail, by or at the direction of the chief executive
officer, the Secretary, or the officer or persons calling the meeting,
to each stockholder of record entitled to vote at such meeting. The
notice shall also indicate that it is being issued by, or at the
direction of, the person calling the meeting.
Section 6. Quorum. The holders of a majority of the shares issued
and outstanding and entitled to vote, represented in person or by
proxy, shall constitute a quorum at all meetings of the stockholders
for the transaction of business except as otherwise provided by statute
or by the Articles of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders present in person or represented by proxy shall have power
to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have
been transacted at the meeting as originally noticed.
Section 7. Voting. At any meeting of stockholders each
outstanding share having voting power shall be entitled to one vote on
each matter submitted to a vote. A stockholder may vote either in
person or by proxy executed in writing by the stockholder or by his
duly authorized attorney-in-fact. All elections shall be determined by
plurality vote, and except as otherwise provided by statute or in the
Articles of Incorporation, all other matters shall be determined by
vote of a majority of the shares present or represented at such meeting
and voting on such matters.
Section 8. Inspectors of Election. The Board of Directors in
advance of any meeting of stockholders may appoint one or more
inspectors to act at the meeting or any adjournment thereof. If
inspectors are not so appointed, the person presiding at a meeting of
stockholders may, and, on the request of any stockholder entitled to
vote thereat, shall appoint one or more inspectors. In case any person
appointed as inspector fails to appear or act, the vacancy may be
filled by the Board of Directors in advance of the meeting or at the
meeting by the person presiding thereat. Each inspector, before
entering upon the discharge of his duties shall take and sign an oath
faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability.
Section 9. List of Stockholders. A list of stockholders as of the
record date, certified by the officer of the Corporation responsible
for its preparation or by the transfer agent, shall be produced at any
meeting of stockholders upon the request thereat or prior thereto of
any stockholder. If the right to vote at any meeting is challenged,
the inspectors of election, or person presiding thereat shall require
such list of stockholders to be produced as evidence of the right of
the persons challenged to vote at such meeting, and all persons who
appear from such list to be stockholders entitled to vote thereat may
vote at such meeting.
ARTICLE III
DIRECTORS
Section 1. Number, Qualification and Term. The property and
business of the Corporation shall be managed by its Board of Directors
consisting of not less than Five (5) nor more than Thirteen (13)
persons. The number of directors constituting the entire Board shall
be Eight (8); provided, however, that from time to time, such number
may be decreased to not less than Five (5) or increased to not more
than Thirteen (13) persons by amendment of this section of the By-laws
by a majority of the entire Board of Directors. Directors need not be
stockholders. They shall be elected at the Annual Meeting of
Stockholders and each director shall be elected to serve until his
successor shall be elected and shall qualify.
-2-
Section 2. Removal. Any or all of the directors may be removed
for cause at any time by the vote of the stockholders.
Section 3. Any vacancy occurring in the Board of Directors for any
cause other than by reason of an increase in the number of directors
may be filled by a majority of the remaining members of the Board of
Directors, although such majority is less than a quorum. Any vacancy
occurring by reason of an increase in the number of directors may be
filled by action of a majority of the entire Board of Directors. A
director elected by the Board of Directors to fill a vacancy shall be
elected to hold office until the next annual meeting of stockholders or
until his successor is elected and qualifies.
Section 4. Additional Powers. In addition to the powers and
authorities by these By-Laws expressly conferred upon it, the Board of
Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these By-Laws directed or required to be exercised
or done by the stockholders.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 1. Place. Meetings of the Board of Directors, regular or
special, may be held either within or without the State of Maryland.
Section 2. First Meeting. The first meeting of each newly elected
Board of Directors shall be held immediately after the annual meeting
of stockholders at the same place as such meeting is held and no notice
of such meeting to the newly elected directors shall be necessary in
order legally to constitute the meeting provided a quorum shall be
present, or it may convene at such place and time as shall be specified
in a notice given as hereinafter provided for special meetings of the
Board of Directors, or as shall be specified in a duly executed waiver
of notice thereof.
Section 3. Regular Meetings. Regular meetings of the Board of
Directors may be held upon such notice, or without notice, and at such
time and at such place as shall from time to time be determined by the
Board.
Section 4. Special Meetings. Special meetings of the Board of
Directors may be called by the chief executive officer on written
notice to each director, deposited in the United States mail no later
than the third calendar day preceding the meeting date or delivered by
hand or to the telegraph company no later than the first calendar day
preceding the meeting date; special meetings shall be called by the
chief executive officer or Secretary in like manner and on like notice
on the written request of two directors.
Section 5. Quorum. A majority of the entire Board of Directors
shall constitute a quorum for the transaction of business unless a
greater or lesser number is required by law or by the Articles of
Incorporation. The vote of a majority of the directors present at any
meeting at which a quorum is present shall be the act of the Board of
-3-
<PAGE>
Directors, unless the vote of a greater number is required by law or by
the Articles of Incorporation. If a quorum shall not be present at any
meeting of directors, the directors present may adjourn the meeting
from time to time. Notice of any such adjournment shall be given to
any director who was not present at the time of such adjournment and
unless announced at the meeting to the other directors.
Section 6. Consent in Lieu of Meeting. Any action required or
permitted to be taken by the Board of Directors or any committee
thereof may be taken without a meeting if all members of the Board or
the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents
thereto by the members of the Board or committee shall be filed with
the minutes of the proceedings of the Board or committee.
Section 7. Telephone Participation at Meetings. Any one or more
of the Board of Directors or any committee thereof may participate in a
meeting of the Board of Directors or of such committee by means of
conference telephone or similar communications equipment allowing all
persons participating in the meeting to hear each other at the same
time. Participation in a meeting by such means shall constitute
presence in person at a meeting.
ARTICLE V
COMMITTEES
Section 1. Committees. The Board of Directors, by resolution
adopted by a majority of the entire board, may designate, from among
its members, an executive committee and other committees consisting of
three or more directors, which, to the extent provided in the
resolution, shall have all the authority of the Board, except as
otherwise required by law. Vacancies in the membership of such
committees shall be filled by the Board of Directors at a regular or
special meeting. Such committees shall keep regular minutes of its
proceedings and report the same to the Board when required.
Subject to the provisions of these By-Laws, the executive committee
and each other committee shall fix its own rules of procedure and shall
meet as provided by such rules or by resolution of the Board of
Directors and it shall also meet at the call of the Chairman of the
Board or President of the Corporation or any two members of such
committee. A majority of the executive committee and of each other
committee shall constitute a quorum for the transaction of business and
the vote of a majority of the members of such committee present at any
meeting at which there is a quorum shall be the act of such committee.
ARTICLE VI
NOTICES
Section 1. Form; Delivery. Whenever, under the provisions of the
statutes or of the Articles of Incorporation or of these By-Laws,
notice is required to be given to any director or stockholder, such
notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the
Corporation, with postage thereon prepaid, and such notice shall be
-4-
<PAGE>
deemed to be given at the time when the same shall be deposited in the
United States mail. Notice to directors may also be given by hand
delivery, effective upon such delivery, or by telegram which notice
shall be deemed to have been given when delivered to the telegraph
company. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
Section 2. Waiver of Notice. Whenever any notice is required to
be given under the provisions of any statute or under the provisions of
the Articles of Incorporation or these By-Laws, a waiver thereof in
writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. In addition, any stockholder
attending a meeting of stockholders in person or by proxy without
protesting prior to the conclusion of the meeting, the lack of notice
thereof to him, and any director attending a meeting of the Board of
Directors without protesting prior to the meeting or at its
commencement such lack of notice shall be conclusively deemed to have
waived notice of such meeting.
ARTICLE VII
OFFICERS AND AGENTS
Section 1. Officers. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a Chairman of the Board,
a President, a Vice-President, a Secretary and a Treasurer. The Board
of Directors may also choose additional Vice-Presidents, and one or
more Assistant Secretaries and Assistant Treasurers.
Section 2. Election. The Board of Directors at its first meeting
after each annual meeting of stockholders shall choose a Chairman of
the Board, a President, one or more Vice-Presidents, a Secretary and a
Treasurer. Any two or more offices may be held by the same person.
Section 3. Additional Officers and Agents. The Board of Directors
may appoint such other officers and agents as it shall deem necessary
who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time
by the Board of Directors.
Section 4. Compensation. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors and the
compensation of employees and agents shall be so fixed or shall be
fixed by officers thereunto duly authorized.
Section 5. Term of Office; Removal. The officers of the
Corporation shall hold office until their successors are chosen and
qualify. Any officer or agent elected or appointed by the Board of
Directors may be removed at any time with or without cause by the
Board. Any vacancy occurring in any office of the Corporation may be
filled by the Board of Directors.
-5-
Section 6. Powers and Duties of the Chairman of the Board. The
Chairman of the Board of Directors shall preside at all meetings of the
Board and all meetings of the stockholders at which he shall be present
and shall have such other powers and duties as may from time to time be
assigned to him by the Board of Directors.
Section 7. Powers and Duties of the President. The President
shall be the Chief Executive Officer of the Corporation, and shall have
the general management and superintendence of the affairs of the
Corporation, subject, however, to the control of the Board of
Directors; and in all cases where, and to the extent that, the duties
of the other officers of the Corporation are not specifically
prescribed by By-Laws or rules or regulations of the Board of
Directors, the President may prescribe such duties. He shall have
general and active supervision over the property, business and affairs
of the Corporation and may sign, execute, and deliver in the name of
the Corporation deeds, mortgages, bonds, contracts, powers of attorney,
and other instruments, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or these
By-Laws to some other officer or agent of the Corporation or shall be
required by law or otherwise to be signed or executed, and may exercise
any and all powers and perform any and all duties relating to such
supervision, or which are imposed upon him by the By-Laws, or by the
Board of Directors.
Subject to such limitations as the Board of Directors may from time
to time prescribe, the Chief Executive Officer shall have power to
appoint and to dismiss all such agents and employees of the Corporation
who are not officers thereof (including any appointed by the Board) as
he may deem proper, and to prescribe their duties, and subject to like
limitations, delegate to other officers of the Corporation any other of
the powers and duties conferred upon him by the By-Laws or by the Board
of Directors.
Section 8. Powers and Duties of the Vice President. The
Vice-President shall perform the duties as may be prescribed by the
Board of Directors and subject to the chief executive officer.
Section 9. Powers and Duties of the Secretary. The Secretary
shall attend all sessions of the Board and all meetings of the
stockholders and record all votes and the minutes of all proceedings in
a book to be kept for that purpose, and shall perform like duties for
any committee of the Board when required. He shall cause to be given
notice of all meetings of stockholders and directors and shall perform
such other duties as pertain to his office. He shall keep in safe
custody the seal of the Corporation and when authorized by the Board of
Directors, affix it when required to any instrument.
Section 10. Powers and Duties of the Treasurer. The Treasurer
shall have the custody of all the corporate funds and securities and
shall keep full and accurate accounts of receipts and disbursements in
books belonging to the Corporation and shall deposit all moneys and
other valuable effects in the name and to the credit of the Corporation
in such depositories as may be designated by the Board of Directors.
He shall disburse the funds of the Corporation as may be ordered by the
-6-
<PAGE>
Board, taking proper vouchers for such disbursements, and shall render
to the chief executive officer and directors at the regular meetings of
the Board, or whenever they may require it, an account of all his
transactions as treasurer and of the financial condition of the
Corporation.
Section 11. Powers and Duties of Other Officers. All other
officers shall have such duties and exercise such powers as generally
pertain to their respective offices and all officers shall have such
other duties and exercise such other powers as from time to time may be
prescribed by the chief executive officer or the Board of Directors.
ARTICLE VIII
SHARES
Section 1. Form; Signature. The shares of the Corporation shall
be represented by certificates signed by the President or a
Vice-President and the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer of the Corporation and may be
sealed with the seal of the Corporation or a facsimile thereof. The
signatures of the officers of the Corporation upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation itself or an
employee of the Corporation. In case any officer who has signed or
whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer before such certificate is issued, it may be
issued by the Corporation with the same effect as if he were such
officer at the date of issue.
Section 2. Lost Certificates. The Board of Directors may
authorize the officers or agents of the Corporation to issue a new
certificate in place of any certificate theretofore issued by the
Corporation alleged to have been lost or destroyed and as a condition
precedent to the issuance thereof, may prescribe such terms and
conditions as it deems expedient, and may require such indemnities as
it deems adequate to protect the Corporation from any claim that may be
made against it with respect to any such certificate alleged to have
been lost or destroyed.
Section 3. Transfer of Shares. Upon surrender to the Corporation
or the transfer agent of the Corporation of a certificate representing
shares duly endorsed or accompanied by proper evidence of succession,
assignment or authority to transfer, a new certificate shall be issued
to the person entitled thereto, and the old certificate cancelled and
the transaction recorded upon the books of the Corporation.
Section 4. Fixing Record Date. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to or
dissent from any proposal without a meeting, or for the purpose of
determining stockholders entitled to receive payment of any dividend or
the allotment of any rights, or for the purpose of any other action,
the Board of Directors may fix, in advance, a date at the record date
for any such determination of stockholders. Such date shall not be
more than sixty nor less than ten days before the date of any meeting
nor more than sixty days prior to any other action. When a
-7-
<PAGE>
determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders has been made as provided in this
section, such determination shall apply to any adjournment thereof,
unless the Board fixes a new record date for the adjourned meeting.
Section 5. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its
books as the owner of shares to receive dividends, and to vote as such
owner, and to hold liable for calls and assessments a person registered
on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the
laws of Maryland.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends. Subject to the provisions of law and of the
Articles of Incorporation relating thereto, dividends may be declared
by the Board of Directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, the Corporations bonds or its
property, including the shares or bonds of other corporations, subject
to any provisions of law and of the Articles of Incorporation.
Section 2. Reserves. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends
such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property
of the Corporation, or for such other purposes as the directors shall
think conducive to the interest of the Corporation, and the directors
may modify or abolish any such reserve in the manner in which it was
created.
Section 3. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate.
Section 4. Fiscal Year. The fiscal year of the Corporation shall
begin on January 1st and end on December 31st of each year, unless
otherwise provided by the Board of Directors.
Section 5. Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
CORPORATE SEAL, MARYLAND. This seal may be used by causing it or a
facsimile thereof to be impressed or affixed or in any manner
reproduced.
ARTICLE X
AMENDMENTS
Section 1. Amendments. The Board of Directors shall have the
exclusive power to adopt, alter or repeal any provision of these Bylaws
and to make new Bylaws.
-8-
<PAGE>
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.
