<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 June 30, 1999 .
---------------------------------------------
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
--------------------- ---------------------
Commission File Number: 0-19381
-----------------------------------------------------
WESTWOOD CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 87-0430944
-----------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
5314 South Yale Street, Tulsa, Oklahoma 74135
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 524-0002
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 and 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.
(x) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Outstanding at August 18, 1999
--------------------- ------------------------------
Common Stock, $.003 par value 6,891,647
<PAGE>
INDEX
-----
Page No.
-------
Part I Financial Information:
Consolidated Balance Sheets as of
June 30, 1999 and March 31, 1999 1
Consolidated Statements of Operations
for the three months ended June 30, 1999
and 1998 3
Consolidated Statement of Cash Flows
for the Three Months ended June 30,
1999 and 1998 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II Other Information:
Item 1. Legal Proceedings
(None) -
Item 2. Changes in Securities
(None) -
Item 3. Defaults Upon Senior Securities
(None) -
Item 4. Submission of Matters to a Vote
of Security Holders
(None) -
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
June 30 March 31
1999 1999
----------- ---------
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 885 $ 1,283
Accounts receivable (including retainage
receivable of $10 at June 30, 1999
and $16 at March 31, 1999), net
of allowance for doubtful accounts 2,726 3,696
Income tax receivable 789 789
Costs and estimated earnings in excess of
billings on uncompleted contracts 642 625
Inventories:
Raw materials and purchased parts 1,364 2,648
Work-in-process 1,134 1,573
------- -------
2,498 4,221
Prepaid expenses 43 40
Assets held for sale 2,000 402
------- -------
Total current assets 9,583 11,056
Plant and equipment, at cost:
Leasehold improvements 310 310
Machinery and equipment 3,987 4,275
Patterns and tools 79 195
------- -------
4,376 4,780
Accumulated depreciation (2,709) (2,937)
------- -------
1,667 1,843
Goodwill (net) 6,132 6,250
Long-term accounts receivable, retainage 445 533
Deferred charges & other 1 1
------- -------
Total Assets $17,828 $19,683
======= =======
</TABLE>
See accompanying notes.
1
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30 March 31
1999 1999
---------------------
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 1,878 $ 2,397
Accrued liabilities 1,516 1,489
Billings in excess of costs and estimated
earnings on uncompleted contracts 561 501
Current portion of long-term debt:
Payable to bank 5,143 6,533
Other 28 46
Acquisition debt 1,470 990
------- -------
6,641 7,569
------- -------
Total current liabilities 10,596 11,956
Long-term debt:
Other 91 77
Acquisition debt - 480
------- -------
91 557
------- -------
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized,
$.001 par value, no shares issued and
outstanding - -
Common stock, 20,000,000 shares authorized,
$.003 par value, 6,891,647 shares issued
and outstanding at June 30, 1999 and
March 31, 1999, respectively 21 21
Capital in excess of par value 5,978 5,978
Retained earnings 1,142 1,171
------- -------
Total stockholders' equity 7,141 7,170
------- -------
Total liabilities and stockholders' equity $17,828 $19,683
======= =======
</TABLE>
See accompanying notes.
2
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
June 30
------------------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Sales $4,694 $7,499
Cost of sales 3,665 6,052
------ ------
Gross profit 1,029 1,447
Operating expenses:
Selling, general & administrative 1,260 1,214
------ ------
Operating income (loss) (231) 233
Other income (expense):
Interest expense (115) (164)
Other income (expense) 23 4
Gain on sale of assets 294 -
------ ------
202 (160)
------ ------
Income (loss) before taxes (29) 73
Provision (benefit) for income taxes - 25
------ ------
Net income (loss) $ (29) $ 48
====== ======
Basic, and diluted, earnings
(loss) per share $(.004) $ .007
Weighted average common shares used
in computing earnings per share 6,891,647 6,891,647
Cash dividends per share $ - $ .010
</TABLE>
See accompanying notes.
3
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1999 1998
---------------------------
(Unaudited)
<S> <C> <C>
Operating activities
Net income (loss) $ (29) $ 48
Adjustments to reconcile net income (loss)
to cash provided (used) in operations:
Depreciation and amortization 138 224
Amortization of goodwill 118 118
Deferred income taxes - (19)
Gain on sale of assets (294) -
Cash flows impacted by changes in:
Accounts receivable 970 1,555
Costs and estimated earnings in excess
of billings on uncompleted contracts (17) (334)
Inventories (190) (144)
Prepaid expenses (3) (34)
Long-term accounts receivable, retainage 88 82
Deferred charges - 6
Accounts payable (519) (1,626)
Accrued liabilities and rent 27 (217)
Billings in excess of costs and estimated
earnings on uncompleted contracts 60 (96)
Income taxes payable/receivable - 25
Other - (1)
------- -------
Net cash provided (used) in operating activities 349 (413)
Investing activities
Purchase of plant and equipment (49) (102)
Proceeds from sales of plant and equipment 696 -
------- -------
Net cash provided (used) in investing activities 647 (102)
Financing activities
Principal payments on debt (1,394) (145)
Borrowings on debt - 400
Dividends paid - (69)
------- -------
Net cash (used) provided by financing activities (1,394) 186
------- -------
Net decrease in cash (398) (329)
Cash at beginning of period 1,283 574
------- -------
Cash at end of period $ 885 $ 245
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
WESTWOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1 - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements include Westwood
wholly-owned subsidiaries NMP Corp., TANO Corp., and MCII Electric Company.
Operations of Peter Gray Corporation are included only for the first quarter
ended June 30, 1998, and the month ended April 30, 1999 as its operations were
ceased and assets sold in April and June, 1999. These statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Management believes all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the fiscal first quarter ended June 30, 1999
may not necessarily be indicative of the results that may be expected for the
year ended March 31, 2000. For further information, refer to the consolidated
financial statements and footnotes included in Westwood Corporation's annual
report on Form 10-K for the year ended March 31, 1999.
Note 2 - Sale of Businesses
- ---------------------------
In April, 1999 the Company sold certain Peter Gray inventory and equipment for
$568,000, and Peter Gray operations ceased on April 30, 1999. The Company sold
the remaining equipment at that location for $181,000 in June, 1999. In
connection with this sale, the Company recorded a gain of $294,000 in the first
quarter ended June 30, 1999. Proceeds from this sale were used to reduce debt.
In July, 1999 the Company sold certain marine hardware-related assets of NMP
Corp. which generated operating losses in fiscal 1999 and the first quarter of
fiscal 2000, for a total purchase price of $2,000,000. Of the purchase price,
$1,100,000 was paid at closing, with $150,000 to be paid within 90 days, and the
remaining balance of $750,000 is to be paid in three annual installments of
$250,000. Proceeds from this sale were also used to reduce debt. The Company
does not expect to record a significant gain or loss from this sale in the
second quarter.
5
<PAGE>
Note 3 - Long-Term Debt
- -----------------------
At June 30, 1999, the Company had not renewed its existing credit facility which
expired on June 5,1999. On July 23, 1999, the Company received a commitment
from a bank for a new $2,000,000 revolving credit facility and $2,000,000 five-
year term note. The Company closed this new credit facility on August 13, 1999
and proceeds were used to repay amounts then outstanding under the existing
revolving credit facility and term note. As part of the new bank commitment, the
Company is required to obtain $1,000,000 of subordinated debt within 90 days of
closing. The Company feels that the new credit facility and subordinated debt
along with cash provided from operations will provide adequate funding for the
Company's anticipated growth requirements.
Note 4 - Income Taxes
- ---------------------
The Company generated net operating loss carryforwards in fiscal 1999 and the
first quarter of fiscal 2000, whereby no deferred tax asset was established as
future taxable income is not certain in fiscal 2000. As a result, the Company
did not provide a tax benefit in connection with the loss for the three-months
ended June 30, 1999.
Note 5 - Comprehensive Income
- -----------------------------
For the three-month periods ended June 30, 1999 and 1998, comprehensive income
(loss) and net income (loss) are the same.
Note 6 - Contingencies
- ----------------------
In connection with the acquisition of MCII, the Company signed a $1,500,000
noninterest-bearing note payable with the former owner of MCII. The note
requires three annual installments, beginning in May 1998, of $500,000. The
Company has recorded the obligation at a discount rate of 8.5%, which was
consistent with the rate obtainable from the lender of the existing revolving
credit facility in May 1997. No payments have been made due to the
indemnification claims filed against the former owner. Subsequent to the
acquisition of MCII, the Company was informed by U.S. government contract
officials of concerns relating to the adequacy and accuracy of certain MCII
contract accounting information. The Company believes it has fully responded to
concerns raised. However, as a result of this notification and other
information learned subsequent to the acquisition, the Company has filed several
indemnification claims against the former owner of MCII regarding the
representations the owner made prior to the acquisition. The former owner has
in turn filed counter claims against the Company. While initial settlement
discussions have commenced, it is still uncertain as to the ultimate resolution
of the claims. Any settlement under the indemnification provision would
correspondingly reduce or increase the amount of goodwill associated with MCII
and not materially impact operating results of the Company.
6
<PAGE>
Note 7 - Segment Information
- ----------------------------
Revenues
-----------------------------
Three Months Ended Inter- Net Income Total
June 30, 1999 External Segment Total (Loss) Assets
------------- -------- ------- ----- ------ ------
Marine Hardware &
Switchgear $2,600 $ 91 $2,691 $ 179 $13,692
Mobile Power Systems 481 - 481 (444) 7,830
Eng. Automation &
Control 1,613 54 1,667 139 4,141
Other - - - (29) 15,986
Eliminations - (145) (145) (126) (23,821)
----- ---- --- --- ------
Total $4,694 $ - $4,694 $ (29) $17,828
===== === ===== === ======
Three Months Ended
June 30, 1998
-------------
Marine Hardware &
Switchgear $2,985 $ 302 $3,287 $ (36) $16,705
Mobile Power Systems 3,191 - 3,191 13 10,153
Eng. Automation &
Control 1,323 - 1,323 73 3,761
Other - - - 48 20,517
Eliminations - (302) (302) (50) (31,453)
----- --- --- -- ------
Total $7,499 $ - $7,499 $ 48 $19,683
===== === ===== === ======
7
<PAGE>
WESTWOOD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1999
GENERAL
- -------
Results of Operations - First Quarter Ended June 30, 1999 and 1998
- ------------------------------------------------------------------
For the first quarter ended June 30, 1999, the Company had a net loss of $29,000
compared to net income of $48,000 for the same quarter of the previous year.
The net loss per share was $.004 compared to net income per share of $.007 for
the prior year.
Consolidated sales for the first quarter decreased 37.4% to $4,694,000 compared
to $7,499,000 for the previous year. Several factors accounted for the
substantial decrease in sales. Last year's first quarter included Peter Gray
operations, and MCII sales for the current quarter were significantly lower than
the same quarter last year.
Gross profit, as a percentage of sales, was 21.9% for the current quarter
compared to 19.3% for the same period last year. However, as a result of
substantially lower sales volume, the Company incurred an operating loss of
$231,000 for the first quarter compared to an operating profit of $233,000 for
the same quarter last year. Operating expenses increased 3.8% for the first
quarter, and interest expenses decreased 29.9% as a result of lower borrowings.
A breakdown of sales by the Company's major product groups follows:
. Mobile power system sales by MCII for the first quarter were $481,000
compared to $3,191,000 for the same period last year which included
significant shipments under the Air Force MEP-12 contract.
. Sales of marine hardware products for the quarter were $1,769,000, a 19%
decrease compared to $2,183,000 for the same period last year, which included
Peter Gray sales for the entire quarter.
. Engineered automation and control system sales for the quarter were
$1,667,000, a 26% increase over the same period last year, and reflects the
higher backlog for TANO.
. Marine electrical switchgear sales by NMP for the first quarter decreased 3%
to $777,000, compared to $802,000 for the same period last year.
8
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Operating activities for the three months ended June 30, 1999 resulted in net
cash provided of $349,000. During this period, major items providing cash were
depreciation and amortization of $256,000 and reductions in accounts receivable
of $970,000. Major uses of cash during the quarter were increases in
inventories of $190,000 and reduction in accounts payable of $519,000.
The most significant investing activity for the first quarter was the sale of
assets of Peter Gray for $696,000. During the first quarter, bank debt was
reduced $1,394,000 as a result of cash flow from operations, proceeds from the
sale of Peter Gray, and existing cash balances.
As disclosed in Note 3, the Company received on July 23, 1999 a commitment from
a bank for a new $2,000,000 revolving credit facility and $2,000,000 five-year
term note. The Company closed this new credit facility on August 13, 1999, and
proceeds were used to repay amounts then outstanding under the existing
revolving credit facility and term note. As part of the new bank commitment,
the Company is required to obtain $1,000,000 of subordinated debt within 90 days
of closing. The Company feels that the new credit facility and subordinated
debt along with cash provided from operations will provide adequate funding for
the Company's anticipated growth requirements.
Year 2000 Compliance
- --------------------
As a result of both internal and external review processes, the Company has
implemented new accounting, engineering, and information system software which
has been represented by the manufacturers to be Year 2000 compliant. The
Company has also acquired hardware items including additional workstations and
periphery equipment to facilitate the implementation of the new software
processing systems. The new information software system has been installed and
employee training on a Company-wide basis has been completed. The Company's new
software processing system has been installed at the offices of the Company and
its subsidiaries, NMP Corp. in Tulsa and MC II in Dallas. TANO Corp. utilizes
its own information, accounting and processing software which has been
represented by the manufacturer to be Year 2000 compliant.
The Company and its subsidiaries have conducted Year 2000 compliance surveys and
inquiries with substantially all of their vendors, suppliers, and professional
and service organizations, consisting of approximately 1500 entities. The
Company has received a return rate of approximately 95% of NMP's vendor survey
letters and 85% of MC II's vendor survey letters. Approximately 90% of the
surveys indicate general Y2K compliance. Those survey letters indicating a lack
of current Y2K compliance have provided the Company with a time line in which
these entities believe they will be Y2K compliant. The Company is following up
with vendors and suppliers that have not yet returned Y2K compliant surveys but
does not believe that any such entities provide services or supplies which
cannot be supplied by other suppliers in a timely fashion.
9
<PAGE>
For the fiscal year ended March 31, 1999, the Company incurred software
implementation costs of approximately $120,000. Costs of labor, and personnel
time for purposes of the Year 2000 compliance reviews, training, and
implementation were approximately $90,000. Remaining administration costs
incurred in developing contingency plans and further testing are believed to be
negligible.
The Company is relying, in part, on survey representation of approximately 1500
business organizations as well as defense related customers including the U.S.
Government to whom the Company sells its products. The Company does not have
control over these third parties and, as a result, cannot currently estimate to
what extent future operating results may be adversely affected by the failure of
these third parties to successfully address their Year 2000 issues. The Company
is in the process of developing contingency plans which it expects to be
complete by September 30, 1999.
Statements included in this Form 10-Q constitute "year 2000 readiness
disclosures" subject to the Year 2000 Information and Readiness Disclosure Act
of 1998.
Outlook for Fiscal Year 2000 and Beyond
- ---------------------------------------
On June 15, 1999, the Company announced that NMP had received orders in excess
of $22,000,000 from Avondale Industries to design and build the ships service
electrical distribution systems for the LPD-17 and 18 amphibious assault ships.
TANO will also participate with NMP by supplying their proprietary TANOnet
system for the electrical communications aboard the ship. There are twelve
ships in this class, and deliveries will begin the fourth quarter of fiscal 2000
and continue through fiscal 2004.
In addition, the Company is in the process of submitting bids for a number of
other major ship contracts and which the Company has high expectations of
receiving.
On July 27, 1999, MCII was notified by the United States Army that it was being
granted a conditional release on the major TQG contract. As a result of the
production release, the Company will now begin to phase into full production the
TQG contract, which the Company anticipates to begin in the quarter commencing
October 1, 1999.
The Company believes that the combination of new NMP orders, the TQG production
start-up, the sale of Peter Gray and the hardware product business, which
generated operating loses in fiscal 1999 and the first quarter of fiscal 2000,
and major cost reductions implemented throughout the year will all combine to
significantly improve future operating results beginning in the third quarter of
fiscal 2000.
10
<PAGE>
Forward Looking Information
- ---------------------------
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although the Company believes such forward-
looking statements are based on reasonable assumptions, no assurance can be
given that every objective will be reached. Such statements are made in
reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.
As required by such Act, the Company hereby identifies the following important
factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted by the Company in forward-looking
statements: (i) risks and uncertainties impacting the Company as a whole relate
to changes in general economic conditions in the United States; the availability
and cost of capital; changes in laws and regulations to which the Company is
subject, including tax, environmental and employment laws and regulations; the
cost and effects of legal and administrative claims and proceedings against the
Company or its subsidiaries or which may be brought against the Company or its
subsidiaries; conditions of the capital markets utilized by the Company to
access capital to finance operations; and, to the extent the Company increases
its investments and activities abroad, such investments and activities will be
subject to foreign economies, laws, and regulations; and (ii) for the Company's
defense-related business, business conditions in the military and commercial
industries served by the Company; Federal Government defense budgeting process;
compliance with Government contract and inspection programs; and other risk
factors listed from time-to-time in the Company's reports with the Securities
and Exchange Commission.
Item No.5
- ---------
Other Information
- -----------------
Effective with the close of business on August 17, 1999, the Company's common
stock has been delisted from The NASDAQ SmallCap Market as a result of the
market for the Company's common stock not maintaining a bid price equal to or
greater than $1.00 per share. Additionally, as a result of the Company's losses
from operations for the fiscal year ending March 31, 1999, the Company's net
tangible assets and net income fell below the maintenance requirements of the
NASDAQ Market Place Rules. The common stock of the Company is immediately
eligible to trade on the OTC Bulletin Board and the Company anticipates that its
securities will continue to trade on the Bulletin Board.
Item No. 6
- ----------
(a) The following document is filed as an exhibit to this Form 10-Q:
Exhibit 27 - Financial Data Schedule.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
DATE: August 19, 1999 WESTWOOD CORPORATION
By: /s/ ERNEST H. MCKEE
---------------------------
Ernest H. McKee, Director
President and
Chief Executive Officer
By: /s/ PAUL R. CAROLUS
---------------------------
Paul R. Carolus, Director
Secretary/Treasurer and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE WESTWOOD
CORPORATION CONSOLIDATED BALANCE SHEET (UNAUDITED) FOR JUNE 30, 1999, AND THE
RELATED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) FOR THE THREE MONTHS
ENDED JUNE 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> JUN-30-1999
<CASH> 885
<SECURITIES> 0
<RECEIVABLES> 2,736
<ALLOWANCES> 10
<INVENTORY> 2,498
<CURRENT-ASSETS> 9,583
<PP&E> 4,376
<DEPRECIATION> 2,709
<TOTAL-ASSETS> 17,828
<CURRENT-LIABILITIES> 10,596
<BONDS> 0
0
0
<COMMON> 21
<OTHER-SE> 7,120
<TOTAL-LIABILITY-AND-EQUITY> 17,828
<SALES> 4,694
<TOTAL-REVENUES> 4,694
<CGS> 3,665
<TOTAL-COSTS> 3,665
<OTHER-EXPENSES> (23)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115
<INCOME-PRETAX> (29)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29)
<EPS-BASIC> (.004)
<EPS-DILUTED> (.004)
</TABLE>
