UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
_______________
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTIONS 13 OR 15(d)
OF
THE SECURITIES EXCHANGE ACT OF 1934
(Mark
One)
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended January 3,
2009
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934
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For
the transition period from ____________ to ______________
Commission
File No. 0-11201
MERRIMAC
INDUSTRIES, INC.
(Exact
Name of Registrant as Specified in Its Charter)
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Delaware
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22-1642321
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(State
or Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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41
Fairfield Place, West Caldwell, New Jersey
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07006
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(Address
of Principal Executive Offices)
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(Zip
Code)
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(973)
575-1300
(Registrant’s
telephone number, including area code)
WEBSITE:
www.merrimacind.com
Securities
registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of Exchange on Which
Registered
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Common
Stock
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The
American Stock Exchange
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Common
Stock Purchase Rights
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The
American Stock
Exchange
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Securities
registered pursuant to Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes
o
No
x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o
No
x
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
o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See definition of “accelerated filer and large accelerated
filer and smaller reporting company” in Rule 12b-2 of the Exchange
Act.
(Check
one):
Large
accelerated filer
o
Accelerated filer
o
Non-accelerated
filer
o
Smaller
reporting company
x
Indicate
by check mark whether the registrant is a shell Company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
The
aggregate market value of common stock held by non-affiliates of the registrant
as of June 28, 2008, the last business day of the Registrant’s most recently
completed second fiscal quarter, was approximately $10,121,690.
As of
March 25, 2009, 2,952,324 shares of common stock of the registrant were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
The
registrant’s Proxy Statement for its 2009 Annual Meeting of stockholders is
hereby incorporated by reference into Part III of this Form 10-K.
TABLE OF CONTENTS
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PART I
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4
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ITEM
1.
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BUSINESS
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4
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ITEM
1A.
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RISK
FACTORS
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11
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ITEM
1B.
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UNRESOLVED
STAFF COMMENTS.
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16
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ITEM
2.
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PROPERTIES.
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16
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ITEM
3.
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LEGAL
PROCEEDINGS.
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16
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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17
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PART
II
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18
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ITEM
5.
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MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
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18
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ITEM
7.
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
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19
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ITEM
8.
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FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
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33
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ITEM
9 .
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
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68
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ITEM
9A(T).
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CONTROLS
AND PROCEDURES.
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68
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ITEM
9A .
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OTHER
INFORMATION.
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69
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ITEM
10.
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DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
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70
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ITEM
11.
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EXECUTIVE
COMPENSATION.
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71
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ITEM
12.
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
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71
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ITEM 13.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
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71
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ITEM
14.
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
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71
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ITEM
15.
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EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
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71
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ANNUAL
REPORT ON FORM 10-K
For
the fiscal year ended December 29, 2007
EXPLANATORY
NOTE
In this
Form 10-K, we are restating our consolidated balance sheet as of December 29,
2007, and the related consolidated statements of operations and comprehensive
income (loss), stockholders’ equity and cash flows for the year ended December
29, 2007, including the applicable notes. We have also included in this report,
restated unaudited condensed consolidated financial information for each of the
four quarters of 2007 and each of the first three quarters of 2008.
We do not
plan to file an amendment to our Annual Report on Form 10-K for the year ended
December 29, 2007, nor do we plan to file amendments to our Quarterly Reports on
Form 10-Q for the quarterly periods ended March 31, June 30 and September 29,
2007 and March 29, June 28 and September 27, 2008. Thus, you should not rely on
any of the previously filed annual or quarterly reports relating to the
foregoing periods. They are superseded by this report.
For more
detailed information about the restatement, please see Notes 2 and 16,
“Restatement of Consolidated Financial Statements” and “Restatement of Unaudited
Quarterly Financial Statements”, respectively, in the accompanying
consolidated financial statements.
In
addition, management has determined that we had material weaknesses in our
internal control over financial reporting as of January 3, 2009 and December 29,
2007. As described in more detail in Item 9A(T) of this Annual Report, we have
identified the causes of these material weaknesses and are implementing measures
designed to remedy them.
FORWARD
LOOKING STATEMENTS
This
Annual Report on Form 10-K contains statements relating to future results of the
Company (including certain projections and business trends) that are
"forward-looking statements" as defined in the Private Securities Litigation
Reform Act of 1995. Actual results may differ materially from those projected as
a result of certain risks and uncertainties. These risks and uncertainties
include, but are not limited to: risks associated with demand for and market
acceptance of existing and newly developed products as to which the Company has
made significant investments, particularly its Multi-Mix® products; risks
associated with adequate capacity to obtain raw materials and reduced control
over delivery schedules and costs due to reliance on sole source or limited
suppliers; slower than anticipated penetration into the satellite
communications, defense and wireless markets; failure of our Original Equipment
Manufacturer or OEM customers to successfully incorporate our products into
their systems; changes in product mix resulting in unexpected engineering and
research and development costs; delays and increased costs in product
development, engineering and production; reliance on a small number of
significant customers; the emergence of new or stronger competitors as a result
of consolidation movements in the market; the timing and market acceptance of
our or our OEM customers' new or enhanced products; general economic and
industry conditions; the ability to protect proprietary information and
technology; competitive products and pricing pressures; our ability and the
ability of our OEM customers to keep pace with the rapid technological changes
and short product life cycles in our industry and gain market acceptance for new
products and technologies; risks relating to governmental regulatory actions in
communications and defense programs; and inventory risks due to technological
innovation and product obsolescence, as well as other risks and uncertainties as
are detailed from time to time in the Company's Securities and Exchange
Commission filings. The words “believe,” “expect,” “plan,” “anticipate,” and
“intend” and similar expressions identify forward-looking
statements. These forward looking statements are made only as of
the date of the filing of this Annual Report on Form 10-K, readers are cautioned
not to place undue reliance on these forward-looking statements and the Company
undertakes no obligation to update or revise the forward-looking statements,
whether as a result of new information, future events or otherwise.
PART
I
GENERAL
Merrimac
is a leader in the design and manufacture of active and passive Radio Frequency
(RF) and microwave components and integrated multifunction assemblies for
military, high-reliability and commercial markets. Our components and integrated
assemblies are found in applications as diverse as satellites, military and
commercial aircraft, radar, radio systems, medical diagnostic instruments,
communications systems and wireless connectivity.
We are a
versatile technologically oriented company specializing in radio frequency
Multi-Mix®, stripline, microstrip and discreet element technologies. Of special
significance has been the combination of two or more of these technologies into
single components and integrated multifunction subassemblies to achieve superior
performance and reliability while minimizing package size and weight. We
maintain ISO 9001:2000 and AS 9100 registered quality assurance
programs.
We were
originally incorporated as Merrimac Research and Development, a New York
corporation, in 1954. In 1994 we were reincorporated as a New Jersey corporation
and subsequently reincorporated as a Delaware corporation in 2001.
ELECTRONIC
COMPONENTS AND SUBSYSTEMS PRODUCTS
We
manufacture and sell approximately 1,500 components and subsystems used in
signal processing systems in the frequency spectrum of DC to 65 GHz. Our
products are designed to process RF and Microwave signals and are of relatively
small size and light weight. When integrated into subsystems, advantages of
lower cost and smaller size are realized due to the reduced number of
connectors, cases and headers. Our components range in price from $0.50 to more
than $10,000 and its subsystems range from $500 to more than
$1,500,000.
We have
traditionally developed and offered for sale products built to specific customer
needs, as well as standard catalog items. The following table provides a
breakdown of electronic components sales as derived from initial design orders
for products custom designed for specific customer applications, repeat design
orders
for such products and from
catalog sales:
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2008
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2007
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Initial
design orders
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36
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%
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24
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%
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Repeat
design orders
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52
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%
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62
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%
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Catalog
sale orders
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12
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%
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14
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%
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We
maintain a current product catalog on our internet website at
www.merrimacind.com. Our catalog includes over 1,500 standard, passive, signal
processing components. These components often form the platform-basis for
customization of designs in which the size, package, finish, electrical
parameters, environmental performance, reliability and other features are
tailored for a specific customer application.
Our
strategy is to be a reliable supplier of high quality, technically innovative
signal processing products. We coordinate our marketing, research and
development, and manufacturing operations to develop new products and expand our
existing markets. Our marketing and development activities focus on identifying
and producing prototypes for new military and commercial programs and
applications in aerospace, navigational systems, telecommunications and cellular
analog and digital wireless telecommunications electronics. Our research and
development efforts are targeted towards providing customers with more complex,
reliable, and compact products at lower costs.
Our
product development is focused on the military and space market
segments. While we will opportunistically monitor and be alert to
commercial opportunities for Multi-Mix®, where the customer is willing to
partner with us for our design work, we will limit the speculative funding of
this commercial segment. The self-funded investment that we have
previously made has created a library of pre-engineered designs, especially in
RF Module Amplifiers, which provide platform families for both commercial and
military final customization.
The major
aerospace companies purchase components and subsystems from us. Our design
engineers work to develop solutions to customer requirements that are unique or
require special performance. We are committed to continuously enhancing our
leading position in high-performance electronic signal processing components and
integrated assemblies for communications, defense/aerospace, and Homeland
Security/ Global Security and Public Safety applications.
In 1998,
we introduced Multi-Mix® Microtechnology capabilities, an innovative process for
microwave, multilayer integrated circuits and micro-multifunction module (MMFM®)
technology and subsystems. This process is based on fluoropolymer composite
substrates, which are bonded together into a multilayer structure using a fusion
bonding process. The fusion bonding process provides a homogeneous dielectric
medium for superior electrical performance at microwave frequencies. This
3-dimensional Multi-Mix® design consisting of stacked circuit layers permits the
manufacture of components and subsystems that are a fraction of the size and
weight of conventional microstrip and stripline products.
We have
developed a strong library of intellectual property in the form of patents,
design elements and expertise centered around our proprietary Multi-Mix®
technology. With 16 active US Patents as well as several international patents,
we can offer unique RF integration solutions to customers that cannot be easily
realized in other technologies. Our ten years of experience and
development has created a set of design rules and techniques that enable complex
circuits to be reliably and quickly realized in small, rugged, and light weight
assemblies. This unique technology allows our customer’s designers to reduce the
size, weight and number of components in their end product or
system.
In 2001,
we introduced our Multi-Mix PICO® Microtechnology. Through Multi-Mix PICO®
technology, we offer a group of products at a greatly reduced size, weight and
cost that includes hybrid junctions, directional couplers, quadrature hybrids,
power dividers and inline couplers, filters and vector modulators along with
802.11a, 802.l1b, and 802.11g Wireless Local Area Network (WLAN) modules. When
compared to conventional multilayer quadrature hybrids and directional coupler
products, Multi-Mix PICO® is more than 84% smaller in size, without the loss of
power or performance.
In 2004,
we introduced our Multi-Mix Zapper® product line. The Multi-Mix Zapper® products
address the demands of the wireless and other cost-sensitive markets for high
quality products manufactured in volume with continued improvements in
performance, with dramatic reductions in size and weight at extremely
competitive cost. In addition to wireless base station communications, Multi-Mix
Zapper® are being used in or evaluated for airborne electronic countermeasures,
radar systems, smart antennas, satellite communications receiver modules,
missiles, as well as other commercial, military and space
applications.
We
believe that customers prefer our value-added Multi-Mix® approach over
traditional solutions because it enables them to minimize considerable costs of
design, test and measurement, packaging, and manufacturing, as well as the
unpredictable follow-on costs typically associated with factory tuning and
optimization. Multi-Mix® products provide our customers with integrated
solutions that simplify their internal design and manufacturing processes while
reducing the time and costs it takes to implement manufacturable and repeatable
products.
Our
Multi-Mix® technology also enables our customers to outsource certain design and
manufacturing functions, which in turn allows them to maintain focus on their
own core business competencies.
We
support many commercial and military customers, projects, and programs with our
array of traditional high-frequency technologies, including lumped-element and
stripline approaches. Our continuing evolution of Multi-Mix® Microtechnology
makes it possible to actively participate in next-generation commercial and
military designs. At least one leading military satellite communications
customer has indicated that Multi-Mix® Microtechnology is now their technology
of choice for higher levels of RF integration. This customer was able to realize
a 30-to-50-percent reduction in the size of their satellite receivers compared
to their existing conventional technology.
Our major
electronic components and subsystems product categories are:
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·
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power
dividers/combiners that equally divide input signals or combine coherent
signals for nearly lossless power
combinations;
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·
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I&Q
networks (a subassembly of circuits which allows two information signals
(incident and quadrature) to be carried on a single radio signal for use
in digital communication and navigational
positioning);
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·
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directional
couplers that allow for signal sampling along transmission
lines;
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·
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phase
shifters that accurately and repeatedly alter a signal's phase
transmission to achieve desired signal processing or
demodulation;
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·
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hybrid
junctions that serve to split input signals into two output signals with 0
degree phase difference or 180 degrees out of phase with respect to each
other;
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·
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balanced
mixers that convert input frequencies to another frequency; variable
attenuators that serve to control or reduce power flow without
distortion;
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·
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beamformers
that permit an antenna to electronically track signals when receiving and
electronically adjust radiation patterns when
transmitting;
|
|
·
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quadrature
couplers that serve to split input signals into two output signals 90
degrees out of phase with respect to each other or combine equal amplitude
quadrature signals; and
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|
·
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integration
of active circuitry
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These
components and integrated assemblies can be utilized in a variety of
applications including satellite communications, radar, digital communication
systems, global positioning and navigation systems, electronic warfare,
electronic countermeasures, commercial communications and radars.
Our other
product categories include single-side-band (SSB) modulators, image reject
mixers, vector modulators, high power RF Module Amplifiers and a wide variety of
specialized integrated Micro-Multifunction Modules (MMFM®) assemblies. In the
last fiscal year, no one product accounted for more than ten percent of total
net sales.
In 2008,
we focused our design efforts on Multi-Mix® multilayer subsystem products for
several satcom and military customers. We achieved record bookings of
$32.2 million, which represents a 13% increase over the previous year. As a
result, our year-end backlog also was a record of $21.0 million. In
2008 and 2007, there were two main areas of growth. We received an increased
number of orders for components used in satellite systems, both commercial and
military, adding to our market share and recognition in the industry as being a
leading supplier of space qualified passive microwave components. Our other area
for growth was in custom Multi-Mix® integrated assemblies in support of military
radar systems. Multi-Mix® is an enabling technology for next generation radars
and EW systems, allowing such systems to be more integrated and lighter than
their predecessors. We are participating in several new development projects for
key OEMs.
Over 50%
of our sales in 2008 were derived from the sales of products for use in
high reliability aerospace, satellite, and missile applications. These
products are designed to withstand severe environments without failure or
maintenance over prolonged periods of time (from 5 to 20 years). We provide
facilities dedicated to the design, development, manufacture, and testing of
these products along with dedicated program management and documentation
personnel.
Our
products are used in a broad range of other defense and commercial applications,
including radar, navigation, missiles, satellites, electronic warfare and
countermeasures, cellular analog and digital wireless telecommunications
electronics and communications equipment. Our products are also utilized in
systems to receive and distribute television signals from satellites and through
other microwave networks including cellular radio.
DISCONTINUED
OPERATIONS -FILTRAN MICROCIRCUITS INC.
GENERAL
Filtran
Microcircuits Inc. (“FMI”) was established in 1983, and was acquired by us in
February 1999. FMI is a manufacturer of microwave micro-circuitry for the high
frequency communications industry. FMI has been engaged in the production of
microstrip, bonded stripline, and thick metal-backed Teflon® (PTFE)
microcircuits for RF applications including satellite, aerospace, PCS, fiber
optic telecommunications, automotive, navigational and defense applications
worldwide. FMI has supplied mixed dielectric multilayer and high speed
interconnect circuitry to meet customer demand for high performance and
cost-effective packaging.
In 2007
our management determined, and the Board of Directors approved on August 9,
2007, that the Company should divest its FMI operations with the view to enable
us to concentrate our resources on RF Microwave and Multi-Mix® Microtechnology
product lines to generate sustainable, profitable growth. Beginning with the
third quarter of 2007, we reflected FMI as a discontinued operation and we
reclassified prior financial statements to reflect the results of operations,
financial position and cash flows of FMI as discontinued
operations.
On
December 28, 2007, we sold substantially all of the assets of FMI to Firan
Technology Group Corporation ("FTG"), a manufacturer of high technology/high
reliability printed circuit boards that has operations in Toronto, Ontario,
Canada and Chatsworth, California. The transaction was effected pursuant to an
asset purchase agreement entered into between Merrimac, FMI and FTG. The total
consideration payable by FTG was $1,482,000 (Canadian $1,450,000) plus the
assumption of certain liabilities of approximately $368,000 (Canadian $360,000).
FTG paid $818,000 (Canadian $800,000) of the purchase price at the closing on
December 28, 2007 and the balance was paid on February 21, 2008 following the
conclusion of a transitional period.
STRATEGIC
OVERVIEW
We seek
to leverage our core competencies in High Reliability Design and Services,
development of High Power, High Frequency and High Performance products across
our main platforms for growth: Our strategy focuses on:
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·
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Providing
unique and cutting-edge customized technology
solutions;
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·
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Expanding
existing customer relationships and attracting new customers with our
smaller, more complex, more reliable, lower cost product
offerings;
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·
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Meeting
the advanced needs of our defense, satellite and commercial customers with
innovative specialty applications and products;
and
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·
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Improving
and integrating our internal development, engineering and production
capacities to reduce costs and improve
service.
|
To do
this, we coordinate our marketing, research and development, and manufacturing
operations to develop new products and expand our markets.
Our
marketing and development activities focus on identifying new design
opportunities for new long term military and commercial production programs
and applications in aerospace, navigational systems, telecommunications and
telecommunications electronics. Our research and development efforts are
targeted towards providing customers with more complex, reliable, and compact
products at lower costs.
We intend
to continue to focus on customer service, technology innovation and process
excellence to further expand our penetration into the defense, satellite
communications and wireless markets. Essential components of our strategy
include the following:
Products
.
Our
platforms for growth are RF Microwave, Multi-Mix® and High Volume Operations in
Costa Rica focus on providing unique solutions and delivering profitable value
to our key customers. High Power, High Frequency and High Performance are
embedded competencies that drive customer value and enable us to consistently
meet and exceed the demanding needs and expectations of our
customers.
|
·
|
High
Power: Our thermal management design and processes enable our products to
achieve power levels greater than 500 watts. Our process enables the use
of low loss dielectrics and metals, so that power dissipation is minimized
(i.e. less heat is generated). In addition, thick metal layers and thermal
vias are utilized to draw out, spread, and sink away heat generated in the
circuits and modules. Further, since thick metal layers are directly
bonded to dielectric layers using a high temperature process, the
resulting module is robust, and able to withstand subsequent environmental
processing temperatures without being adversely
affected.
|
|
·
|
High
Frequency: Our products operate efficiently across high frequency bands up
to 65 GHz, an ever-growing marketplace requirement. The efficient
performance of circuits and modules at millimeter wave frequencies is
enabled by our ability to miniaturize the printed circuit elements and
integrate them with semiconductor microcircuits (MMICs). Our process
allows the fabrication of a homogeneous circuit medium with accurate
circuit feature
producibility.
|
|
·
|
High
Performance: Our focus on technology innovation and process excellence
delivers solutions that perform without failure in all mission-critical
environments and under extremely demanding
conditions.
|
Pursue Technology
Innovations
.
We intend
to use our technological expertise and leadership in the defense, satellite and
commercial markets to extend our competitive advantage. We intend to continue to
invest in research and development in the Multi Mix® process and with customer
funded investment, will focus our efforts on new product development for
specific customer applications. We will continue to build upon our
relationships with key original equipment manufacturers in order to develop and
provide state-of-the-art products and services.
Our
research and development activities include the development of new additional
designs for the Multi Mix® process capabilities in both our West Caldwell and
Costa Rica manufacturing facilities. Through process development we
intend to enhance our competitive position by being able to provide
sophisticated, customer specific integrated designs that facilitate customers to
take advantage of the benefits of our Multi Mix ®
technology. We intend to continue to expand our use of
computer-aided design and manufacturing (CAD/CAM) in order to reduce design and
manufacturing costs as well as development time. We believe that
sharing interactive data bases with our customers facilitates real time review
and discussion of design concepts.
Customer
Intimacy Creates Increased Customer Share.
Our
largest customers include BAE Systems, The Boeing Company, EADS Astrium, General
Dynamics Corporation, ITT, Lockheed Martin Corporation, L-3 Communications
Corporation, Northrop Grumman Corporation, Raytheon Company, Mitsubishi
Electronics and Space Systems Loral. All are major industrial corporations that
integrate our products into a wide variety of defense and commercial
systems.
Our
customers desire smaller, lighter, more cost-effective, and highly integrated
components, systems, and subsystems for future applications. Our design
engineers work to develop solutions to customer requirements that are unique or
require special performance. We are committed to continuously enhancing our
leading position in high-performance electronic signal processing components for
communications, defense and satellite applications, thereby attracting new
customers and increasing the reliance of current customers on our
expertise.
For most
customers, we must be a "qualified" supplier, continually demonstrating our
ability to meet their demanding design and manufacturing standards. For defense
contractors, we are a mission-critical supplier. For Aerospace companies, our
products meet the high reliability standards of space. In these markets, to be a
qualified supplier, we must have the technology, and, process excellence to
support custom applications in design, manufacturing, testing and custom
services.
Process
Excellence.
Improved
production efficiencies coupled with the expanding capabilities of our low-cost
manufacturing facility in Costa Rica and more extensive investment in automated
test equipment and modeling software have resulted in a considerable increase in
production capacity. Additionally, our investment in a new ERP system has
enhanced our competitive position. We are continuing to invest in manufacturing
capital equipment in both facilities to provide greater capacity and flexibility
and to reduce operating costs.
Defense and Satellite
Communications
.
In the
defense and satellite communications markets, our components are found in a
diverse array of applications ranging from national missile defense systems to
fighter jets, electronic warfare, shipboard radar communications and other
mission-critical applications. Almost all satellites in orbit today utilize our
technology.
For our
prime contractor customers in defense and satellite communications, we deliver
highly customized solutions that are designed for specific applications under
very specific design criteria and rigid requirements. Today defense and
satellite communications customers seek components and subsystems that meet
higher integration and performance standards in smaller, lighter and less costly
to produce integrated modules. These products must have exceptional shielding
properties and must be able to function without failure in severe environments
with wide temperature changes and high levels of shock and
vibration.
The cost
rates utilized for cost-reimbursement contracts are subject to review by third
parties and can be revised, which can result in additions to or reductions from
revenue. Revisions which result in reductions to revenue are recognized in the
period that the rates are reviewed and finalized; additions to revenue are
recognized in the period that the rates are reviewed, finalized, accepted by the
customer, and collectability from the customer is assured. We submit financial
information regarding the cost rates on cost-reimbursement contracts for each
fiscal year in which we performed work on cost-reimbursement contracts. We do
not record any estimates on a regular basis for potential revenue adjustments,
as there currently is no reasonable basis on which to estimate such adjustments
given our very limited experience with these contracts. Currently we
do not have any cost-reimbursement contracts on the books. All
contracts are firm, fixed price contractual agreements.
MARKETING
We market
our products in the United States directly to customers through a sales and
marketing staff comprised of eleven employees and four independent domestic
sales organizations. We also rely on eighteen independent sales
organizations to market our products elsewhere in the world. Our marketing
program focuses on identifying new programs and applications for which we can
develop prototypes leading to volume production orders.
Key
Customers.
The
following table presents our key customers and the percentage of net sales made
to such customers:
|
|
|
2008
|
|
|
2007
|
|
|
Raytheon
Company
|
|
|
16.7
|
%
|
|
|
16.6
|
%
|
|
Northrop
Grumman Corporation
|
|
|
14.6
|
%
|
|
|
7.0
|
%
|
|
The
Boeing Company
|
|
|
14.2
|
%
|
|
|
6.7
|
%
|
|
Lockheed
Martin Corporation
|
|
|
13.2
|
%
|
|
|
11.3
|
%
|
|
ITT
Corporation
|
|
|
3.6
|
%
|
|
|
6.5
|
%
|
Merrimac
has internet addresses (www.merrimacind.com or www.multi-mix.com). Merrimac's
product catalog is available on its websites.
EXPORT
CONTROLS
Our
foreign sales are predominately subject to the Export Administration Regulations
("EAR") administered by the U.S. Department of Commerce and may, in certain
instances, be subject to the International Traffic in Arms Regulations ("ITAR'')
administered by the U.S. Department of State. EAR restricts the export of
dual-use products and technical data to certain countries, while ITAR restricts
the export of defense products, technical data and defense services. We believe
that we have implemented internal export procedures and controls in order to
achieve compliance with the applicable U.S. export control
regulations.
RESEARCH
AND DEVELOPMENT
During
2008, and 2007 research and development expenditures amounted to approximately
$1,019,000 and $1,579,000, respectively. Substantially all of the research and
development funds in fiscal 2008 were expended for new Multi-Mix®
Microtechnology products. We expect to reduce our research and development fund
in fiscal 2009, and will focus our efforts on Multi-Mix® process enhancements
for specific customer applications requiring integration of circuitry and
further miniaturization, precision and volume applications. We
continue to invest in our use of computer aided design and manufacturing
(CAD/CAM) in order to reduce design and manufacturing costs as well as
development time.
ENVIRONMENTAL
REGULATION
We have
established internal environmental controls and procedures in both our Costa
Rica and New Jersey facilities. We hire independent, environmental
experts to perform scheduled audits to evaluate the procedures against
regulations and good business practices. When opportunities for
improvement are identified, corrective action plans are
implemented.
Federal,
state and local requirements relating to the discharge of substances into the
environment, the disposal of hazardous waste and other activities affecting the
environment have had and will continue to have an impact on our manufacturing
operations. Thus far, compliance with current environmental requirements has
been accomplished without material effect on our liquidity and capital
resources, competitive position or financial statements, and we believe that
such compliance will not have a material adverse effect on Merrimac's liquidity
and capital resources, competitive position or financial statements in the
future. We cannot assess the possible effect of compliance with future
requirements.
BACKLOG
We
manufacture specialized components and subsystems pursuant to firm orders from
customers and standard components for inventory. As of January 3, 2009, we had a
backlog of orders of approximately $21.0 million. We estimate that approximately
90% of the orders in our backlog as of January 3, 2009 will be shipped within
one year. We do not consider our business to be seasonal.
The
backlog of unfilled orders includes amounts based on signed contracts as well as
agreed letters of intent, which we have determined are legally binding and
likely to proceed. Although backlog represents only business that is
considered likely to be performed, cancellations or scope adjustments may and do
occur. The elapsed time from the award of a contract to completion of
performance may be up to approximately four years. The dollar amount
of backlog is not necessarily indicative of our future earnings related to the
performance of such work due to factors outside our control, such as changes in
project schedules, scope adjustment or project cancellations. We
cannot predict with certainty the portion of backlog to be performed in a given
year. Backlog is adjusted quarterly to reflect project cancellations,
deferrals, revised project scope and cost, and sales of subsidiaries, if
any.
COMPETITION
We
encounter competition in all aspects of its business. We compete both
domestically and internationally in the military and commercial
markets. Our competitors consist of entities of all sizes.
Occasionally, smaller companies offer lower prices due to lower overhead
expenses, and generally, larger companies have greater financial and operating
resources than us, in addition to well-recognized brand names. We compete on the
basis of technological performance, quality, reliability and dependability in
meeting shipping schedules as well as on the basis of price. We believe that our
performance with respect to the above factors have served it well in earning the
respect and loyalty of many customers in the industry. These factors have
enabled us over the years to successfully maintain a sound customer base and
have directly contributed to our ability to attract new customers and a larger
share of existing customers.
MANUFACTURING,
ASSEMBLY AND SOURCE OF SUPPLY
Our
manufacturing operations consist principally of design, assembly and testing of
components and subsystems built from purchased electronic materials and
components, fabricated parts, and printed circuits. Manual and
semiautomatic methods are utilized depending principally upon production
volumes. We have our own machine shop employing CAD/CAM techniques and etching
facilities to handle soft and hard substrate materials. In addition, we maintain
testing and inspection procedures intended to monitor production controls and
enhance product reliability.
We began
manufacturing in Costa Rica in the second half of 1996. In February 2001, we
entered into a five-year lease in Costa Rica for a 36,200 square-foot facility
for manufacturing Multi-Mix® Microtechnology products. The lease was renewed for
an additional five years in 2006. The leasehold improvements and capital
equipment for this manufacturing facility were completed at a cost of
approximately $5,600,000 and this facility was opened for production in August
2002.
We have
developed and implemented a quality system to satisfy the needs of our customers
and provide adequate assurance that our products will meet or exceed specified
requirements. We continue to establish and refine procedures and supporting
documentation to enable the fast transition from prototype engineering to
operational manufacturing of products.
In
October 2002, our Multi-Mix® operations in West Caldwell, New Jersey achieved
certification to ISO 9001:2000. In December 2002, our Multi-Mix® facility in
Costa Rica achieved certification to ISO 9001:2000. In August 2003, our quality
system was revised to incorporate the Costa Rica facility with the West Caldwell
facility. During 2003, FM Approvals performed required audits and issued
certificates of Registration to ISO 9001:2000 covering both facilities. In June
2004, the West Caldwell facility was surveyed for compliance to the Aerospace
standard AS9100. In December 2004, RW TUV (now TUV USA) issued a certificate of
registration to the West Caldwell facility for ISO 9001:2000 and AS9100. FM
Approvals in Costa Rica and TUV USA in West Caldwell have maintained these
registrations via periodic audits through March 2006. In October 2006, the Costa
Rica facility successfully completed RW USA's audit for AS9100 and ISO
9001:2000. In January 2007 the West Caldwell facility successfully completed RW
USA's audit for AS9100 and ISO 9001:2000. In October/November 2007, both of our
West Caldwell and Costa Rica facilities were audited for re-certification to ISO
9001:2000 and AS9100. The recertification was completed in December 2007 and
will remain in effect until December 2010, pending successful completion of the
required periodic third party audits.
Electronic
components and raw materials used in our products are generally available from a
sufficient number of qualified suppliers. Some materials are standard items.
Subcontractors manufacture certain materials to our specifications. We are
dependent on single suppliers for certain of its components or
materials.
EMPLOYEE
RELATIONS
As of
January 3, 2009, we employed approximately 207 full time employees, including 90
employees at our Costa Rica facility. None of our employees are represented by a
labor organization. We believe that relations with our employees are
satisfactory.
PATENTS
As of
April 2, 2009, we own 16 active patents with respect to certain inventions we
developed and have received a Notice of Allowance from the U.S. Patent and
Trademark Office for a new patent that is expected to be issued shortly. No
assurance can be given that the protection that we have acquired through patents
is sufficient to deter others, legally or otherwise, from developing or
marketing competitive products. There can be no assurance that any of the
patents will be found valid, if validity is challenged. Although we have from
time to time filed patent applications in connection with the inventions which
it believes are patentable, there can be no assurance that these applications
will receive patents.
You
should carefully consider the matters described below before making an
investment decision.
Our
business, results of operations or cashflows maybe adversely affected if any of
the following risks actually occur. In such case, the trading price of our
common stock could decline, and you may lose part or all of your
investment.
The
market for our products, in particular our Multi-Mix® products, is rapidly
evolving. If we are not able to continually enhance our
Multi-Mix® process capabilities so that we will be able to handle the specific,
unique requirements our customers’ need for their systems our net sales may
suffer.
Our
future success depends in a large part on our ability to develop and market our
Multi-Mix® products and to have the ability to continually refine our process to
meet our customers’ specifications. We will also need to continually
enhance our existing core products (passive RF and microwave component
assemblies, power dividers and other products), lower product cost and develop
new products that maintain technological competitiveness. Our core products must
meet dynamic customer, regulatory and particular technological requirements and
standards, and our Multi-Mix® products must respond to the changing needs of our
customers, particularly our OEM customers. These customer requirements might or
might not be compatible with our current or future product offerings. We might
not be successful in modifying our products and services to address these
requirements and standards and our business could suffer.
Although
we generated a net profit for fiscal year 2008, we recorded net losses in the
previous two fiscal years and we may not be able to sustain our
profitability.
Although
we generated a net profit of $98,000 for the year ended January 3, 2009, which
included a loss of $142,000 related to our discontinued operations, we recorded
a net loss of $5,821,000 for the year ended December 29, 2007, of which
$4,387,000 was related to our discontinued operations. We experienced
approximately a 34% increase in sales for 2008, from continuing operations,
primarily resulting from material increased bookings in 2007 and 2008, and
resulting from increased backlog of our traditional and Multi-Mix® products. We
may not be able to sustain or increase our profitability in the short-term or
long-term, on a quarterly or an annual basis, in subsequent periods. If our
financial results fall below the expectations of investors, the price of our
common stock may suffer.
We
rely on a small number of customers for a substantial portion of our net sales,
and declines in sales to these customers could adversely affect our operating
results.
Sales to
our five largest customers accounted for 62% of our net sales in the fiscal year
ended January 3, 2009 and our two largest customers, Raytheon Company and
Northrop Grumman Corporation, accounted for 16.7% and 14.6% of our 2008 net
sales, respectively. We depend on the continued growth, viability and financial
stability of our customers, substantially all of which operate in an environment
characterized by rapid technological change, short product life cycle,
consolidation, and pricing and margin pressures. We expect to continue to depend
upon a relatively small number of customers for a significant percentage of our
revenue. Consolidation among our customers may further concentrate our business
in a limited number of customers and expose us to increased risks relating to
dependence on a small number of customers. In addition, a significant reduction
in sales to any of our large customers or significant pricing and margin
pressures exerted by a key customer would adversely affect our operating
results. In the past, some of our large customers have significantly reduced or
delayed the volume of products ordered from us as a result of changes in their
business, consolidation or divestitures or for other reasons. We cannot be
certain that present or future large customers will not terminate their
arrangements with us or significantly change, reduce or delay the amount of
products ordered from us, any of which would adversely affect our operating
results.
A
substantial portion of our sales are related to the defense and military
communications sectors. However, in times of armed conflict or war, military
spending is concentrated on armaments build up, maintenance and troop support,
and not on the research and development and specialty applications that are our
core strengths and revenue generators. Accordingly, our defense and military
product sales may decrease, and should not be expected to increase, at times of
armed conflicts or war.
Our
products are intended for use in various sectors of the satellite and defense
industries, which produces technologically advanced products with short life
cycles.
Factors
affecting the satellite, defense and telecommunications industries, in
particular the short life cycle of certain products, could seriously harm our
customers and reduce the volume of products they purchase from us. These factors
include:
|
·
|
the
inability of our customers to adapt to rapidly changing technology and
evolving industry standards that result in short product life
cycles;
|
|
·
|
the
inability of our customers to develop and market their products, some of
which are new and untested;
|
|
·
|
the
potential that our customers' products may become obsolete or the failure
of our customers' products to gain widespread commercial
acceptance;
|
|
·
|
U.S.
Government funding being diverted from defense spending to other programs
or economic recovery, and
|
|
·
|
tight
credit which could make it difficult for commercial satellite providers to
fund their programs.
|
A
significant proportion of our revenue is related to U.S Defense spending and
commercial satellite programs.
Our
business plan anticipates significant future sales from our Multi-Mix® products
used in defense applications and commercial satellites. Due to
overall economic and market conditions, and a new administration, funding may be
diverted from defense spending to the efforts of economic
recovery. Additionally, there may be limited financing available for
commercial satellite programs. These two factors could have an
adverse effect on bookings and revenue.
The
expenses relating to our products might increase, which could reduce our gross
margins.
In the
past, developing engineering solutions, meeting research and development
challenges and overcoming production and manufacturing issues have resulted in
additional expenses. These expenses create pressure on our average selling
prices and may result in decreased margins of our products. We expect that this
will continue. In the future, competition could increase, and we anticipate this
may result in additional pressure on our pricing. We also may not be able to
increase the price of our products in the event that the cost of components or
overhead increase. Changes in exchange rates between the United States and
Canadian dollars, and other currencies, might result in further disparity
between our costs and selling price and hurt our ability to maintain gross
margins.
We
carry inventory and there is a risk we may be unable to dispose of certain
items.
We
procure inventory based on specific customer orders and forecasts. Customers
have certain rights of modification with respect to these orders and forecasts.
As a result, customer modifications to orders and forecasts affecting inventory
previously procured by us and our purchases of inventory beyond customer needs
may result in excess and obsolete inventory for the related customers. Although
we may be able to use some of these excess components and raw materials in other
products we manufacture, a portion of the cost of this excess inventory may not
be recoverable from customers, nor may any excess quantities be returned to the
vendors. We also may not be able to recover the cost of obsolete inventory from
vendors or customers.
Write
offs or write downs of inventory generally arise from:
|
·
|
declines
in the market value of inventory;
|
|
·
|
changes
in customer demand for inventory, such as cancellation of orders;
and
|
|
·
|
our
purchases of inventory beyond customer needs that result in excess
quantities on hand and that we are not able to return to the vendor or
charge back to the customer.
|
Our
products and therefore our inventories are subject to technological risk. At any
time either new products may enter the market or prices of competitive products
may be introduced with more attractive features or at lower prices than ours.
There is a risk we may be unable to sell our inventory in a timely manner and
avoid it becoming obsolete. As of January 3, 2009, our inventories including raw
materials, work-in-process and finished goods, were valued at $4.9 million
reflecting reductions due to valuation allowances for cost overruns of
approximately $52,000 against these inventories. In the event we are required to
substantially discount our inventory or are unable to sell our inventory in a
timely manner, we would be required to increase our valuation allowances and our
operating results could be substantially adversely affected.
We
depend on a limited number of suppliers.
Electronic
devices, components and made-to-order assemblies used in our traditional (i.e.,
non-Multi-Mix) products are generally obtained from a number of suppliers,
although certain components are obtained from a limited number of suppliers.
Some devices or components are standard items while others are manufactured to
our specifications by our suppliers.
Except as
described below, we believe that most raw materials used in manufacturing our
products are available from alternative suppliers. We do not have binding
agreements or commitments with our suppliers for the quantity and prices of our
raw materials. Our reliance on suppliers, especially sole source or limited
suppliers, involves the risks of adequate capacity and reduced control over
delivery schedules and costs. While there may be alternative qualified suppliers
for some of these components, substitutes for certain materials are not readily
available. Any significant interruption in delivery of such items could have an
adverse effect on our operations.
Manufacturing
of our Multi-Mix® products requires certain components and raw materials that
currently are only available from a sole supplier or limited number of
suppliers, particularly for products intended for specific applications. Our
Multi-Mix products utilize certain substrate materials in the fusion bonding
process, currently obtained from a single vendor. Although there may be
alternative types of substrates that are under evaluation, we have designed its
current Multi-Mix® products utilizing the current source of supply, and use of
alternative substrates could result in design, engineering, manufacturing,
performance and cost challenges and delays.
Any
difficulty in obtaining sufficient quantities of such raw materials on a timely
basis, and at economic prices, could result in design and engineering changes
and expenses, shipment delays and/or an inability to manufacture certain
Multi-Mix products. Significant increases in the costs of such materials could
also have a material adverse effect on our value proposition and marketing
efforts with potential customers and our results of operations and
profitability.
We
generally do not obtain firm long-term volume purchase commitments from
customers, and, therefore, cancellations, reductions in production quantities
and delays in production by our customers could adversely affect our operating
results.
We
generally do not obtain firm long-term purchase commitments from our customers.
Customers may cancel their orders, choose not to exercise options for further
product purchases, reduce production quantities or delay production for a number
of reasons. In the event our customers experience significant decreases in
demand for their products and services, our customers may cancel orders, delay
the delivery of some of the products that we manufactured or place purchase
orders for fewer products than we previously anticipated. Even when our
customers are contractually obligated to purchase products from us, we may be
unable or, for other business reasons, choose not to enforce our contractual
rights. Cancellations, reductions or delays of orders by customers
would:
|
·
|
adversely
affect our operating results by reducing the volumes of products that we
manufacture for our customers;
|
|
·
|
delay
or eliminate recoupment of our expenditures for inventory purchased in
preparation for customer orders;
and
|
|
·
|
lower
our asset utilization, which would result in lower gross
margins.
|
Products
we manufacture may contain design or manufacturing defects that could result in
reduced demand for our services and liability claims against us.
We
manufacture products to our customers' specifications that are highly complex
and may at times contain design or manufacturing defects. Defects have been
discovered in products we manufactured in the past and despite our quality
control and quality assurance efforts, defects may occur in the future. Defects
in the products we manufacture, whether caused by design, manufacturing or
component defects, may result in delayed shipments to customers, reduced margins
or cancelled customer orders. Should these defects occur in large quantities or
frequently, our business reputation may also be tarnished. In addition, these
defects may result in liability claims against us. Even if customers are
responsible for the defects, we may assume responsibility for any costs or
payments.
Variations
in our quarterly operating results could occur due to factors including changes
in demand for our products, the timing of shipments and changes in our mix of
net sales.
Our
quarterly net sales, expenses and operating results have varied in the past and
might vary significantly from quarter to quarter in the future.
Quarter-to-quarter comparisons of our operating results are not a good
indication of our future performance, and should not be relied on to predict our
future performance. Our short-term expense levels and manufacturing and
production facilities infrastructure overhead are relatively fixed and are based
on our expectations of future net sales. If we were to experience a reduction in
net sales in a quarter, we could have difficulty adjusting our short-term
expenditures and absorbing our excess capacity expenses. If this were to occur,
our operating results for that quarter would be negatively impacted. Other
factors that might cause our operating results to fluctuate on a quarterly basis
include:
|
·
|
customer
decisions to defer, accelerate or cancel
orders;
|
|
·
|
timing
of shipments of orders for our
products;
|
|
·
|
changes
in the mix of net sales attributable to higher-margin and lower-margin
products;
|
|
·
|
changes
in product mix which could cause unexpected engineering or research and
development costs;
|
|
·
|
announcements
or introductions of new products by our
competitors;
|
|
·
|
engineering
or production delays due to product defects or quality problems and
production yield issues;
|
|
·
|
dynamic
defense budgets which could cause military program delays or
cancellations;
|
|
·
|
limited
capital resources making it difficult to fund commercial programs;
and
|
|
·
|
economic
recovery programs that may divert government funding from defense
budgets.
|
Due
to the availability limits, fluctuations in our borrowing base and other terms
of our financing agreement, we may experience capital constraints from time to
time.
On
September 29, 2008, we entered into an agreement with Wells Fargo Business
Credit (“Wells Fargo”) which replaced our credit facility with Capital One, N.A.
The new credit facility with Wells Fargo consists of a three-year $5,000,000
collateralized revolving credit facility, a three-year $500,000 equipment term
loan and a three-year $2,500,000 real estate term loan. While the
credit facility is expected to adequately provide for our capital needs, the
revolving line of credit is subject to availability limits under a borrowing
base calculation of 85% of eligible domestic accounts receivable, 75% of
eligible foreign accounts receivable, and 30% of eligible inventory with an
inventory sublimit of $400,000. Due to these terms from time to time
we may experience capital constraints. Additionally the Wells Fargo
credit facility contains several financial covenants and while we expect to be
in compliance with all of our financial covenants during the next year, were we
not to be in compliance with one or more of our financial covenants and be
unable to obtain a waiver from Wells Fargo, Wells Fargo would be entitled to
accelerate the maturity of amounts outstanding under the revolving credit
facility. This could materially and adversely impact our financial
condition, results of operations and cash flows.
We
have significant competition in our industry.
The
microwave component and subsystems industry continues to be highly competitive.
We compete against many companies, both foreign and domestic, many of which are
larger and have greater financial and other resources. Our major competitors are
Anaren, Cobham, L-3 Communications (Narda), TRM and K&L Microwave. As a
direct supplier to OEMs, we also face significant competition from the in-house
capabilities of our customers.
The
principal competitive factors are technical performance, reliability, ability to
produce in volume, on-time delivery and price. Based on these factors, we
believe that we compete favorably in its markets.
The RF
Microwave components industry is highly competitive and has become more so as
defense spending has changed program-spending profiles. Furthermore, current DoD
efforts continue to support troops engaged in existing hostilities around the
world. We compete against numerous U.S. and foreign providers with global
operations, as well as those who operate on a local or regional basis. In
addition,
current and prospective customers continually evaluate the merits of
manufacturing products internally. Changes in the industries and sectors we
service could significantly harm our ability to compete, and consolidation
trends could result in larger competitors that may have significantly greater
resources with which to compete against us.
We may be
operating at a cost disadvantage compared to manufacturers who have greater
direct buying power from component suppliers, distributors and raw material
suppliers or who have lower cost structures. Our manufacturing processes are
generally not subject to significant proprietary protection, and companies with
greater resources or a greater market presence may enter our market or increase
their competition with us. Increased competition could result in price
reductions, reduced sales and margins or loss of market share.
Intellectual
property rights in our industry are commonly subject to challenge.
Substantial
litigation regarding intellectual property rights exists in our industry. We do
not believe our intellectual properties infringe those of others, and are not
aware that any third party is infringing our intellectual property rights. A
risk always exists that third parties, including current and potential
competitors, could claim that our products, or our customers' products, infringe
on their intellectual property rights or that we have misappropriated their
intellectual property. We may discover that a third party is infringing upon our
intellectual property rights, or has been issued an infringing
patent.
Infringement
suits are time consuming, complex, and expensive to litigate. Such litigation
could cause a delay in the introduction of new products, require us to develop
non-infringing technology, require us to enter into royalty or license
agreements, if available, or require us to pay substantial damages. We have
agreed to indemnify certain customers for infringement of third-party
intellectual property rights. We could incur substantial expenses and costs in
case of a successful indemnification claim. A significant negative impact would
result if a successful claim of infringement were made against us and we could
not develop non-infringing technology or license the infringed or similar
technology on a timely and cost-effective basis.
Our
success depends to a significant degree upon the preservation and protection of
our product and manufacturing process designs and other proprietary technology.
To protect our proprietary technology, we generally limit access to our
technology, treat portions of such technology as trade secrets, and obtain
confidentiality or non-disclosure agreements from persons with access to the
technology. Our agreements with our employees prohibit employees from disclosing
any confidential information, technology developments and business practices,
and from disclosing any confidential information entrusted to us by other
parties. Consultants engaged by us who have access to confidential information
generally sign an agreement requiring them to keep confidential and not disclose
any non-public confidential information.
We
currently have 16 active patents. We plan to pursue intellectual property
protection in foreign countries, primarily in the form of international patents,
in instances where the technology covered is considered important enough to
justify the added expense. By agreement, our employees who initiate or
contribute to a patentable design or process are obligated to assign their
interest in any potential patent to us.
Our
executive officers, engineers, research and development and technical personnel
are critical to our business, and without them we might not be able to execute
our business strategy.
Our
financial performance depends substantially on the performance of our executive
officers and key employees. We are dependent in particular on Mason N. Carter,
who serves as our Chief Executive Officer, Reynold K. Green, our Chief Operating
Officer, J. Robert Patterson, who serves as our Chief Financial Officer and
James J. Logothetis, our Chief Technology Officer. We are also
dependent upon our other highly skilled engineering, research and development
and technical personnel, due to the specialized technical nature of our
business. If we lose the services of any of our key personnel and are
not able to find replacements in a timely manner, our business could be
disrupted, other key personnel might decide to leave, and we might incur
increased operating expenses associated with finding and compensating
replacements.
Our
industry is subject to numerous government regulations.
Our
products are incorporated into telecom and wireless communications systems that
are subject to regulation domestically by various government agencies, including
the Federal Communications Commission and internationally by other government
agencies. In addition, because of our participation in the satellite and defense
industry, we are subject to audit from time to time for compliance with
government regulations by various governmental agencies. We are also subject to
a variety of local, state and federal government regulations relating to
environmental laws, as they relate to toxic or other hazardous substances used
to manufacture our products. We believe that we operate our business in material
compliance with applicable laws and regulations. However, any failure to comply
with existing or future laws or regulations could have a material adverse affect
on our business, financial condition and results of operations.
Export
controls could impact our ability to sell our products to non-U.S.
customers.
Our
products are subject to the Export Administration Regulations ("EAR")
administered by the U.S. Department of Commerce and may, in certain instances,
be subject to the International Traffic in Arms Regulations ("ITAR")
administered by the U.S. Department of State. EAR restricts the
export of dual-use products and technical data to certain countries, while ITAR
restricts the export of defense products, technical data and defense services.
We believe we have implemented internal export procedures and controls in order
to achieve compliance with the applicable U.S. export control regulations. The
U.S. government agencies responsible for administering EAR and ITAR have
significant discretion in the interpretation and enforcement of these
regulations, and it is possible that these regulations could adversely affect
our ability to sell its products to non-U.S. customers.
Some
of our operations are outside the United States, which poses risks to our
business operations.
A
significant percentage of our sales is derived from the operations of our
wholly-owned subsidiary in Costa Rica. These sales are subject to the risks
normally associated with international operations which include, without
limitation, fluctuating currency exchange rates, changing political and economic
conditions, difficulties in staffing and managing foreign operations, greater
difficulty and expense in administering business abroad, complications in
complying with foreign laws and changes in regulatory requirements, and cultural
differences in the conduct of business.
While we
believe that current political and economic conditions in Costa Rica are
relatively stable, such conditions may adversely change so as to affect
underlying business assumptions about the current opportunities which exist for
doing business in this country. In particular, the government in Costa Rica
could change or the cost of labor and/or goods and services necessary to our
operations may increase. We are also dependent on the availability of adequate
air transportation to and from Costa Rica to send and to receive product from
our factory.
We
found material weaknesses in our internal control over financial reporting and
concluded that our disclosure controls and procedures and our internal control
over financial reporting were not effective as of December 29, 2007 and January
3, 2009.
As
disclosed in Part II, Item 9A(T), “Controls and Procedures,” of this Annual
Report on Form 10-K, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures and our internal control
over financial reporting were not effective as of January 3, 2009. It was also
concluded that our disclosure controls and procedures and our internal control
over financial reporting for the year ended December 29, 2007, previously
reported and believed to be effective, were not effective. Our
failure to successfully implement our plans to remediate the material weaknesses
discovered could cause us to fail to meet our reporting obligations, to fail to
produce timely and reliable financial information, and to effectively prevent
and detect fraud. Additionally, such failures could cause investors to lose
confidence in our reported financial information, which could have a negative
impact on our financial condition and stock price.
If
we receive other than an unqualified opinion on the adequacy of our internal
control over financial reporting as of January 2, 2010 and future year-ends as
required by Section 404 of the Sarbanes-Oxley Act, investors could lose
confidence in the reliability of our financial statements, which could result in
a decrease in the value of our common stock.
As
required by Section 404 of the Sarbanes-Oxley Act, the SEC adopted rules
requiring public companies to include a report of management on our internal
control over financial reporting in their annual reports that contains an
assessment by management of the effectiveness of our internal control over
financial reporting. In addition, the public accounting firm auditing a
company's financial statements must audit and report on the effectiveness of the
company's internal control over financial reporting.
If, at
the end of fiscal year 2009, our independent auditors issue other than an
unqualified opinion on the effectiveness of our internal control over financial
reporting for fiscal year 2009, this could result in an adverse reaction in the
financial markets due to a loss of confidence in the reliability of our
financial statements, which could cause the market price of our shares to
decline.
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
United
States
Our
administrative offices and research and principal production facilities are
located in West Caldwell, New Jersey, on a five-acre parcel owned by Merrimac.
The West Caldwell plant comprises 71,200 square feet.
We own
all of the land, buildings, laboratories, production and office equipment, as
well as the furniture and fixtures in West Caldwell, New Jersey. We believe that
our plant and facilities are well suited for our business and are properly
utilized, suitably located and in good condition.
Costa
Rica
We
currently leases a 36,200 square-foot facility in San Jose, Costa Rica under a
five-year lease which expired in February 2006 (with a five-year renewal
option). The renewal option was exercised in February 2006 and the lease will
continue through February 2011. This facility, which opened for production in
August 2002, is used for manufacturing our products.
|
ITEM 3.
|
LEGAL
PROCEEDINGS.
|
We are
party to lawsuits arising in the normal course of business. It is the opinion of
our management that the disposition of these various lawsuits will not
individually or in the aggregate have a material adverse effect on our
consolidated financial position or the results of operations.
On
February 22, 2008, a statement of claim in Ontario Superior Court of Justice was
filed by a former FMI employee against FMI seeking damages for approximately
$77,000 ($75,000 Canadian) for wrongful dismissal following the sale of FMI’s
assets to FTG. We settled this claim in May 2008 for a minimal
amount.
On March
10, 2008, a statement of claim in Ontario Superior Court of Justice was filed by
nineteen (19) former FMI employees against Merrimac, FMI and FTG seeking damages
for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
following the sale of FMI’s assets to FTG. The former FMI employees are alleging
that an employment contract existed between FMI and the plaintiffs and are
seeking additional damages for termination of the alleged
contract. We have an Employment Practices Liability insurance policy
that extends coverage to our subsidiaries. The insurance carrier
agreed to provide a defense in this matter on April 24, 2008 and they retained
Canadian counsel to defend this claim. Thus far we have paid fees and
legal costs of $25,000 related to the matter which is the deductible amount of
the insurance policy. In accordance with the requirements of SFAS No. 5, after
discussions with counsel, we believe an unfavorable outcome is probable and we
estimate the amount of the probable loss to be $50,000 for which we made a
provision for as of the end of our fiscal year 2008. We and our insurance
carrier intend to defend these claims vigorously.
On July
23, 2008, a Statement of Claim was filed in Ontario Superior Court of Justice by
the lessor of the premises formerly occupied by FMI in Ontario, Canada, against
FMI, Merrimac, and FTG. The Statement of Claim seeks damages of
$150,612 in respect of the period from and after which FTG, which purchased the
assets of FMI, removed operations from the premises through the term of the
lease. In addition, the Statement of Claim seeks damages for $110,319
for repairs to the premises, and seeks to set aside the transfer of assets from
FMI to FTG for the failure to comply with the Bulk Sales Act
Ontario. On December 19, 2008 we settled all matters with the lessor
for $88,000 ($104,000 Canadian) and a release was entered into by the
parties.
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
|
No
matters were submitted to a vote of our stockholders during the fourth quarter
of fiscal 2008.
PART
II
|
ITEM 5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY
SECURITIES.
|
Our
common stock has been listed and traded on The American Stock Exchange since
July 11, 1988, under the symbol MRM. As of March 25, 2009 we had approximately
150 holders of record. We believe there are approximately 800 additional holders
in "street name" through broker nominees.
The
following table sets forth the range of the high and low trading prices as
reported by the AMEX for the period from December 31, 2006 to January 3,
2009.
|
Fiscal Year Ended January 3,
2009
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
First
Quarter
|
|
|
10.04
|
|
|
|
6.50
|
|
|
Second
Quarter
|
|
|
7.29
|
|
|
|
4.46
|
|
|
Third
Quarter
|
|
|
5.80
|
|
|
|
3.50
|
|
|
Fourth
Quarter
|
|
|
5.45
|
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended December 29,
2007
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
First
Quarter
|
|
|
10.10
|
|
|
|
8.65
|
|
|
Second
Quarter
|
|
|
10.50
|
|
|
|
8.86
|
|
|
Third
Quarter
|
|
|
10.45
|
|
|
|
9.50
|
|
|
Fourth
Quarter
|
|
|
10.15
|
|
|
|
8.64
|
|
|
We
have not paid any cash dividends to our stockholders since the third
quarter of 1997.
|
|
Stock
Performance Chart: The following performance graph is a line graph comparing the
yearly change in the cumulative total stockholder return on the common stock
against the cumulative return of the AMEX Stock Market (U.S. Companies), and a
line of business index comprised of the AMEX Technologies Index for the five
fiscal years ended January 3, 2009.
|
|
|
1/3/04
|
|
|
1/1/05
|
|
|
12/31/05
|
|
|
12/30/06
|
|
|
12/29/07
|
|
|
01/03/09
|
|
|
Merrimac
Industries, Inc.
|
|
|
100.00
|
|
|
|
132.94
|
|
|
|
132.35
|
|
|
|
147.06
|
|
|
|
149.26
|
|
|
|
41.62
|
|
|
AMEX
Composite
|
|
|
100.00
|
|
|
|
124.13
|
|
|
|
155.00
|
|
|
|
184.30
|
|
|
|
217.52
|
|
|
|
132.72
|
|
|
AMEX
Technology
|
|
|
100.00
|
|
|
|
135.78
|
|
|
|
116.33
|
|
|
|
125.97
|
|
|
|
110.60
|
|
|
|
51.75
|
|
The
stock price performance included in this graph is not necessarily indicative of
future stock price performance.
Equity
Compensation Plan Information
The
following table gives information as of January 3, 2009, about our common stock
that may be issued upon the exercise of options, warrants and rights under our
existing equity compensation plans:
|
|
|
(a)
|
|
|
(b)
|
|
|
(c)
|
|
|
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
|
Weighted-average
exercise price of
outstanding options,
warrants and rights
|
|
|
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
|
|
|
Plan
Category
|
|
|
|
|
|
|
|
|
|
|
Equity
compensation plans
approved
by security holders
|
|
|
435,400
|
|
|
$
|
9.12
|
|
|
|
255,533
|
|
|
Equity
compensation plans
not
approved by security holders
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
Total
|
|
|
435,400
|
|
|
$
|
9.12
|
|
|
|
255,533
|
|
|
ITEM 7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
OVERVIEW
CONTINUING
OPERATIONS
We are
involved in the design, manufacture and sale of electronic component devices
offering extremely broad frequency coverage and high performance
characteristics, and microstrip, bonded stripline and thick metal-backed Teflon®
(PIPE) and mixed dielectric multilayer circuits for communications, defense and
aerospace applications. Our operations are conducted primarily through one
business segment, electronic components and subsystems.
We are a
versatile technologically oriented company specializing in radio frequency
Multi-Mix®, stripline, microstrip and discreet element technologies. Of special
significance has been the combination of two or more of these technologies into
single components and integrated multifunction subassemblies to achieve superior
performance and reliability while minimizing package size and weight. Our
components and integrated assemblies are found in applications as diverse as
satellites, military and commercial aircraft, radar, radio systems, medical
diagnostic instruments communications systems and wireless connectivity. We
maintain ISO 9001:2000 and AS 9100 registered quality assurance programs. Our
components range in price from $0.50 to more than $10,000 and our subsystems
range from $500 to more than $1,500,000.
In
accordance with the provisions of Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS
No. 144), the results of operations of FMI for the current and prior periods are
reported as discontinued operations and not included in the continuing
operations figures.
The
following table presents our key customers and the percentage of net sales made
to such customers:
|
|
|
2008
|
|
|
2007
|
|
|
Raytheon
Company
|
|
|
16.7
|
%
|
|
|
16.6
|
%
|
|
Northrop
Grumman Corporation
|
|
|
14.6
|
%
|
|
|
7.0
|
%
|
|
The
Boeing Company
|
|
|
14.2
|
%
|
|
|
6.7
|
%
|
|
Lockheed
Martin Corporation
|
|
|
13.2
|
%
|
|
|
11.3
|
%
|
|
ITT
Corporation
|
|
|
3.6
|
%
|
|
|
6.5
|
%
|
We market
and sell our products domestically and internationally through a direct sales
force and manufacturers' representatives. We have traditionally developed and
offered for sale products built to specific customer needs, as well as standard
catalog items. The following table provides a breakdown of electronic components
sales as derived from initial design orders for products custom designed for
specific customer applications, repeat design orders for such products and from
catalog sales:
|
|
|
2008
|
|
|
2007
|
|
|
Initial
design orders
|
|
|
36
|
%
|
|
|
24
|
%
|
|
Repeat
design orders
|
|
|
52
|
%
|
|
|
62
|
%
|
|
Catalog
sale orders
|
|
|
12
|
%
|
|
|
14
|
%
|
Orders
from our defense and satellite customers were higher during fiscal year 2008 as
compared to fiscal year 2007. Nevertheless, in times of armed conflict or war,
military spending is concentrated on armaments build up, maintenance and troop
support, and not on the research and development and specialty applications that
are our core strengths and revenue generators. Our orders during fiscal year
2008 for our Multi-Mix® Microtechnology products exceeded 2007 levels. We
anticipate orders to increase in the first quarter of 2009 as compared to the
first quarter of 2008, based on inquiries from existing customers, requests to
quote from prospective and existing customers and market research. We also
expect improved first quarter 2009 sales, as compared to the first quarter of
2008, due to the higher backlog that resulted from the increase in orders for
2008.
In 2008,
we had a 33.5% increase in sales over 2007 which led to an operating income from
continuing operations of approximately $676,000. The increase in
sales was a result of a strong backlog at the end of 2007 and a high volume of
orders received throughout 2008. Included in the sales for 2008 were
four large orders from major customers which combined were in excess of
$4,000,000. The higher volume of sales during 2008 had a positive
impact on the absorption of our fixed manufacturing costs. The
resulting increase in our gross profit combined with reductions in our research
and development costs and our efforts to keep selling, general and
administrative expenses from growing relative to sales has restored us to
profitability. We expect that due to the strong back log of orders we
have at the end of 2008 and our efforts to keep costs down that we will remain
profitable in 2009.
Our cost
of sales consists of materials, salaries and related expenses, and outside
services for manufacturing and certain engineering personnel and manufacturing
overhead. Our products are designed and manufactured in our two facilities. Our
manufacturing and production facilities infrastructure overhead are relatively
fixed and are based on our expectations of future net sales. Should we
experience a reduction in net sales in a quarter, we could have difficulty
adjusting short-term expenditures and absorbing any excess capacity expenses. If
this were to occur, our operating results for that quarter would be negatively
impacted. In order to remain competitive, we must continually reduce our
manufacturing costs through design and engineering innovations and increases in
manufacturing efficiencies. There can be no assurance that we will be able to
reduce our manufacturing costs.
Depreciation
and amortization expenses exceeded capital expenditures for new projects and
production equipment during 2008 by approximately $1.7 million, and we
anticipate that depreciation and amortization expenses will exceed capital
expenditures in fiscal year 2009 by approximately $1.9 million. We intend to
issue up to $600,000 of purchase order commitments for capital equipment from
various vendors and we anticipate that such equipment will be purchased and
become operational during fiscal year 2009. Our planned equipment purchases and
other commitments are expected to be funded through cash resources and cash
flows expected to be generated from operations, and supplemented by our
$5,000,000 revolving credit facility with Wells Fargo.
Selling,
general and administrative expenses consist of personnel costs for
administrative, selling and marketing groups, sales commissions to employees and
manufacturing representatives, travel, product marketing and promotion costs, as
well as legal, accounting, information technology and other administrative
costs. We do not expect to significantly increase our expenditures for selling,
general and administrative expenses in the coming year.
Research
and development expenses consist of materials, salaries and related expenses of
certain engineering personnel, and outside services related to product
development projects. We charge all research and development expenses to
operations as incurred. We believe that continued investment in research and
development is critical to our long-term business success. We intend
to continue to invest in research and development programs in future periods
focusing our efforts on Multi-Mix® process enhancements for military and space
market applications. However, overall we expect to reduce our
research and development expenditures in fiscal 2009 as a result of limiting our
investment in speculative funding of the commercial segment.
DISCONTINUED
OPERATIONS
Filtran
Microcircuits Inc. (“FMI”) was established in 1983, and we acquired FMI in
February 1999. FMI is a manufacturer of microwave micro-circuitry for the high
frequency communications industry. FMI has been engaged in the production of
microstrip, bonded stripline, and thick metal-backed Teflon® (PTFE)
microcircuits for RF applications including satellite, aerospace, PCS, fiber
optic telecommunications, automotive, navigational and defense applications
worldwide. FMI has supplied mixed dielectric multilayer and high speed
interconnect circuitry to meet customer demand for high performance and
cost-effective packaging.
Our
management determined, and the Board of Directors approved on August 9, 2007,
that the we should divest our FMI operations with the view to enable us to
concentrate our resources on RF Microwave and Multi-Mix® Microtechnology product
lines to generate sustainable, profitable growth. Beginning with the third
quarter of 2007, we reflected FMI as a discontinued operation and the we
reclassified prior financial statements to reflect the results of operations,
financial position and cash flows of FMI as discontinued
operations.
On
December 28, 2007, we sold substantially all of the assets of FMI to Firan
Technology Group Corporation, a manufacturer of high technology/high reliability
printed circuit boards that has operations in Toronto, Ontario, Canada and
Chatsworth, California. The transaction was effected pursuant to an asset
purchase agreement entered into between Merrimac, FMI and FTG. The total
consideration payable by FTG was $1,482,000 (Canadian $1,450,000) plus the
assumption of certain liabilities of approximately $368,000 (Canadian $360,000).
FTG paid $818,000 (Canadian $800,000) of the purchase price at the closing on
December 28, 2007 and the balance was paid on February 21, 2008 following the
conclusion of a transitional period.
Operating
results of FMI, which were formerly represented as our microwave micro-circuitry
segment, are summarized as follows:
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
Net
sales
|
|
$
|
-
|
|
|
$
|
3,628,000
|
|
|
Loss
from discontinued operations before provision for income
taxes
|
|
$
|
(142,000
|
)
|
|
$
|
(5,877,000
|
)
|
|
Gain
on sale of assets of discontinued operation
|
|
|
–
|
|
|
|
1,936,000
|
|
|
Provision
for income taxes
|
|
|
–
|
|
|
|
446,000
|
|
|
Loss
from discontinued operations
|
|
$
|
(142,000
|
)
|
|
$
|
(4,387,000
|
)
|
CRITICAL
ACCOUNTING ESTIMATES AND POLICIES
Our
management makes certain assumptions and estimates that impact the reported
amounts of assets, liabilities and stockholders' equity, and sales and expenses.
These assumptions and estimates are inherently uncertain. The management
judgments that are currently the most critical are related to the accounting for
our investments in Multi-Mix® Microtechnology, contract revenue recognition,
inventory valuation and valuation of deferred tax assets. Below is a further
description of these policies as well as the estimates involved.
Contract
Revenue Recognition
We derive
our revenues from sales of the following: customized products, which include
amounts billable for non-recurring engineering services and in some instances
the production and delivery of prototypes,
and the subsequent
production and delivery of units under short-term, firm-fixed price contracts;
the design, documentation, production and delivery of a series of complex
components under long-term firm-fixed price contracts and the delivery of
off-the-shelf standard products.
We
account for all contracts, except those for the sale of off-the-shelf standard
products, in accordance with AICPA Statement of Position No. 81-1, “Accounting
for Performance of Construction-Type and Certain Production-Type Contracts”
(“SOP 81-1”).
We
recognize all amounts billable under short-term contracts involving
non-recurring engineering (“NRE”) services for customization of products in net
sales and all related costs in cost of sales under the completed-contract method
when the customized units are delivered. We periodically enter into contracts
with customers for the development and delivery of a prototype prior to the
shipment of units. Under those circumstances, we recognize all amounts billable
for NRE services in net sales and all related costs in cost of sales when the
prototype is delivered and recognizes all of the remaining amounts billable and
the related costs when the units are delivered.
Increasingly,
we have complex, long-term contracts for the engineering design, development and
production of space electronics products for which revenue is recognized under
the percentage-of-completion method. Sales and related contract costs for design
and documentation services under this type of contract are recognized based on
the cost-to-cost method. Sales and related contract costs for products delivered
under these contracts are recognized on the units-of-delivery method. We have
one contract which is primarily related to the design and development (and to a
lesser extent, the production of space electronics) for which revenue under the
entire contract is recognized under the percentage-of-completion method using
the cost-to-cost method. For such contract we recognized revenues in excess of
billings of approximately $1,880,000 at January 3, 2009.
Pursuant
to SOP 81-1, anticipated losses on all contracts are charged to operations in
the period when the losses become known.
Sales of
off-the-shelf standard products and related costs of sales are recorded when
title transfers to our customer, which is generally on the date of shipment,
provided persuasive evidence of an arrangement exists, the sales price is fixed
or determinable and collection of the related receivable is
probable.
Inventory
Valuation
Inventories
are valued at the lower of average cost or market. Inventories are periodically
reviewed for their projected manufacturing usage utilization and, when
slow-moving or obsolete inventories are identified, they are charged to
operations. Total inventories are net of cost overruns of $52,000 and $202,000,
respectively.
Procurement
of inventories is based on specific customer orders and forecasts. Customers
have certain rights of modification with respect to these orders and forecasts.
As a result, customer modifications to orders and forecasts affecting
inventories previously procured by us and our purchases of inventories beyond
customer needs may result in excess and obsolete inventories for the related
customers. Although we may be able to use some of these excess components and
raw materials in other products we manufacture, a portion of the cost of this
excess inventories may not be recoverable from customers, nor may any excess
quantities be returned to the vendors. We also may not be able to recover the
cost of obsolete inventories from vendors or customers.
Write
offs or write downs of inventories generally arise from:
|
·
|
declines
in the market value of inventories;
|
|
·
|
changes
in customer demand for inventories, such as cancellation of orders;
and
|
|
·
|
our
purchases of inventories beyond customer needs that result in excess
quantities on hand and that we are not able to return to the vendor or
charge back to the customer.
|
Valuation
of Deferred Tax Assets
We
currently have significant deferred tax assets resulting from net operating loss
carryforwards, tax credit carryforwards and deductible temporary differences,
which should reduce taxable income in future periods. A valuation allowance is
required when it is more likely than not that all or a portion of a deferred tax
assets will not be realized. Our 2002, 2003, 2006 and 2007 net losses weighed
heavily in our overall assessment. As a result of the assessment, we established
a full valuation allowance for our remaining net domestic deferred tax assets at
December 28, 2002. This assessment continued unchanged from 2003 through fiscal
2008.
CONSOLIDATED
STATEMENTS OF OPERATIONS SUMMARY
The
following table reflects the percentage relationships of items from the
consolidated statements of operations as a percentage of net sales.
|
|
|
Percentage
of Net Sales
|
|
|
|
|
Years
Ended
|
|
|
|
|
January
3,
|
|
|
December
29,
|
|
|
|
|
2009
|
|
|
2007
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Net
sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
62.3
|
|
|
|
60.2
|
|
|
Selling,
general and administrative
|
|
|
31.5
|
|
|
|
38.6
|
|
|
Research
and development
|
|
|
3.5
|
|
|
|
7.2
|
|
|
Restructuring
charge
|
|
|
0.2
|
|
|
|
–
|
|
|
|
|
|
97.5
|
|
|
|
106.0
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income (loss)
|
|
|
2.5
|
|
|
|
(6.0
|
)
|
|
Interest
and other expense, net
|
|
|
(1.4
|
)
|
|
|
(.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
1.1
|
|
|
|
(6.6
|
)
|
|
Provision
for income taxes
|
|
|
(0.1
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
|
1.0
|
|
|
|
(6.6
|
)
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(0.5
|
)
|
|
|
(20.0
|
)
|
|
Net
income (loss)
|
|
|
0.5
|
%
|
|
|
(26.6
|
)%
|
2008
COMPARED TO 2007 Restated
All 2007
information presented reflects the consolidated financial information for 2007
as restated, see Item 8, Note 2 for further details of the
restatement.
Net
sales.
Consolidated
results of operations for 2008 reflect an increase in net sales from continuing
operations of $7,342,000 or 33.5% to $29,229,000 compared to $21,887,000 in
2007. The sales increase in 2008 was a result of a higher backlog at the
beginning of the year and continued high levels of orders throughout the year
including a higher level of sales of Multi-Mix® products. Also,
included in fiscal year 2008’s sales were four large orders shipped to major
customers that totaled over $4,000,000. Sales for 2008 included $1,900,000 of
revenue recognized in connection with a large design and development
contract.
Backlog
represents the amount of orders we have received that have not been shipped as
of the end of a particular fiscal period. The orders in backlog are a measure of
future sales and determine our upcoming material, labor and service
requirements. The book-to-bill ratio for a particular period represents orders
received for that period divided by net sales for the same period. We look for
this ratio to exceed 1.0, indicating the backlog is being replenished at a
higher rate than the sales being removed from the backlog.
The
following table presents key performance measures that we use to monitor our
operating results:
|
|
|
2008
|
|
|
2007
|
|
|
Beginning
backlog
|
|
$
|
17,991,000
|
|
|
$
|
11,490,000
|
|
|
Plus
bookings
|
|
|
32,205,000
|
|
|
|
28,388,000
|
|
|
Less
net sales
|
|
|
29,229,000
|
|
|
|
21,887,000
|
|
|
Ending
backlog
|
|
$
|
20,967,000
|
|
|
$
|
17,991,000
|
|
|
Book-to-bill
ratio
|
|
|
1.10
|
|
|
|
1.30
|
|
Orders of
$32.2 million, a new Merrimac record for a fiscal year, were received during
fiscal year 2008, an increase of $3.8 million or 13.4% compared to $28.4 million
in orders received during fiscal year 2007. Backlog increased by $3.0 million or
16.7% to $21.0 million at the end of fiscal year 2008 compared to $18.0 at
year-end 2007, due to the increased orders received during 2008. The
book-to-bill ratio for fiscal year 2008 was 1.10 to 1 and for fiscal year 2007
was 1.30 to 1.
The
backlog of unfilled orders includes amounts based on signed contracts as well as
agreed letters of intent, which we have determined are legally binding and
likely to proceed. Although backlog represents only business that is
considered likely to be performed, cancellations or scope adjustments may and do
occur. The elapsed time from the award of a contract to completion of
performance may be up to approximately four years. The dollar amount
of backlog is not necessarily indicative of our future earnings related to the
performance of such work due to factors outside our control, such as changes in
project schedules, scope adjustment or project cancellations. We
cannot predict with certainty the portion of backlog to be performed in a given
year. Backlog is adjusted quarterly to reflect project cancellations,
deferrals, revised project scope and cost, and sales of subsidiaries, if
any.
Cost
of sales and gross profit.
The
following table provides comparative gross profit information for the past two
years:
|
|
|
|
|
|
2007
|
|
|
|
|
2008
|
|
|
(Restated)
|
|
|
|
|
$
|
|
|
Increase/(Decrease)
From Prior Year
|
|
|
%
of
Net Sales
|
|
|
$
|
|
|
Increase/(Decrease)
From Prior Year
|
|
|
%
of
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
10,954,000
|
|
|
$
|
2,251,000
|
|
|
|
37.5
|
%
|
|
$
|
8,703,000
|
|
|
$
|
(471,000
|
)
|
|
|
39.8
|
%
|
Gross
profit for fiscal year 2008 was $10,954,000, an increase of $2,251,000 or 25.9%,
over last year’s gross profit of $8,703,000. Gross margin declined by
2.3% to 37.5% compared to 39.8% in fiscal year 2007. The small
decline in gross margin was primarily due to the impact of an aggressive pricing
strategy in 2007 and in early 2008 when our backlog was not as
high. The pricing strategy had a significant impact on the four large
jobs fulfilled in 2008.
Selling,
general and administrative expenses.
Selling,
general and administrative expenses were $9,198,000 an increase of $763,000 or
9.0% over the selling, general and administrative expenses of $8,435,000 for
2007. When expressed as a percentage of net sales, selling, general and
administrative expense decreased from 38.5% in 2007 to 31.5% in 2008. The 2008
selling, general and administrative expenses increased due to a combination of
increased selling costs related to the hiring of sales personnel to meet the
demand of increased sales, sales commissions and increased professional
fees.
Research
and development expenses.
Research
and development expenses for new products were $1,019,000 for 2008, a decrease
of $560,000 or 35.5%. The decrease reflects our decision to focus our research
and development efforts on military and space applications and reduce our
investment in speculative commercial applications. Substantially all
of the research and development expenses were related to Multi-Mix®
Microtechnology.
Restructuring
charge
In 2008,
we reduced our headcount by 8 persons, principally involved in production and
manufacturing support. The restructuring charges of $61,000 consisted of
severance and certain other personnel costs, during the third quarter of
2008. We did not incur any restructuring charges in
2007.
Operating
income (loss) from continuing operations.
Consolidated
operating income from continuing operations was $676,000 for 2008 compared to
consolidated operating loss from continuing operations of $1,311,000 for
2007. The increase in income (loss) from continuing operations was
primarily due to the increase in gross profit resulting from higher sales and
the reduction of research and development expenses. These were
somewhat offset by increased selling general and administrative expenses and our
restructuring charge.
Interest
expense.
Interest
and other expense, net was $459,000 for 2008 compared to interest and other
expense, net of $277,000 for 2007. The increase in interest expense of $182,000
was primarily due to the accelerated amortization of approximately $196,000 of
unamortized deferred debt costs charged to interest expense that related to our
terminated financing agreement with Capital One, N.A.
Other
income, net
Other
income, net was $42,000 for 2008 compared to $154,000 in 2007. The
decrease of $112,000 was primarily due to the decrease in interest income that
resulted from a combination of lower average cash balances in 2008 compared to
2007 and declining interest rates in 2008.
Income
taxes.
The
provision for income taxes from continuing operations for 2008 was approximately
$20,000. There was no provision or benefit for income taxes from
continuing operations for 2007.
As of
January 3, 2009, we had significant deferred tax assets resulting from net
operating loss carryforwards, tax credit carryforwards and deductible temporary
differences, which should reduce our income taxes in future periods. A valuation
allowance is required when management assesses that it is more likely than not
that all or a portion of a deferred tax asset will not be realized. Our 2002,
2003, 2006 and 2007 net losses have weighed heavily in our overall assessments.
We established a full valuation allowance for its remaining U.S. net deferred
tax assets as a result of its assessment at December 28, 2002. This assessment
continued unchanged from 2003 through the end of fiscal year 2008.
Income
(loss) from continuing operations.
For the
reasons set forth above, income from continuing operations for 2008 was $240,000
compared to a loss from continuing operations of $1,435,000 for 2007. Income
from continuing operations for 2008 was $0.08 per share compared to a loss from
continuing operations of $0.48 per share for 2007.
Discontinued
operations.
Loss from
discontinued operations for 2008 was $142,000 compared to a loss from
discontinued operations of $4,387,000 for 2007. The 2008 loss from discontinued
operations consisted of certain ongoing professional fees, claim defense
deductibles and certain other expenses. The loss from discontinued
operations in 2007 includes a partial goodwill impairment charge of $3,576,000
and a charge of $506,000 to provide a full valuation allowance of a Canadian net
deferred tax asset, for a total of $4,082,000 of non cash
charges. Loss per share from discontinued operations for 2008 was
$0.05 compared to a loss from discontinued operations of $1.48 per share for
2007.
Net
income (loss).
Net
income for 2008 was $98,000 compared to a net loss of $5,821,000 for 2007 for
the reasons described above. Net income per share basic and diluted for 2008 was
$0.03, compared to a net loss of per share basic and diluted for 2007 of
$1.96.
LIQUIDITY
AND CAPITAL RESOURCES
Liquid
resources comprised of cash and cash equivalents totaled approximately
$1,192,000 at January 3, 2009 compared to approximately $2,004,000 at December
29, 2007. Our working capital was approximately $11,090,000 and our current
ratio was 4.5 to 1 at January 3, 2009 compared to $9,565,000 and 3.5 to 1,
respectively, at December 29, 2007. At January 3, 2009, we had available
borrowing capacity under our revolving line of credit of
$3,722,000.
Our
liquidity needs for the next year plus planned equipment purchases and other
commitments are expected to be funded through cash resources and cash flows
expected to be generated from operations, and supplemented, if necessary, by the
our $5,000,000 revolving credit facility with Wells Fargo Bank, which expires
September 29, 2011.
Our
activities from continuing operations provided operating cash flows of $874,000
during 2008 compared to $881,000 during 2007. The primary sources of operating
cash flows from continuing operations for 2008 were our income from continuing
operations of $240,000, depreciation and amortization of $2,564,000,
amortization of deferred financing costs of $249,000, an increase in customer
deposits of $291,000 and share-based compensation of $490,000. These
were largely offset by an increase in accounts receivable of $466,000, an
increase in inventories of $255,000, a decrease in accrued liabilities of
$533,000 and an increase in costs and estimated earnings in excess of billings
on uncompleted contracts of $1,880,000. Cash provided by operating activities
from continuing operations in 2007 was primarily due to depreciation and
amortization of $2,365,000 and share-based compensation of
$394,000. Offsetting these were the loss from continuing operations
of $1,435,000 and an increase in inventories of $904,000.
In 2008,
our cash used by investing activities was $153,000 compared to $908,000 in
2007. Cash used in investing activities in 2008 was mainly due to net
capital investments in property, plant and equipment of $817,000 and was largely
offset by the proceeds from the sale of discontinued operations of
$664,000. In 2007, the cash used in investing activities was also due
to net capital investments in property, plant and equipment of $1,546,000 and
was largely offset by the proceeds from the sale of discontinued operations of
$818,000.
In 2008,
cash used in financing activities of continuing operations was $1,391,000
compared to $2,790,000 in 2007. The major use of cash from financing
activities in 2008 was the net payments on term notes of $1,410,000 and deferred
financing costs of $332,000 which was somewhat offset by the return of the
restricted cash deposit of $250,000 following the termination of the security
agreement with Capital One N.A. In 2007, the primary use of cash from
financing activities was the repurchase, in a private transaction, of 238,700
shares of our common stock for the treasury at $9.00 per share for an aggregate
total of $2,148,000 from a group of investors on March 14, 2007 and the
contractual repayment of $550,000 of our term loans.
On
September 29, 2008, we entered into a credit facility with Wells Fargo Bank,
N.A. (“WFB”) (the “Wells Fargo Credit Facility”) which replaced our credit
facility with Capital One, N.A. On September 30, 2008, we repaid all outstanding
amounts under the credit facility with Capital One, N.A. with the proceeds of
the Wells Fargo Credit Facility. The Wells Fargo Credit Facility
consists of a three-year $5,000,000 collateralized revolving credit facility, a
three-year $500,000 equipment term loan and a three-year $2,500,000 real estate
term loan. The revolving line of credit is subject to an availability
limit under a borrowing base calculation of 85% of eligible domestic accounts
receivable with a sublimit of $5,000,000, 75% of eligible foreign accounts
receivable with a sublimit of $800,000, and 30% of eligible inventories with a
sublimit of $400,000. The revolving line of credit is also subject to
a minimum borrowing base availability of $500,000. As of January 3,
2009, we had a borrowing base of approximately $4,222,000 and availability under
the credit facility as of January 3, 2009 of approximately $3,722,000. The
revolving line of credit expires September 29, 2011. The revolving
line of credit bears interest at the prime rate plus one percent, with the prime
rate having a floor limit of 5% for loan purposes. We may request a
LIBOR quote for an initial minimum of $1,000,000 with subsequent requests at a
minimum of $500,000. No more than three such requests may be active
at any point in time. LIBOR advances bear interest at the LIBOR rate
plus 3.25% for a credit advance, or 3.50% for a term loan. The
equipment loan is required to be repaid in equal monthly installments of $13,900
based on a four year amortization. The real estate loan is required
to be paid in equal monthly installments amortized over a 180 month time period,
with any unpaid principal and interest due and payable on the termination date
of September 29, 2011. The two term loans require mandatory
prepayment under certain circumstances subject to a prepayment fee of 1%-2% of
the outstanding balance.
The
equipment term loan bears interest at the prime (with a floor of 5%) rate plus
1%. The real estate term loan bears interest at the prime rate (with
a floor of 5%) plus 1.50% or LIBOR plus 3.50%.
The Wells
Fargo Credit Facility is collateralized by substantially all of our
assets.
As of
January 3, 2009, under the Wells Fargo Credit Facility, we had no amount
outstanding under the revolving credit facility, $458,333 outstanding under the
equipment term loan and $2,444,445 outstanding under the real estate term
loan.
At
September 27, 2008 and December 29, 2007, the fair value of our debt
approximates carrying value. The fair value of our long-term debt is estimated
based on current interest rates.
In
connection with the execution of the credit agreement, we paid Wells Fargo an
origination fee of $60,000 and incurred $272,000 of additional financing
costs. Under the revolving line of credit, we must also pay an unused
line fee of 0.375% of the daily, unused amount and a collateral monitoring fee
of $6,000 per year. We will incur additional fees if Wells Fargo
terminates the credit facility upon default or if we terminate the credit
facility prior to its termination date. Under the revolving line of
credit these fees are $100,000 during the first year and $50,000 during the
second and third years. Under the term notes the early
termination fees are 2% of the amount prepaid during the first year of the
agreement and 1% of the amount prepaid during the second and third years of the
agreement.
The
credit facility requires us to maintain certain financial covenants, including a
minimum debt service coverage ratio of not less than 1.1 to 1.0 and minimum net
income. For the year ended January 3, 2009, our net loss is not to
exceed $265,000 and for the quarters ending April 4, 2009 and beyond, net income
is not to be less than 75% of our projected net income and not more than 100% of
our projected net loss. Additionally, the credit facility prohibits
incurring or contracting to incur capital expenditures exceeding $1,000,000 in
the year ended January 3, 2009 and $600,000 in each subsequent
year. We must also not permit the amount due from our subsidiary in
Costa Rica, Multi-Mix Microtechnology S.R.L to exceed $4,250,000 through the
year ended January 3, 2009, $4,500,000 through the quarter ending April 4, 2009,
$4,750,000 through the quarter ending July 4, 2009 and $5,000,000 through the
quarter ending October 3, 2009 and each fiscal quarter
thereafter. The credit agreement contains other standard covenants
related to our operations, including prohibitions on the creation of additional
liens, the incurrence of additional debt, the payment of dividends, the sale of
certain assets and other corporate transactions, without Wells Fargo’s
consent. We were in compliance with all of our financial covenants as
of January 3, 2009.
We
believe that the present financing arrangements with Wells Fargo and current
cash position will be sufficient to fund our operations and capital expenditures
through at least January 2, 2010. Our long-term capital needs may
require additional sources of credit. There can be no assurances that
we will be successful in negotiating additional sources of credit for its
long-term capital needs. Our inability to have continuous access to
such financing at reasonable costs may materially and adversely impact its
consolidated financial condition, results of operations and cash
flows.
The table
below summarizes our known contractual obligations consisting of the long-term
obligations listed above and our operating lease commitments as of January 3,
2009:
|
|
|
Payments
due by period
|
|
|
|
|
|
|
|
Less
than
|
|
|
|
1
- 3
|
|
|
|
3
-5
|
|
|
More
than 5
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
Years
|
|
|
Years
|
|
|
Years
|
|
|
Long-term
debt obligations
|
|
$
|
2,903,000
|
|
|
$
|
292,000
|
|
|
$
|
2,611,000
|
|
|
|
—
|
|
|
|
-
|
|
|
Operating
lease obligations
|
|
|
1,075,000
|
|
|
|
462,000
|
|
|
|
613,000
|
|
|
|
-
|
|
|
|
-
|
|
|
Totals
|
|
$
|
3,978,000
|
|
|
$
|
754,000
|
|
|
$
|
3,224,000
|
|
|
|
-
|
|
|
|
-
|
|
Depreciation
and amortization expenses exceeded capital expenditures for new projects and
production equipment during 2008 by approximately $1.7 million, and we
anticipate that depreciation and amortization expenses will exceed capital
expenditures in fiscal year 2009 by approximately $1.9 million. We intend to
issue up to $600,000 of purchase order commitments for capital equipment from
various vendors and we anticipate that such equipment will be purchased and
become operational during fiscal year 2009. Our planned equipment purchases and
other commitments are expected to be funded through cash resources and cash
flows expected to be generated from operations, and supplemented by our
$5,000,000 revolving credit facility with Wells Fargo.
The
functional currency for our Costa Rica operations is the United States dollar.
The functional currency for our previously wholly-owned subsidiary FMI was the
Canadian dollar. The change in accumulated other comprehensive income for 2007
reflect the changes in the exchange rates between the Canadian dollar and the
United States dollar for those respective periods. Following the sale of the FMI
foreign currency translation adjustments are recorded as part of discontinued
operations.
RESTATED
QUARTERLY PERIODS OF 2008 AND 2007
FIRST
QUARTER OF 2008 (RESTATED) COMPARED TO THE FIRST QUARTER OF 2007 (RESTATED) –
CONTINUING OPERATIONS
Cost
of sales and Gross profit.
The
following table provides comparative gross profit information between the
quarters ended March 29, 2008 and March 31, 2007.
|
|
|
Quarter ended March 29, 2008
(Restated)
|
|
|
Quarter ended March 31, 2007
(Restated)
|
|
|
|
|
$
|
|
|
Increase/
(Decrease)
from prior
period
|
|
|
% of
Net Sales
|
|
|
$
|
|
|
Increase/
(Decrease)
from prior
period
|
|
|
% of
Net Sales
|
|
|
Consolidated
gross profit
|
|
$
|
1,813,000
|
|
|
$
|
210,000
|
|
|
|
31.5
|
%
|
|
$
|
1,603,000
|
|
|
$
|
(798,000
|
)
|
|
|
35.5
|
%
|
The
increase in consolidated gross profit for the first quarter of 2008 was due to
the impact of the higher level of sales. The decline in consolidated gross
profit percentage was primarily due to the impact of an aggressively low pricing
strategy in 2007 and in the first quarter of 2008.
Operating
loss from continuing operations.
Operating
loss from continuing operations for the first quarter of 2008 was $804,000,
compared to an operating loss from continuing operations of $1,098,000 for the
first quarter of 2007. The decrease in operating loss from continuing operations
for the first quarter of 2008 as compared to the first quarter of 2007 was due
to the improved gross profit caused by the increase in sales and lower research
and development costs as compared to the first quarter of 2007 partially offset
by a lower gross margin.
Loss
from continuing operations.
For the
reasons set forth above, loss from continuing operations for the first quarter
of 2008 was $865,000 compared to a loss from continuing operations of $1,077,000
for the first quarter of 2007. Loss from continuing operations for the first
quarter of 2008 was $.29 per share, basic and diluted, compared to a loss from
continuing operations of $.35 per share, basic and diluted, for the first
quarter of 2007.
Net
loss.
For the
reasons set forth above, net loss for the first quarter of 2008 was $865,000
compared to a net loss of $1,358,000 for the first quarter of 2007. Net loss for
the first quarter of 2008 was $.29 per share, basic and diluted compared to a
net loss of $.44 per share, basic and diluted for the first quarter of
2007.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company had liquid resources comprised of cash and cash equivalents totaling
approximately $627,000 at the end of the first quarter of 2008 compared to
approximately $2,000,000 at the end of 2007. The principal reasons for the
reduction in cash at March 29, 2008 were capital expenditures of $352,000,
operating cash used of $1,627,000 as described below, and repayments of
borrowings of $388,000 offset, in part, by restricted cash returned of $250,000
and the proceeds of the sale of FMI’s assets of $664,000. The Company's working
capital was approximately $9,000,000 and its current ratio was 2.6 to 1 at the
end of the first quarter of 2008 compared to $9,600,000 and 3.5 to 1,
respectively, at the end of 2007.
The
Company's activities from continuing operations used operating cash flows of
$1,627,000 during the first quarter of 2008 compared to generating $667,000 of
operating cash flows during the first quarter of 2007. The primary uses of
operating cash flows from continuing operations for the first quarter of 2008
were the quarterly loss from continuing operations of $865,000 which was reduced
by depreciation and amortization of $618,000 and share-based compensation of
$120,000, an increase in accounts receivable of $497,000 as a result of the
higher first quarter sales level, an increase in inventories of $542,000 to meet
the production associated with the increase in backlog and an aggregate decrease
in accounts payable, customer deposits and accrued liabilities of $488,000. The
primary sources of operating cash flows from continuing operations for the first
quarter of 2007 were a decrease in accounts receivable of $1,024,000 and a
decrease in other current assets of $246,000, offset by the loss from continuing
operations of $1,077,000 which was reduced by depreciation and amortization of
$571,000 and share-based compensation of $51,000, an increase in inventory of
$269,000 and an aggregate decrease in accounts payable, customer deposits and
accrued liabilities of $98,000.
SECOND
QUARTER 2008 RESTATED COMPARED TO THE SECOND QUARTER OF 2007 RESTATED-CONTINUING
OPERATIONS
Cost of sales and Gross
profit.
The
following table provides comparative gross profit information for the quarters
ended June 28, 2008 and June 30, 2007.
|
|
|
Quarter
ended June 28, 2008 (Restated)
|
|
|
Quarter
ended June 30, 2007 (Restated)
|
|
|
|
|
$
|
|
|
Increase/
(Decrease)
from
prior
period
|
|
|
%
of
Net
Sales
|
|
|
$
|
|
|
Increase/
(Decrease)
from
prior
period
|
|
|
%
of
Net
Sales
|
|
|
Consolidated
gross profit
|
|
$
|
2,799,000
|
|
|
$
|
481,000
|
|
|
|
37.4
|
%
|
|
$
|
2,318,000
|
|
|
$
|
(1,393,000
|
)
|
|
|
43.2
|
%
|
The
increase in consolidated gross profit for the second quarter of 2008 was due to
the impact of the higher level of sales. The decline in consolidated
gross profit percentage in the second quarter was primarily due to the
impact of fulfilling orders in the backlog that were booked in 2007 and the
first quarter of 2008 when an aggressively low pricing strategy was in place.
The bulk of these low margin sales consisted of three large jobs that totaled
approximately $1,000,000 in revenue.
Selling, general and administrative
expenses.
Selling,
general and administrative expenses of $2,351,000 for the second quarter of 2008
increased by $375,000 or 18.9%, and when expressed as a percentage of net sales,
decreased by 5.5 percentage points to 31.3% compared to the second quarter of
2007. The increase in such expenses for the second quarter of 2008 was due to
higher sales commissions, increased selling costs from recent sales personnel
hired to meet the demand of increased sales, higher professional fee costs, and
higher share-based compensation from the grant of stock options in April
2007.
Operating
income from continuing operations.
Operating
income from continuing operations for the second quarter of 2008 was $74,000,
compared to an operating income from continuing operations of $6,000 for the
second quarter of 2007. The increase in operating income from continuing
operations for the second quarter of 2008 as compared to the second quarter of
2007 was due to the improved gross profit from the increase in sales, partially
offset by higher sales commissions and increased selling, general and
administrative expenses, and higher research and development costs.
Income
from continuing operations.
For the
reasons set forth above, income from continuing operations for the second
quarter of 2008 was $25,000 compared to income from continuing operations of
$2,000 for the second quarter of 2007. Income per share from continuing
operations, basic and diluted, for the second quarter of 2008 was $.01 compared
to income from continuing operations of $.00 per share, basic and diluted, for
the second quarter of 2007.
Net
loss.
For the
reasons set forth above, net loss for the second quarter of 2008 was $30,000
compared to a net loss of $3,517,000 for the second quarter of 2007. Net loss
per share, basic and diluted, for the second quarter of 2008 was $.01 compared
to a net loss of $1.21 and $1.20 per share, basic and diluted, respectively, for
the second quarter of 2007.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company had liquid resources comprised of cash and cash equivalents totaling
approximately $410,000 at the end of the first six months of 2008 compared to
approximately $2,000,000 at the end of 2007. The principal reasons for the
reduction in cash at June 28, 2008 from December 29, 2007 were capital
expenditures of $613,000, cash used in operating activities of continuing
operations of $1,902,000 as described below, and repayments of borrowings of
$525,000 offset, in part, by the return of restricted cash to repay term debt of
$250,000, the receipts of the remaining proceeds from the sale of FMI’s assets
of $664,000, proceeds from sales of stock to employees of $86,000, and revolving
credit borrowings of $500,000 drawn down in the second quarter of 2008. The
Company's working capital was approximately $9,406,000 and its current ratio was
3.2 to 1 at the end of the second quarter of 2008 compared to $9,600,000 and 3.5
to 1, respectively, at the end of 2007.
The
Company's activities from continuing operations used operating cash flows of
$1,902,000 during the first six months of 2008 compared to generating $473,000
of operating cash flows during the first six months of 2007. The primary uses of
operating cash flows from continuing operations for the first six months of 2008
were an increase accounts receivable of $2,309,000 from the higher sales level,
an increase in inventories of $547,000 to meet the production needs of the
increased backlog and a loss from continuing operations for the first six months
of $840,000. These uses of operating cash flows were partly offset depreciation
and amortization of $1,270,000 and share-based compensation of $258,000, coupled
with an aggregate reduction in other assets of $252,000. The primary sources of
operating cash flows from continuing operations for the first six months of 2007
were a decrease in accounts receivable of $645,000, a decrease in other current
assets of $235,000, and an aggregate increase in accounts payable, customer
depostis and accrued liabilities of $282,000, partly offset by the loss from
continuing operations of $1,075,000 and an increase in inventory of $778,000,
which was reduced by depreciation and amortization of $1,158,000 and share-based
compensation of $132,000.
THIRD
QUARTER OF 2008 RESTATED COMPARED TO THE THIRD QUARTER OF 2007
RESTATED-CONTINUING OPERATIONS
Cost of sales and gross
profit.
The
following table provides comparative gross profit information for the quarters
ended September 27, 2008 and September 29, 2007.
|
|
|
Quarter
ended September 27, 2008 (Restated)
|
|
|
Quarter
ended September 29, 2007 (Restated)
|
|
|
|
|
|
|
|
Increase/
(Decrease)
from
prior
period
|
|
|
%
of
Net
Sales
|
|
|
|
|
|
Increase/
(Decrease)
from
prior
period
|
|
|
%
of
Net
Sales
|
|
|
Consolidated
gross profit
|
|
$
|
3,005,000
|
|
|
$
|
200,000
|
|
|
|
36.1
|
%
|
|
$
|
2,805,000
|
|
|
$
|
306,000
|
|
|
|
42.4
|
%
|
The
increase in consolidated gross profit for the third quarter of 2008 was due to
the impact of the higher level of sales. The decline in consolidated gross
profit percentage in the third quarter was primarily due to the impact of
fulfilling orders in the backlog that were booked in 2007 and the first quarter
of 2008 when an aggressive pricing strategy was in place. The bulk of these low
margin sales consisted of five large jobs that totaled approximately $1,500,000
in revenue.
Selling, general and administrative
expenses.
Selling,
general and administrative expenses of $2,398,000 for the third quarter of 2008
increased by $299,000 or 14.3%, and when expressed as a percentage of net sales,
decreased by 2.5 percentage points to 28.8% compared to the third quarter of
2007. The increase in such expenses for the third quarter of 2008 was due to
higher sales commissions, increased selling costs from recent sales personnel
hired to meet the demand of increased sales and higher professional fee
costs.
Operating
income from continuing operations.
Operating
income from continuing operations for the third quarter of 2008 was $501,000,
compared to operating income from continuing operations of $306,000 for the
third quarter of 2007. The increase in operating income from continuing
operations for the third quarter of 2008 as compared to the third quarter of
2007 was due to the increase in gross profit resulting from higher sales
levels.
Income
from continuing operations.
For the
reasons set forth above, income from continuing operations for the third quarter
of 2008 was $474,000 compared to income from continuing operations of $233,000
for the third quarter of 2007. Income per share from continuing operations,
basic and diluted, for the third quarter of 2008 was $.16 compared to income
from continuing operations of $.08 per share, basic and diluted, for the second
quarter of 2007.
Net
income (loss).
For the
reasons set forth above, net income for the third quarter of 2008 was $463,000
compared to a net loss of $1,825,000 for the third quarter of 2007. Net income
per share, basic and diluted, for the third quarter of 2008 was $.16 compared to
a net loss of $.62 and $.61 per share, basic and diluted, respectively, for the
third quarter of 2007.
LIQUIDITY
AND CAPITAL RESOURCES
The
Company had liquid resources comprised of cash and cash equivalents totaling
approximately $1,923,000 at September 27, 2008 compared to approximately
$2,000,000 at the end of 2007. The main reason for the use of cash at September
27, 2008 were capital expenditures of $672,000. The Company's working capital
was approximately $10,438,000 and its current ratio was 3.2 to 1 at September
27, 2008 compared to $9,600,000 and 3.5 to 1, respectively, at the end of 2007.
At September 27, 2008, the Company had available borrowing capacity under its
revolving line of credit of $4,000,000, net of the $1,000,000 outstanding
revolving credit borrowings. This facility was paid off on September 30, 2008
with the proceeds of the Wells Fargo Credit Facility.
The
Company's activities from continuing operations used operating cash flows of
$795,000 during the first nine months of 2008 compared to using $523,000 of
operating cash flows during the first nine months of 2007. The primary uses of
operating cash flows from continuing operations for the first nine months of
2008 were an increase in accounts receivable of $1,593,000 from the higher first
nine months sales level, an aggregate increase in revenues in excess of billings
of $1,186,000 and a loss from continuing operations for the first nine months of
$366,000. These uses of operating cash flows were partly offset by depreciation
and amortization of $1,908,000 incurred in the first nine months of 2008 and
share-based compensation of $375,000, coupled with an aggregate reduction in
other current assets and other assets of $164,000.
RELATED
PARTY TRANSACTIONS
During
fiscal years 2008 and 2007, respectively, our General Counsel, Katten Muchin
Rosenman LLP, was paid $364,000 and $350,000, respectively, for providing legal
services. One of our directors is Counsel to the firm of Katten Muchin Rosenman
LLP but does not share in any fees paid by us to the law firm.
During
fiscal years 2008 and 2007, we retained Career Consultants, Inc. and SK
Associates to perform executive searches and to provide other services. We paid
an aggregate of $6,000 and $32,000 to these companies during 2008 and 2007,
respectively. One of our directors is the Chairman and Chief Executive Officer
of each of these companies.
During
each of fiscal years 2008 and 2007, we paid one of our directors $36,000 for
providing technology-related consulting services.
DuPont
Electronic Technologies ("DuPont"), a stockholder, has an agreement to provide
technological and marketing-related personnel and services on a cost-sharing
basis to us under the Technology Agreement dated February 28, 2002. No payments
were made to DuPont under this agreement during 2008 or 2007. One of our
directors is an officer of DuPont, but does not share in any of these
payments.
Each
director who is not one of our employees receives a monthly director's fee of
$1,500, plus an additional $500 for each meeting of the Board and of any
Committees of the Board attended. In addition, the Chair of the Audit Committee
receives an annual fee of $2,500 for his services in such capacity. The
directors are also reimbursed for reasonable travel expenses incurred in
attending Board and Committee meetings. In addition, pursuant to the 2006 Stock
Option Plan, each non-employee director is granted an option to purchase 2,500
shares of our common stock on the date of each Annual Meeting of Stockholders.
Such options have a three-year vesting period. Each such grant has an exercise
price equal to the fair market value on the date of grant and will expire on the
tenth anniversary of the date of the grant. On June 26, 2008, non-qualified
stock options to purchase an aggregate of 17,500 shares were issued to eight
directors at an exercise price of $5.15 per share. On June 20, 2007,
non-qualified stock options to purchase an aggregate of 20,000 shares were
issued to seven directors at an exercise price of $9.78 per share. Also, during
2008, it was discovered that certain directors and a former director had been
awarded certain options to purchase shares of our common stock for a term in
excess of the term provided for in our stock option plan in
error. Such directors and the former director received cash payments
of $5,000 each during 2008 constituting the difference between the exercise
price of such stock options and the market price of our common stock as of the
date when such options expired in accordance with the terms of our stock option
plan, which such time was prior to the time set forth in the erroneous contracts
associated with such stock options. The directors receiving the
$5,000 payment were as follows: Edward Cohen, Fernando Fernandez,
Joel Goldberg, Arthur Oliner, Harold Raveché and David Miller (former
director).
On
December 11, 2008, Edward Cohen received a grant of 1,000 shares of our common
stock at a fair market value of $2,200 for his service as chairman of the
Board’s Audit Committee.
Also on
June 26, 2008 and June 20, 2007, pursuant to the 2006 Non-Employee Directors'
Stock Plan, 9,000 and 10,500 shares of restricted stock were granted to six and
seven directors, respectively at a fair market value of $5.15 and $9.78 per
share, respectively. Such restricted stock vests ratably over a three-year
period.
On
December 13, 2004, Infineon Technologies AG ("Infineon"), at such time the
beneficial owner of approximately 15% of our common stock, sold 475,000 shares
of our common stock to four purchasers in a privately-negotiated
transaction. Two purchasers in such transaction, K Holdings, LLC and Hampshire
Investments, Limited, each of which is affiliated with Ludwig G. Kuttner, who
was President and Chief Executive Officer of Hampshire Group, Limited
("Hampshire"), purchased 300,000 shares representing an aggregate of
approximately 9.6% of our commonstock. Infineon also assigned to each purchaser
certain registration rights to such shares under the existing registration
rights agreements Infineon had with us. In connection with the transaction, the
Stock Purchase and Exclusivity Letter Agreement dated April 7, 2000 between us
and Infineon, as amended, which provided that the we would design, develop and
produce exclusively for Infineon certain Multi-Mix® products that incorporate
active RF power transistors for use in certain wireless base station
applications, television transmitters and certain other applications that are
intended for Bluetooth transceivers was terminated.
DuPont
and the four purchasers above hold registration rights, which currently give
them the right in perpetuity to register an aggregate of 1,003,413 shares of our
common stock. There are no settlement alternatives and the registration of the
shares of common stock would be on a "best efforts" basis.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
October 2008, The Financial Accounting Standards Board (“FASB”) issued FASB
Staff Position (“FSP”) FAS 157-3, “Determining the Fair Value of a Financial
Asset When the Market for That Asset Is Not Active”. The FSP clarifies the
application of Statement of Financial Accounting Standards (“SFAS”) Statement
No. 157, “Fair Value Measurements”, in a market that is not active and provides
an example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. The FSP
is effective for prior periods for which financial statements have not been
issued. We currently believe that FAS 157-3 will have no material impact on our
consolidated financial statements.
In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS Statement No. 142, “Goodwill and Other
Intangible Assets”. The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R), and other accounting principles generally accepted in the
United States of America. This FSP is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. We currently believe that FAS 142-3 will have no material
impact on our consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007 and became effective for us on January 1,
2008.
Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties. A liability’s
fair value is defined as the amount that would be paid to transfer the liability
to a new obligor, not the amount that would be paid to settle the liability with
the creditor. The FASB establishes a three-level hierarchy for fair
value measurements based upon the transparency of inputs to the valuation as of
the measurement date and expands disclosures about financial instruments
measured at fair value. Assets and liabilities recorded at fair value are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value. Hierarchical levels defined by SFAS No. 157
and directly related to the amount of subjectivity associated with the inputs to
fair valuation of these assets and liabilities are as follows:
Level 1: Inputs are unadjusted, quoted
prices in active markets for identical assets or liabilities at the measurement
date. The types of assets and liabilities carried at this level are
equities listed in active markets, investments in publicly traded mutual funds
with quoted market prices and listed derivatives.
Level 2: Inputs (other than quoted
prices included in Level 1) are either directly or indirectly observable for the
asset or liability through correlation with market data of the instrument’s
anticipated life. Fair value assets and liabilities that are
generally included in this category are municipal bonds and certain
derivatives.
Level 3:
Financial assets and financial liabilities whose values are based on prices or
valuation techniques that require inputs that are both unobservable and
significant to the overall fair value measurement. Consideration is
given to the risk inherent in the valuation method and the risk inherent in the
inputs to the model. Generally, assets and liabilities carried at
fair value and included in this category are certain derivatives.
The
adoption of SFAS No. 157 did not have a material impact on our consolidated
financial statements.
In
February 2007, the FASB issued SFAS No. 159 "The Fair Value Option for Financial
Assets and Financial Liabilities". SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in net income. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The adoption of the standard did not have a material impact on our consolidated
financial position and results of operations since the we did not elect the fair
value option for financial assets and liabilities.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS 141(R)"). SFAS 141(R) established principles and
requirements for how an acquiring company recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquired company and the goodwill acquired.
SFAS 141(R) also established disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141R is
effective for fiscal periods beginning after December 15, 2008. We are currently
evaluating the impact that SFAS 141R could have on our consolidated financial
position and consolidated results of operations.
On April
1, 2009, the FASB issued FSP No. FAS 141(R)-1, “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from Contingencies”
This FSP amends and clarifies FASB Statement No. 141 (revised 2007), “Business
Combinations”
,
to
address application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. FSP No. FAS 141(R)-1 shall be effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. We are
currently evaluating the impact that FSP No. FAS 141(R)-1 could have on our
consolidated financial position and results of operations.
In
December 2007, the FASB issued SFAS No. 160 "Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of Accounting Research Bulletin
No. 51" ("SFAS No. 160"). SFAS No. 160 establishes accounting and reporting
standards of ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent's ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for fiscal periods
beginning after December 15, 2008. We currently believe that SFAS No. 160 will
have no material impact on our consolidated financial statements.
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and
Hedging Activities—an amendment of SFAS No. 133 (“SFAS No. 161”). SFAS No. 161
changes the disclosure requirements for derivative instruments and hedging
activities. Entities are required to provide enhanced disclosures about (a) how
and why an entity uses derivative instruments, (b) how derivative instruments
and related hedged items are accounted for under SFAS No. 133 and its related
interpretations, and (c) how derivative instruments and related hedge items
affect an entity’s financial position, financial performance, and cash flows.
SFAS No. 161is effective for fiscal years beginning after November 15, 2008. We
currently believe that SFAS No. 161 will have no material impact on our
consolidated financial statements.
In
November 2008, the FASB ratified the Emerging Issues Task Force ("EITF") Issue
No. 08-6, "Equity Method Investment Accounting Considerations." EITF
08-6 applies to all investments accounted for under the equity
method. It states that an entity shall measure its equity investment
initially at cost. Contingent consideration should only be included
in the initial measurement of the equity method investment if it is required to
be recognized by specific authoritative guidance other than SFAS
141(R). However, if any equity method investment agreement involves a
contingent consideration arrangement in which the fair value of the investor's
share of the investee's net assets exceeds the investor's initial cost, a
liability should be recognized. An equity method investor is required
to recognize other-than-temporary impairments of an equity method investment and
shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment. Any gain or loss to the
investor resulting from an investee's share issuance shall be recognized in
earnings. EITF 08-6 shall be effective in fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal years and shall be
applied prospectively. The provisions of EITF 08-6 will be adopted in
2009. We are in the process of evaluating the impact, if any, of
adopting EITF 08-6 on our consolidated financial statements.
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY
DATA
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Stockholders
Merrimac
Industries, Inc.
We have
audited the accompanying consolidated balance sheets of Merrimac Industries,
Inc. as of January 3, 2009 and December 29, 2007, and the related consolidated
statements of operations and comprehensive income (loss), stockholders' equity,
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Merrimac Industries, Inc. as
of January 3, 2009 and December 29, 2007, and their results of operations and
cash flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.
As
discussed in Note 2 to the consolidated financial statements, the accompanying
2007 consolidated financial statements have been restated.
/s/
J.H. COHN
LLP
Roseland,
New Jersey
April 20,
2009
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Years
Ended January 3, 2009 and December 29, 2007
|
|
|
|
|
|
2007
|
|
|
|
|
2008
|
|
|
(Restated)
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
29,228,717
|
|
|
$
|
21,886,946
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
18,274,622
|
|
|
|
13,183,595
|
|
|
Selling,
general and administrative
|
|
|
9,197,766
|
|
|
|
8,435,173
|
|
|
Research
and development
|
|
|
1,019,088
|
|
|
|
1,579,250
|
|
|
Restructuring
charge
|
|
|
61,427
|
|
|
|
-
|
|
|
|
|
|
28,552,903
|
|
|
|
23,198,018
|
|
|
Operating
income (loss)
|
|
|
675,814
|
|
|
|
(1,311,072
|
)
|
|
Interest
expense
|
|
|
(458,570
|
)
|
|
|
(277,403
|
)
|
|
Other
income, net
|
|
|
42,382
|
|
|
|
153,911
|
|
|
Income
(loss) from continuing operations before income taxes
|
|
|
259,626
|
|
|
|
(1,434,564
|
)
|
|
Provision
for income taxes
|
|
|
19,528
|
|
|
|
-
|
|
|
Income
(loss) from continuing operations
|
|
|
240,098
|
|
|
|
(1,434,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, net of income taxes
|
|
|
(142,112
|
)
|
|
|
(4,386,829
|
)
|
|
Net
income (loss)
|
|
$
|
97,986
|
|
|
$
|
(5,821,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share from continuing operations – basic
|
|
$
|
.08
|
|
|
$
|
(.48
|
)
|
|
Loss
per common share from discontinued operations – basic
|
|
|
(.05
|
)
|
|
|
(1.48
|
)
|
|
Net
income (loss) per common share – basic
|
|
$
|
.03
|
|
|
$
|
(1.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) per common share from continuing operations –
diluted
|
|
$
|
.08
|
|
|
$
|
(.48
|
)
|
|
Loss
per common share from discontinued operations – diluted
|
|
|
(.05
|
)
|
|
|
(1.48
|
)
|
|
Net
income (loss) per common share – diluted
|
|
$
|
.03
|
|
|
$
|
(1.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – basic
|
|
|
2,943,067
|
|
|
|
2,962,575
|
|
|
Weighted
average number of shares outstanding – diluted
|
|
|
2,966,383
|
|
|
|
2,962,575
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
97,986
|
|
|
$
|
(5,821,393
|
)
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
(1,389,038
|
)
|
|
Comprehensive
income (loss)
|
|
$
|
97,986
|
|
|
$
|
(7,210,431
|
)
|
See
accompanying notes to consolidated financial statements.
CONSOLIDATED
BALANCE SHEETS
Years
Ended January 3, 2009 and December 29, 2007
|
|
|
|
|
|
2007
|
|
|
ASSETS
|
|
2008
|
|
|
(Restated)
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,191,768
|
|
|
$
|
2,004,471
|
|
|
Accounts
receivable, net of allowance of $30,000 in 2008 and 2007
|
|
|
5,765,575
|
|
|
|
5,299,753
|
|
|
Inventories,
net
|
|
|
4,899,706
|
|
|
|
4,644,270
|
|
|
Other
current assets
|
|
|
542,320
|
|
|
|
774,007
|
|
|
Due
from sale of assets
|
|
|
-
|
|
|
|
664,282
|
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
1,880,338
|
|
|
|
-
|
|
|
Total
current assets
|
|
|
14,279,707
|
|
|
|
13,386,783
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
37,765,928
|
|
|
|
37,556,672
|
|
|
Less
accumulated depreciation and amortization
|
|
|
28,556,441
|
|
|
|
26,600,240
|
|
|
Property,
plant and equipment, net
|
|
|
9,209,487
|
|
|
|
10,956,432
|
|
|
Restricted
cash
|
|
|
-
|
|
|
|
250,000
|
|
|
Other
assets
|
|
|
543,217
|
|
|
|
531,633
|
|
|
Total
assets
|
|
$
|
24,032,411
|
|
|
$
|
25,124,848
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
291,667
|
|
|
$
|
550,000
|
|
|
Accounts
payable
|
|
|
794,351
|
|
|
|
943,481
|
|
|
Accrued
liabilities
|
|
|
1,432,124
|
|
|
|
1,965,403
|
|
|
Customer
deposits
|
|
|
654,133
|
|
|
|
363,296
|
|
|
Income
taxes payable
|
|
|
17,448
|
|
|
|
-
|
|
|
Total
current liabilities
|
|
|
3,189,723
|
|
|
|
3,822,180
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
2,611,111
|
|
|
|
3,762,500
|
|
|
Deferred
liabilities
|
|
|
64,254
|
|
|
|
61,300
|
|
|
Total
liabilities
|
|
|
5,865,088
|
|
|
|
7,645,980
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (see Note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, par value $.01 per share:
|
|
|
|
|
|
|
|
|
|
Authorized: 1,000,000
shares
|
|
|
|
|
|
|
|
|
|
No
shares issued
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $.01 per share:
|
|
|
|
|
|
|
|
|
|
20,000,000
shares authorized; 3,315,229 and 3,289,103 shares issued; and 2,952,324
and 2,926,198 shares outstanding, respectively
|
|
|
33,153
|
|
|
|
32,891
|
|
|
Additional
paid-in capital
|
|
|
20,379,924
|
|
|
|
19,789,717
|
|
|
Retained
earnings
|
|
|
876,410
|
|
|
|
778,424
|
|
|
|
|
|
21,289,487
|
|
|
|
20,601,032
|
|
|
Less
treasury stock, at cost – 362,905 shares at January 3, 2009 and December
29, 2007
|
|
|
(3,122,164
|
)
|
|
|
(3,122,164
|
)
|
|
Total
stockholders’ equity
|
|
|
18,167,323
|
|
|
|
17,478,868
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
24,032,411
|
|
|
$
|
25,124,848
|
|
See accompanying notes to consolidated
financial statements
.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY
Years
Ended January 3, 2009 and December 29, 2007 (restated)
|
|
|
Common
Stock
|
|
|
Additional
Paid-in
|
|
|
Retained
|
|
|
Accumulated
Other
Comprehensive
Income
|
|
|
Treasury
|
|
|
Stock
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Amount
|
|
|
Totals
|
|
|
Balance,
December 30, 2006
|
|
|
3,265,638
|
|
|
$
|
32,656
|
|
|
$
|
19,237,130
|
|
|
$
|
6,599,817
|
|
|
$
|
1,389,038
|
|
|
124,205
|
|
|
$
|
(973,864
|
)
|
|
$
|
26,284,777
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,821,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(5,821,393
|
)
|
|
Share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
394,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
394,425
|
|
|
Exercise
of stock options
|
|
|
9,465
|
|
|
|
95
|
|
|
|
75,168
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75,263
|
|
|
Stock
Purchase Plan sales
|
|
|
11,000
|
|
|
|
110
|
|
|
|
82,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83,104
|
|
|
Vesting
of restricted stock
|
|
|
3,000
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
Repurchase
of common
stock
for the treasury
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
238,700
|
|
|
|
(2,148,300
|
)
|
|
|
(2,148,300
|
)
|
|
Foreign
currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,389,038
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,389,038
|
)
|
|
Balance,
December 29, 2007
|
|
|
3,289,103
|
|
|
|
32,891
|
|
|
|
19,789,717
|
|
|
|
778,424
|
|
|
|
-
|
|
|
|
362,905
|
|
|
|
(3,122,164
|
)
|
|
|
17,478,868
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,986
|
|
|
Share-based
compensation
|
|
|
|
|
|
|
|
|
|
|
487,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
487,784
|
|
|
Exercise
of stock options
|
|
|
4,082
|
|
|
|
41
|
|
|
|
28,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,331
|
|
|
Stock
Purchase Plan sales
|
|
|
13,044
|
|
|
|
131
|
|
|
|
72,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
72,154
|
|
|
Vesting
of restricted stock
|
|
|
8,000
|
|
|
|
80
|
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
Unrestricted
shares granted
|
|
|
1,000
|
|
|
|
10
|
|
|
|
2,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200
|
|
|
Balance,
January 3, 2009
|
|
|
3,315,229
|
|
|
$
|
33,153
|
|
|
$
|
20,379,924
|
|
|
$
|
876,410
|
|
|
$
|
-
|
|
|
|
362,905
|
|
|
$
|
(3,122,164
|
)
|
|
$
|
18,167,323
|
|
See accompanying notes to consolidated
financial statements
.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended January 3, 2009 and December 29, 2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
97,986
|
|
|
$
|
(5,821,393
|
)
|
|
Loss
from discontinued operations
|
|
|
(142,112
|
)
|
|
|
(4,386,829
|
)
|
|
Income
(loss) from continuing operations
|
|
|
240,098
|
|
|
|
(1,434,564
|
)
|
|
Adjustments
to reconcile income (loss) from continuing operations to net cash provided
by operating activities:
by
operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,564,302
|
|
|
|
2,365,221
|
|
|
Amortization
of deferred financing costs
|
|
|
248,521
|
|
|
|
30,795
|
|
|
Share-based
compensation
|
|
|
489,984
|
|
|
|
394,455
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(465,822
|
)
|
|
|
(167,434
|
)
|
|
Inventories
|
|
|
(255,436
|
)
|
|
|
(903,953
|
)
|
|
Costs
and estimated earnings in excess of billings on uncompleted
contracts
|
|
|
(1,880,338
|
)
|
|
|
–
|
|
|
Other
current assets
|
|
|
231,687
|
|
|
|
184,247
|
|
|
Other
assets
|
|
|
72,120
|
|
|
|
(70,832
|
)
|
|
Accounts
payable
|
|
|
(149,130
|
)
|
|
|
185,137
|
|
|
Accrued
liabilities
|
|
|
(533,279
|
)
|
|
|
115,438
|
|
|
Customer
deposits
|
|
|
290,837
|
|
|
|
159,513
|
|
|
Income
taxes payable
|
|
|
17,448
|
|
|
|
–
|
|
|
Deferred
liabilities
|
|
|
2,954
|
|
|
|
23,461
|
|
|
Net
cash provided by operating activities of continuing
operations
|
|
|
873,946
|
|
|
|
881,484
|
|
|
Net
cash used in operating activities of discontinued
operations
|
|
|
(142,112
|
)
|
|
|
(776,030
|
)
|
|
Net
cash provided by operating activities
|
|
|
731,834
|
|
|
|
105,454
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases
of capital assets
|
|
|
(817,357
|
)
|
|
|
(1,545,912
|
)
|
|
Cash
proceeds from sale of discontinued operations
|
|
|
664,282
|
|
|
|
817,578
|
|
|
Net
cash used in investing activities of continuing operations
|
|
|
(153,075
|
)
|
|
|
(728,334
|
)
|
|
Net
cash used in investing activities of discontinued
operations
|
|
|
–
|
|
|
|
(180,136
|
)
|
|
Net
cash used in investing activities
|
|
|
(153,075
|
)
|
|
|
(908,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Borrowings
under long-term debt
|
|
|
3,000,000
|
|
|
|
–
|
|
|
Payments
of deferred financing costs
|
|
|
(332,225
|
)
|
|
|
–
|
|
|
Repurchase
of common stock for the treasury
|
|
|
–
|
|
|
|
(2,148,300
|
)
|
|
Repayment
of borrowings
|
|
|
(4,409,722
|
)
|
|
|
(550,000
|
)
|
|
Restricted
cash (deposited) returned
|
|
|
250,000
|
|
|
|
(250,000
|
)
|
|
Proceeds
from the exercise of stock options
|
|
|
28,331
|
|
|
|
75,263
|
|
|
Proceeds
from Stock Purchase Plan sales
|
|
|
72,154
|
|
|
|
83,104
|
|
|
Net
cash used in financing activities of continuing operations
|
|
|
(1,391,462
|
)
|
|
|
(2,789,933
|
)
|
|
Net
cash used in financing activities of discontinued
operations
|
|
|
–
|
|
|
|
(350,064
|
)
|
|
Net
cash used in financing activities
|
|
|
(1,391,462
|
)
|
|
|
(3,139,997
|
)
|
|
Effect
of exchange rate changes
|
|
|
–
|
|
|
|
(14,053
|
)
|
|
Net
decrease in cash and cash equivalents
|
|
|
(812,703
|
)
|
|
|
(3,957,066
|
)
|
|
Cash
and cash equivalents at the beginning of year
|
|
|
2,004,471
|
|
|
|
5,961,537
|
|
|
Cash
and cash equivalents at the end of year
|
|
$
|
1,191,768
|
|
|
$
|
2,004,471
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
217,319
|
|
|
$
|
360,005
|
|
See
accompanying notes to consolidated financial statements.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Years
Ended January 3, 2009 and December 29, 2007
|
1.
|
Nature
of business and summary of significant accounting
policies
|
Nature of
business: Merrimac Industries, Inc. (the "Company") is involved in the design,
manufacture and sale of electronic component devices offering extremely broad
frequency coverage and high performance characteristics, and microstrip, bonded
stripline and thick metal-backed Teflon® (PTFE) and mixed dielectric multilayer
circuits for communications, defense and aerospace applications. The Company's
continuing operations are conducted primarily through one business segment,
electronic components and subsystems.
Principles
of consolidation: The consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts have been eliminated in consolidation.
Cash and
cash equivalents: The Company considers all highly liquid securities with
maturities of less than three months when purchased to be cash equivalents. The
Company maintains cash deposits with banks that at times exceed applicable
insurance limits. The Company reduces its exposure to credit risk by maintaining
such deposits with high quality financial institutions. The Company has not
experienced any losses in such accounts. Included in cash and cash equivalents
at December 29, 2007 was $427,000 that was held in escrow by our Canadian
counsel that was awaiting wire transfer to our operating account on the next
available banking day.
Use of
estimates: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect certain reported
amounts and disclosures. Accordingly, actual results could differ from those
estimates.
Revenue
recognition: The Company recognizes all amounts billable under short-term
contracts involving non-recurring engineering services for customization of
products in net sales and all related costs in cost of sales under the
completed-contract method when the customized units are delivered. The Company
periodically enters into contracts with customers for the development and
delivery of a prototype prior to the shipment of units. Under those
circumstances, the Company recognizes all amounts billable for non-recurring
engineering services in net sales and all related costs in cost of sales when
the prototype is delivered and recognize all of the remaining amounts billable
and the related cost when the units are delivered.
Periodically,
the Company has complex, long-term contracts for the engineering design,
development and production of space electronics products for which revenue is
recognized under the percentage-of-completion method. Sales and
related contract costs for design and documentation services under this type of
contract are recognized based on the cost-to-cost method. Sales and
related contract costs for products delivered under these contracts are
recognized on the units-of-delivery method.
Pursuant
to SOP 81-1, anticipated losses on all contracts are charged to operations in
the period when the losses become known.
Sales of
off-the-shelf, standard products and related costs of sales are recorded when
title transfers to the customer, which is generally on the date of shipment,
provided persuasive evidence of an arrangement exists, the sales price is fixed
or determinable and collection of the related receivable is
probable.
Warranties:
The Company's products sold under contracts have warranty obligations. Estimated
warranty costs for each contract are determined based on the contract terms and
technology specific issues. The Company accrues estimated warranty costs at the
time of sale and any additional amounts are recorded when such costs are
probable and can be reasonably estimated. Warranty expense was approximately
$119,000 and $171,000 for 2008 and 2007, respectively. The warranty reserve at
January 3, 2009 and December 29, 2007 was $200,000.
Accounts
receivable: The Company's accounts receivable are primarily from companies in
the defense, satellite and telecommunications industries, with 30 day payment
terms. Credit is extended based on evaluation of customer's financial condition.
Accounts receivable are stated in the consolidated financial statements net of
an allowance for doubtful accounts. Accounts outstanding longer than the payment
terms are considered past due. The Company determines its allowance by
considering a number of factors, including the length of time trade accounts
receivable are past due, the Company's previous loss history, the customer's
current ability to pay its obligations to the Company, and the condition of the
general economy and the industry as a whole. The Company writes-off accounts
receivable when they become uncollectible. The Company generally does
not require collateral from it’s customers.
Fair
value of financial instruments: The carrying amounts of financial instruments,
including cash and cash equivalents, accounts receivable and accounts payable
approximated fair value as of January 3, 2009 and December 29, 2007 because of
the relative short maturity of these instruments. At January 3, 2009 and
December 29, 2007, the fair value of the Company's debt approximates carrying
value. The fair value of the Company's long-term debt is estimated based on
current interest rates.
Inventories:
Inventories are stated at the lower of cost or market, using the average cost
method. Cost includes materials, labor, and manufacturing overhead related to
the purchase and production of inventories.
Provision
is made for potential losses on slow moving inventories when
identified.
Foreign
currency translation: The functional currency of the Company's discontinued
operations, FMI, was the Canadian dollar. FMI's assets and liabilities were
translated into U.S. dollars using exchange rates in effect at the consolidated
balance sheet date and their operations were translated using average exchange
rates prevailing during the year. The resulting translation adjustments have
been included in loss on disposal of discontinued operations. Realized foreign
exchange transaction gains and losses, which are not material, are included in
the consolidated statements of operations.
Comprehensive
income (loss): Comprehensive income (loss) is defined as the change in equity of
a company during a period from transactions and other events and circumstances
from non-owner sources. Following the sale of the Company's discontinued
operations, there is no foreign currency translation adjustment at January 3,
2009 or December 29, 2007.
Property,
plant and equipment: Property, plant and equipment are recorded at cost.
Depreciation and amortization is computed for financial statement purposes on
the straight-line method, while accelerated methods are used, where applicable,
for tax purposes. The costs of additions and improvements are capitalized and
expenditures for repairs and maintenance are expensed as incurred. The costs and
accumulated depreciation applicable to assets retired or otherwise disposed of
are removed from the asset accounts and any gain or loss is included in the
consolidated statements of operations. The following estimated useful lives are
used for financial income statement purposes:
|
Land
improvements
|
10
years
|
|
Building
|
25
years
|
|
Machinery
and equipment
|
3-10
years
|
|
Office
equipment, furniture and fixtures
|
5-10
years
|
Long-lived
assets: The Company accounts for long-lived assets under SFAS 144, "Accounting
for the Impairment or Disposal of Long-lived Assets". Management assesses the
recoverability of its long-lived assets, which consist primarily of fixed assets
and intangible assets with finite useful lives, whenever events or changes in
circumstance indicate that the carrying value may not be recoverable. The
following factors, if present, may trigger an impairment review: (i) significant
underperformance relative to expected historical or projected future operating
results; (ii) significant negative industry or economic trends; (iii)
significant decline in the Company's stock price for a sustained period; and
(iv) a change in the Company's market capitalization relative to net book value.
If the recoverability of these assets is unlikely because of the existence of
one or more of the above-mentioned factors, an impairment analysis is performed
using a projected discounted cash flow method. Management must make assumptions
regarding estimated future cash flows and other factors to determine the fair
value of these respective assets. If these estimates or related assumptions
change in the future, the Company may be required to record an impairment
charge. Impairment charges would be included with costs and expenses in the
Company's consolidated statements of operations, and would result in reduced
carrying amounts of the related assets on the Company's consolidated balance
sheets.
Goodwill:
Goodwill primarily includes the excess purchase price paid over the fair value
of net assets acquired in the Company's 1999 acquisition of FMI. When the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"), the net carrying value of the FMI
goodwill was $2,745,000, which was reduced by $435,000 of accumulated
amortization. Under SFAS 142, the Company ceased amortization of goodwill and
tests its goodwill on an annual basis, or whenever events or circumstances
indicate that impairment may have occurred. Under SFAS 142 goodwill impairment
is determined using a two-step process. The first step of the goodwill
impairment test is to identify a potential impairment by comparing the fair
value of a reporting unit with its carrying amount, including goodwill. If the
estimated fair value of the reporting unit exceeds its carrying amount, the
reporting unit's goodwill is not considered to be impaired and the second step
of the impairment test is unnecessary. If the carrying amount of the reporting
unit exceeds its fair value, the second step of the goodwill impairment test is
performed to measure the amount of impairment loss, if any. The second step of
the goodwill impairment test compares the implied fair value of the reporting
unit's goodwill, determined in the same manner as the amount of goodwill
recognized in a business combination, with the carrying amount of such goodwill.
If the carrying amount of the reporting unit's goodwill exceeds the implied fair
value of that goodwill, an impairment loss is recognized in an amount equal to
that excess.
During
the quarter ended June 30, 2007, the Company initiated an interim goodwill
impairment test of its FMI reporting unit. This occurred as a result of FMI's
failure to meet 2007 bookings and sales targets, which resulted in continuing
operating losses and a reduction of its bank borrowing availability. The
estimates of fair value of the reporting unit were determined using a discounted
cash flow analysis. A discounted cash flow analysis required the Company to make
various judgmental assumptions and estimates, including assumptions about future
cash flows, growth rates and discount rates. The assumptions and estimates about
the future cash flows and growth rates were based on the reporting unit's
budgets and business plans. Discount rate assumptions were based on an
assessment of the risk inherent in the future cash flows of the reporting unit.
As a result of the impairment test, the Company recorded a non-cash goodwill
impairment charge of $2,630,000 related to the Company's FMI reporting unit for
the quarter ended June 30, 2007. The Company recorded a further impairment
charge in the third quarter of 2007 of $1,126,000 for the remaining balance of
FMI goodwill. The impairment charges are included in the results of operations
as loss from discontinued operations. The assets related to these operations
were sold on December 28, 2007 (see Note 3). The impairment charges did not
affect the Company's liquidity or result in non-compliance with any financial
debt covenants.
Advertising:
The Company expenses the cost of advertising and promotion as incurred.
Advertising costs charged to operations were $54,000 in 2008 and $75,000 in
2007.
Income
taxes: The Company uses the asset and liability method to account for income
taxes. Under this method, deferred tax assets and liabilities are determined
based on temporary differences between financial reporting and tax bases of
assets and liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the temporary differences are expected to reverse.
Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized. Tax benefits associated with the
exercise of stock options are recorded to additional paid-in capital in the year
the tax benefits are realized.
Savings
and Investment Plan: The Company's Savings and Investment Plan is a 401(k) plan
(the "Plan") that provides eligible employees with the option to defer and
invest up to 25% of their compensation, with 50% of the first 6% of such savings
matched by the Company. In May 2003, the Company suspended its matching
contributions to the Plan, and, accordingly, the Company made no contributions
to the Plan in 2008 or 2007. The Board of Directors may also authorize a
discretionary amount to be contributed to the Plan and allocated to eligible
employees annually. No discretionary contribution amounts were authorized for
2008 or 2007.
Due to
the Company's net operating loss carryforwards, no tax benefits resulting from
the exercise of stock options have been recorded, thus there was no effect on
cash flows from operating or financing activities.
For the
fiscal years ended January 3, 2009 and December 29, 2007, share-based
compensation expense related to the 2001 Employee Stock Purchase Plan, the 2006
Non-Employee Directors' Stock Plan and the various stock option plans was
allocated approximately as follows:
|
|
|
2008
|
|
|
2007
|
|
|
Cost
of sales
|
|
$
|
177,000
|
|
|
$
|
80,000
|
|
|
Selling,
general and administrative
|
|
|
313,000
|
|
|
|
314,000
|
|
|
Total
share-based compensation
|
|
$
|
490,000
|
|
|
$
|
394,000
|
|
The fair
value of each of the options and purchase plan subscription rights granted in
2008 and 2007 was estimated on the date of grant using the Black-Scholes option
valuation model. For the years ended January 3, 2009 and December 29, 2007, the
Company used the Simplified Method to estimate the expected term of the expected
life of stock option grants as defined by Securities and Exchange Commission
Staff Accounting Bulletin No. 107 and 110 for each award granted. Expected
volatility for the years ended January 3, 2009 and December 29, 2007, is based
on historical volatility levels of the Company's common stock. The risk-free
interest rate for the years ended January 3, 2009 and December 29, 2007 is based
on the implied yield currently available on U.S. Treasury zero coupon issues
with the remaining term equal to the expected term of the option
granted.
The
following weighted average assumptions were utilized:
|
|
|
2008
|
|
|
2007
|
|
|
Expected
option life (years)
|
|
|
6.0
|
|
|
|
5.7
|
|
|
Expected
volatility
|
|
|
37.59
|
%
|
|
|
32.89
|
%
|
|
Risk-free
interest rate
|
|
|
3.14
|
%
|
|
|
4.53
|
%
|
|
Expected
dividend yield
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Research
and development: Research and development expenses include materials, salaries
and related expenses of certain engineering personnel, and outside services
associated with product development. Research and development expenditures of
approximately $1,019,000 in 2008 and $1,579,000 in 2007 were expensed as
incurred.
Deferred
financing costs: During 2008, the Company capitalized $332,000 of deferred
financing costs related to its new financing agreement with Wells Fargo Bank and
is amortizing such amount over the term of the related debt (three years). In
2008, the Company expensed approximately $220,000 of unamortized deferred debt
costs to interest expense related to its prior financing agreement with Capital
One, N.A.
Net
income (loss) per share: Basic net income (loss) per share is computed by
dividing income (loss) available to common shareholders by the weighted-average
number of common shares outstanding during the period. Diluted net income per
share is computed by dividing net income by the weighted-average number of
common shares outstanding during the period increased to include the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The dilutive effect of the outstanding
options would be reflected in diluted income (loss) per share by application of
the treasury stock method.
Accounting
period: The Company's fiscal year is the 52-53 week period ending on the
Saturday closest to December 31. The Company has quarterly dates that correspond
with the Saturday closest to the last day of each calendar quarter and each
quarter consists of 13 weeks in a 52-week year. Periodically, as was the case in
fiscal year 2008, the additional week to make a 53-week year is added to the
fourth quarter, making such quarter consist of 14 weeks.
Recent
Accounting Pronouncements: In October 2008, The Financial Accounting Standards
Board (“FASB”) issued FASB Staff Position (“FSP”) FAS 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active”.
The FSP clarifies the application of Statement of Financial Accounting Standards
(“SFAS”) Statement No. 157, “Fair Value Measurements”, in a market that is not
active and provides an example to illustrate key considerations in determining
the fair value of a financial asset when the market for that financial asset is
not active. The FSP is effective for prior periods for which financial
statements have not been issued. Management currently believes that FAS 157-3
will have no material impact on the Company’s consolidated financial
statements.
In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets”. This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS Statement No. 142, “Goodwill and Other
Intangible Assets”. The intent of this FSP is to improve the consistency between
the useful life of a recognized intangible asset under SFAS No. 142 and the
period of expected cash flows used to measure the fair value of the asset under
SFAS No. 141(R), and other accounting principles generally accepted in the
United States of America. This FSP is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Management currently believes that FAS 142-3 will have no
material impact on the Company’s consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value,
and expands disclosures about fair value measurements. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after
November 15, 2007 and became effective for us on January 1,
2008.
Fair
value is defined as the price at which an asset could be exchanged in a current
transaction between knowledgeable, willing parties. A liability’s
fair value is defined as the amount that would be paid to transfer the liability
to a new obligor, not the amount that would be paid to settle the liability with
the creditor. The FASB establishes a three-level hierarchy for fair
value measurements based upon the transparency of inputs to the valuation as of
the measurement date and expands disclosures about financial instruments
measured at fair value. Assets and liabilities recorded at fair value are
categorized based upon the level of judgment associated with the inputs used to
measure their fair value. Hierarchical levels defined by SFAS No. 157
and directly related to the amount of subjectivity associated with the inputs to
fair valuation of these assets and liabilities are as follows:
Level 1: Inputs are unadjusted, quoted
prices in active markets for identical assets or liabilities at the measurement
date. The types of assets and liabilities carried at this level are
equities listed in active markets, investments in publicly traded mutual funds
with quoted market prices and listed derivatives.
Level 2:
Inputs (other than quoted prices included in Level 1) are either directly or
indirectly observable for the asset or liability through correlation with market
data of the instrument’s anticipated life. Fair value assets and
liabilities that are generally included in this category are municipal bonds and
certain derivatives.
Level 3: Financial assets and financial
liabilities whose values are based on prices or valuation techniques that
require inputs that are both unobservable and significant to the overall fair
value measurement. Consideration is given to the risk inherent in the
valuation method and the risk inherent in the inputs to the
model. Generally, assets and liabilities carried at fair value and
included in this category are certain derivatives.
The
adoption of SFAS No. 157 did not have a material impact on the Company’s
consolidated financial statements.
In
February 2007, the FASB issued SFAS No. 159 “The Fair Value Option for Financial
Assets and Financial Liabilities”. SFAS No. 159 permits entities to choose to
measure many financial assets and financial liabilities at fair value.
Unrealized gains and losses on items for which the fair value option has been
elected are reported in net income. SFAS No. 159 is effective for fiscal years
beginning after November 15, 2007 and interim periods within those fiscal years.
The adoption of the standard did not have a material impact on the Company’s
consolidated financial position and results of operations since the Company did
not elect the fair value option for financial assets and
liabilities.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141(R)”). SFAS 141(R) established principles and
requirements for how an acquiring company recognizes and measures in its
financial statements the identifiable assets acquired, the liabilities assumed,
any noncontrolling interest in the acquired company and the goodwill acquired.
SFAS 141(R) also established disclosure requirements to enable the evaluation of
the nature and financial effects of the business combination. SFAS 141R is
effective for fiscal periods beginning after December 15, 2008. The Company is
currently evaluating the impact that SFAS 141R could have on the Company’s
consolidated financial position and consolidated results of
operations.
On April
1, 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and
Liabilities Assumed in a Business Combination That Arise from Contingencies”
This FSP amends and clarifies FASB Statement No. 141 (revised 2007), “Business
Combinations”
,
to
address application issues raised by preparers, auditors, and members of the
legal profession on initial recognition and measurement, subsequent measurement
and accounting, and disclosure of assets and liabilities arising from
contingencies in a business combination. FSP No. FAS 141(R)-1 shall be effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company
is currently evaluating the impact that FSP No. FAS 141(R)-1 could have on the
Company’s consolidated financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements-an Amendment of Accounting Research Bulletin
No. 51” (“SFAS No. 160”). SFAS No. 160 establishes accounting and reporting
standards of ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the noncontrolling interest, changes in a parent's ownership interest and the
valuation of retained noncontrolling equity investments when a subsidiary is
deconsolidated. SFAS 160 also establishes disclosure requirements that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. SFAS No. 160 is effective for fiscal periods
beginning after December 15, 2008. Management currently believes that SFAS No.
160 will have no material impact on the Company’s consolidated financial
statements.
In March
2008, the FASB issued SFAS No. 161,
“
Disclosures about
Derivative Instruments and Hedging Activities—an amendment of SFAS No. 133
”
(“SFAS No. 161”).
SFAS No. 161 changes the disclosure requirements for derivative instruments and
hedging activities. Entities are required to provide enhanced disclosures about
(a) how and why an entity uses derivative instruments, (b) how derivative
instruments and related hedged items are accounted for under SFAS No. 133 and
its related interpretations, and (c) how derivative instruments and related
hedge items affect an entity’s financial position, financial performance, and
cash flows. SFAS No. 161is effective for fiscal years beginning after November
15, 2008. Management currently believes that SFAS No. 161 will have no material
impact on the Company’s consolidated financial statements.
In
November 2008, the FASB ratified the Emerging Issues Task Force ("EITF") Issue
No. 08-6, "Equity Method Investment Accounting Considerations." EITF
08-6 applies to all investments accounted for under the equity
method. It states that an entity shall measure its equity investment
initially at cost. Contingent consideration should only be included
in the initial measurement of the equity method investment if it is required to
be recognized by specific authoritative guidance other than SFAS
141(R). However, if any equity method investment agreement involves a
contingent consideration arrangement in which the fair value of the investor's
share of the investee's net assets exceeds the investor's initial cost, a
liability should be recognized. An equity method investor is required
to recognize other-than-temporary impairments of an equity method investment and
shall account for a share issuance by an investee as if the investor had sold a
proportionate share of its investment. Any gain or loss to the
investor resulting from an investee's share issuance shall be recognized in
earnings. EITF 08-6 shall be effective in fiscal years beginning on or after
December 15, 2008, and interim periods within those fiscal years and shall be
applied prospectively. The provisions of EITF 08-6 will be adopted in
2009. The Company is in the process of evaluating the impact, if any,
of adopting EITF 08-6 on the Company’s financial statements.
|
2.
|
Restatement
of Consolidated Financial
Statements
|
The Company’s management determined
that there were misstatements in the Company’s previously reported inventory and
cost of sales for fiscal year 2007. The misstatements were due to
errors in the cost accounting process that resulted in the improper closing
of certain of the Company’s manufacturing jobs. The financial
statement impact of the errors, which overstated the Company's work in process
inventory and understated cost of goods sold, was determined to be a material
misstatement resulting in the restatement of the consolidated financial
statements for the year ended December 29, 2007. Presented below are
the restated consolidated financial statements for fiscal year 2007 and
throughout this Form 10-K, where applicable, the restated consolidated financial
statements are presented. The impact of the errors found affected all
four quarters of fiscal year 2007 and the restatement of the unaudited
condensed quarterly consolidated financial statements and related footnotes
are presented in Note 16.
The
Company’s management also identified misstatements in the Company’s previously
reported fiscal year 2008 quarterly financial statements. These
misstatements were due to a combination of factors and primarily affected work
in process inventories and cost of goods sold as well as having a minor impact
on accrued liabilities and selling, general and administrative
expenses. The main factors causing the misstatements were control
deficiencies following the company wide conversion to an enterprise resource
planning (ERP) software system and as a result of changes in personnel in the
Company’s financial operations department. The unaudited
condensed impact of the errors found affected all three previously reported
quarters of fiscal year 2008 and the restatement of the quarterly consolidated
financial statements are presented in financial statement Note 16 to the
consolidated financial statements.
The
effect on the fiscal year ended December 29, 2007 was to recognize additional
cost of sales of $395,500 resulting in an increase in the loss from continuing
operations from $1,039,000 to $1,434,000. The impact on the loss per
common share from continuing operations, basic and diluted was $0.13 increasing
the loss per common share from continuing operations from $0.35 to
$0.48.
Consolidated
Statement of Operations Adjustments
The
following is a presentation of the consolidated statement of operations
adjustments to our previously issued consolidated statement of operations for
the year ended December 29, 2007:
|
|
|
December 29, 2007
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
21,886,946
|
|
|
|
|
|
$
|
21,886,946
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
12,788,095
|
|
|
$
|
395,500
|
|
|
|
13,183,595
|
|
|
Selling,
general and admnistrative
|
|
|
8,435,173
|
|
|
|
|
|
|
|
8,435,173
|
|
|
Research
and development
|
|
|
1,579,250
|
|
|
|
|
|
|
|
1,579,250
|
|
|
|
|
|
22,802,518
|
|
|
|
395,500
|
|
|
|
23,198,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(915,572
|
)
|
|
|
(395,500
|
)
|
|
|
(1,311,072
|
)
|
|
Interest
and other expense, net
|
|
|
(123,492
|
)
|
|
|
|
|
|
|
(123,492
|
)
|
|
Loss
from continuing operations before income taxes
|
|
|
(1,039,064
|
)
|
|
|
(395,500
|
)
|
|
|
(1,434,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(1,039,064
|
)
|
|
|
(395,500
|
)
|
|
|
(1,434,564
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations net of income taxes
|
|
|
(4,386,829
|
)
|
|
|
|
|
|
|
(4,386,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,425,893
|
)
|
|
$
|
(395,500
|
)
|
|
$
|
(5,821,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share from continuing operations - basic and
diluted
|
|
$
|
(0.35
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(0.48
|
)
|
|
Loss
per common share from discontinued operations - basic and
diluted
|
|
$
|
(1.48
|
)
|
|
|
|
|
|
$
|
(1.48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(1.83
|
)
|
|
$
|
(0.13
|
)
|
|
$
|
(1.96
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding - basic and diluted
|
|
|
2,962,575
|
|
|
|
2,962,575
|
|
|
|
2,962,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,425,893
|
)
|
|
$
|
(395,500
|
)
|
|
$
|
(5,821,393
|
)
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
(1,389,038
|
)
|
|
|
|
|
|
|
(1,389,038
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(6,814,931
|
)
|
|
$
|
(395,500
|
)
|
|
$
|
(7,210,431
|
)
|
Consolidated
Balance Sheet Adjustments
The
following is a presentation of the consolidated balance sheet adjustments to our
previously issued consolidated balance sheet as of December 29,
2007:
|
|
|
December
29, 2007
|
|
|
|
|
As
Reported
|
|
|
Adjustments
|
|
|
As
Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
2,004,471
|
|
|
|
|
|
$
|
2,004,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable, net of allowance of $30,000
|
|
|
5,299,753
|
|
|
|
|
|
|
5,299,753
|
|
|
Inventories,
net
|
|
|
5,039,770
|
|
|
$
|
(395,500
|
)
|
|
|
4,644,270
|
|
|
Other
current assets
|
|
|
774,007
|
|
|
|
|
|
|
|
774,007
|
|
|
Due
from assets sale contract
|
|
|
664,282
|
|
|
|
|
|
|
|
664,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
13,782,283
|
|
|
|
(395,500
|
)
|
|
|
13,386,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
37,556,672
|
|
|
|
|
|
|
|
37,556,672
|
|
|
Less
accumulated depreciation and amortization
|
|
|
26,600,240
|
|
|
|
|
|
|
|
26,600,240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
10,956,432
|
|
|
|
|
|
|
|
10,956,432
|
|
|
Restricted
cash
|
|
|
250,000
|
|
|
|
|
|
|
|
250,000
|
|
|
Other
assets
|
|
|
531,633
|
|
|
|
|
|
|
|
531,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
25,520,348
|
|
|
$
|
(395,500
|
)
|
|
$
|
25,124,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
550,000
|
|
|
|
|
|
|
$
|
550,000
|
|
|
Accounts
payable
|
|
|
943,481
|
|
|
|
|
|
|
|
943,481
|
|
|
Accrued
liabilities
|
|
|
1,965,403
|
|
|
|
|
|
|
|
1,965,403
|
|
|
Customer
deposits
|
|
|
363,296
|
|
|
|
|
|
|
|
363,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
3,822,180
|
|
|
|
|
|
|
|
3,822,180
|
|
|
Long-term
debt, net of current portion
|
|
|
3,762,500
|
|
|
|
|
|
|
|
3,762,500
|
|
|
Deferred
liabilities
|
|
|
61,300
|
|
|
|
|
|
|
|
61,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
7,645,980
|
|
|
|
|
|
|
|
7,645,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
32,891
|
|
|
|
|
|
|
|
32,891
|
|
|
Additional
paid-in capital
|
|
|
19,789,717
|
|
|
|
|
|
|
|
19,789,717
|
|
|
Retained
earnings
|
|
|
1,173,924
|
|
|
$
|
(395,500
|
)
|
|
|
778,424
|
|
|
|
|
|
20,996,532
|
|
|
|
(395,500
|
)
|
|
|
20,601,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
treasury stock, at cost - 362,905 shares
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
17,874,368
|
|
|
|
(395,500
|
)
|
|
|
17,478,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholder's equity
|
|
$
|
25,520,348
|
|
|
$
|
(395,500
|
)
|
|
$
|
25,124,848
|
|
Consolidated
Statement of Cash Flows Adjustments
The
following is a presentation of the consolidated statement of cash flows
adjustments to our previously issued consolidated statement of cash flows for
the year ended December 29, 2007:
|
|
|
December 29, 2007
|
|
|
|
|
As Reported
|
|
|
Adjustments
|
|
|
As Restated
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,425,893
|
)
|
|
$
|
(395,500
|
)
|
|
$
|
(5,821,393
|
)
|
|
Less,
loss from discontinued operations
|
|
|
(4,386,829
|
)
|
|
|
|
|
|
|
(4,386,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(1,039,064
|
)
|
|
|
(395,500
|
)
|
|
|
(1,434,564
|
)
|
|
Adjustments
to reconcile net loss from continuing operations to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
2,365,221
|
|
|
|
|
|
|
|
2,365,221
|
|
|
Amortization
of deferred financing costs
|
|
|
30,795
|
|
|
|
|
|
|
|
30,795
|
|
|
Share-based
compensation
|
|
|
394,455
|
|
|
|
|
|
|
|
394,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(167,434
|
)
|
|
|
|
|
|
|
(167,434
|
)
|
|
Inventories
|
|
|
(1,299,453
|
)
|
|
|
395,500
|
|
|
|
(903,953
|
)
|
|
Other
current assets
|
|
|
184,247
|
|
|
|
|
|
|
|
184,247
|
|
|
Other
assets
|
|
|
(70,832
|
)
|
|
|
|
|
|
|
(70,832
|
)
|
|
Accounts
payable
|
|
|
185,137
|
|
|
|
|
|
|
|
185,137
|
|
|
Accrued
liabilities
|
|
|
115,438
|
|
|
|
|
|
|
|
115,438
|
|
|
Customer
deposits
|
|
|
159,513
|
|
|
|
|
|
|
|
159,513
|
|
|
Deferred
liabilities
|
|
|
23,461
|
|
|
|
|
|
|
|
23,461
|
|
|
Net
cash provided by operating activities of continuing
operations
|
|
|
881,484
|
|
|
|
-
|
|
|
|
881,484
|
|
|
Net
cash used in operating activities of discontinued
operations
|
|
|
(776,030
|
)
|
|
|
|
|
|
|
(776,030
|
)
|
|
Net
cash provided by operating activities
|
|
|
105,454
|
|
|
|
-
|
|
|
|
105,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases
of capital assets
|
|
|
(1,545,912
|
)
|
|
|
|
|
|
|
(1,545,912
|
)
|
|
Cash
proceeds from sale of discontinued operations
|
|
|
817,578
|
|
|
|
|
|
|
|
817,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities of continuing operations
|
|
|
(728,334
|
)
|
|
|
|
|
|
|
(728,334
|
)
|
|
Net
cash used in investing activities of discontinued
operations
|
|
|
(180,136
|
)
|
|
|
|
|
|
|
(180,136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(908,470
|
)
|
|
|
|
|
|
|
(908,470
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
of common stock for the treasury
|
|
|
(2,148,300
|
)
|
|
|
|
|
|
|
(2,148,300
|
)
|
|
Repayment
of borrowings
|
|
|
(550,000
|
)
|
|
|
|
|
|
|
(550,000
|
)
|
|
Restricted
cash deposited
|
|
|
(250,000
|
)
|
|
|
|
|
|
|
(250,000
|
)
|
|
Proceeds
from the exercise of stock options
|
|
|
75,263
|
|
|
|
|
|
|
|
75,263
|
|
|
Proceeds
from stock purchase plan sales
|
|
|
83,104
|
|
|
|
|
|
|
|
83,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities of continuing operations
|
|
|
(2,789,933
|
)
|
|
|
|
|
|
|
(2,789,933
|
)
|
|
Net
cash used in financing activities of discontinued
operations
|
|
|
(350,064
|
)
|
|
|
|
|
|
|
(350,064
|
)
|
|
Net
cash used in financing activities
|
|
|
(3,139,997
|
)
|
|
|
|
|
|
|
(3,139,997
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes
|
|
|
(14,053
|
)
|
|
|
|
|
|
|
(14,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(3,957,066
|
)
|
|
|
|
|
|
|
(3,957,066
|
)
|
|
Cash
and cash equivalents at beginning of year, including $562,205 reported
under assets held for sale
|
|
|
5,961,537
|
|
|
|
|
|
|
|
5,961,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of year
|
|
$
|
2,004,471
|
|
|
$
|
-
|
|
|
$
|
2,004,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
on credit facilities
|
|
$
|
360,005
|
|
|
$
|
-
|
|
|
$
|
360,005
|
|
|
3.
|
Discontinued
Operations
|
Company
management determined, and the Board of Directors approved on August 9, 2007,
that the Company should divest its FMI operations. The divestiture should enable
Merrimac to concentrate its resources on RF Microwave and Multi-Mix®
Microtechnology product lines to generate sustainable, profitable growth.
Beginning with the third quarter of 2007, the Company reflected FMI as a
discontinued operation and the Company reclassified prior financial statements
to reflect the results of operations, financial position and cash flows of FMI
as discontinued operations.
On
December 28, 2007, the Company sold substantially all of the assets of its
wholly-owned subsidiary, FMI, to Firan Technology Group Corporation ("FTG"), a
manufacturer of high technology/high reliability printed circuit boards, that
has operations in Toronto, Ontario, Canada and Chatsworth, California. The
transaction was effected pursuant to an asset purchase agreement entered into
between Merrimac, FMI and FTG. The total consideration payable by FTG was
$1,482,000 (Canadian $1,450,000) plus the assumption of certain liabilities of
approximately $368,000 (Canadian $360,000). FTG paid $818,000 (Canadian
$800,000) of the purchase price at closing and the balance was paid on February
21, 2008 following the conclusion of a transitional period. Included in cash and
cash equivalents at December 29, 2007 was $427,000 that was held in escrow by
our Canadian counsel that was awaiting wire transfer to our operating account on
the next available banking day.
In
accordance with the asset sale agreement with FTG, the Company would reimburse
FTG for any accounts receivable purchased under the agreement that subsequently
became uncollectible. It was determined that as of the close of
fiscal year 2008 approximately $30,000 was uncollectible. The expense
was accrued for and is included in the fiscal year 2008 net loss from
discontinued operations.
Operating
results of FMI, which were formerly represented as the Company's microwave
micro-circuitry segment, are summarized as follows:
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
Net
sales
|
|
$
|
|
|
|
$
|
3,627,951
|
|
|
Loss
from discontinued operations before provision for income
taxes
|
|
|
(142,112
|
)
|
|
|
(5,876,703
|
)
|
|
Gain
on sale of assets of discontinued operation
|
|
|
|
|
|
1,935,874
|
|
|
Provision
for income taxes
|
|
|
|
|
|
446,000
|
|
|
Loss
from discontinued operations
|
|
|
(142,112
|
)
|
|
|
(4,386,829
|
)
|
The loss
from discontinued operations in 2007 includes goodwill impairment charges of
$3,756,000, a third quarter 2007 charge of $586,000 to write down the net assets
held for sale of FMI to estimated fair value and a charge of $506,000 to provide
a full valuation allowance for a Canadian net deferred tax asset. As
a result of the sale of the Company's discontinued operations in the fourth
quarter of 2007, the Company recorded a gain from the disposal of discontinued
operations of approximately $1,936,000, which primarily consists of the noncash
realization of foreign currency translation adjustment of
$2,025,000.
Inventories
consist of the following:
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
|
|
|
|
|
(Restated)
|
|
|
Finished
goods
|
|
$
|
700,174
|
|
|
$
|
239,503
|
|
|
Work-in-process
|
|
|
1,837,324
|
|
|
|
2,584,132
|
|
|
Raw
materials and purchased parts
|
|
|
2,362,208
|
|
|
|
1,820,635
|
|
|
|
|
$
|
4,899,706
|
|
|
$
|
4,644,270
|
|
|
5.
|
Property,
plant and equipment
|
Property,
plant and equipment, which is carried at cost, consists of the
following:
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
Land
and land improvements
|
|
$
|
647,531
|
|
|
$
|
647,531
|
|
|
Building
and leasehold improvements
|
|
|
6,582,401
|
|
|
|
6,692,388
|
|
|
Machinery
and equipment
|
|
|
22,173,649
|
|
|
|
22,188,090
|
|
|
Office
equipment, furniture and fixtures
|
|
|
8,362,347
|
|
|
|
8,028,663
|
|
|
|
|
$
|
37,765,928
|
|
|
$
|
37,556,672
|
|
Depreciation
and amortization expense was approximately $2,564,000 and $2,365,000 for 2008
and 2007, respectively.
|
6.
|
Current
and long-term debt
|
The
Company was obligated under the following debt instruments at January 3, 2009
and December 29, 2007:
|
|
|
January 3, 2009
|
|
|
December 29, 2007
|
|
|
Wells
Fargo Bank N.A.:
|
|
|
|
|
|
|
|
Revolving
line of credit, 1.00% above prime (prime having a 5% floor limit for loan
purposes)
|
|
$
|
|
|
|
$
|
|
|
|
Equipment
loan, due September 29, 2011, 1.00% above prime (prime having a 5% floor
limit for loan purposes) 6.00% at January 3, 2009
|
|
|
458,333
|
|
|
|
|
|
Mortgage
loan, due September 29, 2011, 1.50% above prime (prime having a 5% floor
limit for loan purposes) or LIBOR plus 3.5%. 6.50% at January 3,
2009
|
|
|
2,444,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
One, N.A.:
|
|
|
|
|
|
|
|
|
|
Revolving
line of credit, 2.00% above LIBOR or 0.50% below prime
|
|
|
|
|
|
|
|
Term
loan, 2.25% above LIBOR or 0.50% below prime
|
|
|
|
|
|
1,500,000
|
|
|
Mortgage
loan, 2.25% above LIBOR or 0.50% below prime
|
|
|
|
|
|
2,812,500
|
|
|
|
|
|
2,902,778
|
|
|
|
4,312,500
|
|
|
Less
current portion
|
|
|
291,667
|
|
|
|
550,000
|
|
|
Long-term
portion
|
|
$
|
2,611,111
|
|
|
$
|
3,762,500
|
|
On
September 29, 2008, the Company entered into a credit facility with Wells Fargo
Bank, N.A. (“WFB”) (the “Wells Fargo Credit Facility”) which replaced the credit
facility with Capital One, N.A. On September 30, 2008, the Company repaid all
outstanding amounts under the credit facility with Capital One, N.A. with the
proceeds of the Wells Fargo Credit Facility. The Wells Fargo Credit
Facility consists of a three-year $5,000,000 collateralized revolving credit
facility, a three-year $500,000 equipment term loan and a three-year $2,500,000
real estate term loan. The revolving line of credit is subject to an
availability limit under a borrowing base calculation of 85% of eligible
domestic accounts receivable with a sublimit of $5,000,000, 75% of eligible
foreign accounts receivable with a sublimit of $800,000, and 30% of eligible
inventories with a sublimit of $400,000. The revolving line of credit
is also subject to a minimum borrowing base availability of
$500,000. As of January 3, 2009, the Company had a borrowing base of
approximately $4,222,000 and availability under the credit facility as of
January 3, 2009 of approximately $3,722,000.The revolving line of credit expires
September 29, 2011. The revolving line of credit bears interest at
the prime rate plus one percent, with the prime rate having a floor limit of 5%
for loan purposes. The Company may request a LIBOR quote for an
initial minimum of $1,000,000 with subsequent requests at a minimum of
$500,000. No more than three such requests may be active at any point
in time. LIBOR advances bear interest at the LIBOR rate plus 3.25%
for a credit advance, or 3.50% for a term loan. The equipment
loan is required to be repaid in equal monthly installments of $13,900 based on
a four year amortization period. The real estate loan is required to
be paid in equal monthly installments amortized over a 180 month time period,
with any unpaid principal and interest due and payable on the termination date
of September 29, 2011. The two term loans require mandatory
prepayment under certain circumstances subject to a prepayment fee of 1%-2% of
the outstanding balance.
The
equipment term loan bears interest at the prime (with a floor of 5%) rate plus
1%. The real estate term loan bears interest at the prime rate (with
a floor of 5%) plus 1.50% or LIBOR plus 3.50%.
The Wells
Fargo Credit Facility is collateralized by substantially all of the Company’s
assets.
In
connection with the execution of the credit agreement, the Company paid Wells
Fargo an origination fee of $60,000 and incurred $272,000 of additional
financing costs. Under the revolving line of credit, The Company must
also pay an unused line fee of 0.375% of the daily, unused amount and a
collateral monitoring fee of $6,000 per year. The Company will incur
additional fees if Wells Fargo terminates the credit facility upon default or if
the Company terminates the credit facility prior to its termination
date. Under the revolving line of credit these fees are $100,000
during the first year and $50,000 during the second and third
years. Under the term notes the early termination fees are 2%
of the amount prepaid during the first year of the agreement and 1% of the
amount prepaid during the second and third years of the agreement.
The
credit facility requires the Company to maintain certain financial covenants,
including a minimum debt service coverage ratio of not less than 1.1 to 1.0 and
minimum net income. For the year ended January 3, 2009 the Company’s
net loss is not to exceed $265,000 and for the quarters ending April 4, 2009 and
beyond, net income is not to be less than 75% of the Company’s projected net
income and not more than 100% of the Company’s projected net
loss. Additionally, the credit facility prohibits incurring or
contracting to incur capital expenditures exceeding $1,000,000 in the year ended
January 3, 2009 and $600,000 in each subsequent year-end. The Company
must also not permit the amount due from its affiliate in Costa Rica, Multi-Mix
Microtechnology S.R.L to exceed $4,250,000 through the year ended January 3,
2009, $4,500,000 through the quarter ending April 4, 2009, $4,750,000 through
the quarter ending July 4, 2009 and $5,000,000 through the quarter ending
October 3, 2009 and each fiscal quarter thereafter. The credit
agreement contains other standard covenants related to the Company’s operations,
including prohibitions on the creation of additional liens, the incurrence of
additional debt, the payment of dividends the sale of certain assets and other
corporate transactions by the Company, without Wells Fargo’s
consent. The Company was in compliance with all of its financial
covenants as of January 3, 2009.
The
payments now required under the long-term obligations listed above during the
years following
January
3, 2009 are set forth below:
|
2009
|
|
$
|
291,667
|
|
|
2010
|
|
|
291,667
|
|
|
2011
|
|
|
2,319,444
|
|
|
|
|
$
|
2,902,778
|
|
|
7.
|
Stock
option and stock purchase plans:
|
Share-Based
Compensation Plans:
At
January 3, 2009, the Company maintains share-based compensation arrangements
under the following plans: (i) 1997 Long Term Incentive Plan; (ii) 2001 Stock
Option Plan; (iii) 2006 Stock Option Plan; (iv) 2006 Key Employee Incentive
Plan; and (v) 2006 Non-Employee Directors' Stock Plan.
The 2006
Stock Option Plan authorizes the grant of an aggregate of 500,000 shares of
Common Stock to employees, directors and consultants of the Company. Under the
2006 Stock Option Plan, the Company may grant to eligible individuals incentive
stock options, as defined in Section 422 of the Internal Revenue Code of 1986
("Code"), and/or non-qualified stock options. The purposes of the 2006 Stock
Option Plan are to attract, retain and motivate employees, compensate
consultants, and to enable employees, consultants and directors, including
non-employee directors, to participate in the long-term growth of the Company by
providing for or increasing the proprietary interests of such persons in the
Company, thereby assisting the Company to achieve its long-range
goals.
The 2006
Stock Option Plan may be terminated, amended, altered, or discontinued at any
time by the Board, but no amendment may impair the rights of a participant
without the participant's consent, subject to the terms of the 2006 Stock Option
Plan. In addition, the 2006 Stock Option Plan may not be amended without the
approval of the Company's stockholders to the extent such approval is required
by law or the listing requirements of any exchange on which the Company's equity
securities are publicly traded. Options may not be granted under the 2006 Stock
Option Plan after March 28, 2016, or earlier as the Compensation Committee may
determine.
At
January 3, 2009 and December 29, 2007, there were 293,800 and 335,900 options
outstanding under the 2006 Stock Option Plan of which 113,933 and 28,500,
respectively, were exercisable, respectively. Options are granted at the closing
price of the Company's shares on the American Stock Exchange on the date
immediately prior to grant, pursuant to the 2006 Stock Option Plan. Options
available for grant under the 2006 Stock Option Plan were 206,200 at January 3,
2009.
The 2006
Key Employee Incentive Plan replaced the 2001 Key Employee Incentive Plan, which
terminated on April 20, 2006. The purpose of the 2006 Key Employee Incentive
Plan is to give the Company a competitive advantage in retaining and motivating
key officers and employees and to provide the Company and its subsidiaries with
a stock plan providing incentives linked to increases in stockholder
value.
The
number of Restricted Shares issued under the 2006 Key Employee Incentive Plan
depends on whether the Company achieves certain target market capitalizations
during the five-year period beginning on March 29, 2006 (the "Effective Date").
If the Company attains or achieves an average market capitalization equal to or
greater than $58,000,000 during any six-month period during the five-year period
beginning on the Effective Date (the "$58,000,000 Market Capitalization"), then
each participant who shall still be in the employ of the Company on the last day
of such six-month period will be issued the number of Restricted Shares
determined by multiplying (a) his or her Award Percentage, (b) 5% and (c) the
average market capitalization during such six-month period and dividing the
product by the average fair market value of the common Stock during such
six-month period.
In the
event the Company attains or achieves an average market capitalization equal to
or greater than $93,000,000 over the course of any six-month period during the
five-year period beginning on the Effective Date (the "$93,000,000 Market
Capitalization"), then each participant who shall still be in the employ of the
Company on the last day of such six-month period will be awarded the number of
Restricted Shares determined by multiplying (a) his or her Award Percentage, (b)
5% and (c) the average market capitalization during such six-month period and
dividing the product by the average fair market value of the Common Stock during
such six-month period. Such six-month periods may be, in whole or in part,
coterminous with, the six-month period in which the $58,000,000 Market
Capitalization is achieved. In no event can Restricted Shares be issued upon
attainment of either the $58,000,000 Market Capitalization or the $93,000,000
Market Capitalization more than once during the five year term of the 2006 Key
Employee Incentive Plan.
For
purposes of the 2006 Key Employee Incentive Plan, market capitalization is
defined as the number of outstanding shares of Common Stock (excluding any
shares of Common Stock issued subsequent to the Effective Date, other than
shares of Common Stock issued upon the exercise of stock options granted to
employees, directors or consultants or through the purchase of shares of Common
Stock under any stock purchase plan) on a fully diluted basis, multiplied by the
fair market value per share of the Common Stock.
In the
event of a Change in Control prior to the achievement of the $58,000,000 Market
Capitalization, the $58,000,000 Market Capitalization will be deemed to be
achieved if the number of outstanding shares of Common Stock (calculated on a
fully diluted basis) on the date of the Change in Control multiplied by the fair
market value determined as of the date of the Change of Control is equal to or
greater than $58,000,000, and in the event it is achieved, each participant will
be granted the number of Restricted Shares determined by multiplying (i) such
participant's Award Percentage, (ii) 5% and (iii) the Change in Control Market
Capitalization and dividing the product by the Change in Control Price.
Similarly, the $93,000,000 Market Capitalization will be deemed to be achieved
if such number of shares on the date of the Change of Control multiplied by the
fair market value as of the date of the Change of Control is equal to or greater
than $93,000,000, and in the event it is achieved, each participant will be
granted the number of Restricted Shares determined by multiplying (i) such
participant's Award Percentage, (ii) (A) if the $58,000,000 Market
Capitalization shall have previously been achieved, 5% or (B) if the $58,000,000
Market Capitalization shall not have previously been achieved, 10% and (iii) the
Change in Control Market Capitalization and dividing the product by the Change
in Control Price.
The
maximum value of an award of Restricted Shares which may be issued to any
participant upon achievement (or deemed achievement) of the $58,000,000 Market
Capitalization is $1,500,000 (based on the fair market value on the date of
issuance of such shares). The maximum value of an award of Restricted Shares
which may be issued to any participant upon achievement (or deemed achievement)
of the $93,000,000 Market Capitalization is $3,500,000 (based on the fair market
value of the Common Stock on the date of issuance of the Restricted Shares). In
the event a Change in Control shall occur which results in a change of control
market capitalization equal to or greater than $93,000,000 prior to achievement
of the $58,000,000 Market Capitalization, the maximum award would be $5,000,000.
The 2006 Key Employee Incentive Plan will terminate at the end of ten years
after its Effective Date; provided that the Restricted Shares outstanding as of
such date will not be affected or impaired by the termination of the 2006 Key
Employee Incentive Plan.
As of
January 3, 2009, no grants have been made under the 2006 Key Employee Incentive
Plan.
The 2006
Non-Employee Directors' Stock Plan authorizes the grant of an aggregate of
100,000 shares of Common Stock to the non-employee directors of the Company. The
plan authorizes each non-employee director to receive 1,500 shares of restricted
stock beginning in 2006, and 1,500 shares or such other amount as the Board of
Directors may, from time to time, decide for each year in the future following
the Company's Annual Meeting of Stockholders.
The
purpose of the 2006 Non-Employee Directors' Stock Plan is to attract, retain and
motivate the most capable non-employee directors, to align the interests of the
Company's non-employee directors and stockholders, to compensate the
non-employee directors in line with the Company's competitors, and to generally
increase the effectiveness of the Company's non-employee director compensation
structure, thereby assisting the Company to achieve its long-range goals. The
2006 Non-Employee Directors' Stock Plan may be terminated, amended, altered, or
discontinued at any time by the Board, but no amendment may impair the rights of
a participant without the participant's consent, subject to the terms of the
2006 Non-Employee Directors' Stock Plan. In addition, the 2006 Non-Employee
Directors' Stock Plan may not be amended without the approval of the Company's
stockholders to the extent such approval is required by law or the listing
requirements of any exchange on which the Company's equity securities are
publicly traded. Awards may not be granted under the 2006 Non-Employee
Directors' Stock Plan after December 31, 2015, or earlier as the Board may
determine.
On June
26, 2008, the Company issued a grant of 9,000 shares of restricted stock to six
of its non-employee directors. The per share price of the grant was
$5.15 (the closing price of the Company’s shares on The American Stock Exchange
on the date immediately prior to the grant, pursuant to the terms of the plan).
On June 20, 2007, the Company issued a grant of 10,500 shares of restricted
stock to its non-employee directors. The per share price of the grant was $9.78
(the closing price of the Company's shares on the American Stock Exchange on the
date immediately prior to the grant, pursuant to the terms of the plan). One
third of such restricted stock vests on the anniversary of the grant date over a
three-year period. Share-based compensation expense for the years ended January
3, 2009 and December 29, 2007 related to the grant of restricted stock was
approximately $82,000 and $49,000, which was based on a straight-line
amortization. Restricted shares of common stock available for grant under the
2006 Non-Employee Directors' Stock Plan were 71,500 at January 3,
2009.
A summary
of unvested restricted stock activity and information related to all restricted
stock outstanding follows:
|
|
|
Weighted-Average
Grant-Day
Fair Value
|
|
|
Shares
|
|
|
|
Unvested
at December 30, 2006
|
|
$
|
9.52
|
|
|
|
9,000
|
|
|
Granted
|
|
|
9.78
|
|
|
|
10,500
|
|
|
Vested
|
|
|
9.52
|
|
|
|
(3,000
|
)
|
|
Unvested
at December 29, 2007
|
|
|
9.69
|
|
|
|
16,500
|
|
|
Granted
|
|
|
5.15
|
|
|
|
9,000
|
|
|
Vested
|
|
|
9.67
|
|
|
|
(8,000
|
)
|
|
Unvested
at January 3, 2009
|
|
|
7.36
|
|
|
|
17,500
|
|
Existing
Stock Option and Employee Stock Purchase Plans:
At
January 3, 2009, there were 141,600 options outstanding under the 1993 Stock
Option Plan, the 1997 Long Term Incentive Plan and the 2001 Stock Option Plan of
which all were exercisable. No options are available for future grant under the
1997 Long Term Incentive Plan or the 2001 Stock Option Plan.
A summary
of all stock option activity and information related to all options outstanding
follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Weighted average
exercise price
|
|
|
Shares
or price
per share
|
|
|
Weighted
average
exercise
price
|
|
|
Shares or price
per share
|
|
|
Outstanding
at beginning of year
|
|
$
|
9.30
|
|
|
|
594,747
|
|
|
$
|
9.55
|
|
|
|
407,092
|
|
|
Granted
|
|
|
5.15
|
|
|
|
17,500
|
|
|
|
9.36
|
|
|
|
255,500
|
|
|
Exercised
|
|
|
6.94
|
|
|
|
(4,082
|
)
|
|
|
7.95
|
|
|
|
(9,465
|
)
|
|
Expired
|
|
|
9.39
|
|
|
|
(113,165
|
)
|
|
|
12.88
|
|
|
|
(39,930
|
)
|
|
Forfeited
|
|
|
9.37
|
|
|
|
(59,600
|
)
|
|
|
10.97
|
|
|
|
(18,450
|
)
|
|
Outstanding
at end of year
|
|
|
9.12
|
|
|
|
435,400
|
|
|
|
9.30
|
|
|
|
594,747
|
|
|
Exercisable
at end of year
|
|
$
|
9.21
|
|
|
|
255,533
|
|
|
$
|
9.19
|
|
|
|
287,347
|
|
|
Option
price range at end of year
|
|
$
|
5.15
- $ 17.00
|
|
|
|
|
|
|
|
|
|
|
$
|
3.10
- $17.00
|
|
|
Weighted
average estimated fair value
of
options granted during the year
|
|
$
|
2.14
|
|
|
|
|
|
|
$
|
3.68
|
|
|
|
|
|
A summary
of intrinsic and fair value stock option information follows:
|
Aggregate
intrinsic value of all options at January 3, 2009
|
|
$
|
0
|
|
|
Aggregate
intrinsic value of exercisable options at January 3, 2009
|
|
$
|
0
|
|
|
Intrinsic
value of options exercised during 2008
|
|
$
|
9,000
|
|
|
Fair
value of options vested during 2008
|
|
$
|
359,000
|
|
The
aggregate intrinsic value represents the difference between the Company's
closing stock price on the last trading day of the year and the exercise price,
multiplied by the number of in-the money options that would have been received
by the option holders had all option holders exercised their options on January
3, 2009.
As of
January 3, 2009, the total future compensation cost related to non-vested stock
options and the employee stock purchase plan not yet recognized in the
consolidated statements of operations was approximately $466,000. Of that total,
$343,000, $118,000 and $5,000 are expected to be recognized in 2009, 2010 and
2011, respectively.
In 2001,
the Company's stockholders approved a stock purchase plan pursuant to which
250,000 shares of the Company's common stock were initially reserved for sale to
eligible employees. Under this plan, the Company may grant employees the right
to subscribe to purchase shares of common stock from the Company at 85% of the
market value on specified dates and pay for the shares through payroll
deductions over a period of up to 27 months.
A summary
of stock purchase plan subscription activity follows:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
Weighted
average
exercise
price
|
|
|
Shares or price
per share
|
|
|
Weighted average
exercise price
|
|
|
Shares or price
per share
|
|
|
Subscribed
at beginning of year
|
|
$
|
8.10
|
|
|
|
15,713
|
|
|
$
|
7.87
|
|
|
|
27,785
|
|
|
Subscribed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased
|
|
|
8.10
|
|
|
|
(13,044
|
)
|
|
|
7.55
|
|
|
|
(11,000
|
)
|
|
Cancelled
|
|
|
8.10
|
|
|
|
(2,669
|
)
|
|
|
7.86
|
|
|
|
(1,072
|
)
|
|
Subscribed
at end of year
|
|
|
|
|
|
|
|
|
|
8.10
|
|
|
|
15,713
|
|
|
Subscription
price range end
of
year
|
|
$
|
|
|
|
|
|
|
|
$
|
8.10
|
|
|
|
|
|
|
Weighted
average estimated fair value of rights granted during the
year
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
3.68
|
|
As of
January 3, 2009, there were 152,688 shares available for future stock purchase
plan subscriptions.
The
provision for income taxes from continuing operations for 2008 was approximately
$20,000 which consists of a federal provision of approximately $18,000 and a
state provision of approximately $2,000. There was no provision or
benefit for income taxes from continuing operations for 2007.
Temporary
differences, which gave rise to a significant portion of deferred tax assets and
liabilities at January 3, 2009 and December 29, 2007 are as
follows:
|
|
|
2008
|
|
|
2007
|
|
|
Current
deferred tax assets:
|
|
|
|
|
|
|
|
Inventory
valuation allowance
|
|
$
|
648,000
|
|
|
$
|
595,000
|
|
|
Capitalized
inventory costs
|
|
|
33,000
|
|
|
|
43,000
|
|
|
Warranty
cost
|
|
|
80,000
|
|
|
|
80,000
|
|
|
Deferred
compensation
|
|
|
|
|
|
3,000
|
|
|
Other
|
|
|
62,000
|
|
|
|
152,000
|
|
|
|
|
|
823,000
|
|
|
|
873,000
|
|
|
Less
valuation allowance
|
|
|
(705,000
|
)
|
|
|
(752,000
|
)
|
|
Current
deferred tax assets
|
|
|
118,000
|
|
|
|
121,000
|
|
|
Current
deferred tax liabilities – prepaid expenses
|
|
|
(172,000
|
)
|
|
|
(173,000
|
)
|
|
Net
current deferred tax liabilities
|
|
$
|
(54,000
|
)
|
|
$
|
(52,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
|
1,059,000
|
|
|
|
1,377,000
|
|
|
Research
and development credits and costs
|
|
|
74,000
|
|
|
|
74,000
|
|
|
Non-qualified
stock options
|
|
|
85,000
|
|
|
|
42,000
|
|
|
Foreign
tax credit
|
|
|
66,000
|
|
|
|
75,000
|
|
|
Federal
AMT credit
|
|
|
55,000
|
|
|
|
37,000
|
|
|
Other
|
|
|
32,000
|
|
|
|
25,000
|
|
|
|
|
|
1,371,000
|
|
|
|
1,630,000
|
|
|
Less
valuation allowance
|
|
|
(1,175,000
|
)
|
|
|
(1,368,000
|
)
|
|
Non-current
deferred tax assets
|
|
|
196,000
|
|
|
|
262,000
|
|
|
Non-current
deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
(142,000
|
)
|
|
|
(190,000
|
)
|
|
Other
|
|
|
|
|
|
(20,000
|
)
|
|
Non-current
deferred tax liabilities
|
|
|
(142,000
|
)
|
|
|
(210,000
|
)
|
|
Net
non-current deferred tax assets
|
|
|
54,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
The
statutory Federal income tax rate is reconciled to the effective tax rate
computed by dividing the provision for income taxes by income (loss) before
income taxes as follows:
|
|
|
2008
|
|
|
2007
|
|
|
Statutory
Federal income tax rate
|
|
|
34.0
|
%
|
|
|
(34.0
|
)%
|
|
Effect
of:
|
|
|
|
|
|
|
|
|
|
State
income tax, net of Federal income tax effects
|
|
|
.4
|
|
|
|
–
|
|
|
Change
in valuation allowance
|
|
|
(63.0
|
)
|
|
|
25.8
|
|
|
Non
deductible stock-based compensation
|
|
|
31.4
|
|
|
|
6.5
|
|
|
Other
|
|
|
4.7
|
|
|
|
1.7
|
|
|
Effective
tax rate
|
|
|
7.5
|
%
|
|
|
0.0
|
%
|
The
Company files a U.S. income tax return, which includes its Costa Rican
subsidiary. This subsidiary is not subject to income tax in Costa Rica because
it takes advantage of that country's Free Trade Zone Law, as the Company has met
the necessary commitments for capital investment of $6.3 million and employment
targets of 45 employees. The Company has a 100% exemption from Costa Rica taxes,
which expires August 31, 2010. The Company then has a 50% exemption for the
following four years expiring August 31, 2014. The Company has had minimal
taxable income in Costa Rica and thus has recognized no tax benefits from the
tax exemption.
As of
January 3, 2009, the Company had net operating loss carryforwards of
approximately $2,900,000 for Federal income tax purposes and $1,000,000 for
state income tax purposes, which are available to offset future taxable income
through 2028 and 2015, respectively. Included in the net operating losses as of
January 3, 2009 are approximately $36,000 of future Federal tax deductions
related to the exercise of employee stock options. Upon the removal of the
valuation allowance, the tax benefit of this deduction will be credited to
additional paid-in-capital. In addition, the Company has U.S Federal income tax
credit carryforwards of approximately $195,000 of which $66,000 expire through
2017, $74,000 that expire through 2022 and $55,000, which have no
expiration.
The
Company decreased its deferred tax asset valuation allowance by $241,000 to
$1,879,000, in fiscal year 2008 reflecting the utilization of net operating loss
carryforwards. The Company increased its deferred tax asset valuation
allowance by $239,000 to $2,120,000, in fiscal year 2007 reflecting additional
net operating loss carryforwards and lower deferred tax
liabilities. The Company's net deferred tax assets have been fully
reserved as of January 3, 2009 and December 29, 2007.
On
December 31, 2006, the Company adopted FIN 48, “Accounting for Uncertainty in
Income Taxes – an interpretation of FASB Statement No. 109” which clarifies the
accounting for uncertainty in tax positions. As of that date the Company had no
uncertain tax positions and did not record any additional benefits or
liabilities. At January 3, 2009 and December 29, 2007, the Company had no
uncertain tax positions and did not record any additional benefits or
liabilities. The Company will recognize any accrued interest or penalties
related to unrecognized tax benefits within the provision for income
taxes.
Internal
Revenue Service Code Section 382 places a limitation on the utilization of net
operating loss carryforwards when an ownership change, as defined in the tax
law, occurs. Generally, an ownership change occurs when there is a greater than
50 percent change in ownership. If such change should occur, the actual
utilization of net operating loss carryforwards, for tax purposes, would be
limited annually to a percentage of the fair market value of the Company at the
time of such change. The Company may become subject to these
limitations depending on change in ownership.
During
the second quarter of 2007, the Company took a charge of $506,000 to provide a
full valuation allowance for a Canadian net deferred tax asset related to its
discontinued operations. The current foreign tax benefits for the years ended
January 3, 2009 and December 29, 2007 of $0 and $60,000, respectively, represent
refundable Canadian provincial tax credits for which FMI, as a technology
company, has qualified.
9. Concentration
of risk
The
Company's operations are conducted primarily through one business segment,
electronic components and subsystems. Of the identifiable assets of the Company,
79% are located in the United States and 21% are located in Costa
Rica.
Sales by
geographic location are listed below:
|
|
|
2008
|
|
|
2007
|
|
|
Geographic
areas:
|
|
|
|
|
|
|
|
Sales
to unaffiliated customers:
|
|
|
|
|
|
|
|
North
America
|
|
$
|
25,219,000
|
|
|
$
|
19,668,000
|
|
|
Europe
|
|
|
1,822,000
|
|
|
|
1,700,000
|
|
|
Far
East
|
|
|
2,165,000
|
|
|
|
471,000
|
|
|
Other
|
|
|
23,000
|
|
|
|
48,000
|
|
|
Consolidated
|
|
$
|
29,229,000
|
|
|
$
|
21,887,000
|
|
The
Company's customers are primarily major industrial corporations that integrate
the Company's products into a wide variety of defense and commercial systems.
The Company's customers include BAE Systems, The Boeing Company, Celestica,
Inc., EADS Astrium, General Dynamics Corporation, ITT, Lockheed Martin
Corporation, Northrop Grumman Corporation, Raytheon Company and Space Systems
Loral.
The
following table presents our key customers and the percentage of net sales made
to such customers:
|
|
|
2008
|
|
|
2007
|
|
|
Raytheon
Company
|
|
|
16.7
|
%
|
|
|
16.6
|
%
|
|
Northrop
Grumman Corporation
|
|
|
14.6
|
%
|
|
|
7.0
|
%
|
|
The
Boeing Company
|
|
|
14.2
|
%
|
|
|
6.7
|
%
|
|
Lockheed
Martin Corporation
|
|
|
13.2
|
%
|
|
|
11.3
|
%
|
|
ITT
Corporation
|
|
|
3.6
|
%
|
|
|
6.5
|
%
|
|
Space
Systems Loral
|
|
|
1.8
|
%
|
|
|
9.8
|
%
|
Accounts
receivable are financial instruments that expose the Company to a concentration
of credit risk and the Company does not require collateral. A substantial
portion of the Company's accounts receivable is from customers in the defense
industry, and approximately 67% and 64% of its receivables at January 3, 2009
and December 29, 2007, respectively, were from six customers. Exposure to credit
risk is limited by the large number of customers comprising the remainder of the
Company's customer base, their geographical dispersion and by ongoing customer
credit evaluations performed by the Company.
The
following table presents percentage of accounts receivable owed by our key
customers:
|
|
|
2008
|
|
|
2007
|
|
|
The
Boeing Company
|
|
|
16.4
|
%
|
|
|
3.7
|
%
|
|
Raytheon
Company
|
|
|
15.7
|
%
|
|
|
11.3
|
%
|
|
Northrop
Grumman Corporation
|
|
|
11.1
|
%
|
|
|
12.2
|
%
|
|
Lockheed
Martin Corporation
|
|
|
10.7
|
%
|
|
|
12.7
|
%
|
|
ITT
Corporation
|
|
|
9.8
|
%
|
|
|
0.0
|
%
|
|
Space
Systems Loral
|
|
|
3.6
|
%
|
|
|
23.2
|
%
|
|
10.
|
Net
income (loss) per common share
|
Because
of the net loss for the year ended December 29, 2007 approximately 595,000
shares underlying stock options were excluded from the calculation of diluted
net income (loss) per share as the effect would be anti-dilutive. During 2008,
62,300 shares underlying options were excluded from the calculation of diluted
net income per share because the options did not have any intrinsic
value. The weighted average number of shares outstanding basic and diluted
is as follows for the years ended January 3, 2009 and December 29,
2007:
|
|
|
2008
|
|
|
2007
|
|
|
Weighted
average number of shares outstanding - basic
|
|
|
2,943,067
|
|
|
|
2,962,575
|
|
|
Dilutive
effect of options and restricted stock
|
|
|
23,316
|
|
|
|
–
|
|
|
Weighted
average number of shares outstanding - diluted
|
|
|
2,966,383
|
|
|
|
2,962,575
|
|
|
11.
|
Commitments
and contingencies
|
Lease
commitments:
The
Company leases real estate and equipment under operating leases expiring at
various dates through January 2011, which includes a 36,200 square-foot
manufacturing facility in Costa Rica. The leases include provisions for rent
escalation, renewals and purchase options, and the Company is generally
responsible for taxes, insurance, repairs and maintenance.
Total
rent expense charged to operations amounted to $521,000 in 2008 and $420,000 in
2007. Future minimum lease payments under noncancellable operating leases with
an initial term exceeding one year are as follows:
|
2009
|
|
$
|
462,000
|
|
|
2010
|
|
|
483,000
|
|
|
2011
|
|
|
91,000
|
|
|
2012
|
|
|
39,000
|
|
|
Total
|
|
$
|
1,075,000
|
|
Purchase
obligations:
The
Company intends to issue commitments to purchase approximately $600,000 of
capital equipment from various vendors. Such equipment will be purchased and
become operational during 2009.
Consulting
and employment agreements; deferred compensation:
On April
11, 2006, Merrimac Industries, Inc. and its Chairman, President and Chief
Executive Officer, Mr. Mason Carter, entered into an employment agreement (the
Employment Agreement), setting forth the terms of Mr. Carter's employment. Mr.
Carter's employment under the terms of the Employment Agreement commenced on
April 11, 2006 and will continue until December 31, 2010, and will be renewable
for successive twelve-month periods unless terminated earlier by either party.
Pursuant to the Employment Agreement, Mr. Carter's annual base salary is
$332,000. In addition, Mr. Carter is eligible to participate in the Company's
medical benefits, life insurance, 401(k) and similar programs generally
available to employees. Mr. Carter is also eligible to participate in the
Company's stock purchase, stock option, and long-term incentive plans, and to
receive bonuses, in the sole discretion of the compensation committee of
Company's board of directors.
The
Company entered into a consulting agreement on January 1, 1998 with a director
of the Company. The term of the consulting agreement, which initially ended on
January 1, 1999, automatically renews for successive twelve-month periods until
terminated pursuant to the terms of the agreement. The consulting agreement
provides this director with an annual fee of $36,000 for his
services.
Litigation:
On
February 22, 2008, a statement of claim in Ontario Superior Court of Justice was
filed by a former FMI employee against FMI seeking damages for approximately
$77,000 ($75,000 Canadian) for wrongful dismissal following the sale of FMI’s
assets to FTG. The Company settled this claim in May 2008 for a minimal
amount.
On March
10, 2008, a statement of claim in Ontario Superior Court of Justice was filed by
nineteen (19) former FMI employees against Merrimac, FMI and FTG seeking damages
for wrongful dismissal for approximately $1,000,000 (Canadian $977,000)
following the sale of FMI’s assets to FTG. The former FMI employees are alleging
that an employment contract existed between FMI and the plaintiffs and are
seeking additional damages for termination of the alleged contract.
The
Company has an Employment Practices Liability insurance policy that extends
coverage to its subsidiaries. The insurance carrier agreed to provide
a defense in this matter on April 24, 2008 and the Company retained Canadian
counsel to defend this claim. Thus far, the Company has paid fees and
legal costs of $25,000 related to the matter which is the deductible amount of
the insurance policy. In accordance with the requirements of SFAS No. 5, after
discussions with counsel, the Company believes an unfavorable outcome is
probable and management estimates the amount of the probable loss to be $50,000
for which the Company made a provision for as of the end of fiscal year 2008.
The Company and its insurance carrier intend to defend these claims
vigorously.
On July
23, 2008, a Statement of Claim was filed in Ontario Superior Court of Justice by
the lessor of the premises formerly occupied by FMI in Ontario, Canada, against
FMI, Merrimac, and FTG. The Statement of Claim seeks damages of
$150,612 in respect of the period from and after which FTG, which purchased the
assets of FMI, removed operations from the premises through the term of the
lease. In addition, the Statement of Claim seeks damages for $110,319
for repairs to the premises, and seeks to set aside the transfer of assets from
FMI to FTG for the failure to comply with the Bulk Sales Act
Ontario. On December 19, 2008, the Company settled all matters with
the lessor for $88,000 ($104,000 Canadian) and a release was entered into by the
parties.
During
2008, the Company reduced its headcount by 8 persons, principally involved in
production and manufacturing support. The Company recorded a
personnel restructuring charge of $61,000, consisting of severance and certain
other personnel costs, during the third quarter of 2008. The Company paid all of
these restructuring charges in 2008.
|
13.
|
Related
party transactions
|
During
fiscal years 2008 and 2007, respectively, the Company's General Counsel, Katten
Muchin Rosenman LLP, was paid $364,000 and $350,000, respectively, for providing
legal services to the Company. A director of the Company is Counsel to the firm
of Katten Muchin Rosenman LLP but does not share in any fees paid by the Company
to the law firm.
During
fiscal years 2008 and 2007, the Company retained Career Consultants, Inc. and SK
Associates to perform executive searches and to provide other services to the
Company. The Company paid an aggregate of $6,000 and $32,000 to these companies
during 2008 and 2007, respectively. A director of the Company is the Chairman
and Chief Executive Officer of each of these companies.
During
each of fiscal years 2008 and 2007, a director of the Company was paid $36,000
for providing technology-related consulting services to the
Company.
DuPont
Electronic Technologies ("DuPont"), a stockholder, has an agreement to provide
technological and marketing-related personnel and services on a cost-sharing
basis to the Company under the Technology Agreement dated February 28, 2002. No
payments were made to DuPont under this agreement during 2008 or 2007. A
director of the Company is an officer of DuPont, but does not share in any of
these payments.
Each
director who is not an employee of the Company receives a monthly director's fee
of $1,500, plus an additional $500 for each meeting of the Board and of any
Committees of the Board attended. In addition, the Chair of the Audit Committee
receives an annual fee of $2,500 for his services in such capacity. The
directors are also reimbursed for reasonable travel expenses incurred in
attending Board and Committee meetings. In addition, pursuant to the 2006 Stock
Option Plan, each non-employee director is granted an option to purchase 2,500
shares of the Common Stock of the Company on the date of each Annual Meeting of
Stockholders. Such options have a three-year vesting period. Each such grant has
an exercise price equal to the fair market value on the date of grant and will
expire on the tenth anniversary of the date of the grant. On June 26, 2008,
non-qualified stock options to purchase an aggregate of 17,500 shares were
issued to seven directors at an exercise price of $5.15 per share. On June 20,
2007, non-qualified stock options to purchase an aggregate of 20,000 shares were
issued to eight directors at an exercise price of $9.78 per share. Also, during
2008, it was discovered that certain directors and a former director had been
awarded certain options to purchase shares of the Company’s common stock for a
term in excess of the term provided for in a Company stock option plan in
error. Such directors and the former director each received cash
payments of $5,000 during 2008 constituting the difference between the exercise
price of such stock options and the market price of the Company’s common stock
as of the date when such options expired in accordance with the terms of such
Company stock option plan, which such time was prior to the time set forth in
the erroneous contracts associated with such stock options. The
directors receiving the $5,000 payment were as follows: Edward Cohen,
Fernando Fernandez, Joel Goldberg, Arthur Oliner, Harold Raveché and David
Miller (former director).
On
December 11, 2008, Edward Cohen received a grant of 1,000 shares of common stock
of the Company at a fair market value of $2,200 for his service as chairman of
the Board’s Audit Committee.
Also on
June 26, 2008 and June 20, 2007, pursuant to the 2006 Non-Employee Directors'
Stock Plan, 9,000 and 10,500 shares of restricted stock were granted to six and
seven directors, respectively, at a fair market value of $5.15 and $9.78 per
share, respectively. Such restricted stock vests ratably over a
three-year period.
On
December 13, 2004, Infineon Technologies AG ("Infineon"), at such time the
beneficial owner of approximately 15% of the Company's common stock, sold
475,000 shares of the Company's common stock to four purchasers in a
privately-negotiated transaction. Two purchasers in such transaction, K
Holdings, LLC and Hampshire Investments, Limited, each of which is affiliated
with Ludwig G. Kuttner, who was President and Chief Executive Officer of
Hampshire Group, Limited ("Hampshire"), purchased 300,000 shares representing an
aggregate of approximately 9.6% of the Company's common
stock. Infineon also assigned to each purchaser certain registration
rights to such shares under the existing registration rights agreements Infineon
had with the Company. In connection with the transaction, the Company and
Infineon terminated the Stock Purchase and Exclusivity Letter Agreement dated
April 7, 2000, as amended, which provided that the Company would design, develop
and produce exclusively for Infineon certain Multi-Mix® products that
incorporate active RF power transistors for use in certain wireless base station
applications, television transmitters and certain other applications that are
intended for Bluetooth transceivers.
DuPont
and the four purchasers above hold registration rights, which currently give
them the right in perpetuity to register an aggregate of 1,003,413 shares of
Common Stock of the Company. There are no settlement alternatives and the
registration of the shares of Common Stock would be on a "best efforts"
basis.
|
14.
|
Stockholder
Rights Plan
|
On March
5, 1999, the Board of Directors of the Company approved a stockholder rights
plan and declared a dividend of one common share purchase right (a "Right") for
each outstanding share of Common Stock of the Company. The dividend was payable
on March 19, 1999 (the "Record Date") to stockholders of record as of the close
of business on that date. Each Right will entitle the holder to purchase from
the Company, upon the occurrence of certain events, one share of Common Stock
for $25.00.
Generally,
if any person or group acquires beneficial ownership of 12.5% or more of the
Company's outstanding Common Stock, each Right (other than Rights held by such
acquiring person or group) will be exercisable, at the $25.00 purchase price,
for a number of shares of Common Stock having a market value of $50.00. Upon an
acquisition of the Company, each Right (other than Rights held by the acquiror)
will generally be exercisable, at the $25.00 purchase price, for a number of
shares of common stock of the acquiror having a market value of $50.00. In
certain circumstances, each Right may be exchanged by the Company for one share
of Common Stock. The Rights will expire on December 31, 2009, unless earlier
exchanged or redeemed at $0.01 per Right.
|
15.
|
Repurchase
of Common Stock for the Treasury
|
On March
13, 2007, the Company repurchased in a private transaction 238,700 shares of its
Common Stock for the treasury at $9.00 per share for an aggregate total of
$2,148,300 from a group of investors.
|
16.
|
Restatement
of Unaudited Quarterly Financial
Statements
|
As more
fully described in Note 2, the Company’s management determined that there
were misstatements in the Company’s previously reported consolidated financial
statements stemming from errors in the cost accounting process, control
deficiencies following the Company wide conversion to an enterprise resource
planning (ERP) software system and changes in personnel in the Company’s
financial operations department, affected all four quarters of fiscal year 2007
and the first three quarters of fiscal year 2008. The following tables present
unaudited condensed consolidated financial statements including the statements
of operations for the first three quarters of fiscal year 2008 and 2007, and the
fourth quarter of 2007, as well as the balance sheets for the first three
quarters of fiscal year 2007 and 2008.
The adjustments for the first quarter
of fiscal year 2008 and 2007 were to correct an overstatement of work in process
inventory and an understatement of cost of goods sold. The effect of
the adjustments on the statements of operations for the three months ended March
28, 2008 and March 31, 2007 was to increase cost of sales and the loss from
continuing operations by $493,000 and $94,000, respectively. This
resulted in an increase in the net loss per common share basic and diluted for
the first quarter of 2008 and 2007 of $0.16 and $0.03,
respectively.
The effect of the adjustments on the
unaudited condensed balance sheets as of March 28, 2008 and March
31, 2007 was to decrease work in process inventories and retained earnings by
$493,000 and $94,000, respectively.
The adjustments for the second quarter
of fiscal year 2008 and 2007 were to correct an overstatement of work in process
inventory and an understatement of cost of goods sold. Additionally
there was a minor overstatement of the selling, general and administrative
expense in the second quarter of 2008. The effect of the adjustments
on the unaudited condensed statements of operations for the three
months ended June 28, 2008 and June 30, 2007 was to increase cost of sales
$594,000 and $48,000, respectively. Additionally there was a decrease
in selling general and administrative expense of $3,000 for the second quarter
of 2008. These adjustments resulted in a decrease in the 2008 and 2007 income
from continuing operations before income taxes of $591,000 and $48,000,
respectively. The effect of the adjustments changed the net income (loss) per
common share basic and diluted for the second quarter of 2008 from a net income
per share of $0.19 to a net loss per share of $0.01. The effect of
the adjustments changed the net loss per common share basic and diluted for the
second quarter of 2007 from $1.19 to $1.21.
The
effect of the adjustments on the unaudited condensed balance
sheets as of June 28, 2008 and June 30, 2007 was to decrease work in
process inventories by $594,000 and $48,000, respectively, and fiscal year 2008
and 2007 retained earnings by $591,000 and $48,000, respectively. The
adjustments also decreased accrued liabilities in the second quarter of 2008 by
$3,000.
The adjustments for the third quarter
of fiscal year 2008 and 2007 were also to correct a misstatement of work in
process inventory and a misstatement of cost of goods
sold. Additionally there was a minor overstatement of the selling,
general and administrative expense in the third quarter of
2008. The effect of the adjustments on the unaudited condensed
consolidated statements of operations for the three months ended September 27,
2008 was to decrease cost of goods sold $256,000 and the impact on the quarter
ended September 30, 2007 was to increase cost of goods sold
$12,000. Additionally there was a decrease in selling general and
administrative expense of $25,000 for the third quarter of 2008. These
adjustments resulted in an increase in income from continuing operations before
income taxes in the third quarter of 2008 of $281,000 and a decrease in income
from continuing operations before income taxes for the third quarter of 2007 of
$12,000. The effect of the adjustments resulted in an increase in the net income
per common share basic and diluted for the third quarter of 2008 of
$0.10. The adjustments did not have any impact on the third quarter
2007 net loss per common share basic or diluted.
The
effect of the adjustments on the unaudited condensed consolidated balance sheets
as of September 28, 2008 was to increase the work in process inventories
$256,000, decrease the accrued expenses $25,000 and increase retained earnings
$281,000. The effect of the adjustments on the unaudited condensed
consolidated balance sheets as of September 29, 2007 was to decrease both
the work in process inventories and retained earnings $12,000.
The
adjustments for the fourth quarter of fiscal year 2007 were to correct an
overstatement of work in process inventory and an understatement of cost of
goods sold. The effect of the adjustments on the statements of
operations for the three months ended December 29, 2007 was to increase cost of
goods sold and the loss from continuing operations by $242,000. This resulted in
an increase in the net loss per common share basic and diluted for the fourth
quarter of 2007 of $0.08.
|
|
|
March
29, 2008 (Unaudited)
|
|
|
March
31, 2007 (Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
5,757,686
|
|
|
|
|
|
$
|
5,757,686
|
|
|
$
|
4,511,446
|
|
|
|
|
|
$
|
4,511,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,451,960
|
|
|
$
|
492,721
|
|
|
|
3,944,681
|
|
|
|
2,814,120
|
|
|
$
|
94,031
|
|
|
|
2,908,151
|
|
|
Selling,
general and admnistrative
|
|
|
2,244,570
|
|
|
|
|
|
|
|
2,244,570
|
|
|
|
2,217,002
|
|
|
|
|
|
|
|
2,217,002
|
|
|
Research
and development
|
|
|
372,818
|
|
|
|
|
|
|
|
372,818
|
|
|
|
484,245
|
|
|
|
|
|
|
|
484,245
|
|
|
|
|
|
6,069,348
|
|
|
|
492,721
|
|
|
|
6,562,069
|
|
|
|
5,515,367
|
|
|
|
94,031
|
|
|
|
5,609,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(311,662
|
)
|
|
|
(492,721
|
)
|
|
|
(804,383
|
)
|
|
|
(1,003,921
|
)
|
|
|
(94,031
|
)
|
|
|
(1,097,952
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income (expense) income, net
|
|
|
(60,573
|
)
|
|
|
|
|
|
|
(60,573
|
)
|
|
|
20,632
|
|
|
|
|
|
|
|
20,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(372,235
|
)
|
|
|
(492,721
|
)
|
|
|
(864,956
|
)
|
|
|
(983,289
|
)
|
|
|
(94,031
|
)
|
|
|
(1,077,320
|
)
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Loss
from continuing operations
|
|
|
(372,235
|
)
|
|
|
(492721
|
)
|
|
|
(864,956
|
)
|
|
|
(983,289
|
)
|
|
|
(94,031
|
)
|
|
|
(1,077,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(280,513
|
)
|
|
|
|
|
|
|
(280,513
|
)
|
|
Net
loss
|
|
$
|
(372,235
|
)
|
|
$
|
(492,721
|
)
|
|
$
|
(864,956
|
)
|
|
$
|
(1,263,802
|
)
|
|
$
|
(94,031
|
)
|
|
$
|
(1,357,833
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share from continuing operations -
basic
and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.32
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share from discontinued operations - basic
and diluted
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
$
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic and diluted
|
|
$
|
(0.13
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
(0.41
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.44
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding -
basic
and diluted
|
|
|
2,932,521
|
|
|
|
2,932,521
|
|
|
|
2,932,521
|
|
|
|
3,096,315
|
|
|
|
3,096,315
|
|
|
|
3,096,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(372,235
|
)
|
|
$
|
(492,721
|
)
|
|
$
|
(864,956
|
)
|
|
$
|
(1,263,802
|
)
|
|
$
|
(94,031
|
)
|
|
$
|
(1,357,833
|
)
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
61,383
|
|
|
|
|
|
|
|
61,383
|
|
|
Comprehensive
loss
|
|
$
|
(372,235
|
)
|
|
$
|
(492,721
|
)
|
|
$
|
(864,956
|
)
|
|
$
|
(1,202,419
|
)
|
|
$
|
(94,031
|
)
|
|
$
|
(1,296,450
|
)
|
|
|
|
June
28, 2008 (Unaudited)
|
|
|
June
30, 2007 (Unaudited)
|
|
|
|
|
As
*
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
7,490,266
|
|
|
|
|
|
$
|
7,490,266
|
|
|
$
|
5,371,471
|
|
|
|
|
|
$
|
5,371,471
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
4,097,309
|
|
|
$
|
593,731
|
|
|
|
4,691,040
|
|
|
|
3,004,761
|
|
|
$
|
48,354
|
|
|
|
3,053,115
|
|
|
Selling,
general and admnistrative
|
|
|
2,353,395
|
|
|
|
(2,700
|
)
|
|
|
2,350,695
|
|
|
|
1,976,729
|
|
|
|
|
|
|
|
1,976,729
|
|
|
Research
and development
|
|
|
374,581
|
|
|
|
|
|
|
|
374,581
|
|
|
|
335,262
|
|
|
|
|
|
|
|
335,262
|
|
|
|
|
|
6,825,285
|
|
|
|
591,031
|
|
|
|
7,416,316
|
|
|
|
5,316,752
|
|
|
|
48,354
|
|
|
|
5,365,106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
664,981
|
|
|
|
(591,031
|
)
|
|
|
73,950
|
|
|
|
54,719
|
|
|
|
(48,354
|
)
|
|
|
6,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other expense, net
|
|
|
(48,607
|
)
|
|
|
|
|
|
|
(48,607
|
)
|
|
|
(4,231
|
)
|
|
|
|
|
|
|
(4,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
|
616,374
|
|
|
|
(591,031
|
)
|
|
|
25,343
|
|
|
|
50,488
|
|
|
|
(48,354
|
)
|
|
|
2,134
|
|
|
Provision
for income taxes
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Income
from continuing operations
|
|
|
616,374
|
|
|
|
(591,031
|
)
|
|
|
25,343
|
|
|
|
50,488
|
|
|
|
(48,354
|
)
|
|
|
2,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, after income taxes in 2007
|
|
|
(55,036
|
)
|
|
|
|
|
|
|
(55,036
|
)
|
|
|
(3,519,411
|
)
|
|
|
|
|
|
|
(3,519,411
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
|
$
|
561,338
|
|
|
$
|
(591,031
|
)
|
|
$
|
(29,693
|
)
|
|
$
|
(3,468,923
|
)
|
|
$
|
(48,354
|
)
|
|
$
|
(3,517,277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per common share from continuing operations - basic
|
|
$
|
0.21
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
Loss
per common share from discontinued operations - basic
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(1.21
|
)
|
|
|
|
|
|
$
|
(1.21
|
)
|
|
Net
income (loss) per common share - basic
|
|
$
|
0.19
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(1.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per common share from continuing operations -diluted
|
|
$
|
0.21
|
|
|
$
|
(0.20
|
)
|
|
$
|
0.01
|
|
|
$
|
0.02
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.00
|
|
|
Loss
per common share from discontinued operations - diluted
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
$
|
(1.20
|
)
|
|
|
|
|
|
$
|
(1.20
|
)
|
|
Net
income (loss) per common share - diluted
|
|
$
|
0.19
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(1.19
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(1.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
|
|
2,939,788
|
|
|
|
2,939,788
|
|
|
|
2,939,788
|
|
|
|
2,910,711
|
|
|
|
2,910,711
|
|
|
|
2,910,711
|
|
|
Weighted
average number of common shares outstanding - diluted
|
|
|
2,945,203
|
|
|
|
2,945,203
|
|
|
|
2,945,203
|
|
|
|
2,947,464
|
|
|
|
2,947,464
|
|
|
|
2,947,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
561,338
|
|
|
$
|
(591,031
|
)
|
|
$
|
(29,693
|
)
|
|
$
|
(3,468,923
|
)
|
|
$
|
(48,354
|
)
|
|
$
|
(3,517,277
|
)
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
307,131
|
|
|
|
0
|
|
|
|
307,131
|
|
|
Comprehensive
income (loss)
|
|
$
|
561,338
|
|
|
$
|
(591,031
|
)
|
|
$
|
(29,693
|
)
|
|
$
|
(3,161,792
|
)
|
|
$
|
(48,354
|
)
|
|
$
|
(3,210,146
|
)
|
* Per Form 10-Q/A filed November
19, 2008
|
|
|
September 27, 2008 (Unaudited)
|
|
|
September 29, 2007 (Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
8,327,790
|
|
|
|
|
|
$
|
8,327,790
|
|
|
$
|
6,612,494
|
|
|
|
|
|
$
|
6,612,494
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
5,578,779
|
|
|
$
|
(255,688
|
)
|
|
|
5,323,091
|
|
|
|
3,796,384
|
|
|
$
|
11,521
|
|
|
|
3,807,905
|
|
|
Selling,
general and admnistrative
|
|
|
2,423,472
|
|
|
|
(25,217
|
)
|
|
|
2,398,255
|
|
|
|
2,099,038
|
|
|
|
|
|
|
|
2,099,038
|
|
|
Research
and development
|
|
|
105,114
|
|
|
|
|
|
|
|
105,114
|
|
|
|
399,980
|
|
|
|
|
|
|
|
399,980
|
|
|
|
|
|
8,107,365
|
|
|
|
(280,905
|
)
|
|
|
7,826,460
|
|
|
|
6,295,402
|
|
|
|
11,521
|
|
|
|
6,306,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
220,425
|
|
|
|
280,905
|
|
|
|
501,330
|
|
|
|
317,092
|
|
|
|
(11,521
|
)
|
|
|
305,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other expense, net
|
|
|
(17,336
|
)
|
|
|
|
|
|
|
(17,336
|
)
|
|
|
(72,196
|
)
|
|
|
|
|
|
|
(72,196
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from continuing operations before income taxes
|
|
|
203,089
|
|
|
|
280,905
|
|
|
|
483,994
|
|
|
|
244,896
|
|
|
|
(11,521
|
)
|
|
|
233,375
|
|
|
Provision
for income taxes
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Income
from continuing operations
|
|
|
193,089
|
|
|
|
280,905
|
|
|
|
473,994
|
|
|
$
|
244,896
|
|
|
|
(11,521
|
)
|
|
$
|
233,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from discontinued operations, after income taxes
|
|
|
(10,956
|
)
|
|
|
|
|
|
|
(10,956
|
)
|
|
|
(2,058,341
|
)
|
|
|
|
|
|
|
(2,058,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
182,133
|
|
|
$
|
280,905
|
|
|
$
|
463,038
|
|
|
$
|
(1,813,445
|
)
|
|
$
|
(11,521
|
)
|
|
$
|
(1,824,966
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per common share from continuing operations - basic
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
-
|
|
|
$
|
0.08
|
|
|
Loss
per common share from discontinued operations - basic
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
(0.70
|
)
|
|
|
|
|
|
$
|
(0.70
|
)
|
|
Net
income (loss) per common share - basic
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
0.16
|
|
|
$
|
(0.62
|
)
|
|
$
|
-
|
|
|
$
|
(0.62
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
per common share from continuing operations - diluted
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
0.16
|
|
|
$
|
0.08
|
|
|
$
|
-
|
|
|
$
|
0.08
|
|
|
Loss
per common share from discontinued operations - diluted
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
(0.69
|
)
|
|
|
|
|
|
$
|
(0.69
|
)
|
|
Net
income (loss) per common share-diluted
|
|
$
|
0.06
|
|
|
$
|
0.10
|
|
|
$
|
0.16
|
|
|
$
|
(0.61
|
)
|
|
$
|
-
|
|
|
$
|
(0.61
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
|
|
2,948,037
|
|
|
|
2,948,037
|
|
|
|
2,948,037
|
|
|
|
2,917,245
|
|
|
|
2,917,245
|
|
|
|
2,917,245
|
|
|
Weighted
average number of shares outstanding - diluted
|
|
|
2,965,537
|
|
|
|
2,965,537
|
|
|
|
2,965,537
|
|
|
|
2,960,187
|
|
|
|
2,960,187
|
|
|
|
2,960,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
182,133
|
|
|
$
|
280,905
|
|
|
$
|
463,038
|
|
|
$
|
(1,813,445
|
)
|
|
$
|
(11,521
|
)
|
|
$
|
(1,824,966
|
)
|
|
Comprehensive
income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,179
|
|
|
|
|
|
|
|
88,179
|
|
|
Comprehensive
income (loss)
|
|
$
|
182,133
|
|
|
$
|
280,905
|
|
|
$
|
463,038
|
|
|
$
|
(1,725,266
|
)
|
|
$
|
(11,521
|
)
|
|
$
|
(1,736,787
|
)
|
|
|
|
December 29, 2007
(Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$
|
5,391,535
|
|
|
|
|
|
$
|
5,391,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs
and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
3,172,830
|
|
|
$
|
241,594
|
|
|
|
3,414,424
|
|
|
Selling,
general and admnistrative
|
|
|
2,142,404
|
|
|
|
|
|
|
|
2,142,404
|
|
|
Research
and development
|
|
|
359,763
|
|
|
|
|
|
|
|
359,763
|
|
|
|
|
|
5,674,997
|
|
|
|
241,594
|
|
|
|
5,916,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(283,462
|
)
|
|
|
(241,594
|
)
|
|
|
(525,056
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other expense, net
|
|
|
(67,697
|
)
|
|
|
|
|
|
|
(67,697
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations before income taxes
|
|
|
(351,159
|
)
|
|
|
(241,594
|
)
|
|
|
(592,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations
|
|
|
(351,159
|
)
|
|
|
(241,594
|
)
|
|
|
(592,753
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISCONTINUED
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from discontinued operations before income taxes
|
|
|
1,471,436
|
|
|
|
|
|
|
|
1,471,436
|
|
|
Provision
(benefit) for income taxes
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Net
income
|
|
$
|
1,120,277
|
|
|
$
|
(241,594
|
)
|
|
$
|
878,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share from continuing operations - basic and
diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.20
|
)
|
|
Income
per common share from discontinued operations - basic and
diluted
|
|
$
|
0.50
|
|
|
|
|
|
|
$
|
0.50
|
|
|
Net
income per common share - basic and diluted
|
|
$
|
0.38
|
|
|
$
|
(0.08
|
)
|
|
$
|
0.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic
|
|
|
2,926,028
|
|
|
|
2,926,028
|
|
|
|
2,926,028
|
|
|
Weighted
average number of shares outstanding - diluted
|
|
|
2,929,084
|
|
|
|
2,929,084
|
|
|
|
2,929,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
1,120,277
|
|
|
$
|
(241,594
|
)
|
|
$
|
878,683
|
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
932,345
|
|
|
|
|
|
|
|
932,345
|
|
|
Comprehensive
income (loss)
|
|
$
|
187,932
|
|
|
$
|
(241,594
|
)
|
|
$
|
(53,662
|
)
|
|
|
|
March
31, 2007 (Unaudited)
|
|
|
June
30, 2007 (Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
3,702,483
|
|
|
|
|
|
$
|
3,702,483
|
|
|
$
|
2,817,408
|
|
|
|
|
|
$
|
2,817,408
|
|
|
Accounts
receivable, net
|
|
|
4,829,788
|
|
|
|
|
|
|
4,829,788
|
|
|
|
5,230,332
|
|
|
|
|
|
|
5,230,332
|
|
|
Income
tax refunds receivable
|
|
|
99,000
|
|
|
|
|
|
|
99,000
|
|
|
|
103,000
|
|
|
|
|
|
|
103,000
|
|
|
Inventories,
net (A)
|
|
|
4,073,799
|
|
|
$
|
(94,031
|
)
|
|
|
3,979,768
|
|
|
|
4,783,787
|
|
|
$
|
(48,354
|
)
|
|
|
4,735,433
|
|
|
Other
current assets
|
|
|
646,629
|
|
|
|
|
|
|
|
646,629
|
|
|
|
726,555
|
|
|
|
|
|
|
|
726,555
|
|
|
Deferred
tax assets
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Total
current assets
|
|
|
13,361,699
|
|
|
|
(94,031
|
)
|
|
|
13,267,668
|
|
|
|
13,661,082
|
|
|
|
(48,354
|
)
|
|
|
13,612,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment
|
|
|
40,503,852
|
|
|
|
|
|
|
|
40,503,852
|
|
|
|
41,235,675
|
|
|
|
|
|
|
|
41,235,675
|
|
|
Less
accumulated depreciation and amortization
|
|
|
27,642,265
|
|
|
|
|
|
|
|
27,642,265
|
|
|
|
28,497,706
|
|
|
|
|
|
|
|
28,497,706
|
|
|
Property,
plant and equipment, net
|
|
|
12,861,587
|
|
|
|
|
|
|
|
12,861,587
|
|
|
|
12,737,969
|
|
|
|
|
|
|
|
12,737,969
|
|
|
Other
assets
|
|
|
467,103
|
|
|
|
|
|
|
|
467,103
|
|
|
|
538,654
|
|
|
|
|
|
|
|
538,654
|
|
|
Deferred
tax assets
|
|
|
557,000
|
|
|
|
|
|
|
|
557,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
Goodwill
|
|
|
3,545,572
|
|
|
|
|
|
|
|
3,545,572
|
|
|
|
1,062,534
|
|
|
|
|
|
|
|
1,062,534
|
|
|
Total
Assets
|
|
$
|
30,792,961
|
|
|
$
|
(94,031
|
)
|
|
$
|
30,698,930
|
|
|
$
|
28,100,239
|
|
|
$
|
(48,354
|
)
|
|
$
|
28,051,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
622,266
|
|
|
|
|
|
|
$
|
622,266
|
|
|
$
|
620,655
|
|
|
|
|
|
|
$
|
620,655
|
|
|
Accounts
payable
|
|
|
943,978
|
|
|
|
|
|
|
|
943,978
|
|
|
|
1,438,141
|
|
|
|
|
|
|
|
1,438,141
|
|
|
Accrued
liabilities
|
|
|
1,443,539
|
|
|
|
|
|
|
|
1,443,539
|
|
|
|
1,322,755
|
|
|
|
|
|
|
|
1,322,755
|
|
|
Customer
deposits
|
|
|
189,554
|
|
|
|
|
|
|
|
189,554
|
|
|
|
305,783
|
|
|
|
|
|
|
|
305,783
|
|
|
Deferred
income taxes
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
Total
current liabilities
|
|
|
3,299,337
|
|
|
|
|
|
|
|
3,299,337
|
|
|
|
3,787,334
|
|
|
|
|
|
|
|
3,787,334
|
|
|
Long-term
debt, net of current portion
|
|
|
4,413,156
|
|
|
|
|
|
|
|
4,413,156
|
|
|
|
4,277,279
|
|
|
|
|
|
|
|
4,277,279
|
|
|
Deferred
liabilities
|
|
|
43,704
|
|
|
|
|
|
|
|
43,704
|
|
|
|
49,569
|
|
|
|
|
|
|
|
49,569
|
|
|
Total
liabilities
|
|
|
7,756,197
|
|
|
|
|
|
|
|
7,756,197
|
|
|
|
8,114,182
|
|
|
|
|
|
|
|
8,114,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
32,716
|
|
|
|
|
|
|
|
32,716
|
|
|
|
32,789
|
|
|
|
|
|
|
|
32,789
|
|
|
Additional
paid-in capital
|
|
|
19,339,776
|
|
|
|
|
|
|
|
19,339,776
|
|
|
|
19,450,788
|
|
|
|
|
|
|
|
19,450,788
|
|
|
Retained
earnings
|
|
|
5,336,015
|
|
|
$
|
(94,031
|
)
|
|
|
5,241,984
|
|
|
|
1,867,092
|
|
|
$
|
(48,354
|
)
|
|
|
1,818,738
|
|
|
Accumulated
other comprehensive income
|
|
|
1,450,421
|
|
|
|
|
|
|
|
1,450,421
|
|
|
|
1,757,552
|
|
|
|
|
|
|
|
1,757,552
|
|
|
|
|
|
26,158,928
|
|
|
|
(94,031
|
)
|
|
|
26,064,897
|
|
|
|
23,108,221
|
|
|
|
(48,354
|
)
|
|
|
23,059,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
treasury stock, at cost
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
23,036,764
|
|
|
|
(94,031
|
)
|
|
|
22,942,733
|
|
|
|
19,986,057
|
|
|
|
(48,354
|
)
|
|
|
19,937,703
|
|
|
Total
liabilities and stockholder's equity
|
|
$
|
30,792,961
|
|
|
$
|
(94,031
|
)
|
|
$
|
30,698,930
|
|
|
$
|
28,100,239
|
|
|
$
|
(48,354
|
)
|
|
$
|
28,051,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( A
) Inventories, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Finished goods
|
|
$
|
271,551
|
|
|
|
|
|
|
$
|
271,551
|
|
|
$
|
225,028
|
|
|
|
|
|
|
$
|
225,028
|
|
|
-
Work-in-process
|
|
|
1,835,907
|
|
|
$
|
(94,031
|
)
|
|
|
1,741,876
|
|
|
|
2,406,415
|
|
|
$
|
(48,354
|
)
|
|
|
2,358,061
|
|
|
-
Raw materials and purchased parts
|
|
|
1,966,341
|
|
|
|
|
|
|
|
1,966,341
|
|
|
|
2,152,344
|
|
|
|
|
|
|
|
2,152,344
|
|
|
Total
Inventories, net
|
|
$
|
4,073,799
|
|
|
$
|
(94,031
|
)
|
|
$
|
3,979,768
|
|
|
$
|
4,783,787
|
|
|
$
|
(48,354
|
)
|
|
$
|
4,735,433
|
|
|
|
|
September 29, 2007 (Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,148,260
|
|
|
|
|
|
$
|
1,148,260
|
|
|
Accounts
receivable, net
|
|
|
6,517,573
|
|
|
|
|
|
|
6,517,573
|
|
|
Inventories,
net (A)
|
|
|
4,481,851
|
|
|
$
|
(11,521
|
)
|
|
|
4,470,330
|
|
|
Other
current assets
|
|
|
776,482
|
|
|
|
|
|
|
|
776,482
|
|
|
Current
assets held for sale
|
|
|
1,044,334
|
|
|
|
|
|
|
|
1,044,334
|
|
|
Total
current assets
|
|
|
13,968,500
|
|
|
|
(11,521
|
)
|
|
|
13,956,979
|
|
|
Property,
plant and equipment
|
|
|
37,580,094
|
|
|
|
|
|
|
|
37,580,094
|
|
|
Less
accumulated depreciation and amortization
|
|
|
26,490,857
|
|
|
|
|
|
|
|
26,490,857
|
|
|
Property,
plant and equipment
|
|
|
11,089,237
|
|
|
|
|
|
|
|
11,089,237
|
|
|
Restricted
cash
|
|
|
250,000
|
|
|
|
|
|
|
|
250,000
|
|
|
Other
assets
|
|
|
499,305
|
|
|
|
|
|
|
|
499,305
|
|
|
Deferred
tax assets
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
Long-term
assets held for sale
|
|
|
793,192
|
|
|
|
|
|
|
|
793,192
|
|
|
Total
Assets
|
|
$
|
26,700,234
|
|
|
$
|
(11,521
|
)
|
|
$
|
26,688,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
550,000
|
|
|
|
|
|
|
$
|
550,000
|
|
|
Accounts
payable
|
|
|
682,072
|
|
|
|
|
|
|
|
682,072
|
|
|
Accrued
liabilities
|
|
|
1,246,672
|
|
|
|
|
|
|
|
1,246,672
|
|
|
Customer
deposits
|
|
|
356,044
|
|
|
|
|
|
|
|
356,044
|
|
|
Deferred
income taxes
|
|
|
100,000
|
|
|
|
|
|
|
|
100,000
|
|
|
Current
liabilities related to assets held for sale
|
|
|
1,151,180
|
|
|
|
|
|
|
|
1,151,180
|
|
|
Total
current liabilities
|
|
|
4,085,968
|
|
|
|
|
|
|
|
4,085,968
|
|
|
Long-term
debt, net of current portion
|
|
|
3,900,000
|
|
|
|
|
|
|
|
3,900,000
|
|
|
Deferred
liabilities
|
|
|
55,434
|
|
|
|
|
|
|
|
55,434
|
|
|
Long-term
liabilities related to assets held for sale
|
|
|
236,346
|
|
|
|
|
|
|
|
236,346
|
|
|
Total
liabilities
|
|
|
8,277,748
|
|
|
|
|
|
|
|
8,277,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
32,884
|
|
|
|
|
|
|
|
32,884
|
|
|
Additional
paid-in capital
|
|
|
19,612,388
|
|
|
|
|
|
|
|
19,612,388
|
|
|
Retained
earnings
|
|
|
53,647
|
|
|
$
|
(11,521
|
)
|
|
|
42,126
|
|
|
Accumulated
other comprehensive income
|
|
|
1,845,731
|
|
|
|
|
|
|
|
1,845,731
|
|
|
|
|
|
21,544,650
|
|
|
|
(11,521
|
)
|
|
|
21,533,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
treasury stock, at cost
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
Total
stockholders' equity
|
|
|
18,422,486
|
|
|
|
(11,521
|
)
|
|
|
18,410,965
|
|
|
Total
liabilities and stockholder's equity
|
|
$
|
26,700,234
|
|
|
$
|
(11,521
|
)
|
|
$
|
26,688,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( A
) Inventories, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Finished goods
|
|
$
|
40,619
|
|
|
|
|
|
|
$
|
40,619
|
|
|
-
Work-in-process
|
|
|
2,241,368
|
|
|
$
|
(11,521
|
)
|
|
|
2,229,847
|
|
|
-
Raw materials & purchased parts
|
|
|
2,199,864
|
|
|
|
|
|
|
|
2,199,864
|
|
|
Total
Inventories, net
|
|
$
|
4,481,851
|
|
|
$
|
(11,521
|
)
|
|
$
|
4,470,330
|
|
|
|
|
March 29, 2008 (Unaudited)
|
|
|
June 28, 2008 (Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
As*
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
626,882
|
|
|
|
|
|
$
|
626,882
|
|
|
$
|
409,374
|
|
|
|
|
|
$
|
409,374
|
|
|
Accounts
receivable, net
|
|
|
5,796,735
|
|
|
|
|
|
|
5,796,735
|
|
|
|
7,609,252
|
|
|
|
|
|
|
7,609,252
|
|
|
Inventories,
net (A)
|
|
|
6,074,147
|
|
|
$
|
(888,221
|
)
|
|
|
5,185,926
|
|
|
|
6,673,668
|
|
|
$
|
(1,481,952
|
)
|
|
|
5,191,716
|
|
|
Other
current assets
|
|
|
741,803
|
|
|
|
|
|
|
|
741,803
|
|
|
|
542,981
|
|
|
|
|
|
|
|
542,981
|
|
|
Due
from assets sale contract
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Total
current assets
|
|
|
13,239,567
|
|
|
|
(888,221
|
)
|
|
|
12,351,346
|
|
|
|
15,235,275
|
|
|
|
(1,481,952
|
)
|
|
|
13,753,323
|
|
|
Property,
plant and equipment
|
|
|
37,863,621
|
|
|
|
|
|
|
|
37,863,621
|
|
|
|
37,949,701
|
|
|
|
|
|
|
|
37,949,701
|
|
|
Less
accumulated depreciation and amortization
|
|
|
27,173,685
|
|
|
|
|
|
|
|
27,173,685
|
|
|
|
27,650,605
|
|
|
|
|
|
|
|
27,650,605
|
|
|
Property,
plant and equipment, net
|
|
|
10,689,936
|
|
|
|
|
|
|
|
10,689,936
|
|
|
|
10,299,096
|
|
|
|
|
|
|
|
10,299,096
|
|
|
Restricted
cash
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Other
assets
|
|
|
539,117
|
|
|
|
|
|
|
|
539,117
|
|
|
|
470,390
|
|
|
|
|
|
|
|
470,390
|
|
|
Deferred
tax assets
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
Total
Assets
|
|
$
|
24,520,620
|
|
|
$
|
(888,221
|
)
|
|
$
|
23,632,399
|
|
|
$
|
26,056,761
|
|
|
$
|
(1,481,952
|
)
|
|
$
|
24,574,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
550,000
|
|
|
|
|
|
|
$
|
550,000
|
|
|
$
|
1,050,000
|
|
|
|
|
|
|
$
|
1,050,000
|
|
|
Accounts
payable
|
|
|
976,371
|
|
|
|
|
|
|
|
976,371
|
|
|
|
1,085,015
|
|
|
|
|
|
|
|
1,085,015
|
|
|
Accrued
liabilities
|
|
|
1,461,746
|
|
|
|
|
|
|
|
1,461,746
|
|
|
|
1,645,339
|
|
|
$
|
(2,700
|
)
|
|
|
1,642,639
|
|
|
Customer
deposits
|
|
|
346,272
|
|
|
|
|
|
|
|
346,272
|
|
|
|
517,330
|
|
|
|
|
|
|
|
517,330
|
|
|
Deferred
income taxes
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
Total
current liabilities
|
|
|
3,386,389
|
|
|
|
|
|
|
|
3,386,389
|
|
|
|
4,349,684
|
|
|
|
(2,700
|
)
|
|
|
4,346,984
|
|
|
Long-term
debt, net of current portion
|
|
|
3,375,000
|
|
|
|
|
|
|
|
3,375,000
|
|
|
|
3,237,500
|
|
|
|
|
|
|
|
3,237,500
|
|
|
Deferred
liabilities
|
|
|
62,038
|
|
|
|
|
|
|
|
62,038
|
|
|
|
62,778
|
|
|
|
|
|
|
|
62,778
|
|
|
Total
liabilities
|
|
|
6,823,427
|
|
|
|
|
|
|
|
6,823,427
|
|
|
|
7,649,962
|
|
|
|
(2,700
|
)
|
|
|
7,647,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
33,003
|
|
|
|
|
|
|
|
33,003
|
|
|
|
33,105
|
|
|
|
|
|
|
|
33,105
|
|
|
Additional
paid-in capital
|
|
|
19,984,665
|
|
|
|
|
|
|
|
19,984,665
|
|
|
|
20,132,831
|
|
|
|
|
|
|
|
20,132,831
|
|
|
Retained
earnings (deficit)
|
|
|
801,689
|
|
|
$
|
(888,221
|
)
|
|
|
(86,532
|
)
|
|
|
1,363,027
|
|
|
|
(1,479,252
|
)
|
|
|
(116,225
|
)
|
|
|
|
|
20,819,357
|
|
|
|
(888,221
|
)
|
|
|
19,931,136
|
|
|
|
21,528,963
|
|
|
|
(1,479,252
|
)
|
|
|
20,049,711
|
|
|
Less
treasury stock, at cost
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
Total
stockholders' equity
|
|
|
17,697,193
|
|
|
|
(888,221
|
)
|
|
|
16,808,972
|
|
|
|
18,406,799
|
|
|
|
(1,479,252
|
)
|
|
|
16,927,547
|
|
|
Total
liabilities and stockholder's equity
|
|
$
|
24,520,620
|
|
|
$
|
(888,221
|
)
|
|
$
|
23,632,399
|
|
|
$
|
26,056,761
|
|
|
$
|
(1,481,952
|
)
|
|
$
|
24,574,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( A
) Inventories, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Finished goods
|
|
$
|
278,096
|
|
|
|
|
|
|
$
|
278,096
|
|
|
$
|
537,525
|
|
|
|
|
|
|
$
|
537,525
|
|
|
-
Work-in-process
|
|
|
3,684,579
|
|
|
$
|
(888,221
|
)
|
|
|
2,796,358
|
|
|
|
3,324,500
|
|
|
$
|
(1,481,952
|
)
|
|
|
1,842,548
|
|
|
-
Raw materials and purchased parts
|
|
|
2,111,472
|
|
|
|
|
|
|
|
2,111,472
|
|
|
|
2,811,643
|
|
|
|
|
|
|
|
2,811,643
|
|
|
Total
inventories, net
|
|
$
|
6,074,147
|
|
|
$
|
(888,221
|
)
|
|
$
|
5,185,926
|
|
|
$
|
6,673,668
|
|
|
$
|
(1,481,952
|
)
|
|
$
|
5,191,716
|
|
* Per Form 10-Q/A filed November
19, 2008
|
|
|
September
27, 2008 (Unaudited)
|
|
|
|
|
As
Reported
|
|
|
Adjust-
ments
|
|
|
As
Restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,922,987
|
|
|
|
|
|
$
|
1,922,987
|
|
|
Accounts
receivable, net
|
|
|
6,892,601
|
|
|
|
|
|
|
6,892,601
|
|
|
Inventories,
net (A)
|
|
|
5,885,741
|
|
|
$
|
(1,226,264
|
)
|
|
|
4,659,477
|
|
|
Other
current assets
|
|
|
620,195
|
|
|
|
|
|
|
|
620,195
|
|
|
Revenue
in excess of billing
|
|
|
1,185,909
|
|
|
|
|
|
|
|
1,185,909
|
|
|
Due
from Canadian assets sale contract
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Total
current assets
|
|
|
16,507,433
|
|
|
|
(1,226,264
|
)
|
|
|
15,281,169
|
|
|
Property,
plant and equipment
|
|
|
37,886,003
|
|
|
|
|
|
|
|
37,886,003
|
|
|
Less
accumulated depreciation and amortization
|
|
|
28,165,460
|
|
|
|
|
|
|
|
28,165,460
|
|
|
Property,
plant and equipment, net
|
|
|
9,720,543
|
|
|
|
|
|
|
|
9,720,543
|
|
|
Restricted
Cash
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
Other
assets
|
|
|
509,628
|
|
|
|
|
|
|
|
509,628
|
|
|
Deferred
tax assets
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
Total
Assets
|
|
$
|
26,789,604
|
|
|
$
|
(1,226,264
|
)
|
|
$
|
25,563,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
portion of long-term debt
|
|
$
|
1,550,000
|
|
|
|
|
|
|
$
|
1,550,000
|
|
|
Accounts
payable
|
|
|
905,045
|
|
|
|
|
|
|
|
905,045
|
|
|
Accrued
liabilities
|
|
|
1,833,644
|
|
|
$
|
(27,918
|
)
|
|
|
1,805,726
|
|
|
Customer
deposits
|
|
|
520,361
|
|
|
|
|
|
|
|
520,361
|
|
|
Deferred
income taxes
|
|
|
52,000
|
|
|
|
|
|
|
|
52,000
|
|
|
Income
taxes payable
|
|
|
10,000
|
|
|
|
|
|
|
|
10,000
|
|
|
Total
current liabilities
|
|
|
4,871,050
|
|
|
|
(27,918
|
)
|
|
|
4,843,132
|
|
|
Long-term
debt, net of current portion
|
|
|
3,145,833
|
|
|
|
|
|
|
|
3,145,833
|
|
|
Deferred
liabilities
|
|
|
63,515
|
|
|
|
|
|
|
|
63,515
|
|
|
Total
liabilities
|
|
|
8,080,398
|
|
|
|
(27,918
|
)
|
|
|
8,052,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock
|
|
|
33,110
|
|
|
|
|
|
|
|
33,110
|
|
|
Additional
paid-in capital
|
|
|
20,253,101
|
|
|
|
|
|
|
|
20,253,101
|
|
|
Retained
earnings
|
|
|
1,545,159
|
|
|
|
(1,198,346
|
)
|
|
|
346,813
|
|
|
|
|
|
21,831,370
|
|
|
|
(1,198,346
|
)
|
|
|
20,633,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less
treasury stock
|
|
|
(3,122,164
|
)
|
|
|
|
|
|
|
(3,122,164
|
)
|
|
Total
stockholders' equity
|
|
|
18,709,206
|
|
|
|
(1,198,346
|
)
|
|
|
17,510,860
|
|
|
Total
liabilities and stockholder's equity
|
|
$
|
26,789,604
|
|
|
$
|
(1,226,264
|
)
|
|
$
|
25,563,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( A
) Inventories, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
Finished goods
|
|
$
|
442,822
|
|
|
|
|
|
|
$
|
442,822
|
|
|
-
Work-in-process
|
|
|
2,919,172
|
|
|
$
|
(1,226,264
|
)
|
|
|
1,692,908
|
|
|
-
Raw materials and purchased parts
|
|
|
2,523,747
|
|
|
|
|
|
|
|
2,523,747
|
|
|
Total
inventories, net
|
|
$
|
5,885,741
|
|
|
$
|
(1,226,264
|
)
|
|
$
|
4,659,477
|
|
|
ITEM
9 .
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
|
None.
|
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES.
|
Evaluation
of Disclosure Controls and Procedures.
The
Company maintains disclosure controls and procedures that are designed to ensure
that information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to management, including the
Company’s Chief Executive Officer and Chief Financial Officer as appropriate, to
allow timely decisions regarding required disclosure under Rules 13a-15(e) and
15d-15(e). Disclosure controls and procedures, no matter how well designed and
operated, can provide only reasonable, rather than absolute, assurance of
achieving the desired control objectives.
As of
January 3, 2009 (the end of the period covered by this report), management
carried out an evaluation under the supervision and with the participation of
the Company’s Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures. Based on the material weaknesses in internal control identified
below, the Company’s Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures were not
effective and also concluded that the Company’s disclosure controls and
procedures as of December 29, 2007, previously reported and believed to be
effective, were not effective.
Management's
Annual Report on Internal Control Over Financial Reporting.
The
management of Merrimac Industries, Inc. is responsible for establishing and
maintaining adequate internal control over financial reporting. The Company's
internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the Company's financial statements for external purposes in
accordance with generally accepted accounting principles. Internal control over
financial reporting is defined in rules 13a-15(t) and 15d-15(t) promulgated
under the Exchange Act.
Management
assessed the effectiveness of the Company's internal control over financial
reporting as of January 3, 2009. In making this assessment, it used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in
Internal Control-Integrated
Framework.
Based on its assessment, management believes that, as of
January 3, 2009 and December 29, 2007, the Company's internal control over
financial reporting was not effective to provide reasonable assurance regarding
the reliability of its financial reporting and the preparation of its financial
statements for external purposes in accordance with United States generally
accepted accounting principles. As a result of management’s assessment of the
Company’s internal controls over financial reporting, management identified the
material weaknesses discussed below.
A
material weakness is a control deficiency, or combination of control
deficiencies, that results in a reasonably possible likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
Management
identified the following material weakness in its internal control over
financial reporting as of December 29, 2007:
Cost
Accounting Process
Management
determined there were errors in the cost accounting process that resulted in the
improper closing of a portion of the Company’s manufacturing
jobs. This resulted in an overstatement of inventories and an
understatement of cost of sales affecting all four quarters of fiscal year 2007
requiring restatement of previously issued consolidated financial statements
(see Notes 2 and 16 to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for the
restatement of annual and quarterly consolidated financial statements for
the years ended January 3, 2009 and December 29, 2007).
Management
identified the following material weaknesses in its internal control over
financial reporting as of January 3, 2009:
Personnel
Management experienced turnover and
made changes in financial personnel that led to a lack of sufficient financial
reporting experience to prepare accurate financial statements in a timely
manner.
New
Financial Reporting System
Management identified that the Company
did not have an adequate understanding of their new enterprise resource planning
(“ERP”) software that was implemented April 26, 2008.
Control
and Procedure Weaknesses
Management
identified that there was inadequate preparation and review of inventory account
analyses, account summaries, monthly closing procedures and account
reconciliations during the financial closing and reporting
process. Management also identified that manufacturing jobs
were not properly being closed out in the new ERP software, and that there was
inadequate oversight of inventory, which is complex in nature.
The
factors mentioned above resulted in errors in financial reports that led to the
restatement of fiscal year 2008’s previously reported quarterly consolidated
financial statements requiring additional resources and time to correct (see
Note 2 for the restatement of consolidated financial statements for the years
ended January 3, 2009 and December 29, 2007 and see Notes 2 and 16 to the
consolidated financial statements included elsewhere in this Annual Report on
Form 10-K for the restatement of annual and quarterly consolidated financial
statements for the years ended January 3, 2009 and December 29,
2007).
Remediation
(a) The
Company hired an experienced chief financial officer and has contracted with an
experienced cost accountant who will be hired or will assist in the transition
to and training of a newly hired cost accountant. Additionally, the
Company is in the process of hiring a new controller. Until such personnel can
be hired, the Company will be utilizing experienced consultants and an
accounting consulting firm to oversee, test and support procedures and processes
for financial reporting in 2009.
(b)
Management has identified procedures to enable the Company to better close work
orders in the new financial reporting system and has established related key
controls and reports. Additionally the Company has deployed
additional personnel to ensure that work orders are properly closed
out.
(c) The
Company’s personnel have been trained on the new procedures implemented and
informed as to the importance of them and their impact to the financial
statements.
Apart from the implementation of a new
financial accounting system, there were no changes that occurred during the
Company’s fourth quarter ended January 3, 2009 that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
This
Annual Report does not include an attestation report of the Company's
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to audit by the
Company's independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the Company to
provide only management's report in the Annual Report.
|
ITEM 9B.
|
OTHER
INFORMATION.
|
None.
PART
III
Pursuant
to General Instruction E3 to Form 10-K, portions of information required by
Items 10 through 12 and 14 and indicated below are hereby incorporated by
reference to Merrimac's definitive Proxy Statement for the 2009 Annual Meeting
of Stockholders (the "Proxy Statement") which Merrimac will file with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year covered by this report.
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.
|
Information
under the caption "Election of Directors" contained in the Proxy Statement with
respect to the Board of Directors is incorporated herein by reference. The
following is a list of Merrimac's current executive officers, their ages and
their positions. Generally, each executive officer is elected for a term of one
year at the organizational meeting of the Board of Directors following the
Annual Meeting of Stockholders.
|
NAME
|
|
AGE
|
|
POSITION
|
|
Mason
N. Carter
|
|
63
|
|
Chairman,
President and Chief Executive Officer
|
|
J.
Robert Patterson
|
|
51
|
|
Vice
President, Finance, Treasurer, Secretary and Chief Financial
Officer
|
|
Reynold
K. Green
|
|
50
|
|
Vice
President and Chief Operating Officer
|
|
Jayson
E. Hahn
|
|
41
|
|
Vice
President, Information Technology and Chief Information
Officer
|
|
James
J. Logothetis
|
|
49
|
|
Vice
President and Chief Technology Officer
|
|
Adriana
Mazza
|
|
57
|
|
Vice
President, Human Resources
|
|
Michael
Pelenskij
|
|
48
|
|
Vice
President,
Manufacturing
|
FAMILY
RELATIONSHIPS
There are
no family relationships among the officers listed.
BUSINESS
EXPERIENCE OF EXECUTIVE OFFICERS DURING PAST FIVE YEARS
Mr.
Carter has served as Chairman of the Board since July 24, 1997, and President
and Chief Executive Officer since December 16, 1996.
Mr.
Patterson has been Vice President, Finance, Chief Financial Officer and
Treasurer since joining Merrimac December 11, 2008 and was appointed Secretary
March 18, 2009. Prior to joining Merrimac Industries, Inc., Mr.
Patterson was the Chief Financial Officer of Third Wave Business Systems, a
business management systems consulting firm, from March 2008 to September
2008. From December 2000 through March 2008 Mr. Patterson served as
Vice President, Chief Financial Officer and Treasurer of IFTH Acquisition Corp.
(“IFTH”), formerly InfoTech USA Inc., where he also served as their Secretary
from January 2006 to March 2008. Prior to becoming the Chief
Financial Officer of IFTH, Mr. Patterson served as Vice President of Finance for
the Network division for Applied Digital Solutions, Inc. (“ADS”) from 1999 to
2000 and was the Controller of one of ADS’s wholly owned subsidiaries
Information Products Center, Inc. from 1990 to 2000.
Mr. Green
was appointed Vice President and Chief Operating Officer on January 1, 2005. He
was Vice President and General Manager since November 2002. He was Vice
President and General Manager of the RF Microwave Products Group since January
2000. He was Vice President, Sales from March 1997 to January 2000 and Vice
President of Manufacturing from April 1996 to March 1997. He was a member of the
Board of Directors from April 1996 to May 1997 and did not seek re-election to
the Board.
Mr. Hahn
was appointed Vice President, Information Technology and Chief Information
Officer in October 2000, after serving as Director, Network Services since June
1998. He served as Manager, Network Services from June 1997 to June 1998 and was
Information Technology Support Specialist from December 1996 to June
1997.
Mr.
Logothetis was appointed Vice President and Chief Technology Officer in March
2002. Mr. Logothetis was appointed Vice President, Multi-Mix® Engineering in May
1998, after rejoining Merrimac in January 1997 to serve as Director, Advanced
Technology. Prior to rejoining Merrimac, he served as a director for
Electromagnetic Technologies, Inc. in 1995 and became Vice President of
Microwave Engineering at such corporation in 1996. From 1984 through 1994, Mr.
Logothetis had various engineering positions with Merrimac including Group
Manager, Engineering.
Mrs.
Mazza was appointed Vice President, Human Resources in December 2005, after
serving as Manager of Human Resources of the Company from September 2002 to
December 2005. She joined the Company in May 2000, serving in various human
resource capacities until September 2002. Prior to joining Merrimac, she worked
for Monroe Systems for Business, a division of Litton Industries; Exxon Office
System, a division of Exxon Corporation and did private consulting work in both
profit and nonprofit capacities.
Mr.
Pelenskij was appointed Vice President Manufacturing in January 2000 after
serving as Director of Manufacturing of the Company from January 1999 to January
2000. Prior to January 1999, Mr. Pelenskij held the positions of Manager of
Screened Components, RF Design Engineer, and District Sales Manager at the
Company since joining the Company in 1993.
Information
under the caption "Section 16 (a) Beneficial Ownership Reporting Compliance"
contained in the Proxy Statement relating to compliance with Section 16 of the
Exchange Act is incorporated herein by reference.
The
Company has adopted a code of ethics that applies to its chief executive officer
and chief financial officer, its principal executive officer and principal
financial officer, respectively, and all of the Company's other officers,
directors and employees. The Company makes its code of ethics available free of
charge through its internet website, www.merrimacind.com. The Company will
disclose on its web site at www.merrimacind.com amendments to or waivers from
its code of ethics within four business days following the date of any such
amendment or waiver.
Information under the caption “Meeting
and Committees of the Board of Directors” contained in the Proxy Statement is
incorporated herein by reference.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION.
|
Information
called for by Item 11 is set forth under the heading "Executive and Director
Compensation" in the Proxy Statement, which information is incorporated herein
by reference.
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
Information
called for by Item 12 is set forth under the heading "Stock Ownership of
Directors, Executive Officers and Certain Stockholders" contained in the Proxy
Statement, which information is incorporated herein by reference.
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
|
Information
called for by Item 13 is set forth under the heading "Certain Relationships and
Related Transactions” and “Director Independence" contained in the Proxy
Statement, which information is incorporated herein by reference.
|
ITEM
14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
|
Information
called for by Item 14 is set forth under the caption "Ratification of Selection
of Independent Registered Public Accounting Firm" contained in the Proxy
Statement, which information is incorporated herein by
reference.
|
ITEM
15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES.
|
|
EXHIBIT
NUMBER
|
DESCRIPTION
OF EXHIBIT
|
|
|
|
|
3(a)
|
Certificate
of Incorporation of Merrimac is hereby incorporated by reference to
Exhibit 3(i)(b) to Post-Effective Amendment No. 2 to the Registration
Statement on Form S-8 (No. 33-68862) of Merrimac dated February 23,
2001.
|
|
|
|
|
3(b)
|
By-laws
of Merrimac are hereby incorporated by reference to Exhibit 3.1 to
Merrimac's Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 14,2007.
|
|
|
|
|
4(a)
|
Stockholder
Rights Agreement dated as of March 9, 1999, between Merrimac and
ChaseMellon Stockholder Services, L.L.C., as Rights Agent, is hereby
incorporated by reference to Exhibit I to Merrimac's Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 9,
1999.
|
|
4(b)
|
Amendment
No. 1 dated as of June 9, 1999, to the Stockholder Rights Agreement dated
as of March 9, 1999, between Merrimac and ChaseMellon Stockholder
Services, L.L.C., as Rights Agent, is hereby incorporated by reference to
Exhibit 1 to Merrimac's Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 9, 1999.
|
|
|
|
|
4(c)
|
Amendment
No. 2 dated as of April 7, 2000, to the Stockholder Rights Agreement dated
as of March 9, 1999, between Merrimac and ChaseMellon Stockholder
Services, L.L.C., as Rights Agent, is hereby incorporated by reference to
Exhibit 1(b) to Merrimac's Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 10, 2000.
|
|
|
|
|
4(d)
|
Amendment
No. 3 dated as of October 26, 2000, to the Stockholder Rights Agreement
dated as of March 9, 1999, between Merrimac and ChaseMellon Stockholder
Services, L.L.C., as Rights Agent, is hereby incorporated by reference to
Exhibit 2 to Merrimac's Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 27, 2000.
|
|
|
|
|
4(e)
|
Amendment
No. 4 dated as of February 21, 2001, to the Stockholder Rights Agreement
dated as of March 9, 1999, between Merrimac and Mellon Investor Services,
L.L.C. (formerly known as ChaseMellon Stockholder Services, L.L.C.), as
Rights Agent, is hereby incorporated by reference to Exhibit l (d) to
Merrimac’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on February 21, 2001.
|
|
|
|
|
4(f)
|
Amendment
No. 5, dated February 28, 2002, to the Rights Agreement, between Merrimac
and Mellon Investor Services LLC (f.k.a. ChaseMellon Shareholder Services,
L.L.C.), as Rights Agent is hereby incorporated by reference to Exhibit
99.4 to Merrimac's Form 8-K filed with the Securities and Exchange
Commission on March 6, 2002.
|
|
|
|
|
4(g)
|
Amendment
No. 6, dated September 18,2002, to the Rights Agreement, between Merrimac
and Mellon Investor Services LLC, as Rights Agent is hereby incorporated
by reference to Exhibit 99.3 to Merrimac's Form 8-K filed with the
Securities and Exchange Commission on October 10, 2002.
|
|
|
|
|
4(h)
|
Amendment
No. 7, dated December 13, 2004, to the Rights Agreement, between Merrimac
and Wachovia Bank, National Association, as successor Rights Agent, is
hereby incorporated by reference to Exhibit 4.1 to Merrimac's Form 8-K
filed with the Securities and Exchange Commission on December 13,
2004.
|
|
|
|
|
4(i)
|
Amendment
No. 8, dated March 14,2007, to the Rights Agreement, between Merrimac and
American Stock Transfer & Trust Company is hereby incorporated by
reference to Exhibit 4.1 to Merrimac's Current Report on Form 8-K filed
with the Securities and Exchange Commission on March 14,
2007.
|
|
|
|
|
4(j)
|
Amendment
No. 9, dated as of March 19, 2009, to the Rights Agreement between
Merrimac and American Stock Transfer & Trust Company is hereby
incorporated by reference to Exhibit 4.1 to Merrimac’s Current Report on
Form 8-K filed with the Securities and Exchange Commission on March 24,
2009.
|
|
|
|
|
10(a)
|
Registration
Rights Agreement dated as of April 7, 2000, between Merrimac and Ericsson
Holding International, B.V. is hereby incorporated by reference to Exhibit
10(b) to Merrimac's Quarterly Report on Form 10-QSB for the period ending
July 1, 2000.
|
|
|
|
|
10(b)
|
Registration
Rights Agreement dated October 26, 2000, between Merrimac and Ericsson
Holding International, B.V. is hereby incorporated by reference to Exhibit
10(u) to Merrimac's Annual Report on Form 10-KSB dated for the year ending
December 30, 2000.
|
|
|
|
|
10(c)
|
Registration
Rights Agreement, dated February 28, 2002 between Merrimac and DuPont
Chemical and Energy Operations, Inc., a subsidiary of E.I. DuPont de
Nemours and Company is hereby incorporated by reference to Exhibit 99.3 to
Merrimac's Form 8-K filed with the Securities and Exchange Commission on
March 6, 2002.
|
|
|
|
|
10(d)
|
Profit
Sharing Plan of Merrimac is hereby incorporated by reference to Exhibit
10(n) to Merrimac's Registration Statement on Form
S-1
(No.
2-79455).*
|
|
|
|
|
10(e)
|
1993
Stock Option Plan of Merrimac effective March 31, 1993, is hereby
incorporated by reference to Exhibit 4(c) to Merrimac's Registration
Statement on Form
S-8
(No. 33-68862) dated September 14, 1993.*
|
|
|
|
|
10(f)
|
1997
Long-Term Incentive Plan of Merrimac is hereby incorporated by reference
to Exhibit A to Merrimac's Proxy Statement filed with the Securities and
Exchange Commission on April 11,
1997.*
|
|
10(g)
|
Resolutions
of the Stock Option Committee of the Board of Directors of Merrimac
adopted June 3, 1998, amending the 1983 Key Employees Stock Option Plan of
Merrimac, the 1993 Stock Option Plan of Merrimac and the 1997 Long-Term
Incentive Plan of Merrimac and adjusting outstanding awards there under to
give effect to Merrimac's 10% stock dividend paid June 5,1998, are hereby
incorporated by reference to Exhibit 10(f) to Merrimac's Annual Report on
Form 10-KSB for the year ending March 30, 1999.*
|
|
|
|
|
10(h)
|
Consulting
Agreement dated as of January I, 1998, between Merrimac and Arthur A.
Oliner is hereby incorporated by reference to Exhibit 10 to Merrimac's
Quarterly Report on Form 10-QSB for the period ending April 4,
1998.*
|
|
|
|
|
10(i)
|
Stockholder's
Agreement dated as of October 30, 1998, between Merrimac and Charles F.
Huber II is hereby incorporated by reference to Exhibit 10 to Merrimac's
Quarterly Report on Form 10-QSB for the period ending October 3,
1998.
|
|
|
|
|
10(j)
|
2001
Stock Option Plan is hereby incorporated by reference to Exhibit 4.01 to
Merrimac's Form S-8 (No. 333-63436) dated June 20,
2001.*
|
|
|
|
|
10(k)
|
2001
Stock Purchase Plan is hereby incorporated by reference to Exhibit 4.01 to
Merrimac's Form
S-8
(No. 333-63438) dated June 20, 2001. *
|
|
|
|
|
10(1)
|
2001
Amended and Restated Stock Option Plan is hereby incorporated by reference
to Exhibit 4(i) to Merrimac's Quarterly Report on Form IO-QSB for the
period ending June 30, 2001.*
|
|
|
|
|
10(m)
|
Merrimac
Severance Plan, as adopted March 29, 2006, is hereby incorporated by
reference to Exhibit 10(z) to Merrimac's Annual Report on Form IO-K for
the year ending December 31, 2005.
|
|
|
|
|
10(n)
|
Employment
Agreement, dated April 11, 2006, between Merrimac and Mason N. Carter, is
hereby incorporated by reference to Exhibit 10.1 to Merrimac's Current
Report on Form 8-K filed with the Securities Exchange and Commission on
April 14, 2006.*
|
|
|
|
|
10(o)
|
2006
Stock Option Plan is hereby incorporated by reference to Exhibit A of
Merrimac's Definitive Proxy Statement filed with the Securities and
Exchange Commission on May 1, 2006.*
|
|
|
|
|
10(p)
|
2006
Key Employee Incentive Plan is hereby incorporated by reference to Exhibit
B of Merrimac's Definitive Proxy Statement filed with the Securities and
Exchange Commission on May 1, 2006.*
|
|
|
|
|
10(q)
|
2006
Non-Employee Directors' Stock Plan is hereby incorporated by reference to
Exhibit C of Merrimac's Definitive Proxy Statement filed with the
Securities and Exchange Commission on May 1, 2006.*
|
|
|
|
|
10(r)
|
Revolving
Credit, Term Loan and Securities Agreement, dated October 19, 2006,
between Merrimac and North Fork Bank, is hereby incorporated by reference
to Exhibit 10.1 to Merrimac's Current Report on Form 8-K filed with the
Securities and Exchange Commission on October 20, 2006.
|
|
|
|
|
10(s)
|
Stock
Purchase and Confidentiality Agreement, dated March 13, 2007, between and
among Merrimac, Adam Smith Investment Partners, L.P., Adam Smith Capital
Management LLC, Diamond Capital Management, Adam Smith Investments, Ltd.,
Richard Grossman, Orin Hirschman, and Richard and Ana Grossman JTWROS, is
hereby incorporated by reference to Exhibit 10(a) to Merrimac's Quarterly
Report on Form 10-Q for the period ending March 31,
2007.
|
|
|
|
|
10(t)
|
First
Amendment, dated as of May 15, 2007, to the Revolving Credit, Term Loan
and Security Agreement, dated as of October 18, 2006, by and between
Merrimac and North Fork Bank, is hereby incorporated by reference to
Exhibit 10.1 to Merrimac's Current Report on Form 8-K filed with the
Securities and Exchange Commission on May 15, 2007.
|
|
|
|
|
10(u)
|
First
Amendment, effective as of December 13, 2007, to the 2006 Stock Option
Plan.*
|
|
|
|
|
10(v)
|
First
Amendment, effective as of December 13,2007, to the 2006 Key Employee
Incentive Plan.*
|
|
|
|
|
10(w)
|
First
Amendment, effective as of December 13, 2007, to the Amended and Restated
Severance Plan.*
|
|
|
|
|
10(x)
|
Asset
Purchase Agreement, dated December 28, 2007, between Filtran Microcircuits
Inc., Merrimac, and Firan Technology Group Corporation, is hereby
incorporated by reference to Exhibit 10.1 to Merrimac's Current Report on
Form 8-K filed with the Securities and Exchange Commission on January 4,
2008.
|
|
|
|
|
10(y)
|
Credit
and Security Agreement, dated September 29, 2008, between Merrimac and
Wells Fargo Bank, National Association, is hereby incorporated by
reference to Exhibit 10.1 to Merrimac’s Current Report on Form 8-K filed
with the Securities and Exchange Commission on October 3,
2008.
|
|
10(z)
|
Separation
Agreement and General Release, by and between Merrimac and Robert V.
Condon, dated as of December 1, 2008, is hereby incorporated by reference
to Exhibit 10.1 to Merrimac’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 16,
2008.*
|
|
|
|
|
21±
|
Subsidiaries
of Merrimac.
|
|
|
|
|
23.l±
|
Consent
of Independent Registered Public Accounting Firm J. H. Cohn
LLP.
|
|
|
|
|
31.1±
|
Chief
Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
31.2±
|
Chief
Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
32.1±
|
Chief
Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
|
32.2±
|
Chief
Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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*
Indicates that exhibit is a management contract or compensatory plan or
arrangement.
±
Indicates that exhibit is filed as an exhibit hereto.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15 (d) 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.
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MERRIMAC
INDUSTRIES, INC.
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(Registrant)
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April
20, 2009
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By:
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/s/
Mason N. Carter
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Mason
N. Carter
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Chairman,
President and
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Chief
Executive Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
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Signature
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Date
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Title
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/s/
Mason N. Carter
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April
20, 2009
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Chairman,
President and Chief Executive Officer (Principal
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(Mason
N. Carter)
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executive
officer and Director)
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/s/
Edward H. Cohen
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April
20, 2009
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Director
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(Edward
H. Cohen)
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/s/
Fernando L. Fernandez
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April
20, 2009
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Director
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(Fernando
L. Fernandez)
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/s/
Joel H. Goldberg
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April
20, 2009
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Director
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(Joel
H. Goldberg)
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/s/
Ludwig G. Kuttner
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April
20, 2009
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Director
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(Ludwig
G. Kuttner)
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/s/
Timothy P. McCann
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April
20, 2009
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Director
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(
Timothy P.
McCann
)
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/s/
Arthur A. Oliner
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April
20, 2009
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Director
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(Arthur
A. Oliner)
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/s/
Harold J. Raveche
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April
20, 2009
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Director
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(Harold
J. Raveche)
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/s/
J. Robert Patterson
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April
20, 2009
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Vice
President, Finance, Treasurer, Secretary and Chief
Financial
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(J.
Robert Patterson)
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Officer
(principal financial and accounting
officer)
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