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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-27460
PERFORMANCE TECHNOLOGIES, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 16-1158413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation of organization)
315 Science Parkway, Rochester New York 14620
(Address of principal executive offices) (Zip Code)
-----------------------------
Registrant's telephone number, including area code: (716) 256-0200
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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 .
The number of shares outstanding of the registrant's common stock was
12,230,891 as of October 31, 2001.
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PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 2001
(unaudited) and December 31, 2000 3
Consolidated Statements of Income For The Three and Nine Months
Ended September 30, 2001 and 2000 (unaudited) 4
Consolidated Statements of Cash Flows For The Nine
Months Ended September 30, 2001 and 2000 (unaudited) 5
Notes to Consolidated Financial Statements For The Nine
Months Ended September 30, 2001 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2001 2000
------------- -------------
(unaudited)
Current assets:
Cash and cash equivalents $ 24,777,000 $ 17,187,000
Marketable securities 9,995,000
Accounts receivable, net 7,477,000 7,393,000
Inventories, net 4,042,000 5,788,000
Prepaid expenses and other 441,000 745,000
Deferred taxes 687,000 679,000
------------- -------------
Total current assets 37,424,000 41,787,000
Equipment and improvements, net 2,522,000 2,119,000
Software development costs, net 1,709,000 852,000
------------- -------------
Total assets $ 41,655,000 $ 44,758,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 675,000 $ 1,347,000
Income taxes payable 219,000
Accrued expenses 2,696,000 3,246,000
------------- -------------
Total current liabilities 3,371,000 4,812,000
Deferred taxes 865,000 478,000
------------- -------------
Total liabilities 4,236,000 5,290,000
------------- -------------
Stockholders' equity:
Preferred stock
Common stock - $.01 par value; 50,000,000
authorized; 13,260,038 shares issued 133,000 133,000
Additional paid-in capital 11,319,000 12,375,000
Retained earnings 39,234,000 35,053,000
Treasury stock - at cost; 1,023,147 and 598,313
shares held at September 30, 2001 and
December 31, 2000, respectively (13,296,000) (8,042,000)
Cumulative translation adjustments 29,000 (51,000)
------------- -------------
Total stockholders' equity 37,419,000 39,468,000
------------- -------------
Total liabilities and stockholders' equity $ 41,655,000 $ 44,758,000
============= =============
3
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
----------- ----------- ----------- -----------
Sales $ 9,871,000 $ 9,244,000 $29,015,000 $28,927,000
Cost of goods sold 3,378,000 2,976,000 10,798,000 9,500,000
----------- ----------- ----------- -----------
Gross profit 6,493,000 6,268,000 18,217,000 19,427,000
----------- ----------- ----------- -----------
Operating expenses:
Selling and marketing 1,357,000 1,480,000 4,255,000 3,956,000
Research and development 1,897,000 2,301,000 6,157,000 6,720,000
General and administrative 783,000 526,000 2,347,000 2,081,000
----------- ----------- ----------- -----------
Total operating expenses 4,037,000 4,307,000 12,759,000 12,757,000
----------- ----------- ----------- -----------
Income from operations 2,456,000 1,961,000 5,458,000 6,670,000
Other income, net 187,000 492,000 783,000 1,516,000
----------- ----------- ----------- -----------
Income before income taxes 2,643,000 2,453,000 6,241,000 8,186,000
Provision for income taxes 873,000 932,000 2,060,000 3,110,000
----------- ----------- ----------- -----------
Net income $ 1,770,000 $ 1,521,000 $ 4,181,000 $ 5,076,000
=========== =========== =========== ===========
Basic earnings per share $ .14 $ .12 $ .34 $ .38
=========== =========== =========== ===========
Diluted earnings per share $ .14 $ .11 $ .33 $ .37
=========== =========== =========== ===========
Net income available to
common stockholders $ 1,770,000 $ 1,521,000 $ 4,181,000 $ 5,076,000
=========== =========== =========== ===========
Weighted average number of
common shares used in
basic earnings per share 12,225,890 13,199,178 12,298,859 13,227,889
Common equivalent shares 439,121 479,319 448,528 678,172
----------- ----------- ----------- -----------
Weighted average number of
common shares used in
diluted earnings per share 12,665,011 13,678,497 12,747,387 13,906,061
=========== =========== =========== ===========
4
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
(unaudited)
Nine Months Ended
September 30,
2001 2000
------------- -------------
Cash flows from operating activities:
Net income $ 4,181,000 $ 5,076,000
Non-cash adjustments:
Depreciation and amortization 1,187,000 952,000
Other 417,000 (78,000)
Changes in operating assets and liabilities:
Accounts receivable (102,000) 2,118,000
Inventories 1,746,000 (1,483,000)
Prepaid expenses and other 315,000 44,000
Accounts payable (672,000) 176,000
Accrued expenses (531,000) (1,630,000)
Income taxes payable (219,000) (1,340,000)
------------- -------------
Net cash provided by operating activities 6,322,000 3,835,000
------------- -------------
Cash flows from investing activities:
Purchases of equipment and improvements (1,139,000) (943,000)
Capitalized software development (1,278,000) (639,000)
Purchase of marketable securities (5,000) (15,977,000)
Maturities of marketable securities 10,000,000 24,000,000
------------- -------------
Net cash provided by investing activities 7,578,000 6,441,000
------------- -------------
Cash flows from financing activities:
Repayment of notes payable (6,000)
Exercise of stock options 511,000 385,000
Purchase of treasury stock (6,821,000) (2,828,000)
------------- -------------
Net cash used by financing activities (6,310,000) (2,449,000)
------------- -------------
Net increase in cash and cash equivalents 7,590,000 7,827,000
Cash and cash equivalents at beginning of period 17,187,000 9,792,000
------------- -------------
Cash and cash equivalents at end of period $ 24,777,000 $ 17,619,000
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash financing activity:
Exercise of stock options using 100 shares of
common stock in 2000 $ 4,000
=============
5
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
Note - A The unaudited Consolidated Financial Statements of Performance
Technologies, Incorporated and Subsidiaries (the "Company") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities and Exchange Commission. Accordingly, the
Consolidated Financial Statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. The results for the
interim periods are not necessarily indicative of the results to be expected for
the year. The accompanying Consolidated Financial Statements should be read in
conjunction with the audited Consolidated Financial Statements of the Company as
of December 31, 2000, as reported in its Annual Report on Form 10-K filed with
the Securities and Exchange Commission.
Note - B During the nine months ended September 30, 2001, 116,500 common shares
were issued upon the exercise of stock options and warrants.
Note - C Inventories consisted of the following at September 30, 2001 and
December 31, 2000:
September 30, December 31,
2001 2000
------------- -------------
Purchased parts and components $ 1,909,000 $ 2,656,000
Work in process 2,755,000 3,959,000
Finished goods 435,000 297,000
------------ -------------
5,099,000 6,912,000
Less: reserve for inventory obsolescence (1,057,000) (1,124,000)
------------ -------------
Net $ 4,042,000 $ 5,788,000
============ =============
6
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Matters discussed in Management's Discussion and Analysis of Financial Condition
and Results of Operations and elsewhere in this Form 10-Q include
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and are
subject to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's actual results could differ materially from
those discussed in the forward-looking statements.
Overview
Business Strategy: Performance Technologies, Incorporated (the "Company")
provides packet-based telecommunications and networking products for wireline,
wireless and next-generation Internet Protocol networks. The Company's products
are based on open system architectures and are generally integrated with its
customers' network infrastructure products. The Company's products enable the
network convergence of voice and data, the growth of the Internet, emerging
broadband communications and global wireless services.
The Company's engineering efforts are directed toward developing three distinct
product lines for these emerging markets: SS7/IP Signaling products, IP Ethernet
switching products and network access products. The Company's products are
targeted at customers in the following sectors: telecommunications equipment
manufacturers, telecommunications service providers and operators, wireless
carriers and platform manufacturers.
The Company pioneered a new architecture for embedded platforms using Ethernet
and recommended adoption of this architecture by the industry standards board in
September 2000. The standards board established a committee to evaluate this new
architecture and designated a member of the Company's management team to chair
the process. This new industry standard was adopted by the standards board in
September 2001. The Company has developed several new IP Ethernet switch,
network access and SS7/IP signaling products based on this new industry
standard. Four of these new IPnexus(TM) products began shipping to customers in
September 2001 and two more new IPnexus products are scheduled for delivery in
the fourth quarter. The Company's leadership on the standards board committee,
plus the introduction of the IPnexus product family, have significantly
increased the Company's visibility within the telecommunications industry and
have resulted in design wins with numerous new telecom customers.
Financial Information: Net income for the third quarter 2001 amounted to $1.8
million, or $.14 per share based on 12.7 million fully diluted shares
outstanding, compared to net income of $1.5 million, or $.11 per share based on
13.7 million fully diluted shares outstanding for the third quarter in 2000.
Revenue for the third quarter 2001 amounted to $9.9 million, compared to $9.2
million for the same quarter in 2000.
For the first nine months of 2001, net income amounted to $4.2 million, or $.33
per share based on 12.7 million fully diluted shares outstanding, compared to
net income of $5.1 million, or $.37 per share based on 13.9 million fully
diluted shares outstanding for the same period in 2000. Revenue for the nine
months ended September 30, 2001 amounted to $29.0 million, compared to $28.9
million for the same period in 2000.
At September 30, 2001, the Company had $24.8 million of cash and cash
equivalents and no long-term debt. For the first nine months of 2001, the
Company generated income from operations, excluding depreciation and
amortization (EBITDA), of $6.6 million, compared to $7.6 million for the same
period in 2000.
7
Performance Technologies continued to experience the effects of the turbulent
economic conditions and the slow down in capital spending in the broader
communications market during the third quarter. While management remains
confident that the Company is well positioned when the deployment of IP network
applications and embedded Ethernet platform architectures accelerates, they are
uncertain when economic conditions will improve. Therefore, management has
focused on the preservation of cash and continues to maintain tight fiscal
control over discretionary expenses and hiring. At the same time, engineering
efforts continue to be focused on an aggressive product road map for the
embedded switch market and development of the SS7/IP Signaling Blade and the
SEGway(TM) Link Concentrator, products announced earlier this year.
Management believes one of the most important measurements of progress in
executing the Company's product and marketing strategies is the number of
"design wins" realized with its customer base. A "design win" is when a customer
or prospective customer notifies the Company that its product has been selected
to be integrated with their product. As of October 24, 2001, the Company has
received notification of thirty-one new "design wins" this year for its SS7/IP
Signaling products, IP Ethernet switch and network access products. In each of
these "design wins", the Company expects to provide products that play a key
role in wireline, wireless and next-generation IP networks. During the third
quarter, design activity for new IP applications appeared to have slowed and
production orders from a number of "design wins" were anticipated, but were not
received. While the months of July and August are seasonally slow months for
design activity, this activity level typically accelerates in the month of
September. With the slower economy and the September 11th tragedy, this did not
occur in September.
Several noteworthy customer relationships were announced during the past three
months: Siemens Carrier Networks LLC, a subsidiary of Siemens AG and a leading
supplier of carrier-grade switching, selected the Company's IPnexus line of
Ethernet switches for use within Siemens' SURPASS hiQ(TM) softswitch; NAV
Canada, Canada's provider of civil air navigation services, selected the
Company's MPS800 communications server to migrate its radar information to new
IP/Ethernet based systems; and Teleglobe, a leading supplier of global
communications and Internet services, announced operation of a new system to
increase international roaming capacity between wireless networks in North
America and the rest of the world. This enhanced service capability is built on
a platform developed in conjunction with Performance Technologies' Ottawa-based
signaling group.
Forward Looking Guidance for the Fourth Quarter 2001:
The following includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934 and are subject to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995.
Performance Technologies supplies products to telecommunications equipment
suppliers that are integrated into current and next-generation network
infrastructure. Ordinarily, there are a number of steps between the "design win"
and when customers initiate production shipments. This process typically can
take twelve to eighteen months, or longer, to complete. A variety of risks such
as schedule delays, cancellations, changes in customer markets and general
economic conditions can adversely affect a "design win" before production is
reached or during deployment.
Despite healthier financial results for the third quarter, Performance
Technologies continued to experience the effects of the turbulent economic
conditions and the slowdown in capital spending in the broader communications
market. During the third quarter, new deployments of IP networks appear to have
slowed and a number of customers requested delays in shipments.
Notwithstanding the current economic environment, management continues to feel
that Performance Technologies is well positioned when the deployment of IP
network applications and embedded Ethernet platform architectures accelerates.
Based upon the current distribution of business, the current backlog and the
review of customer forecasts, management expects revenue in the fourth quarter
to be $8.0 million to $9.5 million. Gross margin is expected to be approximately
62% to 65% and diluted earnings per share for the fourth quarter is expected to
be $.08 to $.12.
More in-depth discussions of the Company's strategy and financial performance
can be found in the Company's recent Annual and Quarterly Reports, on Form 10-K
and Form 10-Q, as filed with the Securities and Exchange Commission.
8
Quarter and Nine Months Ended September 30, 2001, Compared with
the Quarter and Nine Months Ended September 30, 2000
The following table presents the percentage of sales represented by each item in
the Company's consolidated statements of income for the periods indicated:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------ ------ ------ ------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 34.2 32.2 37.2 32.8
------ ------ ------ ------
Gross profit 65.8 67.8 62.8 67.2
------ ------ ------ ------
Operating expenses:
Selling and marketing 13.8 16.0 14.7 13.7
Research and development 19.2 24.9 21.2 23.2
General and administrative 7.9 5.7 8.1 7.2
------ ------ ------ ------
Total operating expenses 40.9 46.6 44.0 44.1
------ ------ ------ ------
Income from operations 24.9 21.2 18.8 23.1
Other income, net 1.9 5.3 2.7 5.2
------ ------ ------ ------
Income before income taxes 26.8 26.5 21.5 28.3
Provision for income taxes (8.9) (10.1) (7.1) (10.8)
------ ------ ------ ------
Net income 17.9 16.4 14.4 17.5
====== ====== ====== ======
Sales. Sales for the third quarter 2001 were $9.9 million, compared to $9.2
million for the same quarter in 2000. Sales for the first nine months of 2001
were $29.0 million, compared to $28.9 million for the respective period in 2000.
The Company's products are grouped into four distinct categories in one market
segment: IP Signaling System 7 and network access products, IP switching
products, Lockheed Martin/LAN interface (U.S. Government/COTS) products, and
other (legacy) products. Revenue from each product category is expressed as a
percentage of sales for the three and nine months ending September 30, 2001 and
2000:
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
------ ------- ------- -------
IP/SS7 and network access products 90% 87% 87% 84%
IP switching products 4% 1% 4% 0%
Lockheed Martin/LAN interface produc 0% 0% 0% 4%
Other 6% 12% 9% 12%
------ ------- ------- -------
Total 100% 100% 100% 100%
====== ======= ======= =======
IP/Signaling System 7 and network access product revenue increased 10% to $8.8
million during the third quarter 2001, from $8.0 million for the third quarter
2000. During the third quarter 2001, the Company solidified relationships with a
number of global GSM service providers by providing application specific
engineering along with its signaling gateway products. For the nine months,
IP/Signaling System 7 and network access product revenue increased 3% to $25.1
million in 2001, from $24.4 million during the same period in 2000. The Company
has invested heavily in new IP Signaling System 7 and network access products
and management expects this product group to be the key revenue growth driver
for the Company.
9
IP switching products: The first member of the IP switch family was introduced
in September 2000. During the third quarter 2001, the Company began shipping two
new IPnexus switch models, the CPC4401, which has a gigabit fiber uplink, and
the CPC4406, which has a gigabit wireline uplink. The Company also has orders
for the CPC3400, the unmanaged, low cost model that is expected to begin
shipping in the fourth quarter 2001. Revenue for these products is still modest
but is expected to increase when customers move into production of their new
platforms using the recently ratified PICMG 2.16 embedded architecture.
Lockheed Martin/LAN interface product (U.S. Government/COTS) shipments were zero
for the nine months ending September 30, 2001, compared to $1.0 million for the
first nine months of 2000. This sub-contract ended in June 2000.
Other products represented $.6 million of sales in the third quarter 2001,
compared to $1.1 million for the same period in 2000. This revenue is related to
legacy products. Shipments can fluctuate on a quarterly basis and revenue is
expected to continue to decline over future periods.
Gross profit. Gross profit consists of sales, less cost of goods sold including
material costs, manufacturing expenses, amortization of software development
costs, expenses associated with engineering contracts and technical support
function expenses. In the third quarter, gross margin was 65.8% and 67.8% of
sales in 2001 and 2000, respectively. For the nine months, gross margin was
62.8% and 67.2% of sales in 2001 and 2000, respectively. For the three and nine
month periods in 2001, product mix and an increase in the technical support
staff to support customers impacted gross margin as a percentage of sales.
Operating expenses. Early in the second quarter 2001, the Company tightened
control over discretionary expenses. In the third quarter, total operating
expenses were $4.0 million and $4.3 million in 2001 and 2000, respectively. For
the nine months, total operating expenses were $12.8 million and $12.8 million
in 2001 and 2000, respectively.
Selling and marketing expenses. Early in the second quarter 2001, the Company
tightened control over advertising, travel and trade show participation. The
Company did advertise its IPnexus family of switch products and the SEGway
Signaling products during the second and third quarters of 2001. In the third
quarter, selling and marketing expenses were $1.4 million and $1.5 million in
2001 and 2000, respectively. For the nine months, selling and marketing expenses
amounted to $4.3 million and $4.0 million in 2001 and 2000, respectively. This
year-over-year increase in expense is primarily attributable to expansion of the
sales force and compensation plans.
Research and development expenses were $1.9 million and $2.3 million for the
third quarter 2001 and 2000, respectively. During the third quarter of 2001, the
Company focused its engineering efforts on the development of the IPnexus
embedded switch products, the SS7/IP Signaling Blade and the SEGway Link
Concentrator. Research and development expenses were $6.2 million and $6.7
million for the first nine months of 2001 and 2000, respectively. In addition,
the Company capitalizes certain software development costs. During the third
quarter, amounts capitalized were $.4 million and $.2 million for 2001 and 2000,
respectively. During the first nine months, amounts capitalized were $1.3
million and $.6 million for 2001 and 2000, respectively.
General and administrative expenses were $.8 million and $.5 million for the
third quarter 2001 and 2000, respectively. General and administrative expenses
were $2.3 million and $2.1 million for the first nine months of 2001 and 2000,
respectively. An incentive related expense amounting to $.2 million was recorded
in the third quarter 2001 to reflect the attainment of certain corporate goals.
Other income, net. Other income consists primarily of interest income from
marketable securities and cash equivalents. The funds are primarily invested in
high quality Municipal and U.S. Treasury securities with maturities of less than
one year.
10
Income taxes. The provision for income taxes for the third quarter and first
nine months of 2001 is based on the combined federal, state and foreign
effective tax rate of 33%, compared to 38% for the third quarter and first nine
months of 2000. Based on operational decisions implemented during 2000, the
Company is utilizing Canadian tax incentives to lower its net effective tax rate
in 2001.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2001, the Company's primary source of liquidity included
cash and cash equivalents of $24.8 million and available borrowings of $5.0
million under a revolving credit facility with a bank. No amounts were
outstanding under this credit facility as of September 30, 2001.
The Company had working capital of $34.1 million at September 30, 2001, compared
to $37.0 million at December 31, 2000. During the first nine months of 2001, the
Company repurchased its shares in the open market for $6.8 million resulting in
a reduction in working capital.
Cash provided by operating activities for the first nine months of 2001 was $6.3
million, compared to $3.8 million for the same period in 2000. This increase in
cash provided by operating activities, over the respective 2000 period, is
primarily attributable to changes in the components of working capital
(inventories, receivables and payables) partially offset by lower net income for
the first nine months of 2001. (See the Consolidated Statements of Cash Flows
appearing in the Financial Statements included in this report).
In August 2000, the Board of Directors authorized the repurchase of up to 1
million shares of the Company's Common Stock and the Company completed this
repurchase program in March 2001. In March 2001, the Board of Directors
authorized the repurchase of up to an additional 500,000 shares of the Company's
Common Stock. Based on deteriorating economic conditions and an effort to
preserve cash, the Company did not repurchase any shares during the third
quarter of 2001. For the first nine months of 2001, the Company repurchased a
total of 541,000 shares at a total cost of $6.8 million, compared to a total of
211,000 shares at a total cost of $2.8 million for the same period in 2000.
Assuming there is no significant change in the Company's business, management
believes that its current cash, cash equivalents, and marketable securities
together with cash generated from operations and available borrowings under the
Company's loan agreement will be sufficient to meet the Company's anticipated
needs, including working capital and capital expenditure requirements, for at
least the next twelve months. However, an unfavorable determination in the
outstanding class action litigation could have a material adverse effect on the
Company's working capital. Furthermore, management is continuing its strategic
acquisition program to further accelerate new product and market penetration
efforts. This program could have an impact on the Company's working capital,
liquidity or capital resources.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This Quarterly Report on Form 10-Q contains forward-looking statements, which
reflect the Company's current views with respect to future events and financial
performance, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 and are subject to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are subject to certain risks and uncertainties,
including those identified below, which could cause actual results to differ
materially from historical results or those anticipated. The words "believes,"
"anticipates," "plans," "may," "intend," "estimate," "will," "should," "could,"
"feels," "is optimistic," "expects," and other expressions which indicate future
events and trends also identify forward-looking statements. However, the absence
of such words does not mean that a statement is not forward-looking.
11
The Company's future operating results are subject to various risks and
uncertainties and could differ materially from those discussed in the
forward-looking statements and may be affected by various trends and factors
which are beyond the Company's control. These include, among other factors,
general business and economic conditions, rapid or unexpected changes in
technologies, cancellation or delay of customer orders including those relating
to the "design wins" referenced above, unreliability of customer forecasts,
changes in the product or customer mix of sales, delays in new product
development, delays or lack of availability of electronic components, customer
acceptance of new products and customer delays in qualification of products.
Furthermore, an unfavorable determination in the outstanding class action
litigation could have a material adverse effect on the Company's working
capital. This report on Form 10-Q should be read in conjunction with the
Consolidated Financial Statements, the notes thereto, Management's Discussion
and Analysis of Financial Condition and Results of Operations as of December 31,
2000 and "Risk Factors" as reported in the Company's Annual Report on Form 10-K,
and other reports as filed with the Securities and Exchange Commission.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to various market risks in the normal course of business,
primarily interest rate risk and changes in the market value of its investments
and believes its exposure to such risk is minimal. The Company's investments are
made in accordance with the Company's investment policy and primarily consist of
U.S. Treasury securities, municipal securities and corporate obligations. The
Company does not participate in the investment of derivative financial
instruments.
12
PERFORMANCE TECHNOLOGIES, INCORPORATED AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On and after May 24, 2000, several class action lawsuits were filed against the
Company, as well as several of its officers and directors, alleging violations
of federal securities laws. The lawsuits were filed in United States District
Court for the Western District of New York. On May 18, 2001, the Company filed a
motion to dismiss the consolidated complaint. On June 25, 2001, the Plaintiffs
filed a memorandum of law in opposition to the Company's motion to dismiss. On
July 20, 2001, the Company filed a memorandum of law in further support of the
Company's motion to dismiss the Plaintiffs' class action complaint. The Company
believes these claims to be without merit and continues to mount a vigorous
defense against those allegations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
None.
B. Reports on Form 8-K
There were no reports filed on Form 8-K during the three month period ended
September 30, 2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PERFORMANCE TECHNOLOGIES, INCORPORATED
November 5, 2001 By: /s/ Donald L. Turrell
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Donald L. Turrell
President and
Chief Executive Officer
November 5, 2001 By: /s/ Dorrance W. Lamb
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Dorrance W. Lamb
Chief Financial Officer and
Vice President, Finance
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