Form 10-K - Securities And Exchange Commission Page 20
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46operating loss of $304,000 in 1997. These segment operating profits were offset,
in part, by unallocated corporate expenses of $714,000, an increase of $61,000,
or 9% over 1997.
4
Management's Discussion and Analysis of
Financial Condition and Results of Operations - Continued
Selling and administrative expenses increased $563,000, or 13%, due
principally to higher variable costs related to the higher sales volume, such as
commissions and travel expenses. As a percentage of sales, selling and
administrative expenses were 17% compared to 20% in 1997. This improvement was
due, in part, to the fixed administrative costs being spread over the higher
sales total, as well as a reduction in accounting and legal fees.
Research and development expenses decreased $19,000, or 11% from 1997.
The Company's research efforts, which were and continue to be a significant cost
of its business, are included in cost of sales for applied research for specific
contracts, as well as research and development for basic research for
feasibility and technology updates. Capitalized software development costs for
1998, were $395,000 compared to $494,000 in 1997. Amortization of software
costs, which were charged to cost of sales, were $670,000 and $681,000 for 1998
and 1997, respectively.
Interest expense was virtually unchanged from 1998. Other expense
increased during 1998, principally due to foreign exchange charges.
The Company's provision for taxes, rate-wise, remained unchanged from
the prior year and approximated the statutory rate.
Liquidity and Capital Resources
At February 25, 2000, the Company had a Credit Agreement with a bank
which provided a credit facility of $15 million. This agreement expires on
August 31, 2001. Substantially all of the company's short-term financing is
provided by this bank. At February 25, 2000, the Company had $ 9.3 million
available under the credit agreement.
During fiscal 2000, the company used $2,383,000 of cash for operating
activities. This was primarily the result of an increase in accounts receivable
and inventories, and a reduction in billings in excess of costs and estimated
earnings on uncompleted long-term contracts and customer deposits. Partial
offsets were net income, non- cash charges, and a decrease in costs and
estimated earnings in excess of billings on uncompleted long-term contracts. In
general, the net use of cash for operations reflected the use of cash , received
in advance in February, 1999, to build purchased contract equipment.
Investing activities used $1,569,000 and consisted of purchases for
capital equipment and capitalized software.
Financing activities generated $416,000 of cash. This included the net
effect of borrowing under the Company's credit facility to pay off $4.0 million
of the Company's subordinated debt, payment of dividends on preferred stock and
additional paid-in-capital from the issuance of common stock.
The company believes that cash generated from operating activities as
well as available borrowing under the Credit Agreement will be sufficient to
meet its future obligations.
In reference to the Company's outstanding claims with both the U.S.
government and an international customer, to the extent the Company is
unsuccessful in further recovery of contract costs, such an event could have a
material adverse effect on the Company's liquidity and results of operations.
Historically, the Company has had good experience in that recoveries have
exceeded claims (see Note 3 of Notes to Consolidated Financial Statements).
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