May 12, 2003
RESULTS OF OPERATIONS
For the Three-Month periods ended March 31, 2003
and 2002
The following table sets forth for the periods indicated
the percentage of net revenues represented by each item in the
Company's Consolidated Statements of Income (unaudited).
Three Months Ended March 31,
2003 2002
Net Revenues: 100.0% 100.0%
Cost of Goods Sold 61.7 55.5
Gross Profit 38.3 44.5
Selling, General and Administrative Expenses 25.2 29.5
Research and Development Costs 9.7 16.5
Amortization -- 4.9
Income (loss) from Operations 3.4 (6.4)
Net interest and other (loss) 0.4 --
Net after tax (loss) from discontinued operations -- (9.6)
Provision (credit) for Income Taxes 1.2 (2.6)
Net Income (Loss) 1.8% (13.4%)
Net Income (Loss). The Company's net income for
the three months ended March 31, 2003 was $56,000 or $0.01 per
share on a basic and $0.01 per share on a diluted basis, as compared
to a net (loss) of ($337,000) or ($0.04) per share on a basic
and ($0.04) per share on a diluted basis, for the three months
ended March 31, 2002.
Net Sales. Consolidated sales increased 23% for
the three months ended March 31, 2003, compared to the three months
ended March 31, 2002, due to increased sales at both Micro Motors
and OMS. At Micro Motors, sales increased 19%, due to significantly
increased volume of medical and dental product shipments, offsetting
sales declines to industrial customers. Revenue at Oregon Micro
Systems increased 37% for the quarter ended March 31, 2003 compared
to the previous year's same quarter. The revenue increase at OMS
was caused by the stabilization in orders from customers in the
semiconductor fabrication equipment industry, as they are beginning
to replenish inventories with new products. Sales to customers
outside the semiconductor industry were flat for the quarter.
Net sales by subsidiary and type of customer were
as follows (unaudited):
Three Months Ended March 31, Increase/
2003 2002 (Decrease
Dental $ 1,552,000 $ 1,329,000 17%
Medical 530,000 248,000 114%
Industrial 185,000 293,000 (36%)
Repair & Other 133,000 113,000 17%
Micro Motors $ 2,400,000 2,013,000 19%
Oregon Micro Systems 679,000 496,000 37%
Total $ 3,079,000 $ 2,509,000 23%
Gross Profit. The Company's consolidated gross profit
for the quarter ended March 31, 2003 increased $64,000 or 6% over
the same quarter in the previous year due to increased sales at
both operating divisions and expanded margins at OMS. Gross profit
as a percentage of sales decreased to 38% for the quarter ended
March 31, 2003 compared to 44% for the quarter ended March 31,
2002 as the initial costs associated with first run production
for new products offset the gains made by the ongoing cost reduction
efforts and a richer product mix favoring medical shipments at
Micro Motors.
Gross profits by subsidiary were as follows (unaudited):
Three Months Ended March 31, Increase/
2003 2002 (Decrease
Micro Motors 703,000 792,000 (89,000)
Oregon Micro Systems 477,000 324,000 153,000
Total $ 1,180,000 $ 1,116,000 $ 64,000
Selling, General and Administrative Costs (S, G&A).
S, G & A expenses decreased to $776,000 for the quarter ended
March 31, 2003 from $864,000 for the quarter ended March 31, 2002,
a decrease of 10%. The decrease is mainly due to reduced amortization
costs offset by increased selling costs at Micro Motors.
S, G & A expenses by subsidiary were as follows
(unaudited):
Three Months Ended March 31, Increase/
2003 2002 (Decrease)
Micro Motors 453,000 345,000 108,000
Oregon Micro Systems 171,000 423,000 (252,000)
Corporate 152,000 96,000 56,000
Total $ 776,000 $ 864,000 $ (88,000)
Research and Development Costs. Company funded research
and development expenses decreased to $298,000 for the quarter
ended March 31, 2003 from $413,000 for the quarter ended March
31, 2002, a decrease of 28%. The decrease is due to cost cutting
at OMS and customer funded research efforts at Micro Motors replacing
independent new product development.
Company funded research and development costs by
subsidiary were as follows (unaudited):
Three Months Ended March 31, Increase/
2003 2002 (Decrease)
Micro Motors 177,000 219,000 (42,000)
Oregon Micro Systems 121,000 194,000 (73,000)
Total $ 298,000 $ 413,000 $ (115,000)
Net Interest Expense. Net interest expense was $21,000
in the quarter ended March 31, 2003 compared to $24,000 for the
period ended March 31, 2002. This was due to lower interest costs
associated with the long term debt.
Provision for Taxes. The Company's effective tax
rate on income (loss) from operations was 40% for the quarters
ended March 31, 2003, and 2002.
For the Nine Month period ended March 31, 2003 and
2002
The following table sets forth for the periods indicated
the percentage of net revenues represented by each item in the
Company's Consolidated Statements of Income (unaudited).
Nine Months Ended March 31,
2003 2002
Net Revenues: 100.0% 100.0%
Cost of Goods Sold 58.7 55.4
Gross Profit 41.3 44.6
Selling, General and Administrative Expenses 27.5 33.9
Research and Development Costs 12.3 14.3
Amortization 0.4 4.7
Income (loss) from Operations 1.1 (8.3)
Net interest and other (loss) (0.7) 0.2
Net after tax (loss) from discontinued operations -- (6.0)
Provision (credit) for Income Taxes 0.2 (3.2)
Net (Loss) 0.2% (10.9%)
Net Income (loss). The Company's net income for
the nine months ended March 31, 2003 was $21,000 or $0.00 per
share on a basic and $0.00 per share on a diluted basis, as compared
to a net (loss) of ($854,000) or ($0.10) per share, for the nine
months ended March 31, 2002.
Net Sales. Consolidated sales increased 11% for
the nine months ended March 31, 2003, compared to the nine months
ended March 31, 2002, due to increased sales at both Micro Motors
and OMS. At Micro Motors, sales increased 10% due to increased
volume of medical product shipments which rose 128% compared to
the previous year's nine months. The increase more than offsets
the decline of sales to in the other product lines. Revenue at
Oregon Micro Systems increased 15% for the nine months ended March
31, 2003 compared to the same period of the previous year. The
revenue increase at OMS was caused by the stabilization in orders
from customers in the semiconductor fabrication equipment industry,
as they are beginning to replenish inventories with new products.
Sales to customers outside the semiconductor industry were flat.
Net sales by subsidiary and type of customer were
as follows (unaudited):
Nine Months Ended March 31, Increase/
2003 2002 (Decrease)
Dental $ 3,754,000 $ 4,075,000 (8%)
Medical 2,002,000 875,000 128%
Industrial 585,000 772,000 (24%)
Repair & Other 365,000 401,000 (9%)
Micro Motors $ 6,706,000 6,123,000 10%
Oregon Micro Systems 1,972,000 1,718,000 15%
Total $ 8,678,000 $ 7,841,000 11%
Gross Profits. The Company's consolidated gross
profit for the nine months ended March 31, 2003 increased $96,000
or 3% over the same nine months in the previous year due to increased
sales at both operating divisions and higher margins at OMS. Gross
profit as a percentage of sales decreased to 41% for the nine
months ended March 31, 2003 compared to 44% for the nine months
ended March 31, 2002 as initial costs associated with first run
production for new products offset the gains made by the ongoing
cost reduction efforts and a richer product mix favoring medical
shipments at Micro Motors.
Gross profits by subsidiary were as follows (unaudited):
Nine Months Ended March 31, Increase/
2003 2002 (Decrease)
Micro Motors 2,174,000 2,432,000 (258,000)
Oregon Micro Systems 1,414,000 1,060,000 354,000
Total $ 3,588,000 $ 3,492,000 $ 96,000
Selling, General and Administrative Costs (S, G&A).
S, G & A expenses decreased 20% to $2,421,000 for the nine
months ended March 31, 2003 from $3,023,000 for the nine months
ended March 31, 2002. The decrease is mainly due to reduced amortization
and costs cost saving measures implemented at the corporate and
divisional level offset by increased selling expense at Micro
Motors.
S, G & A expenses by subsidiary were as follows
(unaudited):
Nine Months Ended March 31, Increase/
2003 2002 (Decrease)
Micro Motors 1,223,000 1,121,000 102,000
Oregon Micro Systems 519,000 796,000 (277,000)
Corporate 679,000 1,106,000 (427,000)
Total $ 2,421,000 $ 3,023,000 $ (602,000)
Research and Development Costs. Research and development
expenses decreased to $1,071,000 for the nine months ended March
31, 2003 from $1,120,000 for the nine months ended March 31, 2002,
a decrease of 4%. The decrease is due to cost cutting at OMS.
Company funded research and development costs by
subsidiary were as follows (unaudited):
Nine Months Ended March 31, Increase/
2003 2002 (Decrease)
Micro Motors 565,000 546,000 19,000
Oregon Micro Systems 506,000 574,000 (68,000)
Total $ 1,071,000 $ 1,120,000 $ (49,000)
Net Interest Expense. Net interest expense was $65,000
in the nine months March 31, 2003 compared to $60,000 for the
period ended March 31, 2002. This was due to higher minimum interest
charges for the credit line partially offset by lower interest
costs associated with the long term debt.
Provision for Taxes. The Company's effective tax
rate on (loss) from operations is 40% for the nine months ended
March 31, 2003, and 2002.
Liquidity and Capital Resources
The following table presents selected financial
statistics and information for the periods indicated (unaudited):
As of or for the Nine
Months Ended March 31,
2003 2002
Cash and cash equivalents $324,000 $493,000
Net cash (used in) operations ($300,000) ($828,000)
Working Capital $4,000,000 $3,963,000
Credit Line outstanding balance $627,000 $0
Tangible book value/common share
$0.70 $0.74
Number of days of sales outstanding
in accounts receivable at end of
quarter 63 51
The Company's working capital at March 31, 2003
remained stable at approximately $4.0 million compared to approximately
$4.0 million at March 31, 2002. Cash Flow (used in) Operations
was ($300,000) in the nine months ended March 31, 2003 compared
to ($828,000) for the nine months ended March 31, 2002. Cash was
provided through a significant reduction in the Company's loss
and such cash offset the cash uses resulting from changes in the
Company's working capital components, especially an increase in
receivables during such period. As a result, cash flow from the
operating activities improved during the period. Management believes
that the Company's working capital needs over the next twelve
months can be adequately supported by current operations.
The Company has increased its backlog to $5.3 million
at March 31, 2003 compared to $2.2 million at March 31, 2002.
This increase is attributed to booking significant orders in the
current quarter that were related to production contracts from
the previous year's development efforts. The backlog is expected
to be fully shipped over the next 12 months.
The subsidiaries of the Company entered into a credit
facility with Wells Fargo Business Credit Inc. (WFBCI) in May
2002 for borrowings up to the lesser of $3,000,000 or 80% of the
eligible accounts receivable at Micro Motors Inc. (Micro Motors)
plus 85% of the eligible accounts receivable at Oregon Micro Systems
(OMS) The terms of the credit facility expire May 2005 and require
monthly interest payments at the prime rate (4.25% at March 31,
2003) plus 1.00% to 1.75% based on outstanding borrowings, with
a minimum interest charge of $12,500 per quarter. The outstanding
borrowings are secured by all assets of the Company's two subsidiaries,
Micro Motors and OMS, and are guaranteed by the Company. The outstanding
balance under terms of this credit facility as of March 31, 2003
was $627,000. The total additional eligible borrowing capacity
based on the receivables balances at March 31, 2003 was $1,195,000.
There are certain financial and non-financial covenants that the
Company must meet to be in compliance with the terms of the credit
facility. As of March 31, 2003, Micro Motors and OMS were in compliance
with all such covenants.
In September 2002, the Company's Board of Directors
authorized the repurchase on the open market of up to 500,000
shares of the Company's outstanding Common Stock, subject to compliance
with applicable laws and regulations. There is no requirement
that the Company repurchase all or any portion of such shares.
The maximum total value of the repurchase is not to exceed $500,000.
This repurchase is to be financed both with cash generated by
operations and through the utilization of the Company's credit
facility. From the inception of the repurchase authorization through
the quarter end date of March 31, 2003, the Company repurchased
63,600 shares of Common Stock for $32,509, at an average price
of $0.51.
The Company believes that its cash and cash equivalents
on hand at March 31, 2003, together with cash flows from operations,
if any, will be sufficient to meet its working capital and capital
expenditure requirements for the balance of fiscal 2003.
