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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-4184
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MATEC Corporation
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(Exact name of registrant as specified in its charter)
Maryland 06-0737363
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
75 South St., Hopkinton, Massachusetts 01748
- -------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (508) 435-9039
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Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of each exchange on which registered:
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Common Stock $.05 par value American Stock Exchange
Securities registered pursuant to Section 12 (g) of the Act: None
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
------ -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Sec.229.405 of this chapter) 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. [ ]
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Aggregate market value of voting stock held by non-affiliates: $5,707,440
(computed by reference to the last sales price of such common stock on
March 24, 1999 as reported in the American Stock Exchange consolidated
trading index).
Number of shares of common stock outstanding at March 24, 1999: 2,710,648
Documents incorporated by reference:
Annual Report to Stockholders for the year ended December 31, 1998:
Parts I, II and IV
Proxy Statement for the 1999 annual meeting of stockholders: Part III
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PART I
Item 1. Business
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General
- -------
MATEC Corporation ("MATEC" or "Registrant") was incorporated under
the laws of Delaware. On July 2, 1998, after shareholder approval, the
Registrant changed its state of incorporation to Maryland by means of a
merger of the Registrant into a wholly owned Maryland subsidiary. As
used herein the term "Company" refers to MATEC and its subsidiaries.
In February 1998, the Company sold its real estate complex located
in Delaware. None of the Company's operations were located at this
facility. For further information, see Note 15 of the Notes to
Financial Statements in the 1998 Annual Report, which Note is
incorporated by reference.
In April 1998, the Company sold all the assets of its Bergen Cable
Technologies, Inc. ("BCT") subsidiary. The Company had adopted a plan
in the third quarter of 1997 to dispose of BCT and, accordingly, the
operating results of BCT for 1997 and 1996 had previously been reported
as discontinued operations. In August 1998, the Company sold certain
assets of its Matec Instruments, Inc. ("MII") and Matec Applied
Sciences, Inc. ("MASI") subsidiaries. The operating results of MII and
MASI have been reported as discontinued operations, and previously
reported financial statements have been restated to reflect this
disposition. For further information, see Note 3 of the Notes to
Consolidated Financial Statements in the 1998 Annual Report to
Stockholders, which Note is incorporated by reference.
As a result of the disposals of BCT, MII, and MASI, the Company's
current remaining business is conducted through its Valpey-Fisher
Corporation ("Valpey") subsidiary, which was previously reported in the
Electronics business segment. In addition, the Company has a real
estate complex located in Northborough, Massachusetts which is operated
by its wholly owned subsidiary, MEKontrol, Inc.
Financial Information about Industry Segments
- ---------------------------------------------
The Company operates in one business segment. Information about
export sales is set forth in Note 14 of the Notes to Consolidated
Financial Statements in the 1998 Annual Report to Stockholders, which
Note is incorporated by reference.
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Narrative Description of Business
- ---------------------------------
Valpey is involved in the design, production, import, and sale of
quartz crystals and oscillators that provide precision timing and
frequency control in various products. In addition, Valpey offers a wide
range of piezoelectric and high-precision optical components and designs
and manufactures ultrasonic transducers.
The quartz crystals and oscillators are used as integral components in
electronic circuitry to assure precise timing and frequency reference.
Except for more costly atomic standards, quartz crystals and oscillators
continue to be one of the most stable references for accurately
controlling electronic frequencies and time.
Valpey provides a wide-frequency range of crystals and oscillators
including standard and custom-designed product. Capabilities include:
- high-reliability, precision crystals and oscillators used
in sophisticated industrial, military and aerospace
applications.
- ultra-high frequency crystals used in crystal filters and
oscillators for OEM telecommunications and microwave
applications.
- high-volume, low-cost crystals and oscillators for consumer
and commercial applications.
Markets for Valpey's products include computers and computer
peripheral equipment, networking, PCS (personal communications services),
satcom, telecommunications, telemetry, and wireless. A significant
portion of the high-volume, low-cost product sales is derived from
products imported from the Far East.
Valpey has continued to invest in equipment and people to meet
customer needs and to increase its manufacturing capabilities. Valpey
received its ISO-9001 registration for the design and manufacture of
crystals and crystal oscillators in 1997.
The piezoelectric crystals and components are used for ultrasonic
transducers in non-destructive testing ("NDT") and medical applications,
accelerometers, and sensors that measure flow, proximity, acceleration,
distance and force. The high-precision optical components include
windows, mirrors, lenses and prisms made from sapphire, quartz, and a wide
range of other materials. These components are utilized in a variety of
sensors, imaging, and other types of photonic-based instrumentation.
Valpey designs and manufactures ultrasonic transducers for NDT scientific,
industrial, and medical markets.
The quartz crystals and oscillators are sold by Valpey's direct sales
personnel, independent manufacturers' representatives and distributors.
Valpey's other products and services are sold primarily by its direct
sales personnel.
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Raw Materials
-------------
Quartz crystal bases, which is available from a number of domestic and
foreign suppliers, is the principal raw material.
Valpey imports sub-assemblies and completed products from various Far
East (including China, Japan, South Korea, Philippines, and Taiwan)
suppliers for use in its domestically manufactured product and for resale
to its customers. During 1998, Valpey experienced some quality and/or
delivery problems with some of its suppliers of sub-assemblies. Valpey
has added new suppliers and is working with all its suppliers to in order
to improve the overall efficiencies of these suppliers.
In order to eliminate the effects of currency fluctuations, Valpey
purchases the product in U.S. dollars. However, Valpey is subject to the
inherent risks involved in international trade such as political
instability and restrictive trade policies.
Customers
---------
No customer accounted for more than 10% of Valpey's net sales in 1998
and 1996. During 1997, one customer accounted for 12% of net sales.
Approximately 26% of Valpey's sales in 1998 were made to its five largest
customers, compared to 32% in 1997 and 30% in 1996.
Backlog
-------
Valpey's backlog of firm orders was $2,294,000 at December 31, 1998
and $3,935,000 at December 31, 1997. Valpey expects to ship all of the
December 31, 1998 backlog during 1999.
Competition
-----------
There are many domestic and foreign suppliers of quartz crystals and
oscillators. A number of the competitors are larger and have greater
resources than the Company. In addition, foreign competitors,
particularly from the Far East, continue to dominate the U.S. markets.
However, Valpey believes it can maintain a competitive position in its
business based on its quality, strong design and application engineering,
responsive customer service and a willingness to provide specialty small
quantity orders.
Environmental Regulations
-------------------------
To the knowledge of the Company compliance with Federal, state and
local provisions which have been enacted or adopted regulating the
discharge of materials into the environment or otherwise relating to the
protection of the environment, has not had, nor will have a material
effect upon capital expenditures, earnings from continuing operations or
competitive position.
As a result of the sale of its Bergen Cable subsidiary, the Company is
performing environmental clean up at that site. See Note 9 of the Notes
to Consolidated Financial Statements in the 1998 Annual Report to
Stockholders, which Note is incorporated by reference.
-5-
Employees
---------
At December 31, 1998, the Company employed 76 full-time and 4
part-time employees. No employees of the Company are represented by a
collective bargaining unit. The Company considers its relations with its
employees to be satisfactory.
Foreign and Domestic Operations and Export Sales
- ------------------------------------------------
The Company's has no foreign operations. Financial information about
export sales is set forth in Note 14 of the Notes to Consolidated
Financial Statements in the 1998 Annual Report to Stockholders, which Note
is incorporated by reference.
Forward-Looking Statements
- --------------------------
Items 1 and 7 of this Form 10-K contain forward-looking statements
that involve risks and uncertainties that could cause actual results to
differ materially from those in the forward-looking statements. Words
such as "expects", "believes", "estimates", "plans" or similar expressions
are intended to identify such forward-looking statements. The
forward-looking statements are based on the Company's current views and
assumptions and involve risks and uncertainties that include, but not
limited to: the ability to develop, market and manufacture new innovative
products competitively, the ability of the Company's suppliers to produce
and deliver materials competitively, and the ability to limit the amount
of the negative effect on operating results caused by pricing pressures.
Item 2. Properties
- ------- ----------
Valpey owns its 32,000 square foot facility located in Hopkinton,
Massachusetts. This facility contains office and manufacturing space and
serves as the Company's corporate headquarters.
The Company believes its facility is suitable for its current use and
is in good repair. The Company believes that its facility is adequate to
satisfy its production capacity needs for the immediate future.
In addition, the Company's real estate operation owns a 35,000 square
foot facility located in Northborough, Massachusetts. This facility is
currently fully occupied and the Company considers this property to be in
good repair.
Item 3. Legal Proceedings
- ------- -----------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters were submitted to a vote of the Registrant's security
holders during the last quarter of the fiscal year covered by this report.
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Executive Officers of the Registrant
- ------------------------------------
The names, ages and offices of the executive officers of the
Registrant are as follows:
Name Age Office
---- --- ------
Ted Valpey, Jr. 66 President and Chief Executive Officer
Michael J. Kroll 50 Vice President and Treasurer
The term of office for each officer of the Registrant is until the
first meeting of the Board of Directors following the Annual Meeting of
Stockholders and until a successor is chosen and qualified.
Mr. Valpey has been President and Chief Executive Officer of the
Registrant since April 28, 1997. He has been Chairman of the Corporation
since 1982.
Mr. Kroll has been Vice President and Treasurer of the Registrant
since 1982.
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PART II
Item 5. Market for the Registrant's Common Equity and Related
- ------- ----------------------------------------------------
Stockholder Matters
-------------------
The information set forth on the inside front cover of the 1998
Annual Report to Stockholders under the caption "Common Stock
Information" is incorporated by reference.
Item 6. Selected Financial Data
- ------- -----------------------
The information set forth on page 3 of the 1998 Annual Report to
Stockholders under the caption "Five Year Financial Summary" is
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial
- ------- -------------------------------------------------
Condition and Results of Operations
-----------------------------------
The information set forth on pages 3 through 5 of the 1998 Annual
Report to Stockholders under the caption "Management's Discussion and
Analysis" is incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
- -------- ----------------------------------------------------------
The information set forth on page 5 of the 1998 Annual Report to
Stockholders under the section "Quantitative and Qualitative
Disclosures about Market Risk" included under the caption "Management's
Discussion and Analysis" is incorporated by reference.
Item 8. Financial Statements and Supplementary Data
- ------- -------------------------------------------
The information contained in the Consolidated Financial Statements,
Notes to Consolidated Financial Statements and the Independent
Auditors' Report appearing on pages 6 through the inside back cover of
the 1998 Annual Report to Stockholders is incorporated by reference.
Item 9. Changes In and Disagreements with Accountants on Accounting
- ------- -----------------------------------------------------------
and Financial Disclosure
------------------------
Not applicable.
-8-
PART III
The information called for by Part III is hereby incorporated by
reference from the information set forth and under the headings "Common
Stock Ownership of Certain Beneficial Owners and Management", "Election
of Directors", and "Executive Compensation" in Registrant's definitive
proxy statement for the 1999 Annual Meeting of Stockholders, which
meeting involves the election of directors, such definitive proxy
statement to be filed with the Securities and Exchange Commission
pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this Annual Report on Form 10-K. In addition,
information on Registrant's executive officers has been included in
Part I above under the caption "Executive Officers of the Registrant".
-9-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
- -------- -------------------------------------------------------
Form 8-K
--------
(a) 1. The following Consolidated Financial Statements are
incorporated by reference from the indicated pages of the
1998 Annual Report to Stockholders:
Page Number(s) in
Annual Report
Consolidated Balance Sheets,
December 31, 1998 and 1997 .................... 6
Consolidated Statements of Operations
for the Years Ended December 31, 1998,
1997 and 1996 ................................. 7
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1998,
1997 and 1996 ................................. 8
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1998,
1997 and 1996 ................................. 9
Consolidated Statements of Comprehensive Income
(Loss) for the Years Ended December 31, 1998,
1997 and 1996 ................................. 9
Notes to Consolidated Financial Statements ..... 10-16
Independent Auditors' Report ................... Inside back
cover
(a) 2. The following schedule to the Consolidated Financial
Statements and the Independent Auditors' Report on Schedule
are filed as part of this report.
Page Number
-----------
Independent Auditors' Report ...................... 13
Schedule II - Valuation Reserves .................. 14
All other schedules are omitted because they are not applicable,
not required or because the required information is included in
the Consolidated Financial Statements or notes thereto.
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(a) 3. The exhibits filed in this report or incorporated by
reference, listed on the Exhibit Index on page 15, are as
follows:
Exhibit No. Description
----------- ---------------------------------------------
2. Agreement of Merger and Recapitalization
3. (a) Articles of Incorporation
3. (c) By-Laws
4. (a) Secured Note and Warrant Purchase Agreement
4. (b) Common Stock Purchase Warrant
10. (a) * 1992 Stock Option Plan
10. (b) * Separation Agreement and General Release
10. (c) * Option Cancellation Agreement
11. Calculation of Earnings Per Share
13. 1998 Annual Report to Stockholders
21. Subsidiaries of the Registrant
23. Independent Auditors' Consent
27. Financial Data Schedule
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit pursuant to Item 14(c) of this
report.
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the
last quarter of its year ended December 31, 1998.
-11-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MATEC Corporation
Date: March 26, 1999 By:/s/ Ted Valpey, Jr.
-------------------
Ted Valpey, Jr.
President and Chief
Executive Officer
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.
Signature Title Date
--------- ----- ----
/s/ Ted Valpey, Jr. President, Chief Executive March 26, 1999
- ------------------------ Officer, Chairman of the Board
Ted Valpey, Jr. and Director
/s/ Michael J. Kroll Vice President and Treasurer
- ------------------------ (Principal Financial Officer March 26, 1999
Michael J. Kroll and Principal Accounting
Officer)
/s/ Eli Fleisher Director March 26, 1999
- ------------------------
Eli Fleisher
/s/ Lawrence Holsborg Director March 26, 1999
- ------------------------
Lawrence Holsborg
/s/ John J. McArdle III Director March 26, 1999
- ------------------------
John J. McArdle III
/s/ Robert W. Muir, Jr. Director March 26, 1999
- ------------------------
Robert W. Muir, Jr.
/s/ Joseph W. Tiberio Director March 26, 1999
- ------------------------
Joseph W. Tiberio
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
MATEC Corporation
Hopkinton, Massachusetts
We have audited the consolidated financial statements of MATEC Corporation
and subsidiaries as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our
report thereon dated February 26, 1999; such consolidated financial
statements and report are included in the MATEC 1998 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of MATEC Corporation and
subsidiaries, listed in Item 14 (a) 2. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
Deloitte & Touche LLP
Boston, Massachusetts
February 26, 1999
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MATEC Corporation and Subsidiaries
----------------------------------
Schedule II - Valuation and Qualifying Accounts
-----------------------------------------------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions of Period
----------- ---------- ---------- ---------- ----------
Allowance for
Doubtful Accounts:
Year Ended
December 31, 1998 $ 45,000 $ 18,002 $ (11,998)(A) $ 75,000
========= ========= ========= =========
December 31, 1997 $ 35,000 $ (6,915) $ (16,915)(A) $ 45,000
========= ========= ========= =========
December 31, 1996 $ 29,000 $ 8,906 $ (14,610)(A) $ 35,000
========= ========= ========= =========
Inventory Reserve:
Year Ended:
December 31, 1998 $ 857,000 $ 419,730 $ 64,730(B) $1,212,000
========== ========= ========= ==========
December 31, 1997 $ 780,000 $ 123,667 $ 46,667(B) $ 857,000
========== ========= ========= ==========
December 31, 1996 $ 413,000 $ 463,513 $ 97,013(B) $ 780,000
========== ========= ========= ==========
(A) Write-off of uncollectible accounts, net of recoveries.
(B) Write-off of inventory.
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EXHIBIT INDEX
-------------
Exhibit No. (inapplicable items are omitted)
- -----------
2. Agreement of Merger and Recapitalization between MATEC
Corporation a Delaware corporation and MATEC Corporation a
Maryland corporation (incorporated by reference to Exhibit
A to the Proxy Statement of Registrant for its Special in
Lieu of Annual Meeting of Stockholders held on June 18,
1998).
3. (a) Articles of Incorporation (incorporated by reference to
Exhibit B to the Proxy Statement of Registrant for its
Special In Lieu of Annual Meeting of Stockholders held on
June 18, 1998).
3. (c) By-Laws (incorporated by reference to Exhibit 3.(b) to
Registrant's Form 10-Q for the quarterly period ended
July 5, 1998).
4. (a) Secured Note and Warrant Purchase Agreement dated as of
April 12, 1995 between the Registrant and Massachusetts
Capital Resource Company. Filed herewith.
4. (b) Common Stock Purchase Warrant dated April 12, 1995 between
the Registrant and Massachusetts Capital Resource Company
(incorporated by reference to Exhibit 4.(a) on Registrant's
Form 10-Q for the quarterly period ended July 2, 1995).
10. (a) 1992 Stock Option Plan (incorporated by reference to
Exhibit 10.(a) on Registrant's Form 10-K for the year ended
December 31, 1997).
10. (b) Separation Agreement and General Release dated August 26,
1997 between the Registrant and Robert B. Gill
(incorporated by reference to Exhibit 10.(b) on
Registrant's Form 10-K for the year ended December 31,
1997).
10. (c) Option Cancellation Agreement dated October 20, 1997
between the Registrant and Robert B. Gill (incorporated by
reference to Exhibit 10.(c) on Registrant's Form 10-K for
the year ended December 31, 1997).
11. Calculation of Earnings Per Share. Filed herewith.
13. 1998 Annual Report to Stockholders. Filed herewith.
21. Subsidiaries of the Registrant. Filed herewith.
23. Independent Auditors' Consent. Filed herewith.
27. Financial Data Schedule. Filed for electronic purposes
only.
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