Business Context and Reporting Period
This Form 10-Q covers Hathaway Corporation for the quarter and nine months ended March 31, 1999. The company operates in two segments: Power and Process Business and Motion Control Business. The filing is unaudited.
Key Financial Metrics
| Metric | Q3 1999 | Q3 1998 | 9 Months 1999 | 9 Months 1998 |
|---|---|---|---|---|
| Revenues | $10,550 | $9,804 | $30,207 | $30,480 |
| Net Loss | $(379) | $(690) | $(2,032) | $(1,436) |
| Loss Per Share | $(0.09) | $(0.16) | $(0.47) | $(0.33) |
| Operating Loss | $(385) | $(630) | $(1,850) | $(1,583) |
| Cash & Equivalents (End) | $1,155 | $3,075 | $1,155 | $3,075 |
| Line of Credit Outstanding | $1,234 | $1,245 | $1,234 | $1,245 |
Note: All figures in thousands except per share data.
- Liquidity: Cash and cash equivalents decreased by $2,288,000 during the nine-month period. The company has a line of credit with a maximum limit of $2,853,000, with $1,619,000 available as of March 31, 1999.
- Margins: Cost of products sold as a percentage of revenue increased slightly to 65% in Q3 1999 from 64% in Q3 1998.
Material Changes vs. Prior Period
- Revenue Growth: Q3 1999 revenue increased 7.8% year-over-year, driven by a 14% increase in Power and Process revenues. However, Motion Control revenues declined 4% due to the Asian economic crisis and a semiconductor industry slowdown.
- Profitability: Net loss improved significantly in Q3 1999 ($379k) compared to Q3 1998 ($690k). Conversely, the nine-month net loss widened to $2,032k from $1,436k in the prior year.
- Cash Flow: Operating cash flow turned negative, using $1,487,000 in the first nine months of 1999, compared to generating $720,000 in the same period of 1998. This was driven by increases in receivables and inventory.
- Acquisition: The company acquired Ashurst Logistic Electronics Limited (renamed Emoteq UK Limited) in July 1998 for $317,000, which contributed to the Power and Process segment.
Outlook, Risks, and Management Commentary
- Spinoff Proposal: The company received a favorable IRS ruling in December 1998 regarding a potential tax-free spinoff of its Power, Systems and Process Business. The primary goal is to secure additional bank financing. A final decision awaits lender approval.
- Year 2000 Compliance: Management is executing a Y2K readiness program. Testing of current products is expected to be complete by December 31, 1999, and internal systems by June 30, 1999. Costs are not expected to be material.
- Market Conditions: International sales decreased, representing 28% of total sales in Q3 1999 (down from 38% in Q3 1998). Management notes a recovery in the Motion Control Business with improved results each quarter of fiscal 1999.
- Liquidity Risk: The company relies on its line of credit with Silicon Valley Bank. Failure to maintain tangible net worth covenants could trigger an "Event of Default."
Investor Verification Checklist
- Verify the status of the proposed spinoff and whether lender approval has been secured.
- Monitor the company's compliance with tangible net worth covenants under the Silicon Valley Bank line of credit.
- Assess the impact of the Asian economic crisis and semiconductor slowdown on the Motion Control segment's recovery.
- Review the timeline and costs associated with Year 2000 compliance for both products and internal systems.
- Track the trend in operating cash flow, specifically the increase in receivables and inventory levels.