UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2005 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 1-9125 AMERICAN TECHNICAL CERAMICS CORP. (Exact Name of Company as Specified in Its Charter) DELAWARE 11-2113382 ---------------------------------------- ----------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 1 NORDEN LANE, HUNTINGTON STATION, NY 11746 -------------------------------------- ------- (Address of Principal Executive Offices) (Zip Code) (631) 622-4700 (Telephone Number, Including Area Code) Indicate by check mark whether the Company (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 Company 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 whether the Company is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No ( X ) As of May 2, 2005, the Company had outstanding 8,475,473 shares of Common Stock, par value $0.01 per share. PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share data) MARCH 31, 2005 JUNE 30, 2004 ------------------ ------------------ ASSETS (unaudited) Current assets Cash (including cash equivalents of $17 and $502, respectively) $ 6,027 $ 4,534 Investments 1,998 2,508 Accounts receivable, net 10,238 10,563 Inventories 26,257 22,268 Deferred income taxes, net 2,868 2,777 Other current assets 1,036 865 ------------------ ------------------ TOTAL CURRENT ASSETS 48,424 43,515 ------------------ ------------------ Property, plant and equipment, net of accumulated depreciation and amortization of $45,966 and $42,092, respectively 29,168 26,141 Other assets 198 197 ------------------ ------------------ TOTAL ASSETS $ 77,790 $ 69,853 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt (including related party debt of $426 and $394, respectively) $ 2,911 $ 394 Accounts payable 2,198 2,065 Accrued expenses 4,580 5,107 Income taxes payable 1,772 1,049 ------------------ ------------------ TOTAL CURRENT LIABILITIES 11,461 8,615 Long-term debt, net of current portion (including related party debt of $2,573 and $2,896, respectively) 4,689 2,896 Deferred income taxes 2,964 3,515 ------------------ ------------------ TOTAL LIABILITIES 19,114 15,026 ------------------ ------------------ Commitments and contingencies Stockholders' equity Common Stock -- $0.01 par value; authorized 20,000 shares; issued 8,888 and 8,644 shares, outstanding 8,474 and 8,230 shares, respectively 89 86 Capital in excess of par value 13,144 12,051 Retained earnings 46,592 43,846 Accumulated other comprehensive income: Unrealized loss on investments available-for-sale, net --- (5) Cumulative foreign currency translation adjustment 384 282 ------------------ ------------------ 384 277 ------------------ ------------------ Less: Treasury stock, at cost (414 and 414 shares, respectively) 1,396 1,396 Deferred compensation 137 37 ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 58,676 54,827 ------------------ ------------------ $ 77,790 $ 69,853 ================== ================== See accompanying notes to unaudited consolidated financial statements. 2 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) For the Three Months For the Nine Months Ended March 31, Ended March 31, 2005 2004 2005 2004 ---- ---- ---- ---- Net sales $ 18,991 $ 16,109 $ 52,148 $ 42,174 Cost of sales 12,324 10,796 34,519 30,342 -------------- ----------------- ----------------- --------------- Gross profit 6,667 5,313 17,629 11,832 -------------- ----------------- ----------------- --------------- Selling, general and administrative expenses 4,044 3,935 11,840 10,589 Research and development expenses 536 796 1,575 2,248 Other 4 89 25 22 -------------- ----------------- ----------------- --------------- Operating expenses 4,584 4,820 13,440 12,859 -------------- ----------------- ----------------- --------------- -------------- ----------------- ----------------- --------------- Income/(loss) from operations 2,083 493 4,189 (1,027) -------------- ----------------- ----------------- --------------- Other (income) expense: Interest expense 118 90 309 277 Interest income (13) (12) (43) (57) Other (1) --- 7 2 -------------- ----------------- ----------------- --------------- 104 78 273 222 -------------- ----------------- ----------------- --------------- Income/(loss) before provision for income taxes 1,979 415 3,916 (1,249) Provision for/(benefit from) income taxes 599 100 1,170 (335) -------------- ----------------- ----------------- --------------- Net income/(loss) $ 1,380 $ 315 $ 2,746 $ (914) ============== ================= ================= =============== Basic net income/(loss) per common share $ 0.16 $ 0.04 $ 0.33 $ (0.11) ============== ================= ================= =============== Diluted net income/(loss) per common share $ 0.16 $ 0.04 $ 0.32 $ (0.11) ============== ================= ================= =============== Basic weighted average common shares outstanding 8,470 8,136 8,374 8,116 ============== ================= ================= =============== Diluted weighted average common shares outstanding 8,775 8,673 8,717 8,116 ============== ================= ================= =============== See accompanying notes to unaudited consolidated financial statements. 3 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For the Nine Months Ended March 31, 2005 2004 --------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income/(loss) $ 2,746 $ (914) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 4,141 3,846 Loss/(gain) on disposal of fixed assets (18) 353 Deferred income taxes (643) (194) Stock-based compensation expense 56 109 Investment interest accretion, net (10) --- Realized loss on investments 8 2 Changes in operating assets and liabilities: Accounts receivable 477 (2,555) Inventories (3,889) (3,482) Other assets (149) (116) Accounts payable and accrued expenses (420) 2,028 Income taxes payable 906 (489) --------------------- -------------------- Net cash provided by/(used in) operating activities 3,205 (1,412) --------------------- -------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (7,195) (3,199) Purchase of investments (2,490) (2,982) Proceeds from sale of investments 3,010 3,000 Proceeds from sale of fixed assets 50 22 --------------------- -------------------- Net cash used in investing activities (6,625) (3,159) --------------------- -------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt (441) (263) Proceeds from the exercise of stock options 756 136 Proceeds from the issuance of long term debt 4,751 --- --------------------- -------------------- Net cash provided by/(used in)financing activities 5,066 (127) --------------------- -------------------- --------------------- -------------------- Effect of exchange rate changes on cash (153) 86 --------------------- -------------------- Net increase/(decrease) in cash and cash equivalents 1,493 (4,612) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,534 8,685 --------------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,027 $ 4,073 ===================== ==================== Supplemental cash flow information: Interest paid $ 309 $ 277 Taxes paid $ 953 $ 39 See accompanying notes to unaudited consolidated financial statements. 4 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) (1) BASIS OF PRESENTATION: The accompanying unaudited interim consolidated financial statements of American Technical Ceramics Corp. and subsidiaries (the "Company") reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of its consolidated financial position as of March 31, 2005, and the results of its operations for the three and nine month periods ended March 31, 2005 and 2004. These consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2004. Results for the three and nine month periods ended March 31, 2005 are not necessarily indicative of results which could be expected for the entire year. (2) IMPACT OF NEW ACCOUNTING STANDARDS: In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)"). This Statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 (R) supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and its related implementation guidance. SFAS No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments, or that may be settled by the issuance of those equity instruments. The provisions of SFAS No. 123 (R) shall be effective as of the beginning of the first annual reporting period that begins after June 15, 2005. The Company will adopt SFAS No. 123 (R) effective July 1, 2005. The adoption of this standard will increase compensation expense to the extent the requisite service has not yet been rendered for options granted prior to July 1, 2003, that are accounted for under the intrinsic value method. Management has not yet determined the effect SFAS No. 123 (R) will have on the Company's consolidated results of operations or financial position. In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 "Inventory Costs - an amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of "so abnormal." In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company will adopt SFAS No. 151 effective July 1, 2005. The adoption of this standard is not expected to have a material impact on the Company's consolidated results of operations or financial position. 5 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) On December 31, 2004, the FASB issued Staff Position No. FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP No. 109-1"), and Staff Position No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP No. 109-2"). These staff positions provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 ("AJCA") that was signed into law on October 22, 2004. FSP No. 109-1 states that the tax relief (special tax deduction for domestic manufacturing) from this legislation should be accounted for as a "special deduction" instead of a tax rate reduction. FSP No. 109-2 gives a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. The Company is currently assessing the repatriation provision to determine whether it might repatriate extraordinary dividends, as defined in the AJCA. The Company expects to complete this evaluation within a reasonable amount of time after additional guidance from the United States Treasury is published. On March 3, 2005, the FASB issued FASB Staff Position FIN 46(R)5, "Implicit Variable Interests under FASB Interpretation No. 46" ("FSP FIN46(R)5"). This FSP provides that a reporting enterprise should consider whether it holds an implicit variable interest in a variable interest entity or potential variable interest entity. A reporting enterprise that holds an implicit variable interest in a variable interest entity and is a related party to another variable interest holder should evaluate whether it is appropriate to consolidate the entity under FASB Interpretation No. 46. This FASB Staff Position becomes effective for the Company on April 1, 2005. The Company is presently evaluating the applicability and potential impact of FSP FIN46(R)5. (3) STOCK-BASED COMPENSATION: On April 1, 1997, the Board of Directors approved the American Technical Ceramics Corp. 1997 Stock Option Plan (the "1997 Option Plan") pursuant to which the Company may grant options to purchase up to 800,000 shares of the Company's common stock. On April 11, 2000, the Board of Directors approved the American Technical Ceramics Corp. 2000 Incentive Stock Plan (the "2000 Plan", and collectively with the 1997 Option Plan, the "Plans") pursuant to which the Company may grant options or stock awards covering up to 1,200,000 shares of the Company's common stock. Each Plan is administered by the Board of Directors or by a Committee appointed by the Board. Options granted under the Plans may be either incentive or non-qualified stock options. The term of each incentive stock option shall not exceed ten years from the date of grant (five years for grants to employees who own 10% or more of the voting power of the Company's common stock). Options vest in accordance with a vesting schedule established by the plan administrator (traditionally 25% per year during the first four years of their term). Unless terminated earlier by the Board, the 1997 Option Plan will terminate on March 31, 2007, and the 2000 Plan will terminate on April 10, 2010. Disposition of shares acquired pursuant to the exercise of incentive stock options under both Plans may not be made by the optionees within two years following the date that the option is granted, nor within one year after the exercise of the option, without the written consent of the Company. 6 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) Stock option activity for the three months ended March 31, 2005 and 2004 is as follows: March 31, 2005 March 31, 2004 ----------------------------------------------------------------------- Weighted Weighted Average Average Shares Subject Exercise Shares Subject Exercise to Options Price to Options Price ----------------- ---------------- ------------------ -------------- Outstanding, beginning of period 1,021,845 $ 7.77 1,352,950 $ 6.68 Granted --- --- --- --- Canceled (6,000) 9.84 (250) 11.40 Expired (12,050) 9.10 --- --- Exercised (9,000) 3.15 (14,500) 3.65 ------------------ ------------- Outstanding, end of period 994,795 $ 7.79 1,338,200 $ 6.71 ================== ============== Stock option activity for the nine months ended March 31, 2005 and 2004 is as follows: March 31, 2005 March 31, 2004 ----------------------------------------------------------------------- Weighted Weighted Average Average Shares Subject Exercise Shares Subject Exercise to Options Price to Options Price ----------------- ---------------- ------------------ -------------- Outstanding, beginning of period 1,257,400 $ 6.97 1,381,200 $ 6.64 Granted 25,000 8.79 13,000 5.85 Canceled (32,250) 8.08 (6,750) 9.93 Expired (18,800) 11.40 (9,350) 8.08 Exercised (236,555) 3.20 (39,900) 3.41 ------------------ ---------------- Outstanding, end of period 994,795 $ 7.79 1,338,200 $ 6.71 ================== ================ Prior to fiscal year 2004, the Company did not recognize compensation cost for these options upon grant, as the exercise price was equal to or greater than the fair market value of the underlying stock at the date of grant. In July 2003, the Company adopted Statement of Financial Accounting Standard No. 123 ("SFAS No. 123"), using the prospective method as prescribed in Statement of Financial Accounting Standard No. 148 ("SFAS No. 148"). The Company applies SFAS No. 123 in accounting for employee stock-based compensation awarded or granted after June 30, 2003, and applies APB No. 25 in accounting for employee stock-based compensation awarded or granted prior to July 1, 2003, and makes pro forma disclosures of net income and net income per share as if the fair value method under SFAS No. 123, as amended by SFAS No. 148, had been applied. Had compensation expense with respect to all options and awards granted under the Plans been determined based on the fair value method on the date of grant consistent with the methodology prescribed under SFAS No. 123 prior to July 1, 2003, the Company's net income/(loss) and earnings/(loss) per share would have been equal to the pro forma amounts indicated below: 7 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) (3) STOCK-BASED COMPENSATION (CONTINUED): Three Months Ended March 31, ----------------------------------------------- 2005 2004 ----------------------- -------------------- Net income, as reported $ 1,380 $ 315 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 13 30 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (30) (722) --------------------- -------------------- Pro forma income/(loss) $ 1,363 $ (377) Earnings/(loss) per share: Basic - as reported $ 0.16 $ 0.04 Basic - pro forma $ 0.16 $ (0.05) Diluted - as reported $ 0.16 $ 0.04 Diluted - pro forma $ 0.16 $ (0.04) Nine Months Ended March 31, ----------------------------------------------- 2005 2004 ----------------------- -------------------- Net income/(loss), as reported $ 2,746 $ (914) Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 39 105 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (312) (1,642) --------------------- -------------------- Pro forma income/(loss) $ 2,473 $ (2,451) Earnings/(loss) per share: Basic - as reported $ 0.33 $ (0.11) Basic - pro forma $ 0.30 $ (0.30) Diluted - as reported $ 0.32 $ (0.11) Diluted - pro forma $ 0.28 $ (0.30) The weighted-average fair value of each stock option included in the preceding pro forma amounts was estimated using the Black-Scholes option pricing model and is amortized over an expected grant life of five years. (4) SUPPLEMENTAL CASH FLOW INFORMATION: During the nine months ended March 31, 2005, the Company (i) granted deferred compensation stock awards with an aggregate value of $40 with respect to which expense shall be recognized ratably throughout fiscal year 2005, (ii) granted stock options with respect to which compensation expense of $116 will be recognized evenly over the service period, and (iii) recognized a $183 reduction of income taxes payable related to disqualifying dispositions from incentive stock options exercised. 8 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) (5) INVENTORIES: Inventories included in the accompanying consolidated financial statements consist of the following: March 31, 2005 June 30, 2004 ------------------- ------------------- (unaudited) Raw materials $ 12,452 $ 11,772 Work-in-process 7,053 6,722 Finished goods 6,752 3,774 ------------------- ------------------- $ 26,257 $ 22,268 =================== =================== (6) EARNINGS PER SHARE: The following represents a reconciliation of the numerators and denominators of the basic and diluted earnings per share ("EPS") computation: For the Three Months Ended March 31, ------------------------------------------------------------------------------------------------ 2005 2004 ---- ---- Net Income Shares Per-Share Net Income Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------ ------------ ------------ ------------ ----------- Basic EPS $ 1,380 8,470 $ 0.16 $ 315 8,136 $ 0.04 ============ =========== Effect of dilutive securities: Stock options --- 6 --- 530 Deferred compensation stock awards --- 299 --- 7 ------------ -------------- ------------ ----------- -------------- ----------- Diluted EPS $ 1,380 8,775 $ 0.16 $ 315 8,673 $ 0.04 ============ ============== ============ =========== ============== =========== Options covering 353 and 345 shares have been omitted from the calculation of dilutive EPS for the three months ended March 31, 2005 and 2004, respectively, because their inclusion would have been antidilutive. For the Nine Months Ended March 31, -------------------------------------------------- --------------------------------------------- 2005 2004 ---- ---- Net Income Shares Per-Share Net Loss Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ Basic EPS $ 2,746 8,374 $ 0.33 $ (914) 8,116 $ (0.11) ============ =========== Effect of dilutive securities: Stock options --- 6 --- --- Deferred compensation stock awards --- 337 --- --- ------------ -------------- ------------ ----------- -------------- ----------- Diluted EPS $ 2,746 8,717 $ 0.32 $ (914) 8,116 $ (0.11) ============ ============== ============ =========== ============== =========== 9 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) Options covering 415 and 1,346 shares have been omitted from the calculation of dilutive EPS for the nine months ended March 31, 2005 and 2004, respectively, because their inclusion would have been antidilutive. (7) COMPREHENSIVE INCOME/ (LOSS): The Company's comprehensive income/(loss) is as follows: For the Three Months Ended March 31, 2005 2004 ------------------- ------------------- Net income $ 1,380 $ 315 ------------------- ------------------- Other comprehensive income/(loss): Foreign currency translation adjustments (143) (61) Unrealized gains on investments, net of tax --- 3 ------------------- ------------------- Other comprehensive loss (143) (58) ------------------- ------------------- Comprehensive income $ 1,237 $ 257 =================== =================== For the Nine Months Ended March 31, 2005 2004 ------------------- ------------------- Net income/(loss) $ 2,746 $ (914) ------------------- ------------------- Other comprehensive income: Foreign currency translation adjustments 102 93 Unrealized gains on investments, net of tax 5 1 ------------------- ------------------- Other comprehensive income 107 94 ------------------- ------------------- Comprehensive income/(loss) $ 2,853 $ (820) =================== =================== (8) INDEBTEDNESS: Long-term debt consists of the following: March 31, 2005 June 30, 2004 ------------------- ------------------ Notes payable to banks $ 4,602 $ --- Obligations under capital leases 2,998 3,290 ------------------- ------------------ 7,600 3,290 Less: current portion 2,911 394 ------------------- ------------------ Long-term debt $ 4,689 $ 2,896 =================== ================== 10 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) In April 2004, the Company entered into a $4,000 credit facility with General Electric Capital Corporation ("GECC") for the purchase of equipment. The line bears interest, at the Company's option, at either a fixed rate of 3.47% above the five year Treasury Bond yield or a floating rate of 3.65% above the London Interbank Market ("LIBOR"). Borrowings under the line are secured by the equipment purchased thereunder. Each separate borrowing under the line will be a fully amortizing term loan with a maturity of five years from the date the funds are drawn down. The line of credit was to expire on March 31, 2005. On March 14, 2005, GECC increased the line of credit to $6,000, and extended the expiration date to September 11, 2005. The line is renewable, at the option of GECC, for an additional six months. As of March 31, 2005, the Company had $2,602 outstanding under this line. In December 2004, the Company entered into a one-year credit facility with Commerce Bank, N. A. ("Commerce Bank"). During the term, the Company may request advances under the facility from time to time up to an aggregate of $5,000. Interest on advances are at floating rates based on the Prime Rate as reported in the Wall Street Journal. Borrowings under the facility are secured by a lien on the Company's accounts receivable and inventory. Each borrowing under the line will expire on November 30, 2005. During the term of the loan, the Company will make interest only payments with the balance of the loan payable on the expiration date. All outstanding borrowings under the facility are subject to certain financial covenants, including minimum tangible net worth and liability percentage ratios. As of March 31, 2005, the Company had $2,000 outstanding under this credit facility currently bearing interest at 5.75%. The Company leases an administrative office, manufacturing and research and development complex located in Jacksonville, Florida (the "Jacksonville Facility") from a partnership controlled by the Company's President, Chief Executive Officer and principal stockholder under a capital lease. At March 31, 2005, the Jacksonville Facility has an aggregate cost of $5,104 and a net book value of $2,052. The lease is for a period of 30 years, was capitalized using an interest rate of 10.5% and expires on September 30, 2010. The lease provides for annual increases in base rent for years beginning after May 1, 1999, based on the increase in the Consumer Price Index ("CPI") since May 1, 1998, applied to base rent. The lease also provides for increases to the base rent in connection with any new construction at the Jacksonville Facility. Under the lease, upon any new construction being placed into use, the base rental is subject to increase to the fair market rental of the Jacksonville Facility, including the new construction. Effective October 1, 2004, the Company is obligated to pay approximately $756 per annum under this lease. The payments due over the remaining term of this capital lease, including the portion related to interest, total approximately $4,159. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the consolidated financial statements, related notes and other information included in this Quarterly Report on Form 10-Q. Statements in this Quarterly Report on Form 10-Q that are not historical fact may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements are subject to risks and uncertainties, including, but not limited to, market and economic conditions, the impact of competitive products, product demand and market acceptance risks, changes in product mix, costs and availability of raw materials, fluctuations in operating results, delays in development of highly complex products, risks associated with international sales and sales to the U.S. military, risk of customer contract or sales order cancellations and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission, including, without limitation, those contained under the caption "Item 1 BUSINESS - CAUTIONARY STATEMENTS REGARDING FORWARD - LOOKING STATEMENTS" in the Company's Annual Report on Form 10-K. These risks could cause the Company's actual results for future periods to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Any forward-looking statement represents the Company's expectations or forecasts only as of the date it was made and should not be relied upon as representing its expectations or forecasts as of any subsequent date. The Company undertakes no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, even if its expectations or forecasts change. Overview Bookings, sales and net income in each of the quarters in the current fiscal year have exceeded the levels attained in the comparable quarter in the prior fiscal year. Bookings improvements compared to the prior fiscal year were primarily due to increases from the wireless infrastructure, medical equipment and military markets. Growth has come from improved economic conditions, improved market share and expanding acceptance of newer products in the market. The Company expects this positive trend in bookings will continue in the near term. Improvements in net income have essentially tracked improvements in sales. The Company has benefited from certain manufacturing efficiencies that result from operating at higher volumes. Gross margins have improved partly due to these efficiencies and partly due to favorable product mix as certain lower margin, high volume business was replaced with higher margin business. The Company borrowed $2,000 under its line of credit with Commerce Bank primarily to settle its remaining precious metal commitments which came due on April 1, 2005. During the quarter ended March 31, 2005, the Company increased its line of credit with GECC from $4,000 to $6,000, extended the term an additional six months to September 11, 2005 and incurred approximately $863 in additional borrowings to fund equipment purchases. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES". 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) RESULTS OF OPERATIONS KEY COMPARATIVE PERFORMANCE INDICATORS Three Months Ended Nine Months Ended ------------------------------------------ ------------------------------------------ March 31, 2005 March 31, 2004 March 31, 2005 March 31, 2004 ------------------- ------------------- ------------------- ------------------- Sales $ 18,991 $ 16,109 $ 52,148 $ 42,174 Bookings $ 19,304 $ 18,721 $ 52,291 $ 45,181 Gross Margin $ 6,667 $ 5,313 $ 17,629 $ 11,832 Gross Margin (% of sales) 35.1% 33.0% 33.8% 28.1% Operating Expenses $ 4,584 $ 4,820 $ 13,440 $ 12,859 Operating Expenses (% of sales) 24.1% 29.9% 25.8% 30.5% SIGNIFICANT HIGHLIGHTS Sales for the three and nine months ended March 31, 2005 increased 18% and 24%, respectively, over the comparable period in the prior fiscal year. Growth in sales for the year-to-date period ended March 31, 2005 (24%) was greater than that for the three month period ended March 31, 2005 (18%), primarily due to sales growth that accelerated in the three month period ended March 31, 2004. Bookings for the three and nine months ended March 31, 2005, increased 3% and 16%, respectively, over the comparable period in the prior fiscal year. Three Months Ended March 31, 2005, Compared with Three Months Ended March 31, 2004 Bookings for the three months ended March 31, 2005 were $19,304, compared to $18,721 for the three months ended March 31, 2004. The improvement in bookings was due primarily to improved bookings from the wireless infrastructure and medical markets. The backlog of unfilled orders at March 31, 2005 was $13,621, compared to $12,142 at March 31, 2004 and $13,472 at June 30, 2004. Net sales for the three months ended March 31, 2005 increased 18% from the comparable period in the prior fiscal year. The increase was due to higher volume of product shipped as a result of improved economic conditions in the electronic components industry, increased market share and expanding acceptance of the Company's newer products in the market. The volume improvement was mainly from sales to customers in the wireless infrastructure, medical equipment and military markets. Gross margin for the three months ended March 31, 2005 was 35% of net sales, compared to 33% of net sales for the comparable period in the prior fiscal year. Gross margins increased due to higher sales volume, favorable product mix, efficiencies associated with operating at higher production levels and increased precious metal recovery, partially offset by increased labor and overhead costs. Labor and overhead cost increases primarily relate to increased headcount and the redesignation of certain personnel from research and development to production support. Over the past year, the Company has added personnel and incurred other expenses in connection with its efforts to increase production, reduce lead times and improve market share. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) Selling, general and administrative expenses for the three months ended March 31, 2005 increased 3% from the comparable period in the prior fiscal year. The increase was primarily the result of increased administrative and sales personnel, salary increases, bonuses, commission expense, professional fees and expenses associated with the expansion of the Company's foreign sales offices in China and Sweden, partially offset by lower bad debt expense. Research and development expenses for the three months ended March 31, 2005 decreased 33% from the comparable period in the prior fiscal year, primarily as a result of the redesignation of certain personnel to production support. As a result of the foregoing, net income for the three months ended March 31, 2005 was $1,380, or $0.16 per common share and common share assuming dilution, compared to net income of $315, or $0.04 per common share and common share assuming dilution, for the comparable period in the prior fiscal year. Nine Months Ended March 31, 2005, Compared with Nine Months Ended March 31, 2004 Bookings for the nine months ended March 31, 2005 were $52,291, compared to $45,181 for the nine months ended March 31, 2004. The improvement in bookings was due primarily to improved bookings from the wireless infrastructure, military and medical markets. Net sales for the nine months ended March 31, 2005 increased 24% from the comparable period in the prior fiscal year. The increase was due to higher volume of product shipped as a result of improved economic conditions in the electronic components industry, increased market share and expanding acceptance of the Company's newer products in the market. The volume improvement was mainly from sales to customers in the wireless infrastructure, medical equipment and military markets. Gross margin for the nine months ended March 31, 2005 was 34% of net sales, compared to 28% of net sales for the comparable period in the prior fiscal year. Gross margins increased due to higher sales volume, increased precious metal recovery and efficiencies associated with operating at higher production levels, partially offset by an unfavorable sales mix of lower margin, high volume product, increased labor and overhead costs and inventory writedowns to net realizable value. Labor and overhead cost increases primarily relate to increased headcount and the redesignation of certain personnel from research and development to production support. Over the past year, the Company has added personnel and incurred other expenses in connection with its efforts to increase production, reduce lead times and improve market share. Precious metal recovery increased primarily due to a higher amount of metal reclaimed. Selling, general and administrative expenses for the nine months ended March 31, 2005 increased 12% from the comparable period in the prior fiscal year. The increase was primarily the result of salary increases, severance costs, commission expense and expenses associated with the expansion of the Company's foreign sales offices in China and Sweden, partially offset by lower bad debt expense. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) Research and development expenses for the nine months ended March 31, 2005 decreased 30% from the comparable period in the prior fiscal year, primarily as a result of the redesignation of certain personnel to production support. As a result of the foregoing, net income for the nine months ended March 31, 2005 was $2,746, or $0.33 per common share and $0.32 per common share assuming dilution, compared to net loss of $914, or ($0.11) per common share and common share assuming dilution, for the comparable period in the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES March 31, 2005 June 30, 2004 March 31, 2004 ----------------------- -------------------- -------------------- Cash and Investments $ 8,025 $ 7,042 $ 7,082 Working Capital $ 36,963 $ 34,900 $ 31,565 Quarter Ended: Operating Cash Flow $ 473 $ 1,142 $ (1,736) Capital Expenditures $ 1,322 $ 1,130 $ 1,755 Depreciation and Amortization $ 1,531 $ 1,306 $ 1,317 Current Ratio 4.2:1 5.1:0 5.8:1 Quick Ratio 1.6:1 2.0:0 2.5:1 The Company's financial position at March 31, 2005 remains strong as evidenced by working capital of $36,963. The Company's current and quick ratios at March 31, 2005 also remain strong. Cash, cash equivalents and investments increased by $983 from June 30, 2004, as a result of positive operating cash flows and loan proceeds, partially offset by capital expenditures. Inventories increased by $3,989 from June 30, 2004, primarily as a result of higher production levels to support current and future demand. The current portion of long-term debt increased by $2,517 from June 30, 2004, due to borrowings incurred under the Commerce Bank line of credit and the GECC equipment line of credit. Borrowings under the Commerce Bank line are all due within one year. Accrued expenses decreased by $527 from June 30, 2004, due to the timing of payments of various accrued expenses. Taxes payable increased $723 from June 30, 2004, primarily due to taxable income generated during the nine months ended March 31, 2005, partially offset by federal estimated tax payments. On April 1, 2005, the Company purchased an additional $2,500 of precious metals (primarily palladium and silver) completing its outstanding precious metal purchase commitments. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) In April 2004, the Company entered into a $4,000 credit facility with GECC for the purchase of equipment. The line bears interest, at the Company's option, at either a fixed rate of 3.47% above the five year Treasury Bond yield or a floating rate of 3.65% above LIBOR. Borrowings under the line are secured by the equipment purchased thereunder. Each separate borrowing under the line will be a fully amortizing term loan with a maturity of five years from the date the funds are drawn down. The line of credit was to expire on March 31, 2005. On March 14, 2005, GECC increased the line of credit to $6,000, and extended the expiration date to September 11, 2005. The line is renewable, at the option of GECC, for an additional six months. As of March 31, 2005, the Company had borrowed an aggregate of $2,751 under this credit facility bearing interest at 7.15%. In December 2004, the Company entered into a one-year credit facility with Commerce Bank. During the term, the Company may request advances under the facility from time to time up to an aggregate of $5,000. Interest on advances are at floating rates based on the Prime Rate as reported in the Wall Street Journal. Borrowings under the facility are secured by a lien on the Company's accounts receivable and inventory. Each borrowing under the line will expire on November 30, 2005. During the term of the loan, the Company will make interest only payments with the balance of the loan payable on the expiration date. All outstanding borrowings under the facility are subject to certain financial covenants, including minimum tangible net worth and liability percentage ratios. As of March 31, 2005, the Company had borrowed an aggregate of $2,000 under this credit facility currently bearing interest at 5.75%. The Company leases a facility in Jacksonville, Florida from a partnership controlled by the Company's President, Chief Executive Officer and principal stockholder under a capital lease. The rental payments under this lease have been adjusted several times, most recently as of October 2004, primarily to reflect fair market rental adjustments as a result of certain additions or improvements to the facility or annual increases based on the consumer price index as required by the terms of the lease. Each fair market rental adjustment has been based upon an independent appraisal of the fair market rental of the facility giving effect to the addition or improvement at issue. Effective October 1, 2004, the Company is obligated to pay approximately $756 per annum under this lease. The payments due over the remaining term of this capital lease, including the portion related to interest, total approximately $4,159. Capital expenditures for the nine months ended March 31, 2005 totaled $7,195, including expenditures for machinery and equipment and leasehold improvements. The Company intends to use cash on hand, cash generated through operations and the line of credit with GECC to finance budgeted capital expenditures of approximately $2,000 for the remainder of fiscal year 2005, primarily for equipment acquisitions and building renovations. Aggregate contractual obligations as of March 31, 2005, mature as follows: Payments Due by Period -------------------------------------------------------------------------------------------- Total Less than 1 1- 3 3- 5 After 5 Contractual Obligations year years years years ---------------------------------- -------------- --------------- -------------- ---------------- --------------- Bank Debt $ 5,148 $ 2,734 $ 1,312 $ 1,102 $ --- Capital Lease Obligations 4,159 756 1,512 1,512 379 Operating Leases 1,264 503 735 26 --- Purchase Obligations 4,836 4,836 --- --- --- -------------- --------------- -------------- ---------------- --------------- Total Contractual Obligations $ 15,407 $ 8,829 $ 3,559 $ 2,640 $ 379 ============== =============== ============== ================ =============== 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) The Company routinely enters into binding and non-binding purchase obligations in the ordinary course of business, primarily covering anticipated purchases of inventory and equipment. The terms of these commitments generally do not extend beyond one year. At March 31, 2005, the Company had commitments to purchase an aggregate of $2,500 of precious metals all of which were settled April 1, 2005. CRITICAL ACCOUNTING POLICIES The Securities and Exchange Commission (the "SEC") issued disclosure guidance for "critical accounting policies." The SEC defines "critical accounting policies" as those that require the application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. The Company's significant accounting policies are described in Note 1 to its consolidated financial statements contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2004. The Company believes that the following accounting policies require the application of management's most difficult, subjective or complex judgments: Allowances for Doubtful Accounts Receivable The Company performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and a customer's current creditworthiness, as determined by its review of the customer's current credit information. The Company continuously monitors collections and payments from its customers and maintains an allowance for estimated credit losses based upon its historical experience and any specific customer collection issues that the Company has identified. While such credit losses have historically been within the Company's expectations and the allowances established, the Company cannot guarantee that it will continue to experience the same credit loss rates that it has in the past. Should the financial position of its customers deteriorate resulting in an impairment of their ability to pay amounts due, the Company's revised estimate of such losses and any actual losses in excess of previous estimates may negatively impact its operating results. Sales Returns and Allowances In the ordinary course of business, the Company accepts returns of products sold for various reasons and grants sales allowances to customers. While the Company engages in extensive product quality control programs and processes, its level of sales returns is affected by, among other things, the quality of its manufacturing processes. The Company maintains an allowance for sales returns and allowances based upon historical returns and allowances granted. While such returns and allowances have historically been within the Company's expectations, actual return and allowance rates in the future may differ from current estimates, which could negatively impact its operating results. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) Inventory Valuation The Company values inventory at the lower of aggregate cost (first-in, first-out) or market. When the cost of inventory is determined by management to be in excess of its market value, such inventory is written down to its estimated net realizable value. This requires the Company to make estimates and assumptions about several factors (e.g., future sales quantities and selling prices, and percentage complete and failure rates for work in process) based upon historical experience and its projections for future periods. Changes in factors such as the level of order bookings, the product mix of order bookings and the Company's manufacturing processes could have a material impact on the Company's assessment of the net realizable value of inventory in the future. Valuation of Deferred Tax Assets The Company regularly evaluates its ability to recover the reported amount of its deferred income taxes considering several factors, including its estimate of the likelihood of the Company generating sufficient taxable income in future years during the period over which temporary differences reverse. Presently, the Company believes that it is more likely than not that it will realize the benefits of its deferred tax assets based primarily on its history of and projections for taxable income in the future. In the event that actual results differ from its estimates or the Company adjusts these estimates in future periods, the Company may need to establish a valuation allowance against a portion or all of its deferred tax assets, which could materially impact its financial position or results of operations in future periods. Valuation of Long-lived Assets The Company assesses the recoverability of long-lived assets whenever the Company determines that events or changes in circumstances indicate that the carrying amount may not be recoverable. Its assessment is primarily based upon its estimate of future cash flows associated with these assets. The Company believes that the carrying amount of its long-lived assets is recoverable. However, should its operating results deteriorate, or anticipated new product launches not occur or not attain the commercial acceptance that the Company anticipates, the Company may determine that some portion of its long-lived assets are impaired. Such determination could result in non-cash charges to income that could materially affect its financial position or results of operations for that period. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) IMPACT OF NEW ACCOUNTING STANDARDS In December 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)"). This Statement is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 (R) supersedes Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"), and its related implementation guidance. SFAS No. 123 (R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments, or that may be settled by the issuance of those equity instruments. The provisions of SFAS No. 123 (R) shall be effective as of the beginning of the first annual reporting period that begins after June 15, 2005. The Company will adopt SFAS No. 123 (R) effective July 1, 2005. The adoption of this standard will increase compensation expense to the extent the requisite service has not yet been rendered for options granted prior to July 1, 2003, that are accounted for under the intrinsic value method. Management has not yet determined the effect SFAS No. 123 (R) will have on the Company's consolidated results of operations or financial position. In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 "Inventory Costs - an amendment of ARB No. 43, Chapter 4" ("SFAS No. 151"). SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS No. 151 requires that those items be recognized as current period charges regardless of whether they meet the criterion of "so abnormal." In addition, SFAS No. 151 requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of SFAS No. 151 shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company will adopt SFAS No. 151 effective July 1, 2005. The adoption of this standard is not expected to have a material impact on the Company's consolidated results of operations or financial position. On December 31, 2004, the FASB issued Staff Position No. FAS 109-1, "Application of FASB Statement No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004" ("FSP No. 109-1"), and Staff Position No. FAS 109-2, "Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004" ("FSP No. 109-2"). These staff positions provide accounting guidance on how companies should account for the effects of the American Jobs Creation Act of 2004 ("AJCA") that was signed into law on October 22, 2004. FSP No. 109-1 states that the tax relief (special tax deduction for domestic manufacturing) from this legislation should be accounted for as a "special deduction" instead of a tax rate reduction. FSP No. 109-2 gives a company additional time to evaluate the effects of the legislation on any plan for reinvestment or repatriation of foreign earnings for purposes of applying FASB Statement No. 109. The Company is currently assessing the repatriation provision to determine whether it might repatriate extraordinary dividends, as defined in the AJCA. The Company expects to complete this evaluation within a reasonable amount of time after additional guidance from the United States Treasury is published. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) (In thousands, except per share data) On March 3, 2005, the FASB issued FASB Staff Position FIN 46(R)5, "Implicit Variable Interests under FASB Interpretation No. 46" ("FSP FIN46(R)5"). This FSP provides that a reporting enterprise should consider whether it holds an implicit variable interest in a variable interest entity or potential variable interest entity. A reporting enterprise that holds an implicit variable interest in a variable interest entity and is a related party to another variable interest holder should evaluate whether it is appropriate to consolidate the entity under FASB Interpretation No. 46. This FASB Staff Position becomes effective for the Company on April 1, 2005. The Company is presently evaluating the applicability and potential impact of FSP FIN46(R)5. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk exposure at March 31, 2005 is consistent with the types of market risk and amount of exposures, including foreign currency exchange rate, commodity price, security price and interest rate risks, presented in its Annual Report on Form 10-K for the fiscal year ended June 30, 2004. ITEM 4. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures In response to the requirements of the Sarbanes-Oxley Act of 2002, as of the end of the period covered by this Quarterly Report on Form 10-Q (the "Evaluation Date"), the Company's President and Chief Executive Officer and Vice President - Controller carried out an evaluation of the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based on that evaluation, these officers concluded that, as of the Evaluation Date, the Company's disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company and the Company's consolidated subsidiaries was made known to them by others within those entities, particularly during the period in which this report was being prepared. Changes in Internal Controls There were no changes in the Company's internal controls over financial reporting identified in connection with the evaluation of such internal controls that occurred during the Company's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. 20 PART II - OTHER INFORMATION ITEMS 1. THROUGH 5. Not Applicable ITEM 6. Exhibits EXHIBIT NO. DESCRIPTION 10(x) - Letter from General Electric Capital Corporation, dated as of March 14, 2005 10(y)(i) - Victor Insetta Compensation Arrangement 10(y)(ii) - Stuart Litt Consulting Arrangement 10(y)(iii) - Executive Compensation Arrangements 10(y)(iv) - Director Compensation Arrangements 31.1 - Section 302 Certification of Principal Executive Officer. 31.2 - Section 302 Certification of Principal Accounting Officer. 32.1 - Section 906 Certification of Principal Executive Officer. 32.2 - Section 906 Certification of Principal Accounting Officer. 21 SIGNATURES 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 Company in the capacities and on the dates indicated. AMERICAN TECHNICAL CERAMICS CORP. (Company) DATE: May 16, 2005 BY: /S/ VICTOR INSETTA ------------------------------- Victor Insetta President and Director (Principal Executive Officer) DATE: May 16, 2005 BY: /S/ ANDREW R. PERZ ------------------ ----------- Andrew R. Perz Vice President, Controller (Principal Accounting Officer)