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 DECEMBER 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) Indicate by check mark whether the Company is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ( ) No (X) As of February 1, 2006, the Company had outstanding 8,549,523 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) JUNE 30, DECEMBER 31, 2005 2005 ------------------ ------------------ ASSETS (unaudited) Current assets Cash (including cash equivalents of $5 and $4, respectively) $ 7,496 $ 4,927 Investments 2,052 2,023 Accounts receivable (net of allowance for doubtful accounts and sales returns of $406 and $300, respectively) 9,200 10,008 Inventories 28,062 27,540 Deferred income taxes, net 2,661 2,668 Prepaid and other current assets 723 1,007 ------------------ ------------------ TOTAL CURRENT ASSETS 50,194 48,173 ------------------ ------------------ Property, plant and equipment (net of accumulated depreciation and amortization of $49,916 and $47,143, respectively) 31,685 29,502 Other assets 400 197 ------------------ ------------------ TOTAL ASSETS $ 82,279 $ 77,872 ================== ================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt (including related party debt of $460 and $437, respectively) $ 1,826 $ 1,103 Accounts payable 2,431 2,449 Accrued expenses 4,800 5,589 Income tax payable 118 --- ------------------ ------------------ TOTAL CURRENT LIABILITIES 9,175 9,141 Long-term debt, net of current portion (including related party debt of $2,223 and $2,459, respectively) 7,932 5,276 Deferred income taxes 3,310 3,308 ------------------ ------------------ TOTAL LIABILITIES 20,417 17,725 ------------------ ------------------ Commitments and contingencies Stockholders' equity Common Stock -- $0.01 par value; authorized 20,000 shares; issued 8,957 and 8,917 shares, outstanding 8,543 and 8,503 shares, respectively 90 89 Capital in excess of par value 13,669 13,195 Retained earnings 49,352 48,114 Accumulated other comprehensive income: Cumulative foreign currency translation adjustment 147 145 ------------------ ------------------ 147 145 ------------------ ------------------ Less: Treasury stock, at cost (414 and 414 shares, respectively) 1,396 1,396 ------------------ ------------------ TOTAL STOCKHOLDERS' EQUITY 61,862 60,147 ------------------ ------------------ $ 82,279 $ 77,872 ================== ================== 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 Ended For the Six Months Ended December 31, December 31, 2005 2004 2005 2004 ---- ---- ---- ---- Net sales $ 19,678 $ 16,229 $ 37,180 $ 33,157 Cost of sales 11,713 10,559 25,340 22,195 --------------- ---------------- --------------- --------------- Gross profit 7,965 5,670 11,840 10,962 --------------- ---------------- --------------- --------------- Selling, general and administrative expenses 4,497 3,964 8,667 7,796 Research and development expenses 459 489 1,061 1,039 Other 16 31 6 21 --------------- ---------------- --------------- --------------- Operating expenses 4,972 4,484 9,734 8,856 --------------- ---------------- --------------- --------------- --------------- ---------------- --------------- --------------- Income from operations 2,993 1,186 2,106 2,106 --------------- ---------------- --------------- --------------- Other (income) expense: Interest expense 148 100 288 191 Interest income (31) (15) (44) (30) Other -- 3 -- 8 --------------- ---------------- --------------- --------------- 117 88 244 169 --------------- ---------------- --------------- --------------- Income before provision for income taxes 2,876 1,098 1,862 1,937 Provision for income taxes 947 332 624 571 --------------- ---------------- --------------- --------------- Net income $ 1,929 $ 766 $ 1,238 $ 1,366 =============== ================ =============== =============== Basic net income per common share $ 0.23 $ 0.09 $ 0.15 $ 0.16 =============== ================ =============== =============== Diluted net income per common share $ 0.22 $ 0.09 $ 0.14 $ 0.16 =============== ================ =============== =============== Basic weighted average common shares outstanding 8,538 8,391 8,527 8,327 =============== ================ =============== =============== Diluted weighted average common shares outstanding 8,816 8,747 8,833 8,695 =============== ================ =============== =============== 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 Six Months Ended December 31, 2005 2004 --------------------- -------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,238 $ 1,366 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,994 2,610 (Gain) on disposal of fixed assets (9) (9) Deferred income taxes 9 (412) Stock-based compensation expense 208 37 Provision for doubtful accounts and sales returns 106 --- Investment interest accretion, net (18) (5) Realized loss on investments --- 8 Changes in operating assets and liabilities: Accounts receivable 668 2,947 Inventories (549) (3,256) Other assets 71 167 Accounts payable and accrued expenses (802) (784) Income taxes payable 119 (102) --------------------- -------------------- Net cash provided by operating activities 4,035 2,567 --------------------- -------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (5,180) (5,873) Purchase of investments (1,045) (1,992) Proceeds from sale of investments 1,034 2,510 Proceeds from sale of fixed assets 19 32 --------------------- -------------------- Net cash used in investing activities (5,172) (5,323) --------------------- -------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt (540) (249) Proceeds from the exercise of stock options 266 893 Proceeds from the issuance of long term debt 3,956 1,887 --------------------- -------------------- Net cash provided by financing activities 3,682 2,531 --------------------- -------------------- --------------------- -------------------- Effect of exchange rate changes on cash 24 (240) --------------------- -------------------- Net increase/(decrease) in cash and cash equivalents 2,569 (465) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,927 4,534 --------------------- -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,496 $ 4,069 ===================== ==================== Supplemental cash flow information: Interest paid $ 297 $ 191 Taxes paid $ 229 $ 922 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 December 31, 2005, and the results of its operations for the three and six month periods ended December 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, 2005. Results for the three and six month periods ended December 31, 2005 are not necessarily indicative of results which could be expected for the entire year. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. (2) IMPACT OF NEW ACCOUNTING STANDARDS: On December 31, 2004, the Financial Accounting Standards Board ("FASB") issued Staff Position No. FAS 109-2, "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. 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. The Company has assessed the repatriation provisions and repatriated an extraordinary dividend, as defined in the AJCA, of approximately $1,500 during its second fiscal quarter ended December 31, 2005. (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 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 shares of the Company's common stock. 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), and options may 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. Unless terminated earlier by the Board, the 2000 Plan will terminate on April 10, 2010. Shares issued upon the exercise of options are generally issued from the Company's authorized and unissued shares. 5 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) 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. 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, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), using the prospective method as prescribed in Statement of Financial Accounting Standard No. 148 (SFAS No. 148"). The Company applied SFAS No. 123 in accounting for employee stock-based compensation awarded or granted after June 30, 2003, and applied Accounting Principals Board Opinion No. 25, Accounting for Stock Issued to Employees ("Opinion No. 25"), in accounting for employee stock-based compensation awarded or granted prior to July 1, 2003, and made 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. On July 1, 2005, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123 (R)"). This Statement is a revision of SFAS No. 123. SFAS No. 123 (R) supersedes Opinion 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 adoption of this standard did not have a material impact on the Company's consolidated results of operations or financial position. There were no stock options granted during the three months ended December 31, 2005 and 2004. The weighted average grant-date fair value of stock options granted during the six months ended December 31, 2005 and 2004 was $8.33 and $5.18 per share, respectively, as determined by the Black-Scholes option pricing model (assuming a risk-free interest rate of 3.98% and 3.80%, respectively, expected life of six years and five years, respectively, expected volatility of 73.7% and 67.0%, respectively, and no dividends). The total intrinsic value of options exercised during the periods ended December 31, 2005 and 2004 was $293 and $1,432, respectively. Expected volatility is calculated using historical volatility. The expected term (life) of options granted represents the period of time that options granted are expected to be outstanding. In determining expected life, the Company uses historical data to estimate option exercise and employee departure behavior. Groups of employees that have similar historical behavior are considered separately for valuation purposes. The risk free interest rate is based on the US Treasury Yield curve in effect at the time of grant for the expected life of the option. 6 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) Stock option activity for the six months ended December 31, 2005 is as follows: Weighted Weighted Average Shares Subject Average Exercise Remaining Aggregate to Options Price Contractual Term Intrinsic Value ------------------ ------------------- ------------------ ------------------ Outstanding, beginning of period 991 $ 7.91 Granted 40 13.22 Canceled (1) 9.09 Expired (13) 10.32 Exercised (40) 4.17 ------------------ Outstanding, end of period 977 $ 8.24 4.7 $ 758 ------------------ ------------------ Exercisable, end of period 844 $ 8.04 4.1 $ 827 ================== ================== A summary of the status of the Company's nonvested shares at December 31, 2005, and changes during the six months then ended is presented below: Weighted Shares Average Subject to Grant Date Options Fair Value --------------- ---------------- Nonvested, beginning of period 121 $ 4.77 Granted 40 8.33 Vested (27) 4.90 Forfeited (1) 5.11 -------------- Nonvested, end of period 133 $ 5.81 ============== As of December 31, 2005, there was $577 of total unrecognized compensation costs related to nonvested options granted under the Plans. That cost is expected to be recognized over a weighted average period of 3.2 years. The total fair value of shares vested during the three and six month periods ended December 31, 2005 was $61 and $131, respectively. Compensation cost capitalized in inventory and fixed assets for the three and six months ended December 31, 2005 was $15 and $40, respectively. Compensation cost recognized in income for amounts previously capitalized in inventory and fixed assets for the three and six months ended December 31, 2005 was $11 and $31, respectively. Cash received from the exercise of options for the three months ended December 31, 2005 and 2004 was $50 and $387, respectively. The related tax benefit recognized for the three months ended December 31, 2005 and 2004 was $27 and $94, respectively. The total compensation cost related to options was $79 and $9 for the three months ended December 31, 2005 and 2004, respectively. 7 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) Cash received from the exercise of options for the six months ended December 31, 2005 and 2004 was $166 and $728, respectively. The related tax benefit recognized for the six months ended December 31, 2005 and 2004 was $100 and $165, respectively. The total compensation cost related to options for the six months ended December 31, 2005 and 2004 was $172 and $17, respectively. Had compensation expense with respect to options and awards 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 and earnings per share would have approximated the pro forma amounts indicated below: Three Months Ended December Six Months Ended 31, 2004 December 31, 2004 ------------------- ------------------- Net income, as reported $ 766 $ 1,366 Add: Stock-based employee compensation expense included in reported net income, net of related tax effects 12 26 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (129) (282) ------------------- ------------------- Pro forma income $ 649 $ 1,110 Earnings per common share: Basic - as reported $ 0.09 $ 0.16 Basic - pro forma $ 0.08 $ 0.13 Diluted - as reported $ 0.09 $ 0.16 Diluted - pro forma $ 0.07 $ 0.13 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 ratably over the vesting period of the options which is typically four years. At December 31, 2005, an aggregate of 201 shares were available for option grants or awards under the Plans. Other Stock-Based Compensation ------------------------------ During the six months ended December 31, 2005 and 2004, the Company granted stock awards for an aggregate of 7 and 6 shares, respectively. These awards resulted in compensation expense of $49 and $35, respectively (including $13 and $15 of payments made to offset tax liabilities associated with these awards), measured by the market value of the shares on their respective grant dates. 8 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) (4) SUPPLEMENTAL CASH FLOW INFORMATION: During the six months ended December 31, 2005, the Company (i) granted stock awards with an aggregate value of $85 with respect to which expense shall be recognized ratably throughout fiscal year 2006, (ii) granted stock options with respect to which compensation expense of $333 will be recognized evenly over the service period, and (iii) recognized a $100 reduction of income taxes payable related to disqualifying dispositions upon the exercise of incentive stock options. During the six months ended December 31, 2004, the Company (i) granted stock awards with an aggregate value of $40 with respect to which expense was 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 $165 reduction of income taxes payable related to disqualifying dispositions upon the exercise of incentive stock options. (5) INVENTORIES: Inventories included in the accompanying consolidated financial statements consist of the following: December 31, June 30, 2005 2005 ------------------- ------------------- Raw materials $ 13,186 $ 14,122 Work-in-process 8,601 7,382 Finished goods 6,275 6,036 ------------------- ------------------- $ 28,062 $ 27,540 =================== =================== (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 December 31, ------------------------------------------------------------------------------------------------ 2005 2004 ---- ---- Net Income Shares Per Share Net Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------ -------------- ------------ ----------- -------------- ----------- Basic EPS $ 1,929 8,538 $ .23 $ 766 8,391 $ 0.09 ============ =========== Effect of dilutive securities: Stock options --- 271 --- 350 Deferred compensation stock awards --- 7 --- 6 ------------ -------------- ------------ ----------- -------------- ----------- Diluted EPS $ 1,929 8,816 $ .22 $ 766 8,747 $ 0.09 ============ ============== ============ =========== ============== =========== Options covering 400 and 339 shares have been omitted from the calculation of dilutive EPS for the three months ended December 31, 2005 and 2004, respectively, because their inclusion would have been antidilutive. 9 AMERICAN TECHNICAL CERAMICS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share data) For the Six Months Ended December 31, ------------------------------------------------------------------------------------------------ 2005 2004 ---- ---- Net Income Shares Per Share Net Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ------------ -------------- ------------ ----------- -------------- ----------- Basic EPS $ 1,238 8,527 $ .15 $ 1,366 8,327 $ 0.16 ============ =========== Effect of dilutive securities: Stock options --- 299 --- 361 Deferred compensation stock awards --- 7 --- 7 ------------ -------------- ------------ ----------- -------------- ----------- Diluted EPS $ 1,238 8,833 $ .14 $ 1,366 8,695 $ 0.16 ============ ============== ============ =========== ============== =========== Options covering 395 and 390 shares have been omitted from the calculation of dilutive EPS for the six months ended December 31, 2005 and 2004, respectively, because their inclusion would have been antidilutive. (7) COMPREHENSIVE INCOME: The Company's comprehensive income is as follows: Three Months Ended Six Months Ended ------------------------------ ----------------------------- Dec. 31, Dec. 31, Dec. 31, Dec. 31, 2005 2004 2005 2004 ------------ ------------ ------------ ------------ Net income $ 1,929 $ 766 $ 1,238 $ 1,366 ------------ ------------ ------------ ------------ Other comprehensive income: Foreign currency translation adjustments (4) 170 2 245 Unrealized gains on investments, net of tax --- 3 --- 5 ------------ ------------ ------------ ------------ Other comprehensive (loss)/income 173 250 (4) 2 ------------ ------------ ------------ ------------ Comprehensive income $ 1,925 $ 939 $ 1,240 $ 1,616 ============ ============ ============ ============ (8) INDEBTEDNESS: Long-term debt consists of the following: December 31, June 30, 2005 2005 ------------------- ------------------ Notes payable to banks $ 7,075 $ 3,483 Obligations under capital leases 2,683 2,896 ------------------- ------------------ 9,758 6,379 Less: current portion 1,826 1,103 ------------------- ------------------ Long-term debt $ 7,932 $ 5,276 =================== ================== 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. In May 2005, the credit facility was increased to $6,000. Borrowings under the line bear interest, at the Company's option, at either a fixed rate of 3.47% above the five year Treasury Bond yield at the time of election 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 will expire on March 10, 2006. GECC has the option to securitize these loans with a third party. Loans securitized with a third party increase the available line of credit to the Company. As of December 31, 2005, the Company had $5,564 of borrowings outstanding under this facility at fixed interest rates ranging from 7.15% and 7.93%. In December 2004, the Company entered into a credit facility with Commerce Bank, N.A. Under the terms of this facility, the Company may request advances from time to time up to an aggregate of $5,000. Any advance made bears interest at 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. In November 2005, this line was extended through, and unless further extended, all borrowings under the line are due on, November 30, 2006. The facility is subject to certain financial covenants, including minimum tangible net worth and liability percentage ratios. As of December 31, 2005, the Company had no outstanding borrowings under this credit facility. In September 2005, the Company's wholly-owned subsidiary in Sweden obtained a series of five term loans aggregating 12,000 Swedish Krona ("SEK") (approximately $1,500) from Svenska Handelsbanken, AB ("Handelsbanken"). The loans are unsecured and bear interest at fixed rates ranging from 3.56% to 4.59%. The five loans are each for a principal amount of 2,400 SEK and are fully amortizing. The loans mature in one to five years with the first maturing on September 30, 2006 and one maturing on each succeeding September 30th through 2010. In connection with, and as an inducement to Handelsbanken to make the loans, the Company entered into a Guaranty and Agreement with Handelsbanken whereby the Company has agreed to guarantee the payment of all its Swedish subsidiary's obligations under the loans. 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 December 31, 2005, the Jacksonville Facility has an aggregate cost of $5,104 and a net book value of $1,771. 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 currently provides for base rent of approximately $780 per annum. The lease further provides for annual increases in base rent for years beginning after May 1, 1999, based on the increase in the Consumer Price Index 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 rent is subject to increase to the fair market rental of the Jacksonville Facility, including the new construction. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) 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 -------- In each of the past eleven quarters, the Company's revenues have exceeded the revenues achieved during the comparable quarter a year earlier. Growth has come from increased sales of traditional products as well as sales of new products, such as the 600 series capacitors, resistive products and co-fired ceramic packaging. Revenue growth has also been fueled by the increased activity in many of the markets the Company services, such as wireless infrastructure, medical equipment, military and semiconductor equipment. Profitability has improved steadily over the past six quarters, with the exception of the first quarter of fiscal year 2006 which was adversely affected by the problems incurred by the Company in attempting to convert its component manufacturing and sales functions to its Enterprise Resource Planning ("ERP") system. Profitability improvements have come from efficiencies associated with operating at higher volumes and from automation and process improvements. During the quarter ended December 31, 2005, the Company recorded strong sales and bookings despite fewer working days due to the periods the Company is closed for the holidays. Bookings were particularly strong from the military and wireless infrastructure markets. Sales benefited in the quarter from shipment of past due backlog due to difficulties experienced in the first quarter in converting to the ERP system. 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) For the six months ended December 31, 2005, net income decreased compared to the comparable period of the prior fiscal year due to the problems experienced in the first quarter in converting to the ERP system. The Company took steps during the second fiscal quarter to reduce costs as inventory levels have reached levels the Company feels are adequate to service its customers and meet current demand. During the quarter ended December 31, 2005, the Company finalized its acquisition of assets from CTS Corporation ("CTS") adding $2,800 of fixed assets and $300 of intangible assets to its balance sheet. The assets will be used primarily to increase overall capacity and add additional capabilities in the area of co-fired ceramic packaging. During the quarter ended December 31, 2005, the Company incurred approximately $2,400 in additional borrowings under its line of credit with General Electric Capital Corporation to fund equipment purchases, primarily from CTS. In addition, the Company's wholly-owned subsidiary in Sweden incurred borrowings during the second fiscal quarter of approximately $1,500, in order to repatriate earnings into the United States. RESULTS OF OPERATIONS --------------------- KEY COMPARATIVE PERFORMANCE INDICATORS Three Months Ended Six Months Ended ------------------------------------------ ------------------------------------------ Dec. 31, 2005 Dec. 31, 2004 Dec. 31, 2005 Dec. 31, 2004 ------------------- ------------------- ------------------- ------------------- Sales $ 19,678 $ 16,229 $ 37,180 $ 33,157 Bookings $ 21,975 $ 18,524 $ 39,601 $ 32,988 Gross Margin $ 7,965 $ 5,670 $ 11,840 $ 10,962 Gross Margin (% of sales) 40.5% 34.9% 31.8% 33.1% Operating Expenses $ 4,972 $ 4,484 $ 9,734 $ 8,856 Operating Expenses (% of sales) 25.3% 27.6% 26.2% 26.7% SIGNIFICANT HIGHLIGHTS Sales for the three and six months ended December 31, 2005 increased 21% and 12%, respectively, over the comparable period in the prior fiscal year. Bookings for the three and six months ended December 31, 2005 increased 19% and 20%, respectively, over the comparable period in the prior fiscal year. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) Three Months Ended December 31, 2005 Compared with Three Months Ended December 31, 2004 --------------------------------------------------------------------- Bookings for the three months ended December 31, 2005 were $21,975, compared to $18,524 for the three months ended December 31, 2004. The improvement in bookings was due primarily to increased orders from the wireless infrastructure and semiconductor markets. The backlog of unfilled orders at December 31, 2005 was $16,331, compared to $13,302 at December 31, 2004 and $13,958 at June 30, 2005. Net sales for the three months ended December 31, 2005 increased 21% from the comparable period in the prior fiscal year. The increase was due to higher volume of product shipped as a result of improving economic conditions in the electronic components industry, greater market share and improving sales of newer products as these new products gain acceptance in the markets the Company serves. The volume improvement was mainly from sales to customers in the wireless infrastructure and semiconductor equipment markets. Additionally, second quarter sales volume benefited from shipments of past due orders that were delayed at the end of the first quarter due to the difficulties encountered in implementing the ERP system. Gross margins for the three months ended December 31, 2005 were 41% of net sales, compared to 35% of net sales for the comparable period in the prior fiscal year. Gross margins increased due to higher sales volume and efficiencies associated with operating at higher production levels, and to cost reduction measures implemented during the fiscal quarter ended December 31, 2005. Over the past two years, the Company has been increasing production levels to keep pace with growing demand and to increase inventory levels to better service its customers. The Company feels it has reached appropriate inventory levels to service its existing customers and meet current demand. As such, during the fiscal quarter ended December 31, 2005, the Company took steps to reduce costs, including a reduction in headcount of approximately 8%. Selling, general and administrative expenses for the three months ended December 31, 2005 increased 13% from the comparable period in the prior fiscal year. The increase was primarily the result of increased severance expense as a result of the reduction of headcount mentioned above, increased bonuses as a result of increased profitability, increased consulting expense relating to implementation and troubleshooting of the ERP system and increased depreciation expense. Interest expense for the three months ended December 31, 2005 increased 48% from the comparable period in the prior fiscal year as a result of higher average borrowings outstanding during the period. During the three months ended December 3, 2004, the Company had no outstanding bank debt. The effective income tax rate for the three months ended December 31, 2005 and 2004 was approximately 33% and 30%, respectively. The increase in the effective tax rate was primarily due to increased state tax expense net of federal benefit. As a result of the foregoing, net income for the three months ended December 31, 2005 was $1,929, or $0.23 per common share and $0.22 per common share assuming dilution, compared to net income of $766, or $0.09 per common share and per common share assuming dilution, for the comparable period in the prior fiscal year. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) Six Months Ended December 31, 2005 Compared with Six Months Ended December 31, 2004 ----------------------------------------------------------------- Bookings for the six months ended December 31, 2005 were $39,601, compared to $32,988 for the six months ended December 31, 2004. The improvement in bookings was due primarily to increased orders from the wireless infrastructure and semiconductor equipment markets and, to a lesser extent, the military and fiber optic markets. Net sales for the six months ended December 31, 2005 increased 12% from the comparable period in the prior fiscal year. The increase was due to higher volume of product shipped as a result of improving economic conditions in the electronic components industry, greater market share and improving sales of newer products as these new products gain acceptance in the markets the Company serves. The volume improvement was mainly from sales to customers in the wireless infrastructure and semiconductor equipment markets. Gross margins for the six months ended December 31, 2005 were 32% of net sales, compared to 33% of net sales for the comparable period in the prior fiscal year. Gross margins decreased primarily due to additional expenses incurred and inefficiencies experienced during the Company's first fiscal quarter in connection with the conversion of its component manufacturing and sales functions to its ERP system. The Company's operations returned to normal during the second fiscal quarter and the Company was able to realize the benefits of increased sales volume. Additionally, the Company took certain steps to reduce costs during the second fiscal quarter as mentioned above. The cost reductions and higher sales levels helped to offset the low gross margin from the first fiscal quarter. Selling, general and administrative expenses for the six months ended December 31, 2005 increased 11% from the comparable period in the prior fiscal year. The increase was primarily the result of consulting and professional fee expenses (relating to the ERP system, adopting of new accounting standards and audit and tax services), a lower level of bad debt recovery, increased salary expense and increased depreciation expense. Interest expense for the six months ended December 31, 2005 increased 51% from the comparable period in the prior fiscal year due to increased borrowings outstanding under the Company's line of credit with GECC and borrowings by the Company's wholly-owned subsidiary in Sweden. In the comparable period of the prior fiscal year, long-term debt consisted entirely of capital lease obligations. The effective tax rate for the six months ended December 31, 2005 and 2004 was approximately 34% and 29%, respectively. The increase in the effective tax rate was primarily due to increased state tax expense net of federal benefit. As a result of the foregoing, net income for the six months ended December 31, 2005 was $1,238, or $0.15 per common share and $0.14 per common share assuming dilution, compared to net income of $1,366, or $0.16 per common share and per common share assuming dilution, for the comparable period in the prior fiscal year. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) LIQUIDITY AND CAPITAL RESOURCES Dec. 31, 2005 Sept. 30, 2005 June 30, 2005 ----------------------- -------------------- -------------------- Cash and Investments $ 9,548 $ 6,888 $ 6,950 Working Capital $ 41,019 $ 37,947 $ 39,032 Quarter Ended: Operating Cash Flow $ 2,370 $ 1,665 $ 1,321 Capital Expenditures $ 1,984 $ 3,196 $ 1,589 Depreciation and Amortization $ 1,450 $ 1,544 $ 1,242 Current Ratio 5.5:1 5.4:1 5.3:1 Quick Ratio 2.0:1 1.8:1 1.9:1 The Company's financial position at December 31, 2005 remains strong as evidenced by working capital of $41,019 and current and quick ratios of 5.5:1 and 2.0:1, respectively. Cash, cash equivalents and investments increased by $2,598 from June 30, 2005, primarily as a result of positive cash flow from operations and borrowings under the Company's line of credit with GECC and borrowings by the Company's wholly-owned subsidiary in Sweden, partially offset by capital expenditures. Accounts receivable decreased by $808 from June 30, 2005, primarily due to decreased sales revenue in the quarter ended December 31, 2005 compared to the quarter ended June 30, 2005, and to the lesser number of working days during the second quarter of the fiscal year due to the holidays. (The Company generally closes for the holidays during the last week of December.) Inventories increased by $522 from June 30, 2005, primarily as a result of higher production levels designed to increase inventories to support current and future demand. Prepaid and other current assets decreased $284, primarily due to a decrease in value-added taxes receivable as a result of timing of payments and collections. Other long-term assets increased $203, due to recorded intangible assets from the purchase of assets from CTS, partially offset by collection of a long-term tax receivable. The current portion of long-term debt increased $723, due to borrowings incurred under the equipment line of credit with GECC and borrowings by the Company's subsidiary in Sweden. Accrued expenses decreased by $789 during the same period, due to payments of year end bonus accruals, decreased real estate tax accrued and lower consulting fees due to a reduction of consulting services. Taxes payable increased $118 from June 30, 2005, primarily due to taxable income generated during the quarter ended December 31, 2005, partially offset by federal estimated tax payments. 16 In April 2004, the Company entered into a $4,000 credit facility with GECC for the purchase of equipment. In March 2005, the credit facility was increased to $6,000. Borrowings under the line bear 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 will expire on March 31, 2006. GECC has the option to securitize these loans with a third party. Loans securitized with a third party increase the available line of credit to the Company. As of December 31, 2005, the Company had $5,564 of borrowings outstanding under this facility at fixed interest rates ranging from 7.15% to 7.93%. At December 31, 2005, the Company had $2,634 available to borrow under this credit facility. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) In December 2004, the Company entered into a credit facility with Commerce Bank, N.A. Under the terms of this facility, the Company may request advances from time to time up to an aggregate of $5,000. Any advance made bears interest at 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. Borrowings under the line expire on November 30, 2006. The facility is subject to certain financial covenants, including minimum tangible net worth and liability percentage ratios. As of December 31, 2005, the Company had no outstanding borrowings under this credit facility. In September 2005, the Company's wholly-owned subsidiary in Sweden obtained a series of five term loans aggregating 12,000 Swedish Krona ("SEK") (approximately $1,500) from Svenska Handelsbanken, AB ("Handelsbanken"). The loans are unsecured and bear interest at fixed rates ranging from 3.56% to 4.59%. The five loans are each for a principal amount of 2,400 SEK and are fully amortizing. The loans mature in one to five years with the first maturing on September 30, 2006 and one other maturing on each succeeding September 30th through 2010. In connection with, and as an inducement to Handelsbanken to make the loans, the Company entered into a Guaranty and Agreement with Handelsbanken whereby the Company has agreed to guarantee the payment of all its Swedish subsidiary's obligations under the loans. 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, 2005, the Company is obligated to pay approximately $780 per annum under this lease. The payments due over the remaining 57 months of this capital lease, including the portion related to interest, total approximately $3,706. Capital expenditures for the six months ended December 31, 2005 totaled $5,180, 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 $2,320 for the remainder of fiscal year 2006, primarily for equipment acquisitions and building renovations. Aggregate contractual obligations as of December 31, 2005 mature as follows: Payments Due by Period -------------------------------------------------------------------------------------- Contractual Obligations Less than 1 1-3 3-5 After 5 Total year years Years years --------------------------------------- -------------- ---------------- ------------- ------------- ------------- Bank Debt $ 8,287 $ 1,845 $ 3,658 $ 2,784 $ --- Capital Lease Obligations 3,705 780 1,560 1,365 --- Operating Leases 898 493 405 --- --- Purchase Obligations 2,113 2,113 --- --- --- -------------- ---------------- ------------- ------------- ------------- Total Contractual Obligations $15,003 $ 5231 $ 5623 $4149 $ --- ============== ================ ============= ============= ============= 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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. 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, 2005. 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. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (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. 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (In thousands, except per share data) Accounting Standards Issued Not Yet Adopted ------------------------------------------- In March 2005, the Financial Accounting Standards Board issued FASB Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations-an interpretation of FASB Statement No. 143" ("FIN No. 47"). This Interpretation clarifies that the term conditional asset retirement obligation as used in FASB Statement No. 143, Accounting for Asset Retirement Obligations, refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. The obligation to perform the asset retirement activity is unconditional even though uncertainty exists about the timing and (or) method of settlement. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value of the liability can be reasonably estimated. The fair value of a liability for the conditional asset retirement obligation should be recognized when incurred-generally upon acquisition, construction, or development and (or) through the normal operation of the asset. This Interpretation also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. This Interpretation is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the impact of the adoption of FIN No. 47 on its financial position and consolidated results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's market risk exposure at December 31, 2005 is consistent with the types of market risk and amount of exposures presented in its Annual Report on Form 10-K for the fiscal year ended June 30, 2005, including foreign currency exchange rate, commodity price, security price and interest rate risks. 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 - Finance 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. 21 PART II - OTHER INFORMATION ITEMS 1. THROUGH 3. Not Applicable -------------- ITEM 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- At the Company's Annual Meeting of Stockholders held on November 15, 2005 (the "Annual Meeting"), the stockholders elected the individuals named below as directors for one-year terms. Votes were cast as follows: For ---------------- Victor Insetta 8,304,717 Dov S. Bacharach 8,341,015 Chester E. Spence 8,281,807 O. Julian Garrard III 8,342,015 Stuart P. Litt 8,321,215 Thomas J. Volpe 8,341,015 The stockholders also ratified the appointment of KPMG LLP as the independent public accountants to audit the Company's consolidated financial statements for the fiscal year ending June 30, 2006. The holders of 8,344,711 shares of Common Stock voted to ratify the appointment, 18,279 voted against ratification and the holders of 1,630 shares of Common Stock abstained from voting on the issue. ITEM 5. Other Events ------------ On December 22, 2005, the Company and Judah Wolf, Senior Vice President - Thin Film Products of the Company, entered into a letter agreement which provides that either party may terminate the Employment Agreement between Mr. Wolf and the Company upon 90 days' notice to the other party. Except as provided in the letter agreement, all other terms and conditions of the Employment Agreement, including those relating to compensation, remain unchanged and in full force and effect. ITEM 6. Exhibits -------- EXHIBIT NO. DESCRIPTION ----------- ----------- 10.20(i) - Letter Agreement, dated December 22, 2005, between the Company and Judah Wolf. 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. 22 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: February 13, 2006 BY: /S/ VICTOR INSETTA ------------------------------ Victor Insetta President and Director (Principal Executive Officer) DATE: February 13, 2006 BY: /S/ ANDREW R. PERZ ----------------------------- Andrew R. Perz Vice President, Finance (Principal Accounting Officer) 23