UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended July 1, 2001		Commission File Number 0-13433 MILTOPE GROUP INC (Exact Name of Registrant as Specified in its Charter) - --------------------------------------------------------------------------- Delaware 11-2693062 - -----------------------------------	 -------------------- (State or other jurisdiction (I.R.S.Employer of incorporation or organization)		Identification No.) 500 Richardson Road South Hope Hull, AL 36043 - --------------------------		 --------- (Address of principal (Zip Code) executive offices) Registrant's telephone number, including area code (334) 284-8665 Not Applicable - --------------------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No 	 ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at August 7, 2001: 5,871,523 shares of Common Stock, $.01 par value. PART I - FINANCIAL INFORMATION MILTOPE GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited) July 1, 	December 31, ASSETS 2001 	 2000 - -------				 ----------- 	------------ 				 		 CURRENT ASSETS: Cash $ 1,198,000 $ 2,711,000 Accounts receivable 6,239,000 7,933,000 Inventories 12,943,000 12,877,000 Deferred income taxes 1,095,000 952,000 Other current assets 311,000 382,000 				 ----------- 	------------ Total current assets 21,786,000 24,855,000 				 ----------- 	------------ PROPERTY AND EQUIPMENT - at cost: Machinery and equipment 8,351,000 8,911,000 Furniture and fixtures 1,628,000 1,628,000 Land, building and improvements 6,702,000 6,732,000 				 ----------- 	------------ Total property and equipment 16,681,000 17,271,000 Less accumulated depreciation 10,665,000 10,679,000 				 ----------- 	------------ Property and equipment - net 6,016,000 6,592,000 				 ----------- 	------------ DEFERRED INCOME TAXES 3,069,000 3,212,000 OTHER ASSETS 923,000 956,000 				 ----------- 	------------ TOTAL $31,794,000 $35,615,000 				 ===========	============ LIABILITIES AND STOCKHOLDERS'EQUITY - ----------------------------------- CURRENT LIABILITIES: Short-term debt $ 725,000 $ 800,000 Accounts payable 4,748,000 5,533,000 Accrued expenses 3,873,000 4,534,000 Current maturities of long-term debt 3,769,000 4,129,000 				 ----------- 	------------ Total current liabilities 13,115,000 14,996,000 LONG-TERM DEBT 8,474,000 9,654,000 OTHER LIABILITIES 33,000 49,000 				 ----------- 	------------ Total liabilities 21,622,000 24,699,000 				 ----------- 	------------ COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock - $.01 par value; 20,000,000 shares authorized; 6,811,112 shares outstanding at July 1, 2001 and December 31,2000.			 68,000	 68,000 Capital in excess of par value 24,519,000 24,519,000 Retained earnings (accumulated deficit) (169,000) 575,000 				 ----------- 	------------ 24,418,000 25,162,000 Less treasury stock at cost 14,246,000 14,246,000 				 ----------- 	------------ Total stockholders' equity 10,172,000 10,916,000 				 ----------- 	------------ TOTAL $31,794,000 $35,615,000 				 =========== 	============ See Notes To Condensed Consolidated Financial Statements MILTOPE GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Thirteen Weeks Ended 						--------------------------- 						 July 1,	 June 25, 	 2001 2000 						-----------	----------- 								 NET SALES 		$11,387,000	$10,725,000 						-----------	----------- COSTS AND EXPENSES: Cost of sales 		 9,798,000 8,638,000 Selling, general and administrative 1,477,000 1,855,000 Engineering, research and development 356,000 187,000 						-----------	----------- Total 		 11,631,000 10,680,000 						-----------	----------- INCOME (LOSS) FROM OPERATIONS 		 (244,000) 45,000 INTEREST EXPENSE - net 		 189,000 283,000 						-----------	----------- LOSS BEFORE INCOME TAXES 		 (433,000) (238,000) INCOME TAX BENEFIT 		 - - 						-----------	----------- NET LOSS 		$ (433,000)	$ (238,000) 						===========	=========== BASIC AND DILUTED NET LOSS PER SHARE 		$ (.08) $ (.04) 						===========	=========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 		 5,871,523 5,871,523 						===========	=========== See Notes To Condensed Consolidated Financial Statements MILTOPE GROUP INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) 		 Twenty-Six Weeks Ended 						--------------------------- 		 July 1, June 25, 	 2001 	 2000 						-----------	----------- 								 NET SALES 		$21,380,000	$18,452,000 						-----------	----------- COSTS AND EXPENSES: Cost of sales 		 18,176,000 14,228,000 Selling, general and administrative 3,031,000 3,646,000 Engineering, research and development 515,000 452,000 						-----------	----------- Total 		 21,722,000 	 18,326,000 						-----------	----------- INCOME (LOSS) FROM OPERATIONS 		 (342,000)	 126,000 INTEREST EXPENSE - net 		 402,000	 591,000 						-----------	----------- LOSS BEFORE INCOME TAXES 		 (744,000)	 (465,000) INCOME TAX BENEFIT 		 - - 						-----------	----------- NET LOSS 		$ (744,000)	$ (465,000) 						===========	=========== BASIC AND DILUTED NET LOSS PER SHARE 		$ (.13)	$ (.08) 						===========	=========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 			 5,871,523 5,871,523 						===========	=========== See Notes To Condensed Consolidated Financial Statements 		MILTOPE GROUP INC. AND SUBSIDIARIES 		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 		FOR THE TWENTY-SIX WEEKS ENDED JULY 1, 2001 AND JUNE 25, 2000 		(unaudited) 				 July 1, June 25, 				 2001 2000 									-----------	----------- 											 OPERATING ACTIVITIES: Net loss 				$ (744,000)	$ (465,000) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 				 526,000 695,000 Provision for slow-moving and obsolete inventories 	 520,000 630,000 Provision for doubtful accounts receivable 			 10,000 5,000 Gain on sale of property and equipment 			 (5,000) (24,000) Changes in operating assets and liabilities: Accounts receivable 					 1,684,000 (3,725,000) Inventories 				 (586,000) 1,319,000 Other current assets 				 72,000 339,000 Other assets 				 9,000 124,000 Accounts payable and accrued expenses 		 (1,464,000) 461,000 									-----------	----------- Cash provided by (used in) operating activities 		 22,000 (641,000) 									-----------	----------- INVESTING ACTIVITIES: Purchase of property and equipment 				 (76,000) (79,000) Sale of property and equipment 				 156,000 900,000 									-----------	----------- Cash provided by investing activities 			 80,000 821,000 									-----------	----------- FINANCING ACTIVITIES: Payments of other long-term debt - net 				 (1,615,000) (2,104,000) 									-----------	----------- Cash used in financing activities 			 (1,615,000) (2,104,000) 									-----------	----------- NET DECREASE IN CASH 				 (1,513,000) (1,924,000) CASH, BEGINNING OF PERIOD 				 2,711,000 2,437,000 									-----------	----------- CASH, END OF PERIOD 				$ 1,198,000 	$ 513,000 									===========	=========== SUPPLEMENTAL DISCLOSURE: Cash payments made for: Income taxes 				$ 87,000 $ - 									===========	=========== Interest 				$ 522,000 	$ 641,000 									===========	=========== </TABLE See Notes To Condensed Consolidated Financial Statements MILTOPE GROUP INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Financial Statements - In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary (consisting of only normal and recurring accruals) to present fairly the results of the reported interim period. The results for the twenty-six weeks ended July 1, 2001 and June 25, 2000 are not necessarily indicative of the results for an entire year. It is suggested that these consolidated financial statements be read in conjunction with the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Reclassifications - Certain prior years amounts have been reclassified to conform to the 2001 presentation. Net Loss Per Share - Basic and diluted earnings per share are computed by dividing the net loss by the weighted average common shares outstanding (basic EPS) or weighted average common shares outstanding assuming dilution (diluted EPS). Based on this computation, there is no difference between basic and diluted net loss per share. Options that could potentially dilute basic net income per share in the future were not included in the computation of diluted net loss per share because to do so would have been anti-dilutive. Anti-dilutive options were 395,795, and 336,012 at July 1, 2001 and June 25, 2000, respectively. Recent Accounting Pronouncements - In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" (effective July 1, 2001) and SFAS No. 142, "Goodwill and Other Intangible Assets" (effective for Miltope on January 1, 2002). SFAS No. 141 prohibits pooling-of-interests accounting for acquisitions. SFAS No. 142 specifies that goodwill and certain intangible assets will no longer be amortized but instead will be subject to periodic impairment testing. The Company is in the process of evaluating the financial statement impact of adoption of SFAS No. 142. Statement of Financial Account Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS 133 effective January 1, 2001. The adoption of SFAS 133 did not have a material impact on the financial position, results of operations, or cash flows of the Company. 2. Business Acquisitions - On April 1, 2000, the Company entered into an agreement with Great Universal Incorporated ("GUI"), to transfer GUI's ownership of 90% of the outstanding stock of IV Phoenix Group, Inc. ("PGI") to the Company. Since GUI, through its controlling interest in the Company, continues to own a controlling interest in PGI after the transfer, the acquisition has been recorded on the Company's books at GUI's historical cost and accounted for on an "as if pooled basis". Net sales and net income (loss) for the separate companies and the combined amounts presented in the accompanying consolidated financial statements are as follows: 		 Thirteen Weeks Thirteen Weeks 		 Ended July 1, 2001 Ended June 25,2000 						 ------------------ ------------------- 										 Revenues: Miltope 			$10,567,000		$ 9,610,000 PGI 		 820,000 	 1,115,000 Combined (net of related party transactions)		$11,387,000		$10,725,000 Net income (loss): Miltope 	 			$ 272,000 		$ 12,000 PGI 	 (705,000) 	 	 (250,000) Combined (net of related party transactions) $ (433,000)		$ (238,000) 		 Twenty-six Weeks Twenty-six Weeks 		 Ended July 1, 2001 Ended June 25,2000 						 ------------------ ------------------- 										 Revenues: Miltope 			$20,014,000		$16,093,000 PGI 		 1,366,000 	 2,359,000 Combined (net of related party transactions) $21,380,000 		$18,452,000 Net income (loss): Miltope 		$ 670,000 	 (24,000) PGI 	 (1,414,000) 	 (441,000) Combined (net of related party transactions) $ (744,000)		$ (465,000) Certain amounts from PGI's prior financial statements were reclassified to conform to Miltope's presentation. 3. Inventories - Net Inventories consist of the following: July 1, 2001 December 31, 2000 ------------ ----------------- 					 Purchased parts and subassemblies $ 9,690,000 	 $ 9,911,000 Work-in-process 3,253,000 	 2,966,000 			-----------	 ----------- Total $12,943,000 	 $12,877,000 			===========	 =========== 4. Income Taxes - No income tax benefit has been recognized related to the net operating losses for the twenty-six weeks ended July 1, 2001 and June 25, 2000 as they have been fully reserved with a valuation allowance. Although realization is not assured, management believes it is more likely than not that the recorded deferred tax assets, net of valuation allowance provided, will be realized. The valuation allowances can be adjusted in future periods as the probability of realization of the deferred tax assets change. 5. Segment Information - The Company's reportable segments are organized around its two main products and services segments, Military/Rugged and Commercial. Through its military/rugged segment, the Company is engaged in the design, manufacture and testing of computer and computer peripheral equipment for military and other specialized applications requiring reliable operations in severe land, sea and airborne environments. These products are generally sold by the Company's business development group through the federal government bid process. PGI is an operating segment of the Company which has been aggregated within the Military/Rugged segment for financial reporting purposes. The Company's commercial segment designs, develops, manufactures and markets commercial computer related products primarily for transportation, telecommunications and in-field maintenance markets. These products are sold through an established network of marketing representatives and Company employed sales people to a broad base of customers both international and domestic. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company's determination of segment operating profit or loss does not reflect other income and expense or income taxes. Thirteen Weeks Ended July 1, 2001 and June 25, 2000 - --------------------------------------------------- 					 General July 1, 2001 	 Military/Rugged Commercial Eliminations Corporate Consolidated ------------		 ---------------	------------	------------	----------- ------------ 													 Net sales from external customers	$ 8,796,000	$ 2,687,000	$ (96,000)			$11,387,000 					===========	===========	==========			=========== Segment operating loss 	$ (235,000)	$ (9,000) 	$ - 			$ (244,000) 					===========	===========	==========			=========== Identifiable assets 		$18,651,000 $ 6,547,000 	$ - 	$ 6,596,000	$31,794,000 					===========	===========	==========	===========	=========== Capital expenditures 		$ 27,000 	$ 8,000 	$ - 			$ 35,000 					===========	===========	==========			=========== Depreciation and amortization 	$ 251,000 	$ 1,000 	$ - 			$ 252,000 					===========	===========	==========			=========== 					 General June 25, 2000 	 Military/Rugged	 Commercial 	Eliminations 	 Corporate Consolidated -------------		 --------------- ----------- ------------ ----------- ------------ 													 Net sales from external customers $ 7,308,000	$ 3,525,000	$ (108,000) 	$10,725,000 					===========	===========	==========			=========== Segment operating income (loss) $ (168,000) $ 250,000	$ (37,000) 	$ 45,000 					===========	===========	==========			=========== Identifiable assets 		$22,342,000 $ 6,607,000 	$ 80,000	$ 5,953,000	$34,982,000 					===========	===========	==========	===========	=========== Capital expenditures 		$ 19,000 	$ 10,000 	$ - 		$ 29,000 					===========	===========	==========			=========== Depreciation and amortization 	$ 216,000 	$ 84,000 	$ 37,000 		$ 337,000 					===========	===========	==========			=========== Twenty-Six Weeks Ended July 1, 2001 and June 25, 2000 - ----------------------------------------------------- 					 General July 1, 2001 	 Military/Rugged	 Commercial 	Eliminations Corporate Consolidated -------------		 --------------- ----------- ------------ ----------- ------------ 													 Net sales from external customers 	$16,060,000 	$ 5,416,000 	$ (96,000) 	$21,380,000 					===========	===========	==========			=========== Segment operating income (loss) 	$ (637,000) $ 302,000	$ (7,000) 	$ (342,000) 					===========	===========	==========			=========== Identifiable assets 		$18,651,000 $ 6,547,000 	$ - 	$ 6,596,000 	$31,794,000 					===========	===========	==========	===========	=========== Capital expenditures 		$ 56,000 	$ 20,000 	$ - 		$ 76,000 					===========	===========	==========			=========== Depreciation and amortization 	$ 517,000 	$ 2,000 	$ 7,000 		$ 526,000 					===========	===========	==========			=========== 											 General June 25, 2000 Military/Rugged	 Commercial 	Eliminations 	 Corporate Consolidated -------------		 --------------- ----------- ------------ ----------- ------------ 													 Net sales from external customers $11,674,000 	$ 6,985,000 	$ (207,000) 	$18,452,000 					===========	===========	==========			=========== Segment operating income (loss) 	$ (532,000) $ 731,000	$ (73,000) 	$ 126,000 					===========	===========	==========			=========== Identifiable assets 		$22,342,000 $ 6,607,000 	$ 80,000	$ 5,953,000 	$34,982,000 					===========	===========	==========	===========	=========== Capital expenditures 		$ 44,000 	$ 35,000 	 - 		$ 79,000 					===========	===========	==========			=========== Depreciation and amortization 	$ 444,000 	$ 178,000 $ 73,000 			$ 695,000 					===========	===========	==========			=========== 											 General December 31, 2000 	 Military/Rugged	 Commercial 	Eliminations 	 Corporate Consolidated -------------		 --------------- ----------- ------------ ----------- ------------ 													 Identifiable assets 		$18,675,000 $ 8,727,000 	$ 7,000 	$ 8,206,000 	$35,615,000 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion includes certain forward looking statements which are affected by important factors including, but not limited to, actions of competitors, termination of contracts at the convenience of the United States government, customer funding variations in connection with multi-year contracts and follow-on options that could cause actual results to differ materially from forward looking statements. GENERAL - ------- The following discussion and analysis presents certain factors affecting the Company's results of operations for the thirteen weeks and twenty-six weeks ended July 1, 2001, as compared to the thirteen weeks and twenty-six weeks ended June 25, 2000. RESULTS OF OPERATIONS - --------------------- CONSOLIDATED - ------------ Thirteen weeks ended July 1, 2001 compared to thirteen weeks ended June 25, 2000 - ----------------------------------------------------------------------- Net sales for the thirteen weeks ended July 1, 2001 (second quarter of 2001) were $11,387,000 compared to net sales for the thirteen weeks ended June 25, 2000 (second quarter of 2000) of $10,725,000. This increase was primarily attributable to increased sales to the government of SPORT units offset partially by a decrease in sales of rugged workstations. The gross margin percentage for the second quarter of 2001 was 14.0% compared to 19.5% for the same period in 2000. The decrease is largely due to unforeseen expenditures required to complete several PGI initial-award contracts. Selling, general and administrative expenses for the second quarter of 2001 decreased 20.4% from the second quarter of 2000, to $1,477,000. These expenses as a percent of sales were 13.0% in the second quarter of 2001 compared to 17.3% for the similar period in 2000. The decrease as a percent of sales is primarily attributable to increased sales and the effect of planned reductions in administrative and marketing costs at both Miltope and PGI. Company sponsored engineering, research and development expenses for the second quarter of 2001 increased 90.4% from the second quarter of 2000, to $356,000. These expenses as a percent of sales were 3.1% in the second quarter of 2001 compared to 1.7% for the similar period in 2000. The increase is primarily attributable to efforts expended in relation to the new five-year rugged laptop computer contract awarded to Miltope in May of 2001. Interest expense, net of interest income, was $189,000 in the second quarter of 2001 compared to $283,000 for the similar period in 2000. The decrease is a result of decreased debt balances, reduced interest rates, and increased interest income compared to the prior year. The consolidated net loss for the second quarter of 2001 was $433,000 compared to a consolidated net loss of $238,000 in the second quarter of 2000. The basic and diluted net loss per share was $0.08 for the second quarter of 2001 compared to the basic and diluted net loss per share of $0.04 for the similar period in 2000 based on a weighted average of 5,871,523 shares of the Company's common stock outstanding for the second quarter of 2001 and 2000. Twenty-six weeks ended July 1, 2001 compared to twenty-six weeks ended June 25, 2000 - ----------------------------------------------------------------------- Net sales for the first half of 2001 were $21,380,000 compared to net sales for the first half of 2000 of $18,452,000. The increase in sales was primarily attributable to increased sales to the government of SPORT units. The gross margin percent for the first half of 2001 was 15.0% compared to 22.9% for the same period in 2000. The decrease in gross margin percent was largely due to unforeseen expenditures required to complete several PGI initial-award contracts. Selling, general and administrative expenses for the first half of 2001 decreased 16.9% from the first half of 2000, to $3,031,000. These expenses as a percent of sales were 14.2% in the first half of 2001 compared to 19.8% for the similar period in 2000. The decrease as a percent of sales is primarily attributable to increased sales and the effect of planned reductions in administrative and marketing costs at both Miltope and PGI. Company sponsored engineering, research and development expenses for the first half of 2001 increased 13.9% from the first half of 2000, to $515,000. These expenses as a percent of sales remained unchanged at 2.4% for both the first half of 2001 and the first half of 2000. The increase in expenditures is primarily attributable to efforts expended in relation to the new five-year rugged laptop computer contract awarded to Miltope in May of 2001. Interest expense, net of interest income, was $402,000 in the first half of 2001 compared to $591,000 for the similar period in 2000. The decrease reflects decreased debt, reduced interest rates, and increased interest income as compared to the prior year. The consolidated net loss for the first half of 2001 was $744,000 compared to a consolidated net loss of $465,000 in the first half of 2000. The basic and diluted net loss per share was $0.13 for the first half of 2001 as compared to the basic and diluted net loss per share of $0.08 for the similar period in 2000 based on a weighted average of 5,871,523 shares of the Company's common stock outstanding in 2001 and 2000. MILTOPE CORPORATION Approximately 94% of the consolidated net sales for the twenty-six weeks ended July 1, 2001 are attributable to Miltope Corporation. The following is a discussion of Miltope's operating results net of any inter-company activity with IV Phoenix Group, Inc. 			 Miltope (net of eliminations) 		 (Amounts in thousands) - ---------------------------------------------------------------------- 		 26 weeks ended 26 weeks ended 			 July 1, 2001 June 25, 2000 % 			 -------------- --------------- -------- 							 Net Sales 		$20,014 	$16,093		24.4% Cost of Sales 		 16,109 	 12,431 	29.6% 				------------------------------------- Gross Profit 		 3,905 	 3,662 	 6.6% 				------------------------------------- Selling, G&A 		 2,421 	 2,745 (11.8)% Engineering, R&D 		 475 	 386 22.7% 				------------------------------------- Income (loss) from Operations 1,009 531 89.8% Interest Expense - net 339 	 555 (38.9)% 				------------------------------------- Net Income (Loss) before taxes 670 	 (24) 2,891.7% Income Tax Benefit 	 - 	 - - 				------------------------------------- Net Income (Loss) 	$ 670 	$ (24) 2,891.7% 				===================================== Miltope reported net income of approximately $670,000 for the first twenty-six weeks of 2001 compared to a net loss of approximately $24,000 for the comparable period in 2000. The basic and diluted net income per share was $.11 for the first twenty-six weeks of 2001 compared to basic and diluted net loss per share of $.01 for the first twenty-six weeks of 2000. Sales for the twenty-six week period of 2001 totaled approximately $20,014,000, an increase of approximately $3,921,000, or 24.4%, from the first half of 2000. This change was attributable to increases in SPORT related sales and increased airborne cockpit printer sales. Gross profit, as a percent of sales, was 19.5% for the first twenty-six weeks of 2001 and 22.8% for the same period in 2000. The decrease in 2001 from 2000 was primarily attributable to variations in product mix. Selling, general and administrative expenses, as a percentage of sales, were 12.1% in the first twenty-six weeks of 2001 and 17.1% in the same period of 2000. The decrease in 2001 as a percentage of sales was attributable to increased sales coupled with the effect of planned reductions in administrative and marketing costs. Engineering, research and development expenses, as a percentage of sales, remained constant at 2.4% in the first twenty-six weeks of 2001 and 2000. The increase in expenditures is primarily attributable to efforts expended in relation to the new five-year rugged laptop computer contract awarded to Miltope in May of 2001. Interest expense, net of interest income, decreased 38.9% in the first twenty-six weeks of 2001 compared to the first twenty-six weeks of 2000 due to a decrease in total debt, decreased interest rates, and increased interest income. LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- The following is a breakdown of significant balance sheet categories between Miltope and PGI: 			Miltope 	 PGI 		 (Amounts in thousands) (Amounts in thousands) 					 ------------------------ ------------------------- 			 July 1, December 31, July 1, December31, 			 2001 2000 2001 2000 					 ------------------------ ------------------------- 											 Cash and equivalents 			$ 803		$ 2,181 	$ 395		$ 530 Receivables, net 			 5,596 7,457 643 476 Inventories & other current assets 12,213 12,233 2,136 1,978 					-------		-------		-------		------- Total current assets 	 18,612 21,871 3,174 2,984 					=======		=======		=======		======= Payables and other current liabilities 2,617 5,581 6,004 4,486 Short-term debt 		 - - 725 800 Current portion of long-term debt 3,762 4,096 7 33 					-------		-------		-------		------- Total current liabilities 	$ 6,379		$ 9,677 	$ 6,736 	$ 5,319 				=======		=======		=======		======= Working capital was $8,671,000 at July 1, 2001 compared to $9,859,000 at December 31, 2000. Accounts receivable decreased $1,694,000 as a result of a higher volume of sales in the last quarter of 2000. Inventory levels remained fairly constant compared to December 31, 2000 balances. Accounts payable decreased $785,000 reflecting satisfaction of invoices relating to inventory purchases in support of increased production in February and March of 2001. Current maturities of long-term debt decreased reflecting more favorable repayment terms on certain of the Company's debt instruments. The Company's $15,000,000 revolving credit agreement with its primary lender matured on May 31, 1999 and was converted into a term loan payable in twelve equal quarterly installments commencing August, 1999. As of July 1, 2001 the Company was in compliance with all requirements under the term loan. The Company has committed to continue its search for a lender to replace the existing term loan. In the near term the Company anticipates its cash position as being adequate to sustain the Company's ongoing financial commitments. The Company's accounts receivable, contract rights and inventories are pledged as collateral to the agreement. PART II - OTHER INFORMATION - --------------------------- Item 1 - Legal Proceedings The Company, from time to time, is a party to pending or threatened legal proceedings and arbitrations. Based upon information presently available, and in light of legal and other defenses available to the Company, management does not consider liability from any threatened or pending litigation to be material. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 	 -------- None (b) Reports on Form 8-K 	 ------------------- None Item 7a - Quantitative and Qualitative Disclosures About Market Risk Market risk is the risk of loss arising from adverse changes in market prices and interest rates. The Company is exposed to interest risk inherent in its financial instruments. The Company is not currently subject to foreign currency or commodity price risk. The Company manages its exposure to these market risks through its regular operating and financing activities. The Company has a revolving credit loan and an Industrial Development Authority Bond Issue that are exposed to changes in interest rates during the course of their maturity. Both debt instruments bear interest at current market rates and thus approximate fair market value. The Company manages its interest rate risk by (a) periodically retiring and issuing debt and (b) periodically fixing the interest rate on the London Inter Bank Offered Rate (LIBOR) portion of its revolving credit loan for 30 to 60 days in order to minimize interest rate swings. A 10% increase in interest rates would affect the Company's variable debt obligations and could potentially reduce future earnings by a maximum of approximately $73,200. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MILTOPE GROUP INC. By:/s/ Thomas Dickinson 				 ------------------------------------------ Thomas Dickinson, President and Chief Executive Officer (Principal Executive Officer) Dated: August 15, 2001