U.S. Securities and Exchange Commission
Washington D.C. 20549
Form 10-Q
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended November 30, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from to
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Commission file number 0-12866
PHAZAR CORP
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 75-1907070
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
101 S.E. 25th Avenue, Mineral Wells, Texas 76067
------------------------------------------------
(Address of principal executive offices)
(940) 325-3301
--------------
(Issuer's telephone number)
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. |X| Yes |_| No
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
|_| Large accelerated filer |_| Accelerated filer
|_| Non-accelerated filer |X| Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). |_|Yes |X| No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 2,375,328 as of December 16, 2009.
1
PHAZAR CORP AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE
PART I FINANCIAL INFORMATION NUMBER
Item 1. Financial Statements for PHAZAR CORP
and Subsidiaries
Consolidated Balance Sheets - 3
November 30, 2009 (unaudited) and May 31, 2009
Consolidated Statements of Operations (Unaudited) - 4
Three and Six Months Ended November 30, 2009 and
November 30, 2008
Consolidated Statements of Cash Flows (Unaudited) - 5
Six Months Ended November 30, 2009 and November 30, 2008
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 19
Financial Condition and Results of Operations
Item 4. Controls and Procedures 23
Management's Evaluation of Internal Control Over
Financial Reporting 23
PART II OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signature 26
Certifications
2
Item 1. Financial Statements
PHAZAR CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 2009 AND MAY 31, 2009
November 30, 2009 May 31, 2009
(Unaudited) (Audited)
CURRENT ASSETS ------------- -------------
Cash and cash equivalents $ 2,897,084 $ 3,320,647
Accounts receivable:
Trade, net of allowance for doubtful accounts of
$2,002 as of November 30, 2009 and May 31, 2009 936,556 663,499
Inventories 2,918,288 2,531,816
Prepaid expenses and other current assets 147,952 76,261
Income taxes receivable 100,438 343,145
Deferred income taxes 31,008 74,853
------------ ------------
Total current assets 7,031,326 7,010,221
Property and equipment, net 1,104,052 1,140,141
Long - term deferred income tax 146,797 116,995
------------ ------------
TOTAL ASSETS $ 8,282,175 $ 8,267,357
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 142,911 $ 215,840
Accrued expenses 557,650 486,666
Deferred revenues 102,350 16,884
------------ ------------
Total current liabilities 802,911 719,390
Total liabilities 802,911 719,390
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Preferred Stock, $1 par, 2,000,000 shares authorized,
none issued or outstanding, attributes to be
determined when issued - -
Common stock, $0.01 par, 6,000,000 shares authorized
2,375,328 and 2,371,728 issued and outstanding 23,754 23,718
Additional paid in capital 4,124,064 3,974,476
Treasury stock, at cost, 74,691 and 71,341 shares in
2010 and 2009 (215,918) (205,611)
Retained earnings 3,547,364 3,755,384
------------ ------------
Total shareholders' equity 7,479,264 7,547,967
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 8,282,175 $ 8,267,357
============ ============
See accompanying Notes to the Consolidated Financial Statements.
3
PHAZAR CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED NOVEMBER 30, 2009 AND 2008
Three Months Ended Six Months Ended
November 30, November 30,
2009 2008 2009 2008
------------ ------------ ------------ ------------
Sales and contract revenues $ 2,034,912 $ 2,127,167 $ 3,931,764 $ 4,136,879
Cost of sales and contracts 969,946 1,561,007 2,025,064 2,814,741
----------- ----------- ----------- -----------
Gross profit 1,064,966 566,160 1,906,700 1,322,138
Selling, general and
administration expenses 891,010 603,972 1,586,045 1,221,103
Research and development
costs 317,545 224,028 693,690 383,037
----------- ----------- ----------- -----------
Total selling, general and
administration expenses 1,208,555 828,000 2,279,735 1,604,140
Operating loss (143,589) (261,840) (373,035) (282,002)
Other income
Interest income (net) 2,963 30,140 38,681 119,544
Other income 4,400 2,637 19,171 36,834
----------- ----------- ----------- -----------
Total other income 7,363 32,777 57,852 156,378
Loss from operations before
income taxes (136,226) (229,063) (315,183) (125,624)
Income tax benefit (36,153) (76,360) (107,162) (66,713)
----------- ----------- ----------- -----------
Net loss $ (100,073) $ (152,703) $ (208,021) $ (58,911)
=========== =========== =========== ===========
Basic loss per common share $ (0.04) $ (0.07) $ (0.09) $ (0.03)
=========== =========== =========== ===========
Diluted loss per common
share $ (0.04) $ (0.07) $ (0.09) $ (0.03)
=========== =========== =========== ===========
Basic weighted average of
common shares outstanding 2,299,079 2,367,311 2,298,207 2,364,009
Diluted weighted average of
common shares outstanding 2,299,079 2,367,311 2,298,207 2,364,009
See accompanying Notes to the Consolidated Financial Statements.
4
PHAZAR CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2009 AND 2008
(Unaudited)
Six Months Ended
November 30, November 30,
2009 2008
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (208,021) $ (58,911)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation 67,289 52,674
Stock based compensation 149,626 177,158
Deferred federal income tax 14,042 (115,393)
Changes in operating assets and liabilities:
Accounts receivable (273,057) 255,186
Inventories (386,472) (218,350)
Income taxes receivable 242,707 47,135
Prepaid expenses and other current assets (71,691) (6,137)
Accounts payable (72,929) 20,861
Accrued expenses 70,984 123,591
Deferred revenues 85,466 (209,208)
------------ ------------
Net cash provided (used) by
operating activities (382,056) 68,606
CASH FLOWS FROM INVESTING ACTIVITIES:
Redemption of marketable securities - 2,650,000
Purchase of property and equipment (31,200) (176,132)
Purchase of treasury stock (10,307) -
------------ ------------
Net cash provided by (used in)
investing activities (41,507) 2,473,868
Net increase (decrease) in cash and
cash equivalents (423,563) 2,542,474
CASH AND CASH EQUIVALENTS, beginning of period 3,320,647 2,446,563
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,897,084 $ 4,989,037
============ ============
See accompanying Notes to the Consolidated Financial Statements.
5
PART 1
NOTE 1 DESCRIPTION OF BUSINESS
General
PHAZAR CORP was incorporated in 1991 and operates as a holding company with
Antenna Products Corporation, Tumche Corp., Phazar Antenna Corp. and Thirco,
Inc. as its wholly owned subsidiaries. Antenna Products Corporation and Phazar
Antenna Corp. are operating subsidiaries with Thirco, Inc. serving as an
equipment leasing company to PHAZAR CORP's operating units. Phazar Antenna
Corp. is a separate legal entity that currently operates as a small division
of Antenna Products Corporation. Tumche Corp. has no sales or operations.
PHAZAR CORP has no other business activity. The address for PHAZAR CORP and
subsidiaries is 101 S.E. 25th Avenue, Mineral Wells, Texas 76067. The
telephone number is (940) 325-3301.
Product information is available from the Internet web page at:
www.antennaproducts.com, www.truemeshnetworks.com and www.phazar.com.
----------------------- ------------------------ --------------
Antenna Products Corporation
Antenna Products Corporation was incorporated in Texas in 1984 to continue a
business started in 1947 and operated as a closely held "C" corporation until
January 24, 1992. Thereafter, Antenna Products Corporation has operated, as a
wholly owned Subsidiary of PHAZAR CORP.
Antenna Products Corporation designs, manufactures and markets standard and
custom antennas, wireless mesh network solutions, guyed and self supported
towers, support structures, masts and communication accessories worldwide.
Customers include the United States Government, both military and civil
agencies, United States Government prime contractors and commercial clients.
Examples of Antenna Products Corporation's United States Government products
include tactical military mesh radio wireless networking systems, ground to
air collinear antennas, instrument landing antennas and towers, fixed system
multi-port antenna arrays, tactical quick erect antennas and masts, shipboard
antenna tilting devices, transport pallets, surveillance antennas, antenna
rotators, positioners and controls, and high power broadcast baluns. Examples
of the Company's commercial products include first responder emergency mesh
radio systems, commercial mesh radio systems, panel, sector, omnidirectional
and closed loop telecommunications antennas, automatic meter reading (AMR),
instrument scientific medical (ISM), cellular, paging and yagi antennas, guyed
towers and self supported towers.
The majority of Antenna Products Corporation's revenues come from fixed-price
contracts, secured through a bidding process, for particular, custom ordered
antenna production systems that Antenna Products Corporation builds according
to the specifications of the customer. Except for inventory of standard
products including small antennas, accessories and some towers in the amount
of $739,375 at November 30, 2009, Antenna Products Corporation does not build
and inventory equipment for future off the shelf sales. The sales volume for a
particular antenna or antenna system is, therefore, a function of the fixed
price contracts for build to order antennas or systems awarded to Antenna
Products Corporation. However, a general product sales breakdown for fiscal
year ended May 31, 2009, and the six month period ended November 30, 2009, as
a percentage of total sales are, as follows:
6
NOTE 1 DESCRIPTION OF BUSINESS - continued
For six months For fiscal year
ended November 30, 2009 ended May 31, 2009
----------------------- ----------------------
Product Type
Antennas 5% 18%
Instrument Landing System 19% 13%
Shipboard Equipment 0% 4%
Collinear Antennas 8% 14%
Towers and Masts 10% 12%
Spares, Accessories and Others 27% 21%
Commercial Wireless 13% 13%
Wireless Mesh Radio 9% 0%
Safety Climb 9% 5%
------------------------ ----------------------
100% 100%
Antenna Products Corporation's customer base is primarily government and
government prime contractor focused, but this is slowly changing as Antenna
Products Corporation continues to develop and market new commercial products.
Antenna Products Corporation's market is international in scope. Antenna
Products Corporation currently focuses on developing domestic and
international markets, the specialized need of its' customers and the
constantly changing technology required to meet those needs. Accordingly,
Antenna Products Corporation stresses its engineering, installation, service
and other support capabilities and it uses its own sales and engineering staff
to service its principal markets. Some of Antenna Products Corporation's
contracts are large relative to total annual sales volume and, therefore, the
composition of the customer base is different year to year. In 2009, the
United States Government was the single largest customer and accounted for 13%
of the total sales volume. Halliburton Energy was the second largest customer
and accounted for 9% of total sales. NextG was the third largest customer and
accounted for 9% of total sales. Orders for equipment in some of these product
categories are in backlog and, therefore, the United States Government is
expected to be a major client again in 2010.
Antenna Products Corporation is one of many suppliers of antennas and related
manufacturing services to the government and government prime contractors.
Antenna Products Corporation competes on the basis of cost and product
performance in a market with no dominant supplier. Due to fixed-price
contracts and pre-defined contract specifications prevalent within this
market, Antenna Products Corporation competes primarily on the basis of its
ability to provide state-of-the-art solutions in the technologically demanding
marketplace while maintaining its competitive pricing.
7
NOTE 1 DESCRIPTION OF BUSINESS - continued
Antenna Products Corporation, including its predecessors, has been building
antennas and related structures and systems for over 40 years. Antenna
Products Corporation enjoys a reputation for building quality products at a
competitive price. In terms of gross assets, sales and number of employees,
Antenna Products Corporation is a relatively small company compared to the
companies with which it competes.
However, customers know Antenna Products Corporation, know its personnel and
can rely on its ability to build antennas, towers, or masts, etc. according to
specifications. Antenna Products Corporation, competes on the basis of its
reputation and history of building quality products at reasonable prices.
As discussed above, Antenna Products Corporation is primarily a build-to-order
company and most manufacturing requirements are established on a contract
basis. For this reason, the majority of the inventory is work in process.
Approximately 25% of total inventory, $739,735 is currently maintained in
stock for delivery to customers. Some raw materials are also inventoried to
support customer delivery schedules. Antenna Products Corporation performs
work for the United States Government primarily under fixed-price prime
contracts and subcontracts.
Antenna Products Corporation is subject to certain risks common to all
companies that derive a portion of their revenues from the United States
Government. These risks include rapid changes in technology, changes in levels
of government spending, and possible cost overruns. Recognition of profits on
major contracts is based upon estimates of final performance, which may change
as contracts progress. Contract prices and costs incurred are subject to
Government Procurement Regulations, and costs may be questioned by the United
States Government and are subject to disallowance. United States Government
contracts contain a provision that they may be terminated at any time for the
convenience of the United States Government. In such event, the contractor is
entitled to recover allowable costs plus any profits earned to the date of
termination. Collections are generally set in accordance with federal
acquisition standards, which require payment in accordance with "Net 30" terms
after acceptance of goods. Antenna Products Corporation is not directly
regulated by any governmental agency in the United States. Most of Antenna
Products Corporation's customers and the antenna and tower industries in
general, are subject to meeting various government standards. These
performance standards necessitate Antenna Products Corporation's ability to
produce antenna designs, which can be updated to conform to customer
requirements in a changing regulatory environment. These regulations have not
adversely affected operations.
Antenna Products Corporation does not depend on any license, patent or
trademark, other than its good name, to secure business. While Antenna
Products Corporation does hold certain patents, they are not material to its
business and the loss of any patent would not adversely affect operations.
While Antenna Products Corporation complies with all environmental laws, the
costs and effects of compliance are not material to its operations.
8
Antenna Products Corporation plans to reinvest approximately 10%-15% of annual
sales in research and development projects and bid and proposal activities.
The mix of expenditures between the two areas in any given year is a function
of the demand for new independently developed innovative systems and the level
of requirements solicited. In 2010, Antenna Products Corporation continues
development on a new mesh radio wireless networking product line. This product
line includes military, emergency first responder and commercial mesh radio
systems that utilize proprietary embedded intelligent routing software and
multiple frequency architecture to create dynamic wireless mesh networking
systems that transmit and share data, voice and video applications. This
development program resulted in a total investment in independent research and
development (R&D) and bid and proposal activities (B&P) of 16% of sales in the
second quarter of 2010. The level of expenditures for R&D and B&P as a ratio
to sales was 10.5% of sales for the same period in 2009.
Tumche Corp.
Tumche Corp. is a wholly owned subsidiary of PHAZAR CORP. It has no sales or
operations.
Phazar Antenna Corp.
Phazar Antenna Corp. is a wholly owned Subsidiary of PHAZAR CORP. It was
formed as a Delaware Corporation and activated on June 1, 2000. Phazar Antenna
Corp. operates as a marketing, research and development unit.
Phazar Antenna Corp. provides a line of commercial wireless fixed and mobile
antennas for ISM (instrument scientific medical), ITS (intelligent
transportation systems), wireless Internet, wireless LAN, wireless local loop,
fixed GPS, MMDS (fixed wireless) and other WiMAX market applications. Phazar
Antenna Corp. also supplies a broad range of multiple band antennas for the
telecommunication market for DAS (Distributed Antenna Systems). The DAS
antennas for Cellular/SMR, AWS and PCS frequencies are installed on utility
poles, street lights, rooftops and lamp posts in urban and remote areas to
increase wireless carrier services. These product lines compliment Antenna
Products Corporation's existing product lines of cellular, PCS, paging, ISM
and AMR (automatic meter reading), omni-directional and sector wireless
antennas. Phazar Antenna Corp. sales for the six months ended November 30,
2009, amounted to approximately 13% of total sales. We expect that for fiscal
year ended May 31, 2010; this percentage will increase as new products are
continually being added to the commercial wireless product lines. The Phazar
Antenna Corp. commercial wireless product lines are manufactured at Antenna
Products Corporation's plant in Mineral Wells, Texas.
Thirco, Inc.
Thirco, Inc. was formed on November 1, 1993 as a Delaware company to purchase
and lease equipment and facilities to the other operating units of PHAZAR
CORP. The primary lease arrangements are with Antenna Products Corporation.
Thirco, Inc. will occasionally assist in servicing the banking needs of PHAZAR
CORP's operating units. Since all activity is internal to PHAZAR CORP and its
operating subsidiaries, financial data is consolidated with PHAZAR CORP.
9
NOTE 1 DESCRIPTION OF BUSINESS - continued
Thirco, Inc. does not employ any full time employees and does not intend to
employ any in the foreseeable future. Thirco, Inc. does not intend to engage
in any outside business transactions.
Seasonality
PHAZAR CORP's businesses are not dependent on seasonal factors.
Backlog
The Company's backlog of orders on November 30, 2009, totaled $2,132,708
compared to $2,105,336 at November 30, 2008, an increase of 1.3%. Backlog at
May 31, 2009 year-end was $1,741,746. Incoming orders for the current six
month period totaled $4,241,091 versus $3,769,949 for the comparable period
last year. The Company's book to ship ratio was 110% for the six month period
ended November 30, 2009 compared to 91% for the comparable six month period
last year.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of November
30, 2009, the results of operations for the three and six months ended
November 30, 2009 and November 30, 2008, and the cash flows for the six months
ended November 30, 2009 and November 30, 2008. These results have been
determined on the basis of United States generally accepted accounting
principles and practices applied consistently with those used in the
preparation of the Company's audited financial statements for its fiscal year
ended May 31, 2009.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation.
Revenue Recognition
Revenue from short-term contracts calling for delivery of products is
recognized as the product is shipped. Revenue and costs under certain
long-term fixed price contracts with the United States Government are
recognized on the units of delivery method. This method recognizes as revenue
the contract price of units of the product delivered during each period and
the costs allocable to the delivered units as the cost of earned revenue.
Costs allocable to undelivered units are reported in the balance sheet as
inventory. Amounts in excess of agreed upon contract price for customer
directed changes, constructive changes, customer delays or other causes of
additional contract costs are recognized in contract value if it is probable
that a claim for such amounts will result in additional revenue and the
amounts can be reasonably estimated. Revisions in cost and profit estimates
are reflected in the period in which the facts requiring the revision become
known and are estimable. Losses on contracts are recorded when identified.
10
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Foreign Sales
Antenna Products Corporation's sales in international markets are primarily to
foreign governments or prime contractors to foreign governments and, as such,
represent a small percentage of the overall Company annual volume. Phazar
Antenna Corp. has sales in international markets to commercial customers. The
level of profits from the commitment of assets to this portion of the business
is no greater or no less than that of other market segments. International
sales were 7% and 13% of total sales, for the second quarter of fiscal year
2010 and 2009, respectively. Foreign countries with sales greater than 5% of
total sales for the three and six months ended November 30, 2009 and 2008 are
as follows:
For the Three Months Ended For the Six Months Ended
November 30, November 30,
------------- ------------ ------------ -------------
2009 2008 2009 2008
Canada 2% 2% 8% 7%
United Kingdom 2% 11% 1% 6%
Inventories
Inventories are valued at the lower of cost or market, with cost determined on
the first-in, first-out basis. Market is replacement cost or net realizable
value. Work in progress and finished goods include material, labor and
overhead.
Property and Equipment
Property and equipment are recorded at cost and depreciated by the
straight-line method over the expected useful lives of the assets. The
estimated useful lives are: building and improvement - 15-30 years; machinery
and equipment - 10 years; automobiles and equipment - 10 years; and office
furniture and fixtures - 10 years. Expenditures for normal maintenance and
repairs are charged to income, and significant improvements are capitalized.
The cost of assets sold or abandoned and the related accumulated depreciation
are eliminated from the accounts and the net amount, less proceeds from
disposal, is charged or credited to income.
Impairment of Long-Lived Assets and Identifiable Intangible Assets
The carrying value of long-lived assets, including identifiable intangible
assets, to be held and used for potential impairment, are periodically
evaluated. The carrying value of long-lived assets to be held and used is
considered impaired when the carrying value is not recoverable through
undiscounted future cash flows and the fair value of the asset is less than
its carrying value. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risks involved.
Use of Estimates and Assumptions
11
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Management uses estimates and assumptions in preparing financial statements in
accordance with U.S. generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues and
expenses. Actual results could vary from the estimates that were used.
Income Taxes
The Company accounts for income taxes under an asset and liability approach
that requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, all expected future events other than enactments of changes in
the tax law or rates are considered. The current and deferred tax provision is
allocated among the members of the consolidated group on the separate income
tax return basis.
Research and Development Costs
Research and development costs are charged to operations when incurred and are
included in operating expenses. The amounts charged for the quarters ended
November 30, 2009, and 2008, were $317,545 and $224,028, respectively.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash
and certificates of deposit with original or remaining maturities at the time
of purchase of three months or less.
Warranties
The Company provides for the estimated cost of product warranties. Actual
costs as incurred are charged directly to cost of sales and the adequacy of
the liability is assessed on a quarterly basis.
Stock-based Employee Compensation
Effective June 1, 2006, the Company adopted the prospective transition method.
which requires all share based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on
their fair values at the time of the grant.
The company uses the Black-Scholes option pricing model to determine the fair
value of stock options granted to employees. Stock based compensation
recognized in the six month period ended November 30 2009 and 2008 was
$149,626 and $177,158, respectively. The income tax benefit related to
stock-based compensation expense was $50,873 and $60,234 for the six month
period ended November 30, 2009 and 2008 respectively.
Shares, Per Share Data, Earnings Per Share, and Stock Split, and Common Stock
Par Value
12
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Earnings per share are computed by dividing net income (loss) by the weighted
average number of common shares outstanding during the year. Weighted average
shares outstanding were 2,298,207 and 2,364,009 for the six month period ended
November 30, 2009, and 2008, respectively.
Dilutive effect of stock options outstanding for the six month period ended
November 30, 2009 and 2008 are computed as follows:
2010 2009
------------- --------------
Numerator:
Net income (loss) $ (208,021) $ (58,911)
------------ -------------
Numerator for basic and diluted earnings
per share $ (208,021) (58,911)
------------ -------------
Denominator:
Weighted-average shares outstanding-basic 2,298,207 2,364,009
Effect of dilutive securities:
Stock options - -
------------ -------------
Denominator for diluted earnings per share-
Weighted-average shares 2,298,207 2,364,009
------------ -------------
Basic earnings per share $ (0.09) $ (0.03)
============ =============
Diluted earnings per share $ (0.09) $ (0.03)
============ =============
Deferred Revenue
Payments which are received in advance of the completion of the related phase
of a contract are recorded as deferred revenue when received. Revenue is
recognized when earned based on cost incurred to date plus estimated profit
margin in relation to the total estimated cost plus profit margin on the
entire project. Estimated losses will be recognized in their entirety when
they become apparent. Deferred revenue recorded at each of the quarters ended
November 30, 2009 and 2008, is $102,350 and $16,884, respectively.
Shipping and Handling Costs
The Company includes all shipping and handling costs together with cost of
sales on the accompanying statements of operations.
New Accounting Pronouncements
In December, 2007, the Financial Accounting Standards Board ("FASB") issued
new rules that significantly change the accounting for and reporting of
Business Combinations. The revised statement improves on the information
provided by a reporting entity about a business combination and its effects.
This statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. We are currently unable to
predict the potential impact, if any, of the adoption of this new rule on
future acquisitions.
13
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
In May, 2009, the FASB issued a new accounting standard that requires the
disclosure of the date through which an entity has evaluated Subsequent
Events. The objective of this Statement is to establish general standards of
accounting for and disclosure of events that occur after the balance sheet
date but before financial statements are issued. An entity should apply the
requirements to interim or annual financial periods ending after June 15,
2009.
In June, 2009, the FASB issued a new accounting standard regarding the FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles - a replacement of FASB Statement No. 162. The FASB
Accounting Standards Codification will become the source of authoritative U.S.
generally accepted accounting principles recognized by the FASB to be applied
by nongovernmental entities. This statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The adoption of this statement will not have an impact on the Company's
consolidated financial statements.
NOTE 3 INVENTORIES
The major components of inventories are as follows:
November 30, May 31,
2009 2009
------------- -------------
Raw materials $ 908,087 $ 935,803
Work in process 1,270,826 985,983
Finished goods 739,375 610,030
------------ ------------
Total inventories $ 2,918,288 $ 2,531,816
============ ============
Certain allocable overhead costs such as depreciation, insurance, property
taxes and utilities are included in inventory based upon percentages developed
by the Company. The aggregate amount of these costs included in inventory as
of November 30, 2009 and May 31, 2009, were $972,035 and $856,854,
respectively.
The following is a summary of the Company's property and equipment at November
30, and May 31, 2009:
Estimated November 30, May 31,
Useful Life 2009 2009
----------- ------------ ------------
Land $ 375,136 $ 375,136
Buildings and improvements 15-30 years 1,873,217 1,873,217
Machinery and equipment 10 years 3,558,602 3,559,096
Automobiles and equipment 10 years 107,540 147,220
Office furniture and fixtures 10 years 435,210 435,210
----------- -----------
$ 6,349,706 $ 6,389,879
Less accumulated depreciation $(5,245,654) $(5,249,738)
----------- -----------
Net property and equipment $ 1,104,052 $ 1,140,141
=========== ===========
14
NOTE 4. PROPERTY AND EQUIPMENT - continued
Included in property and equipment at November 30,
2009, and May 31, 2009 are the following;
Noncompete agreements (Phazar Antenna Corp.) $ 60,000 $ 60,000
Patents, copyrights and other
intellectual property (Phazar Antenna Corp.) 389,593 389,593
---------- ----------
449,593 449,593
Accumulated amortization (449,593) (449,593)
---------- ----------
$ - $ -
========== ==========
Patents, copyrights and other intellectual property were being amortized on
the straight-line basis over a weighted average five-year period. Non-compete
agreements were being amortized on the straight-line basis over weighted
average three and one third year contractual basis.
NOTE 5 NOTES PAYABLE
At November 30, 2009 and May 31, 2009 there are no outstanding notes payable
or current debts. On October 2, 2009, Antenna Products Corporation completed
the renewal of its $2,000,000 revolving note facility with a bank
collateralized by the subsidiary's inventory and accounts with PHAZAR CORP,
the parent company, signing as the guarantor. The amount available under the
revolving note facility at November 30, 2009 and May 31, 2009 was $2,000,000.
Interest is payable monthly at the prime rate (3.25% at November 30, 2009 and
May 31, 2009) until October 28, 2010, when any unpaid principal and interest
shall be due under the agreement, the Company must maintain a quick ratio in
excess of 4.0 to 1.0, a minimum working capital of $4,000,000, tangible net
worth of $5,000,000 and debt service ratio of 1.25 to 1.0 and a ratio of debt
to worth in excess of .5:1.
NOTE 6 LONG TERM DEBT
At November 30, 2009 and May 31, 2009, PHAZAR CORP had no long-term debt.
NOTE 7 COMMITMENTS AND CONTINGENCIES
The Company has adopted an employee profit sharing plan under Section 401(k)
of the Internal Revenue Code. All employees with a minimum of one year of
employment are eligible to participate. The Company will match employee
contributions for an amount up to 3% of each employee's salary if certain
earnings requirements are met. Contributions are invested at the direction of
the employee in one or more funds. Company contributions vest after three
years of service. Company contributions amounted to $0 and $73,874 for the
years ended May 31, 2009 and 2008, respectively.
Concentration of Credit Risk
The Company deposits its cash primarily in deposit accounts with major banks.
Certain cash deposits may occasionally be in excess of federally insured
limits. The Company has not incurred losses related to its cash.
15
NOTE 7 COMMITMENTS AND CONTINGENCIES - continued
The Company sells many of its products to the United States Government, both
military and civil agencies, and prime contractors. Although the Company might
be directly affected by the well being of the defense industry, management
does not believe significant credit risk exists at November 30, 2009.
Ongoing credit evaluations of customer's financial condition are performed
and, generally, no collateral is required. The Company maintains reserves for
potential credit losses and such losses have not exceeded management's
expectations.
Fair Value of Financial Instruments
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the fair value accounting standards. The estimated
fair value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies.
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents, receivables and accounts
payable approximate carrying value due to the short-term maturity of the
instruments.
Legal Proceedings
On August 15, 2008, Janet McCollum, as personal representative of the Estate
of Richard Alan Catoe, deceased, filed a wrongful death complaint against the
University of West Florida, Diamond Enterprise, Inc., North Safety Products,
L.L.C. a/k/a North Safety Products, Inc. and Antenna Products Corporation
(the"Lawsuit") in Circuit Court in Escambia County, Florida, Antenna Products
Corporation is PHAZAR CORP's wholly owned and principal operating subsidiary.
The lawsuit alleges that the deceased fell to his death while climbing a
ladder inside a water tower on the University of West Florida campus to
install antennas. The lawsuit further alleges that while the deceased was
descending the ladder, he wore an Antenna Products Corporation safety sleeve
affixed to a safety rail manufactured by defendant North Safety Products that
was attached to the ladder and that the safety sleeve and rail were allegedly
defective and failed to prevent the deceased from falling, thus causing his
death. Plaintiff seeks recovery of unspecified amounts from all the
defendants. Antenna Products Corporation denies any liability to plaintiff and
anticipates being dismissed from the lawsuit. However, if we were found to be
responsible or liable, we would not expect such costs to be material to the
Company.
Product Warranties
PHAZAR CORP's management estimates accrued warranty expense based on warranty
work received but not performed and on analysis of historical trends including
actual expense as a percent of sales.
16
NOTE 8 STOCK OPTIONS
In 2006, the Board approved options to purchase 50,000 shares of common stock
at $9.22 per share to an employee of the Company. The options are exercisable
pro-rata over a five year period. No options have been exercised. The options
expire on May 30, 2018, or the earlier of the employee's last day of
employment.
In 2008, the Board approved options to purchase 30,000 shares of common stock
at $5.70 per share to an employee of the Company. The options are exercisable
at a rate of 6,000 shares per year over a five year period. No options have
been exercised. The options expire on March 23, 2018, or the earlier of the
employee's last day of employment.
On August 12, 2008, the Board of Directors approved options to purchase 36,400
shares of common stock at $5.06 per share to certain employees of the Company
(10,000 options forfeited as of November 30, 2009). The options were broken
out into two groups, the first consisted of 16,400 options were granted fully
vested and the second group of 20,000 options are exercisable pro-rata over a
three year period. The options expire on August 12, 2018, or the earlier of
the employee's last day of employment.
On September 10, 2009, the Board of Directors amended Garland P. Asher's
employment agreement. Under the terms of his agreement, effective September 1,
2009, out of the original grant of 160,000 options, 30,000 of the stock
options are to be 100% vested as of the date of the Board approval. The
remaining 130,000 options shall vest and become exercisable contingent upon
the Company achieving certain revised sales and pretax income levels over a
five year period.
A summary of the status of the Company's outstanding stock options issued
under separate employment agreements as of November 30, 2009 and changes for
the quarter then ended are as follows:
Outstanding Options
----------------------
Weighted
Average
Number Exercise
of Options Price
---------- ----------
Outstanding at May 31, 2009 266,400 4.99
Granted - -
Exercised - -
Forfeited - -
--------- ---------
Outstanding at November 30, 2009 266,400 4.99
November 30,
2009
------------
Number of options vested 82,400
Weighted average remaining contract life - years 7.95
Number of options exercisable at November 30, 2009 82,400
17
NOTE 8 STOCK OPTIONS - continued
In October 2006, a majority of the PHAZAR CORP shareholders approved the 2006
Incentive Stock Option Plan (the "Plan"). Options for 250,000 shares of common
stock are authorized under this plan. Options granted may be either Incentive
Stock Options or Non-Statutory Stock Options, at the discretion of the Board.
There have been 216,400 options granted under this plan as of November 30,
2009.
In October, 2009, a majority of the PHAZAR CORP shareholders approved the 2009
Equity Incentive Plan ("Plan-09"). Options for 250,000 shares of the common
stock are authorized under this plan. Options granted may be either Incentive
Stock Options or Non-Statutory Stock Options, at the discretion of the Board.
There have been no options granted under this plan as of November 30, 2009.
The following table details stock-based compensation expense included in the
statement of operations for the quarters ended November 30, 2009 and 2008.
For the Three Months For the Six Months
Ended Ended
November 30, November 30,
------------ ----------- ----------- -----------
2009 2008 2009 2008
Selling, general and
administrative expense $ 115,636 $ 38,092 $ 149,626 $ 177,158
FIT benefit (39,317) (12,952) (50,873) (60,234)
----------- ---------- ---------- ----------
Impact on net loss $ 76,319 $ 25,140 $ 98,753 $ 116,924
=========== ========== ========== ==========
Impact on net loss per share -
Basic and diluted EPS $ 0.03 $ 0.01 $ 0.04 $ 0.05
18
PHAZAR CORP AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is management's discussion and analysis of certain significant
factors that have affected the Company's financial condition and operating
results for the period included in the consolidated financial statements in Item
1.
Company Overview
PHAZAR CORP's continuing operation is that of its subsidiaries, Antenna Products
Corporation, Phazar Antenna Corp., Tumche Corp. and Thirco, Inc. As previously
discussed in Item 1, for the purpose of this discussion, all results of Phazar
Antenna Corp. are included with the results of Antenna Products Corporation. The
management discussion presented in this item relates to the operations of
subsidiary units and the associated consolidated financials.
PHAZAR CORP operates as a holding company with Antenna Products Corporation,
Phazar Antenna Corp., Tumche Corp. and Thirco, Inc. as its wholly owned
subsidiaries. Antenna Products Corporation and Phazar Antenna Corp. are
operating subsidiaries with Thirco, Inc. serving as an equipment leasing company
to PHAZAR CORP's operating units. Tumche Corp. has no sales or operations.
Antenna Products Corporation designs, manufactures and markets antenna systems,
towers and communication accessories worldwide. The United States Government,
military and civil agencies and prime contractors are Antenna Products
Corporation's principal customers. Phazar Antenna Corp. designs and markets
fixed and mobile antennas for commercial wireless applications that include
cellular, PCS, ISM (instrument scientific medical), AMR (automatic meter
reading), wireless internet, wireless local area network, and other WiMax market
applications.
PHAZAR CORP is primarily a build-to-order company. As such, most United States
government and commercial orders are negotiated firm-fixed price contracts.
PHAZAR CORP's sales to major customers at May 31, 2009, as a percentage of total
sales were United States Government 13%, Halliburton Energy 9% and NextG 9%.
Executive Level Overview
The following table presents selected data of PHAZAR CORP. This historical data
should be read in conjunction with consolidated financial statements and the
related notes.
Three Month Period Ending Six Month Period Ending
November 30, November 30,
--------------------------- ----------------------------
2009 2008 2009 2008
Net Sales $2,034,912 $2,127,167 $3,931,764 $4,136,879
Gross profit margin
percent 52% 27% 48% 32%
Operating profit (loss) $ (143,589) $ (261,840) $ (373,035) $ (282,002)
19
Three Month Period Ending Six Month Period Ending
November 30, November 30,
--------------------------- ----------------------------
2009 2008 2009 2008
Net income (loss) $ (100,073) (152,703) $ (208,021) (58,911)
Net income (loss) per
share (0.04) (0.07) (0.09) (0.03)
Total assets $8,282,175 $9,214,447 $8,282,175 $9,214,447
Long term debt - -
Total liabilities $ 802,911 $1,011,769 $ 802,911 $1,011,769
Capital expenditures - $ 176,132 $ 31,200 $ 176,132
Dividends - - - -
Results of Operations
Second Quarter Ended November 30, 2009 ("2010"), Compared to Second Quarter
Ended November 30, 2008 ("2009")
PHAZAR CORP's consolidated sales from operations were $2,034,912 for the quarter
ended November 30, 2009 compared to sales of $2,127,167 for the second quarter
ended November 30, 2008. The Company's revenue fell $92,255, or 4%, a decline in
sales of both military and commercial product lines ($154,597) offset by sales
in the new mesh radio product line ($62,342).
Cost of sales and contracts for the operations were $969,946 for the quarter
ended November 30, 2009 compared to $1,561,007 for the second quarter ended
November 30, 2008, down $591,061, or 38%. The reduction in cost of goods sold is
attributable to lower raw material costs and an improved product mix, resulting
in a 25% increase in the gross profit margin for the second quarter of fiscal
year 2010 at 52% compared to a depressed 27% for the same period in 2009.
Sales and administration expenses were higher in the second quarter of the
fiscal year 2010, $891,010 versus $603,972 for the second quarter of fiscal year
2009. The $287,038, or 48% increase in sales and administration expense includes
$126,300 increase of wages associated with newly hired employees servicing the
mesh radio wireless networking product line.
Discretionary product development spending for the quarter ended November 30,
2009 was $317,545, or 16% of sales, compared to $224,028, or 11% of sales for
the comparable period last year. The spending level is up $93,517 as the Company
continues development on our mesh radio wireless networking products for
commercial and military applications. During the quarter ended November 30,
2009, 9% of the Company's revenues were from the mesh radio product line.
Interest income for the three month period ended November 30, 2009 is $2,963
down from $30,140 for the same period in prior year, impacted by the Company no
longer having investments in high yield auction-rate securities.
The Company recorded a net loss $100,073, or $0.04 per share for the three month
period ended November 30, 2009 compared to a net loss of $152,703, or $0.07 per
share for the comparable period in prior year.
20
Six Months Ended November 30, 2009 ("2010"), Compared to the Six Months Ended
November 30, 2008 ("2009")
Consolidated sales from operations for PHAZAR CORP were $3,931,764 for the six
months ended November 30, 2009 compared to $4,136,879 for the six months ended
November 30, 2008. The Company's revenue fell by $205,115, or 5%, a decline in
both military and commercial product lines ($507,431) offset by sales in the new
mesh radio product line ($302,316).
Cost of sales and contracts for the operations were $2,025,064 for the six
months ended November 30, 3009 compared to $2,814,741 for the comparable period
in fiscal year 2009, down $789,677, or 28%. The reduction in costs sold is
attributable to lower raw material costs and an improved product mix, resulting
in a 16% increase in the gross profit margin for the six month period ended
November 30, 2009, at 48% compared to 32% for the same period in prior year.
Sales and administration expenses were $364,942, or 30% higher in the six months
ended November 30, 2009, $1,586,045 compared to $1,221,103 for the six month
period ended November 30, 2008 and discretionary product development spending
for the six month period ended November 30, 2009 was $693,690, or 18% of sales,
compared to $383,037, or 15% of sales for the comparable period in prior year.
The increase in both sales and administration expense and discretionary product
development spending is attributable to further development and wage related
expenses to newly hired employees servicing the new mesh wireless radio product
line.
The Company recorded a net loss of $208,021, or $0.09 per share for the six
month period ended November 30, 2009 compared to a net loss of $58,911, or $0.03
per share for the six month period ended November 30, 2008.
United States Government contracts contain a provision that they may be
terminated at any time for the convenience of the Government. In such event, the
contractor is entitled to recover allowable costs plus any profits earned to the
date of termination. The possibility that Government priorities could change,
causing a delay or cancellation of this contract and any potential follow-on
work, makes it impossible to accurately predict whether revenues will increase
or decrease in the upcoming year.
Liquidity and Capital Resources
Sources of Liquidity
Funds generated from operations are the major internal sources of liquidity and
are supplemented by funds derived from capital markets, principally bank
facilities. The Company's operating subsidiary has a $2,000,000 revolving note
facility with a bank collateralized by the subsidiary's inventory and accounts
with PHAZAR CORP, the parent company, signing as the guarantor. The amount
available under the revolving note facility at November 30, 2009 was $2,000,000.
At November 30, 2009, the Company had a tangible net worth of $7,479,264 and had
working capital of $6,228,415. As of November 30, 2009, Antenna Products
Corporation had drawn $0 of the $2,000,000 line of credit with $2,000,000 of the
borrowing base available and unused. PHAZAR CORP believes that its cash and the
credit available at November 30, 2009, is sufficient to fund the Company's
operations for at least twelve months.
21
Interest is payable monthly at the prime rate (3.25% at November 30, 2009 and
May 31, 2009) until October 28, 2010, when any unpaid principal and interest
shall be due. Under the agreement, the Company must maintain a quick ratio in
excess of 4.0 to 1.0, a minimum working capital of $4,000,000, a tangible net
worth of $5,000,000 and a debt service ratio of 1.25 and a maximum debt worth no
greater than .5:1.
Capital Requirements
Management of the operating subsidiaries evaluates the facilities and reviews
equipment requirements for existing and projected contracts on a regular basis.
An annual capital plan is generated by management and submitted to the Board of
Directors for review and approval. In the first two quarter of fiscal year 2010,
there were $31,200 in capital expenditures for new and replacement equipment
compared to $176,132 of expenditures in the first two quarters of fiscal year
2009. The Company intends to limit the fiscal year 2010 capital program to less
than $100,000 for improvements and new equipment.
At November 30, 2009, PHAZAR CORP had cash and cash equivalents of $2,897,084.
There were $102,350 of deferred revenues at November 30, 2009.
Cash Flows
Operating Activities
Cash and cash equivalents of $2,897,084 at November 30, 2009 are down $423,563,
or 12.7% on a balance of $3,320,647 as of May 31, 2009.
The negative $382,056 of cash flow from operations consists of a $386,472
increase in inventory, a $273,057 increase in accounts receivable, offset by a
$242,707 decrease in income taxes receivable. The 5% increase in inventory
levels for the six month period ended November 30, 2009 compared to fiscal year
end May 31, 2009, represents a continued effort by management to take advantage
of lower raw material costs and increase stock levels in certain finished goods
products. The $273,057, or 41% increase in accounts receivable is simply a
function of the timing of shipments where payments had not yet been received.
The $242,707 decline in income taxes receivable is attributed to a refund
received from the fiscal year 2009 federal tax return. Commenting on the
quarter, Garland P. Asher, Chairman and CEO, said, "While sales revenue remains
sluggish, quote activity has increased over first quarter levels, which
hopefully portends an upturn in the future. More importantly, despite less than
optimal sales levels we were able to accomplish two significant goals: we have
recaptured gross margin such that when a sales upturn comes, it should be
reflected in improved profitability and we have been able to maintain our R&D
initiatives, slightly increase our backlog and further add to finished goods
inventory, while still keeping a cash cushion of almost $3 million."
Investing Activities
Cash of $41,507 was used in investing activities during the six month period
ended November 30, 2009, which consists of the $31,200 of capital expenditures
and $10,307 for the purchase of treasury stock. Cash of $2,473,868 was provided
from investing activities during the six month period ended November 30, 2008,
which consists of $2,650,000 of redemption of marketable securities offset by
$176,132 of capital expenditures.
22
Financing Activities
There were no financing activities requiring cash during the second quarter
ending November 30, 2009 and 2008. At November 30, 2009 and 2008, PHAZAR CORP
had no long-term debt outstanding.
Forward Looking Statement Disclaimer
This Form 10-Q contains forward-looking information within the meaning of
Section 29A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements include statements concerning
plans, objectives, goals, strategies, future events or performances and
underlying assumption and other statements, which are other than statements of
historical facts. Certain statements contained herein are forward-looking
statements and, accordingly, involve risks and uncertainties, which could cause
actual results, or outcomes to differ materially from those expressed in the
forward-looking statements. The Company's expectations, beliefs and projections
are expressed in good faith and are believed by the Company to have a reasonable
basis, including without limitations, management's examination of historical
operating trends, data contained in the Company's records and other data
available from third parties, but there can be no assurance that management's
expectations, beliefs or projections will result, or be achieved, or
accomplished.
Item 4. Controls and Procedures
Management's Evaluation of Internal Controls over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting, as such term is defined in Rule 13a-15(f) of
the Exchange Act. This system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of the
consolidated financial statements for external purposes in accordance with U.S.
generally accepted accounting principles. Our internal control over financial
reporting includes those policies and procedures that: (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
our transactions and disposition of our assets; (2) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of
consolidated financial statements in accordance with U.S. generally accepted
accounting principles, and that our receipts and expenditures are being made
only in accordance with authorizations of our management and directors; and (3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that could have a
material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control systems,
no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation. The scope of
management's assessment of the effectiveness of internal control over financial
reporting includes all of our Company's subsidiaries.
23
The Company's Chief Executive Officer and Chief Financial Officer evaluated the
Company's disclosure controls and procedures as of November 30, 2009. In making
their assessment, the Company's Chief Executive Officer and Chief Financial
Officer were guided by the releases issued by the SEC and to the extent
applicable was based upon the framework in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. The Company's Chief Executive Officer and Chief Financial Officer
have concluded that the Company's disclosure controls and procedures were
effective as of November 30, 2009. The Company has had no change during the
quarter ending November 30, 2009 that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
24
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
On August 15, 2008, in the Circuit Court of the First Judicial Circuit in
and for Escambia County, Florida, Janet McCollum, as personal
representative of the Estate of Richard Alan Catoe, deceased, filed a
wrongful death complaint against the University of West Florida, Diamond
Enterprise, Inc., North Safety Products, L.L.C. a/k/a North Safety
Products, Inc. and Antenna Products Corporation (the "Lawsuit"). Antenna
Products Corporation is our wholly owned and principal operating
subsidiary.
The lawsuit alleges that the deceased fell to his death while climbing a
ladder inside a water tower on the University of West Florida campus to
install antennas. The lawsuit further alleges that while the deceased was
descending the ladder, he wore an Antenna Products Corporation safety
sleeve affixed to a safety rail manufactured by defendant North Safety
Products that was attached to the ladder and (among other allegations) that
the safety sleeve and rail were defective and failed to prevent the
deceased fall, causing his death. The plaintiff seeks recovery of an
unspecified amount from all the defendants. Antenna Products Corporation
denies any liability to plaintiff and anticipates being dismissed from the
lawsuit. However, if we were found to be responsible or liable, we would
not expect such costs to be material to the Company.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
1. Financial Statements. See Item 1.
2. Financial Statement Schedules. Not applicable.
All other schedules have been omitted because the required
information is shown in the consolidated financials or notes
thereto, or they are not applicable.
3. Exhibits. See Index to Exhibits for listing of exhibits which are
filed herewith or incorporated by reference
(b) Reports on Form 8-K.
On July 10, 2009, the registrant filed a Form 8-K for the purpose of
disclosing the FAA contract granted to Antenna Products Corporation,
a wholly owned subsidiary of PHAZAR CORP.
On September 23, 2009, the registrant filed a Form 8-K related to
its press releases dated September 11, 2009 relating to its
Quad Omni-Directional antenna developed as an integral component of
DAS (Distributed Antenna Systems) and its September 15, 2009 press
release on its quarterly earnings for the quarter ended August 31,
2009.
25
SIGNATURE
---------
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.
PHAZAR CORP
Date: January 12, 2010 /s/ Garland P. Asher
---------------------------------------------
Garland P. Asher, Principal Executive Officer
and Director
26
EXHIBIT INDEX
Exhibit 3.(i) - Registrant's Articles of Incorporation, as amended,
incorporated by reference to the like numbered exhibit in the
Registrant's Annual Report on Form 10-KSB/A for the fiscal
year ended May 31, 2000, filed on February 20, 2004
Exhibit 3.(ii) - Registrant's By Laws, incorporated by reference to the like
numbered exhibit in the Registrant's Annual Report on Form
10-KSB/A for the fiscal year ended May 31, 2000, filed on
February 20, 2004
Exhibit 4.(ii) - Loan Agreement between Antenna Products Corporation and Texas
Bank, dated September 30, 1991 incorporated by reference to
the like numbered exhibit in the Registrant's Annual Report on
Form 10-KSB/A for the fiscal year ended May 31, 2000, filed on
February 20, 2004
Exhibit 4.1(2) - 2009 Equity Compensation Plan dated April 22, 2009,
incorporated by reference to Exhibit 10-1 of the Registrant's
Form S-8, filed on April 27, 2009
Exhibit 10.b - Amended and restated agreement with Garland Asher dated
September 10, 2009 (attached)
Exhibit 14.1 - Code of Ethics and Business Conduct for the Senior Executive
Officers and Senior Financial Officers incorporated by
reference to the like numbered exhibit in the Registrant's
annual report on form 10-KSB for the fiscal year ended May 31,
2004, filed on August 6, 2004
Exhibit 21. - A list of all subsidiaries of the Registrant, incorporated by
reference to the like numbered exhibit in the Registrant's
Annual Report on Form 10-KSB/A for the fiscal year ended May
31, 2000 filed on February 20, 2004
Exhibit 31.1 - Rule 13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
Exhibit 31.2 - Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer
Exhibit 32.1 - Section 1350 Certification
Exhibit 99.1 - Nominating Committee Charter incorporated by reference to the
like numbered exhibit in the Registrant's Form 8-K filed on
November 7, 2005
27