10-Q 1 d92287e10-q.txt FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 2001 ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------------------------- FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE --------- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2001 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD --------- FROM ___________________ TO ____________________. Commission File Number 0-5214 PEERLESS MFG. CO. (Exact Name of Registrant as Specified in Its Charter) TEXAS 75-0724417 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.) 2819 WALNUT HILL LANE, DALLAS, TEXAS 75229 ------------------------------------ ---------- (Address of principal executive offices) (Zip code)
(214) 357-6181 (Registrant's Telephone Number, Including Area Code) Indicate by check 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 past 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 ______ As of November 12, 2001, there were 2,977,484 shares of the Registrant's common stock outstanding. ------------------------------------------------------------------------------ PEERLESS MFG. CO. AND SUBSIDIARIES TABLE OF CONTENTS
PAGE NUMBER ------ PART I: FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at September 30, 2001 and June 30, 2001....................................................................... 1 Condensed Consolidated Statements of Operations for the three months ended September 30, 2001 and 2000.......................................... 2 Condensed Consolidated Statements of Cash Flows for the three months ended September 30, 2001 and 2000...................................... 3 Notes to the Condensed Consolidated Financial Statements................................ 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. ................................................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk................... 10 PART II:.OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K............................................. 12 SIGNATURES....................................................................................... 13
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PEERLESS MFG. CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
September 30, June 30, 2001 2001 ------------- --------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 227 $ 2,577 Short term investments 302 300 Accounts receivable-principally trade-net 31,966 28,987 Inventories 2,250 2,084 Costs and earnings in excess of billings 5,649 6,328 Deferred income taxes 704 704 Other 1,191 751 --------- ---------- Total current assets 42,289 41,731 Property, plant and equipment-net 3,751 3,365 Other assets 1,041 1,060 --------- --------- $47,081 $46,156 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable-trade 12,643 10,172 Billings in excess of costs and earnings 9,444 9,618 Current maturities of long-term debt - 400 Commissions payable 1,511 1,443 Income taxes payable 657 1,754 Accrued liabilities and other 4,135 3,729 --------- -------- Total current liabilities 28,390 27,116 Long-term debt, net of current maturities - 1,200 Deferred income taxes 147 147 Shareholders' equity: Common stock 2,978 2,954 Additional paid-in capital 1,433 1,327 Unamortized value of restricted stock grants (27) (35) Cumulative foreign currency translation adjustment (121) (66) Retained earnings 14,281 13,513 --------- -------- Total shareholders' equity 18,544 17,693 --------- -------- $47,081 $46,156 ========= ========
See accompanying notes to condensed consolidated financial statements. PEERLESS MFG. CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
Three Months Ended September 30, ----------------------- 2001 2000 ------- --------- Revenues $23,709 $11,059 Cost of goods sold 16,743 7,982 -------- --------- Gross profit 6,966 3,077 Operating expenses 5,743 3,616 -------- --------- Operating income (loss) 1,223 (539) Other income (expense) Interest expense, net -- (184) Foreign exchange gains (losses) 68 (90) Other, net (72) (31) -------- --------- (4) (305) -------- --------- Earnings (loss) before income tax 1,219 (844) Income tax expense (benefit) 451 (312) -------- --------- Net earnings (loss) 768 (532) ======== ========= Basic earnings (loss) per share $ 0.26 $ (0.18) ========= ========= Diluted earnings (loss) per share $ 0.25 $ (0.18) ========= ==========
See accompanying notes to condensed consolidated financial statements -2- PEERLESS MFG. CO. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Three months ended September 30, ------------------------- 2001 2000 ------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings (loss) $ 768 $ (532) Adjustments to reconcile net earnings to cash provided by (used in) operating activities: Depreciation and amortization 143 126 Changes in assets and liabilities: Accounts receivable (2,959) (7,289) Inventories (168) (1,350) Cost and earnings in excess of billings 679 5,538 Other current assets (481) (730) Other assets 24 76 Accounts payable 2,385 3,149 Billings in excess of costs and earnings (174) 1,437 Commissions payable 68 15 Accrued liabilities (669) (87) --------- -------- (1,152) 85 --------- -------- Net cash provided by (used in) operating activities (384) 353 CASH FLOWS FROM INVESTING ACTIVITIES: Net purchases of short-term investments (2) -- Net purchases of property and equipment (529) (5) --------- -------- Net cash used in investing activities (531) (5) CASH FLOWS FROM FINANCING ACTIVITIES: Net change in borrowings (1,600) 886 Proceeds from issuance of common stock 137 40 Dividends paid - (184) --------- -------- Net cash provided by (used in) financing activities (1,463) 742 Effect of exchange rate changes on cash and cash equivalents 28 62 --------- -------- Net increase (decrease) in cash and cash equivalents (2,350) 1,152 Cash and cash equivalents at beginning of period 2,577 561 --------- -------- Cash and cash equivalents at end period $ 227 $ 1,713 ========= ========
See accompanying notes to condensed consolidated financial statements. -3- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1. BASIS OF PRESENTATION. These unaudited condensed consolidated financial statements of Peerless Mfg. Co. and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the company's annual report on Form 10-K for the fiscal year ended June 30, 2001. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the interim financial information have been included. Operating results for the interim periods are not necessarily indicative of results that may be expected for the fiscal year ending June 30, 2002. Certain fiscal year 2001 items have been reclassified to conform with the fiscal year 2002 presentation. 2. EARNINGS (LOSS) PER SHARE. Basic earnings (loss) per share have been computed by dividing net earnings (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share reflect the potential dilution that could occur if options or other contracts to issue common shares were exercised or converted into common stock. The following table presents the calculation of earnings (loss) per share for the periods indicated. All share and per share data reflect the two-for-one split of the Company's common stock on October 18, 2001.
Three Months Ended September 30, ------------------------ 2001 2000 ---- ---- Net earnings (loss) $ 768 $ (532) ------- -------- Basic weighted average common shares outstanding 2,968 2,942 Effect of dilutive options 121 -- ------- -------- Diluted weighted average common shares outstanding 3,089 2,942 Net income (loss) per share - basic $ 0.26 $ (0.18) Net income (loss) per share - diluted $ 0.25 $ (0.18)
-4- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The company excluded 0 and 76 outstanding stock options from its calculation of diluted earnings (loss) per share for the three months ended September 30, 2001 and 2000, respectively, because their effect was anti-dilutive. 3. COMPREHENSIVE INCOME (LOSS). Comprehensive income (loss) is defined as the change in equity during a period from transactions or other events and circumstances from non-ownership sources. It includes all changes in equity during a period, except those resulting from investments by owners and distributions to owners. The components of comprehensive income (loss) were as follows:
Three Months Ended September 30, ---------------------- 2001 2000 -------- ------- Net earnings (loss) $ 768 $ (532) Foreign currency translation adjustment (55) 62 ------ ------ Comprehensive income (loss) $ 713 $ (470) ====== ======
4. SUPPLEMENTAL CASH FLOW INFORMATION. Net cash flows from operating activities reflects cash payments for interest and income taxes as follows:
Three Months Ended September 30, ---------------------- 2001 2000 -------- ------- Interest paid $ 114 $ 96 Income taxes paid $1,550 $ 90
5. USE OF ESTIMATES. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. -5- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 6. INVENTORIES. Inventories are stated at the lower of cost or market. Principal components of inventories are as follows:
September 30, June 30, 2001 2001 -------------- -------- Raw materials $ 1,392 $ 1,151 Work in process 490 583 Finished goods 368 350 ------- ------- Total inventories $ 2,250 $ 2,084 ======= =======
7. SEGMENT INFORMATION. The company identifies reportable segments based on management responsibility within the corporate structure. The company has two reportable industry segments: SCR Systems and gas/liquid filtration. The SCR Systems segment produces selective catalytic reduction systems ("SCR") used to separate nitrogen oxide (NOx) emissions from exhaust gases caused by burning hydrocarbon fuels such as coal, gasoline, natural gas and oil. We combine these systems with our components as totally integrated systems. Many of the company's components are packaged on skids complete with instruments, controls and related valves and piping. The gas/liquid filtration segment produces various types of separators and filters used for removing liquids and solids from gases and air. The segment also provides engineering design and services, pulsation dampners, natural gas odorizers, quick-opening closures and parts for its products. In addition to our two primary business segments, we also design, engineer, manufacture and sell packaged boilers and other steam generating equipment through our Texas subsidiary that does business as ABCO Industries ("ABCO"). This equipment is used to produce steam which is used in processes, heating, drying, driving steam turbines and a variety of other applications. ABCO is also used to support the manufacturing needs of other Peerless products. Segment profit and loss is based on revenue, less allocated costs of the segment before allocation of general and administrative costs. There were no sales or transfers between segments. The company does not allocate assets, expenditures for assets or depreciation expense on a segment basis for internal management reporting and, therefore, such information is not presented. Segment information and a reconciliation to operating profit for the three months ended September 30, 2001 and 2000 are presented below. Certain fiscal 2001 items have been reclassified to conform with the fiscal 2002 presentation. -6- PEERLESS MFG. CO. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SCR Gas/Liquid Unallocated Systems Filtration Overhead Consolidated ---------------------------------------------------------------- THREE MONTHS ENDED SEPTEMBER 30, 2001 Revenues from customers $14,513 $ 9,196 $ - $23,709 Segment profit (loss) 3,215 128 (2,120) 1,223 THREE MONTHS ENDED SEPTEMBER 30, 2000 Revenues from customers $ 6,402 $ 4,657 $ - $11,059 Segment profit (loss) 511 (24) (1,026) (539)
-7- PEERLESS MFG. CO. AND SUBSIDIARIES ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The company's fiscal year ends on June 30th. References herein to fiscal 2002 and fiscal 2001 refer to our fiscal years ended June 30, 2002 and 2001, respectively. The following table displays the company's statements of operations as a percentage of net revenues:
Three Months Ended September 30, ---------------------- 2001 2000 -------- ------- Net revenues 100.0% 100.0% Cost of revenues 70.6 72.2 ------ ------- Gross margin 29.4 27.8 Operating expenses 24.2 32.7 ------- ------- Operating income (loss) 5.2 (4.9) Interest income (expense), net 0.0 (1.7) Other, net (0.1) (1.0) ------- ------- Earnings (loss) before income taxes 5.1 (7.6) Income tax expense (benefit) 1.9 (2.8) ------- ------- Net earnings (loss) 3.2% (4.8)% ======= =======
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2000 Net revenues increased $12.6 million, or 114%, from $11.1 million for the three months ended September 30, 2000 to $23.7 million for the three months ended September 30, 2001. The increase in revenues was attributable to both reportable segments. The increased demand for our SCR products caused a 127% increase in revenues from our SCR Systems segment for the three months ended September 30, 2001 compared to the same period of the prior fiscal year. In addition, the increased demand for our gas/liquid filtration products caused revenues from our gas/liquid filtration segment to increase 98% over the same period of the prior fiscal year. Due to the new gas turbine powered electric generating facilities currently under construction in the United States to fulfill our country's demand for electricity, we anticipate the demand for our SCR products will continue to increase. These new generating facilities use clean burning gas, which in turn drives demand for our gas cleaning equipment. Coal fired electric power plants are also contributing to the stronger demand we are seeing for our ammonia handling systems. We provide ammonia storage and delivery systems to be used as part of the NOx reduction systems to be installed at these coal fired plants. -8- PEERLESS MFG. CO. AND SUBSIDIARIES Our backlog of unfilled orders was $69.5 million at September 30, 2001, compared to approximately $24 million at September 30, 2000. The increase is primarily due to significant SCR orders booked during the last nine months. Our gross profit increased $3.9 million, or 126%, from $3.1 million for the three months ended September 30, 2000 to $7.0 million for the three months ended September 30, 2001. Gross profit, as a percentage of sales, increased to 29.4% for the current quarter from 27.8% for the same period in fiscal 2001. The higher gross margin was primarily attributable to increased margins recognized on our SCR revenues. Operating expenses increased by $2.1 million, or 59%, from $3.6 million for the three months ended September 30, 2000 to $5.7 million for the three months ended September 30, 2001. The increase in operating expenses was due the additional costs of engineering and project management required for the increased SCR activities, as well as increased general and administrative expenses to support the overall increase in revenues. Operating expenses decreased as a percentage of sales from 32.7% for the three months ended September 30, 2000 to 24.2% for the same period in the current year. Interest expense decreased by $0.2 million due to the fact that we had no outstanding balances under our revolving line of credit or the ABCO installment note as of September 30, 2001, compared to $6.6 million outstanding under our revolver and $1.9 million outstanding on the ABCO installment note at September 30, 2000. We prepaid, in full, $1.6 million of the ABCO installment note early in the first quarter of fiscal 2002. The lower effective borrowing rate under our credit facilities also contributed to the lower interest expense we incurred. As a result of the factors discussed above, we recorded net earnings for the quarter ended September 30, 2001, of $0.8 million, compared to a net loss of $0.5 million for the same period in fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES Effective August 31, 2001, we entered into a new $10 million revolving line of credit facility that expires in October 2003. The credit line carries a floating interest rate based on the prime rate less 0.25% (5.75% at September 30, 2001) and is secured by substantially all of our assets. Our interest rate is subject to change based on our financial performance. As of September 30, 2001, we had no outstanding balance under the credit line, and $1.9 million outstanding under letters of credit, leaving us with $8.1 million of availability under the credit line. We pay an annual commitment fee of 0.25% of the unused balance under the credit line. The credit line contains financial covenants, restrictions on capital expenditures, acquisitions, asset dispositions, additional debt, and other customary covenants. We have historically been a net provider of cash from operations and have financed our working capital requirements and capital expenditures through the retention of earnings and the use of our short-term credit lines. However, cash was used in operating activities for the first three months of fiscal 2002 in the amount of $0.4 million, compared to cash provided by operating activities of $0.4 million for the same period in fiscal 2001. The change was primarily the result of the increases in accounts payable which were offset by an increase in our accounts receivable and a decrease in our accrued liabilities. The increases in accounts receivable are not attributable to our customers not timely paying us, but rather are directly related to the nature of our business. Because we are engaged in the business of manufacturing custom systems, our progress billing practices are event oriented rather -9- PEERLESS MFG. CO. AND SUBSIDIARIES than date oriented, and vary from contract to contract. We customarily bill our customers after the occurrence of certain project milestones. For example, after we complete engineering drawings for a customized product or after ordering raw materials to produce that product. Once we bill our customer, our accounts receivable balance increases as does our balance of billings in excess of costs and earnings on uncompleted contracts. Consequently, we focus on the difference between our accounts receivable balance and our billings in excess of costs balance to determine our "net working capital impact" related to billings for a particular period. As of September 30, 2001, our net working capital impact was approximately $22.5 million, and as of September 30, 2000, that balance was $17.8 million A period to period analysis of our balance of accounts receivable must also take into account any changes in our backlog (uncompleted orders less revenue recognized under the percentage of completion method). The increase to our accounts receivable balance from September 30, 2000, to September 30, 2001 was directly related to the growth in demand for our products. Because we are engaged in the business of manufacturing custom systems, our balances of accounts receivables, billings in excess of costs and earnings, and costs and earnings in excess of billings change in direct correlation to the quantity and mix of our backlog, as well as the specific terms of each of our customer contracts. Although historically our capital expenditure requirements have not been significant, we may have to increase our level of capital expenditures in the future to expand our manufacturing capacity if the demand for our SCR System continues to increase at the current rate. We believe we maintain adequate liquidity to support existing operations and planned growth, as well as to continue operations during reasonable periods of unanticipated adversity. Management directs additional resources to strategic new product development, market expansion and continuing improvement of existing products to enhance our position as a market leader and to promote planned internal growth and profitability. Although historically we have usually paid quarterly dividends, we announced in January 2001 that we would not pay a dividend for the quarter ending March 31, 2001, and thereafter in order to preserve working capital for future growth. Our Board of Directors has decided to continue the policy of preserving working capital for the quarter ended September 30, 2001. Consequently, no dividend will be paid for that quarter. NEW ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board issued FAS 141 "Business Combinations" ("FAS 141") and FAS 142 "Goodwill and Other Intangible Assets" ("FAS 142"). FAS 141 addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination initiated after June 30, 2001. FAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination, whether acquired individually or with a group of other assets, and the accounting and reporting for goodwill and other intangibles subsequent to their acquisition. These standards require all future business combinations to be accounted for using the purchase method of accounting. Goodwill will no longer be amortized but instead will be subject to impairment tests at least annually. The company will adopt FAS 142 on July 1, 2002. As a result of implementing these new standards, the company will discontinue the amortization of goodwill as of June 30, 2002. -10- PEERLESS MFG. CO. AND SUBSIDIARIES In October 2001, the Financial Accounting Standards Board issued FAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets. This statement supersedes FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121") and related literature and establishes a single accounting model, based on the framework established in FAS 121, for long-lived assets to be disposed of by sale. The company is required to adopt FAS 144 for fiscal years beginning after December 15, 2001. The effect of adopting these standards will be immaterial to the company. CAUTION REGARDING FORWARD-LOOKING STATEMENTS The company occasionally makes forward-looking statements concerning its plans, goals, product and service offerings, and anticipated financial performance. These forward-looking statements may generally be identified by introductions such as "outlook" for an upcoming period of time, or words and phrases such as "should", "expect", "hope", "plans", "projected", "believes", "forward-looking" (or variants of those words and phrases) or similar language indicating the expression of an opinion or view concerning the future. These forward-looking statements are subject to risks and uncertainties based on a number of factors and actual results or events may differ materially from those anticipated by such forward-looking statements. These factors include, but are not limited to: the growth rate of the company's revenue and market share; the consummation of new, and the non-termination of, existing contracts; the company's ability to effectively manage its business functions while growing its business in a rapidly changing environment; the company's ability to adapt and expand its services in such an environment; the company's ability to successfully refinance or extend its lines of credit or obtain alternative sources of financing; the company's ability to effectively and efficiently manage its backlog, large contracts for its SCR Systems, inventory levels and processing of sales orders; the quality of the company's plans and strategies; the company's ability to execute such plans and strategies; the company's ability to manage its SCR Systems business if a slowdown occurs in the construction or refurbishment of power plants; the company's ability to adapt to changes in regulatory standards; and the size and value of product warranty claims submitted to the company by customers. In addition, forward-looking statements concerning the company's expected revenue or earnings levels are subject to many additional uncertainties applicable to competitors generally and to general economic conditions over which the company has no control. The company does not plan to generally publicly update prior forward-looking statements for unanticipated events or otherwise and, accordingly, prior forward-looking statements should not be considered to be "fresh" simply because the company has not made additional comments on those forward-looking statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. There were no significant changes in market risk since June 30, 2001. -11- PEERLESS MFG. CO. AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. A. Exhibits. The following exhibits are filed as part of this report: Exhibit Number Exhibit -------- --------- 10(i) Employment Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(j) Employment Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. 10(k) Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(l) Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. B. Reports on Form 8-K. None. -12- PEERLESS MFG. CO. AND SUBSIDIARIES 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 thereto duly authorized. PEERLESS MFG. CO. Dated: November 14, 2001 /s/ Sherrill Stone --------------------------------------------- Sherrill Stone, Chairman, President and Chief Executive Officer /s/ Robert J. Boutin -------------------------------------------- Robert J. Boutin, Chief Financial Officer (Principal Financial and Accounting Officer) -13- EXHIBIT INDEX Exhibit Number Exhibit ------- ------------- 10(i) Employment Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(j) Employment Agreement dated July 20, 2001, by and between Roy C. Cuny and the company. 10(k) Agreement dated July 20, 2001, by and between Sherrill Stone and the company. 10(l) Agreement dated July 20, 2001, by and between Roy C. Cuny and the company.