-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bk4MrCxRiHPEvowLKUyswx4Tx5Z+GMkMkwU+dxq7Qa0Sa1OlaOG1YpB1zBjtCzDL 6fqagTLQ8VrtfHc4qG6eJw== 0000003753-02-000012.txt : 20021107 0000003753-02-000012.hdr.sgml : 20021107 20021107145259 ACCESSION NUMBER: 0000003753-02-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLEN ORGAN CO CENTRAL INDEX KEY: 0000003753 STANDARD INDUSTRIAL CLASSIFICATION: MUSICAL INSTRUMENTS [3931] IRS NUMBER: 231263194 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-00275 FILM NUMBER: 02812457 BUSINESS ADDRESS: STREET 1: 150 LOCUST ST STREET 2: PO BOX 36 CITY: MACUNGIE STATE: PA ZIP: 18062 BUSINESS PHONE: 2159662200 MAIL ADDRESS: STREET 1: 150 LOCUST STREET STREET 2: PO BOX 36 CITY: MACUNGIE STATE: PA ZIP: 18062-0036 10-Q 1 m10q0902.txt UNITED STATES 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 Quarter Ended September 30, 2002 OR ( ) Transition Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Commission File Number 0-275 Allen Organ Company (Exact name of registrant as specified in its charter) Pennsylvania 23-1263194 (State of Incorporation) (I.R.S. Employer Identification No.) 150 Locust Street, P. O. Box 36, Macungie, Pennsylvania 18062-0036 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 610-966-2200 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 _____ Number of shares outstanding of each of the issuer's classes of common stock, as of November 06, 2002: Class A - Voting 83,864 shares Class B - Non-voting 1,086,196 shares ALLEN ORGAN COMPANY INDEX Part I Financial Information Item 1.Financial Statements Consolidated Condensed Statements of Income for the nine months ended September 30, 2002 and 2001 Consolidated Condensed Balance Sheets at September 30, 2002 and December 31, 2001 Consolidated Condensed Statements of Cash Flows for the nine months ended September 30, 2002 and 2001 Notes to Consolidated Condensed Financial Statements Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3.Quantitative and Qualitative Disclosures About Market Risk. Item 4.Controls and Procedures Part II Other Information Item 4.Submission of Matters to a Vote of Security Holders Item 6.Exhibits and Reports on Form 8-K Signatures Certifications Exhibits PART I FINANCIAL INFORMATION ITEM 1.FINANCIAL STATEMENTS ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited) For the 3 Months Ended: For the 9 Months Ended: 9/30/2002 9/30/2001 9/30/2002 9/30/2001 Net Sales $15,705,708 $15,385,870 $49,086,929 $43,764,562 Cost and Expenses Costs of sales 9,950,064 10,212,368 29,544,274 31,319,047 Selling, general and administrative 3,318,095 3,628,693 10,574,900 11,850,598 Research and development 1,873,589 1,919,752 5,876,240 6,274,846 Costs to close Southampton plant -- -- -- 530,000 Impairment of VIR, Inc. goodwill -- -- -- 1,400,000 Total Costs and Expenses 15,141,748 15,760,813 45,995,414 51,374,491 Income (Loss) from Operations 563,960 (374,943) 3,091,515 (7,609,929) Other Income and (Expense) Interest and other income 219,920 201,876 461,121 911,448 Interest expense -- -- -- (315,084) Loss on sale of property, plant and equipment (29,518) (175,358) (25,101) (175,358) Minority interests in consolidated subsidiaries -- -- -- (33,275) Total Other Income and Expense 190,402 26,518 436,020 387,731 Income (Loss) Before Taxes 754,362 (348,425) 3,527,535 (7,222,198) Income Tax Provision (Benefit) 226,000 (85,000) 1,058,000 (2,768,000) Net Income (Loss) $ 528,362 $ (263,425) $ 2,469,535 $ (4,454,198) Basic and Diluted Earnings Per Share (Loss) $0.45 $(0.23) $2.11 $(3.81) Weighted Average Shares Used in Per Share Calculation 1,170,235 1,170,505 1,170,235 1,170,505 Dividends Per Share-Cash $0.14 $0.14 $0.42 $0.42 Total Comprehensive Income (Loss) $ 522,439 $ (190,231) $ 2,499,613 $ (4,578,269) See accompanying notes. ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS September 30, Dec 31, ASSETS 2002 2001 (Unaudited) (Audited) Current Assets Cash $ 5,462,989 $ 4,449,998 Investments Including Accrued Interest 17,192,124 11,609,416 Accounts Receivable, net of reserves of $500,720 and $350,492, respectively 7,819,526 9,947,842 Inventories: Raw Materials 5,132,829 5,515,815 Work in Process 5,846,722 6,249,775 Finished Goods 4,545,166 4,720,318 Total Inventories 15,524,717 16,485,908 Income Taxes Prepaid and Receivable 574,293 1,106,214 Prepaid Expenses 441,594 386,421 Deferred Income Tax Benefits 1,544,430 1,561,138 Total Current Assets 48,559,673 45,546,937 Property, Plant and Equipment 27,357,137 26,600,965 Less Accumulated Depreciation (15,979,677) (15,109,416) Total Property, Plant and Equipment 11,377,460 11,491,549 Other Assets Inventory Held for Future Service 812,625 811,249 Note Receivable 2,397,291 1,997,107 Cash Value of Life Insurance 2,213,982 2,173,566 Deferred Income Tax Benefits 2,022,725 2,022,725 Goodwill, net 194,523 194,523 Intangible Assets, net 1,764,464 2,218,504 Other Assets 16,092 16,092 Total Other Assets 9,421,702 9,433,766 Total Assets $69,358,835 $66,472,252 LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Current Liabilities Accounts Payable $ 2,367,713 $ 2,750,251 Other Accrued Expenses 2,713,470 1,973,154 Customer Deposits 3,009,541 2,978,023 Total Current Liabilities 8,090,724 7,701,428 Noncurrent Liabilities Deferred and Other Noncurrent Liabilities 846,859 707,769 Accrued Pension Costs 2,090,725 1,748,040 Total Noncurrent Liabilities 2,937,584 2,455,809 Total Liabilities 11,028,308 10,157,237 STOCKHOLDERS' EQUITY Common Stock 2002 2001 Class A 127,232 shares; 127,232 shares 127,232 127,232 Class B 1,410,761 shares; 1,410,761 shares 1,410,761 1,410,761 Capital in Excess of Par Value 12,921,577 12,903,610 Retained Earnings Balance, Beginning 55,237,713 59,977,002 Net Income 2,469,535 (4,083,810) Dividends - Cash 2002 and 2001 (491,498) (655,479) Balance, End 57,215,750 55,237,713 Accumulated Other Comprehensive Income (1,344,222) (1,374,300) Sub-total 70,331,098 68,305,016 Treasury Stock 2002-43,368 Class A shares;324,565 Class B shares (12,000,571) -- 2001-43,368 Class A shares;324,304 Class B shares -- (11,990,001) Total Stockholders' Equity 58,330,527 56,315,015 Total Liabilities and Stockholders' Equity $69,358,835 $66,472,252 See accompanying notes. ALLEN ORGAN COMPANY AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) For the 3 Months Ended: For the 9 Months Ended: 9/30/2002 9/30/2001 9/30/2002 9/30/2001 CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 528,362 $ (263,425) $2,469,535 $(4,454,198) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization 691,750 655,515 2,111,205 2,257,931 Deferred income tax benefits (2,323) 39,246 16,708 69,147 Loss from impairment of VIR, Inc. goodwill, included in operating expenses -- -- -- 1,400,000 Minority interest in consolidated subsidiaries -- -- -- 33,275 Change in assets and liabilities Accounts receivable 1,876,816 (2,787,901) 2,128,316 (504,562) Inventories 470,815 1,329,979 959,815 2,389,393 Income taxes prepaid and receivable 810,699 (161,762) 531,921 (3,145,505) Prepaid expenses 108,820 157,945 (55,173) (242,795) Prepaid pension costs -- 38,047 -- 7,080 Accounts payable (216,733) 706,004 (382,538) (862,762) Accrued expenses 315,319 11,094 740,316 (653,057) Customer deposits (37,721) 24,982 31,518 26,257 Accrued Pension Costs 169,242 -- 342,685 -- Deferred and other noncurrent liabilities 46,371 34,853 139,090 104,559 Net Cash Provided by (Used In) Operating Activities 4,761,417 (215,423) 9,033,398 (3,575,237) CASH FLOW FROM INVESTING ACTIVITIES Additions to goodwill and intangible assets (27,000) -- (29,780) (156,243) Increase in note receivable -- -- (400,184) (399,058) Net additions to plant and equipment (566,046) (63,479) (1,513,296) (1,052,376) Increase in cash value of life insurance (40,416) (47,783) (40,416) (47,783) Net (purchase) or sale of short-term investments (7,348,328) 208,801 (5,552,630) 12,732,933 Net Cash (Used in) Provided by Investing Activities (7,981,790) 97,539 (7,536,306) 11,077,473 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from bank loans -- -- -- 3,300,000 Repayment of bank loans -- -- -- (12,000,000) Proceeds from sale of subsidiary stock 15,927 -- 17,967 96,333 Reacquired Class B common shares (10,570) -- (10,570) (6,891) Dividends paid in cash (163,808) (163,865) (491,498) (491,615) Subsidiary company stock reacquired from minority shareholders -- (350,603) -- (400,053) Net Cash Used in Financing Activities (158,451) (514,468) (484,101) (9,502,226) NET (DECREASE) INCREASE IN CASH (3,378,824) (632,352) 1,012,991 (1,999,990) CASH, BEGINNING 8,841,813 1,344,730 4,449,998 2,712,368 CASH, ENDING $5,462,989 $ 712,378 $5,462,989 $ 712,378 SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION Cash paid (refunded) for: Income Taxes $(584,699)$ 77,777 $ 526,079 $ 319,777 Interest $ -- $ -- $ -- $ 315,084 See accompanying notes. ALLEN ORGAN COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Interim Financial Statements The results of operations for the interim periods presented in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained herein reflects all adjustments considered necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal recurring nature. Certain notes and other information have been condensed or omitted from the interim financial statements presented in the Quarterly Report on Form 10-Q. Therefore, these financial statements should be read in conjunction with the Company's 2001 Annual Report on Form 10-K. 2.New Accounting Standards Effective January 1, 2002, the Company adopted the following Statements issued by the Financial Accounting Standards Board (FASB) neither of which had a material affect on the Company's financial statements. SFAS 142, "Goodwill and Other Intangible Assets" - replaces the requirement to amortize intangible assets with indefinite lives and goodwill with a requirement for an impairment test. The amount of goodwill amortization included in the operating expenses for the three and nine months ended September 30, 2001 was $6,732 and $71,546, respectively. SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" - Establishes one accounting model, used for long-lived assets to be held and used, disposed of by sale or otherwise disposed. In June 2002, the FASB issued SFAS No. 146, "Accounting for Exit or Disposal Activities." SFAS 146 addresses the recognition, measurement and reporting of costs associated with exit and disposal activities, including restructuring activities. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002. Adoption of SFAS 146 is not expected to have an impact on the consolidated financial position or results of operations of the Company. 3.Stock Option Plan On July 25, 2002, the Company adopted the Allen Organ Company Stock Option Plan to encourage stock ownership by certain key employees. During the third quarter of 2002, the Company granted options to purchase 12,000 shares of the Company's Class B stock, at the fair market value on the date of grant. These options were not included in computing earning per share because their effect was antidilutive. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS. Liquidity and Capital Resources: Cash flows from operating activities increased during the three and nine months ended September 30, 2002 when compared to the same period in 2001, due to higher operating income, income tax refunds and decreases in accounts receivable in the Data Communications segment. Cash flows from investing activities were used to purchase short term investments and property and equipment during the nine months ended September 30, 2002, including approximately $900,000 in the Musical Instruments segment, $100,000 in the Electronic Assemblies segment and $500,000 in the Data Communications segment. For the nine months ended September 30, 2001 cash flows from investing activities were provided by the liquidation of short term investments which were used to repay bank loans. Results of Operations: Sales and Operating Income For the 3 Months Ended: For the 9 Months Ended: 9/30/2002 9/30/2001 9/30/2002 9/30/2001 Net Sales to Unaffiliated Customers Musical Instruments $ 5,778,976 $ 5,976,634 $18,701,819 $18,208,419 Data Communications 8,130,042 7,960,398 25,654,556 16,770,366 Electronic Assemblies 1,486,132 1,134,936 3,582,948 7,401,992 Audio Equipment 310,558 313,902 1,147,606 1,383,785 Total $15,705,708 $15,385,870 $49,086,929 $43,764,562 Intersegment Sales Musical Instruments $ 133,553 $ 10,260 $ 298,699 $ 51,087 Data Communications -- 136 -- 193,574 Electronic Assemblies 49,063 -- 131,540 -- Audio Equipment 13,151 22,081 71,385 41,482 Total $ 195,767 $ 32,477 $ 501,624 $ 286,143 Income (Loss) from Operations Musical Instruments $ 154,023 $ 1,170,937 $ 1,799,900 $ 1,846,125 Data Communications 525,480 (972,644) 1,997,708 (9,006,780) Electronic Assemblies 50,254 (175,962) (298,208) 257,670 Audio Equipment (165,797) (397,274) (407,885) (706,944) Total $ 563,960 $ (374,943) $ 3,091,515 $(7,609,929) Musical Instruments Segment Sales decreased $197,658 and increased $493,400 respectively for the three and nine months ended September 30, 2002 when compared to the same periods in 2001. While the order rate for the first nine months of 2002 was slightly lower than the same period in 2001, sales for the first nine months of 2002 were higher due to shipments made against the order backlog. This segment has been negatively affected by lower stock market valuations that affect consumer confidence as well as their donations to religious institutions. Religious institutions are a primary market for this segment's products. The gross profit percentage decreased to 23% and 30% respectively during the three and nine months ended September 30, 2002 from 40% and 31% in the same periods of 2001. These decreases are due to higher operating costs including employee pension expense and lower absorption of fixed costs related to planned decreases in the level of inventory necessitating slightly lower levels of production. Selling, general and administrative, research and development expenses increased slightly during the three and nine months ended September 30, 2002 when compared to the same periods in 2001. The Company's pension expense has increased due to lower investment returns realized in the Company's defined benefit pension plans. The Company has reduced its long-term rate of return assumption in both of its defined benefit pension plans due to lower projected future investment returns and expects that pension related costs will increase in future years. Data Communications Segment Sales increased $169,644 and $8,884,190 respectively, for the three and nine months ended September 30, 2002 when compared to the same periods in 2001. The 2002 sales increased due to new product introductions and from redirection of the Company's sales and marketing efforts away from CLECs to other Data Communications markets. Gross profit margins increased to 51.3% and 52.8% respectively during the three and nine months ended September 30, 2002 from 36.7% and 34.3% during the same periods in 2001 due to the higher sales volume over which to absorb fixed costs and changes in product mix. The gross margins for the three and nine months ended September 30, 2001 were negatively affected by $819,000 and $1,539,000 respectively, of additional inventory valuation adjustments recorded at VIR, Inc. (VIR) for slow moving and obsolete inventory associated with discontinued product lines. Sales and marketing expenditures decreased approximately $218,000 (12%) and $685,000 (12%) during the three and nine months ended September 30, 2002 when compared to the same periods in 2001 primarily due to cost reduction programs. General and administrative expenses for the three months ended September 30, 2002 were approximately equal to the same period in 2001 and decreased approximately $300,000 (12%) during the nine months ended September 30, 2002 when compared to the same period in 2001. Research and development expenditures decreased approximately $103,000 (6%) and $386,000 (7%) respectively for the three and nine months ended September 30, 2002 when compared to the same periods in 2001. These decreases are primarily due to the combination of the VIR operations into Eastern Research, Inc. (ERI) during 2001 and an overall reduction in personnel. The combination of increased sales, higher gross margins and lower operating costs resulted in operating income of approximately $525,000 and $1,997,000, respectively for the three and nine months ended September 30, 2002 for this segment compared to large operating losses in the same periods of 2001. The 2001 operating losses were also negatively affected by inventory valuation adjustments, plant closing costs, and a charge to write down the goodwill and intangible assets of VIR totaling $819,000 and $3,469,000 for the three and nine months ended September 30, 2001, respectively. Future sales visibility remains limited throughout the Data Communications market that ERI serves with many companies that buy Data Communications equipment continuing to lower their capital expenditure spending for such equipment. These factors, along with continued uncertainty in completing sales to larger accounts, create significant uncertainty of operating results in future quarters. Electronic Assemblies Segment Sales increased $351,196 during the third quarter and decreased $3,819,044 during the nine months ended September 30, 2002 when compared to the same periods in 2001. The increase in sales for the three months ended September 30, 2002 is due to higher order rates from some existing customers and the addition of new customers. The decrease in sales for the nine months was due to the severe economic slowdown that affected the Company's contract manufacturing customers. Future sales visibility remains limited for this segment. Gross profit margin for the third quarter was 8.7% and for the nine months ended September 30, 2002 was a loss of approximately $(44,000) (1%). Gross profit margins for the three and nine months ended September 30, 2001 were a loss of approximately $(60,000) (5%) and a gross profit of 8% respectively. Selling, general and administrative expenses for the three and nine months ended September 30, 2002 decreased slightly when compared to the same periods in 2001. Audio Equipment Segment Sales decreased $3,344 and $236,179 for the three and nine months ended September 30, 2002 when compared to the same periods in 2001. Gross profit margins were 23% and 24% respectively in the three and nine months ended September 30, 2002. Selling, general and administrative costs decreased during the three and nine months ended September 30, 2002 when compared to the same period in 2001. Legacy Audio has historically sold its products through a direct marketing program. This method of distribution limited Legacy's ability to penetrate the broader market. Legacy has been implementing a program to distribute its products through a more traditional dealer network. The Company has added independent retail dealers and will continue to do so in a conservative manner to build a quality dealer network. During this period, Legacy has been shifting marketing resources to the new method of distribution. This results in Legacy receiving a lower price per sale to allow the dealers to realize a retail markup. The lower product prices that Legacy receives are in part offset by eliminating Legacy's direct marketing expense that is not required in the new sales model. The general economic slowdown has affected the sales for certain consumer goods including the Company's Legacy products. Legacy's speaker cabinets are now manufactured at the Company's Macungie, PA plant. During July 2002 Legacy's sales offices were re-located to the Macungie facility. The effect of this consolidation was immaterial. Other Income and Expense Investment income increased slightly during the three months ended September 30, 2002 when compared to the same periods in 2001 due to higher invested balances and decreased during the nine months ended September 30, 2002 due to lower invested balances and lower rates of return available on invested funds. Income Taxes The tax provision for the three and nine months ended September 30, 2002 are based on the estimated effective tax rate for the year, which is less than the statutory rate due to tax credits and exempt income. Factors that May Affect Operating Results The statements contained in this report on Form 10-Q that are not purely historical are forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including statements regarding the Company's expectations, hopes, intentions or strategies regarding the future. Forward looking statements include: statements regarding future products or product development; statements regarding future research and development spending and the Company's marketing and product development strategy, statements regarding future production capacity. All forward looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any such forward looking statements. Readers are cautioned not to place undue reliance on these forward looking statements, which reflect management's opinions only as of the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission, including the Annual Report on Form 10- K. It is important to note that the Company's actual results could differ materially from those in such forward looking statements. Some of the factors that could cause actual results to differ materially are set forth below. The Company has experienced and expects to continue to experience fluctuations in its results of operations. Factors that affect the Company's results of operations include the volume and timing of orders received, changes in global economics and financial markets, changes in the mix of products sold, market acceptance of the Company's and its customer's products, competitive pricing pressures, global currency valuations, the availability of electronic components that the Company purchases from suppliers, the Company's ability to meet increasing demand, the Company's ability to introduce new products on a timely basis, the timing of new product announcements and introductions by the Company or its competitors, changing customer requirements, delays in new product qualifications, the timing and extent of research and development expenses and fluctuations in manufacturing yields. As a result of the foregoing or other factors, there can be no assurance that the Company will not experience material fluctuations in future operating results on a quarterly or annual basis, which would materially and adversely affect the Company's business, financial condition and results of operations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. No change from information disclosed in the Company's 2001 annual report on form 10-K. ITEM 4. CONTROLS AND PROCEDURES. Within ninety days prior to the filing of this Report, the Company's Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures, which are designed to insure that the Company records, processes, summarizes and reports in a timely and effective manner the information required to be disclosed in the reports filed with or submitted to the Securities and Exchange Commission. Based upon this evaluation, they concluded that, as of the date of the evaluation, the Company's disclosure controls are effective. Since the date of this evaluation, there have been no significant changes in the Company's internal controls or in other factors that could significantly affect those controls. PART II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) Special Meeting: July 25, 2002 (b) In addition to the waiver of reading of the minutes of the prior meeting, the shareholders ratified the adoption of the Allen Organ Company Stock Option Plan. All resolutions were adopted by the vote of all shareholders present, in person or proxy. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description 10.1 Allen Organ Company Stock Option Plan 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) No reports on Form 8-K were filed during the quarter ended September 30, 2002. 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. Allen Organ Company (Registrant) Date:November 7, 2002 /s/STEVEN MARKOWITZ Steven Markowitz, President and Chief Executive Officer Date:November 7, 2002 /s/NATHAN S. ECKHART Nathan S. Eckhart, Vice President-Finance, Chief Financial and Principal Accounting Officer ALLEN ORGAN COMPANY AND SUBSIDIARIES Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Steven Markowitz, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Allen Organ Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b)evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/STEVEN MARKOWITZ Steven Markowitz Chief Executive Officer November 7, 2002 ALLEN ORGAN COMPANY AND SUBSIDIARIES Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Nathan S. Eckhart, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Allen Organ Company; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a)designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b)evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c)presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a)all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/NATHAN S. ECKHART Nathan S. Eckhart Chief Financial Officer November 7, 2002 EX-10 3 stockplan.txt Exhibit 10.1 ALLEN ORGAN COMPANY STOCK OPTION PLAN I. Purpose and Scope The purposes of this Plan are to encourage stock ownership by employees, non-employee directors, agents, consultants or independent contractors of Allen Organ Company (the "Company") and its Subsidiaries (as defined herein), to provide an incentive for such employees, non-employee directors, agents, consultants or independent contractors to expand and improve the profits and prosperity of the Company, and to assist the Company in attracting and retaining such individuals through the grant of options to purchase shares of the Company's common stock. II. Definitions Unless otherwise required by the context: A. "Agreement" shall mean the written instrument evidencing the grant of an Option. The Participant may be issued one or more Agreements from time to time, reflecting one or more Options. B. "Board" shall mean the Board of Directors of the Company. C. "Change in Control" means the occurrence of (1) any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), either individually or together with that person's affiliates or associates, becoming the beneficial owner, directly or indirectly, of at least 50% of the outstanding voting shares of common stock or (2) during any period of two consecutive years, individuals who, at the beginning of such period constituted the Board, ceasing for any reason to constitute at least a majority of the Board unless the election of each director of the Board, who was not a director of the Board at the beginning of such period, was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period, or (3) an approval by the Company's shareholders (or if approval is not required, by the Company's Board) of the Company merging or consolidating with or having its assets purchased by another corporation and as a result of said merger, consolidation or sale of assets, less than a majority of the outstanding voting stock of the surviving, resulting or purchasing corporation being owned, immediately after the transaction, by the holders of the voting stock of the Company outstanding immediately before the transaction. Notwithstanding the foregoing, a Change in Control will not be deemed to occur due to the transfer of shares of voting common stock of the Company between individuals who are related within two (2) degrees of consanguinity by will, gift or trust transferred pursuant to the laws of descent and distribution of the Commonwealth of Pennsylvania or pursuant to an agreement to purchase or sell such common stock of the Company. D. "Committee" shall mean the Stock Option Plan Committee, which is appointed by the Board, and which shall be composed of three members of the Board. E. "Common Stock" shall mean the Class B common stock of Allen Organ Company, Inc., par value $1.00 per share. F. "Company" shall mean Allen Organ Company, a Pennsylvania corporation. G. "Code" shall mean the Internal Revenue Code of 1986, as amended. H. "Fair Market Value" shall be determined as follows: (a) During such time as the Common Stock is not listed on an established stock exchange or exchanges but is quoted on the NASDAQ National Market System, the fair market value per share of the Common Stock shall be the closing sale price for such a share on the relevant day. If no sale of Common Stock has occurred on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred. (b) During such time as the Common Stock is not listed on an established stock exchange or quoted on the NASDAQ National Market System, the fair market value per share of the Common Stock shall be the mean between the closing "bid" and "asked" prices for such a share on the relevant day. If no closing "bid" and "asked" prices are quoted for that day, the fair market value shall be determined by reference to such prices for the next preceding day on which such closing prices were quoted. (c) If the Common Stock is listed on an established stock exchange or exchanges, the fair market value per share of the Common Stock shall be the composite closing sale price for such a share on the relevant day. If no sale of Common Stock has occurred on that day, the fair market value shall be determined by reference to such price for the next preceding day on which a sale occurred. (d) In the event that the Common Stock is not traded on an established stock exchange or quoted on the NASDAQ National Market System, and no closing "bid" and "asked" prices are available on a relevant day, then the fair market value per share of Common Stock will be the price established by the Committee or the Board in good faith. In connection with determining the fair market value of a share of Common Stock on any relevant day, the Committee or the Board may use any source deemed reliable; and its determination shall be final and binding on all affected persons. I. "Option" shall mean a right to purchase Common Stock, granted pursuant to the Plan. J. "Option Price" shall mean the purchase price for Common Stock under an Option, as determined in Section VI below. K. "Participant" shall mean an employee of the Company or a Subsidiary to whom an Option is granted under the Plan. Participant shall also mean any non-employee director, agent, consultant or independent contractor providing key services to the Company to whom an Option is granted under the Plan. L. "Plan" shall mean the Allen Organ Company Stock Option Plan. III. Stock to be Optioned Subject to the provisions of Section XII of the Plan, the maximum number of shares of Common Stock that for which Options may be granted under the Plan is 100,000 shares. Such shares may be treasury, or authorized, but unissued, shares of Common Stock of the Company. In no even shall the number of Options granted to any one person exceed 40,000 during a 12-consecutive month period. IV. Administration The Plan shall be administered by the Committee. Two members of the Committee shall constitute a quorum for the transaction of business. The Committee shall be responsible to the Board for the operation of the Plan, and shall make recommendations to the Board with respect to participation in the Plan by employees, non-employee directors, agents, consultants or independent contractors of the Company or its subsidiaries, and with respect to the extent of that participation. The interpretation and construction of any provision of the Plan by the Committee shall be final, unless otherwise determined by the Board. No member of the Board or the Committee shall be liable for any action or determination made by him in good faith. V. Eligibility The Board, upon recommendation of the Committee, may grant Options to any employee (including an employee who is a director or an officer) of the Company or its Subsidiaries or any non-employee director, agent, consultant or independent contractor who provides or has provided key services to the Company or its Subsidiaries. Options may be awarded by the Board at any time and from time to time to new Participants, or to then Participants, or to a greater or lesser number of Participants, and may include or exclude previous Participants, as the Board, upon recommendation by the Committee shall determine. Options granted at different times need not contain similar provisions. Options granted pursuant to the Plan are not intended to qualify as "incentive" stock options under Code Section 422. VI. Option Price The purchase price for Common Stock under each Option shall generally be 100 percent of the Fair Market Value of the Common Stock at the time the Option is granted, but in no event will such purchase price be less than the par value of the Common Stock. VII. Terms and Conditions of Options Options granted pursuant to the Plan shall be authorized by the Board and shall be evidenced by Agreements in such form as the Board, upon recommendation of the Committee, shall from time to time approve. Such Agreements shall comply with and be subject to the following terms and conditions: A. Vesting in Options. The Board may, in its discretion, subject any Option granted under the Plan to a vesting schedule. Any such schedule will govern the ability of a Participant to exercise an Option granted hereunder. An Option may be exercised only during the continuance of the Participant's employment, except as provided in Section VIII and Section IX. No such Agreement shall impose upon the Company or its Subsidiaries, however, any obligation to employ the Participant for any period of time. B. Time and Method of Payment. The Option Price shall be paid in full in cash at the time an Option is exercised under the Plan. However, in lieu of cash, with the approval of the Committee at or prior to exercise, a Participant may exercise his Option by tendering to the Company, shares of Common Stock owned by him and having a fair market value equal to the cash exercise price applicable to his Option or by delivering such combination of cash and such shares as the Committee in its sole discretion may approve. Notwithstanding the foregoing, Common Stock may not be tendered as payment unless it has been held, beneficially and of record, for at least one year. In addition, at the request of the Participant, and to the extent permitted by applicable law, the Company may, in its sole discretion, selectively approve arrangements with a brokerage firm under which such brokerage firm, on behalf of the Participant, shall pay to the Company the exercise price of the Option being exercised, and the Company, pursuant to an irrevocable notice from the Participant, shall promptly deliver the shares being purchased to such firm. Promptly after the exercise of an Option and the payment of the full Option Price, the Participant shall be entitled to the issuance of a stock certificate evidencing his ownership of such Common Stock. A Participant shall have none of the rights of a shareholder until shares are issued to him, and no adjustment will be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. C. Number of Shares. Each Option shall state the total number of shares of Common Stock to which it pertains. D. Option Period and Limitations on Exercise of Options. Each Option granted under the Plan shall be exercisable only after the earlier of the date on which (1) the Participant has met the vesting period requirements as the Committee shall specify, if any, in the Agreement or (2) a Change in Control occurs. Except as provided in the Agreement, an Option may be exercised in whole or in part at any time during its term. No Option may be exercised after the expiration of ten years and one month from the date it is granted. No Option may be exercised for a fractional share of Common Stock. E. Withholding Taxes. (1) Subject to the provisions of Subsection E(2), the Company will require that a Participant as a condition of the exercise of an Option, or any other person or entity receiving Common Stock upon exercise of an Option, pay or reimburse any taxes which the Company is required to withhold in connection with the exercise of the Option at such time as withholding is required by law. (2) With the approval of the Committee, a Participant may satisfy the withholding obligation described in Subsection E(1), in whole or in part, by electing to have the Company withhold shares of Common Stock (otherwise issuable upon the exercise of an Option) having a fair market value equal to the amount required to be withheld. An election by a Participant to have shares withheld for this purpose shall be subject to the following restrictions: (a) it must be made prior to the date on which the amount of tax to be withheld is determined; (b) it shall be irrevocable; and (c) it shall be subject to disapproval by the Committee; and (d) it shall be subject to such additional requirements as may be applicable under securities laws at the relevant time. F. Restriction on Transfer. By exercising options granted under this Plan a Participant agrees and consents to the following: (1) Certificates representing shares which are subject to this Plan shall bear such legend as counsel to the Company may deem appropriate. VIII. Termination of Employment A. Retirement. In the event of termination of employment of the Participant due to retirement (as such term is defined in the Company's applicable employee pension benefit plan), an Option shall lapse at the earlier of (1) the expiration of the term of the Option or (2) three months from the date of retirement. B. Total and Permanent Disability. Except as otherwise provided in the relevant Option Agreement, in the event of termination of employment due to the determination that the Participant has become "disabled" as defined in Code Section 72(m)(7), an Option shall lapse at the earlier of (1) the expiration of the term of the Option, or (2) three months after termination due to such causes. C. Involuntary Termination. Except as otherwise provided in Subsection E or the relevant Option Agreement, in the event of termination of employment at the election of the Company, all Options shall lapse as of the earlier of (1) the expiration of the term of the Option, or (2) three months after the date of termination of employment. D. Voluntary Termination. In the event of termination of employment at the election of the Optionee (other than for retirement or total and permanent disability) then the Option shall lapse on the date of such termination of employment. E. Termination for Cause. In the event of termination of employment "for cause" all Options granted to such Participant shall lapse on the date of termination of employment. Termination "for cause" shall mean the Participant was terminated after: (1) Conviction of or plea of guilty or nolo contendere to a felony, a crime of falsehood or a crime involving moral turpitude or the actual incarceration of the Participant for a period of ten (10) consecutive days; (2) The Participant's failure to follow the good faith written instructions, with respect to the Company or its operations, of management of the Company; or (3) A Participant's willful misconduct or neglect of duties as an employee of the Company. IX. Provisions Relating to Options Granted to Non-employee Directors, Agents, Consultants and Independent Contractors Subject to paragraph (A) of this Section IX, Options granted to nonemployee directors, agents, consultants and independent contractors of the Company or its Subsidiaries shall be subject to the same terms and conditions as are applicable to Options granted to Employees, except for any terms or condition that is clearly not applicable under the circumstances. A. Special Provisions. The following provisions shall, with respect to non-employee Options, supersede any contrary provision in this Plan document. (i) References to an Optionee's employment or termination of employment shall be deemed references to a non-employee's service or termination of service on behalf of the Company or its Subsidiaries. X. Rights in Event of Death If a Participant dies without having fully exercised his Options, the executors or administrators, or legatees or heirs, of his estate shall have the right to exercise such Options to the extent that such deceased Participant was entitled to exercise the Options on the date of his death, however, such Option shall lapse at the earlier of the expiration of the term of the Option or three months after termination (unless otherwise provided in the relevant Option Agreement) due to such causes. XI. No Obligations to Exercise Option The granting of an Option shall impose no obligation upon the Participant to exercise such Option. XII. Nonassignability Options shall not be transferable other than by will or by the law of descent and distribution, and during a Participant's lifetime shall be exercisable only by such Participant. XIII. Effect of Change in Stock Subject to the Plan The aggregate number of shares of Common Stock available for Options under the Plan, the shares subject to any Option and the price per share shall all be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock subsequent to the effective date of the Plan resulting from (A) a subdivision or consolidation of shares or any other capital adjustment, (B) the payment of a stock dividend, or (C) other increase or decrease in such shares effected without receipt of consideration by the Company. If the Company shall be the surviving corporation in any merger or consolidation, any Option shall pertain, apply, and relate to the securities to which a holder of the number of shares of Common Stock subject to the Option would have been entitled after the merger or consolidation. Upon dissolution or liquidation of the Company, or upon a merger or consolidation in which the Company is not the surviving corporation, all Options outstanding under the Plan shall terminate; provided, however, that in the case of a merger or consolidation, a provision may be made for the substitution of the Options of the acquiring or resulting corporation. XIV. Amendment and Termination The Board, by resolution, may terminate, amend, or revise the Plan with respect to any shares as to which Options have not been granted. Neither the Board nor the Committee may, without the consent of the holder of an Option, alter or impair any Option previously granted under the Plan, except as authorized herein. Unless sooner terminated, the Plan shall remain in effect for a period of ten years from the date of the Plan's adoption by the Board. Termination of the Plan shall not affect any Option previously granted. XIV. Agreement and Representation of Participants As a condition to the exercise of any portion of an Option, the Company may require the person exercising such Option to represent and warrant at the time of such exercise that any shares of Stock acquired at exercise are being acquired only for investment and without any present intention to sell or distribute such shares, if, in the opinion of counsel for the Company, such a representation is required under the Securities Act of 1933 or any other applicable law, regulation, or rule of any governmental agency. XV. Reservation of Shares of Stock The Company, during the term of this Plan, will at all times reserve and keep available, and will seek or obtain from any regulatory body having jurisdiction any requisite authority necessary to issue and to sell, the number of shares of Common Stock that shall be sufficient to satisfy the requirements of this Plan. The inability of the Company to obtain from any regulatory body having jurisdiction the authority deemed necessary by counsel for the Company for the lawful issuance and sale of its Stock hereunder shall relieve the Company of any liability in respect of the failure to issue or sell Stock as to which the requisite authority has not been obtained. XVI. Effective Date of Plan. The Plan shall be effective from the date that the Plan is approved by the Board provided that the Plan is approved by the shareholders of the Company within 12 months thereafter. EX-99 4 ex9910902.txt ALLEN ORGAN COMPANY Exhibit 99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Allen Organ Company (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Steven Markowitz, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350 as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/STEVEN MARKOWITZ Steven Markowitz Chief Executive Officer November 7, 2002 EX-99 5 ex9920902.txt ALLEN ORGAN COMPANY Exhibit 99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Quarterly Report of Allen Organ Company (the "Company") on Form 10-Q for the period ended September 30, 2002 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Nathan S. Eckhart, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350 as adopted pursuant to 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. /s/NATHAN S. ECKHART Nathan S. Eckhart Chief Financial Officer November 7, 2002 -----END PRIVACY-ENHANCED MESSAGE-----