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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
( ) 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 0-16055
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
(FORMERLY PHOTOMATRIX, INC.)
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3267788
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1958 KELLOGG AVE., CARLSBAD, CALIFORNIA 92008
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(Address of principal executive offices) (Zip Code)
(760) 431-4999
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(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
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At October 26, 1999, 9,982,000 shares of Common Stock of National
Manufacturing Technologies, Inc. were outstanding.
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Transitional Small Business Disclosure Format.
Yes No X
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INDEX
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
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PAGE
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PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated balance sheets as of June 30, 1999 (unaudited) and March 31, 1999 2
Unaudited consolidated statements of operations for the three months ended
June 30, 1999 and 1998 3
Unaudited consolidated statements of cash flows for the three months ended
June 30, 1999 and 1998 4
Unaudited notes to consolidated financial statements 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5: OTHER INFORMATION 12
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
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NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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JUNE 30, 1999
ASSETS (UNAUDITED) MARCH 31, 1999
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Current assets:
Cash $ 513,000 $ 42,000
Accounts receivable, net of allowance
of $258,000 and $292,000 857,000 1,448,000
Inventories 815,000 725,000
Land & building held for sale -- 2,674,000
Net assets of discontinued operations -- 386,000
Prepaid expenses and other 61,000 8,000
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Total current assets 2,246,000 5,283,000
Property and equipment, net 1,935,000 1,918,000
Goodwill, net 2,145,000 2,088,000
Other assets 15,000 65,000
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$ 6,341,000 $ 9,354,000
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,257,000 $ 1,724,000
Accrued liabilities 812,000 745,000
Credit facility -- 2,122,000
Mortgage on land & building held for sale -- 2,023,000
Net liabilities of discontinued operations 1,769,000 --
Current maturities of long-term debt 230,000 158,000
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Total current liabilities 4,068,000 6,772,000
Long-term debt 1,237,000 1,009,000
Commitments and contingencies
Shareholders' equity:
Preferred Stock, no par value; 3,173,000 shares
authorized, no shares issued and outstanding -- --
Common stock, no par value; 30 million shares
Authorized and 9,914,000 shares issued
and outstanding, respectively 21,376,000 21,376,000
Additional paid-in capital 53,000 53,000
Accumulated deficit (20,393,000) (19,856,000)
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Total shareholders' equity 1,036,000 1,573,000
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$ 6,341,000 $ 9,354,000
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</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
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NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
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THREE MONTHS ENDED JUNE 30
1999 1998
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Revenues $ 1,753,000 $ 194,000
Cost of revenues 1,158,000 171,000
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Gross profit 595,000 23,000
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Selling, general and administrative expenses 1,446,000 117,000
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Operating loss (851,000) (94,000)
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Other expense, net (77,000) (33,000)
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Loss from continuing operations (928,000) (127,000)
Income/(loss) from discontinued operations 391,000 (827,000)
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Net loss $ (537,000) $ (954,000)
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Basic and diluted net income/(loss) per share:
Continuing operations $ (0.09) $ (0.02)
Discontinued operations $ 0.04 $ (0.13)
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Net loss $ (0.05) $ (0.15)
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Weighted average number of common shares outstanding 9,914,000 6,430,000
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
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NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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THREE MONTHS ENDED JUNE 30
1999 1998
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Cash flows from operating activities:
Net loss: $ (537,000) $ (954,000)
Net income/loss from discontinued operations 391,000 (827,000)
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Net loss from continuing operations (928,000) (127,000)
Adjustments:
Depreciation and amortization 14,000 24,000
Amortization of goodwill 19,000 --
Provision for doubtful accounts (35,000) --
Provision for inventory 8,000 --
Options issued for compensation -- 30,000
Changes in assets and liabilities, net of assets acquired:
Accounts receivable 626,000 270,000
Inventories (98,000) (113,000)
Prepaid expenses and current assets (53,000) 142,000
Intangibles (76,000) --
Other assets 50,000 --
Accounts payable (467,000) (194,000)
Accrued liabilities 65,000 (177,000)
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Cash used in continuing operations (875,000) (145,000)
Cash provided by discontinued operations 2,493,000 209,000
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Cash provided by (used in) operations 1,618,000 64,000
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Cash flows from investing activities:
Acquisition of property and equipment 22,000 (15,000)
Costs of acquisitions -- (299,000)
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Cash provided by (used in) investing activities 22,000 (314,000)
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Cash flows from financing activities:
Borrowings under credit facility and long-term debt -- 233,000
Payments of credit facility and long-term debt (1,820,000) --
Proceeds from sale of land and building 651,000 28,000
Cash used by discontinued financing activities -- --
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Cash provided by (used in) financing activities (1,169,000) 261,000
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Effects of exchange rate of discontinued operation on cash -- (6,000)
Increase in cash $ 471,000 $ 5,000
Cash at beginning of period 42,000 12,000
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Cash at end of period $ 513,000 $ 17,000
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</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1999 AND MARCH 31, 1999 AND
FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1. GENERAL
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect the
accounts of National Manufacturing Technologies, Inc. (formerly Photomatrix,
Inc.; the "Company"), together with its subsidiaries. The Company is a
value-added manufacturing company, specializing in the manufacture of
enclosed electronic systems and their various component assemblies. On June
5, 1998, the Company acquired I-PAC Manufacturing, Inc. ("I-PAC"). On July 1,
1998, the Company acquired the assets and business of MGM Techrep, Inc., and
formed PHRX Rep Co. On November 27, 1998, the Company acquired certain assets
and the business operations of Amcraft and incorporated the operations as
I-PAC Precision Machining, Inc. On December 18, 1998, the Company acquired
certain assets and the business operations of Greene International West, Inc.
and incorporated the operations as National Metal Technologies, Inc. ("NMT").
All acquisitions were treated as purchases for accounting and financial
reporting purposes. These companies comprise the manufacturing group. Under
the purchase method of accounting, the results of operations of the acquired
companies are combined with those of the Company from the date of
acquisition. In addition, on June 21, 1999, the Company sold product rights
and certain assets of its document scanner operations to Scan-Optics, Inc.
Accordingly, operational results of the scanner operations have been
reclassified as discontinued operations for the respective periods presented
herein. The balance sheets of the scanner operations have similarly been
reclassified as net assets (liabilities) of discontinued operations. As a
result, the current quarter ended June 30, 1999, reflects the combined
operations of I-PAC, PHRX Rep Co., I-PAC Precision Machining and NMT,
compared to the quarter ended June 30, 1998, which reflects only one months'
operating results of I-PAC. The scanner operations are classified as
discontinued for all periods shown. All significant intercompany transactions
and balances have been eliminated.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to prevent the
information from being misleading. These unaudited consolidated financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present the Company's results of
operations and financial position as of the dates and for the periods presented.
These unaudited consolidated financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended March 31, 1999. The results for the interim
periods presented are not necessarily indicative of results to be expected for a
full year.
2. CREDIT FACILITY
On June 18, 1999 the Company entered into a new $1,500,000 credit facility with
a lender that included a $1,200,000 line of credit and a $300,000 term loan
which matures in August, 2001. Neither the line of credit nor the term loan was
used as of June 30, 1999. There was no aggregate outstanding balance under these
loans as of June 30, 1999.
The new line of credit will accrue interest on outstanding borrowings at the
prime rate plus 4 % per annum. Under the terms of the new agreement, total
borrowings under the line of credit will be limited to the lesser of $1,200,000
or 80% of eligible accounts receivable (as defined under the agreement). The new
line of credit expires in June, 2001.
5
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3. DISCONTINUED OPERATIONS
PHOTOMATRIX IMAGING, INC. AND PHOTOMATRIX, LTD.
On March 2, 1999, the Company approved a plan to sell certain product rights,
assets and liabilities of Photomatrix Imaging, Inc. ("Imaging") and its
wholly-owned subsidiary, Photomatrix, Ltd. ("Ltd."). On June 21, 1999, the
Company completed the transaction whereby it sold product rights and certain
assets of its document scanner operations to Scan-Optics, Inc of Manchester,
Connecticut ("Scan-Optics"). Under the terms of the agreement, Scan-Optics
paid the Company approximately $1,890,000 in cash and agreed to pay an
additional $210,000 to acquire all receivables, inventory and certain
equipment. Scan-Optics also assumed nearly $2 million of current and future
liabilities of Imaging and Ltd. Scan-Optics also assumed lease commitments
associated with the Company's engineering facilities located in Chandler,
Arizona, as well as its facilities in Great Britain. The $210,000 holdback is
in an escrow account which is expected to be released in November 1999. In
addition, Scan-Optics agreed to pay certain royalties, not to exceed $250,000
over a three-year period, and also entered into a Transition Agreement and a
five year Manufacturing Agreement, under which Imaging will continue to
manufacture document scanner parts for Scan-Optics. Proceeds from this sale
were used to reduce short-term debt and provide working capital to the
Company. The purchase price is subject to adjustment based upon certain
additional due diligence to be completed by Scan-Optics on the closing
balance sheet.
Current and prior period balances have been reclassified to present Imaging and
Ltd. as a discontinued operation.
LEXIA SYSTEMS, INC.
Included in net liabilities from discontinued operations are certain liabilities
under dispute by Lexia Systems, Inc., a wholly owned subsidiary that was
discontinued in December, 1996. Currently, Lexia carries on its books accounts
payable and unpaid rent claims of International Computers Limited, Inc. ("ICL")
and related entities in the amount of $457,000. Lexia disputes any liability
with respect to ICL in light of its own offsetting claims and defenses. There is
no assurance that Lexia will be successful in prevailing in its position with
regard to the outstanding claims previously made by ICL.
4. BASIC AND DILUTED LOSS PER SHARE
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
supersedes APB No. 15 and replaces "primary" and "fully diluted" earnings per
share ("EPS") under Accounting Principles Board ("APB") Opinion No. 15 with
"basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive
effects of options, warrants and other convertible securities. The weighted
average number of common shares outstanding used in computing basic EPS was
9,914,000 and 6,430,000, in the first quarters of fiscal years 1999 and 1998,
respectively. Diluted EPS reflects the potential dilution of securities that
could share in the earnings of the Company, similar to fully diluted EPS.
Options and warrants representing approximately 1,607,000 and 1,196,00 shares
were excluded from the computations of net loss per common share for the
quarters ended June 30, 1999 and 1998, respectively, as their effect is
anti-dilutive.
5. ACQUISITION OF I-PAC MANUFACTURING, INC.
On March 16, 1998, the Company entered into an Agreement and Plan of Merger and
Reorganization with I-PAC Manufacturing, Inc. The Agreement was approved by the
shareholders of the Company on June 5, 1998, and the transaction closed on June
11, 1998. As a result of the Merger, the 8,500 outstanding shares of I-PAC
common stock were exchanged for 4,848,000 shares of Photomatrix Common Stock and
possibly additional 4,652,000 shares of the Company's common stock in the event
that I-PAC achieves certain performance milestones during a twelve month period
commencing on July 1, 1998 or outstanding options to purchase the Company's
common stock are exercised.
If any performance milestones are met, the issuance of additional shares awarded
to I-PAC shareholders under the earn-out formula and/or in connection with the
exercise of the Company's outstanding options and warrants
6
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will be treated as additional costs of the acquired enterprise and amortized
accordingly over the benefit period. The Merger was accounted for as a
purchase of I-PAC by the Company for accounting and financial reporting
purposes. Under the purchase method of accounting, upon closing of the
Merger, I-PAC's results of operations were combined with those of the
Company, and I-PAC's assets and liabilities were recorded on the Company's
books at their respective fair values. The purchase price, amounting to
$2,191,000, was comprised of the value of the stock plus acquisition costs
and was allocated among the assets acquired and the liabilities assumed. The
issuance of additional shares awarded to I-PAC shareholders under the
earn-out formula and/or in connection with the exercise of Photomatrix
outstanding options and warrants will be treated in accordance with APB 16,
in that any additional shares will be treated as additional costs of the
acquired enterprise and amortized accordingly over the benefit period. The
$2,200,000 excess of the purchase price over the fair value of I-PAC's net
assets will be amortized over a twenty year period. As of November 12, 1999,
the Company has not made a determination as to whether any performance
milestones have been achieved.
If the I-PAC transaction had been consummated at the beginning of fiscal year
1998, the Company's consolidated revenues, net loss and net loss per share for
the three months ended June 30, 1998 would have been:
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Revenues $ 742,000
Net loss from continuing operations $ (361,000)
Net loss per share from continuing operations, basic and diluted $ (0.06)
</TABLE>
6. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires the cumulative
translation adjustment to be included as a component of comprehensive loss in
addition to net loss for the period. The Company had no components of
comprehensive income during the periods presented.
7. ACQUISITION OF ASSETS OF TECNOLOGIAS NACIONALES MANUFACTURERAS de MEXICO.
On September 17, 1999, the Company entered into an Asset Purchase Agreement with
Mirror USA and its subsidiary to acquire certain assets in Tijuana, Mexico which
will be used by the Company's newly-created subsidiary, Tecnologias Nacionales
Manufactureras de Mexico. On August 25, 1999 Tecnologias Nacionales
Manufactureras de Mexico executed a lease of a 18,000 square foot manufacturing
facility located approximately five miles from the Otay Mesa border crossing in
Tijuana. The asset acquisition was a cash purchase. The 3-year lease agreement
calls for monthly lease payments of $4,500 for the first four months, $5,700
until August 2000, $5,900 until August 2001 and $6,000 until August 2002.
8. CORPORATE NAME CHANGE
On September 23, 1999 the Company's shareholders approved a change in the name
of the Company from Photomatrix, Inc. to National Manufacturing Technologies,
Inc. ("NMT"). The Company changed its name to National Manufacturing
Technologies, Inc. to better reflect the Company's currently diverse vertically
integrated contract manufacturing business operations. The Company closed its
sale of product rights and related assets of its scanner division to Scan-Optics
on June 21, 1999. During this past year, the Company has continued to accomplish
its strategy of vertically integrating complementary manufacturing services to
OEM customers, as demonstrated by its recent acquisitions of National Metal
Technologies, Inc. and I-PAC Precision Machining, Inc. Also, the Company
believes that the word "manufacturing" is more expressive of its basic core
competency, namely the creation of value-added manufactured goods.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and unaudited notes to consolidated financial statements included
elsewhere herein.
THREE MONTHS ENDED JUNE 30, 1999
CONTINUING OPERATIONS
Consolidated revenues for the quarter ended June 30, 1999 totaled approximately
$1,753,000, and was comprised of approximately $885,000 of electronic
manufacturing services revenue, $842,000 of metal manufacturing services
revenue, and $26,000 of other revenue. The electronic manufacturing services,
metal manufacturing, and other revenue was generated over one full quarter of
operations. During this period, revenues were adversely affected by the
Company's tight cash position. This tight cash condition continued subsequent to
June 30, 1999. Revenues from continuing operations of $194,000 for the three
months ended June 30, 1998 represents the operations of I-PAC from the date of
acquisition, June 5, 1998.
Consolidated gross margin for the quarter ended June 30, 1999 was approximately
$595,000 or 33.9% of consolidated revenues. This amount is comprised of
approximately $348,000 or 39.3% of electronic manufacturing services gross
margin, $247,000 or 29.3% of metal manufacturing services gross. The
consolidated gross margin represents an amount considered by management to be
slightly less than expected under normal operating conditions. The tight cash
position created inefficiencies in operations which caused higher material and
labor costs during the quarter. The metals manufacturing services group gross
margin was slightly less than expected due to unfavorable inefficiencies caused
by the Company's tight cash condition, and the relocation of I-PAC Precision
Machining to the Oceanside, California facility. The gross profit in the quarter
ended June 30, 1998 was only 11.9% due to the low volume of activity for the
period reported.
Consolidated selling, general and administrative ("SG&A") expenses for the
quarter ended June 30, 1999 was approximately $1,446,000. This amount is
comprised of approximately $686,000 of corporate general and administrative
expenses, $330,000 of electronic manufacturing services SG&A expenses and
$430,000 of metal manufacturing services SG&A expenses. No corporate general and
administrative expenses were allocated to discontinued operations; therefore all
SG&A expenses for the full quarter are allocated to continuing operations. The
Company is in the process of reducing its consolidated SG&A expenses during the
second and third quarters of fiscal year 2000, as a result of the sale of the
scanner operations and consolidation of the metal manufacturing services,
although there can be no assurance that these cost reductions will be achieved.
Consolidated other expenses for the quarter ended June 30, 1999 totaled
approximately $77,000 and was comprised primarily of interest expense of
$109,000 and rental income of $32,000.
The higher than normal SG&A expenses and other expenses resulted in a loss from
continuing operations of $928,000 ($0.09 per share) for the quarter ended June
30, 1999.
In June 1999, the Company sold its scanner business. The Company recorded a gain
from discontinued operations in the current quarter of $391,000 related to its
scanner operations (which is more fully described below). This compares with a
loss from discontinued operations in the prior year related to scanner
operations of $827,000. Including the gain from discontinued operations, the net
loss for the quarter ended June 30, 1999 was $537,000 ($0.05 per share) compared
to a net loss for the quarter ended June 30, 1998 of $954,000 ($0.15 per share),
a decrease of $417,000 (43.7%).
DISCONTINUED OPERATIONS
On June 21, 1999, the Company closed the sale of its scanner operations to
Scan-Optics.
8
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Discontinued operations for current year income was comprised of approximately
$232,000 accruals for inventory reserves related to the Photomatrix, Ltd.
scanner operation which were not required and $159,000 of accruals for estimated
losses at the Photomatrix, Ltd. operation that were not required. Current
liabilities related to the disposal of the scanner operation total approximately
$1,148,000. The Company is in the process of negotiating settlements on some of
these remaining liabilities and may generate additional savings based on these
settlements, although there can be no assurance that these settlements will
result in additional income.
During fiscal 1997, the Company sold its court reporting business (Xscribe Legal
Systems, Inc.) and discontinued Lexia Systems, Inc. Current liabilities related
to Lexia Systems, Inc. total approximately $621,000. There is no current quarter
gain or loss related to Lexia Systems, Inc.
LIQUIDITY AND CAPITAL RESOURCES
RECENT AND FUTURE SOURCES OF AND DEMANDS ON LIQUIDITY AND CAPITAL RESOURCES
In June 1999 the Company repaid a $2,100,000 credit facility with its primary
bank that included a $1,500,000 line of credit and a $600,000 term loan. The
line of credit accrued interest on outstanding borrowings at the bank's prime
rate plus 1% per annum until March 1, 1999, after which interest accrued at the
bank's prime rate plus 6% per annum. Under the terms of this agreement, total
borrowings under the line of credit were limited to the lesser of $1,500,000 or
70% of eligible accounts receivable (as defined under the agreement). The
Company had been required to (1) maintain a minimum tangible net worth of
$3,200,000 as of December 31, 1998, and $3,500,000 thereafter (2) maintain a
ratio of total liabilities to tangible net worth of not greater than 2.75 to
1.0, and (3) maintain a minimum debt service coverage of no less than 1.25 to
1.0. Based on December 31, 1998 financial data, the Company was not in
compliance with these covenants. The bank agreed to forebear from taking adverse
action, subject to the Company fulfilling certain reporting and other
conditions, including entering into discussions with alternative lenders to
replace the bank's credit facilities. Accordingly the amount due under the term
loan portion of this credit facility has been reclassified as a current
liability as of March 31, 1999. The Company paid all outstanding balances under
this credit facility on June 21, 1999.
On June 18, 1999, the Company entered into a $1,500,000 credit facility with
another lender that included a $1,200,000 line of credit and a $300,000 term
loan. The line of credit accrued interest on outstanding borrowings at the
bank's prime rate plus 4% per annum. Under the terms of this agreement, total
borrowings under the line of credit were limited to the lesser of $1,200,000 or
80% of eligible accounts receivable (as defined under the agreement).
Outstanding borrowings are collateralized by primarily all of the Company's
assets. The line of credit expires on June 30, 2001.
As of June 22, 1999, the Company repaid two notes in the aggregate amount of
$2,010,000, which are collateralized by the trust deeds of the Company's real
property located in Carlsbad, California. The repayment of these notes was
guaranteed by certain major shareholders of the Company and the Small Business
Administration. These notes were payable in aggregate monthly installments of
approximately $18,000, including interest ranging from 7.5% to 9.5%. On June 3,
1999, the Company closed escrow on a sale-and-leaseback transaction, whereby it
sold the real property for $2.9 million and entered into a fifteen year lease
with the buyer, calling for minimum monthly lease payments of approximately
$27,000. All underlying debt was repaid.
In December 1998, NMT became obligated under a five-year note in the amount of
$350,000, bearing interest at 8%. Future note payments may be made in a
combination of National Manufacturing Technologies stock and cash at the
election of the parties. In addition, NMT agreed to enter into a capital lease
of GIW equipment, with a bargain purchase option to purchase the equipment for
$490,000 at the end of the one-year period. The first year rental payments under
the equipment lease were satisfied with the issuance of 25,000 shares of
National Manufacturing Technologies common stock valued at $2.00 per share.
National Manufacturing Technologies agreed to price protect the shares issued to
GIW shareholders at a price of $2.00 per share, at a point two years from the
closing date, for these initial shares issued for the first year's payments on
the note and the equipment lease. This debt will bear interest at 8%.
9
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The Company is obligated under a series of notes payable totaling $294,000 as of
June 30, 1999. These notes bear interest at a rate of 8% per annum and mature in
April 2000. Interest and principal payments totaling $16,000 are due monthly.
Since October 1998, the Company made one payment on these notes in July 1999 and
the Company is attempting to accelerate the monthly payments required under
these notes. These notes are part of the $1.1 million of accrued liabilities of
discontinued operations.
The Company also has certain equipment notes in the aggregate amount of $40,000
with interest rates varying between 8% and 26.6% with final payments due between
2000 and 2005. These notes are collateralized by equipment. In addition, the
Company also has certain capital leases in the aggregate amount of $304,000,
calling for minimum monthly payments aggregating approximately $15,000 per
month.
During September 1998, The Company's wholly owned subsidiary, Lexia Systems,
settled its outstanding dispute with Fujitsu. As a result, the Company reduced
its previously recorded liability of $340,000 to Fujitsu to $200,000 and began
making payments against this liability in November 1998 with the final payment
due to Fujitsu in June 1999. The Company had stopped making payments on this
liability which is currently at a balance of $70,000, until October 1999, when
the Company started making monthly payments of $5,000. Lexia also has recorded
liabilities reflecting accounts payable and unpaid rent claims of ICL and
related entities in the amount of $457,000 at June 30, 1999. These liabilities
are included in net liabilities of discontinued operations. Lexia disputes any
liability with respect to ICL in light of its own offsetting claims and
defenses. There is no assurance that Lexia will be successful in prevailing in
its position with regard to outstanding claims previously made by ICL.
The Company's sources of future short-term liquidity are its cash balance of
$513,000 as of June 30, 1999, the remaining proceeds from the sale of assets of
its scanner operations of $210,000 held in escrow, and the unused amount of its
new $1.5 million credit facility. $1.2 million of this credit facility is a line
of credit against eligible accounts receivable. $300,000 of the credit facility
is a term loan that funded on 9/9/99 and is due in equal monthly installments of
$6,250 over 2 years with a final payment of $150,000. Availability under the
line of credit can be limited based upon the balance of eligible accounts
receivable as described above. Eighty percent of eligible accounts receivable
increased during the month of October 1999 to the $1.2 million limit. Additional
increases to this line may be necessary to aid revenue growth in the metals and
electronics segments.
The Company is currently obligated as a guarantor under an assignment agreement
of a lease in the amount of approximately $18,550 per month through September
2002. As of June 30, 1999, the Company has not been required to pay any amounts
related to this guarantee. The Company is also obligated to pay approximately
$7,000 per month on various other leases. Aside from these commitments, the
Company has not made any material commitments.
The Company anticipates that its current cash position, revenue from operations
and other sources of cash (including the sale of assets of its scanner
operations and sale and leaseback of its facilities) and funds from its existing
line of credit, including a potential expansion of this line of credit, will be
sufficient to finance its working capital and capital requirements for the next
twelve months. However, the Company's capital requirements may increase as a
result of competitive and technological developments and the terms and
conditions of any future strategic transactions. There can be no assurance that
the Company would be able to raise additional capital under favorable terms, if
at all.
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" ("SFAS 133") issued by the FASB is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. The Company does not
expect adoption of SFAS 133 to have a material effect on its financial position
or results of operations.
10
<PAGE>
YEAR 2000
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software and hardware failures. The Company is
in process of reviewing its information technology systems and non-information
technology systems with embedded technology applications, addressing Year 2000
risks, and believes it will resolve any such risks in a timely manner. During
the quarter ended December 31, 1998, the Company began a process of contacting
its critical business partners to reasonably assure that they are adequately
prepared.
The Company believes that its products are fully Year 2000 compliant.
In connection with the recent merger, it is currently developing plans to
convert much of its in-house software. Year 2000 issues will be considered in
connection with this software conversion project. In addition, the Company has
evaluated every piece of equipment in its facilities. All equipment was found to
be compliant.
The Company plans on developing contingency plans to address Year 2000 issues
that do arise. As part of its Year 2000 compliance program, the Company plans to
identify alternate vendor sources for vendors who do not respond to our
questionnaires or who appear to not be in compliance. Although no assurance can
be made, given the nature of its major customers, the Company does not expect
that it will encounter significant problems with respect to customer compliance
with Year 2000 issues.
Currently, the Company does not have an estimate of costs associated with these
efforts, but does not believe them to be significant. However, the Company could
be adversely impacted if its suppliers or customers do not make the necessary
changes to their own systems and products successfully and in a timely manner,
or if regional infrastructure failures occur as a consequence of Year 2000
problems.
The SEC's recent guidance for Year 2000 disclosure also calls on companies to
describe their most likely worst case Year 2000 scenario. The Company believes
that the most likely worst case scenario is that the Company will have to add
additional staff and/or reassign existing staff and/or acquire additional
equipment or software during the time period leading up to and immediately
following December 31, 1999, in order to address Year 2000 issues that
unexpectedly arise.
THIS 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THESE STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS
RELATING TO THE COMPANY'S PLANS AND OBJECTIVES FOR FUTURE OPERATIONS
INCLUDING ACQUIRING OTHER BUSINESSES, INCREASING SALES AND IMPROVING
MARGINS, ASSUMPTIONS AND STATEMENTS RELATING TO THE COMPANY'S FUTURE
ECONOMIC PERFORMANCE AND OTHER NON-HISTORICAL INFORMATION. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE,
WITHOUT LIMITATION, THOSE RISKS DISCUSSED UNDER THE HEADING "ADDITIONAL
RISK FACTORS" AS WELL AS OTHER FACTORS AS DISCUSSED IN THE COMPANY'S
ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED MARCH 31, 1999.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. REPORTS ON FORM 8-K
None
b. EXHIBITS
3.2 Amended and Restated Articles of Incorporation dated
September 23, 1999
10.58 Asset Purchase Agreement
10.59 Facilities Lease
10.60 Stock Option Agreement with Patrick W. Moore, dated June 5,
1999
27 Financial Data Schedule
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL MANUFACTURING
TECHNOLOGIES, INC.
Date: November 12, 1999 by /s/ Patrick W. Moore
--------------------
Patrick W. Moore
Chairman, Chief Executive Officer
and President
Date: November 12, 1999 by /s/ Larry Naritelli
--------------------
Larry Naritelli
Controller
Principal Accounting Officer
13
<PAGE>
CERTIFICATE OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
PHOTOMATRIX, INC.,
a California corporation
Patrick W. Moore and Jennifer D. Brown certify that:
1. They are the duly elected and acting Chief Executive Officer and
Secretary, respectively, of the corporation named above.
2. The Articles of Incorporation of the corporation shall be amended and
restated in full to read as follows:
ARTICLE I
The name of the corporation is National Manufacturing Technologies, Inc.
ARTICLE II
The purpose of the corporation is to engage in any lawful activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporation Code.
ARTICLE III
The Corporation is authorized to issue two classes of shares of
capital stock to be designated respectively Common Stock and Preferred Stock.
The number of shares of Common Stock authorized is 30,000,000. The number of
shares of Preferred Stock authorized is 3,173,275. The Preferred Stock may be
issued in one or more series. The Board of Directors is authorized to fix the
number of any such series of Preferred Stock and to determine the designation
of any such series. The Board of Directors is further authorized to determine
or alter the rights, preferences, privileges, and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock, and within the
limits and restrictions stated in any resolution or resolutions of the Board
of Directors originally fixing the number of shares constituting any series,
to increase or decrease (but not below the number of shares of such series
then outstanding) the number of shares of any such series subsequent to the
issue of shares of that series.
ARTICLE IV
The liability of directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
ARTICLE V
The Corporation is authorized to provide, whether by bylaw, agreement or
otherwise, indemnification of agents (as defined in Section 317 of the
General Corporation Law of California) in excess of that expressly permitted
by said Section 317 for those agents of the Corporation for breach of duty to
the Corporation and its stockholders; provided, however, that such provision
may not provide for indemnification of any agent for any acts or omissions or
<PAGE>
transactions from which a director may not be relieved of liability as set
forth in the exception to paragraph (10) of subdivision (a) of Section 204 of
the General Corporation Law of California or as to circumstances in which
indemnity is expressly prohibited by said Section 317.
ARTICLE VI
Any repeal or modification of Article V or Article VI by the
stockholders of the Corporation shall not adversely affect any right or
protection of an agent of the Corporation existing at the time of such repeal
or modification.
1. The foregoing Amended and Restated Articles and this Certificate
have been approved by the Board of Directors of the Corporation.
2. The foregoing Amended and Restated Articles was approved by the
required vote of the shareholders of the corporation entitled to vote in
accordance with Sections 902 and 903 of the California Corporation Code. The
total number of outstanding shares of each class entitled to vote with
respect to the foregoing Amended and Restated Articles was 9,914,017 shares
of Common Stock; and the number of shares of Common Stock voting in favor of
the foregoing Amended and Restated Articles equaled or exceeded the required
majority vote of outstanding shares of Common Stock voting as a class. No
shares of Preferred Stock were outstanding.
WE FURTHER DECLARE under penalty of perjury and the laws of this
State of California that the matter set forth in this Certificate are true
and correct of our own knowledge.
Dated: September 23, 1999 Dated: September 23, 1999
By /s/ PATRICK W. MOORE By /s/ JENNIFER D. BROWN
--------------------------- ---------------------
Patrick W. Moore Jennifer D. Brown
Chief Executive Officer Secretary
<PAGE>
ASSET PURCHASE AGREEMENT
DEFINITIONS
This Contract, effective September 17, 1999, is by and between
Mirror USA, a California Limited Partnership, hereinafter known as "Seller,"
and IPAC Manufacturing, Inc., a California Corporation, hereinafter known as
" Buyer."
ARTICLE 1. PURCHASE AND SALE OF ASSETS
ASSETS BEING PURCHASED
SECTION 1.01. Seller shall sell to Buyer and Buyer shall purchase from
Seller on the terms specified in this agreement, certain assets, both
tangible and intangible, of Seller, herein called "said Assets," including:
A. All the assets shown on the schedule hereto attached marked Exhibit A;
B. The goodwill, and any and all intangibles of Seller, not expressly
excluded in this contract;
C. Those certain agreements, contracts, commitments or obligations as
described in the attached "Exhibit B," which Buyer will either assume or
renegotiate.
PURCHASE PRICE
SECTION 1.02. Buyer shall pay to Seller, as consideration for this purchase,
the sums and amounts described, and upon the schedule and terms set forth, in
the attached of Exhibit C. Seller shall be responsible for the payment of any
and all of its liabilities except as those that are explicitly identified in
the attached Exhibit D, and shall be solely and completely responsible for
payment of said liabilities. Seller shall indemnify, hold and save the Buyer
harmless from any and all claims or lien claims pertaining to unassumed
obligations. Pursuant to the terms as described elsewhere in this Agreement,
Buyer is granted and retains the right to set off against any amounts due
Seller per this Purchase Agreement, the amount of any liabilities of Seller,
or entities affiliated with the Seller, that it is required or determines it
must pay, beyond those called out in Exhibit "D."
<PAGE>
REPRESENTATIONS OF SELLER
AUTHORITY TO SELL
SECTION 2.01. Seller warrants and represents it has complied with all the
requirements of General Corporation Law of the State of California relative
to the sale of assets described in this contract and that the principal terms
of the sale as set forth in this contract were duly and legally approved by
Seller prior to the execution of this Agreement.
FINANCIAL STATEMENTS
SECTION 2.02. Seller represents and warrants that those records pertaining
to the purchased assets and contracts, and assumed and unassumed liabilities,
have been accurately presented. Seller warrants that, except for the sale
described in this contract, it has taken no action to materially change the
financial condition of the Seller or the subject assets and liabilities, and
has not encumbered the property which is the subject of this agreement.
DEFAULTS AND VIOLATIONS
SECTION 2.03. Seller warrants that to the best of its knowledge, and subject
to the financial information described in Section 2.03 already provided to
the Buyer, it is not in default or material violation of any contracts,
agreements, leases, or other instruments or obligations to be sold and
transferred to Buyer pursuant to this contract that effect or impede its
ability to make and consummate the terms and provisions of this Agreement.
LITIGATION
SECTION 2.04. Seller warrants and represents to the best of its knowledge
that there is now no litigation pending against it or any affiliate, of which
it or its principals are aware that will or could affect the consummation of
the sale described in this contract or transfer of title of any of said
assets on good and marketable condition to Buyer.
2
<PAGE>
ARTICLE 3. WARRANTIES OF BUYER
DUE ORGANIZATION
SECTION 3.01. Buyer warrants to Seller that it, Buyer, is a corporation duly
organized and existing under the laws of the State of California and that it
is active and in good standing.
AUTHORITY TO BUY
SECTION 3.02. Buyer further warrants to Seller that this contract has been
duly approved, that Buyer has full power and authority to both execute and
perform this contract, and that the persons executing this Agreement on
behalf of Buyer are so authorized to take such actions by Buyer.
ARTICLE 4. OPEARATION OF BUSINESS
SELLER TO CONTINUE BUSINESS
SECTION 4.01. Seller shall continue to operate its business in the current
facility until consummation of the transaction described in this contract
consistent with its ongoing operations in normal course. Any and all risk of
loss or damages to said assets during such period from any and all causes,
except the fault or negligence of Buyer, shall be assumed and borne by Seller.
ARTICLE 5. WARRANTIES AND CONDITIONS OF SALE
SECTION 5.01. Buyer and Seller each agree, for the benefit of the other, as
to the following:
A. All warranties and representations of each to the other are true and
correct to the best of each party's knowledge; and
B. Neither party is in violation of any State, Federal, County, City or
other governmental law or regulation to the best of its knowledge.
SECTION 5.02. Neither party shall be under any obligation to perform any
provision of this contract unless all of the conditions of this contract to
be performed with the other party have been fully performed.
3
<PAGE>
ARTICLE 6. MISCELLANEOUS PROVISIONS
MUTUAL INDEMNITY AGREEMENT
SECTION 6.01. Except as otherwise expressly provided in this contract or any
attachment to this contract, as to products or services manufactured or
provided prior to this agreement, the Seller shall indemnify and hold the
Buyer harmless from any and all claims, liabilities, losses, damages, or
expenses resulting from claims defects injuries or loss associated with such
products or services. Buyer shall do the same with regard to the Seller for
any products or services manufactured or provided after the effective date of
this Agreement. Notwithstanding the above, this mutual indemnification
agreement shall expire One Hundred and Twenty (120) days subsequent to the
execution of this agreement, except for claims that have been identified
within said 120 day period and Taxes in Mexico and Rent in Mexico as they
relate only to EspejoMex, a Mexican Corporation.
ENTIRE AGREEMENT
SECTION 6.02. This instrument with its attachments constitutes the entire
agreement between Buyer and Seller respecting said assets or the sale of said
assets to Buyer by Seller, and any agreement or representation respecting
said assets or their sale by Seller to Buyer not expressly set forth in this
instrument is null and void.
NOTICES
SECTION 6.03. Any and all notices or other communications required or
permitted by this contract or by law to be served on or given to either party
hereto, Buyer or Seller, shall be, unless otherwise required by law, in
writing and deemed duly served and give when personally delivered to the
party to whom directed or any of its officers, or in lieu of such personal
service, when deposited in the United States mail, first-class postage
prepaid, addressed to Buyer at 1958 Kellogg Avenue, Carlsbad, California
92008,or Seller at 3511 Geranium Avenue Corona, Del Mar 92625.
ATTORNEY'S FEES
SECTION 6.04. Should any litigation be commenced between the parties hereto,
Buyer and Seller, concerning this contract, the sale and purchase described
in this contract, or the rights and duties of either in relation to this
contract, the Party (Buyer or Seller), prevailing in that litigation shall be
entitled, in addition to any other relief that may be
4
<PAGE>
granted, to a reasonable sum as and for its attorney's fees in that
litigation which shall be determined by the court in that litigation or in a
separate action brought for that purpose.
ASSIGNMENT
SECTION 6.05. Neither this contract nor any right or interest in it may be
assigned by either party to any other person or corporation without the
express written consent of the other party to this contract, except that
Buyer may assign its rights, interests and obligations to a subsidiary or
affiliate of Buyer upon notice to Seller.
GOVERNING LAW
SECTION 6.06. This contract shall be governed and all rights and liabilities
under it determined in accordance with the laws of the State of California in
effect on this date.
MUTUALLY CONTINGENT AGREEMENT
SECTION 6.07. This agreement is executed contemporaneously with, and is
conditioned upon the execution of that certain agreement dated between IPAC
Manufacturing, Inc. and RPM Micro.
Effective September 15, 1999, at Carlsbad, San Diego County, California.
BUYER: SELLER:
IPAC MANUFACTURING, INC. MIRROR USA
By:___________________________ By: __________________________
PATRICK W. MOORE, CEO TERRY GEFFENEY-MANAGING
PARTNER
Exhibit A - Purchased Assets
Exhibit B - Agreement, Contracts, Customers
Exhibit C - Purchase Price
Exhibit D - Liabilities
5
<PAGE>
EXHIBIT A - PURCHASED ASSETS
MIRROR USA EQUIPMENT INVENTORY
DESCRIPTION
1 TRUCK, FLATBED FORD 1976
1 SINK, CONCRETE OUTSIDE
1 TRANSFORMER
1 TELEPHONE SYSTEM, MERLIN
1 BATTERY CHARGER
1 BOILER (MCKENNA)
1 LAMINATING PRESS (PHI)
1 PROPANE TANK (TATSA)
1 WAVE SOLDER MACHINE (ELECTROVERT)
1 BATTERY CHARGER - 40 AMP (DAYTON)
1 PHOTOCOPIER (KONICA)
1 1986 PANEL TRUCK (DODGE)
6
<PAGE>
EXHIBIT B - AGREEMENTS/CONTRACTS
Customers being transferred:
RPM Micro - Shelter Agreement Attached
Brett Aqualine - Shelter Agreement Attached
Admaster - No written Agreement Exists
AGREEMENT
This agreement is between IPAC Manufacturing, Inc. USA with offices at 1958
Kellogg Ave, Tecnologias Nacionales Manufactureras de Mexico S de RL de CV
located at 4402 A Blvd. Insurgentes, Tijuana, Baja California, Mexico,
(hereafter NMT de Mexico) And RPM Micro a California Corporation with offices
at 16728 West Bernardo Dr., San Diego, CA 92127, (hereafter called principal).
The principal and NMT de Mexico desire to create a contract relationship
providing manufacturing labor services based on hourly rates which may be
utilized by the principal.
Now, therefore, in consideration of the foregoing, and the following
covenants and promises, and for good and valuable consideration the principal
and NMT de Mexico agree to the following:
A relationship between the principal and NMT de Mexico will be established
creating an exclusive work force dedicated to the principal. This work force
will be managed, directed and scheduled by the principal. Certain services
and facilities will be provided by NMT de Mexico as specified in this
agreement. The term of this agreement will be 6 months from the date
production begins. Production is estimated to begin August 1, 1999. This will
allow time for constructing leasehold, improvements and for obtaining
permits. The principal agrees to provide any equipment, supplies and
descriptions of the process necessary for obtaining permits, funds for agreed
upon leasehold improvements and the principal will advance special machinery
installations as required by the principal.
This relationship may continue on a month to month basis after the six-month
period, on the agreed on rates and conditions as long as the Principal is
manufacturing any of its product line in Mexico and the quality of product
and service is acceptable to principal.
The principal may appoint, in writing, an individual to administrate this
agreement and act as the principal's representative during the time of this
agreement.
NMT de Mexico agrees to invoice the principal for their labor force weekly.
The invoices will be based on the total number of hours worked at the hourly
rate shown below. Hourly labor rates are based on the total number of people
employed on the principal's work force for a 48 hour work week or any portion
thereof. NMT de Mexico will provide facilities including janitorial,
utilities, licenses, insurance, and Electronic/electro-mechanical workers at
the following rates:
<TABLE>
<CAPTION>
Number of Workers Regular Overtime Overtime
rate 0ver 9 hours Under 9 hours
- ----------------- --------- ------------ -------------
<S> <C> <C> <C>
10-11 $7.00 US $8.33 $9.66 US
12-14 $6.50 $7.83 $9.16 US
15-20 $6.50 US $7.83 US $9.16 US
21-50 $6.35 $7.68 $9.01 US
</TABLE>
7
<PAGE>
Labor rates for workers requiring specific technical skills may be provided
and invoiced as needed. All above labor rates will be adjusted annually to
reflect worker income adjustments required by the Mexican Government.
THIS RATE PRODUCTION LINE SUPERVISION AND ENGINEERING SUPPORT FOR PRINCIPAL'S
HIGH VOLTAGE AND REGULAR LINES ALONG WITH MACHINING SUPPORT UP TO 24 HOURS
PER WEEK. ADDITIONAL PRODUCTION LINE SUPERVISORS MAY BE APPOINTED BY THE
PRINCIPAL AT ITS DISCRETION TO OPERATE THEIR LINE AT PRINCIPAL'S COST.
Supervisor will provide scheduling, quality control, worker training and
report directly to the principal. NMT de Mexico will invoice the wages and
taxes as agreed by the supervisor and the client plus 10% for administration.
NMT de Mexico agrees to provide management support and assistance for the
supervisor as needed for supervisory training and a good working environment.
Job descriptions, technical and quality control training, production goals
and quantities will be the responsibility of the principal.
Employees are eligible for six-(6) days vacation (48 hours) after the first
year of employment and eight (8) days vacation (64 hours) after the second
year. The principal will pay employee vacation time and Mexican legal
holidays. Eight legal holidays are observed on the following dates:
New Year's Day January 1
Constitution Day February 5
Benito Juarez Birthday March 21
Good Friday Varies
Labor Day May 1
Independence Day September 16
Revolution Day November 20
Christmas Day December 25
At principal's option an employee performance bonus plan may be implemented
in an effort to reduce worker turnover. The principal will be responsible for
designing the plan and establish suitable standards for their product. Any
bonus authorized by the principal will be invoiced weekly. NMT de Mexico
reserves the right to approve Principal's bonus plan to insure it does not
conflict with the current NMT de Mexico plan or Mexican laws. This approval
will not be unreasonably withheld.
Payment terms on all invoices will be net 5 days. A late charge of 1% will be
assessed on all open balances exceeding 15 days from the date of invoice. NMT
de Mexico will provide utilities, security, maintenance and personal services
facilities, under the following guidelines:
Facilities will be defined as 40 square feet per worker to include
warehousing, aisles, and workstations. If additional space is required, it
will be invoiced at up to $1.00 US per square foot per month unless otherwise
agreed which will include fair usage of equipment consigned to the shelter
facility by RPM for use by Photomatrix for its customers.
Electrical services will be provided for workstations using normal hand tools
and small machines. Large power consuming equipment will be billed at a rate
of $0.18 US per 20
8
<PAGE>
Kilowatt-hour. NMT de Mexico will provide fax/telephone service up to $35 US
per month. Additional usage will be invoiced on an as used basis. Raw
materials direct supplies, tools, equipment, training and special leasehold
improvement will be provided by the principal. Emergency supplies or
materials, when requested, will be supplied by NMT de Mexico S.A. at cost
plus 5%.
All personnel administration will be the responsibility of NMT de Mexico who
will have sole authority in hiring, termination, performance reviews,
bonuses, and wage increases of all workers except the supervisor appointed by
the principal.
NMT de Mexico will provide all U.S. and Mexican Customs interface and the
costs invoiced to the principal. Distribution and shipping service from
Tijuana will be provided FOB Tijuana and costs invoiced to principal. The
U.S. customs broker will bill the principal directly. Any duties declared by
U.S. Customs will be added to the weekly invoices and paid by the principal.
NMT de Mexico will provide adequate insurance coverage to protect any
principal equipment and materials from loss while in NMT de Mexico custody in
Mexico. The principal will be responsible for providing NMT de Mexico with
equipment and material costs.
In the event this agreement is terminated by the principal's actions, NMT de
Mexico will attempt on a best effort basis to place workers in other NMT de
Mexico operations; However, if relocation cannot be accomplished, the
principal will pay all Mexican payroll and administration costs incurred by
NMT de Mexico in compliance with the Mexican minimum severance laws. Three
months minimum severance pay is required under Mexican law.
This agreement contains the entire understanding of the parties and
supersedes any other oral or written agreements between the parties. The
principal will not have the right to assign this agreement in whole or part
without the express, written consent of NMT de Mexico.
In Witness, the parties hereto have agreed to the above terms and conditions
and hereby execute this agreement in the State of California, in duplicate.
Signature: PATRICK W. MOORE Signature: LOCK PIATT
-------------------- -------------------
Patrick W. Moore Lock Piatt
- ------------------------------ -----------------------------
Name Name
Chief Executive Officer General Manager
- ------------------------------ -----------------------------
Title Title
IPAC Manufacturing, Inc. RPM Micro
Tecnologias Nacionales
Manufacureras de Mexico
Date: Date: September 23, 1999
------------------------- -----------------------
9
<PAGE>
EXHIBIT C
Purchase Price
The purchase price for the assets purchased per the terms of this Asset
Purchase Agreement shall be Sixteen Thousand Dollars and no cents.
($16,000.00). Plus the payment of the Aguinaldo and vacation allowance to the
workers at EspejoMex estimated at Seven Thousand and no cents ($7,000.00)
The payment will be disbursed as follows:
1. Six Thousand dollars ($6,000.00) to be paid to the Sellers upon execution
of the Asset Purchase Agreement; occupation of the facility; and execution
of the shelter agreement with RPM Micro, plus an amount equal to Three
Thousand Five Hundred dollars ($3,500.00) which Mirror USA shall cover to
be used to pay for certain costs related to the labor personnel to which
Mirror USA is currently obligated per the transfer of its agreement with
RPM Micro and EspejoMex.
2. Five thousand dollars ($5,000) to be paid forty-five (45) days after
execution of this Agreement, plus 25% of the total Aguinldo paid on the
execution of the agreement estimated to be One Thousand Seven Hundred Fifty
Dollars and No cents ($ 1,750.00)
3. Five thousand dollars ($5,000 to be paid one hundred twenty (120) days
after execution of the Agreement, providing that the current shelter has
averaged a minimum of 12 people over that period of time, plus an amount
equal to One Thousand Seven Hundred Fifty Dollars and No Cents ($ 1,750.00)
which Mirror USA shall cover to be used to pay for certain costs related to
the labor personnel to which Mirror USA is currently obligated per the
transfer of this agreement with RPM Micro and EspejoMex.
4. Seller shall have 60 days from Buyer's occupation of the facility, rent
free, to export equipment owned by parties that no longer operate a shelter
at the facility, contained in no more than 1,000 square feet, with the
exception that those items without a Pedimento will be removed from the
premises immediately. Rent shall be $1.00 per month per sq. ft. after 60
days until the equipment is moved.
Buyer will assume no debt obligations or liabilities of Seller, its Mexican
contractor, or their respective owners, except as may be stated in
Attachment D. If any undisclosed liabilities of the Seller or its principles
or affiliates should become an obligation that Buyer must pay, such
obligations will be offset against the amounts payable above. Additionally,
to the extent that during the time periods referenced for payments number 2
and 3 above, if the shelter Principal averages less than 12 persons, the
amounts due shall be reduced proportionally (e.g., if the average was
10 persons, the payment would be five-sixths of $3,000).
Buyer, on behalf of itself and its Mexican contractor, and their respective
owners, also represents to Buyer that they are not in receipt of any notice
from the current shelter Principal of any intent to discontinue its shelter
activity at the facility described above, and that Seller has the approval of
the shelter Principal to transfer operation of the current existing shelter
activity to Buyer.
10
<PAGE>
EXHIBIT D LIABILITIES
There are no Liabilities of Seller that are to be assumed by Buyer. Seller
will be responsible for all liabilities per section 6.01 of this agreement.
11
<PAGE>
Exhibit 10.59
OFFICER'S CERTIFICATE
November 9, 1999
- --------------------------
The undersigned, Patrick W. Moore, hereby certifies as follows:
(a) I am the duly elected and qualified, Chairman, Chief Executive Officer and
President of National Manufacturing Technologies, Inc (the "Company").
(b) Attached hereto is an English translation of a Lease Agreement, dated as of
August 25, 1999, by and between Inmobiliaria Y Fraccionadora Lomas and
Tecnologias Nacionales Manufactureras de Mexico.
(c) To my knowledge, such translation is a fair and accurate translation as
required under Rule 306 of Regulation S-T promulgated by the Securities and
Exchange Commission.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate on behalf
of the Company as of the date first written above.
NATIONAL MANUFACTURING TECHNOLOGIES, INC
/s/ Patrick W. Moore
- --------------------------------------------------
Patrick W. Moore, Chairman, Chief Executive Officer and President.
<PAGE>
LEASE AGREEMENT ENTERED INTO BY AND BETWEEN INMOBILIARIA Y FRACCIONADORA
LOMAS REPRESENTED BY MR. RAYMUNDO MUZQUIZ AYALA (HEREINAFTER REFERRED TO AS
"LESSOR") AND TECNOLOGIAS NACIONALES MANUFACTURERAS DE MEXICOS S. DE R.L. DE
C.V. THROUGH ITS LEGAL REPRESENTATIVE MR. PATRIC W. MOORE (HEREINAFTER
REFERRED TO AS "LESSEE"), PURSUANT TO THE FOLLOWING RECITALS AND CLAUSES:
R E C I T A L S
I. LESSOR hereby states:
a) That it is authorized to execute this agreement by INMOBILIARIA Y
FRACCIONADORA LOMAS owner of a tract of land located at Av. Blvd. Insurgentes
4402-A, Delegacion La Presa in the city of Tijuana, Baja California, Mexcio.
b) That LESSEE has requested the lease of a commercial space, with a total
SURFACE AREA OF 17,289.30 SQUARE FEET. The commercial space for industrial
use requested in lease, has the availability of water and sewage services,
electricity lines, found in it's boundaries. Exhibit 1.
c) That the property subject to this lease, is suitable for LESSEE's uses and
purposes (INDUSTRIAL USE) due to its location.
II. LESSEE hereby states:
a) It is a corporation duly incorporated under the laws of Mexico, formed and
organized under the name of TECNOLOGIAS NACIONALES MANUFACTURERAS de Mexico
S. De R.L. de C.V. operating as a manufacturing and assembly plant in the
city of Tijuana, B.C., Mexico.
b) It is duly represented by Mr. Patrick W. Moore, who has full power and
authority to execute this agreement.
c) It is willing to lease the Leased Premises from LESSOR.
<PAGE>
IN AGREEMENT WITH THE ABOVE RECITALS, BOTH PARTIES UNDERTAKE THE FOLLOWING:
C L A U S E S
FIRST - The LESSOR hereby leases to the LESSEE, THE PROPERTY
DESCRIBED AS DEVELOPED PLOT (LOT OF LAND AND BUILDING) FOR INDUSTRIAL
PURPOSES KNOWN AS "NAVE BRONCE" "A", which contains the description, surface,
measurements and limits referred to in Recital I paragraph (a), as well as
Exhibit 1 of this contract, so the LESSEE may occupy the same on the date is
finished and available for it's use and may begin the necessary works to
install its equipment and carry out all the improvements (hereinafter
referred to as the LESSEE'S IMPROVEMENTS) necessary for the best performance
of its activities, making note of the fact that such building will be
delivered by the LESSOR in good condition and in accordance with the work
specifications that both parties have analyzed and agreed upon; the building
shall be returned in the same conditions, except for normal tear and wear
caused by the natural use made out of it, and with exception to the LESSEE'S
IMPROVEMENTS, which will be regulated in the terms of this contract.
LESSOR shall provide all necessary preconnection conditions for
installation of water, sewer and electrical and telephone lines for the
general supply of water, sewer, electrical and telephone service to the
Leased Premises, in accordance with all federal, state and local regulations,
and shall cause to be accepted and approved by the federal, state or local
authorities having jurisdiction over all streets abutting the leased
premises. LESSEE shall contract and pay for all utilities it shall use.
SECOND - LESSOR authorizes LESSEE, once the building is delivered,
to begin and carry out all the IMPROVEMENTS inside the leased property for
the uses and purposes specified by the LESSEE. All improvements to be carried
out by the LESSEE will require a previous written authorization given by the
LESSOR and for this case, the LESSEE or its representative.
Likewise, both parties agree that LESSEE shall perform the
IMPROVEMENTS to the leased property in compliance with the previous
paragraph, at its sole cost and expense or at the cost and risk of whom
becomes hired by the LESSEE, without exemption of the arising liability
towards the
<PAGE>
LESSOR. Both parties agree that under no circumstance, the LESSOR is
obligated to pay the cost of such improvements or works to LESSEE, even when
such improvements were made by LESSOR's consent and authorization.
LESSEE agrees that at the end of this lease agreement and at the
time LESSEE delivers the unoccupied leased property, shall remove all the
improvements made, at its sole cost and expense, considering that such
removal shall not affect the building structure, which must be delivered and
returned to the LESSOR in the same conditions as received, except for normal
tear and wear caused by the good natural use of the leased property.
THIRD - LESSEE agrees to pay to LESSOR as security deposit the
amount EQUAL TO 1 MONTH OF RENT on the date this contract is executed, amount
that in terms of this clause has been received by the LESSOR, AND SUCH
DEPOSIT MUST REMAIN IN CUSTODY OF THE LESSOR THROUGHOUT the term of this
lease and until the unoccupancy of the leased property by the end of the
lease term, as long as the LESSEE is able to verify that no damages have been
caused and NO DEBTS EXIST FOR ANY CHARGES, CONSUMPTION OR USE of public
utilities.
FOURTH - The monthly rental price shall be the amount of $4,495.22
DLLS. (FOUR THOUSAND AND NINETY FIVE DOLLARS WITH TWENTY TWO CENTS 00/100,
UNITED STATES OF AMERICA CURRENCY), the monthly rental for the building after
the fourth month will be $5,705.47 DLLS (FIVE THOUSAND SEVEN HUNDRED AND FIVE
DOLLARS WITH FORTY SEVEN CENTS) or its equivalent in Mexican currency at the
highest free exchange rate on the date the rent is due, in such way that the
LESSOR shall purchase the specified amount of dollars, plus the Value Added
Tax (I.V.A.). LESSEE shall make the monthly rental payments in advanced on
the FIRST FIVE DAYS of each month to LESSOR or to whom he may designate or
appoint an without prior demand, at his address located at Kilometro 9.5 de
la Carretera Libre a Ensenada s/n, Fraccionamiento Panamericano in this city,
address perfectly known by the LESSEE.
<PAGE>
LESSOR agrees that the obligation to make the rental payment becomes
effective the 1st of October of 1999 on which the LESSOR takes physical
possession of the leased property subject to this agreement, even when such
possession may be a partial one.
In order to determine the commencing date as of which lessee shall
have the obligation to begin making rental payments, LESSOR and LESSEE hereby
agree to sign a memorandum of action by parties, in which is contained the
date of delivery of the leased premises to LESSEE and shall also contain
evidence of LESSEE's satisfactory receipt of such building, according to the
requested specifications.
If LESSEE incurs in any delay in the lease payments according to the
terms described in the previous paragraph, shall pay the LESSOR daily and as
a contractual penalty the amount of $100.00 Dollars. (ONE HUNDRED DOLLARS
00/100) for all the time the payment is delayed.
The rent mentioned shall suffer an annual increase on the date of the
anniversary of this agreement by a 3%, without the need of a prior notice to
LESSEE.
FIFTH - LESSOR and LESSEE agree that this lease shall be for the
compulsory term of 3 years for the LESSEE, shall commence September FIRST,
1999, term ending on the last day of August of the year of 2002. LESSOR gives
to LESSEE the right to extend this lease exclusively for an ADDITIONAL PERIOD
of 2 years, under the same terms and conditions, exception made to it's
rental price which will be determined by the LESSOR, considering that LESSEE
has timely complied with all the obligations contained herein.
SIXTH - LESSEE shall pay at its sole cost, all the expenses arising
for the use of public utilities related to the leased premises such
electricity, tap water, phone and gas that LESSEE may contract on its
account. Therefore, LESSEE shall deal directly with the individuals or
entities (service providers) for it's installation, hook up, connection,
termination or suspension.
<PAGE>
SEVENTH - LESSEE shall use the leased premises exclusively for
INDUSTRIAL PRODUCTION AND OFFICES. Other use given to leased premises shall
constitute a rescinding cause by LESSEE.
EIGHTH - LOSS OR DESTRUCTION
a). - LESSEE agrees that, all damages to the leased premises caused
by its improper use or by the unauthorized use or the building, shall be
repaired at LESSEE's sole cost and is obligated to carry out such repairs to
the extent that is necessary to restore the premises equal utility and
perfect condition, without prior request or demand from LESSOR.
b). - In the event that damages caused to the leased premises prevent
the LESSEE from continuing normal business operations, and if such damages
were caused by fault or negligence or by the fault or negligence of LESSEE'S
employees, agents, assignees, representatives, etc., shall proceed to the
immediate repair of such damages until restoring the building original
condition under which was leased.
c). - LESSEE is hereby obligated to obtain and maintain throughout
the Lease Term, an insurance policy on the Leased Premises against loss or
damage by fire and all other casualties related to the leased building (not
including the equipment, furniture and LESSEE's proper installations) and for
the reposition value of the same, by insurance policy issued by insurance
company duly established in the country, policy that must designate the
LESSOR as the beneficiary of such insurance. LESSEE must deliver a duplicated
copy of the policy to LESSOR on the date LESSEE takes possession of the
leased premises.
d. - In case of damage to or destruction of any building that is
responsibility of the Lessee or improvements on the leased premises. LESSOR
will promptly, and at its sole cost, make such repairs, within a period of
no more that 10 days subject to the reasonable time frame of the repairs,
restoration or rebuilding to the extent that is necessary to provide the
LESSEE with premises processing equal utility, design and construction to
that which existed prior to
<PAGE>
such damage or destruction; and this Lease shall remain in full force and
effect during the time such repairs, restoration or rebuilding are/is being
effected, except that LESSEE shall be entitled to a reduction in the rental
payable hereunder while such repairs restorations or rebuilding are/is being
made, such monthly reductions to be in the same proportion by which the
business operations carried on by the LESSEE in the premises have been
reduced because of such damage. The amount of reductions shall be
proportional to the usable square footage remaining.
NINTH. -
MAINTENANCE AND REPAIRS BY THE LESSEE:
LESSEE, it its sole cost and expense, shall preserve and maintain in
good condition and repair the leased premises, except to deterioration caused
by normal tear and wear. The cost of any failure or breakdown, interruption
or damage arising from the violation of this clause, shall be at LESSEE's
cost and expense.
MAINTENANCE AND REPAIRS BY THE LESSOR:
LESSOR warrants the leased premises against any and all defects in
workmanship and/or materials, for a period of one year from the lease
commencement date and three years for roof leakage or roof integrity
problems. Thereafter, LESSOR shall be solely responsible for the maintenance
of the roof, of the structural foundations.
TENTH. - Throughout the lease term or any extension of it, LESSEE
shall keep in force the established security deposit consisting of 1 MONTH OF
RENT including its increases, as well as the insurance policy referred to in
CLAUSE EIGHTH. At the end of the lease term, the LESSOR shall return the
deposit to which this clause refers, after previous verification from LESSEE
to LESSOR, that the leased premises show no damages and is free of any
charges due public utilities or any other encumbrance. In this last case
LESSOR may dispose of such deposit to pay any amount due to by the LESSEE and
in the event that a difference still remains due and payable by the LESSEE,
the LESSOR is empowered to file before judicial authorities, the
<PAGE>
order of execution against LESSEE up to amount owed.
ELEVENTH.-LESSEE shall not transfer or sublet this Lease of any
interest herein, without the prior written consent of the Lessor. In its case,
such sublease or transfer of lease rights shall be authorized under the same
terms and conditions as those contained in this instrument, in the full
understanding that no sublease or transfer of lease rights may occur over a
partial area or surface of the leased premises. On its behalf, LESSEE is
hereby obligated to give notice to the LESSOR, only and when authorized by
it, and before the signature of the sublease or transfer of lease rights, a
written notice signed by the sublessee or transfer of lease rights, a written
notice signed by the sublessee or assignee, acknowledging and
understanding the contents of this lease contents and shall also obtain
satisfactory evidence that is obligated to the LESSOR under the same terms of
this instrument.
TWELFTH.-At the end of this lease term, LESSEE is obligated to
surrender and deliver the leased premises free of any obligations and
liabilities before the Instituto Mexicano del Seguro Social (Social Security
Mexican Institute), labor authorities, as well as any tax authority enter
Federal, State or Municipal, by showing evidence of it to the LESSOR'S
satisfaction. LESSEE shall assume any obligation and future liability derived
from its business operation related to the leased premises.
THIRTEENTH.-LESSOR and its authorized agents or representatives, may
enter the leased premises during regular business hours, for purposes of
visiting or to perform any improvements or changes to such premises, as long
as such activities do not interfere with lessee's normal busines operations.
LESSOR shall have the right to place rent or sale ads outside the
leased premises and to show the building to any potential lessee or buyer, as
long as lessee has waived his right to or has not excercised his right for a
lease extension or has not excercised his preferential right to purchase the
property within the term agreed on.
<PAGE>
FOURTEENTH.-Any notice, request, demand, consent, certificate or any
other means of communicaton which becomes required or desirable between the
parties or should become authorized in agreement with this lease, must be
made in writing and sent along with return receipt to the addresses set forth
hereunder.
a).-TO THE LESSOR:
MR._RAYMUNDO MUZQUIZ AYALA
KILOMETRO 9.5 CARRETERA LIBRE A ENSENADA
TIJUANA, B.C.
b).-TO THE LESSEE:
THE SAME ADDRESS OF THE LEASED PREMISES.
FIFTEENTH.-In the event of default or failure by LESSEE to fulfill
any of the clauses contained in this lease, hereby designate and becomes
obligated as JOINT AND SEVERAL SURETY of the LESSEE,________________________
_______________S.A. DE C.V., whom from this moment resigns, waives and
disclaims the benefits of order and excussion which may be granted by the
Civil Code and further agrees that LESSOR is authorized and empowered to
demand the fulfillment without prior request or demand and appoints as his
address the one located at 15621 Industry Lane, Huntington Beach, CA.
SIXTEENTH.-All aspects related to the interpretation and fulfillment
of the clauses contained in this lease agreement, are mutually subjected by
the parties to the jurisdiction of the judicial authorities in the city of
Tijuana, Baja California and to the governing laws in form in such
State, waiving any other jurisdiction or competence each of the parties may
have due to their present or future domicile or by any other reason.
ONCE this lease agreement was read by the parties involved and acknowledging
its contents and legal force, it was signed by them in duplicate copies in
the city of Tijuana, Baja California, Mexico on the 25 of August of
<PAGE>
1999.
THE LESSOR THE LESSEE
INMOBILIARIA Y FRACCIONADORA TECNOLOGIAS NACIONALES
LOMA S.A. MANUFACTURERAS DE MEXICO
SR. RAYMUNDO MUZQUIZ AYALA. S. DE R.L. DE C.V.
REPRESENTED BY:
MR. PATRICK W. MOORE
JOINT AND SEVERAL SURETY
___________________________
FAR EAST INTERNATIONAL, CO.
WITNESS WITNESS
___________________________ ___________________________
LIC. SERGIO ABRIL GASPAR
EXHIBIT:
1.-DESCRIPTION DRAWING OF THE BUILDING
<PAGE>
Exhibit 10.60
STOCK OPTION AGREEMETNT
THIS STOCK OPTION AGREEMENT (Agreement") is made by and between
PHOTMATRIX, INC., A California corporation, (the "Corporation"), and PATRICK
W. MOORE, (the "Optionee").
NOW, THEREFORE, in consideration of the mutual benefit to be derived
herefrom, the Corporation and Optionee agree as follows:
1. GRANT OF OPTION. The Corporation hereby grants to Optionee the
right, privilege and option ("Option") to purchase 166,667 shares of its
common stock ("Stock") at $0.45 per share, in the manner and subject to the
conditions provided hereinafter.
2. TIME OF EXERCISE OF OPTION. The Option is fully vested. Any
exercise may be with respect to any part or all of the shares then
exercisable pursuant to such Option, provided that the minimum number of
shares exercisable at any time shall not be less than 100 shares or the
balance of shares for which the Option is then exercisable. Such Option must
be exercised within 10 years after the date of the grant. In no event shall
the Corporation be required to transfer fractional shares to Optionee or
those entitled to Optionee's rights herein.
3. METHOD OF EXERCISE. The option shall be exercised by Optionee by
the delivery to the Corporation on a form approved by the Corporation of a
fully-executed Notice of Exercise, specifying the number of shares to be
issued, and enclosing a check in payment of the purchase price for the shares.
4. RESTRICTION ON EXERCISE AND DELIVERY. The exercise of this
Option shall be subject to the condition that, if at any time the Corporation
shall determine, in its sole and absolute discretion,
(a) the satisfaction of any withholding tax or other withholding
liabilities is necessary or desirable as a condition of, or in
connection with, such exercise or the delivery or purchase pursuant
thereto,
(b) the listing, registration, or qualification of any shares deliverable
upon such exercise is necessary, under any state or federal law, as a
condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto, or
(c) the consent or approval of any regulatory body is necessary as a
condition of, or in connection with, such exercise or the delivery or
purchase of shares pursuant thereto,
<PAGE>
then, in any such event, such exercise shall not be effective unless such
withholding, listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Corporation. Optionee shall execute such documents and take such other
actions as are required by the Corporation to enable it to effect or obtain
such withholding, listing, registration, qualification, consent or approval.
Neither the Corporation nor any officer or director thereof shall have any
liability with respect to the non-issuance or failure to sell shares as the
result of any suspensions of exercisability imposed pursuant to this Section.
5. TERMINATION OF OPTION. To the extent not previously exercised,
this Option shall terminate upon the first to occur of any of the following
events:
(a) the dissolution or liquidation of the Corporation;
(b) the expiration of 10 years from the date of the grant of the Option
hereunder;
(c) the breach by Optionee of any provision of this Agreement.
6. NONASSIGNABLITITY. This Option may not be sold, pledged, assigned
or transferred in any manner other than by will or by the laws of intestate
succession, and may be exercised during the lifetime of Optionee only by the
Optionee. Any transfer by Optionee of any part of this Option other than by
will or the laws of intestacy shall void such Option, and the Corporation
shall have no further obligation with respect to the Option. This Option
shall not be pledged or hypothecated in any way, nor shall the Option be
subject to execution, attachment or similar process.
7. RIGHTS AS SHAREHOLDER. Neither Optionee nor his executor,
administrator, heirs or legatees, shall be, or have any rights or privileges
of a shareholder of the Corporation in respect of shares issuable hereunder
unless and until certificates representing such shares shall have been issued
in Optionee's name.
8. RESTRICTIVE LEGENDS. Each certificate evidencing the shares
acquired hereunder, including any certificate issued to any transferee
thereof, shall be imprinted with such legends appropriate by the Corporation
as may be deemed.
9. NO RIGHT OF EMPLOYMENT. Neither the grant nor exercise of this
option nor anything in this Agreement shall impose upon the Corporation or
any other corporation any obligation to employ or continue to employ
Optionee. The right of the Corporation and any other corporation to terminate
Optionee shall not be diminished or affected because this Option has been
granted to Optionee.
10. MANDATORY ARBITRATION. In the event of any dispute between the
Corporation and Optionee regarding this Agreement, the dispute and any issue
as to the arbitrability of such dispute, shall be settled to the exclusion of
a court of law, by arbitration in San Diego, California, by a panel of three
arbitrators (each party shall
2
<PAGE>
choose one arbitrator and the third shall be chosen by the two arbitrators so
selected) in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The decision of a majority of the
arbitrators shall be final and binding upon the parties. All costs of the
arbitration and the fees of the arbitrators shall be allocated between the
parties as determined by a majority of the arbitrators, it being the
intention of the parties that the prevailing party in such a proceeding be
made whole with respect to its expenses.
11. DEFINITIONS. Capitalized terms shall have the meaning set forth
herein.
12. NOTICES. Any notices to be given under the terms of this
Agreement shall be addressed to the Corporation in care of its Secretary at
its principal office, and any notice to be given to Optionee shall be
addressed to the Optionee at the address maintained by the Corporation for
such person or at such other address as the Optionee may specify in writing
to the Corporation.
13. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of Optionee, his heirs and successors, and of the Corporation,
its successors and assigns.
14. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of California.
15. DESCRIPTIVE HEADINGS. Titles to Sections are solely for information
purposes.
IN WITNESS WHEREOF, this Agreement is effective as of, and the date of
grant shall be, JUNE 5, 1999.
PHOTOMATRIX, INC., a California corporation
By: /s/ JENNIFER D. BROWN
-----------------------------------------
Secretary
OPTIONEE
/s/ PATRICK W. MOORE
-----------------------------------------
Patrick W. Moore
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 513,000
<SECURITIES> 0
<RECEIVABLES> 1,115,000
<ALLOWANCES> (259,000)
<INVENTORY> 815,000
<CURRENT-ASSETS> 2,246,000
<PP&E> 2,699,000
<DEPRECIATION> 764,000
<TOTAL-ASSETS> 6,341,000
<CURRENT-LIABILITIES> 4,068,000
<BONDS> 0
0
0
<COMMON> 21,376,000
<OTHER-SE> 53,000
<TOTAL-LIABILITY-AND-EQUITY> 6,341,000
<SALES> 1,753,000
<TOTAL-REVENUES> 1,753,000
<CGS> 1,158,000
<TOTAL-COSTS> 1,158,000
<OTHER-EXPENSES> 1,446,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (109,000)
<INCOME-PRETAX> (928,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (928,000)
<DISCONTINUED> 391,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (537,000)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
