AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 6, 2000
Registration No. 333-_______
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
(FORMERLY PHOTOMATRIX, INC.)
(Name of small business issuer in its charter)
CALIFORNIA 3579 95-3267788
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(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
1958 KELLOGG AVENUE
CARLSBAD, CA 92008
760-431-4999
(Address and telephone number of principal executive offices)
PATRICK W. MOORE, CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
1958 KELLOGG AVENUE
CARLSBAD, CALIFORNIA 92008
(760) 431-4999
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
OTTO E. SORENSEN, ESQ.
LUCE, FORWARD, HAMILTON & SCRIPPS, LLP
600 WEST BROADWAY, SUITE 2600
SAN DIEGO, CA 92101
(619) 699-2534
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
From time to time after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. [ ]
__________________________________
CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF. . . . . . . . . . . . PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES TO BE. . . . . . . . . . . . . . . AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED. . . . . . . . . . . . . . . . . . REGISTERED (1) SHARE (2) PRICE (2) REGISTRATION FEE
--------------------------------------------- ----------------- -------------------- -------------------- ----------------
Common stock,
.001 par value . . . . . . . . . . . . . . . 6,200,762 $ 1.0625 $ 6,588,310
--------------------------------------------- ----------------- -------------------- --------------------
Shares of common stock, $.001 par value (3) . 50,000 1.0625 53,125
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (4) . 200,000 1.43 286,000
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (5) . 100,000 1.438 143,800
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (6) . 307,882 1.0625 327,125
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (7) . 166,667 1.0625 177,084
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (8) . 50,000 1.0625 53,125
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (9) . 64,000 1.0625 68,000
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (10). 55,000 1.0625 58,438
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (11). 65,000 1.0625 69,063
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (12). 86,000 1.4375 123,625
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (13). 10,000 1.0625 10,625
----------------- -------------------- --------------------
Shares of common stock, $.001 par value (14). 200,000 1.0625 212,500
----------------- -------------------- -------------------- -----------------
Total . . . . . . . . . . . . . . . . . . . . 7,555,311 $ 8,170,818 $ 2,157.10
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(1) In the event of a stock split, stock dividend or similar transaction
involving our common stock, in order to prevent dilution, the number of shares
registered shall automatically be increased to cover the additional shares in
accordance with Rule 416(a) under the Securities Act of 1933, as amended (the
"Securities Act").
(2) In accordance with Rule 457(c), the aggregate offering price of shares
of common stock of National Manufacturing Technologies, Inc. (the "Company") is
estimated solely for purposes of calculating the registration fees payable
pursuant hereto, using the average of the high and low sales price reported by
the Over-the-Counter Bulletin Board Market for our common stock on October 3,
2000, which was $1.0625 per share and, with respect to shares of common stock of
National Manufacturing issuable upon exercise of outstanding options and
warrants, the higher of (i) such average sales price or (ii) the exercise price
of such options and warrants.
(3) Represents shares of common stock issuable to R.P. Hill and Lucy L. Hill
upon exercise of outstanding warrants at an exercise price of $.40 per share.
(4) Represents shares of common stock issuable to Celtic Capital upon the
exercise of outstanding warrants at an exercise price of $1.43 per share.
(5) Represents shares of common stock issuable to G.I.W. upon the exercise
of outstanding warrants at an exercise price of $1.438 per share.
(6) Represents shares of common stock issuable to William Grivas and Patrick
Moore (153,941 shares each) upon the exercise of outstanding options at an
exercise price of $.4872 per share.
(7) Represents shares of common stock issuable to Patrick Moore upon the
exercise of outstanding options at an exercise price of $.45 per share.
(8) Represents shares of common stock issuable to Patrick Moore upon the
exercise of outstanding options at an exercise price of $1.0625 per share.
(9) Represents shares of common stock issuable to Patrick Moore upon the
exercise of outstanding options at an exercise price of $.2969 per share.
(10) Represents shares of common stock issuable to Patrick Moore upon the
exercise of outstanding options at an exercise price of $.5625 per share.
(11) Represents shares of common stock issuable to Patrick Moore upon the
exercise of outstanding options at an exercise price of $.25 per share.
(12) Represents shares of common stock issuable to Patrick Moore upon the
exercise of outstanding options at an exercise price of $1.4375 per share.
(13) Represents shares of common stock issuable to Roy Gayhart upon the
exercise of outstanding options at an exercise price of $.813 per share.
(14) Represents shares of common stock issuable to Roy Gayhart upon the
exercise of outstanding options at an exercise price of $.625 per share.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
Disclosure Alternative Used: Alternative 1 Alternative 2 X
----
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC
TABLE OF CONTENTS
(CROSS REFERENCE SHEET)
PART 1
COMPOSITION OF PROSPECTUS
---------------------------
<TABLE>
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ITEM LOCATION
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<S> <C>
Item 1 Front of Registration Statement and Front Cover . . . Forepart of Registration
of Prospectus . . . . . . . . . . . . . . . . . . . . Statement
Item 2 Inside Front and Outside Back Cover Pages . . . . . . Inside Front and Outside
Prospectus of Back Cover Pages of
Prospectus
Item 3 Distribution Spread . . . . . . . . . . . . . . . . . Not applicable
Item 4 Risk Factors. . . . . . . . . . . . . . . . . . . . . Page 1
Item 5 Plan of Distribution. . . . . . . . . . . . . . . . . Page 5
Item 6 Use of Proceeds to Issuer . . . . . . . . . . . . . . Page 7
Item 7 Description of Business . . . . . . . . . . . . . . . Page 7
Item 8 Description of Property . . . . . . . . . . . . . . . Page 13
Item 9 Directors, Executive Officers and Significant
Employees . . . . . . . . . . . . . . . . . . . . . . .Page 14
Item 10 Remuneration of Directors and Officers . . . . . . . Page 16
Item 11 Security Ownership of Management and Certain
Securityholders . . . . . . . . . . . . . . . . . . . .Page 18
Item 12 Interest of Management and Others in Certain
Transactions. . . . . . . . . . . . . . . . . . . . . .Page 19
Item 13 Securities Being Offered . . . . . . . . . . . . . . Page 21
Item 14 Significant Parties. . . . . . . . . . . . . . . . . Page 22
Item 15 Relationship with Issuer of Experts Named in
Registration Statement. . . . . . . . . . . . . . . . .Page 23
Item 16 Legal Proceedings. . . . . . . . . . . . . . . . . . Page 24
Item 17 Changes in and Disagreements with Accountants. . . . Page 24
Item 18 Disclosure of Commission Position on Indemnification
for Securities Act Liabilities. . . . . . . . . . . . .Page 25
Item 19 Financial Statements . . . . . . . . . . . . . . . . Page F-1
</TABLE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
------------------------------------------
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ITEM LOCATION
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<S> <C>
Item 1 Indemnification of Directors and Officers. . . . . . . Page II-1
Item 2 Other Expenses of Issuance and Distribution. . . . . . Page II-1
Item 3 Undertakings . . . . . . . . . . . . . . . . . . . . . Page II-1
Item 4 Unregistered Securities Issued or Sold Within One Year Page II-2
Item 5 Index to Exhibits. . . . . . . . . . . . . . . . . . . Ex-1
</TABLE>
<PAGE>
SUBJECT TO COMPLETION; DATED OCTOBER 6, 2000
PROSPECTUS
7,555,311 SHARES
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
(FORMERLY PHOTOMATRIX, INC.)
1958 Kellogg Avenue
Carlsbad, CA 92008
COMMON STOCK
This prospectus relates to the resale of up to 7,555,311 shares of the
common stock of National Manufacturing Technologies, Inc. ("National
Manufacturing Technologies") by the selling shareholders. All or a portion of
the shares offered by this prospectus may be offered for sale, from time to
time, by the selling shareholders for their own benefit. The shares offered by
this prospectus include shares already issued by us and shares issuable upon the
exercise of options and warrants held by the selling shareholders. The total
proceeds to National Manufacturing Technologies from the exercise of warrants
and options, if exercised in full on a cash basis, would be a maximum of
$1,050,869. We will receive no proceeds from the sale of our common stock by
the selling shareholders. See "Selling Shareholders" and "Plan of
Distribution."
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is listed on the Over-the-Counter Bulletin Board under
the symbol "NMFG." On October 3, 2000, the last reported sale price of our
common stock on the Over-the-Counter Bulletin Board was $1.0625 per share.
INVESTING IN OUR COMMON STOCK INVOLVES SIGNIFICANT RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 1 FOR A DESCRIPTION OF CERTAIN FACTORS WHICH SHOULD
BE CONSIDERED BY INVESTORS BEFORE PURCHASING THE SHARES OFFERED BY THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THIS PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS FILED BY
NATIONAL MANUFACTURING TECHNOLOGIES, INC. WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE SELLING SHAREHOLDERS CANNOT SELL THEIR SHARES UNTIL THAT
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THE SHARES OR THE SOLICITATION OF AN OFFER TO BUY THE SHARES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
The date of this Prospectus is October 6, 2000
<PAGE>
FORWARD-LOOKING STATEMENTS
EXCEPT FOR HISTORICAL INFORMATION, THE INFORMATION CONTAINED IN THIS
PROSPECTUS AND IN OUR REPORTS FILED WITH THE SEC ARE "FORWARD LOOKING"
STATEMENTS ABOUT OUR EXPECTED FUTURE BUSINESS AND FINANCIAL PERFORMANCE. THESE
STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, INCLUDING, AMONG OTHERS, RISKS
RESULTING FROM ECONOMIC AND MARKET CONDITIONS, THE REGULATORY ENVIRONMENT IN
WHICH WE OPERATE, PRICING PRESSURES, ACCURATELY FORECASTING OPERATING AND
CAPITAL EXPENDITURES, COMPETITIVE ACTIVITIES, UNCERTAINTIES OF LITIGATION AND
OTHER BUSINESS CONDITIONS, AND ARE SUBJECT TO UNCERTAINTIES AND ASSUMPTIONS
CONTAINED ELSEWHERE IN THIS PROSPECTUS. WE BASE OUR FORWARD-LOOKING STATEMENTS
ON INFORMATION CURRENTLY AVAILABLE TO US, AND WE ASSUME NO OBLIGATION TO UPDATE
THESE STATEMENTS. OUR ACTUAL OPERATING RESULTS AND FINANCIAL PERFORMANCE MAY
PROVE TO BE VERY DIFFERENT FROM WHAT WE HAVE PREDICTED AS OF THE DATE OF THIS
PROSPECTUS DUE TO CERTAIN RISKS AND UNCERTAINTIES. THE RISKS DESCRIBED ABOVE IN
THE SECTION ENTITLED "RISK FACTORS" SPECIFICALLY ADDRESS SOME OF THE FACTORS
THAT MAY AFFECT OUR FUTURE OPERATING RESULTS AND FINANCIAL PERFORMANCE.
RISK FACTORS
Investment in our common stock involves a high degree of risk. You should
consider the following discussion of risks as well as other information in this
prospectus before purchasing any of our common stock, together with all of the
other information contained in this prospectus or incorporated in this
prospectus by reference.
STATUS AS A GOING CONCERN
Our consolidated financial statements have been prepared assuming that
National Manufacturing Technologies will continue as a going concern. This
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. National Manufacturing Technologies has suffered
recurring losses from operations and has a working capital deficiency, the
effects of which raise substantial doubt about our ability to continue as a
going concern. Our consolidated financial statements do not include any
adjustments relating to the recoverability of assets and classification of
liabilities that might be necessary should National Manufacturing Technologies
be unable to continue as a going concern
Our continuation as a going concern is dependent upon our ability to generate
sufficient cash flow to meet our obligations on a timely basis, to obtain
additional financing as may be required and ultimately to attain profitability.
In the current year ended March 31, 2000, consolidated revenues increased by
93.2% or $4,668,000. Gross profit margins increased from 14.7% in fiscal year
1999 to 29.6% in fiscal year 2000. However, there can be no assurance that
National Manufacturing Technologies will continue to enjoy increased revenues
and gross margins. During this same time period, consolidated SG&A expenses for
the year ended March 31, 2000 increased $2,148,000 or 68.1% to approximately
$5,302,000 from $3,154,000 for the year ended March 31, 1999. The increase is
mainly due to the inclusion of one full year of SG&A expenses for the MMS group
as compared to only three and one half months of SG&A expenses in the year ended
March 31, 1999.
ABILITY TO SUCCESSFULLY MARKET MANUFACTURING SERVICES
National Manufacturing Technologies' growth strategy is dependent upon its
ability to market successfully its contract manufacturing and metal enclosed
electronic systems manufacturing services. During fiscal year 2000, our ability
PAGE 1
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to do this was impacted by a tight cash position brought about by the operating
losses of our scanner operations. With (1) the completion of the sale of the
product rights and assets of the scanner operations, (2) the sale and leaseback
of our Carlsbad facility and (3) the establishment of a $3.95 million credit
facility with a new lender, we are concentrating our efforts on the marketing
and sales of our electronic contract and metal enclosure manufacturing services.
We have limited prior experience in marketing and manufacturing metal enclosed
electronic systems. There is no assurance that we will be successful in this
effort.
COMPETITIVE ENVIRONMENT
National Manufacturing Technologies may not be able to overcome competitive
forces and reactions in order to increase revenue in an amount necessary to
return to profitability. National Manufacturing Technologies' ability to
increase its revenue is partially dependent upon successfully developing
additional original equipment manufacturer relationships and upon expanding its
direct sales. Our ability to improve sales is in part dependent upon our
marketing expenditures and liquidity constraints may limit these expenditures.
We operate in a highly competitive industry and face competition from a number
of domestic and foreign electronic and electronic enclosure manufacturing
services companies, many with financial and manufacturing resources greater than
ours. We also face competition in the form of current and prospective customers
that have the capabilities to develop and manufacture products internally. In
order to maintain a viable alternative, we must continue to enhance our total
engineering and manufacturing technologies.
REQUIRED REVENUE INCREASES
In the past year, National Manufacturing Technologies has consolidated many
of our operations, including moving I-PAC Express and Rep Co., to the Carlsbad,
California facility and moving the Precision Machining operations into the
Oceanside, California facility. At current revenue levels, these cost
reductions will not, in and of themselves, return National Manufacturing
Technologies to profitability. Therefore, we are currently focused on
increasing our revenue through the pursuit of original equipment manufacturer
opportunities in the electronics industry in order to return National
Manufacturing Technologies to profitable operations. Total revenues increased
approximately 93% in the year ended March 31, 2000, over the prior year. We
believe that the recent acquisitions and the sale of scanner operations enhance
the likelihood that National Manufacturing Technologies will return to
profitability. There is no assurance, however, that National Manufacturing
Technologies will be profitable.
RETENTION OF KEY EMPLOYEES
National Manufacturing Technologies is highly dependent upon the principal
members of our management staff and key individuals in all areas of National
Manufacturing Technologies. We have implemented certain programs we believe will
help in retaining these key employees; however we may not be able to retain all
key personnel or attract new qualified personnel on acceptable terms.
RETAINING AVAILABILITY OF LINE OF CREDIT
As of December 31, 1998, we were in default of all loan covenants under a
$2.1 million credit facility with our bank. On February 10, 1999, the bank
agreed to forebear from taking adverse action, provided that we found an
alternative lending source or otherwise paid off all debt prior to May 15, 1999.
We immediately began discussions with alternative lenders. Proceeds from the
sale of the scanner operations and our headquarters building were used to retire
this credit facility. On June 18, 1999, we also entered into a $1.5 million
credit facility with a lending institution. This was expanded twice during the
past year to assist revenue growth. It was increased in December 1999 to $2.95
million and increased again to $3.95 million in June 2000. We believe that the
Page 2
<PAGE>
new credit facility will be adequate to finance National Manufacturing
Technologies growth in the year ending March 31, 2001. If National
Manufacturing Technologies cannot maintain the increased revenue levels
sufficiently to generate profitability, we may not be able to maintain our
available credit line. The line of credit expires on June 30, 2001
BIDDING LONG TERM AND GOVERNMENT CONTRACTS
A significant portion of the metal group revenues currently comes from
defense contractors. The majority of contracts with these customers are awarded
based on the lowest bid over a multiple-year period of performance. While we
believe that we are able to accurately estimate costs, including increases in
labor and material costs, over the life of these multiple-year defense
contracts, there can be no assurance that these estimates will approximate
actual costs over the life of the contract. National Manufacturing Technologies
is pursuing the growth of our MMS group by targeting commercial customers in the
electronic enclosure segment.
CUSTOMER CONCENTRATION
Many companies in the electronic manufacturing services industry, including
us, have a high percentage of their revenues concentrated in a small customer
base. The greatest risk facing these companies is possible weakening of a major
customer or a slow-down in the industry. It may take several quarters to
replace significant customers. One customer represented approximately 27.8% of
our total revenues in the year ended March 31, 2000. Two other customers
represented approximately 9.5% and 8.5%, respectively, of total revenues.
INTERNAL GROWTH
Start-up costs and the management of labor and equipment efficiencies for
new manufacturing services programs and new customers can have the effect of
reducing our gross margins. Due to these and other factors, gross margins can
be negatively impacted early on in the life cycle of new programs. In addition,
labor efficiency and equipment utilization rates ultimately achieved and
maintained by us impact our gross margins; and these factors may not be
significant in the early stage of new projects.
ACQUISITION STRATEGY
Geographical expansion and growth by acquisition can have an effect on our
operation. The successful operation of an acquired business will require
communication and cooperation among key managers, along with the transition of
customer relationships. There can be no assurance we will successfully manage
the integration of new locations or acquired operations and may experience
certain inefficiencies that could negatively impact the results of operations.
Additionally, no assurance can be given that any past or future acquisition by
us will enhance our business.
LEXIA SYSTEMS, INC.
Relative to the discontinuation of Lexia Systems, Inc. ("Lexia"), and to
the protracted nature of the negotiations and the disagreements with vendors,
International Computers Limited and Fujitsu, there is no assurance that Lexia
and International Computers Limited/Fujitsu will settle their current
disagreements.
During September 1998, our wholly-owned subsidiary, Lexia Systems, settled its
outstanding dispute with Fujitsu. As a result, we reduced our 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. As of August 2000, we have made payments totaling $25,000 since July
1999 on this liability which is currently at a balance of $65,000. Lexia also
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<PAGE>
has recorded liabilities reflecting accounts payable and unpaid rent claims of
International Computers Limited and related entities in the amount of $457,000
at March 31, 2000. The legal statute of limitations on these International
Computers Limited claims expired in the quarter ended June 30, 2000 and National
Manufacturing Technologies wrote off the $457,000 in liabilities. These
liabilities are included in net liabilities of discontinued operations. Lexia
disputes any liability with respect to International Computers Limited 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 International Computers Limited.
COMMODITY PRICES
We are exposed to fluctuations in market prices for steel. Steel prices
worldwide have stabilized since the beginning of the year and are not currently
expected to increases. The availability of steel has also stabilized since the
beginning of the year, when supplies and production were at lower levels.
However, there can be no guarantee on the continuing availability and
stabilization of prices of steel in the long term. We have multiple sources for
steel and continue to look for additional alternative sources to diminish the
impact of price increases. The electronics industry is facing a shortage of
certain components and we may not be successful in attaining these components as
compared to larger Electronic Manufacturing Services providers who have more
purchasing power.
The electric utility market has been de-regulated in California and prices are
now subject to competitive market pricing. In fiscal year 2001, we have seen a
significant increase in our electric utility costs and are currently exploring
alternatives for long-term stabilized charges.
RISK OF LOW-PRICE STOCKS
Our securities are traded on the Over-the-Counter Bulletin Board and if we
were to be delisted from the Bulletin Board we could become subject to Rule
15g-9 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), which imposes additional sales practice requirements on broker-dealers
which sell such securities to persons other than established customers and
"accredited investors" (generally, individuals with net worths in excess of
$1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their
spouses). For transactions covered by this rule, a broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. Consequently, the
rule may adversely affect the ability of broker-dealers to sell our securities
and may adversely affect the ability of purchasers in the Offering to sell any
of the securities acquired hereby in the secondary market.
Commission regulations define a "penny stock" to be any non-NASDAQ equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The penny stock restrictions will not apply to our securities if they are listed
on the Over-the-Counter Bulletin Board and have certain price and volume
information provided on a current and continuing basis. There can be no
assurance that our securities will qualify for exemption from these
restrictions. In any event, even if National Manufacturing Technologies'
securities were exempt from such restrictions, it would remain subject to
Section 15(b)(6) of the Exchange Act, which gives the Commission the authority
to prohibit any person that is engaged in unlawful conduct while participating
in a distribution of a penny stock from associating with a broker-dealer or
participating in a distribution of a penny stock, if the Commission finds that
such a restriction would be in the public interest. If our securities were
subject to the rules on penny stocks, the market liquidity for our securities
could be severely and adversely affected.
PAGE 4
<PAGE>
CONTROL BY INSIDERS
Patrick W. Moore, National Manufacturing Technologies' President, Chief
Executive Officers and Chairman of the Board, James P. Hill, a Director of the
Company and William L. Grivas, a consultant to the Company, beneficially own, or
have voting control over, shares of National Manufacturing Technologies' common
stock representing approximately 47% of the total voting power of National
Manufacturing Technologies. Accordingly, they will continue to be able to elect
at least a majority of our directors and thereby direct the policies of National
Manufacturing Technologies for the foreseeable future.
Other factors that could adversely affect forward-looking statements include (1)
our ability to maintain and expand our customer base, (2) gross margin
pressures, (3) the effect of start-up costs related to new facilities, (4) the
overall economic conditions affecting the electronics industry, and (5) other
factors and risks detailed herein and in our other Securities and Exchange
Commission filings.
PLAN OF DISTRIBUTION
The selling shareholders are free to offer and sell their common shares at
such times, in such manner and at such prices as they may determine. The types
of transactions in which the common shares are sold may include transactions in
the over-the-counter market (including block transactions), negotiated
transactions, the settlement of short sales of common shares, or a combination
of such methods of sale. The sales will be at market prices prevailing at the
time of sale or at negotiated prices. When used in this prospectus, "selling
stockholder" includes donees and pledgees selling shares received from the named
selling stockholder after the date of this prospectus.
The common stock may be sold directly to purchasers or to or through
broker-dealers, which may act as agents or principals or in:
- a block trade, where a broker or dealer will try to sell the common stock
as agent but may position and resell a portion of the block as principal to
facilitate the transaction;
- transactions where a broker or dealer acts as principal and resells the
common stock for its account pursuant to this prospectus;
- an exchange distribution in accordance with the rules of such exchange;
and
- ordinary brokerage transactions and transactions in which the broker
solicits purchases.
The common stock may also be sold through short sales of shares, put or
call option transactions, loans or pledges of the shares, hedging or similar
transactions, or a combination of such methods. The selling stockholder may or
may not involve brokers or dealers in any of these transactions. In effecting
sales, brokers or dealers engaged by the selling stockholder may arrange for
other brokers or dealers to participate. Such broker-dealers may receive
compensation in the form of discounts, concessions, or commission from the
selling shareholders. They may also receive compensation from the purchasers of
common shares for whom such broker-dealers may act as agents or to whom they
sell as principal, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). The selling stockholder may, from
time to time, authorize underwriters acting as its agents to offer and sell the
common stock upon such terms and conditions as shall be set forth in a
prospectus supplement. Underwriters, brokers or dealers will receive
commissions or discounts from the selling stockholder in amounts to be
negotiated immediately prior to sale. Offers and sales may also be made
directly by the selling stockholder, or other bona fide owners of the common
stock, so long as an applicable exemption from state broker-dealer registration
requirements is available in the jurisdiction of sale. The selling stockholder,
underwriters, brokers or dealers and any other participating brokers or dealers
may be deemed to be "underwriters" within the meaning of the Securities Act in
connection with these sales, and any discounts and commissions received by them
and any profit realized by them on the resale of the common stock may be deemed
to be underwriting discounts and commissions under the Securities Act. Because
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the selling shareholders are "underwriters" within the meaning of Section 2(11)
of the Securities Act, they will be subject to prospectus delivery requirements.
We have informed the selling shareholders that the anti-manipulation rules of
the SEC, including Regulation M promulgated under the Securities and Exchange
Act, may apply to their sales in the market and have provided each selling
shareholder with a copy of such rules and regulations.
The selling shareholders also may resell all or a portion of the common shares
in open market transactions in reliance upon Rule 144 under the Securities and
Exchange Act, provided they meet the criteria and conform to the requirements of
such Rule.
There is no assurance that the selling shareholder will offer for sale or sell
any or all of the shares of common stock covered by this prospectus.
SELLING SHAREHOLDERS
The selling shareholders are offering hereby a total of up to 7,555,311
shares of our common stock. The following table sets forth certain information
with respect to the selling shareholders as of September 27, 2000. Unless
otherwise indicated, the selling shareholders are not currently affiliates of
National Manufacturing Technologies, and have not had a material relationship
with National Manufacturing Technologies (or any of its predecessors or
affiliates) during the past three years, other than as a holder of securities of
National Manufacturing Technologies.
<TABLE>
<CAPTION>
Shares of Common Maximum Number of
Stock Beneficially Shares to be Sold
Name of Registered Owned as of Pursuant to this Shares of Beneficially (1)
Shareholder September 27, 2000 Offering Owned after Offering (2)
Number Percent
<S> <C> <C> <C> <C>
Green International West (3). . 716,103 616,103 100,000 *
Patrick W. Moore (4). . . . . . 2,433,724 2,408,603 78,333 *
Michael R. Moore (5). . . . . . 153,053 116,013 37,250 *
Loma Services Corp.(6). . . . . 191,285 191,633 0 0
James P. Hill, Trustee (7). . . 1,773,991 1,600,900 176,000 1.5
William L. Grivas (8) . . . . . 2,218,841 1,971,116 251,044 2.1
Kim Schaffer. . . . . . . . . . 9,010 6,000 3,010 *
Dianne Hurt . . . . . . . . . . 3,276 3,276 0 0
Celtic Capital (9). . . . . . . 200,000 200,000 0 0
R.P. Hill and Lucy J. Hill (10) 100,000 50,000 50,000 *
Roy Gayhart (11). . . . . . . . 210,000 210,000 0 0
John Staley (12) . . . . . . . 102,500 92,500 10,000 *
Ira Sharp (13). . . . . . . . . 89,167 89,167 0 0
8,200,950 7,555,311 705,637 6.0
</TABLE>
_______________
* Represents less than 1%.
(1) Based on an aggregate of 11,811,699 shares of common stock issued and
outstanding as of September 27, 2000.
(2) Assumes that all Shares being registered are sold.
(3) Includes 100,000 shares of common stock issuable upon exercise of
outstanding warrants which are currently exercisable at an exercise price of
$1.438 per share and expire on July 5, 2002.
(4) Includes 640,608 shares of common stock issuable upon exercise of
outstanding options which are currently exercisable as follows: options for up
to 153,941 shares at an exercise price of $.4872 which expire on June 4, 2008;
options for up to 166,667 shares at an exercise price of $.45 which expire on
June 4, 2009; options for up to 50,000 shares at an exercise price of $1.0625
which expire on April 27, 2010; options for up to 64,000 shares at an exercise
price of $.2969 which expire on September 30, 2009; options for up to 55,000
shares at an exercise price of $.5625 which expire on January 6, 2010; options
for up to 65,000 shares at an exercise price of $.25 which expire on September
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22, 2009; and options for up to 86,000 shares at an exercise price of $1.4375
which expire on July 4, 2010. Patrick W. Moore is an affiliate of National
Manufacturing Technologies as he is the current President and CEO of National
Manufacturing Technologies and Chairman of the Board.
(5) Michael R. Moore is an affiliate of National Manufacturing Technologies
as he is a Director of National Manufacturing Technologies.
(6) The sole shareholders of Loma Services Corporation is Gale Hill, the
wife of James P. Hill.
(7) James P. Hill is an affiliate of National Manufacturing Technologies as
he is a Director of National Manufacturing Technologies.
(8) Includes 153,941 shares of common stock issuable upon exercise of
outstanding options which are currently exercisable at an exercise price of
$.4872 and expire on June 4, 2008. Mr. Grivas is a former Director and Chairman
of the Board of National Manufacturing Technologies.
(9) The shares of common stock offered are issuable upon the exercise of
outstanding warrants which are currently exercisable for up to 200,000 shares at
an exercise price of $1.43 which expire on June 18, 2001.
(10) The shares of common stock offered are issuable upon the exercise of
outstanding warrants which are currently exercisable at an exercise price of
$.40 per share and expire on January 30, 2005. The Hills are the parents of
James P. Hill, a Director of National Manufacturing Technologies.
(11) The shares of common stock offered are issuable upon the exercise of
outstanding options which are currently exercisable as follows: up to 200,000
shares at an exercise price of $.625 and up to 10,000 shares at an exercise
price of $.8130, October 20, 2000. Mr. Gayhart is the former CFO and Secretary
of National Manufacturing Technologies.
(12) Mr. Staley is a former Director of National Manufacturing
Technologies.
(13) Mr. Sharp is a former Director of National Manufacturing Technologies.
USE OF PROCEEDS
Holders of warrants and options are not obligated to exercise those
warrants and options, and there can be no assurance that holders will choose to
exercise all or any of their warrants or options. National Manufacturing
Technologies would not receive any proceeds from the exercise of any warrants by
Celtic, which may be exercised on a cashless basis at Celtic's election. The
total proceeds to National Manufacturing Technologies from the exercise of
warrants and options, if exercised in full, would be a maximum of $1,050,869.
These proceeds would be used for working capital purposes. We will not receive
any proceeds from the sale of outstanding common stock held by the selling
shareholders. See "Selling Shareholders."
DESCRIPTION OF BUSINESS
GENERAL
National Manufacturing Technologies, Inc., is a value-added
vertically-integrated manufacturer of enclosed electronic systems and their
various sub-assembly components. We supply original equipment customers in the
aerospace, defense, power conversion, telecommunications, and fiber channel
storage industries. We provide a wide range of integrated services, including
custom contract manufacturing of electrical and mechanical assemblies, wire and
cable harnesses, and molded cables, as well as precision machining, high speed
metal stamping, metal treatment and processing and complete box build
assemblies, from our facilities located in Southern California and Tijuana,
Mexico.
On September 23, 1999, our shareholders approved a change in our name from
Photomatrix, Inc. to National Manufacturing Technologies, Inc. We changed our
name to National Manufacturing Technologies, Inc. to better reflect our
currently diverse vertically-integrated contract manufacturing business
operations. National Manufacturing Technologies is a California corporation
which was originally incorporated in 1978 under the name Xscribe Corporation.
Today, National Manufacturing Technologies' headquarters are located in
Carlsbad, California.
National Manufacturing Technologies has two reportable segments: the Electronics
Group and the Metals Group.
MERGERS AND ACQUISITIONS
On June 5, 1998, our shareholders approved a merger with I-PAC
Manufacturing, Inc. On July 1, 1998, we acquired certain assets of MGM TechRep
and formed PHRX Rep Co. ("Rep Co."), an outside sales representative firm. On
November 27, 1998, we acquired certain assets of Amcraft, Inc. and formed I-PAC
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Precision Machining, a contract precision metal machining business. On December
18, 1998, we acquired certain assets of Greene International West and formed
National Metal Technologies, a contract metal-stamping business. On June 21,
1999, we sold certain assets and product rights of our wholly-owned subsidiary,
Photomatrix Imaging, Inc. to Scan-Optics, Inc.
On September 17, 1999, we entered into an Asset Purchase Agreement with Mirror
USA and Espejomex, S.A. DE C.V. to acquire certain assets in Tijuana, Mexico
which were used by out newly-created subsidiary, Tecnologias Nacionales
Manufactureras de Mexico. The new manufacturing facility is located
approximately five miles from the Otay Mesa border crossing in Tijuana. The
asset acquisition was a cash purchase.
INDUSTRY OVERVIEW
National Manufacturing Technologies operates in the contract electronics
manufacturing or the Electronic Manufacturing Services industry which provides
program management, technical and administrative support, and manufacturing
expertise required to take a product from the early design and prototype stages
through volume production and distribution. Over the past two decades,
electronics systems have become smaller, lighter and more reliable, while
demands for performance at lower costs have increased. The use of a contract
manufacturer allows an original equipment manufacturer to avoid large capital
investments in plant, equipment and staff and to concentrate instead on the
areas of its greatest strength: innovation, design and marketing.
According to Technology Forecasters, an Electronic Manufacturing Services
industry researcher and consultant, the worldwide Electronic Manufacturing
Services industry is forecast to grow at a 25% compounded annual growth rate,
from about $60 billion in 1998 to $150 billion in 2001. The total available
market for the electronic enclosure industry, a subsector of the Electronic
Manufacturing Services industry which provides complete systems build, is
estimated to be $20 billion, with less than 10% of the market served.
Original equipment manufacturers outsource their manufacturing requirements to
Electronic Manufacturing Services providers to:
Reduce Production Costs. Electronic Manufacturing Services providers offer low
cost manufacturing solutions because of efficiencies associated with
specialization and higher utilization of capacity.
Accelerate Time to Market. In order to remain competitive in an environment
characterized by rapid technological advances and compressed product life
cycles, original equipment manufacturers must accelerate the time required to
bring a product to market. By providing an established infrastructure and
manufacturing expertise, Electronic Manufacturing Services providers can help
original equipment manufacturers shorten their product introduction cycles.
Access Advanced Technologies. Electronic products and electronic manufacturing
processes have become increasingly sophisticated and complex, making it
difficult for original equipment manufacturers to maintain the manufacturing
expertise required to remain competitive.
Focus Resources. In the rapidly changing, increasingly competitive electronics
industry, original equipment manufacturers must focus their attention and
resources where they add the greatest value. The use of Electronic
Manufacturing Services providers allows original equipment manufacturers to
focus their efforts on their core competencies, such as product development and
marketing and distribution.
Reduce Capital Investment. As electronic products have become more
technologically advanced, manufacturing requirements have resulted in increased
investments in inventory, equipment, labor and infrastructure. Electronic
Manufacturing Services providers enable original equipment manufacturers to
achieve high technological capabilities at a lower capital investment level than
required for internal manufacturing.
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Improve Inventory Management and Purchasing Power. The experience of contract
manufacturers in inventory procurement and management can reduce original
equipment manufacturer production and inventory costs.
PRINCIPAL BUSINESS
National Manufacturing Technologies is a vertically-integrated contract
manufacturer serving rapidly growing technology-driven original equipment
manufacturers. We provide custom contract manufacturing of electrical and
mechanical assemblies, including complex, multi-layer printed circuit board
assemblies, wire and cable harnesses, molded cables, precision machining,
high-speed metal stamping, metal treatment and processing and complete box build
assemblies.
Electronics Services. All printed circuit boards that we manufacture are
designed by our customers and manufactured to their specifications. Using
computer-controlled manufacturing and test machinery and equipment, we provide
manufacturing services employing surface mount technology and pin-through-hole
interconnection technologies. We offer a wide range of manufacturing and
management services, either on a turnkey or consignment basis, including
material procurement and control, manufacturing and test engineering support,
and quality assurance. Our strategy is to develop long-term manufacturing
relationships with established and emerging original equipment manufacturers.
Printed circuit boards are the basic platform used in virtually all advanced
electronic equipment to direct, sequence and control electronic signals between
semiconductor devices (such as microprocessors, memory chips and logic devices)
and passive components (such as resistors and capacitors). Printed circuit
boards consist of one or more layers of circuitry laminated into rigid
insulating material composed of fiberglass epoxy. Multi-layer printed circuit
boards provide a three-dimensional system with electronic signals traveling
along horizontal planes of multiple layers of circuitry patterns as well as
along the vertical plane through plated holes or vias.
Surface mount technology is an assembly process that allows the placement of a
large number of components in a dense array directly on both sides of a printed
circuit board. Surface mount technology is a recent advance over the more mature
pin-through-hole technology, which permits electronic components to be attached
to only one side of a printed circuit board by inserting the component into
holes drilled through the board. The surface mount technology process allows
original equipment manufacturers to use advanced circuitry, while at the same
time permitting the placement of a greater number of components on a printed
circuit board without having to increase the size of the board. By allowing
increasingly complex circuits to be packaged with the components in closer
proximity to each other, surface mount technology enhances circuit processing
speed and board and system performance.
Lead times for printed circuit boards generally fall into two categories, "quick
turn" and "standard." Quick turn lead times range from one to 15 days for
prototype and pre-production quantities. Standard lead times typically run from
six to twelve weeks and are generally associated with larger volumes.
Wire harnessing and cable assembly capabilities include injection molding, mil
spec wire harnessing and cable assembly, flat ribbon, multi-conductor and
coaxial, bus bar lamination, and toroid windings.
Metal Services. National Manufacturing Technologies specializes in high-speed
metal stamping, progressive die and forming operations. We also maintain several
secondary metal processing capabilities, including phosphate coating, chem film,
anodizing and heat-treat tempering. National Manufacturing Technologies
features metal stampings from miniature long run commodity grade parts produced
in excess of 1000 parts per minute to large close-tolerance specific parts
produced at 2 parts per minute. Metals that we process include stainless steel,
copper, cold-rolled steel, aluminum and tin. National Manufacturing
Technologies is capable of stamping a wide range of parts to meet commercial,
medical or military requirements.
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Stamped metal products are used in the medical, commercial, aerospace,
electrical, automotive and defense industries. Because of the sophisticated
applications in which these products are used, they must be manufactured under
strict quality methods such as Statistical Process Control or similar quality
management techniques. Highly accurate dies and quick-change punch press tools
are requirements for the expected tolerances within +/-0.001 inch. National
Manufacturing Technologies currently manufactures and supplies metallic links
for munitions manufacturers and the United States and foreign militaries, as
well as firearm magazines for the after-market firearm industry.
Precision machining provides a full range of machining services including CNC
milling, CNC turning, metal sawing, drilling/tapping and centerless grinding.
Precision Machining also offers secondary operations including tumble
de-burring, bead blasting, heat treating, plating, broaching and plasma cutting.
BUSINESS STRATEGY
In response to the industry trends in the contract electronics
manufacturing industry, National Manufacturing Technologies has positioned
itself as a vertically-integrated manufacturer of enclosed electronic systems
and their various sub-assembly components. National Manufacturing Technologies'
strategy is to:
Establish and Maintain Long-term Relationships. One of our primary objectives
is to pursue opportunities whereby we become an integral part of an original
equipment manufacturer's manufacturing operations. In this regard, National
Manufacturing Technologies strives to work closely with our customers in all
phases of design and production in an attempt to establish itself as the sole or
primary source for our customers' specialized manufacturing requirements. We
believe that this effort to develop close, reliable, long-term relationships
builds customer loyalty that is difficult for competitors to overcome. We
specifically target turnkey manufacturing opportunities, including electronic
enclosure assemblies, because such business offers increased profit margin,
greater control over all variables of the manufacturing process and greater
reliance upon us by the original equipment manufacturer associated with the
turnkey operation.
Target and Maintain Balance Among Selected Original Equipment Manufacturer
Industries and Customers. We market our services to industries and customers
that have strict quality control standards for their products and that have
service intensive manufacturing requirements. We focus on complex assemblies in
low- and medium-volumes for commercial and industrial customers. National
Manufacturing Technologies has not been, and does not intend to become, a
manufacturer of high-volume printed circuit board assemblies for personal
computers or other consumer-related products, which typically have relatively
low margins. Instead, we have focused on a variety of industries that produce
products that generally have longer life cycles, customized applications, higher
engineering content, higher customer margins, more stable demand and less price
pressure.
Provide Comprehensive and Reliable Manufacturing Services. We believe that our
ability to attract and retain customers depends on our ability to offer a broad
range of specialized services. We provide our customers with services ranging
from prototype production to the manufacture of printed circuit board
assemblies, material procurement and management, post-production testing and
final product assembly. We also strive to provide the highest level of
reliability in connection with these services and have an ongoing program of
investing in sophisticated machinery and equipment to enable us to achieve this
objective on a continuing basis. Our ability to provide electrical mechanical
assembly, wire and cable assembly and harnessing, molded cable processing,
high-speed metal stamping, precision metal machining, metal finishing, offshore
assembly and other related services allows us to offer a broader range of
value-added services to our customers.
Pursue Opportunities for Growth. We are committed to pursuing opportunities to
increase the scope and capabilities of our operations through acquisition. Our
strategy is to increase our contract electronics manufacturing business through
growth of our customer base, as well as the addition of other key manufacturing
capabilities that enhance our vertical-integration strategy.
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Maintain Flexibility. Many of our customers are leaders in their respective
industries. As such, these customers often require that their products be
continuously reengineered. We have organized our operations so that it can
respond rapidly to design changes and provide value-added services where needed.
MANUFACTURING AND SUPPLIES
The principal materials used by National Manufacturing Technologies in the
manufacture of our products are electronic components such as memory chips,
micro-processing units, integrated circuits, resistors, capacitors,
transformers, switches, connectors, wire, stainless steel and related items
purchased as stock items from a variety of manufacturers and distributors. While
we purchase most of these materials from outside sources, we are not dependent
upon a single source of supply for any materials essential to our business.
National Manufacturing Technologies has generally been able to obtain adequate
supplies of such materials, and no shortage of such materials is currently
anticipated that would significantly impact operations. However, notwithstanding
the foregoing, there can be no assurance that we will continue to be able to
procure such components and raw materials in the future without material delay
or other restrictions.
MARKETING
Senior management of National Manufacturing Technologies is currently
primarily responsible for marketing our electronic and metal manufacturing
services. National Manufacturing Technologies also utilizes direct sales
personnel and sales representatives to develop relationships with our customers.
As part of our marketing strategy, we attempt to work closely with our customers
in all phases of design and production in an attempt to establish itself as the
sole or primary source for our customers' specialized manufacturing
requirements. We believe that this effort to develop close, reliable, long-term
relationships builds customer loyalty that is difficult for competitors to
overcome. As a result, we are continually striving to develop new negotiated
business with existing customers.
COMPETITION
The contract electronics manufacturing industry is highly fragmented and
extremely competitive. There are hundreds of companies, several of which have
substantial market share such as SCI Systems, Inc., Solectron Corporation,
Celestica, Inc., Flextronics International and Jabil Circuit, Inc. The services
provided by National Manufacturing Technologies are available from many
independent sources as well as the in-house manufacturing capabilities of
current and potential customers. Many of our competitors and potential
competitors are larger and have significantly more capital, direct buying power
and management resources than National Manufacturing Technologies. We believe
that the principal competitive factors in our targeted markets are flexible
value-added services, product quality and reliability, flexibility and
timeliness in responding to design and schedule changes, reliability in meeting
product delivery schedules, pricing and geographical location. We believe that
we compete favorably with respect to these factors. However, we also expect
that competition in our markets will continue to be intense, and there can be no
assurance that we will compete successfully.
CUSTOMERS
One customer represented approximately 27.8% of National Manufacturing
Technologies' total revenues in the year ended March 31, 2000. Two other
customers represented approximately 9.5% and 8.5% respectively, of total
revenues. No other customer accounted for more than 10% of total revenues
during fiscal year 2000.
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DISCONTINUED OPERATIONS
The following represents a brief history of the discontinued operations of
National Manufacturing Technologies, Inc.
Sale of Assets, Liabilities and Product Rights of Photomatrix Imaging
Corporation. In June 1999, we sold certain assets and liabilities related to
our scanner business to Scan-Optics for $2.1 million. We retained certain
assets and liabilities. Under the terms of the Asset Purchase Agreement,
Scan-Optics, Inc., paid approximately $2.1 million in cash to acquire product
rights and certain assets, including all receivables, inventory and certain
equipment, as well as assuming approximately $2 million of current and future
liabilities of Photomatrix Imaging Corporation and Photomatrix, Ltd., located in
Great Britain. Scan-Optics also assumed lease commitments associated with
Photomatrix's engineering facilities located in Chandler, Arizona, as well as
our facilities in Great Britain. In addition, National Manufacturing
Technologies has the right to receive royalties up to an aggregate of $250,000
over a three year period dependent upon the release of a new product. National
Manufacturing Technologies also entered into a Transition Agreement during which
National Manufacturing Technologies would continue to manufacture scanners for
Scan-Optics at our Carlsbad facility for a transitional period of time.
National Manufacturing Technologies also entered into a five-year Manufacturing
Agreement to serve as a preferred supplier for certain outsourced manufacturing
components as required and ordered by Scan-Optics.
Sale of Assets, Liabilities and Product Rights of Xscribe Legal System, Inc. In
July 1996, we sold certain assets and liabilities related to its computer-aided
transcription business to its primary competitor for $2.2 million. National
Manufacturing Technologies retained certain liabilities.
Lexia Systems, Inc. In October 1993, National Manufacturing acquired the North
American Sales Division of International Computers Limited, Inc. ("ICL"), a
developer of groupware (office automation) software and manufacturer of
Unix-based hardware, and formed Lexia Systems, Inc. ("Lexia"). Lexia and ICL
entered into a strategic alliance whereby Lexia was to distribute ICL's
groupware products in the United States and support the domestic installed base
of ICL customers. However, the business partnering efforts between National
Manufacturing Technologies and ICL and its sister company, Fujitsu ICL Computers
Ltd. ("Fujitsu") have proved to be ineffective primarily because of a difficult
working relationship among ICL, Fujitsu and Lexia, combined with the fact that
Lexia did not own the applicable software or proprietary rights and was not able
to control the marketing or product management of ICL and Fujitsu products.
Consequently, in December 1996, our Board of Directors approved a plan to
discontinue Lexia Systems, Inc.
The operations of Lexia were shut down on September 30, 1998. Approximately
$250,000 of reserves for discontinued operating losses was not required,
contributing to income from discontinued operations for the fiscal year ended
March 31, 1999. Lexia has entered into a settlement with Fujitsu Computers Ltd.
("Fujitsu") regarding its disagreements over outstanding claims. Lexia had
carried on its books accounts payable claims by Fujitsu in the amount of
$341,000. Lexia has disputed these liabilities. Lexia agreed to pay Fujitsu
$200,000 over an eight-month period as payment in full of all outstanding claims
against Lexia, resulting in an additional $141,000 of income from discontinued
operations for the fiscal year 1999. Lexia also carries on its books accounts
payable and unpaid rent claims by ICL, a sister company of Fujitsu, 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.
SEASONALITY
We do not consider our business to be seasonal. It is, however, subject to
the business and product cycles that impact our customers.
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BACKLOG
As of September 1, 2000, we believe our consolidated backlog to be at
approximately the same as it was on March 31, 2000, when our consolidated
backlog was approximately $16,000,000, including multi-year contracts, for
continuing operations. The backlog consists of $12,500,000 for the Electronic
Manufacturing Services ("EMS") group and $3,800,000 for the Metal Manufacturing
Services ("MMS") group. National Manufacturing Technologies defines backlog as
hard-copy contracts or purchase orders for which it has firm delivery dates.
Certain customers have historically placed consistent monthly or quarterly
recurring orders with National Manufacturing Technologies; when the next twelve
months' requirements for these continuously renewing commitments upon which
National Manufacturing Technologies can reasonably rely upon are added, we
consider our total effective backlog to be approximately $20,000,000.
EMPLOYEES
As of September 1, 2000, National Manufacturing Technologies had
approximately 310 full time employees. 60 employees in the Mexico facility are
represented by a labor union. National Manufacturing Technologies believes its
relations with employees are good.
GOVERNMENT REGULATION
Our operations are subject to certain federal, state and local regulatory
requirements related to environmental, waste management, health and safety
matters. While there can be no assurance that material costs and liabilities
will not be incurred or that past or future operations will not result in
exposure to claims of injury by employees or the public, National Manufacturing
Technologies believes that the business is operated in substantial compliance
with such regulations.
We periodically generates and temporarily handles limited amounts of materials
that are considered hazardous wastes under applicable law. National
Manufacturing Technologies contracts for the off-site disposal of these
materials and has implemented a waste management program to address related
regulatory issues.
DESCRIPTION OF PROPERTY
We maintain our executive offices and electronic manufacturing facilities
in a 40,000 square foot, two story concrete building located at 1958 Kellogg
Ave., Carlsbad, California. National Manufacturing Technologies began leasing
these facilities under a sale and leaseback transaction that was completed on
June 3, 1999. The 15-year lease provides for annual rent of $302,000 from June
1999 to May 2000. Thereafter, until the lease expires in 2014, annual increases
in rent will be based on the Consumer Price Index ("CPI"), but in no case shall
the increase be greater than 6% or less than 3%. Effective June 2000, the
annual rent was increased to $311,000 through May 2001.
We also lease an 80,000 square foot facility located at 4040 Calle Platino
Avenue, Oceanside, California. The lease for this facility provides for annual
rent of $300,000 from February 1999 to November 2000, $422,400 from December
2000 to November 2001, and $576,000 from December 2001 to November 2002.
Thereafter, until the lease expires in 2013, annual increases in rent will be
based on the Consumer Price Index ("CPI"), but in no case shall the increase be
greater than 6% or less than 3%.
On August 17, 2000, we entered into a sublease for a 60,000 square foot
facility in Vista, California. This sublease is for 90 days and provides for
monthly rent of $20,000.
On August 25, 1999, National Manufacturing Technologies' Mexican
corporation, Tecnologias Nacionales Manufactureras de Mexico, executed a lease
for a 18,000 square foot manufacturing facility located approximately five miles
from the Otay Mesa border crossing in Tijuana. 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.
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In April 1999, we terminated a lease for a 5,000 square foot facility
located at 1415 East McFadden Avenue, Santa Ana, California. These operations
were incorporated into the Carlsbad, CA building.
During the fiscal year ended March 31, 1999, we also leased facilities in
Chandler, Arizona and London, England. These facilities housed the Photomatrix
product development and Photomatrix European operations, respectively. The
Chandler facility consists of 5,100 square feet, and the lease expires in June
2000. The London facility consists of 2,400 square feet, and the lease expires
in May 2013. Effective June 21, 1999, these leases were either sub-leased or
assigned to Scan-Optics as part of the sale of scanner operations.
Subsequent to March 31, 1998, we relocated our corporate headquarters from
San Diego, California to our current Carlsbad, California location. We are still
party to a lease of a facility located in San Diego, California, consisting of
approximately 23,400 square feet, which previously housed our corporate offices
and our manufacturing, sales and administrative functions. The lease expires in
September 2002. We have entered into an assignment of this lease, effective June
15, 1998.
During the fiscal year ended March 31, 1999, our discontinued subsidiary
Lexia also leased 880 square feet in Herndon, Virginia. This lease expired in
November 1998.
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
DIRECTORS
PATRICK W. MOORE has been a Director of National Manufacturing Technologies
since January 1991. Mr. Moore assumed the duties of Chief Executive Officer of
National Manufacturing Technologies effective as of June 5, 1998, and as
Chairman and President as of September 23, 1999. Mr. Moore, who has served as
the President of I-PAC Manufacturing, Inc. since 1990, has significant business
experience in both the private and public sectors. From 1986 to 1990, Mr. Moore
served as President of Southwest General Industries, a privately-held electronic
contract manufacturing company. From 1981 to 1986, Mr. Moore served as President
of the San Diego Private Industry Council and as Executive Director of the San
Diego Regional Employment and Training Consortium. Mr. Moore has served on the
National Commission on Employment Policy, committees of the National Academy of
Science, and as the national president of various trade organizations based in
Washington, D.C. Mr. Moore is 52 years of age.
JAMES P. HILL has been a Director of National Manufacturing Technologies since
June 1998. Mr. Hill is, and for at least the last five years has been, the
managing partner, specializing in bankruptcy law, commercial law, and civil
litigation, of the San Diego law firm of Sullivan, Hill, Lewin, Rez, Engel &
LaBazzo. Mr. Hill was a Director of the San Diego Bankruptcy Forum from 1991
through 1994 and the Chairman of the Commercial Law Section of the San Diego
County Bar Association from 1985 through 1987. Mr. Hill is 48 years of age.
MICHAEL J. GENOVESE has been a Director of National Manufacturing Technologies
since February 1999. Mr. Genovese is a partner with the law firm of Grant,
Hanley & Genovese, LLP, specializing in the area of business transactional law,
including general business, real estate acquisition and sale, and taxation law.
Mr. Genovese started his professional career with Ernst & Ernst (currently Ernst
& Young, LLP) in 1971 until 1977 when he commenced the practice of law. Mr.
Genovese is a member of the Orange County Bar Association, the California State
Bar Association (Business Law, Real Property Law and Taxation Sections), and the
American Bar Association (Business law, Real Property, Probate & Trust Law, and
Taxation Sections). Mr. Genovese is 51 years of age.
MICHAEL R. MOORE is a physician specializing in the surgical treatment of
complex spinal disorders. He practices at the Bone and Joint Clinic in
Bismarck, North Dakota, where he is developing a Spinal Diagnostic and Treatment
Center that will bring to the region a range of medical services that previously
PAGE 14
<PAGE>
were unavailable in the State. Prior to relocating to North Dakota, Dr. Moore
practiced in Aurora, Colorado, where he was the co-founder of the Colorado Spine
Center, which was the first practice in the region dedicated solely to the
treatment of spinal disorders. Dr. Moore has recently been granted a patent on
a new spinal implant device that will allow minimally invasive and endoscopic
techniques to replace current open surgical techniques for certain painful
spinal conditions. Dr. Moore earned his medical degree from the Johns Hopkins
University School of Medicine, and has served in the past as an approved
investigator by the Food and Drug Administration for clinical trials of new
spinal fusion devices. From 1976 to 1980, he held various positions as an
engineer for Portland General Electric Company. Dr. Moore is the brother of
Patrick W. Moore. Dr. Moore is 45 years of age.
BINH Q. LE is General Director of BVT & Co. and General Director and shareholder
for DELICES Co., Ltd., a division of BVT & Co., Ltd., a Vietnam-based importer
since 1998. He also serves as President and sole shareholder of Le Mortgage,
Inc. (d.b.a. All City Financial Corporation), a commercial and residential
mortgage broker, a position which he has held since 1987. From 1985 to 1987, Mr.
Le was General Plant Manager at Southwest General Industries, a privately-held
electronic contract manufacturing company. From 1976 to 1985, he served on the
San Diego Private Industry Council. Mr. Le is 53 years of age.
BRIAN KISSINGER is President of Valtec Services, a company providing
authorization and process for pre-paid telephone and related services, a
position he has held since 1998. Mr. Kissinger has also been a marketing
consultant to LWS Entertainment Services, which is an internet service provider
and web-site design company, since 1998. From 1996 to 1998, Mr. Kissinger served
as President of Quest Communications, a leasing agent for SkyTel Paging, Inc.
From 1991 to 1996, he was Vice President of K & D Distributing, a wholesale food
distributor. Mr. Kissinger is 30 years of age.
JOHN G. HAMILTON, JR., has been the owner of North Hills Academy of Shorin
Karate and Indiana Shorin-Ryu Karate founded in 1974. From 1974 to 1984. Mr.
Hamilton also served as a process and development metallurgical engineer for
Westinghouse Electric Company working in their Specialty Metals Division. Mr.
Hamilton earned his Bachelor of Science degree in Metallurgical Engineering and
Anthropology from Lafayette College. Mr. Hamilton is 51 years of age.
EXECUTIVE OFFICERS
Set forth below is information about certain executive officers of National
Manufacturing Technologies, Inc and its subsidiaries effective as of May 31,
2000.
Mr. Stephan Jones is the Vice President and General Manager of the Electronics
Group. Mr. Jones joined Photomatrix in June 1998 as Operations Manager. Mr.
Jones was an Operations Consultant from 1997 to 1998 at Ficom and from 1996 to
1997 at Northstar. From 1993 to 1996, Mr. Jones was employed at Three Eagle as
a Venture Capital Consultant. Mr. Jones is 49 years of age.
Mr. Tim Mullennix is the Vice President of Corporate Marketing and Business
Development and has been serving in this position since December 1998. From
June 1998 to December 1998, Mr. Mullennix was the Vice President and General
Manager of I-PAC Manufacturing. Mr. Mullennix served as the Vice President of
the Advance Group of Companies from 1997 to 1998. From 1994 to 1997, Mr.
Mullennix was the President of MGM TechRep. Mr. Mullennix is 48 years of age.
Mr. Larry Naritelli is the Chief Accounting Officer and acting Chief Financial
Officer, and joined Photomatrix in March 1999 as Corporate Controller. From
1996 to 1999, Mr. Naritelli was employed at Dentsply/New Image in various
positions including Accounting Manager and Controller. From 1994 to 1996, Mr.
Naritelli was employed at Compton's New Media as Accounting Manager and later as
Manager of General Ledgers. Mr. Naritelli is 43 years of age.
Mr. Jeffery Tardiff is the Vice President and General Manager of the Metals
Group and joined National Manufacturing Technologies in December 1998. Prior to
joining National Manufacturing Technologies, Mr. Tardiff was the Quality Manager
at Green International West for approximately six months. From 1997 to 1998,
PAGE 15
<PAGE>
Mr. Tardiff was a Managing Partner at QC & Associates. From 1996 to 1997, Mr.
Tardiff was employed at D3 Technologies as Tool Design Manager. From 1995 to
1996, Mr. Tardiff served as Quality Control Manager at Spec-Built Systems. From
1992 to 1995, Mr. Tardiff served as a Project Manager for the Convair Division
of General Dynamics. Mr. Tardiff is 53 years of age.
Set forth below is certain information about significant employees of National
Manufacturing Technologies as of May 31, 2000.
Ms. Jennifer Brown is the Director, Compliance & Corporate Planning and the
Corporate Secretary. She joined National Manufacturing Technologies in
September 1998 as a Financial and Systems Analyst. From 1997 to 1998, Ms. Brown
was an Associate Economist at the City of San Diego. In 1997, Ms. Brown worked
for I-PAC Manufacturing as a Business and Product Analyst. Ms. Brown worked for
Advanced Marketing Services in Operations Support from 1995 to 1997. From 1994
to 1995, Ms. Brown was a Financial Data Researcher with Standard and Poor's
Compustat division.
Mr. Joe Portillo is the Director of Sales of National Manufacturing
Technologies' Electronics division. Mr. Portillo started with National
Manufacturing Technologies in October 1997 and held various position in
materials and project management. Mr. Portillo has served as Director of Sale
since January 1998. Prior to joining National Manufacturing Technologies, Mr.
Portillo was employed at Palomar Technologies as a Sub-Contracts Administrator
from 1996 to 1997.
Mr. Rich Elliott joined National Manufacturing Technologies in May 2000 as
Director of Quality and Manufacturing Engineering. Mr. Elliott joined Signal
Processing Systems (SPC) division of Scientific Atlanta in 1984 as the Manger of
Test Engineering. During his 15 years with SPC he served in several Operations
positions and three years as Electrical Hardware Design Manager.
Mr. Michael McCarthy joined National Manufacturing Technologies in April 2000 as
the Sales Manager for the Metals Group. Prior to joining National Manufacturing
Technologies, Mr. McCarthy was the Marketing and Contract Manager of the Greene
Group; a position which held from 1987.
REMUNERATION OF DIRECTORS AND OFFICERS
The following table shows, for the most recent three years, the cash
compensation paid by National Manufacturing Technologies, as well as all other
compensation paid or accrued for those years, to the Executive Officers of
National Manufacturing Technologies as of March 31, 2000. No other executive
officers of National Manufacturing Technologies earned annual salary and bonus
in excess of $100,000 during the fiscal year 2000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
ANNUAL COMPENSATION LONG TERM COMPENSATION AWARDS
-------------------- --------------------------------
NAME AND
PRINCIPAL POSITION YEAR SALARY BONUS OTHER SECURITIES UNDERLYING OPTIONS/SARS(#)
------------------- ----- ------ ----- ----- -------------------------------------
<S> <C> <C> <C> <C> <C>
Patrick W. Moore,
Chairman, CEO & President (1). . . . 2000 $148,300 $ 0 $ 4,200 (4) 350,667
1999 $125,000 $ 0 $ 2,700 (4) 153,941
1998 -- -- -- --
Suren G. Dutia,
Former Chairman, CEO & President (2) 2000 $109,800 $ 0 $ 1,600 (5) 266,667 (7)
1999 $140,000 $50,000 $46,500 (5) --
1998 $140,000 $ 0 $11,200 (5) --
Roy L. Gayhart,
Former Chief Financial Officer (3) . 2000 $112,200 $ 0 $ 2,400 (6) 210,000 (8)
1999 $114,000 $25,000 $ 7,750 (6) 210,000
1998 $ 97,000 $ 0 $ 5,800 (6) 40,000
</TABLE>
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<PAGE>
(1) Mr. Moore was not an Executive Officer of National Manufacturing
Technologies prior to fiscal year 1999.
(2) Mr. Dutia resigned as Chairman and CEO on June 5, 1998, as President on June
21, 1999 and as a member of the Board of Directors as of September 23, 1999.
(3) Mr. Gayhart was not an employee or Executive Officer of National
Manufacturing Technologies prior to fiscal year 1998. Mr. Gayhart's employment
agreement terminated on September 30, 1999.
(4) Includes Company matching contributions to the National Manufacturing
Technologies Savings and Investment Plan ($0 and $0) and medical premiums
($4,200 and $2,700) for 2000 and 1999, respectively.
(5) Includes Company matching contributions to the National Manufacturing
Technologies Savings and Investment Plan ($0, $2,500 and $4,900) and
supplemental life and medical premiums ($1,600, $11,700 and $7,400) for 2000,
1999 and 1998, respectively.
(6) Includes Company matching contributions to the National Manufacturing
Technologies Savings and Investment Plan ($0, $2,500 and $800) and medical
premiums ($2,400, $5,250 and $5,000) for 2000, 1999 and 1998, respectively.
(7) In accordance with the terms of Mr. Dutia's employment agreement, at the
termination of the agreement all existing stock option grants became fully
vested and he was granted a one year period to exercise those vested stock
options. National Manufacturing Technologies cancelled his existing grants and
granted new stock options with those terms.
(8) In accordance with the terms of Mr. Gayhart's employment agreement, at the
termination of the agreement all existing stock option grants became fully
vested and he was granted a one year period to exercise those vested stock
options. National Manufacturing Technologies cancelled his existing grants and
granted new stock options with those terms.
EMPLOYMENT AGREEMENTS. Mr. Moore is employed under an employment agreement that
expires on September 30, 2004. Mr. Dutia, former President, was employed under
an employment agreement, which expired on July 31, 1999. Mr. Gayhart's
employment agreement terminated on September 30, 1999. If Mr. Moore's
employment is terminated by National Manufacturing Technologies without cause
prior to the end of his term, then he will be entitled to receive his base
salary, stock option vesting and health insurance benefits for the remainder of
the term.
OFFICERS SEVERANCE POLICY. In 1988, National Manufacturing Technologies' Board
of Directors adopted an Officers Severance Policy that was modified in November
1990, February 1997 and in April 1999. Under the policy, Mr. Dutia began
receiving twelve weeks' compensation beginning August 1, 1999 and Mr. Gayhart
began receiving eight weeks compensation beginning October 1, 1999. In
addition, Mr. Moore is to receive twenty-nine weeks' compensation upon
termination of employment by National Manufacturing Technologies, in addition to
amounts due him under his employment contract.
DIRECTOR COMPENSATION. Directors who are also officers or employees of National
Manufacturing Technologies or subsidiaries receive no additional compensation
for their services as directors. In prior years and during the first quarter of
fiscal year 1999, Directors who are not employees of National Manufacturing
Technologies (Messrs. Moore, Sharp and Staley) were paid a fee of $1,000 plus
$250 for each Board or Committee meeting attended. For the period from July 1,
1998 to December 11, 1998, Directors who were not employees (Messrs. Hill, Sharp
and Staley), were each entitled to receive a fee of $2,000. For the period from
December 11, 1998 to March 31, 1999, Directors who were not employees (Messrs.
Hill, Sharp and Staley), were each entitled to receive a fee of $10,000. From
April 1, 1999, all outside directors (Messrs. Genovese, Hill, Sharp and Staley)
were to receive a quarterly fee of $2,500, plus additional fees of $1,000 for
attending a second meeting in any such quarter and $250 for participating in any
Board meetings by telephone. All outside directors (Messrs. Genovese, Hill,
Hamilton, Kissinger, Le and M. Moore) also each received options to purchase
25,000 shares of National Manufacturing Technologies common stock which vested
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<PAGE>
over two years of service. Messrs. Moore, Sharp and Staley also each received
$6,900 as payment in lieu of stock options that they should have received prior
to the June 5, 1998 merger between Photomatrix and I-PAC. Beginning in
September 1999, outside Directors have been paid $1,500 per quarter for service
on the Board plus $500 for any physical meeting of the Board, beyond the one per
quarter regularly scheduled Board meeting; $250 for any telephonic meeting of
the Board; and $250 for any committee meeting other than those committee
meetings that are concurrent with the regularly scheduled Board meeting each
quarter. Directors cash compensation will be doubled, and 5,000 additional
stock options will be granted, vesting over two years of service, if for any
fiscal quarter during which National Manufacturing Technologies generates an
operating profit of not less than $100,000 from continuing operations; and,
achieves an increase of total revenues over the previous quarter; and achieves
an increases in the closing price and the earnings per share on the last date of
the quarter, over the of the previous quarter. Directors are reimbursed for
reasonable travel expenses incurred in attending meetings.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
The following table sets forth certain information regarding the ownership of
National Manufacturing Technologies common stock by Directors and Executive
Officers and any persons owning 10% or more of our common stock:
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK PERCENT OF SHARES OF
BENEFICIALLY OWNED COMMON STOCK OUTSTANDING
NAME OF BENEFICIAL OWNER OR GROUP AS OF SEPTEMBER 27, 2000(1) AS OF SEPTEMBER 27, 2000(1)
------------------------------------------------ --------------------------- ---------------------------
<S> <C> <C>
Patrick W. Moore, Chief Executive Officer. . . . 2,433,724 (2) 17.1%
William L. Grivas, Former Chairman (3) . . . . . 2,228,117 (4) 15.9%
James P. Hill, Director. . . . . . . . . . . . . 1,965,276 (5) 14.3%
Michael R. Moore, Director . . . . . . . . . . . 153,053 (6) 1.3%
Michael Genovese, Director . . . . . . . . . . . 25,000 (7) *
Binh Q. Le, Director . . . . . . . . . . . . . . 12,500 (8) *
Brian L. Kissinger, Director . . . . . . . . . . 12,500 (9) *
John G. Hamilton, Jr., Director. . . . . . . . . 12,500 (10) *
All directors and executive officers as a group. 6,938,670 58.74%
</TABLE>
(1) Includes and reflects the ownership by the named director or officer of
shares of Common Stock subject to options exercisable within 60 days of
September 27, 2000.
(2) Includes options to purchase 663,941 shares.
(3) Mr. Grivas resigned as director and chairman of the Board of Directors on
January 18, 1999.
(4) Includes 2,120,844 shares and options for shares owned directly by William
L. Grivas and 55,276 shares owned by family members.
(5) Includes 175,000 shares owned by Loma Services Corporation, of which Mr.
Hill's wife is the sole shareholder, 1,597,991 shares owned by Mr. Hill as
Trustee of the Hill Family Trust, 1,000 shares owned by Loma Services
Corporation Money Purchase Pension Plan, of which Mr. and Mrs. Hill are the sole
beneficiaries and options to purchase 162,500
(6) Includes options to purchase 12,500 shares.
(7) Includes options to purchase 25,000 shares.
(8) Includes options to purchase 12,500 shares.
(9) Includes options to purchase 12,500 shares.
(10) Includes options to purchase 12,500 shares.
* Less than 1%
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<PAGE>
INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
During the quarter ended June 30, 2000 National Manufacturing Technologies
recorded approximately $9,000 of goodwill related to earn out accruals from the
July 1, 1998 acquisition of MGM Techrep, Inc., (a company previously owned by
Patrick W. Moore, National Manufacturing Technologies' Chief Executive Officer,
Chairman of the Board and major shareholder, William L. Grivas, a major
shareholder, and James P. Hill, a Director and major shareholder) as compared to
$32,000 in the quarter ended June 30, 1999. During the quarter ended June 30,
2000 National Manufacturing Technologies paid approximately $9,000 of these earn
out accruals as compared to $32,000 during the quarter ended June 30, 1999. At
June 30, 2000 National Manufacturing Technologies had approximately $6,000 in
earn out payments due to MGM.
During the quarter ended June 30, 2000 National Manufacturing Technologies
did not pay anything to Sullivan, Hill, Lewin, Rez, and Engle ("SHLRE") a law
firm in which James P. Hill, a director and major shareholder, is a partner, as
compared to $1,000 during the quarter ended June 30, 1999. In the quarter ended
June 30, 2000, National Manufacturing Technologies paid approximately $7,000 to
R. P. Hill and Lucy Hill, James P. Hill's parents, for the letter of credit they
posted in the amount of $275,000 which guarantees the capitalized lease payment
on the 1958 Kellogg facility; final interest payment is due on July 2, 2003.
On October 1, 1999, National Manufacturing Technologies entered into a new
independent contracting agreement with William L. Grivas, Sr., a major
shareholder, whereby Mr. Grivas would represent National Manufacturing
Technologies in connection with selling or bartering certain inventory and
negotiating settlements of certain of National Manufacturing Technologies'
liabilities. The agreement, expires on September 30, 2002 and may be extended
for twelve months. Under this consulting agreement, Mr. Grivas was paid $33,000
during the quarter ended June 30, 2000.
In the quarter ended June 30, 2000, National Manufacturing Technologies
paid approximately $5,000 and recorded $8,000 in accounts payable to Epitech,
Inc., a company that whose officers and directors include William L. Grivas and
Brian Kissinger (a Director), for materials and services. In addition, National
Manufacturing Technologies recorded accounts receivable to Epitech for $18,000
for the quarter ended June 30, 2000.
During the quarter ended June 30, 2000, the Compensation Committee approved
an agreement with Jim Hill whereas Mr. Hill would provide consulting services to
National Manufacturing Technologies on certain pending business transactions
outside of the normal scope of services of a director. Mr. Hill was paid $5,000
for these services in the quarter ended June 30, 2000.
During the year ended March 31, 2000 National Manufacturing Technologies
recorded approximately $53,000 of goodwill related to earn out accruals from the
July 1, 1998 acquisition of MGM Techrep, Inc., (a company previously owned by
Patrick W. Moore, National Manufacturing Technologies' Chief Executive Officer,
Chairman of the Board and major shareholder, William L. Grivas, a major
shareholder, and James P. Hill, a Director and major shareholder) as compared to
$112,000 in the year ended March 31, 1999. During the year ended March 31, 2000
National Manufacturing Technologies paid approximately $33,000 of these earn out
accruals as compared to $65,000 during the year ended March 31, 1999. At March
31, 2000 National Manufacturing Technologies had approximately $6,000 in earn
out payments due to MGM.
During the year ended March 31, 2000 National Manufacturing Technologies
paid approximately $70,000 to Sullivan, Hill, Lewin, Rez, Engle and LaBazzo,
("SHLRE") a law firm in which James P. Hill, a director and major shareholder,
is a partner, as compared to $139,000 during the year ended March 31, 1999.
National Manufacturing Technologies also entered into an agreement with R. P.
Hill and Lucy Hill, James P. Hill's parents, to pay them approximately $2,300
per month in exchange for them posting a letter of credit in the amount of
$275,000 which guarantees the capitalized lease payment on the 1958 Kellogg
facility. The interest represents a rate of 10% per annum of the face value of
the letter of credit. The letter of credit was posted to release a $275,000
deposit on February 1, 2000. The letter of credit terminates on June 30, 2003
and the final interest payment is due on July 2, 2003. In addition to interest
payments a warrant to purchase 50,000 shares at $0.40 per share was granted to
the Hills. The warrants expire January 31, 2005.
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<PAGE>
On July 20, 1999, National Manufacturing Technologies entered into an
independent contracting agreement with William L. Grivas, Sr., a major
shareholder, whereby Mr. Grivas would represent National Manufacturing
Technologies in connection with selling or bartering certain inventory and
negotiating settlements of certain of National Manufacturing Technologies'
liabilities, and the provision of other technical and support services. The
agreement, expired on or before September 20, 1999 and required National
Manufacturing Technologies to pay Mr. Grivas $2,884 per week. On October 1,
1999, National Manufacturing Technologies entered into a new independent
contracting agreement with William L. Grivas, Sr., a major shareholder, whereby
Mr. Grivas would represent National Manufacturing Technologies in connection
with selling or bartering certain inventory and negotiating settlements of
certain of National Manufacturing Technologies' liabilities. The agreement,
expires on September 30, 2002 and may be extended for twelve months. Under this
and the prior consulting agreements, Mr. Grivas was paid $111,000 during the
year ended March 31, 2000 and was granted a stock option for the purchase of
101,044 shares of National Manufacturing Technologies' common stock at an
exercise price of $0.2969. National Manufacturing Technologies recognized
non-cash expense of approximately $29,000 for this stock option grant. A
balance of $13,000 was accrued and due to Mr. Grivas at March 31, 2000. The
Board of Directors approved these agreements.
Grivas, Moore and Hill were each awarded a bonus by the Compensation
Committee payable on March 31, 2000, for $50,000 cash or a stock option to
purchase 150,000 shares of National Manufacturing Technologies' common stock at
an exercise price of $0.2969, at the grantees election. Grivas, Moore and Hill
elected the granting of a stock option. National Manufacturing Technologies
recognized approximately $84,000 of goodwill for these stock option grants.
This bonus was awarded for work Grivas, Moore and Hill did in connection with
the precision machining and metal stamping acquisitions.
The former shareholders of I-PAC currently own interests in several
entities with which I-PAC has done business. During the year ended March 31,
1999, National Manufacturing Technologies recorded a write-off of approximately
$25,000 of inventory specifically manufactured for companies which are owned at
least in part by or otherwise associated with the brother of William L. Grivas,
who was the Chairman of National Manufacturing Technologies through January 18,
1999 and who is a major shareholder of National Manufacturing Technologies. In
addition, National Manufacturing Technologies also recorded approximately
$20,000 of additional allowance for doubtful accounts for uncollectible related
party accounts receivable from such companies and from a company owned by Mr.
Grivas, during the quarter ended December 31, 1998. The inventory and
receivables were acquired by National Manufacturing Technologies as a result of
its acquisition of I-PAC. National Manufacturing Technologies has therefore
recorded the additional bad debt reserves and inventory write-off as an increase
to goodwill related to the purchase of I-PAC.
During the year ended March 31, 1999, National Manufacturing Technologies
paid approximately $127,000 to Evergreen Investments ("Evergreen"), a company
owned by Mr. Grivas and Patrick W. Moore, the Chief Executive Officer and a
major shareholder. $50,000 of this amount was intended to cover personal tax
liabilities of the former I-PAC shareholders arising from pre-merger S Corp.
allocations for calendar year 1997, pursuant to the Plan and Agreement of Merger
and Reorganization between National Manufacturing Technologies and I-PAC,
approximately $34,000 was for pre-merger management fees, and approximately
$43,000 was for pre-acquisition commission payments due MGM under the
acquisition agreement entered in July 1998. In addition, approximately $31,000
was paid to James P. Hill, a director and major shareholder, to cover personal
tax liabilities of the former I-PAC shareholders arising from pre-merger S Corp
allocations for calendar year 1997, pursuant to the Plan and Agreement of Merger
and Reorganization between National Manufacturing Technologies and I-PAC.
Approximately $27,000 was paid to MGM for earn-out payments due MGM under the
acquisition agreement entered in July 1998. National Manufacturing Technologies
also recorded sales of approximately $7,000 to MGS Interconnect, a company owned
by Mr. Moore and Mr. Grivas during the current period. This amount has been
fully reserved as uncollectible as of March 31, 1999. In addition, National
Manufacturing Technologies paid approximately $139,000 to Sullivan, Hill, Lewin,
Rez and Engel ("SHLRE"), a law firm in which Mr. Hill, is a partner. At March
31, 1999, National Manufacturing Technologies had approximately $3,000 in
earn-out payments due to MGM and approximately $7,000 due from MGS Interconnect.
In addition, National Manufacturing Technologies owed SHLRE approximately
$44,000 at March 31, 1999. The Audit Committee approved all items in excess of
$10,000 disclosed in this paragraph.
PAGE 20
<PAGE>
As mentioned in Note 8 to the consolidated financial statements for the
fiscal year ended March 31, 2000, certain shareholders of National Manufacturing
Technologies have guaranteed approximately $2,023,000 of National Manufacturing
Technologies' debt at March 31, 1999. This debt was retired in June 1999. Prior
to the merger, I-PAC guaranteed approximately $113,000 of debt of the same
shareholders. This guarantee continued after the merger, and remains in effect.
Claudia Fullerton, who is the wife of Patrick W. Moore, was employed by
National Manufacturing Technologies as its Director of Administration at an
annual salary of $54,000 from June 11, 1998 until April 30, 1999. Ms. Fullerton
received severance pay for the period from May 1, 1999 through August 29, 1999,
under terms of a pre-merger employment agreement.
William L. Grivas, Jr., son of William L. Grivas Sr., was employed by
National Manufacturing Technologies as a Program Manager at an annual salary of
$30,000 from June 11, 1998 through August 20, 1999.
DESCRIPTION OF SECURITIES BEING OFFERED
The following description of the capital stock of National Manufacturing
Technologies and certain provisions of National Manufacturing Technologies'
Articles of Incorporation is a summary and is qualified in its entirety by the
provisions of the Articles of Incorporation and Bylaws, which have been filed as
exhibits to National Manufacturing Technologies' Registration Statement, of
which this Prospectus is a part.
As of September 25, 2000, the authorized capital stock of National Manufacturing
Technologies consists of 30,000,000 shares of common stock, par value $.001 per
share, and 3,173,000 shares of Preferred Stock, par value $.001 per share, none
of which are issued ("Preferred Stock"). As of September 25, 2000, there were
11,473,369 shares of common stock outstanding held by 2,000 shareholders of
record.
Holders of common stock are entitled to one vote per share on all matters
to be voted upon by the shareholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of common stock are entitled to receive any lawful dividends which may
be declared by the Board of Directors. In the event of the liquidation,
dissolution or winding up of National Manufacturing Technologies, and subject to
the rights of the holders of outstanding shares of Preferred Stock, if any, the
holders of shares of common stock would be entitled to receive pro rata all of
the remaining assets of National Manufacturing Technologies available for
distribution to its shareholders. There are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are fully paid and nonassessable, and shares of common stock to be issued
and resold under this prospectus will be fully paid and nonassessable.
WARRANTS
This registration includes a total of 350,000 shares of common stock
issuable upon exercise of outstanding warrants which are currently exercisable
as follows:
<TABLE>
<CAPTION>
WARRANT HOLDER SHARES ISSUABLE EXERCISE PRICE EXPIRATION DATE
--------------------------- --------------- --------------- ----------------
<S> <C> <C> <C>
Green International West. . 100,000 $ 1.438 July 5, 2002
Celtic Capital. . . . . . . 200,000 $ 1.43 June 18, 2001
R. P. Hill and Lucy L. Hill 50,000 $ 0.40 January 30, 2005
</TABLE>
For the life of each of the warrants, the holder has the opportunity to
profit from a rise in the market price of our common stock without assuming the
risk of ownership of the shares of common stock issuable upon the exercise of
PAGE 21
<PAGE>
the warrant. The holder of the warrant may be expected to exercise the warrant
at a time when National Manufacturing Technologies would, in all likelihood, be
able to obtain any needed capital by an offering of common stock on terms more
favorable than those provided for by the warrants. Also, the terms on which
National Manufacturing Technologies could obtain additional capital during the
life of the warrants may be adversely affected by the existence of the warrants.
The shares of common stock underlying the warrants, when issued upon exercise of
the warrants in whole or in part, will be fully paid and nonassessable.
Each warrant contains provisions that protect the holder against dilution by
adjustment of the exercise price. These adjustments will occur in the event,
among others, of a merger, stock split or reverse stock split, stock dividend or
recapitalization. National Manufacturing Technologies is not required to issue
fractional shares upon the exercise of any of the warrants. Each holder of the
warrants will not possess any rights as a shareholder until such holder
exercises the warrants. Each warrant may be exercised upon surrender on or
before its expiration date at the offices of National Manufacturing
Technologies, with an exercise form completed and executed as indicated,
accompanied by payment of the exercise price for the number of shares with
respect to which the warrant is being exercised.
NON-QUALIFIED OPTIONS
Options were granted to certain director and officers of National
Manufacturing Technologies. These options are non-qualified for taxes purposes
and are fully vested. Options that are vested may be exercised at the
discretion of the recipient at exercise prices ranging from $.25 to $1.438 per
share. The options expire on dates ranging from September 22, 2000, to July 4,
2010. (For specific information regarding the options, see the footnotes in the
table of "Selling Shareholders" section.) For the life of each of the options,
the holder has the opportunity to profit from a rise in the market price of our
common stock without assuming the risk of ownership of the shares of common
stock issuable upon the exercise of the option. The holder of the option may be
expected to exercise the option at a time when National Manufacturing
Technologies would, in all likelihood, be able to obtain any needed capital by
an offering of common stock on terms more favorable than those provided for by
the options. Also, the terms on which National Manufacturing Technologies could
obtain additional capital during the life of the options may be adversely
affected by the existence of the options.
The shares of common stock underlying the options, when issued upon exercise in
whole or in part, will be fully paid and nonassessable.
Each of the options contain provisions that protect the holder against dilution
by adjustment of the exercise price. Such adjustments will occur in the event,
among others, of a merger, stock split or reverse stock split, stock dividend or
recapitalization. National Manufacturing Technologies is not required to issue
fractional shares upon the exercise of any of the options. Each holder of the
options will not possess any rights as a shareholder until such holder exercises
the options. Each option may be exercised upon surrender on or before its
expiration date at the offices of National Manufacturing Technologies, with an
exercise form completed and executed as indicated, accompanied by payment of the
exercise price for the number of shares with respect to which the option is
being exercised.
SIGNIFICANT PARTIES
<TABLE>
<CAPTION>
NAME CAPACITY BUSINESS ADDRESS
---- -------- -----------------
<S> <C> <C>
Patrick W. Moore, CEO, President & Director, Officer and Record 1958 Kellogg Avenue
Chairman of the Board. . . . . . . . . Owner Carlsbad, CA 92008
William L. Grivas, Consultant. . . . . . Record Owner and Affiliate 1958 Kellogg Avenue
Carlsbad, CA 92008
Green International West . . . . . . . . Beneficial Owner 1209 San Dario Ave., Suite 7-888
Laredo, TX 78040
James P. Hill. . . . . . . . . . . . . . Director and Beneficial 550 West C Street, Suite 1500
Owner San Diego, CA 92101
Michael R. Moore . . . . . . . . . . . . Director 310 N. 9th Street
Bismarck, ND 58502
Binh Q. Le . . . . . . . . . . . . . . . Director 4859 El Cajon Blvd.
San Diego, CA 92115
Michael J. Genovese. . . . . . . . . . . Director 2030 Main Street, Suite 1600
Irvine, CA 92614
Brian L. Kissinger . . . . . . . . . . . Director 210 North Tremont
Oceanside, CA 92054
John G. Hamilton, Jr.. . . . . . . . . . Director 1826 Babcock Blvd.
Pittsburgh, PA 15209
Tim Mullennix, Vice President of
Corporate Marketing and Business 1958 Kellogg Avenue
Development. . . . . . . . . . . . . . Officer Carlsbad, CA 92008
Steve Jones, Vice President and General 1958 Kellogg Avenue
Manager of the Electronics Group . . . Officer Carlsbad, CA 92008
Jeff Tardiff, Vice President and General 1958 Kellogg Avenue
Manager of the Metals Group. . . . . . Officer Carlsbad, CA 92008
Larry Naritelli, Chief Accounting 1958 Kellogg Avenue
Officer, Treasurer and Acting CFO. . . Officer Carlsbad, CA 92008
Jennifer Brown, Secretary and Director, 1958 Kellogg Avenue
of Compliance and Corporate Planning . Officer Carlsbad, CA 92008
</TABLE>
PAGE 22
<PAGE>
Counsel to the Issuer: Otto E. Sorensen, Esq.
Luce, Forward, Hamilton & Scripps, LLP
600 West Broadway, Suite 2600
San Diego, CA 92101
Issuer's General Partners, Promoters of the Issuer, Underwriter's of the
Proposed Offering, Underwriter's Directors, Underwriter's Officers,
Underwriter's General Partners, Counsel to the Underwriter:
Not applicable
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be
passed upon for the Company by Luce, Forward, Hamilton and Scripps LLP, San
Diego, California.
PAGE 23
<PAGE>
EXPERTS
The financial statements of National Manufacturing Technologies, Inc., as
of and for the year ended March 31, 2000, appearing in this Prospectus and
Registration Statement have been audited by Levitz, Zacks & Ciceric, independent
auditors, as set forth in their report thereon (Which contains an explanatory
paragraph describing conditions that raise substantial doubt about the Company's
ability to continue as a going concern as described in Note 2 to the financial
statements) appearing elsewhere herein, and are included in reliance upon such
report given on the authority of such firm as experts in accounting and
auditing.
The consolidated financial statements and related consolidated financial
statement schedule for the fiscal year ended March 31, 1999, appearing herein,
have been audited by BDO Seidman, LLP, independent auditors, as stated in their
report (which expresses an unqualified opinion and includes an explanatory
paragraph regarding substantial doubt about our ability to continue as a going
concern) which is incorporated in this prospectus by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL PROCEEDINGS
National Manufacturing Technologies has indemnified Stenograph Corporation
in connection with a product liability case pending in the Nineteenth Judicial
District, East Baton Rouge Parish, in which Stenograph is a defendant (Brown v.
Stenograph et al). National Manufacturing Technologies has tendered this claim
to its insurance carrier, St. Paul Fire ("St. Paul"). St. Paul has assumed
National Manufacturing Technologies' defense. The insurance carriers have
prevailed in all similar judgments rendered to date. It may take several years
before this litigation is ultimately resolved. National Manufacturing
Technologies believes that this case is without merit and further believes that
if any liability results from these claims, the liability (excluding punitive
damages, if any) will be covered by its insurance policies.
There are no material pending legal proceedings to which National
Manufacturing Technologies or any of its subsidiaries is a party or of which any
of their properties is the subject. National Manufacturing Technologies is not
aware of any such proceedings known to be contemplated by governmental
authorities.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
On February 19, 1999, KPMG LLP resigned as principal independent accountant
for Photomatrix, Inc. The reports of KPMG LLP on National Manufacturing
Technologies' consolidated financial statements for the prior two fiscal years
did not contain an adverse opinion or disclaimer of opinion and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
In connection with the audits of National Manufacturing Technologies' financial
statements for each of the two fiscal years ended March 31, 1998, and in the
subsequent interim period through February 19, 1999, there were no disagreements
with KPMG LLP on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope and procedures which, if not resolved to
the satisfaction of KPMG LLP would have caused KPMG LLP to make reference to the
matter in their report.
On May 26, 1999, we retained BDO Seidman, LLP as our new independent
principal accountant. During the two preceding fiscal years and subsequent
interim periods, up to May 26, 1999, of National Manufacturing Technologies,
National Manufacturing Technologies did not consult BDO Seidman, LLP regarding
(i) either, the application of accounting principles to a specified transaction
either completed or proposed; or the type of audit opinion that might be
rendered on National Manufacturing Technologies' financial statements, or (ii)
any matter that was the subject of a disagreement (as defined in Item
304(a)(1)(iv) of Securities and Exchange Commission Regulation S-K) or was a
reportable event (as defined in Item 304(a)(1)(v) of Securities and Exchange
Commission Regulation S-K).
PAGE 24
<PAGE>
On March 17, 2000, the Board of Directors of National Manufacturing
Technologies, Inc. (the "Company"), approved a recommendation brought fourth by
the Audit Committee which dismisses BDO Seidman, LLP, Costa Mesa, California
("BDO") as National Manufacturing Technologies' principal independent
accountant. During the last fiscal year and subsequent interim periods of
National Manufacturing Technologies, BDO did not render an adverse opinion,
disclaimer of opinion, or modification. BDO did include an explanatory
paragraph as to National Manufacturing Technologies' ability to continue as a
going concern. There were no disagreements between National Manufacturing
Technologies and BDO for the past fiscal year ending March 31, 1999, nor during
the subsequent interim periods through September 30, 1999, whether or not
resolved, on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which disagreements, if not
resolved to the satisfaction of BDO, would have caused BDO to make reference to
the subject matter of the disagreements in connection with BDO's report.
On March 17, 2000, National Manufacturing Technologies engaged Levitz,
Zacks and Ciceric as its independent accountant. For fiscal year audits ended
December 31, 1996 and December 31, 1997 the firm of Levitz, Zacks and Ciceric
served as the independent accountant for I-PAC Manufacturing, Inc ("I-PAC") (a
wholly owned subsidiary of National Manufacturing Technologies as of June 1998).
Prior to June 1998, I-PAC was not a publicly traded company. With the exception
of the above statement, during the preceding two fiscal years and subsequent
interim periods, up to March 17, 2000, of National Manufacturing Technologies,
National Manufacturing Technologies did not consult Levitz, Zacks and Ciceric
regarding (i) either, the application of accounting principles to a specified
transaction; or the type of audit opinion that might be rendered on National
Manufacturing Technologies' financial statements, or (ii) any matter that was
the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Securities
and Exchange Commission Regulation S-K) or was a reportable event (as defined in
Item 304(a)(1)(v) of Securities and Exchange Commission Regulation S-K).
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
National Manufacturing Technologies pursuant to the foregoing provisions, or
otherwise, National Manufacturing Technologies has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by National Manufacturing Technologies of expenses incurred or
paid by a director, officer or controlling person of National Manufacturing
Technologies in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, National Manufacturing Technologies will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
PAGE 25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Report of Levitz, Zacks & Ciceric, Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Report of BDO Seidman, Independent Auditors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Audited Consolidated Balance Sheet for March 31, 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Audited Consolidated Statement of Operations for the years ended March 31, 2000 and March 31, 1999 . . . . . F-5
Audited Consolidated Statement of Stockholders' Equity for the years ended March 31, 2000 and March 31, 1999 F-6
Audited Consolidated Statement of Cash Flows for the years ended March 31, 2000 and March 31, 1999 . . . . . F-7
Notes to Audited Consolidated Financial Statements for the years ended March 31, 2000 and March 31, 1999 F-8
Consolidated Balance Sheet for June 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Statement of Operations for the quarters ended June 30, 2000 and June 30, 1999. . . . . . . . . F-28
Consolidated Statement of Cash Flows for the quarters ended June 30, 2000 and June 30, 1999. . . . . . . . . F-29
Notes to Consolidated Financial Statements for the quarters ended June 30, 2000 and June 30, 1999. . . . . . F-30
</TABLE>
PAGE F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
NATIONAL MANUFACTURING
TECHNOLOGIES, INC. AND SUBSIDIARIES
Carlsbad, California
We have audited the accompanying consolidated balance sheet of National
Manufacturing Technologies, Inc. and Subsidiaries as of March 31, 2000, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of National Manufacturing Technologies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the March 31, 2000 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of National Manufacturing Technologies, Inc. as of March 31, 2000, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that National Manufacturing Technologies will continue as a going
concern. As discussed in Note 2, National Manufacturing Technologies has
suffered recurring losses from operations, has a working capital deficiency of
$3,055,000 and an accumulated deficit of $21,767,000 at March 31, 2000, and
limited cash resources with which to carry out management's plans. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding these matters are also described in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
LEVITZ, ZACKS & CICERIC
San Diego, California
July 11, 2000 (except Note 3 as to
which the date is August 1, 2000)
PAGE F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
National Manufacturing Technologies, Inc.
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of National Manufacturing Technologies,
Inc. and subsidiaries (formerly known as Photomatrix, Inc. and subsidiaries) for
the year ended March 31, 1999. These consolidated financial statements are the
responsibility of National Manufacturing Technologies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
National Manufacturing Technologies, Inc. for the year ended March 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that National Manufacturing Technologies will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, National
Manufacturing Technologies has suffered recurring losses from operations and has
a working capital deficiency, the effects of which raise substantial doubt about
its ability to continue as a going concern. Management's plans in regard to
these matters are also described in Note 2. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
BDO Seidman, LLP
Costa Mesa, California
July 16, 1999
PAGE F-3
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
<TABLE>
<CAPTION>
ASSETS 2000
-------------
<S> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,000
Accounts receivable, net of allowance
of $584,000 . . . . . . . . . . . . . . . . . . . . . . 2,450,000
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 1,254,000
Prepaid expenses and other . . . . . . . . . . . . . . . . . 31,000
-------------
Total current assets . . . . . . . . . . . . . . . . . . . . 3,836,000
-------------
Property and equipment, at cost. . . . . . . . . . . . . . . 5,473,000
Less accumulated depreciation and amortization . . . . . . . (835,000)
-------------
Net property and equipment . . . . . . . . . . . . . . . . . 4,638,000
-------------
Goodwill, net of accumulated amortization of
$217,000 (Notes 1,3 and 4). . . . . . . . . . . . . . . . . 2,373,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . 12,000
-------------
$ 10,859,000
=============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . $ 1,624,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . 1,441,000
Credit facility (Note 8) . . . . . . . . . . . . . . . . . . 2,368,000
Net liabilities of discontinued operations . . . . . . . . . 911,000
Current maturities of long-term debt (Note 8). . . . . . . . 547,000
-------------
Total current liabilities. . . . . . . . . . . . . . . . . . 6,891,000
-------------
Other long-term liabilities. . . . . . . . . . . . . . . . . 557,000
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . 3,563,000
Commitments and contingencies (Note 11)
Shareholders' equity (Note 6):
Preferred stock, no par value; 3,173,000 shares authorized,
no shares issued and outstanding. . . . . . . . . . . . . -
Common stock, no par value; 30 million shares
authorized, 10,114,000 shares issued and outstanding. . . 21,449,000
Additional paid in capital . . . . . . . . . . . . . . . . . 166,000
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . (21,767,000)
-------------
Total shareholders' equity . . . . . . . . . . . . . . . . . (152,000)
-------------
$ 10,859,000
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE F-4
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,677,000 $ 5,009,000
Cost of revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,808,000 4,269,000
------------ ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,869,000 740,000
Selling, general and administrative expenses. . . . . . . . . . . . . 5,302,000 3,154,000
------------ ------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,433,000) (2,414,000)
Other income (expense), net:
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . (458,000) (292,000)
Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247,000 12,000
------------ ------------
Net other income (expense). . . . . . . . . . . . . . . . . . . (211,000) (280,000)
------------ ------------
Loss from continuing operations before income taxes. . . . . . . . . . (2,644,000) (2,694,000)
Provision for income taxes (Note 9). . . . . . . . . . . . . . . . . . -- --
------------ ------------
Loss from continuing operations. . . . . . . . . . . . . . . . . . . . (2,644,000) (2,694,000)
Gain (loss) from discontinued operations, net of income taxes (Note 4) 733,000 (646,000)
Loss on disposal of discontinued operation, including provision for
phase-out period of $0 and $270,000, net of income taxes (Note 4). -- (1,036,000)
------------ ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(1,911,000) $(4,376,000)
------------ ------------
Other comprehensive income:
Foreign currency translation adjustment . . . . . . . . . . . . . . -- --
Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . $(1,911,000) $(4,376,000)
------------ ------------
Basic and diluted net income (loss) per share:
Continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ (0.26) $ (0.30)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . $ 0.07 $ (0.19)
------------ ------------
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (0.19) $ (0.49)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE F-5
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
Accumulated
Common other
Stock Additional Accumulated comprehensive
Shares Amount Paid in Capital Deficit income Total
-------- ------- ----------------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1998. . . . . 5,083,000 $19,351,000 -- $(15,480,000) $ 153,000 $ 4,024,000
Issuance of shares (Note 3) -
I-PAC acquisition . . . . . 4,848,000 1,939,000 -- -- -- 1,939,000
NMT asset acquisition . . . 100,000 200,000 -- -- -- 200,000
Repurchase of shares (Notes 6
& 10) (117,000) (114,000) -- -- -- (114,000)
Compensation expense . . . . . . -- -- 53,000 -- -- 53,000
Elimination of foreign currency
translation in connection with
discontinued operations. . . . -- -- -- -- (153,000) (153,000)
Net loss . . . . . . . . . . . . -- -- -- (4,376,000) -- (4,376,000)
----------- ------------ ---------- ------------- ---------- ------------
Balance, March 31, 1999. . . . . 9,914,000 $21,376,000 $ 53,000 $(19,856,000) -- $ 1,573,000
----------- ------------ ---------- ------------ ---------- ------------
Issuance of shares (Note 3) -
NMT Royalties . . . . . . . 116,000 38,000 -- -- -- 38,000
Stock issued IPAC purchase
agreement . . . . . . . . 40,000 21,000 -- -- -- 21,000
Stock Option Exercise . . . 40,000 13,000 -- -- -- 13,000
Compensation expense . . . . . . 4,000 1,000 113,000 -- -- 114,000
Net loss . . . . . . . . . . . . -- -- -- (1,911,000) -- (1,911,000)
----------- ------------ ---------- ------------- ---------- ------------
Balance, March 31, 2000. . . . . 10,114,000 $21,449,000 $ 166,000 $(21,767,000) -- $ (152,000)
----------- ------------ ---------- ------------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE F-6
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
------------- ------------
Cash flows from operating activities:
<S> <C> <C>
Net loss: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,911,000) $(4,376,000)
Net income (loss) from discontinued operations. . . . . . . . . . . . . 733,000 (1,682,000)
------------- ------------
Net loss from continuing operations . . . . . . . . . . . . . . . . . . (2,644,000) (2,694,000)
Adjustments:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 506,000 281,000
Amortization of goodwill. . . . . . . . . . . . . . . . . . . . . 126,000 96,000
Provision for doubtful accounts . . . . . . . . . . . . . . . . . 292,000 292,000
Provision for inventory . . . . . . . . . . . . . . . . . . . . . (640,000) 686,000
Options issued for compensation . . . . . . . . . . . . . . . . . 29,000 53,000
Changes in assets and liabilities, net of assets acquired:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . (1,294,000) (949,000)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . 111,000 (1,198,000)
Prepaid expenses and current assets. . . . . . . . . . . . . . (23,000) 74,000
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 53,000 (31,000)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . (100,000) 787,000
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . 836,000 191,000
Other long-term liabilities. . . . . . . . . . . . . . . . . . 380,000 --
------------- ------------
Cash used in continuing operations. . . . . . . . . . . . . . . . . (2,368,000) (2,412,000)
Cash provided by discontinued operations. . . . . . . . . . . . . . 1,988,000 676,000
------------- ------------
Cash used in operations. . . . . . . . . . . . . . . . . . . . . . . . (380,000) (1,736,000)
------------- ------------
Cash flows from investing activities:
Acquisition of property and equipment . . . . . . . . . . . . . . . (259,000) (456,000)
Disposal of land & building. . . . . . . . . . . . . . . . . . . . 651,000 --
Cash used for the repurchase of stock . . . . . . . . . . . . . . . -- (114,000)
Costs of acquisitions . . . . . . . . . . . . . . . . . . . . . . . (223,000) (150,000)
------------- ------------
Cash provided by (used in) investing activities . . . . . . . . . . . . 169,000 (720,000)
------------- ------------
Cash flows from financing activities:
Borrowings under credit facility and long-term debt . . . . . . . . 11,510,000 2,158,000
Payments of credit facility and long-term debt. . . . . . . . . . . (11,253,000) (977,000)
Cash received for the issuance of stock . . . . . . . . . . . . . . 13,000 --
Acquisition of land and building held for sale. . . . . . . . . . . -- (25,000)
------------- ------------
Cash provided by financing activities . . . . . . . . . . . . . . . . . 270,000 1,156,000
------------- ------------
Increase (decrease) in cash . . . . . . . . . . . . . . . . . . . . . . $ 59,000 $(1,300,000)
Cash at beginning of year . . . . . . . . . . . . . . . . . . . . . . . 42,000 1,342,000
------------- ------------
Cash at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . $ 101,000 $ 42,000
============= ============
Supplemental disclosures of cash flow information:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . $ 458,000 $ 292,000
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . 1,000 --
Supplemental disclosure of non-cash investing and financing activities:
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . $ -- $ 7,861,000
Assets acquired under capital lease . . . . . . . . . . . . . . . . . . $ 2,925,000 $ --
Cash paid for acquisition . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 150,000
Capital lease obligation. . . . . . . . . . . . . . . . . . . . . . . . $ 2,925,000 $ --
Cost of acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,000 $ --
Liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . $ -- $ 5,572,000
Common stock issued . . . . . . . . . . . . . . . . . . . . . . . . . . $ 60,000 $ 2,139,000
Liabilities paid via common stock . . . . . . . . . . . . . . . . . . . $ 60,000 $ --
Options issued. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 84,000 $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE F-7
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
-----------------------------
The consolidated financial statements include the financial statements of
National Manufacturing Technologies, Inc. and its wholly owned subsidiaries (the
consolidated entity referred to as the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
BUSINESS
--------
National Manufacturing Technologies is a value-added vertically integrated
manufacturer of enclosed electronic systems and their various sub-assembly
components supplying original equipment customers ("OEMs"). National
Manufacturing Technologies also specializes in high-speed metal stamping,
progressive die and forming operations.
GOODWILL
--------
Goodwill represents the excess of purchase price over the fair value of the net
assets acquired through business combinations accounted for as purchases and is
amortized on a straight-line basis over its estimated useful life of twenty
years. During the fiscal year ended March 31, 2000 and 1999, National
Manufacturing Technologies wrote-down the value of goodwill by approximately $0
and $911,000, respectively (see Note 4).
FOREIGN CURRENCY TRANSLATION
------------------------------
The accounts of National Manufacturing Technologies' discontinued foreign
subsidiary are measured using local currency as the functional currency; assets
and liabilities are translated into U.S. dollars at period-end exchange rates,
and income and expense accounts are translated at average monthly exchange
rates. Net gains or losses resulting from such translation are excluded from
operations and accumulated in a separate component of shareholders' equity
("accumulated other comprehensive income") through the date of National
Manufacturing Technologies' decision to dispose of Photomatrix, Ltd. (see Note
4). The balance in the accumulated other comprehensive income account as of the
disposal date has been written off and included in loss on disposal of
discontinued operations in the accompanying statement of operations for the year
ended March 31, 1999.
INVENTORIES
-----------
Inventories include material, labor and overhead valued at the lower of cost
(first-in, first-out) or market, and consist of the following as of March 31,
2000. These amounts are net of reserves for excess and obsolete inventory of
$107,000 against raw materials and $51,000 against finished goods:
<TABLE>
<CAPTION>
<S> <C>
Raw materials . $ 534,000
Work in process 606,000
Finished goods. 114,000
----------
$ 1,254,000
============
</TABLE>
REVENUE RECOGNITION
--------------------
Revenues are recorded at the time of shipment of products or performance of
services.
PAGE F-8
<PAGE>
PROPERTY AND EQUIPMENT
------------------------
Substantially all property and equipment is manufacturing equipment and personal
computers used in National Manufacturing Technologies' assembly, product
development, sales and administrative activities. These items are stated at
cost. Depreciation is provided over the estimated useful lives, typically three
to ten years, using the straight-line method. Additionally, during fiscal year
2000, National Manufacturing Technologies entered into a capitalized lease for
the property at 1958 Kellogg, Carlsbad, CA. The land and building are valued at
the lesser of fair market value at the time of the purchase or the present value
of future minimum lease payments. The amortization of assets under capitalized
leases is provided over three to fifteen years and is included in depreciation
and amortization expense. The value of the property and equipment on March 31,
2000 is as follows:
<TABLE>
<CAPTION>
<S> <C>
Land and building. . . $2,925
Equipment. . . . . . . 2,482
Leasehold improvements 66
------
$5,473
======
</TABLE>
LONG-LIVED ASSETS
------------------
National Manufacturing Technologies adopted the provisions of SFAS No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, effective April 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered impaired, the impairment to be recognized is measured by the amount
by which the carrying amount of the assets exceed the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
INCOME TAXES
-------------
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax basis and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
computed using enacted tax rates expected to apply to taxable income in the
years in which temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities from a change in tax rates is
recognized in income in the period that includes the enactment date. National
Manufacturing Technologies provides a valuation allowance for certain deferred
tax assets, if it is more likely than not that National Manufacturing
Technologies will not realize tax assets through future operations.
BASIC AND DILUTED LOSS PER SHARE
-------------------------------------
In December 1997, National Manufacturing Technologies adopted the provisions of
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 9,971,000 and
8,963,000 in fiscal years 2000 and 1999, respectively. Diluted EPS reflects the
potential dilution of securities that could share in the earnings of National
Manufacturing Technologies, similar to fully diluted EPS. Options and warrants
representing approximately 3,159,000 and 1,564,000 shares were excluded from the
computations of net loss per common share for the years ended March 31, 2000 and
1999, respectively, as their effect is antidilutive.
PAGE F-9
<PAGE>
STOCK OPTIONS
--------------
Prior to April 1, 1996, National Manufacturing Technologies accounted for its
stock option plan in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations. As
such, compensation expense would be recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. On
April 1, 1996, National Manufacturing Technologies adopted SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits entities to recognize
as expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 also allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net loss and
pro forma loss per share disclosures for employee stock option grants made in
fiscal 1996 and future years as if the fair-value based method defined in SFAS
No. 123 had been applied. National Manufacturing Technologies has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosure provisions of SFAS No. 123.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
------------------------------------------------------------
Financial instruments that potentially subject National Manufacturing
Technologies to significant concentrations of credit risk consist primarily of
accounts receivable. Receivables are primarily from large manufacturers for
whom National Manufacturing Technologies performs manufacturing services.
National Manufacturing Technologies grants unsecured trade credits to its
customers and performs ongoing credit evaluations of its customers' financial
conditions. One customer in the Electronic Manufacturing Services Group
accounted for 27.8% of total revenues; this same customer represented
approximately 36.8% of total accounts receivable as of March 31, 2000. Two
other customers represented approximately 9.5% and 8.5%, respectively, of total
revenues for fiscal year 2000. Four customers accounted for 18.8%, 14.2%, 13.8%
and 11.3%, respectively, of National Manufacturing Technologies' total revenue
for fiscal year 1999. No other customer accounted for more than 10% of National
Manufacturing Technologies' total revenue or accounts receivable during the
years presented.
PRODUCT WARRANTY COSTS
------------------------
The products sold by the discontinued operations of Photomatrix Imaging,
provided product warranties covering products it manufactured for its customers
as part of its standard sales agreement. The warranties covered the repair
costs associated with hardware defects and ranged in term from 90 days to one
year from date of sale. National Manufacturing Technologies accrued for
warranty costs at the time of sale.
FAIR VALUE OF FINANCIAL INSTRUMENTS
---------------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments," requires that the fair values be disclosed for
National Manufacturing Technologies' financial instruments. The carrying amount
of cash, accounts receivable, accounts payable, accrued liabilities, and credit
facility approximate their fair values because of the short-term nature of these
instruments. The carrying amounts reported for notes payable and other
non-current liabilities approximate fair value because the underlying
instruments bear interest at rates that are comparable to rates available to
National Manufacturing Technologies for similar debt instruments.
USE OF ESTIMATES
------------------
Management of National Manufacturing Technologies has made estimates and
assumptions relating to the reporting of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements, and the reported amounts of revenues and expenses during the
reporting period to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates. Estimates made for the year ended March 31, 1999
included provisions for the disposition of discontinued operations. Actual
amounts necessary were less than expected thus National Manufacturing
Technologies recognized $733,000 of income from discontinued operations in
fiscal year 2000.
PAGE F-10
<PAGE>
COMPREHENSIVE INCOME (LOSS)
-----------------------------
Effective April 1, 1998, National Manufacturing Technologies adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130). SFAS 130 established new rules for the reporting and display of
comprehensive income (loss) and its components in a full set of general-purpose
financial statements. All prior period data presented has been restated to
conform to the provisions of SFAS 130.
REPORTABLE SEGMENTS
--------------------
Effective April 1, 1998, National Manufacturing Technologies adopted Statement
of Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 requires public
business enterprises to report certain information about operating segments in
complete sets of financial statements and in condensed financial statements of
interim periods issued to shareholders. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. All prior period data presented has been restated to conform to the
provisions of SFAS 131. National Manufacturing Technologies has determined that
it operates two reportable segments: electronic manufacturing services and metal
manufacturing services.
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. National Manufacturing
Technologies does not expect adoption of SFAS 133 to have a material effect on
its financial position or results of operations.
2. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that National Manufacturing Technologies will continue as a going concern. This
contemplates the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the consolidated financial
statements, National Manufacturing Technologies has suffered recurring losses
from operations and has a working capital deficiency, the effects of which,
raise substantial doubt about National Manufacturing Technologies' ability to
continue as a going concern. In addition, National Manufacturing Technologies
has negative shareholders equity, indicating that National Manufacturing
Technologies does not have sufficient assets to cover its outstanding
liabilities.
The consolidated financial statements do not include any adjustments relating to
the recoverability of assets and classification of liabilities that might be
necessary should National Manufacturing Technologies be unable to continue as a
going concern. As described in Note 8, in June 1999, National Manufacturing
Technologies retired all outstanding debt with its bank and entered into a new
$1,500,000 credit facility with another financial institution. The new line of
credit accrues interest on outstanding borrowings at the bank's prime rate plus
4 % per annum and carries a minimum monthly payment of $6,000 (see Note 8).
This line of credit was increased in December 1999 to $2.9 million. It was
increased again in June 2000 to $3.9 million.
National Manufacturing Technologies' continuation as a going concern is
dependent upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing as may be
required, and ultimately to attain profitability. National Manufacturing
Technologies is concentrating on increasing sales and increasing gross margins.
In the current year ended March 31, 2000 consolidated revenues increased by
93.2% or $4,668,000. Gross profit margins increased from 14.7% in fiscal year
1999 to 29.6% in fiscal year 2000. However, there can be no assurance as to
National Manufacturing Technologies' success in these regards. During this same
time period, consolidated SG&A expenses for the year ended March 31, 2000
increased $2,148,000 or 68.1% to approximately $5,302,000 from $3,154,000 for
the year ended March 31, 1999. The increase is mainly due to the inclusion of
one full year of SG&A expenses for the MMS group as compared to only three and
one half months of SG&A expenses in the year ended March 31, 1999.
PAGE F-11
<PAGE>
3. ACQUISITIONS
NMT DE MEXICO (TECNOLOGIAS NACIONALES MANUFACTURERAS DE MEXICO)
----------------------------------------------------------------------
On September 17, 1999, National Manufacturing Technologies entered into an Asset
Purchase Agreement with Mirror USA and Espejomex, S.A. DE C.V. to acquire
certain assets in Tijuana, Mexico which will be used by National Manufacturing
Technologies' 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 for approximately $27,000. 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.
I-PAC MANUFACTURING, INC.
---------------------------
On March 16, 1998, National Manufacturing Technologies entered into an Agreement
and Plan of Merger and Reorganization with I-PAC Manufacturing, Inc. The
Agreement was approved by the shareholders of National Manufacturing
Technologies 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 National Manufacturing Technologies' Common
Stock and possibly additional 4,652,000 shares of National Manufacturing
Technologies' 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 National Manufacturing Technologies' 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 National Manufacturing Technologies' outstanding options and
warrants will be treated as additional costs of the acquired enterprise and
amortized accordingly over the benefit period. On December 30, 1999, Roy
Gayhart former Chief Financial Officer of National Manufacturing Technologies,
Inc., exercised a stock option grant for the purchase of 40,000 shares of
National Manufacturing Technologies' common stock. Per the terms of the Merger
this stock option exercise triggered the issuance of additional 40,000 shares to
the I-PAC Shareholders (the I-PAC Shareholders are Patrick W. Moore, National
Manufacturing Technologies' Chief Executive Officer, Chairman of the Board and
major shareholder, William L. Grivas, a major shareholder, James P. Hill, a
director and major shareholder and Michael Moore, a director), allocated among
them in proportion to their ownership of I-PAC shares as of the closing date of
the Merger. This issuance was ratified by the Board of Directors Compensation
Committee on January 7, 2000. As of June 30, 2000, a total of 221,654 shares
have been issued to the former I-PAC shareholders in relation to the exercise of
pre-merger stock options. The Merger was accounted for as a purchase of I-PAC
by National Manufacturing Technologies 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 National Manufacturing
Technologies, and I-PAC's assets and liabilities were recorded on National
Manufacturing Technologies' 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 National Manufacturing Technologies' 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 is amortized over a twenty year period. As of
August 1, 2000, National Manufacturing Technologies is currently reviewing, but
has not yet made a determination as to whether any performance milestones have
been achieved
PAGE F-12
<PAGE>
If the I-PAC transaction had been consummated at the beginning of the fiscal
year 1999, National Manufacturing Technologies' consolidated revenues, net
income (loss) and net income (loss) per share for the year ended March 31, 1999
would have been:
<TABLE>
<CAPTION>
1999
------------
<S> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,508,000
Net loss from continuing operations. . . . . . . . . . . . . . . $(4,786,000)
Net loss per share from continuing operations, basic and diluted $ (0.53)
</TABLE>
These pro forma results may not be indicative of the results of operations that
would have been reported if the transaction had occurred as of these dates, or
which may be reported in the future.
NATIONAL METAL TECHNOLOGIES, INC.
------------------------------------
On December 18, 1998, National Manufacturing Technologies entered into an
Agreement to acquire certain assets and the business operations of Greene
International West, Inc. ("GIW"), a metal stamping company located in Oceanside,
California. GIW recently emerged from a Chapter 11 Federal Bankruptcy
proceeding, which was canceled through the infusion of new capital funds from
its major shareholders. The new operation has been incorporated as National
Metal Technologies, Inc. ("NMT").
Under the terms of the agreement, NMT will pay a total of $500,000, comprised of
a down payment of $150,000 satisfied by the issuance of 75,000 shares of
National Manufacturing Technologies' common stock and a five year note in the
amount of $350,000, for the purchase of GIW's customer list, supplier
registrations, contract backlog, proprietary trade data, rights to hire
employees and general intangibles of GIW. 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 an 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 will be satisfied with the issuance of 25,000 shares of National
Manufacturing Technologies' common stock. As the capital lease was a condition
of the acquisition, National Manufacturing Technologies has recorded the assets
held under the capital lease at their estimated fair value of $943,000 and the
related bargain purchase obligation of $490,000 as part of the net assets
acquired. National Manufacturing Technologies exercised its option to purchase
this equipment on December 1, 1999 and now is obligated, to GIW, under a four
year note in the amount of $490,000 which bears interest at 8%
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 the 100,000 initial shares issued. This stock price guaranty
would total an additional amount of approximately $50,000 as of March 31, 2000,
based on National Manufacturing Technologies' current stock price.
National Metal Technologies also entered into a fifteen year lease of the 80,000
square foot facility housing the metal stamping operation, under terms that
provide rent abatements for the first three years of the facility lease. NMT
also agreed to purchase GIW's accounts receivable and usable inventory, and pay
certain royalties (1.75% of sales to existing customers) over a three-year
period. All royalties are payable in common stock or cash, at National
Manufacturing Technologies' election. As of March 31, 2000, a total of 116,000
shares of common stock had been issued to GIW for the first 12 months of royalty
payments. On March 5, 2000, the agreement with GIW was modified so that all
future royalty payments are to be payable in cash. The $148,000 excess of the
purchase price over the fair value of NMT's net assets acquired is being
amortized over twenty years.
PAGE F-13
<PAGE>
I-PAC PRECISION MACHINING
---------------------------
On November 27, 1998, National Manufacturing Technologies entered into an
agreement to acquire certain assets and the business operations of Amcraft,
Inc., a precision metal machining company located in Carlsbad, California. The
new operation has been incorporated as I-PAC Precision Machining, Inc.
("Precision Machining")
National Manufacturing Technologies acquired the business assets of Amcraft out
of an assignment for the benefit of creditors proceeding. Under the terms of the
purchase, National Manufacturing Technologies paid a total of $20,000 for the
purchase of work-in-process inventory, miscellaneous equipment, customer list
and backlog, rights to hire employees and the business name of Amcraft. National
Manufacturing Technologies also entered into leases of approximately $450,000
primarily of CNC precision machining equipment, which had previously been used
by Amcraft. In addition, National Manufacturing Technologies leased the 10,000
square foot facility previously occupied by the Amcraft operations through April
of 1999, at which time the precision metal machining operation was relocated to
the newly acquired NMT facility located in Oceanside, California. The $163,000
excess of the purchase price over the fair market value of Amcraft's net assets
is being amortized over twenty years.
PHRX REP CO
-------------
On July 1, 1998, National Manufacturing Technologies acquired the assets and
business of MGM Techrep, Inc. ("MGM") and formed PHRX Rep Co. MGM, a private
entity that is primarily owned by the officers and former owners of I-PAC, is a
manufacturer's sales representative firm headquartered in Santa Ana, California.
Established in 1994, MGM has been the primary sales rep firm in the Southern
California area for I-PAC. MGM also represents approximately 15 other companies
engaged in the manufacture and distribution of a wide range of industrial
products used in the manufacture and sale of electronic and related products.
The acquisition included all contracts with MGM's principals, its customer list,
all physical assets, and the MGM trade name. MGM retained existing liabilities
and released its sales personnel to National Manufacturing Technologies, and
MGM's shareholders executed non-compete agreements with respect to the sales rep
business. The purchase price of the transaction will be determined primarily on
an earn-out basis by a declining percentage (75% in the first year, 50% in the
second year and 35% in the final year following the closing date) of the
commissions earned over a three-year period by MGM on sales involving its
existing principals and customers as of the time of the acquisition. National
Manufacturing Technologies has recorded approximately $166,000 as excess of the
purchase price over the fair value of the acquired net assets related to these
earn-out accruals. No payments will be due to MGM for principals or customer
accounts added after the closing date. In addition, National Manufacturing
Technologies forgave approximately $18,000 of amounts due from MGM as of the
closing date.
Consistent with the provisions of the Photomatrix/I-PAC merger agreement, this
related party transaction was reviewed and approved by the outside directors on
the Audit Committee of National Manufacturing Technologies' Board of Directors.
4. DIVESTITURE AND DISCONTINUATION
PHOTOMATRIX IMAGING, INC. AND PHOTOMATRIX, LTD.
----------------------------------------------------
On March 2, 1999, National Manufacturing Technologies 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, National Manufacturing Technologies completed the transaction whereby
it sold product rights and certain assets of its document scanner operations to
Scan-Optics, Inc. Under the terms of the agreement, Scan-Optics paid National
Manufacturing Technologies approximately $1,890,000 in cash and agreed to pay an
additional $210,000 to acquire all receivables, inventory and certain equipment,
as well as assume nearly $2 million of current and future liabilities of Imaging
and Ltd. Scan-Optics also assumed lease commitments associated with National
Manufacturing Technologies' engineering facilities located in Chandler, Arizona,
as well as its facilities in Great Britain. In addition, Scan-Optics agreed to
pay certain royalties, not to exceed $250,000 over a three-year period and also
enter into a transition agreement and a five-year manufacturing agreement, under
PAGE F-14
<PAGE>
which National Manufacturing Technologies would continue to manufacture document
scanners and document scanner parts for Scan-Optics. Proceeds from this sale
were used to reduce short-term debt and provide working capital to National
Manufacturing Technologies. The purchase price was subject to adjustment based
upon certain additional due diligence to be completed by Scan-Optics within
ninety days. There was no subsequent adjustment.
Current and prior period balances have been reclassified to present Imaging and
Ltd. as a discontinued operation. Revenues related to discontinued operations
totaled $0, $6,274,000 and $8,595,000 for the years ended March 31, 2000, 1999
and 1998, respectively. During the year ended March 31, 2000, National
Manufacturing Technologies recorded a gain of $668,000 from discontinued scanner
operations. This income is comprised of $450,000 of inventory reserves that
were not required, $145,000 of accruals for estimated losses that were not
required, and $73,000 of reserves for accounts receivable that were not
required. During the year ended March 31, 1999, National Manufacturing
Technologies recorded a write-off of intangible assets related to its scanner
operations in the approximate amount of $1,016,000, comprised of $44,000 related
to capitalized software, $61,000 related to software development and $911,000
related to goodwill. This write-off has been included in the loss on disposal
of discontinued operation in the accompanying consolidated statement of
operations for the year ended March 31, 1999.
LEXIA SYSTEMS, INC.
---------------------
In December 1996, the Board of Directors of National Manufacturing Technologies
approved a plan to discontinue the operations of Lexia Systems, Inc. ("Lexia").
The operations of Lexia were shut down on September 30, 1998. Approximately
$250,000 of reserves for discontinued operating losses was not required,
resulting in income from discontinued operations in fiscal year 1999. Lexia has
entered into a settlement with a vendor, Fujitsu Computers Ltd. ("Fujitsu")
regarding its disagreements over outstanding claims. Lexia had carried on its
books accounts payable claims by Fujitsu in the amount of $341,000. Lexia has
disputed these liabilities. Lexia agreed to pay Fujitsu $200,000 over an eight
month period as payment in full of all outstanding claims against Lexia,
resulting in an additional $141,000 of income from discontinued operations for
the fiscal year 1999. Lexia also carries on its books accounts payable and
unpaid rent claims by ICL, a sister company of Fujitsu, 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. During the year ended March 31, 2000 approximately
$65,000 of other income for the Lexia discontinued operation was recognized from
accrued accounts payable that were no longer required.
5. SEGMENT INFORMATION
In evaluating financial performance, management focuses on operating income as a
measure of profit or loss. Operating income is before interest expense, interest
income and income tax expense. The accounting policies of the segments are the
same as those described in the summary of significant accounting policies (Note
1). The following table summarizes financial information by business segment
from continuing operations.
National Manufacturing Technologies' operations are classified into two
reportable business segments: Electronic Manufacturing Services and Metal
Manufacturing Services. Electronic Services manufactures and sells electronic
products, including electronic enclosed systems, utilized in technology
intensive products and business environments. This segment is primarily
comprised of I-PAC. Metal Services manufactures and sells stamped and machined
metal products and services, including phosphate and heat treat services,
utilized in military, government and commercial weaponry products. This segment
is comprised of NMT and Precision Machining. Other includes corporate expenses,
charges that do not relate to current operations, divested operations and
inter-company eliminations.
PAGE F-15
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
<PAGE>
(000's omitted) . . . . . . . . . 2000 1999
-------- --------
REVENUE:
Electronic Services . . . . . . $ 6,736 $ 3,886
Metal Services. . . . . . . . . 2,941 1,062
Other . . . . . . . . . . . . . 0 61
-------- --------
Total . . . . . . . . . . . . . $ 9,677 $ 5,009
======== ========
SEGMENT OPERATING PROFIT (LOSS):
Electronic Services . . . . . . $ (880) $(1,339)
Metal Services. . . . . . . . . (1,763) (380)
Other . . . . . . . . . . . . . 0 (695)
-------- --------
Total . . . . . . . . . . . . . $(2,643) $(2,414)
======== ========
DEPRECIATION AND AMORTIZATION:
Electronic Services . . . . . . $ 316 $ 172
Metal Services. . . . . . . . . 158 49
Other . . . . . . . . . . . . . 158 2
-------- --------
Total . . . . . . . . . . . . . $ 632 $ 223
======== ========
CAPITAL EXPENDITURES:
Electronic Services . . . . . . $ 38 $ 3,603
Metal Services. . . . . . . . . 209 1,210
Other . . . . . . . . . . . . . 12 2
-------- --------
Total . . . . . . . . . . . . . $ 259 $ 4,815
======== ========
ASSETS:
Electronic Services . . . . . . $ 6,315 $ 5,295
Metal Services. . . . . . . . . 2,125 2,187
Other . . . . . . . . . . . . . 2,419 1,872
-------- --------
Total . . . . . . . . . . . . . $10,859 $ 9,354
======== ========
INTEREST EXPENSE
Electronic Services . . . . . . $ 366 $ 192
Metal Services. . . . . . . . . 26 0
Other . . . . . . . . . . . . . 66 100
-------- --------
Total . . . . . . . . . . . . . $ 458 $ 292
======== ========
</TABLE>
6. SHAREHOLDERS' EQUITY
National Manufacturing Technologies has three existing common stock option plans
under which an aggregate of 2,162,500 shares of National Manufacturing
Technologies' common stock may be issued to officers, directors and employees of
National Manufacturing Technologies and its subsidiaries through qualified
incentive stock options or non-qualified stock options. National Manufacturing
Technologies has a fourth plan, which expired in fiscal 1994 with no options
still outstanding. Under the terms of the existing plans, incentive stock
options are granted at an exercise price which is not less than the fair market
value of National Manufacturing Technologies' common stock at the date of grant;
non-qualified options are granted at not less than 85% of the fair value at the
date of grant. Options are exercisable within the period and in the increments
as determined by National Manufacturing Technologies' Board of Directors or
Compensation Committee appointed by the Board of Directors.
At March 31, 2000, there were 509,957 additional shares available for grant
under the Plans. The per share weighted-average fair value of stock options
granted during 2000 and 1999 was $0.33 and $0.36, respectively, on the date of
grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 2000 - expected dividend yield 0.0%, volatility of
PAGE F-16
<PAGE>
106.8%, risk-free interest rate of 6.0%, and an expected life of 10 years; 1999
- expected dividend yield 0.0%, volatility of 84.3%, risk-free interest rate of
6.0%, and an expected life of 7 years.
National Manufacturing Technologies applied APB Opinion No. 25 in accounting for
its Plans and, accordingly, no employee compensation cost has been recognized
for its stock options in the consolidated financial statements. During 2000,
National Manufacturing Technologies recognized approximately $114,000 of
compensation expense for options issued to non-employees. Had National
Manufacturing Technologies determined compensation cost based on the fair value
at the grant date for its stock options under SFAS No. 123, National
Manufacturing Technologies' net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Net loss, as reported . . . $(1,911,000) $(4,376,000)
Pro forma net loss. . . . . $(2,148,000) $(4,524,000)
Loss per share, as reported $ (0.19) $ (0.49)
Pro forma loss per share. . $ (0.22) $ (0.50)
</TABLE>
Pro forma net loss reflects only options granted in 1997 and thereafter.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 is not reflected in the pro forma net loss amounts presented
above because compensation cost is reflected over the options' vesting period of
2-3 years and compensation cost for options granted prior to April 1, 1996 is
not considered.
Additional information with respect to the options under the plans follows:
<TABLE>
<CAPTION>
SHARES RANGE OF EXERCISE PRICE
---------- ------------------------
<S> <C> <C>
Options outstanding March 31, 1998. 778,333 $ 0.18 - 0.47
Options granted. . . . . . . . . . 502,496 $ 0.31 - 1.03
Options canceled . . . . . . . . . (45,000) $ 0.38 - 0.75
---------- ------------------------
Options outstanding, March 31, 1999 1,235,829 $ 0.18 - 1.03
---------- ------------------------
Options granted. . . . . . . . . . 1,430,044 $ 0.19 - 0.66
Options canceled/expired . . . . . (973,330) $ 0.18 - 0.81
Options exercised. . . . . . . . . (40,000) $ 0.34
---------- ------------------------
Options outstanding, March 31, 2000 1,652,543 $ 0.18 - 0.94
---------- ------------------------
Options exercisable, March 31, 2000 795,043 $ 0.25 - 0.94
========== ========================
</TABLE>
In addition, National Manufacturing Technologies granted options for an
additional 307,882 shares to two officers in 1999. These options, which were not
covered under any of National Manufacturing Technologies' stock option plans,
vested upon grant and carried an exercise price of $0.49. In the fiscal year
ended March 31, 2000, one officer was granted a fully vested option to purchase
166,667 shares at an exercise price of $0.45. Prior to the cessation of their
relationships with National Manufacturing Technologies, two now former directors
were granted an extension to exercise stock option grants for 181,667 shares,
with a range of exercise price of $0.38 to $0.69, two now former officers were
granted an extension to exercise stock option grants for 476,667 shares, with a
range of exercise price of $0.18 to $0.81, and six now former employees of the
Photomatrix Imaging division were granted an extension to exercise stock option
grants for 139,999 with a range of exercise price of $0.31 to $0.38. In 1993,
National Manufacturing Technologies granted two options for 21,264 shares with
an exercise price of $2.16 in connection with the Xscribe - Photomatrix merger.
As of March 31, 2000, National Manufacturing Technologies has 2,946,688 options
outstanding with a weighted average exercise price of $0.42 per share and a
weighted average remaining contractual life of 6.8 years.
At the beginning of fiscal year 2000, National Manufacturing Technologies had
1,564,475 options outstanding with a weighted average exercise price of $0.48
per share. During the fiscal year ended March 31, 2000, National Manufacturing
Technologies granted 2,395,043 options with a weighted average exercise price of
$0.39 per share; 40,000 options were exercised with a weighted average exercise
price of $0.34 per share; 50,000 options expired with a weighted average
PAGE F-17
<PAGE>
exercise price of $0.40 per share, and 923,330 were cancelled with a weighted
average exercise price of $0.45 per share.
In addition to the options described above, National Manufacturing Technologies
had outstanding warrants and other options to acquire common shares as of March
31, 2000 as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
SHARES EXERCISE PRICE EXPIRATION
------ --------------- -------------
75,000 $ 0.44 April, 2002
87,500 $ 0.75 April, 2001
50,000 $ 0.40 January, 2005
</TABLE>
National Manufacturing Technologies is authorized to issue 3,173,000 shares of
its preferred stock. No preferred shares were outstanding as of March 31, 2000.
As discussed in Note 10, during the year ended March 31, 1999, National
Manufacturing Technologies purchased approximately 117,000 shares of the its
common stock on the open market on behalf of the National Manufacturing
Technologies, Inc Employee Stock Purchase Plan and recorded approximately
$114,000 as a repurchase of common stock in fiscal year 1999. These shares were
retired.
NASDAQ had advised National Manufacturing Technologies on November 10, 1998,
that it was not in compliance with the minimum bid price requirement and that
National Manufacturing Technologies was being afforded a ninety day grace
period, until February 10, 1999, to remedy this deficiency or be de-listed from
the NASDAQ SmallCap Stock Market. National Manufacturing Technologies was
unable to comply with the bid price requirement within the grace period. At a
formal hearing with NASDAQ on April 16, 1999, National Manufacturing
Technologies requested an extension period, during which time it could comply
with the minimum bid requirement. NASDAQ denied National Manufacturing
Technologies' request for such an extension. On July 8, 1999, National
Manufacturing Technologies received written notification from NASDAQ that its
securities would be de-listed from the NASDAQ SmallCap Market effective the end
of trading on July 8, 1999. Effective July 9, 1999, National Manufacturing
Technologies began trading on the Over-the-Counter Bulletin Board under the
symbol "PHRX". On September 23, 1999, the shareholder's approved a Company
name change from Photomatrix, Inc., to National Manufacturing Technologies,
Inc., and on October 1, 1999, National Manufacturing Technologies' trading
symbol changed from "PHRX" to "NMFG".
7. RELATED PARTY TRANSACTIONS
In connection with the acquisition of PMX, Photomatrix restructured outstanding
indebtedness to members and affiliates of the Wyly family into non-negotiable
seven-year term notes bearing interest at the rate of 8 percent per annum. The
total principal amount of the notes payable to members of the Wyly family and
their affiliates as of March 31, 2000 was $240,000. Interest and principal
payments totaling $16,000 are due monthly.
During the year ended March 31, 2000 National Manufacturing Technologies
recorded approximately $53,000 of goodwill related to earn out accruals from the
July 1, 1998 acquisition of MGM Techrep, Inc., (a company previously owned by
Patrick W. Moore, National Manufacturing Technologies' Chief Executive Officer,
Chairman of the Board and major shareholder, William L. Grivas, a major
shareholder, and James P. Hill, a Director and major shareholder) as compared to
$112,000 in the year ended March 31, 1999. During the year ended March 31, 2000
National Manufacturing Technologies paid approximately $33,000 of these earn out
accruals as compared to $65,000 during the year ended March 31, 1999. At March
31, 2000 National Manufacturing Technologies had approximately $6,000 in earn
out payments due to MGM.
During the year ended March 31, 2000 National Manufacturing Technologies paid
approximately $70,000 to Sullivan, Hill, Lewin, Rez, Engle and LaBazzo,
("SHLRE") a law firm in which James P. Hill, a director and major shareholder,
is a partner, as compared to $139,000 during the year ended March 31, 1999.
National Manufacturing Technologies also entered into an agreement with R. P.
Hill and Lucy Hill, James P. Hill's parents, to pay them approximately $2,300
per month in exchange for them posting a letter of credit in the amount of
PAGE F-18
<PAGE>
$275,000 which guarantees the capitalized lease payment on the 1958 Kellogg
facility. The interest represents a rate of 10% per annum of the face value of
the letter of credit. The letter of credit was posted to release a $275,000
deposit on February 01, 2000. The letter of credit terminates on June 30, 2003
and the final interest payment is due on July 2, 2003. In addition to interest
payments a warrant to purchase 50,000 shares at $0.40 per share was granted to
the Hills. The warrants expire January 31, 2005.
On July 20, 1999, National Manufacturing Technologies entered into an
independent contracting agreement with William L. Grivas, Sr., a major
shareholder, whereby Mr. Grivas would represent National Manufacturing
Technologies in connection with selling or bartering certain inventory and
negotiating settlements of certain of National Manufacturing Technologies'
liabilities, and the provision of other technical and support services. The
agreement, expired on or before September 20, 1999 and required National
Manufacturing to pay Mr. Grivas $2,884 per week. On October 1, 1999, National
Manufacturing entered into a new independent contracting agreement with William
L. Grivas, Sr., a major shareholder, whereby Mr. Grivas would represent National
Manufacturing Technologies in connection with selling or bartering certain
inventory and negotiating settlements of certain of National Manufacturing
Technologies' liabilities. The agreement, expires on September 30, 2002 and may
be extended for twelve months. Under this and the prior consulting agreements,
Mr. Grivas was paid $111,000 during the year ended March 31, 2000 and was
granted a stock option for the purchase of 101,044 shares of National
Manufacturing Technologies' common stock at an exercise price of $0.2969.
National Manufacturing Technologies recognized non-cash expense of approximately
$29,000 for this stock option grant. A balance of $13,000 was accrued and due
to Mr. Grivas at March 31, 2000. The Board of Directors approved these
agreements.
Grivas, Moore and Hill were each awarded a bonus by the Compensation Committee
payable on March 31, 2000, for $50,000 cash or a stock option to purchase
150,000 shares of National Manufacturing Technologies' common stock at an
exercise price of $0.2969, at the grantees election. Grivas, Moore and Hill
elected the granting of a stock option. National Manufacturing Technologies
recognized approximately $84,000 of goodwill for these stock option grants.
This bonus was awarded for work Grivas, Moore and Hill did in connection with
the precision machining and metal stamping acquisitions.
The former shareholders of I-PAC currently own interests in several entities
with which I-PAC has done business. During the year ended March 31, 1999,
National Manufacturing Technologies recorded a write-off of approximately
$25,000 of inventory specifically manufactured for companies which are owned at
least in part by or otherwise associated with the brother of William L. Grivas,
who was the Chairman of National Manufacturing Technologies through January 18,
1999 and who is a major shareholder of National Manufacturing Technologies. In
addition, National Manufacturing Technologies also recorded approximately
$20,000 of additional allowance for doubtful accounts for uncollectible related
party accounts receivable from such companies and from a company owned by Mr.
Grivas, during the quarter ended December 31, 1998. The inventory and
receivables were acquired by National Manufacturing Technologies as a result of
its acquisition of I-PAC. National Manufacturing Technologies has therefore
recorded the additional bad debt reserves and inventory write-off as an increase
to goodwill related to the purchase of I-PAC.
During the year ended March 31, 1999, National Manufacturing Technologies paid
approximately $127,000 to Evergreen Investments ("Evergreen"), a company owned
by Mr. Grivas and Patrick W. Moore, the Chief Executive Officer and a major
shareholder. $50,000 of this amount was intended to cover personal tax
liabilities of the former I-PAC shareholders arising from pre-merger S Corp.
allocations for calendar year 1997, pursuant to the Plan and Agreement of Merger
and Reorganization between National Manufacturing Technologies and I-PAC,
approximately $34,000 was for pre-merger management fees, and approximately
$43,000 was for pre-acquisition commission payments due MGM under the
acquisition agreement entered in July 1998. In addition, approximately $31,000
was paid to James P. Hill, a director and major shareholder, to cover personal
tax liabilities of the former I-PAC shareholders arising from pre-merger S Corp
allocations for calendar year 1997, pursuant to the Plan and Agreement of Merger
and Reorganization between National Manufacturing Technologies and I-PAC.
Approximately $27,000 was paid to MGM for earn-out payments due MGM under the
acquisition agreement entered in July 1998. National Manufacturing Technologies
also recorded sales of approximately $7,000 to MGS Interconnect, a company owned
by Mr. Moore and Mr. Grivas during the current period. This amount has been
fully reserved as uncollectible as of March 31, 1999. In addition, National
Manufacturing Technologies paid approximately $139,000 to Sullivan, Hill, Lewin,
PAGE F-19
<PAGE>
Rez and Engel ("SHLRE"), a law firm in which Mr. Hill, is a partner. At March
31, 1999, National Manufacturing Technologies had approximately $3,000 in
earn-out payments due to MGM and approximately $7,000 due from MGS Interconnect.
In addition, National Manufacturing Technologies owed SHLRE approximately
$44,000 at March 31, 1999. The Audit Committee approved all items in excess of
$10,000 disclosed in this paragraph.
As mentioned in Note 8 to the consolidated financial statements, certain
shareholders of National Manufacturing Technologies have guaranteed
approximately $2,023,000 of National Manufacturing Technologies' debt at March
31, 1999. This debt was retired in June 1999. Prior to the merger, I-PAC
guaranteed approximately $113,000 of debt of the same shareholders. This
guarantee continued after the merger, and remains in effect.
Claudia Fullerton, who is the wife of Patrick W. Moore, was employed by National
Manufacturing Technologies as its Director of Administration at an annual salary
of $54,000 from June 11, 1998 until April 30, 1999. Ms. Fullerton is receiving
severance pay for the period from May 1, 1999 through August 29, 1999, under
terms of a pre-merger employment agreement.
William L. Grivas, Jr., son of William L. Grivas Sr., was employed by National
Manufacturing Technologies as a Program Manager at an annual salary of $30,000
from June 11, 1998 through August 20, 1999.
8. CREDIT FACILITY AND DEBT
On June 18, 1999, National Manufacturing Technologies entered into a $1,500,000
credit facility with its primary lender that included a $1,200,000 A/R line of
credit and a $300,000 term loan. 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). In
December 1999, the A/R line was increased to $2,000,000, and two inventory lines
for $650,000 were added to the existing line. Outstanding borrowings are
collateralized by primarily all of National Manufacturing Technologies' assets.
Total borrowings under the metal inventory line is limited to the lesser of
$300,000 or 70% of the cost of eligible metal inventory (as defined under the
agreement). Total borrowings under the electronics inventory is limited to the
lesser of $350,000 or 35% of eligible electronics inventory (as defined under
the agreement). The line of credit expires on June 30, 2001. The balance
outstanding as of July 31, 2000 was $2,355,000 on the A/R line, $288,000 on the
term loan, and $417,000 on the inventory lines. The line of credit accrues
interest on outstanding borrowings at the bank's prime rate plus 4% per annum
and carries a minimum monthly payment of $6,000.
In June 1999 National Manufacturing Technologies 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). National Manufacturing Technologies 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, National Manufacturing Technologies was not in compliance with
these covenants. The bank agreed to forebear from taking adverse action,
subject to National Manufacturing Technologies fulfilling certain reporting and
other conditions, including entering into discussions with alternative lenders
to replace the bank's credit facilities. National Manufacturing Technologies
paid all outstanding balances under this credit facility on June 21, 1999.
National Manufacturing Technologies has issued two notes in the aggregate amount
of $2,023,000, which are collateralized by trust deeds on National Manufacturing
Technologies' real property located in Carlsbad, California. The repayment of
these notes was guaranteed by certain major shareholders of National
Manufacturing Technologies 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%. In June, 1999, National
Manufacturing Technologies retired this debt (Note 7).
PAGE F-20
<PAGE>
Long-term debt includes the following:
<TABLE>
<CAPTION>
MARCH 31, 2000 MARCH 31, 1999
--------------- ---------------
<S> <C> <C>
8 % note, collateralized by equipment $ 350,000 $ 350,000
8 % note, collateralized by equipment 490,000 --
Other equipment note. . . . . . . . . 255,000 --
Capitalized leases. . . . . . . . . . 2,977,000 773,000
Other notes . . . . . . . . . . . . . 38,000 44,000
--------------- ---------------
4,110,000 1,167,000
Less current portion. . . . . . . . . 547,000 158,000
--------------- ---------------
Long-term portion . . . . . . . . . . $ 3,563,000 $ 1,009,000
=============== ===============
</TABLE>
In December 1998, NMT became obligated under a five-year note, payable to GIW,
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 entered into a capital lease for
the purchase of GIW equipment, with an 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. National Manufacturing Technologies exercised
its option to purchase this equipment on December 1, 1999 and now is obligated,
to GIW, under a four year note in the amount of $490,000 which bears interest at
8%. National Manufacturing Technologies has an equipment note due to its
primary lender with a balance of $255,000 as of March 31, 2000. This note bears
interest at the bank's prime rate plus 4% per annum. and matures on July 8,
2001.
On June 3, 1999, National Manufacturing Technologies entered into a
sale-and-leaseback transaction of its Carlsbad facility for $2,925,000. Under
the terms of the Purchase and Sale Agreement between Cabot Industrial
Properties, L. P. ("Cabot") and National Manufacturing Technologies, Cabot
acquired all buildings, building improvements and land located at 1958 Kellogg
Avenue, Carlsbad, California. The proceeds from the sale were used to retire
mortgage debt and pay down a portion of the outstanding balance under National
Manufacturing Technologies' line of credit. In a separate lease agreement,
National Manufacturing Technologies agreed to lease the Carlsbad facility under
a fifteen-year capital lease with Cabot, starting out at a monthly rental of
approximately $25,000. The sale resulted in a gain of approximately $240,000,
which will be amortized to income over the 15-year life of the lease. Future
minimum lease commitments of capitalized leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001 . . . . . . . . . . . $ 442,000
2002 . . . . . . . . . . . 329,000
2003 . . . . . . . . . . . 328,000
2004 . . . . . . . . . . . 338,000
2005 . . . . . . . . . . . 348,000
Thereafter . . . . . . . . 3,718,000
---------
5,503,000
Less interest. . . . . . . 2,526,000
---------
Net minimum lease payments $2,977,000
==========
</TABLE>
PAGE F-21
<PAGE>
National Manufacturing Technologies also has certain equipment notes in the
aggregate amount of $38,000 with interest rates varying between 8% and 26.6%
with final payments due between 2000 and 2002. These notes are collateralized by
equipment, calling for minimum monthly payments aggregating approximately
$13,000 per month.
The aggregate maturities for long-term debt of continuing operations including
capital leases at March 31, 2000 are summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
YEAR ENDING MARCH 31,
---------------------
2001. . . . . . . . . $ 547,000
2002. . . . . . . . . 452,000
2003. . . . . . . . . 279,000
2004. . . . . . . . . 247,000
2005. . . . . . . . . 117,000
Thereafter. . . . . . 2,468,000
----------
Total . . . . . . . . $4,110,000
==========
</TABLE>
National Manufacturing Technologies is also obligated under a series of notes
payable totaling $240,000 as of March 31, 2000. These notes, which are included
in net assets of discontinued operations, 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, National Manufacturing
Technologies made two payments on these notes in July 1999 and August 1999.
During the year ended March 31, 1999, National Manufacturing Technologies
recorded the cancellation of a $227,000 long-term liability due a
lender/customer. This long-term liability was previously assumed by National
Manufacturing Technologies in connection with the acquisition of I-PAC. Under
terms of the agreement, the liability was only to be repaid if sales were to be
made to the lender prior to September 5, 1998 at a rate of 40% of the
non-material component of any such sales. As of September 5, 1998, the $227,000
liability expired and all underlying security interest was released under terms
of the agreement. National Manufacturing Technologies has recorded the
expiration of the note as a reduction to goodwill related to the purchase of
I-PAC.
9. INCOME TAXES
The components of loss before income taxes are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2000 1999
------------ ------------
LOSS BEFORE INCOME TAXES
U.S. continuing operations. . . $(2,644,000) $(2,694,000)
U.S. discontinued operations. . 369,000 (1,696,000)
Foreign discontinued operations 364,000 14,000
------------ ------------
$(1,911,000) $(4,376,000)
============ ============
</TABLE>
RECONCILIATION STATUTORY TO EFFECTIVE RATES
A reconciliation from the federal income tax provision computed at the statutory
rate to the actual provision for taxes on loss from continuing operations for
fiscal year 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
---------- ------------
<S> <C> <C>
Tax at statutory federal tax rate . . . . . $(900,000) $(1,521,000)
State income taxes (net of federal benefit) 10,000 9,000
Federal impact on continuing operations
from change in valuation allowance. . . 890,000 1,512,000
---------- ------------
$ -- $ --
========== ============
</TABLE>
PAGE F-22
<PAGE>
DEFERRED TAX ASSETS/LIABILITIES
Deferred tax assets and liabilities result from differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. The significant components of the deferred income tax assets and
deferred income tax liabilities as of March 31, 2000 are as follows:
<TABLE>
<CAPTION>
2000
------------
<S> <C>
Deferred tax assets:
Tax operating loss carryforward. . . . . . . . . . . . $ 7,431,000
Inventory and other reserves . . . . . . . . . . . . . 145,000
Capital lease obligation . . . . . . . . . . . . . . . 976,000
------------
8,552,000
Less valuation allowance . . . . . . . . . . . . . . . (6,949,000)
------------
$ 1,603,000
------------
Deferred tax liabilities:
Book basis of intangible assets greater than tax basis $ (160,000)
Book basis of fixed assets greater than tax basis. . . (1,443,000)
------------
$(1,603,000)
Net deferred tax asset. . . . . . . . . . . . . . . . . $ -
============
</TABLE>
National Manufacturing Technologies has recorded net tax assets in an amount
approximately equal to net tax liabilities because management believes that
these items will offset in future periods, considering statutory carryforward
periods and limitations. Management believes that sufficient uncertainty exists
regarding the realizability of the deferred tax asset items and that a valuation
allowance, equal to the net deferred tax asset amount, is required.
As of March 31, 2000, National Manufacturing Technologies has available for
federal income tax purposes a net operating loss ("NOL") carryforward of
approximately $21,800,000 which can offset future consolidated taxable income
and which began to expire in fiscal year 2000. The utilization of this NOL may
be subject to an annual limitation under Section 382 of the Internal Revenue
Code.
10. EMPLOYEE BENEFIT PLANS
National Manufacturing Technologies maintains defined contribution savings and
investment plans for the benefit of all full-time employees. National
Manufacturing Technologies' expense related to the plans was $14,400 and $55,000
in 2000 and 1999, respectively. National Manufacturing Technologies has no
significant post-employment or post-retirement obligations.
On June 5, 1998, the Board of Directors authorized the National Manufacturing
Technologies Employee Stock Purchase Plan (the "Purchase Plan") and authorized
the purchase of up to $250,000 of National Manufacturing Technologies common
stock for the Purchase Plan on the open market. The purpose of the Purchase Plan
is to serve as an incentive to and to encourage stock ownership by eligible
employees of National Manufacturing Technologies so that they may acquire or
increase their proprietary interest in the success of National Manufacturing
Technologies and to encourage them to remain in the service of National
Manufacturing Technologies.
All full-time employees of National Manufacturing Technologies who have been in
the continuous employment of National Manufacturing Technologies for more than
nine months are eligible to participate in the Purchase Plan, provided that no
employee may be granted the right to purchase stock under the Purchase Plan if,
immediately after the right to purchase such stock is granted, such employee
owns stock representing 5% or more of the total combined voting power or value
of all classes of National Manufacturing Technologies' stock. The option price
will be determined by National Manufacturing Technologies, provided that it will
be at least 85% of the fair value of National Manufacturing Technologies' common
stock on the date the option is granted. Each participating employee may elect
PAGE F-23
<PAGE>
to contribute to the Purchase Plan up to the lesser of $8,000 or 10% of his or
her base compensation during each calendar year.
A total of 750,000 shares of stock are available for purchase under the Purchase
Plan, subject to adjustment for various changes in the capitalization of
National Manufacturing Technologies. As of March 31, 2000, there were no shares
issued for the Purchase Plan. National Manufacturing Technologies has recorded
approximately $114,000 as a repurchase of common stock in fiscal year 1999.
11. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
-----------------
National Manufacturing Technologies' operations in Oceanside, CA and Tijuana,
Mexico are conducted in facilities that are occupied under operating leases.
The leases require payment of taxes, maintenance expenses and insurance. Rental
expense for continuing operations (net of rental income under sublease of
$65,000 and $17,000 in 2000 and 1999, respectively) incurred under operating
leases (including leases which have expired) was $575,000 and $157,000, in
fiscal year 2000 and 1999, respectively.
Future minimum lease commitments as of March 31, 2000, are as follows:
<TABLE>
<CAPTION>
<S> <C>
2001. . . . 724,000
2002. . . . 721,000
2003. . . . 720,000
2004. . . . 700,000
2005. . . . 691,000
Thereafter. 6,946,000
---------
10,502,000
===========
</TABLE>
In June 1998, National Manufacturing Technologies moved its corporate
headquarters in Carlsbad, assigned the lease of its former principal operating
facility, and provided the lessor with a guarantee of the lease through its
expiration in September 2002.
Legal Proceedings
------------------
National Manufacturing Technologies and its subsidiaries are, from time to time,
involved in legal proceedings, claims and litigation arising in the ordinary
course of business. While amounts may be substantial, the ultimate liability
cannot presently be determined because of uncertainties that exist. Therefore,
it is possible the outcome of such legal proceedings, claims and litigation
could have a material effect on the quarterly or annual operating results or
cash flows when resolved in a future period. However, based on facts currently
available, management believes such matters will not have a material adverse
effect on National Manufacturing Technologies' consolidated financial position,
results of operations or cash flows.
National Manufacturing Technologies has indemnified Stenograph Corporation in
connection with a product liability case pending in the Nineteenth Judicial
District, East Baton Rouge Parish, in which Stenograph is a defendant (Brown v.
Stenograph et al). National Manufacturing Technologies has tendered this claim
to its insurance carrier, St. Paul Fire ("St. Paul"). St. Paul has assumed
National Manufacturing Technologies' defense. The insurance carriers have
prevailed in all similar judgments rendered to date. It may take several years
before this litigation is ultimately resolved. National Manufacturing
Technologies believes that this remaining case is without merit and further
believes that if any liability results from these claims, the liability
(excluding punitive damages, if any) will be covered by its insurance policies.
PAGE F-24
<PAGE>
EMPLOYMENT AGREEMENTS
----------------------
National Manufacturing Technologies' Chief Executive Officer ("CEO") is employed
under an employment agreement that expires on September 30, 2004. National
Manufacturing Technologies' former President was employed under an employment
agreement, which expired on July 31, 1999. The former President resigned as an
officer on June 21, 1999 and his employment terminated on July 31, 1999. The
CFO's employment terminated on September 30, 1999. If the CEO's employment is
terminated by National Manufacturing Technologies without cause prior to the end
of his term, then he will be entitled to receive his base salary, stock option
vesting and health insurance benefits for the remainder of the term.
OFFICERS SEVERANCE POLICY
---------------------------
In 1988, National Manufacturing Technologies' Board of Directors adopted an
Officers Severance Policy that was modified in November 1990, February 1997 and
in April 1999. Under the policy, the former President began receiving twelve
weeks' compensation beginning August 1, 1999 and the former CFO began receiving
eight weeks compensation beginning October 1, 1999. In addition, the CEO is to
receive twenty-nine weeks' compensation upon termination of employment by
National Manufacturing Technologies, in addition to amounts due him under his
employment contract.
DIVIDEND RESTRICTION
---------------------
Pursuant to state laws, National Manufacturing Technologies may be restricted
from paying dividends to its stockholders as a result of its accumulated deficit
as of March 31, 2000.
12. CORPORATE NAME CHANGE
On September 23, 1999 National Manufacturing Technologies' shareholders approved
a change in the name of National Manufacturing Technologies from Photomatrix,
Inc. to National Manufacturing Technologies, Inc. ("NMT"). National
Manufacturing Technologies changed its name to National Manufacturing
Technologies, Inc. to better reflect National Manufacturing Technologies'
currently diverse vertically integrated contract manufacturing business
operations. National Manufacturing Technologies closed its sale of product
rights and related assets of its scanner division to Scan-Optics on June 21,
1999. During this past year, National Manufacturing Technologies 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,
National Manufacturing Technologies believes that the word "manufacturing" is
more expressive of its basic core competency, namely the creation of value-added
manufactured goods.
13. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of fiscal year 2000, an adjustment was made to the
accounting treatment on the lease on the building at 1958 Kellogg Avenue,
Carlsbad, CA (see Note 8). The lease had been treated as an operating lease
since its inception, June 1999. Upon review of the transaction in the course of
the preparation of the included financial statements for fiscal year 2000, it
was determined that the lease should be treated as a capitalized lease for
accounting purposes. This resulted in recording a $2,925,000 capital lease and
associated capital lease obligations.
PAGE F-25
<PAGE>
14. SUBSEQUENT EVENTS
In July 2000, National Manufacturing Technologies began negotiating the
re-scheduling of the next four quarterly payments due under five and four year
notes payable to GIW, as well as modification to the royalty payment for the
next two semi-annual royalty periods. GIW agreed that if the next note payments
due in October were accelerated to August 2000, the following three quarterly
payments would be re-scheduled to the end of the current payment schedule and
will accrue 8% interest from the original payment date to the new re-scheduled
payment date. In addition, the next royalty payment due December 30, 2000,
would be payable in stock in accordance with the original terms of the agreement
and the payment due June 30, 2001 could be payable in cash or stock at National
Manufacturing Technologies' election. Royalty payments thereafter will return
to be paid in cash only, in accordance with the amendment to the agreement
reached in March 2000. GIW also agreed to take a subordinate position on the
equipment acquired at the time of the original transaction with GIW and in
return National Manufacturing Technologies granted GIW a Warrant to purchase
50,000 shares of common stock at an exercise price of $1.4375 or at a price to
be adjusted at exercise if the stock price is not $2.00 at July 6, 2002.
Subsequent to the end of fiscal year 2000, current and former employees
exercised stock options to purchase a total of 244,164 shares of National
Manufacturing Technologies' common stock. These exercises in the first quarter
of fiscal year 2001, provided $86,584 in cash to National Manufacturing
Technologies.
PAGE F-26
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 2000
ASSETS (UNAUDITED) MARCH 31, 2000
--------------- ----------------
<S> <C> <C>
Current assets:
Cash. . . . . . . . . . . . . . . . . . . . . . . . $ 105,000 $ 101,000
Accounts receivable, net of allowance
of $503,000 and $584,000. . . . . . . . . . . . 3,602,000 2,450,000
Inventories. . . . . . . . . . . . . . . . . . . . . 1,735,000 1,254,000
Prepaid expenses and other . . . . . . . . . . . . . 58,000 31,000
--------------- ----------------
Total current assets. . . . . . . . . . . . . . 5,500,000 3,836,000
Property and equipment, net. . . . . . . . . . . . . . 4,542,000 4,638,000
Goodwill, net. . . . . . . . . . . . . . . . . . . . . 2,637,000 2,373,000
Other assets . . . . . . . . . . . . . . . . . . . . . 13,000 12,000
--------------- ----------------
Total assets . . . . . . . . . . . . . . . . . . . . . $ 12,692,000 $ 10,859,000
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . $ 2,337,000 $ 1,624,000
Accrued liabilities . . . . . . . . . . . . . . . . 1,559,000 1,441,000
Credit facility . . . . . . . . . . . . . . . . . . 2,842,000 2,368,000
Net liabilities of discontinued operations. . . . . 398,000 911,000
Current maturities of long-term debt. . . . . . . . 505,000 547,000
--------------- ----------------
Total current liabilities . . . . . . . . . . . 7,641,000 6,891,000
Other long-term liabilities. . . . . . . . . . . . . . 647,000 557,000
Long-term debt . . . . . . . . . . . . . . . . . . . . 3,498,000 3,563,000
--------------- ----------------
Total liabilities. . . . . . . . . . . . . . . . . . . 11,786,000 11,011,000
--------------- ----------------
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 10,540,000 and 10,114,000 shares
issued and outstanding respectively . . . . . . 21,801,000 21,449,000
Additional paid-in capital. . . . . . . . . . . . . 174,000 166,000
Accumulated deficit . . . . . . . . . . . . . . . . (21,069,000) (21,767,000)
--------------- ----------------
Total shareholders' equity. . . . . . . . . . . 906,000 (152,000)
--------------- ----------------
$ 12,692,000 $ 10,859,000
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE F-27
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
2000 1999
------------ -----------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . $ 5,014,000 $1,753,000
Cost of revenues . . . . . . . . . . . . . . . . 3,376,000 1,158,000
------------ -----------
Gross profit
1,638,000 595,000
Selling, general and administrative expenses. 1,343,000 1,446,000
------------ -----------
Operating income/(loss). . . . . . . . . . . . . 295,000 (851,000)
------------ -----------
Other expense, net . . . . . . . . . . . . . . . (72,000) (77,000)
------------ -----------
Income/(loss) from continuing operations before
income taxes. . . . . . . . . . . . . . . . . 223,000 (928,000)
Provision for income taxes . . . . . . . . . . . -- --
------------ -----------
Income/(loss) from continuing operations . . . . 223,000 (928,000)
Income from discontinued operations. . . . . . . 475,000 391,000
------------ -----------
Net income/(loss). . . . . . . . . . . . . . . . $ 698,000 $ (537,000)
============ ===========
Basic net income/(loss) per share:
Continuing operations . . . . . . . . . . . . $ 0.02 $ (0.09)
Discontinued operations . . . . . . . . . . . $ 0.05 $ 0.04
------------ -----------
Net income/(loss) . . . . . . . . . . . . . . $ 0.07 $ (0.05)
============ ===========
Basic weighted average number of common shares
============ ===========
outstanding. . . . . . . . . . . . . . . . . . 10,234,000 9,914,000
============ ===========
Diluted net income/(loss) per share:
Continuing operations . . . . . . . . . . . . $ 0.02 $ (0.09)
Discontinued operations . . . . . . . . . . . $ 0.04 $ 0.04
------------ -----------
Net income/(loss) . . . . . . . . . . . . . . $ 0.06 $ (0.05)
============ ===========
Diluted weighted average number of common
============ ===========
shares outstanding. . . . . . . . . . . . . . 12,089,000 9,914,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
PAGE F-28
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss): . . . . . . . . . . . . . . . . . . . . . . . $ 698,000 $ (537,000)
Net income from discontinued operations. . . . . . . . . . . . . 475,000 391,000
------------ ------------
Net income/(loss) from continuing operations . . . . . . . . . . 223,000 (928,000)
Adjustments:
Depreciation and amortization. . . . . . . . . . . . . . . 125,000 14,000
Amortization of goodwill . . . . . . . . . . . . . . . . . 51,000 19,000
Provision for doubtful accounts. . . . . . . . . . . . . . (81,000) (35,000)
Provision for inventory. . . . . . . . . . . . . . . . . . -- 8,000
Options issued for compensation. . . . . . . . . . . . . . 7,000 --
Changes in assets and liabilities, net of assets acquired:
Accounts receivable . . . . . . . . . . . . . . . . . . (1,071,000) 626,000
Inventories . . . . . . . . . . . . . . . . . . . . . . (481,000) (98,000)
Prepaid expenses and current assets . . . . . . . . . . (27,000) (53,000)
Other assets. . . . . . . . . . . . . . . . . . . . . . -- 50,000
Accounts payable. . . . . . . . . . . . . . . . . . . . 713,000 (467,000)
Accrued liabilities . . . . . . . . . . . . . . . . . . 118,000 65,000
Other long-term liabilities . . . . . . . . . . . . . . 90,000 --
------------ ------------
Cash used in continuing operations . . . . . . . . . . . . . (333,000) (799,000)
Cash provided by (used in) discontinued operations . . . . . (38,000) 2,493,000
------------ ------------
Cash provided by (used in) operations. . . . . . . . . . . . . . (371,000) 1,694,000
------------ ------------
Cash flows from investing activities:
(Acquisition) disposal of property and equipment . . . . . . (30,000) 22,000
Costs of acquisitions. . . . . . . . . . . . . . . . . . . . (50,000) (76,000)
------------ ------------
Cash used in investing activities. . . . . . . . . . . . . . . . (80,000) (54,000)
------------ ------------
Cash flows from financing activities:
Borrowings (payments) under credit facility and long-term debt . 368,000 (1,820,000)
Cash received for the issuance of stock. . . . . . . . . . . . . 87,000 --
Proceeds from sale of land and building. . . . . . . . . . . . . -- 651,000
------------ ------------
Cash provided by (used in) financing activities. . . . . . . . . 455,000 (1,169,000)
------------ ------------
Increase in cash. . . . . . . . . . . . . . . . . . . . . . . . $ 4,000 $ 471,000
Cash at beginning of period. . . . . . . . . . . . . . . . . . . 101,000 42,000
------------ ------------
Cash at end of period. . . . . . . . . . . . . . . . . . . . . . $ 105,000 $ 513,000
============ ============
Supplemental disclosure of non-cash investing and financing
activities:
Cash paid for acquisition. . . . . . . . . . . . . . . . . . . $ 265,000 --
Common stock issued. . . . . . . . . . . . . . . . . . . . . . $ 265,000 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE F-29
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 2000 AND MARCH 31, 2000 AND
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(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. National Manufacturing
Technologies is a value-added manufacturing company, specializing in the
manufacture of enclosed electronic systems and their various component
assemblies. On June 5, 1998, National Manufacturing Technologies acquired I-PAC
Manufacturing, Inc. ("I-PAC"). On July 1, 1998, National Manufacturing
Technologies acquired the assets and business of MGM Techrep, Inc., and formed
PHRX Rep Co. On November 27, 1998, National Manufacturing Technologies acquired
certain assets and the business operations of Amcraft and incorporated the
operations as I-PAC Precision Machining, Inc. On December 18, 1998, National
Manufacturing Technologies 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 National
Manufacturing Technologies from the date of acquisition. In addition, on June
21, 1999, National Manufacturing Technologies 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. 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
National Manufacturing Technologies 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 National Manufacturing Technologies' 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 National Manufacturing
Technologies' Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended March 31, 2000. The results for the interim
periods presented are not necessarily indicative of results to be expected for a
full year.
National Manufacturing Technologies' accompanying financial statements have been
prepared assuming National Manufacturing Technologies will continue as a going
concern. As discussed in National Manufacturing Technologies' Form 10-KSB, for
the year ended March 31, 2000, National Manufacturing Technologies has
experienced recurring losses in prior years and has a working capital deficiency
on its balance sheet. National Manufacturing Technologies believes that the
quarter ended June 30, 2000 is indicative of operating results that are required
to continue as a going concern. For the quarter ended June 30, 2000, National
Manufacturing Technologies reported income from continuing operations of
$223,000 as compared to a net loss of $928,000 from continuing operations. In
addition, National Manufacturing Technologies' balance sheet as of June 30, 2000
reflects positive shareholder's equity of $906,000 as compared to a
shareholder's deficit as of March 31, 2000 of $152,000.
PAGE F-30
<PAGE>
2. CREDIT FACILITY
On June 18, 1999, National Manufacturing Technologies entered into a $1,500,000
credit facility with its primary lender that included a $1,200,000 A/R line of
credit and a $300,000 term loan. 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). In
December 1999, the A/R line was increased to $2,000,000, and two inventory lines
for $650,000 were added to the existing line. In June 2000, the A/R line was
increased to $3,000,0000. Outstanding borrowings are collateralized by
primarily all of National Manufacturing Technologies' assets. Total borrowings
under the metal inventory line is limited to the lesser of $300,000 or 70% of
the cost of eligible metal inventory (as defined under the agreement). Total
borrowings under the electronics inventory is limited to the lesser of $350,000
or 35% of eligible electronics inventory (as defined under the agreement). The
line of credit expires on June 30, 2001. The balance outstanding as of August
11, 2000 was $2,408,000 on the A/R line, $288,000 on the term loan, and $420,000
on the inventory lines. The line of credit accrues interest on outstanding
borrowings at the bank's prime rate plus 4% per annum.
On July 6, 2000, in conjunction with the A/R line increase in June 2000,
National Manufacturing Technologies issued a Warrant to purchase common stock to
its primary lender. The Warrant allows the holder to purchase 200,000 shares of
National Manufacturing Technologies' common stock at a price of $1.43 per
shares; the Warrant expires on June 18, 2001.
In June 1999 National Manufacturing Technologies 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). National Manufacturing Technologies paid all outstanding
balances under this credit facility on June 21, 1999.
3. SEGMENT INFORMATION
National Manufacturing Technologies' operations are classified into two
reportable business segments: Electronic Manufacturing Services and Metal
Manufacturing Services. Electronic Services manufactures and sells electronic
products, including electronic enclosed systems, utilized in technology
intensive products and business environments. This segment is primarily
comprised of I-PAC. Metal Services manufactures and sells stamped and machined
metal products and services, including phosphate and heat treat services,
utilized in military, government and commercial weaponry products. This segment
is comprised of NMT and Precision Machining.
In evaluating financial performance, management focuses on operating income as a
measure of profit or loss. Operating income is before interest expense, interest
income and income tax expense. Other includes corporate expenses, charges that
do not relate to current operations, divested operations and inter-company
eliminations. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The following table
summarizes financial information by business segment from continuing operations.
PAGE F-31
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
------------------ ------------------
JUNE 30, 2000 JUNE 30, 1999
--------------- ---------------
(000's omitted)
REVENUE:
<S> <C> <C>
Electronic Services. . . . . . $ 3,526 $ 885
Metal Services . . . . . . . . 1,488 842
Other. . . . . . . . . . . . . - 26
--------------- ---------------
Total. . . . . . . . . . . . . $ 5,014 $ 1,753
=============== ===============
SEGMENT OPERATING PROFIT (LOSS):
Electronic Services. . . . . . $ 550 $ (334)
Metal Services . . . . . . . . (190) (517)
Other. . . . . . . . . . . . . (65) --
--------------- ---------------
Total. . . . . . . . . . . . . $ 295 $ (851)
=============== ===============
</TABLE>
4. COMPREHENSIVE INCOME
As of April 1, 1998, National Manufacturing Technologies 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 income (loss) in addition to net income (loss) for the period.
National Manufacturing Technologies had no components of comprehensive income
during the periods presented.
5. INCOME TAXES
National Manufacturing Technologies' effective tax rate differs from the
statutory tax rate due to valuation allowances on deferred tax assets.
6. BASIC AND DILUTED LOSS PER SHARE
In December 1997, National Manufacturing Technologies 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 10,234,000 and 9,914,000, in the first quarters of
fiscal years 2000 and 1999, respectively. Diluted EPS reflects the potential
dilution of securities that could share in the earnings of National
Manufacturing Technologies, similar to fully diluted EPS. Incremental shares
from assumed conversions of options and warrants representing approximately
1,736,000 shares were used in computations of diluted earnings per share for the
three months ended June 30, 2000. For the three month period ended June 30,
2000, outstanding options and warrants for the purchase of approximately 103,000
shares were not used in computations of diluted earnings per share because they
were priced above the average market value for the three month period ending
June 30, 2000. For the three months ended June 30, 1999, options and warrants to
purchase approximately 1,607,000 shares were not used in computations of diluted
earnings per share because their effect was anti-dilutive.
PAGE F-32
<PAGE>
7. DISCONTINUED OPERATIONS
Photomatrix Imaging, Inc. and Photomatrix, Ltd.
----------------------------------------------------
On March 2, 1999, National Manufacturing Technologies 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, National Manufacturing Technologies 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 National Manufacturing
Technologies approximately $2,100,000 in cash 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 National Manufacturing Technologies'
engineering facilities located in Chandler, Arizona, as well as its facilities
in Great Britain. 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
National Manufacturing Technologies. The purchase price was subject to
adjustment based upon certain additional due diligence to be completed by
Scan-Optics within ninety days. There was no subsequent adjustment.
Current and prior period balances have been reclassified to present Imaging and
Ltd., as a discontinued operation.
Lexia Systems, Inc.
---------------------
During fiscal 1997, National Manufacturing Technologies sold its court reporting
business (Xscribe Legal Systems, Inc.) and discontinued Lexia Systems, Inc. Of
the total liabilities related to Lexia Systems, Inc. $457,000 is related to
accounts payable and unpaid rent claims to International Computers Limited, Inc.
("ICL"). Current year income from discontinued operations included $457,000 for
the write-off of accounts payable and unpaid rent claims of ICL which had been
carried on Lexia's books. Lexia had disputed these liabilities with respect to
ICL in light of its own offsetting claims and defenses. The legal statute of
limitations on these ICL claims expired in the quarter ended June 30, 2000.
8. ACQUISITION OF I-PAC MANUFACTURING, INC.
On March 16, 1998, National Manufacturing Technologies entered into an Agreement
and Plan of Merger and Reorganization with I-PAC Manufacturing, Inc. The
Agreement was approved by the shareholders of National Manufacturing
Technologies 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 National Manufacturing Technologies' Common
Stock and possibly additional 4,652,000 shares of National Manufacturing
Technologies' 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 National Manufacturing Technologies' 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 National Manufacturing Technologies' outstanding options and
warrants will be treated as additional costs of the acquired enterprise and
amortized accordingly over the benefit period. On December 30, 1999, Roy
Gayhart former Chief Financial Officer of National Manufacturing Technologies,
Inc., exercised a stock option grant for the purchase of 40,000 shares of
National Manufacturing Technologies' common stock. Per the terms of the Merger
this stock option exercise triggered the issuance of additional 40,000 shares to
the I-PAC Shareholders (the I-PAC Shareholders are Patrick W. Moore, National
Manufacturing Technologies' Chief Executive Officer, Chairman of the Board and
major shareholder, William L. Grivas, a major shareholder, James P. Hill, a
director and major shareholder and Michael Moore, a director), allocated among
them in proportion to their ownership of I-PAC shares as of the closing date of
the Merger. This issuance was ratified by the Board of Directors Compensation
Committee on January 7, 2000. During the quarter ended June 30, 2000, 181,664
shares were issued to the former I-PAC shareholders in relation to the exercise
PAGE F-33
<PAGE>
of pre-merger stock options. As of August 1, 2000, a total of 488,321 shares
have been issued to the former I-PAC shareholders in relation to the exercise of
pre-merger stock options and 254,416 pre-merger options and warrants remain
outstanding which, if exercised, would result in additional issuances of shares
to the former I-PAC shareholders. The Merger was accounted for as a purchase of
I-PAC by National Manufacturing Technologies 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 National
Manufacturing Technologies, and I-PAC's assets and liabilities were recorded on
National Manufacturing Technologies' 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 National Manufacturing Technologies' outstanding options and warrants are
treated in accordance with APB 16, in that any additional shares are 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 is amortized over a twenty year period. As of August 1,
2000, National Manufacturing Technologies is currently reviewing, but has not
yet made a determination as to whether any performance milestones have been
achieved
9. ACQUISITION OF ASSETS OF TECNOLOGIAS NACIONALES MANUFACTURERAS DE MEXICO.
On September 17, 1999, National Manufacturing Technologies entered into an Asset
Purchase Agreement with Mirror USA and Espejomex, S.A. DE C.V. to acquire
certain assets in Tijuana, Mexico which will be used by National Manufacturing
Technologies' 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 for approximately $27,000. 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.
10. RELATED PARTY TRANSACTIONS
During the quarter ended June 30, 2000 National Manufacturing Technologies
recorded approximately $9,000 of goodwill related to earn out accruals from the
July 1, 1998 acquisition of MGM Techrep, Inc., (a company previously owned by
Patrick W. Moore, National Manufacturing Technologies' Chief Executive Officer,
Chairman of the Board and major shareholder, William L. Grivas, a major
shareholder, and James P. Hill, a Director and major shareholder) as compared to
$32,000 in the quarter ended June 30, 1999. During the quarter ended June 30,
2000 National Manufacturing Technologies paid approximately $9,000 of these earn
out accruals as compared to $32,000 during the quarter ended June 30, 1999. At
June 30, 2000 National Manufacturing Technologies had approximately $6,000 in
earn out payments due to MGM.
During the quarter ended June 30, 2000 National Manufacturing Technologies did
not pay anything to Sullivan, Hill, Lewin, Rez, and Engle ("SHLRE") a law firm
in which James P. Hill, a director and major shareholder, is a partner, as
compared to $1,000 during the quarter ended June 30, 1999. In the quarter ended
June 30, 2000, National Manufacturing Technologies paid approximately $7,000 to
R. P. Hill and Lucy Hill, James P. Hill's parents, for the letter of credit they
posted in the amount of $275,000 which guarantees the capitalized lease payment
on the 1958 Kellogg facility; final interest payment is due on July 2, 2003.
On October 1, 1999, National Manufacturing Technologies entered into a new
independent contracting agreement with William L. Grivas, Sr., a major
shareholder, whereby Mr. Grivas would represent National Manufacturing
Technologies in connection with selling or bartering certain inventory and
negotiating settlements of certain of National Manufacturing Technologies'
liabilities. The agreement, expires on September 30, 2002 and may be extended
for twelve months. Under this consulting agreement, Mr. Grivas was paid $33,000
during the quarter ended June 30, 2000.
PAGE F-34
<PAGE>
In the quarter ended June 30, 2000, National Manufacturing Technologies paid
approximately $5,000 and recorded $8,000 in accounts payable to Epitech, Inc., a
company that whose officers and directors include William L. Grivas and Brian
Kissinger (a Director), for materials and services. In addition, National
Manufacturing Technologies recorded accounts receivable to Epitech for $18,000
for the quarter ended June 30, 2000.
During the quarter ended June 30, 2000, the Compensation Committee approved an
agreement with Jim Hill whereas Mr. Hill would provide consulting services to
National Manufacturing Technologies on certain pending business transactions
outside of the normal scope of services of a director. Mr. Hill was paid $5,000
for these services in the quarter ended June 30, 2000.
11. CORPORATE NAME CHANGE
On September 23, 1999 National Manufacturing Technologies' shareholders approved
a change in the name of National Manufacturing Technologies from Photomatrix,
Inc. to National Manufacturing Technologies, Inc. ("NMT"). National
Manufacturing Technologies changed its name to National Manufacturing
Technologies, Inc. to better reflect National Manufacturing Technologies'
currently diverse vertically integrated contract manufacturing business
operations. National Manufacturing Technologies closed its sale of product
rights and related assets of its scanner division to Scan-Optics on June 21,
1999. During this past year, National Manufacturing Technologies 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,
National Manufacturing Technologies believes that the word "manufacturing" is
more expressive of its basic core competency, namely the creation of value-added
manufactured goods.
PAGE F-35
<PAGE>
================================================================================
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO WHICH
WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
7,555,311 SHARES
OF COMMON STOCK
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
TABLE OF CONTENTS
Page
----
Risk Factors 1
Plan of Distribution 5
Use of Proceeds 7
Description of Business 7
Description of Property 13
Directors, Executive Officers and Significant Employees 14
Remuneration of Directors and Officers Security Ownership of
Management and Certain Securityholders 18
Interests of Management and Others in Certain Transactions 19
Securities Being Offered 21
Significant Parties 22
Legal Matters 23
Experts 24
Legal Proceedings 24
Changes in and Disagreements with Accountants 24
Commission Position on Indemnification for Securities Act Liabilities 24
Financial Statements . F-1
____________________
PROSPECTUS
_______________
October 6, 2000
================================================================================
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Registrant eliminate the personal
liability of directors of the Registrant for monetary damages in derivative
actions for breach of a director's duty to the Registrant to the fullest extent
allowed under California law. The Articles of Incorporation and Bylaws of the
Registrant also provide for indemnification of directors, officers and other
agents of the Registrant to the fullest extent allowed by law. The Registrant
also has entered into indemnification agreements with directors, officers and
certain key employees that provide for indemnification to the maximum extent
permitted by law and provide for advances of defense costs and expenses, subject
to an undertaking to repay the advanced amounts if the person ultimately is not
entitled to indemnification.
Directors, officers and other agents may be indemnified for judgments, fines,
settlements or other amounts paid in the resolution of claims brought by a third
party if the indemnified person acted in good faith and in a manner that the
indemnified person reasonably believed to be in the best interest of a
corporation and its shareholders, and in the case of a criminal proceeding, the
indemnified person has no reasonable cause to believe the conduct was unlawful.
In derivative actions and actions brought by the Registrant, directors, officers
and other agents may be entitled to indemnification against expenses incurred
for the defense or settlement of such action if the indemnified person acted in
good faith in a manner that person believed to be in the best interest of the
corporation and its shareholders and with such care, including reasonable
inquiry, as an ordinarily prudent person in like position would have used under
similar circumstances.
The Registrant currently maintains policies of directors' and officers'
liability insurance. The Registrant has a separate executive risk policy that
insures against fiduciary liability and commercial crime.
ITEM 2. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION.
The following table sets forth the estimated expenses in connection with
the offering described in this registration statement
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee. . . . . . $ 2,157
Printing and engraving expenses 1,500
Legal fees and expenses . . . . 1,500
Blue Sky fee and expenses . . . 1,500
Accounting fees and expenses. . 5,000
Miscellaneous . . . . . . . . . 1,000
-------
Total. . . . . . . . . . $12,657
=======
</TABLE>
ITEM 3. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
PAGE II-1
<PAGE>
offered (if the total value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed with the
SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price present no more than a 20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described under Item 15 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 4. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
On March 16, 1998, we entered into an Agreement and Plan of Merger and
Reorganization with I-PAC Manufacturing, Inc. The Agreement was approved by our
shareholders 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 our common stock and possibly additional
4,652,000 shares of our common stock in the event that outstanding options to
purchase our common stock are exercised. These securities are exempted under
Section 4(2) of the Act. In the last year, a total of 644,994 shares have been
issued to the former I-PAC shareholders in relation to the exercise of
pre-merger stock options as follows:
PAGE II-2
<PAGE>
<TABLE>
<CAPTION>
TITLE OF SECURITIES AMOUNT OF SECURITIES NAME OF PERSON TO WHOM SECURITIES
NAME OF ISSUER ISSUED ISSUED WERE ISSUED
-------------- ------------------- -------------------- ---------------------------------
<S> <C> <C> <C>
NMFG . . . . . Common Stock 214,075 William L. Grivas
NMFG . . . . . Common Stock 207,223 Patrick W. Moore
NMFG . . . . . Common Stock 187,639 James P. Hill, Trustee
NMFG . . . . . Common Stock 13,596 Michael R. Moore
NMFG . . . . . Common Stock 22,461 Loma Services
</TABLE>
On December 18, 1998, National Manufacturing Technologies entered into an
Agreement to acquire certain assets and the business operations of Greene
International West, Inc., a metal stamping company located in Oceanside,
California. Green International West recently emerged from a Chapter 11 Federal
Bankruptcy proceeding, which was canceled through the infusion of new capital
funds from its major shareholders. Under the terms of the agreement, we agreed
pay certain royalties (1.75% of sales to existing customers) over a three-year
period. All royalties are payable in common stock or cash, at our election. In
the past year, 52,209 shares of common stock were issued to Green International
West for royalty payments. These securities are exempted under Section 4 (2)
of the Act.
In July 2000, National Manufacturing Technologies began negotiating the
re-scheduling of the next four quarterly payments due under five and four year
notes due to Green International West as well as modification to the royalty
payment for the next two semi-annual royalty periods. Green International West
agreed that if the next note payments due in October were accelerated to August
2000, the following three quarterly payments would be re-scheduled to the end of
the current payment schedule which is December 2003, and will accrue 8% interest
from the original payment date to the new re-scheduled payment date. Green
International West also agreed to take a subordinate position on the equipment
acquired at the time of the original transaction with Green International West
and in return National Manufacturing Technologies granted Green International
West a Warrant to purchase 100,000 shares of common stock at an exercise price
of $1.438 or at a price to be adjusted at exercise if the stock price is not
$2.00 at July 6, 2002. These securities are exempted under Section 4 (2) of the
Act.
In August 2000, Green International West and National Manufacturing
Technologies negotiated a partial forgiveness of debt in relation to the notes
mentioned in the previous paragraph. National Manufacturing Technologies
granted Green International West a Warrant to purchase 400,000 shares of common
stock which was exercised on August 16, 2000 at an exercise price of $1.37 per
share. These securities are exempted under Section 4 (2) of the Act.
National Manufacturing Technologies grants stock options to its employees
and directors in conjunction with their services to National Manufacturing
Technologies. These grants are exempt pursuant to Section 4 (2) of the Act. In
the past year, National Manufacturing Technologies granted the following
unregistered non-qualified, stock options:
PAGE II-3
<PAGE>
<TABLE>
<CAPTION>
TITLE OF SECURITIES AMOUNT OF UNDERLYING NAME OF PERSON TO WHOM SECURITIES
NAME OF ISSUER ISSUED SECURITIES ISSUED WERE ISSUED
-------------- ------------------------------- -------------------- ---------------------------------
<S> <C> <C> <C>
NMFG . . . . . Option to Purchase Common Stock 89,167 Ira Sharp
NMFG . . . . . Option to Purchase Common Stock 92,500 John Staley
NMFG . . . . . Option to Purchase Common Stock 210,000 Roy Gayhart
NMFG . . . . . Option to Purchase Common Stock 640,608 Patrick W. Moore
</TABLE>
R. P. Hill and Lucy L. Hill (the "Hills") posted letter of credit in the
amount of $275,000 which guarantees the capitalized lease payment on National
Manufacturing Technologies' headquarters at 1958 Kellogg. The letter of credit
was posted to release a $275,000 deposit on February 1, 2000. The Hills were
granted a warrant to purchase 50,000 shares of common stock at $0.40 per share,
which expire on January 31, 2005. This transaction is exempt under Section 4
(2) of the Act.
On July 6, 2000, in conjunction with an increase in National
Manufacturing' Technologies' Accounts Receivable line, National Manufacturing
Technologies' issued a Warrant to purchase common stock to its primary lender,
Celtic Capital. The Warrant allows the holder to purchase 200,000 shares of
National Manufacturing Technologies' common stock at a price of $1.43 per
shares; the Warrant expires on June 18, 2001. This transaction is exempt under
Section 4 (2) of the Act.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-1 and has duly caused this registration
statement on Form SB-1 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Carlsbad, State of California, on October 5,
2000.
National Manufacturing Technologies, Inc.
By: /s/ Patrick W. Moore
-----------------------------
Patrick W. Moore,
Chief Executive Officer, President
and Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick W. Moore his or her attorney-in-fact,
with full power of substitution, for him or her in any and all capacities, to
sign any amendments to this Registration Statement, or any related registration
statement that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that said attorney-in-fact, or
his substitutes, may do or cause to be done by virtue thereof.
PAGE II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
SIGNATURE. . . . . . . . . . . TITLE DATE
------------------------------ -------------------------------------- ----
/s/ Patrick W. Moore Chief Executive Officer, October 5, 2000
------------------------------ President and ---------------
Patrick W. Moore Chairman of the Board
/s/ Larry A. Naritelli Principal Accounting Officer October 5, 2000
------------------------------ ---------------
Larry A. Naritelli
/s/ James P. Hill Director October 5, 2000
------------------------------ ---------------
James P. Hill
/s/ Michael J. Genovese Director October 5, 2000
------------------------------ ---------------
Michael J. Genovese
/s/ Michael R. Moore Director October 5, 2000
------------------------------ ---------------
Michael R. Moore
/s/ Binh Q. Le Director October 5, 2000
------------------------------ ---------------
Binh Q. Le
/s/ John G. Hamilton, Jr. Director October 5, 2000
------------------------------ ---------------
John G. Hamilton, Jr.
/s/ Brian L. Kissinger Director October 5, 2000
------------------------------ ---------------
Brian L. Kissinger
</TABLE>
PAGE II-5
<PAGE>
ITEM 5. INDEX TO EXHIBITS
The following exhibits are included as part of this registration statement,
except those exhibits marked as having previously been filed with the Securities
and Exchange Commission and which are incorporated by reference to another
registration statement, report or document. References to the "Company" in this
Exhibit Index mean National Manufacturing Technologies, Inc., a California
corporation.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER. DESCRIPTION PAGE NO.
------- ----------------------------------------------------------------------- ---------
<S> <C> <C>
3.1 . . Amended and Restated Articles of Incorporation (ix)
3.2 . . Amended and Restated Articles of Incorporation dated September 23, 1999 (xviii)
3.3 . . Bylaws (ix)
3.3.1 . Amendment to Bylaws dated June 5, 1998 (xii)
4.4 . . 1998 Stock Option Plan (xxiii)
5 . . . Opinion of Luce, Forward, Hamilton & Scripps LLP Ex-6
10.2. Settlement Agreement dated January 11, 1993 between Photomatrix Corporation
and Scan-Graphics, Inc. (iv)
10.4. Lease Agreement between Photomatrix and EVB Limited Partnership-I dated
December 17, 1987 (iv)
10.5. Lease Agreement between Photomatrix Limited and Bermer Limited dated May
31, 1989 (iv)
10.6. . Promissory Notes dated April 30, 1993 in the aggregate principal amount of
776,607 payable to the following members of the Wyly family and affiliates:
Sam Wyly, Charles Wyly, Jr., Evan Wyly, Donald Miller, First Dallas
International, Ltd., and Premier Partners (iv)
10.7. . Subcontract dated March 31, 1991 between PRC, Inc. and Photomatrix (iv)
10.8. . 1992 Xscribe Stock Option Plan and Sample Agreement (iv)
10.11 . Executive Employment Agreement between the Company and Suren G. Dutia
dated December 20, 1988 (i)
10.11.1 Amendment to Executive Employment Agreement between the Company and
Suren G. Dutia (xii)
10.24 . Description of executive bonus arrangements and executive severance plan (iv)
10.25 . 1994 Xscribe Stock Option Plan and Sample Agreements (vii)
10.30 . Security and Loan Agreement between Imperial Bank and Xscribe Corporation
dated June 17, 1996 and related documents (ix)
10.30.1 Amendment No. 1 to Security and Loan Agreement with Imperial Bank (xii)
10.30.2 Amendment No. 2 to Security and Loan Agreement with Imperial Bank (xii)
10.30.3 Amendment No. 3 to Security and Loan Agreement with Imperial Bank (xii)
10.31 . OEM Purchase Agreement for Photomatrix Scanners dated February 8, 1996
between Bell & Howell Limited and Photomatrix Corporation (Non-public
information has been filed with the Securities and Exchange Commission) (ix)
10.32 . OEM Purchase Agreement for Photomatrix Scanners dated June 12, 1996
between Bell & Howell Operating Company and Photomatrix Corporation
(Non-public information has been filed with the Securities and Exchange
Commission) (ix)
10.33 . Facilities Lease Agreement between Photomatrix and Manufacturers Life dated
November 7, 1996 (x)
10.33.1 Consent by Lessor to Assignment of Facilities Lease Agreement (xii)
10.35 . Business Agreement with Bell & Howell dated December 29, 1997 (xii)
10.35.1 Addendum to Business Agreement with Bell & Howell dated January 5, 1998 (xii)
10.35.2 Amendment to Business Agreement with Bell & Howell dated June 30, 1998 (xiii)
10.35.3 Settlement Agreement with Bell & Howell dated March 24, 1999 (xvii)
10.36 . Agreement and Plan of Reorganization and Merger, dated as of March 16, 1998,
by and among Photomatrix, Inc., Photomatrix Acquisition Corp., and I-PAC
Manufacturing, Inc. (xi)
10.37 . Executive Employment Agreement, dated as of June 5, 1998, between the
Company and Patrick W. Moore (xii)
10.38 . Executive Employment Agreement dated as of June 5, 1998, between the
Company and William L. Grivas (xii)
10.39 . 1998 Photomatrix, Inc. Stock Option Plan and Sample Agreements (xi)
10.40 . Lease Assignment and Assumption Agreement between Photomatrix Imaging
Corp. and Cryogen, Inc. (xiii)
10.41 . Management services Agreement with Dr. John Faessel (xiii)
10.42 . Promissory Note with Imperial Bank (xiii)
10.43 . Credit Agreement with Imperial Bank (xiii)
10.44 . Stock Option Agreement-Patrick W. Moore (xiv)
10.45 . Stock Option Agreement-William L. Grivas, Sr. (xiv)
10.46 . Employee Stock Purchase Plan (xiv)
10.47 . MGM TechRep Asset Transfer Agreement (xiv)
10.48 . Asset Purchase Agreement-National Metal Technologies (xv)
10.48.1 Amendment to Purchase Agreement - National Metal Technologies (xxii)
10.49 . Asset Purchase Agreement-Amcraft (xv)
10.50 . John Deere equipment lease (xv)
10.51 . Agreement between Photomatrix and all affiliates and William L. Grivas, Sr. (xv)
10.52 . KPMG letter to SEC regarding resignation (xvi)
10.53 . Purchase Agreement with Cabot Industrial Properties, L.P. (xvii)
10.54 . Lease Agreement with Cabot Industrial Properties, L.P. (xvii)
10.55 . Asset Purchase Agreement with Scan-Optics, Inc. (xvii)
10.56 . Transition Agreement with Scan-Optics, Inc. (xvii)
10.57 . Loan and Security Agreement with Celtic Capital (xvii)
10.58 . Asset Purchase Agreement - Mirror USA (xviii)
10.59 . Facilities Lease - Tijuana (xviii)
10.60 . Stock Option Agreement with Patrick W. Moore, dated June 5, 1999 (xviii)
10.61 . Employment Agreement with Patrick W. Moore, dated September 23, 1999 (xix)
10.62 . Stock Option Agreement with Patrick W. Moore, dated September 23, 1999 (xix)
10.62.1 Amended Stock Option Agreement with Patrick W. Moore, dated September 23, 1999 (xxii)
10.63 . Stock Option Agreement with Patrick W. Moore, dated October 1, 1999 (xxii)
10.64 . Stock Option Agreement with James P. Hill, dated October 1, 1999 (xxii)
10.65 . Stock Option Agreement with William L. Grivas, Sr., dated October 1, 1999 (xxii)
10.66 . Stock Option Agreement with William L. Grivas, Sr., dated October 1, 1999 (xxii)
10.67 . Stock Option Agreement with Patrick W. Moore, dated January 7, 2000 (xxii)
10.68 . Stock Option Agreement with James P. Hill, dated April 27, 2000 (xxii)
10.69 . Stock Option Agreement with Patrick W. Moore, dated April 27, 2000 (xxii)
10.70 . Stock Option Agreement with William L. Grivas, Sr., dated April 27, 2000 (xxii)
10.71 . Warrant Agreement with R. Putnam Hill and Lucy J. Hill, dated January 31, 2000 (xxii)
23.1. . Consent of Luce, Forward, Hamilton & Scripps LLP (contained in Exhibit 5) Ex-6
23.2. . Independent Auditors' Consent from Levitz, Zacks & Ciceric Ex-7
23.3. . Independent Auditors' Consent from BDO Seidman LLP Ex-8
24.1. . Power of Attorney (see signature pages) II-3
27.1. . Financial Data Schedule (xxii)
</TABLE>
(i) Incorporated by reference to exhibits filed with the Company's Combined
Annual Report to Shareholders and Annual Report on Form 10-K for the fiscal year
ended March 31, 1991, filed with the Securities and Exchange Commission on
June 26, 1991.
Page EX-2
(ii) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1992, filed with the
Securities and Exchange Commission on June 26, 1992.
(iii) Incorporated by reference to exhibits filed with the Company's Post
Effective Amendment No. 2 to its Registration Statement on Form S-2 (No.
33-43036) filed with the Securities and Exchange Commission on June 14, 1993.
(iv) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1993, filed with the
Securities and Exchange Commission on June 29, 1993.
(v) Incorporated by reference to exhibits filed with the Company's Current
Report on Form 8-K dated October 25, 1993, filed with the Securities and
Exchange Commission on November 5, 1993.
(vi) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994, filed with the
Securities and Exchange Commission on June 29, 1994.
(vii) Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on August 18, 1995.
(viii) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995, filed with the
Securities and Exchange Commission on June 29, 1995.
(ix) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996, filed with the
Securities and Exchange Commission on June 25, 1996.
(x) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1997, filed with the
Securities and Exchange Commission on June 30, 1997.
(xi) Incorporated by reference to exhibits to definitive proxy materials
filed on Schedule 14A on May 13, 1998.
(xii) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1998, filed with the
Securities and Exchange Commission on June 29, 1998.
(xiii) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1998, filed with
the Securities and Exchange Commission on August 14, 1998.
Page EX-3
(xiv) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1998, filed
with the Securities and Exchange Commission on November 9, 1998.
(xv) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended December 31, 1998, filed
with the Securities and Exchange Commission on February 16, 1999.
(xvi) Incorporated by reference to exhibits filed with the Company's Report
on Form 8-K filed with the Securities and Exchange Commission on February 26,
1999.
(xvii) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 1999, filed with the
Securities and Exchange Commission on September 9, 1999.
(xviii) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended June 30, 1999, filed with
the Securities and Exchange Commission on November 15, 1999.
(xix) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended September 30, 1999, filed
with the Securities and Exchange Commission on January 8, 2000.
(xx) Incorporated by reference to exhibits filed with the Company's
Quarterly Report on Form 10-QSB for the quarter ended December 31, 1999, filed
with the Securities and Exchange Commission on March 23, 2000.
(xxi) Incorporated by reference to exhibits filed with the Company's Report
on Form 8-K/A filed with the Securities and Exchange Commission on March 30,
2000.
(xxii) Incorporated by reference to exhibits filed with the Company's Annual
Report on Form 10-KSB for the fiscal year ended March 31, 2000, filed with the
Securities and Exchange Commission on August 11, 2000.
(xxiii) Incorporated by reference to exhibits filed with the Company's
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on June 14, 2000.
EX-4
<PAGE>
EXHIBIT 5
October 6, 2000
National Manufacturing Technologies, Inc.
1958 Kellogg Avenue
Carlsbad, CA 92008
Re: Registration Statement on Form SB-1
National Manufacturing Technologies, Inc.
--------------------------------------------
Ladies and Gentlemen:
We are counsel for National Manufacturing Technologies, Inc., a California
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form SB-1 (the "Registration Statement") as to which
this opinion is a part, filed with the Securities and Exchange Commission (the
"Commission") on October 5, 2000 for the resale of up to 7,555,311 shares of
common stock, $.001 par value, of the Company by selling shareholders (the
"Shares").
In connection with rendering our opinion as set forth below, we have reviewed
and examined originals or copies of such corporate records and other documents
and have satisfied ourselves as to such other matters as we have deemed
necessary to enable us to express our opinion hereinafter set forth.
Based upon the foregoing, it is our opinion that:
The issued Shares covered by the Registration Statement and registered on behalf
of the Company, when issued in accordance with the terms and conditions set
forth in the Registration Statement, will be duly authorized, validly issued,
fully paid and nonassessable. The Shares to be issued upon the conversion of
certain warrants and options, as covered by the Registration Statement and
registered on behalf of the Company, when issued in accordance with the terms
and conditions set forth in the Registration Statement, will be duly authorized,
validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus included in the Registration Statement.
Very truly yours,
/s/ LUCE, FORWARD, HAMILTON & SCRIPPS LLP
Luce, Forward, Hamilton & Scripps LLP
EX-6
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of National Manufacturing
Technologies, Inc. on Form SB-1 of our report dated July 11, 2000 (except Note 3
as to which the date is August 1, 2000) appearing in the Prospectus, which is
part of this Registration Statement. We also consent to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ LEVITZ, ZACKS & CICERIC
LEVITZ, ZACKS & CICERIC
San Diego, California
September 28, 2000
EX-7
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
National Manufacturing Technologies, Inc.
Carlsbad, California
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated July 16, 1999, relating to the
consolidated financial statements of National Manufacturing Technologies, Inc.
(formerly Photomatrix, Inc.) for the year ended March 31, 2000, which is
contained in that Prospectus. Our report contains an explanatory paragraph
regarding the Company's ability to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO SEIDMAN, LLP
BDO SEIDMAN, LLP
Costa Mesa, California
October 4, 2000
EX-8
