<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-16055
NATIONAL MANUFACTURING TECHNOLOGIES, INC.
(FORMERLY PHOTOMATRIX, INC.)
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3267788
- ------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1958 KELLOGG AVE., CARLSBAD, CALIFORNIA 92008
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(Address of principal executive offices) (Zip Code)
(760) 431-4999
--------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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- --------------------------------------------------------------------------------
At February 1, 2000, 10,061,894 shares of Common Stock of National Manufacturing
Technologies, Inc. were outstanding.
- --------------------------------------------------------------------------------
Transitional Small Business Disclosure Format.
Yes No X
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<PAGE>
INDEX
NATIONAL MANUFACTURING TECHNOLOGIES, INC
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Consolidated balance sheets as of September 30, 1999 (unaudited) and March 31,1999 2
Unaudited consolidated statements of operations for the three and six months
ended September 30, 1999 and 1998 3
Unaudited consolidated statements of cash flows for the six months ended
September 30, 1999 and 1998 4
Unaudited notes to consolidated financial statements 5
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5: OTHER INFORMATION 14
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
</TABLE>
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
ASSETS (UNAUDITED) MARCH 31, 1999
-------------------- ----------------
<S> <C> <C>
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . $ 355,000 $ 42,000
Accounts receivable, net of allowance
of $209,000 and $292,000. . . . . . . . . . . . 1,601,000 1,448,000
Inventories. . . . . . . . . . . . . . . . . . . . . . 980,000 725,000
Land & building held for sale. . . . . . . . . . . . . -- 2,674,000
Net assets of discontinued operations. . . . . . . . . -- 386,000
Prepaid expenses and other . . . . . . . . . . . . . . 61,000 8,000
-------------------- ----------------
Total current assets. . . . . . . . . . . . . . . 2,997,000 5,283,000
Property and equipment, net. . . . . . . . . . . . . . . 1,900,000 1,918,000
Goodwill, net. . . . . . . . . . . . . . . . . . . . . . 2,163,000 2,088,000
Other assets . . . . . . . . . . . . . . . . . . . . . . 15,000 65,000
-------------------- ----------------
$ 7,075,000 $ 9,354,000
==================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable. . . . . . . . . . . . . . . . . . . $ 1,339,000 $ 1,724,000
Accrued liabilities . . . . . . . . . . . . . . . . . 548,000 745,000
Credit facility . . . . . . . . . . . . . . . . . . . 1,064,000 2,122,000
Mortgage on land & building held for sale . . . . . . -- 2,023,000
Net liabilities of discontinued operations. . . . . . 1,339,000 --
Current maturities of long-term debt. . . . . . . . . 382,000 158,000
-------------------- ----------------
Total current liabilities . . . . . . . . . . . . 4,672,000 6,772,000
-------------------- ----------------
Long-term debt 1,405,000 1,009,000
-------------------- ----------------
Commitments and contingencies
Shareholders' equity:
Preferred Stock, no par value; 3,173,000 shares
Authorized, no shares issued and outstanding. . . . . -- --
Common stock, no par value; 30 million shares
authorized, 9,982,000 and 9,914,000 shares issued
and outstanding, respectively . . . . . . . . . . 21,400,000 21,376,000
Additional paid-in capital. . . . . . . . . . . . . . 61,000 53,000
Accumulated deficit . . . . . . . . . . . . . . . . . (20,463,000) (19,856,000)
-------------------- ----------------
Total shareholders' equity. . . . . . . . . . . . 998,000 1,573,000
-------------------- ----------------
$ 7,075,000 $ 9,354,000
==================== ================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1999 1998 1999 1998
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenue . . . . . . . . . . . . . . . . . . . . $2,491,000 $ 1,132,000 $ 4,244,000 $1,326,000
Cost of revenues. . . . . . . . . . . . . . . . 1,804,000 744,000 2,950,000 915,000
----------- ------------ ------------ -----------
Gross profit. . . . . . . . . . . . . . . . . . 687,000 388,000 1,294,000 411,000
----------- ------------ ------------ -----------
Selling, general and administrative expenses 1,195,000 546,000 2,653,000 663,000
----------- ------------ ------------ -----------
Operating loss. . . . . . . . . . . . . . . . . (508,000) (158,000) (1,359,000) (252,000)
----------- ------------ ------------ -----------
Other income/(expense), net . . . . . . . . . . 67,000 (76,000) (9,000) (109,000)
----------- ------------ ------------ -----------
Loss from continuing operations . . . . . . . . (441,000) (234,000) (1,368,000) (361,000)
Income/(loss) from discontinued operations. . . 371,000 539,000 761,000 (288,000)
----------- ------------ ------------ -----------
Net income/(loss) . . . . . . . . . . . . . . . $ (70,000) $ 305,000 $ (607,000) $ (649,000)
=========== ============ ============ ===========
Basic and diluted net income/(loss) per share:
Continuing operations . . . . . . . . . . . . . $ (0.04) $ (0.02) $ (0.14) $ (0.04)
Discontinued operations . . . . . . . . . . . . $ 0.03 $ 0.05 $ 0.08 $ (0.04)
Net loss. . . . . . . . . . . . . . . . . . . . $ (0.01) $ 0.03 $ (0.06) $ (0.08)
=========== ============ ============ ===========
Weighted average number of
common shares outstanding. . . . . . . . . 9,922,000 10,659,000 9,918,000 8,209,000
=========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30
1999 1998
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income/(loss): $(607,000) $(649,000)
Net income from discontinued operations 761,000 (288,000)
------------ ------------
Net loss from continuing operations (1,368,000) (361,000)
Adjustments:
Depreciation and amortization 87,000 52,000
Amortization of goodwill 38,000 18,000
Provision for doubtful accounts 54,000 (3,000)
Provision for inventory 8,000 --
Options issued for compensation 8,000 30,000
Changes in assets and liabilities, net of assets acquired:
Accounts receivable (207,000) (99,000)
Inventories (263,000) (431,000)
Prepaid expenses and current assets (53,000) 267,000
Intangibles (113,000) --
Other assets 50,000 (7,000)
Accounts payable (385,000) 23,000
Accrued liabilities 28,000 (801,000)
------------ ------------
Cash used in continuing operations (2,116,000) (1,312,000)
Cash provided by (used in) discontinued operations 2,432,000 1,258,000
------------ ------------
Cash provided by (used in) operations 316,000 (54,000)
------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (16,000) (421,000)
Cost of Acquisitions -- (299,000)
Cash provided by the issuance of stock 24,000 --
------------ ------------
Cash provided by (used in) investing activities 8,000 (720,000)
------------ ------------
Cash flows from financing activities:
Borrowings/(payments) under credit facility and long-term debt (662,000) 980,000
(Acquisition)/disposal of land & building held for sale 651,000 28,000
------------ ------------
Cash provided by (used in) financing activities (11,000) 1,008,000
------------ ------------
Effects of exchange rate of discontinued operation on cash -- 5,000
Increase in cash $313,000 $239,000
Cash at beginning of period 42,000 12,000
------------ ------------
Cash at end of period $355,000 $251,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
NATIONAL MANUFACTURING TECHNOLOGIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999 AND MARCH 31, 1999 AND
FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. GENERAL
Basis of Presentation
-----------------------
The accompanying unaudited consolidated financial statements reflect the
accounts of National Manufacturing Technologies, Inc. (formerly Photomatrix,
Inc.; the "Company"), together with its subsidiaries. The Company is a
value-added manufacturing company, specializing in the manufacture of enclosed
electronic systems and their various component assemblies. On June 5, 1998, the
Company acquired I-PAC Manufacturing, Inc. ("I-PAC"). On July 1, 1998, the
Company acquired the assets and business of MGM Techrep, Inc., and formed PHRX
Rep Co. On November 27, 1998, the Company acquired certain assets and the
business operations of Amcraft and incorporated the operations as I-PAC
Precision Machining, Inc. On December 18, 1998, the Company acquired certain
assets and the business operations of Greene International West, Inc. ("GIW")
and incorporated the operations as National Metal Technologies, Inc. ("NMT").
All acquisitions were treated as purchases for accounting and financial
reporting purposes. These companies comprise the manufacturing group. Under
the purchase method of accounting, the results of operations of the acquired
companies are combined with those of the Company from the date of acquisition.
In addition, on June 21, 1999, the Company sold product rights and certain
assets of its document scanner operations to Scan-Optics, Inc. Accordingly,
operational results of the scanner operations have been reclassified as
discontinued operations for the respective periods presented herein. The
balance sheets of the scanner operations have similarly been reclassified as net
assets (liabilities) of discontinued operations. As a result, the three and six
months ended September 30, 1999, reflect the combined operations of I-PAC, PHRX
Rep Co., I-PAC Precision Machining and NMT. The three and six months ended
September 30, 1998 only reflect the operating results of I-PAC, and PHRX Rep Co.
from the dates of acquisition, and no activity related to the I-PAC Precision
Machining and NMT acquisitions. The scanner operations are classified as
discontinued for all periods shown. All significant intercompany transactions
and balances have been eliminated.
Certain information and disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to prevent the
information from being misleading. These unaudited consolidated financial
statements reflect, in the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present the Company's results of
operations and financial position as of the dates and for the periods presented.
These unaudited consolidated financial statements should be read in conjunction
with the audited financial statements and related notes included in the
Company's Report on Form 10-KSB filed with the Securities and Exchange
Commission for the year ended March 31, 1999. The results for the interim
periods presented are not necessarily indicative of results to be expected for a
full year.
2. CREDIT FACILITY
On June 18, 1999 the Company entered into a new $1,500,000 credit facility with
a lender that included a $1,200,000 A/R line of credit and a $300,000 term loan
which matures in August, 2001. The A/R line of credit began funding on July 8,
1999 and the $300,000 term loan was funded on September 9, 1999. The
outstanding balance under these loans as of September 30, 1999 was $1,064,000 on
the A/R line of credit and $294,000 on the term loan. In December 1999, the A/R
credit line was increased to $2,000,000, and two inventory lines totaling
$650,000 were added to the existing credit facility. Outstanding borrowings are
collateralized by primarily all of the Company's assets. The lines of credit
expire on June 30, 2001. The balances outstanding as of January 28, 2000 were
$724,000 on the A/R credit line, $267,500 on the term loan, and $333,000 on the
inventory lines.
<PAGE>
The new lines of credit accrue interest on outstanding borrowings at the prime
rate plus 4% per annum. Under the terms of the new agreement, total borrowings
under the A/R line of credit is limited to the lesser of $2,000,000 or 80% of
eligible accounts receivable (as defined under the agreement). 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
new lines of credit expire in June, 2001.
3. DISCONTINUED OPERATIONS
PHOTOMATRIX IMAGING, INC. AND PHOTOMATRIX, LTD.
On March 2, 1999, the Company approved a plan to sell certain product rights,
assets and liabilities of Photomatrix Imaging, Inc. ("Imaging") and its
wholly-owned subsidiary, Photomatrix, Ltd. ("Ltd."). On June 21, 1999, the
Company completed the transaction whereby it sold product rights and certain
assets of its document scanner operations to Scan-Optics, Inc of Manchester,
Connecticut ("Scan-Optics"). Under the terms of the agreement, Scan-Optics paid
the Company approximately $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 the Company's 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 the Company. The purchase
price is subject to adjustment based upon audit and verification by Scan-Optics
on the closing balance sheet.
Current and prior period balances have been reclassified to present Imaging and
Ltd. as a discontinued operation.
LEXIA SYSTEMS, INC.
Included in net liabilities from discontinued operations are certain liabilities
under dispute by Lexia Systems, Inc., a wholly owned subsidiary that was
discontinued in December, 1996. Currently, Lexia carries on its books accounts
payable and unpaid rent claims of International Computers Limited, Inc. ("ICL")
and related entities in the amount of $457,000. Lexia disputes any liability
with respect to ICL in light of its own offsetting claims and defenses. There
is no assurance that Lexia will be successful in prevailing in its position with
regard to the outstanding claims previously made by ICL.
<PAGE>
4. BASIC AND DILUTED LOSS PER SHARE
In December 1997, the Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share." SFAS No. 128
supersedes APB No. 15 and replaces "primary" and "fully diluted" earnings per
share ("EPS") under Accounting Principles Board ("APB") Opinion No. 15 with
"basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the dilutive
effects of options, warrants and other convertible securities. The weighted
average number of common shares outstanding used in computing basic EPS was
9,922,000 and 10,659,000, in the second quarters of fiscal years 2000 and 1999,
respectively, and 9,918,000 and 8,209,000, in the six month periods ended
September 30, 1999 and 1998, respectively. Diluted EPS reflects the potential
dilution attributable to securities that could share in the earnings of the
Company, similar to fully diluted EPS. Incremental shares from assumed
conversions of options and warrants representing approximately 728,000 shares
were used in computations of diluted earnings per share for the three months
ended September 30, 1998. For the three month period ended September 30, 1998,
outstanding options for the purchase of approximately 28,000 shares were not
used in computations of diluted earnings per share because they were priced
above market value as of September 30, 1998. For the three and six months ended
September 30, 1999, options and warrants to purchase approximately 2,182,000
shares were not used in computations of diluted earnings per share because their
effect was anti-dilutive. The adoption of SFAS No. 128 did not have a material
effect on the Company's net income/loss per common share.
5. ACQUISITION OF I-PAC MANUFACTURING, INC.
On March 16, 1998, the Company entered into an Agreement and Plan of Merger and
Reorganization with I-PAC Manufacturing, Inc. The Agreement was approved by the
shareholders of the Company on June 5, 1998, and the transaction closed on June
11, 1998. As a result of the Merger, the 8,500 outstanding shares of I-PAC
common stock were exchanged for 4,848,000 shares of Photomatrix Common Stock and
possibly additional 4,652,000 shares of the Company's common stock in the event
that I-PAC achieves certain performance milestones during a twelve month period
commencing on July 1,1998 or outstanding options to purchase the Company's
common stock are exercised. As of December 31, 1999, the Company has not
made a determination as to whether any performance milestones have been
achieved.
If any performance milestones are met, the issuance of additional shares awarded
to I-PAC shareholders under the earn-out formula and/or in connection with the
exercise of the Company's outstanding options and warrants will be treated as
additional costs of the acquired enterprise and amortized accordingly over the
benefit period. The Merger was accounted for as a purchase of I-PAC by the
Company for accounting and financial reporting purposes. Under the purchase
method of accounting, upon closing of the Merger, I-PAC's results of operations
were combined with those of the Company, and I-PAC's assets and liabilities were
recorded on the Company's books at their respective fair values. The purchase
price, amounting to $2,191,000, was comprised of the value of the stock plus
acquisition costs and was allocated among the assets acquired and the
liabilities assumed. The issuance of additional shares awarded to I-PAC
shareholders under the earn-out formula and/or in connection with the exercise
of Photomatrix outstanding options and warrants will be treated in accordance
with APB 16, in that any additional shares will be treated as additional costs
of the acquired enterprise and amortized accordingly over the benefit period.
The $2,200,000 excess of the purchase price over the fair value of I-PAC's net
assets will be amortized over a twenty year period.
If the I-PAC transaction had been consummated at the beginning of fiscal year
1998, the Company's consolidated revenues, net income (loss) and net income
(loss) per share for the six months ended September 30, 1998 would have been:
<TABLE>
<CAPTION>
Six Months Ended September 30,
------------------------------
1998
-----------
<S> <C>
Revenues $1,874,000
Net loss from continuing operations $(595,000)
Net loss per share from continuing
operations, basic and diluted $(0.07)
</TABLE>
6. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted SFAS No. 130 "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components. SFAS No. 130 requires the cumulative
translation adjustment to be included as a component of comprehensive loss in
addition to net loss for the period. The Company had no components of
comprehensive income during the periods presented.
<PAGE>
7. ACQUISITION OF ASSETS OF TECNOLOGIAS NACIONALES MANUFACTURERAS de MEXICO.
On September 17, 1999, the Company entered into an Asset Purchase Agreement with
Mirror USA and Espejomex, S.A. DE C.V. to acquire certain assets in Tijuana,
Mexico which will be used by the Company's newly-created subsidiary, Tecnologias
Nacionales Manufactureras de Mexico. On August 25, 1999 Tecnologias Nacionales
Manufactureras de Mexico executed a lease of a 18,000 square foot manufacturing
facility located approximately five miles from the Otay Mesa border crossing in
Tijuana. The asset acquisition was a cash purchase. The 3-year lease agreement
calls for monthly lease payments of $4,500 for the first four months, $5,700
until August 2000, $5,900 until August 2001 and $6,000 until August 2002.
8. CORPORATE NAME CHANGE
On September 23, 1999 the Company's shareholders approved a change in the name
of the Company from Photomatrix, Inc. to National Manufacturing Technologies,
Inc. ("NMT"). The Company changed its name to National Manufacturing
Technologies, Inc. to better reflect the Company's currently diverse vertically
integrated contract manufacturing business operations. The Company closed its
sale of product rights and related assets of its scanner division to Scan-Optics
on June 21, 1999. During this past year, the Company has continued to
accomplish its strategy of vertically integrating complementary manufacturing
services to OEM customers, as demonstrated by its recent acquisitions of
National Metal Technologies, Inc. and I-PAC Precision Machining, Inc. Also, the
Company believes that the word "manufacturing" is more expressive of its basic
core competency, namely the creation of value-added manufactured goods.
9. RELATED PARTY TRANSACTIONS
During the three months ended September 30, 1999, the Company recorded
approximately $10,000 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 $43,000 in the
three months ended September 30, 1998. During the six months ended September
30, 1999, the Company recorded approximately $42,000 of goodwill related to
these earn out accruals. During the three months ended September 30, 1999 the
company paid $18,900 of these earn out accruals.
During the quarter ended September 30, 1999 the Company paid approximately
$70,000 to Sullivan, Hill, Lewin, Rez, Engle and LaBazzo, a law firm in which
James P. Hill, a director and major shareholder, is a partner. The Company also
paid William Grivas, a major shareholder, approximately $19,000 in consulting
fees during this quarter. At September 30, 1999, the Company had accrued
approximately $14,000 in legal fees due to Sullivan, Hill, Lewin, Rez, Engle and
LaBazzo, and also accrued an additional $6,000 in consulting fees to William
Grivas.
All related party transactions are reviewed and approved by the Audit Committee
of the Board of Directors.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the consolidated financial
statements and unaudited notes to consolidated financial statements included
elsewhere herein.
THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1998
CONTINUING OPERATIONS
On June 5, 1998, the Company acquired I-PAC and on July 1, 1998 the Company
acquired MGM. Both acquisitions were treated as purchases for accounting and
financial purposes. Accordingly, the three month period ending September 30,
1999 represents the first full quarter of comparative results with the prior
year for the Electronic Manufacturing Services Group ("EMS"). As the Company
acquired I-PAC Precision Machining, Inc., and NMT subsequent to September 30,
1998, the 1998 periods presented do not include the operations of the Metal
Manufacturing Services Group ("MMS").
Consolidated revenues for the quarter ended September 30, 1999 totaled
approximately $2,491,000. EMS revenue increased $686,000 or 60.6% to $1,818,000
from $1,132,000 for the quarter ended September 30, 1998. Additionally there
was $673,000 of MMS revenue. The increase in EMS revenue is primarily
attributable to a significant increase in shipments to a major customer over the
same time period last year. Also, revenues during the quarter ended September
30, 1998 were negatively impacted by the relocation of the scanner operation to
the Carlsbad facility.
Consolidated gross margin for the quarter ended September 30, 1999 increased
$299,000 or 77.1% to $687,000 from $388,000 for the quarter ended September 30,
1998. This increase is primarily attributable to the increase in revenues in
the EMS Group. Total gross margin as a percent of revenues was 27.6% for the
three months ended September 30, 1999 as compared to 34.3% during the same
period of 1998. The 1999 amount is comprised of approximately $517,000 or 28.4%
of electronic manufacturing services gross margin, and $170,000 or 25.3% of
metal manufacturing services gross margin. EMS gross margin decreased
approximately 5.9% to 28.4% from 34.3% in the quarter ended September
30, 1998. The consolidated gross margin represents an amount considered by
management to be less than expected under normal operating conditions. The tight
cash position combined with lower volume in the MMS Group created inefficiencies
in operations which caused higher material and labor costs during the quarter.
Consolidated selling, general, and administrative ("SG&A") expenses for the
quarter ended September 30, 1999 included $430,000 of MMS expenses and therefore
increased $219,000 or 40.1% to approximately $1,195,000. This amount is
comprised of approximately $375,000 of corporate general and administrative
expenses, $390,000 of electronic manufacturing services SG&A expenses, and
$430,000 of metal manufacturing services SG&A expenses. No corporate general
and administrative expenses were allocated to discontinued operations; therefore
all SGA expenses for the full quarter are allocated to continuing operations.
Consolidated other income for the quarter ended September 30, 1999 totaled
approximately $67,000 compared to an expense of $76,000 for the quarter ended
September 30, 1998. It was comprised primarily of interest expense of $42,000
and other income of $109,000. The other income resulted from accounts payable
settlements in the amount of $76,000, rental income of $23,000, and
miscellaneous income of $10,000.
<PAGE>
The net effect of the increases in revenues and increases in other income
resulted in a consolidated net loss from continuing operations of $441,000
($0.04 per share) for the quarter ended September 30, 1999. This is an increase
of $207,000 or 88.5% from the net loss from continuing operations from the same
period in 1998 of $234,000. This increase was comprised of a net loss in the EMS
Group of $76,000 or 4.2%, a decrease of $158,000 or 67.5%, compared to a net
loss of $234,000 or 20.6% for the quarter ended September 30, 1998, and a net
loss of $364,000 or 54.0% in the MMS Group. The loss in the MMS Group was due
mainly to low volume.
Management believes the level of output at the MMS Group is significantly less
than normal operating conditions. The low volume of activity is expected to
continue through the December 31, 1999 quarter. Significant recent contract
awards to the MMS Group will result in increased revenues in the quarter ending
March 31, 2000. Current MMS Group backlog for shipments due in the quarter
ending March 31, 2000 is approximately $1,500,000. Total backlog for the MMS
Group, including multi-year contracts, is approximately $14,000,000.
Including the gain from discontinued operations, the net loss for the quarter
ended September 30, 1999 was $70,000 ($0.01 per share) compared to net income
for the quarter ended September 30, 1998 of $305,000 ($0.03 per share).
DISCONTINUED OPERATIONS
On June 21, 1999, the Company closed the sale of its scanner operations to
Scan-Optics.
Income related to discontinued operations for the current quarter was $371,000.
This compares with income from discontinued operations for the three months
ended September 30, 1998 related to scanner operations of $539,000. The
current quarter gain was comprised of approximately $218,000 accruals for
inventory reserves related to the Photomatrix scanner operation that were not
required, $73,000 of accounts receivable reserves for the Photomatrix scanner
operation that were not required, $65,000 of accruals for estimated losses at
Lexia that were not required, and $15,000 of miscellaneous accruals for the
Photomatrix scanner operation that were not required. Current liabilities
related to the disposal of the scanner operation total approximately $802,000.
The Company is in the process of negotiating settlements on some of these
remaining liabilities and may generate additional savings based on these
settlements, although there can be no assurance that these settlements will
result in additional income.
During fiscal 1997, the Company sold its court reporting business (Xscribe Legal
Systems, Inc.) and discontinued Lexia Systems, Inc. Current liabilities related
to Lexia Systems, Inc. total approximately $536,000. The income for the three
months ended September 30, 1999 related to Lexia Systems, Inc is $65,000 for
accruals for estimated losses that were not required.
SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE SIX MONTHS ENDED
SEPTEMBER 30, 1998
During the quarter ended June 30, 1998, the Company completed the move of its
operations into I-PAC's facility located in Carlsbad, California. As expected,
this move was disruptive and resulted in certain operating inefficiencies.
Consolidated revenues in the six months ended September 30, 1999 increased
$2,918,000 or 220.0% to $4,244,000 from $1,326,000 in the six months ended
September 30, 1998. This increase was primarily attributable to the fact that
the EMS Group was not operating for a full six months in 1998 but only from June
5, 1998 through September 30, 1998, and the MMS Group was not in operation
during this time period in 1998. The MMS acquisitions did not occur until
December 1998. If the EMS Group had operated for a full six months the revenues
would have increased $824,000 or 44.0% to $2,698,000 from $1,874,000. The
increase is primarily attributable to a significant rise in sales to a major
customer.
<PAGE>
Consolidated gross margin in the six months ended September 30, 1999 increased
$883,000 or 214.8% to $1,294,000 from $411,000 in the six months ended September
30, 1998. The overall 30.5% gross margin during the six months just ended was
slightly less than the 31.0% gross margin percentage for the same period of the
prior year. Of the $1,294,000 gross margin, $422,000 was related to the MMS
Group and $872,000 was related to the EMS Group.
Selling, general and administrative expenses ("SG&A") in the six months ended
September 30, 1999 increased $1,990,000 or 300.0% to $2,653,000 from $663,000
in the six months ended September 30, 1998. These increases were primarily the
result of the inclusion of MMS expenses and a shorter time period in 1998 for
EMS expenses. As a percent of revenue, SG&A in the six months ended September
30, 1999 increased to 62.5% from 50.0% in the six months ended September 30,
1998, primarily as a result of low revenues in the MMS unit during the first six
months of 1999.
Other expense of $10,000 in the six months ended September 30, 1999 compares to
expense of $109,000 in the six months ended September 30, 1998. This expense is
comprised of $152,000 of interest expense and $143,000 of income from rent and
A/P settlements. The net decrease of $100,000 is primarily the result of
settlement income.
There was no provision for income taxes booked in the six months ended September
30, 1999, the same as in the six months ended September 30, 1998, because of the
effects of net operating loss carry forwards.
The net effect of the increases in SG&A and the low volume in the MMS Group
resulted in an increase in the loss from continuing operations between years of
$1,008,000, to $1,369,000 in the six months ended September 30, 1999, or $0.14
per share, compared to $361,000 or $0.04 per share in the six months ended
September 30, 1998. There was income from discontinued operations in the
current six months ended September 30, 1999 of $761,000, or $0.08 per share,
compared to a loss of $288,000, or $.04 per share from discontinued operations
in the six months ended September 30, 1998. The results were a net loss of
$607,000 or $0.06 in the current six months period compared to a loss of
$649,000 or $0.08 per share in the prior six months period.
Significant recent contract awards to the MMS Group will result in increased
revenues in the year ending March 31, 2000. Current MMS Group backlog for
shipments due in the quarter ending March 31, 2000 is approximately $1,500,000.
Total backlog for the MMS Group, including multi-year contracts, is
approximately $14,000,000.
LIQUIDITY AND CAPITAL RESOURCES
RECENT AND FUTURE SOURCES OF AND DEMANDS ON LIQUIDITY AND CAPITAL RESOURCES
On June 18, 1999, the Company 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
the Company's 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 January 28, 2000 was $724,000 on the
A/R line, $267,500 on the term loan, and $333,000 on the inventory lines. The
line of credit accrues interest on outstanding borrowings at the bank's prime
rate plus 4% per annum.
<PAGE>
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. The Company 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%.
The Company is obligated under a series of notes payable totaling $271,000 as of
September 30, 1999. These notes bear interest at a rate of 8% per annum and
mature in April 2000. Interest and principal payments totaling $16,000 are due
monthly. Since October 1998, the Company made two payments on these notes in
July 1999 and August 1999. The Company is attempting to accelerate the monthly
payments required under these notes. These notes are included in net liabilities
of discontinued operations.
The Company also has certain equipment notes in the aggregate amount of $26,000
with interest rates varying between 8% and 26.6% with final payments due between
2000 and 2005. These notes are collateralized by equipment. In addition, the
Company also has certain capital leases in the aggregate amount of $267,000,
calling for minimum monthly payments aggregating approximately $15,000 per
month.
During September 1998, The Company's wholly owned subsidiary, Lexia Systems,
settled its outstanding dispute with Fujitsu. As a result, the Company reduced
its previously recorded liability of $340,000 to Fujitsu to $200,000 and began
making payments against this liability in November 1998 with the final payment
due to Fujitsu in June 1999. As of December 1999, the Company has made payments
totaling $25,000 since July 1999 on this liability which is currently at a
balance of $65,000. Lexia also has recorded liabilities reflecting accounts
payable and unpaid rent claims of ICL and related entities in the amount of
$457,000 at September 30, 1999. These liabilities are included in net
liabilities of discontinued operations. Lexia disputes any liability with
respect to ICL in light of its own offsetting claims and defenses. There is no
assurance that Lexia will be successful in prevailing in its position with
regard to outstanding claims previously made by ICL.
The Company's sources of future short-term liquidity are its cash balance of
$355,000 as of September 30, 1999, and the unused amount of its $2.95 million
credit facility. $2.0 million of this credit facility is a line of credit
against eligible accounts receivable. $300,000 of the credit facility is a term
loan that funded on September 30, 1999 and is due in equal monthly installments
of $6,250 over 2 years with a final payment of $150,000. $650,000 of the credit
facility can be used against eligible inventory. Availability under the line of
credit can be limited based upon the balance of eligible accounts receivable as
described above. Availability under the inventory lines of credit can be
limited based upon the balance of eligible metal inventory and electronics
inventory as described above. Increased limits for this line were established
in December, 1999. The A/R line was increased to $2.0 million from $1.2 million
to aid revenue growth in the metals and electronics segments.
The Company is currently obligated as a guarantor under an assignment agreement
of a lease in the amount of approximately $18,550 per month through September
2002. As of June 30, 1999, the Company has not been required to pay any amounts
related to this guarantee. The Company is also obligated to pay approximately
$5,000 per month on various other leases. Aside from these commitments, the
Company has not made any material commitments.
The Company anticipates that its current cash position, revenue from operations,
and funds from its existing line of credit, will be sufficient to finance its
working capital and capital requirements for the next twelve months. However,
the Company's capital requirements may increase as a result of competitive and
technological developments and the terms and conditions of any future strategic
transactions. There can be no assurance that the Company would be able to raise
additional capital under favorable terms, if at all.
<PAGE>
NEW ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Financial Instruments and Hedging Activities" ("SFAS 133") issued by the FASB is
effective for all fiscal quarters of fiscal years beginning after June 15, 2000.
SFAS 133 provides a comprehensive and consistent standard for the recognition
and measurement of derivatives and hedging activities. The Company does not
expect adoption of SFAS 133 to have a material effect on its financial position
or results of operations.
YEAR 2000
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software and hardware failures. The Company is
in process of reviewing its information technology systems and non-information
technology systems with embedded technology applications, addressing Year 2000
risks, and believes it will resolve any such risks in a timely manner. During
the quarter ended December 31, 1998, the Company began a process of contacting
its critical business partners to reasonably assure that they are adequately
prepared.
The Company believes that its products are fully Year 2000 compliant. All in
house computers have been tested and upgraded to be year 2000 compliant. In
house financial software has been upgraded to be year 2000 compliant.
The Company plans on developing contingency plans to address Year 2000 issues
that do arise. As part of its Year 2000 compliance program, the Company plans
to identify alternate vendor sources for vendors who do not respond to our
questionnaires or who appear to not be in compliance. Although no assurance can
be made, given the nature of its major customers, the Company does not expect
that it will encounter significant problems with respect to customer compliance
with Year 2000 issues.
Currently, the Company does not have an estimate of costs associated with these
efforts, but does not believe them to be significant. However, the Company
could be adversely impacted if its suppliers or customers do not make the
necessary changes to their own systems and products successfully and in a timely
manner, or if regional infrastructure failures occur as a consequence of Year
2000 problems.
The SEC's recent guidance for Year 2000 disclosure also calls on companies to
describe their most likely worst case Year 2000 scenario. The Company believes
that the most likely worst case scenario is that the Company will have to add
additional staff and/or reassign existing staff and/or acquire additional
equipment or software during the time period leading up to and immediately
following December 31, 1999, in order to address Year 2000 issues that
unexpectedly arise.
THIS 10-QSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS
AND UNCERTAINTIES. THESE STATEMENTS INCLUDE, WITHOUT LIMITATION,
STATEMENTS RELATING TO THE COMPANY'S PLANS AND OBJECTIVES FOR FUTURE
OPERATIONS INCLUDING ACQUIRING OTHER BUSINESSES, INCREASING SALES AND
IMPROVING MARGINS, ASSUMPTIONS AND STATEMENTS RELATING TO THE COMPANY'S
FUTURE ECONOMIC PERFORMANCE AND OTHER NON-HISTORICAL INFORMATION. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HEREIN. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, WITHOUT LIMITATION, THOSE RISKS DISCUSSED UNDER THE
HEADING "ADDITIONAL RISK FACTORS" AS WELL AS OTHER FACTORS AS DISCUSSED
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED
MARCH 31, 1999.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 23, 1999, an Annual Meeting of Shareholders of National
Manufacturing Technologies, Inc., was held and the following items were voted
upon by the shareholders with all items being approved:
<TABLE>
<CAPTION>
1. To elect six directors for the ensuing year and until their successors are
elected. CUMULATIVE VOTING WAS ENACTED FOR THE ELECTION OF DIRECTORS, PER THE COMPANY
BYLAWS, THERE ARE SEVEN AVAILABLE DIRECTOR SEATS.
Votes For
---------
<S> <C>
Patrick W. Moore 5,342,257
James P. Hill 4,949,924
Michael J. Genovese 5,056,459
Binh Q. Le 5,341,831
Michael R. Moore 5,341,893
Brian L. Kissinger 4,842,000
John G. Hamilton, Jr. 5,161,359
</TABLE>
<TABLE>
<CAPTION>
2. To approve an amendment to and restatement of the Company's Amended and
Restated Articles of Incorporation in order to change the name of the Company
from Photomatrix, Inc., to NATIONAL MANUFACTURING TECHNOLOGIES, INC.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
<S> <C> <C> <C>
3,549,643 4,038 432
</TABLE>
<TABLE>
<CAPTION>
3. To ratify the appointment by the Company's Board of Directors of BDO Seidman
as independent auditors for the 1999 and 2000 fiscal years.
VOTES FOR VOTES AGAINST VOTES ABSTAINED
--------- ------------- ---------------
<S> <C> <C> <C>
3,549,860 710 3,543
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. REPORTS ON FORM 8-K
None
b. EXHIBITS
10.61 Employment Agreement with Patrick W. Moore,
dated September 23, 1999
10.62 Stock Option Agreement with Patrick W. Moore,
dated September 23, 1999
27 Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Issuer has duly caused this report to be signed on its behalf by the
Undersigned thereunto duly authorized.
NATIONAL MANUFACTURING
TECHNOLOGIES, INC.
Date: February 4, 2000 by /s/ Patrick W. Moore
-----------------------
Patrick W. Moore
Chairman, Chief Executive Officer
and President
Date: February 4, 2000 by /s/ Larry Naritelli
-------------------------
Larry Naritelli
Controller
Principal Accounting Officer
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered into effective
as of the 23 rd day of September, 1999 ("Effective Date") by and between
National Manufacturing Technologies, Inc. (formerly Photomatrix, Inc.), a
California corporation ("Company"), and Patrick W. Moore ("Employee").
WHEREAS, the Company desires to employ Employee and Employee desires to be
employed by the Company upon all the terms and conditions contained in this
Agreement.
NOW THEREFORE, in consideration of the mutual agreement herein contained,
the parties hereto hereby agree as follows:
1. Employment: Subject to the terms and conditions of this Agreement,
the Company hereby employs Employee as President and Chief Executive Officer and
in such capacity Employee shall serve as the Company's chief executive officer
with full authority and responsibility for the general supervision and
management of the Company and its subsidiaries' business. Employee will have
the responsibilities and duties commensurate with the position of President and
Chief Executive Officer of a public company on an on-going basis. Employee
hereby accepts such employment and agrees to perform the services specified
herein, all upon the terms and conditions herein contained. Employee agrees to
perform in good faith and to the best of his ability all services which may be
required of him hereunder, and to be available to render services at all
reasonable times and places in accordance with such reasonable directions,
requests, rules and regulations made by the Company in connection with his
employment. Employee will be reporting directly to the Board of Directors of
the Company.
1.1 Title: Employee title will be President and Chief Executive Officer.
2. Term:
2.1 Initial Term: The term of this Agreement and Employee's employment
hereunder shall commence on Effective date and, subject to earlier termination
as provided in Section 11 hereof, continue for the period of Effective date
through September 30, 2002 ("Employment Period").
2.2 Extension of term: The term of this Agreement shall automatically
be extended, unless not less than six (6) months prior to the expiration
date, the Company shall have delivered written notice to Employee that the
term of this Agreement shall terminate on the expiration date; or Employee,
not less than thirty (30) days prior to the expiration date, elects to
terminate this Agreement by delivering written notice of such desire to
terminate to the Company. The extension period hereunder shall be referred to
herein as an "Extension Period". Said Extension Period shall continue until
the Company delivers written notice to Employee that employment during this
Extension Period shall terminate not less than six (6) months prior to said
termination date; or Employee provides the Company not less than thirty (30)
days written notice of termination of employment during said Extension Period.
3. Compensation:
3.1 Salary: Subject to the other terms of this Agreement, Company shall
pay and Employee shall be entitled to receive from the Company an annual salary
("Base Salary")of not less than $175,000 for services rendered, paid in bi
weekly installments. The payment periods are referred to herein as the "Payment
Periods". The salary due under this Section 3.1 during any Payment Period is
referred to herein as the "Installment Amount".
3.2 Annual Salary Increase: On each anniversary of the effective date of
this Agreement, the Employee shall receive an increase of no less than six (6)
percent of his annual base salary.
3.3 Bonus: Employee shall be entitled to the following bonus, payable in
cash within ten (10) days after the end of the quarter:
Target Bonus: A target bonus equal to between zero and two hundred percent
(0-200%) of Employee's then existing base salary will be considered and
determined by the Board of Directors and its Compensation Committee. That bonus
will be considered semi-annually (i.e., each 6 months) based upon the Company's
achievement of the performance criteria set forth in the business plan, and
other performance criteria established by the Board of Directors and its
Compensation Committee.
<PAGE>
3.4 Equity: Employee will be granted a stock option to purchase shares of
the Company's common stock (the "Option"). On the date of this Agreement, and on
each anniversary of such date for the remainder of the initial and extension
terms, the Company shall grant to Employee an option to acquire such number of
shares of common stock of Photomatrix equal to the quotient of $30,000 divided
by 100% the fair market value of the stock on the date of the grant. The
exercise price per share shall be the fair market value of the stock on the date
of the grant. The option shall be exercisable as of the date of the grant. The
option shall have other terms and conditions the same as those contained in
agreements entered into pursuant to the Company's 1998 Stock Option Plan ("1998
Plan") and as are not inconsistent with the foregoing provisions.
3.5 Automobile: An automobile allowance of $750 per month shall be
provided to the Employee. Expenses related to the use of such automobile ,
whether or not in the course of Company business, shall be the sole
responsibility of the Employee; provided, however, a car phone shall be
provided to the Employee and he shall be reimbursed upon substantiation in
accordance with the Company's policy for variable costs incurred in connection
with the use of the car phone on Company business.
3.6 Reimbursement of Expenses: During the Term of the Employment
Period and the Extension Period, if any, Employee shall be authorized to incur
reasonable and necessary expenses according to the Company's policy for the
purpose of promoting the business of the Company, including, without
limitation, expenses for entertainment, travel and similar items, provided
such expenses are reasonable and have a business purpose. The company shall
reimburse Employee for such expenses upon the presentment by Employee of an
itemized accounting of such expenses, including receipts where required by
federal tax regulations. Such accounting shall be promptly forwarded to the
company.
4. Additional Benefits: Throughout the term of the Initial Term and any
Extension Term, if any, Employee shall be entitled to receive executive benefits
that are provided to executive officers of the Company (i) such benefits or
rights as may be provided under any Employee benefit plan approved by the
Company from time to time, and ( ii ) such other benefits and perquisites of
employment as a generally made available to other members of management of the
Company, including, without limitations, at no cost to the Employee,
participation in life, medical, disability, retirement and dental insurance
plans, and participation in equity incentive and stock plans of the Company.
5. Vacation, Sick Leave and Holidays: Employee shall have the right during
each year of the Initial and Extension Terms, of this Agreement to take an
aggregate of twenty one (21) business days of vacation with pay at such time as
may be mutually agreed upon by the Company and Employee. In addition, Employee
shall be entitled to paid time off for personal illness and for observance of
holidays in accordance with the Company's policy as may exist from time to time.
<PAGE>
6. Devotion of Time: During the term of the Employment Period and any
Extension Period, if any, Employee shall devote full time attention and energies
to the Company in order that he may satisfactorily and completely perform his
duties hereunder. Except as may be specifically permitted by the Company,
Employee shall not engage in any other business activity while in the employ of
the Company that would compete or interfere with his obligations to the Company
herein; provided, however, Employee may serve on the Board of Directors of
other companies without the Company's written consent. The foregoing shall not
be construed as preventing Employee from making passive investments in other
businesses and enterprises; provided, however, that such investments will not
require services on the part of Employee which would in any way impair the
performances of his duties under this Agreement and, provided further, that such
other businesses or enterprises are not engaged in any business competitive with
the business of the company as of the time at which such investments made, or
shall the foregoing be construed as requiring the divestiture of any investment
made by Employee prior to the date hereof. The foregoing shall in no way limit
the application of corporate policy generally applicable to employees in
comparable positions.
7. Directors and Officer Liability Insurance: The Company and Employee
understand and agree that it is the mutual intent of the parties that the
Company agrees to use its best effort to obtain directors and officers liability
insurance in a form acceptable to Employee.
7.1 Indemnification: (a) If, after the date of the commencement of
Employee's employment hereunder, the Employee is made a party or is threatened
to be made a party to any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "Proceeding"), by reason of the fact that he
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director, officer, member, employee or agent of
another corporation or partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, whether or not the
basis of such Proceeding is an alleged act or failure to act in an official
capacity as a director, officer, member, employee or agent, he shall be
indemnified and held harmless by the company to the fullest extent authorized by
California law, as the same exists or may hereafter be amended, against all
expense, liability and loss (including, without limitation, attorneys' fees,
judgements, fines and amounts paid or to be paid in settlement) reasonably
incurred or suffered by the Employee in connection therewith, including, without
limitation, payment of expenses incurred in defending a Proceeding prior to the
final disposition of such Proceeding (subject to receipt of an undertaking by
the employee to repay such amount if it shall ultimately be determined that the
Employee is not entitled to be indemnified by the Company under California law),
and such indemnification shall continue as to the Employee even if he has ceased
to be a director, officer, member, employee or agent of the Company or other
enterprise and shall inure to the benefit of his heirs, executors and
administrators.
(b) The right of indemnification and the payment of expenses incurred in
defending a Proceeding in advance of its final disposition conferred in this
Section 7.1 shall not be exclusive of any other right that the Employee may have
or hereafter may acquire under any statute, provision of the Certificate of
Incorporation or Bylaws of the Company, agreement, vote of shareholders or
disinterested directors or otherwise.
8. Disclosure to Company Inventions as Sole Property of Company: Employee
agrees promptly to disclose to Company all inventions, ideas, discoveries,
improvements, trade secrets, formulae, techniques, processes, developments,
know-how, writings, computer programs, and other intellectual property
(hereinafter collectively referred to as the "Inventions"), whether or not
patentable or copyrightable and whether or not reduced to practice, conceived,
made or learned by Employee during the period of his employment, whether alone
or jointly with others, which relate to or result form the actual or anticipated
business, work, research, or investigations of Company or which result to any
extent from use of Company's premises, resources, property or facilities.
Employee acknowledges and agrees that all inventions (including all patents
rights of copyright therein) shall be the sole property of Company or such
other person or entity as may be designated by Company, and Employee hereby
assigns and agrees to take all reasonable steps to assign to Company Employee's
entire right and interest in and to all the Inventions provided that any such
assignment or agreement to assign complies with the provisions of Section 2870
of the California Labor Code.
Further, Company or its designee shall be the sole owner of all domestic and
foreign rights pertaining to the Inventions. Employee agrees to assist Company
in every reasonable way (at Company's expense) to obtain , register and enforce
patents and copyrights on the Inventions in any and all countries, and to
execute all documents and do all other things reasonably necessary and
appropriate to vest more fully in Company all right, title, and interest ,
including copyrights and patent rights, in and to the Inventions. Employee's
obligation to assist Company shall compensate Employee at reasonable rate after
such termination for the time actually sent by Employee at Company's request for
such assistance.
<PAGE>
9. Key Man Life Insurance: Employee agrees that key man life insurance may
be required by the Company and the Employee will cooperate with Company in
obtaining said insurance.
10. Restrictive Covenants:
10.1 Non-Competition: During the term of the Employment Period and any
Extension Period, if any, Employee shall not, directly or indirectly, carry on
or be engaged or otherwise take part in or render service to any person (other
than the Company, its officers, directors, shareholders, employees, and
affiliates or any subsidiary of the Company or such persons) who or which is
engaged in any business of a type now or hereafter (but during the Employment
Period, and any Extension Period), in competition with the Company. Without
limiting the generality of the foregoing provisions of this Section 10.1,
Employee shall be deemed to be engaged in a particular business if he is an
owner, proprietor, partner, stockholder, officer, employee, independent
contractor , director or joint venture of, or a consultant to, any person who or
which is directly or indirectly engaged in such a business. The restrictions of
this Section 10.0 prohibit ownership in a competitive business shall not apply
to (i) any ownership or interest held by Employee at the time of execution of
this Agreement, (ii) any ownership, directly or indirectly, of not more than
five percent (5%) of any class of equity securities of a corporation, provided
such class of equity security is registered under the securities Exchange Act of
1934, or (iii) any investment in real property (whether made directly or through
the vehicle of partnership, corporation, investment trust or other entity),
provided that no entity in competition with the Company may be a lessee of some
or all of such real property. For the purpose of this Section 10.1, the Business
of the Company shall include only any business involved in the contract
manufacturing business.
10.2 Delivery of Records: Upon demand and/or termination of Employee's
employment with the Company, whichever occurs first, Employee shall deliver to
the Company all papers, documents, writing, books, records, lists of customers
and investors, brochures and other property belonging to the Company or produced
by him or coming to his possession by or through his employment or relating to
the confidential knowledge, information or facts described in Section 10.3
hereof and Employee agrees that all such materials will at all times remain the
property of the Company. The provisions of this Section 10.2 shall survive the
termination of this Agreement.
10.3 Confidentiality: Except in the course of the Company's business,
Employee shall not at any time during or after his employment with the Company,
reveal, divulge or make known to any person, firm or corporation outside
Company, any confidential knowledge or information or any confidential facts
concerning any customers, methods, developments, schedules, lists, plans or
other confidential information, knowledge or facts of or relating to the
business of the Company and will retain all confidential knowledge and
information which he has acquired or which he will acquire during his
employment therewith relating to such customers, method, developments,
schedules, lists or plans and the business of the Company for the sole benefit
of the Company, its successors and assigns, provided, however, that this
restriction shall not apply to any knowledge, information or fact held by or
known to Employee which is generally available from sources other than Employee.
10.4 Specific Performance: Employee acknowledges that a remedy at law for
any breach or attempted breach of Section 10.2 and 10.3 of this Agreement may be
inadequate and agrees that Company shall be entitled to specific performance and
injunctive and other equitable relief in case of any such breach or attempted
breach, and further agrees to waive any requirement for the securing or posting
of any bond in connection with the obtaining of any such injunctive or any
other equitable relief. Nothing herein shall be construed as prohibiting the
Company from pursuing any other remedies available to the Company for such
breach or threatened breach, including recovery of damages from Employee. In the
event the Company brings action to enforce its rights hereunder, Employee shall
pay all the Company's court costs and legal fees and expenses arising out of
such action, and the Company shall pay all of Employee's court costs and legal
fees and expenses arising out of such action if Employee prevails in such
action.
10.5 Reasonableness: In the event any court shall finally hold that the
time of territory or any other provision of this Section 10 constitutes an
unreasonable restriction against Employee, the provisions hereof shall not be
rendered void but shall apply as to such time, territory and other provisions to
such extent as such court may judicially determine or indicate constitutes a
reasonable restriction under the circumstances involved.
<PAGE>
11. Termination.:
11.1 Termination by the company or Employee: This Agreement may be
terminated by the Company for any reason at any time during the Initial or
Extension Term , if any, upon six (6) months written notice to the Employee,
provided, however, that unless Employee is terminated "for cause", as set forth
below, or Employee voluntarily terminates this Agreement other than for "good
cause", and except as provided in Sections 11.2 and 11.3 hereof, Employee shall
be entitled to be paid the remaining amounts due under this Employment Agreement
during its Initial Term, or for six (6) months his aggregate salary whichever is
greater, within five (5) business days of Employee's termination. For purposes
of determining Employee's aggregate salary, Employee shall receive payment of
his Base Salary at the highest annual salary level plus any accrued, but unpaid
bonus amounts already earned as of the termination date. The Employee may
terminate this Agreement for any reason whatsoever for other than good cause
upon thirty (30) days written notice to the Company.
Severance: In addition to any amounts otherwise due to Employee, Employee
shall receive sixteen (16) weeks severance pay upon termination of his
employment by the Company for any reason.
In the event, however, that Employee is terminated "for cause", he shall be
entitled to no further compensation beyond the notice period other than the
above stated severance pay (i.e., 16 weeks).
(a) For the purposes of this Agreement, "for cause" shall mean the willful
and continued failure by Employee to substantially perform his duties hereunder
(other than such failure resulting from Employee's incapacity due to physical or
mental illness) after written demand for substantial performance is approved by
the Board of Directors and delivered by the Company that specifically
identifies the manner in which the Company believes Employee has not
substantially performed his duties; or, the conviction of Employee of a felony
involving moral turpitude. For purposes of this Agreement, no act, or failure to
act, on Employee's part shall be considered "willful" unless done, or omitted to
be done, by Employee not in good faith and without reasonable belief that such
action or omission was in the best interest of the Company. Notwithstanding
anything to the contrary in the foregoing, no termination or other action shall
be considered to be for the cause under this Agreement unless (x) Employee first
shall have received notice setting for the reasons for the Company's intention
to terminate or take other action and (y) within (20) days after delivery of
such notice, Employee has not remedied the circumstances constituting the basis
for the proposed "for cause" termination, provided, however, if more than twenty
(20) days are reasonably needed to remedy such circumstances, Employee shall
have the number of additional days as, are reasonable to effectuate such remedy
but in no case greater than thirty (30) additional days and (z) within thirty
(30) days after the expiration of the period during which Executive may remedy
shall such circumstances employee shall have been provided an opportunity to
appear, accompanied by counsel, and be heard before the Board, and the Board
shall have duly adopted by an authorized action of the Board, and provided to
Employee, a resolution finding that in the good faith option of the Board,
Employee was guilty of conduct constituting "cause" as set forth above, and
specifying the particulars thereof in detail.
(b) For purposes of this Agreement , "good reason" shall mean (i) without
Employee's written consent (A) the failure of the Company to vest Employee with
the powers and authority of the Company's President and Chief Executive Officer,
(B) and removal of Employee from or failure to re-elect Employee to such offices
other than for cause or (C) the assignment to Employee of any duties
substantially inconsistent with those customarily performed by a company's
President and Chief Executive Officer, (ii) the failure of the Employee to serve
as member of the Board for any reason other than a voluntary resignation by
Employee or his removal for cause, (iii) the failure of the Company to nominate
Employee for election as a director of the Company at any election unless
Employee declines to stand for election, (iv) the failure by the Company ,
without Employee's written consent, to include Employee as a participant in any
bonus plans as provided in this Agreement, (v) the failure of the Company to
obtain from any successor or assignee of all or substantially all of the
business of the Company, before the succession or assignment takes place, an
agreement to assume and perform this Agreement, (vi) any purported termination
of Employee's employment for cause which is not effected pursuant to a notice
described in this Agreement, or (vii) the failure of the Company to comply with
any material provision of this Agreement.
11.2 Termination by Employee: In the event that Employee voluntarily
terminates this Agreement other than for "good reason", he shall be entitled to
the following compensation:
(a) Employee shall be entitled to the Base salary due under Section 3.1 and
any accrued but unpaid bonus payments and Equity provided for in Section 3.2,
3.3, and 3.4 of this Agreement. The employee shall also in such circumstance be
entitled to sixteen (16) weeks severance pay per the terms of the Employees
existing coverage pursuant to the Company's preexisting severance pay policy
that covers Employee.
<PAGE>
11.3 Termination by Death or Disability: The parties hereto mutually
agree that although, pursuant to Section 4, Employee will be offered
participation in any disability plan the company might enter, providing, for the
security of one's family in the event of one's demise or disability ultimately
is a personal responsibility. Accordingly, this Agreement and the Company's
obligations to employee and Employee's heirs hereunder shall terminate upon the
death or disability of Employee, other than to pay unpaid salary and bonus, if
any, that shall have accrued as of the date of said death or disability, subject
to the following provisions:
(a) Death: To the extent that the Company might require the purchase of a
key man life insurance policy under Section 9 above, Company shall make
available to Employee the opportunity to purchase a rider under said policy for
the benefit of Employee's designee(s).
(b) Disability: If and only if Company obtains disability insurance
covering employee, Company agrees to pay to Employee Employee's Base Salary from
the date of Employee's disability until such time as the disability insurance
payments commence, for a period not to exceed three months.
12. Notices: All notices or other communications required or permitted by
this Agreement or by law to be given by any party hereto shall be in writing.
All such notices and communications shall be deemed duly served and given to the
other party when delivered by hand, if personally delivered, when answered back,
if telexed, when receipt is acknowledged, if telecopied; and five (5) calendar
days after mailed, if sent by registered or certified mail with return receipt.
For purposes hereof, notices and other communications hereunder shall be
directed to the parties hereto at the following address:
(a) To the Company:
National Manufacturing Technologies, Inc.
1958 Kellogg Avenue
Carlsbad, CA 92008
(b) To the Employee:
Patrick W. Moore
P.O. Box 8658
Rancho Santa Fe, CA 92067
Any party hereto may change its address for the purpose of receiving
notices and other communications as herein provided by a written notice given
in the manner aforesaid to the other party or parties hereto.
13. Applicable Law: This Agreement shall, in all respects, be construed,
interpreted and enforced in accordance with and governed by the internal
substantive laws of the State of California applicable to agreements executed
and to be wholly performed within the State of California , without regard to
choice of law rules thereof.
14. Severability: Any provision in this Agreement which is illegal,
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent to such illegality, invalidity or unenforceability
without invalidating the remaining provisions hereof or affecting the legality,
validity or unenforceability of such provision in any other jurisdiction. The
parties hereto agree to negotiate in good faith to replace any illegal, invalid
or unenforceable provision of this Agreement with a legal, valid and enforceable
provision that, to the extent possible, will preserve the economic bargain of
this Agreement, or otherwise to amend this Agreement, including the provision
relating to choice of law, to achieve such result.
15. Modification or Amendment: No amendment, change or modification of
this Agreement shall be valid unless in writing and signed by all the parties
hereto.
16. Successors and Assigns: This Agreement and the rights, interests and
obligations hereunder may not be assigned by Employee. Neither Employee nor his
spouse shall have any right to commute, encumber or dispose of any right to
revive payments hereunder, it being the intention of the parties that such
payment s and the right hereto are non-assignable and non-tranferable. All of
the terms and provisions contained herein shall inure to the benefit of and
shall be binding upon the parties hereto, their respective heirs, personal
representatives, permitted assigns and successors in interest.
17. Time of the Essence: Time of the essence of this Agreement and all of
the terms, provisions, covenants and conditions hereof.
18. Entire Agreement: This document constitutes the entire understanding
and all agreement of the parties with respect to the subject matter of this
Agreement, and any and all prior agreements, understand or representations are
hereby terminated and cancelled in their entirety and are of not further force
or effect.
<PAGE>
19. Captions: The captions set forth in this Agreement are for convenience
only and shall not bee considered as part of this agreement or as in any way
limiting or amplifying the terms and provisions hereof.
20. Counterparts: This Agreement may be executed in multiple original
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Company:
National Manufacturing Technologies, Inc.
By: /s/ Binh Le
-----------------------------------------
Chairman
Compensation Committee
Employee:
/s/ Patrick W. Moore
-----------------------------------------
Patrick W. Moore
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (Agreement") is made by and between NATIONAL
MANUFACTURING TECHNOLOGIES, INC., A California corporation, (the "Corporation"),
and PATRICK W. MOORE, (the "Optionee").
NOW, THEREFORE, in consideration of the mutual benefit to be derived
herefrom, the Corporation and Optionee agree as follows:
1. Grant of Option. The Corporation hereby grants to Optionee the
right, privilege and option ("Option") to purchase _120,000 shares of its common
stock ("Stock") at $0.25 per share, in the manner and subject to the
conditions provided hereinafter.
2. Time of Exercise of Option. The Option is fully vested. Any exercise
may be with respect to any part or all of the shares then exercisable pursuant
to such Option, provided that the minimum number of shares exercisable at any
time shall not be less than 100 shares or the balance of shares for which the
Option is then exercisable. Such Option must be exercised within 10 years after
the date of the grant. In no event shall the Corporation be required to transfer
fractional shares to Optionee or those entitled to Optionee's rights herein.
3. Method of Exercise. The option shall be exercised by Optionee by
the delivery to the Corporation on a form approved by the Corporation of a
fully-executed Notice of Exercise, specifying the number of shares to be issued,
and enclosing a check in payment of the purchase price for the shares.
4. Restriction on Exercise and Delivery. The exercise of this Option
shall be subject to the condition that, if at any time the Corporation shall
determine, in its sole and absolute discretion,
(a) the satisfaction of any withholding tax or other withholding liabilities
is necessary or desirable as a condition of, or in connection with, such
exercise or the delivery or purchase pursuant thereto,
(b) the listing, registration, or qualification of any shares deliverable
upon such exercise is necessary, under any state or federal law, as a condition
of, or in connection with, such exercise or the delivery or purchase of shares
pursuant thereto, or
(c) the consent or approval of any regulatory body is necessary as a
condition of, or in connection with, such exercise or the delivery or purchase
of shares pursuant thereto,
then, in any such event, such exercise shall not be effective unless such
withholding, listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Corporation. Optionee shall execute such documents and take such other actions
as are required by the Corporation to enable it to effect or obtain such
withholding, listing, registration, qualification, consent or approval. Neither
the Corporation nor any officer or director thereof shall have any liability
with respect to the non-issuance or failure to sell shares as the result of any
suspensions of exercisability imposed pursuant to this Section.
5. Termination of Option. To the extent not previously exercised,
this Option shall terminate upon the first to occur of any of the following
events:
(a) the dissolution or liquidation of the Corporation;
(b) the expiration of 10 years from the date of the grant of the Option
hereunder;
(c) the breach by Optionee of any provision of this Agreement.
6. Nonassignablitity. This Option may not be sold, pledged, assigned or
transferred in any manner other than by will or by the laws of intestate
succession, and may be exercised during the lifetime of Optionee only by the
Optionee. Any transfer by Optionee of any part of this Option other than by will
or the laws of intestacy shall void such Option, and the Corporation shall have
no further obligation with respect to the Option. This Option shall not be
pledged or hypothecated in any way, nor shall the Option be subject to
execution, attachment or similar process.
<PAGE>
7. Rights as Shareholder. Neither Optionee nor his executor,
administrator, heirs or legatees, shall be, or have any rights or privileges of
a shareholder of the Corporation in respect of shares issuable hereunder unless
and until certificates representing such shares shall have been issued in
Optionee's name.
8. Restrictive Legends. Each certificate evidencing the shares
acquired hereunder, including any certificate issued to any transferee thereof,
shall be imprinted with such legends appropriate by the Corporation as may be
deemed.
9. No Right of Employment. Neither the grant nor exercise of this
option nor anything in this Agreement shall impose upon the Corporation or any
other corporation any obligation to employ or continue to employ Optionee. The
right of the Corporation and any other corporation to terminate Optionee shall
not be diminished or affected because this Option has been granted to Optionee.
10. Mandatory Arbitration. In the event of any dispute between the
Corporation and Optionee regarding this Agreement, the dispute and any issue as
to the arbitrability of such dispute, shall be settled to the exclusion of a
court of law, by arbitration in San Diego, California, by a panel of three
arbitrators (each party shall choose one arbitrator and the third shall be
chosen by the two arbitrators so selected) in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then in effect. The
decision of a majority of the arbitrators shall be final and binding upon the
parties. All costs of the arbitration and the fees of the arbitrators shall be
allocated between the parties as determined by a majority of the arbitrators, it
being the intention of the parties that the prevailing party in such a
proceeding be made whole with respect to its expenses.
11. Definitions. Capitalized terms shall have the meaning set
forth herein.
12. Notices. Any notices to be given under the terms of this
Agreement shall be addressed to the Corporation in care of its
Secretary at its principal office, and any notice to be given to
Optionee shall be addressed to the Optionee at the address maintained by
the Corporation for such person or at such other address as the Optionee
may specify in writing to the Corporation.
13. Binding Effect. This Agreement shall be binding upon and inure to
the benefit of Optionee, his heirs and successors, and of the Corporation, its
successors and assigns.
14. Governing Law. This Agreement shall be governed by the laws
of the State of California.
15. Descriptive Headings. Titles to Sections are solely for
information purposes.
IN WITNESS WHEREOF, this Agreement is effective as of, and the date of
grant shall be, SEPTEMBER 23, 1999.
NATIONAL MANUFACTURING TECHNOLOGIES, INC.,
a California corporation
By: /S/ Jennifer D. Brown
------------------------
Jennifer D. Brown, Secretary
OPTIONEE
/S/ Patrick W. Moore
-----------------------------
Patrick W. Moore
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 355,000
<SECURITIES> 0
<RECEIVABLES> 1,810,000
<ALLOWANCES> (209,000)
<INVENTORY> 1,786,000
<CURRENT-ASSETS> 2,997,000
<PP&E> 2,737,000
<DEPRECIATION> 837,000
<TOTAL-ASSETS> 7,075,000
<CURRENT-LIABILITIES> 4,672,000
<BONDS> 0
0
0
<COMMON> 21,400,000
<OTHER-SE> 61,000
<TOTAL-LIABILITY-AND-EQUITY> 7,075,000
<SALES> 2,491,000
<TOTAL-REVENUES> 2,491,000
<CGS> 1,804,000
<TOTAL-COSTS> 1,804,000
<OTHER-EXPENSES> 1,195,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (42,000)
<INCOME-PRETAX> (441,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (441,000)
<DISCONTINUED> 371,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (70,000)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
