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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ___________ TO _______________
Commission file number 0-19143
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DYNAMOTION/ATI CORP.
- ------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEW YORK 93-1192354
- ------------------------------- ------------------------------------
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
1639 E. EDINGER AVE., SANTA ANA, CA 92705
- -------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(714) 541-4818
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(Issuer's Telephone Number, Including Area Code)
Indicate by a check mark whether the small business issuer (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
As of August 5, 1996, there were 2,808,468 shares outstanding of the issuer's
common stock, $.04 par value, 971,364 shares outstanding of the issuer's Class
A preferred stock, $.01 par value and 2,250,000 shares outstanding of the
issuer's Class B preferred stock, $.01 par value.
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DYNAMOTION/ATI CORP.
TABLE OF CONTENTS
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PAGE
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEET - JUNE 30, 1996 3
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 4
STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30 ,1996 AND 1995 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 8
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 11
SIGNATURES 12
</TABLE>
2
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DYNAMOTION/ATI CORP.
PART I - ITEM 1.
BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
(IN 000'S, EXCEPT SHARE AMOUNTS)
ASSETS
------
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CURRENT ASSETS:
Trade accounts receivable, less allowance
for doubtful accounts of $121 $ 4,535
Inventories (Note 1) 6,514
Prepaid expenses and other current assets 217
Note receivable - current 75
--------
TOTAL CURRENT ASSETS 11,341
MACHINERY AND EQUIPMENT -
Net of accumulated depreciation of $819 1,101
NOTE RECEIVABLE - Long term 170
INTANGIBLE AND OTHER ASSETS 127
PATENTS - Net of accumulated amortization of $943 3,261
--------
$ 16,000
========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,089
Unfunded disbursements 247
Revolving credit facility (Note 2) 3,854
Current maturities of long-term debt (Note 3) 778
Accrued commissions 572
Accrued payroll and related expenses 524
Other current liabilities 651
Note payable to bank (Note 2) 2,032
--------
TOTAL CURRENT LIABILITIES 12,747
LONG-TERM DEBT (Notes 2 and 3) 739
--------
REDEEMABLE PREFERRED STOCK (Note 4) 1,531
--------
SHAREHOLDERS' EQUITY (Notes 4 and 5):
Convertible preferred stock, non-cumulative at
$.44 per share, $.01 par value, liquidation
preference $5.50, authorized 2,062,500 shares,
issued and outstanding 975,264 shares 10
Common stock, $.04 par value, authorized
20,000,000 shares, issued and outstanding
2,804,494 shares 112
Additional paid-in capital 15,661
Common stock warrants 270
Accumulated deficit (15,070)
--------
TOTAL SHAREHOLDERS' EQUITY 983
--------
$ 16,000
========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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DYNAMOTION/ATI CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN 000'S, EXCEPT PER SHARE INFORMATION)
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<CAPTION>
Three Months Ended Six Months Ended
June 30,1996 June 30,1995 June 30,1996 June 30,1995
------------ ------------ ------------ ------------
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REVENUES $ 3,677 $ 3,901 $ 8,948 $ 8,721
COSTS AND EXPENSES:
Cost of sales 3,036 4,024 6,809 7,594
Inventory write-down - 600 - 600
Selling, general and administrative
expenses 899 873 1,780 1,842
Research and development expenses 437 301 905 703
Amortization of intangible assets 88 156 169 328
Goodwill write-off - 3,517 - 3,517
---------- ---------- ---------- ----------
Total costs and expenses 4,460 9,471 9,663 14,584
---------- ---------- ---------- ----------
LOSS FROM OPERATIONS (783) (5,570) (715) (5,863)
INTEREST EXPENSE, NET 170 159 330 321
---------- ---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAX (953) (5,729) (1,045) (6,184)
---------- ---------- ---------- ----------
INCOME TAX BENEFIT - 32 - 66
---------- ---------- ---------- ----------
LOSS FROM CONTINUING OPERATIONS (953) (5,697) (1,045) (6,118)
---------- ---------- ---------- ----------
LOSS FROM DISCONTINUED OPERATIONS - 50 - 50
---------- ---------- ---------- ----------
NET LOSS $ (953) $ (5,747) $ (1,045) $ (6,168)
========== ========= ========= =========
NET LOSS PER COMMON SHARE:
(Primary and fully diluted)
Loss from continuing operations $ (.37) $ (3.80) $ (.42) $ (4.39)
Loss from discontinued operations $ - $ (.04) $ - $ (.04)
---------- ---------- ---------- ----------
Net loss $ (.37) $ (3.84) $ (.42) $ (4.43)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON SHARES
USED IN COMPUTATION:
Primary and fully diluted 2,746,730 1,529,014 2,639,251 1,449,529
========== ========== ========== ==========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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DYNAMOTION/ATI CORP.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN 000'S)
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SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,045) $(6,168)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 342 432
Deferred income taxes - (66)
Loss on sale of equipment - 7
Goodwill write-off - 3,517
Inventory writedown - 600
Reserve for discounted operations - 350
Provision for doubtful accounts - 50
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (732) 667
(Increase) decrease in inventories (113) (514)
(Increase) decrease in prepaid expenses and other assets (141) (135)
Increase (decrease) in accounts payable (442) 998
Increase (decrease) in accrued expenses and other liabilities (740) (176)
-------- -------
NET CASH (USED) IN OPERATING ACTIVITIES (2,871) (438)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (163) (60)
-------- -------
NET CASH (USED) IN INVESTING ACTIVITIES (163) (60)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in unfunded disbursements (241) 190
Proceeds on revolving credit loan, net 1,706 95
Net proceeds from issuance of redeemable preferred stock 1,734 -
Proceeds from note receivable 6 5
Proceeds from note payable 133 -
Principal payments on long-term debt (221) (51)
Payment of deferred financing fees (93) -
Proceeds from common stock issuance 10 -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,034 239
-------- -------
NET INCREASE (DECREASE) IN CASH - (259)
CASH - Beginning of period - 259
-------- -------
CASH - End of period $ - $ -
======== =======
CASH PAID DURING THE PERIOD
Interest $ 304 $ 275
======== =======
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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DYNAMOTION/ATI CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
1. BASIS OF PRESENTATION
---------------------
Reference is made to the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1995.
The accompanying unaudited financial statements reflect all
adjustments which, in the opinion of management, are necessary for a
fair presentation of the financial position and the results of
operations for the interim periods presented. All such adjustments
are of a normal, recurring nature. The results of the Company's
operations for any interim period are not necessarily indicative of
the results attained for a full fiscal year.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Inventory balances
at June 30, 1996, are as follows (in 000's):
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Raw materials $3,200
Work-in-progress 2,165
Finished goods 1,149
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$6,514
======
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EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per share is based on the weighted average number of
common shares and common share equivalents outstanding during the
period. Common share equivalents are excluded if their effect is
anti-dilutive. The computation includes an adjustment for Class A
preferred stock dividends in 1995, and none for 1996, due to
management's uncertainty regarding the payment of a preferred stock
dividend for 1996. Class B preferred stock dividends and accretion of
stock issuance costs are included in earnings per share for 1996.
2. REVOLVING CREDIT FACILITY
-------------------------
On March 20, 1996, the Company entered into a new debt facility with
IBJ Schroder Bank and Trust Company ("IBJ"), superseding all terms of
the original credit facility with IBJ ("New Debt Facility"). The New
Debt Facility provides for up to $7.0 million in senior secured
financing segregated into two credit facilities secured by a first
priority lien against all of the Company's assets. The first credit
facility allows for borrowings on a revolving line of credit up to
$4.5 million with advances up to 80% of eligible accounts receivable
and up to 40% of eligible inventory (subject to a sub-limit of $1.0
million). The second credit facility is a $2.5 million term loan
amortizing in monthly installments of $27,778 in year one, $45,000 in
year two, $55,000 in year three, and final payment aggregating
$966,664 due at December 31, 1999, the date of maturity. Additional
repayments are required equal to 25% of excess cash flow (as defined
in the credit agreement) of each fiscal year period payable on April
15th of the subsequent year. Interest, due monthly, is at IBJ's base
rate plus 1.75% on the revolver portion of the loan and at IBJ's base
rate plus 2.25% on the term loan portion. As of June 30, 1996 the
Company's outstanding indebtedness under the line of credit and term
loan was approximately $3.9 million and $2.4 million, respectively. As
of June 30, 1996, the Company had approximately $104,000 of
availability provided by the New Debt Facility. As of the date of
this filing, the Company is in an overdraft position of approximately
$200,000 and is in violation of certain financial loan covenants
contained in the New Debt Facility. Although the Company is in
violation of its covenants and although no assurances can be given,
management believes there is a strong likelihood that IBJ will not
attempt to accelerate payment on the New Debt Facility in the near
term. If a default is declared and demand is made for payment, the
Company would not be able to meet such demand. Loan origination fees
totaled $55,000 and were paid upon completion of the transaction. An
additional $25,000 of other loan related fees were also incurred
related to the New Debt Facility and were recorded in March 1996. A
collateral evaluation fee and unused facility fee, due monthly, total
$1,500, and .5% per annum, respectively.
6
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DYNAMOTION/ATI CORP.
3. NOTE PAYABLE
------------
In May 1996, $86,055 of payables to the former chairman of the
Company's Board of Directors was converted to a note payable in
twenty-four monthly installments of approximately $3,900 beginning
June 1996 and bearing interest at 7.3%.
4. REDEEMABLE PREFERRED STOCK
--------------------------
On March 20, 1996, the Company issued to new investors 2,000,000 new
shares of series Class B cumulative convertible preferred stock, par
value $.01, in exchange for $2,000,000. The preferred stock is
entitled to receive an annual 8% cumulative dividend, payable in cash
or shares of common stock at the option of the Company. As of June
30, 1996, approximately $40,000 has been transferred from accumulated
deficit into redeemable preferred stock. Each share of preferred stock
is convertible to approximately .99 shares of common stock at any
time. Each holder of preferred stock will have the right to put the
shares back to the Company any time after the fifth anniversary of
their issuance date for cash at a price equal to the liquidation value
($1.00 per share) thereof, plus all accrued and unpaid dividends. The
preferred stock will vote with the common stock as a single class on
most corporate matters with each share of preferred stock entitled to
the number of votes equal to the number of shares of common stock into
which it is convertible. Additionally, the holders of the preferred
stock are entitled to elect two members of the Board of Directors and
have the right to approve certain transactions. The preferred stock
also contains demand registration rights once converted to common
stock. Approximately $266,000 of issuance costs and $270,000 of
warrant value were offset against the proceeds from the sale of the
Class B preferred stock. As of June 30,1996, approximately $27,000 of
the previously mentioned costs were accreted and added to the balance
of the redeemable preferred stock.
5. SHAREHOLDER'S EQUITY
--------------------
On March 20, 1996, the Company issued a warrant to acquire 330,302
shares of common stock at $1.01 per share to the investors, in
connection with the New Debt Facility. These warrants expire on March
20, 2001. These warrants have been valued at $270,000.
The aforementioned common stock warrants contain anti-dilution
provisions that will increase the common stock issuable upon the
occurrence of certain events. The Company has also entered into an
agreement to issue to the new investors a warrant to acquire .538
shares of common stock for each share of common stock acquired with
the warrants issued in connection with the Company's 1993 issuance of
Class A preferred stock. The warrant would provide for a purchase
price equal to the weighted average price paid by the Class A
preferred stock warrant holders. The new warrant is to be issued in
July 1998 and expires on March 20, 2001. The agreement also contains
certain acceleration clauses in the event of the sale of 50% or more
of the Company's common stock.
In April 1996, $78,216 of payables were converted to 41,826 common
stock shares at a rate of $1.87 per share, the current market value at
the time of the conversion.
6. SUBSEQUENT EVENTS
-----------------
In July 1996, the Company issued 250,000 shares in a private placement
of its series B cumulative convertible preferred stock for a total
price of $250,000. The shares are pari passu with the original
issuance of series B shares on March 20, 1996 with the following
exceptions (i) the shares have no demand registration rights and (ii)
the piggyback registration rights associated with such shares are
subordinate to the rights of the other shares of such preferred stock.
The net proceeds of the private placement were applied against the
outstanding indebtedness under the Company's New Debt Facility.
Also in July 1996, the Company entered into a nonbinding letter of
intent with a third party to sell the assets and inventory used in
connection with its ATI router product line. The transaction is
subject to the negotiation and execution of definitive documents and
no assurances can be given that definitive documents will be executed
and that the sale will be consummated. If completed, the sale of the
ATI router product line is expected to have a nominal impact on net
income. Through June 30, 1996, the ATI router product line provided
$1.4 million of
7
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DYNAMOTION/ATI CORP.
machine revenue and approximately $810,000 of field service sales,
parts, and repair revenue. Approximately $1.0 million of raw material
inventory and approximately $730,000 of finished goods inventory are
represented on the balance sheet from the ATI router product line.
In August 1996, the Company entered into a $9.1 million purchase
commitment with a significant customer. The purchase commitment calls
for machine shipments in several different product lines to be
delivered throughout the next fifteen months.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This filing contains forward-looking statements which involve risks
and uncertainties. The Company's actual future may differ
significantly from the results discussed in the forward-looking
statements. Factors that might cause a difference include, but are
not limited to, product demand and the rate of market acceptance, the
effect of economic conditions, the impact of competitive products and
pricing, delays in product development, capacity and supply
constraints or difficulties, general business and economic conditions,
and other risks detailed in the Company's Securities and Exchange
Commission filings.
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED JUNE 30, 1996, COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
----------------------------------------------------------------
Total revenues for the quarter ended June 30, 1996 were $3.7 million,
compared to total revenues of $3.9 million for the corresponding
period in 1995. Total revenues from the sale of drilling and routing
machines for the quarter ended June 30,1996 were $2.9 million,
compared to $3.1 million for the corresponding period in 1995. The
machine revenue decrease of 6% is primarily attributable to a decrease
in unit volume. The 1996 second quarter revenue drop reflects a
decrease in demand due to the slowdown in the worldwide printed
circuit board industry. No assurances can be given that the industry
demand will accelerate in the near future. Notwithstanding the fact
that in August 1996 the Company received a $9.1 million purchase
commitment with a significant customer, the Company expects that third
quarter revenue will be approximately comparable to second quarter
revenue. In response to the slowdown in demand, the Company has
reduced production of its ATI router product line to enable the
Company to focus resources on the Company's higher margin, more
technologically advanced products. Field service revenue, which
includes parts sales and repairs and maintenance sales, was $822,000
for the 1996 quarter, compared to $720,000 for the corresponding
period in 1995. The 14% revenue increase is primarily attributable to
an increase in warranty revenue. A portion of machine revenue is
deferred at the time a machine is sold and is recognized as warranty
revenue over the twelve month warranty period of the machine.
Therefore, the increase in warranty revenue is the result of a greater
number of machines being sold in prior periods.
Cost of sales for the quarter ended June 30, 1996 was $3.0 million,
or 83% of revenues, compared to $4.0 million, or 103% of revenues for
the corresponding period in 1995. The cost of sales decrease is due
primarily to an inventory adjustment recorded in June 1995. However,
the cost of sales percentage for the second quarter of 1996 remains
high primarily due to the sale of several machines at low margins in
addition to the sale of two engineering prototype machines at negative
margins. In response to the industry slowdown, in April and June of
1996, the Company reduced its workforce by approximately, 10% and 20%,
respectively, in an attempt to lower costs. A significant portion of
the June workforce reduction were employees related to the ATI router
product line, which as previously mentioned, has undergone a reduced
production schedule.
Selling, general and administrative expenses for the quarter ended
June 30, 1996 and 1995 were approximately comparable at $899,000, or
24% of revenues, and $873,000, or 22% of revenues, respectively.
Research and development expenses for the quarter ended June 30, 1996
were $437,000, or 12% of revenues, compared to $301,000, or 8% of
revenues for the corresponding period in 1995. The increase in
research and development expenses of $136,000 is primarily
attributable to an increase in salaries and wages and research and
development materials related to the development of two new product
lines, which are expected to be introduced in the future.
Additionally, depreciation expense has increased approximately $26,000
related to the addition of a testing machine to fixed assets.
8
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DYNAMOTION/ATI CORP.
Amortization of intangible assets for the quarter ended June 30, 1996
was $88,000, compared to $156,000 for the corresponding period in
1995. The $67,000 decrease is primarily due to the elimination of
amortization for $3.5 million of goodwill written-off in June 1995.
Interest expense was $170,000 for the quarter ended June 30, 1996,
compared to $159,000 for the corresponding period in 1995. The
increase in interest expense is a result of the increase in the
Company's outstanding indebtedness under the revolving credit facility
from approximately $3.9 million on June 30, 1995 to $6.3 million on
June 30, 1996 under the New Debt Facility which includes the $2.5
million term loan. The higher bank level is the result of funding
working capital needs, including the build-up of finished goods due to
revenue levels which were significantly below the Company's
expectations. In addition, the Company has experienced delays in the
collection of several large trade receivables. The Company is
actively engaged in collection efforts and believes a portion of the
delay in collections will be resolved in the third quarter of 1996.
However, bank debt level and interest expense are expected to remain
relatively high through the third quarter of 1996.
For the reasons set forth above, the Company incurred a net loss for
the quarter ended June 30, 1996, of $953,000 compared to a net loss of
$5.7 million for the comparable period in 1995.
SIX MONTHS ENDED JUNE 30, 1996, COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
- ---------------------------------------------------------------------------
Total revenues remained approximately comparable for the six months
ended June 30, 1996 and 1995 at $8.9 million, and $8.7 million,
respectively. Total revenues from the sale of drilling and routing
machines were $7.1 million, compared to $7.2 million for the
corresponding period in 1995. Although total revenue in 1996 remains
approximately comparable to the corresponding period in 1995, the
revenue levels achieved were significantly below the Company's
expectations due to the slowdown in demand in the worldwide printed
circuit board industry. No assurances can be given that the industry
demand will accelerate in the near future. Notwithstanding the fact
that in August 1996 the Company received a $9.1 million purchase
commitment with a significant customer, the Company expects that third
quarter revenue will be approximately comparable to second quarter
revenue. In response to the slowdown in demand, the Company has
reduced production of its ATI router product line to enable the
Company to focus resources on the Company's higher margin, more
technologically advanced products. Field service revenue, which
includes parts sales and repairs and maintenance sales, were $1.8
million for the six months ended June 30, 1996, compared to $1.5
million for the corresponding period in 1995. The 20% revenue
increase is attributable to an increase in both warranty revenue and
parts and service revenue.
Cost of sales for the six months ended June 30, 1996 was $6.8 million,
or 76% of revenues, compared to $7.6 million, or 87% of revenues for
the corresponding period in 1995. The cost of sales decrease is due
primarily to an inventory adjustment recorded in June 1995. However,
the cost of sales percentage for 1996 remains high primarily due to
the sale of several machines at low margins including the sale of two
engineering prototype machines at negative margins. Decreasing the
cost of sales percentage in 1996 is contingent upon product mixes,
prices and successful execution of the Company's plans to improve
manufacturing efficiencies. In response to the industry slowdown, in
April and June of 1996, the Company reduced its workforce by
approximately, 10% and 20%, respectively, in an attempt to achieve
better margins at current or reduced sales levels. A significant
portion of the June workforce reduction were employees related to the
ATI router product line, which as previously noted, has undergone a
reduced production schedule.
Selling, general and administrative expenses for the six months ended
June 30, 1996 and 1995 were approximately comparable at $1.8 million,
or 21% of revenues.
Research and development expenses for the six months ended June 30,
1996 was $905,000, or 10% of revenues, compared to $703,000, or 8% of
revenues for the corresponding period in 1995. The increase in
research and development expenses of $202,000 is primarily
attributable to an increase in and research and development materials
related to the development of two new product lines, which are
expected to be introduced in the future. Additionally, depreciation
expense has increased approximately $45,000 related to the addition of
a testing machine to fixed assets.
9
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DYNAMOTION/ATI CORP.
Amortization of intangible assets for the six months ended June 30,
1996 was $169,000, compared to $328,000 for the corresponding period
in 1995. The $159,000 decrease is primarily due to the elimination of
amortization for $3.5 million of goodwill written-off in June 1995.
Interest expense was $330,000 for the six months ended June 30, 1996,
compared to $321,000 for the corresponding period in 1995. The
increase in interest expense is a result of the increase in the
Company's outstanding indebtedness under the revolving credit facility
from approximately $3.9 million on June 30, 1995 to $6.3 million on
June 30, 1996 under the New Debt Facility which includes the $2.5
million term loan. The higher bank level is the result of funding
working capital needs, including the build-up of finished goods due to
revenue levels which were significantly below the Company's
expectations. In addition, the Company has experienced delays in the
collection of several large trade receivables. The Company is
actively engaged in collection efforts and believes a portion of the
delay in collections will be resolved in the third quarter of 1996.
However, the bank debt level and interest expense are expected to
remain relatively higher through the third quarter of 1996.
For the reasons set forth above, the Company incurred a net loss for
the six months ended June 30, 1996, of $1 million compared to a net
loss of $6.1 million for the comparable period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On March 20, 1996, the Company entered into the New Debt Facility with
IBJ, superseding all terms of the original credit facility. The New
Debt Facility provides for up to $7.0 million in senior secured
financing segregated into two credit facilities secured by a first
priority lien against all of the Company's assets. The first credit
facility allows for borrowings on a revolving line of credit up to
$4.5 million with advances up to 80% of eligible accounts receivable
and up to 40% of eligible inventory (subject to a sublimit of $1.0
million). The second credit facility is a $2.5 million term loan
amortizing in monthly installments of $27,778 in year one, $45,000 in
year two, $55,000 in year three, and final payment aggregating
$966,664 due at December 31, 1999, the date of the maturity.
Additional repayments are required equal to 25% of excess cash flow
(as defined in the credit agreement) of each fiscal year period
payable on April 15th of the subsequent year. Interest, due monthly,
is at IBJ's base rate plus 1.75% on the revolver portion of the loan
and at IBJ's base rate plus 2.25% on the term loan portion. As of
June 30, 1996 the Company's outstanding indebtedness under the line of
credit and term loan was approximately $3.9 million and $2.4 million,
respectively. As of June 30, 1996, the Company had approximately
$104,000 of availability provided by the New Debt Facility. As of the
date of this filing, the Company is in an overdraft position of
approximately $200,00 and is in violation of certain financial loan
covenants contained in the New Debt Facility. Although the Company is
in violation of its covenants and although no assurances can be given,
management believes there is a strong likelihood that IBJ will not
attempt to accelerate payment on the New Debt Facility in the near
future. If a default is declared and demand is made for payment, the
Company would not be able to meet such demand. Loan origination fees
totaled $55,000 and were paid upon completion of the transaction. An
additional $25,000 of other loan related fees were also incurred
related to the New Debt Facility and have been recorded in March 1996.
A collateral evaluation fee and unused facility fee, due monthly,
total $1,500, and .5% per annum, respectively.
Concurrent with the aforementioned agreement, on March 20, 1996, the
Company issued to new investors 2,000,000 shares of its newly created
series Class B cumulative convertible preferred stock for a total
price of $2.0 million. The 2,000,000 preferred shares convert into
approximately 30% of the Company's common stock on a diluted basis.
Approximately $266,000 of issuance costs and $270,000 of warrant value
were offset against the proceeds from the sale of the Class B
preferred stock. The net proceeds were applied against the
outstanding indebtedness under the Company's New Debt Facility.
So long as any of the Class B preferred shares are outstanding, the
Company may not declare or pay any dividends or distributions on, or
acquire, any shares of any class or series of its capital stock having
rights with respect to dividends or upon liquidation that are junior
to those of the Class B preferred shares unless all accrued and
payable Class B dividends have been paid or declared. The Class B
preferred stock purchase agreement prohibits the Company from issuing,
selling or otherwise disposing of any shares of its capital stock or
securities convertible or exchangeable or exercisable for shares of
its capital stock for three years after March 20, 1996, without the
prior written approval of the investor, if such action could cause the
Company to undergo an "ownership change" as defined in Section 382 of
the Internal Revenue Code.
10
<PAGE> 11
DYNAMOTION/ATI CORP.
In addition, in connection with such investment, the Company entered
into a consulting agreement, with the aforementioned investors,
pursuant to which the Company pays the consultant a quarterly fee
equal to three-tenths of one percent of the Company's net revenues for
each fiscal quarter until termination of the consulting agreement,
which expires in 2001. As of June 30, 1996, approximately $11,000 of
management fees have been accrued.
As of June 30, 1996 the Company's outstanding indebtedness under the
New Credit Facility increased to $6.3 million from $2.6 million on
March 31, 1996. The higher bank debt level is primarily attributable
to two factors: 1) second quarter revenue and earnings were
significantly below management projections and 2) delays in the
collection of several large trade receivables. The Company has also
significantly reduced the production of machines built to stock. The
Company currently has a high finished goods balance that has
significantly contributed to the higher bank debt level.
The delays in the collection of several large receivables is primarily
due to several customers experiencing cash flow problems. The Company
is actively engaged in collection efforts and believes a significant
portion of the delay in collections of accounts receivable will be
resolved within the third quarter of 1996.
Although no assurances can be given and assuming that no demand for
payment is made under the Company's New Debt Facility, the Company
believes its sources of capital will be adequate to support operations
through 1996, assuming third and fourth quarter revenue does do not
drop below present sales levels and the Company resolves the
collection issues on the aforementioned receivables.
OTHER MATTERS
-------------
In July 1996, the Company issued 250,000 shares in a private placement
of its series B cumulative convertible preferred stock for a total
price of $250,000. The shares are pari passu with the original
issuance of series B shares on March 20, 1996 with the following
exceptions (i) the shares have no demand registration rights and (ii)
the piggyback registration rights associated with such shares are
subordinate to the rights of the other shares of such preferred stock.
The net proceeds of the private placement were applied against the
outstanding indebtedness under the Company's New Debt Facility.
Also in July 1996, the Company entered into a nonbinding letter of
intent with a third party to sell the assets and inventory used in
connection with its ATI router product line. The transaction is
subject to the negotiation and execution of definitive documents and
no assurances can be given that definitive documents will be executed
and that the sale will be consummated. If completed, the sale of the
ATI router product line is expected to have a nominal impact on net
income. Through June 30, 1996, the ATI router product line provided
$1.4 million of machine revenue and approximately $810,000 of field
service sales, parts, and repair revenue. Approximately $1.0 million
of raw material inventory and approximately $730,000 of finished goods
inventory are represented on the balance sheet from the ATI router
product line.
In August 1996, the Company entered into a $9.1 million purchase
commitment with a significant customer. The purchase commitment calls
for machine shipments in several different product lines to be
delivered throughout the next fifteen months.
PART II OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS
27. Financial data schedule.
(b) REPORTS ON FORM 8-K
None
11
<PAGE> 12
DYNAMOTION/ATI CORP.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DYNAMOTION/ATI CORP.
Date: August 13, 1996 By: /s/ Jon R. Hopper
-----------------------------------
Jon R. Hopper
President and
Chief Executive Officer
Date: August 13, 1996 By: /s/ Kirk A. Waldron
----------------------------------
Kirk A. Waldron
Chief Financial Officer and
Chief Accounting Officer
12
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
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<SECURITIES> 0
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<ALLOWANCES> 121
<INVENTORY> 6,514
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<PP&E> 1,101
<DEPRECIATION> 819
<TOTAL-ASSETS> 16,000
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<BONDS> 0
1,531
10
<COMMON> 112
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<CGS> 6,809
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<INTEREST-EXPENSE> 330
<INCOME-PRETAX> (1,045)
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