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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 MARCH 31, 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
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(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
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As of May 8, 1996, there were 2,777,799 shares outstanding of the issuer's
common stock, $.04 par value, 1,001,464 shares outstanding of the issuer's
Class A preferred stock, $.01 par value and 2,000,000 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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<S> <C> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
BALANCE SHEET - MARCH 31, 1996 3
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 4
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 5
NOTES TO FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 7
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 9
SIGNATURES 10
</TABLE>
2
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DYNAMOTION/ATI CORP.
PART I - ITEM 1.
BALANCE SHEET (UNAUDITED)
MARCH 31, 1996
(IN 000'S, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Trade accounts receivable, less allowance
for doubtful accounts of $121 $ 3,210
Inventories (Note 1) 6,184
Other receivables 19
Prepaid expenses and other current assets 131
Note receivable - current 67
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TOTAL CURRENT ASSETS 9,611
MACHINERY AND EQUIPMENT -
Net of accumulated depreciation of $738 1,093
NOTE RECEIVABLE, long term 177
INTANGIBLE AND OTHER ASSETS 118
PATENTS - Net of accumulated amortization of $862 3,342
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$14,341
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LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 4,017
Unfunded disbursements 456
Revolving credit facility (Note 2) 76
Current maturities of long-term debt 734
Accrued commissions 736
Accrued payroll and related expenses 630
Other current liabilities 1,379
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TOTAL CURRENT LIABILITIES 8,028
LONG-TERM DEBT (Note 2) 2,919
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REDEEMABLE PREFERRED STOCK (Note 3) 1,470
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SHAREHOLDERS' EQUITY (Notes 3 and 4):
Convertible preferred stock, non-cumulative at
$.44 per share, $.01 par value, liquidation preference $5.50, authorized
2,062,500 shares, issued and outstanding
1,001,964 shares 10
Common stock, $.04 par value, authorized
20,000,000 shares, issued and outstanding
2,530,144 shares 101
Additional paid-in capital 15,191
Common stock warrants 270
Accumulated deficit (13,648)
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TOTAL SHAREHOLDERS' EQUITY 1,924
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$14,341
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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DYNAMOTION/ATI CORP.
STATEMENTS OF OPERATIONS (UNAUDITED)
(IN 000'S, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1996 MARCH 31, 1995
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<S> <C> <C>
REVENUES $ 5,271 $ 4,820
COSTS AND EXPENSES:
Cost of sales 3,773 3,570
Selling, general and administrative expenses 881 969
Research and development expenses 468 402
Amortization of intangible assets 81 172
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Total costs and expenses 5,203 5,113
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INCOME (LOSS) FROM OPERATIONS 68 (293)
Interest expense, net 160 162
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LOSS BEFORE INCOME TAX (92) (455)
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Income tax benefit - (34)
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NET LOSS $ (92) $ (421)
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NET LOSS PER COMMON SHARE: (Primary and Fully Diluted)
Net loss $ (.04) $ (.40)
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WEIGHTED AVERAGE SHARES OUTSTANDING 2,530,144 1,367,979
========= =========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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DYNAMOTION/ATI CORP.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (92) $ (421)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 171 231
Deferred income taxes - (38)
Provision for doubtful accounts - 50
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 593 (1,021)
(Increase) decrease in inventories 217 (1,029)
(Increase) decrease in prepaid expenses and other assets (71) (60)
Increase (decrease) in accounts payable (514) 1,139
Increase (decrease) in accrued expenses and other liabilities 180 207
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NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES 484 (942)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (73) (61)
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NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (73) (61)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in unfunded disbursements (32) -
Payments on revolving credit loan, net (2,072) 814
Net proceeds from issuance of redeemable preferred stock 1,740 -
Proceeds from note receivable 6 -
Proceeds from note payable 47 -
Principal payments on long-term debt (30) (50)
Payment of deferred financing fees (80) -
Proceeds from common stock issuance 10 -
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NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES (411) 764
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NET INCREASE (DECREASE) IN CASH (239)
CASH - Beginning of period - 259
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CASH - End of period $ - $ 20
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CASH PAID DURING THE PERIOD
Interest $ 151 $ 147
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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DYNAMOTION/ATI CORP.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1996 AND 1995
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 March 31, 1996, are as follows (in 000's):
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Raw materials $3,205
Work-in-progress 2,585
Finished goods 394
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$6,184
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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 preferred
stock dividends in 1995, and none for 1996, due to management's
uncertainty regarding the payment of a preferred stock dividend for
1996.
2. REVOLVING CREDIT FACILITY
On March 20, 1996, the Company entered into a new loan agreement with
IBJ Schroder Bank & Trust Co. ("IBJ") superseding all terms of the
Company's original credit facility with IBJ (the "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 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 for 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, 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 the bank's prime rate plus 1.75% on the
revolver portion of the loan and at the bank's prime rate plus 2.25%
on the term loan portion. The financial covenants and other
affirmative and negative covenants have been amended and rewritten,
and the credit agreement also restricts the payment of cash dividends
to common stock holders. 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 and will be amortized
over the three year term of the agreement. A collateral monitoring
fee and unused facility fee, due monthly, total $1,500, and .5% per
annum, respectively.
6
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DYNAMOTION/ATI CORP.
3. REDEEMABLE PREFERRED STOCK
On March 20, 1996, the Company issued to new investors 2,000,000 new
shares of series Class B 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. 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.
The preferred stock also contains demand registration rights once
converted to common stock. Approximately $260,000 of issuance costs
and $270,000 of warrant value were offset against the proceeds from
the sale of the Class B preferred stock.
4. 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 a warrant to acquire .538 shares of common stock
for each share of common stock acquired with the warrants issued in
connection with the issuance of Class B preferred stock. The warrant
would provide for a purchase price equal to the weighted average price
paid by the preferred stock warrant holders. The 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.
Additionally, in February 1996, the Company's Board of Directors
approved the conversion of approximately $231,000 in payables to
123,733 common stock shares at a rate of $1.87 per share, the current
market value at the time of the conversion. In April 1996, 41,826 of
the 123,733 shares have been issued, with the remaining portion of the
shares unissued, due to renewed negotiations regarding conversion of
the payable balances due.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Total revenues for the quarter ended March 31, 1996 were $5.3 million,
compared to total revenues of $4.8 million for the corresponding
period in 1995. Total machine revenues for the 1996 quarter were $4.3
million , compared to $4.1 million for the corresponding period in
1995. The machine revenue increase of 5% is primarily attributable to
product mix, indicative of units sold with a higher sales price.
Currently, the printed circuit board industry is experiencing a
worldwide slowdown in demand, therefore, the Company is expecting a
decrease in revenue for the second quarter, as compared to the first
quarter of 1996. No assurances can be given that the industry demand
will accelerate in the near future. Field service revenue, which
includes parts sales and repairs and maintenance sales, was $1.0
million for the 1996 quarter, compared to $700,000 for the
corresponding period in 1995. The 43% revenue increase is primarily
attributable to an increase in spare parts sales.
Cost of sales remained comparable for the quarters ended March 31,
1996 and 1995 at $3.8 million, or 72% of revenues, and $3.6 million,
or 74% of revenues, respectively. Decreasing the cost of sales
percentage in 1996 is contingent upon product mix, prices and
successful execution of the Company's plans to improve manufacturing
efficiencies. In response to the aforementioned industry slowdown, in
April 1996, the Company reduced its workforce by approximately 10% in
an attempt to achieve better margins at current or reduced sales
levels.
7
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DYNAMOTION/ATI CORP.
Selling, general and administrative expenses for the quarter ended
March 31, 1996 were $881,000, or 17% of revenues, compared to
$969,000, or 20% of revenues for the corresponding period in 1995.
Selling, general and administrative expenses decreased 9% in absolute
dollars from the corresponding period in 1995, primarily due to a
reduction in outside sales commission expense. Machine sales in the
first quarter of 1996 were done primarily through in-house sales
representatives at lower commission percentages. On March 20, 1996,
the Company entered into a five year agreement with Emptor Capital, a
New Jersey investment firm, whereby consulting and advisory services
in the areas of finance, business management, marketing and general
management will be provided for the quarterly fee of three-tenths of
one percent of the Company's net revenues.
Research and development expenses for the quarter ended March 31, 1996
were $468,000, or 9% of revenues, compared to $402,000, or 8% of
revenues for the corresponding period in 1995. The increase in
research and development expenses of $66,000 is primarily attributable
to the development of two new product lines, which are expected to be
introduced in the future.
Amortization of intangible assets for the quarter ended March 31, 1996
was $81,000, compared to $172,000 for the corresponding period in
1995. The $91,000 decrease is primarily due to the elimination of
amortization for goodwill written-off in June 1995 and the elimination
of deferred financing costs written-off in December 1995 for prior
loan agreements. Amortization expense is expected to increase during
1996 as a result of the recording of approximately $80,000 of loan
origination fees related to the New Debt Facility.
Interest expense remained comparable at $160,000 for the quarter ended
March 31, 1996, compared to $162,000 for the corresponding period in
1995. At least in the short term, interest expense is expected to
decrease slightly as a result of the $2,000,000 equity infusion in
March 1996, which aided in reducing the revolving credit facility
balance.
For the reasons set forth above, the Company incurred a net loss for
the quarter ended March 31, 1996, of $92,000, compared to a net loss
of $421,000 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, 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. The financial covenants and
other affirmative and negative covenants have been amended and
rewritten. 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. As of March 31, 1996, the Company had approximately
$2.5 million of availability provided by the New Debt Facility.
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 $260,000 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.
8
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DYNAMOTION/ATI CORP.
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.
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.
The Company's primary needs for liquidity have been cash used in
operating activities, capital expenditures and debt service
requirements. The future needs for operations will depend
significantly on the Company's sales levels which, as previously
mentioned, are expected to decrease, at a minimum, in the short term
from the first quarter of 1996.
Capital expenditures are expected to continue at similar levels to the
past few years. The revised terms of the IBJ credit agreement, along
with the new terms of other long term debt arrangements, require
principal payments in 1996 totaling $582,000, which is higher than
those required in 1995.
Although no assurances can be given, the Company believes its sources
of capital will be adequate, assuming sales levels are comparable to
the past twelve months, to meet its needs in 1996.
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.
9
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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: May 14, 1996 By: /S/ Jon R. Hopper
-----------------------
Jon R. Hopper
President and
Chief Executive Officer
Date: May 14, 1996 By: /S/ Kirk A. Waldron
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Kirk A. Waldron
Chief Financial Officer
Date: May 14, 1996 By: /S/ Cindy Mason
------------------------
Cindy Mason
Controller and
Chief Accounting Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,210
<ALLOWANCES> 121
<INVENTORY> 6,184
<CURRENT-ASSETS> 9,611
<PP&E> 1,093
<DEPRECIATION> 738
<TOTAL-ASSETS> 14,592
<CURRENT-LIABILITIES> 8,019
<BONDS> 0
2,000
10
<COMMON> 101
<OTHER-SE> 1,543
<TOTAL-LIABILITY-AND-EQUITY> 14,592
<SALES> 5,271
<TOTAL-REVENUES> 5,271
<CGS> 3,773
<TOTAL-COSTS> 5,203
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 160
<INCOME-PRETAX> (92)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (92)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
