<PAGE> 1
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, 1997 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
----- -----
As of May 2, 1997, there were 3,174,253 shares outstanding of the issuer's
common stock, $.04 par value, 937,279 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 - March 31, 1997 3
Statements of Operations
For the three months ended March 31, 1997 and 1996 4
Statements of Cash Flows
For the three months ended March 31 ,1997 and 1997 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 1. LEGAL PROCEEDINGS 9
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, 1997
(in 000's, except share amounts)
ASSETS
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<CAPTION>
<S> <C>
CURRENT ASSETS:
Trade accounts receivable, less allowance
for doubtful accounts of $82 $ 1,659
Inventories (Note 1) 5,147
Other receivables 320
Prepaid expenses and other current assets 111
Note receivable - current -
--------------
TOTAL CURRENT ASSETS 7,237
MACHINERY AND EQUIPMENT -
Net of accumulated depreciation of $1,516 964
NOTE RECEIVABLE, long term net of allowance for
doubtful accounts of $100 145
PATENTS - Net of accumulated amortization of $1,185 3,018
--------------
$ 11,364
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LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 4,663
Unfunded disbursements 145
Revolving credit facility 2,855
Note payable to bank 1,867
Current maturities of long-term debt 774
Accrued commissions 901
Accrued payroll and related expenses 577
Customer deposits 512
Other current liabilities 828
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TOTAL CURRENT LIABILITIES 13,122
LONG-TERM DEBT (Note 2) 196
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SHAREHOLDERS' DEFICIT:
Convertible preferred stock, non-cumulative at
$.44 per share, $.01 par value, liquidation preference
$5.50, authorized 2,062,500 shares, issued and outstanding
937,279 shares 9
Convertible Class B preferred stock, 8% cumulative, $.01
par value (liquidation preference $1.00 per share),
authorized 2,250,000, issued and outstanding
2,250,000 shares 22
Common stock, $.04 par value, authorized
20,000,000 shares, issued and outstanding
2,843,789 shares 114
Additional paid-in capital 17,690
Common stock warrants 270
Accumulated deficit (20,059)
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TOTAL SHAREHOLDERS' DEFICIT (1,954)
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$ 11,364
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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DYNAMOTION/ATI CORP.
Statements of Operations (Unaudited)
(in 000's, except share amounts)
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Three Months Ended
March 31, 1997 March 31, 1996
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<S> <C> <C>
REVENUES $ 3,053 $ 5,271
COSTS AND EXPENSES:
Cost of sales 2,438 3,773
Selling, general and administrative expenses 952 881
Research and development expenses 448 468
Amortization of intangible assets 81 81
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Total costs and expenses 3,919 5,203
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INCOME (LOSS) FROM OPERATIONS (866) 68
Interest expense, net 188 160
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LOSS BEFORE INCOME TAX (1,054) (92)
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Income tax expense 2 -
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NET LOSS $ (1,056) $ (92)
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NET LOSS PER COMMON SHARE: (Primary and Fully Diluted)
Net loss $ (.40) $ (.04)
============ =============
WEIGHTED AVERAGE SHARES OUTSTANDING 2,841,599 2,530,144
============ =============
</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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<CAPTION>
Three Months Ended
March 31, March 31,
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,056) $ (92)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 163 171
Other (63) -
Changes in operating assets and liabilities:
Decrease in accounts receivable 2,726 593
(Increase) decrease in inventories (1,386) 217
Decrease in other receivables 334 -
Increase in prepaid expenses and other assets (48) (71)
Increase (decrease) in accounts payable 501 (514)
Increase (decrease) in accrued expenses and other liabilities (148) 180
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NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES 1,023 484
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures - (73)
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NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES - (73)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in unfunded disbursements (42) (32)
Payments on revolving credit loan, net (803) (2,072)
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 (178) (30)
Payment of deferred financing fees - (80)
Proceeds from common stock issuance - 10
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NET CASH PROVIDED BY (USED) IN FINANCING ACTIVITIES (1,023) (411)
--------- --------
NET INCREASE (DECREASE) IN CASH - -
CASH - Beginning of period - -
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CASH - End of period $ - $ -
========= ========
CASH PAID DURING THE PERIOD
Interest $ 143 $ 151
========= ========
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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DYNAMOTION/ATI CORP.
Notes to Financial Statements (Unaudited)
March 31, 1997 and 1996
1. BASIS OF PRESENTATION
These interim financial statements should be read in conjunction with
the Company's Annual Report on Form 10-KSB/A for the year ended
December 31, 1996.
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, 1997, are as follows (in 000's):
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Raw materials $ 1,554
Work-in-progress 2,196
Finished goods 1,396
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$ 5,147
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Loss Per Common Share
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 accrual for preferred Class B stock dividends
and accretion of stock issuance costs in 1997, and none for the first
quarter of 1996, due to the Class B not being issued until the end of
the first quarter of 1996. In February 1997, the FASB issued Statement
No. 128, Earnings Per Share. Statement No. 128 established standards
for computing and presenting earnings per share (EPS) and applies to
entities with publicly held common stock or potential common stock.
This Statement simplifies the standards for computing EPS previously
found in APB Opinion No. 15, Earnings Per Share, and makes them
comparable to international EPS standards. This statement is effective
for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted.
This Statement requires restatement of all prior-period EPS data
presented, however, the Company believes that this Statement will not
have a material effect on the Company's previously reported EPS.
2. SUBSEQUENT EVENTS
On April 4, 1997, warrants issued in connection with the issuance of
Class B preferred stock, were exercised in full to purchase 330,302
common stock shares at a purchase price of $1.0092 per share, or
$333,341 in the aggregate. The proceeds were applied against the term
loan portion of the credit facility.
6
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DYNAMOTION/ATI CORP.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
This filing contains forward-looking statements which involve risks and
uncertainties. Dynamotion/ATI Corp.'s ("Dynamotion" or the "Company")
actual future results 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 Dynamotion's
Securities and Exchange Commission filings.
During the first quarter of 1997, Dynamotion continued to incur
substantial losses and cash flow drains from operations. At March 31,
1997 current liabilities exceeded current assets by approximately $5.9
million and total liabilities exceeded total assets by approximately $2
million. Dynamotion is in default of its operating line of credit
covenants, and as of March 31, 1997, had borrowed $4.7 million against
its operating line of credit. As of March 31, 1997, Dynamotion is also
$217,000 in arrears on payments on other notes payable and was past due
on payments owed to vendors by $4.1 million. Certain vendors have
placed Dynamotion on cash payment terms for purchases, and as of March
31, 1997, seven vendors have filed lawsuits against Dynamotion in
connection with efforts to collect amounts due to them. These
conditions call into question the ability of Dynamotion to continue as
a going concern.
Dynamotion's management attributes Dynamotion's financial condition and
recent losses to a number of factors. The losses in the past years have
severely depleted Dynamotion's resources and as a result operating and
financing costs have increased. Management's ability to efficiently
schedule production, purchase materials in economic quantities,
negotiate satisfactory pricing for the sale of its products, reorganize
operating departments, etc., are limited. The costs of financing have
increased both in terms of the stated rates and legal costs associated
with agreements. Dynamotion's backlog has increased but management has
not been able to increase production output. Several arrangements have
been made to increase cash flow by accelerating payment dates of
receivables at substantial discounts.
Dynamotion's management has taken a number of actions to reduce
operating expenses and losses. These include disposing of operations
and product lines that did not fit with Dynamotion's long-term
strategies and were producing losses, 30% reductions in work force in
the second quarter of 1996 and replacements of senior management
members in 1995 and 1996. While management has not quantified the
amount of capital necessary for Dynamotion to continue as a going
concern, Dynamotion would need $9 million to bring itself current with
respect to recorded liabilities existing as of March 31, 1997. In
addition, Dynamotion's operating expenses and production payroll
approximate $500,000 per month.
The market for Dynamotion's products is characterized by rapidly
changing technology and evolving industry standards. Accordingly,
Dynamotion believes that its ability to operate profitably depends on
developing and manufacturing new products and product enhancements. As
a result, existing products have short commercial lives and are not
expected to generate significant revenues after the first few years of
commercial production unless new products incorporating the technology
are developed. Dynamotion must therefore continually devote substantial
resources to research and development. Dynamotion's ability to realize
the value of its in-process research and development investments
depends on obtaining sufficient capital to complete development and
bring these products to market.
The primary plan of Dynamotion's management to increase its chances for
survival is a planned merger. Dynamotion executed a merger agreement
with Electro Scientific Industries ("ESI") in January 1997. This
agreement is subject to approval by Dynamotion's shareholders at a
special shareholder's meeting scheduled for May 23, 1997. Under certain
conditions, if management elects not to complete this merger and
Dynamotion subsequently merges with any other party within one year, it
will owe ESI a $1 million termination fee.
Dynamotion's management is not currently pursuing other mergers or
other sources of capital. If the ESI merger is not consummated,
Dynamotion's financial position may be such that other sources of
capital will not be
7
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DYNAMOTION/ATI CORP.
available to it. Management believes there is substantial doubt about
Dynamotion's ability to survive without additional financing. If
Dynamotion is unable to continue to operate and is forced to liquidate
its assets, it may not recover the assets' recorded amounts.
As noted above, the value of Dynamotion's in-process research and
development depends on its ability to obtain additional financing.
Because Dynamotion has no current plans to obtain additional financing
other than pursuing the merger with ESI, there is no assurance that
Dynamotion's in-process research and development will ever result in
commercially viable products. In addition to financial uncertainties,
the results of Dynamotion's in-process research and development are
subject to uncertainties related to technological feasibility and
market conditions, among other things. If Dynamotion's research and
development efforts are successful, this will have a material adverse
effect on Dynamotion's future operating results and financial
condition.
Results of Operations
Total revenues for the quarter ended March 31, 1997 were $3.1 million,
compared to total revenues of $5.3 million for the corresponding period
in 1996. Total machine revenues for the 1997 quarter were $2.6 million,
compared to $4.3 million for the corresponding period in 1996. The
machine revenue decrease of 40% is primarily attributable to two
issues. First, Dynamotion has experienced difficulty obtaining
commitments from potential buyers of its product due to its financial
condition, however, management expects that the proposed merger with
ESI will address this issue. During the first quarter of 1997, one
customer accounted for approximately 75% of Dynamotion's machine
revenues. Orders from this customer did not take place under formal
contracts but rather took place on the basis of multiple purchase
orders. Under a purchase order relationship, there is no assurance that
the customer will issue additional purchase orders in the future. The
second issue is the sale of the ATI router product line in August 1996
which accounted for approximately 16% or $688,000 of machine revenue
for the comparable period in 1996. Dynamotion sold its router product
line to enable the Company to focus resources on Dynamotion's higher
margin, more technologically advanced products. Field service revenue,
which includes parts sales and repairs and maintenance sales decreased
to $500,000 from $1,000,000 for the corresponding period in 1996. The
drop in field service revenue is also attributable to the sale of the
ATI router product line which accounted for approximately $500,000 in
field service revenue for the corresponding period in 1996.
Cost of sales for the quarter ended March 31, 1997 was $2.4 million, or
80% of revenues, compared to $3.8 million, or 72% of revenues, for the
corresponding period in 1996. During 1996, management had undertaken
several cost reduction strategies in order to achieve better margins at
reduced sales levels. However, the drop in machine production and field
service activity was so significant that the cost reductions which were
achieved were not able to reflect a decrease in the cost of sales
percentage. Decreasing the cost of sales percentage in the future is
contingent upon product mixes, prices, increased volume and improved
manufacturing efficiencies after the proposed merger with ESI.
Selling, general and administrative expenses for the quarter ended
March 31, 1997 were $952,000, or 31% of revenues, compared to $881,000,
or 17% of revenues for the corresponding period in 1996. Selling,
general and administrative expenses increased 8% in absolute dollars
from the corresponding period in 1996, primarily due to a $240,000
increase in professional fees as a result of the merger agreement
proposed in Dynamotion's proxy statement. However, this increase was
partially offset by a $72,000 decrease in salaries and wages due to
work force reductions in 1996. Additionally, the Company recognized
over a $100,000 gain in extinguishment of debt with trade vendors.
Interest expense increased to $188,000 for the quarter ended March 31,
1997, compared to $160,000 for the corresponding period in 1996
primarily due to various penalties and interest charges incurred for
delinquent payments due to various vendors.
For the reasons set forth above, the Company incurred a net loss for
the quarter ended March 31, 1997, of $1,056, compared to a net loss of
$92,000 for the comparable period in 1996.
8
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DYNAMOTION/ATI CORP.
Liquidity and Capital Resources
As of March 31, 1997, Dynamotion's outstanding indebtedness under the
revolving credit facility and term loan decreased to $4.8 million from
$5.6 million, on December 31, 1996. The $800,000 decrease in the bank
debt level is primarily due to the receipt of several large outstanding
trade receivables. As of March 31, 1997, Dynamotion had approximately
$893,000 of availability provided by the revolving credit facility. As
of March 31, 1997, and through the date of this filing, Dynamotion is
in violation of substantially all of the financial loan covenants
related to the credit facility. Although no assurances can be given,
management believes that IBJ Schroder Bank and Trust Company will not
attempt to accelerate payment on the credit facility in the near term.
If a default is declared and demand is made for payment, Dynamotion
would not be able to meet such demand.
On April 4, 1997, warrants issued in connection with the issuance of
Class B preferred stock, were exercised in full to purchase 330,302
common stock shares at a purchase price of $1.0092 per share, or
$333,341 in the aggregate. The proceeds were applied against the term
loan portion of the credit facility.
Dynamotion's management believes that substantial additional capital
resources are necessary for Dynamotion to continue as a going concern.
If Dynamotion is unable to continue to operate and is forced to
liquidate its assets, it may not recover the assets' recorded amounts.
The primary plan of Dynamotion's management to increase its chances for
survival is a planned merger. Dynamotion executed a merger agreement
with ESI in January 1997. This agreement is subject to approval by
Dynamotion's shareholders at a special shareholders meeting scheduled
for May 23, 1997. Dynamotion's management is not currently pursuing
other mergers or other sources of capital. If the merger with ESI is
not consummated, Dynamotion's financial position may be such that other
sources of capital may not be available to it. Management believes
there is substantial doubt about the Company's ability to survive
without additional financing.
PART II OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company filed a claim dated October 1, 1995, in arbitration against
Roku-Roku Sangyo, Ltd, (Case No. 75-T-199-00314-95) for breach of a
license agreement. On April 4,1997, the Company received notice that
Dynamotion was successful in its claim and is entitled to an award of
approximately $1.3 million in damages. The Company currently has a
lawsuit pending against Roku-Roku to enforce the judgment.
Item 5. OTHER INFORMATION
On May 12, 1997, the Company was notified that its securities will be
delisted from the Boston Stock Exchange effective May 15, 1997, due to
non-compliance with minimum equity requirements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial data schedule.
(b) Reports on Form 8-K
A report on Form 8-K was filed on February 4, 1997 related to the
Company's signing of a merger agreement dated January 24, 1997 with
Electro Scientific Industries, Inc.
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 13, 1997 By: /s/ Jon R. Hopper
------------ -------------------------
Jon R. Hopper
President,
Chief Executive Officer,
Chief Financial Officer
and Director
10
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 2,306
<ALLOWANCES> 0
<INVENTORY> 5,147
<CURRENT-ASSETS> 7,237
<PP&E> 2,480
<DEPRECIATION> 1,516
<TOTAL-ASSETS> 11,364
<CURRENT-LIABILITIES> 13,122
<BONDS> 0
22
9
<COMMON> 114
<OTHER-SE> (1,954)
<TOTAL-LIABILITY-AND-EQUITY> 11,364
<SALES> 3,053
<TOTAL-REVENUES> 3,053
<CGS> 2,438
<TOTAL-COSTS> 3,919
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 188
<INCOME-PRETAX> (1,054)
<INCOME-TAX> 2
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,056)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
