U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ 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
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 0-24242
PRODUCTIVITY TECHNOLOGIES CORP.
(Exact name of small business issuer as specified in its charter)
<TABLE>
<S> <C>
Delaware 13-3764753
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
509 Madison Avenue, New York, New York 10022
(Address of Principal Offices) (Zip Code)
</TABLE>
Registrant's Telephone Number, Including Area Code (212) 843-1480
Not Applicable
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
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Indicate by check [root] whether the registrant: (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 _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 12, 1999: 2,475,000 shares, $ .001 par value common
stock.
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TABLE OF CONTENTS
Page
Part I. Financial Information for Productivity Technologies Corp. ...........4
("PTC" or "Company") and Subsidiary Atlas Technologies, Inc.
("Atlas")
Item 1. Interim Financial Statements.........................................4
Consolidated Balance Sheets..........................................4
Consolidated Statements of Operations................................6
Consolidated Statement of Stockholders' Equity.......................7
Consolidated Statements of Cash Flow.................................8
Notes to Financial Statements........................................9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................10
Item 3. Quantitative and Qualitative Disclosure about Market Risk...........12
Part II. Other Information...................................................12
Item 1. Legal Proceedings...................................................12
Item 6. Exhibits and Reports on Form 8-K....................................12
Signatures...................................................................13
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PART I. FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets ( Unaudited)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
----------- -----------
<S> <C> <C>
Assets
Current assets
Cash $ 55,948 $ 244,400
Short-term investments, including accrued interest 597,323 392,059
Contracts receivable, net of allowance for doubtful
accounts of $110,000 11,195,285 7,310,072
Costs and estimated earnings in excess of billings on
uncompleted contracts 5,819,604 9,714,477
Inventories 848,626 641,615
Prepaid expenses and other 86,621 414,366
Deferred income taxes 463,197 431,000
----------- -----------
Total current assets 19,066,604 19,147,989
----------- -----------
Property and equipment
Land $ 591,514 $ 591,514
Buildings and improvements 4,854,798 4,854,799
Machinery and equipment 3,848,921 3,848,921
Transportation equipment 31,500 31,500
----------- -----------
Total fixed assets 9,326,733 9,326,734
Less accumulated depreciation 1,633,862 1,483,000
----------- -----------
Net property and equipment 7,692,871 7,843,734
----------- -----------
Other assets
Goodwill, net of accumulated amortization of $366,261 and
$340,521 2,458,464 2,484,204
Other assets 622,034 632,053
----------- -----------
Total other assets 3,080,498 3,116,257
----------- -----------
Total assets $29,839,973 $30,107,980
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets (Unaudited) - Cont.
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------ ------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Accounts payable $ 977,872 $ 1,879,817
Accrued expenses
Commissions payable 700,727 795,959
Payroll and related withholdings 130,542 239,536
Other 790,748 1,291,567
Billings in excess of costs and estimated
earnings on uncompleted contracts 188,624 348,049
Current maturities of executive deferred
compensation agreements 347,925 326,706
Current maturities of long term debt 448,353 448,353
------------ ------------
Total current liabilities $ 3,584,791 $ 5,329,987
Executive deferred compensation agreements, less
current maturities 760,427 1,109,677
Long-term debt less current maturities 16,027,135 13,951,043
------------ ------------
Total liabilities 20,372,353 20,390,707
------------ ------------
Stockholders' equity
Preferred Stock, $.001 par value, 1,000,000 shares
authorized; none outstanding
Common Stock, .$001 par value, 20,000,000
shares authorized; 2,475,000 shares issued and
outstanding 2,475 2,475
Additional paid-in capital 9,966,408 9,966,408
Deficit (501,263) (251,610)
------------ ------------
Total stockholders' equity 9,467,620 9,717,273
------------ ------------
Total liabilities and stockholders' equity $ 29,839,973 $ 30,107,980
============ ============
</TABLE>
See accompany notes to financial statements.
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Productivity Technologies Corp. and Subsidiary
Consolidated Statements of Operations ( Unaudited)
First Quarter Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
Revenues:
Contract revenues earned $ 6,529,112 $ 8,150,682
Cost of revenues earned 5,231,260 5,672,750
----------- -----------
Gross profit 1,297,852 2,477,932
Selling, general and administrative expenses 1,459,571 2,032,424
----------- -----------
Income (loss) from operations (161,719) 445,508
----------- -----------
Other income ( expense)
Interest income 20,682 11,804
Interest expense (261,346) (200,272)
Miscellaneous 24,730 2,788
----------- -----------
Total other expense (215,934) (185,680)
----------- -----------
Income (loss) before income taxes (377,653) 259,828
Income tax expense (benefit) (128,000) 85,000
----------- -----------
Net income (loss) ($ 249,653) $ 174,828
=========== ===========
Basic and diluted earnings per share ($ 0.10) $ 0.07
=========== ===========
Weighted average number of
Common shares outstanding 2,475,000 2,425,000
See accompanying notes to financial statements.
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Productivity Technologies Corp. and Subsidiary
Consolidated Statement of Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Paid-In Stockholders'
Shares Amount Capital Deficit Equity
<S> <C> <C> <C> <C> <C>
Balance July 1, 1999 2,475,000 $2,475 $9,966,408 ($251,610) $9,717,273
Net loss ($249,653) ($ 249,653)
--------- ------ ---------- --------- ----------
Balance as of
September 30, 1999 2,475,000 $2,475 $9,966,408 ($501,263) $9,467,620
========= ====== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
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Productivity Technologies Corp. and Subsidiary
Consolidated Statement of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
First Quarter Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) ($ 249,653) $ 174,828
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation 150,863 121,746
Amortization 25,740 (22,772)
Deferred income tax (32,197) (410,239)
Changes in operating assets and liabilities:
Contract receivables (3,885,213) (2,168,349)
Inventories, prepaid expenses and other 130,753 582,944
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,735,448 846,107
Accounts payable, accrued expenses and other (1,606,990) (510,896)
----------- -----------
Net cash used in operating activities ($1,731,249) ($1,386,631)
----------- -----------
Cash flows from investing activities
Collection of notes receivable $ -0- $ 86,415
Purchase of short-term investments - net (205,264) (662,515)
Expenditures for property and equipment -0- (34,472)
Net cash used in investing activities ($ 205,264) ($ 610,572)
----------- -----------
Cash flows from financing activities
Net borrowings (payments) - revolving credit agreement 2,093,000 --
Payments on executive deferred compensation agreements (328,031) --
Payments on long-term debt (16,908) (119,500)
----------- -----------
Net cash provided by (used in) financing activities $ 1,748,061 ($ 119,500)
----------- -----------
Net decrease in cash ($ 188,452) ($2,116,703)
Cash at the beginning of the period 244,400 2,172,457
----------- -----------
Cash at the end of the period 55,948 55,754
=========== ===========
Cash paid during the period for interest $ 261,346 $ 200,272
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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Notes to Financial Statements (Unaudited)
1. Basis of Presentation
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with instruction to Form 10-Q and Article 10 of Regulation S-X.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from the accompanying interim financial statements. The
information furnished in the accompanying balance sheets, statements of
operations, stockholders' equity and cash flows, reflect all adjustments which
are, in the opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim periods. Operation results
for the three months ended September 30, 1999, are not necessarily indicative of
the results that may be expected for the year ending June 30, 2000.
The consolidated financial statements should be read in conjunction with
Productivity Technologies Corp. and Subsidiary's Form 10-K for the fiscal year
ended June 30, 1999. Information provided includes the consolidated audited
financial statements, including footnotes for the year ended June 30, 1999 and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2. Summary of Significant Accounting Policies
History of the Company and Basis of Presentation
The Company was incorporated in June 1993 under the name Production Systems
Acquisition Corporation with the objective of acquiring an operating business
engaged in the production systems industry. The Company originally selected
March 31 as its fiscal year-end. The Company completed an initial public
offering ("Offering") of common stock in July 1994 and raised net proceeds of
approximately $9.0 million. In May 1995, the Company changed its name to
Productivity Technologies Corp. ("PTC" or the "Company"), and acquired, through
a merger, Atlas Technologies, Inc. ("Atlas") as a wholly owned subsidiary.
The accompanying financial statements include the consolidated accounts of PTC
and Atlas. All significant inter- company accounts and transactions have been
eliminated upon consolidation.
Nature of Business
Atlas, PTC's sole operating subsidiary, is a leading innovator and supplier of
quick die change, flexible transfer, and stacking/destacking equipment used to
automate automotive and other metal stamping operations. Atlas operates two
manufacturing plants in Fenton, Michigan and has sales and engineering offices
in Michigan, Europe and China.
Sales of products have principally been to automobile and automotive parts
manufacturers and appliance manufacturers. Other customers include steel service
centers and manufacturers of garden and lawn equipment, office furniture,
heating, ventilation and air conditioning equipment and large construction
equipment. Sales to automotive related customers account for the majority of
sales.
Revenue and Cost Recognition
Contract revenues from fixed price contracts, and the related contract costs,
are recognized using the percentage-of- completion method. The
percentage-of-completion method measures the percentage of contract costs
incurred to date and compares these costs to the total estimated costs for each
contract. The Company estimates the status of individual contracts when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. Contract costs include all direct material and labor costs
and those indirect costs related to contract performance, such as indirect
labor, supplies, repairs and depreciation costs. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job
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condition, estimated profitability, and final contract settlement may result in
revisions to costs and income, and are recognized in the period the revisions
are determined.
Revenues from time-and-material contracts are recognized currently as the work
is performed.
Earnings Per Share
Earnings per share for the first quarter ended September 30, 1999 has been
computed based on the weighted average number of 2,475,000 common and diluted
common equivalent shares outstanding. Earnings per share for the first quarter
ended September 30, 1998 has been computed based on the weighted average number
of 2,425,000 common and diluted common equivalent shares outstanding.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Unaudited revenues for the quarter ended September 30, 1999 were $6,529,112, as
compared to $8,150,682 for the quarter ended September 30, 1998. This 20%
decline in revenues was primarily due to lower customer demand during the
quarter ended September 30, 1999 and unanticipated cost overruns on certain
projects, which lowered revenue recognition in accordance with the percentage of
completion accounting method. The order backlog as of September 30, 1999 was
$13.5 million, down 16% from the June 30, 1999 backlog of $16.0 million. The
decline in backlog was mainly due to slower closings of new orders which Atlas
management believes was due in part to recent labor negotiations between the
United Automobile Workers (UAW) union and the major U.S. automakers. The volume
of new business quotes, both domestic and foreign, remains active.
Cost of revenues earned for the quarter ended September 30, 1999 was $5,231,260,
down 8% from $5,672,750 for the quarter ended September 30, 1998. Cost of
revenues earned as a percent of revenues increased to 80% of revenues during the
quarter compared to 70% of revenues during the quarter ended September 30, 1998.
This increase in cost of revenues earned as a percentage of revenues earned is
primarily due to the cost overuns noted in the paragraph above and lower than
usual sales volumes which were not sufficient to absorb fixed manufacturing
overhead.
Gross profit for the quarter ended September 30, 1999 was $1,297,852,
representing a 48% decrease compared to the $2,477,932 gross profit for the
quarter ended September 30, 1998. Gross profit decreased due the factors cited
above regarding the increase in costs of revenues earned as a percent of
revenues. The Company's gross profit margin decreased 34% relative to the gross
profit margin one year ago.
Consolidated selling, general and administrative (SG&A) expenses were
$1,459,571, down 28% from the quarter ended September 30, 1998 of $2,032,424. In
early calendar year 1999, and continuing through the summer of 1999, the Company
and Atlas reduced fixed costs and lowered the sales level which Atlas would have
to achieve in order for the Company to be profitable. The decline in SG&A
expenses for the quarter ended September 30, 1999 as compared to the quarter one
year ago is due in part to these cost reductions.
The net loss from operations (net income (loss) before interest and income
taxes) for the quarter ended September 30, 1999 was $161,719, compared to income
from operations reported in the quarter ended a year ago of $445,508. The
decrease resulted from slower than expected sales and the cost overruns on
certain work in process described above.
Interest expense for the quarter ended September 30, 1999 was $261,346, up 30%
from $200,272 for the quarter ended September 30, 1998. Higher interest costs in
the quarter ended September 30, 1999 were due to a higher proportion, relative
to the quarter one year ago, of large projects in the plant which contained few
or no progress payment provisions. As a result, Atlas was required to carry the
cost of material and labor inputs on these works in
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process. On such projects, Atlas usually does not collect customer payments
until immediately prior to product shipment.
The net loss for the quarter ended September 30, 1999 was $249,653, compared to
net income of $174,828 for the quarter ended September 30, 1998. The net loss
for the quarter was the result of the factors discussed above. The net loss per
share was $0.10 for the first quarter in fiscal 2000 compared to a net profit of
$0.07 for the first quarter in fiscal 1999. There were 2,475,000 weighted
average common shares outstanding during the first quarter in fiscal 2000,
compared to 2,425,000 weighted average common shares outstanding in the first
quarter 1999.
Liquidity and Capital Resources
Atlas believes it has sufficient capital to meet short and long term funding
needs. Management expects financing facilities currently in place, along with
anticipated cash available from operations, will be sufficient for general
operations and any required current year asset purchases.
At September 30, 1999, Atlas had (a) debt of $12,279,140 under the line of
credit, and $4,100,000 under the Industrial Revenue Bond, payable over 15 years,
(b) deferred executive compensation obligations of $1,108,352 scheduled to be
paid over four equal annual installments commencing July 1999 through July 2002,
and (c) other debt of $96,348. This total of $17,583,840 compares to total
combined long-term debt financing and line of credit current balances of
$15,835,779 as of June 30, 1999.
The Company believes that, as a result of the current loan facility, its
short-term credit availability is adequate to support its business operation at
current and near-term anticipated sales levels.
Working capital at September 30, 1999 was $15,481,813 and the current ratio was
5.3 to 1, compared to $13,818,002 and a current ratio of 3.6 to 1, respectively,
for the Company at June 30, 1999.
Year 2000 Compliance
The Company is installing an enterprise resource planning ("ERP") system at
Atlas, which includes computer systems for its internal accounting and reporting
activities and its manufacturing operations and processes which are "Year 2000
compliant" (which means that such computer systems and other information
technology will accurately process date/time data regardless of whether the date
is in the twentieth or twenty-first century). The acquisition and installation
of the system are expected to cost approximately $340,000, of which
approximately $305,000 was expended through September 30, 1999. Because the
system is being implemented as an overall upgrade to Atlas's operations and not
specifically to address Year 2000 compliance concerns, management has not
estimated the portion of the cost which may be allocable to Year 2000
compliance. Atlas management has not assessed whether or not the failure of
Atlas's internal information technology to be Year 2000 compliant would have a
material adverse effect upon the Company's financial position, liquidity or
results of operations since it believes that installation and operation of the
new system will be accomplished in advance of December 31, 1999.
The Company is also assessing its major vendors, customers, utilities, banks and
others with whom it does business to determine if their failure to be Year 2000
compliant would have a material adverse effect upon the Company or its financial
position, liquidity or results of operations. To date, nothing has come to the
attention of management that leads it to conclude that the likelihood of such
adverse effect reasonably exists. The Company's and Atlas' operations utilize
relatively little electronic data interchange with vendors, customers and other
third parties. However, to the extent that such third parties, particularly
utilities and banks, may not be Year 2000 compliant, the Company and Atlas may
be adversely affected, although the magnitude of such effect cannot be
estimated. The cost to the Company of making its third-party Year 2000
compliance assessment is not expected to be material.
Certain Atlas products contain processors which address and utilize date/time
data. Management believes that such processors incorporated in equipment sold
within the past five years are virtually all Year 2000 compliant. However,
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it is not able to determine the compliance status of processors used in
equipment sold in earlier periods with any reasonable degree of certainty.
Although such equipment is beyond the warranty periods applicable to Atlas'
products, it is possible that customers who purchased equipment from Atlas which
is not Year 2000 compliant may nevertheless assert claims against Atlas to
correct the compliance deficiencies or for resulting damages. While management
believes that Atlas would not be legally responsible to such persons, based on
the terms of its purchase orders and warranties, there can be no assurance that
this position would prevail if challenged. Management is unable to estimate the
potential cost that the Company might incur if such claims are made and
successfully sustained or whether or not such cost would have a material adverse
effect upon its financial position, liquidity or results of operations.
Forward-Looking Statements
Various statements in this Report concerning the manner in which the Company
intends to conduct its future operations and potential trends that may affect
future results of operations are forward-looking statements. The Company may be
unable to realize its plans and objectives due to various important factors.
These factors include but are not limited to the potential softening of the
domestic and foreign markets for automobiles and automotive parts resulting in
reduced demand for the Company's automation equipment; potential technological
developments in the metal forming and handling automation equipment markets
which render the Company's automation equipment noncompetitive or obsolete; the
Company's failure to prevail in its patent suit against Orchid; the failure of
the Company's older automation equipment to be Year 2000 compliant; and the
tightening of credit availability generally or under the Company's credit
facility which renders the Company unable to access needed working capital.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 3 has been disclosed in Item 7A of the
Company's Annual Report on Form 10-K for the year ended June 30, 1999. There has
been no material change in the disclosure regarding market risk.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since the date of the filing of the Company's Annual Report on Form 10-K for the
year ended June 30, 1999, there have been no material new legal proceedings
involving the Company or any material developments to such proceedings.
ITEM 5. OTHER INFORMATION
On October 29, 1999, the Board voted unanimously to relocate its headquarters to
Michigan and reduce the number of directors from eight to five. The following
three directors offered their resignations to be effective December 31, 1999:
Ray J. Friant, Jr., Joseph K. Linman and John S. Strance. The continuing
directors will be Michael Austin, Alan Foster, Alan Goldman, Jesse Levine and
Samuel Seidman. Mr. Seidman will become Chairman, in addition to continuing as
President and Chief Executive Officer of the Company effective January 1, 2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K -- None
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRODUCTIVITY TECHNOLOGIES CORP.
Date: November 12, 1999 By: /s/ Samuel N. Seidman
---------------------------------------
Samuel N. Seidman, President
Date: November 12, 1999 By: /s/ Jesse Levine
---------------------------------------
Jesse Levine, Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 55,948
<SECURITIES> 597,323
<RECEIVABLES> 11,195,285
<ALLOWANCES> (110,000)
<INVENTORY> 1,048,626
<CURRENT-ASSETS> 19,066,604
<PP&E> 9,326,733
<DEPRECIATION> (1,633,862)
<TOTAL-ASSETS> 29,839,973
<CURRENT-LIABILITIES> 3,584,791
<BONDS> 0
0
0
<COMMON> 2,475
<OTHER-SE> 9,465,145
<TOTAL-LIABILITY-AND-EQUITY> 29,839,973
<SALES> 6,529,112
<TOTAL-REVENUES> 6,529,112
<CGS> 5,231,260
<TOTAL-COSTS> 6,690,831
<OTHER-EXPENSES> 45,412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215,934
<INCOME-PRETAX> (377,653)
<INCOME-TAX> (128,000)
<INCOME-CONTINUING> (249,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (249,653)
<EPS-BASIC> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
