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: December 31, 1998
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)
Delaware 13-3764753
- -------------------------------- ----------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
509 Madison Avenue, New York, New York 10022
- --------------------------------------- ---------
(Address of Principal Offices) (Zip Code)
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
Indicate by check 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 February 12, 1999: 2,425,000 shares, $ .001 par value common
stock.
<PAGE>
TABLE OF CONTENTS
Page
Part I. Financial Information for
Productivity Technologies Corp. ("PTC" or "Company") and
Subsidiary Atlas Technologies, Inc. ("Atlas")
Item 1. Interim Financial Statements 3
Consolidated Balance Sheets 4-5
Consolidated Statements of Operations 6
Consolidated Statement of Stockholders' Equity 7
Consolidated Statements of Cash Flows 8
Notes to Financial Statements 9-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-13
Part II. Other Information
Item 3. Exhibits and Reports on Form 8-K 14
Signatures 14
2
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARY
PART I: FINANCIAL INFORMATION
ITEM 1. INTERIM FINANCIAL STATEMENTS
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 six months ended December 31, 1998, are not necessarily indicative of
the results that may be expected for the year ending June 30, 1999.
The aforementioned consolidated financial statements should be read in
conjunction with the Productivity Technologies Corp. Annual Report on Form 10-K
for the fiscal year ended June 30, 1998. Information provided therein includes
the consolidated audited financial statements, including footnotes for the year
ended June 30, 1998 and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
3
<PAGE>
Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets (Unaudited)
December 31, June 30,
1998 1998
---- ----
Assets
Current assets
Cash and cash equivalents $280,031 $2,172,457
Short-term investments and accrued interest 484,647 482,280
Contracts receivable 5,162,692 5,217,421
Notes receivable 0 86,415
Costs and estimated earnings in excess of
billings on uncompleted contracts 7,482,613 5,435,957
Inventories 730,804 628,481
Prepaid expenses and other 199,943 773,522
Deferred income taxes 846,239 475,000
--------- ---------
Total current assets 15,186,969 15,271,533
---------- ----------
Property and equipment
Land $591,514 $591,514
Buildings and improvements 4,856,753 4,854,799
Machinery and equipment 3,732,311 3,676,415
Transportation equipment 31,500 31,500
--------- --------
Total fixed assets 9,212,078 9,154,228
Less accumulated depreciation 1,128,397 865,473
---------- ---------
Net property and equipment 8,083,681 8,288,755
---------- ---------
Other assets
Goodwill, net of accumulated amortization
of $289,041 and $237,562 2,578,911 2,587,164
Other assets 609,833 661,936
---------- ---------
Total other assets 3,188,744 3,249,100
---------- ---------
Total assets $26,459,394 $26,809,388
=========== ===========
See accompanying notes to financial statements.
4
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Productivity Technologies Corp. and Subsidiary
Consolidated Balance Sheets (Unaudited) December 31, June 30,
1998 1998
------------ ---------
Liabilities and stockholders' equity
Current liabilities
Accounts payable $1,707,001 $1,970,769
Accrued expenses
Executive bonus agreement 0 810,000
Commissions payable 685,000 482,512
Payroll and related withholdings 225,508 240,329
Other 320,354 770,096
Billings in excess of costs and estimated
earnings on uncompleted contracts 333,494 580,262
Current maturities of long term debt 769,034 615,677
---------- ---------
Total current liabilities $4,040,391 $5,469,645
Executive deferred compensation 1,436,383 1,436,383
Long-term debt less current maturities 12,220,852 11,254,127
----------- ----------
Total liabilities 17,697,626 18,160,155
----------- ----------
Stockholders' equity
Preferred Stock, $.001 par value, 1,000,000
shares authorized; none outstanding
Common Stock, .$001 par value, 20,000,000
shares authorized; 2,425,000 and 2,125,000
shares outstanding 2,425 2,125
Common Stock to be issued 0 695,520
Additional paid-in capital 9,872,708 9,177,488
Retained Earnings (deficit) (1,113,365) (1,225,900)
----------- -----------
Total stockholders' equity 8,761,768 8,649,233
----------- -----------
Total liabilities and stockholders' equity $26,459,394 $26,809,388
============ ===========
See accompanying notes to financial statements.
5
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Productivity Technologies Corp. and Subsidiary
Consolidated Statements of Operations ( Unaudited)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
December 31, December 31, December 31 December 31,
1998 1997 1998 1997
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Net sales $7,849,570 $11,336,341 $16,000,252 $20,688,827
Cost of sales 5,949,804 7,873,789 11,622,554 14,508,869
------------ ----------- ---------- ------------
Gross profit 1,899,766 3,462,552 4,377,698 6,179,958
Selling, general and administrative expenses 1,872,253 2,268,355 3,904,677 4,280,843
Officers' bonuses 0 404,758 0 659,824
------------ ----------- ---------- ------------
Income (loss) from operations 27,513 789,439 473,021 1,239,291
------------ ----------- ---------- ------------
Other income ( expenses)
Interest income 27,622 36,954 39,426 62,452
Interest expense (201,019) (282,335) (386,699) (574,186)
Miscellaneous 29,660 52,175 32,448 145,020
------------ ----------- ---------- ------------
Total other expenses (143,737) (193,206) (314,825) (366,714)
------------ ----------- ---------- ------------
Income before income taxes (116,224) 596,233 158,196 872,577
Income taxes (39,339) 172,000 45,661 282,500
------------ ----------- ---------- ------------
Net income $(76,885) $424,233 $112,535 $590,077
========= ======== ======== ========
Net income per share of Common Stock $(0.03) $0.20 $0.05 $0.28
======= ===== ===== =====
Weighted average number of
common shares outstanding 2,425,000 2,125,000 2,425,000 2,125,000
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
Productivity Technologies Corp. and Subsidiary
Consolidated Statement of Stockholders' Equity (Unaudited)
<TABLE>
<CAPTION>
Common Additional Total
Common Stock Stock to be Paid-In Stockholders'
Shares Amount Issued Capital Deficit Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance July 1, 1998 2,125,000 $2,125 $695,520 $9,177,488 ($1,225,900) $8,649,233
Common Stock issued 300,000 $300 ($695,520) $695,220
Net income (unaudited) _________ ______ ________ __________ $112,535 $112,535
Balance as of
December 31, 1998 2,425,000 $2,425 $0 $9,872,708 ($1,113,365) $8,761,768
========== ======= === ========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
Productivity Technologies Corp. and Subsidiary
Consolidated Statement of Cash Flows (Unaudited)
Second Quarter Ended
December 31, December 31,
1998 1997
---- ----
Cash flows from operating activities
Net income $112,535 $590,077
Adjustments to reconcile net income to net cash
Provided by (used in ) operating activities:
Depreciation 262,924 243,867
Amortization 8,253 59,980
Deferred income tax (371,239) 5,382
Changes in operating assets and liabilities:
Contract receivables 54,729 (4,954,446)
Inventories, prepaid expenses and other 471,256 651,520
Costs and estimated earnings in excess of
billings on uncompleted contracts (2,293,424) 3,703,657
Accounts payable, accrued expenses and other (1,335,843) (323,933)
---------- --------
Net cash provided by (used in) operating activities ($3,090,809) ($23,896)
============ ==========
Cash flows from investing activities
Collection of notes receivable $86,415 $160,631
Maturity of US securities in deposited trust fund (2,367) (564,052)
Expenditures for property and equipment (57,850) 326,036
Increase in notes receivable 52,103 (305,737)
------------ ---------
Net cash provided by (used in) investing activities $78,301 ($383,122)
=========== ==========
Cash flows from financing activities
(Payments) or borrowings on long-term debt 966,725 (1,924)
Proceeds from additional long-term debt 153,357 (385,459)
----------- ---------
Net cash provided by (used in) financing activities $1,120,082 $(387,383)
=========== ==========
Net increase (decrease) in cash and cash equivalents (1,892,426) $(794,401)
Cash and cash equivalents at the beginning of the
period 2,172,457 843,709
----------- ---------
Cash and cash equivalents at the end of the period $280,031 $49,308
======== =======
Supplemental cash flow Information
Cash paid during the period for interest $201,019 $574,186
See accompanying notes to financial statements.
8
<PAGE>
Notes to Financial Statements (Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements for the second quarter ended
December 31, 1998 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The consolidated balance
sheet at June 30, 1998 has been derived from the audited consolidated financial
statements at that date. Operating results for the second quarter ended December
31, 1998 are not necessarily indicative of the results that may be expected for
the year ended June 30, 1999 or any other interim period. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the period
ended June 30, 1998.
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 1996, 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 presented for the second quarter ended
December 31, 1998 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 supplier of quick die
change, flexible transfer, and stacking/destacking equipment used to automate
automotive and appliance metal stamping operations. Atlas operates two
manufacturing plants in Fenton, Michigan and has sales and engineering offices
in the United States, Europe and China.
Sales of products have principally been to automobile and automotive parts
manufacturers and appliance manufacturers. Other customers include manufacturers
of garden and lawn equipment, office furniture, heating, ventilation and air
conditioning equipment and large construction equipment. Sales to automotive
related customers have accounted for the majority of sales during the past two
years.
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 condition, estimated profitability,
and final contract settlement may result in revisions to costs and income, and
are recognized in the period that the revisions are determined.
Revenues from time-and-material contracts are recognized currently as the work
is performed.
9
<PAGE>
Net Income Per Common Share
Net income per common share for the second quarter ended December 31, 1998 has
been computed based on the weighted average number of 2,425,000 common and
diluted common equivalent shares outstanding. In September 1998, 300,000 shares
were issued as partial consideration for the restructuring of the Atlas
executive bonus program. The issuance of the 300,000 shares was effective as of
June 1998. The bonus restructuring agreement is described in detail in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
3. Commitments
Atlas is a party to employment agreements with its principal executive officer,
which expires on December 31, 2001. Annual compensation under the agreement is
$198,588, subject to cost of living increases after December 31, 1998. The
employment agreement also provides that the executive, regardless of future
employment, will receive four annual payments of $207,571 commencing July 30,
1999. The executive also received 150,000 shares of restricted common stock of
the Company, which were issued effective as of June 1998. The following items
related to the employment agreement, and a similar agreement with a former
executive which expired on December 31, 1998, are included in the accompanying
financial statements as of and for the year ended June 30, 1998:
Balance Sheet
Executive Deferred Compensation Agreement $1,436,383
Common stock issued (.001 par value) 300
Paid in capital 696,320
- ------------------------------------------------------------
Statement of Operations
Bonus restructuring expense $2,131,903
- ------------------------------------------------------------
4. Contingencies
Atlas was undergoing an Internal Revenue Service audit for the fiscal year ended
June 30, 1995. The main area of review related to a research and experimentation
tax credit Atlas had calculated and filed for over the past six years. Atlas had
applied $459,000 of credit towards Federal taxes due for the fiscal periods
ended June 1997, June 1996 and June 1995, and had a carry forward of $23,000
expected to be used as a reduction in future tax payments. Atlas' management and
Atlas' accountants believed this issue was a matter of interpretation of the
research and experimentation regulations. The Company is indemnified up to
$560,000 in excess of the first $189,000 (subject to certain exclusions and
limitations), from the former principal stockholders of Atlas for amounts it may
be required to pay as a result of the audit.
Atlas recently requested the audit findings be moved to an Internal Revenue
Service appeals officer for review. After review of the documentation justifying
the research and experimentation credits for the prior fiscal years ended June
30, 1995, 1994, 1993, 1992, 1991 and 1990, a settlement offer was tendered and
accepted in January 1999. The settlement resulted in the qualifying of $778,815
and the disqualification of $85,185 of Federal tax credit carry forwards out of
the total amount previously claimed of approximately $864,000. Atlas management
believes this negotiation settlement does not set a precedent for future
research and experimentation credits. Atlas management expects Atlas will
continue to review its research activity and apply for future credits
accordingly, including potential increased adjustments, which Atlas may be
entitled to for the fiscal years ended June 1997 and 1998.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Unaudited sales revenues for the quarter ended December 31, 1998 were
$7,849,570, down 31% from record sales volume of $11,336,341 for the quarter
ended December 31, 1997. Sales revenues for the six months ended December 31,
1998 were $16,000,252, down 23% from six months ended December 31, 1997 revenues
of $20,688,827. The decrease reflects lower order closings and delays related to
certain key projects during the first half of the year. The order backlog as of
December 31, 1998 was $12.0 million, down 34% from the June 30, 1998 backlog of
$18.2 million. The decline in backlog was due to slower closings of new orders.
Costs of sales for the quarter ended December 31, 1998 were $5,949,804, down 24%
from $7,873,789 for the quarter ended December 31, 1997. For the six months
ended December 31, 1998 cost of sales were $11,622,554, down 20% from December
31, 1997 costs of $14,508,869. The decrease in cost of sales from a year ago was
due to lower quarterly revenues versus that of the prior year. Cost of products
sold as a percent of revenues increased to 76% of revenues during the quarter
compared to 69% of revenues during the quarter ended December 31, 1997, and for
the six months ended 73% compared to 70%, respectively. The increase in cost of
sales as a percent of revenues was primarily due to the under-absorption of
fixed factory overhead for this quarter relative to the quarter one year ago.
Gross profit for the quarter ended December 31, 1998 was $1,899,766, a 45%
decrease compared to $3,462,552 for the quarter ended December 31, 1997 and for
the six months ended December 31, 1998 was $4,377,698, a 29% decrease compared
to $6,179,958 for December 31, 1997. While some areas of cost reduction were
being implemented, lower sales volumes, and increased research and development
costs and warranty expenses adversely affected gross profit. The Company's gross
profit margin decreased 3% relative to the gross profit margin one year ago for
the reasons cited in the paragraph above in connection with the increase in cost
of sales as a percent of revenues.
Consolidated selling, general and administrative (SG&A) expenses for the quarter
ended December 31, 1998 were $1,872,253, down 17% from the quarter ended
December 31, 1997 of $2,268,355. For the six months ended December 31, 1998,
SG&A expenses were $3,904,677, down 9% from December 31, 1997 costs of
$4,280,843. In the six month period ending December 31, 1997, Atlas incurred
approximately $260,000 in expenses comprised of legal defense fees in connection
with a lawsuit and relocation expenses related to the opening of and moving to a
new manufacturing facility. Lawsuit defense and relocation expenses were not
incurred in the second quarter ended December 31, 1998. Sales expense increased
approximately $105,000 mainly due to increased commissions and royalties.
There were no officer bonuses during the quarter ended December 31, 1998,
compared to $404,758, from the quarter ended December 31, 1997. For the six
months ended December 31, 1998 there were no officer bonuses, compared to six
months ended December 31, 1997 officer bonuses of $659,824. Officer bonuses were
eliminated as part of the bonus restructuring plan detailed in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1998.
Consolidated operating income (net income before interest and income taxes) for
the quarter ended December 31, 1998 were $27,513, down from the quarter ended a
year ago of $789,438. For the six months ended December 31, 1998, operating
income was $473,021 compared to December 31, 1997 operating income of $1,239,290
As adjusted for the elimination of officer bonuses, operating earnings during
the period were approximately 75% lower than the previous year. The decrease
resulted from slower than expected sales combined with the increased selling,
research and warranty expenses described above.
11
<PAGE>
Interest expenses for the quarter ended December 31, 1998 were $201,019, down
29% from $282,335 for the quarter ended December 31, 1997. For the six months
ended December 31, 1998 interest expenses were $386,699, down 33% from $574,186
for the period ended December 31, 1997. Decreased interest costs were due to
reduced work in process and a lower level of outstanding receivables, which the
Company carried during these periods.
The Company's net consolidated loss for the quarter ended December 31, 1998 was
$76,885, compared to net income of $424,233 for the quarter ended December 31,
1998. For the six months ended December 31, 1998, net consolidated earnings were
$112,535, down 81% from $590,078 for the six-month period ended December 31,
1997. Net profits for the six months one year ago included $77,000 from a gain
on sale of the Argentine facility during the first quarter. The second quarter
fiscal 1999 loss per share of $0.03 compared to positive earnings per share of
$0.20 for the second quarter in fiscal 1998. For the six months ended December
31, 1998 earnings per share were $0.05, down 81% from $0.28 for the six-month
period ended December 31, 1997. There were 2,425,000 weighted average common
shares outstanding during the quarter and the six months ended December 31,1998,
compared to 2,125,000 weighted average common shares outstanding during the
quarter and the six months ended at December 31, 1997.
12
<PAGE>
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 continued cash available from operations, will be sufficient for
general operations and any required current year asset purchases.
During the fiscal year ended June 30, 1998, Atlas entered into a new debt
financing agreement with First of Chicago NBD. The bank consolidated all of
Atlas' long and short term debts, bundling the various notes and lines of credit
into one new three year committed line of credit, with increased maximum debt
usage of $16,000,000 based on collateral of the company's receivables,
work-in-process inventories, and other assets. Interest rates were reduced to
1/4 below bank's prime rate.
First of Chicago NBD has also funded the construction of the new building and
equipment through the sale of $4,500,000 in tax exempt Industrial Revenue Bonds
(IRB). Except for approximately $280,000 reserved for capital expenditures over
the next 12 months, all of the proceeds were spent as of December 31, 1998, and
were used for the construction, furnishing and equipping of the new 59,000 sq.
ft. manufacturing building and the purchase of a new manufacturing resource
planning system for Atlas. Unused funds have been invested and earn interest
until spent. The bonds are state and federal tax exempt and, consequently, the
floating rate of interest is significantly reduced compared to conventional
construction or real estate financing. IRB terms are as follows for each fiscal
year:
1991--2001 $400,000 annual principal payments plus quarterly interest payments.
2001--2012 $300,000 annual principal payments plus quarterly interest payments.
At December 31, 1998, Atlas had financed (a) debt of $8,188,765 under the line
of credit, and $4,100,000 under the Industrial Revenue Bond, payable over 15
years, (b) deferred executive compensation of $1,436,382 scheduled to be paid
over four equal annual installments commencing July 1999, (c) $560,000 due to
Atlas executives and held as a corresponding current asset on the books of Atlas
in escrow awaiting written confirmation of the IRS audit results, and (d) other
debt of $141,122. Long term debt financing and line of credit current and
long-term balances totaled $14,426,269 as of December 31, 1998, compared to
$13,306,187 at June 30, 1998
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 December 31, 1998 was $11,146,578 and the current ratio was
3.8 to 1, compared to $9,801,888 and 2.8 to 1, respectively, for the Company at
June 30, 1998.
13
<PAGE>
Year 2000 Compliance
The Company is installing an "enterprise resource planning" 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 $240,000 was expensed as of December 31, 1998. 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 yet 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 although 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 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 and Atlas's 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 effected, 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, 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's 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
When used in this and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "will likely result," "plans," "will continue," "is anticipated,"
"estimated," "project" or "outlook" or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, each of
which speaks only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Factors
that may cause actual results to differ materially from those contemplated by
such forward-looking statements include, among others, the following:
competitive pressures in the industry in which the Company is engaged; an
unfavorable outcome of the IRS audit currently underway; adverse changes in the
Company's banking loan requirements; major fluctuations in the strength of the
U.S. dollar versus international currencies; Year 2000 compliance; and general
economic conditions. The Company has no obligation to publicly release the
result of any revisions which may be made to any forward-looking statements to
reflect anticipated or unanticipated events or circumstances occurring after the
date of such statements.
14
<PAGE>
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27 Financial Data Schedule (filed electronically only).
B. Reports on Form 8-K -- None
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: February 12, 1999 By: /s/ Samuel N. Seidman
---------------------------
Samuel N. Seidman, President
Date: February 12, 1999 By: /s/ Jesse Levine
----------------------
Jesse Levine, Chief Financial Officer
15
<PAGE>
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