<PAGE>
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: March 31, 2000
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 of (I.R.S. Employer Identification No.)
Incorporation or Organization)
206 South Main Street, 2nd Floor, Ann Arbor, Michigan 48104
-----------------------------------------------------------
(Address of Principal Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code (734) 996-1700
--------------------------
509 Madison Avenue, 4th Floor, New York, New York 10022
-------------------------------------------------------
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
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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 May 15, 2000: 2,475,000 shares, $ .001 par value common
stock.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information.................................... 3
Item 1. Interim Consolidated Financial Statements................ 3
Consolidated Balance Sheets.............................. 4
Consolidated Statements of Operations.................... 6
Consolidated Statement of Stockholders' Equity........... 7
Consolidated Statements of Cash Flow..................... 8
Notes to Consolidated Financial Statements............... 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 11
Item 3. Quantitative and Qualitative Disclosure about Market Risk 13
Part II. Other Information........................................ 14
Item 1. Legal Proceedings........................................ 14
Item 4. Submission of Matters to Vote of Security Holders........ 14
Item 6. Exhibits and Reports on Form 8-K......................... 14
Signatures......................................................... 15
</TABLE>
<PAGE>
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
PART I: FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements for Productivity Technologies Corp. ("PTC"
or the "Company") and its subsidiaries, Atlas Technologies, Inc. ("Atlas") and
Westland Control Systems, Inc. ("Westland"), have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in accordance with instructions 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. Operating results
for the three and nine months ended March 31, 2000, are not necessarily
indicative of the results that may be expected for the year ending June 30,
2000.
The aforementioned consolidated financial statements should be read in
conjunction with the Company's Annual Report on 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.
3
<PAGE>
Productivity Technologies Corp. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
<S> <C> <C>
Assets
Current assets
Cash $ 605,797 $ 244,400
Short-term investments, including accrued interest 228,173 392,059
Receivables, net of allowance for doubtful accounts 6,710,385 7,310,072
Costs and estimated earnings in excess of billings on
uncompleted contracts 9,899,581 9,714,477
Inventories 1,625,993 641,615
Prepaid expenses and other 432,039 414,366
Deferred income taxes 584,197 431,000
----------- -----------
Total current assets 20,086,165 19,147,989
----------- -----------
Property and equipment
Land 591,514 591,514
Buildings and improvements 4,893,829 4,854,799
Machinery and equipment 4,097,230 3,848,921
Transportation equipment 31,500 31,500
----------- -----------
9,614,073 9,326,734
Less accumulated depreciation 1,937,118 1,483,000
----------- -----------
Net property and equipment 7,676,955 7,843,734
----------- -----------
Other assets
Goodwill, net of accumulated amortization of
$442,401 and $340,521 6,915,027 2,484,204
Patents, net of accumulated amortization of $5,010 744,990 --
Other assets 566,097 632,053
----------- -----------
Total other assets 8,226,114 3,116,257
----------- -----------
$35,989,234 $30,107,980
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
Productivity Technologies Corp. and Subsidiaries
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 31, 2000 June 30, 1999
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities
Accounts payable $3,956,614 $1,879,817
Accrued expenses
Commissions payable 539,700 795,959
Payroll and related withholdings 299,302 239,536
Other 1,106,815 1,291,567
Billings in excess of costs and estimated
earnings on uncompleted contracts 111,491 348,049
Current maturities of executive deferred
compensation agreements 326,706 326,706
Current maturities of long-term debt 442,328 448,353
----------- -----------
Total current liabilities 6,782,956 5,329,987
Executive deferred compensation agreements, less
current maturities 781,646 1,109,677
Long-term debt, less current maturities 18,882,673 13,951,043
----------- -----------
Total liabilities 26,447,275 20,390,707
----------- -----------
Stockholders' equity
Common stock, .$001 par value, 20,000,000
shares authorized; 2,475,000 shares outstanding 2,475 2,475
Additional paid-in capital 9,966,408 9,966,408
Deficit (426,924) (251,610)
----------- -----------
Total stockholders' equity 9,541,959 9,717,273
----------- -----------
$35,989,234 $30,107,980
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Productivity Technologies Corp. and Subsidiary
Consolidated Statement of Operations ( Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ------------------------------
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $8,030,262 $8,193,888 $3,446,021 $4,194,130
Cost of Revenues 6,061,184 5,988,940 8,399,517 7,611,494
---------- ---------- ---------- ----------
Gross profit 1,969,078 2,204,948 5,046,504 6,582,646
Selling, general and administrative expenses 1,651,711 1,773,725 4,595,426 5,678,402
---------- ---------- ---------- ----------
Income from operations 317,367 431,223 451,078 904,244
---------- ---------- ---------- ----------
Other income ( expense)
Interest income 24,744 5,621 49,296 45,047
Interest expense (303,689) (233,815) (820,764) (620,514)
Miscellaneous (7,726) (10,050) 55,076 22,398
---------- ---------- ---------- ----------
Total other expenses (286,671) (238,244) (716,392) (553,069)
---------- ---------- ---------- ----------
Income (Loss) before income taxes 30,696 192,979 (265,314) 351,175
Income tax expense (benefit) 11,000 46,838 (90,000) 92,500
---------- ---------- ---------- ----------
Net income (loss) $19,696 $146,140 ($175,314) $258,675
========== ========== ========== ==========
Basic and Diluted Earnings per share $0.01 $0.06 ($0.07) $0.11
========== ========== ========== ==========
Weighted average number of
common shares outstanding 2,475,000 2,425,000 2,475,000 2,425,000
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
Productivity Technologies Corp. and Subsidiaries
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 (unaudited) -- -- -- $(175,314) $ (175,314)
--------- ------ ---------- --------- ----------
March 31, 2000 2,475,000 $2,475 $9,966,408 $(426,924) $9,541,959
========= ====== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
7
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Productivity Technologies Corp. and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (175,314) $ 258,675
Adjustments to reconcile net income (loss)to net cash
Provided by (used in) operating activities:
Depreciation 454,118 414,076
Amortization 106,890 39,278
Deferred income tax (153,197) (371,239)
Changes in operating assets and liabilities:
Receivables 1,399,687 (832,480)
Inventories, prepaid expenses and other (602,051) 227,083
Costs and estimated earnings in excess of
billings on uncompleted contracts, net effect (421,662) (1,902,676)
Accounts payable, accrued expenses and other 1,695,552 (292,894)
----------- -----------
Net cash provided by (used in) operating activities 2,304,023 (2,460,177)
----------- -----------
Cash flows from investing activities
Acquisition of Westland, net of borrowings (242,703) --
Collections on notes receivable 65,956 86,415
Proceeds from sale of short-term investments --net 163,886 (542,378)
Expenditures for property and equipment (177,339) (150,614)
Increase in notes receivable -- 111,001
----------- -----------
Net cash provided by (used in) investing activities (190,200) (495,576)
----------- -----------
Cash flows from financing activities
(Payments) or borrowings revolving credit agreement (1,424,395) 813,953
Payments on executive deffered compensation agreement (328,031)
Proceeds from additions of long-term debt -- 153,357
----------- -----------
Net cash provided by (used in) financing activities (1,752,426) 967,310
----------- -----------
Net increase (decrease) in cash 361,397 (1,988,443)
Cash at the beginning of the period 244,400 2,172,457)
-- --
----------- -----------
Cash at the end of the period $ 605,797 $ 184,014
=========== ===========
Supplemental cash flow Information
Cash paid during the period for interest $ 820,764 $ 620,514
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
The consolidated financial statements of Productivity Technologies Corp. (the
"Company" or "PTC") have been prepared in accordance with generally accepted
accounting principles for interim financial information and in accordance with
instructions 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. Operating results for the three and nine months ended
March 31, 2000 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 the
Company's annual report on Form 10-K for the fiscal year ended June 30, 1999 and
the current report on Form 8-K filed in May 2000 related to the Company's
purchase of Westland Control Systems, Inc. Information provided includes the
consolidated audited financial statements, including footnotes for the year
ended June 30, 1999 and Management's Discussion and Analysis of the Company's
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 completed an initial
public offering ("IPO") 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. and acquired, through a merger, Atlas
Technologies, Inc. ("Atlas") as a wholly owned subsidiary. On February 23,
2000, the Company purchased, through a wholly-owned subsidiary formed for this
purpose, substantially all of the assets of Westland Control Systems, Inc.
("Westland").
The accompanying financial statements include the consolidated accounts of PTC,
Atlas and Westland. All significant intercompany accounts and transactions have
been eliminated upon consolidation.
Nature of Business
The Company operates in a single segment through its Atlas and Westland
subsidiaries. Atlas 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.
Westland designs and manufactures custom electrical control panels primarily for
use in production machinery and machine tools utilized in automotive, adhesive &
sealant, food processing, and other industrial applications. Westland operates
one manufacturing plant in Canton, Michigan, which is located less than one hour
from Atlas' plants in Fenton, Michigan. The Canton plant comprises
approximately 29,000 square feet of manufacturing and assembly space and 11,000
square feet for offices.
Sales of Atlas products have principally been to automobile and automotive parts
manufacturers and appliance manufacturers. Other customers include steel
service centers and manufacturers of lawn and garden equipment, office
furniture, heating, ventilation and air conditioning equipment, and large
construction equipment. Sales to automotive related customers account for the
majority of sales. Westland's customers participate in the automotive, food
processing, adhesive and sealant, and other industries.
9
<PAGE>
Revenue and Cost Recognition
At Atlas, 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 the revisions are determined.
Revenues from time-and-material contracts are recognized currently as the work
is performed. Westland recognizes sales and cost of sales upon shipment to the
customer.
Earnings Per Share
Earnings per share has been computed by dividing the income by the weighted
average number of common shares outstanding. The per share amounts reflected in
the consolidated statements of operations are presented in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share";
the amounts of the Company's "basic" and "diluted" earnings per share (as
defined in SFAS N. 128) are the same.
3. Pro Forma Statements of Operations
The following unaudited pro forma condensed statements of operations for the
quarters and nine months ended March 31, 2000 and 1999 are presented as if the
Company had completed the asset purchase of Westland on July 1, 1998. These
unaudited pro forma condensed consolidated statements of operations do not
purport to be indicative of the results which actually could have been obtained
had such transaction been completed as of the assumed date or which may be
obtained in the future. In management's opinion, all adjustments necessary to
reflect the asset purchase have been made. These adjustments include the
following: (1) The excess of the purchase price over the fair value of assets
purchased is allocated to goodwill. Additional amortization of goodwill based
on a 20-year life has been charged to operations. (2) To record additional
amortization of a patent acquired over its remaining useful life of 16.67 years.
(3) To record a decrease in wages paid to the previous owner of Westland based
on his new employment agreement. (4) To record additional depreciation expense
of machinery and equipment acquired. (5) To record interest expense related to
new borrowings associated with the asset purchase, and (6) To record income tax
effect of additional income at an effective rate of 34% on taxable income.
10
<PAGE>
Productivity Technologies Corp. and Subsidiaries
Consolidated Statement of Operations (Unaudited) PROFORMA
<TABLE>
<CAPTION>
PROFORMA PROFORMA PROFORMA PROFORMA
Quarter Ended Quarter Ended Nine Months Ended Nine Months Ended
March 31, March 31, March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net Sales $9,074,394 $9,161,499 $ 28,706,653 $29,739,771
Cost of Sales 6,519,554 6,621,311 21,562,147 21,251,800
---------- ---------- ------------ -----------
Gross Profit 2,554,840 2,540,188 7,144,506 8,487,971
Selling, General and Administrative
expenses, including officers' bonus 1,884,666 $2,167,905 $ 5,545,987 $ 6,964,410
---------- ---------- ------------ -----------
Income from Operations 670,174 372,283 1,598,519 1,523,561
---------- ---------- ------------ -----------
Other Income (Expenses)
Interest Income 24,744 5,621 49,296 45,047
Interest Expense (441,569) (408,415) ($1,234,404) $ 1,072,314)
Miscellaneous (25,734) 6,432 $ 68,547 $ 92,467
---------- ---------- ------------ -----------
Total Other Expenses ($442,559) ($396,362) (1,116,561) (934,800)
---------- ---------- ------------ -----------
Income Before Income Taxes 227,615 (24,079) 481,958 588,761
Income Taxes 85,900 54,880 164,000 200,500
---------- ---------- ------------ -----------
Net Income 141,715 (78,959) 317,958 388,261
========== ========== ============ ===========
Net Income Per Share of
Common Stock $ 0.06 $ (0.03) $ 0.13 $ 0.16
Weighted Average Number of
Common Shares Outstanding 2,475,000 2,425,000 2,475,000 2,425,000
========== ========== ============ ===========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Recent Developments
As reported in the Company's Current Report on Form 8-K dated March 9, 2000, on
February 23, 2000, the Company purchased, through a wholly-owned subsidiary
formed for this purpose (WCS Acquisition Corp.), pursuant to an Asset Purchase
Agreement entered into on such date with Westland and Thomas G. Lee,
substantially all of the assets of Westland. The purchase price was $6.5
million, with contingent consideration of up to $2.3 million payable to Mr. Lee,
formerly the controlling shareholder of Westland, based on earnings in future
periods. At closing, $3.75 million of the purchase price was paid in cash with
the balance payable under two five-year promissory notes aggregating $2.75
million. The cash portion of the purchase price was paid primarily from bank
borrowings. Westland designs and manufactures custom electrical control panels
used in machine tools and production systems utilized in automobile production,
metal forming, sealant & adhesive, and food machinery applications. As a result
of this acquisition, results for the three and nine month periods ended March
31, 2000 include the operations of Westland for the period from February 23,
2000 through March 31, 2000, which operations are not included in the prior
year's three and nine month results.
11
<PAGE>
Results of Operations
Unaudited revenues for the quarter ended March 31, 2000 were $8,030,262, as
compared to $8,193,888 for the quarter ended March 31, 1999. The 2.0% decrease
in revenues during the third quarter of fiscal 2000 was primarily due to the
decreased production of Atlas, partially offset by Westland's revenues of
$506,133 (or 6% of total revenues for the quarter) during the period it was
owned by the Company. Revenues for the nine months ended March 31, 2000 were
$23,446,021 as compared to $24,194,140 for the nine months ended March 31, 1999,
a decrease of 3.1%, principally as a result of low order volume at Atlas during
this nine month period. The revenues of Westland were 2.1% of total revenues for
the nine month period. The order backlog as of March 31, 2000 was $10.3
million, down from the March 31, 1999 backlog of $13.0 million. The decline in
backlog was mainly due to slower closings of new orders at Atlas. The company
believes automotive capital spending has been sluggish recently. New order
closings in April 2000 approximated $10.0 million, primarily from an appliance
industry participant.
Cost of revenues for the quarter ended March 31, 2000 was $6,061,184, up 1.2%
from $5,988,940 for the quarter ended March 31, 1999. For the nine months ended
March 31, 2000 cost of revenues was $18,399,517, up 4.5% from costs of
$17,611,494 for the nine months ended March 31, 1999. Cost of revenues as a
percentage of revenues increased to 75% and 78%, respectively, of revenues
during the quarter and nine months ended March 31, 2000 as compared to 73% for
each of the comparable periods in fiscal 1999. The increase in cost of revenues
as a percentage of revenues for the nine month period in fiscal 2000 was
primarily due to cost overruns incurred by Atlas late in the production cycle
for certain products during the first and second fiscal quarters of fiscal 2000.
The three month increase in cost of revenues was primarily product mix related.
Gross profit for the quarter ended March 31, 2000 was $1,969,078, representing a
10.6% decrease from the $2,204,948 gross profit for the quarter ended
March 31, 1999. For the nine months ended March 31, 2000, gross profit was
$5,046,504, representing a 23.3% decrease compared to the gross profit of
$6,582,646 for the nine months ended March 31, 1999. Gross profit decreased
during the three and nine month periods in fiscal 2000 principally for the
reasons cited above related to the increase in cost of revenues earned as a
percentage of revenues.
Consolidated selling, general and administrative (SG&A) expenses were
$1,651,711, down 6.9% as compared to SG&A expenses of $1,773,725 for the three
months ended March 31, 1999. For the nine months ended March 31, 2000, SG&A
expenses were $4,595,426, down 19.1% as compared to SG&A expenses of $5,678,402
for the nine months ended March 31, 1999. In January 1999, and continuing
through June 1999, the Company and Atlas reduced fixed costs as part of a cost
reduction initiative. The decline in SG&A expenses for the quarter ended March
31, 2000 as compared to the quarter one year ago is due principally to these
cost reductions, partially offset by the inclusion of Westland's SG&A expenses
for the February 23, 2000 to March 31, 2000 period. PTC corporate expenses also
were lower in the third quarter of fiscal 2000 than in past quarters due in part
to the decrease in the number of PTC directors effective as of December 31,
1999.
Income from operations for the quarter ended March 31, 2000 was $317,367,
compared to income from operations for the quarter ended March 31, 1999 of
$431,223. Income from operations for the nine months ended March 31, 2000 was
$451,078 compared to income from operations of $904,244 for the nine months
ended March 31, 1999. The decline in income from operations was principally the
result of lower gross margins described above, partially offset by decreased
SG&A expenses.
Interest expense for the quarter ended March 31, 2000 was $303,689, up 29.9%
from $233,815 for the quarter ended March 31, 1999. Interest for the nine
months ended March 31, 2000 was $820,764, up 32.3% compared to interest expense
for the comparable nine month period in fiscal 1999 of $620,514. Higher
interest costs in the three and nine month periods were due to higher financing
requirements as a result of increased accounts receivables, inventories, and
work-in-process for Atlas, higher interest rates and the new indebtedness
incurred by the Company for the purchase of Westland.
Net income for the quarter ended March 31, 2000 was $19,696, compared to net
income of $146,140 for the quarter ended March 31, 1999. For the nine months
ended March 31, 2000, a loss of $175,314 was incurred as compared to
12
<PAGE>
net income for the nine month period ended March 31, 1999 of $258,675. The
decline in net income during the quarter was due to factors cited above,
including lower volume, lower gross margins, and increased interest expense,
partially offset by a decrease in SG&A expenses. The nine month decrease was due
primarily to cost overruns on certain projects during the first and second
quarters of fiscal 2000. Reported net income for the three months ended March
31, 2000 of $0.01 per share was based on 2,475,000 weighted average common
shares outstanding during the quarter. This compared to net income for the
quarter ended March 31, 1999 of $0.06 cents per share based on 2,425,000
weighted average common shares outstanding. The Company reported net loss of
$0.07 per share for the nine months ended March 31, 2000 as compared to net
income for the nine months ended March 31, 1999 of $0.11 cents per share.
Liquidity and Capital Resources
The Company 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.
At March 31, 2000, the Company had (a) debt of $9,173,148 under the line of
credit, and $3,700,000 of Industrial Revenue Bond obligations, payable over the
12 years remaining in their term, (b) deferred executive compensation
obligations of $1,108,352 scheduled to be paid over three equal annual
installments during the period from July 2000 through July 2002, (c) five year
term debt of $3,600,000, bearing interest at 125 basis points over the prime
rate, incurred in February 2000 to purchase Westland, (d) five year term
subordinated term debt of $2,750,000, payable to the former owner of Westland
and bearing a fixed interest rate of 9.25%, incurred in February 2000 to
purchase Westland, and (e) other debt of $101,853. This total of $20,433,353
compares to a total combined long-term debt financing and line of credit balance
of $15,835,779 as of June 30, 1999. The increase in indebtedness at March 31,
2000 is principally due to indebtedness incurred to finance the acquisition of
Westland.
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 March 31,
2000 was $13,303,209 and the current ratio was 3.0 to 1, as compared to working
capital of $13,818,002 and a current ratio of 3.6 to 1 for the Company at June
30, 1999.
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 may render the Company's automation equipment noncompetitive or obsolete;
the assertion of claims for any failure of the Company's older automation
equipment to be Year 2000 compliant; and the potential 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
Of the Company's indebtedness of $20.4 million at March 31, 2000, obligations in
the amount of $2.8 million are fixed rate obligations and $17.6 million,
including $3.6 million incurred in February 2000 to purchase Westland, are
variable rate obligations. Management does not believe that any adjustments to
the rates are likely to have a material impact on the Company's results of
operations in the immediate future. Assuming an immediate 10% increase in the
interest rates on all of the Company's variable rate obligations, the impact to
the Company in annualized interest payable would be approximately $148,000.
Since management does not believe that any interest rate adjustments are likely
to have a material impact on the Company's results of operations, the Company
has not entered into any swap agreements or other hedging transactions as a
means of limiting exposure to interest rate fluctuations.
13
<PAGE>
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 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On March 29, 2000, the annual meeting of stockholders was held. At this meeting
the stockholders voted on (1) the election of Samuel N. Seidman and Alan H.
Foster to the Board of Directors to serve for terms of three years and (2) the
amendment of the Company's 1996 Performance Equity Plan (the "Plan") to increase
the number of shares to be issued under the Plan from 330,000 to 530,000 shares.
Mr. Seidman and Mr. Foster were elected to the Board upon the following vote:
<TABLE>
<CAPTION>
Nominee For Withheld
- ----------------- --------- --------
<S> <C> <C>
Samuel N. Seidman 1,835,175 47,100
Alan H. Foster 1,839,675 42,600
</TABLE>
The amendments to the Plan were approved upon the following vote:
<TABLE>
<CAPTION>
For Against Abstain
- --- ------- -------
<S> <C> <C>
1,008,663 57,900 225
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
27. Financial Data Schedule
B. Reports on Form 8-K
On March 9, 2000, the Company filed a Current Report on Form 8-K to report its
acquisition of Westland. On May 8, 2000, the Company amended such Current
Report to include the historical and pro forma financials required in connection
with such acquisition.
14
<PAGE>
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: May 18, 2000 By: /s/ Samuel N. Seidman
---------------------------
Samuel N. Seidman, President
Date: May 18, 2000 By: /s/ Jesse Levine
----------------------
Jesse Levine, Chief Financial Officer
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 605,797
<SECURITIES> 228,173
<RECEIVABLES> 6,710,385
<ALLOWANCES> 106,910
<INVENTORY> 11,525,574
<CURRENT-ASSETS> 20,086,165
<PP&E> 9,614,073
<DEPRECIATION> 1,937,118
<TOTAL-ASSETS> 35,989,234
<CURRENT-LIABILITIES> 6,782,956
<BONDS> 0
0
0
<COMMON> 2,475
<OTHER-SE> 9,966,408
<TOTAL-LIABILITY-AND-EQUITY> 35,989,234
<SALES> 23,446,021
<TOTAL-REVENUES> 23,446,021
<CGS> 18,399,517
<TOTAL-COSTS> 22,994,943
<OTHER-EXPENSES> 716,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 820,764
<INCOME-PRETAX> (265,314)
<INCOME-TAX> (90,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (175,314)
<EPS-BASIC> (.07)
<EPS-DILUTED> 0
</TABLE>
