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, 2002
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 registrant as specified in its charter)
Delaware 13-3764753
--------------------------------- ------------------------------------
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
3100 Copper Avenue, Fenton, Michigan 48430
(Address of Principal Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code ((810) 714-0200
-----------------------------
Indicate by check mark 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 [X] 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 18, 2003: 2,475,000 shares, $ .001 par value common
stock.
Productivity Technologies Corp.
INDEX
Page
Number
PART I FINANCIAL INFORMATION............................................... 3
Item 1. Financial Statements.................................................3
Consolidated Balance Sheets at December 31, 2002
(un-audited) and June 30, 2002................................3
Consolidated Statements of Operations for the
three and six months ended
December 31, 2002 and 2001 (un-audited).......................5
Consolidated Statement of Stockholders' Equity
for December 31, 2002 (un-audited)............................6
Consolidated Statements of Cash Flows for the
three and six months ended
December 31, 2002 and 2001 (un-audited).......................7
Notes to Unaudited Consolidated Financial Statements.................8
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
Item 4. Controls and Procedures.............................................13
PART II OTHER INFORMATION...................................................13
Item 1. Legal Proceedings ..................................................13
Item 2. Changes in Securities and Use of Proceeds (not applicable)..........13
Item 3. Defaults Upon Senior Securities ....................................13
Item 4. Submission of Matters to a Vote of
Security Holders (not applicable)............................13
Item 5. Other Information (not applicable) .................................14
Item 6. Exhibits and Reports on Form 8-K .................................14
SIGNATURES...................................................................14
CERTIFICATIONS...............................................................14
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 June 30, 2002
----------------- -------------
(Unaudited)
Assets
Current Assets
Cash $ 2,224,484 $ 4,971,837
Short-term investments, including accrued interest 169,767 149,720
Contract receivables, net of allowance for doubtful accounts of
$265,175 and $250,198 5,828,472 2,898,107
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,028,849 1,773,141
Inventories 1,082,140 1,211,249
Prepaid expenses and other 198,048 352,542
Deferred income taxes 282,000 282,000
----------- -----------
Total current assets 10,813,760 11,638,596
----------- -----------
Property and equipment
Land $ 591,514 $ 591,514
Buildings and improvements 4,917,459 4,917,459
Machinery and equipment 4,224,473 4,223,506
Transportation equipment 21,000 21,000
----------- -----------
9,754,446 9,753,479
Less accumulated depreciation 3,347,409 3,042,568
----------- -----------
Net property and equipment 6,407,037 6,710,911
----------- -----------
Other assets
Goodwill 2,985,909 4,926,448
Patent 403,129 451,875
Deferred income taxes 468,000 468,000
Other assets 275,459 297,959
----------- -----------
Total other assets 4,132,497 6,144,282
----------- -----------
$21,353,294 $24,493,789
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2002 June 30, 2002
----------------- -------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt $ 7,795,770 $12,190,338
Accounts payable 3,526,929 2,193,920
Accrued expenses
Commissions payable 348,000 189,000
Payroll and related withholdings 41,348 370,178
Warranty Reserve 325,000 315,000
Royalties Payable -- --
Interest 596,243 1,122,552
Other 339,744 367,148
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,733,565 750,970
Current maturities of executive deferred compensation agreements 974,933 974,933
----------- -----------
Total current liabilities $15,681,532 $18,474,039
Executive deferred compensation agreements, less current maturities -- --
Long-term debt, less current maturities 3,392,000 3,800,000
----------- -----------
Total liabilities 19,073,532 22,274,039
----------- -----------
Stockholders' equity
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 (7,689,121) (7,749,133)
----------- -----------
Total stockholders' equity 2,279,762 2,219,750
----------- -----------
$21,353,294 $24,493,789
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
--------------------------- ---------------------------
December 31, December 31, December 31, December 31,
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues Earned $ 7,616,976 $ 6,056,998 $14,353,919 $13,516,677
Cost of Revenues Earned 5,899,528 4,591,434 11,062,419 10,145,507
Gross Profit 1,717,448 1,465,564 3,291,500 3,371,170
Selling, general and
administrative expenses 1,407,758 1,472,315 2,934,174 3,138,269
Income (loss) from operations 309,690 (6,751) 357,326 232,900
Other income (expense)
Interest income 938 8,726 8,405 14,170
Interest expense (170,307) (345,006) (362,865) (683,601)
Miscellaneous 13,066 2,066 27,165 12,240
Total other expenses (156,303) (334,214) (327,295) (657,191)
Income (loss) before income taxes 153,387 (340,965) 30,031 (424,291)
Income tax expense (benefit) 0 (17,427) (29,981) (17,427)
Net income (loss) $ 153,387 $ (323,538) $ 60,012 $ (406,864)
Basic and Diluted Earnings per share $ 0.06 $ (0.13) $ 0.02 $ (0.16)
Weighted average number of
Common shares outstanding 2,475,000 2,475,000 2,475,000 2,475,000
=========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Total
------------ Paid-In Stockholders'
Shares Amount Capital Deficit Equity
Balance June 30, 2002 2,475,000 $2,475 $9,966,408 ($7,749,133) $2,219,750
Net income -- -- -- 60,012 60,012
--------- ----------- ---------- ----------- -----------
December 31, 2002 2,475,000 $2,475 $9,966,408 ($7,689,121) $2,279,762
========= ====== ========== ============ ==========
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31, December 31,
2002 2001
----------- -----------
Cash flows from operating activities
Net income/(loss) $ 60,012 $ (406,863)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 304,841 290,831
Amortization 71,246 22,496
Changes in operating assets and liabilities:
Contract receivables (2,930,365) 573,406
Inventories, prepaid expenses and other 283,602 308,255
Costs and estimated earnings in excess of billings
on uncompleted contracts, net effect 1,726,887 2,310,223
Accounts payable, accrued expenses and other 619,468 (1,817,108)
----------- -----------
Net cash used in operating activities 135,691 1,281,240
----------- -----------
Cash flows from investing activities
Proceeds from sale (purchase of) short-term investments - net (20,047) 48,572
Expenditures for property and equipment (967) (90,622)
----------- -----------
Net cash provided by (used in) investing activities (21,014) (42,050)
----------- -----------
Cash flows from financing activities
(Payments) or borrowings under revolving credit agreement (2,062,030) 241,000
Payments on long term debt (800,000) (330,502)
----------- -----------
Net cash provided by (used in) financing activities (2,862,030) (89,502)
----------- -----------
Net decrease in cash (2,747,353) 1,149,688
Cash at the beginning of the period 4,971,837 766,052
----------- -----------
Cash at the end of the period $ 2,224,484 $ 1,915,740
=========== ===========
Supplemental Cash Flow Information
Cash paid during the period for interest $ 317,588 $ 547,200
Income Taxes Received $ 29,981 $ --
Schedule of Non-Cash Financing Activities
Goodwill reduction and debt extinguishment $ 1,940,538 $ --
----------- -----------
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited consolidated financial statements of Productivity Technologies
Corp. and Subsidiaries (the "Company") 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 six months ended December 31, 2002, are not necessarily indicative of
the results that may be expected for the year ending June 30, 2003.
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, 2002 (as
amended by amendment no. 1 on Form 10-K/A). Information provided includes the
consolidated audited financial statements, including footnotes for the year
ended June 30, 2002 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 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 Company has no other subsidiaries or operations. The Company,
which produces industrial machinery, operates in a single segment through its
Atlas and Westland subsidiaries.
The accompanying financial statements include the consolidated accounts of the
Company, Atlas and Westland. All significant inter-company 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, manufactures and field installs custom electrical control
panels primarily for use in production machinery and machine tools utilized in
automotive, adhesive and sealants, food processing and other industrial
applications. Westland operates one manufacturing plant in Westland, Michigan,
which is located less than one hour from Atlas' plants in Fenton, Michigan.
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 sealants, and other industries.
Revenue and Cost Recognition
At Atlas, 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. Atlas 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 have 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 No. 128) are the same.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Unaudited revenues earned for the quarter ended December 31, 2002 were
$7,616,976, as compared to $6,056,998 for the quarter ended December 31, 2001,
an increase of 26%. Atlas's revenues were up 24%, principally due to higher
beginning backlog in this year's quarter versus the same time period of a year
ago. Westland's revenues increased 35% due to the addition of new customers'
accounts, as explained in the September 30, 2002 10 Q, that were not included in
the prior year's quarter. Revenues earned for the six months ended December 31,
2002 were $14,353,919 up $837,450 from the six months ended December 31, 2001
revenues earned of $13,516,677. This increase is all associated with the current
quarter results.
The order backlog as of December 31, 2002 was $15.9 million, up 1% from the June
30, 2002 backlog of $15.7 million. Order backlogs have since increased to $18.6
million at February 18, 2003.
Gross profit for the quarter ended December 31, 2002 was $1,717,448,
representing a 17% increase compared to the $1,465,564 gross profit for the
quarter ended December 31, 2001. The increase in gross profits was principally
due to the volume increase at both Atlas and Westland. Gross profit as a
percentage of revenues earned for the quarter ended December 31, 2002 as
compared to the same quarter in the prior fiscal year decreased from 24.2% to
22.6%, principally as a result of a change in the mix of products sold by Atlas
in the face of heightened competition and continued economic softness in the
capital goods marketplace. For the six months ended December 31, 2002, the gross
profit was $3,291,500, which is $79,670 less than the gross profit of $3,371,170
for the six months ended December 31, 2001. This decline of less than 1% in
amount represents a decrease in gross profit as a percentage of revenues earned
from 24.9% in the six months ended December 31, 2001 to 22.9% in the six months
ended December 31, 2002. This decrease in the amount of gross profit was due to
the unfavorable results in the first quarter of fiscal 2003 which were
positively offset by the results for the second quarter of fiscal 2003.
Consolidated selling, general and administrative (SG&A) expenses were $1,407,758
or 4% lower than SG&A expenses of $1,472,315 for the quarter ended December 31,
2001. For the six months ended December 31, 2002, SG&A expenses were $2,934,174
or $204,095 lower than the six months ended December 31, 2001. The reduction in
SG&A expenses for the quarter and six months ended December 31, 2002 was due to
continued tighter control of operating expenses at both operating subsidiaries.
Income from operations for the quarter ended December 31, 2002 was $309,690,
compared to a net loss from operations for the quarter ended December 31, 2001
of $6,751. For the six months ended December 31, 2002, income from operations
was $357,326 or $124,425 higher than income from operations for the six months
ended December 31, 2001. This increase in income from operations for the quarter
and six months ended December 31, 2002 was principally due to the higher sales
volumes and lower SG&A expenses described above.
Interest expense for the quarter ended December 31, 2002 was $170,307, a
decrease of 51% from $345,006 for the quarter ended December 31, 2001. For the
six months ended December 31,2002, interest expense was $362,865, a decrease of
53.1% from $683,601 for the six months ended December 31, 2001. The improvement
was due principally to continued focus on collections of receivables and
inventory management at both Atlas and Westland which reduced borrowing needs
and to a lesser extent on the Westland litigation settlement on September 3,
2002 which resulted in the extinguishment of $1.8 million of indebtedness owed
to the former owner of Westland. In addition, interest was reduced as the
Company made a principal payment of $450,000 to the former owner of Westland
under the terms of the litigation settlement. To obtain the consent of the
Company's senior bank lender to the litigation settlement, the Company also paid
$800,000 on September 3, 2002 and $25,000 on December 3, 2002 to reduce the
Company's term debt owed to the bank. The Company also reduced its revolving
debt during the quarter and six months periods ended December 31, 2002.
The net income for the quarter ended December 31, 2002 was $153,387 compared to
a net loss of $323,538 for the quarter ended December 31, 2001. The net income
for the six months ended December 31, 2002 was $60,012 as compared to a net loss
of $406,863 for the six months ended December 31, 2001. The reported net income
for the quarter ended December 31, 2002 was $0.06 per share and for the six
months ended December 31, 2002 was $0.02 per share, in each case based on
weighted average common shares outstanding of 2,475,000. This compared to a net
loss for the quarter ended December 31, 2001 of $0.13 cents per share and of
$0.16 per share for the six months ended December 31, 2001, also based on
weighted average common shares outstanding of 2,475,000.
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of December 31, 2002 is as follows:
December 31, 2002
--------------------------------------------
Gross Net
Carrying Accumulated Book
Amount Amortization Value
Patents $ 573,132 $170,003 $ 403,129
Non-compete Agreements 348,750 212,422 136,328
Bank Closing Fees 138,785 57,560 81,225
--------------------------------------------
Total $1,060,667 $439,985 $ 620,682
============================================
Liquidity and Capital Resources
At December 31, 2002, the Company had (1) $3,000,000 of a mortgage obligation
relating to Atlas' Copper Road facility, payable over a 12 year term, (2) debt
of $5,027,770 outstanding under a revolving credit facility with Bank One,
Michigan ("Bank One"), (3) deferred executive compensation obligations of
$974,933 originally scheduled to be paid over three equal annual installments
during the period from July 2000 through July 2002, (4) a five year term loan
from Bank One of $2,235,000, bearing interest at 125 basis points over the prime
rate, incurred in February 2000 to purchase Westland, and (5) subordinated term
debt of $925,000, payable to the former owner of Westland. This total of
$12,162,703 at December 31, 2002 compares to a total combined long-term debt
financing and line of credit balance of $18,427,330 as of December 31, 2001. The
decrease in indebtedness at December 31, 2002 is principally due to the
extinguishment of $1.8 million of indebtedness owed to the former owner of
Westland and a principal payment of $483,000 made to the former owner of
Westland under the terms of the litigation settlement agreement reached in
September 2002, and principal repayments on term loan and revolving indebtedness
to Bank One approximating $4.0 million.
Working capital deficit at December 31, 2002 was ($4,867,772) and the current
ratio was (.69) to 1, as compared to a working capital deficit of ($6,835,443)
and a current ratio of (.63) to 1 for the Company at June 30, 2002.
Prior to the expiration of the Company's revolving credit facility with Bank One
on January 31, 2002, the Company was not in compliance with certain financial
covenants and borrowing base limitations thereunder. The Company also is not in
compliance with certain financial covenants under its term loan with Bank One.
To date, Bank One has not demanded that the Company repay either the term loan
or the revolving credit facility. The Company and Bank One have, however,
engaged in discussions concerning terms of forbearance, the terms of retirement
of the revolving credit facility in the event of a refinancing with another bank
lender and/or other lenders, and possible modification of the term loan, and
Bank One has consented to the settlement with the former owner of Westland.
While Bank One is under no legal obligation to continue to forbear in demanding
payment of outstanding obligations, management does not believe that it would be
in Bank One's interest to take any action in the immediate future that could
jeopardize the Company's efforts to refinance the obligations.
Since the expiration of the revolving credit facility with Bank One on January
31, 2002, the Company has been able to meet its working capital needs from cash
generated from operations without borrowing additional funds under a line of
credit In addition, since such time, the Company has sought to pay down its
borrowings from Bank One when and as cash has become available from operations.
If Bank One continues to forbear in demanding the immediate repayment of these
obligations (as to which no assurance can be given), the Company believes that
it can continue to operate in the immediate future as it has since January 31,
2002, when the revolving credit facility expired.
The Company does not, however, have funds available to it from its operations or
otherwise to repay the amounts due under the credit facilities. The Company has
engaged an investment-banking firm to advise it in connection with a possible
revolving credit facility (senior secured bank facility) and the Company is
directly seeking to directly arrange mezzanine financing (secured subordinated
notes). In respect of a new revolving credit facility, the Company received a
commitment for bank financing to replace the Bank One credit facility. The
commitment requires that certain key executives of the Company personally
guarantee a portion of the debt. The Company has agreed to accept this
commitment subject to obtaining the agreement of these executives to provide
these guarantees. In such guarantee arrangements, guarantors typically require
consideration in the form of cash, stock or stock options, or a combination
thereof, on terms the company's board of directors (in reliance on the opinion
of an independent investment banking firm engaged to advise the board) determine
to be fair to the company. The Company has initiated a discussion of possible
consideration to the guarantors and an examination of the fairness of such
consideration to the Company.
In addition, the Company has received two proposals for secured subordinated
note financing from two separate sources, one for $3.0 million of seven year
financing and one for $2.0 million of seven year financing on terms similar to
the $3.0 million proposal. The Company is considering the $3.0 million secured
subordinated note financing proposal currently. However, no assurance can be
provided at this time that either of the parties that have made proposals for
secured subordinated note financing will ultimately commit to provide such
financing on the terms proposed.
Management is hopeful as to the ability of the Company to consummate suitable
financing arrangements based upon factors including but not limited to (1) the
apparent value of the tangible assets owned by the Company, (2) management's
belief concerning the Company's current competitive position in its principal
markets, (3) recent improvements the Company has made in its cost structure and
(4) the ability of the Company to reduce indebtedness and to meet its expenses
with cash generated from operations since January 2002. No assurance can be
given, however, that any financing arrangements will be successfully concluded.
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 general economic and business
conditions, particularly in light of economic deterioration which has been
exacerbated by the terrorist incidents of September 11, 2001, the threat of war
with Iraq, and high profile accounting scandals which have raised questions as
to the integrity of the stock markets, and in the automotive and other
industries principally served by the Company, including continued flat or
declining demand in the domestic and foreign markets for automobiles and
automotive parts resulting in reduced demand for the Atlas' automation
equipment; potential technological developments in the metal forming and
handling automation equipment markets which may render Atlas' automation
equipment noncompetitive or obsolete; the risk that Atlas or Westland customers
may be unwilling or unable to continue ordering products; the potential
inability of the Company to renew or replace its credit facilities, as described
under "Liquidity and Capital Resources" in this Item 2, due to the Company's
inability to achieve adequate operating results or the continued tightening of
the credit and capital markets.
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, 2002. There has
been no material change in the disclosure regarding market risk.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's chief executive officer and chief financial
officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 adopted under the
Securities Exchange Act of 1934. Based upon that evaluation, the chief executive
officer and chief financial officer concluded that the Company's disclosure
controls and procedures are effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
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, 2002, there have been no material new legal proceedings
involving the Company or any material developments to the proceedings described
in such 10-K.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Upon the expiration of the Company's revolving credit facility with Bank One on
January 31, 2002, the Company was unable to repay the outstanding principal due
thereunder. As of December 31, 2002, debt of $5,027,770 was outstanding under
this revolving credit facility plus an obligation for $3.0 million of a mortgage
relating to Atlas' Copper Road facility. During the second fiscal quarter, the
letters of credits issued earlier in support of the $3,000,000 Industrial
Revenue Bonds relating to Atlas' Copper Road facility had expired. As a result,
the Company indebtedness related to the Copper Road facility is now in the form
of a mortgage. The amortization and payment requirements under the mortgage are
the same as they had been under the Industrial Revenue Bonds arrangement except
that the interest rate of the mortgage is higher than it was under the IRB
arrangement, and approximates the Company's interest rate on its revolving debt.
In addition, $2,235,000 is outstanding under the Company's term loan with Bank
One, which amounts may be deemed to be in arrears by reason of the Company's
failure to repay the amounts due under the revolving credit facility.
Although Bank One has continued to forbear in demanding the immediate repayment
of these obligations, no assurance can be given that it will continue to do so.
Nonetheless, while Bank One is under no legal obligation to continue to forbear
in demanding payment of outstanding obligations, management does not believe
that it would be in Bank One's interest to take any action in the immediate
future that could jeopardize the Company's efforts to refinance the obligations.
As more fully described under "Liquidity and Capital Resources" in Item 2, Part
I, the Company has received a commitment for bank financing to replace the Bank
One credit facility. In addition, the Company has received two proposals for
secured subordinated note financing from two separate sources, one for $3.0
million of seven year financing and one for $2.0 million of seven year financing
on terms similar to the $3.0 million proposal. No assurance can be given,
however, that any of these financing arrangements will be successfully
concluded.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification of chief executive officer and chief financial
officer pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRODUCTIVITY TECHNOLOGIES CORP.
Date: February 19, 2003 By: /s/ Samuel N. Seidman
-----------------------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer
and President
Date: February 19, 2003 By: /s/ Jesse A. Levine
-----------------------------------------
Jesse A. Levine
Vice President, Secretary,
Treasurer and Chief Financial Officer
CERTIFICATIONS
I, Samuel N. Seidman, the Chairman, Chief Executive Officer and President
of Productivities Technologies Corp., hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Productivities
Technologies Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 19, 2003
By: /s/ Samuel N. Seidman
------------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer and President
I, Jesse A. Levine, the Vice President, Secretary, Treasurer and Chief Financial
Officer of Productivity Technologies Corp., do hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Productivities
Technologies Corp.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: February 19, 2003
By: /s/ Jesse A. Levine
------------------------------
Jesse A. Levine
Vice President, Secretary, Treasurer and Chief Financial Officer