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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, 2003
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 of (I.R.S. Employer Identification No.)
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 _____ No [X]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes _____ No [X]
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 March 5, 2004: 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, 2003
(unaudited) and June 30, 2003..................................3
Consolidated Statements of Operations for the three and
six months ended December 31, 2003 and 2002 (unaudited)........5
Consolidated Statement of Stockholders' Equity for the
six months ended December 31, 2003 (unaudited).................6
Consolidated Statements of Cash Flows for the six months
ended December 31, 2003 and 2002 (unaudited)...................7
Notes to Unaudited Consolidated Financial Statements.............8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................9
Item 3. Quantitative and Qualitative Disclosure about Market Risk.......12
Item 4. Controls and Procedures.........................................12
PART II OTHER INFORMATION...............................................12
Item 1. Legal Proceedings ..............................................12
Item 2. Changes in Securities, Use of Proceeds and
Issuer Purchases of Equity Securities (not applicable).........12
Item 3. Defaults upon Senior Securities ................................12
Item 4. Submission of Matters to a Vote of Security Holders
(not applicable)..............................................13
Item 5. Other Information .............................................13
Item 6. Exhibits and Reports on Form 8-K .............................13
SIGNATURES....................................................................14
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 June 30, 2003
(Unaudited)
Assets
Current Assets
Cash $477,797 $1.163,187
Short-term investments, including accrued interest 96,179 540,582
Contract receivables, net of allowance for doubtful accounts of
$237,663 and $227,663 3,653,566 3,620,852
Costs and estimated earnings in excess of billings on
uncompleted contracts 4,670,221 3,423,457
Inventories 1,010,618 1,154,512
Prepaid expenses and other 309,978 328,517
Deferred income taxes 290,000 290,000
---------- ----------
Total current assets 10,508,359 10,521,107
---------- ----------
Property and equipment
Land $591,514 $591,514
Buildings and improvements 4,963,008 4,962,690
Machinery and equipment 4,245,837 4,215,036
Transportation equipment 21,000 21,000
---------- ----------
9,821,359 9,790,240
Less accumulated depreciation 3,936,557 3,631,717
---------- ----------
Net property and equipment 5,884,802 6,158,523
---------- ----------
Other assets
Goodwill 2,985,909 2,985,909
Patent, net 305,638 354,384
Deferred income taxes 430,000 430,000
Other assets 311,869 252,955
---------- ----------
Total other assets 4,033,416 4,023,248
---------- ----------
$20,426,577 $20,702,878
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 June 30, 2003
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt 4,355,503 $8,385,918
Accounts payable 4,646,157 3,784,778
Accrued expenses
Commissions payable 331,229 310,000
Payroll and related withholdings 119,497 62,464
Warranty Reserve 275,000 250,000
Interest 230,663 610,957
Other 11,790 143,574
Billings in excess of costs and estimated
earnings on uncompleted contracts 830,375 1,864,980
Current maturities of executive deferred compensation agreements - 974,933
---------- ----------
Total current liabilities $10,800,214 $16,387,604
Executive deferred compensation agreements, less current maturities 974,933 -
Long-term debt, less current maturities 5,834,992 1,735,000
---------- ----------
Total liabilities 17,610,139 18,122,604
---------- ----------
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
Accumulated deficit (7,152,445) (7,388,609)
---------- ----------
Total stockholders' equity 2,816,438 2,580,274
---------- ----------
$20,426,577 $20,702,878
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
2003 2002 2003 2002
------------ ------------ ------------ ------------
Revenues Earned $7,839,274 $7,616,976 $15,403,737 $14,353,919
Cost of Revenues Earned 6,491,408 5,899,528 12,441,811 11,062,419
---------- ---------- ----------- -----------
Gross Profit 1,347,866 1,717,448 2,961,926 3,291,500
Selling, general and
administrative expenses 1,287,599 1,407,758 2,508,218 2,934,174
---------- ---------- ----------- -----------
Income from operations 60,267 309,690 453,708 357,326
Other income (expense)
Interest income 45 938 284 8,405
Interest expense (174,435) (170,307) (346,184) (362,865)
Miscellaneous 11,701 13,066 7,406 27,165
---------- ---------- ----------- -----------
Total other expenses (162,689) (156,303) (338,494) (327,295)
---------- ---------- ----------- -----------
(Loss) income before income taxes
and extraordinary item (102,422) 153,387 115,214 30,031
Income tax expense (benefit) 0 0 4,050 (29,981)
---------- ---------- ----------- -----------
(Loss) income before extraordinary item (102,422) 153,387 111,164 60,012
Extraordinary item, gain on extinguishment
of debt 125,000 - 125,000 -
---------- ---------- ----------- -----------
Net income $22,578 $153,387 $236,164 $60,012
Basic earnings (loss) per share:
Before extraordinary gain $(0.04) $0.06 $0.05 $0.02
Extraordinary gain 0.05 - 0.05 -
---------- ---------- ----------- -----------
Total basic net income $ 0.01 $0.06 $0.10 $0.02
Diluted earnings (loss) per share:
Before extraordinary gain $(0.04) $0.06 $0.04 $0.02
Extraordinary gain 0.05 - 0.05 -
---------- ---------- ----------- -----------
Total diluted net income $ 0.01 $0.06 $0.09 $0.02
========== ========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 2,475,000 2,475,000 2,475,000 2,475,000
Diluted 2,629,000 2,475,000 2,629,000 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 Accumulated Stockholders'
Shares Amount Capital Deficit Equity
Balance June 30, 2003 2,475,000 $2,475 $9,966,408 ($7,388,609) $2,580,274
Net income -- -- -- 236,164 236,164
--------- ------ ---------- ------------ ----------
December 31, 2003 2,475,000 $2,475 $9,966,408 ($7,152,445) $2,816,438
========= ====== ========== ============ ==========
See accompanying notes to unaudited consolidated financial statements.
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31, 2003 December 31, 2002
Cash flows from operating activities
Net income $236,164 $60,012
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation 304,840 304,841
Amortization 48,746 71,246
Gain on extinguishment of debt (125,000) -
Changes in operating assets and liabilities:
Contract receivables (32,714) (2,930,365)
Inventories, prepaid expenses and other 103,519 283,602
Costs and estimated earnings in excess of billings
on uncompleted contracts, net effect (2,281,369) 1,726,887
Accounts payable, accrued expenses and other 452,563 619,468
----------- ---------
Net cash (used in) provided by operating activities (1,293,251) 135,691
----------- ---------
Cash flows from investing activities
Proceeds from sale (purchase of) short-term investments - net 444,403 (20,047)
Expenditures for property and equipment (31,119) (967)
----------- ---------
Net cash provided by (used in) investing activities 413,284 (21,014)
----------- ---------
Cash flows from financing activities
Net payments under revolving credit agreements (512,275) (2,062,030)
Borrowings on long term debt 4,000,000 -
Payments on long term debt (3,293,148) (800,000)
----------- ---------
Net cash provided by (used in) financing activities 194,577 (2,862,030)
----------- ---------
Net decrease in cash (685,390) (2,747,353)
Cash at the beginning of the period 1,163,187 4,971,837
----------- ---------
Cash at the end of the period $477,797 $2,224,484
=========== ==========
Supplemental Cash Flow Information
Cash paid during the period for interest $726,478 $317,588
Income Taxes Received $- $29,981
Schedule of Non-Cash Financing Activities
Goodwill reduction and debt extinguishment $0 $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 consolidated financial
statements. The information furnished in the accompanying consolidated balance
sheets, consolidated 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 consolidated financial
statements for the interim periods. Operating results for the six months ended
December 31, 2003, are not necessarily indicative of the results that may be
expected for the year ending June 30, 2004.
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, 2003.
Information provided includes the consolidated audited financial statements,
including footnotes for the year ended June 30, 2003 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. Atlas also established locations in late 2003 in Brazil and Germany.
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 customer's account for the majority of
sales. Westland's customers participate in the automotive, food processing,
adhesive and sealants, engine part machining 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."
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Recent Developments
Effective as of December 12, 2003, Merrill Lynch Business Financial Services
Inc. ("MLB") entered into a new credit facility with Atlas (the "MLB Credit
Facility") providing for borrowing availability of up to $8.0 million, of which
$7.4 million was funded at closing. Effective on March 4, 2004, MLB agreed to a
modification of the terms under which in which it increased the borrowing
availability by $750,000 under the revolving credit facility for a 60 -day
period (the "overline period") and increased the interest rate by 0.5% per annum
during this period. As modified, the MLB Credit Facility consists of :
o a seven-year real estate term loan in the original principal amount of
$3.5 million, bearing interest at a variable per annum rate equal to
3.15% in excess of one-month LIBOR, payable in monthly installments of
interest plus 1/180th of principal (a 15-year amortization schedule)
with the balance of principal due at maturity in December 2010, and
secured by substantially all of the assets of Atlas;
o a three-year equipment term loan in the original principal amount of
$500,000, bearing interest at a variable per annum rate equal to 3.15%
in excess of one-month LIBOR, payable in monthly installments of
interest plus 1/36th of principal (full amortization), maturing in
December 2006, and secured by substantially all of the assets of
Atlas; and
o a one-year revolving working capital credit facility providing for
borrowing availability of up to $4.0 million ($4.75 million during the
overline period) based upon eligible accounts receivable, bearing
interest at a variable per annum rate equal to 2.85% (3.35% during the
overline period) in excess of one-month LIBOR, payable in monthly
installments of interest only, maturing on December 31, 2004 and
secured by substantially all of the assets of Atlas.
The MLB Credit Facility is guaranteed by the Company and, in addition, the
Company has pledged all of the capital stock of Atlas to secure the guaranty.
The proceeds of the MLB Credit Facility were used to retire the revolving credit
facility and commercial mortgage loan from Bank One, NA ("Bank One") to Atlas in
the aggregate outstanding principal amount of $7.4 million. Atlas continues to
be responsible for legal and professional field audit fees of Bank One in the
amount of approximately $60,000 annually. As part of these financing
transactions, Bank One also agreed to release the liens on the assets of Atlas
and the Company. In addition, Bank One agreed to subordinate its rights with
respect to Westland's new lender, Spectrum Commercial Services, Inc.
("Spectrum"), in connection with Bank One's term loan in the outstanding
principal amount of approximately $2.2 million, bearing interest at 1.25% over
Bank One's prime rate, which the Company incurred in February 2000 to purchase
Westland (the "Westland Loan").
In addition, also effective as of December 12, 2003, Spectrum entered into a
two-year credit facility with the Company (the "Spectrum Credit Facility")
providing for borrowing availability of up to $1.25 million based upon eligible
accounts receivable, bearing interest at a variable per annum rate equal to
5.25% in excess of the prime rate of Wells Fargo Bank, NA, (subject to certain
minimum payments of $5,575 per month, and subject to reduction by 0.5% if
specified profitability thresholds are met), maturing in December 2005 and
secured by substantially all of the assets of Westland.
Bank One agreed to subordinate its rights under the Westland Loan to Spectrum,
subject to restating the obligations under a new Guarantor Payment Agreement
effective as of December 12, 2003 under which Bank One will look to Westland to
repay the remaining obligations owed to Bank One (which continues to be the $2.2
million principal amount that was outstanding prior to the restatement).
Although the Company continues to be the primary obligor under the Westland Loan
as restated, the Company is prohibited from making payments to Bank One so long
as the MLB Loan to Atlas (as to which the Company is a guarantor) remains
outstanding, and, accordingly, Westland entered into the new Guarantor Payment
Agreement. Under the terms of the restated Westland Loan, Westland is required
to pay to Bank One $10,000 per month plus interest as well as 25% of excess cash
flow (as defined in the restated loan agreement) from Westland's operations.
Under the restatement, without expressly waiving the previously existing
covenant defaults under Westland Loan, Bank One has agreed to honor the
scheduled maturity date of the Westland Loan (February 23, 2005) absent any
further defaults. As restated, the Westland Loan bears interest at the per annum
rate of 3.0% in excess of Bank One's prime rate. Bank One continues to hold a
lien on substantially all of Westland's assets, subordinated to the lien of
Spectrum.
In connection with these financing transactions, the Company, Atlas and Westland
retired the remaining obligations to the former owner of Westland, Thomas Lee,
in consideration of a payment of $525,000, resulting in a gain on the
extinguishment of debt of approximately $125,000. Under agreements entered into
with Bank One in January 1999, Ronald Prime, formerly an owner and executive
officer of Atlas, and Michael Austin, formerly an owner and executive officer of
Atlas and currently a director of the Company, agreed to subordinate their
rights to receive payments for deferred executive compensation obligations of
approximately $974,000 (which were originally scheduled to be paid during the
period from July 2000 through July 2002). These executives agreed to continue to
subordinate their right to payment to MLB.
Results of Operations
Three and Six Months Ended December 31, 2003 Compared to Three and Six Months
Ended December 31, 2002
Unaudited revenues earned for the quarter ended December 31, 2003 were
$7,839,274, as compared to $7,616,976 for the quarter ended December 31, 2002,
an increase of 3%. Revenues earned for the six months ended December 31, 2003
were $15,403,737, an increase of more than 7% from the six months ended December
31, 2002 revenues earned of $14,353,919. Gross profit for the quarter ended
December 31, 2003 was $1,347,866, representing a 22% decrease compared to the
$1,717,448 gross profit for the quarter ended December 31, 2002. While volume
increased as noted, the sales were less profitable overall due to continued
margin pressure, which derived from continued slower economic activity in the
capital goods industry. Management also believes the capital goods sectors in
which the Company participates continue to exhibit excess capacity. For the six
months ended December 31, 2003, gross profit was $2,961,926, down 10% compared
to the six months ended December 31, 2002 gross profit of $3,291,500.
Consolidated selling, general and administrative (SG&A) expenses were $1,287,599
or 9% lower than the quarter ended December 31, 2002 SG&A expenses of
$1,407,758. For the six months ended December 31, 2003 SG&A expense was
$2,508,218 or $425,956 lower than the six months ended December 31, 2002. The
reduction in SG&A expenses for the quarter and six months ended December 31,
2003 was due to continued cost controls and cost reductions at both operating
subsidiaries.
The income from operations for the quarter ended December 31, 2003 was $60,267,
compared to income from operations for the quarter ended December 31, 2002 of
$309,690. The decrease in income from operations in the second quarter is a
direct result of the lower gross margin noted above offset by the lower SG&A.
For the six months ended December 31, 2003, income from operations was $453,708
or $96,382 higher than the six months ended December 31, 2002. This increase for
six months ended December 31, 2003 was primarily attributable to the lower SG&A
expenses explained above.
Interest expense for the quarter ended December 31, 2003 was $174,435, as
compared to $170,307 for the quarter ended December 31, 2002. For the six months
ended December 31,2003 interest expense was $346,184 as compared to $362,865 for
the prior six months ended December 31, 2002.
The net income for the quarter ended December 31, 2003 was $22,578 ($0.01 per
share (basic and diluted)) compared to net income of $153,387 ($0.06 per share
(basic and diluted)) for the quarter ended December 31, 2002. The net income for
the six months ended December 31, 2003 was $236,164 ($0.10 per share (basic) and
$0.90 per share (diluted)) as compared to a net income of $60,012 ($0.02 per
share (basic and diluted)) for the six months ended December 31, 2002. The net
income for the three and six months ended December 31, 2003 included a $125,000
gain on extinguishment of debt.
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of December 31, 2003 is as follows:
December 31, 2003
--------------------------------------------
Gross Accumulated Net
Carrying Book
Amount Amortization Value
Patents $573,132 $267,494 $305,638
Non-compete Agreements 348,750 248,172 100,578
Bank Closing Fees 189,785 67,500 122,285
--------------------------------------------
Total $1,111,667 $583,166 $528,501
============================================
Liquidity and Capital Resources
At December 31, 2003, the Company had (1) $3.5 million outstanding under a
commercial mortgage loan for Atlas as part of the MLB Credit Facility, (2) $0.5
million outstanding under an equipment term loan for Atlas as part of the MLB
Credit Facility, (3) debt of $3,221,636 outstanding under a revolving credit
facility for Atlas as part of the MLB Credit Facility, (4) 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,
(5) $733,859 outstanding under the Spectrum Credit Facility, and (6) $2,210,000
outstanding under the Westland Loan. This total of $11,140,428 at December 31,
2002 compares to a total combined long-term debt financing and line of credit
balance of $12,162,703 at December 31, 2002. The increase in indebtedness at
December 31, 2003 is principally due the refinancings by both Atlas and
Westland, with two new lenders, as of December 12, 2003, whereby additional
credit was made available to the subsidiaries. See "Recent Developments" in this
Item 2.
Working capital deficit at December 31, 2003 was ($291,855) and the current
ratio was (.97) to 1, as compared to a working capital deficit of ($5,866,497)
and a current ratio of (.64) to 1 for the Company at June 30, 2003.
As a result of the financing transactions described under "Recent Developments"
in this Item 2, and assuming no adverse developments, management believes that
it has sufficient funds available to it under the various facilities and
operations to provide for it working capital needs through the end of the 2004
fiscal year.
Off Balance Sheet Arrangements
During the three and six months ended December 31, 2003, the Company had no
off-balance sheet arrangements other than operating leases entered into in the
normal course of business.
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 economic and business conditions,
particularly in the automotive, machine tool and other industries principally
served by the Company, including the ongoing and permanent (non-cyclical) loss
of manufacturing capabilities in the United States to foreign competition, and
continued volatile demand in the domestic and foreign markets for automobiles
and automotive parts, in each case resulting in reduced or uncertain 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 achieve adequate operating results or
obtain needed access to the credit and capital markets to finance future
operations or plans for capital improvement or growth.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 3 has been disclosed in the Company's Annual
Report on Form 10-K for the year ended June 30, 2003. There has been no material
change in the disclosure regarding market risk.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management evaluated, with the participation of the chief
executive officer and chief financial officer, the effectiveness of the
Company's disclosure controls and procedures as of the end of the period covered
by this report. The chief executive officer and chief financial officer have
concluded that, to their knowledge on the basis of that evaluation, the
Company's disclosure controls and procedures were effective as of the end of the
period covered by this report. There has been no change in the Company's
internal control over financial reporting that occurred during the period
covered by this report that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
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, 2003, 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, Use of Proceeds and issuer purchases of equity
securities.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
As more fully described under "Liquidity and Capital Resources," in Part 1, Item
2 of this report (which discussion is incorporated by reference herein), the
Company was not in compliance with certain financial covenants and borrowing
base limitations under its Atlas revolving credit facility with Bank One and the
Westland Loan from the first quarter of 2002 until the funding of the MLB Credit
Facility in December 2003 as described under "Recent Developments," in Part 1,
Item 2 of this report.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
On February 19, 2004, William Rogner replaced James Kolinski as the Chief
Executive Officer of Atlas.
Mr. Rogner has approximately 18 years experience with Atlas, including having
previously served as its Executive Vice President, Vice President of
Engineering, Director of Contract Management and Project Manager. In these and
other capacities, Mr. Rogner has at various times had direct responsibilities
for sales, manufacturing, engineering, and mechanical engineering, fluid
engineering, and electrical controls. As Executive Vice President, Mr. Rogner
assisted in development and implementation of the Company's strategic plan,
including the reduction of Atlas' financial break-even point by approximately 35
percent. He initiated a value analysis and value engineering (VA/VE) program to
reduce costs at least 5 percent while maintaining or improving product
functionality.
Mr. Rogner also had direct responsibility for establishing Atlas' Brazilian
subsidiary, which was profitable in its first year, and he assisted in
developing sales and service in Europe and Asia and sales representation in
India. As part of a continuous focus on costs, Mr. Rogner reduced headcount by
over 40% in approximately three years and sought to level load (smooth out)
manufacturing schedules and direct labor manpower by utilizing production
outsourcing. He also supervised the implementation of the Company's enterprise
resource planning (ERP) system. From 1984 to 1997, as Director of Contract
Management at Atlas, Mr. Rogner had direct responsibility for major projects,
customer service, and warranty. He also was a Project Manager with direct
responsibility for the mechanical design and building of machines and projects.
During this time, he managed some of the largest projects in the history of
Atlas, including an $18 million system which included an engineering study and
implementation of a Greenfield project for an entire press room for a major
appliance manufacturer, including sheet metal dies for a new product. This
project employed 18 presses, three coil lines, more than 130 tools, as well as
equipment automation, and quick die change capabilities.
Mr. Rogner spent two years away from Atlas in the past 20 years, when he
co-founded an engineering design and consulting firm. As a company principal,
Mr. Rogner arranged the firm's line of credit, more than doubled firm revenues
in its first two years of operations, broadened the firm's initial customer
base, enabling the firm to report net earnings of 10 percent of its sales. Mr.
Rogner received his B.S. from Michigan State University and he also recently
completed an immersion course at the Wharton School of Business in finance for
non-financial executives.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 WCMA Loan and Security Agreement dated as of November 25, 2003
between Atlas Technologies, Inc. and Merrill Lynch Business
Financial Services Inc. (1)
10.2 Term Loan and Security Agreement dated as of November 25, 2003
between Atlas Technologies, Inc. and Merrill Lynch Business
Financial Services Inc. (1)
10.3 Term Loan and Security Agreement dated as of November 25, 2003
between Atlas Technologies, Inc. and Merrill Lynch Business
Financial Services Inc. (1)
10.4 General Credit and Security Agreement dated as of December 3,
2003 between WCS Acquisition Corp. and Spectrum Commercial
Services Company. (1)
10.5 Guarantor Payment Agreement dated as of December 10, 2003 between
WCS Acquisition Corp. and Bank One, NA. (1)
10.6 Letter Agreement dated as of March 4, 2004 from Merrill Lynch
Business Financial Services Inc. to Atlas Technologies, Inc.
modifying the WCMA Loan and Security Agreement. (2)
31.1 Certification of chief executive officer under section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of chief financial officer under section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of chief executive officer under section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of chief financial officer under section 906 of the
Sarbanes-Oxley Act of 2002.
________________________________
(1) Filed as an exhibit to the Company's annual report on Form
10-K for the year ended June 30, 2003
(2) Filed as an exhibit to the Company's quarterly report on
Form 10-Q for the quarter ended September 30, 2003
(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: March 11, 2004 By: /s/ Samuel N. Seidman
--------------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer
and President
Date: March 11, 2004 By: /s/ Jesse A. Levine
--------------------------------
Jesse A. Levine
Vice President, Secretary, Treasurer
and Chief Financial Officer