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, 2004
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 0-24212
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 (248) 645-9700
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 ____________
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 May 19, 2004: 2,475,000 shares, $ .001 par value common
stock.
1
Productivity Technologies Corp.
INDEX
Page
Number
PART I FINANCIAL INFORMATION..................................................3
Item 1. Financial Statements...................................................3
Consolidated Balance Sheets at March 31, 2004 (unaudited)
and June 30, 2003..............................................3
Consolidated Statements of Operations for the three and nine
months ended March 31, 2004 and 2003 (unaudited)...............5
Consolidated Statement of Stockholders' Equity
for March 31, 2004 (unaudited).................................6
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2004 and 2003 (unaudited)............................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...............................................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................................12
Item 3. Defaults Upon Senior Securities (not applicable) .....................12
Item 4. Submission of Matters to a Vote of Security Holders (not applicable)..12
Item 5. Other Information.....................................................12
Item 6. Exhibits and Reports on Form 8-K ...................................13
SIGNATURES....................................................................14
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2004 June 30, 2003
-------------- -------------
(Unaudited)
Assets
Current Assets
Cash $445,897 $1,163,187
Short-term investments, including accrued interest 164,997 540,582
Contract receivables, net of allowance for doubtful accounts of
377,663 and $227,663 4,753,639 3,620,852
Costs and estimated earnings in excess of billings on
uncompleted contracts 3,128,994 3,423,457
Inventories 1,111,571 1,154,512
Prepaid expenses and other 313,499 328,517
Deferred income taxes 290,000 290,000
---------- ----------
Total current assets 10,208,597 10,521,107
---------- ----------
Property and equipment
Land $591,514 $591,514
Buildings and improvements 4,963,008 4,962,690
Machinery and equipment 4,247,086 4,215,036
Transportation equipment 21,000 21,000
---------- ----------
9,822,608 9,790,240
Less accumulated depreciation 4,088,977 3,631,717
---------- ----------
Net property and equipment 5,733,631 6,158,523
---------- ----------
Other assets
Goodwill 2,985,909 2,985,909
Patent, net 281,265 354,384
Deferred income taxes 430,000 430,000
Other assets 290,145 252,955
---------- ----------
Total other assets 3,987,319 4,023,248
---------- ----------
$19,929,547 $20,702,878
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2004 June 30, 2003
-------------- -------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt $5,478,098 $8,385,918
Accounts payable 2,770,062 3,784,778
Accrued expenses
Commissions payable 381,220 310,000
Payroll and related withholdings - 62,464
Warranty Reserve 275,520 250,000
Interest 256,775 610,957
Other 473,119 143,574
Billings in excess of costs and estimated
earnings on uncompleted contracts 773,754 1,864,980
Current maturities of executive deferred compensation agreements - 974,933
- -----------
Total current liabilities $10,408,548 $16,387,604
Executive deferred compensation agreements, less current maturities 974,933 -
Long-term debt, less current maturities 5,745,909 1,735,000
----------- -----------
Total liabilities 17,129,399 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 (7,168,726) (7,388,609)
----------- -----------
Total stockholders' equity 2,800,157 2,580,274
----------- -----------
$19,929,547 $20,702,878
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
-------------------------- ---------------------------
March 31, March 31, March 31, March 31,
2004 2003 2004 2003
---------- ---------- ----------- -----------
Revenues Earned $5,638,873 $6,663,341 $21,042,610 $21,017,260
Cost of Revenues Earned 4,280,512 4,954,846 16,722,323 16,017,265
---------- ---------- ----------- -----------
Gross Profit 1,358,361 1,708,495 4,320,287 4,999,995
Selling, general and
administrative expenses 1,121,012 1,518,669 3,629,230 4,452,843
---------- ---------- ----------- -----------
Income (loss) from operations 237,349 189,826 691,057 547,152
Other income (expense)
Interest income 371 485 655 8,890
Interest expense (216,472) (144,875) (562,656) (507,740)
Miscellaneous (41,579) 61,838 (34,173) 89,003
---------- ---------- ----------- -----------
Total other expenses (257,680) (82,552) (596,174) (409,847)
Income (loss) before income
taxes and extraordinary items (20,331) 107,274 94,883 137,305
Income tax expense (benefit) 4,050 0 0 (29,981)
---------- ---------- ----------- -----------
Net income (loss) before
extraordinary item ($16,281) $107,274 $94,883 $167,286
========== ========== =========== ===========
Extraordinary item, gain
on extinguishment of debt -- -- 125,000 --
Net Income (loss) ($16,281) $107,274 $219,883 $167,286
Basic earnings (loss) per share:
Before extraordinary gain ($0.01) $0.04 $0.04 $0.07
Extraordinary gain -- -- 0.05 --
---------- ---------- ----------- -----------
Total basic net income ($0.01) $0.04 $0.09 $0.07
Diluted earnings (loss) per share:
Before extraordinary gain ($0.01) $0.04 $0.03 $0.07
Extraordinary gain -- -- $0.05 --
---------- ---------- ----------- -----------
Total diluted net income ($0.01) $0.04 $0.08 $0.07
========== ========== =========== ===========
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.
5
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, 2003 2,475,000 $2,475 $9,966,408 ($7,388,609) $2,580,274
Net income -- -- -- 219,883 219,883
--------- ------ ----------- ---------- ----------
March 31, 2004 2,475,000 $2,475 $9,966,408 ($7,168,726) $2,800,157
========= ====== ========== ============ ==========
See accompanying notes to unaudited consolidated financial statements.
6
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31, March 31,
2004 2003
---------- ----------
Cash flows from operating activities
Net income/(loss) $ 219,883 $167,336
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 457,260 457,261
Amortization 73,119 73,119
Gain on extinguishment of debt 125,000 ---
Changes in operating assets and liabilities:
Contract receivables (1,132,787) (1,527,714)
Inventories, prepaid expenses and other 20,769 186,856
Costs and estimated earnings in excess of billings
on uncompleted contracts, net effect (796,763) 2,320,320
Accounts payable, accrued expenses and other (1,005,077) (116,396)
---------- ----------
Net cash used in operating activities (2,038,596) 1,560,782
---------- ----------
Cash flows from investing activities
Proceeds from sale (purchase of) short-term investments - net 375,585 (2,678)
Expenditures for property and equipment (32,368) 54,940
---------- ----------
Net cash provided by (used in) investing activities 343,217 52,262
---------- ----------
Cash flows from financing activities
(Payments) or borrowings under revolving credit agreement (695,236) (2,433,373)
Borrowings (Payments) on long term debt 1,673,325 (1,100,000)
---------- ----------
Net cash provided by (used in) financing activities 978,089 (3,533,373)
---------- ----------
Net decrease in cash (717,290) (1,920,329)
Cash at the beginning of the period 1,163,187 4,971,837
---------- ----------
Cash at the end of the period $ 445,897 $3,051,508
========== ==========
Supplemental Cash Flow Information
Cash paid during the period for interest $ 916,838 $ 147,216
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.
7
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 nine months ended March 31, 2004, 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 (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, 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
8
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."
3. Subsequent Events
In May 2004, the Company signed two term sheets with an institutional investor,
one for a standby equity distribution agreement proposed to be entered into (the
"Equity Line"), and the second for a convertible redeemable debenture proposed
to be issued by the Company to this investor (the "Debenture"). Consummation of
these transactions will be subject to the investor's completion of due diligence
and to the negotiation and execution of definitive documents on terms
satisfactory to the investor and the Company. No assurance can be given that
these transactions will be completed.
Under the term sheet for the proposed Equity Line, the investor will commit to
purchase, solely at the Company's option, up to $5.0 million of the Company's
common stock during the 24 months after the effective time of a registration
statement therefor, at a price equal to 99% of the market price. The market
price is to be the lowest daily volume weighted average price during the five
trading days immediately prior to the Company's election to require the investor
to purchase shares under the Equity Line. The Company is required to issue to
the investor at closing restricted common shares (with piggy-back and demand
registration rights) having a market price of $175,000, and upon each election
made by the Company to require the investor to purchase shares, 5% of the gross
proceeds received therefrom will be paid to the investor.
Under the term sheet for the proposed Debenture, the Company would issue its
debenture in the principal amount of $500,000 to be funded $250,000 at closing,
and the balance upon the satisfaction of specified conditions. The outstanding
principal amount of the Debenture plus accrued interest thereon at 5% per annum
will be convertible into the Company's common stock based upon the lowest of (i)
120% of the final closing price for the common stock on the closing date, (ii)
80% of the lowest closing price for the common stock: for the five trading days
immediately prior to the conversion date or redemption date, or (iii) 100% of
the average of the three lowest closing prices for the 30 days immediately prior
to the conversion date. The Company has the option to redeem the Debenture at
any time upon giving the specified notice, including following receipt of the
investor's notice of election to convert into common stock at a conversion price
equal to 120% of the outstanding principal amount of the Debenture plus accrued
interest thereon. If the Company redeems the Debenture, the investor will be
entitled to receive a warrant to purchase 50,000 of the Company's common shares
(with piggy-back and demand registration rights) for each $100,000 invested. The
Company is required to register the shares issuable upon conversion of the
Debenture. The Debenture will also include provisions relating to collateral and
fees and other terms to be agreed upon.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three and Nine Months Ended March 31, 2004 Compared to Three and Nine Months
Ended March 31, 2003
Unaudited revenues earned for the quarter ended March 31, 2004 were $5,638,873,
as compared to $6,663,341 for the quarter ended March 31, 2003, a decrease of
15%. This decrease was principally attributable to lower Atlas's revenues in the
quarter ended March 31, 2004, partially offset by an increase in Westland's
revenues. Westland's revenues increased in the quarter from the addition of new
customers which began ordering from Westland for the first time, or which placed
orders in greater volume, compared to the prior period of time. Revenues earned
for the nine months ended March 31, 2004 of $21,042,610 were virtually unchanged
from the nine months ended March 31, 2003, for which revenues earned were
$21,017,260.
Gross profit for the quarter ended March 31, 2004 was $1,358,361, representing a
21% decrease compared to the $1,708,495 gross profit for the quarter ended March
31, 2003. The decrease in gross profits was principally due to the volume
decrease and mix of products sold at Atlas. For the nine months ended March 31,
2004, gross profit was $4,320,287, down 14% compared to the nine months ended
March 31, 2003, for which gross profit was $4,999,995. The decrease was
attributable to a change in the mix of products sold by Atlas.
Consolidated selling, general and administrative (SG&A) expenses were $1,121,012
or 26% lower than the quarter ended March 31, 2003, for which SG&A expenses were
$1,518,669. For the nine months ended March 31, 2004 SG&A expense was $3,629,230
or 19% lower than the nine months ended March 31, 2003. The reduction in SG&A
expenses for the quarter and nine months ended March 31, 2004 was due to
continued control of operating expenses.
The income from operations for the quarter ended March 31, 2004 was $237,349,
compared to an income from operations for the quarter ended March 31, 2003 of
$189,826. The increase in income from operations in the third quarter of 2004
resulted from lower SG&A, which was partly offset by lower volume and a changing
product mix at Atlas. For the nine months ended March 31, 2004, income from
operations was $691,057 or $143,905 higher than the nine months ended March 31,
2003. The increase in income from operations for nine months ended March 31,
2004 was also primarily due to lower SG&A expenses as explained above.
Interest expense for the quarter ended March 31, 2004 was $216,472, as compared
to $144,875 for the quarter ended March 31, 2003. For the nine months ended
March 31,2004 interest expense was $562,656 as compared to $507,740 for the
prior nine months ended March 31, 2003. The higher interest expense was
attributable to an increase in funded debt at Westland under its new credit
facility with Spectrum Commercial Services, Inc. (the "Spectrum Credit
Facility") and at Atlas under its new credit facility with Merrill Lynch
Business Financial Services Inc. (the "MLB Credit Facility") and higher costs
associated therewith.
The net loss for the quarter ended March 31, 2004 was $16,281 ($0.01 per share
basic and diluted) compared to a net income of $107,274 for the quarter ended
March 31, 2003 ($0.04 per share basic and diluted). The net income for the nine
months ended March 31, 2004 was $219,883 ($0.09 per share (basic) and $0.01 per
share (diluted) as compared to a net income of $167,286 ($0.07 per share (basic
and diluted) for the nine months ended March 31, 2003. The net income for the
nine months ended March 31, 2004 included a $125,000 gain on extinguishment of
debt..
10
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of March 31, 2004 is as follows:
March 31, 2004
-----------------------------------------------
Gross Net
Carrying Accumulated Book
Amount Amortization Value
------ ------------ -----
Patents $573,132 $291,867 $281,265
Non-compete Agreements 348,750 257,112 91,638
Bank Closing Fees 293,388 152,787 140,601
-----------------------------------------------
Total $1,215,270 $701,766 $513,504
===============================================
Liquidity and Capital Resources
At March 31, 2004, the Company had (1) $3,461,111 outstanding under a commercial
mortgage loan for Atlas as part of the MLB Credit Facility, (2) $472,222
outstanding under an equipment term loan for Atlas as part of the MLB Credit
Facility, (3) debt of $4,581,622 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) $431,965 outstanding under the Spectrum Credit Facility, and (6) $2,212,584
outstanding under the Westland Loan. This total of $12,134,437 at March 31, 2004
compares to a total combined long-term debt financing and line of credit balance
of $11,140,428 at December 31, 2003. As noted in previous filings, the Company
completed refinancings for both Atlas and Westland, with two new lenders, as of
December 12, 2003.
Working capital deficit at March 31, 2004 was ($199,951) and the current ratio
was (.98) 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.
Effective as of December 12, 2003, Atlas entered into the MLB Credit Facility,
which provided for borrowing availability of up to $8.0 million (based in part
upon eligible accounts receivable), of which $7.4 million was funded at closing,
and Westland entered into the Spectrum Credit Facility, which provided for
borrowing availability of up to $1.25 million (based upon eligible accounts
receivable). Effective on March 4, 2004, Merrill Lynch Business Financial
Services Inc. agreed to a modification of the terms of the MLB Credit Facility
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. With the
availability of funds under the MLB Credit Facility and the Spectrum Credit
Facility, the anticipated additional funding expected to be available under the
[ ], and assuming no adverse business or economic developments, management
believes that it will have sufficient funds available to it to meet its working
capital needs for the next 12 months.
Off Balance Sheet Arrangements
During the three and nine months ended March 31, 2004, 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
11
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.
Reference is made to the disclosure under note 3 to the Company's consolidated
financial statements for certain proposed securities transactions.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
In May 2004, the Company signed two term sheets with an institutional investor,
one for a standby equity distribution agreement proposed to be entered into (the
"Equity Line"), and the second for a convertible redeemable debenture proposed
to be issued by the Company to this investor (the "Debenture"). Consummation of
these transactions will be subject to the investor's completion of due diligence
and to the negotiation and execution of definitive documents on terms
satisfactory to the investor and the Company. No assurance can be given that
these transactions will be completed.
Under the term sheet for the proposed Equity Line, the investor will commit to
purchase, solely at the Company's option, up to $5.0 million of the Company's
common stock during the 24 months after the effective time of a registration
statement therefor, at a price equal to 99% of the market price. The market
price is to be the lowest daily volume weighted average price during the five
trading days immediately prior to the Company's election to require the investor
to purchase shares under the Equity Line. The Company is required to issue to
the investor at closing restricted common shares (with piggy-back and demand
registration rights) having a market price of $175,000, and upon each election
made by the Company to require the investor to purchase shares, 5% of the gross
proceeds received therefrom will be paid to the investor.
Under the term sheet for the proposed Debenture, the Company would issue its
debenture in the principal amount of $500,000 to be funded $250,000 at closing,
and the balance upon the satisfaction of specified conditions. The outstanding
principal amount of the Debenture plus accrued interest thereon at 5% per annum
will be convertible into the Company's common stock based upon the lowest of (i)
120% of the final closing price for the common stock on the closing date, (ii)
80% of the lowest closing price for the common stock: for the five trading days
immediately prior to the conversion date or redemption date, or (iii) 100% of
the average of the three lowest closing prices for the 30 days immediately prior
to the conversion date. The Company has the option to redeem the Debenture at
any time upon giving the specified notice, including following receipt of the
investor's notice of election to convert into common stock at a conversion price
equal to 120% of the outstanding principal amount of the Debenture plus accrued
interest thereon. If the Company redeems the Debenture, the investor will be
entitled to receive a warrant to purchase 50,000 of the Company's common shares
(with piggy-back and demand registration rights) for each $100,000 invested. The
Company is required to register the shares issuable upon conversion of the
Debenture. The Debenture will also include provisions relating to collateral and
fees and other terms to be agreed upon.
As previously disclosed by the Company, in February 2004, William Rogner
replaced James Kolinski as the president of Atlas.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 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 dated as of November 25, 2003. (1)
31.1 Rule 13a-14(a) certification of chief executive officer in
accordance with section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Rule 13a-14(a) certification of chief financial officer in
accordance with section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Section 1350 certification of chief executive officer in
accordance with section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Section 1350 certification of chief financial officer in
accordance with section 906 of the Sarbanes-Oxley Act of
2002.
--------------------------------
(1) 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.
13
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: May 20, 2004 By: /s/ Samuel N. Seidman
---------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer
and President
Date: May 20, 2004 By: /s/ Jesse A. Levine
-------------------------
Jesse A. Levine
Vice President, Secretary, Treasurer
and Chief Financial Officer
14