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, 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 0-24242
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 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 February 18, 2005: 2,747,500 shares of common stock.
1
Productivity Technologies Corp.
INDEX
Page
Number
PART I FINANCIAL INFORMATION.................................................3
Item 1. Financial Statements..................................................3
Condensed Consolidated Balance Sheets at December 31, 2004
(Unaudited) and June 30, 2004.....................................3
Condensed Consolidated Statements of Operations for the three and
six months ended December 31, 2004 and 2003 (Unaudited)...........5
Condensed Consolidated Statement of Shareholders' Equity
for the six months ended December 31, 2004 (Unaudited)............6
Condensed Consolidated Statements of Cash Flows for the
six months ended December 31, 2004 and 2003 (Unaudited)...........7
Notes to Unaudited Condensed 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............13
Item 4. Controls and Procedures..............................................13
PART II OTHER INFORMATION....................................................14
Item 1. Legal Proceedings ...................................................14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..........14
Item 3. Defaults upon Senior Securities (not applicable).....................14
Item 4. Submission of Matters to a Vote of Security Holders (not applicable).14
Item 5. Other Information (not applicable)..................................14
Item 6. Exhibits ...........................................................14
SIGNATURES....................................................................15
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2004 June 30, 2004
(Unaudited)
Assets
Current Assets
Cash $1,397,713 $233,882
Short-term investments, including accrued interest 273,832 450,080
Contract receivables, net of allowance for doubtful accounts of
$377,663 and $377,663 4,659,045 4,479,656
Costs and estimated earnings in excess of billings on
uncompleted contracts 1,448,069 3,759,498
Inventories 1,078,057 1,151,703
Prepaid expenses and other 215,816 268,005
Deferred income taxes 173,000 173,000
--------- ----------
Total current assets 9,245,532 10,515,824
--------- ----------
Property and equipment
Land $591,514 $591,514
Buildings and improvements 4,962,690 4,962,690
Machinery and equipment 4,235,958 4,235,503
Transportation equipment 34,079 21,000
--------- ----------
9,824,241 9,810,707
Less accumulated depreciation 4,548,238 4,241,399
--------- ---------
Net property and equipment 5,276,003 5,569,308
--------- ---------
Other assets
Goodwill 2,985,909 2,985,909
Patent, net 208,147 256,893
Deferred income taxes 752,000 722,000
Other assets 439,867 299,570
--------- ----------
Total other assets 4,385,923 4,264,372
--------- ---------
18,907,458 $20,349,504
See accompanying notes to unaudited condensed consolidated financial statements.
3
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2004 June 30, 2004
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt $7,184,076 $7,305,936
Accounts payable 1,830,115 3,427,383
Accrued expenses
Commissions payable 190,729 251,648
Payroll and related withholdings 19,433 85,665
Warranty Reserve 150,000 225,000
Interest 397,212 240,755
Other 325,418 271,199
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,141,869 652,849
--------- -------
Total current liabilities $11,238,852 $12,460,435
Executive deferred compensation agreements, less current maturities 974,933 974,933
Long-term debt, less current maturities 3,873,983 3,613,326
--------- ---------
Total liabilities 16,087,768 17,048,694
---------- ----------
Stockholders' equity
Common stock, $.001 par value, 20,000,000 shares authorized;
2,747,500 shares and 2,475,000 issued and outstanding at 2,748 2,475
December 31, 2004 and June 30, 2004 respectively.
Additional paid-in capital 10,075,135 9,966,408
Accumulated deficit (7,258,193) (6,668,073)
----------- -----------
Total stockholders' equity 2,819,690 3,300,810
--------- ---------
Total liabilities and shareholders' equity $18,907,458 $20,349,504
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
Revenues Earned $5,381,164 $7,839,274 $10,717,042 $15,403,737
Cost of Revenues Earned 4,342,238 6,491,408 8,755,698 12,441,811
--------------------------------------- ---------------- ----------------
Gross Profit 1,038,926 1,347,866 1,961,344 2,961,926
Selling, general and
administrative expenses 1,148,187 1,287,599 2,301,168 2,508,218
--------------------------------------- ---------------- ----------------
Income (loss) from operations (109,261) 60,267 (339,824) 453,708
Other income (expense)
Interest income 158 45 421 284
Interest expense (196,412) (174,435) (366,558) (346,184)
Miscellaneous 94,082 11,701 115,841 7,406
--------------------------------------- ---------------- ----------------
Total other expenses (102,172) (162,689) (250,296) (338,494)
--------------------------------------- ---------------- ----------------
Income (loss) before income taxes
and extraordinary items (211,433) (102,422) (590,120) 115,214
Income tax expense 0 0 0 4,050
--------------------------------------- ---------------- ----------------
Net income (loss) before
extraordinary item ($211,433) ($102,422) ($590,120) $111,164
======================================= ================ ================
Extraordinary item, gain on
extinguishment of debt -- 125,000 -- 125,000
Net Income (loss) ($211,433) $22,578 ($590,120) $236,164
Basic earnings (loss) per share:
Before extraordinary gain ($0.08) ($0.04) ($0.21) $0.05
Extraordinary gain -- $0.05 -- $0.05
Total basic net income ($0.08) $0.01 ($0.21) $0.10
Diluted earnings (loss) per share
Before extraordinary gain ($0.08) ($0.04) ($0.21) $0.04
Extraordinary gain -- $0.05 -- $0.05
Total diluted net income ($0.08) $0.01 ($0.21) $0.09
Weighted average number of
common shares outstanding:
Basic 2,747,500 2,475,000 2,747,500 2,475,000
Diluted 2,747,500 2,629,000 2,747,500 2,629,000
See accompanying notes to unaudited condensed consolidated financial statements.
5
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Additional Total
------------ Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
Balance June 30, 2004 2,475,000 $2,475 $9,966,408 ($6,668,073) $3,300,810
Net loss -- -- -- (590,120)
-- -- -- ----------- ----------
(590,120)
Issuance of common stock 272,500 273 108,727 109,000
------- --- ------- -------
--
December 31, 2004 2,747,500 $2,748 $10,075,135 ($7,258,193) $2,819,690
========= ====== =========== =========== ==========
See accompanying notes to unaudited condensed consolidated financial statements.
6
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31, December 31,
2004 2003
---- ----
Cash flows from operating activities
Net income/(loss) ($590,120) $236,164
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation 306,839 304,840
Amortization 70,644 48,746
Gain on extinguishment of debt - (125,000)
Deferred income tax (30,000) -
Changes in operating assets and liabilities:
Contract receivables (179,389) (32,714)
Inventories, prepaid expenses and other 76,390 103,519
Costs and estimated earnings in excess of billings
on uncompleted contracts, net effect 2,800,449 (2,281,369)
Accounts payable, accrued expenses and other (1,588,744) 452,563
----------- -------
Net cash provided by (used in) operating activities 866,069 (1,293,251)
-----------
Cash flows from investing activities
Proceeds from sale (purchase of) short-term investments - net 176,248 444,403
Expenditures for property and equipment (13,534) (31,119)
-------- --------
Net cash provided by investing activities 162,714 413,284
------- -------
Cash flows from financing activities
Net repayments under revolving credit agreement (121,860) (512,275)
Borrowings on long term debt 256,907 4,000,000
Payments on long term debt - (3,293,148)
- -----------
Net cash provided by financing activities 135,047 194,577
------- -------
Net increase (decrease) in cash 1,163,830 (685,390)
Cash at the beginning of the period 233,882 1,163,187
------- ---------
Cash at the end of the period $1,397,713 $477,797
========== ========
Supplemental Cash Flow Information
Cash paid during the period for interest $210,101 $726,478
Cash paid during the period for income taxes $--- $---
Schedule of Non-Cash Financing Activities
Securities issued for commitment fees $109,000 $---
-------- ----
See accompanying notes to unaudited condensed consolidated financial statements.
7
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited condensed 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, 2004, are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2005. 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, 2004. Information provided includes the consolidated audited
financial statements, including footnotes for the year ended June 30, 2004 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. In March 2004, Atlas formed a German subsidiary, Atlas Technologies GmbH,
in order to facilitate its operations in Europe.
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, packaging, adhesive
and sealants, engine part machining and other industries.
8
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."
Options to purchase shares of common stock were outstanding as of December 31,
2004 but were not included in the computation of diluted earnings per share
because the shares would be anti-dilutive.
3. Stock Option Plan
SFAS No. 123, "Accounting for Stock-Based Compensation," prescribes a method of
accounting for stock-based compensation that recognizes compensation cost based
on the fair value of options at grant date. In lieu of applying this fair value
based method, a company may elect to disclose only the pro forma effects of such
application. The Company has adopted the disclosure-only provisions of SFAS No.
123. In December 2002, SFAS No. 148, "Stock-Based Compensation," was issued,
which requires that the Company illustrate the effect on net income and earnings
per share if it had applied the fair value principles included in SFAS No. 123
for both annual and interim financial statements. Accordingly, if the Company
had elected to recognize compensation cost based on the fair value of the
options at grant date, the Company's earnings and earnings per share from
continuing operations, assuming dilution, for the three and six month periods
ended December 31, 2004 and 2003 would have been the pro forma amounts indicated
below:
----------------------------------------- -- ----------------------------------------
Three months ended December 31, Six months ended December 31,
----------------------------------------- -- ----------------------------------------
2004 2003 2004 2003
------------------- ------------------ -- ----------------- -- -------------------
Net earnings:
As reported $ (378,687) $ 213,587 $(590,120) $236,164
Pro forma $ (378,687) $ 213,587 $(590,120) $236,164
Net earnings per share:
As reported:
Basic $ (0.14) $ 0.09 $(0.21) $0.10
Diluted $ (0.14) $ 0.08 $(0.21) $0.09
Pro forma:
Basic $ (0.14) $ 0.09 $(0.21) $0.10
Diluted $ (0.14) $ 0.08 $(0.21) $0.09
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three and Six Months Ended December 31, 2004 Compared to Three and Six Months
Ended December 31, 2003
Unaudited revenues earned for the quarter ended December 31, 2004 were
$5,381,164, as compared to $7,839,274 for the quarter ended December 31, 2003, a
decrease of 31%. Atlas' revenues decreased by 35% due to slower activity during
the summer of 2004 and Westland's revenues declined by 22% due to slower
activity during the beginning of the quarter. Unaudited revenues earned for the
six months ended December 31, 2004 were $10,717,042, down 30% from the six
months ended December 31, 2003 revenues earned of $15,403,737. The reduction in
revenues was due to slower order activity as noted above.
Gross profit for the quarter ended December 31, 2004 was $1,038,926,
representing a 23% decrease compared to the $1,347,866 gross profit for the
quarter ended December 31, 2003. The decrease in gross profits was due to the
lower volumes reported by both Atlas and Westland. Gross profit as a percentage
of sales increased by 2%, due principally to a more favorable mix of products
sold by Westland. For the six months ended December 31, 2004 gross profit was
$1,961,344, down 34% compared to the six months ended December 31, 2003 gross
profit of $2,961,926. The decrease in gross profit for the six month period as
compared to one year ago was due to lower revenues during the six month period.
Consolidated selling, general and administrative (SG&A) expenses were $1,148,187
or 11% lower than the quarter ended December 31, 2003 SG&A expenses of
$1,287,599. For the six months ended December 31, 2004, SG&A expense was
$2,301,168 or $207,050 lower than the six months ended December 31, 2003. The
company continued to reduce SG&A expenses for the quarter and six months ended
December 31, 2004 due to the lower revenues reported by both operating
subsidiaries.
The loss from operations for the quarter ended December 31, 2004 was $109,261,
compared to income from operations for the quarter ended December 31, 2003 of
$60,267. For the six months ended December 31, 2004 the loss from operations was
$339,824, compared to income from operations of $453,708 for the six months
ending December 31, 2003. The loss from operations for the quarter and six
months ended December 31, 2004 resulted from lower sales volumes reported by
both operating subsidiaries which was partly offset by the lower SG&A expenses
described above.
Interest expense for the quarter ended December 31, 2004 was $196,412 as
compared to $174,435 for the same time period ending December 31, 2003. For the
six months ended December 31,2004 interest expense was $366,558 as compared to
$346,184 for the prior six months ended December 31, 2003. Atlas' interest
expenses for the quarter and year to date periods ending December 31, 2004 were
lower due to lower borrowing levels which resulted from lower revenues during
the subject periods. Westland's interest expenses increased due to its
utilization of line of credit financing which Westland did not have for most of
the quarter and six months ended December 31, 2003.
The net loss for the quarter ended December 31, 2004 was $211,433 compared to a
net income of $22,578 for the quarter ended December 31, 2003. The net loss for
the six months ended December 31, 2004 was $590,120 as compared to a net income
of $236,165 for the six months ended December 31, 2003. The reported net loss
for the quarter of $0.08 per share and year-to-date net loss of $0.21 per share
was based on 2,747,500 weighted average common shares outstanding (basic and
diluted) during both time periods. This compared to a net income for the quarter
and six months ended December 31, 2003 of $0.01 per share (basic and diluted)
and $0.10 (basic) and $0.09 per share (diluted), respectively, with both
calculations based upon 2,475,000 shares outstanding for these periods ending
December 31, 2003. The net income for the three months 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, 2004 is as follows:
10
December 31, 2004
-----------------------------------------------
Gross Net
Carrying Accumulated Book
Amount Amortization Value
Patents $573,132 $364,985 $208,147
Non-compete Agreements 348,750 283,932 64,818
ML Closing Fees 154,603 34,428 120,175
-----------------------------------------------
Total $1,076,485 $683,345 $393,140
===============================================
Liquidity and Capital Resources
Between 2000 and 2003, the Company was scheduled to repay approximately $974,833
due to the former owners of Atlas. Repayments of all of these amounts were
postponed for an indefinite period of time. Instead, cash is being conserved for
ongoing operations. These borrowings are subordinated to Atlas' senior lender
and are subject to subordination agreements executed by the former owners of
Atlas in favor of Atlas' senior lender.
At December 31, 2004, the Company had (1) $3.3 million outstanding under a
commercial mortgage loan for Atlas as part of a credit facility (the "MLB Credit
Facility") with Merrill Lynch Business Financial Services Inc. ("Merrill
Lynch"), (2) $0.347 million outstanding under an equipment term loan for Atlas
as part of the MLB Credit Facility, (3) debt of $4.0 million outstanding under a
revolving credit facility for Atlas as part of the MLB Credit Facility, (4)
deferred executive compensation obligations of approximately $0.975 originally
scheduled to be paid over three equal annual installments during the period from
July 2000 through July 2002, (5) $0.97 million outstanding under the Spectrum
Credit Facility, (6) $2.2 million outstanding under the Westland Loan ,and (7)
$0.3 million outstanding in convertible subordinated debentures which mature in
June 2007. This total of $12.1 million of debt compares to a total combined
indebtedness approximating $11.1 million as of December 31, 2003.
Working capital deficit at December 31, 2004 was ($1,993,320) and the current
ratio was (.82) to 1, as compared to a working capital deficit of ($1,913,000)
and a current ratio of (.85) to 1 for the Company at June 30, 2004.
On December 12, 2004, the MLB Credit Facility matured and was not repaid. The
Company is in discussions with Merrill Lynch to obtain an extension of this
facility. Merrill Lynch has not demanded repayment of the outstanding amounts.
While Atlas expects a renewal of the revolver, no assurances can be given that
the Company will be successful in obtaining an extension of the MLB Credit
Facility or in finding alternative financing. Unless it is successful in
renewing the revolver or in obtaining revolving financing from another source,
the Company may be unable to satisfy its current liabilities.
Off Balance Sheet Arrangements
During the quarter and six months ended December 31, 2004, the Company had no
off-balance sheet arrangements other than operating leases entered into in the
normal course of business, as indicated in the table below.
Summary of Contractual Commitments
The following table represents contractual commitments associated with operating
agreements (excluding interest on debt obligations) for the fiscal years
indicated, and thereafter. With respect to the lines of credit borrowed by Atlas
and Westland, at December 31, 2004, these amounted to $4.0 million in maximum
revolving commitments for Atlas and $1.25 million in maximum revolving
commitments for Westland which will be up for renewal in December 2005. Atlas
has been in discussions with its senior lender concerning renewal of the Atlas
revolver.
11
2005 2006 2007 2008 2009 There-after Total
--------- --------- --------- --------- ---------- ---------- ----------
Real estate term loan 233,342 233,333 233,333 233,333 233,333 2,236,105 3,402,780
Equipment term loan 166,667 166,667 97,222 -- -- -- 430,555
Revolver - Atlas 3,998,177 -- -- -- -- -- 3,998,177
Revolver - Westland 977,438 695,167
Subordinated term loan 2,212,583 -- -- -- -- -- 2,212,583
Debentures -- -- -- 300,000 -- -- 300,000
--------- --------- --------- --------- ---------- ---------- ----------
Total debt 7,305,936 1,377,438 330,555 533,333 233,333 2,236,105 11,039,262
Building lease 214,867 214,867 429,734
--------- --------- --------- --------- ---------- ---------- ----------
Total 6,610,769 614,867 330,555 533,333 233,333 2,236,105 11,468,996
========= ========= ========= ========= ========== ========== ==========
Impact of Recently Issued Accounting Standards
In March 2004, the Financial Accounting Standards Board ("FASB") issued a
proposed statement, "Share-Based Payment--an Amendment to Statement Nos. 123 and
95" that would require stock based employee compensation to be recorded as a
charge to earnings using a fair value based method. The proposed statement is
effective for interim or annual periods beginning after June 15, 2005. The
Company will continue to monitor the FASB's progress on this issuance of the
proposed statement and its impact on the Company's consolidated financial
statements.
In December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
Payment". Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. This Statement 123(R)
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. Statement 123(R) replaces FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as
originally issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However, that
Statement permitted entities the option of continuing to apply the guidance in
Opinion 25, as long as the footnotes to financial statements disclosed what net
income would have been had the preferable fair-value-based method been used.
Public entities (other than those filing as small business issuers) will be
required to apply Statement 123(R) as of the first interim or annual reporting
period that begins after June 15, 2005. The Company is currently evaluating the
financial statement impact of the adoption of SFAS 123(R).
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment of
ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. The Company is currently evaluating the
financial statement impact of the adoption of SFAS 151.
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 rising raw material prices for
steel and commodities which depend upon or use oil in their manufacture,
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 e
12
quipment noncompetitive or obsolete; the risk that Atlas' senior lender will not
agree to renew its revolver; 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 refinance or extend the MLB Credit Facility or
otherwise 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, 2004. 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, and
excluding the conditions discussed below, the remainder of 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; however,
management has begun to implement the changes necessary to address the issues
identified below.
In connection with its audit of the Company's consolidated financial statements
as of and for the year ended June 30, 2004, the Company's auditor advised the
Company's management and its Audit Committee that it had identified deficiencies
which were designated as "reportable conditions" but which did not constitute
"material weaknesses". Areas requiring improvement include (1) reconciling
intercompany accounts and balances between consolidated entities, (2)
recordkeeping over property, plant and equipment, (3) recordkeeping and
evaluation of deferred tax assets and liabilities and analysis of valuation
allowance against net deferred tax assets, and (4) reviewing accounting activity
performed on amounts appearing in the Company' s consolidated financial
statements. In addition, in the past the Company has not filed on a timely basis
certain of its quarterly reports on Forms 10-Q and its annual report on Form
10-K with the Securities Exchange Commission within the required due dates. An
extension of time to file was requested for the annual report on Form 10-K for
the year ended June 30, 2004, the quarterly report on Form 10-Q for the quarter
ended September 30, 2004 (as well as this quarterly report on Form 10-Q), which,
under Section 404 of the Sarbanes Oxley Act, constitutes a deficiency in
internal controls over financial reporting. The Company has assigned a priority
to the short- and long-term correction of these internal control deficiencies
and believes it can make significant progress toward correction of these matters
in fiscal 2005.
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;
however, management has begun to implement the changes necessary to address the
issues identified below.
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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, 2004, 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. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
On December 12, 2004, the MLB Credit Facility matured and was not repaid. The
Company is in discussions with Merrill Lynch to obtain an extension of this
facility. Merrill Lynch has not demanded repayment of the outstanding amounts.
While Atlas expects a renewal of the revolver, no assurances can be given that
the Company will be successful in obtaining an extension of the MLB Credit
Facility or in finding alternative financing. Unless it is successful in
renewing the revolver or in obtaining revolving financing from another source,
the Company may be unable to satisfy its current liabilities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS.
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.
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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 18, 2005 By: /s/ Samuel N. Seidman
---------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer
and President
Date: February 18, 2005 By: /s/ Jesse A. Levine
-------------------------
Jesse A. Levine
Vice President, Secretary, Treasurer
and Chief Financial Officer
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