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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
------ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
| X | SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
------ For the fiscal year ended March 31, 1996
OR
------
| | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
------ THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 of (I.R.S. Employer Identification No.)
incorporation or organization)
520 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 843-1480
Securities registered pursuant to Section 12(b) of the
Exchange Act: None Securities registered pursuant to
Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of class)
Redeemable Common Stock Units, each consisting of one
Purchase Warrants Share of Common Stock and two
(Title of class) Redeemable Common Stock
Purchase Warrants
(Title of Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 21, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $10,712,000.
As of June 21, 1996, there were 2,125,000 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
PAGE 1 OF 82 PAGES
EXHIBIT INDEX -- PAGE 43
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Productivity Technologies Corp. (formerly named Production Systems
Acquisition Corporation), a Delaware corporation ("Company"), was organized in
June 1993 as a Specified Purpose Acquisition Company(R) ("SPAC(R)"),* with the
objective of acquiring an operating business ("Target Business") in the
production systems industry ("Production Systems Industry"). The Production
Systems Industry consists of companies which produce the machinery, components
and systems for manufacturing.
On May 23, 1996, the Company achieved its objective of acquiring a
Target Business with the acquisition of Atlas Technologies, Inc. ("Atlas"), a
Michigan-based corporation incorporated in 1974 and engaged in the manufacture
and sale of equipment to automate metal stamping press operations. The
acquisition was accomplished through the merger of a wholly-owned subsidiary of
the Company into Atlas, with Atlas being the surviving company and becoming a
wholly-owned subsidiary of the Company. The Company has no other subsidiaries or
operations.
Business of Atlas
Metal stamping presses are used to form a wide variety of sheet metal
components used in automobiles, appliances and other consumer and industrial
products. Atlas offers a complete range of products within three categories
critical to the operation of metal stamping presses: quick die changing
equipment, press automation equipment, and stacking and destacking equipment,
which, together, have historically accounted for approximately 90% of its sales
revenues. It also sells, on a turnkey basis, fully integrated metal stamping
systems comprised of components provided by Atlas and other manufacturers.
Metal stamping involves setting pieces of flat sheet metal over a
shaped die which is set in a press and then lowering a matching die onto the
sheet metal to form it into the desired shape. The sheet metal pieces typically
pass through several stamping press operations, each performing a different
shaping function. Atlas' products stack cut sheet metal blanks for feeding into
the presses, move components from one press station to another within a
multi-station transfer press or between presses within a tandem line of presses
and facilitate the changing of dies on a press.
In recent years, the increasing complexity and precision required in
stamped metal components, such as automobile body and appliance parts, coupled
with the large variety of such components necessary to meet consumer
preferences, has required the manufacturers of such products to increase the
flexibility and efficiency of the machinery used in their manufacture. The
presses must accommodate rapid changes in production schedules and produce
profitable batch runs of varying sizes. Equipment such as that made by Atlas is
essential to meet the needs of the manufacturers.
Sales of Atlas products have principally been to two customer segments
- - automobile and automotive parts manufacturers, and appliance manufacturers.
Other customers include manufacturers of garden and lawn equipment, office
furniture, heating, air conditioning and ventilation (HVAC) equipment and
aircraft. In Atlas' 1994 and 1995 fiscal years and for the nine months ended
March 31, 1996, the automotive segment accounted for approximately 82%, 79% and
85% of sales, respectively, and appliance manufacturers accounted for
approximately 4%, 8% and 10%, respectively. For its fiscal years 1994 and 1995,
and for the nine months ended March 31, 1996, sales by Atlas to General Motors
Corporation, The Chrysler Corporation and The Ford Motor Company represented
14%, 5% and 25%, 14%, 35% and 4%, and 15%, 10% and 16%, respectively, of sales
- --------
* "Specified Purpose Acquisition Company" and "SPAC" are registered
servicemarks of GKN Securities Corp.
Page 2
for such periods. Sales are predominantly in North America but, in recent years,
Atlas has targeted sales efforts in Mexico, Europe and Asia, which, for the
fiscal year ended June 30, 1995 and the nine months ended March 31, 1996,
represented 11% and 11%, respectively, of total sales.
Atlas uses three marketing channels: direct sales, accounting for the
largest portion, with offices at its headquarters in Fenton, Michigan, Atlanta
and Chicago; commissioned sales representatives; and original equipment
manufacturers (OEMs) specializing in metal presses and related equipment. Order
backlogs were approximately $18,600,000 at March 31, 1996, $19,000,000 at
December 31, 1995 and $16,500,000 at December 31, 1994.
Products
Atlas offers critical, high technology products based on proven designs
and engineering, which it believes offer superior technology, engineering and
features to those offered by its competitors. Atlas products are modular and may
be used with existing systems as well as with completely new systems. As a
result of their modular design, a variety of pieces of equipment can be combined
to form an appropriate solution for a customer's metal stamping needs. Virtually
all of its products are on a made-to-order basis. Because of their many
desirable features, Atlas products are positioned at an above-average price
comparative to its competitors. Generally, there is a large number of suppliers
that are capable of providing the materials and components used by Atlas.
Atlas personnel perform applications engineering, product design or
customization, procurement, fabrication, machining, assembly, testing, shipping
and installation of the products and systems it sells. In 1993, Atlas began
implementing a continuing program to achieve greater standardization in the
engineering and design of its products. To date, the program has resulted in
faster order fulfillment and production, improved fabrication and, management
believes, increased sales. Atlas believes that significant cost-reducing
improvements can still be made in the manufacturing process, particularly from
further standardization. No assurance can be given, however, that such cost
reduction will be attained because Atlas may not be able to perform the
engineering required or make the necessary capital investment.
Quick die change equipment made by Atlas includes automated die carts,
die tables and high rise automated storage-retrieval systems which are used to
maneuver stamping press dies and molds weighing up to 100 tons. The
Atlas-developed products allow die swapping to be accomplished in minutes as
compared to hours if conventional equipment is used. Atlas storage-retrieval
systems permit dies not in use to be stored in multiple level racks and readily
accessible to die carts for die swapping. Atlas' equipment can be configured for
use with either manually controlled or fully automated presses. Atlas believes
that its equipment is instrumental in increasing the "up-time" of presses while
also facilitating short run capability, gentle die handling, safer and improved
ergonomics and easier and more efficient die maintenance.
Atlas' transfer press automation equipment is sold by it under the
names Flex 2000 and Flex 5000(R). Transfer presses use as many as ten dies
within a single press to progressively form the component (typically including
tasks such as drawing or forming, trimming, piercing and flanging). Unlike
tandem press lines, which use multiple presses arranged in a line and require
multiple devices to move a component, transfer presses move the component being
processed from one die station to another using a single automation device.
Compared to tandem presses, transfer presses generally operate at higher
production rates, require less floor space, consume less energy and allow more
component processes per press. Because of this, and because they have fewer
parts and require less expensive quick die change equipment than tandem presses,
transfer presses have become the preferred type of press for new purchases
although many tandem presses will remain in use for many years and can be
refitted with automation equipment.
Stacking and destacking automation equipment is used to handle the
sheet metal in the initial stages of the stamping process. Stackers stack flat
blanks from the coiled rolls which are delivered to the manufacturer.
Page 3
Destacking equipment feeds the flat blanks into the press and includes functions
to scrub or roll-coat the metal blanks and to que them to assure a steady flow.
Competition
Atlas products are sold in specialized markets that have limited
customers and little competition. In some instances, however, Atlas products are
procured through competitive bidding. Because of the capital cost and the need
for skilled personnel, such as engineers, designers, mechanics and sales
persons, entry into this industry is expensive and difficult to achieve and
Atlas does not expect competition to increase significantly over present levels.
Primary competitors of Atlas include Volvo AB, Herwo Die Changing, AB, Hirotec
(Japan), Verson All Steel Press, a division of Allied Products Corp., HMS
Products Co. and Aisaku (Japan). Each of these companies offers components which
compete with certain components manufactured or sold by Atlas, but none offers
as comprehensive a line as Atlas. A number of the competitors are well
established with substantial financial resources, recognized brand names,
customer loyalty and established market positions, strong engineering and
distribution networks and comprehensive manufacturing capabilities.
Trademarks and Patents
Atlas has an agreement to use components in the Flex 5000(R) transfer
press that it manufacturers and sells that are based on patents owned by Mr.
John Maher, an individual. The agreement grants Atlas an exclusive worldwide
license to use the patents for a term equal to the life of the patents,
including any extensions as a result of modifications to the patents. Currently,
the patents registered with the United States Patent and Trademark Office expire
on various dates between June 23, 2005 and June 21, 2007. Atlas is obligated to
pay Mr. Maher a royalty based on a portion of the sales price of the Flex
5000(R) as it relates to the value of the patented components. For Atlas' fiscal
year ended June 30, 1995 and the nine months ended March 31, 1996, Atlas
expensed approximately $100,000 and $225,000, respectively, in license fees
under this agreement. The agreement also provides that Mr. Maher is responsible
for defending Atlas for any patent infringements. Atlas believes that the terms
of the agreement are industry competitive.
Atlas has registered with the United States Patent and Trademark Office
a trademark on "Flex 5000(R)."
Atlas owns and has registered with the United States Patent and
Trademark Office two patents, one for a power and free roller conveyer and one
for the transfer arm for supporting workpieces. Atlas also has registered
patents for the first of these in Canada and Great Britain. Atlas has applied
for two United States patents for certain apparatus and methods for forming
workpieces and for magnetic sheet separator constructions.
Management and Employees
Ronald M. Prime is currently the Chief Executive Officer of Atlas and
has been responsible for the overall operations of Atlas, managing the project
management, engineering, manufacturing, controls, service, purchasing, and
finance departments. Mr. Prime has also been active in product development, as
well as the establishment and improvement of Atlas' project management,
engineering, manufacturing, and financial processes. From 1972 to 1984, Mr.
Prime was President of Fluid & Electric Control Co., founding that business and
growing it from one person to 150, one of the largest industrial controls
contractors in Michigan. That company was merged with a predecessor of Atlas in
1984. From 1970 to 1972, Mr. Prime held various technical and controls
engineering positions.
Michael D. Austin is currently the President of Atlas and has been the
principal officer of Atlas, chiefly responsible for directing the sales of the
company, for determining the overall product directions, managing product
research and development, and managing the application engineering departments.
From 1977 to 1984, Mr. Austin held various other management positions at Atlas,
including Vice President of Operations, Sales
Page 4
Manager, and Controls Manager. From 1973 to 1977, Mr. Austin held various
controls engineering and management positions at Fluid & Electric Control Co.,
including Chief Engineer.
Atlas employs approximately 200 persons. None of these persons is a
member of a union. Atlas believes that its employee relations are good. Atlas
believes that its location in Michigan is beneficial in its access and ability
to hire qualified personnel because of the highly industrialized nature of the
area.
ITEM 2. PROPERTIES
Atlas operates its manufacturing facilities in Fenton and Linden,
Michigan. It has approximately 43,200 square feet of space in Fenton which is
used for assembly operations and light and medium machining operations and
electrical panel construction. Project management, engineering and sales offices
are also located in Fenton. In Linden, at one location, Atlas has a welding and
fabrication facility located in approximately 16,300 square feet and a heavy
machining and light and medium assembly facility located in approximately 21,000
square feet. Atlas also maintains office space at its site in Linden. Atlas
rents approximately 1,200 square feet of space in Atlanta, Georgia for a sales
office. The principal executive office of Atlas is located at 201 South Alloy
Drive, Fenton, Michigan 48430, and its telephone number is (810) 629-6663.
ITEM 3. LEGAL PROCEEDINGS
In 1996, Atlas and John Maher, the owner of the patent for the Flex
5000(R) licensed to Atlas, initiated an action against Orchid International
Group Inc. ("Orchid") in the Federal Court of Canada, Trial Division, claiming
infringement and wrongful sale, manufacture and use by Orchid of the inventions
protected by such patent and seeking, among other relief, a declaration that the
patents are invalid and has been infringed by Orchid, injunctive relief and
damages of at least $5,000,000 (Cdn). The defendant has not yet filed an answer
to the complaint.
Except for such action, neither the Company nor Atlas is currently
involved in any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
Page 5
PART II
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, Warrants and Units are traded in the
over-the-counter market and quoted on the OTC Bulletin Board under the symbols
PRAC, PRACW and PRACU, respectively. The Company has not declared or paid any
dividends on its Common Stock since its inception.
The following table sets forth the range of high and low closing bid
prices for Units, Common Stock and Warrants, as reported by the OTC Bulletin
Board. The OTC Bulletin Board is an inter-dealer automated quotation system
sponsored and operated by the NASD for equity securities not included in the
Nasdaq System. Such over-the-counter market quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission and may not necessarily
reflect actual transactions.
Units Common Stock Warrants
High Low High Low High Low
Year ended March 31, 1995:
Second Quarter (beginning June 24,
1994)......................................... 5 3/4 5 1/2 N/A N/A N/A N/A
Third Quarter................................... 5 3/4 5 1/8 4 1/4 4 7/8 3/4
Fourth Quarter.................................. 5 1/2 5 1/2 4 1/4 4 1/4 7/8 5/8
Year ended March 31, 1996:
First Quarter................................... 5 1/2 5 1/4 4 3/8 4 1/8 5/8 3/8
Second Quarter ................................. 5 1/4 5 1/4 4 11/16 4 3/8 9/16 3/8
Third Quarter................................... 5 1/4 5 1/4 4 3/4 4 11/16 1/2 7/16
Fourth Quarter.................................. 5 3/4 5 1/4 5 4 3/4 15/16 5/16
As of June 21, 1996, the Company had 9 holders of record of its Common
Stock. The Company believes that there are in excess of 500 beneficial holders
of the Company's Common Stock.
Page 6
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from financial
statements of the Company which have been audited by BDO Seidman, LLP,
independent certified public accountants. The data should be read in conjunction
with the financial statements of the Company, together with the related notes
thereto, included elsewhere herein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Period from June 25,
1993 (inception) to Year Ended Year Ended
March 31, 1994 March 31, 1995 March 31, 1996
---------------- -------------- --------------
Statement of Operations Data:
Interest income........................... $ -- $ 342,548 $502,596
Total expenses and taxes.................. 1,850 281,034 397,509
------- --------- -------
Net income (loss)......................... $(1,850) $ 61,514 $105,087
======= ========= ========
Net income per share...................... $ -- $ .04 $.05
======= ===== ====
Balance Sheet Data: March 31, 1994 March 31, 1995 March 31, 1996
-------------- -------------- --------------
Assets:
Cash and cash equivalents................. $134,000 $ 34,512 $ 4,018
Short term investments.................... -- 446,293 79,745
Trust Fund, consisting of
U.S. Government securities.............. -- 8,584,551 9,070,728
Deferred registration and financing costs. 39,400 -- --
Prepayments............................. -- -- 12,737
Deferred Acquisition Costs.............. -- -- 213,067
Organization costs,
less amortization of $-0-, $7,911
and $18,459............................. -- 44,827 34,279
------- --------- ---------
Total assets.............................. $173,400 $9,110,183 $9,414,574
======== ========== ==========
Liabilities and Stockholders' Equity:
Accrued expenses and taxes................ $ 250 $ 31,419 $ 244,723
Deferred income taxes..................... -- 14,000 --
Notes payable............................. 150,000 -- --
Common stock, subject to possible
conversion, 339,999 shares at
conversion value........................ -- 1,716,052 1,813,239
Common stock, $.001 par value -
shares authorized 20,000,000,
outstanding 425,000, 2,125,000
and 2,125,000 (which includes
339,999 shares subject to possible
conversion)............................. 425 1,785 1,785
Additional paid-in capital................ 24,575 7,351,741 7,351,741
Retained earnings (deficit) accumulated
during development stage................ (1,850) (4,814) 3,086
------- --------- ---------
Total liabilities and stockholders' equity.. $173,400 $9,110,183 $9,414,574
======== ========== ==========
Page 7
ITEM 7. ANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company
In March 1994, the Company raised $150,000 in bridge financing ("Bridge
Financing") in order to pay certain organizational expenses, the costs of the
Bridge Financing and certain costs of its initial public offering ("IPO"). Nine
investors in the Bridge Financing loaned $150,000 to the Company and were issued
promissory notes in that amount, bearing interest at 10% per annum and payable
upon consummation of the IPO, and Warrants to purchase 300,000 shares of the
Common Stock ("Bridge Warrants").
The IPO was completed on July 5, 1994, and the Company received net
proceeds of $8,980,100 after payment of offering expenses. A substantial portion
of such net proceeds ($8,262,000) was placed in the Trust Fund until the earlier
of the Company's consummation of a business combination with a Target Business
or liquidation. The trust agreement limited investments to U.S. Government
securities with a maturity of 180 days or less. At March 31, 1996, there was
approximately $9,071,000 in the Trust Fund. Cumulative interest earned on the
funds in the Trust Fund and on other funds of the Company was $845,000 as of
March 31, 1996. The remaining proceeds of the IPO, and the interest thereon,
have been used to pay for business, legal and accounting due diligence on
prospective acquisitions, and continuing general and administrative expenses, as
well as other expenses.
On May 23, 1996, the Company consummated its acquisition of Atlas and
terminated the Trust Fund, utilizing $7,120,000 from the Trust Fund to pay the
purchase price. Substantially all of the Company's working capital needs prior
to that date were attributable to the identification, evaluation and selection
of a suitable Target Business and the structuring, negotiation and consummation
of a business combination with Atlas. During the year ended March 31, 1996, the
Company incurred general, administrative and other expenses and taxes of
approximately $397,000, which were associated primarily with its evaluation of
Target Businesses. Since May 23, 1996, the Company has been a holding company
with Atlas being its sole subsidiary and operating business.
On May 17, 1996, the Company's Board of Directors approved a change of the
Company's fiscal year to one ending on June 30, effective July 1, 1996, to
coincide with Atlas' fiscal year.
Atlas
During the last several years, the business focus of Atlas has been on
manufacturing and selling quick die change, transfer press and stacking and
destacking equipment. During the same period, Atlas has standardized its
products, changed certain of its manufacturing methods and sold off an older
product line in an effort to improve productivity and margins and concentrate
its efforts on its current principal products.
Historically, about 90% of the sales of Atlas have been to automotive,
appliance and HVAC manufacturers. Recently automotive orders have substantially
increased due to several large stamping operation upgrade programs being
undertaken by, and resultant order increases from, several international
automobile manufacturers. For Atlas' fiscal years 1994 and 1995 and the nine
months ended March 31, 1996, sales to customers in the automotive industry
accounted for approximately 82%, 79% and 85%, respectively, of total sales.
Consequently, the sales and profitability of Atlas will depend to a large extent
on the economic conditions that affect the automotive industry, and to a lesser
extent, the appliance industry, as well as general economic conditions in the
United States, Mexico, Europe and Asia where the majority of its customers are
located. Although Atlas is dependent on the automotive industry, Atlas believes
that product standardization and design, and manufacture and sale of certain of
its products such as quick die change machinery and flexible transfer stamping
presses should reduce the effect on Atlas of cyclicality within the automotive
industry. Atlas further believes that because its machinery generally increases
productivity and reduced per-unit production costs, there will be continuing
demand for its products in down-turns in the economy and in industry groups to
which it sells.
Page 8
A significant percentage of Atlas' sales are to a small number of
customers. While these customers are concentrated in primarily two industries,
the automotive and appliance industries, Atlas believes that its customers in
these industries are undertaking long-term productivity improvement programs and
that they will continue to place orders with Atlas. Atlas is undertaking
marketing efforts to diversify its customer base; however, no assurance can be
given that it will be successful. Atlas also is standardizing many of its
products in an attempt to attract new and different customers and to be more
efficient in the design, manufacture and delivery of the products it sells. Such
efficiency may result in improved operating margins, although no assurance can
be given that margins will increase or if increased remain at such percentages.
Nonetheless, Atlas believes that in the foreseeable future, its sales will
continue to be primarily within those industries to which it currently is
selling at the current proportionate percentages.
Recently the sales of Atlas to foreign customers have increased and for
the Atlas fiscal year ended June 30, 1995 and the nine months ended March 31,
1996 represented 11% and 11%, respectively, of the sales of Atlas. Foreign sales
are subject to a number of risks, including transportation delays and
interruptions, political and economic disruptions, the imposition of tariff and
non-tariff barriers and changes in governmental policies including statutory and
regulatory changes. Although there is little Atlas can do to protect itself
against such risks, to the extent possible, Atlas' foreign sales are denominated
in United States dollars to eliminate the risk of currency fluctuation, foreign
sales may be guaranteed in part by the Export-Import Bank of the United States,
shipments are made FOB Michigan to reduce the risk of loss borne by Atlas during
shipment and Atlas obtains foreign risk and credit insurance through the
Export-Import Bank of the United States.
Liquidity and Capital Resources
Atlas believes that its principal long-term capital requirement has been
and is expected to continue to be the funding of capital expenditures to
modernize, improve and expand its facilities and marketing efforts and financing
day-to-day operations. In connection with Atlas' acquisition by the Company,
Atlas paid an aggregate of $2,201,848.88 in connection with certain long term
debt, covenants not to compete and contingent liabilities for former
stockholders. This was partially funded out of a six-year term loan obtained in
May 1996 from NBD Bank, N.A. in the amount of $1,500,000 which loan bears
interest at the bank's prime rate plus one percent. The loan is secured by
assets of Atlas and guaranteed by the Company in the amount of $500,000 until
December 31, 1996 and $150,000 until May 31, 1997, when the guaranty terminates.
Atlas' working capital at March 31, 1996 was $1,438,058, versus working
capital of $2,506,016 at March 31, 1995. The decrease in working capital of
$1,067,958 resulted from reclassification to current from long-term liabilities
of certain debt obligations to former Atlas shareholders. These current
liabilities to former Atlas shareholders were paid immediately prior to the
consummation of the merger between a subsidiary of the Company and Atlas on May
23, 1996.
At March 31, 1996, Atlas had borrowed an aggregate of $2,872,652, of which
the current portion was $1,808,846, comprised of the following loans: (i)
borrowings of $979,965 from NBD Bank, N.A. secured by the plant of Atlas with a
payment due on February 2, 1998 of $805,560, which bears interest at the rate of
1.25% over the bank's prime rate; (ii) borrowings of $203,788 from NBD Bank,
N.A. secured by the equipment of Atlas with a final payment due July 1998, which
bears interest at the rate of 7.75%; (iii) borrowings of $13,591 from Concord
Commercial secured by the equipment of Atlas with a final payment due June 1996,
which bears interest at the real rate of 8.01%; (iv) borrowings of $83,514 from
Concord Commercial secured by the equipment of Atlas with a final payment due
October, 1999, which bears interest at the rate of 8.7%, and (v) notes and other
obligations to former shareholders of Atlas comprising $1,591,794 which were
paid after March 31, 1996 but prior to the merger between Atlas and the Company.
In May 1996, as part of the credit facility which Atlas entered into with NBD
Bank, N.A., Atlas can borrow up to $550,000 to finance future acquisitions of
equipment and facilities.
In addition to the term loans, Atlas has entered into a revolving credit
loan with NBD Bank, N.A. in the amount of $8,000,000. The amount that may be
borrowed under this facility is limited to certain percentages of
Page 9
the domestic accounts receivable, raw materials and work in process of Atlas.
Borrowings under this credit facility bear interest at the adjustable rate of
3/4% over the bank's prime rate and are due on May 31, 1997. Atlas is reviewing
with NBD Bank, N.A. the potential for utilizing the Export-Import Bank of the
United States for the financing of foreign receivables and work in process.
Atlas believes that, as a result of its revolving facility, its short term
credit facilities are adequate to support its business operation at its current
levels of sales.
Until it reaches capacity at its present manufacturing facilities (which
management believes is approaching), Atlas believes that its capital
expenditures and operating costs will grow at rates proportional to increases in
sales volume. Currently, for capital expenditures not related to facility
expansion, Atlas has budgeted approximately $300,000 per year for machinery and
equipment, which it believes sufficient to accommodate growth in orders to be
processed at its existing two production facilities. Such capital expenditures
will be met using current credit facilities and working capital.
To provide for additional manufacturing capacity, Atlas' board of
directors recently approved a proposal to build a new production facility with
approximately 50,000 square feet of production and office space. The cost of
this project is estimated at up to $4.5 million. Atlas has received a letter of
inducement from the local Economic Development Corporation to finance much of
the project cost through the issuance of tax exempt industrial revenue bonds
which are expected to bear interest at a rate below the prime rate. Any further
required funds would be provided from working capital. If the industrial revenue
bond financing cannot be secured, there is no assurance Atlas will be able to
finance and build the new facility.
Recent Accounting Standards
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121, "Accounting for Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS No. 121 requires, among other things, impairment loss of assets to be held
and gains or losses from assets that are expected to be disposed of be included
as a component of income from continuing operations before taxes on income. The
Company will adopt SFAS No. 121 in fiscal 1996 and its implementation is not
expected to have a material effect on the financial statements of Atlas or the
Company.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). SFAS No. 123 encourages entities to adopt the
fair value method in place of the provisions of Accounting Principals Board
Opinion No. 25. "Accounting for Stock Issued to Employees" ("APB No. 25"), for
all arrangements under which employees receive shares of stock or other equity
instruments of the employer or the employer incurs liabilities to employees in
amounts based on the price of the stock. The Company intends to adopt the
employee stock-based compensation provisions of SFAS No. 123 by disclosing the
pro forma net income and pro forma net income per share amounts assuming the
fair value method was adopted. The Company will adopt this standard beginning in
its fiscal year ending June 30, 1997, as provided for under SFAS No. 123. The
Company does not expect adoption of this standard will have a material effect on
the financial statements of Atlas or the Company.
Page 10
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of the Company as set forth on page F-1.
1. Atlas Technologies, Inc.
(a) Balance Sheet as of March 31 1996 (unaudited)
(b) Statements of Income for nine months ended March 31, 1996
and 1995 (unaudited
(c) Statement of Stockholders' Equity at March 31,1996 (unaudited)
(d) Statements of Cash Flows for nine months ended March 31, 1996
and 1995 (unaudited)
(e) Selected Information
2. Pro Forma Financial Information of the Company and Atlas
(a) Unaudited Pro Forma Consolidated Statements of Operations for
nine months ended March 31, 1996 and year ended June 30, 1995
(b) Notes to Unaudited Pro Forma Consolidated Statements of
Operations
(c) Unaudited Pro Forma Consolidated Balance Sheet as of
March 31, 1996
(d) Notes to Unaudited Pro Forma Consolidated Balance Sheet
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
Page 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The current directors and executive officers of the Company are as
follows:
Director
Nominee Age Since Position
Ray J. Friant, Jr..... 65 1993 Chairman of the Board
Samuel N. Seidman..... 62 1993 President and Director
Joseph K. Linman...... 57 1993 Director and Vice President
John S. Strance....... 71 1993 Director and Vice President
Jesse A. Levine....... 29 1993 Director, Chief Financial Officer,
Vice President, Secretary and
Treasurer
Alan H. Foster........ 70 1993 Director
Alan I. Goldman....... 58 1993 Director
Ray J. Friant, Jr. has been Chairman of the Board of the Company since its
inception. Since 1988, Mr. Friant has been Managing Director of Seidman, Friant,
Levine Ltd., a crisis management company, where he currently specializes in
corporate restructuring and reorganization. In this capacity, he has had
management control, and has successfully restructured and/or stabilized the
operations, of three public companies, CMI Corp., Mr. Gasket Co. and Advanced
Semiconductor Materials International N.V. ("ASM"), which companies have
manufacturing operations in roadbuilding equipment, automotive aftermarket
products and semiconductor production equipment, respectively. In connection
with his activities with Seidman, Friant, Levine Ltd., Mr. Friant presently
serves as Chief Operating Officer of ASM's chemical vapor deposition businesses.
Since 1982, Mr. Friant has also been President and Director of Friant
Associates, Inc., specializing in corporate turnarounds. Mr. Friant was Group
Vice President and General Manager of Gulf+Western Industrial Products Group
(IPG) from 1978 to 1982. IPG was a group of ten companies involved in electronic
systems, electronic connectors, electronic components, electro-mechanical
components, wire and cable, cutting tools and hardware manufacturing. From 1973
to 1978, as an employee of ITT Corp., Mr. Friant successfully reorganized
several multi-million dollar subsidiaries. In addition, he had a number of
special worldwide assignments involving ITT Corp. headquarters organization,
resource allocation for product development, and management succession. At
Western Union Corp. from 1969 to 1972, Mr. Friant developed and implemented the
business of teleprocessing at a non-regulated subsidiary. From 1953 to 1969, Mr.
Friant was employed by General Electric Co. ("GE"), where he was responsible for
initiating GE's phased array radar business, for designing and implementing GE's
Program Management System for managing large, complex military contracts and for
the business turnaround of several unsuccessful organizations. Mr. Friant earned
B.S. degrees in both Mechanical Engineering and Electrical Engineering from West
Virginia University. He also graduated from General Electric's three-year
graduate level Advanced Engineering program and General Electric Management
School.
Samuel N. Seidman has been President and a Director of the Company since
its inception. In 1970, Mr. Seidman founded Seidman & Co., Inc., an investment
banking and economic consulting firm, and serves as its President. In this
capacity, he has provided a broad range of investment banking services,
including financial analysis and valuations, private financings, and corporate
recapitalizations and debt restructurings. Mr. Seidman also is Managing Director
of Seidman, Friant, Levine Ltd., and serves as a director of AMREP Corp., a real
estate development corporation listed on the New York Stock Exchange. He has
acted as financial advisor to manufacturers of various kinds of production
systems and components for a number of industries, including ASM, a
multi-national producer of automated equipment and systems for the production of
semiconductors, traded on the Nasdaq National Market. Mr. Seidman advised in the
sale of ASM Fico Tooling, Inc., a European-based multi-national manufacturer of
specialized tooling for the semiconductor industry. Mr. Seidman was Co-Chairman
of the Creditors' Committee in the Chapter 11 reorganization of Sharon Steel
Corp., an integrated manufacturer of finished steel products, and served as
Page 12
financial advisor in Chapter 11 to Chyron Corp., a specialized production
systems company for video productions listed on the New York Stock Exchange, and
Mr. Gasket Co., a manufacturer of automobile aftermarket products. Prior to
founding Seidman & Co., Mr. Seidman worked in corporate finance at Lehman
Brothers. Mr. Seidman has served as director of numerous public and private
companies, including Penn Engineering Corporation, a manufacturer of equipment
for steel production and metal processing which had been listed on the American
Stock Exchange. Mr. Seidman earned a B.A. degree from Brooklyn College and a
Ph.D. in economics from New York University. He was a Fulbright Scholar and a
member of the graduate faculty of the City University of New York. Mr. Seidman's
nephew, Jesse A. Levine, is Vice President, Secretary, Treasurer and a Director
of the Company.
Joseph K. Linman has been Vice President and a Director of the Company
since its inception. Mr. Linman retired from the Ford Motor Company ("Ford") in
1989 after 25 years with that company, preceded by two years with RCA Defense
Electronics. During his career with Ford, Mr. Linman held numerous managerial
and executive positions in financial, marketing, technical, governmental
relations and external affairs capacities, including Chief Financial Officer of
Ford Latin America, S.A. de C.V., a wholly-owned Ford subsidiary responsible for
automotive operations in Latin America, South Africa and Egypt. Mr. Linman
served as a member of the boards of directors or executive committees of Ford
subsidiary companies in nine countries and as a member of the advisory committee
of the Council of the Americas and the Mexico-U.S. Business Committee that
pioneered the North American Free Trade Agreement. Mr. Linman earned a B.S.
degree from Oregon State University and an M.B.A.
degree from Indiana University.
John S. Strance has been Vice President and a Director of the Company from
its inception. He is currently a private investor. From 1986 to 1992, he was the
President of Star Controls Corporation, a provider of sophisticated
microprocessor control products for process control and automation systems,
which he founded. From 1983 to 1986, Mr. Strance was an independent consultant
assessing technology and market trends and identifying and evaluating companies
for acquisition. From 1980 to 1983, Mr. Strance performed the same services as
Director of Planning and Development for Gulf+Western Manufacturing, responsible
for product development using new technology. From 1954 until 1980, Mr. Strance
held management positions as president of several subsidiaries of Gulf+Western.
Mr. Strance has been granted 13 U.S. letters patent for new products and
production systems. Mr. Strance earned B.S. and M.S. degrees in Mechanical
Engineering from the University of Oklahoma and the Carnegie Institute of
Technology, respectively.
Jesse A. Levine has been Secretary, Treasurer and a Director of the Company
since its inception, Chief Financial Officer since June 1995 and a Vice
President since May 1996. Since January 1992, Mr. Levine has been Regional Vice
President-Midwest of Seidman & Co., Inc., specializing in financial and business
analysis, corporate finance, private placements and corporate advisory services.
From January 1991 to December 1991, Mr. Levine was Contracts Administration
Manager of The Newman Group Computer Services Corp., Inc., a computer systems
supplier. Previously, Mr. Levine served as a commercial credit analyst for
Society Bank, Michigan. Mr. Levine earned a B.A. degree in economics from the
University of Michigan and has been elected a chartered financial analyst.
Samuel N. Seidman, the President of the Company, is Mr. Levine's uncle.
Alan H. Foster has been a Director of the Company since its inception.
Since 1986, he has been an Adjunct Professor of Finance and Corporate Strategy
at the University of Michigan. In conjunction with the University of Michigan
School of Engineering, Mr. Foster is engaged in the study of the future of
"agile machines." Since 1978, Mr. Foster has been the principal of A.H. Foster &
Company, a consulting firm which serves as a consultant in corporate finance to
foreign governments and domestic and international clients. Currently, Mr.
Foster is a director of Code-Alarm, Inc., a manufacturer of automobile security
systems traded on the Nasdaq National Market. For the last 12 years, Mr. Foster
has served numerous times as a court-appointed trustee in bankruptcy for both
Chapter 7 and Chapter 11 cases. He was employed by the American Motors
Corporation from 1963 to 1978, where he first served as Director, Financial
Planning and Analysis and then as Vice President and Treasurer for the last ten
of those years. From 1953 to 1963, Mr. Foster worked at Sylvania Electric
Products in various capacities, including Manager, Corporate Planning and
Control. Mr. Foster is the author of Practical Business Management, published
Page 13
in 1962. Mr. Foster earned a B.S.B.A. degree from Boston College and an M.B.A.
degree from Harvard Business School.
Alan I. Goldman has been a Director of the Company since its inception.
Since 1985, Mr. Goldman has been self-employed as an investment banker and
management consultant, specializing in mergers and acquisi- tions, private
placements and business and organization consulting. From 1975 to 1985, Mr.
Goldman was Senior Vice President, Finance and Chief Financial Officer of
Management Assistance, Inc., a multi-national computer manufacturing, marketing
and maintenance company and a purchaser and user of productions systems and
components. From 1970 to 1974, Mr. Goldman was Vice President, Finance,
Treasurer and Chief Financial Officer of Interway Corporation, an international
company engaged in trailer and container leasing and fleet management. Mr.
Goldman earned a B.A. degree from Cornell University and an M.B.A. degree from
New York University.
The Company's Board of Directors is divided into three classes, each of
which serves for a term of two years, with only one class of directors being
elected in each year. The term of office of the first class of directors,
consisting of Messrs. Goldman and Levine, will expire at the next annual meeting
of stockholders, the term of office of the second class of directors, consisting
of Messrs. Friant and Strance, will expire at the second succeeding annual
meeting of stockholders, and the term of office of the third class of directors,
consisting of Messrs. Seidman, Linman and Foster, will expire at the third
succeeding annual meeting of stockholders. In each case, a director will hold
office until the next annual meeting of stockholders at which his class of
directors is to be elected.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires officers, directors and persons
who beneficially own more than 10% of a registered class of equity securities of
the Company ("10% stockholders") to file reports of ownership and changes in
ownership with the Commission. Officers, directors and 10% stockholders also are
required to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of the copies of such forms furnished to it,
and written representations that no other reports were required, the Company
believes that during the fiscal year ended March 31, 1996, each of its officers,
directors and 10% stockholders complied with the Section 16(a) reporting
requirements, except that each of Messrs. Friant and Strance did not make timely
filings with respect to one transaction.
ITEM 11. EXECUTIVE COMPENSATION
No executive officer of the Company received any cash or other
compensation for services rendered from the Company since its inception through
May 22, 1996. Until May 22, 1996, Seidman & Co., Inc., a corporation of which
Samuel N. Seidman is President and Jesse A. Levine is Regional Vice President -
Midwest, was paid $5,000 per month as an administrative fee. It also received
and will continue to receive reimbursement for any out-of-pocket expenses
incurred in connection with the Company's business. There is no limit on the
amount of such out-of-pocket expenses and there has not been nor will there be
any review of the reasonableness of such expenses by anyone other than the
Company's Board of Directors, which includes persons who have received, and may
seek, reimbursement.
On February 8, 1996, the Board of Directors of the Company approved the
following annual salaries for its executive officers, effective May 23, 1996,
upon consummation of the acquisition of Atlas: Chairman (presently Mr. Friant),
$70,000; President (presently Mr. Seidman), $75,000; Chief Financial Officer,
Secretary and Treasurer (presently Mr. Levine), $25,000; and Vice Presidents
(presently Messrs. Linman, Strance and Levine) $25,000. Such salaries are
payable in equal monthly installments. The compensation terms and other terms of
employment will not be embodied in written agreements. An officer holding more
than one office will receive only the salary of the highest paying office. The
Board also approved fees of $16,000 per year for each director who is not an
employee of the Company (presently Messrs. Foster and Goldman), which is payable
in equal
Page 14
quarterly installments. In addition, non-employee directors and officers other
than the Chairman and President will be paid at the rate of $1,000 to $2,000 per
day, as determined by the Chairman and the President, for actual days spent by
them in consulting or other special assignments for the benefit of the Company
or its subsidiaries. Officers and directors are also eligible for other
compensation and benefits as may be approved by the Board from time to time,
including benefits under the Company's 1996 Performance Equity Plan which was
adopted by the stockholders of the Company on May 21, 1996.
The Company has no employment agreements with its executive officers, each
of whom presently serves at the discretion of the Board of Directors.
Atlas Employment Agreements
Messrs. Ronald M. Prime and Michael D. Austin have entered into employment
agreements with Atlas under which they serve as the Chief Executive Officer and
President of Atlas, respectively.
The employment agreements with Messrs. Prime and Austin are identical
except that the term of Mr. Prime's agreement will terminate on December 31,
1998 and that of Mr. Austin will terminate on December 31, 2001. Each agreement
requires the executive to devote substantially all of his business time and
attention to the affairs of Atlas. The agreements provide for base salaries of
$190,000 per year subject to cost-of-living increases after December 31, 1996,
for six weeks vacation per year, reimbursement of business expenses, use of an
automobile and mobile telephone, medical and life insurance benefits and other
benefits generally made available to other employees.
The agreements also provide for two bonuses based on the earnings of Atlas
before interest and taxes, adjusted in the manner set forth in the agreements
("Adjusted Earnings"). Under one bonus arrangement, Messrs. Prime and Austin
will each be paid $208,333 for each of the six years beginning January 1, 1996,
in which Atlas' Adjusted Earnings exceed $2,000,000 and, if the Adjusted
Earnings average at least $2,000,000 during such six-year period, they will each
be paid, at the end of the six-year period, the sum of $1,250,000 less the
aggregate of the amounts paid to them under such bonus arrangement for the prior
five years.
Under the second bonus arrangement, if during the five years beginning
January 1, 1996, the Adjusted Earnings average at least $2,626,000, they will
each be paid an amount equal to the amount by which such average Adjusted
Earnings exceed $2,626,000. Both bonus arrangements are subject to liquidation
of amount and acceleration of payment in the event of a sale by the Company of
the capital stock of Atlas or a sale by Atlas of all or a substantial part of
its assets or issuance of capital stock of Atlas such that a person or group of
related persons becomes the owner of 51% or more of the outstanding stock of
Atlas. The bonuses are also subject to reduction to the extent of life insurance
benefits paid to an executive's estate pursuant to life insurance maintained on
the life of the executive pursuant to the employment agreements.
Each employment agreement also contains provisions restricting the
disclosure of confidential information and non-competition covenants.
Page 15
Stock Price Performance Comparison
The following graph compares cumulative total return of the Company's
Common Stock (symbol PRAC) with the cumulative total return of (i) the Standard
& Poor's Midcap 400 index ("S&P Index") and (ii) an industry peer group index
("Peer Index") consisting of eight other publicly held SPAC(R)s. The graph
assumes $100 was invested on June 24, 1994 (the date the Common Stock began
trading on the OTC Bulletin Board) in shares of Common Stock, stocks comprising
the S&P Index and stocks comprising the Peer Index and the reinvestment of
dividends.
The Company has used an index of other SPAC(R) stocks for an industry peer
group due to the unique business purpose of SPAC(R)s, and the features of their
securities and rights of their security holders. The SPAC(R) index includes EDS
Corporation, Concord Health Group, Inc., Source Media, Inc., International
Metals SPAC(R), Bogen Communications, Inc., Zydeco Energy, Inc., Kellstrom
Industries and Restructuring SPAC(R) equally weighted.
PRAC S&P Midcap 400 SPAC Index
7/6/94 $100.00 $100.00 $100.00
7/31/94 100.00 102.84 117.42
8/31/94 100.00 108.00 119.12
9/30/94 100.00 105.83 120.14
10/31/94 100.00 106.83 120.59
11/30/94 100.00 101.80 136.65
12/31/94 100.00 102.56 133.26
1/31/95 100.00 103.48 135.30
2/28/95 100.00 108.68 142.19
3/31/95 102.94 110.39 139.68
4/30/95 104.41 112.48 134.73
5/31/95 108.09 114.94 138.47
6/30/95 108.82 119.47 140.61
7/31/95 108.82 125.55 143.89
8/31/95 110.29 127.64 145.81
9/30/95 111.76 130.56 150.28
10/31/95 111.76 127.05 150.79
11/30/95 111.76 132.37 142.03
12/31/95 111.76 131.86 137.79
1/31/96 113.24 133.62 159.28
2/28/96 117.65 137.93 160.64
3/28/96 117.65 139.40 155.11
4/30/96 120.59 143.50 155.11
5/31/96 144.12 145.20 184.52
Page 16
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock, as of June 21, 1996 by (i) each
stockholder known by the Company to be beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director of the Company and (iii) all
directors and officers as a group. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed below, based on
information furnished by such owners, have sole investment and voting power with
respect to such shares, subject to community property laws where applicable.
Number Percentage
Name of Beneficial Owner of Shares Beneficially Owned
Ray J. Friant, Jr.......................
30 Boxwood Drive
Convent Station, New Jersey 07960 122,250(1) 5.7%
Samuel N. Seidman......................
520 Madison Avenue
New York, New York 10022 136,250(1) 6.4%
Joseph K. Linman....................... 69,750(1) 3.3%
John S. Strance........................ 65,750 3.1%
Jesse A. Levine........................ 42,500 2%
Alan H. Foster......................... 21,250 1%
Alan I. Goldman........................ 21,250 1%
All Officer and Directors
as a group (9 persons)............... 519,000(1)(2) 24.0%
- -----------------------
(1) Includes shares of Common Stock issuable upon immediately exercisable
Warrants as follows: Mr. Friant--16,000 shares; Mr. Seidman--
20,000 shares; Mr. Linman--4,000 shares; Mr. Strance--2,000 shares.
(2) Includes 40,000 shares of Common Stock owned by Michael D. Austin.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTIES
Seidman & Co., Inc., an affiliate of the Company, makes available to the
Company a small amount of office space, as well as certain office,
administrative and secretarial services as may be required by the Company from
time to time. The Company paid Seidman & Co., Inc. $5,000 per month for such
services until May 22, 1996, including $60,000 during the fiscal year ended
March 31, 1996. Samuel N. Seidman, a director and President of the Company, is
President of Seidman & Co., Inc., and Jesse A. Levine, a director, Chief
Financial Officer, Vice President, Secretary and Treasurer of the Company, is
Regional Vice President--Midwest of Seidman & Co., Inc.
Page 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. The financial statements of the Company and Atlas listed in
Item 8 are submitted as a separate section of this report.
2. Financial Statement Schedules
Not Applicable.
3. Exhibits as required by Item 601 of Regulation S-K:
Exhibit No. Description
3.1 Certificate of Incorporation*
3.1.1 Amendment to Certificate of Incorporation filed March 28, 1996**
3.2 By-laws*
4.1 Form of Common Stock Certificate of the Company*
4.2 Form of Warrant Certificate of the Company*
4.3 Unit Purchase Option between GKN Securities Corp. and the Company*
4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Company*
4.5 1996 Performance Equity Plan of the Company****
10.1 Form of Underwriting Agreement between the Company and GKN
Securities Corp.* 10.3 Form of Share Escrow Agreement between the
Company and Continental Stock Transfer & Trust Company*
10.4 Letter Agreement among each of the Stockholders of the Company, the
Company and GKN Securities Corp.*
10.5 Letter Agreement between Seipman & Co., Inc. and the Company
regarding administrative support*
10.6 Agreement of Merger dated as of December 18, 1995 (without
schedules or exhibits)***
10.6.1 Amendment to Agreement of Merger dated December 18, 1995***
10.7 Employment Agreement dated May 23, 1996 between Atlas Technologies,
Inc. and Ronald M. Prime****
10.8 Employment Agreement dated May 23, 1996 between Atlas Technologies,
Inc. and Michael D. Austin****
27 Financial Data Schedule
- -----------------------------
(Footnotes on next page)
Page 18
- -----------------------------
* Filed as Exhibits to Registration Statement on Form S-1, No. 33-78188, and
incorporated herein by reference.
** Filed as Exhibit to Report on Form 8-K (Event dated May 23, 1996) and
incorporated herein by reference.
*** Filed as Exhibits to Report on Form 8-K (Event dated December 18, 1995)
and incorporated herein by reference.
**** Filed herewith.
(b) During the last quarter of the period covered by this report the
Company filed a report on Form 8- K (Event dated December 18, 1995) which
reported information under Items 5 and 7 and included the following financial
statements of Atlas Technologies, Inc.:
(A) Independent Auditor's Report
Balance Sheets as of June 30, 1994 and 1995
Statements of Income and Retained Earnings for the years ended
June 30, 1993, 1994 and 1995
Statements of Cash Flows for the years ended June 30, 1993, 1994
and 1995
Notes to Financial Statements
(B) Balance sheets as of June 30, 1995 (audited) and September 30,
1995 (unaudited)
Statements of Income and Retained Earnings for the three
months ended September 30, 1994 and 1995 (unaudited)
Statements of Cash Flow for the three months ended September
30, 1994 and 1995 (unaudited)
Page 19
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
Contents
Report of independent certified public accountants F-2
Financial statements:
Balance sheets as of March 31, 1995 and 1996 F-3
Statements of operations for the period June 25, 1993
(inception) to March 31, 1994, for the years ended
March 31, 1995 and 1996 and for the period
June 25, 1993 (inception) to March 31, 1996 F-4
Statements of stockholders' equity for the period from
June 25, 1993 (inception) to March 31, 1996 F-5
Statements of cash flows for the period June 25, 1993
(inception) to March 31, 1994, for the years ended
March 31, 1995 and 1996 and for the period June 25, 1993
(inception) to March 31, 1996 F-6
Summary of accounting policies F-7
Notes to financial statements F-8 - F-11
Page F-1
Report of Independent Certified Public Accountants
Productivity Technologies Corp.
New York, New York
We have audited the accompanying balance sheets of Productivity Technologies
Corp. (formerly Production Systems Acquisition Corp., a corporation in the
development stage) as of March 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for the period June 25, 1993
(inception) to March 31, 1994, the years ended March 31, 1995 and 1996, and the
period June 25, 1993 (inception) to March 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
On May 21, 1996, the Company's stockholders approved a merger agreement with
Atlas Technologies, Inc. (see Note 6) and the business combination was
consummated on May 23, 1996.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Productivity Technologies Corp.
as of March 31, 1995 and 1996, and the results of its operations and its cash
flows for the period June 25, 1993 (inception) to March 31, 1994, the years
ended March 31, 1995 and 1996, and the period June 25, 1993 (inception) to March
31, 1996, in conformity with generally accepted accounting principles.
New York, New York
May 24, 1996
Page F-2
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
BALANCE SHEETS
March 31, 1995 1996
- ------------------------------------------------------------------------------------------------------------
Assets
Cash and cash equivalents $ 34,512 $ 4,018
Short-term investments and accrued interest thereon 446,293 79,745
U.S. Government securities deposited in Trust Fund and accrued
interest thereon (Note 1) 8,584,551 9,070,728
Prepayments - 12,737
Deferred acquisition costs (Note 6) - 213,067
Organization costs less amortization of $7,911 and $18,459 44,827 34,279
- ------------------------------------------------------------------------------------------------------------
$9,110,183 $9,414,574
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Accrued expenses and taxes $ 31,419 $ 244,723
Deferred income taxes 14,000 -
Commitment (Note 3)
Common stock subject to possible conversion, 339,999 shares at
conversion value (Note 1) 1,716,052 1,813,239
Common stock, $.001 par value - shares authorized 20,000,000;
outstanding 2,125,000 (which includes 339,999 shares subject
to possible conversion) (Notes 1 and 5) 1,785 1,785
Additional paid-in capital 7,351,741 7,351,741
Retained earnings (deficit) accumulated during the development
stage (4,814) 3,086
- ------------------------------------------------------------------------------------------------------------
$9,110,183 $9,414,574
- ------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
Page F-3
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
STATEMENT OF OPERATIONS
Period Period
June 25, 1993 June 25, 1993
(inception) to Year ended March 31, (inception) to
March 31, --------------------- March 31,
1994 1995 1996 1996
- --------------------------------------------------------------------------------------------------------------
Income:
Interest $ - $342,548 $502,596 $845,144
- --------------------------------------------------------------------------------------------------------------
Expenses:
General and administrative - 105,083 135,052 240,135
Occupancy (Note 3) - 45,000 60,000 105,000
Insurance - 57,200 38,223 95,423
State franchise taxes - 16,500 21,686 38,186
Amortization of organization
costs - 7,911 10,548 18,459
Amortization of financing
costs 1,600 14,400 - 16,000
Interest (Note 2) 250 3,940 - 4,190
- --------------------------------------------------------------------------------------------------------------
Total 1,850 250,034 265,509 517,393
- --------------------------------------------------------------------------------------------------------------
Net income (loss)
before provision for
(recovery of) income
taxes (1,850) 92,514 237,087 327,751
Provision for (recovery of)
income taxes:
Federal income taxes -
current - - 88,000 88,000
Federal income taxes -
deferred - 14,000 (14,000) -
State and local income
taxes - current - 17,000 58,000 75,000
- --------------------------------------------------------------------------------------------------------------
Net income (loss) for period $(1,850) $164,751 $61,514 $105,087
- --------------------------------------------------------------------------------------------------------------
Net income per share $ - $.04 $.05
- --------------------------------------------------------------------------------------------------------------
Weighted average common
shares outstanding 425,000 1,682,534 2,125,000
- --------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
Page F-4
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
STATEMENTS OF STOCKHOLDERS' EQUITY
Retained
earnings
(deficit)
Common stock Preferred stock accumulated
--------------------- --------------------- Additional during the Total
Number Number paid-in development stockholders'
of shares Amount of shares Amount capital stage equity
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, June 25, 1993 - $ - - $ - $ - $ - $ -
Original issuance of common stock 425,000 425 - - 24,575 - 25,000
Net loss for the period - - - - - (1,850) (1,850)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1994 425,000 425 - - 24,575 (1,850) 23,150
Sale of 1,700,000 units, net
of underwriting discounts
and offering expenses 1,360,001 1,360 - - 7,327,166 - 7,328,526
Net income for the year - - - - - 61,514 61,514
Accretion of conversion value
of common stock - - - - - (64,478) (64,478)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1995 1,785,001 1,785 - - 7,351,741 (4,814) 7,348,712
Net income for the year - - - - - 105,087 105,087
Accretion of conversion value
of mon stock - - - - - (97,187) (97,187)
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, March 31, 1996 1,785,001 $1,785 - $ - $7,351,741 $ 3,086 $7,356,612
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
Page F-5
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
STATEMENTS OF CASH FLOWS
Period Period
June 25, 1993 Year ended March 31, June 25, 1993
(inception) to -------------------- (inception) to
March 31, 1994 1995 1996 March 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(1,850) $ 61,514 $105,087 $ 164,751
- ----------------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of financing costs 1,600 14,400 - 16,000
Amortization of organization costs - 7,911 10,548 18,459
Deferred income taxes - 14,000 (14,000) -
Change in assets and liabilities:
Increase in prepayments - - (12,737) (12,737)
Increase in accrued expenses and taxes 250 31,169 213,304 244,723
- ----------------------------------------------------------------------------------------------------------------------------------
Total adjustments 1,850 67,480 197,115 266,445
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating - 128,994 302,202 431,196
activities
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
U.S. Government securities deposited in Trust
Fund and accrued interest thereon - (8,584,551) (486,177) (9,070,728)
Deferred acquisition costs - - (213,067) (213,067)
Short-term investments and accrued interest thereon - (446,293) 366,548 (79,745)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities - (9,030,844) (332,696) (9,363,540)
- ----------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from sale of shares to founding
Stockholders 25,000 - - 25,000
Proceeds from notes payable 150,000 - - 150,000
Proceeds from public offering of units, net - 8,980,100 - 8,980,100
Repayment of notes payable - (150,000) - (150,000)
Deferred registration costs (25,000) 25,000 - -
Deferred financing costs (16,000) - - (16,000)
Organization costs - (52,738) - (52,738)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities: 134,000 8,802,362 - 8,936,362
- ----------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 134,000 (99,488) (30,494) 4,018
Cash and cash equivalents, beginning of period - 134,000 34,512 -
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $134,000 $ 34,512 $ 4,018 $ 4,018
- ----------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures:
Cash paid during the period for:
Interest $ - $ 4,190 $ - $ 4,190
Income taxes - - 123,335 123,335
- -----------------------------------------------------------------------------------------------------------------------------------
See accompanying summary of accounting policies and notes to financial statements.
Page F-6
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
Income Taxes Productivity Technologies Corp., formerly Production
Systems Acquisition Corp. (the "Company"), follows
Statement of Financial Accounting Standards No. 109
("FAS No. 109"), "Accounting for Income Taxes". FAS
No. 109 is an asset and liability approach that
requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences
of events that have been recognized in the Company's
financial statements or tax returns ("temporary
differences"). Temporary differences resulted from
the Company using the cash basis for Federal income
tax purposes through March 31, 1995.
Organization Costs Organization costs are amortized over 60 months.
Net Income (Loss) Net income (loss) per common share is computed on the
Per Share basis of the weighted average number of common shares
outstanding during the period, including common stock
equivalents (unless anti-dilutive), which would arise
from the exercise of stock warrants.
Cash Equivalents For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to
be cash equivalents.
Short-term Investments Short-term investments represent U.S. Treasury Bills
with maturities of six months or less. Cost
approximates market.
Trust Fund U.S. Government securities deposited in Trust Fund
represents U.S. Treasury Bills with maturities of six
months or less. Cost approximates market.
Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Page F-7
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
1. Organization and The Company was incorporated in Delaware on June 25,
Business Operations 1993 with the objective of acquiring an operating
business engaged in the production systems industry
and selected March 31 as its fiscal year-end. On
May 21, 1996, the Company's stockholders approved a
merger agreementnwith Atlas Technologies, Inc (see
Note 6) and approved changing the name of the
Company from Production Systems Acquisition
Corporation to Productivity Technologies Corp. On
May 17, 1996, the Company's directors approved the
change of the Company's fiscal year-end to June 30.
The Company's founding stockholders ("Initial
Stockholders") purchased 625,000 common shares,
$.001 par value, for $25,000. During June 1994,
200,000 shares were returned to the Company, for
no consideration, by the Initial Stockholders which
reduced the common stock outstanding to 425,000
shares and adjusted the Initial Stockholders'
percentage ownership to 20% of the common stock
expected to be outstanding after the Company's
initial public offering ("Offering") (Note 2). This
return of shares has been retroactively reflected
in the financial statements.
The registration statement for the Offering was
effective June 24, 1994. The Company
consummated the Offering on July 5, 1994 and
raised net proceeds of $8,980,100 (Note 2). The
Company's management has broad discretion with
respect to the specific application of the net
proceeds of this Offering, although substantially
all of the net proceeds of this Offering were
intended to be generally applied toward an operating
business engaged in the production systems industry
("Business Combination"). Upon the closing of the
Offering, $8,262,000 was placed in an interest-
bearing trust account ("Trust Fund") until the
earlier of (i) the consummation of a Business
Combination (see Note 6) or (ii) liquidation of the
Company. The Trust Fund indenture limits investments
to U.S. Government securities with maturities of 180
days or less. The remaining proceeds have been used
to pay for business, legal and accounting due
diligence on prospective acquisitions, and
continuing general and administrative expenses in
addition to other expenses.
Page F-8
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
With respect to the first Business Combination which was approved and
consummated (see Note 6), any Public Stockholder (all stockholders other
than the Initial Stockholders) who voted against the Business Combination
could have demanded that the Company convert his shares into cash. The per
share conversion price would have been equal to the amount in the Trust
Fund as of the record date for determination of stockholders entitled to
vote on the Business Combination divided by the number of shares held by
Public Stockholders. The Company would not have consummated a Business
Combination if 20% or more in interest of the Public Stockholders had
exercised their conversion rights. Accordingly, Public Stockholders holding
19.99% of the aggregate number of shares owned by all Public Stockholders
could have had their shares converted to cash. Such Public Stockholders
could have been entitled to receive their per share interest in the Trust
Fund computed without regard to shares held by Initial Stockholders.
Accordingly, a portion of the net proceeds from the Offering (19.99% of the
amount held in the Trust Fund) was classified as common stock subject to
possible conversion in the accompanying balance sheet at the conversion
value. With respect to the acquisition discussed in Note 6, no stockholders
demanded such conversion.
The Company's Certificate of Incorporation provided for mandatory
liquidation of the Company, without stockholder approval, in the event that
the Company did not consummate a Business Combination within 24 months from
the consummation of the Offering (July 5, 1996). Since a Business
Combination was consummated on May 23, 1996, such provisions are no longer
applicable.
Page F-9
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
2. Public Offering On July 5, 1994, the Company consummated its
Offering of 1,700,000 units ("Units"). Each Unit
consisted of one share of the Company's common
stock, $.001 par value, and two Redeemable Common
Stock Purchase Warrants ("Warrants"). Each
Warrant entitles the holder to purchase from the
Company one share of common stock at an exercise
price of $5.00 during the period commencing on
the later of one year from the effective date of
the Offering or the consummation of a Business
Combination and ending seven years from the
effective date of the Offering. The Warrants will
be redeemable at a price of $.01 per Warrant upon
30 days notice at any time, only in the event of
the common stock is at least $8.50 per share for
20 consecutive trading days ending on the third
day prior to date on which notice of redemption
is given.
The Company issued an aggregate of $150,000 of
promissory notes to certain accredited investors.
These notes bore interest at the rate of 10% per
annum and were repaid on the consummation of
the Company's Offering with accrued interest
thereon of $4,190. In addition, the investor
were issued 300,000 warrants (valued at a
nominal amount) which are identical to the
Warrants discussed above, except that they
are not redeemable by the Company until 90 days
after the consummation of a Business Combination.
3. Commitment At March 31, 1996, the Company occupied office
space provided by a related company owned by
certain stockholders who are senior executive
officers of the Company. Such related company had
agreed that, until the acquisition of a target
business by the Company, it will make such office
space, as well as certain office and secretarial
services, available to the Company, as may be
required by the Company from time to time. The
Company has been paying $5,000 per month for such
services commencing on the effective date of the
Offering up to consummation of the acquisition
described in Note 6.
4. Preferred Stock The Company is authorized to issue 1,000,000
shares of preferred stock ($.001 par value) with
such designations, voting and other rights and
preferences as may bevdetermined from time to
time by the Board of Directors.
Page F-10
PRODUCTIVITY TECHNOLOGIES CORP.
(A corporation in the development stage)
NOTES TO FINANCIAL STATEMENTS
5. Common Stock Common Stock At March 31, 1996, 4,210,000 shares of
common stock were reserved for issuance upon
exercise of the Warrants and the securities
underlying a purchase option granted to the
underwriter of the Offering.
6. Acquisition of Atlas On May 23, 1996, the Company acquired all of the
outstanding stock of Atlas Technologies, Inc.
("Atlas") (a manufacturer of automation equipment
for use with metal stamping presses) for
approximately $7,120,000 in cash to be adjusted, as
defined. Costs relating to this acquisition,
primarily professional fees (expected to approximate
$400,000) aggregated $213,067 as of March 31, 1996
and have been deferred. The acquisition was funded
with proceeds from the maturity of U.S. Government
securities that had been maintained in a trust fund
from the date of the Offering. For financial
reporting purposes, the transaction will be
accounted for under the purchase method. Concurrent
with the acquisition, the Company guaranteed
$500,000 of Atlas' bank borrowings. This guarantee
decreases to $150,000 on December 1, 1996 and
terminates May 31, 1997.
Page F-11
ATLAS TECHNOLOGIES, INC
BALANCE SHEET
March 31, 1996
---------------
ASSETS (Unaudited)
Current assets:
Cash $ 155,316
Contract receivables 5,776,993
Notes receivable 516,192
Officer note receivable 15,600
Costs and estimated earnings
in excess of billings
on uncompleted contracts 6,327,745
Inventories 991,988
Prepaid expenses 28,310
Deferred taxes - current 269,000
----------
14,081,144
----------
Property, plant, and equipment:
Land 77,200
Buildings and improvements 1,945,123
Machinery and equipment 4,973,586
Transportation equipment 99,117
Accumulated depreciation (4,501,160)
----------
2,593,866
----------
Other assets:
Deferred taxes - noncurrent 187,000
Noncompetition agreement, net of accumulated
amortization 232,333
Officer notes receivable, net of current portion 123,362
Other assets 40,000
----------
582,695
----------
$17,257,705
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Account payable $ 2,531,168
Line of credit 4,990,852
Accrued expenses and other 1,606,934
Accrued taxes 99,851
Billings in excess of costs and estimated
earnings on uncompleted contracts 905,435
Stock redemption payable 700,000
Current portion of long-term debt 1,808,846
----------
12,643,086
----------
Long-term debt, net of current portion 1,063,806
----------
Commitments
-
Stockholders' equity:
Common stock ($1 par value, authorized 50,000 shares,
25,683 issued and outstanding) 25,683
Paid in capital 73,465
Retained earnings 3,451,665
----------
3,550,813
----------
$17,257,705
==========
See selected information.
Page F-12
ATLAS TECHNOLOGIES, INC
STATEMENTS OF INCOME
Nine months ended March 31,
1996 1995
(Unaudited) (Unaudited)
Net sales
$25,841,050 $21,027,428
---------- ----------
Cost of sales 17,862,970 15,374,582
Selling, general, and administrative
expenses 4,935,291 3,800,913
Management bonuses 1,602,530 -
---------- ----------
24,400,791 19,175,495
---------- ----------
1,440,259 1,851,933
---------- ----------
Other income (expense):
Interest income 32,036 2,232
Interest expense (410,910) (462,352)
Gain on disposal of assets 35,474 308,565
Miscellaneous 20,273 68,812
---------- ----------
(323,127) (82,743)
---------- ----------
Net income before income taxes 1,117,132 1,769,190
Income taxes 379,200 370,630
---------- ----------
Net income $737,932 $1,398,560
========== =========
Net income per share of common stock $28.73 $45.36
========== =========
Weighted average common shares 25,683 30,830
========== =========
See selected information.
Page F-13
ATLAS TECHNOLOGIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Total
Number of Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------- ------- ------- --------- ------------
Balance at June 30, 1995 .................... 25,683 $25,683 $73,465 $3,413,733 $3,512,881
Stock redemption ............................ -- -- -- (700,000) (700,000)
Net income for the period ................... -- -- -- 737,932 737,932
------- ------- ------ --------- ---------
Balance at March 31, 1996 (Unaudited) ....... 25,683 $25,683 $73,465 $3,451,665 $3,550,813
====== ====== ====== ========= =========
See selected information.
Page F-14
ATLAS TECHNOLOGIES, INC
STATEMENTS OF CASH FLOWS
Nine months ended March 31,
1996 1995
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 737,932 $1,398,560
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 293,715 264,587
Gain on sale of property & equipment - (28,565)
Increase in contract receivables, inventories, prepaids and other (1,822,274) (2,136,456)
Increase in accounts payable, accrued
expenses, and other 424,599 418,009
Costs and estimated earnings in excess of billings
on uncompleted contracts; and billings in excess of
costs and estimated earnings on uncompleted contracts (1,036,333) (1,311,040)
--------- ---------
Net cash used in operating activities (1,402,361) (1,394,905)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment - 132,142
Expenditures for property, plant, and equipment (357,612) (348,680)
Issuance of notes receivable (47,793) (88,326)
--------- ---------
Net cash used in investing activities (405,405) (304,864)
--------- ---------
Cash flow from financing activities:
Proceeds from issuance of long-term debt - 110,000
Net borrowing on line of credit 2,381,914 2,278,970
Purchase of common stock - (196,000)
Payment of debt (436,085) (569,188)
--------- ---------
Net cash provided by financing activities 1,945,829 1,623,782
--------- ---------
Net increase (decrease) in cash 138,063 (75,987)
Cash, Beginning of period 17,253 93,084
--------- ---------
Cash, End of period $155,316 $17,097
======= ======
See selected information.
Page F-15
ATLAS TECHNOLOGIES, INC.
SELECTED INFORMATION - Substantially all Disclosures
Required by Generally Accepted Accounting Principles Are Not Included
MARCH 31, 1996
1. General
On December 18, 1995, the majority stockholders of Atlas Technologies,
Inc. (Atlas) entered into a definitive Merger agreement with Production Systems
Acquisition Corporation (PSAC). PSAC is a Specified Purpose Acquisition
Company(R) (SPAC(R)) formed to acquire or merge with an operating business in
the production systems industry. Under the merger agreement, a newly formed
wholly owned subsidiary of PSAC will be merged with and into Atlas , so that
Atlas will become a wholly owned subsidiary of PSAC. Each share of the
outstanding stock of Atlas at the date of the merger will be entitled to receive
its prorata portion of the $7,000,000 merger consideration to be paid by PSAC.
The accompanying financial statements are unaudited. However, in the
opinion of management, all adjustments necessary for a fair statement of
financial position and results for the stated periods have been included. A
commitment to the former stockholders has been recorded in the period ended
March 31, 1996. This commitment is discussed in Note 5. The remaining
adjustments are of a normal recurring nature. Selected information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is suggested that these condensed financial statements be read in conjunction
with the audited financial statements and notes thereto as of and for the year
ended June 30, 1995. Results for interim periods are not necessarily indicative
of the results to be expected for an entire fiscal year.
2. Officer note receivable
At the effective date of the merger, this note will become due and will be paid
to the corporation in full.
3. Inventories
Inventories at June 30, 1995, and March 31, 1996, are stated at lower
of cost (first-in, first-out) or market and include primarily raw materials and
parts.
4. Line of credit and long-term debt
At the effective date of the merger, certain items included in current
portion of long-term debt that are secured by company stock will be paid in full
or refinanced with new debt at the Company's lending institution.
5. Commitments and Stock Redemption
As discussed in Note 1, terms of the merger require the stockholders of
Atlas to receive from PSAC $7,000,000 in consideration for their shares of the
outstanding stock of Atlas prior to the date of the merger, with additional
consideration to be paid in the amount of $10,000 per week for each week the
closing date is beyond March 1, 1996. The agreement also requires an equity
adjustment of the merged subsidiary (Atlas). Upon approval of the merger, a
contingent liability of $700,000 has been defined and will be paid to a former
stockholder as part of the stockholder's redemption agreement. Other payments
and contributions will be made to current executives of the company and the
Employee Stock Ownership Plan. The effect of these payments is to reduce the net
income of the company reported in these financial statements for the period
ended December 31, 1995. In the event the equity of Atlas at the effective date
is below $3,196,064, the merger consideration of $7,000,000 will be reduced.
Page F-16
ATLAS TECHNOLOGIES, INC.
SELECTED INFORMATION - Substantially all Disclosures
Required by Generally Accepted Accounting Principles Are Not Included
MARCH 31, 1996
5. Commitments and Stock Redemption - (continued)
PSAC has also agreed to retain the two majority stockholders, Ronald M.
Prime and Michael D. Austin, under employment agreements pursuant to which they
will serve as Chief Executive Officer and President of Atlas, respectively.
These agreements will be identical except that the term of Mr. Prime's agreement
will terminate on December 31, 1998, and that of Mr. Austin will terminate on
December 31, 2001. Each agreement requires the executive to devote substantially
all of his business time and attention to the affairs of Atlas. The agreements
require a bonus payment to be made to the shareholders in the amount of $100,000
each upon signing of the agreement. Annual compensation (salary) will be
$190,000, subject to cost of living increases after December 31, 1996. The
agreements also require additional annual bonuses to the executives if certain
operating results are achieved.
6. Subsequent event
On May 23, 1996, PSAC acquired all the shares of Atlas under the merger
agreement discussed in Note 1 above.
Page F-17
PRODUCTION SYSTEMS ACQUISITION CORPORATION ("PSAC")
AND ATLAS TECHNOLOGIES, INC. ("ATLAS")
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma consolidated balance sheet as of March 31, 1996
and the unaudited pro forma consolidated statements of operations for the year
ended June 30, 1995 and nine months ended March 31, 1996 include the accounts of
PSAC and Atlas for the respective periods. The unaudited pro forma financial
statements have been prepared to illustrate the estimated effects of the merger
of PSAC and Atlas ("Merger"). The Merger is accounted for as an acquisition of
the common stock by PSAC under the purchase method of accounting. The pro forma
financial statements were derived by adjusting the historical financial
statements of PSAC and Atlas for certain transactions pursuant to the Merger
described in the notes to the unaudited pro forma consolidated financial
statements.
The unaudited pro forma consolidated balance sheet was prepared as if
the Merger had occurred on March 31, 1996. The unaudited pro forma consolidated
statements of operations for the year ended June 30, 1995 and nine months ended
March 31, 1996 were prepared as if the Merger had occurred on July 1, 1994. The
pro forma financial data does not purport to be indicative of the results which
actually could have been obtained had such transactions been completed as of the
assumed dates or which may be obtained in the future. The pro forma statements
of operations conform to Atlas' fiscal year since the operations of the combined
companies will primarily be those of Atlas. This presentation, considered a more
accurate reflection of results, would not be materially different if PSAC's
fiscal year end of March 31 were the basis of presentation.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Pro Forma Adjustments
----------------------------------- Pro Forma
PSAC Atlas Debit Credit consolidated(1)
(in thousands, except per share and share amounts)
Nine months ended March 31, 1996
Net sales.................................... $ -- $ 25,841 $ -- $ -- $ 25,841
Operating expenses:
Cost of sales............................. -- 17,863 -- -- 17,863
Selling, general and 149(2) --
administrative expenses............. 210 4,935 144(3) 279(5) 5,159
Management bonuses........................... -- 1,602 813(4) 1,602(5) 813
- ----------------------------------------------------------------------- -----------------------------------------------------------
Operating income (loss)...................... (210) 1,441 1,106 1,881 2,006
Other income (expense):
Interest income........................... 372 32 329(6) -- 75
Interest expense.......................... -- (411) -- -- (411)
Gain on disposal of assets................ -- 35 -- -- 35
Miscellaneous income...................... -- 20 -- -- 20
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income tax
provision................................. 162 1,117 1,435 1,881 1,725
Income tax provision......................... 96 379 252(7) -- 727
- -----------------------------------------------------------------------------------------------------------------------------------
Net income................................... $ 66 $ 738 $ 1,687 1,881 $ 998
- -----------------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Income.................................... $ 0.03 $ 0.47
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares of common stock.................... 2,125,000 2,125,000
- -----------------------------------------------------------------------------------------------------------------------------------
Page F-18
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
Pro Forma Adjustments
--------------------------- Pro Forma
PSAC Atlas Debit Credit consolidated(1)
(in thousands, except per share and share amounts)
Year ended June 30, 1995
Net sales.................................... $ -- $ 29,078 $ -- $ -- $ 29,078
Operating expenses:
Cost of sales............................. -- 21,034 -- -- 21,034
Selling, general and administrative 198(2)
expenses............................... 277 5,119 192(3) -- 5,786
Management bonuses........................... -- -- 566(4) -- 566
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss)...................... (277) 2,925 956 -- 1,692
Other income (expense):
Interest income........................... 474 33 407(6) -- 100
Interest expense.......................... -- (645) -- -- (645)
Gain on disposal of assets................ -- 308 -- -- 308
Miscellaneous income...................... -- 64 -- -- 64
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax
provision................................. 197 2,685 1,363 -- 1,519
Income tax provision......................... 67 465 125(7) -- 657
- ---------------------------------------------------------------------------------------------------------------------------------
Net income................................... $ 130 $ 2,220 $1,488 -- $ 862
- ---------------------------------------------------------------------------------------------------------------------------------
Per share of common stock:
Income.................................... $ 0.06 $ 0.41
- -----------------------------------------------------------------------------------------------------------------------------------
Weighted average number of
shares of common stock.................... 2,125,000 2,125,000
- ----------------------------------------------------------------------------------------------------------------------------------
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(1) The unaudited pro forma consolidated statements of operations are
presented assuming that no PSAC stockholders will request conversion of
their shares. No such requests were made.
(2) The purchase price, which includes cash paid for the Atlas shares
($7,120,000), and certain transaction expenses (approximately
$400,000), will exceed the book value of Atlas' stockholders equity by
approximately $4,567,000 against which a $598,000 deferred tax
liability will be provided. This excess is allocated $1,496,000 to
property, plant and equipment (based on a recent appraisal) and
$3,071,000 to goodwill. Additional depreciation on property, plant and
equipment based on a 20-year life, and amortization of goodwill based
on a 25-year life aggregating $198,000 has been charged to operations
for the year ended June 30, 1995 and $149,000 for the nine months ended
March 31, 1996.
(3) Represents annual salaries to officers and directors of PSAC ($252,000)
net of annual savings of $60,000 on PSAC occupancy expense. Such
payments would have been incurred had the transaction been consummated
on July 1, 1994.
(4) Represents pro forma amounts payable to Atlas senior management under
new employment agreements after the Merger (based on Atlas operating
income, as adjusted) in the amounts of $813,000 and $566,000 for the
nine months ended March 31, 1996 and year ended June 30, 1995,
respectively. Such payments would have been incurred had the
transaction been consummated on July 1, 1994.
Page F-19
(5) Represents elimination of management bonuses ($1,602,000) and
professional fees ($279,000) incurred by Atlas aggregating $1,881,000.
These amounts would not have been incurred in the normal course of
business had it not been stated that the Merger Agreement contemplates
that the net worth of Atlas equal $3,196,084 at the date of
consummation of the Merger.
(6) Represents the elimination of interest income on the portion of
PSAC's investment in a U.S. government security deposited in the Trust
Fund, which will be liquidated upon consummation of the Merger.
(7) Represents consolidated income tax provision at an effective rate of
40% on taxable income after adding back non-deductible amortization of
goodwill of $92,000 and $123,000 for the nine months ended March 31,
1996 and year ended June 30, 1995, respectively.
Page F-20
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1996
(in thousands)
Pro forma
PSAC Atlas Pro Forma Adjustments consolidated (1)
---- ----- ------------------------------------ ----------------
Debit Credit
Assets
Current assets:
Cash and cash equivalents.................. $ 4 $ 155 $ 9,071(2) $ 337(3) $2,168
395(7) 7,120(4)
Short term investments and accrued
interest thereon........................... 80 -- -- -- 80
U.S. Government security deposited in
Trust Fund and accrued interest
thereon.................................... 9,071 -- -- 9,071(2) --
Contracts and notes receivable............. -- 6,309 -- 272(7) 6,037
Costs and estimated earnings in excess
of billings on uncompleted contracts....... -- 6,328 -- -- 6,328
Inventories -- 992 -- -- 992
Prepaid expenses........................... 13 28 -- -- 41
Deferred acquisition costs................. 213 -- -- 213(3) --
Deferred taxes............................. -- 269 -- -- 269
- ----------------------------------------------------------------------------------------------------------------------------------
Total current assets................ 9,381 14,081 9,466 17,013 15,915
- ----------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net.. -- 2,594 400(3) -- 4,090
1,096(4) --
Goodwill..................................... -- -- 3,071(4) -- 3,071
Deferred taxes............................... -- 187 -- -- 187
Other assets................................. 34 396 -- 123(7) 307
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets........................ $9,415 $17,258 $14,033 $17,136 $23,570
==================================================================================================================================
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable, accrued expenses
and income taxes payable................... $ 245 $4,238 150(3) -- $4,333
Line of credit............................. -- 4,991 -- 2,148(6) 7,139
Billings in excess of costs and
estimated earnings on uncompleted
contracts.................................. -- 905 -- -- 905
Stock redemption payable................... -- 700 700(6) -- --
Current maturities of long-term debt....... -- 1,809 1,448(6) -- 361
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities........... 245 12,643 2,298 2,148 12,738
- ---------------------------------------------------------------------------------------------------------------------------------
Long-term debt, net of current portion -- 1,064 -- -- 1,064
Deferred income taxes............... -- -- -- 598(4) 598
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities................... 245 13,707 2,298 2,746 14,400
=================================================================================================================================
Common stock subject to possible
conversion................................... 1,813 -- 1,813(5) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common Stock............................... 2 26 26(4) -- 2
Additional paid-in capital................. 7,352 73 73(4) 1,813(5) 9,165
Retained earnings.......................... 3 3,452 3,452(4) -- 3
- ----------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity.......... 7,357 3,551 3,551 1,813 9,170
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity................ $9,415 $17,258 $7,662 $4,559 $23,570
==================================================================================================================================
Page F-21
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) The unaudited pro forma consolidated balance sheet is presented
assuming that no PSAC stockholders request conversion of their shares.
No such requests were made.
(2) Represents the release of restricted cash from the Trust Fund as a
result of the Merger.
(3) Represents PSAC's estimated expenses ($400,000) to be incurred in
connection with the Merger: brokers' fee ($180,000) and other
professional fees ($220,000), allocated to plant, property and
equipment.
(4) Represents the payment for the Atlas shares ($7,120,000), elimination
of Atlas' capital accounts, allocation of the excess of the purchase
price over Atlas' stockholders' equity at December 31, 1995 to
property, plant and equipment based on a recent appraisal of fixed
assets ($1,096,000) and goodwill ($3,071,000) and accounting for the
deferred tax liabilities ($598,000) at an assumed 40% tax rate on the
temporary differences arising from the excess purchase price allocated
to property, plant and equipment. The carrying value of the remaining
assets and liabilities of Atlas approximate fair value.
(5) Represents the reclassification of common stock subject to possible
conversion since the unaudited pro forma consolidated balance sheet
contemplates that no PSAC stockholders will request conversion of their
shares.
(6) Represents payment of debts due to a former stockholder of Atlas upon
consummation of the Merger ($1,448,000) and stock redemption due to
such former stockholder ($700,000).
(7) Receipt of notes receivable ($395,000) repaid at closing.
Page F-22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its behalf by the
undersigned herewith duly authorized.
June 28, 1996 PRODUCTIVITY TECHNOLOGIES CORP.
By: /s/ Samuel N. Seidman
Samuel N. Seidman
President
Pursuant to the requirements of The Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Company and in the capacities and on the dates indicated.
/s/ Ray J. Friant, Jr. Chairman of the Board June 28, 1996
- ------------------------------
Ray J. Friant, Jr.
/s/ Samuel N. Seidman Chief Executive Officer, June 28, 1996
- ----------------------------- President and Director
Samuel N. Seidman
/s/ Joseph K. Linman Vice President and Director June 28, 1996
- -----------------------------
Joseph K. Linman
/s/ John S. Strance Vice President and Director June 28, 1996
- -----------------------------
John S. Strance
/s/ Jesse A. Levine Vice President, Secretary, June 28, 1996
- ----------------------------- Treasurer and Director and
Jesse A. Levine Chief Financial Officer
/s/ Alan H. Foster Director June 28, 1996
- -----------------------------
Alan H. Foster
/s/ Alan I. Goldman Director June 28, 1996
- -----------------------------
Alan I. Goldman
Page 42
EXHIBIT INDEX
Exhibit No. Description Page No.
- ----------- ----------- --------
4.5 1996 Performance Equity Plan of the Company 44
10.7 Employment Agreement dated May 23, 1996
between Atlas Technologies, Inc. and Ronald M.
Prime 55
10.8 Employment Agreement dated May 23, 1996
between Atlas Technologies, Inc. and Michael D.
Austin 68
27 Financial Data Schedule 82
Page 43