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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 1999
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______
Commission file number 0-13403
- --------------------------------------------------------------------------------
AMISTAR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its Charter)
CALIFORNIA 95-2747332
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
237 VIA VERA CRUZ 92069-2698
SAN MARCOS, CA (Zip Code)
(Address of principal executive offices)
AREA CODE (760) 471-1700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
--------------------------------
COMMON STOCK, PAR VALUE
$.01 PER SHARE
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 the 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. [ X ]
Aggregate market value of voting stock held by non-affiliates of the
registrant as of the close of business on March 6, 2000: $7,093,000.
The number of shares outstanding of registrant's Common Stock as of March
6, 2000: 3,136,500 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference:
PART III Definitive Proxy Statement for Annual Meeting of Shareholders to be
held May 3, 2000 filed with the Securities and Exchange Commission.
1
AMISTAR CORPORATION
FORM 10-K
TABLE OF CONTENTS
PART I
1. Business................................................................................... 3
2. Properties................................................................................. 6
3. Legal Proceedings.......................................................................... 6
4. Submission of Matters to a Vote of Security Holders........................................ 6
PART II
5. Market for Registrant's Common Stock and Related Stockholder Matters........................8
6. Selected Financial Data.....................................................................9
7. Management's Discussion and Analysis of Financial Condition and Results of Operations .....10
7a. Quantitative and Qualitative Disclosures About Market Risk ................................13
8. Financial Statements and Supplementary Data................................................14
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......27
PART III
10. Directors and Executive Officers of the Registrant.........................................27
11. Executive Compensation.....................................................................27
12. Security Ownership of Certain Beneficial Owners and Management.............................27
13. Certain Relationships and Related Transactions.............................................27
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................27
2
PART I
This Annual Report, contains forward-looking statements within the meaning of
the Private Securities Reform Act of 1995, particularly statements regarding
market opportunities, success of research and development, customer acceptance
of products, gross profit and marketing expenses. These forward-looking
statements involve risks and uncertainties, and the cautionary statements set
forth below identify important factors that could cause actual results to differ
materially from those in any such forward-looking statements. Such factors
include, but are not limited to, adverse changes in general economic conditions,
including changes in the specific markets for the Company's products, product
availability, decreased or lack of growth in the electronics industry, adverse
changes in customer order patterns, increased competition, lack of acceptance of
new products, pricing pressures, lack of success in technological advancements,
risks associated with foreign operations and other factors.
ITEM 1. BUSINESS
Amistar Corporation (the Company) designs, develops, manufactures, markets
and services a variety of automatic equipment used to assemble electronic
components and product identification media to printed circuit boards and other
assemblies. Amistar's Manufacturing Services Division (AMS) provides
manufacturing services to companies who outsource the manufacturing of their
electronic products.
Printed circuit assemblies, which are the basis for most electronic
products, start with a printed circuit board (PCB), to which components are
assembled. PCB's are used commonly by manufacturers of a wide variety of
electronic systems and products to interconnect components. Typically, these
boards contain conductive layers, holes that receive the leads of "through-hole"
components, pads on the board surface that provide a connection point for
"surface mounted" components and interconnect layers that connect the various
components to form an electrical network.
The physical characteristics of modern electronic devices and printed
circuit boards are diverse. As a result, the design and manufacture of automatic
assembly equipment is highly specialized. The majority of electronic devices
fall into two general categories: surface mount devices (SMD) and leaded
through-hole components. Components come in a large range of sizes and
configurations. Further, current printed circuit board designs are complex and
use numerous component types that must be placed densely to minimize wasted
space. Accordingly, automatic assembly equipment must be sufficiently flexible
to adjust to a wide variety of components and product designs.
Financial Information Relating to Industry Segments
- ---------------------------------------------------
The Company's operations include two business segments: manufacture and
distribution of assembly and labeling machines and related accessories, and
contract manufacturing services. Information concerning the Company's operations
for the two segments is found in note 11 to the financial statements.
Products
- --------
The Company's current machine product line features four models designed
for the latest SMD assembly technologies. Amistar's machine model specifications
were chosen to serve a broad range of market requirements. Each model offers a
wide range of application-specific tools, device handlers, feeders, and
placement heads. Different models offer a range of production speeds, software
and investment levels to meet a user's unique needs. This flexibility enables
the customer to order the model and features best suited to meet their assembly
requirements.
The Company's product line consists of manufactured products and
distributed private label products. The primary manufactured products are the
DataPlace(R) automatic labeler, SMD assembly feeders and accessories utilized on
the private label line and through-hole assembly machines and spare parts. The
primary distributed products are the private label LaserPro(R) and PlacePro(R)
lines. The private label products are distributed under an OEM supply agreement
with a manufacturer in Japan, and as a result, the Company has significant
supply dependence. A change in the supplier's price, delivery or distribution
channels could cause a loss of sales, a decline in gross margins, or other
consequences that could adversely affect operating results.
3
Amistar Manufacturing Services (AMS)
- ------------------------------------
Amistar Manufacturing Services, a division of Amistar, provides contract
manufacturing services to OEMs in various industries, such as medical, computer
peripherals, audio/video, industrial, data networking, and telecommunications.
The Company offers turnkey solutions by providing engineering services,
materials procurement and management, surface mount and through-hole board
assembly, all levels of testing, final product, enclosure and systems build,
distribution and warranty depot support. Currently, the Company operates two
facilities, one in Anaheim, California and one at the corporate facility in San
Marcos, California.
Product Development
- -------------------
The Company's products are marketed to an industry that is subject to
rapid technological change and increasingly complex methods of manufacturing.
Amistar's ability to compete and operate successfully depends upon its ability
to react to such change. Accordingly, the Company is committed to the continuing
enhancement of its current products to allow their use in a wider variety of
applications and the development of new products to further reduce customer
labor costs and increase manufacturing efficiencies.
During 1999, 1998 and 1997, the Company's engineering, research and
development expenses were approximately $1,197,000, $1,202,000 and $1,462,000,
respectively. Development efforts were focused in 1999 on the DataPlace(R) 100
LP automatic label placer.
Customers and Marketing
- -----------------------
The Company's machine products are sold primarily to electronic
manufacturers, both directly and through distributors. The Company's marketing
strategy is to offer flexible equipment that fulfills a variety of customer
needs and to emphasize the advanced features, ease of use, price, performance,
and reliability.
Amistar markets its machine products in the United States through a
network of strategically located sales offices and regional sales managers,
which support independent manufacturer's representatives and direct sales
personnel. In addition to the main sales and service center at the Company's
headquarters in San Marcos, California, the Company's sales and service offices
are located in Danvers, Massachusetts and Warrenville, Illinois. The Company
maintained sales and service offices in Wiesbaden, Germany and Wettingen,
Switzerland through December 1997. In December 1997, the Company decided to
pursue European activities through the use of independent distributors and as
such, closed its offices in Germany and Switzerland. In addition, the Company
maintains a field staff of applications specialists who support the sales force
by responding to complex technical and applications problems.
The Company's Amistar Manufacturing Services division is marketed through
a combination of Company personnel, electronics component distributors and
outside representatives.
Dependence on a Single Customer
- -------------------------------
During 1999, sales of $1,855,000 (or 12% of total sales) were made to
Merit Medical Systems, Inc. During 1998 and 1997, sales of $2,326,000 (or 11% of
total sales) and $3,751,000 (or 16% of total sales) were made to Smart Modular
Technologies, respectively.
4
Foreign Sales
- -------------
A portion of the Company's machine sales has traditionally been to foreign
customers. Profitability and product mix of foreign machine sales are generally
comparable to domestic sales. The Company is subject to the usual risks of
international trade, including unfavorable economic conditions, foreign currency
risk, restrictive trade policies, controls on funds and political uncertainties.
The following table illustrates the Company's sales, expressed in dollars and as
a percentage of total sales, in major geographic markets over the last three
fiscal years.
(Dollars in thousands) 1999 1998 1997
------------------------- ------------------------ ------------------------
United States $13,573 90% $18,258 88% $17,348 76%
Europe 187 1% 2,010 10% 4,035 18%
South America\Canada 523 4% 258 1% 1,389 6%
Asia 788 5% 202 1% 68 0%
------------- -------- ------------ ------- ------------ -------
TOTALS $15,071 100% $20,728 100% $22,840 100%
============= ======== ============ ======= ============ =======
The Company's products can be freely exported to most countries under a
general destination (G-Dest) export classification with the U.S. Department of
Commerce. Additional information regarding foreign operations can be found in
notes 11 and 12 to the financial statements.
Service
- -------
The Company provides installation and service for all of its machines
other than those sold by certain distributors with qualified service personnel
who undertake the installation and service responsibility. The Company provides
service personnel for its customers out of the Company's San Marcos, California;
Warrenville, Illinois; Melbourne, Florida; Battle Ground, Washington; and
Danvers, Massachusetts offices. In Europe, the Company's distributor, Assembly
Service GmbH provides service support.
Machine Manufacturing
- ---------------------
Amistar's machines are complex devices that combine a number of electronic
and electromechanical technologies, and must function in difficult production
environments with a high degree of precision and reliability. Product designs
typically call for a high percentage of specially designed machine parts, many
of which are fabricated in-house, as well as standard, commercially available
parts. The Company utilizes its' machine shop located in San Marcos, California
for in-house fabrication.
Those parts of the Company's products that are not manufactured directly
by Amistar are purchased from outside vendors. Most parts are available from
more than one supplier. While certain parts are presently purchased from single
sources, the Company believes it would be able to locate additional sources for
such parts without material adverse effect on its business. Amistar has never
experienced a major production delay due to a parts shortage or the loss of a
single-sourced part or its tooling.
Competition
- -----------
The Company competes with a number of domestic and foreign manufacturers
of electronic component or label placement equipment, many of whom have more
diverse product lines and greater financial and marketing resources than the
Company. The Company's primary domestic competitors are Brady Worldwide, Inc.,
Nortek Automation, Inc., Universal Instrument Corporation, a subsidiary of Dover
Corporation, Juki Automation Systems, Inc. and Quad. Amistar also faces
competition from foreign companies, including Panasonic, Fuji, Mydata, Philips
and Siemens.
The Company believes that the key factors affecting the choice of a label
placement or surface mount machine are reliability, speed, quality and speed of
service, ability to detect errors, range of labels or components inserted or
placed, ease of programming, integration with ERP systems, and price.
There are numerous companies, both large and small in size, which provide
contract electronic circuit board assembly services.
5
Backlog
- -------
Customer machine order lead times are usually of a short duration. Current
practice is to wait to place the purchase order until just before the equipment
is required or after an evaluation period. The Company's label placement machine
finished goods inventory and private label inventory supply pipeline has been
adequate to fulfill machine orders in a short lead-time. Therefore, backlog may
not necessarily be indicative of future sales. Order lead times for contract
manufacturing vary. The backlog at December 31, 1999 was $2,167,000, all of
which is expected to ship during the next 12 months. Backlog was $6,503,000 at
December 31, 1998.
Patents and Licenses
- --------------------
Amistar relies on U.S. and foreign patents, copyrights, trademarks and
trade secrets, to establish and maintain proprietary rights in its technology
and products. As of December 31, 1999, the Company has been issued nine United
States patents relating to mature products and has three patents pending related
to the new DataPlace(R) label placement machine. Although the Company believes
that its patents have value, the Company also believes that responding to the
technological changes that characterize the electronics industry, maintaining a
strong marketing and service operation, and continuing to produce quality
products are of greater significance than patent protection. Moreover, there can
be no assurance that patents applied for will be granted or that any patents
presently held, or to be held, by the Company will afford it commercially
significant protection of its proprietary technology.
Employees
- ---------
During the week ended February 11, 2000, the Company had 134 full-time
employees and 21 temporary employees. Of the total employees, 97 were employed
in manufacturing, 17 in marketing and service, 8 in product development and 12
in administration and finance.
ITEM 2. PROPERTIES
The Company owns the building and 5.6 acres of land on which the building
is located in San Marcos, California. The Company's headquarters, principal
administration, machine manufacturing, electronic manufacturing services, and
research and development offices are located in this building of 80,000 square
feet completed in April of 1987.
The Company leases a 14,000 square foot facility in Anaheim, California
for a term of five years, expiring in March 2001, at a current monthly rental
rate of $7,112. This facility is utilized for Amistar Manufacturing Services.
The Company also leases sales and service offices at the following locations:
Danvers, Massachusetts, with a term of three years, expiring June 30, 2001 at a
monthly rent rate of $244, and Warrenville, Illinois, with a term of five years,
expiring August 2002, at a monthly rate of $2,309.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings
involving the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
6
EXECUTIVE OFFICERS AND DIRECTORS
Name Age Title
---- --- -----
Stuart C. Baker 68 Chairman of the Board, President and Director
Richard A. Butcher 59 Director
William W. Holl 69 Chief Financial officer, Treasurer, Secretary and Director
Carl C. Roecks 66 Director
Gordon S. Marshall 80 Director
Daniel C. Finn 43 Vice President of Operations-Machine Division
Tod N. Kilgore 42 Vice President of Sales and Marketing-AMS Division
Gregory D. Leiser 43 Vice President of Finance
Harry A. Munn 48 Vice President of Marketing and Sales-Machine Division
Michael G. Saloka 60 Vice President and General Manager-AMS Division
Mr. Baker, a founder of the Company, has served the Company as a Director
and President since its inception in 1971 and as Chairman of the Board since
1993.
Mr. Butcher was elected a Director of the Company in February 1984. From
1977 to the present, he has been a group managing Director of Marbaix (Holdings)
Ltd., an equipment manufacturer and distributor, and the Managing Director of
Automation Ltd., a wholly-owned subsidiary of Marbaix and the Company's
exclusive distributor in Great Britain and Ireland.
Mr. Holl, a founder of the Company, has served the Company as a Director
and as Treasurer and Secretary since its inception in 1971, and as Chief
Financial officer since 1978.
Mr. Roecks, a founder of the Company, has served the Company in various
engineering and management capacities since its inception in 1971. Since 1989
Mr. Roecks has been semi-retired, and serves the Company on a part-time basis.
Mr. Marshall has served the Company as the Chairman of the Board from 1974
to 1993. Mr. Marshall was the founder and former Chairman of the Board of
Marshall Industries, an electronics distribution company that was acquired by
Avnet Electronics Marketing in 1999.
Mr. Finn has served the Company since 1979, and as Vice-President
Operations-Machine Division since 1999.
Mr. Leiser has served the Company since 1995, and as Vice-President
Finance since 1999.
Mr. Munn has served the Company since 1985, and as Vice-President
Marketing and Sales-Machine Division since 1997.
Mr. Saloka has served the Company as Vice-President and General
Manager-AMS Division since 1999.
Mr. Kilgore has served the Company as Vice-President Sales and
Marketing-AMS Division since 1999.
7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
From May 1984, when Amistar had its initial public offering, until June
1985, the Company's stock was traded on the NASDAQ over the counter market under
the symbol AMTA. From June 18, 1985 until January 1999, the Company's stock was
traded on the NASDAQ/NMS (National Market System); since January 1999, the stock
has traded on the NASDAQ/SC (Small Cap market system). The following table
reflects the closing prices per share for the last two years:
Quarter ended High* Low*
------------- ----- ----
Mar. 31, 1999 2-11/16 1-7/8
Jun. 30, 1999 2-1/4 1-3/4
Sep. 30, 1999 1-15/16 1-1/4
Dec. 31, 1999 2 1-1/16
Mar. 31, 1998 5 3-1/4
Jun. 30, 1998 4-1/2 3-1/4
Sep. 30, 1998 3-1/2 2-1/4
Dec. 31, 1998 2-5/8 1-5/16
* The prices indicated are as reported by the National
Association of Security Dealers.
The Company had approximately 90 shareholders of record on December 31,
1999, however, the Company believes there are over 1,000 beneficial owners based
on the number of requests for proxies.
The Company has not paid cash dividends on its common stock and does not
plan to pay cash dividends to its shareholders in the foreseeable future.
8
ITEM 6. SELECTED FINANCIAL DATA
Statements of Operations Data:
Year Ended December 31,
-------------------------------------------------------------------
(In thousands, except per share data)
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Net sales $ 15,071 $ 20,728 $ 22,840 $ 23,270 $ 25,361
Cost of sales 13,776 15,109 14,738 14,634 16,732
------------ ------------ ------------ ------------ ------------
Gross profit 1,295 5,619 8,102 8,636 8,629
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling 2,637 3,222 4,155 4,402 4,109
General & administrative 2,065 1,067 1,014 1,145 1,171
Engineering, research & development 1,197 1,202 1,462 1,234 951
------------ ------------ ------------ ------------ ------------
5,899 5,491 6,631 6,781 6,231
Income (loss) from operations (4,604) 128 1,471 1,855 2,398
Other income (expense):
Interest, net (43) (8) 86 (67) (99)
Miscellaneous 6 61 41 51 78
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes (4,641) 181 1,598 1,839 2,377
Income tax expense (benefit) 196 (50) 505 117 300
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ (4,837) $ 231 $ 1,093 $ 1,722 $ 2,077
============ ============ ============ ============ ============
Basic and diluted earnings (loss) per
common share $ (1.54) $ 0.07 $ 0.34 $ 0.53 $ 0.65
============ ============ ============ ============ ============
Weighted-average shares
outstanding (in thousands) 3,137 3,206 3,236 3,228 3,193
============ ============ ============ ============ ============
Selected Balance Sheet Data:
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
Working capital $ 8,236 $ 11,709 $ 12,632 $ 11,938 $ 10,815
Total assets 16,285 21,759 22,236 21,551 19,742
Long-term obligations 4,500 4,500 4,500 4,500 4,500
Retained earnings 5,967 10,803 10,573 9,480 7,758
Total shareholders' equity 10,587 15,424 15,448 14,338 12,613
9
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
Quarterly Financial Information (unaudited)
Quarter Ended,
------------------------------------------------------------
3/31 6/30 9/30 12/31
------------ ------------ ------------ ------------
(In thousands, except per share data)
1999
Net sales $ 4,619 $ 3,288 $ 3,056 $ 4,108
Gross profit 1,063 326 (947) 853
Net earnings (loss) (222) (564) (3,114) (937)
Basic and diluted earnings
(loss) per common share (0.07) (0.18) (0.99) (0.30)
1998
Net sales $ 5,306 $ 4,890 $ 4,547 $ 5,985
Gross profit 1,731 1,233 1,058 1,597
Net earnings (loss) 177 (111) (148) 313
Basic and diluted earnings
(loss) per common share 0.05 (0.03) (0.05) 0.10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations 1999 Compared to 1998
- -------------------------------------------
Sales decreased to $15,071,000, from $20,728,000 in 1998, a decrease of
27%. Surface mount assembly machine sales were negatively affected by the soft
demand and the diminished competitiveness of the current private label model in
the electronics industry and particularly in the PC memory assembly sector. The
Company also experienced a significant decline in sales to its largest customer,
Smart Modular Technologies, who had chosen to utilize a competitor model for
their capacity expansion needs. Facing the Company's declining position in the
SMD machine market, management made a strategic decision during 1999 to increase
its marketing effort in the product identification technology sector. Unlike the
SMD machine market, with its mature technology, and intense competition, the
product identification market is in the early stage of development and under
served. The Company will target Fortune 500 sized companies that have the
capability of ordering multiple machines. While the Company will continue to
distribute SMD machine products and service existing customers, management
believes growing opportunities exist in the product identification area. The
Company commenced production of its first product identification machine model
(DataPlace(R) 100LP) during the early part of 1999 and sold two machines in the
later part of 1999.
On January 19, 2000, the Company was notified of the establishment of a
cooperative relationship between Tenryu Technics, the manufacturer of the
private label machines, and Yamaha Motor Co., Ltd. IM Operations. The notice
stated the intent to establish a new company on April 1, 2000, to which Tenryu
Technics would transfer all its property and personnel. The new company will
have its own brand and sales network. The Company is unsure what effect, if any,
this planned action will have on its relationship with Tenryu Technics.
The table on page 13 shows that sales of Amistar manufactured machines,
parts, and service declined during 1999 and in 1998. The Company discontinued
marketing its PlaceMaster(R) surface mount machine models in 1999. During 1999,
two PlaceMaster(R) machines were transferred to AMS from inventory as part of a
planned expansion of assembly line capacity. The Company continues to evaluate
the marketability of its products and establishes appropriate inventory
allowances for obsolescence as required. The Company's through-hole machines in
the field generate a significant portion of parts and service sales. As the
population of the Company's through-hole technology machines has declined,
demand for spare parts and out-of-warranty field service has continued to follow
a parallel trend. The Company's primary sales and gross margin contributions
have come from the distributed private label machine line for each of the years
in the three-year period ended December 31, 1999.
Sales generated from the AMS division decreased 2% in 1999 as compared to
an increase of 14% in 1998. The loss of a major customer whose financial
condition deteriorated, contributed to the sales decline in 1999. No portion of
sales is attributable to inflation for 1999.
10
Results of Operations 1999 Compared to 1998, continued
- ------------------------------------------------------
Gross profit decreased $4,324,000 and 18.5% as a percentage of sales in
1999, compared to 1998. This decrease was due to a negative gross profit
realized by the AMS division, a $1,437,000 addition to the allowance for
inventory obsolescence related to PlaceMaster(R) machines, a $210,000 addition
to the allowance for inventory related to private label products, and excess
plant capacity in the machine division.
Selling expenses decreased $585,000 in the current year due to staff
reductions and reduced marketing expenses. Lower machine sales volume and the
resulting lower commission expense, which generally ranges from 7% to 12% of
selling price also resulted in reduced selling expenses.
General and administrative expense increased $999,000 over 1998. This
increase includes an addition to the allowance for doubtful accounts of $996,000
related to three companies whose financial condition deteriorated during 1999.
All three companies were young, rapidly expanding, thinly capitalized companies
that the Company saw opportunities to grow with. Two of the three companies were
severely crippled by the shortage of computer memory chips and the rapid
increase of prices in the fourth quarter of 1999. In the case of one customer,
the entire contract receivable balance was written down to the net realizable
value of the equipment reposessed by the Company.
Development efforts in 1999 were focused the DataPlace(R) label placement
machine. The Company does not have any firm commitments to continue funding
product research and development. However, management anticipates that spending
on development will continue at existing levels during 2000.
Interest income decreased $55,000 in 1999, compared to 1998, due to lower
average cash balances during 1999.
Income tax expense includes a 100% valuation allowance recorded against
the deferred income tax asset. This valuation was based on the 1999 loss
position and management's belief that it is not more likely than not the Company
will be able to utilize the benefits of the deferred tax assets in the future.
1998 Compared to 1997
- ---------------------
Sales decreased to $20,728,000, from $22,840,000 in 1997, a decrease of
9%. During the second and third quarters of 1998, sales were negatively impacted
by delays in supplier deliveries and customer acceptance of the newest private
label model. The latest model was substantially redesigned, including a new
generation operating system. After initial deliveries, it was discovered that
the early production units required modifications in order to be suitable for
applications required by the Company's customer base. Modifications were
completed late in the third quarter and shipments resumed, ending the year at a
robust level in December. The Company also experienced sluggish sales in the
Mid-West and Eastern regions during 1998.
The table on page 13 shows that sales of Amistar manufactured machines,
parts, and service declined during 1998 from 1997. The Company has continued to
experience difficulty marketing its PlaceMaster(R) surface mount machine models.
During 1998, no PlaceMaster(R) machines were sold compared to one unit sold in
1997. At December 31, 1998, three PlaceMaster(R) machines remained in inventory,
which the Company planned to either sell at aggressive pricing or transfer to
AMS plant equipment in the next 24 months. During 1998, three PlaceMaster(R)
machines were transferred to AMS from inventory as part of a planned expansion
of assembly line capacity.
Sales generated from the AMS division increased 14% in 1998 as compared to
an increase of 28% in 1997. No portion of sales is attributable to inflation for
1998.
Gross profit decreased $2,483,000 and 8.4% as a percentage of sales in
1998, compared to 1997. This decrease was due to a negative gross profit
realized by the AMS division, additions to the allowance for inventory
obsolescence related to PlaceMaster(R) machines, and excess plant capacity in
the machine division. The gross profit also was affected negatively by a greater
degree of machine sales discounting in 1998, compared to 1997, due to
competitive conditions. The negative gross profit of $336,000 generated by AMS
in 1998 compared to a gross profit of $165,000 in 1997. The decline in AMS gross
profit is primarily due to increased management and support personnel costs in
order to support a higher level of volume than presently experienced.
Selling expenses decreased $933,000 in 1998 due to the closure of the
Company's European operations in 1997. Lower machine sales volume and the
resulting lower commission expense, which generally ranges from 7% to 12% of
selling price, also resulted in reduced selling expenses.
11
1998 Compared to 1997, continued
- --------------------------------
Engineering, research and development decreased $260,000 in 1998,
primarily due to the conclusion of development of the PlaceMaster(R) machines.
Development efforts in 1998 were focused on the DataPlace(R) machine.
Interest income decreased $93,000 in 1998, compared to 1997, as the
Company settled a contract which generated interest income with a customer from
the Company's German subsidiary in 1997.
The income tax benefit in 1998 was generated primarily from deductions
related to liquidation of the Company's German subsidiary.
Year 2000 Issues
- ----------------
The Year 2000 problem concerns the inability of certain computer systems
to appropriately recognize the year 2000 when the last two digits of the year
are entered in the date field. The Company assessed its Year 2000 requirements
and determined that its major computer systems, its products, and capital
equipment were Year 2000 compliant. The costs to access Year 2000 compliance
were immaterial.
The Company has not experienced any significant problems or interruption
in operations related to Year 2000 issues.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness
Disclosure" as defined in The Year 2000 Information and Readiness Disclosure Act
(the "Act"), which was signed into law on October 19, 1998. The Act provides
added protection from liability for certain public and private statements
concerning a company's Year 2000 readiness.
Liquidity and Capital Resources
- -------------------------------
The Company's cash flow from operations increased during 1999 compared to
a decrease in 1998 and an increase in 1997. Working capital declined $3,473,000
in 1999, $923,000 in 1998 and increased $694,000 in 1997. Operating activities
generated (consumed) $1.2 million, $(.3) million and $1.4 million in cash flow
during the years ended 1999, 1998 and 1997, respectively. The current year
decrease in working capital was primarily due to charges related to inventory
obsolescence and allowance for doubtful accounts. Surplus cash is invested in
money market accounts.
The Company generated cash by collecting a contract receivable for
$400,000 in advance of its scheduled maturity date. Contracts receivable also
decreased $296,000 in 1999 due to a write-down of the contract receivable to the
net realizable value of the equipment to be reposessed. In January 2000, the
Company repossessed ten private label machines from PricePoint Micro
Technologies due to default on the contract receivable terms. The repossession
of six current models and four older models, resulted in a reduction of $739,000
in contracts receivable and a corresponding increase to finished goods
inventory. The Company believes it will be successful in selling the ten
machines at the recorded net realizable value during 2000. A significant portion
of the contacts receivable balance at December 31, 1999 originated from sales to
customers that the Company believes is of moderate risk. The Company regularly
evaluates the collectability associated with these balances and provides
allowances as deemed necessary.
As in 1998, investment activities in 1999 consisted primarily of capital
expenditures to support the expected growth of the Amistar Manufacturing
Services division. During 1999, the AMS division added another SMT assembly line
at its San Marcos, California facility. During 1998, the AMS division doubled
surface mount capacity, added optical inspection, occupied a greater portion of
the building square footage, and re-engineered the factory work and materials
flow at the San Marcos, California facility.
The Company has financed its 80,000 square foot manufacturing and office
facility located in San Marcos, California through $4,500,000 of bonds issued by
the Industrial Development Authority of the City of San Marcos. The bonds carry
a variable interest rate and mature in December 2005. Payments of principal and
interest are unconditionally guaranteed by an irrevocable letter of credit
issued by the Company's bank. The terms of the present irrevocable letter of
credit required the Company in 1995 to establish a $1,329,000 interest-bearing
cash collateral account in order to meet a required loan to value ratio.
The Company's primary sources of liquidity consist of cash and working
capital. The line of credit with the Company's bank expired on March 31, 1999.
Management does not intend to pursue another line of credit at this time. The
Company believes that cash provided from operations and cash balances at
December 31, 1999, will be adequate to support its operating and investing
requirements through 2000.
12
The following table sets forth the statements of operations as a percentage of
net sales:
Percentage of Net Sales
-----------------------
1999 1998 1997
------------ ------------ ------------
Net sales 100.0 100.0 100.0
Cost of sales 91.4 72.9 64.5
------------ ------------ ------------
Gross profit 8.6 27.1 35.5
------------ ------------ ------------
Operating expenses:
Selling 17.5 15.5 18.2
General and administrative 13.7 5.1 4.5
Engineering, research and development 7.9 5.8 6.4
------------ ------------ ------------
39.1 26.4 29.1
------------ ------------ ------------
Income (loss) from operations (30.5) 0.7 6.4
Other income (expense):
Interest, net (.2) .0 .4
Miscellaneous .0 .2 .2
------------ ------------ ------------
Earnings (loss) before income taxes (30.7) 0.9 7.0
Income tax expense (benefit) 1.3 (.2) 2.2
------------ ------------ ------------
Net earnings (loss) (32.0) 1.1 4.8
============ ============ ============
The following table sets forth sales (in thousands) by product classification:
1999 1998 1997
----------------------- ----------------------- -------------------------
Amistar machines,
parts and service $ 2,989 20% $ 4,346 21% $ 5,532 24%
Private label machines 6,001 40% 10,193 49% 11,869 52%
Manufacturing services 6,081 40% 6,189 30% 5,439 24%
------------- -------- ------------- --------- -------------- ---------
$ 15,071 100% $ 20,728 100% $ 22,840 100%
============= ======== ============= ========= ============== =========
ITEM 7a. QUANTITATIVE AND QUALITATIVE DATA ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates affecting the cost of its debt. The
Company does not have any derivative financial instruments.
Approximately 32% of the Company's cost of goods sold for the year ended
December 31, 1999, represents purchases of private label product denominated in
Yen. During the year ended December 31, 1999, the Yen versus the U.S. Dollar
exchange rate experienced on purchases ranged from a low of 102.45 Yen to a high
of 123.05 Yen. A significant decrease in the exchange rate of Yen versus the
U.S. Dollar could have an adverse effect on the Company's financial condition or
results of operations.
The Company's only long-term debt at December 31, 1999, is comprised of
Industrial Development bonds. The Company financed the construction of a
manufacturing and office facility in San Marcos, California through $4,500,000
of bonds issued by the Industrial Development Authority of City of San Marcos on
December 19, 1985. The bonds mature in December 2005, and interest is accrued at
a variable monthly rate. Interest was paid at a weighted-average variable rate
of 3.39% during 1999.
A significant increase in interest rates could have an adverse effect on
the Company's financial condition or results of operations.
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
Amistar Corporation:
We have audited the accompanying balance sheets of Amistar Corporation as of
December 31, 1999 and 1998, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1999. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Amistar Corporation as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 1999, in
conformity with generally accepted accounting principles.
San Diego, California /s/ KPMG LLP
------------
January 28, 2000
14
AMISTAR CORPORATION
Balance Sheets
December 31, 1999 1998
- ------------------------------------------------------------------------------------------------------------
ASSETS (note 5)
Current assets:
Cash and cash equivalents $ 2,475,705 $ 1,476,611
Trade accounts receivable, less allowance for doubtful
accounts of $853,995 in 1999 and $164,839 in 1998 2,673,129 4,852,762
Contracts receivable (note 3) 841,045 1,139,686
Income taxes receivable (note 6) 207,518 289,204
Inventories (note 2) 3,046,999 4,834,863
Demonstration equipment 117,577 273,630
Prepaid expenses 72,084 216,703
Deferred income taxes (note 6) - 461,000
---------------- ----------------
Total current assets 9,434,057 13,544,459
---------------- ----------------
Property and equipment:
Land 981,875 981,875
Building and building improvements 4,078,205 4,043,098
Machinery and equipment 6,755,346 6,589,604
Computer software and equipment 463,447 707,525
Leasehold improvements 11,767 11,767
---------------- ----------------
12,290,640 12,333,869
Less accumulated depreciation and amortization (6,908,443) (6,565,582)
---------------- ----------------
Net property and equipment 5,382,197 5,768,287
---------------- ----------------
Contracts receivable (note 3) 24,730 987,085
Restricted cash (note 5) 1,329,000 1,329,000
Other assets 114,712 130,087
---------------- ----------------
$ 16,284,696 $ 21,758,918
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 514,854 $ 652,161
Accrued payroll and related costs 120,154 180,163
Accrued liabilities 212,236 460,206
Accrued product installation and warranty costs 105,000 115,000
Accrued commissions 245,401 427,766
---------------- ----------------
Total current liabilities 1,197,645 1,835,296
---------------- ----------------
Industrial development bonds (note 5) 4,500,000 4,500,000
---------------- ----------------
Shareholders' equity:
Preferred stock, $.01 par value. Authorized 2,000,000
shares; none outstanding - -
Common stock, $.01 par value. Authorized 20,000,000
shares; 3,136,500 shares issued and
outstanding in 1999 and 1998, respectively 31,365 31,365
Additional paid-in capital 4,589,043 4,589,043
Retained earnings 5,966,643 10,803,214
---------------- ----------------
Total shareholders' equity 10,587,051 15,423,622
---------------- ----------------
Commitments (note 8)
$ 16,284,696 $ 21,758,918
================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
15
AMISTAR CORPORATION
Statements of Operations
Years ended December 31, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------
Net sales $ 15,070,500 $ 20,727,734 $ 22,839,985
Cost of sales 13,775,398 15,109,123 14,738,210
---------------- ---------------- ----------------
Gross profit 1,295,102 5,618,611 8,101,775
---------------- ---------------- ----------------
Operating expenses:
Selling 2,637,321 3,221,907 4,154,762
General and administrative 2,065,480 1,066,993 1,014,350
Engineering, research and development 1,196,724 1,201,919 1,461,524
---------------- ---------------- ----------------
5,899,525 5,490,819 6,630,636
---------------- ---------------- ----------------
Income (loss) from operations (4,604,423) 127,792 1,471,139
Other income (expense):
Interest expense (152,640) (173,497) (172,461)
Interest income 110,175 164,875 257,706
Miscellaneous 6,214 61,468 41,314
---------------- ---------------- ----------------
Earnings (loss) before income taxes (4,640,674) 180,638 1,597,698
Income tax expense (benefit) (note 6) 195,897 (50,000) 505,000
---------------- ---------------- ----------------
Net earnings (loss) $ (4,836,571) $ 230,638 $ 1,092,698
================ ================ ================
Basic and diluted earnings per common share $ (1.54) $ 0.07 $ 0.34
================ ================ ================
Weighted-average shares
outstanding (in thousands) 3,137 3,206 3,236
================ ================ ================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
AMISTAR CORPORATION
Statements of Shareholders' Equity
Years Ended December 31, 1999, 1998 and 1997
- ------------------------------------------------------------------------------------------------------------------
Common Stock
---------------------------- Additional Total
Shares Paid-in Retained Shareholders'
(in 000's) Amount capital Earnings Equity
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1996 3,228 $ 32,282 $ 4,825,405 $ 9,479,878 $ 14,337,565
Shares issued in connection with
the stock option plan 9 83 17,839 - 17,922
Net income - - - 1,092,698 1,092,698
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1997 3,237 32,365 4,843,244 10,572,576 15,448,185
Repurchase of common shares (100) (1,000) (254,201) - (255,201)
Net income - - - 230,638 230,638
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1998 3,137 31,365 4,589,043 10,803,214 15,423,622
Net loss - - - (4,836,571) (4,836,571)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1999 3,137 $ 31,365 $ 4,589,043 $ 5,966,643 $ 10,587,051
============= ============= ============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
AMISTAR CORPORATION
Statements of Cash Flows
Years ended December 31, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net earnings (loss) $ (4,836,571) $ 230,638 $ 1,092,698
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation and amortization 736,189 615,946 610,571
Gain on sale of equipment (3,784) (21,000) (39,368)
Provision for deferred income tax expense (benefit) 461,000 234,000 (37,000)
Changes in assets and liabilities:
Trade accounts receivable, net 2,179,633 402,631 1,279,784
Income taxes receivable 81,686 (289,204) -
Inventories 1,637,864 (255,742) (199,766)
Demonstration equipment 156,053 257,621 235,511
Prepaid expenses 144,619 54,699 35,193
Contracts receivable 1,260,996 (1,107,853) (1,186,849)
Other assets 15,375 10,606 14,270
Accounts payable (137,307) (7,518) 120,224
Accrued payroll and related costs (60,009) (83,229) (153,128)
Accrued liabilities (247,969) (57,304) (211,463)
Accrued product installation and warranty costs (10,000) (10,000) (25,000)
Accrued commissions (182,365) (78,188) (95,162)
Income taxes payable - (216,408) (60,529)
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities 1,195,410 (320,305) 1,379,986
Cash flows from investing activities:
Proceeds from sale of equipment 5,647 26,694 44,919
Capital expenditures (201,963) (496,026) (812,896)
---------------- ---------------- ----------------
Net cash used in investing activities (196,316) (469,332) (767,977)
Cash flows from financing activities:
Repurchase of common stock - (255,201) -
Common stock issued upon exercise of stock options - - 17,922
---------------- ---------------- ----------------
Net cash (used in) provided by financing activities - (255,201) 17,922
Net increase (decrease) in cash and cash equivalents 999,094 (1,044,838) 629,931
Cash and cash equivalents at the beginning of the year 1,476,611 2,521,449 1,891,518
---------------- ---------------- ----------------
Cash and cash equivalents at the end of the year $ 2,475,705 $ 1,476,611 $ 2,521,449
================ ================ ================
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 152,887 $ 173,978 $ 171,012
================ ================ ================
Income taxes $ 4,749 $ 108,205 $ 602,529
================ ================ ================
Supplemental disclosure of non-cash investing activities:
The Company transferred inventory recorded at $150,000 and $748,000 to
property and equipment during 1999 and 1998, respectively.
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
AMISTAR CORPORATION
Notes to Financial Statements
Three years ended December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
-----------------------
Amistar Corporation (the Company) manufactures and markets assembly
machinery for the electronics industry. In addition, the Company is a
contract assembler of printed circuit board assemblies, operating as a
separate division under the name Amistar Manufacturing Services (AMS). The
Company's customers are located predominately in the United States and
Europe. The Company's headquarters and primary manufacturing facility is
located in San Marcos, California. The Company's raw materials are
available readily, and the Company is not dependent on a single supplier or
only a few suppliers, except for the private label equipment line as
disclosed in note 12.
Principles of Consolidation
---------------------------
The 1998 and 1997 financial statements include the accounts of the Company
and its wholly owned subsidiaries, Amistar AG (a Swiss corporation),
Amistar GmbH (a German corporation) and Amistar Ltd., a foreign sales
corporation (FSC). In December 1997, the Company decided to pursue European
activities through the use of independent distributors and as such, closed
its own direct sales and service offices in Germany and Switzerland. The
liquidation of the legal entities was substantially concluded in 1998. All
significant inter-company balances and transactions have been eliminated in
consolidation.
Revenue Recognition
-------------------
The Company recognizes sales upon shipment of machinery and parts and upon
performance of billable service labor. At the time of shipment, the Company
also provides for all estimated non-billable installation, training and
warranty repair costs to be incurred.
Cash and cash equivalents
-------------------------
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
December 31, 1999 and 1998, cash equivalents amounted to $1,957,000 and
$1,188,000, respectively.
Inventories
-----------
Inventories are valued at the lower of cost (first-in, first-out) or market
(net realizable value) and are reviewed regularly for obsolescence.
Demonstration Equipment
-----------------------
Demonstration equipment represents short-term transfers of inventory for
purposes of participating in trade shows and demonstrations with customers.
This equipment is typically sold or returned to inventory within six
months.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is recorded using
the straight-line method over the estimated useful lives of the assets as
follows:
Building 40 years
Building improvements 10 years
Machinery and equipment 4-7 years
Computer software and equipment 3-5 years
Leasehold improvements Shorter of lease term or useful life
19
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Bond Refinancing Costs
-------------------------------
Costs incurred in connection with refinancing the Industrial Development
Bonds are amortized on the effective interest method basis over the life of
the bonds. Deferred costs are included in other assets.
Research and Development Costs
------------------------------
Research and development costs are expensed in the period incurred.
Income Taxes
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Stock-Based Compensation
------------------------
The Company adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, the Company continues to account
for stock-based compensation under APB Opinion No. 25, "Accounting for
Stock Issued to Employees" and related interpretations. As such,
compensation expense for employee stock option grants is recorded on the
date of grant only if the current market price of the Company's stock
exceeds the exercise price.
Earnings per Common Share
-------------------------
The Company computes basic and diluted earnings per share in accordance
with SFAS No. 128, "Earnings per Share". For the year ended December 31,
1999, stock options totaling 121,000 were excluded in the computation of
diluted net income (loss) per share as their effect is anti-dilutive.
Use of Estimates
----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities and revenues and expenses,
and the disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Foreign Currency Translation
----------------------------
The accounts of foreign subsidiaries were measured using the U.S. dollar as
the functional currency. Gains and losses are not significant and are
included in general and administrative expenses in the Statements of
Operations.
Fair Value of Financial Instruments
-----------------------------------
The carrying amount of cash and cash equivalents, trade and income tax
receivables, accounts payable and accrued expenses approximate fair value
because of the short maturity of those instruments. The carrying amounts of
contracts receivable approximate fair value because the contract interest
rates and terms reflect market rates and terms on similar instruments. The
carrying amount of the Company's Industrial Development Bonds approximates
fair value due to the variable interest rate provision, which effectively
re-prices the instruments to market values on a monthly basis.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
-----------------------------------------------------------------------
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying
amount of the assets to future net cash flows (undiscounted and without
interest) expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair
value of the assets. Assets to be disposed of are reported at the lower of
the carrying amount or fair value less costs to sell.
20
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(2) INVENTORIES
Inventories at December 31, 1999 and 1998, consist of the following:
1999 1998
--------------- ---------------
Raw Material $ 964,526 $ 876,236
Work In Process 1,074,372 2,016,344
Finished Goods 1,008,101 1,942,283
--------------- ---------------
$ 3,046,999 $ 4,834,863
=============== ===============
(3) CONTRACTS RECEIVABLE
The Company sells machines to certain customers with payment terms
extending beyond one year. The Company charges interest on these sales
contracts, at rates ranging from 9% to 10.5%. The Company regularly
evaluates the collectability associated with these balances and provides
allowances as deemed necessary (note 13).
(4) REVOLVING CREDIT LINE
The Company maintained a $2,000,000 revolving line of credit with a bank
until March 31, 1999. The terms provided for interest payable at the bank's
reference rate (7.75% at December 31, 1998) plus 1%. The line was secured
by substantially all assets of the Company. During 1999, 1998 and 1997, no
amounts had been advanced on this line.
(5) INDUSTRIAL DEVELOPMENT BONDS
The Company financed the construction of a manufacturing and office
facility in San Marcos, California through $4,500,000 of bonds issued by
the Industrial Development Authority of City of San Marcos on December 19,
1985. The bonds originally matured in December 1995. In October 1995, the
Company secured an extension of the maturity date to December 2005. The
bonds bear interest at a variable rate (3.7% at December 31, 1999), with
interest payable monthly. The bonds are guaranteed by an irrevocable letter
of credit, which is secured by substantially all assets of the Company. The
terms of the irrevocable letter of credit required the Company to establish
a $1,329,000 interest-bearing cash collateral account in order to meet a
loan-to-value ratio covenant. During 1999, the Company was in default on
financial covenants related to the letter of credit agreement. On November
3, 1999, the Company received a waiver related to these covenants extending
through December 31, 2000. Costs incurred in connection with the bond
refinancing primarily consists of loan origination fees, broker's
commission, legal and other fees, which have been capitalized and included
in other assets. The bond costs are amortized over the term of the bonds.
Deferred bond-refinancing costs were $81,000 and $96,000 at December 31,
1999 and 1998, respectively. Ongoing fees related to the bonds and the
irrevocable letter of credit will approximate 2% of the bond principal
annually.
21
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(6) INCOME TAXES
Income tax expense (benefit) consists of the following:
Federal State Foreign Total
-------------- -------------- -------------- -------------
1999 Current $ (268,000) $ 3,000 $ - $ (265,000)
Deferred 411,000 50,000 - 461,000
-------------- -------------- -------------- -------------
$ 143,000 $ 53,000 $ - $ 196,000
============== ============== ============== =============
1998 Current $ (286,000) $ 2,000 $ - $ (284,000)
Deferred 211,000 23,000 - 234,000
-------------- -------------- -------------- -------------
$ (75,000) $ 25,000 $ - $ (50,000)
============== ============== ============== =============
1997 Current $ 323,000 $ 85,000 $ 134,000 $ 542,000
Deferred (29,000) (8,000) - (37,000)
-------------- -------------- -------------- -------------
$ 294,000 $ 77,000 $ 134,000 $ 505,000
============== ============== ============== =============
Actual income taxes for 1999, 1998 and 1997 differ from "expected" income
taxes for those years (computed by applying the U.S. federal statutory rate
of 34% to earnings before taxes) as follows:
1999 1998 1997
--------------- --------------- --------------
Income taxes (federal statutory rate) $ (1,578,000) $ 61,000 $ 543,000
State and foreign income taxes, net of federal
income tax benefit 3,000 17,000 67,000
Change in valuation allowance 1,669,000 - -
Permanent differences 102,000 (142,000) (33,000)
Other, net - 14,000 (72,000)
--------------- --------------- --------------
$ 196,000 $ (50,000) $ 505,000
=============== =============== ==============
The tax effects of significant temporary differences, which comprise
deferred tax assets and liabilities consist of the following:
1999 1998
-------------- --------------
Deferred tax assets:
Allowance for doubtful accounts $ 362,000 $ 76,000
Warranty accrual 42,000 46,000
Inventory allowance 890,000 252,000
Accrued vacation 17,000 16,000
State income tax credits and loss carryforwards 42,000 12,000
Foreign tax credits and loss carryforwards 408,000 145,000
Other 86,000 29,000
-------------- --------------
Gross deferred tax assets 1,847,000 576,000
Deferred tax liabilities-depreciation and
amortization 178,000 115,000
-------------- --------------
Net deferred tax assets before valuation allowance 1,669,000 461,000
Valuation allowance (1,669,000) -
-------------- --------------
Net deferred tax assets $ - $ 461,000
============== ==============
22
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(6) INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the amount and timing of scheduled reversal of deferred tax
liabilities, projected future taxable income and projections for future
taxable income over the periods which the deferred tax assets are
deductible. Management believes it is more likely than not that the Company
will not realize the benefits of these deductible differences.
The Company has foreign tax credits totaling $145,000, which are expected
to begin expiring in 2001. The Company has an income tax carryback in the
amount of $268,000 at December 31, 1999, which is expected to generate a
refund in fiscal 2000. In addition, the Company has income tax
carryforwards in the amount of $263,000 at December 31, 1999 which is
expected to begin expiring in 2014.
(7) STOCK OPTION PLAN
In 1994, the Company adopted an incentive stock option plan (the "Plan")
for employees. The Plan allows for grants of options to purchase up to
310,000 shares of authorized but un-issued common stock. Stock options are
granted with an exercise price equal to the stock's fair market value,
generally vest over five years from the date of grant, and expire ten years
after the date of grant.
The Company applies APB Opinion No. 25 in accounting for the Plan and,
accordingly, no compensation cost has been recognized for stock option
grants to employees and directors in the financial statements. Had the
Company determined compensation cost based on the fair value at the grant
date for its stock options under SFAS 123, the Company's net income (loss)
and net income (loss) per share would have been (reduced) increased to the
pro forma amounts as follows ($ in thousands, except per share amounts):
1999 1998 1997
-------------- -------------- --------------
Net income (loss) - as reported $ (4,837) $ 231 $ 1,093
Net income (loss) - pro forma (4,903) 211 1,076
Per share amounts:
Basic and diluted, as reported (1.54) .07 .34
Basic and diluted, pro forma (1.56) .07 .33
The per share weighted-average fair value of stock options granted during
1999, 1998 and 1997 was $1.25, $2.68 and $1.69, respectively, on the date
of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: expected life of 5 years, expected
volatility of 61%, 63% and 62% in 1999, 1998 and 1997, respectively, no
dividends, and risk-free interest rate of 5.6%, 5.4% and 5.5% for 1999,
1998 and 1997, respectively.
23
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(7) STOCK OPTION PLAN (CONTINUED)
Stock option activity during the periods indicated is as follows:
Year Ended December 31,
----------------------------------------------------------------------------------------
1999 1998 1997
--------------------------- --------------------------- ---------------------------
Weighted- Weighted- Weighted-
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Shares Price Shares Price Shares Price
------------- ------------- ------------- ------------- ------------- -------------
Beginning balance 29,750 $ 3.1980 13,750 $ 2.8466 12,250 $ 2.2552
Options granted 182,000 1.6400 76,000 3.2862 10,000 3.0000
Options exercised - - - - (8,500) 2.1250
Options expired/cancelled (5,000) 3.5000 (60,000) 3.2292 -
------------- ------------- ------------- ------------- ------------- -------------
Ending balance 206,750 $ 1.8194 29,750 $ 3.1980 13,750 $ 2.8466
============= ============= ============= ============= ============= =============
Balance exercisable 11,500 5,000 1,250
============= ============= =============
The range of exercise prices on options outstanding at December 31,
1999.are as follows: 11,000 shares at $3.50, 10,000 shares at $3.00, 3,750
shares at $2.4375, 74,000 shares at $2.125, 20,000 shares at $1.5630 and
88,000 shares at $1.25. At December 31, 1999, the weighted-average
remaining contractual life of outstanding options was 5 years.
(8) COMMITMENTS
The Company leases certain offices and plant facilities under operating
leases. Rental expense for operating leases approximated $117,000,
$114,000, and $189,000 for the years ended December 31, 1999, 1998 and
1997, respectively. The Company has future minimum lease payments under
non-cancelable operating leases of $118,000, $51,000 and $20,000 for the
years ending December 31, 2000, 2001 and 2002 respectively.
A summary of future minimum lease payments under non-cancelable operating
leases follows:
Year Ending December 31:
------------------------
2000 $ 118,000
2001 51,000
2002 20,000
--------------
$ 189,000
==============
(9) RELATED PARTY TRANSACTIONS
The Company purchased certain electronic components from Marshall
Industries (Marshall) during the three years ended December 31, 1999.
Gordon Marshall, a director of the Company, was Chairman of the Board of
Marshall Industries until 1999, when Marshall was acquired by Avnet
Electronics Marketing. During 1999, 1998, and 1997, such purchases totaled
$751,000, $861,000 and $637,000, respectively. Accounts payable to Marshall
was $163,000 at December 31, 1998. The Company also acted as a
subcontractor to Marshall through its Amistar Manufacturing Services
division until October 1999. Sales to Marshall were $285,000, $1,223,000
and $1,215,000 in 1999, 1998 and 1997, respectively. Accounts receivable
from Marshall at December 31, 1998 was $64,000.
The Company sells its products to Automation, Ltd., the Company's exclusive
distributor for Great Britain and Ireland. Richard A. Butcher, a Director
of the Company, is Managing Director of Automation, Ltd. Sales to
Automation, Ltd. were $42,000, $39,000 and $73,000 for 1999, 1998, and
1997, respectively. Accounts receivable from Automation, Ltd. was $15,000
at December 31, 1999, and $1,000 at December 31, 1998.
(10) 401(K) PLAN
The Company established a 401(k) plan for the benefit of its employees. The
plan permits eligible employees to contribute to the plan up to 10% of
annual compensation subject to the limits set by the Internal Revenue Code.
The Company makes a matching contribution to the plan equal to 50% of the
first 6% of compensation contributed by each participant. Amounts
contributed by the Company in 1999, 1998, and 1997 were $80,000, $82,000,
and $73,000, respectively.
24
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(11) INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The following table summarizes the Company's two operating segments:
Machine Sales and Service, which encompasses the manufacture and
distribution of assembly machines and related accessories, and Amistar
Manufacturing Services. The Company identifies reportable segments based on
the unique: nature of operating activities, customer base and marketing
channels. Information is also provided by major geographical area.
MFG.
MACHINE SALES AND SERVICE SERVICES
-------------------------------------------- ----------
UNITED REST OF UNITED
STATES EUROPE WORLD TOTAL STATES CORPORATE TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ----------
Year Ended December 31, 1999
Net sales $ 7,492 $ 187 $ 1,311 $ 8,990 $ 6,081 $ - $ 15,071
========== ========== ========== ========== ========== ========== ==========
Income (loss) from
operations (2,413) (59) (443) (2,915) (1,653) (36) (4,604)
========== ========== ========== ========== ========== ========== ==========
Depreciation and amortization 76 - - 76 466 194 736
========== ========== ========== ========== ========== ========== ==========
Total assets 4,726 167 552 5,445 2,562 8,278 16,285
========== ========== ========== ========== ========== ========== ==========
Additions to long-lived assets 28 - - 28 247 77 352
========== ========== ========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1998
Net sales $ 12,068 $ 2,010 $ 461 $ 14,539 $ 6,189 $ - $ 20,728
========== ========== ========== ========== ========== ========== ==========
Income (loss) from
operations 598 109 25 732 (657) 53 128
========== ========== ========== ========== ========== ========== ==========
Depreciation and amortization 76 - - 76 329 211 616
========== ========== ========== ========== ========== ========== ==========
Total assets 10,212 1,237 36 11,485 3,014 7,260 21,759
========== ========== ========== ========== ========== ========== ==========
Additions to long-lived assets 25 - - 25 1,110 109 1,244
========== ========== ========== ========== ========== ========== ==========
YEAR ENDED DECEMBER 31, 1997:
Net sales $ 11,909 $ 4,035 $ 1,457 $ 17,401 $ 5,439 $ - $ 22,840
========== ========== ========== ========== ========== ========== ==========
Income (loss) from
operations 1,128 217 75 1,420 (76) 127 1,471
========== ========== ========== ========== ========== ========== ==========
Depreciation and amortization 70 24 - 94 382 135 611
========== ========== ========== ========== ========== ========== ==========
Total assets 9,099 1,581 31 10,711 2,226 9,299 22,236
========== ========== ========== ========== ========== ========== ==========
Additions to long-lived assets 85 6 - 91 483 239 813
========== ========== ========== ========== ========== ========== ==========
Occupancy costs related to the Company's San Marcos, CA facility totaling
$113,000, $85,000 and $ 67,000 were allocated to the AMS division from the
Machine division during 1999, 1998 and 1997, respectively. This occupancy
allocation is based on square feet utilized.
25
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(11) INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION (CONTINUED)
Earnings before income taxes allocated to the Corporate segment for 1999,
1998 and 1997 consists of interest income, interest expense and
miscellaneous income. The basis for attributing revenue to the segments and
geographical areas is based on where products and services are sold.
Included in total assets are amounts due from foreign customers aggregating
$685,000 at December 31, 1999, $1,273,000 at December 31, 1998, and
$709,000 at December 31, 1997.
(12) BUSINESS CONCENTRATIONS
The Company distributes the private label equipment line under a long-term
OEM supply agreement with Tenryu Technics. The agreement provides the
Company with exclusive rights to sell in North America and limited rights
to sell in Europe. Private label sales comprised 40%, 49% and 52% of total
sales in 1999, 1998 and 1997, respectively, and as a result, the Company
has significant dependence on this supplier. A change in suppliers could
cause a possible loss of sales and a decline in gross margins, which would
adversely affect operating results.
On January 19, 2000, the Company was notified of the establishment of a
cooperative relationship between Tenryu Technics (Tenryu) and Yamaha Motor
Co., Ltd. IM Operations. The notice stated the intent to establish a new
company on April 1, 2000, to which, Tenryu would transfer all its property
and personnel. The new company will have its own brand and sales network.
The Company is unsure what effect, if any, this announcement will have on
its relationship with Tenryu.
Most of the Company's customers are located in the United States and
Europe. During 1999, sales of $1,855,000 (or 12%) of total sales were made
to Merit Medical Systems, Inc. During 1998 and 1997, sales of $2,326,000
(or 11%) and $3,751,000 (or 16%) were made to Smart Modular Technologies
respectively. The Company estimates an allowance for doubtful accounts
based on the credit worthiness of its customers as well as general economic
conditions. Consequently, an adverse change in those factors could effect
the Company's estimate of its allowance for doubtful accounts.
(13) SUBSEQUENT EVENT
In January 2000, the Company repossessed ten private label machines from
PricePoint Micro Technologies due to default on the contract receivable
terms. The repossession of six current models and four older models
resulted in a transfer of $739,000 in contracts receivable to finished
goods inventory, in January 2000. As of December 31, 1999, the contract
receivable was written down to the net realizable value of the equipment to
be reposessed.
26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There is incorporated herein by reference the information from the section
entitled "Election of Directors" on pages 2 and 3 of the Company's definitive
Proxy Statement, dated March 24, 2000, filed with the Securities and Exchange
Commission. Reference is also made to the list of Executive Officers, which is
provided in Part I of this report under the caption "Executive Officers and
Directors."
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information from the section
entitled "Compensation of Directors and Executive Officers" on pages 5 to 7 of
the Company's definitive Proxy Statement, dated March 24, 2000, filed with the
Securities and Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information from the section
entitled "Security Ownership of Certain Beneficial Owners and Management" on
page 3 of the Company's definitive Proxy Statement, dated March 24, 2000, filed
with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information from the section
entitled "Certain Transactions" on page 10 of the Company's definitive Proxy
Statement, dated March 24, 2000, filed with the Securities and Exchange
Commission.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements of Amistar Corporation are set forth in
item 8 of this Annual Report on Form 10-K:
1. Independent Auditors' Report
Financial Statements:
Balance Sheets - December 31, 1999 and 1998 Statements of
Operations - Years Ended
December 31, 1999, 1998, and 1997.
Statements of Shareholders' Equity-Years Ended
December 31, 1999, 1998 and 1997
Statements of Cash Flows - Years Ended December 31, 1999,
1998 and 1997
Notes to Financial Statements - Three Years ended
December 31, 1999
2. The following Financial Statement Schedules as of and for the
years ended December 31, 1999, 1998 and 1997 are submitted
herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or not required.
3. Exhibits:
3.1 Restated Articles of Incorporation of Registrant, as amended.*
3.2 Bylaws of Registrant, as amended.*
27
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K,
(CONTINUED)
10.1 Lease dated July 30, 1982, between Registrant (Lessee) and
Skyway Business Park, 1978, a Limited Partnership (Lessor)
with respect to premises located at 3130 Skyway Business
Park, Building 2, Santa Maria, California 93454*
10.2 Export Distributorship Agreement dated August 17, 1981
between the Registrant and Automation, Ltd. (England,
Scotland, Wales and Ireland).*
10.3 Form of Export Distributorship Agreement used in France,
West Germany, Switzerland, Liechtenstein and Australia.*
10.4 Form of Contract for Sales Representatives used in the
United States.*
10.5 Letter Agreement dated December 6, 1984, between
Registrant and First Interstate Bank of California.***
10.6 1984 Employee Stock Option Plan and related forms of
Incentive Stock Option Agreement and Non-Qualified Stock
Option Agreement.**
10.7 Deed of Trust with assignment of rents and promissory note
dated September 21, 1984,with respect to the purchase of
land in San Marcos, California.***
10.8 Financing documents relative to $4,500,000 of bonds issued
by the Industrial Development Authority of the City of Sam
Marcos on December 19, 1985.***
10.9 Bank agreement dated November 19, 1984.*****
10.10 Amendments to the stock option plan.****
10.11 Form of Indemnity Agreement*****
10.12 1994 Employee Stock Option Plan******
22.1 List of Subsidiaries*
23.1 Independent Auditors' Consent and Report on Schedules
- ------------------------
*These exhibits are incorporated by reference from the exhibits of the
same number in the Company's Registration Statement on form S-1 (No. 2-897782).
**This exhibit is incorporated by reference from the exhibits numbered
28.1, 28.2 and 28.3 of the Company's Registration Statement on Form S-8 (No.
2-94696).
****This exhibit is incorporated by reference from the exhibits of the
same number in the Company's Annual Report on form 10-K for Year ended December
31, 1985.
****This exhibit is incorporated by reference from the exhibits of the
same number in the Company's Annual Report on form 10-K for Year ended December
31, 1986.
*****This exhibit is incorporated by reference from the exhibits of the
same number in the Company's Annual Report on form 10-K for Year ended December
31, 1987.
******This exhibit is incorporated by reference of the Company's
Registration Statement of Form-S-8 filed February 15, 1995.
28
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed by the undersigned thereunto
duly authorized.
AMISTAR CORPORATION
/s/ Stuart C. Baker
----------------------
Stuart C. Baker
President
Date: March 13, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and the dates indicated.
/s/ Stuart C. Baker Principal Executive Officer March 13, 2000
- ---------------------------- and Director
Stuart C. Baker
/s/ William W. Holl Chief Financial and Accounting March 13, 2000
- ---------------------------- Officer, Treasurer, Secretary and
William W. Holl Director
/s/ Carl C. Roecks Director March 13, 2000
- ----------------------------
Carl C. Roecks
/s/ Gordon S. Marshall Director March 13, 2000
- ----------------------------
Gordon S. Marshall
/s/ Richard A. Butcher Director March 13, 2000
- ----------------------------
Richard A. Butcher
29
AMISTAR CORPORATION
Schedule II
Valuation and Qualifying Accounts
Three years ended December 31, 1999
Column A Column B Column C Column D Column E
- ------------------------------ ----------------- -------------------------------- ------------- ----------------
Additions
--------------------------------
Balance at Charged to Charged Balance
beginning costs and to other at end
Description of period expenses accounts Deductions of period
- ----------------------------- ------------------ -------------------------------- ------------- ----------------
Allowance for doubtful
accounts (a):
1999 $ 164,839 $ 996,000 $ 57,510 $ 364,354 $ 853,995
================= ================ ============== ============== ================
1998 $ 276,126 $ 75,000 $ 103,545 $ 289,832 $ 164,839
================= ================ ============== ============== ================
1997 $ 202,756 $ 70,000 $ 13,406 $ 10,036 $ 276,126
================= ================ ============== ============== ================
Allowance for inventory
obsolescence:
1999 $ 631,200 $ 1,647,000 $ - $ 626,746 $ 1,651,454
================= ================ ============== ============== ================
1998 $ 458,496 $ 300,000 $ 90,226 $ 217,522 $ 631,200
================= ================ ============== ============== ================
1997 $ 697,701 $ 55,000 $ - $ 294,205 $ 458,496
================= ================ ============== ============== ================
Accrued product installation and warranty costs (b):
1999 $ 115,000 $ 767,563 $ - $ 777,563 $ 105,000
================= ================ ============== ============== ================
1998 $ 125,000 $ 721,962 $ - $ 731,962 $ 115,000
================= ================ ============== ============== ================
1997 $ 150,000 $ 969,000 $ - $ 994,000 $ 125,000
================= ================ ============== ============== ================
(a) DEDUCTIONS REPRESENT ACCOUNTS WRITTEN OFF AS UNCOLLECTIBLE.
(b) DEDUCTIONS INCLUDE WARRANTY AND INSTALLATION COSTS, PRODUCT SUPPORT AND
TRAINING EXPENSE.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT ON SCHEDULE.
30