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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, 2000
[ ] 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
SAN MARCOS, CA 92069-2698
(Address of principal executive offices) (Zip Code)
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, 2001: $3,677,000.
The number of shares outstanding of registrant's Common Stock as of
March 6, 2001: 3,139,000 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 2, 2001 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 ............14
8. Financial Statements and Supplementary Data............................15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure...................................................28
PART III
10. Directors and Executive Officers of the Registrant.....................28
11. Executive Compensation.................................................28
12. Security Ownership of Certain Beneficial Owners and Management.........28
13. Certain Relationships and Related Transactions.........................28
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........28
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,
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. The Company also provides contract manufacturing services to
companies who outsource the manufacturing of their electronic products.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS
- ---------------------------------------------------
The Company's operations include two business segments: Machine Sales and
Service, which encompasses the manufacture and distribution of assembly machines
and related accessories, and Amistar Manufacturing Services (AMS) which provides
contract manufacturing services. Information concerning the Company's operations
for the two segments is found in note 11 to the financial statements.
MACHINE DIVISION PRODUCTS
- -------------------------
At the end of the first quarter of 2000, the Company's Japanese
manufacturer of surface mount assembly machines sold its operations to a
competitor, leaving the Company without a source of surface mount assembly (SMD)
machines.
During 2000, the Machine Division completed its transition from a
distributor of SMD machines to an original manufacturer of automatic label
application machines for the electronics manufacturing industry. With this shift
in product focus, the Company sought to more effectively utilize its core
strengths in the design, manufacture, distribution and service of factory
automation for the electronics manufacturing industry.
The Company's first label identification machine, the DataPlace(R) 100LP
is available in a standard configuration, and can be customized, through
mechanical or software modifications, to meet the needs of a specific
application. In addition, the Company offers machine system integration with the
customer's ERP system.
The Company continues to sell a small number of axial component insertion
machines, and to provide service and spare parts to customers of its installed
base of through hole insertion equipment and surface mount assembly machines.
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 a broad range of 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 out of
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 has been 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.
3
PRODUCT DEVELOPMENT, CONT'D
- ---------------------------
During 2000, 1999 and 1998, the Company's engineering, research and
development expenses were approximately $1,161,000, $1,197,000 and $1,202,000,
respectively. Development efforts were focused in 2000 on the DataPlace(R) 1M
automatic label placer and on custom applications for the DataPlace(R) 100LP.
CUSTOMERS AND MARKETING
- -----------------------
The Company's machine products are sold primarily to contract and OEM
manufacturers of electronic products. 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. On July 20, 2000 the Company announced the formation of a strategic
partnership with the Brady Corporation to jointly market the DataPlace machines
and Brady labels in North America. Labels are the primary media to which the
DataPlace machines print bar-code readable information and place on products to
be identified.
In addition to the main sales and service center at the Company's
headquarters in San Marcos, California, the Company maintains a sales and
service office located in Warrenville, Illinois.
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 2000, sales of $2,501,000 (or 14% of total sales) were made to
Zevex International, Inc. and $2,293,000 (or 12% of total sales) to Merit
Medical Systems, Inc. During 1999, sales of $1,855,000 (or 12% of total sales)
were made to Merit Medical Systems, Inc. During 1998, sales of $2,326,000 (or
11% of total sales) were made to Smart Modular Technologies.
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. During 2000, the Company's sales were primarily to
domestic customers. 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
years.
(Dollars in thousands) 2000 1999 1998
----------------------- ------------------------ ------------------------
United States $ 18,040 97% $ 13,573 90% $ 18,258 88%
Europe 305 2% 187 1% 2,010 10%
South America\Canada 73 0% 523 4% 258 1%
Asia 101 1% 788 5% 202 1%
------------ ------- ------------ ------- ------------ -------
TOTALS $ 18,519 100% $ 15,071 100% $ 20,728 100%
============ ======= ============ ======= ============ =======
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; and Melbourne, Florida offices. In Europe, the Company's
distributor, Assembly Service GmbH provides service support.
4
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.
CONTRACT MANUFACTURING
- ----------------------
The Company's ability to generate contract manufacturing service revenues
is dependent upon the availability of electronic components. Electronic
components are supplied by distributors (primary suppliers) and by brokers
(secondary suppliers). During portions of 2000, certain electronic components
were available from distributors on an allocated basis. Distributor allocations
can cause either interruption in supply to the Company or increased costs, or
both. In the event supply is only available through secondary suppliers, the
Company may also experience limitations on availability in addition to increased
costs.
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 competitor is Nortek Automation, Inc.
Prior to the second quarter of 2000 when the Company exited the SMD assembly
machine market, the Company's primary domestic competitors were Universal
Instrument Corporation, a subsidiary of Dover Corporation, Juki Automation
Systems, Inc. and Quad. Prior to the second quarter of 2000, Amistar faced
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 machine are reliability, placement speed, responsive service, ability
to detect errors, range of labels placed, ease of programming and operation,
integration with ERP systems, and price.
There are numerous companies, both large and small in size, which provide
contract assembly services of electronic products.
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. Therefore, backlog may not
necessarily be indicative of future sales. Order lead times for contract
manufacturing vary. The backlog at December 31, 2000 was $4,199,000, all of
which is expected to ship during the next 12 months. Backlog was $2,167,000 at
December 31, 1999.
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, 2000, the Company has been issued eleven 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.
5
EMPLOYEES
- ---------
During the week ended February 16, 2001, the Company had 162 full-time
employees and 21 temporary employees. Of the total employees, 143 were employed
in manufacturing, 19 in marketing and service, 11 in product development and 10
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, contract 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.
On January 22, 2001 the Company entered into an agreement extending the lease
for an additional term of five years, expiring in March 2006, 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 in
Warrenville, Illinois, with a term of five years, expiring August 2002, at a
monthly rate of $2,376.
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 69 Chairman of the Board, President and Director
Dr. Sanford B. Ehrlich 49 Director
William W. Holl 70 Chief Financial officer, Treasurer, Secretary and Director
Gordon S. Marshall 81 Director
Carl C. Roecks 67 Director
Howard C. White 60 Director
Daniel C. Finn 44 Vice President of Operations-Machine Division
Tod N. Kilgore 43 Vice President of Sales and Marketing-AMS Division
Gregory D. Leiser 44 Vice President of Finance
Harry A. Munn 49 Vice President of Marketing and Sales-Machine Division
Michael G. Saloka 61 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.
Dr. Ehrlich, appointed Director in 2000, is Associate Professor of
Management at the College of Business Administration at San Diego State
University, and serves as the Executive Director of the school's Entrepreneurial
Management Center.
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. 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. 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 retired and serves the Company on a part-time basis.
Mr. White, appointed Director in 2000, was formerly a Partner in Charge
with Anderson Worldwide and is currently President of White & White LLC, a
financial and business consulting services company.
Mr. Finn has served the Company since 1979, and as Vice-President
Operations-Machine Division since 1999.
Mr. Kilgore has served the Company as Vice-President Sales and
Marketing-AMS 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.
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, 2000 4.25 1.516
Jun. 30, 2000 4.00 2.188
Sep. 30, 2000 4.313 2.875
Dec. 31, 2000 3.00 2.25
Mar. 31, 1999 2.6875 1.875
Jun. 30, 1999 2.25 1.75
Sep. 30, 1999 1.9375 1.25
Dec. 31, 1999 2 1.0625
* The prices indicated are as reported by the National
Association of Security Dealers.
The Company had approximately 90 shareholders of record on December 31,
2000, 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)
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Net sales $ 18,519 $ 15,071 $ 20,728 $ 22,840 $ 23,270
Cost of sales 14,111 13,776 15,109 14,738 14,634
------------ ------------ ------------ ------------ ------------
Gross profit 4,408 1,295 5,619 8,102 8,636
------------ ------------ ------------ ------------ ------------
Operating expenses:
Selling 1,780 2,637 3,222 4,155 4,402
General & administrative 738 2,065 1,067 1,014 1,145
Engineering, research & development 1,161 1,197 1,202 1,462 1,234
------------ ------------ ------------ ------------ ------------
3,679 5,899 5,491 6,631 6,781
------------ ------------ ------------ ------------ ------------
Income (loss) from operations 729 (4,604) 128 1,471 1,855
Other income (expense):
Interest, net 111 (43) (8) 86 (67)
Other 8 6 61 41 51
------------ ------------ ------------ ------------ ------------
Earnings (loss) before income taxes 848 (4,641) 181 1,598 1,839
Income tax expense (benefit) 9 196 (50) 505 117
------------ ------------ ------------ ------------ ------------
Net earnings (loss) $ 839 $ (4,837) $ 231 $ 1,093 $ 1,722
============ ============ ============ ============ ============
Earnings (loss) per common share:
Basic $ 0.27 $ (1.54) $ 0.07 $ 0.34 $ 0.53
============ ============ ============ ============ ============
Diluted $ 0.26 $ (1.54) $ 0.07 $ 0.34 $ 0.53
============ ============ ============ ============ ============
Weighted-average shares
outstanding (in thousands)
Basic 3,137 3,137 3,206 3,236 3,228
============ ============ ============ ============ ============
Diluted 3,179 3,137 3,206 3,236 3,228
============ ============ ============ ============ ============
Selected Balance Sheet Data:
December 31,
----------------------------------------------------------------
(In thousands)
2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- -----------
Working capital $ 9,625 $ 8,236 $ 11,709 $ 12,632 $ 11,938
Total assets 17,106 16,285 21,759 22,236 21,551
Long-term obligations 4,500 4,500 4,500 4,500 4,500
Retained earnings 6,805 5,967 10,803 10,573 9,480
Total shareholders' equity 11,426 10,587 15,424 15,448 14,338
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)
2000
- --------------------------
Net sales $ 4,775 $ 5,471 $ 4,025 $ 4,248
Gross profit 1,128 1,414 776 1,090
Net earnings 62 378 47 352
Earnings per common share:
Basic 0.02 0.12 0.02 0.11
Diluted 0.02 0.12 0.01 0.11
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)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS 2000 COMPARED TO 1999
- -------------------------------------------
COMPANY OVERALL
- ---------------
Sales increased to $18,519,000, from $15,071,000 in 1999, an increase of
23%. The Manufacturing Services division sales increased 51% over 1999 and as a
result contributed most of the overall sales growth. The increase in label
identification machine sales in 2000 was offset by the decline in the
discontinued distributed surface mount machines compared to 1999. No portion of
sales is attributable to inflation for 2000.
Gross profit dollars and gross profit percent increased $3,113,000 and
15.2% in 2000, compared to 1999. This increase was due to the higher gross
margins earned on the DataPlace label identification machine, improved factory
utilization and improved gross margins on contract manufacturing services. The
year 1999 was burdened with 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, which depressed margins.
Selling expenses decreased $857,000 in the current year due to staff
reductions, lower machine commission expense, and reduced machine division
marketing expenses. Substantially all the DataPlace machines were sold on a
direct basis and therefore did not require a commission payment to an outside
representative. In 1999, the machine sales were primarily comprised of sales of
the SMD machines, which required a commission payment as the machines were sold
through outside representatives.
General and administrative expense decreased $1,327,000 over 1999. The
decreased expense was due partially to a $350,000 recovery in 2000 related to
one of several bad debts totaling $996,000 that had been reserved for in 1999.
Development efforts in 2000 were focused on the second DataPlace(R) label
identification machine and on customization orders received related to the
DataPlace(R) 100LP model. Management is currently evaluating further research
and development projects for 2001.
Interest income increased $184,000 in 2000, compared to 1999, due to
higher average cash balances during 2000.
No federal income tax expense has been recorded in 2000 due to the change
in the valuation allowance. Uncertainties concerning the Company's ability to
utilize the benefits of the deferred tax assets in the future preclude it from
recording an asset at full value. Therefore a 100% valuation allowance has been
recorded against the net deferred income tax asset.
10
RESULTS OF OPERATIONS 2000 COMPARED TO 1999, CONTINUED
- ------------------------------------------------------
MACHINE SALES SEGMENT
- ---------------------
In 2000, the Machine division made the transition from offering
distributed surface mount assembly machines to offering label identification
machines. The Company's label identification machines are designed and
manufactured in-house. The Company shipped label identification machines to
predominantly Fortune 500 contract manufacturers and OEM's.
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. This
cooperative relationship led to the formation of a new company named I-Pulse
Company Ltd. during 2000. During January 2001, the Company, following its
strategy to reposition itself from SMD assembly to label identification
machines, chose to no longer carry the distributed machine line. Accordingly,
the agreement between the Company and I-Pulse will terminate effective June 30,
2001. The Company was able to successfully sell off its remaining distributed
machine inventory during the first two quarters of 2000, including ten machines
repossessed from PricePoint Micro Technologies in January 2000.
The Company's through-hole machines in the field generate a significant
portion of parts and service sales. However, as population of the Company's
through-hole technology machines declines, 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 in previous
years have come from the distributed private label machine line, whereas in
2000, the label identification machine was the primary contributor.
CONTRACT MANUFACTURING SERVICES SEGMENT
- ---------------------------------------
The year 2000 was a record year for AMS sales and gross margin. Sales
generated from the AMS division increased 51% in 2000 over 1999. During 1999,
the Company made investments in staff, equipment and ISO 9002 certification.
These enhanced capabilities resulted in the addition of several major new
customers and growth with existing customers during 2000. In addition, the
Company concluded business with several small high risk and unprofitable
customers. Gross margins improved as a result of increased labor efficiencies on
the increased volume. Credit risk decreased during 2000 as the division upgraded
its class of customers to larger and more financially stable companies.
RESULTS OF OPERATIONS 1999 COMPARED TO 1998
- -------------------------------------------
Sales decreased to $15,071,000 in 1999, 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 focus and marketing effort in the product
identification technology sector. Unlike the SMD machine market, with its mature
technology, and intense competition, the product identification market was in
the early stage of development and under served. 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.
The table on page 13 shows that sales of Amistar manufactured machines,
parts, and service declined during 1999. The Company discontinued marketing its
PlaceMaster(R) surface mount machine models in 1999. During 1999, two
PlaceMaster(R) machines were transferred from inventory to AMS as part of a
planned expansion of assembly line capacity.
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.
11
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 1999 due to staff reductions and
reduced marketing expenses. Lower machine sales volume and the resulting lower
commission expense also resulted in reduced selling expenses.
General and administrative expense increased $998,000 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 repossessed by the Company.
Development efforts in 1999 were focused the DataPlace(R) label
identification machine.
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.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's cash flow from operations increased during 2000 and 1999
compared to a decrease in 1998. Working capital increased $1,389,000 in 2000 and
decreased $3,473,000 and $923,000 in 1999 and 1998 respectively. Operating
activities generated (consumed) $2.3 million, 1.2 million, and $(.3) million in
cash flow during the years ended 2000, 1999, and 1998, respectively. The current
year increase in working capital was primarily due to collection of contracts
receivable, an income tax carryback refund and a bad debt recovery.
In January 2000, the Company repossessed ten private label machines from
PricePoint Micro Technologies due to default on the contract receivable terms,
which were subsequently sold for $1,103,000 in 2000.
The Company generated cash in 1999 by collecting accounts receivable,
collecting a contract receivable for $400,000 in advance of its scheduled
maturity date, and by reducing inventory. 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 repossessed.
As in 1999 and 1998, investment activities in 2000 consisted primarily of
capital expenditures to support the expected growth of the Amistar Manufacturing
Services division. During 2000, the Company also installed a new
telecommunications system. During 1999, the AMS division added another SMD
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 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 in 1995.
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 Company maintained a revolving line of credit with its bank during
1998 until expiration on March 31, 1999. The Company 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, 2000 will be adequate to
support its operating and investing requirements through 2001.
12
The following table sets forth the statements of operations as a
percentage of net sales:
PERCENTAGE OF NET SALES
-----------------------
2000 1999 1998
-------------- --------------- ------------
Net sales 100.0 100.0 100.0
Cost of sales 76.2 91.4 72.9
-------------- --------------- ------------
Gross profit 23.8 8.6 27.1
-------------- --------------- ------------
Operating expenses:
Selling 9.6 17.5 15.5
General and administrative 4.0 13.7 5.1
Engineering, research and development 6.3 7.9 5.8
-------------- --------------- ------------
19.9 39.1 26.4
-------------- --------------- ------------
Income (loss) from operations 3.9 (30.5) 0.7
Other income (expense):
Interest, net .7 (.3) .0
Miscellaneous .0 .0 .2
-------------- --------------- ------------
Earnings (loss) before income taxes 4.6 (30.8) 0.9
Income tax expense (benefit) 0.1 1.3 (.2)
-------------- --------------- ------------
Net earnings (loss) 4.5 (32.1) 1.1
============== =============== ============
The following table sets forth sales (in thousands) by product classification:
2000 1999 1998
----------------------- ----------------------- ------------------------
Amistar machines,
parts and service $ 6,279 33% $ 2,989 20% $ 4,346 21%
Private label machines 3,062 17% 6,001 40% 10,193 49%
Manufacturing services 9,178 50% 6,081 40% 6,189 30%
------------- -------- ------------- --------- ------------- --------
$ 18,519 100% $ 15,071 100% $ 20,728 100%
============= ======== ============= ========= ============= ========
NEW ACCOUNTING PRONOUNCEMENTS
- -----------------------------
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which was amended by Statement
of Financial Accounting Standards No. 137 and Statement of Financial Accounting
Standards No. 138. SFAS 133 requires companies to recognize all derivatives as
either assets or liabilities, with the instruments measured at fair value and is
effective January 1, 2001. The accounting for changes in fair value gains and
losses depends on the intended use of the derivative and its resulting
designation. The adoption did not have a material impact on the Company's
financial condition or its results of operations at January 1, 2001.
13
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 17% of the Company's cost of goods sold for the year ended
December 31, 2000, represents purchases of private label product denominated in
Yen. During the year ended December 31, 2000, the Yen versus the U.S. Dollar
exchange rate experienced on purchases ranged from a low of 104.49 Yen to a high
of 111.78 Yen. A hypothetical 10% decrease in the exchange rate of Yen versus
the U.S. Dollar would not have an adverse effect on the Company's financial
condition or results of operations.
The Company's only long-term debt at December 31, 2000 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 4.00% during 2000. A hypothetical 10% increase in the weighted-average
interest rate for 2000 would have reduced net income by approximately $18,000.
14
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, 2000 and 1999, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
San Diego, California BY /S/ KPMG LLP
------------------
February 2, 2001
15
AMISTAR CORPORATION
Balance Sheets
December 31, 2000 1999
- -------------------------------------------------------------------------------------------------------
ASSETS (note 5)
Current assets:
Cash and cash equivalents $ 4,519,494 $ 2,475,705
Trade accounts receivable, less allowance for doubtful
accounts of $138,922 in 2000 and $853,995 in 1999 2,843,486 2,673,129
Contracts receivable (note 3) 55,871 841,045
Income taxes receivable (note 6) - 207,518
Inventories (note 2) 3,078,850 3,046,999
Demonstration equipment 112,536 117,577
Prepaid expenses 194,598 72,084
------------------ ------------------
Total current assets 10,804,835 9,434,057
------------------ ------------------
Property and equipment:
Land 981,875 981,875
Building and building improvements 4,078,205 4,078,205
Machinery and equipment 7,002,893 6,755,346
Computer software and equipment 463,447 463,447
Leasehold improvements 11,767 11,767
------------------ ------------------
12,538,187 12,290,640
Less accumulated depreciation and amortization (7,669,315) (6,908,443)
------------------ ------------------
Net property and equipment 4,868,872 5,382,197
------------------ ------------------
Contracts receivable (note 3) - 24,730
Restricted cash (note 5) 1,329,000 1,329,000
Other assets 103,154 114,712
------------------ ------------------
$ 17,105,861 $ 16,284,696
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 588,542 $ 514,854
Accrued payroll and related costs 152,822 120,154
Accrued liabilities 239,773 212,236
Accrued product installation and warranty costs 105,000 105,000
Accrued commissions 93,888 245,401
------------------ ------------------
Total current liabilities 1,180,025 1,197,645
------------------ ------------------
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 2000 and 1999, respectively 31,365 31,365
Additional paid-in capital 4,589,043 4,589,043
Retained earnings 6,805,428 5,966,643
------------------ ------------------
Total shareholders' equity 11,425,836 10,587,051
------------------ ------------------
Commitments (note 8)
$ 17,105,861 $ 16,284,696
================== ==================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
16
AMISTAR CORPORATION
Statements of Operations
Years ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------
Net sales $ 18,519,075 $ 15,070,500 $ 20,727,734
Cost of sales 14,111,007 13,775,398 15,109,123
------------------ ------------------ ------------------
Gross profit 4,408,068 1,295,102 5,618,611
------------------ ------------------ ------------------
Operating expenses:
Selling 1,780,191 2,637,321 3,221,907
General and administrative 737,977 2,065,480 1,066,993
Engineering, research and development 1,161,039 1,196,724 1,201,919
------------------ ------------------ ------------------
3,679,207 5,899,525 5,490,819
------------------ ------------------ ------------------
Income (loss) from operations 728,861 (4,604,423) 127,792
Other income (expense):
Interest expense (182,624) (152,640) (173,497)
Interest income 293,905 110,175 164,875
Other 7,643 6,214 61,468
------------------ ------------------ ------------------
Earnings (loss) before income taxes 847,785 (4,640,674) 180,638
Income tax expense (benefit) (note 6) 9,000 195,897 (50,000)
------------------ ------------------ ------------------
Net earnings (loss) $ 838,785 $ (4,836,571) $ 230,638
================== ================== ==================
Earnings (loss) per common share:
Basic $ 0.27 $ (1.54) $ 0.07
================== ================== ==================
Diluted $ 0.26 $ (1.54) $ 0.07
================== ================== ==================
Weighted-average shares outstanding:
Basic 3,136,500 3,136,500 3,206,000
================== ================== ==================
Diluted 3,179,000 3,136,500 3,206,000
================== ================== ==================
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
17
AMISTAR CORPORATION
Statements of Shareholders' Equity
Years Ended December 31, 2000, 1999, and 1998
- ------------------------------------------------------------------------------------------------------------------
Common Stock
----------------------------- Additional Total
Shares Paid-in Retained Shareholders'
(in 000'S) Amount Capital Earnings Equity
------------ ------------ ------------ ------------ ------------
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
Net income - - - 838,785 838,785
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2000 3,137 $ 31,365 $ 4,589,043 $ 6,805,428 $ 11,425,836
============= ============= ============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
18
AMISTAR CORPORATION
Statements of Cash Flows
Years ended December 31, 2000 1999 1998
- -------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net earnings (loss) $ 838,785 $(4,836,571) $ 230,638
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 760,872 736,189 615,946
Gain on sale of equipment - (3,784) (21,000)
Provision for deferred income tax expense - 461,000 234,000
Changes in assets and liabilities:
Trade accounts receivable, net (170,357) 2,179,633 402,631
Income taxes receivable 207,518 81,686 (289,204)
Inventories (31,851) 1,637,864 (255,742)
Demonstration equipment 5,041 156,053 257,621
Prepaid expenses (122,514) 144,619 54,699
Contracts receivable 809,904 1,260,996 (1,107,853)
Other assets 11,558 15,375 10,606
Accounts payable 73,688 (137,307) (7,518)
Accrued payroll and related costs 32,668 (60,009) (83,229)
Accrued liabilities 27,537 (247,969) (57,304)
Accrued product installation and warranty costs - (10,000) (10,000)
Accrued commissions (151,513) (182,365) (78,188)
Income taxes payable - - (216,408)
------------ ------------ ------------
Net cash provided by (used in) operating activities 2,291,336 1,195,410 (320,305)
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of equipment - 5,647 26,694
Capital expenditures (247,547) (201,963) (496,026)
------------ ------------ ------------
Net cash used in investing activities (247,547) (196,316) (469,332)
------------ ------------ ------------
Cash flows from financing activities-
repurchase of common stock - - (255,201)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 2,043,789 999,094 (1,044,838)
Cash and cash equivalents at the beginning of the year 2,475,705 1,476,611 2,521,449
------------ ------------ ------------
Cash and cash equivalents at the end of the year $ 4,519,494 $ 2,475,705 $ 1,476,611
============ ============ ============
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 179,971 $ 152,887 $ 173,978
============ ============ ============
Income taxes $ 3,267 $ 4,749 $ 108,205
============ ============ ============
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.
19
AMISTAR CORPORATION
Notes to Financial Statements
Three years ended December 31, 2000
(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 electronic products including 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. The
Company's headquarters and primary manufacturing facility is located in San
Marcos, California. The Company's raw materials are readily available subject to
certain market conditions that may affect the allocation of electronic
components.
PRINCIPLES OF CONSOLIDATION
- ---------------------------
The 1998 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
- -------------------
In the fourth quarter of 2000, the Company implemented Securities and Exchange
Commission's Staff Accounting Bulletin No.101, "Revenue Recognition in Financial
Statements" ("SAB 101"). Effective as of January 1, 2000, SAB 101 summarizes
certain of the SEC's staff's views in applying generally accepted accounting
principles to revenue recognition in financial statements. Implementation of
this bulletin did not have an impact on the Company's results of operations.
The Company generally recognizes revenue for machine sales upon shipment and
installation for the initial machine model sold to a customer. Revenue is
generally recognized for subsequent machine sales upon shipment, provided title
has transferred and the model, configuration, and application are substantially
similar. In addition, the Company considers many factors in the evaluation of
revenue recognition, including customer acceptance criteria, complexity of
installation and integration into production lines. Revenue for manufacturing
services, machine accessories, and spare parts are recognized upon shipment.
Billable service labor revenue is recognized upon completion. At the time of
shipment, the Company accrues for 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, 2000
and 1999, cash equivalents amounted to $4,394,000 and $1,957,000, 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
20
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 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 calculates net earnings per share in accordance with SFAS No. 128,
Earnings Per Share. Under SFAS No. 128, basic net earnings per common share is
calculated by dividing net earnings by the weighted-average number of common
shares outstanding during the reporting period. Diluted net earnings per common
share reflects the effects of potentially dilutive securities. Weighted average
shares used to compute net earnings (loss) per share are presented below (in
thousands):
Years ended December 31,
--------------------------------------
2000 1999 1998
-------- -------- --------
Weighted-average shares basic 3,137 3,137 3,206
Dilutive effect of stock options 42 - -
-------- -------- --------
Weighted-average shares, diluted 3,179 3,137 3,206
======== ======== ========
Options to purchase 21,000 and 121,000 shares of common stock were not included
in the calculation of diluted net earnings per share for the years ended
December 31, 2000 and 1999 because the effects of these instruments was
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 accounting principles generally accepted in the
United States of America. 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.
21
AMISTAR CORPORATION
Notes to Financial Statements, Continued
1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
(2) INVENTORIES
Inventories at December 31, 2000 and 1999, consist of the following:
2000 1999
------------ ------------
Raw Material $ 1,418,463 $ 964,526
Work In Process 811,547 1,074,372
Finished Goods 848,840 1,008,101
------------ ------------
$ 3,078,850 $ 3,046,999
============ ============
(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.
(4) REVOLVING CREDIT LINE
The Company maintained a $2,000,000 revolving line of credit with a bank until
March 31, 1999. The line was secured by substantially all assets of the Company.
During 1998 through expiration on March 31, 1999, no amounts were advanced on
the 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 (4.5% at December 31, 2000), 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. 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 $67,000 and $81,000 at
December 31, 2000 and 1999, respectively. Ongoing fees related to the bonds and
the irrevocable letter of credit will approximate 2% of the bond principal
annually.
22
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(6) INCOME TAXES
Income tax expense (benefit) consists of the following:
Federal State Total
---------- ---------- ----------
2000 Current $ - $ 9,000 $ 9,000
Deferred - - -
---------- ---------- ----------
$ - $ 9,000 $ 9,000
========== ========== ==========
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)
========== ========== ==========
Actual income taxes for 2000, 1999 and 1998 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:
2000 1999 1998
------------ ------------ ------------
Income taxes (federal statutory rate) $ 288,000 $(1,578,000) $ 61,000
State and foreign income taxes, net of federal
income tax benefit 6,000 3,000 17,000
Change in valuation allowance 217,000 1,669,000 -
Permanent differences - 102,000 (142,000)
Income tax carryforwards and credits (502,000) - -
Other, net - - 14,000
------------ ------------ ------------
$ 9,000 $ 196,000 $ (50,000)
============ ============ ============
The tax effects of significant temporary differences, which comprise deferred
tax assets and liabilities consist of the following:
2000 1999
------------ ------------
Deferred tax assets:
Allowance for doubtful accounts $ 60,000 $ 362,000
Warranty accrual 42,000 42,000
Inventory allowance 842,000 890,000
Accrued vacation 23,000 17,000
State income tax credits and loss carryforwards 181,000 42,000
Foreign tax credits and loss carryforwards 833,000 408,000
Other 63,000 86,000
------------ ------------
Gross deferred tax assets 2,044,000 1,847,000
Valuation allowance (1,886,000) (1,669,000)
------------ ------------
Total deferred tax assets 158,000 178,000
------------ ------------
Deferred tax liabilities-depreciation and
amortization (158,000) (178,000)
------------ ------------
Net deferred tax assets $ - $ -
============ ============
23
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 tax credits totaling $402,000, of which $145,000 in foreign tax
credits are expected to begin expiring in 2001. In addition, the Company has
income tax carryforwards in the amount of $1,794,000 at December 31, 2000, which
is expected to begin expiring in 2014.
(7) STOCK OPTION PLAN
In 1994, the Company adopted an incentive stock option plan (the "Plan") for
employees. The Plan allows for grants of options to purchase up to 310,000
shares of authorized but un-issued common stock. Stock options are granted with
an exercise price equal to the stock's fair market value, generally vest over
four years from the date of grant, and expire five years after the date of
grant.
The Company applies APB Opinion No. 25, and related interpretations, in
accounting for the Plan and, accordingly, no compensation cost has been
recognized for stock option grants to employees and directors in the financial
statements. Had the Company determined compensation cost based on the fair value
at the grant date for its stock options under SFAS 123, the Company's net
earnings (loss) and net earnings (loss) per share would have been (reduced)
increased to the pro forma amounts as follows ($ in thousands, except per share
amounts):
2000 1999 1998
-------------- -------------- --------------
Net earnings (loss) - as reported $ 839 $ (4,837) $ 231
Net earnings (loss) - pro forma 747 (4,903) 211
Earnings (loss) per share::
Basic, as reported .27 (1.54) .07
Diluted, as reported .26 (1.54) .07
Basic and diluted, pro forma .24 (1.56) .07
The per share weighted-average fair value of stock options granted during
2000, 1999 and 1998 was $1.33, $1.25 and $2.68, 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 55%, 61% and 63% in 2000, 1999 and 1998, respectively, no
dividends, and risk-free interest rate of 6.1%, 5.6% and 5.4% for 2000,
1999 and 1998, respectively.
24
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,
-------------------------------------------------------------------------------------
2000 1999 1998
--------------------------- --------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Shares Price Shares Price Shares Price
------------ ------------ ------------ ------------ ------------- ------------
Beginning balance 206,750 $ 1.8194 29,750 $ 3.1980 13,750 $ 2.8466
Options granted 14,000 2.4732 182,000 1.6400 76,000 3.2862
Options exercised - - - - - -
Options expired/cancelled (7,750) 2.0503 (5,000) 3.5000 (60,000) 3.2292
------------ ------------ ------------ ------------ ------------- ------------
Ending balance 213,000 $ 1.8539 206,750 $ 1.8194 29,750 $ 3.1980
============ ============ ============ ============ ============= ============
Balance exercisable 60,000 11,500 5,000
============ ============ =============
The range of exercise prices on options outstanding at December 31, 2000, are as
follows: 11,000 shares at $3.50, 10,000 shares at $3.00, 6,000 shares at
$2.6875, 8,000 shares at $2.3125, 72,000 shares at $2.125, 20,000 shares at
$1.5630 and 86,000 shares at $1.25. At December 31, 2000, the weighted-average
remaining contractual life of outstanding options was 3.4 years.
(8) COMMITMENTS
The Company leases certain offices and plant facilities under operating leases.
Rental expense for operating leases approximated $120,000, $117,000, and
$114,000 for the years ended December 31, 2000, 1999 and 1998, respectively. The
Company has future minimum lease payments under non-cancelable operating leases
of $51,000 and $20,000 for the years ending December 31, 2001 and 2002
respectively. On January 22, 2001 the Company entered into an agreement which
extended the Anaheim Manufacturing Services facility lease. The lease extension
calls for future minimum lease payments of $547,000 over a five-year period
beginning April 1, 2001.
(9) RELATED PARTY TRANSACTIONS
The Company purchased certain electronic components from Marshall Industries
(Marshall) during the two 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 and
1998, such purchases totaled $751,000 and $861,000, 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 and $1,223,000 for 1999 and
1998, 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 until December 2000, formerly held the position of Managing Director of
Automation, Ltd. Sales to Automation, Ltd. were $109,000, $42,000 and $39,000
for 2000, 1999, and 1998, respectively. Accounts receivable from Automation,
Ltd. were $8,000 at December 31, 2000, and $15,000 at December 31, 1999.
(10) 401(K) PLAN
The Company has 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 2000, 1999, and 1998 were $89,000, $80,000, and $82,000, respectively.
25
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, 2000
Net sales $ 8,862 $ 305 $ 174 $ 9,341 $ 9,178 $ - $ 18,519
=========== ========== ========== ============ ========== ========== ===========
Income from operations 581 20 12 613 116 - 729
=========== ========== ========== ============ ========== ========== ===========
Depreciation and amortization 62 - - 62 454 245 761
=========== ========== ========== ============ ========== ========== ===========
Total assets 5,790 202 116 6,108 5,650 5,348 17,106
=========== ========== ========== ============ ========== ========== ===========
Additions to long-lived assets 33 - - 33 96 119 248
=========== ========== ========== ============ ========== ========== ===========
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
=========== ========== ========== ============ ========== ========== ===========
Occupancy costs related to the Company's San Marcos, CA facility totaling
$113,000, $113,000 and $85,000 were allocated to the AMS division from the
Machine division during 2000, 1999 and 1998, respectively. This occupancy
allocation is based on square feet utilized.
The basis for attributing revenue to the segments and geographical areas is
based on where products and services are sold. In addition, total assets include
accounts receivables due from foreign customers aggregating $64,000 at December
31, 2000, $685,000 at December 31, 1999, and $1,273,000 at December 31, 1998.
26
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(12) BUSINESS CONCENTRATIONS
The Company distributes private label accessories and spare parts under an OEM
supply agreement with I-Pulse Company Ltd. (formerly Tenryu Technics). The
agreement, which will expire June 30, 2001, provides the Company with exclusive
rights to sell in North America and limited rights to sell in Europe
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. This
cooperative relationship led to the formation of a new company named I-Pulse
Company Ltd. during 2000. During January 2001, the Company, following its
strategy to reposition itself from SMD assembly to label identification
machines, choose to no longer carry the distributed line. Accordingly, the
agreement between the Company and I-Pulse will terminate effective June 30.
2001. The Company was able to successfully sell off its remaining distributed
machine inventory during the first two quarters of 2000, including the ten
machines repossessed from PricePoint Micro Technologies in January 2000. Private
label sales comprised 17%, 40% and 49% of total sales in 2000, 1999 and 1998,
respectively, and as a result, the Company had significant dependence on this
supplier during 1999 and 1998.
Most of the Company's customers are located in the United States. During 2000,
sales of $2,501,000 (or 14% of total sales) were made to Zevex International,
Inc. and $2,293,000 (or 12% of total sales) to Merit Medical Systems, Inc.
During 1999, sales of $1,855,000 (or 12% of total sales) were made to Merit
Medical Systems, Inc. During 1998, sales of $2,326,000 (or 11% of total sales)
were made to Smart Modular Technologies.
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
On January 22, 2001 the Company entered into an agreement which extended the
Anaheim Manufacturing Services facility lease. The lease extension calls for
future minimum lease payments of $547,000 over a five-year period beginning
April 1, 2001.
27
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 23, 2001, 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, 7 and 11
of the Company's definitive Proxy Statement, dated March 23, 2001, 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 4 of the Company's definitive Proxy Statement, dated March 23, 2001, filed
with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
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, 2000 and 1999
Statements of Operations - Years ended December 31, 2000,
1999, and 1998.
Statements of Shareholders'- Equity-Years ended December 31,
2000, 1999 and 1998
Statements of Cash Flows - Years ended December 31, 2000, 1999
and 1998
Notes to Financial Statements - Years ended December 31, 2000,
1999 and 1998
2. The following Financial Statement Schedules as of and for the years
ended December 31, 2000, 1999 and 1998 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.*
28
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.
29
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
By /s/ Stuart C. Baker
----------------------
Stuart C. Baker
President
Date: March 13, 2001
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.
By /s/ Stuart C. Baker Principal Executive Officer March 13, 2001
----------------------------- and Director
Stuart C. Baker
By /s/ Sanford B. Ehrlich Director March 13, 2001
-----------------------------
Dr. Sanford B. Ehrlich
By /s/ William W. Holl Chief Financial and Accounting March 13, 2001
----------------------------- Officer, Treasurer, Secretary and
William W. Holl Director
By /s/ Gordon S. Marshall Director March 13, 2001
-----------------------------
Gordon S. Marshall
By /s/ Carl C. Roecks Director March 13, 2001
-----------------------------
Carl C. Roecks
By /s/ Howard C. White Director March 13, 2001
-----------------------------
Howard C. White
30
AMISTAR CORPORATION
Schedule II
Valuation and Qualifying Accounts
Three years ended December 31, 2000
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):
2000 $ 853,995 $ (350,457) $ 57,098 $ 421,714 $ 138,922
============== ============== ============== ============== ==============
1999 $ 164,839 $ 996,000 $ 57,510 $ 364,354 $ 853,995
============== ============== ============== ============== ==============
1998 $ 276,126 $ 75,000 $ 103,545 $ 289,832 $ 164,839
============== ============== ============== ============== ==============
Allowance for inventory
obsolescence:
2000 $ 1,651,454 $ - $ - $ 119,104 $ 1,532,350
============== ============== ============== ============== ==============
1999 $ 631,200 $ 1,647,000 $ - $ 626,746 $ 1,651,454
============== ============== ============== ============== ==============
1998 $ 458,496 $ 300,000 $ 90,226 $ 217,522 $ 631,200
============== ============== ============== ============== ==============
(a) DEDUCTIONS REPRESENT ACCOUNTS WRITTEN OFF AS UNCOLLECTIBLE.
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT ON SCHEDULE.
31