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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, 2002
[ ] 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|
Indicate by check mark whether the Registrant is an accelerated filer
(as defined by Rule 12b-2 of Exchange Act).
YES | | NO |X|
Aggregate market value of voting stock held by non-affiliates of the
registrant as of the close of business on June 30, 2002: $1,821,000.
The number of shares outstanding of registrant's Common Stock as of
March 4, 2003: 3,083,000 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 7, 2003 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 ............19
8. Financial Statements and Supplementary Data............................20
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................35
PART III
10. Directors and Executive Officers of the Registrant.....................35
11. Executive Compensation.................................................35
12. Security Ownership of Certain Beneficial Owners and Management.........35
13. Certain Relationships and Related Transactions.........................35
14. Controls and Procedures................................................35
PART IV
15. Exhibits, Financial Statement Schedules and Reports on Form 8-K........36
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, customer acceptance of products, gross margin and
marketing expenses. Statements that are predictive, that depend upon or refer to
future events or conditions, or that include words such as "expects,"
"anticipates," "intends," "plans," "believes," "estimates," "hopes," and similar
expressions constitute forward-looking statements. In addition, any statements
concerning future financial performance (including future revenues, earnings or
growth rates), ongoing business strategies or prospects, and possible future
Company actions are also forward-looking statements. 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 trade and other factors.
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. Our SEC filings
are available free of charge to the public over the Internet at the SEC's
website at http://www.sec.gov. Our SEC filings are also available on our website
at http://www.amistar.com as soon as reasonably practicable following the time
that they are filed with or furnished to the SEC. You may also read and copy any
document we file with the SEC at its public reference rooms in Washington D.C.,
New York, NY and Chicago, IL. Please call the SEC at (800) SEC-0330 for further
information on the public reference rooms.
ITEM 1. BUSINESS
Amistar Corporation (the Company) provides industrial automation solutions
primarily for electronic product manufacturers. The Company designs, develops,
manufactures, markets and services a variety of automated equipment used to
assemble electronic components and product identification media to printed
circuit boards and other assemblies. In addition, the Company provides design
and manufacturing resources to create customized factory automation equipment
according to customer's specification in a broad range of industries. 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: Industrial
Automation (AIA), which encompasses the design, manufacture and distribution of
assembly machines, related accessories, other specialty equipment and products
and Amistar Manufacturing Services (AMS) which provides contract manufacturing
services. Prior to December 31, 2001, AIA was named the "machine products
division" with "AIA" formerly the title of the factory automation unit. The
Company decided that "AIA" is a more appropriate title for both the machine
products area and customized factory automation. Information concerning the
Company's operations for the two segments is found in note 10 to the financial
statements.
Amistar Industrial Automation (AIA)
- -----------------------------------
Amistar Industrial Automation, a division of Amistar, provides factory
automation solutions by offering its own proprietary machine products,
distributing circuit board assembly machine products, designing and
manufacturing specialty products and by providing customized factory automation
design and manufacturing.
MACHINE PRODUCTS
- ----------------
The Company's label identification machines, the DataPlace(R) 100LP and
the DataPlace(R) 1M, are 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. During 2002, the Company expanded its DataPlace
line by introducing the DataPlace SBL, a golf shaft-labeling machine, available
in standard and customized models.
The Company provides service and spare parts to customers of its installed
base of through-hole insertion equipment and surface mount assembly machines.
3
During 2000, the Company's Japanese supplier of surface mount assembly
machines sold its operations to a competitor, leaving the Company without a
source of surface mount assembly (SMD) machines until the fourth quarter of
2002. During 2001 and most of 2002, the AIA Division focused its selling efforts
as an original manufacturer of automatic label application machines for the
electronics manufacturing industry. During the fourth quarter of 2002, i-Pulse,
a division of Yamaha Motor Company, Ltd. and the Company reached an informal
agreement, by which the Company agreed to resume its role as distributor of
Yamaha Motor's SMD products to North America on a non-exclusive basis.
CUSTOMIZED FACTORY AUTOMATION AND SPECIALTY PRODUCTS
- ----------------------------------------------------
During 2001, the Company launched a new business initiative to utilize its
core strengths more effectively in the design, manufacture, and service of
customized factory automation equipment and specialty products for other
companies. Sales in 2001 included an order to provide final engineering design
and manufacturing of automation equipment for a major golf sports equipment
manufacturer. During 2002, the Company expanded its technological capability by
providing customized design or equipment to customers in the eyeglass lens, golf
club assembly, veterinary, and luggage tagging industries.
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, instrumentation, audio/video, industrial test and controls, 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, various levels of
testing, final product assembly, enclosure and systems build, distribution and
warranty depot support.
Product Development
- -------------------
The Company's products are marketed to industries that are 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 and services to
further reduce customer labor costs and increase manufacturing efficiencies.
During 2002, 2001 and 2000, the Company's engineering, research and
development expenses were approximately $440,000, $843,000 and $1,161,000,
respectively. Development efforts were focused in 2000 on the DataPlace 1M
automatic label placer and on custom applications for the DataPlace 100LP.
During 2001, the engineering group focused on DataPlace 1M machine cost
reduction, customization orders for both models of the DataPlace machines and
provided customized factory automation engineering services. During 2002, the
engineering group focused on development of a laser technology for product
identification, development of a golf shaft labeling machine (the DataPlace SBL)
and provided engineering services for customized factory automation equipment
and specialty products. Management is currently conducting market studies and
evaluating additional research and development projects for 2003.
Customers and Marketing
- -----------------------
The Company's label identification and SMD machine products are sold
primarily to contract and OEM manufacturers of electronic products. The Company
manufactures custom automation and specialty products for customers in a wide
variety of industries. The Company's marketing strategy is to offer equipment
that fulfills a variety of customer needs and to emphasize the advanced
features, ease of use, price, performance, and reliability.
AIA markets its machine products in the United States through an internal
sales force that, in addition to direct selling efforts, also support
independent manufacturer's representatives. AIA markets its customized factory
automation services primarily through an internal sales force.
The Company's AMS division is marketed through a combination of Company
personnel, electronics component distributors and outside representatives.
Dependence on Significant Customers
- -----------------------------------
During 2002, sales of $2,015,000 (or 18% of total sales) were made to Chad
Therapeutics, $1,836,000 (or 17% of total sales) were made to Merit Medical
Systems, Inc. and $1,677,000 (or 15% of total sales) were made to Signet
Scientific. During 2001, sales of $2,291,000 (or 17% of total sales) were made
to Merit Medical Systems, Inc., $1,634,000 (or 12% of total sales) to Systech
Corporation, $1,579,000 (or 12% of total sales) to Chad Therapeutics and
$1,532,000 (or 11% of total sales) to Signet Scientific. 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 sales) were made to Merit Medical Systems, Inc.
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. During 2002, 2001 and 2000, the Company's sales
were primarily to domestic customers. The Company is subject to international
trade risks 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)
2002 2001 2000
------------------------- ------------------------ ------------------------
United States $10,682 96% $13,356 98% $18,040 97%
Europe 184 2% 211 2% 305 2%
Asia 183 2% 36 -- 101 1%
Other 30 -- 56 -- 73 --
-------- -------- -------- -------- -------- --------
TOTALS $11,079 100% $13,659 100% $18,519 100%
======== ======== ======== ======== ======== ========
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
note 10 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
office. The Warrenville, Illinois, San Antonio, Texas and Melbourne, Florida
offices were closed during 2001 as part of a consolidation initiative. In
Europe, the Company's distributor, Assembly Service GmbH provides service
support.
Suppliers
- ---------
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.
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 a material adverse effect on its business. Amistar has never
experienced a major production delay due to a materials shortage or the loss of
a single-source for its material.
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 2002, due to soft economic conditions, electronic
components were generally available from suppliers at acceptable pricing. During
portions of 2001, 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 component 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, label placement, or factory automation equipment, many
of whom have more diverse product lines and greater financial and marketing
resources than the Company. The Company's primary domestic label placement
machine competitors are Nortek Automation, Inc. and Computype, Inc.
The Company believes that the key factors affecting the choice of a label
placement, circuit board assembly and custom factory automation machines are
reliability, placement speed, responsive service, ability to detect errors,
range of placement, ease of programming and operation, integration with ERP
systems, and price.
5
There are numerous companies, of various sizes and geographic reach, which
provide contract assembly services to companies that sell electronic and other
products, none of which the Company considers being a prime competitor.
Backlog
- -------
Customer machine order lead times are usually short. Current customer
practice is to wait to place the purchase order until just before the equipment
is required or after an evaluation period while on loan. Therefore, backlog may
not necessarily be indicative of future sales. Order lead times for contract
manufacturing vary. The backlog at December 31, 2002 was $3,042,000, all of
which is expected to ship during the next 12 months. The AIA and AMS divisions
had backlog at December 31, 2002 of $112,000 and $2,930,000 respectively. Total
Company backlog was $3,458,000 at December 31, 2001. The AIA and AMS divisions
had backlog at December 31, 2001 of $105,000 and $3,353,000, respectively. In
the event the Company is unable to ship on the purchase order due date, the
Company would not incur any contractual damages other than the potential damage
to a customer relationship.
Intellectual Property
- ---------------------
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, 2002, the Company has been issued nine United
States patents relating to mature products. 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
- ---------
As of February 6, 2003, the Company had 93 full-time employees. Of the
total employees, 71 were employed in manufacturing, 8 in sales, marketing, and
service, 4 in engineering and product development and 10 in information systems,
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, automation machine manufacturing, contract manufacturing
services, and research and development offices are located in this 80,000 square
foot building completed in April of 1987.
The Company leases, but no longer occupies, 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 $8,652. In November 2001, the
Anaheim facility was subleased to a sub-tenant for a term beginning December
2001 and expiring March 2006, at an average monthly rental rate of $9,137 for 49
months in addition to a three-month free rent period.
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 71 Chairman of the Board and President
Dr. Sanford B. Ehrlich 51 Director, (audit and compensation committee)
William W. Holl 72 Secretary, Treasurer and Director
Gordon S. Marshall 83 Director, (audit and compensation (Chair) committee)
Carl C. Roecks 69 Director
Howard C. White 62 Director, (audit (Chair) and compensation committee)
Daniel C. Finn 46 Vice President and General Manager-AIA Division
Tod N. Kilgore 45 Vice President of Sales and Marketing-AMS Division
Gregory D. Leiser 46 Vice President of Finance and Chief Financial Officer
Harry A. Munn 52 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, has held the position of
Associate Professor of Management at the College of Business Administration at
San Diego State University, and as the Executive Director of the school's
Entrepreneurial Management Center since 1997. Dr. Ehrlich holds Directorships at
the Healthy Back Store, Inc. and Deep Sky Software, Inc. In addition, Dr.
Ehrlich also provides management consulting services.
Mr. Holl, a founder of the Company, has served the Company as a Director,
Secretary and Treasurer since its inception in 1971, and as Chief Financial
Officer from 1978 until 2001. In 2001, Mr. Holl retired and serves the Company
on a part-time basis.
Mr. Marshall, a director of the Company since 1974 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 employed at Andersen from 1964
until 1991. Mr. White was formerly a partner in charge of the Metropolitan
Southern California Region Accounting and Audit Practice and worldwide managing
director of finance with Andersen Worldwide. Mr. White has held the position of
President of White & White LLC, a financial and business consulting services
company, since 1997. Mr. White serves as an independent director and is the
designated "financial expert" on the Company's audit committee.
Mr. Finn has served the Company since 1979, as Vice-President Operations
from 1999 to 2001 and as Vice-President and General Manager - AIA Division since
2002.
Mr. Kilgore has served the Company as Vice-President Sales and
Marketing-AMS Division since 1999. Prior to joining the Company, Mr. Kilgore
held the position of General Manager-San Diego Region with Marshall Industries
since 1992.
Mr. Leiser has served the Company since 1995, as Vice-President Finance
since 1999 and as Chief Financial Officer since 2001.
Mr. Munn has served the Company since 1985, as Vice-President Marketing
and Sales from 1997 to 2001 and as Vice-President and General Manager - AMS
Division since 2002.
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 during the last two years:
Quarter ended High* Low*
------------- ----- ----
Mar. 31, 2002 1.55 1.05
Jun. 30, 2002 1.49 0.83
Sep. 30, 2002 1.23 0.65
Dec. 31, 2002 0.90 0.20
Mar. 31, 2001 3.88 1.88
Jun. 30, 2001 2.13 1.49
Sep. 30, 2001 1.98 0.99
Dec. 31, 2001 1.35 0.99
* The prices indicated are as reported by NASDAQ.
The Company had approximately 90 shareholders of record on December 31,
2002; 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.
NOTICE FROM STOCK EXCHANGE
The Company received notice on October 4, 2002 that it is subject to
de-listing from the NASDAQ Small Cap Market for failure to meet the minimum
closing bid price requirement of $1.00 for the prior 30 days. The Company was
granted 180 days or until April 1, 2003 to comply with the minimum closing bid
price requirement or possibly face de-listing. In the event the Company fails to
comply with the minimum bid price requirement as of April 1, 2003, the Company
believes it will receive a 180-day extension based on meeting the core initial
inclusion requirements.
8
ITEM 6. SELECTED FINANCIAL DATA
Statements of Operations Data:
Year Ended December 31,
--------------------------------------------------------------------
(In thousands, except per share data)
2002 2001 2000 1999 1998
--------- --------- --------- --------- ---------
Net sales $ 11,079 $ 13,659 $ 18,519 $ 15,071 $ 20,728
Cost of sales 9,951 13,056 13,798 13,649 14,908
--------- --------- --------- --------- ---------
Gross profit 1,128 603 4,721 1,422 5,820
--------- --------- --------- --------- ---------
Operating expenses:
Selling 1,243 1,674 2,093 2,764 3,423
General & administrative 964 1,342 738 2,065 1,067
Engineering, research & development 440 843 1,161 1,197 1,202
--------- --------- --------- --------- ---------
2,647 3,859 3,992 6,026 5,692
--------- --------- --------- --------- ---------
Income (loss) from operations (1,519) (3,256) 729 (4,604) 128
Other income (expense):
Interest, net 20 94 111 (43) (8)
Other 6 6 8 6 61
--------- --------- --------- --------- ---------
Earnings (loss) before income taxes (1,493) (3,156) 848 (4,641) 181
Income tax expense (benefit) (394) (66) 9 196 (50)
--------- --------- --------- --------- ---------
Net earnings (loss) $ (1,099) $ (3,090) $ 839 $ (4,837) $ 231
========= ========= ========= ========= =========
Earnings (loss) per common share:
Basic $ (0.36) $ (0.99) $ 0.27 $ (1.54) $ 0.07
========= ========= ========= ========= =========
Diluted $ (0.36) $ (0.99) $ 0.26 $ (1.54) $ 0.07
========= ========= ========= ========= =========
Weighted-average shares
outstanding:
Basic 3,085 3,127 3,137 3,137 3,206
========= ========= ========= ========= =========
Diluted 3,085 3,127 3,179 3,137 3,206
========= ========= ========= ========= =========
Selected Balance Sheet Data:
December 31,
------------------------------------------------------------
(In thousands)
2002 2001 2000 1999 1998
-------- -------- -------- -------- --------
Working capital $ 3,133 $ 2,371 $ 9,625 $ 8,236 $11,709
Total assets 10,779 13,666 17,106 16,285 21,759
Long-term obligations -- -- 4,500 4,500 4,500
Retained earnings 2,616 3,715 6,805 5,967 10,803
Total shareholders' equity 7,181 8,283 11,426 10,587 15,424
9
ITEM 6. SELECTED FINANCIAL DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarter Ended,
----------------------------------------------------- Year Ended
3/31 6/30 9/30 12/31 12/31
----------------------------------------------------- ----------------
(In thousands, except per share data)
2002
- -------------------------------------------
Net sales $2,641 $2,827 $2,844 $2,767 $ 11,079
Gross profit 160 169 339 460 1,128
Net loss (102) (454) (377) (166) (1,099)
Loss per common share:
Basic and diluted (0.03) (0.15) (0.12) (0.05) (0.36)
2001
- -------------------------------------------
Net sales $3,679 $3,399 $3,890 $2,691 $ 13,659
Gross profit (loss) 473 17 12 101 603
Net loss (676) (956) (905) (553) (3,090)
Loss per common share:
Basic and diluted (0.22) (0.30) (0.29) (0.18) (0.99)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Critical Accounting Principles and Estimates
- --------------------------------------------
In response to the SEC's Release Numbers 33-8040 "Cautionary Advice
Regarding Disclosure About Critical Accounting Policies" and 33-8056,
"Commission Statement about Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company has identified the following
critical accounting policies that affect its more significant judgments and
estimates used in the preparation of its financial statements. The preparation
of the Company's financial statements in conformity with accounting principles
generally accepted in the United States of America requires management of the
Company to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, the Company makes
judgements regarding revenue recognition and evaluates its estimates, including
those related to allowance for doubtful accounts, inventories, asset impairment
and warranty obligations. We describe these accounting policies in the notes to
the financial statements and at relevant sections in this discussion and
analysis. These estimates are based on the information that is currently
available and on various other assumptions that are believed to be reasonable
under the circumstances. Actual results could vary from those estimates under
different assumptions or conditions.
The Company believes the following critical accounting policies affect its
more significant judgments and estimates used in the preparation of its
financial statements.
The Company considers many factors in the evaluation of revenue
recognition, including customer acceptance criteria, complexity of installation
and integration into production lines. 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
to a same customer upon shipment, provided title and risk of loss has
transferred and the model, configuration, and application is substantially
similar to the original machine installed. At the time of shipment, the Company
accrues for any related de minimus and perfunctory installation costs to be
incurred. Revenue for manufacturing services, factory automation services,
machine accessories, and spare parts are recognized upon shipment and transfer
of title and risk of loss. Billable service labor revenue is recognized upon
completion.
10
Critical Accounting Principles and Estimates, Cont'd
- ----------------------------------------------------
The Company maintains an allowance for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments,
which results in bad debt expense. Management determines the adequacy of this
allowance by continually evaluating individual customer receivables considering
the customer's financial condition, security deposits, and current economic
conditions. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required.
The Company writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated net realizable value based upon assumptions about future demand
and market conditions. If actual market conditions are less favorable than those
projected by management, additional inventory write-downs may be required.
Long-lived assets, such as property and equipment 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 an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
The Company provides for the estimated cost of product warranties at the
time revenue is recognized. While the Company engages in extensive product
quality programs and processes, including actively monitoring and evaluating the
quality of its component suppliers, the Company's warranty obligation is
affected by product failure rates and the related material usage, field service
and delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage, or service delivery costs differ from the
Company's estimates, revisions to the estimated warranty liability would be
required.
The Company can be subject to various claims and legal actions in the
ordinary course of business. Some of these matters include professional
liability, employee-related matters, and investigations by governmental agencies
regarding our employment practices. Although we are currently not aware of any
such pending or threatened litigation that we believe is reasonably likely to
have a material adverse effect on us, if we become aware of such assessments
against the Company, we will evaluate the probability of an adverse outcome and
provide accruals for such contingencies as necessary.
FACTORS THAT MAY AFFECT FINANCIAL CONDITION AND FUTURE RESULTS
The Company operates in industries that are highly competitive. Industry
participants confront aggressive pricing practices by competitors, continually
changing customer demand patterns, and rapid technological developments. The
following are important factors that could cause actual results to differ
materially from the projected results contained in the forward-looking
statements in this report.
o Continued weak global economic conditions or lack of electronics industry
manufacturing capacity expansion could adversely impact the Company's
revenues and growth rate.
o The loss of a major customer listed in the Part I section titled
"Dependence on Significant Customers."
o The continued transfer of manufacturing offshore could contract the market
for labor-saving assembly equipment and adversely impact the Company's
DataPlace machine sales.
o The competitive environment in the electronics assembly machine, custom
factory automation equipment and contract manufacturing industries place
pressure on revenue, gross margins, and market share.
o Erosion of the financial condition of customers could adversely affect the
Company's business.
o The potential for technological obsolescence of the DataPlace label
identification line.
o The availability of electronic components may be limited due to changes in
demand or supply and could adversely affect the Company's material costs
or ability to fulfill customers' order requirements.
o The inability to invest in or acquire a new venture that can absorb excess
manufacturing capacity or contribute to the Company's return to
profitability could adversely affect the Company's business.
11
o The inability of the Company to execute management's plans to return to
profitability could result in default on the terms of the Union Bank of
California Reimbursement Agreement, which supports the stand-by letter of
credit guaranteeing the Company's performance on the industrial
development bonds. In the event the Company defaults, AND is unable to
present a viable turn-around plan satisfactory to its Bank, such event
could cause the bank to require the Company to seek a substitute
guarantor, re-finance the building with alternative financing or sell the
San Marcos, California facility. The inability of the Company to
successfully substitute a guarantor or to re-finance the building could
have an adverse effect on the Company's business.
o The inability of the Company to meet and sustain the NASDAQ minimum
closing bid price requirement would result in de-listing from the NASDAQ
small cap market and require the Company to seek listing on the OTC
Bulletin Board or the successor BBX exchange and could adversely affect
the Company's per share market price.
o The effects of worldwide conflict and instability upon revenues and costs.
o Other-see Item 7a. Qualitative and Quantitative Data About Market Risk
Off-Balance Sheet Arrangements
- ------------------------------
At December 31, 2002 and 2001, the Company did not have any relationships
with unconsolidated entities or financial partnerships, such entities often
referred to as structured finance or variable interest entities, which would
have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. In addition, the
Company does not engage in trading activities involving non-exchange traded
contracts. As such, the Company is not materially exposed to any financing,
liquidity, market or credit risk that could arise if the Company had engaged in
such relationships.
12
The following table sets forth the statements of operations as a percentage of
net sales:
Percentage of Net Sales
-----------------------
2002 2001 2000
------------ ------------ ------------
Net sales 100.0 100.0 100.0
Cost of sales 89.8 95.6 74.5
------------ ------------ ------------
Gross profit 10.2 4.4 25.5
------------ ------------ ------------
Operating expenses:
Selling 11.2 12.2 11.3
General and administrative 8.7 9.8 4.0
Engineering, research and development 4.0 6.2 6.3
------------ ------------ ------------
23.9 28.2 21.6
------------ ------------ ------------
Income (loss) from operations (13.7) (23.8) 3.9
Other income (expense):
Interest, net .2 .7 .7
Other - - -
------------ ------------ ------------
Earnings (loss) before income taxes (13.5) (23.1) 4.6
Income tax expense (benefit) (3.6) (.5) 0.1
------------ ------------ ------------
Net earnings (loss) (9.9) (22.6) 4.5
============ ============ ============
The following table sets forth sales (in thousands) by product classification:
2002 2001 2000
----------------------- ----------------------- -------------------------
Amistar machines,
parts and service $ 1,348 12% $ 1,783 13% $ 6,279 34%
Distributed products 184 2% 294 2% 3,062 16%
Custom factory autom. 389 3% 900 7% -
Manufacturing services 9,158 83% 10,682 78% 9,178 50%
------------- -------- ------------- --------- -------------- ---------
$ 11,079 100% $ 13,659 100% $ 18,519 100%
============= ======== ============= ========= ============== =========
13
Results of Operations 2002 Compared to 2001
- -------------------------------------------
Company overall
- ---------------
SALES
- -----
Beginning in 2001, and continuing through 2002, the Company has been
severely affected by the overall economic slow down. The contraction in product
volumes compared to manufacturing capacity among the Company's label placement
machine customer base resulted in a lack of sales of the Company's DataPlace
machine for the first two quarters of 2002. During the quarter ended September
30, 2002, the Company experienced a modest level of machine sales activity, as
the Company was able to sell one DataPlace machine and rented another for a
three-month evaluation term. During the quarter ended December 31, 2002, the
Company sold three machines. Many of the Company's machine customers are
continuing to limit their capital spending for factory automation.
The Company took steps during 2002 to minimize costs in response to the
recession-driven decline in demand for its label identification automation
equipment. Those steps included the reduction of its sales and field service
support staff during the year. At December 31, 2002, the Company had, based on
forecasts, an approximate 18 to 24 month supply of DataPlace machine inventory.
The Company has considered the current and projected state of the machines
technology, its expected future competitive position and demand upon economic
recovery in its analysis of inventory valuation. While the Company experienced a
surge in orders during the fourth quarter of 2002, another protracted period of
insufficient demand for the DataPlace machines could require additional charges
for reserves for partial or total obsolescence in the future. In the event that
general economic conditions do not improve, or if the Company's AMS base of
customers and potential customers fails to grow or add new products or moves
production offshore, the Company's financial position and results of operation
could be adversely affected.
Overall sales decreased to $11,079,000 from $13,659,000 in 2001, a
decrease of 19%. The decline in sales was primarily related to the decline in
AMS sales. No portion of sales is attributable to inflation for 2002.
AMS sales decreased to $9,158,000 or 14% from 2001 primarily due to the
shipments to a customer who moved their product manufacturing offshore and due
to a customer that chose to produce previously out-sourced products in-house.
AMS sales represented 83% and 78% of the overall sales for 2002 and 2001
respectively.
AIA label identification machine shipments were flat in 2002 compared to
2001 at 4 units each. Of the units sold in 2002, three of the machines
represented the DataPlace 100LP model and one the 1M model, all of which were
sold during the last four months of 2002. During 2002, the Company shipped its
first golf shaft-labeling machine to a leading golf equipment manufacturer.
Machine sales were $490,000 in 2002 compared to $576,000 in 2001.
The Company's through-hole circuit board assembly machines operating in
the field generated most of the parts and service sales which declined to
$858,000 in 2002 from $1,207,000 in 2001. As the population of the Company's
through-hole technology machines declines, demand for spare parts and
out-of-warranty field service is expected to continue to follow a parallel
trend.
AIA generated $389,000 in customized factory automation engineering design
and manufactured product sales compared to $900,000 in 2001, its first year of
operation. The first year sales included a single order totaling $642,000 from a
major golf equipment manufacturer.
GROSS PROFIT
- ------------
Gross profit increased $525,000 to $1,128,000 in 2002, compared to
$603,000 in 2001. The 2002 increase was primarily due to a $463,000 charge taken
in 2001 to increase inventory reserves for the Company's assembly machine
products. In addition, improvements in labor efficiency and factory utilization,
partially offset by a $175,000 charge taken to increase DataPlace and AMS
inventory reserves resulted in improved margins during 2002.
SELLING EXPENSES
- ----------------
Selling expenses decreased $430,000 to $1,243,000 in 2002 from $1,673,000
in 2001 due to AIA machine products sales and service staff reductions,
consolidation of sales and service offices, lower commission expense, and
reduced division marketing expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expense decreased $379,000 in 2002 from 2001.
The decrease in 2002 was primarily due to a $121,000 restructuring charge taken
in 2001 related to the closure of the Anaheim, California contract assembly
facility, a $60,000 increase in the allowance for doubtful accounts in 2001, a
$61,000 decrease in the allowance for doubtful accounts in 2002 and a $126,000
decrease in salary expense for certain executives and administrative staff
during 2002.
14
Results of Operations 2002 Compared to 2001, cont'd
- ---------------------------------------------------
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
- ----------------------------------------------
Research and development efforts in 2002 were focused on a laser
identification machine and a golf club shaft-labeling machine (DataPlace SBL).
Engineering expense was incurred in support of AIA custom factory automation
sales. Expenses declined 48% in 2002 from 2001 due to fewer development projects
and staff reductions.
OTHER INCOME (EXPENSE)
- ----------------------
Interest income decreased $159,000 in 2002, compared to 2001, due to lower
average cash balances during 2002 and decreases in interest rates earned on
money market funds. Interest expense decreased $85,000 in 2002, compared to
2001, due to decreases in interest rates on the bonds and the paydown of
$1,500,000 of principal in 2002.
INCOME TAXES
- ------------
On March 9, 2002, the "Job Creation and Worker Assistance Act of 2002"
(the Act) was signed into law. The Act extended the period in which a net
operating loss may be carried back. As a result, the Company recognized and
collected a $400,000 carry back refund benefit during 2002, which is partially
offset by a $6,000 expense related to minimum tax obligations to various states.
No federal income tax carry forward benefit has been recorded in 2002 due
to the net loss and the uncertainty concerning the Company's ability to utilize
the net operating loss in the future. A 100% valuation allowance has been
recorded against the net deferred income tax asset as of December 31, 2002.
Amistar Industrial Automation segment
- -------------------------------------
During 2002, the Company sold four DataPlace machines, three 100LP models
and one 1M model. Compared to the DataPlace 100LP machine, the 1M is suitable
for applications requiring less functionality and sells at a lower price. An
expanded discussion of the segment's position in relation to DataPlace
marketability can be found in the analysis of sales for the Company overall.
At December 31, 2002, the Company had nine completed DataPlace machines
included in finished goods inventory at a carrying value of $585,500. The
carrying values of DataPlace work in process and component parts were $117,500
and $340,000, respectively at December 31, 2002. The AIA work in process and raw
material inventories consist primarily of the DataPlace machine product line.
The Company has considered the current and projected state of the machine's
technology, its expected future competitive position, and has made estimates of
anticipated Dataplace demand upon economic recovery. Estimates of future demand
are highly subjective and subject to material change. As a result, the Company
recorded an inventory write-down of DataPlace machines totaling $75,000 during
2002. Although the Company was able to resume shipments during the last four
months of 2002, insufficient demand in the future for the DataPlace label
identification machines could require additional charges for excess quantities
or obsolescence in the future.
During 2002, the AIA division continued to expand its offering of
engineering and manufacturing services to customers having requiremtns beyond
custom factory automation. The engineering group provided design and prototype
services for a specialty product used in the veterinary industry.
Contract Manufacturing Services segment
- ---------------------------------------
During 2002, experiencing difficult economic conditions, one of the
Company's major customers moved their production offshore. The decline in sales
was partially offset by sales growth that came from the Company's base of
medical product customers who increased orders over 2001. In addition, a portion
of the AMS sales growth came from increased quick-turn prototype services to a
major test equipment customer.
15
Results of Operations 2001 Compared to 2000
- -------------------------------------------
Company overall
- ---------------
SALES
- -----
Overall sales decreased to $13,659,000 from $18,519,000 in 2000, a
decrease of 26%. No portion of sales was attributable to inflation for 2001.
The Manufacturing Services division (AMS) sales increased $1,504,000 or
16% over 2000 and, as a result, contributed 78% of the overall sales for 2001.
AIA label identification machine shipments decreased from 29 units in 2000
to 4 units in 2001, a 86% decline expressed in sales dollars. Two of the
machines sold in 2001 represented initial sales of the new DataPlace 1M model.
The Company's through-hole machines operating in the field generated most of the
parts and service sales.
The AIA division generated $900,000 in customized factory automation
engineering design and manufactured product sales in its first year of
operation. The first year sales included $642,000 in shipments to a major golf
equipment manufacturer.
GROSS PROFIT
- ------------
Gross profit decreased $4,118,000 or 87% in 2001, compared to 2000. This
decrease was due to the lower gross profit earned on a higher mix of contract
manufacturing services sales, lower factory utilization, decreased machine sales
and services, and an increase to the allowance for inventory obsolescence. The
2001 increase in the allowance for inventory obsolescence primarily consisted of
$334,000 related to older technology machines, $219,000 related to private label
products and partially offset by a $90,000 decrease related to AMS materials
inventory.
SELLING EXPENSES
- ----------------
Selling expenses decreased $419,000 in the current year due to AIA machine
products sales and service staff reductions, consolidation of sales and service
offices, lower commission expense, and reduced division marketing expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expense increased $604,000 in 2001 over 2000.
The increase was primarily due to a $121,000 restructuring charge related to the
closure of the Anaheim, California contract assembly facility, a $60,000
increase in the allowance for doubtful accounts, a $32,000 increase in insurance
premiums, a $79,000 increase in professional fees and a $350,000 recovery in
2000 of a bad debt previously written off in 1999.
During the current year, the Company undertook several initiatives aimed
at reducing operating expenses as well as improving operational efficiencies.
During the third quarter of 2001, the Company closed its Anaheim AMS facility
and consolidated production into the San Marcos facility. In connection with the
Anaheim plant closing, restructuring charges of $121,000 were recorded in
general and administrative expenses in the third quarter. The charges were
comprised of the following:
Amount
----------
Separation costs $ 29,000
Lease abandonment 70,000
Facility repairs 12,000
Other 10,000
----------
Total $121,000
==========
Of the total charge of $121,000, the entire amount has been paid as of
December 31, 2002.
ENGINEERING, RESEARCH AND DEVELOPMENT EXPENSES
- ----------------------------------------------
Engineering, research and development efforts in 2001 were focused on a
DataPlace 1M cost reduction project and in support of AIA operations. Expenses
declined 2001 over 2000 due to fewer development projects and due to staff
reductions.
16
Results of Operations 2001 Compared to 2000, cont'd
- ---------------------------------------------------
OTHER INCOME (EXPENSE)
- ----------------------
Interest income decreased $75,000 in 2001, compared to 2000, due to lower
average cash balances during 2001 and decreases in interest rates earned on
money market funds. Interest expense decreased $58,000 in 2001, compared to
2000, due to decreases in interest rates on the bonds.
INCOME TAXES
- ------------
The income tax benefit for 2001 represents an adjustment to the income tax
accrual to match the expected minimum tax liability to various states.
No federal income tax carry forward benefit has been recorded in 2001 due
to the net loss and the uncertainty concerning the Company's ability to utilize
the net operating loss in the future. A 100% valuation allowance has been
recorded against the net deferred income tax asset as of December 31, 2001.
Amistar Industrial Automation segment
- -------------------------------------
During 2001, the Company sold two initial customized DataPlace 1M machines
and two DataPlace 100LP machines.
In 2001, the Company was severely affected by the overall recession and
especially the contraction in manufacturing capacity among the Company's machine
customer base. Many of the Company's machine customers froze capital spending
during 2001.
The Company took steps during 2001 to minimize costs in response to the
recession driven decline in demand for its label identification automation
equipment. The Company reduced its sales and field service support staff during
the year.
To more effectively utilize the Company's existing engineering and machine
manufacturing capacity in 2001, the Company launched an initiative to pursue
automation applications in new markets. The new AIA initiative has allowed the
Company to penetrate new market segments including the sports equipment
automation market.
Contract Manufacturing Services segment
- ---------------------------------------
During 2001, despite difficult economic conditions, much of the AMS sales
growth came from the Company's base of medical product customers who increased
orders over 2000. In addition, a portion of the AMS sales growth came from
increased quick-turn prototype services to a major test equipment customer.
Considering the inefficiencies of maintaining two plants operating at less
than full capacity, the Company consolidated its Anaheim operations with the San
Marcos facility to increase factory utilization.
During the fourth quarter of 2001, the Company experienced a fall-off in
AMS sales from previous quarters due to customer order push-outs and a reduction
in orders from a major customer that was adversely affected by the recession and
events of September 11, 2001.
Liquidity and Capital Resources
- -------------------------------
The Company's cash flows from operations decreased during 2002, compared
to 2001 and 2000. Working capital increased $762,000 in 2002, and decreased
$7,254,000 in 2001. Operating activities generated (consumed) ($.95 million),
$(.5 million), and $2.3 million in cash flow during the years ended 2002, 2001,
and 2000, respectively.
Net cash used in operations during 2002 was primarily due to the net loss
after adding back depreciation and amortization, an increase in accounts
receivable, and a decrease in accrued payroll and related costs, partially
offset by a reduction of inventory. The Company generated cash during 2001 to
partially offset its loss after adding back depreciation and amortization
primarily through the collection of accounts receivable and a decrease in
inventory. The Company generated cash during 2000 primarily through net earnings
after adding back depreciation and amortization and the collection of contracts
receivable and income taxes receivable.
In 2002, 2001 and 2000, investing activities consisted primarily of
capital expenditures to support the current and expected growth of the Amistar
Manufacturing Services division and to improve efficiency.
During 2002 and 2001, the Company repurchased $3,000 and $57,000 of its
stock on the open market.
17
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 a $3,100,000
irrevocable letter of credit issued by the Company's bank. The terms of the
irrevocable letter of credit required the Company in 1995 to establish a
$1,329,000 interest-bearing cash collateral account (restricted cash) in order
to meet a required loan to value ratio. In 2001, the amount of restricted cash
was revised to $1,452,000. On February 1, 2002, the Company paid $1,500,000 to
redeem a portion of the industrial development bonds utilizing the restricted
cash balance of $1,452,000 plus an additional $48,000 of unrestricted cash. The
Company's obligation under the irrevocable letter of credit was reduced
accordingly by $1,500,000 effective on February 1, 2002. Effective March 1,
2002, the Company began making monthly payments of $10,000 per month into a
sinking fund for redemption of the bonds. Redemption is scheduled to occur in
increments of $100,000 as the funds accrete to the minimum redemption level. The
terms of the Reimbursement Agreement require the Company to make annual payments
of $120,000 during 2003 and 2004 and the balance of $2,760,000 in 2005. On
February 1, 2003, $100,000 of the bonds was redeemed using restricted cash.
The Company's stand-by letter of credit reimbursement agreement with its
bank maintains certain affirmative financial covenants. At December 31, 2002,
the Company was not in compliance with the tangible net worth, debt service and
profitability covenants. The Company received waivers relating to these
covenants through March 31, 2003. The Company has made all required debt service
payments on the bonds. However, based on the uncertainty concerning the
Company's ability to meet the covenants after the waiver expires, and
considering that a covenant violation would constitute an event of default which
would allow the bank to call the debt prior to maturity, the entire Industrial
Development bonds balance of $3,000,000 has been classified as a current
liability in the accompanying balance sheet at December 31, 2002.
The inability of the Company to return to profitability could result in
default on the terms of the Union Bank of California Reimbursement Agreement,
which supports the stand-by letter of credit guaranteeing the Company's
performance on the industrial development bonds. In the event the Company
defaults, and is unable to present a viable turn-around plan satisfactory to its
Bank, such event could cause the bank to require the Company to seek a
substitute guarantor, re-finance the building with alternative financing or sell
the San Marcos, California facility. The Company believes it would be able to
obtain alternative financing, although at terms less favorable than present. The
inability of the Company to successfully substitute a guarantor or to re-finance
the building could have an adverse effect on the Company's business. The Company
will continue to seek waivers for any covenant violations in the future until a
modification of the covenants can be negotiated.
The following summarizes the Company's contractual obligations and other
commitments at December 31, 2002, and the effect such obligations could have on
its liquidity and cash flow in future periods:
Total 2003 2004 2005 2006
----- ---- ---- ---- ----
Minimum lease payments $ 357,000 $ 106,000 $ 109,000 $ 114,000 $ 28,000
Sublease income (361,000) (107,000) (111,000) (114,000) (29,000)
------------ ------------ ------------ ------------ ------------
Net lease obligations $ (4,000) $ (1,000) $ (2,000) $ -- $ (1,000)
============ ============ ============ ============ ============
Industrial Bonds Payments $ 3,000,000 $ 120,000 $ 120,000 $ 2,760,000 $ --
The Company's primary sources of liquidity consist of cash and cash
equivalents and working capital. If the bank continues to grant waivers on the
irrevocable letter of credit reimbursement agreement, the Company believes that
its cash and cash equivalents provided from operations and cash and cash
equivalents balances at December 31, 2002 will be adequate to support its
operating, investing and financing requirements through 2003. In the event the
bank chooses to no longer forebear, management would consider several options
which include utilizing some portion of cash, re-financing the building with
alternative financing, a sale-leaseback or sale of the San Marcos, California
facility and relocation to a leased facility. Management believes that it has
the ability to execute its alternate plans in the event that payment of the
Company's industrial bonds would be required in 2003, and the Company would have
adequate finances to fund its operating, investing and financing activities
through 2003 under either scenario for repayment of its Industrial Bonds.
18
New Accounting Pronouncements
- -----------------------------
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. SFAS No. 143 also requires recording of a
corresponding asset that is depreciated over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. The
Company is required to adopt SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 is not expected to have a material effect on the Company's
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to the
Company's financial statements.
EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"
mandates how to identify whether goods or services or both that are to be
delivered separately in a bundled sales arrangement should be accounted for as
separate units of accounting. The guidance in EITF No. 00-21 can effect the
timing of revenue recognition for such arrangements, even though it does not
change the rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The provisions of EITF No. 00-21 are
effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003. Companies may alternately elect to apply EITF No.
00-21 to existing arrangements and to record the income statement impact of the
change as a cumulative effect of change in accounting principle. Management is
currently assessing the potential impacts of adopting EITF No. 00-21.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DATA ABOUT MARKET RISK
The Company is exposed to a variety of risks, including changes in
interest rates affecting the cost of its debt. The Company does not have any
derivative financial instruments.
The Company's only term debt at December 31, 2002 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 1.0% during 2002. A hypothetical 10% increase in the weighted-average
interest rate to 1.1% would not have a material impact on the Company's
financial position or results of operations.
19
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, 2002 and 2001, and the related statements of operations,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2002. 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, 2002 and 2001 and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
------------
KPMG LLP
San Diego, California
February 19, 2003
20
AMISTAR CORPORATION
Balance Sheets
December 31, 2002 2001
- -------------------------------------------------------------------------------------------------
ASSETS (note 4)
Current assets:
Cash and cash equivalents $ 2,383,237 $ 3,626,396
Restricted cash (note 4) 110,000 --
Trade accounts receivable, less allowance for doubtful
accounts of $90,094 in 2002 and $187,497 in 2001 1,556,847 1,064,471
Inventories (note 3) 2,400,824 2,723,661
Demonstration equipment 95,273 152,659
Prepaid expenses 185,604 187,385
------------- -------------
Total current assets 6,731,785 7,754,572
------------- -------------
Property and equipment:
Land 981,875 981,875
Building and building improvements 4,158,967 4,090,832
Machinery and equipment 6,742,812 6,948,149
Computer software and equipment 492,152 492,152
Leasehold improvements -- 2,478
------------- -------------
12,375,806 12,515,486
Less accumulated depreciation and amortization (8,384,644) (8,129,206)
------------- -------------
Net property and equipment 3,991,162 4,386,280
------------- -------------
Restricted cash (note 4) -- 1,452,000
Other assets 56,122 73,559
------------- -------------
$ 10,779,069 $ 13,666,411
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 220,441 $ 284,993
Accrued payroll and related costs 108,431 291,634
Accrued liabilities 199,100 202,543
Accrued warranty costs 45,876 88,251
Accrued commissions 24,480 16,418
Industrial development bonds (note 4) 3,000,000 4,500,000
------------- -------------
Total current liabilities 3,598,328 5,383,839
------------- -------------
Shareholders' equity :
Preferred stock, $.01 par value. Authorized 2,000,000
shares; none outstanding -- --
Common stock, $.01 par value. Authorized 20,000,000
shares; 3,083,051 and 3,086,372 shares issued and
outstanding in 2002 and 2001, respectively 30,831 30,864
Additional paid-in capital 4,533,515 4,536,321
Retained earnings 2,616,395 3,715,387
------------- -------------
Total shareholders' equity 7,180,741 8,282,572
------------- -------------
Commitments (note 7)
$ 10,779,069 $ 13,666,411
============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
21
AMISTAR CORPORATION
Statements of Operations
Years ended December 31, 2002 2001 2000
- --------------------------------------------------------------------------------------------------
Net sales $ 11,078,794 $ 13,658,922 $ 18,519,075
Cost of sales 9,950,824 13,055,896 13,798,276
------------- ------------- -------------
Gross profit 1,127,970 603,026 4,720,799
------------- ------------- -------------
Operating expenses:
Selling 1,243,101 1,673,403 2,092,922
General and administrative 963,610 1,342,361 737,977
Engineering, research and development 440,435 842,892 1,161,039
------------- ------------- -------------
2,647,146 3,858,656 3,991,938
------------- ------------- -------------
Income (loss) from operations (1,519,176) (3,255,630) 728,861
Other income (expense):
Interest expense (39,676) (124,804) (182,624)
Interest income 59,535 218,706 293,905
Other 6,325 5,500 7,643
------------- ------------- -------------
Earnings (loss) before income taxes (1,492,992) (3,156,228) 847,785
Income tax expense (benefit) (note 5) (394,000) (66,187) 9,000
------------- ------------- -------------
Net earnings (loss) $ (1,098,992) $ (3,090,041) $ 838,785
============= ============= =============
Earnings (loss) per common share :
Basic $ (0.36) $ (0.99) $ 0.27
============= ============= =============
Diluted $ (0.36) $ (0.99) $ 0.26
============= ============= =============
Weighted-average shares outstanding:
Basic 3,085,375 3,127,196 3,136,500
============= ============= =============
Diluted 3,085,375 3,127,196 3,179,000
============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
22
AMISTAR CORPORATION
Statements of Shareholders' Equity
Years Ended December 31, 2002, 2001, and 2000
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock
-------------------------------- Additional Total
Shares Paid-in Retained Shareholders'
(in 000's) Par value capital Earnings Equity
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1999 3,137 $ 31,365 $ 4,589,043 $ 5,966,643 $ 10,587,051
Net Earnings -- -- -- 838,785 838,785
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2000 3,137 31,365 4,589,043 6,805,428 11,425,836
Stock option exercise 3 33 4,030 -- 4,063
Repurchase of common shares (54) (534) (56,752) -- (57,286)
Net loss -- -- -- (3,090,041) (3,090,041)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2001 3,086 30,864 4,536,321 3,715,387 8,282,572
Repurchase of common shares (3) (33) (2,806) -- (2,839)
Net loss -- -- -- (1,098,992) (1,098,992)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 2002 3,083 $ 30,831 $ 4,533,515 $ 2,616,395 $ 7,180,741
============= ============= ============= ============= =============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
23
AMISTAR CORPORATION
Statements of Cash Flows
Years ended December 31, 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------
Cash flows provided by (used in) operating activities:
Net earnings (loss) $(1,098,992) $(3,090,041) $ 838,785
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 545,156 696,611 760,872
Gain on sale of equipment -- (5,500) --
Changes in assets and liabilities:
Trade accounts receivable, net (492,376) 1,779,015 (170,357)
Income taxes receivable -- -- 207,518
Inventories 304,290 355,189 (31,851)
Demonstration equipment 57,386 (40,123) 5,041
Prepaid expenses 1,781 7,213 (122,514)
Contracts receivable -- 55,871 809,904
Other assets 17,437 29,595 11,558
Accounts payable (64,552) (303,549) 73,688
Accrued payroll and related costs (183,203) 138,812 32,668
Accrued liabilities (3,443) (37,230) 27,537
Accrued warranty costs (42,375) (16,749) --
Accrued commissions 8,062 (77,470) (151,513)
------------ ------------ ------------
Net cash provided by (used in) operating activities (950,829) (508,356) 2,291,336
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of equipment -- 5,500 --
Capital expenditures (131,491) (214,019) (247,547)
------------ ------------ ------------
Net cash used in investing activities (131,491) (208,519) (247,547)
------------ ------------ ------------
Cash flows from financing activities
Net decrease (increase) in restricted cash 1,342,000 (123,000) --
Redemption of Industrial Development Bonds (1,500,000) -- --
Exercise of stock options -- 4,063 --
Repurchase of common stock (2,839) (57,286) --
------------ ------------ ------------
Net cash used in financing activities (160,839) (176,223) --
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,243,159) (893,098) 2,043,789
Cash and cash equivalents at the beginning of the year 3,626,396 4,519,494 2,475,705
------------ ------------ ------------
Cash and cash equivalents at the end of the year $ 2,383,237 $ 3,626,396 $ 4,519,494
============ ============ ============
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 42,250 $ 137,517 $ 179,971
============ ============ ============
Income taxes $ 4,704 $ 9,153 $ 3,267
============ ============ ============
Supplemental disclosure of non-cash investing activities:
Transfer from inventory to property and equipment $ 18,547 $ -- $ --
============ ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
24
AMISTAR CORPORATION
Notes to Financial Statements
Three years ended December 31, 2002
(1) BUSINESS AND CURRENT EVENTS
Business
- --------
Amistar Corporation (the Company) operates two divisions, Amistar Industrial
Automation (AIA) and Amistar Manufacturing Services (AMS). The AIA division
manufactures and markets assembly machinery primarily for the electronics
industry and provides engineering design and manufacturing services to customers
seeking enhanced factory automation. AMS is a contract assembler of electronic
products, including printed circuit board assemblies. 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.
Current Events
- --------------
The Company has been adversely affected by the economic downturn in the
electronics industry during the past two years and as a result has incurred
operating and net losses and negative cash flows from operations. The lack of
profitability has caused the Company to be in non-compliance on certain loan
covenants in connection with the Industrial Development Bonds (Note 4). The
inability of the Company to return to profitability could result in default on
the terms of the Union Bank of California Reimbursement Agreement, which
supports the stand-by letter of credit guaranteeing the Company's performance on
the industrial development bonds. In the event the Company defaults, and is
unable to present a viable turn-around plan satisfactory to its Bank, such event
could cause the bank to require the Company to seek a substitute guarantor or
redeem the bonds prior to maturity. If such an event occurred, management would
consider several options which include utilizing some portion of cash,
re-financing the building with alternative financing, a sale-leaseback or sale
of the San Marcos, California facility and relocation to a leased facility.
The Company will continue to seek waivers for any covenant violations in the
future until a modification of the covenants can be negotiated. Management
believes that it has the ability to execute its alternate plans in the event
that payment of the Company's industrial bonds would be required in 2003, and
the Company would have adequate finances to fund its operating, investing and
financing activities through 2003 under either scenario for repayment of its
Industrial Bonds.
Notice from Stock Exchange
- --------------------------
The Company received notice on October 4, 2002 that it is subject to de-listing
from the NASDAQ Small Cap Market for failure to meet the minimum closing bid
price requirement of $1.00 for the prior 30 days. The Company was granted 180
days or until April 1, 2003 to comply with the minimum closing bid price
requirement or possibly face de-listing. In the event the Company fails to
comply with the minimum bid price requirement as of April 1, 2003, the Company
believes it will receive a 180-day extension based on meeting the core initial
inclusion requirements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
- -------------------
The Company considers many factors in the evaluation of revenue recognition,
including customer acceptance criteria, complexity of installation and
integration into production lines. 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 to a
same customer upon shipment, provided title and risk of loss has transferred and
the model, configuration, and application is substantially similar to the
original machine installed. At the time of shipment, the Company accrues for any
related de minimus and perfunctory installation costs to be incurred. Revenue
for manufacturing services, factory automation services, machine accessories,
and spare parts are recognized upon shipment and transfer of title and risk of
loss. Billable service labor revenue is recognized upon completion.
Cash and cash equivalents
- -------------------------
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. As of December 31, 2002 and 2001,
cash equivalents amounted to $2,023,000 and $3,064,000, respectively. Restricted
cash represents required amounts that are held to redeem the Industrial
Developments Bonds. (Note 4)
Inventories
- -----------
Inventories are valued at the lower of cost (first-in, first-out) or market (net
realizable value) and are reviewed regularly for excess or obsolescence.
25
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 and is
not depreciated due to the limited hours of machine run time.
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
Costs of improvements or betterments that substantially extend the useful life
of an asset are capitalized. Costs for repairs and maintenance are expensed as
incurred. Upon the disposition of property and equipment, related costs and
accumulated depreciation are removed from the Company's books and related gains
or losses are reflected in operations.
Deferred Bond Refinancing Costs
- -------------------------------
Costs incurred in connection with refinancing the Industrial Development Bonds
are amortized using the effective interest method over the life of the bonds.
Deferred costs are included in other assets.
Accrued Warranty Costs
- ----------------------
The Company provides for the estimated cost of product warranties at the time
revenue is recognized. While the Company engages in extensive product quality
programs and processes, including actively monitoring and evaluating the quality
of its component suppliers, the Company's warranty obligation is affected by
product failure rates and the related material usage, field service and delivery
costs incurred in correcting a product failure. Should actual product failure
rates, material usage, or service delivery costs differ from the Company's
estimates, revisions to the estimated warranty liability would be required.
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.
Accordingly, 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.
26
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 employee 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. Had the
Company determined employee stock based compensation cost based on a fair value
model at the grant date for its stock options under SFAS 123, the Company's net
earnings (loss) per share would have been adjusted to the pro forma amounts as
follows ($ in thousands, except per share amounts):
2002 2001 2000
---- ---- ----
Net earnings (loss) - as reported $(1,099) $(3,090) $ 839
Total stock-based employee compensation
expense included in reported net
income, net of tax -- -- --
Total stock-based employee
compensation expense determined
under fair-value-based method for all
rewards, net of tax (10) (58) (92)
-------- -------- --------
Pro forma net income $(1,109) $(3,148) $ 747
======== ======== ========
Earnings (loss) per share:
Basic, as reported (0.36) (0.99) 0.27
Diluted, as reported (0.36) (0.99) 0.26
Basic, pro forma (0.36) (1.01) 0.24
Diluted, pro forma (0.36) (1.01) 0.23
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 (loss) by the weighted-average number of
common shares outstanding during the reporting period. Diluted net earnings
(loss) 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,
------------------------------------------
2002 2001 2000
------------ ------------- ------------
Weighted-average shares basic 3,085 3,127 3,137
Dilutive effect of stock options - - 42
------------ ------------- ------------
Weighted-average shares, diluted 3,085 3,127 3,179
============ ============= ============
Options to purchase 165,000, 100,000 and 21,000 shares of common stock were not
included in the calculation of diluted net earnings (loss) per share for the
years ended December 31, 2002, 2001 and 2000, respectively, because the effects
of these instruments were anti-dilutive.
27
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
- ----------------
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets, liabilities, 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.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amount of cash and cash equivalents, trade receivables, accounts
payable and accrued expenses approximate fair value because of the short
maturity of those 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
- -----------------------------------------------------------------------
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
provides a single accounting model for long-lived assets and long-lived assets
to be disposed of. SFAS No. 144 also changes the criteria for classifying an
asset as held for sale; and broadens the scope of businesses to be disposed of
that qualify for reporting as discontinued operations and changes the timing of
recognizing losses on such operations.
The Company adopted SFAS No. 144 on January 1, 2002. The adoption of SFAS No.
144 did not affect the Company's financial statements. In accordance with SFAS
No. 144, long-lived assets, such as property, plant, and equipment 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 an asset
to estimated undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed
of would be separately presented in the balance sheet and reported at the lower
of the carrying amount or fair value less costs to sell, and are no longer
depreciated. The assets and liabilities of a disposed group classified as held
for sale would be presented separately in the appropriate asset and liability
sections of the balance sheet.
Prior to the adoption of SFAS No. 144, the Company accounted for long-lived
assets and long-lived assets to be disposed of in accordance with SFAS No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of."
Reclassifications
- -----------------
Certain prior year amounts have been reclassified to conform to the current year
presentation.
New Accounting Pronouncements
- -----------------------------
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets. SFAS No. 143 also requires recording of a
corresponding asset that is depreciated over the life of the asset. Subsequent
to the initial measurement of the asset retirement obligation, the obligation
will be adjusted at the end of each period to reflect the passage of time and
changes in the estimated future cash flows underlying the obligation. The
Company is required to adopt SFAS No. 143 on January 1, 2003. The adoption of
SFAS No. 143 is not expected to have a material effect on the Company's
financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." This Statement amends FASB Statement No. 123, Accounting for
Stock-Based Compensation, to provide alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
Statement No. 123 to require prominent disclosures in both annual and interim
financial statements. Certain of the disclosure modifications are required for
fiscal years ending after December 15, 2002 and are included in the notes to the
Company's financial statements.
EITF Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables"
mandates how to identify whether goods or services or both that are to be
delivered separately in a bundled sales arrangement should be accounted for as
separate units of accounting. The guidance in EITF No. 00-21 can effect the
timing of revenue recognition for such arrangements, even though it does not
28
AMISTAR CORPORATION
Notes to Financial Statements, Continued
change the rules governing the timing or pattern of revenue recognition of
individual items accounted for separately. The provisions of EITF No. 00-21 are
effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003. Companies may alternately elect to apply EITF No.
00-21 to existing arrangements and to record the income statement impact of the
change as a cumulative effect of change in accounting principle. Management is
currently assessing the potential impacts of adopting EITF No. 00-21.
(3) INVENTORIES
Inventories at December 31, 2002 and 2001, consist of the following (in
thousands):
December 31, December 31,
2002 2001
------------------------------------ ----------------------------------
AIA AMS Total AIA AMS Total
Raw Material $ 210 $ 580 $ 790 $ 207 $ 607 $ 814
Work In Process 569 161 730 390 633 1,023
Finished Goods 669 212 881 887 - 887
------------------------------------ ----------------------------------
Total $1,448 $ 953 $2,401 $1,484 $1,240 $2,724
==================================== ==================================
The Company continues to take steps to minimize costs and inventory levels in
response to the decline in demand for its label identification automation
equipment and manufacturing services. The Company sold four DataPlace label
identification units in 2002 out of finished goods inventory at December 31,
2001. Three of the machines represented the Dataplace 100LP model and one the 1M
model, all of which were sold during the last four months of 2002. At December
31, 2002, the Company had nine completed DataPlace machines included in finished
goods inventory at a carrying value of $585,500. The carrying values of
DataPlace work in process and component parts were $117,500 and $340,000,
respectively at December 31, 2002. The AIA work in process and raw material
inventories consist primarily of the DataPlace machine product line. The Company
has considered the current and projected state of the machine's technology, its
expected future competitive position, and has made estimates of anticipated
Dataplace demand upon economic recovery. Estimates of future demand are highly
subjective and subject to material change. As a result, the Company recorded an
inventory write-down of DataPlace machines totaling $75,000 during 2002.
Although the Company was able to resume shipments during the last four months of
2002, insufficient demand in the future for the DataPlace label identification
machines could require additional charges for excess quantities or obsolescence
in the future.
(4) INDUSTRIAL DEVELOPMENT BONDS
The Company financed the construction of its manufacturing and office facility
in San Marcos, California through $4,500,000 of bonds issued by the Industrial
Development Authority of the 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 based on prevailing market conditions that would allow the bonds
to be remarketed at par (.95% at December 31, 2002), with interest payable
monthly. The bonds are guaranteed by a $3,093,120 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 $1,452,000
interest-bearing cash collateral account (restricted cash) during 2001 in order
to meet a loan-to-value ratio covenant.
On February 1, 2002, the Company paid $1,500,000 to redeem a portion of the
industrial development bonds utilizing the restricted cash balance of $1,452,000
plus an additional $48,000 of unrestricted cash. Effective March 1, 2002, the
Company began making required monthly payments of $10,000 per month into a
sinking fund (restricted cash) for redemption of the bonds. Redemption will
occur in minimum increments of $100,000 as the funds accrete to the minimum
redemption level. The terms of the Reimbursement Agreement require the Company
to make annual payments of $120,000 during 2003 and 2004 and the balance of
$2,760,000 in 2005.
The Company's stand-by letter of credit reimbursement agreement with its bank
maintains certain affirmative financial covenants. At December 31, 2002, the
Company was not in compliance with tangible net worth, debt service and
profitability covenants. The Company received waivers relating to these
covenants through March 31, 2003. The Company has made all required debt service
payments on the bonds. However, based on the uncertainty concerning
29
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(4) INDUSTRIAL DEVELOPMENT BONDS (continued)
the Company's ability to meet the covenant after the waiver expires, and
considering that a covenant violation would constitute an event of default,
which would allow the bank to call the debt prior to maturity, the entire
Industrial Development bonds balance of $3,000,000 has been classified as a
current liability in the accompanying balance sheet.
The Company will continue to seek waivers during 2003 for any covenant
violations in the future which management believes is likely until a
modification of the covenants can be negotiated.
Costs incurred in connection with the bond refinancing primarily consist 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 $39,000 and $53,000 at
December 31, 2002 and 2001, respectively. Ongoing fees related to the bonds and
the irrevocable letter of credit will approximate 2% of the bond principal
annually.
(5) INCOME TAXES
Income tax expense (benefit) consists of the following:
Federal State Total
---------- ---------- ----------
2002 Current $(400,000) $ 6,000 $(394,000)
Deferred -- -- --
---------- ---------- ----------
$(400,000) $ 6,000 $(394,000)
========== ========== ==========
2001 Current $ (73,187) $ 7,000 $ (66,187)
Deferred -- -- --
---------- ---------- ----------
$ (73,187) $ 7,000 $ (66,187)
========== ========== ==========
2000 Current $ -- $ 9,000 $ 9,000
Deferred -- -- --
---------- ---------- ----------
$ -- $ 9,000 $ 9,000
========== ========== ==========
Actual income taxes for 2002, 2001 and 2000 differ from "expected" income taxes
for those years computed by applying the U.S. federal statutory rate of 34% to
earnings (loss) before taxes as follows:
2002 2001 2000
------------ ------------ ------------
Income tax expense (benefit) $ (508,000) $(1,073,000) $ 288,000
State and foreign income taxes, net of federal
income tax benefit 4,000 5,000 6,000
Change in valuation allowance 162,000 1,210,000 217,000
Income tax carryforwards and credits (29,000) (38,000) (502,000)
Other, net (23,000) (170,187) --
------------ ------------ ------------
$ (394,000) $ (66,187) $ 9,000
============ ============ ============
30
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(5) INCOME TAXES (continued)
The tax effects of significant temporary differences, which comprise deferred
tax assets and liabilities consist of the following:
2002 2001
------------ ------------
Deferred tax assets:
Allowance for doubtful accounts $ 78,000 $ 79,000
Warranty accrual 18,000 35,000
Inventory allowance 1,094,000 1,023,000
Accrued vacation 4,000 13,000
State income tax credits and loss carryforwards 349,000 283,000
Foreign tax credits and loss carryforwards 1,613,000 1,588,000
Other 190,000 187,000
------------ ------------
Gross deferred tax assets 3,346,000 3,208,000
Valuation allowance (3,258,000) (3,096,000)
------------ ------------
Total deferred tax assets 88,000 112,000
------------ ------------
Deferred tax liabilities-depreciation and
amortization (88,000) (112,000)
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
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 $400,000, of which $145,000 in foreign tax
credits are expected to begin expiring in 2002. In addition, the Company has
Federal and State net operating loss carry forwards in the amount of $4,061,000
and $3,130,000 at December 31, 2002, which are expected to begin expiring in
2014 and 2004, respectively.
On March 9, 2002, the "Job Creation and Worker Assistance Act of 2002" (the Act)
was signed into law. The Act extends the period in which a net operating loss
may be carried back. As a result, the Company recognized and received a $400,000
carry-back refund benefit during 2002, which is partially offset by a $6,000
provision for the minimum tax liability to various states.
(6) 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 at the date of grant,
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 as all grant exercise prices were equal to fair market value on the
date of grant.
No options were granted during 2002. The per share weighted-average fair value
of stock options granted during 2001 and 2000 was $1.10 and $1.33, 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 65% and 55% in 2001 and 2000, respectively, no dividends, and
risk-free interest rates of 3.7% and 6.1% for 2001 and 2000, respectively.
Stock option activity during the periods indicated is as follows:
31
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(6) STOCK OPTION PLAN (continued)
Year Ended December 31,
----------------------------------------------------------------------------------
2002 2001 2000
------------------------ ------------------------ ---------------------
Weighted- Weighted- Weighted-
Average Average Average
No. of Exercise No. of Exercise No. of Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ----------
Beginning balance 202,500 $ 1.8380 213,000 $ 1.8539 206,750 $ 1.8194
Options granted -- -- 5,000 1.1000 14,000 2.4732
Options exercised -- -- (3,250) 2.6000 -- --
Options expired/cancelled (37,500) 1.7670 (12,250) 1.6100 (7,750) 2.0503
--------- ---------- --------- ---------- --------- ----------
Ending balance 165,000 $ 1.8555 202,500 $ 1.8380 213,000 $ 1.8539
========= ========== ========= ========== ========= ==========
Balance exercisable 122,500 102,250 60,000
========= ========= =========
The range of exercise prices on options outstanding at December 31, 2002 are as
follows:
Exercise
Options Price
------- -----
11,000 $3.50
7,500 $3.00
6,000 $2.69
8,000 $2.31
67,000 $2.13
68,000 $1.25
5,000 $1.10
--------------
165,000
==============
At December 31, 2002 the weighted-average remaining contractual life of
outstanding options was 1.4 years.
(7) COMMITMENTS
The Company leases a 14,000 square foot facility in Anaheim, California that it
sublet in December 2001. Rental expense for operating leases on the Anaheim, CA
facility and Warrenville, IL office (until 2001) approximated $103,000, $94,000,
and $120,000 for the years ended December 31, 2002, 2001 and 2,000,
respectively. The Company has the following future non-cancelable minimum lease
obligations and sublease income:
Total 2003 2004 2005 2006
----- ---- ---- ---- ----
Minimum lease payments $ 357,000 $ 106,000 $ 109,000 $ 114,000 $ 28,000
Sublease income (361,000) (107,000) (111,000) (114,000) (29,000)
---------- ---------- ---------- ---------- ----------
Net lease obligations $ (4,000) $ (1,000) $ (2,000) $ -- $ (1,000)
========== ========== ========== ========== ==========
(8) RELATED PARTY TRANSACTIONS
The Company sold its products to Automation, Ltd., the Company's exclusive
distributor for Great Britain and Ireland during 2002. 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 in
2000.
32
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(9) 401(K) PLAN
The Company has established a 401(k) savings plan for the benefit of its
employees. The plan permits eligible employees to contribute to the plan up 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. Participants are always fully vested in all of
their contributions and attain a vested right to the Company's matching
contributions at the rate of 20% for each full year of service after one year
until participants are fully vested after six full years of service. Amounts
contributed by the Company in 2002, 2001, and 2000 were $75,000, $88,000, and
$89,000, respectively.
(10) INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION
The following table summarizes the Company's two operating and reportable
segments: Amistar Industrial Automation, 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 (in 000's).
MFG.
INDUSTRIAL AUTOMATION SERVICES
------------------------------------------------ -----------
UNITED REST OF UNITED
STATES EUROPE WORLD TOTAL STATES CORPORATE TOTAL
------------ ---------- ---------- ------------ ----------- ---------- -----------
Year Ended December 31, 2002
Net sales $ 1,524 $ 184 $ 213 $ 1,921 $ 9,158 $ - $ 11,079
============ ========== ========== ============ =========== ========== ===========
Loss from operations (823) (99) (115) (1,037) (482) - (1,519)
============ ========== ========== ============ =========== ========== ===========
Depreciation and amortization 126 - - 126 404 15 545
============ ========== ========== ============ =========== ========== ===========
Total assets 5,504 35 3 5,542 2,502 2,735 10,779
============ ========== ========== ============ =========== ========== ===========
Additions to long-lived assets 14 - - 14 117 131
============ ========== ========== ============ =========== ========== ===========
YEAR ENDED DECEMBER 31, 2001
Net sales $ 2,674 $ 211 $ 92 $ 2,977 $ 10,682 $ - $ 13,659
============ ========== ========== ============ =========== ========== ===========
Loss from operations (1,819) (143) (63) (2,025) (1,231) - (3,256)
============ ========== ========== ============ =========== ========== ===========
Depreciation and amortization 230 - - 230 438 29 697
============ ========== ========== ============ =========== ========== ===========
Total assets 5,859 57 5,916 2,411 5,339 13,666
============ ========== ========== ============ =========== ========== ===========
Additions to long-lived assets 29 - - 29 185 214
============ ========== ========== ============ =========== ========== ===========
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
============ ========== ========== ============ =========== ========== ===========
33
AMISTAR CORPORATION
Notes to Financial Statements, Continued
(10) INDUSTRY SEGMENTS AND GEOGRAPHIC INFORMATION (continued)
Occupancy costs related to the Company's San Marcos, CA facility totaling
$113,000 were allocated to the AMS division during each of the three years ended
December 31, 2002. This occupancy allocation is based on square feet utilized.
The basis for attributing revenue to the geographical areas is based on where
products and services are sold. The basis for attributing revenue to the
segments is based on the nature of the products delivered or services to be
performed. In addition, total assets include accounts receivables due from
foreign customers aggregating $38,000 at December 31, 2002, $57,000 at December
31, 2001, and $64,000 at December 31, 2000.
(11) BUSINESS CONCENTRATIONS
Most of the Company's customers are located in the United States. During 2002,
sales of $2,015,000 (or 18% of total sales) were made to Chad Therapeutics,
$1,836,000 (or 17% of total sales) were made to Merit Medical Systems, Inc. and
$1,677,000 (or 15% of total sales) were made to Signet Scientific. During 2001,
sales of $2,291,000 (or 17% of total sales) were made to Merit Medical Systems,
Inc., $1,634,000 (or 12% of total sales) to Systech Corporation, $1,579,000 (or
12% of total sales) to Chad Therapeutics and $1,532,000 (or 11% of total sales)
to Signet Scientific. 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 sales) were
made to Merit Medical Systems, Inc.
The Company distributed private label accessories and spare parts under an
exclusive OEM supply agreement with i-Pulse Company Ltd. (formerly Tenryu
Technics) until June 30, 2001 when the existing agreement terminated. The
Company was able to successfully sell off its remaining distributed machine
inventory during 2000. During 2002, the Company agreed to distribute and service
the i-Pulse equipment line in North America on a non-exclusive basis. The
Company and i-Pulse are currently cooperating on an informal agreement basis and
are in the process of negotiating a formal agreement.
(12) UNAUDITED QUARTERLY RESULTS
Quarter Ended,
----------------------------------------------------- Year Ended
3/31 6/30 9/30 12/31 12/31
----------------------------------------------------- -----------------
(In thousands, except per share data)
2002
- -------------------------------------------
Net sales $2,641 $2,827 $2,844 $2,767 $ 11,079
Gross profit 160 169 339 460 1,128
Net loss (102) (454) (377) (166) (1,099)
Loss per common share:
Basic and diluted (0.03) (0.15) (0.12) (0.05) (0.36)
2001
- -------------------------------------------
Net sales $3,679 $3,399 $3,890 $2,691 $ 13,659
Gross profit (loss) 473 17 12 101 603
Net loss (676) (956) (905) (553) (3,090)
Loss per common share:
Basic and diluted (0.22) (0.30) (0.29) (0.18) (0.99)
34
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 25, 2003, to be 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 page 6 of the
Company's definitive Proxy Statement, dated March 25, 2003, 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 and equity compensation plans approved by shareholders titled "Stock
Option Plan" of the Company's definitive Proxy Statement, dated March 25, 2003,
filed with the Securities and Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
ITEM 14. CONTROLS AND PROCEDURES
On February 3, 2003, management conducted an evaluation, under the
supervision of and with the participation of the Company's Chief Executive
Officer and Chief Financial Officer of the effectiveness of the Company's
disclosure controls and procedures. Based on this evaluation, management
believes the disclosure controls and procedures in place are effective to ensure
that information required to be disclosed by the Company in the reports that it
files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
SEC's rules and forms.
Since the date of management's evaluation of its internal disclosure
controls there have been no significant changes in the Company's internal
disclosure controls or in other factors that could significantly affect internal
disclosure controls subsequent to the date the Company completed its evaluation.
35
PART IV
ITEM 15. 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, 2002 and 2001
Statements of Operations - Years ended December 31, 2002,
2001, and 2000.
Statements of Shareholders' Equity-Years ended December
31, 2002, 2001 and 2000
Statements of Cash Flows - Years ended December 31, 2002,
2001 and 2000
Notes to Financial Statements - Years ended December 31,
2002, 2001 and 2000
2. The following Financial Statement Schedule as of and for the
years ended December 31, 2002, 2001 and 2000 is submitted
herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not
applicable or the required information is disclosed
elsewhere.
3. Exhibits:
3.1 (1) Restated Articles of Incorporation of Registrant, as
amended.*
3.2 (1) Bylaws of Registrant, as amended.*
10.1 (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 (1) Export Distributorship Agreement dated August 17, 1981
between the Registrant and Automation, Ltd. (England,
Scotland, Wales and Ireland).*
10.3 (1) Form of Export Distributorship Agreement used in France,
West Germany, Switzerland, Liechtenstein and Australia.*
10.4 (1) Form of Contract for Sales Representatives used in the
United States.*
10.5 (3) Letter Agreement dated December 6, 1984, between Registrant
and First Interstate Bank of California.***
10.6 (2) 1984 Employee Stock Option Plan and related forms of
Incentive Stock Option Agreement and Non-Qualified Stock
Option Agreement.**
10.7 (3) 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 (3) 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 (5) Bank agreement dated November 19, 1984.*****
10.10(4) Amendments to the stock option plan.****
10.11(5) Form of Indemnity Agreement*****
10.12(6) 1994 Employee Stock Option Plan******
22.1 (1) List of Subsidiaries*
23.1 Independent Auditors' Report on Schedule and Consent
24.1* Power of Attorney (included on the signature pages hereof)
99.1 Certification of CEO and CFO
- --------------------------------------
* Filed herewith.
36
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K,
(CONTINUED)
*(1) 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).
**(2) 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).
***(3) 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.
**** (4) 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.
*****(5) 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.
******(6) This exhibit is incorporated by reference of the Company's
Registration Statement of Form-S-8 filed February 15, 1995.
37
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 26, 2003
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 President and Chairman of the Board March 26, 2003
- ------------------------------ (Principal Executive Officer)
Stuart C. Baker
/s/ Gregory D. Leiser Vice President Finance and Chief March 26, 2003
- ------------------------------ Financial Officer
Gregory D. Leiser (Principal Financial and Accounting Officer)
/s/ Sanford B. Ehrlich Director March 26, 2003
- ------------------------------
Dr. Sanford B. Ehrlich
/s/ William W. Holl Secretary, Treasurer and March 26, 2003
- ------------------------------ Director
William W. Holl
/s/ Gordon S. Marshall Director March 26, 2003
- ------------------------------
Gordon S. Marshall
/s/ Carl C. Roecks Director March 26, 2003
- ------------------------------
Carl C. Roecks
/s/ Howard C. White Director March 26, 2003
- ------------------------------
Howard C. White
38
AMISTAR CORPORATION
Schedule II
Valuation and Qualifying Accounts
Three years ended December 31, 2002
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
2002 $ 187,497 $ (60,679) $ -- $ 36,724 $ 90,094
=========== =========== ========= ========== ===========
2001 $ 138,922 $ 60,000 $ 8,197 $ 19,622 $ 187,497
=========== =========== ========= ========== ===========
2000 $ 853,995 $ (350,457) $ 57,098 $ 421,714 $ 138,922
=========== =========== ========= ========== ===========
Allowance for inventory excess and obsolescence:
2002 $1,995,717 $ 174,524 $ 3,584 $ -- $2,173,825
=========== =========== ========= ========== ===========
2001 $1,532,350 $ 463,367 $ -- $ -- $1,995,717
=========== =========== ========= ========== ===========
2000 $1,651,454 $ -- $ -- $ 119,104 $1,532,350
=========== =========== ========= ========== ===========
Net deferred tax asset valuation allowance:
2002 $3,096,000 $ 562,000 $ -- $ 400,000 $3,258,000
=========== =========== ========= ========== ===========
2001 $1,886,000 $1,210,000 $ -- $ -- $3,096,000
=========== =========== ========= ========== ===========
2000 $1,669,000 $ 217,000 $ -- $ -- $1,886,000
=========== =========== ========= ========== ===========
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT ON SCHEDULE.
39