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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended September 30, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________.
COMMISSION FILE NUMBER: 0-13403
AMISTAR CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2747332
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
237 Via Vera Cruz
San Marcos, California 92069
(Address of principal executive offices) (Zip code)
(760) 471 -1700
(Registrant's telephone number, including area code)
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 last 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act)
Yes [ ] No [X]
There were 3,078,294 shares of common stock outstanding as of October 22, 2003.
1
AMISTAR CORPORATION
FORM 10-Q
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Unaudited Condensed Balance Sheets....................................3
Unaudited Condensed Statements of Operations..........................4
Unaudited Statements of Cash Flows....................................5
Notes to the Unaudited Condensed Financial Statements ................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................13
Item 3. Quantitative and Qualitative Disclosures about Market Risk...........18
Item 4. Controls and Procedures..............................................18
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.....................................19
2
Part I
ITEM 1. FINANCIAL STATEMENTS
AMISTAR CORPORATION
Condensed Balance Sheets
(Unaudited and in thousands, except share data)
Sep. 30, Dec. 31,
2003 2002
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 2,731 $ 2,383
Restricted cash 100 110
Trade accounts receivable, net of
reserves of $75 (2003) and $94 (2002) 1,410 1,557
Inventories, net 2,644 2,401
Demonstration equipment 55 95
Prepaid expenses 106 186
-------- --------
Total current assets 7,046 6,732
Property and equipment, net 3,824 3,991
Other assets 45 56
-------- --------
$10,915 $10,779
======== ========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 301 $ 220
Accrued liabilities 799 378
Industrial development bonds 2,900 3,000
-------- --------
Total current liabilities 4,000 3,598
-------- --------
Shareholders' equity:
Common stock, $.01 par value. Authorized 31 31
20,000,000 shares; 3,078,294 and
3,083,051 shares issued and
outstanding at Sep. 30, 2003 and
Dec. 31, 2002, respectively
Additional paid-in capital 4,529 4,534
Retained earnings 2,355 2,616
-------- --------
Total shareholders' equity 6,915 7,181
-------- --------
$10,915 $10,779
======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS.
3
AMISTAR CORPORATION
Condensed Statements of Operations
(Unaudited and in thousands, except per share data)
Three months ended Nine months ended
Sep. 30, Sep. 30,
2003 2002 2003 2002
-------- -------- -------- --------
Net sales $ 3,125 $ 2,844 $ 8,546 $ 8,312
Cost of sales 2,556 2,505 6,922 7,644
-------- -------- -------- --------
Gross profit 569 339 1,624 668
-------- -------- -------- --------
Operating expenses:
Selling 319 339 962 922
General and administrative 248 268 726 735
Engineering, research and development 35 123 185 366
-------- -------- -------- --------
602 730 1,873 2,023
-------- -------- -------- --------
Operating loss (33) (391) (249) (1,355)
Other income (expense), net (2) 16 (9) 28
-------- -------- -------- --------
Loss before income taxes (35) (375) (258) (1,327)
Income tax expense (benefit) 1 2 3 (394)
-------- -------- -------- --------
Net loss $ (36) $ (377) $ (261) $ (933)
======== ======== ======== ========
Loss per share-
basic and diluted $ (0.01) $ (0.12) $ (0.08) $ (0.30)
======== ======== ======== ========
Weighted average shares
outstanding, basic and diluted 3,078 3,085 3,080 3,086
======== ======== ======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS.
4
AMISTAR CORPORATION
Statements of Cash Flows
(Unaudited and in thousands)
Nine months ended Sep. 30, 2003 2002
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $ (261) $ (933)
Adjustments to reconcile net loss to
net cash provided (used) in operating activities:
Depreciation and amortization 267 429
Changes in assets and liabilities:
Trade accounts receivable, net 147 (351)
Inventories (243) (16)
Demonstration equipment 40 104
Prepaid expenses and other assets 91 113
Accounts payable and accrued liabilities 502 (40)
-------- --------
Net cash provided (used) in operating activities 543 (694)
-------- --------
Cash flows from investing activities-
Purchase of property and equipment (100) (144)
-------- --------
Cash flows from financing activities:
Redemption of Industrial Development Bonds (100) (1,500)
Decrease in restricted cash, net 10 1,382
Repurchase of common stock (5) (1)
-------- --------
Net cash used in financing activities (95) (119)
-------- --------
Net increase (decrease) in cash and cash equivalents 348 (957)
Cash and cash equivalents, beginning of period 2,383 3,626
-------- --------
Cash and cash equivalents, end of period $ 2,731 $ 2,669
======== ========
Supplemental disclosure of cash flow information-
Cash paid during the period for:
Interest $ 22 $ 32
======== ========
Income taxes $ 4 $ 5
======== ========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS.
5
AMISTAR CORPORATION
Notes to Condensed Financial Statements
(Unaudited)
(1) BUSINESS AND CURRENT EVENTS
Notice from Stock Exchange
- --------------------------
The Company had received notice on October 4, 2002 that it was 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 subsequently received notice from Nasdaq on May 29, 2003 that
it regained compliance with the minimum closing bid price requirement and as a
result, is now in full compliance with the listing requirements.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
- ---------------------
The accompanying unaudited condensed financial statements of the Company
have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated
by the Securities and Exchange Commission and, therefore, do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations and cash flows in conformity with accounting
principles generally accepted in the United States of America. In the opinion of
the Company, however, the accompanying unaudited condensed financial statements
contain all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Company's financial position as of September 30,
2003, its results of operations for the three and nine-month periods ended
September 30, 2003 and 2002, and its cash flows for the nine month period ended
September 30, 2003 and 2002, respectively. The results of operations of the
Company for the nine-month period ended September 30, 2003 may not be indicative
of future results. These condensed unaudited financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 2002 as
filed with the Securities and Exchange Commission on March 26, 2003.
6
AMISTAR CORPORATION
Notes to Condensed Financial Statements, continued
(Unaudited)
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or market
and include material, labor and manufacturing overhead costs. Inventories
consist of the following (in thousands), net of reserves of $2,056 (2003) and
$2,174 (2002):
Sep. 30 Dec. 31,
2003 2002
------------------------------- -------------------------------
AIA AMS TOTAL AIA AMS TOTAL
--- --- ----- --- --- -----
Raw Material $ 274 $ 727 $1,001 $ 210 $ 580 $ 790
Work In Process 716 244 960 569 161 730
Finished Goods 632 51 683 669 212 881
------------------------------- -------------------------------
Total $1,622 $1,022 $2,644 $1,448 $ 953 $2,401
=============================== ===============================
Earnings Per Common Share
- -------------------------
The Company calculates net earnings (loss) per share in accordance with
SFAS No. 128, Earnings Per Share. Under SFAS No. 128, basic net earnings (loss)
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 where the effect of inclusion of such securities
would not be anti-dilutive. Weighted average shares used to compute net earnings
(loss) per share are presented below (in thousands):
Three months ended Nine months ended
Sep. 30, Sep. 30,
2003 2002 2003 2002
--------------- --------------- --------------- ----------------
Weighted-average shares, basic 3,078 3,085 3,080 3,086
Dilutive effect of stock options - - - -
--------------- --------------- --------------- ----------------
Weighted-average shares-
basic and diluted 3,078 3,085 3,080 3,086
=============== =============== =============== ================
Options to purchase 81,000 and 5,000 shares of potentially dilutive common
stock were excluded from the calculation of diluted net earnings (loss) per
share for the three and nine months ended September 30, 2003, and September 30,
2002 respectively, because the effects of these instruments were anti-dilutive.
7
AMISTAR CORPORATION
Notes to Condensed Financial Statements, continued
(Unaudited)
Industrial Development Bonds
- ----------------------------
The Company maintains a letter of credit from its bank in support of the
$2,900,000 industrial development bonds, which are secured by substantially all
the assets of the company. The bonds accrue interest at a variable monthly rate,
and interest was paid at a weighted-average variable rate of 1.02% during the
quarter ending September 30, 2003. 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 first payment of
$100,000 was made on January 21, 2003. 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 contains certain affirmative financial covenants. At September 30, 2003,
the Company was not in compliance with the tangible net worth and debt service
covenants. The Company received waivers relating to these covenants through
March 31, 2004. 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 covenant after the waiver expires, and considering that a covenant
violation would constitute an event of default and allow the bank to call the
debt prior to maturity, the entire Industrial Development bonds balance has been
classified as a current liability in the accompanying balance sheets.
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 inability of the Company to
successfully substitute a guarantor or to re-finance the building could have a
materially 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.
In the event the bank chooses to no longer forbear, management would
consider several options which include utilizing some portion of cash,
refinancing 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 repayment of the Company's industrial development 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 development bonds.
The Company believes the bank will continue to forbear for the foreseeable
future due to the Company's improvement in operating results over the past nine
quarters and considering the two consecutive quarters of positive EBITDA.
8
AMISTAR CORPORATION
Notes to Condensed Financial Statements, continued
(Unaudited)
The Company believes that cash provided from operations and cash balances
at September 30, 2003 will be adequate to support its operating and investing
requirements for the next twelve-month period.
Industry Segments and Geographic Information
- --------------------------------------------
The following table summarizes the Company's two operating segments:
Amistar Industrial Automation ("AIA"), which encompasses the manufacture and
distribution of manufacturing machinery, specialty products, and related
accessories, and Amistar Manufacturing Services ("AMS"), which encompasses
electronics 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 (dollars in
thousands).
AIA
-------------------------------------
UNITED
STATES FOREIGN TOTAL AMS CORPORATE TOTAL
- ------------------------------------------------------------------------------------------------------ ----------
THREE MONTHS ENDED SEP. 30, 2003
Net sales $ 733 $ 77 $ 810 $ 2,315 $ -- $ 3,125
========= ====== ========= ========= ====== =========
Depreciation and amortization 22 -- 22 55 7 84
========= ====== ========= ========= ====== =========
Loss from operations (27) (7) (34) 1 -- (33)
========= ====== ========= ========= ====== =========
Total assets 4,775 41 4,816 2,135 3,964 10,915
========= ====== ========= ========= ====== =========
Additions to long-lived assets 10 -- 10 46 -- 56
========= ====== ========= ========= ====== =========
THREE MONTHS ENDED SEP. 30, 2002
Net sales $ 491 $ 2 $ 493 $ 2,351 $ -- $ 2,844
========= ====== ========= ========= ====== =========
Depreciation and amortization 49 -- 49 84 -- 133
========= ====== ========= ========= ====== =========
Loss from operations (246) (2) (248) (143) -- (391)
========= ====== ========= ========= ====== =========
Total assets 4,798 47 4,845 1,975 4,372 11,192
========= ====== ========= ========= ====== =========
Additions to long-lived assets 12 -- 12 15 31 58
========= ====== ========= ========= ====== =========
NINE MONTHS ENDED SEP. 30, 2003
Net sales $ 2,031 $ 144 $ 2,175 $ 6,371 $ -- $ 8,546
========= ====== ========= ========= ====== =========
Depreciation and amortization 77 -- 77 168 22 267
========= ====== ========= ========= ====== =========
Loss from operations (283) (20) (303) 54 -- (249)
========= ====== ========= ========= ====== =========
Additions to long-lived assets 54 -- 54 46 -- 100
========= ====== ========= ========= ====== =========
NINE MONTHS ENDED SEP. 30, 2002
Net sales $ 1,175 $ 90 $ 1,265 $ 7,047 $ -- $ 8,312
========= ====== ========= ========= ====== =========
Depreciation and amortization 159 -- 159 270 -- 429
========= ====== ========= ========= ====== =========
Loss from operations (789) (72) (861) (494) -- (1,355)
========= ====== ========= ========= ====== =========
Additions to long-lived assets 14 -- 14 92 38 144
========= ====== ========= ========= ====== =========
9
AMISTAR CORPORATION
Notes to Condensed Financial Statements, continued
(Unaudited)
Product Warranty Information
- ----------------------------
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.
Warranty cost and accrual information is as follows for the three and nine
months ended Sep. 30, 2003:
Charged to
Period Beginning costs and Balance at
Beginning Balance expense Deductions 9/30/2003
----------- --------- --------- ------------- ---------
6/30/2003 $ 25,782 $ 6,485 $ -- $ 32,267
========= ========= ============= =========
12/31/2002 $ 45,876 $(20,860) $ 7,251 $ 32,267
======== ======== ============ ========
10
AMISTAR CORPORATION
Notes to Condensed Financial Statements, continued
(Unaudited)
Stock-Based Compensation
- ------------------------
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure", which amended SFAS No. 123,
"Accounting for Stock-Based Compensation." The new standard provides alternative
methods of transition for a voluntary change to the fair market value based
method for accounting for stock-based employee compensation. Additionally, the
standard amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This standard is effective for financial statements
for the year ended December 31, 2002. In compliance with SFAS No. 148, the
Company has elected to continue to follow the intrinsic value method in
accounting for its stock-based employee compensation plan as defined by APB No.
25 and has made the applicable disclosures below.
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 for the three and nine months ended September 30, 2003 and 2002 as
follows ($ in thousands, except per share amounts):
Three months ended Nine months ended
Sep. 30, Sep. 30,
2003 2002 2003 2002
---- ---- ---- ----
Net loss - as reported $ (36) $ (377) $ (261) $ (933)
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 (1) (3) (7) (8)
------------------ -------------------
Pro forma net loss $ (37) $ (380) $ (268) $ (941)
================== ===================
Earnings (loss) per share:
Basic, as reported $ (0.01) $ (0.12) $ (0.08) $ (0.30)
Diluted, as reported $ (0.01) $ (0.12) $ (0.08) $ (0.30)
Basic, pro forma $ (0.01) $ (0.12) $ (0.09) $ (0.31)
Diluted, pro forma $ (0.01) $ (0.12) $ (0.09) $ (0.31)
11
AMISTAR CORPORATION
Notes to Condensed Financial Statements, continued
(Unaudited)
Stock option activity during the nine months ending September 30, 2003 was as
follows:
NUMBER WEIGHTED AVERAGE WEIGHTED FAIR
(SHARES IN THOUSANDS) OF SHARES EXERCISE PRICE VALUE PER SHARE
--------------------- --------- -------------- ---------------
Outstanding, Dec 31, 2002 165,000 $ 1.85
Granted 86,000 0.82 0.45
Exercised -- --
Expired (16,000) 2.75
---------- ----------
Outstanding, Sep. 30, 2003 235,000 $ 1.41
========== ==========
12
AMISTAR CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward Looking Statements
- --------------------------
This Quarterly 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. 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.
RESULTS OF OPERATIONS
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002
Net Sales
- ---------
Net sales for the three months ended September 30, 2003 were $3,125,000
compared to $2,844,000 for the same period in the prior year, an increase of
9.9%. The sales growth was primarily from an increase in AIA sales.
During the current quarter, the Amistar Industrial Automation ("AIA")
division shipped two of its 100LP DataPlace machines and one of its DataPlace 1M
machines, compared to one DataPlace 1M machine and one shaft band labeler sold
during the third quarter of 2002.
Sales of AIA custom factory automation and other products in the third
quarter of 2003 primarily included animal carrier products, whereas in the third
quarter of 2002 sales included primarily machine shop services. The AIA division
has in production four custom engineered machines to fulfill a contract received
from a customer doing business in the eyeglass lens manufacturing industry.
These machines are required to be delivered in the fourth quarter of 2003.
Sales of distributed circuit board assembly machine accessories and spare
parts grew 37% over the third quarter of 2002, from $92,000 to $126,000, and 58%
over the first quarter of 2003, from $80,000 to $126,000. Management believes
the increase is the result of greater utilization of older model machines in the
field.
The Amistar Manufacturing Services division ("AMS") sales declined 1.6% to
$2,315,000 for the three months ended September 30, 2003, from $2,351,000 for
the same period in 2002 primarily due to the absence of orders from customers
who chose to move production off-shore but mostly offset by growth in orders
from existing customers. However, third quarter sales increased 21% from the
second quarter sales of $1,916,000 partially due to the addition of a new
customer in the bank security business and from increased sales to existing
customers.
13
AMISTAR CORPORATION
Gross Profit
- ------------
Gross profit increased $230,000, or 68%, to $569,000 during the quarter
ended September 30, 2003 compared to $339,000 in the same period in 2002. This
increase was due primarily to increased sales which included a more favorable
mix of higher margin products, improved factory utilization, and improved labor
efficiencies in the manufacturing services division as well as lower costs of
purchased components. During the current quarter, manufacturing services margins
increased to 14.2% in the third quarter of 2003 from 11.1% in the third quarter
of 2002. AIA margins increased to 29.6% in the third quarter of 2003 from 15.7%
in the third quarter of 2002.
Selling Expenses
- ----------------
Selling expenses decreased 5.9% in the current quarter from the third
quarter of 2002, from $339,000 to $319,000 primarily due to a reduction in AMS
sales and marketing personnel in 2002 and a reduction of sales generated by
commissioned representatives.
General and Administrative Expenses
- -----------------------------------
The general and administrative expenses decreased 7.5%, from $268,000 in
the third quarter of 2002 to $248,000 in the third quarter of 2003 primarily due
to a reduction in consulting fees related to a business development effort.
Engineering, Research and Development Expenses
- ----------------------------------------------
Engineering, research and development expenses decreased 72% in the current
quarter over the same period in 2002, from $123,000 to $35,000. The primary
utilization of the engineering staff has been in support of custom factory
engineering design activities. The engineering group provided billable
engineering design services and allocated $59,000 in engineering labor costs to
work-in-process inventory related to a design contract in the third quarter of
2003, most of which is expected to be complete in the fourth quarter of 2003.
Income Taxes
- ------------
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 a $400,000
carry-back refund benefit and receivable during the three months ended March 31,
2002, which was partially offset by a $2,000 provision for the minimum tax
liability to various states. No comparable benefit was available in the same
period in 2003.
A 100% valuation allowance was recorded against deferred tax assets.
14
AMISTAR CORPORATION
FIRST NINE MONTHS OF 2003 COMPARED TO FIRST NINE MONTHS OF 2002
Net Sales
- ---------
Net sales for the nine months ended September 30, 2003 were $8,546,000
compared to $8,312,000 for the same period in the prior year, an increase of
2.8%. The decrease in AMS sales was offset mostly by an increase in AIA sales.
During the first nine months of 2003, the Amistar Industrial Automation
("AIA") division shipped four of its DataPlace 100LP machines, two of its
DataPlace 1M machines, and five DataPlace shaft band labeler machines where one
1M, one 100LP, and one Shaft Band Labeler machines were shipped during the first
nine months of 2002.
The AIA custom factory automation division sales in the first nine months
included sales of specialty equipment to customers in the veterinary products
industry, the food irradiation industry, and the golf club assembly business.
Sales of distributed circuit board assembly machine accessories and spare
parts grew 154% over the first nine months of 2002, from $123,000 to $313,000.
The Company resumed its role as the primary North American distributor in 2003
and management believes the increase is the result of greater utilization of
older model machines in the field.
The Amistar Manufacturing Services division ("AMS") sales declined 9.6% to
$6,370,000 for the nine months ended September 30, 2003, from $7,047,000 for the
same period in 2002, primarily due to the absence of orders from customers who
chose to move production offshore and partially offset by increased orders from
existing customers.
Gross Profit
- ------------
Gross profit increased $957,000, or 143%, to $1,624,000 during the nine
months ended September 30, 2003 compared to $668,000 in the same period of 2002.
This increase was primarily due to the sale of six DataPlace labeler machines
and five Golf Shaft Band labelers in the first nine months of 2003, where only
one DataPlace labeler machine and one Golf Shaft Band labeler were shipped
during the first nine months of 2002. The increase in gross profit was also
partially due to the improved factory utilization in the AIA division.
Gross profit was also increased due to improved labor efficiencies in the
manufacturing services division as well as lower costs of purchased components.
Selling Expenses
- ----------------
Selling expenses increased 4.3% in the first nine months of 2003 from the
same period of 2002, from $922,000 to $962,000 primarily due to the reassignment
of AIA personnel in the first quarter, higher field service costs, a lower
portion of field service expenses allocable to billable activities, and lower
warranty costs. These higher AIA costs were offset by a decrease in AMS sales
and marketing expenses due to a reduction in sales personnel and lower promotion
expenses.
General and Administrative Expenses
- -----------------------------------
The general and administrative expenses decreased 1%, from $735,000 in the
first nine months of 2002 to $726,000 in the same period of 2003 primarily due
to a reduction in the consulting fees incurred during the second and third
quarters of 2003 and partially offset by a decrease in the allowance for bad
debts during the nine months ended September 2002.
15
AMISTAR CORPORATION
Engineering, Research and Development Expenses
- ----------------------------------------------
Engineering, research and development expenses decreased 49% in the first
nine months of 2003 over the same period in 2002, from $366,000 to $185,000. The
engineering group provided billable engineering design services and allocated
$91,000 in engineering labor costs to work-in-process inventory related to a
design contract in the third quarter of 2003. The decrease was also partly due
to a reduction of personnel 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 extends the period in which a net operating
loss may be carried back. As a result, the Company recognized a $400,000
carry-back refund benefit and receivable during the three months ended March 31,
2002, which was partially offset by a $6,000 provision for the minimum tax
liability to various states. No comparable benefit was available in the same
period in 2003.
A 100% valuation allowance was recorded against deferred tax assets.
AMISTAR CORPORATION
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash provided from operating activities was $543,000 for the
nine months ended September 30, 2003, a $1,237,000 increase over the cash used
in operating activities of $694,000 for the nine months ended September 30,
2002. The improvement was due to a decreased loss and an increase in the accrued
payables primarily due to deposits made by customers for machine orders and
partially offset by an increase in inventory to support a new AMS costumer.
The Company maintains a letter of credit from its bank in support of the
$2,900,000 industrial development bonds, which are secured by substantially all
the assets of the company. The bonds accrue interest at a variable monthly rate,
and interest was paid at a weighted-average variable rate of 1.02% during the
quarter ending September 30, 2003. 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 first payment of
$100,000 was made on January 21, 2003. 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 contains certain affirmative financial covenants. At September 30, 2003,
the Company was not in compliance with the tangible net worth and debt service
covenants. The Company received waivers relating to these covenants through
March 31, 2004. The Company has made all required debt service payments on the
bonds. However, based on the uncertainty concerning the Company's ability to
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AMISTAR CORPORATION
meet the covenant after the waiver expires, and considering that a covenant
violation would constitute an event of default and allow the bank to call the
debt prior to maturity, the entire Industrial Development bonds balance has been
classified as a current liability in the accompanying balance sheets.
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 inability of the Company to
successfully substitute a guarantor or to re-finance the building could have a
materially 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.
In the event the bank chooses to no longer forbear, management would
consider several options which include utilizing some portion of cash,
refinancing 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 repayment of the Company's industrial development bonds would be
required in 2003 or 2004, and the Company would have adequate finances to fund
its operating, investing and financing activities through 2004 under either
scenario for repayment of its industrial development bonds.
The Company believes the bank will continue to forbear for the foreseeable
future due to the Company's improvement in operating profit over the past eight
quarters and considering the two consecutive quarters and nine months of
positive EBITDA.
The Company believes that cash provided from operations and cash balances
at September 30, 2003 will be adequate to support its operating and investing
requirements for the next twelve-month period.
New Accounting Pronouncements
- -----------------------------
In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative
Instruments and Hedging Activities" was issued. This statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for contracts entered into or modified after June 30,
2003. Adoption of this statement is not expected to have a significant effect on
the Company's financial position or results of operations.
In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments
with Characteristics of Both Liabilities and Equity" was issued. This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. This
statement is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS No. 150 is not expected to have a significant
effect on the Company's financial position, results of operations, or cash
flows.
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AMISTAR CORPORATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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's long-term debt at September
30, 2003 is comprised of $2,900,000 Industrial Development bonds. The bonds
mature in December 2005, and accrue interest at a variable monthly rate.
Interest was paid at a weighted-average variable rate of 1.02% during the
quarter ending September 30, 2003. An immediate 10% increase in the
weighted-average interest rate would not have a material impact on the Company's
financial position or results of operations.
ITEM 4. CONTROLS AND PROCEDURES
On September 25, 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.
PART II. OTHER INFORMATION
ITEMS 1-5 Non-Applicable
NOTICE FROM STOCK EXCHANGE
The Company had received notice on October 4, 2002 that it was 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 subsequently received notice from Nasdaq on May 29, 2003 that
it regained compliance with the minimum closing bid price requirement and as a
result, is now in full compliance with the listing requirements.
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AMISTAR CORPORATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
99.1 Certification of President and Chief Financial Officer
(b) Reports on form 8-K:
Change in Registrant's Certifying Accountant
The Registrant filed a Form 8-K on April 4, 2003 regarding changes in
registrants certified accountants.
On April 1, 2003, the Company's audit committee, as affirmed by the
board of directors, dismissed KPMG, LLP ("KPMG") as the Company's independent
auditors for the year ending December 31, 2003, and appointed BDO Seidman, LLP,
as the Company's independent auditors.
The decision to change auditors is the result of the Company's ongoing
efforts to reduce expenses.
KPMG's reports on the Company's financial statements for the fiscal
years ended December 31, 2002 and 2001, did not contain any adverse opinion or
disclaimer of opinion, nor were such reports qualified or modified as to
uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2002 and 2001, and through
the subsequent period ended April 1, 2003, there were no disagreements with KPMG
on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure which, if not resolved to KPMG's
satisfaction, would have caused them to make reference to the subject matter of
the disagreement in connection with the audit reports on the Company's financial
statements for such years.
The Company has provided KPMG with a copy of the foregoing disclosure
and has requested that KPMG furnish it with a letter addressed to the Securities
and Exchange Commission stating whether or not it agrees with the above
statements. Attached as Exhibit 16.1 is a copy of KPMG's letter.
Neither the Company nor anyone engaged on its behalf has consulted with
BDO Seidman, LLP during the Company's two most recently completed fiscal years
or during its current fiscal year with regard to either: (i) the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on the Company's financial
statements; or (ii) any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) or Regulation S-K.
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AMISTAR CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: October 24, 2003
AMISTAR CORPORATION
By /s/ Gregory D. Leiser
---------------------------
Gregory D. Leiser
Vice President Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
CERTIFICATIONS
I, Stuart C. Baker, certify that:
1) I have reviewed this quarterly report on Form 10-Q for the three and
nine-months ended September 30, 2003;
2) Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities particularly during the period in which the quarterly report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: October 24, 2003
By: /s/ Stuart C. Baker
--------------------------
Name: Stuart C. Baker
Title: President
21
I, Gregory D. Leiser, certify that:
1) I have reviewed this quarterly report on Form 10-Q for the three and
nine-months ended September 30, 2003;
2) Based on my knowledge, this quarterly report does not contain any untrue
statements of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4) The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within these
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5) The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6) The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: October 24, 2003
By: /s/ Gregory D. Leiser
--------------------------
Name: Gregory D. Leiser
Title: Chief Financial Officer
22