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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended: September 30, 2002
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 0-24242
PRODUCTIVITY TECHNOLOGIES CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3764753
- ------------------------------------------------------- -----------------------------------------
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
201 South Main Street, 8th Floor, Ann Arbor, Michigan 48104
--------------------------------------------------------------------
(Address of Principal Offices)(Zip Code)
Registrant's Telephone Number, Including Area Code (734) 996-1700
-----------------------------
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 _____________
------------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes _____________ No _____________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 14, 2002: 2,475,000 shares, $ .001 par value common
stock.
1
Productivity Technologies Corp.
INDEX
Page
Number
------
PART I FINANCIAL INFORMATION .......................................................................... 3
Item 1. Financial Statements ........................................................................... 3
Consolidated Balance Sheets at September 30, 2002 (unaudited) and June 30, 2002 ................ 3
Consolidated Statements of Operations for the three months ended September 30, 2002 and
2001 (unaudited) ........................................................................... 5
Consolidated Statement of Stockholders' Equity for September 30, 2002 (unaudited) .............. 6
Consolidated Statements of Cash Flows for the three months ended September 30, 2002 and
2001 (unaudited) ........................................................................... 7
Notes to Unaudited Consolidated Financial Statements ........................................... 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .......... 10
Item 3. Quantitative and Qualitative Disclosure about Market Risk ...................................... 13
Item 4. Controls and Procedures ........................................................................ 13
PART II OTHER INFORMATION .............................................................................. 13
Item 1. Legal Proceedings .............................................................................. 13
Item 2. Changes in Securities and Use of Proceeds (not applicable) ..................................... 13
Item 3. Defaults Upon Senior Securities ................................................................ 13
Item 4. Submission of Matters to a Vote of Security Holders (not applicable) ........................... 14
Item 5. Other Information (not applicable) ............................................................. 14
Item 6. Exhibits and Reports on Form 8-K ............................................................... 14
SIGNATURES ............................................................................................... 14
CERTIFICATIONS ........................................................................................... 14
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 June 30, 2002
------------------ -------------
(Unaudited)
Assets
Current Assets
Cash $ $725,895 $ 4.971,837
Short-term investments, including accrued interest 194,742 149,720
Contract receivables, net of allowance for doubtful accounts of
$265,175 and $250,198 3,539,536 2,898,107
Costs and estimated earnings in excess of billings on
uncompleted contracts 2,926,478 1,773,141
Inventories 1,177,908 1,211,249
Prepaid expenses and other 351,068 352,542
Deferred income taxes 282,000 282,000
----------- -----------
Total current assets 9,197,627 11,638,596
----------- -----------
Property and equipment
Land $591,514 $591,514
Buildings and improvements 4,917,459 4,917,459
Machinery and equipment 4,224,574 4,223,506
Transportation equipment 21,000 21,000
----------- -----------
9,754,547 9,753,479
Less accumulated depreciation 3,194,989 3,042,568
----------- -----------
Net property and equipment 6,559,558 6,710,911
----------- -----------
Other assets
Goodwill 2,985,909 4,926,448
Patent 427,502 451,875
Deferred income taxes 468,000 468,000
Other assets 286,709 297,959
----------- -----------
Total other assets 4,168,120 6,144,282
----------- -----------
$19,925,305 $24,493,789
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
3
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, 2002 June 30, 2002
------------------ -------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities
Current portion of long-term debt $ 7,984,770 $12,190,338
Accounts payable 3,050,990 2,193,920
Accrued expenses
Commissions payable 210,000 189,000
Payroll and related withholdings 26,388 370,178
Warranty Reserve 315,000 315,000
Royalties Payable - -
Interest 560,026 1,122,552
Other 414,120 367,148
Billings in excess of costs and estimated
earnings on uncompleted contracts 845,703 750,970
Current maturities of executive deferred compensation agreements 974,933 974,933
----------- -----------
Total current liabilities $14,381,930 $18,474,039
Executive deferred compensation agreements, less current maturities - -
Long-term debt, less current maturities 3,417,000 3,800,000
----------- -----------
Total liabilities 17,798,930 22,274,039
----------- -----------
Stockholders' equity
Common stock, $.001 par value, 20,000,000
shares authorized; 2,475,000 shares issued and outstanding 2,475 2,475
Additional paid-in capital 9,966,408 9,966,408
Deficit (7,842,508) (7,749,133)
----------- -----------
Total stockholders' equity 2,126,375 2,219,750
----------- -----------
$19,925,305 $24,493,789
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
4
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended
September 30, September 30,
------------- -------------
2002 2001
---- ----
Revenues Earned $ 6,736,943 $ 7,459,679
Cost of Revenues Earned 5,162,891 5,554,072
----------- -----------
Gross profit 1,574,052 1,905,607
Selling, general and administrative expenses 1,526,416 1,665,955
----------- -----------
Income from operations 47,636 239,652
----------- -----------
Other income (expense)
Interest income 7,467 5,444
Interest expense (192,558) (338,595)
Miscellaneous 14,099 10,174
----------- -----------
Total other expenses (170,992) (322,977)
----------- -----------
Income (loss) before income taxes (123,356) (83,325)
Income tax expense (benefit) (29,981) -0-
----------- -----------
Net income (loss) ($93,375) ($83,325)
=========== ===========
Basic and Diluted Earnings per share $ (0.04) $ (0.03)
=========== ===========
Weighted average number of
Common shares outstanding 2,475,000 2,475,000
See accompanying notes to unaudited consolidated financial statements.
5
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Additional Total
Common Stock Paid-In Stockholders'
------------
Shares Amount Capital Deficit Equity
Balance June 30, 2002 2,475,000 $ 2,475 $ 9,966,408 ($7,749,133) $ 2,219,750
Net loss -- -- -- ($93,375) ($93,375)
----------- ----------- ----------- ----------- -----------
September 30, 2002 2,475,000 $ 2,475 $ 9,966,408 ($7,842,508) $ 2,126,375
=========== =========== =========== =========== ===========
See accompanying notes to unaudited consolidated financial statements.
6
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
September 30, September 30,
2002 2001
---- ----
Cash flows from operating activities
Net loss ($93,375) ($83,325)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 152,421 150,312
Amortization 35,623 22,499
Changes in operating assets and liabilities:
Contract receivables (641,429) (601,033)
Inventories, prepaid expenses and other 34,815 75,477
Costs and estimated earnings in excess of billings
on uncompleted contracts, net effect (1,153,337) (1,590,227)
Accounts payable, accrued expenses and other 113,460 370,086
----------- -----------
Net cash used in operating activities (1,551,822) (1,666,210)
----------- -----------
Cash flows from investing activities
Proceeds from sale (purchase of) short-term investments - net (45,022) 49,779
Expenditures for property and equipment (1,068) (37,774)
----------- -----------
Net cash provided by (used in) investing activities (46,090) 12,005
----------- -----------
Cash flows from financing activities
(Payments) or borrowings under revolving credit agreement (1,848,030) 1,312,000
Payments on long term debt (800,000) (10,251)
----------- -----------
Net cash provided by (used in) financing activities (2,648,030) 1,301,749
----------- -----------
Net decrease in cash (4,245,942) (342,432)
Cash at the beginning of the period 4,971,837 766,052
----------- -----------
Cash at the end of the period $ 725,895 $ 423,620
=========== ===========
Supplemental Cash Flow Information
Cash paid during the period for interest $ 156,546 $ 338,595
Income Taxes Received $ 29,981 $ -
Schedule of Non-Cash Financing Activities
Goodwill reduction and debt extinguishment $ 1,940,538 $ -
See accompanying notes to unaudited consolidated financial statements.
7
PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited consolidated financial statements of Productivity Technologies
Corp. and Subsidiaries (the "Company") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted from the accompanying interim financial statements. The
information furnished in the accompanying balance sheets, statements of
operations, stockholders' equity and cash flows, reflect all adjustments, which
are, in the opinion of management, necessary for a fair presentation of the
aforementioned financial statements for the interim periods. Operating results
for the three months ended September 30, 2002, are not necessarily indicative of
the results that may be expected for the year ending June 30, 2003.
The consolidated financial statements should be read in conjunction with the
Company's annual report on Form 10-K for the fiscal year ended June 30, 2002 (as
amended by amendment no. 1 on Form 10-K/A). Information provided includes the
consolidated audited financial statements, including footnotes for the year
ended June 30, 2002 and Management's Discussion and Analysis of Financial
Condition and Results of Operations.
2. Summary of Significant Accounting Policies
History of the Company and Basis of Presentation
The Company was incorporated in June 1993 under the name Production Systems
Acquisition Corporation with the objective of acquiring an operating business
engaged in the production systems industry. The Company completed an initial
public offering ("IPO") of common stock in July 1994 and raised net proceeds of
approximately $9.0 million. In May 1996, the Company changed its name to
Productivity Technologies Corp. and acquired, through a merger, Atlas
Technologies, Inc. ("Atlas") as a wholly owned subsidiary. On February 23, 2000,
the Company purchased, through a wholly-owned subsidiary formed for this
purpose, substantially all of the assets of Westland Control Systems, Inc.
("Westland"). The Company has no other subsidiaries or operations. The Company,
which produces industrial machinery, operates in a single segment through its
Atlas and Westland subsidiaries.
The accompanying financial statements include the consolidated accounts of the
Company, Atlas and Westland. All significant inter-company accounts and
transactions have been eliminated upon consolidation.
Nature of Business
The Company operates in a single segment through its Atlas and Westland
subsidiaries. Atlas is a leading innovator and supplier of quick die change,
flexible transfer, and stacking/destacking equipment used to automate automotive
and other metal stamping operations. Atlas operates two manufacturing plants in
Fenton, Michigan and has sales and engineering offices in Michigan, Europe and
China.
Westland designs, manufactures and field installs custom electrical control
panels primarily for use in production machinery and machine tools utilized in
automotive, adhesive and sealants, food processing and other industrial
applications. Westland operates one manufacturing plant in Westland, Michigan,
which is located less than one hour from Atlas' plants in Fenton, Michigan.
Sales of Atlas products have principally been to automobile and automotive parts
manufacturers and appliance manufacturers. Other customers include steel service
centers and manufacturers of lawn and garden equipment, office furniture,
heating, ventilation and air conditioning equipment, and large construction
equipment. Sales to automotive related customer's account for the majority of
sales. Westland's customers participate in the automotive, food processing,
adhesive and sealants, engine part machining and other industries.
8
Revenue and Cost Recognition
At Atlas, revenues from fixed price contracts, and the related contract costs,
are recognized using the percentage-of-completion method. The
percentage-of-completion method measures the percentage of contract costs
incurred to date and compares these costs to the total estimated costs for each
contract. Atlas estimates the status of individual contracts when progress
reaches a point where experience is sufficient to estimate final results with
reasonable accuracy. Contract costs include all direct material and labor costs
and those indirect costs related to contract performance, such as indirect
labor, supplies, repairs and depreciation costs. Provisions for estimated losses
on uncompleted contracts are made in the period in which such losses are
determined. Changes in job performance, job condition, estimated profitability,
and final contract settlement may result in revisions to costs and income, and
are recognized in the period the revisions are determined. Revenues from
time-and-material contracts are recognized currently as the work is performed.
Westland recognizes sales and cost of sales upon shipment to the customer.
Earnings Per Share
Earnings per share have been computed by dividing the income by the weighted
average number of common shares outstanding. The per share amounts reflected in
the consolidated statements of operations are presented in accordance with
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per share";
the amounts of the Company's "basic" and "diluted" earnings per share (as
defined in SFAS No. 128) are the same.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Unaudited revenues earned for the quarter ended September 30, 2002 were
$6,736,943, as compared to $7,459,679 for the quarter ended September 30, 2001,
a decrease of 10%. Atlas's revenues were down 20%, principally due to softness
in the capital goods demand in the automotive industry. Westland's revenues
increased 42% due to the addition of new customers' accounts that were not
included in the prior year's quarter.
The order backlog as of September 30, 2002 was $14.4 million, down 8% from the
June 30, 2002 backlog of $15.7 million. The decline in backlog was primarily due
to slower bookings of new orders in the first quarter caused by continued
economic softness in the segments served by the Company.
Gross profit for the quarter ended September 30, 2001 was $1,574,052,
representing a 17% decrease compared to the $1,905,607 gross profit for the
quarter ended September 30, 2001. The decrease in gross profits was principally
due to the volume reduction at Atlas, a change in the mix of products sold by
Westland, and continued pricing pressures due to competition and continued
economic softness cited above.
Consolidated selling, general and administrative (SG&A) expenses were $1,526,416
or 8% lower than the quarter ended September 30, 2001 SG&A expenses of
$1,665,955. The reduction in SG&A expenses for the quarter ended September 30,
2002 was due to tighter control of operating expense at both operating
subsidiaries.
The income from operations for the quarter ended September 30, 2002 was $47,636,
compared to income from operations for the quarter ended September 30, 2001 of
$239,652. This decrease for the quarter was the direct result of the lower sales
volumes, a change in the mix of products sold and lower gross margins, as
described above, which were partially offset by the lower SG&A expenses.
Interest expense for the quarter ended September 30, 2002 was $192,558, a
decrease of 43% from $338,595 for the quarter ended September 30, 2001. The
improvement was due principally to continued focus on collections of receivables
and inventory management at both Atlas and Westland which reduced borrowing
needs and to a lesser extent on the Westland litigation settlement on September
3, 2002 which resulted in the extinguishment of $1.8 million in debt obligations
due to the former owner of Westland and a principal repayment of $800,000 to the
Company's senior lender, which was coincident with the litigation settlement.
Consequently, there was $2.6 million less in senior and subordinated debt
outstanding from September 3, 2002 to September 30, 2002, which resulted in
lower interest expenses.
The net loss for the quarter ended September 30, 2002 was $93,375, compared to a
net loss of $83,325 for the quarter ended September 30, 2001. The reported net
loss for the quarter of $0.04 per share was based on 2,475,000 weighted average
common shares outstanding during the quarter. This compared to a net loss for
the quarter ended September 30, 2001 of $0.03 cents per share, based on
2,475,000 weighted average common shares outstanding during the quarter a year
ago.
10
The gross carrying amount and accumulated amortization of the Company's
intangible assets other than goodwill as of September 30, 2002 is as follows:
September 30, 2002
----------------------------------------
Gross Net
Carrying Accumulated Book
Amount Amortization Value
------ ------------ -----
Patents $ 573,132 $ 145,630 $427,502
Non-compete Agreements 348,750 203,482 145,268
IRB Closing Fees 138,785 55,250 83,535
----------------------------------------
Total $1,060,667 $ 404,362 $656,305
========================================
Liquidity and Capital Resources
On July 31, 2000, the Company was scheduled to repay approximately $417,000 of
the subordinated deferred indebtedness totaling $1,108,352 due to the former
owners of Atlas. This repayment has been postponed for an indefinite period of
time. Instead, cash is being conserved for ongoing operations. In addition, the
Company's bank lender has requested the postponement of the payment of the
$417,000 until the Company's financial results improve.
At September 30, 2002, the Company had (1) $3,000,000 of Industrial Revenue Bond
obligations, payable over the 12 years remaining in their term, (2) debt of
$5,191,770 outstanding under a revolving credit facility with Bank One, Michigan
("Bank One") plus obligation for letters of credits issued thereunder (including
in support of the $3,000,000 Industrial Revenue Bonds relating to Atlas' Copper
Road facility), (3) deferred executive compensation obligations of $974,933
originally scheduled to be paid over three equal annual installments during the
period from July 2000 through July 2002, (4) a five year term loan from Bank One
of $2,260,000, bearing interest at 125 basis points over the prime rate,
incurred in February 2000 to purchase Westland, and (5) subordinated term debt
(not including accrued interest) of $950,000, payable to the former owner of
Westland. This total of $12,376,703 at September 30, 2002 compares to a total
combined long-term debt financing and line of credit balance of $19,808,581 as
of September 30, 2001. The decrease in indebtedness at September 30, 2002 is
principally due to the extinguishment of $1.8 million of indebtedness owed to
the former owner of Westland and a principal payment of $450,000 made to the
former owner of Westland under the terms of the litigation settlement agreement
reached in September 2002, and principal repayments of $4.4 million on Bank
One and other indebtedness.
Working capital deficit at September 30, 2002 was ($5,184,303) and the current
ratio was (.64) to 1, as compared to a working capital deficit of ($6,835,443)
and a current ratio of (.63) to 1 for the Company at June 30, 2002.
Prior to the expiration of the Company's revolving credit facility with Bank One
on January 31, 2002, the Company was not in compliance with certain financial
covenants and borrowing base limitations thereunder. The Company also is not in
compliance with certain financial covenants under its term loan with Bank One.
To date, Bank One has not demanded that the Company repay either the term loan
or the revolving credit facility. The Company and Bank One have, however,
engaged in discussions concerning terms of forbearance, the terms of retirement
of the
11
revolving credit facility in the event of a refinancing with another bank lender
and/or other lenders, and possible modification of the term loan, and Bank One
has consented to the settlement with the former owner of Westland. While Bank
One is under no legal obligation to continue to forbear in demanding payment of
outstanding obligations, management does not believe that it would be in Bank
One's interest to take any action in the immediate future that could jeopardize
the Company's efforts to refinance the obligations.
Since the expiration of the revolving credit facility with Bank One on January
31, 2002, the Company has been able to meet its working capital needs from cash
generated from operations without borrowing additional funds under a line of
credit In addition, since such time, the Company has sought to pay down its
borrowings from Bank One when and as cash has become available from operations.
If Bank One continues to forbear in demanding the immediate repayment of these
obligations (as to which no assurance can be given), the Company believes that
it can continue to operate in the immediate future as it has since January 31,
2002, when the revolving credit facility expired.
The Company does not, however, have funds available to it from its operations or
otherwise to repay the amounts due under the credit facilities. The Company has
engaged two investment banking firms to separately advise it in connection with
a possible revolving credit facility (senior secured bank facility) and
mezzanine financing (secured subordinated notes). In respect of a new revolving
credit facility, the Company has initiated discussions with one prospective bank
lender that has conducted due diligence review of the Company and its operations
and scheduled submission of a prospective loan proposal to its credit committee
to provide a revolving credit facility providing for borrowing availability
based upon eligible receivables and work-in-progress of up to $6,000,000
principal amount and a new $3.0 million letter of credit (to replace an existing
letter of credit under the Bank One credit facility). The Company also intends
to seek to obtain mezzanine debt of up to $7,000,000 on market terms, which may
include offering warrants to purchase common stock at a nominal exercise price
or convertibility features.
Management is hopeful as to the ability of the Company to consummate suitable
financing arrangements based upon factors including but not limited to (1) the
apparent value of the tangible assets owned by the Company, (2) management's
belief concerning the Company's current competitive position in its principal
markets, (3) recent improvements the Company has made in its cost structure as
is evident in cash flow and operating results prior to goodwill impairment costs
for the fiscal year ending June 30, 2002 and fiscal quarter ending September 30,
2002, and (4) the ability of the Company to reduce indebtedness and to meet its
expenses with cash generated from operations during the fiscal year ending June
30, 2002 and the quarter ended September 30, 2002. However, if various important
factors, such as those described under "Forward Looking Statements" in this Item
2 cause the Company to be unable to meet its objectives of obtaining a new
revolving credit facility with another lender or, alternatively, renewing the
existing facility with Bank One, modifying its existing term loan with Bank One
to provide for a more favorable amortization schedule and obtaining mezzanine
debt, all on suitable terms and in a timely manner, then the Company's
operations could be materially adversely affected.
Forward-Looking Statements
Various statements in this Report concerning the manner in which the Company
intends to conduct its future operations and potential trends that may affect
future results of operations are forward-looking statements. The Company may be
unable to realize its plans and objectives due to various important factors.
These factors include but are not limited to general economic and business
conditions, particularly in light of economic deterioration which has been
exacerbated by the terrorist incidents of September 11, 2001, the threat of war
with Iraq, and high profile accounting scandals which have raised questions as
to the integrity of the stock markets , and in the automotive and other
industries principally served by the Company, including continued flat or
declining demand in the domestic and foreign markets for automobiles and
automotive parts resulting in reduced demand for the Atlas' automation
equipment; potential technological developments in the metal forming and
handling automation equipment markets which may render Atlas' automation
equipment noncompetitive or obsolete; the risk that Atlas or Westland customers
may be unwilling or unable to continue ordering products; the potential
inability of the Company to renew or replace its credit facilities, as described
under "Liquidity and Capital Resources" in this Item 2, due to the Company's
inability to achieve adequate operating results or the continued tightening of
the credit and capital markets.
12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 3 has been disclosed in Item 7A of the
Company's Annual Report on Form 10-K for the year ended June 30, 2002. There has
been no material change in the disclosure regarding market risk.
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date of this Report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's chief executive officer and chief financial
officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 adopted under the
Securities Exchange Act of 1934. Based upon that evaluation, the chief executive
officer and chief financial officer concluded that the Company's disclosure
controls and procedures are effective. There were no significant changes in the
Company's internal controls or in other factors that could significantly affect
these controls subsequent to the date of their evaluation.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Since the date of the filing of the Company's Annual Report on Form 10-K for the
year ended June 30, 2002, there have been no material new legal proceedings
involving the Company or any material developments to the proceedings described
in such 10-K.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Upon the expiration of the Company's revolving credit facility with Bank One on
January 31, 2002, the Company was unable to repay the outstanding principal due
thereunder. As of September 30, 2002, debt of $5,191,770 was outstanding under
this revolving credit facility plus obligation for letters of credits issued
thereunder (including in support of the $3,000,000 Industrial Revenue Bonds
relating to Atlas' Copper Road facility), which amounts are in arrears. In
addition, $2,260,000 is outstanding under the Company's term loan with Bank One,
which amounts may be deemed to be in arrears by reason of the Company's failure
to repay the amounts due under the revolving credit facility.
The Company has engaged two investment banking firms to separately advise it in
connection with a possible revolving credit facility (senior secured bank
facility) and mezzanine financing (secured subordinated notes). In respect of a
new revolving credit facility, the Company has initiated discussions with one
prospective bank lender that has conducted due diligence review of the Company
and its operations and scheduled submission of a prospective loan proposal to
its credit committee to provide a revolving credit facility providing for
borrowing availability based upon eligible receivables and work-in-progress of
up to $6,000,000 principal amount and a new $3.0 million letter of credit (to
replace an existing letter of credit under the Bank One credit facility). The
Company also intends to seek to obtain mezzanine debt of up to $7,000,000 on
market terms, which may include offering warrants to purchase common stock at a
nominal exercise price or convertibility features.
Although Bank One has continued to forbear in demanding the immediate repayment
of these obligations, no assurance can be given that it will continue to do so.
Nonetheless, while Bank One is under no legal obligation to continue to forbear
in demanding payment of outstanding obligations, management does not believe
that it would be in Bank One's interest to take any action in the immediate
future that could jeopardize the Company's efforts to refinance the obligations.
Management is hopeful as to the ability of the Company to consummate suitable
financing arrangements for the reasons described under "Liquidity and Capital
Resources" in Part I, Item 2 of this Report.
13
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
99.1 Certification of chief executive officer and chief financial
officer pursuant to section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K.
None.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PRODUCTIVITY TECHNOLOGIES CORP.
Date: November 18, 2002 By: /s/ Samuel N. Seidman
-------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer and
President
Date: November 18, 2002 By: /s/ Jesse A. Levine
-----------------------
Jesse A. Levine
Vice President, Secretary, Treasurer and
Chief Financial Officer
CERTIFICATIONS
I, Samuel N. Seidman, the Chairman, Chief Executive Officer and President of
Productivities Technologies Corp., hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Productivities
Technologies Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement 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;
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4. The registrant's other certifying officers 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 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 officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of 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 officers 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.
Date: November 18, 2002
By: /s/ Samuel N. Seidman
- -------------------------
Samuel N. Seidman
Chairman, Chief Executive Officer and President
I, Jesse A. Levine, the Vice President, Secretary, Treasurer and Chief Financial
Officer of Productivity Technologies Corp., do hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q of Productivities
Technologies Corp.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement 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 officers 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:
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(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 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 officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of 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 officers 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.
Date: November 18, 2002
By: /s/ Jesse A. Levine
- -----------------------
Jesse A. Levine
Vice President, Secretary, Treasurer and Chief Financial Officer
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