UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2006
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ________ to ________.
COMMISSION FILE NUMBER: 0-13403
AMISTAR CORPORATION
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 95-2747332
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
237 Via Vera Cruz
San Marcos, California 92078
(Address of principal executive offices) (Zip code)
(760) 471-1700
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as defined by
Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
There were 3,295,294 shares of common stock outstanding as of May 4, 2006.
Transitional Small Business Disclosure Format (Check one):
Yes [ ] No [X]
1
AMISTAR CORPORATION
FORM 10-QSB
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements..................3
Notes to the Unaudited Condensed Consolidated Financial Statements ....6
Item 2. Management's Discussion and Analysis and Results of Operations........15
Item 3. Controls and Procedures...............................................18
PART II OTHER INFORMATION
Item 1. Legal Proceedings.....................................................19
Item 4. Submission of Matters to a Vote of Security Holders...................19
Item 5. Other Information.....................................................19
Item 6. Exhibits and Reports..................................................19
2
Part I
ITEM 1. FINANCIAL STATEMENTS
AMISTAR CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited and in thousands, except share data)
Mar 31, Dec. 31,
2006 2005 (A)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 821 $ 1,482
Trade accounts receivable, net of
reserves of $10 (2006) and $10 (2005) 376 373
Receivable on common stock 250 -
Inventories, net of reserves of
$1,731 (2006) and $1,789 (2005) 2,128 2,079
Assets of discontinued operation 314 673
Demonstration equipment 103 61
Prepaid expenses 185 174
---------- ----------
Total current assets 4,177 4,842
Property and equipment, net 88 98
Other assets 457 457
---------- ----------
$ 4,722 $ 5,397
========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 616 $ 805
Customer deposits and accrued liabilities 1,226 1,178
Liabilities of discontinued operation 9 61
Current portion of deferred gain on sale lease-back of property 417 417
---------- ----------
Total current liabilities 2,268 2,461
Deferred gain on sale lease-back of property, net of current portion 3,210 3,315
Other long-term liabilities 119 104
---------- ----------
Total liabilities 5,597 5,880
---------- ----------
Shareholders' equity:
Preferred stock,$.01 par value. Authorized
2,000,000 shares; none outstanding - -
Common stock, $.01 par value. Authorized
20,000,000 shares; 3,170,294 and
3,169,544 shares issued and
outstanding at March 31, 2006 and
Dec. 31, 2005, respectively 32 32
Common stock subscribed 500 -
Additional paid-in capital 4,772 4,746
Retained deficit (6,179) (5,261)
---------- ----------
Total shareholders' deficit (875) (483)
---------- ----------
$ 4,722 $ 5,397
========== ==========
(A) Derived from the audited consolidated financial statements as of December 31, 2005.
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
AMISTAR CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited and in thousands, except per share data)
Three months ended
March 31,
2006 2005
---------- ----------
Net sales $ 721 $ 1,131
Cost of sales 628 737
---------- ----------
Gross profit 93 394
---------- ----------
Operating expenses:
Selling 378 294
General and administrative 567 645
Engineering, research and development 279 178
---------- ----------
1,224 1,117
---------- ----------
Loss from continuing operations (1,131) (723)
Other income 127 116
---------- ----------
Loss from continuing operations before
income taxes (1,004) (607)
Income tax expense 1 1
---------- ----------
Loss from continuing operations (1,005) (608)
Income (loss) from discontinued operations
net of income taxes 87 (46)
---------- ----------
Net loss $ (918) $ (654)
========== ==========
Loss per common share on continuing
operations-basic and diluted $ (0.32) $ (0.20)
Income (loss) per common share on
discontinued operations-basic and diluted 0.03 (0.01)
---------- ----------
Loss per common share-basic and diluted $ (0.29) $ (0.21)
========== ==========
Weighted-average shares
outstanding, basic and diluted 3,170 3,143
========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
AMISTAR CORPORATION
Consolidated Statements of Cash Flows
(Unaudited and in thousands)
Three months ended March 31, 2006 2005
- -----------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss from continuing operations $ (1,005) $ (608)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 10 12
Amortization of deferred gain on sale lease-back of property (105) (104)
Share-based compensation expense 25 16
Changes in assets and liabilities:
Trade accounts receivable, net (3) (65)
Inventories, net (49) (165)
Demonstration equipment (42) -
Prepaid expenses and other assets (11) (25)
Accounts payable, customer deposits, accrued and
other liabilities 124 75
---------- ----------
Net cash used in operating activities (1,056) (864)
---------- ----------
Net cash provided by (used in) discontinued operating activities 394 (786)
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment - (36)
---------- ----------
Net cash used in investing activities - (36)
Cash flows from financing activities:
Redemption of Industrial Development Bonds - (2,700)
Decrease in restricted cash, net - 2,709
Exercise of stock options 1 1
---------- ----------
Net cash provided by financing activities 1 10
---------- ----------
Net decrease in cash and cash equivalents (661) (1,676)
Cash and cash equivalents, beginning of period 1,482 3,172
---------- ----------
Cash and cash equivalents, end of period $ 821 $ 1,496
========== ==========
Supplemental disclosure of cash flow information-
Cash paid during the period for:
Interest $ - $ 4
========== ==========
Income taxes $ 3 $ 26
========== ==========
SEE ACCOMPANYING NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) BUSINESS AND CURRENT EVENTS
Discontinued Operations
- -----------------------
In September 2005, Amistar Corporation ("the Company") discontinued its
Amistar Manufacturing Services division ("AMS") segment. As of September 30,
2005, the AMS Segment met all of the criteria in Statement of Financial
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," to be presented as discontinued operations. Accordingly, all
current and prior period financial information related to the AMS segment has
been presented as discontinued operations in the accompanying condensed
consolidated financial statements.
Income (loss) from discontinued operations consists of direct revenues and
direct expenses of the AMS segment, including cost of revenues, as well as other
fixed and allocated costs to the extent that such costs will be eliminated as a
result of the transaction. General corporate overhead costs have not been
allocated to discontinued operations.
A summary of the operating results of the AMS segment included in
discontinued operations in the accompanying condensed consolidated statements of
operations are as follows:
Three months ended
Mar. 31,
2006 2005
---------- ----------
Net sales $ 171 $ 3,419
========== ==========
Income from discontinued operations $ 87 $ (46)
Income taxes - -
---------- ----------
Net income (loss) from discontinued operations $ 87 $ (46)
========== ==========
6
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
A summary of the major components of assets and liabilities of the
discontinued operation are as follows:
Mar. 31, Dec. 31,
2006 2005
---------- ----------
Accounts receivable,net $ 288 $ 506
Inventory, net of reserves 26 165
Equipment held for sale - 2
---------- ----------
Assets of discontinued operation $ 314 $ 673
========== ==========
Accounts payable - 1
Accrued liabilities 9 60
---------- ----------
Liabilities of discountinued operation $ 9 $ 61
========== ==========
Litigation
- ----------
On August 26, 2004, Amistar Corporation, Distributed Delivery Networks
Corporation, and William Holmes (the CEO of Distributed Delivery Networks) were
sued by Asteres, Inc. in the California Superior Court for the County of San
Diego, California. The complaint alleged causes of action for misappropriation
of trade secret, breach of a confidential disclosure agreement, unfair
competition and breach of the covenant of good faith and fair dealing.
Subsequently the Company filed a counter-claim for fraud, anti-trust violation
and other wrongful actions. On February 2, 2006, the Company and affiliates
settled the litigation with Asteres, Inc. and affiliates. According to the terms
of the settlement agreement, all parties dismissed their complaints with
prejudice. The terms of the settlement agreement did not have a financial impact
on the Company, other than its obligation for legal defense fees and costs.
Liquidity and Management's Plan
- -------------------------------
The Company's cash used in operating activities increased $192,000 to
$1,056,000 in the first quarter of 2006 from $864,000 in the first quarter of
2005, primarily due to the increased loss in the first quarter of 2006, compared
to the same period in 2005. Working capital decreased $972,000 to $1,409,000 in
the first quarter of 2006, compared to $2,381,000 in the comparable quarter of
2005, primarily due to the loss in the first quarter of 2006.
Cash provided from discontinued operations increased $1,180,000 to $394,000
in the first quarter of 2006 from cash used of $786,000, primarily due to
collection of accounts receivable and sales of inventory of the discontinued
operation during the first quarter of 2006.
The Company used cash in the three months ended March 31, 2006, primarily
as a result of its $1,005,000 loss from continuing operations and partially
offset by $124,000 provided primarily from an increase in customer deposits
related to new purchase orders and $394,000 from a reduction in net assets of
the discontinued operation.
The Company incurred litigation expenses, included in General and
Administrative expense of $83,000 during the three months ended March 31, 2006
related the case that was settled with Asteres. The Company used cash of
approximately $260,000 and issued 62,500
7
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
unregistered shares of common stock to its law firm to satisfy its accounts
payable obligation for legal fees during April 2006.
Loans totaling $125,000 were made to Distributed Delivery Networks during
the first quarter of 2006 to fund its operations.
On March 30, 2006, the Company and Mr. Marshall (a director of the
Company), along with certain members of management, entered into a $1,500,000
revolving credit line facility, secured by accounts receivable, having a term of
two years, with interest on advances accruing at prime plus two percentage
points, to provide working capital for the company. The credit line facility has
no financial covenants. As of the filing date of this report, no advances have
been made on the credit line.
On March 30, 2006, the Company and Mr. Marshall (a director with the
Company) and its law firm entered into separate Stock Purchase and Registration
Rights Agreements by which the Company recorded on March 30, 2006, the issuance
62,500 unregistered shares of common stock in April 2006 in return for $250,000
or $4.00 per share. The proceeds from the sale of shares to Mr. Marshall will be
used for working capital. The shares issued to the Company's law firm were
issued in satisfaction of $250,000 of the payable owed for legal fees to its law
firm. The Registration Rights Agreements required the Company, using its best
efforts, to file a Registration Statement to effect a shelf registration.
Based on the Company's cash position, its available borrowings under its
$1,500,000 related-party credit facility and currently planned expenditures and
level of operations, management believes the Company will have sufficient
capital resources for the twelve months ended March 31, 2007. Management
believes the sale of AMS assets and reductions of AMS non-cash working capital
along with increased product sales will provide additional operating funds. To
remain financially viable for beyond the twelve months period ended March 31,
2007, the Company must return to profitability and/or raise debt or equity
capital. The Company is in the process of seeking to raise equity capital.
Management believes it will be required to obtain sufficient purchase orders for
its Rx-APM(TM)-448 demonstrating that 1) the product has moved beyond the trial
stage of development and 2) that market demand exists for the product, in order
to be successful in its efforts to raise equity capital during 2006. There can
be no assurances that the Company will be successful in achieving these
objectives.
(2) BASIS OF PRESENTATION AND CONDENSED DISCLOSURES
Basis of Presentation
- ---------------------
The accompanying unaudited condensed consolidated 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
consolidated financial statements contain all adjustments, consisting only of
normal recurring adjustments, necessary to present fairly the Company's
financial position as of March 31, 2006, its results of operations for the three
months ended March 31, 2006 and 2005, and its cash flows for the three months
ended March 31, 2006 and 2005, respectively. The results of
8
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)
operations of the Company for the three-month period ended March 31, 2006 may
not be indicative of future results. These unaudited condensed consolidated
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 2005 as filed with the Securities and Exchange
Commission on March 30, 2006.
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 $1,731 and $1,789 at
March 31, 2006 and December 31, 2005, respectively:
March 31, Dec. 31,
2006 (In thousands) 2005 (In thousands)
------------------------------------- -------------------------------------
AIA ddn Total AIA ddn Total
--- --- ----- --- --- -----
Raw Material $ 171 $ - $ 171 $ 196 $ - $ 196
Work In Process 776 - 776 680 - 680
Finished Goods 1,170 11 1,181 1,185 18 1,203
------------------------------------- -------------------------------------
Total $ 2,117 $ 11 $ 2,128 $ 2,061 $ 18 $ 2,079
===================================== =====================================
Earnings Per Common Share
- -------------------------
The Company calculates net loss 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 loss by the weighted-average number of common shares
outstanding during the reporting period. Diluted net loss per common share
reflects the effects of potentially dilutive securities. Weighted average shares
used to compute net loss per share are presented below (in thousands):
Three months ended
Mar. 31,
2006 2005
---------- ----------
Weighted-average shares, basic 3,170 3,143
Dilutive effect of stock options - -
---------- ----------
Weighted-average shares, diluted 3,170 3,143
========== ==========
Options to purchase approximately 133,000 and 150,000 shares of potentially
dilutive common stock were excluded from the calculation of diluted net loss per
share for the three months ended March 31, 2006 and 2005, respectively, because
the effects of these instruments were anti-dilutive.
9
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited
The following table summarizes the Company's two continuing operating
segments: Amistar Industrial Automation ("AIA"), which encompasses the
manufacture and distribution of manufacturing machinery, specialty products, and
related accessories and the Company's majority-owned subsidiary ddn, which
encompasses prototype development, manufacturing, start-up operating costs, and
marketing of automation equipment primarily to the retail pharmacy market. 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). Total assets are reflected
for the discontinued segment.
AIA
------------------------------------
UNITED CONTINUING DISCONTIN.
STATES FOREIGN TOTAL DDN CORPORATE TOTAL SEGMENT
- -----------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2006
Net sales $ 669 $ 40 $ 709 $ 12 $ - $ 721 $ 171
========== ========== ========== ========== ========== ========== ==========
Depreciation and amortization 7 - 7 2 1 10 -
========== ========== ========== ========== ========== ========== ==========
Income (Loss) from operations (899) (53) (952) (179) - (1,131) 87
========== ========== ========== ========== ========== ========== ==========
Total assets 2,559 21 2,580 177 1,401 4,158 314
========== ========== ========== ========== ========== ========== ==========
Additions to long-lived assets - - - - - - -
========== ========== ========== ========== ========== ========== ==========
THREE MONTHS ENDED MARCH 31, 2005
Net sales $ 1,007 $ 124 $ 1,131 $ - $ - $ 1,131 $ 3,419
========== ========== ========== ========== ========== ========== ==========
Depreciation and amortization 2 - 2 - 10 12 29
========== ========== ========== ========== ========== ========== ==========
Loss from operations (423) (53) (476) (247) - (723) (46)
========== ========== ========== ========== ========== ========== ==========
Total assets 2,370 36 2,406 188 2,042 4,636 4,047
========== ========== ========== ========== ========== ========== ==========
Additions to long-lived assets 30 - 30 - 6 36 14
========== ========== ========== ========== ========== ========== ==========
10
AMISTAR CORPORATION
Notes to Condensed Consolidated 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 three
months ended March 31, 2006 and 2005 (in thousands):
Charged to
Beginning costs and Ending
Balance expense Deductions Balance
- -----------------------------------------------------------------------------------------
Three months ended:
3/31/2006 $ 40,792 $ 13,189 $ (18,239) $ 35,742
============= ============= ============== =============
3/31/2005 $ 30,736 $ 35,113 $ (21,214) $ 44,635
============= ============= ============== =============
Stock-Based Compensation
- ------------------------
In December 2004, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 123R (FAS 123R), "Share-Based
Payment," which establishes accounting for share-based awards exchanged for
employee services and requires companies to expense the estimated fair value of
these awards over the requisite employee service period. On April 14, 2005, the
U.S. Securities and Exchange Commission adopted a new rule amending the
effective dates for FAS 123R. In accordance with the new rule, the Company
adopted the accounting provisions of FAS 123R beginning in the first quarter of
2006.
Under FAS 123R, share-based compensation cost is measured at the grant
date, based on the estimated fair value of the award, and is recognized as
expense over the employee's requisite service period. The Company has no awards
with market or performance conditions. The Company adopted the provisions of FAS
123R on January 1, 2006, the first day of the 2006, using a modified prospective
application, which provides for certain changes to the method for valuing
share-based compensation. Under the modified prospective application, prior
periods are not revised for comparative purposes. The valuation provisions of
FAS 123R apply to new awards and to awards that are outstanding on the effective
date and subsequently modified or cancelled. Estimated compensation expense for
unvested awards outstanding at the effective date will be recognized over the
remaining service period using the compensation cost calculated under the
assumptions used previously for pro forma disclosure purposes under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (FAS 123).
On November 10, 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3,
"Transition Election Related to Accounting for Tax Effects of Share-Based
Payment Awards."
11
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements, continued
(Unaudited)
The Company has elected to adopt the alternative transition method provided
in this FASB Staff Position for calculating the tax effects of share-based
compensation pursuant to FAS 123R. The alternative transition method includes a
simplified method to establish the beginning balance of the additional paid-in
capital pool (APIC pool) related to the tax effects of employee share-based
compensation, which is available to absorb tax deficiencies recognized
subsequent to the adoption of FAS 123R.
The Company has elected to continue utilizing the Black-Scholes valuation
model to measure fair value of future grants. FAS 123R requires forfeitures on
grants issued subsequent to January 1, 2006 to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. No stock option grants were made in the three-months ended
March 31, 2006.
Pro Forma Information under FAS 123 for Periods Prior to Fiscal 2006
- --------------------------------------------------------------------
Prior to adopting the provisions of FAS 123R, the Company recorded
estimated compensation expense for employee stock options based upon their
intrinsic value on the date of grant pursuant to Accounting Principles Board
Opinion 25 (APB 25), "Accounting for Stock Issued to Employees" and provided the
required pro forma disclosures of FAS 123. Because the Company established the
exercise price based on the fair market value of the Company's stock at the date
of grant, the stock options had no intrinsic value upon grant, and therefore no
estimated expense was recorded prior to adopting FAS 123R. Each accounting
period, the Company reported the potential dilutive impact of stock options in
its diluted earnings per common share using the treasury-stock method.
Out-of-the-money stock options (i.e., the average stock price during the period
was below the strike price of the stock option) were not included in diluted
earnings per common share as their effect was anti-dilutive.
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 prior
to January 1, 2006, the Company's net loss per share would have been adjusted to
the pro forma amounts for the three months ended March 31, 2005 as follows (in
thousands, except per share amounts):
12
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements, continued
(Unaudited)
Mar. 31,
Three months ended 2005
- ----------------------------------------------------------- ----------
Net loss - as reported $ (654)
Total stock-based employee compensation
expense included in reported net income, net of tax (A) 16
Total stock-based employee compensation
expense determined under fair-value-based method
for all rewards, net of tax (25)
----------
Pro forma net loss $ (663)
==========
Loss per share:
Basic and diluted, as reported $ (0.21)
==========
Basic and diluted, pro forma $ (0.21)
==========
(A) In addition to compensation expense, this amount is also recorded as an
increase to Additional Paid-In Capital.
The per share weighted-average fair value of stock options granted during
2005 was $1.81 on the date of grant using the Black-Scholes fair value
option-pricing model with the following weighted-average assumptions: expected
life of 4.8 years, expected volatility of 60%, no dividends, and a risk-free
interest rate of 3.78%.
Stock option activity during the three months ending March 31, 2006 was as
follows:
WEIGHTED
AVERAGE
WEIGHTED REMAINING AGGREGATE
AVERAGE CONTRACTUAL INTRINSIC
NUMBER EXERCISE TERM IN VALUE
OF SHARES PRICE YEARS (IN THOUSANDS)
---------- ---------- ---------- -------------
Outstanding, Dec. 31, 2005 134,250 $ 2.14
Granted - -
Exercised (750) 0.81
Expired 0 -
Outstanding, March 31, 2006 133,500 $ 2.15 2.9 $ 155,550
========== ========== ========== ==========
Exercisable at March 31, 2006 51,608 $ 1.55 2.7 $ 52,149
========== ========== ========== ==========
Options expected to vest as of March 31,2006 113,998 $ 1.55 2.9 $ 132,840
========== ========== ========== ==========
13
AMISTAR CORPORATION
Notes to Condensed Consolidated Financial Statements, continued
(Unaudited)
As of March 31, 2006, there was approximately $63,000 of total unrecognized
compensation cost related to nonvested stock options. That cost is expected to
be recognized over a weighted average period of 2.9 years. There is no current
tax benefit related to options exercised because of net operating losses (NOLs)
for which a full valuatation allowance has been established.
The range of exercise prices on options outstanding at March 31, 2006 are as
follows:
Weighted
Average
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life (In Exercise Number Exercise
Price Outstanding Years) Price Exercisable Price
- ------------- ------------- ------------- ------------- ------------- -------------
$0.81 - $1.00 29,000 1.90 $ 0.81 15,000 $ 0.81
$1.76 - $2.21 74,500 3.00 2.16 18,250 2.16
$3.40 30,000 4.30 3.40 - -
- ------------- ------------- ------------- ------------- ------------- -------------
$0.81 - $3.40 133,500 2.90 $ 2.15 33,250 $ 1.55
============= ============= ============= ============= ============= =============
14
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, including statements
regarding market opportunities, customer acceptance of products, gross margin,
marketing expenses, and liquidity. 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, fluctuations in the price of the Company's stock and other
factors.
RESULTS OF OPERATIONS
FIRST QUARTER 2006 COMPARED TO FIRST QUARTER 2005
Net Sales
- ---------
Net sales for the first quarter of 2006 decreased $410,000, or 36%, to
$721,000 compared to $1,131,000 for the same period in the prior year. The
decrease in net sales was primarily due to the decrease in Amistar Industrial
Automation sales ("AIA") sales.
Following is a discussion of AIA sales by product line:
DataPlace machine sales decreased $296,000, or 68%, to $138,000 from
$434,000 during the first quarter of 2006 compared to the first quarter of 2005
primarily due to fewer machines sold in the first quarter of 2006 compared to
the same period of 2005. The Company sold one DataPlace 100LP machine in the
first quarter of 2006 compared to three DataPlace 100LP, one DataPlace 1M, three
DataPlace LCL and one DataPlace Laser machines in the comparable quarter of
2005. Demand for the Company's DataPlace machines have been uneven with no clear
trend over the past several years.
Through-hole assembly machines, spare parts and service sales decreased
$129,000, or 45%, to $160,000 in the first quarter of 2006 from $289,000 in the
same period of 2005, primarily due to a sale of the last remaining through-hole
assembly machine during the first quarter of 2005 and to a lesser extent due to
the trend of the declining number of through-hole machines in production in the
market requiring spare parts.
Distributed circuit board assembly machine, accessory and spare parts sales
increased $136,000, or 104%, in the current quarter from $131,000 in the first
quarter of 2005 to $267,000 in the current quarter. The increase is primarily
due to a circuit-board assembly machine sale in the current quarter vs only
spare parts and accessories sold in the comparable quarter of 2005.
Custom factory automation sales decreased $133,000, or 48%, to $144,000 in
the current quarter from $277,000 in the comparable quarter of 2005, due
primarily to shipments of machine and engineering services having a lower
contract price than in the comparable quarter of 2005.
15
AMISTAR CORPORATION
Results of Operations, Continued
ddn sales were $12,000 in the first quarter of 2006 compared to none in the
same quarter of 2005 and consisted of installation services and rental revenue.
Gross Profit
- ------------
Gross profit decreased $301,000, or 76%, to $93,000 during the first
quarter of 2006 compared to $394,000 in the same period in 2005. This decrease
was due primarily to lower sales in the first quarter of 2006. The gross profit
percentage of sales decreased 23%, to 12% in the first quarter of 2006, compared
to 35% in the same period of 2005, due primarily to increased unabsorbed factory
overhead costs related to a lower production volume.
Selling Expenses
- ----------------
Selling expenses increased $84,000, or 29%, to $378,000 in the first
quarter of 2006 from $294,000 in the comparable quarter of 2005, due primarily
to increased personnel costs resulting from the relocation of personnel from the
discontinued operation to the AIA division and to increased Distributed Delivery
Networks field service personnel costs in the first quarter of 2006 compared to
the same quarter in 2005. The increased field service personnel costs in
Distributed Delivery Networks during the first quarter of 2006 is due to support
costs related to an increased number of Rx-APM machines in the field on trial.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses decreased $78,000, or 12%, to $567,000
in the first quarter of 2006 from $645,000 in the first quarter of 2005, due
primarily to an $214,000 decrease in litigation defense costs in the first
quarter of 2006 related to the suit with Asteres, and partially offset by
increased occupancy, audit and general legal costs compared to the first quarter
of 2005.
Engineering, Research and Development Expenses
- ----------------------------------------------
Engineering, research and development expenses increased $101,000, or 57%,
to $279,000 in the first quarter of 2006, compared to $178,000 the same period
in 2005, due primarily to increased development costs related to the
Rx-APM(TM)-448 machine for the retail and other pharmacy markets. During the
first quarter, development continued on the Rx- APM(TM) machine in field beta
tests and on an application for a new segment of the pharmacy market.
The engineering staff has been used primarily in support of custom factory
engineering design activities and development of the Rx-APM(TM)-448 machine.
During the first quarter of 2006, costs of $178,000 were incurred related to the
development of the Rx-APM(TM)-448 machine compared to $118,000 during the same
quarter of 2005.
Other Income
- ------------
Other income primarily consists of $104,000 for amortization of the
deferred gain on the sale-leaseback of the Company's headquarters facility for
the first quarters of 2006 and 2005.
Income Taxes
- ------------
The $1,000 provision represents the Company's minimum tax liability to
various states for the first quarters of 2006 and 2005. A 100% valuation
allowance was recorded against deferred tax assets.
16
AMISTAR CORPORATION
Results of Operations, Continued
Discontinued operations
- -----------------------
The income from discontinued operations increased $133,000 in the first
quarter of 2006 to $87,000 compared to a loss of $46,000, due primarily to
increased gross profit and from the gain on sale of equipment.
AMS sales decreased $3,248,000, or 95%, to $171,000 in the first quarter of
2006 from $3,419,000 for the comparable quarter in 2005, primarily due to the
phased discontinuance of operations.
Gross profit decreased $38,000 or 35% to $71,000 in the first quarter of
2006 from $109,000 in the comparable period of 2005, due primarily to the
discontinuance of operations and the resulting elimination of factory overhead
costs. During the first quarter of 2006, sales consisted of products shipped out
of finished goods inventory and commission income earned from the successor
contract manufacturer.
The cash flows provided from discontinued operations of $394,000 was
primarily due to a reduction of inventory and accounts receivable, proceeds from
the sale of equipment and partially offset by a reduction in accounts payable.
LIQUIDITY
Liquidity
- ---------
The Company's cash used in operating activities increased $192,000 to
$1,056,000 in the first quarter of 2006 from $864,000 in the first quarter of
2005, primarily due to the increased loss in the first quarter of 2006, compared
to the same period in 2005. Working capital decreased $972,000 to $1,409,000 in
the first quarter of 2006, compared to $2,381,000 in the comparable quarter of
2005, primarily due to the loss in the first quarter of 2006.
Cash provided from discontinued operations increased $1,180,000 to $394,000
in the first quarter of 2006 from cash used of $786,000, primarily due to
collection of accounts receivable and sales of inventory of the discontinued
operation during the first quarter of 2006.
The Company used cash in the three months ended March 31, 2006, primarily
as a result of its $1,005,000 loss from continuing operations and partially
offset by $124,000 provided from an increase in customer deposits related to new
purchase orders and $394,000 from a reduction in net assets of the discontinued
operation. The Company incurred litigation expenses, included in General and
Administrative expense of $83,000 during the three months ended March 31, 2006
related the case that was settled with Asteres. The Company used cash of
approximately $260,000 and issued 62,500 unregistered shares of common stock to
its law firm to satisfy its accounts payable obligation for legal fees during
April 2006.
Loans totaling $125,000 were made to Distributed Delivery Networks during
the first quarter of 2006 to fund its operations.
On March 30, 2006, the Company and Mr. Marshall (a director of the
Company), along with certain members of management, entered into a $1,500,000
revolving credit line facility, secured by accounts receivable, having a term of
two years, with interest on advances accruing at prime plus two percentage
points, to provide working capital for the company. The credit line facility has
no financial covenants. As of the filing date of this report, no advances have
been made on the credit line.
On March 30, 2006, the Company and Mr. Marshall (a director with the
Company) and its law firm entered into separate Stock Purchase and Registration
Rights Agreements by which
17
AMISTAR CORPORATION
Results of Operations, Continued
the Company recorded on March 30, 2006 the issuance 62,500 unregistered shares
of common stock in April 2006 in return for $250,000 or $4.00 per share. The
proceeds from the sale of shares to Mr. Marshall will be used for working
capital. The shares issued to the Company's law firm were issued in satisfaction
of $250,000 of the payable owed for legal fees to its law firm. The Registration
Rights Agreements required the Company, using its best efforts, to file a
Registration Statement to effect a shelf registration.
Based on the Company's cash position, its available borrowings under its
related-party $1,500,000 credit facility and currently planned expenditures and
level of operations, management believes the Company will have sufficient
capital resources for the twelve months ended March 31, 2007. Management
believes the sale of AMS assets and reductions of AMS non-cash working capital
along with increased product sales will provide additional operating funds. To
remain financially viable for the long-term, the Company must return to
profitability and/or raise debt or equity capital. The Company is in the process
of seeking to raise equity capital. Management believes it will be required to
obtain sufficient purchase orders for its Rx-APM(TM)-448 demonstrating that the
1) product has moved beyond the trial stage of development and 2) that market
demand exists for the product, in order to be successful in its efforts to raise
equity capital during 2006. There can be no assurances that the Company will be
successful in achieving these objectives.
ITEM 3. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was
performed, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to the Securities Exchange Act of 1934, as amended. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as of the end of the period covered by this report, our
disclosure controls and procedures were effective.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 26, 2004, Amistar Corporation, Distributed Delivery Networks
Corporation, and William Holmes (the CEO of Distributed Delivery Networks) were
sued by Asteres, Inc. in the California Superior Court for the County of San
Diego, California. The complaint alleged causes of action for misappropriation
of trade secret, breach of a confidential disclosure agreement, unfair
competition and breach of the covenant of good faith and fair dealing.
Subsequently the Company filed a counter-claim for fraud, anti-trust violation
and other wrongful actions. On February 2, 2006, the Company and affiliates
settled the litigation with Asteres, Inc. and affiliates. According to the terms
of the settlement agreement, all parties dismissed their complaints with
prejudice. The terms of the settlement agreement did not have a financial impact
on the Company, other than its obligation for legal defense fees and costs.
ITEMS 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On March 30, 2006, the Company entered into an agreement with Mr. Marshall
(a Directory of the Company), covering the sale of 62,500 shares of its common
stock ("the Stock") for a cash price of $4.00 per share ($250,000 in total) and
also entered into an agreement with Cotchett, Pitre, Simon and McCarthy ("CPSM")
covering the issuance of 62,500 shares of its common stock (collectively with
the shares sold to Mr. Marshall the "Shares") in satisfaction of $250,000 of the
Company's obligation to CPSM for legal services. The Shares were issued without
registration under the Securities Act of 1933, as amended ("the Act") in
reliance on the exemption provided by Regulation D. In connection with these
transactions, the Company entered into a Registration Rights Agreement under
which it agreed, at its expense, to file and maintain the effectiveness of a
registration statement under the Act covering the resale from time to time of
the Shares and to provide customary indemnification to the investors.
The proceeds from the sale of shares to Mr. Marshall will be used for
working capital purposes.
ITEM 3. Non-Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits:
10.15 Loan and Security Agreement dated March 30, 2006.
Incorporated by reference of the Company's Form 8-K
filed April 3, 2006.
31.1 Certifications of the Company's President and Chief
Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act
32.1 Certifications of the Company's President and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act
(b) Reports on Form 8-K
Form 8-k filed on February 1, 2006, reporting under items 8
Form 8-K filed on April 3, 2006, reporting under items 2 and 9.
Form 8-K filed on April 4, 2006, reporting under items 7 and 12.
19
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: May 15, 2006
AMISTAR CORPORATION
By /s/ Gregory D. Leiser
---------------------------------
Gregory D. Leiser
Vice President Finance and Chief
Financial Officer (Principal
Financial and Accounting Officer)
20