-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, M3INTXh7D5bu2CCnwes3WD7kKXTVW5JbVzMY6l3M5H91fIy9ff/Jmmb4nupbMJ3U 718al1xzubGvmR5vHIcqyg== 0001019687-04-000993.txt : 20040506 0001019687-04-000993.hdr.sgml : 20040506 20040506081501 ACCESSION NUMBER: 0001019687-04-000993 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMISTAR CORP CENTRAL INDEX KEY: 0000741559 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] IRS NUMBER: 952747332 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-13403 FILM NUMBER: 04783265 BUSINESS ADDRESS: STREET 1: 237 VIA VERA CRUZ CITY: SAN MARCOS STATE: CA ZIP: 92069 BUSINESS PHONE: 6194713967 MAIL ADDRESS: STREET 1: 237 VIA VERA CRUZ CITY: SAN MARCOS STATE: CA ZIP: 92069 10QSB 1 amistar_10q-033104.txt 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, 2004 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT 7 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 92069 ---------------------- ----- (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 [ ] There were 3,080,794 shares of common stock outstanding as of April 27, 2004. Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X] AMISTAR CORPORATION FORM 10-Q TABLE OF CONTENTS PART I FINANCIAL INFORMATION Item 1. Financial Statements..................................................3 Notes to the Unaudited Condensed Financial Statements ................6 Item 2. Management's Discussion and Analysis and Results of Operations.......14 Item 3. Controls and Procedures..............................................17 PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.....................................17 2 Part I ITEM 1. FINANCIAL STATEMENTS AMISTAR CORPORATION Condensed Balance Sheets (In thousands, except share data) Mar. 31, Dec. 31, 2004 2003 ---------- ---------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 2,456 $ 2,439 Restricted cash 60 130 Trade accounts receivable, net of reserves of $66 (2004) and $76 (2003) 1,391 1,309 Inventories, net of reserves of $2,192 (2004) and $2,056 (2003) 2,294 2,313 Demonstration equipment 1 53 Prepaid expenses 185 339 ---------- ---------- Total current assets 6,387 6,583 Property and equipment, net 3,857 3,764 Other assets 58 66 ---------- ---------- $ 10,302 $ 10,413 ========== ========== LIABILITIES & SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 384 $ 321 Accrued liabilities 639 362 Industrial development bonds 2,800 2,900 ---------- ---------- Total current liabilities 3,823 3,583 ---------- ---------- Shareholders' equity: Preferred stock, $.01 par value. Authorized 2,000,000 shares; none outstanding -- -- Common stock, $.01 par value. Authorized 20,000,000 shares; 3,080,794 and 3,080,544 shares issued and outstanding at Mar. 31, 2004 and Dec. 31, 2003, respectively 31 31 Additional paid-in capital 4,532 4,532 Retained earnings 1,916 2,267 ---------- ---------- Total shareholders' equity 6,479 6,830 ---------- ---------- $ 10,302 $ 10,413 ========== ========== 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 Mar. 31, 2004 2003 ------------ ------------ Net sales $ 3,056 $ 2,769 Cost of sales 2,527 2,221 ------------ ------------ Gross profit 529 548 ------------ ------------ Operating expenses: Selling 367 331 General and administrative 395 252 Engineering, research and development 117 107 ------------ ------------ 879 690 ------------ ------------ Loss from Operations (350) (142) Other income (expense), net -- (3) ------------ ------------ Loss before income taxes (350) (145) Income taxes 1 1 ------------ ------------ Net loss $ (351) $ (146) ============ ============ Loss per common share- basic and diluted $ (0.11) $ (0.05) ============ ============ Weighted average shares outstanding, basic and diluted 3,081 3,083 ============ ============ See accompanying notes to unaudited condensed financial statements. 4 AMISTAR CORPORATION Statements of Cash Flows (Unaudited and in thousands) Three months ended Mar. 31, 2004 2003 - -------------------------------------------------------------------------------- Cash flows from operating activities: Net loss $ (351) $ (146) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 88 94 Changes in assets and liabilities: Trade accounts receivable, net (82) 236 Inventories 19 85 Demonstration equipment 52 -- Prepaid expenses and other assets 162 74 Accounts payable and accrued liabilities 340 101 ------------ ------------ Net cash provided by operating activities 228 444 ------------ ------------ Cash flows from investing activities- Purchase of property and equipment (181) (35) ------------ ------------ Cash flows from financing activities: Redemption of Industrial Development Bonds (100) (100) Decrease in restricted cash, net 70 70 Repurchase of common stock -- (1) ------------ ------------ Net cash used in financing activities (30) (31) ------------ ------------ Net increase in cash and cash equivalents 17 378 Cash and cash equivalents, beginning of period 2,439 2,383 ------------ ------------ Cash and cash equivalents, end of period $ 2,456 $ 2,761 ============ ============ Supplemental disclosure of cash flow information- Cash paid during the period for: Interest $ 7 $ 7 ============ ============ Income taxes $ 4 $ 3 ============ ============ See accompanying notes to unaudited condensed financial statements. 5 AMISTAR CORPORATION Notes to Condensed Financial Statements (Unaudited) (1) BUSINESS AND CURRENT EVENTS As described in more detail in note 3 of the financial statements, the Company has decided to enter into the retail market as a provider of newly developed, innovative equipment. The Company began development of the equipment and incurred formation costs during the current quarter in anticipation of the transaction, which closed on April 7, 2004. (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 March 31, 2004, its results of operations for the three-month periods ended March 31, 2004 and 2003, and its cash flows for the three month periods ended March 31, 2004 and 2003, respectively. The results of operations of the Company for the three-month period ended March 31, 2004 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, 2003 as filed with the Securities and Exchange Commission on March 30, 2004. 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 $2,192 and $2,056 at March 31, 2004 and December 31, 2003, respectively: Mar. 31 Dec. 31, 2004 2003 ------------------------------- ----------------------------- AIA AMS Total AIA AMS Total Raw Material $ 295 $ 829 $ 1,124 $ 295 $ 817 $1,112 Work In Process 513 83 596 480 92 572 Finished Goods 498 76 574 550 79 629 ------------------------------- ----------------------------- Total $ 1,306 $ 988 $ 2,294 $1,325 $ 988 $2,313 =============================== ============================= 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 (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 loss per share are presented below (in thousands): Three months ended Mar. 31, 2004 2003 --------------- --------------- Weighted-average shares, basic 3,081 3,083 Dilutive effect of stock options - - --------------- --------------- Weighted-average shares- basic and diluted 3,081 3,083 =============== =============== Options to purchase 166,000 and 233,000 shares of potentially dilutive common stock were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2004 and 2003 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 $2,800,000 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 1.05% during the quarter ending March 31, 2004. On February 1, 2002, the Company paid $1,500,000 to redeem a portion of the industrial development bonds utilizing the restricted cash balance of $1,452,000 plus an additional $48,000 of unrestricted cash. Effective March 1, 2002, the Company began making required monthly payments of $10,000 per month into a sinking fund (restricted cash) for redemption of the bonds. Redemption will occur in minimum increments of $100,000 as the funds accrete to the minimum redemption level. The terms of the Reimbursement Agreement require the Company to make annual payments of $100,000 during 2003 and 2004, and the balance of $2,700,000 in 2005. The first payment of $100,000 was made on January 21, 2003, and the second payment of $100,000 was made on January 13, 2004. The Company's stand-by letter of credit reimbursement agreement with its bank contains certain affirmative financial covenants. At March 31, 2004, the Company was not in compliance with the tangible net worth and debt service covenants. The Company received waivers relating to these covenants through September 30, 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 a default under 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 the next 12 months, and the Company would have adequate finances to fund its operating, investing and financing activities during the next 12 months under either scenario for repayment of its industrial development bonds. 8 AMISTAR CORPORATION Notes to Condensed Financial Statements, continued (Unaudited) Industry Segments and Geographic Information - -------------------------------------------- The following table summarizes the Company's three operating segments: Amistar Industrial Automation ("AIA"), which encompasses the manufacture and distribution of manufacturing machinery, specialty products, and related accessories, Amistar Manufacturing Services ("AMS"), which encompasses electronics manufacturing services, and Distributed Delivery Networks ("ddn"), which encompasses prototype development and start-up operating costs and anticipated manufacturing and marketing of automation equipment primarily to the retail 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).
AIA ------------------------------------- United States Foreign Total AMS ddn Corporate Total - --------------------------------------------------------------------------------------------------------------- ------------ Three months ended Mar. 31, 2004 Net sales $ 1,174 $ 36 $ 1,210 $ 1,846 $ - $ - $3,056 ============ =========== ============ ============ =========== =========== ============ Depreciation and amortization 22 - 22 58 - 8 88 ============ =========== ============ ============ =========== =========== ============ Loss from operations 7 - 7 (147) (210) - (350) ============ =========== ============ ============ =========== =========== ============ Total assets 4,462 22 4,484 2,077 - 3,741 10,302 ============ =========== ============ ============ =========== =========== ============ Additions to long-lived assets 21 - 21 157 - 3 181 ============ =========== ============ ============ =========== =========== ============ Three months ended Mar. 31, 2003 -------------------------------- Net sales $ 593 $ 36 $ 629 $ 2,140 $ - $ - $2,769 ============ =========== ============ ============ =========== =========== ============ Depreciation and amortization 29 - 29 58 - 7 94 ============ =========== ============ ============ =========== =========== ============ Loss from operations (196) (11) (207) 65 - - (142) ============ =========== ============ ============ =========== =========== ============ Total assets 4,456 70 4,526 2,157 - 3,950 10,633 ============ =========== ============ ============ =========== =========== ============ Additions to long-lived assets 35 - 35 - - - 35 ============ =========== ============ ============ =========== =========== ============
9 AMISTAR CORPORATION Notes to Condensed Financial Statements, continued (Unaudited) w 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 months ended Mar. 31, 2004 and 2003: Charged to Period Beginning costs and Ending Beginning Balance expense Deductions Balance - -------------------------------------------------------------------------------- 2004 $ 37,698 $ 8,787 $ (162) $ 46,323 ============ ========== =========== ============= 2003 $ 45,876 $ 7,160 $ (7,160) $ 45,876 ============ ========== =========== ============= 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 was 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 loss per share would have been adjusted to the pro forma amounts for the three months ended March 31, 2004 and 2003 as follows ($ in thousands, except per share amounts): Three months ended Mar. 31, 2004 2003 ---- ---- Net loss - as reported $ (351) $ (146) 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 (3) (5) ------- ------- Pro forma net loss $ (354) $ (151) ======= ======= Loss per share: Basic, as reported $(0.11) $(0.05) Diluted, as reported $(0.11) $(0.05) Basic, pro forma $(0.11) $(0.05) Diluted, pro forma $(0.11) $(0.05) 11 AMISTAR CORPORATION Notes to Condensed Financial Statements, continued (Unaudited) Stock option activity during the three months ending March 31, 2004 was as follows: NUMBER WEIGHTED AVERAGE (SHARES IN THOUSANDS) OF SHARES EXERCISE PRICE - --------------------- --------- -------------- Outstanding, Dec 31, 2003 232,750 $ 1.42 Granted -- -- Exercised 250 0.81 Expired (67,000) 2.13 ----------- --------- Outstanding, Mar. 31, 2004 165,500 $ 1.13 =========== ========= The range of exercise prices on options outstanding at March 31, 2004 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 85,750 4.00 $ 0.82 21,250 $ 1.42 $1.01 - $1.75 65,750 0.70 1.25 65,750 0.99 $1.76 - $2.50 8,000 0.60 2.31 8,000 2.31 $2.51 - $2.69 6,000 1.10 2.69 4,500 3.58 - -------------- ----------- ----------- -------- ----------- -------- $0.81 - $2.69 165,500 2.40 $ 1.13 99,500 $ 1.87 ============== =========== =========== ======== =========== ======== 12 AMISTAR CORPORATION Notes to Condensed Financial Statements, continued (Unaudited) (3) SUBSEQUENT EVENT The Company incorporated a new subsidiary, Distributed Delivery Networks Corporation ("ddn") on February 3, 2004, through which it plans to market and install newly developed, innovative equipment for use by retail stores. ddn was capitalized with $255 from the Company and the two third parties (one is now an employee of ddn and the other retained as a consultant - hereafter called "ddn Founders") in exchange for common stock. On April 7, 2004, the Company and the ddn Founders entered into definitive agreements related to the ownership and management of ddn, and commenced business on that day. The ddn Founders purchased a 49% restricted interest in ddn. The restrictions lapse ratably over a thirty-six month period. The Company retains a repurchase right, in the event of termination of the ddn Founders as employees or as consultants, under certain conditions, which also lapses ratably over the thirty-six month period. The Company plans to retain an appraisal firm during the second quarter of 2004 for the purpose of obtaining a valuation of ddn as of April 7, 2004 to determine compensation expense, if any, to the ddn Founders for any excess of value received over the purchase price of their shares. The Company will finance the subsidiary's operations with a $1,300,000 loan. The loan is unsecured, with a term of ten years, at an interest rate of 4.61% with payments beginning on April 7, 2008. On such date, all accrued interest will be added to the principal amount outstanding. That balance shall be repaid in seventy-two (72) substantially equal monthly installments beginning on April 7, 2008 and continuing until April 7, 2014, when the entire outstanding balance will be due and payable in full. Due to the lack of substantial capitalization by the ddn Founders, the Company will bear 100% of the losses of ddn and as a result bears significant risk of loss of the principal and accrued interest related to the aforementioned loan. The loan agreement provides for a bonus to the ddn Founders equal to the interest accrued on the note and a redemption option exercisable by the Company during the six-month period beginning April 7, 2004 by which the Company has a right to redeem its shares and require repayment of the note if certain performance conditions are not met. The Company has also entered into a manufacturing and development agreement with ddn to develop and manufacture the equipment. ddn is a newly formed start up company and is subject to the general risks and uncertainties associated with a start-up enterprise, including the substantial risk of business failure. 13 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 FIRST QUARTER 2004 COMPARED TO FIRST QUARTER 2003 Net Sales - --------- Net sales for the three months ended March 31, 2004 were $3,056,000 compared to $2,769,000 for the same period in the prior year, an increase of 10.4%. The sales growth primarily was from an increase in AIA sales. During the current quarter, the Amistar Industrial Automation ("AIA") division shipped three of its DataPlace 100LP machines, three of its DataPlace SBL machines, and two of its distributed circuit board assembly machines, compared to one DataPlace 1M machine and one DataPlace SBL machine sold during the first quarter of 2003. Sales of distributed circuit board assembly machine accessories and spare parts grew 460% over the first quarter of 2003, from $80,000 to $448,000, as the Company sold two machines during the first quarter of 2004 compared to no sales during the first quarter of 2003. Sales of AIA custom factory automation and other products in the first quarter of 2004 primarily included two minor specialty machines and machine shop services similar to the first quarter of 2003. The AIA division has in production four custom engineered machines to fulfill contracts received from customers doing business in the eyeglass lens, RF identification, landscaping products, and medical optical manufacturing industries. The Amistar Manufacturing Services division ("AMS") sales declined 13.7% to $1,846,000 for the three months ended March 31, 2004, from $2,140,000 for the same period in 2003 primarily due to reduced orders from two major customers, one of which, the Company expects to lose to an out-of-state manufacturing services provider. Gross Profit - ------------ Gross profit decreased $19,000, or 3%, to $529,000 during the quarter ended March 31, 2004 compared to $548,000 in the same period in 2003. This decrease was due primarily to the decline in AMS sales and partially offset by the increase in AIA sales. 14 AMISTAR CORPORATION Results of Operations, Continued Selling Expenses - ---------------- Selling expenses increased 11% in the current quarter from the first quarter of 2003, from $331,000 to $367,000 primarily due to commissions accrued on increased machine sales. General and Administrative Expenses - ----------------------------------- The general and administrative expenses increased 57%, from $252,000 in the first quarter of 2003 to $395,000 in the first quarter of 2004 primarily due to ddn formation costs. Engineering, Research and Development Expenses - ---------------------------------------------- Engineering, research and development expenses increased 9% in the current quarter over the same period in 2003, from $107,000 to $117,000. The primary utilization of the engineering staff has been in support of custom factory engineering design activities and development of the new ddn machine. The engineering group provided billable engineering design services and allocated $30,000 in engineering labor costs to work-in-process inventory and $43,000 to cost of sales related to design contracts, most of which is expected to be complete in the second quarter of 2004. During the quarter, costs of $82,000 were incurred related to development of the first ddn machine. Income Taxes - ------------ The $1,000 provision represents the Company's minimum tax liability to various states. A 100% valuation allowance was recorded against deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES The Company's cash provided from operating activities was $228,000 for the three months ended March 31, 2004, a $216,000 decrease over the cash provided from operating activities of $444,000 for the three months ended March 31, 2003. The decline was due to the increased loss, which included ddn formation and development costs, increased investments in AMS assembly equipment and partially offset by a greater increase in accounts payable and a greater decrease in prepaid expenses. The Company maintains a letter of credit from its bank in support of the $2,800,000 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 1.05% during the quarter ending March 31, 2004. On February 1, 2002, the Company paid $1,500,000 to redeem a portion of the industrial development bonds utilizing the restricted cash balance of $1,452,000 plus an additional $48,000 of unrestricted cash. Effective March 1, 2002, the Company began making required monthly payments of $10,000 per month into a sinking fund (restricted cash) for redemption of the bonds. Redemption will occur in minimum increments of $100,000 as the funds accrete to the minimum redemption level. The terms of the Reimbursement Agreement require the Company to make annual payments of $100,000 during 2003 and 2004, and the balance of $2,700,000 in 2005. The first payment of $100,000 was made on January 21, 2003, and the second payment of $100,000 was made on 15 AMISTAR CORPORATION Liquidity and Capital Resources, continued January 13, 2004. The Company's stand-by letter of credit reimbursement agreement with its bank contains certain affirmative financial covenants. At March 31, 2004, the Company was not in compliance with the tangible net worth and debt service covenants. The Company received waivers relating to these covenants through September 30, 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 a default under 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 the Company returns to profitability and 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 2004 or in 2005 prior to December 1, 2005, and the Company would have adequate finances to fund its operating, investing and financing activities through 2004 and 2005 under either scenario for repayment of its industrial development bonds. Management believes that as a result of the reduction in the loss in 2003 compared to 2002 and the achievement of positive operating cash flow (defined as net loss plus depreciation and amortization) for 2003, although the Company increased its loss in the current quarter over the same quarter in 2003, the bank's comfort in the Company's ability to continue as a viable company and service its debt has improved greatly and that the bank more than likely will continue to forbear until December 1, 2005 when the bond term expires. The Company expects to refinance the building when the bonds come due in December 2005, with a conventional fully amortized loan from a new lender at rates in line with the current market for such a loan. During April 2004, the Company made a $1,300,000 loan from existing cash on hand to ddn to fund machine development and start-up operations. The Company expects ddn to expend approximately $1,200,000 of this amount during 2004. While the Company's cash position will decrease significantly as a result of utilization of the loan proceeds, the Company believes it will have sufficient remaining cash on hand to fund its operations. The Company's $1,300,000 loan to ddn to fund the new venture is subject to significant risks and uncertainties of success while ddn executes its plan to market newly developed, innovative equipment for use by retail stores. The Company's primary sources of liquidity consist of cash and cash equivalents and working capital. If the bank continues to grant waivers on the irrevocable letter of credit reimbursement agreement, the Company believes that its cash and cash equivalents provided from operations and cash and cash equivalents balances at March 31, 2004 will be adequate 16 AMISTAR CORPORATION Liquidity and Capital Resources, continued to support its operating, investing and financing requirements for the next twelve month period. In the event the bank chooses to forebear no longer, management would consider several options which include utilizing some portion of cash, re-financing the SanMarcos, California building with alternative financing, a sale-leaseback or saleof the San Marcos, California facility and relocation to a leased facility.Management believes that it has the ability to execute its alternate plans in the event that payment of the Company's industrial bonds would be required in 2004, and the Company would have adequate finances to fund its operating,investing and financing activities during the next twelve month period under either scenario for repayment of its Industrial Bonds. 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. There have been no changes in our internal controls over financial reporting identified in connection with the evaluation referred to above that occurred during our fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEMS 1-5 Non-Applicable ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 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 17 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 5, 2004 AMISTAR CORPORATION By /s/ Gregory D. Leiser --------------------------------- Gregory D. Leiser Vice President Finance and Chief Financial Officer (Principal Financial and Accounting Officer) 18 EX-31.1 2 amistar_10qex31-1.txt EXHIBIT 31.1 CERTIFICATIONS OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER I, Stuart C. Baker, certify that: 1) I have reviewed this quarterly report on Form 10-QSB of Amistar Corporation; 2) Based on my knowledge, this 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 report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer's as of, and for, the periods presented in this report; 4) The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5) The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Dated: May 5, 2004 By: /s/ Stuart C. Baker -------------------------- Name: Stuart C. Baker Title: Chief Executive Officer I, Gregory D. Leiser, certify that: 1) I have reviewed this quarterly report on Form 10-QSB of Amistar Corporation; 2) Based on my knowledge, this 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 report; 3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer's as of, and for, the periods presented in this report; 4) The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5) The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting Dated: May 5, 2004 By: /s/ Gregory D. Leiser ----------------------------- Name: Gregory D. Leiser Title: Chief Financial Officer EX-32.1 3 amistar_10qex32-1.txt EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Amistar Corporation ("the Company") on Form 10-QSB for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the Report), I Stuart C. Baker Chairman and Chief Executive Officer of the Company, certify, pursuant to 19 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company. Dated: May 5, 2004 By: /s/ Stuart C. Baker -------------------------- Name: Stuart C. Baker Title: President In connection with the Quarterly Report of Amistar Corporation ("the Company") on Form 10-QSB for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the Report), I Gregory D. Leiser Chief Financial Officer of the Company, certify, pursuant to 19 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition, results of operations, and cash flows of the Company. Dated: May 5, 2004 By: /s/ Gregory D. Leiser -------------------------- Name: Gregory D. Leiser Title: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----