-----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, MjQL1Rt1K1UOZr9hxw8DFp8BGENqT0ctUDWKUmnK+I8z5CTMGki9WzewJaTiH3pO vH4iQcOtd6I7aZOd0UM3Mw== /in/edgar/work/20000814/0000950147-00-001245/0000950147-00-001245.txt : 20000921 0000950147-00-001245.hdr.sgml : 20000921 ACCESSION NUMBER: 0000950147-00-001245 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRODEO TECHNOLOGIES INC CENTRAL INDEX KEY: 0000849862 STANDARD INDUSTRIAL CLASSIFICATION: [6770 ] IRS NUMBER: 954585824 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-28417 FILM NUMBER: 700471 BUSINESS ADDRESS: STREET 1: 1817 WEST 4TH STREET CITY: TEMPE STATE: AZ ZIP: 85281 BUSINESS PHONE: 6029218555 MAIL ADDRESS: STREET 1: 1817 WEST 4TH STREET CITY: TEMPLE STATE: AZ ZIP: 85281 FORMER COMPANY: FORMER CONFORMED NAME: SITEK INC DATE OF NAME CHANGE: 19980817 FORMER COMPANY: FORMER CONFORMED NAME: DENTMART GROUP INC DATE OF NAME CHANGE: 19980415 FORMER COMPANY: FORMER CONFORMED NAME: ELGIN CORP DATE OF NAME CHANGE: 19980407 10-Q 1 0001.txt QUARTERLY REPORT FOR THE QTR ENDED 6/30/00 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 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 June 30, 2000 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: 33-28417 PRODEO TECHNOLOGIES, INC. (FORMERLY KNOWN AS SITEK, INCORPORATED, DENTMART GROUP, INC. AND ELGIN CORPORATION) ------------------------------------------------------------ (Exact name of Registrant as specified in its charter) Delaware 86-0923886 ------------------------------- ------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1817 West 4th Street, Tempe, Arizona 85281 - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (602) 921-8555 ---------------------------------------------------- (Registrant's telephone number, including area code) ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Check 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 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,371,146 shares of common stock outstanding as of August 9, 2000. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets June 30, 2000 and March 31, 2000 2 Consolidated Statements of Operations Three Months ended June 30, 2000 and 1999 (unaudited) 3 Consolidated Statement of Stockholders' Equity Three Months ended June 30, 2000 (unaudited) 4 Consolidated Statements of Cash Flows Three Months ended June 30, 2000 and 1999 (unaudited) 5 Notes to Consolidated Financial Statements Three Months ended June 30, 2000 and 1999 6 Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risks 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit List 17 PRODEO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS JUNE 30, 2000 AND MARCH 31, 2000 - --------------------------------------------------------------------------------
June 30, March 31, 2000 2000 ---------- ---------- (Unaudited) ASSETS CURRENT ASSETS: Cash $ 717,105 $ 215,262 Restricted 1,348,273 1,500,000 Accounts receivable 1,322,659 1,500,860 Inventory 3,300,736 3,418,979 Prepaid expenses and other assets 85,372 115,614 Deferred tax asset 246,000 246,000 ---------- ---------- Total current assets 7,020,145 6,996,715 PROPERTY AND EQUIPMENT - Net of accumulated depreciation and amortization of $143,283 and $107,989 799,622 745,015 OTHER ASSETS 66,406 76,406 DEFERRED INCOME TAXES 38,000 28,000 INTANGIBLES - Net 484,831 497,752 ---------- ---------- TOTAL $8,409,004 $8,343,888 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Advances from related parties $ 53,632 $ 60,941 Notes payable 650,000 600,000 Accounts payable 1,099,168 1,322,598 Accrued expenses 1,862,907 1,620,949 VAT payable 4,813 19,665 Income tax payable 344,000 658,000 Current portion of other borrowings 290,894 290,894 ---------- ---------- Total current liabilities 4,305,414 4,573,047 ---------- ---------- OTHER LIABILITIES 81,899 84,224 ---------- ---------- OTHER BORROWINGS 1,280,378 1,104,439 ---------- ---------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value - authorized, 5,000,000 shares; issued, 250,000 shares; liquidation value, $1,500,000 2,500 2,500 Common stock, $.005 par value - authorized, 50,000,000 shares; issued and outstanding, 12,321,146 shares and 12,307,813 shares at June 30 and March 31, 2000, respectively 61,606 61,606 Additional paid-in capital 2,361,323 2,361,323 Retained earnings 315,884 156,749 ---------- ---------- Total stockholders' equity 2,741,313 2,582,178 ---------- ---------- TOTAL $8,409,004 $8,343,888 ========== ==========
See notes to consolidated financial statements. 2 PRODEO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited) - -------------------------------------------------------------------------------- 2000 1999 ----------- ----------- NET SALES $ 4,526,916 $ 6,423,670 COST OF GOODS SOLD 2,097,257 2,907,300 ----------- ----------- Gross profit 2,429,659 3,516,370 ----------- ----------- OPERATING EXPENSES: Selling, general and administrative 1,478,076 1,419,458 Research and development 603,236 278,766 ----------- ----------- Total operating expenses 2,081,312 1,698,224 ----------- ----------- INCOME FROM OPERATIONS 348,347 1,818,146 ----------- ----------- OTHER (EXPENSE) INCOME: Interest expense and financing costs (116,101) (638,347) Miscellaneous income (expense) 52,889 (14,760) ----------- ----------- Total expense - net (63,212) (653,107) ----------- ----------- INCOME BEFORE INCOME TAXES 285,135 1,165,039 INCOME TAX EXPENSE 126,000 256,000 ----------- ----------- NET INCOME $ 159,135 $ 909,039 =========== =========== Income per common share: Basic $ 0.01 $ 0.07 =========== =========== Diluted $ 0.01 $ 0.07 =========== =========== See notes to consolidated financial statements. 3 PRODEO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY YEAR ENDED JUNE 30, 2000 (Unaudited) - --------------------------------------------------------------------------------
Preferred Stock Common Stock Additional ----------------------- ----------------------- Paid-in Retained Shares Amount Shares Amount Capital Earnings Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE, MARCH 31, 2000 250,000 $ 2,500 12,307,813 $ 61,606 $2,361,323 $ 156,749 $2,582,178 Net income 159,135 159,135 Issuance of stock 13,333 ---------- ---------- ---------- ---------- ---------- ---------- ---------- BALANCE, JUNE 30, 2000 250,000 $ 2,500 12,321,146 $ 61,606 $2,361,323 $ 315,884 $2,741,313 ========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements. 4 PRODEO TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS THREE MONTHS ENDED JUNE 30, 2000 AND 1999 (Unaudited) - --------------------------------------------------------------------------------
2000 1999 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 159,135 $ 909,039 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 48,215 28,237 Deferred income taxes (10,000) (186,000) Changes in assets and liabilities: Change in restricted cash 151,727 -- Accounts receivable 178,201 (1,137,079) Inventory 118,243 1,312,503 Prepaid expenses and other assets 40,242 1,396,718 Advances from related parties (7,309) 121,905 Accounts payable (223,430) 296,198 Accrued expenses 241,958 1,414,778 Income tax payable (314,000) 442,000 VAT payable (14,852) (756,318) Other liabilities (2,325) 11,936 ----------- ----------- Net cash provided by operating activities 365,805 3,853,917 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Related party advances -- (185,952) Purchase of VSM - net of cash -- (106,268) Purchase of property and equipment (89,901) (106,980) Payments on deposits -- (26,010) ----------- ----------- Net cash used in investing activities (89,901) (425,210) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments to bank -- (3,409,254) Borrowings from bank 50,000 1,000,000 Proceeds from other borrowings 222,000 809,000 Repayments of other borrowings (46,061) (729,031) Proceeds from issuance of convertible debentures -- 147,500 Issuance of common stock -- 72,000 ----------- ----------- Net cash provided by (used in) financing activities 225,939 (2,109,785) ----------- ----------- NET INCREASE IN CASH 501,843 1,318,922 CASH, BEGINNING OF PERIOD 215,262 863 ----------- ----------- CASH, END OF PERIOD $ 717,105 $ 1,319,785 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for interest $ 63,510 $ 13,101 =========== =========== Cash paid for income taxes $ 450,000 $ -- =========== ===========
See notes to consolidated financial statements. 5 PRODEO TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS THREE-MONTH PERIODS ENDED JUNE 30, 2000 AND 1999 - -------------------------------------------------------------------------------- 1. BASIS OF PRESENTATION The interim Consolidated Financial Statements of Prodeo Technologies, Inc. ("Prodeo" or the "Company") include the accounts of Prodeo and all of its subsidiaries, Advanced Technology Services, Inc. ("ATSI"), CMP Solutions, Inc. ("CMP Solutions"), and VSM Corporation ("VSM"). This information should be read in conjunction with the financial statements set forth in the Prodeo Annual Report on Form 10-K for the year ended March 31, 2000. Accounting policies utilized in the preparation of the financial information herein presented are the same as set forth in Prodeo's annual financial statements except as modified for interim accounting policies which are within the guidelines set forth in Accounting Principles Board Opinion No. 28, INTERIM FINANCIAL REPORTING. The interim consolidated financial information is unaudited. In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary to present fairly Prodeo's financial position as of June 30, 2000 and its results of operations and its cash flows for the quarters ended June 30, 2000 and 1999 have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year. 2. INVENTORIES At June 30 and March 31, 2000, inventories consisted of the following: JUNE 30, MARCH 31, 2000 2000 ----------- ----------- Raw materials $ 545,994 $ 305,134 Work-in-process 434,396 287,988 Pre-owned equipment held for resale 2,480,346 2,985,857 ----------- ----------- Total 3,460,736 3,578,979 Less allowance for obsolete inventories (160,000) (160,000) ----------- ----------- Inventories - net $ 3,300,736 $ 3,418,979 =========== =========== 3. EQUITY During the period ended March 31, 1999, the Company issued warrants to purchase 40,000 shares of its common stock for $6.00 per share as compensation for consulting services. Using the Black-Scholes method for determining value, these warrants were valued at $117 at time of issue. On January 18, 2000, the holder of the warrants notified the Company of its intention to exercise the warrants using a cashless exercise. Based on the closing price of the Company's common stock at the time of exercise, the Company issued 13,333 shares on April 4, 2000. 6 4. BASIC AND DILUTED EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of diluted and basic per share computations for income from continuing operations as required by SFAS No. 128, EARNINGS PER SHARE, for the quarter ended June 30, 2000:
(NUMERATOR) (DENOMINATOR) AMOUNT ---------- ---------- -------- Basic EPS - Income available to common stockholders $ 159,135 12,318,802 $ 0.01 ======== Effect of dilutive securities: Options 976,906 Convertible preferred stock 250,000 6% convertible debentures 780 10,415 9.5% convertible debentures 2,817 36,500 ---------- ---------- Diluted EPS - Income available to common stockholders and fully diluted shares outstanding, assuming conversions $ 162,732 13,592,623 $ 0.01 ========== ========== ========
Warrants to purchase 20,000 and 4,562 shares of common stock at $6 and $5, respectively, per share were not included in the computation of diluted EPS because the warrants' exercise price was greater than the average market price of the common shares. The warrants, which expire in 2004, were still outstanding at June 30, 2000. 5. COMMITMENTS AND CONTINGENCIES FINDER'S FEE AGREEMENT - Effective May 20, 1999, the Company agreed to pay a finder's fee to Bruar Associates in exchange for efforts in arranging the purchase of pre-owned semiconductor equipment located in the United Kingdom. The fee is based upon 15 percent of net sales proceeds relating to the purchased equipment when and if such sales exceed $6,583,000. Fees are due on the next $8,417,000 in net sales proceeds. Maximum finder's fee under the agreement is $1,262,550. The agreement expires on May 31, 2002. As of and for the year ended June 30, 2000, the Company has recognized $1,248,000 in finder's fees. CONTINGENCIES - On April 1, 1999, the Company was named as a defendant in a lawsuit involving two separate claims by two plaintiffs. The first plaintiff alleges that he was not paid for consulting services, where trade secrets were misappropriated in conducting the reverse merger of Dentmart into the Company. The second plaintiff claims that he was wrongfully terminated. On January 10, 2000, the second plaintiff filed a Stipulation for Dismissal with Prejudice dropping his claims against the Company. On April 26, 2000, the first plaintiff filed a motion to amend his complaint alleging securities fraud involving the same set of facts set forth in his original complaint. The Company has prepared its response opposing the motion on the basis that there are no grounds upon which a valid claim for securities fraud could exist and denying the allegations of the claim. The plaintiff has demanded the value of 1,000,000 shares of the Company's capital stock and other damages to be proven at trial in his complaint. The Company is continuing to defend itself vigorously. 7 EMPLOYMENT AGREEMENT - The Company entered into a five-year employment agreement with its Chief Executive Officer under which if he is terminated without cause, the Company is obligated to pay him his salary for the remaining term of the agreement, plus an additional three years' salary. PREFERRED STOCK - On March 29, 2000, the Company and a corporate investor entered into a Series A Preferred Stock Purchase Agreement pursuant to which the Company issued 250,000 shares of its Series A Preferred Stock (the "Series A Preferred") to the corporate investor and the corporate investor paid the Company $1,500,000 in "restricted cash." Restricted cash as of June 30, 2000 is $1,348,273. The Stock Purchase Agreement also provided for a possible future $1,500,000 investment by the corporate investor for additional shares, priced at the lower of $6.00 per share and the 30-day trading average immediately prior to the purchase, subject to certain conditions. The Series A Preferred is convertible to common stock at a certain exchange ratio, which is initially one-to-one, but which is subject to adjustment upon certain events. Under the Stock Purchase Agreement, the corporate investor was granted registration rights, rights of first refusal and co-sale, as well as Board observation rights. In addition to the equity investment, the Company entered into an agreement for the development of certain technology. The Company is required to use the proceeds of the investment in furtherance of such agreement. 6. SEGMENT INFORMATION The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each business unit requires different strategies. There are three reportable segments - ATSI, CMP Solutions, and VSM. ATSI is in the business of buying and selling pre-owned semiconductor manufacturing equipment. CMP Solutions is in the early development stages of providing chemical mechanical planarization ("CMP") foundry (wafer processing) and engineering services for semiconductor fabrication customers and manufacturers of optical and micromechanical devices. In addition, CMP Solutions provides installation and refurbishing services for certain pre-owned CMP manufacturing tools. VSM, which was acquired by Prodeo in April 1999, is a supplier of wafer processing furnaces and complex, ultra high purity gas and vapor control systems used in the manufacture of silicon wafers. The accounting policies applied to determine the segment information are the same as those described in the March 31, 2000 10-K. Interest expense on long-term debt is allocated based upon the specific identification of debt incurred to finance leasehold improvements and equipment. Management evaluates the performance of each segment based on profit or loss from operations before income taxes, exclusive of nonrecurring gains and losses. 8 Financial information with respect to the reportable segments follows for the quarters ended June 30, 2000 and June 30, 1999:
Three Months Ended Corporate and June 30, 2000 VSM ATSI CMP Unallocated Total ----------- ----------- ----------- ----------- ----------- Revenue from external customers $ 1,593,220 $ 692,225 $ 96,471 $ 2,145,000 $ 4,526,916 =========== =========== =========== =========== =========== Interest expense $ 216 $ 54,578 $ 13,251 $ 48,056 $ 116,101 =========== =========== =========== =========== =========== Depreciation and amortization $ 8,767 $ 1,117 $ 15,084 $ 23,247 $ 48,215 =========== =========== =========== =========== =========== Segment profit (loss) before income taxes $ 255,829 $ (14,046) $ (202,762) $ 246,114 $ 285,135 =========== =========== =========== =========== =========== Segment assets $ 2,296,145 $ 1,746,985 $ 285,718 $ 4,080,156 $ 8,409,004 =========== =========== =========== =========== =========== Expenditures for segment assets $ 68,613 $ 21,288 $ 89,901 =========== =========== =========== Three Months Ended June 30, 1999 Revenue from external customers $ 522,102 $ 5,853,198 $ 48,370 $ 6,423,670 =========== =========== =========== =========== Interest expense $ 596,822 $ 9,323 $ 32,202 $ 638,347 =========== =========== =========== =========== Depreciation and amortization $ 3,908 $ 506 $ 7,424 $ 16,399 $ 28,237 =========== =========== =========== =========== =========== Segment profit (loss) before income taxes $ 205,162 $ 1,756,815 $ (170,690) $ (626,248) $ 1,165,039 =========== =========== =========== =========== =========== Segment assets $ 1,503,568 $ 5,956,690 $ 236,868 $ 1,050,453 $ 8,747,579 =========== =========== =========== =========== =========== Expenditures for segment assets $ 16,548 $ 6,570 $ 43,176 $ 40,686 $ 106,980 =========== =========== =========== =========== ===========
7. INCOME TAX MATTERS The income tax provision for the quarters ended June 30, 2000 and June 30, 1999 was as follows: 2000 1999 --------- --------- Current $ 136,000 $ 442,000 Deferred (10,000) (186,000) --------- --------- Total $ 126,000 $ 256,000 ========= ========= 9 The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the quarters ended June 30, 2000 and June 30, 1999 due to the following: 2000 1999 --------- --------- Provision calculated at statutory rate $ 100,000 $ 408,000 Increase (decrease) in income taxes resulting from: Nondeductible expenses 24,000 11,000 State taxes - net of federal benefit 17,000 65,000 Change in valuation allowance (255,000) Other (15,000) 27,000 --------- --------- Total $ 126,000 $ 256,000 ========= ========= Net deferred tax assets consist of the following components as of June 30, 2000 and March 31, 2000: JUNE 30, MARCH 31, 2000 2000 -------- -------- Deferred tax asset: Accrued expenses $236,000 $232,000 Other 48,000 42,000 -------- -------- Total $284,000 $274,000 ======== ======== The components giving rise to the net deferred tax assets described above have been included in the accompanying consolidated balance sheet as a current asset and noncurrent asset as of June 30 and March 31, 2000. 8. SUBSEQUENT EVENTS Prodeo has entered into an agreement with ATSI's president and co-founder Julian Gates to sell to Mr. Gates all of the outstanding stock of ATSI on August 1, 2000. All of ATSI's pre-owned equipment inventory will be owned by Prodeo. Mr. Gates will be terminating his employment with Prodeo and will continue to operate ATSI as a pre-owned equipment supplier. After the sale of ATSI, Prodeo will continue to operate its pre-owned equipment sales operations through the parent company. Prodeo is confident in its ability to continue to develop this line of sales. However, in connection with the sale of ATSI to Mr. Gates, the Company released Mr. Gates from his obligation not to compete against the Company in the field of pre-owned equipment sales. Mr. Gates will be competing with the Company in the field of pre-owned equipment sales, for which the Company will receive a 5 percent royalty on all of ATSI's sales through January 2002. Although the Company believes it will continue to grow this line of business, there is no assurance how the sale of ATSI and Mr. Gates' departure will affect the Company's ability to compete. * * * * * * * 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Prodeo Technolgies, Inc. (the "Company" or "Prodeo") began operations on July 14, 1998 when it acquired all the outstanding stock of CMP Solutions, Inc. ("CMP Solutions"). On July 24, 1998, all of the outstanding stock of Advanced Technology Services, Inc. ("ATSI") was contributed to Prodeo as a wholly-owned subsidiary. As Prodeo was in its initial year of operations, there are no financial statements prior to the year ending March 31, 1999. REVENUES. Net sales were $4,526,916 in the fiscal quarter ended June 30, 2000, compared to $6,423,670 in the same period in 1999, a decline of 29.5%. The decline is due principally to lower revenues from pre-owned semiconductor capital equipment in the fiscal quarter ended June 30, 2000 compared to the same period of 1999, $2,837,225 and $5,853,198 respectively. Sales during both quarters were still principally due to sales of pre-owned semiconductor capital equipment. Pre-owned equipment sales accounted for 63% of the Company's net sales in the fiscal quarter ending June 30, 2000, with sales from VSM making almost all of the other sales. The Company's inventory of pre-owned equipment arises predominantly from a March 1999 purchase of semiconductor production equipment from a plant in the United Kingdom. Approximately 75% of this equipment inventory has already been sold and Prodeo expects to sell the remainder of the United Kingdom pre-owned equipment. Prodeo continues to seek various sources from which to purchase pre-owned equipment, including individual equipment and complete plant inventories, to sell. However, there can be no assurance the Company will be able to acquire additional equipment or will be able to acquire additional equipment on as favorable terms and conditions as in the past. Lack of new or adequate inventory could have a materially adverse impact on the Company. As of August 1, 2000, Prodeo sold all the outstanding shares of ATSI to the ATSI president and co-founder Julian Gates. Mr. Gates has terminated his employment with Prodeo and will continue to operate ATSI as a pre-owned equipment supplier. The pre-owned equipment inventory was transferred to Prodeo as of April 1, 2000. Prodeo is continuing to operate its pre-owned equipment sales operations through the parent company. Prodeo hired a new employee to take over the pre-owned equipment sales operations. The new head of pre-owned equipment has over 12 years experience in the semiconductor industry with four years in equipment sales and, more recently, with Motorola procuring semiconductor equipment and designing and building fabrication plants. Prodeo is confident in its ability to continue to develop this line of sales; however there is no assurance how the sale of ATSI and Mr. Gates' departure will affect the Company's ability to compete. During the fiscal year, CMP Solutions continued in the development phase and made efforts in initial marketing activities as well as in operating its silicon wafer processing clean room facility. CMP Solutions had revenues of $96,471 during the current fiscal quarter compared to $48,370 in the same period of 1999. Prodeo expects continued development expenses for CMP Solutions during the next 12 months. 11 On April 28, 1999, Prodeo purchased VSM Corporation ("VSM"), which is located in Tempe, Arizona and is engaged in the manufacture and/or refurbishment of semiconductor process equipment and subassemblies. The VSM ultra-pure gas and chemical handling systems furnace units have wide applications in wafer manufacturing operations and plant facilities. VSM has recently introduced the Magnetic Anneal 910 furnace system that is utilized in the fabrication of nonvolatile semiconductor memory circuits and other devices. VSM also manufactures the Corona Polishing Head and the recently announced Wet-Q-2000 and TCS Flash Evaporator. VSM had revenues of $1,593,220, or 35% of net sales, during the current fiscal quarter compared to $522,102 in revenues for the same quarter in 1999. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Prodeo incurred $1,478,076, or 32.6% of net sales, in selling, general and administrative expenses in the fiscal quarter ending June 30, 2000 compared to $1,419,458, or 22% of net sales, for the same period in 1999. The majority of the selling, general and administrative expenses are related to marketing activities and general business activities. Marketing expenses were related to new products, sales development and a corporate name change. GROSS PROFITS. Gross profits for the fiscal quarter ending June 30, 2000 were $285,135, or 6.3% of net sales, compared to $1,165,039, or 18% of net sales for the fiscal quarter ending June 30, 1999. The decline in gross profits resulted from a combination of lower net sales and increased expenses. RESEARCH AND DEVELOPMENT. Research, development and engineering expenses were $603,236, or 13.3% of net sales, for the fiscal quarter ending June 30, 2000 compared to $278,766, or 4% of net sales, for the same fiscal quarter in 1999. The increase was due to costs incurred on the development of new products. The Company expects that sales from the VSM products and CMP Solutions services will become a larger portion of the Company's revenues in the future, particularly with the recent introduction of the Corona Polishing Head, the Magnetic Anneal 910, the Wet-Q-2000 and the TCS Flash Evaporator, all of which are manufactured by VSM. However, as with all new products, the Company cannot predict what the products' sales will be. LIQUIDITY AND CAPITAL RESOURCES Prodeo believes it will need additional capital during this fiscal year to meet its funding needs, including repayment of debt obligations (described below), product development, and the continued costs of compliance with reporting requirements of the Securities Exchange Act of 1934. Prodeo has several lines of credit with banking institutions and private funding sources. Assuming the Company's revenues continue at their current level, Prodeo believes it's available credit lines will be adequate to support Prodeo's operations for the next 12 months. However, there can be no assurance that revenues will continue at their current level. If revenues are inadequate, there is no assurance that Prodeo will be able to attract additional capital or that the funds, if acquired, will be sufficient to complete and integrate acquisitions or meet Prodeo's product development or operating capital requirements. On January 10, 2000, Prodeo entered into a revolving line of credit agreement with Imperial Bank in the principal amount of $2,000,000. The loan bears interest at prime plus 4%, matures January 9, 2001, and is secured by substantially all assets of Prodeo. Prodeo may borrow the lesser of $2,000,000 or a percentage of the borrowing base, which consists of eligible accounts receivable and eligible inventory. The current outstanding balance is approximately $650,000. 12 In April 1999, Prodeo entered into a loan agreement with TLD Funding Group to borrow $1,000,000 used to purchase all the outstanding shares of VSM. Payment is due on April 28, 2001. Interest is charged at 1% per month for the initial 90 days and 2% per month thereafter. The note includes a financing fee of $70,000, which was amortized over the life of the loan. The loan is unsecured. The current outstanding balance is approximately $487,000. In February 1999, Prodeo borrowed $207,000 from TLD Funding Group under a line of credit, which will expire on February 4, 2001. Interest is due monthly on the unpaid balance at 1.5%. The line is personally guaranteed by two Prodeo shareholders and two related companies. Prodeo also has available a line of credit with TLD Funding Group for amounts up to $1 million to be utilized to purchase equipment for resale. The line bears interest on each advance at 1% of the advance amount for the initial 90 days and 2% per month thereafter. An initial financing fee of $20,000 was paid at the origination of the agreement. Prodeo also must pay a financing fee of 5% at the time of each advance under the line. At June 30, 2000, Prodeo owed approximately $600,000 under this line of credit. Prodeo has issued convertible debentures of $80,000 at 6% interest and $182,500 at 9.5% interest. The 6% debentures are convertible any time before the two-year anniversary of their purchase and automatically convert into common shares at the two-year anniversary. The conversion price of 80% of the average five day closing bid prices as reported by Bloomberg, LP for the five days preceding conversion. The 9.5% debentures are convertible into common stock at any time after one year from purchase through their maturity date of June 7, 2001. The debentures bear interest annually, payable annually in restricted common stock. If paid in common stock, the debentures are convertible into common stock at 80% of the average of the five day closing bid prices, as reported by Bloomberg, LP for the five consecutive trading days immediately preceding the date of conversion, but in no event at a price lower than $3.50 per share or higher than $5.00 per share. The debentures are subject to a mandatory conversion feature on June 7, 2001, at which time all debentures outstanding will be converted to shares of common stock. There is no beneficial conversion feature associated with the 6% or 9.5% convertible debentures if the fair market value, as determined by independent valuation, is lower than the bid price. Neither management nor other of Prodeo's shareholders has made commitments to provide additional funds to Prodeo. Accordingly, there can be no assurance that any additional funds will be available to Prodeo to allow it to cover its capital needs. Management has a contingency plan to allow Prodeo to sustain itself without additional funding. However, the success of this plan depends upon: (i) Prodeo retaining its market position and substantially increasing its sales revenues in fiscal 2001; (ii) CMP reaching production status and attracting customers with minimal funding; (iii) VSM generating sufficient revenues to fund its operations; (iv) collecting receivables in a timely fashion; and (v) new products introduced in fiscal year 2000 achieving reasonable market acceptance. If the Company's contingency plan is unsuccessful, the Company will fund operations by borrowing on its existing lines of credit. However, because of the costs associated with this type of debt financing, the Company would also be forced to slow its development of products, reduce its purchases of pre-owned equipment inventory and/or reduce its production of semiconductor equipment generally all of which could have a materially adverse effect on the Company. 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's primary market risk exposure is changes in interest rates on the Company's debt obligations. For the current fiscal quarter, the Company has short-term debts with an effective overall interest rate of 19% compared to an interest rate of 38% for the same fiscal quarter in 1999. The Company incurs on-going expenses in foreign countries in which the Company pays in the local currency, however, these expenses were less than 2% of net sales for the current fiscal quarter. 14 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) See Exhibit Index following the signature page which is incorporated herein by reference. (b) Reports on Form 8-K: On April 28, 2000, the Company filed a Form 8-K announcing under an Item 5 disclosure the departure of the Company's Chief Financial Officer Gloria Zemla and the appointment of the Company's Chief Financial Officer David A. Bays. On May 2, 2000, the Company filed a Form 8-K announcing under an Item 5 disclosure that the Company and a corporate investor entered into a Series A Preferred Stock Purchase Agreement dated March 31, 200, pursuant to which the Company issued 250,000 shares of its Series A Preferred Stock to the corporate investor and the corporate investor paid the Company $1.5 million in immediately available funds. On May 11, 2000, the Company filed a Form 8-K announcing under an Item 4 disclosure that the Company dismissed its accountants McGladrey & Pullen LLP and hired Deloitte & Touch LLP as its new accountants and auditors. On June 12, 2000, the Company filed a Form 8-K announcing under an Item 5 disclosure that the Company changed its name from Sitek, Incorporated to Prodeo Technologies, Inc. On June 12, 2000, the Company filed a Form 8-K announcing under an Item 4 disclosure a dispute with its former accountants McGladrey & Pullen LLP, which was not resolved at the time of its dismissal. The Company also filed under an Item 7 disclosure a copy of McGladrey & Pullen LLP's letter to the Securities and Exchange Commission describing the dispute. 15 SIGNATURES 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. Prodeo Technologies, Inc. (Registrant) Date: August 14, 2000 By: /s/ Dr. Don M. Jackson ------------------------------------- Dr. Don M. Jackson President and Chief Executive Officer Date: August 14, 2000 By: /s/ David A. Bays ------------------------------------- David A. Bays Chief Financial Officer 16 PRODEO TECHNOLOGIES, INC. EXHIBIT INDEX TO QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000 Exhibit No. Incorporated by Filed Herewith Description Reference to: - --------------- ----------- ------------- 27 Financial Data Schedule Filed Herewith 17 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 U.S. DOLLARS 3-MOS JUN-30-2000 APR-01-2000 JUN-30-2000 1 2,065,378 0 1,361,378 38,719 3,300,736 7,020,145 942,905 143,283 8,409,004 4,305,414 0 61,606 0 2,500 2,667,207 8,409,004 4,526,916 4,526,916 2,097,257 2,097,257 2,081,312 0 116,101 285,135 126,000 159,135 0 0 0 159,135 0.01 0.01
-----END PRIVACY-ENHANCED MESSAGE-----