-----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, SjkDZHn4j12QA4aFN7v0Wc2k1/lf8ml4C4Gpyks3EpevVyleM0mbmDQi23g1csSI 6dS5jT26WHINooz3TBQdvw== 0000950147-01-501896.txt : 20020410 0000950147-01-501896.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950147-01-501896 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRODEO TECHNOLOGIES INC CENTRAL INDEX KEY: 0000849862 STANDARD INDUSTRIAL CLASSIFICATION: BLANK CHECKS [6770] IRS NUMBER: 954585824 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 033-28417 FILM NUMBER: 1790652 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: DENTMART GROUP INC DATE OF NAME CHANGE: 19980415 FORMER COMPANY: FORMER CONFORMED NAME: ELGIN CORP DATE OF NAME CHANGE: 19980407 FORMER COMPANY: FORMER CONFORMED NAME: SITEK INC DATE OF NAME CHANGE: 19980817 10-Q 1 e-7717.txt QUARTERLY REPORT FOR THE QTR ENDED 09/30/2001 ================================================================================ 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 SEPTEMBER 30, 2001 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. (Exact name of registrant as specified in its charter) Delaware 86-0923886 (State of other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1919 W. Fairmont Dr. Suite # 2, Tempe, Arizona 85282 (Address of principal executive offices) (Zip Code) (602) 431-0444 (Registrant's telephone number, including area code) Sitek, Incorporated, Dentmart Group, Inc. and Elgin Corporation (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 Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 12,750,232 shares of common stock outstanding as of November 2, 2001. ================================================================================ TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets September 30, 2001 (unaudited) and March 31, 2001 3 Consolidated Statements of Operations Three and Six Months ended September 30, 2001 and 2000 (unaudited) 4 Consolidated Statement of Stockholders' Equity Six Months ended September 30, 2001 (unaudited) 5 Consolidated Statements of Cash Flows Six Months ended September 30, 2001 and 2000 (unaudited) 6 Notes to Consolidated Financial Statements Six Months ended June 30, 2001 and 2000 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 3. Quantitative and Qualitative Disclosures about Market Risks 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Change in Securities and Use of Proceeds 14 Item 3. Default upon Senior Securities 14 Item 5. Other Information 14 Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15 2 PRODEO TECHNOLOGIES, INC (Formerly Sitek, Incorporated) CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 2001 AND MARCH 31, 2001 - -------------------------------------------------------------------------------- SEPTEMBER 30, MARCH 31, 2001 2001 ----------- ----------- (Unaudited) ASSETS CURRENT ASSETS: Cash $ 121,351 $ 825,570 Restricted cash 0 1,241,937 Accounts receivable (Net of allowance for doubtful accounts of $44,482 and $48,000 at September 30 and March 31, 2001) 962,148 1,491,776 Inventory 2,970,650 3,335,043 Prepaid expenses and other assets 116,773 147,594 Income tax receivable 24,817 129,108 ----------- ----------- Total current assets 4,195,739 7,171,028 PROPERTY AND EQUIPMENT 998,893 1,060,903 OTHER ASSETS 75,392 71,035 INTANGIBLES - Net 365,224 406,067 ----------- ----------- TOTAL $ 5,635,248 $ 8,709,033 =========== =========== LIABILITIES AND STOCKHOLDER' EQUITY CURRENT LIABILITIES: Payable to banks 1,200,759 1,800,000 Advances from related parties 60,941 60,941 Trade accounts payable 2,262,153 1,797,015 Other accrued liabilities 1,338,978 1,299,521 Current portion of other borrowings 1,555,584 1,558,777 ----------- ----------- Total current liabilities 6,418,415 6,516,254 ----------- ----------- OTHER BORROWINGS (Note 6) 89,797 80,229 ----------- ----------- OTHER LIABILITIES 8,000 12,461 ----------- ----------- STOCKHOLDERS' (DEFICIT) 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, 12,750,232 shares at September 30 and 12,678,232 shares at March 31, 2001 63,751 63,391 Additional paid -in- capital 2,636,638 2,609,998 Deficit (3,583,853) (575,800) ----------- ----------- Total stockholder's (deficit) equity (880,964) 2,100,089 ----------- ----------- TOTAL $ 5,635,248 $ 8,709,033 =========== =========== See notes to consolidated financial statements. 3 PRODEO TECHNOLOGIES, INC (Formerly Sitek, Incorporated) CONSOLIDATED STATEMENT OF OPERATIONS FOR THREE AND SIX MONTHS ENDED SEPTEMBER 30, 2001 and 2000 (Unaudited) - --------------------------------------------------------------------------------
Three Months Ended Six Months Ended September 30 September 30 -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- SALES - NET $ 1,199,970 $ 4,674,042 $ 2,857,103 $ 9,200,958 COST OF GOODS SOLD 675,369 1,980,391 1,535,457 4,077,648 ----------- ----------- ----------- ----------- Gross profit 524,601 2,693,651 1,321,646 5,123,310 ----------- ----------- ----------- ----------- OPERATING EXPENSES: Selling, general and administrative 1,580,084 1,532,731 3,202,701 3,010,806 Research and development 429,583 506,884 871,072 1,110,120 ----------- ----------- ----------- ----------- Total operating expenses 2,009,667 2,039,615 4,073,773 4,120,926 ----------- ----------- ----------- ----------- (LOSS)/INCOME FROM OPERATIONS (1,485,066) 654,036 (2,752,127) 1,002,384 ----------- ----------- ----------- ----------- OTHER (EXPENSE) INCOME: Interest expense and financing costs (124,982) (142,141) (247,506) (258,242) Interest Income 4,213 17,230 15,822 28,768 Miscellaneous income (expense) (72,642) 6,625 (24,292) 47,976 ----------- ----------- ----------- ----------- Total other expenses - net (193,411) (118,286) (255,926) (181,498) ----------- ----------- ----------- ----------- (LOSS)/INCOME BEFORE INCOME TAXES (1,678,477) 535,750 (3,008,053) 820,886 INCOME TAX/PROVISION -- 226,000 -- 352,000 ----------- ----------- ----------- ----------- NET (LOSS)/INCOME $(1,678,477) $ 309,750 $(3,008,053) $ 468,886 =========== =========== =========== =========== (Loss)/Income per common share Basic $ (.13) $ 0.03 $ (.24) $ 0.04 =========== =========== =========== =========== Diluted $ (.13) $ 0.02 $ (.24) $ 0.04 =========== =========== =========== ===========
4 PRODEO TECHNOLOGIES, INC (Formerly Sitek, Incorporated) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) SIX MONTHS ENDED SEPTEMBER 30, 2001 (Unaudited) - --------------------------------------------------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL ---------------------- ------------------------- PAID- IN SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICITS) TOTAL --------- --------- ----------- ----------- ----------- ----------- ----------- BALANCE MARCH 31, 2001 250,000 $ 2,500 12,678,232 $ 63,391 $ 2,609,998 $ (575,800) $ 2,100,089 Net Loss (3,008,053) (3,008,053) Issuance of common shares stock -- 72,000 360 26,640 27,000 --------- --------- ----------- ----------- ----------- ----------- ----------- BALANCE SEPTEMBER 30, 2001 250,000 $ 2,500 12,750,232 $ 63,751 $ 2,636,638 $(3,583,853) $ (880,964) ========= ========= =========== =========== =========== =========== ===========
See notes to consolidated financial statements 5 PRODEO TECHNOLOGIES, INC (Formerly Sitek, Incorporated) CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED SEPTEMBER 30, 2001 AND 2000 (Unaudited) - --------------------------------------------------------------------------------
2001 2000 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) income $(3,008,053) $ 468,886 Adjustment to reconcile net income to net cash provided by operating activities: Amortization of prepaid financing fees 2,917 -- Depreciation and amortization 177,346 131,878 Amort.of deferred gain on sale of assets (10,322) -- Deferred taxes -- (10,000) Deferred rent expense 5,861 -- Stock issued for services 27,000 -- Changes in assets and liabilities: Restricted cash 1,241,987 174,285 Accounts receivable 529,628 (646,703) Income tax receivable 104,291 -- Inventory 364,393 (694,262) Prepaid expenses and other assets 23,547 10,451 Advances from related parties -- (7,309) Accounts payable 465,138 912,024 Accrued expenses 39,457 (21,109) Income tax payable -- (88,000) VAT payable -- (19,665) Other liabilities -- (4,672) ----------- ----------- Net cash (used in) provided by operating activities (36,860) 205,804 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of leasehold improvement and equipment (117,726) (264,840) Purchase from leasehold improvement reimbursement 43,233 -- ----------- ----------- Net cash used in investing activities (74,493) (264,840) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Borrowings from bank -- 50,000 Proceeds from other borrowings 73,779 244,705 Repayments of other borrowings (666,645) (72,948) Issuance of commmon stock -- 53,091 ----------- ----------- Net cash provided by (used in) financing activities (592,866) 274,848 ----------- ----------- NET INCREASE(DECREASE) IN CASH (704,219) 215,812 CASH, BEGINNING 825,570 215,262 ----------- ----------- CASH, END $ 121,351 $ 431,074 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Interest paid $ 148,977 $ 59,209 =========== =========== Taxes paid $ -- $ 440,000 =========== =========== Converted debt to stock $ -- $ 88,244 =========== =========== Financed purchase of fixed assets $ 31,670 68,000 =========== ===========
See notes to consolidated financial statements. 6 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS THREE AND SIX-MONTH PERIODS ENDED SEPTEMBER 2001 AND 2000 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 divisions, Foundry Operations ( formerly CMP Solutions), Product Operations (formerly VSM Corporation) and Prodeo XS (pre-owned equipment). 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, 2001. 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 September 30, 2001 and its results of operations and its cash flows for the three month periods ended September 30, 2001 and 2000 have been included. Interim results of operations are not necessarily indicative of the results of operations for the full year. The accompaning financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The company's continuation as a going concern depends upon its ability to generate sufficient cashflow to meet its obligations on a timely basis, obtain refinancing of certain of its debt and return to profitable operations. In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS NO. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 requires that entities record all derivatives as assets or liabilities, measured at fair value, with the change in fair value recognized in earnings or in other comprehensive income, depending on the use of the derivatives and whether it qualifies for hedge accounting. The statement (as amended) is effective for the Company's fiscal year ending March 31, 2002. The adoption of the statement did not have a material effect in the Company's financial position or results of operations. 2. NEW ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations" and SFAS 142, "Goodwill and other Intangible Assets". SFAS 141 is effective immmediately and SFAS 142 will be effective for the Company's fiscal year beginning April 1, 2002. The effect of Adopting SFAS 141 did not have a significant impact on the Company's financial statements. The Company is currently evaluating the provisions of SFAS 142 and has not adopted such provisions in its September 30, 2001 financial statements. In August 2001, the FASB issued SFAS No.144, "ACCOUNTING FOR IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS" which supercedes SFAS 121 "ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF" and will be effective for the Company's fiscal year beginning April 1, 2002. The Company is currently evaluating the provisions of SFAS 144 and has not adopted such provisions in its September 30, 2001 financial statements. 3. INVENTORIES At September 30,2001 and March 31, 2001, inventories consisted of the following: SEPTEMBER 30, MARCH 31, 2001 2001 ----------- ----------- Raw materials $ 996,403 $ 1,020,685 Work-in-progress 689,816 934,744 Pre-owned equipment held for resale 1,540,748 1,635,931 ----------- ----------- Total 3,226,967 3,591,360 Less allowance for obsolete inventories (256,317) (256,317) ----------- ----------- Inventories - net $ 2,970,650 $ 3,335,043 =========== =========== 7 4. EQUITY During the three month period ending September 30, 2001, 72,000 shares of comon shares were issued to one of the directors for services provided from April through December 2001 resulting in compensation expense of $27,000 for the period. 5. 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 September 30, 2001 and 2000:
Three Months Ended Six Months Ended September September ---------------------------- --------------------------- 2001 2000 2001 2000 ------------ ------------ ----------- ------------ Net income (loss) $ (1,678,477) $ 309,750 $(3,008,053) $ 468,886 Interest on convertible debentures -- 1,662 -- 3,901 Income (Loss) available to common shareholders plus assumed conversions $ (1,678,477) $ 311,412 $(3,008,053) $ 472,787 Weighted average shares outstanding 12,725,189 12,377,390 12,701,839 12,358,527 Effect of dilutive securities: Options -- 528,786 -- 737,526 Warrants -- -- -- -- Convertible preferred stock -- 250,000 -- 250,000 Convertible debentures -- 54,332 -- 42,299 Adjusted Weighted average shares outstanding 12,725,189 13,210,508 12,701,839 13,388,352 Basic Earnings (Loss) Per Share $ (.13) $ 0.03 $ (.24) $ 0.04 Diluted Earnings (Loss) Per Share $ (.13) $ 0.02 $ (.24) $ 0.04
Warrants to purchase approximately 20,000 of common stock at $6 per share, 175,000 shares contingently issuable upon settlement of a lawsuit (Note 7) and approximately 4,562 shares at $5 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 as of September 30, 2001. These shares were not included in the calculation of diluted earnings per share in the second quarter of fiscal 2002 due to the antidilutive effect they would have on earnings (loss) per share if converted. In calculating earnings per share for the three and six months ended September 30, 2001, the effect of 250,000 shares of common stock issuable upon the conversion of the Company's convertible preferred stock, and approximately 52,000 shares issuable upon conversion of the Company's 9.5 percent convertible debentures were not used for computing dilutive earnings per share because the results would be antidilutive. 8 6. DEBT Following is a list of current debt obligations due during the quarter ending September 30, 2001: DUE DATE LENDER PRINCIPAL AMOUNT DUE -------- ------ -------------------- See Below Comerica Bank $1,200,759 See Below TLD Funding Group $ 207,181 See Below TLD Funding Group $ 554,453 See Below TLD Funding Group $ 532,430 On January 10, 2000, Prodeo entered into a revolving line of credit agreement with Comerica Bank (formerly Imperial) in the principal amount of $2,000,000. The loan bears interest at prime plus 4%, matured March 9, 2001, and is secured by 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. At the recent request of Comerica, the Company anticipates entering into a Forebearance Agreement since the Company is currently not in compliance with certain debt covenants. This Agreement will require the Company to make specific periodic payments sufficient enough to reduce the outstanding balance to an amount that is to be determined. The current outstanding balance as of September 30, 2001 is approximately $1,200,759. In April 1999, Prodeo entered into a loan agreement with TLD Funding Group to borrow $1,000,000 which was used to purchase all the outstanding shares of VSM. Payment was due on April 28, 2001. Interest is charged at 1% per month for the initial 90 days and 2% per month thereafter. The note included a financing fee of $70,000, which was amortized over the life of the loan. The maturity date of this note was extended to August 31, 2001 to permit time for re-financing. The current outstanding balance is $532,430. TLD Funding Group has not extended this note. This loan is unsecured. In February 1999, Prodeo borrowed $207,000 from TLD Funding Group under a line of credit, which expired on February 28, 2001. The maturity date of the note was extended to August 31, 2001, as mutually agreed, to permit additional time for completion of re-financing. Interest is due monthly on the unpaid balance of $207,181 as of September 30, 2001 at 1.5% per month. The line is personally guaranteed by a Prodeo shareholder. TLD Funding Group has not extended the note. 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 September 30, 2001, Prodeo owed approximately $554,453 under this line of credit. TLD Funding Group had extended this note to August 31, 2001 but has not renewed an extension. This loan is unsecured. Other notes payable for $168,816 includes debt obligations for insurance and transportation equipment a total of five seperate capital leases. These leases have a term of five years and represent purchases of manufacturing equipment, computer equipment and related software. 7. COMMITMENTS AND CONTINGENCIES CONTINGENCIES - On April 9, 2000, the Company and Don Jackson, the Company's Chief Executive Officer, were named as defendants in a lawsuit filed in the state of Colorado: John Botdorf v. Sitek, Inc. et al., District Court and County of Denver, State of Colorado, Case No. OOCV195 1 and subsequently transferred to U.S. District Court for the District of Arizona, Case No. CIV 00-1995-PHX-RCB. On October 19, 2001, an out-of-court settlement was reached that provides to John Botdorf, $35,000 paid over 18 months and 175,000 common stock shares to be held in trust by the Company for at least one year. The settlement agreement is currently under review and it is anticipated that both parties will sign the document. Included in other expenses is $77,000 representing the estimated costs to settle this lawsuit. EMPLOYMENT AGREEMENT - The Company entered into a five-year employment agreement dated June 7, 1999 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. 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 Stock Purchase Agreement provided for another possible $1,500,000 investment; however, in September 2001, the corporate investor notified the Company that it will not be making further investments. All cash received under the agreement has been reclassified as not restricted. 9 8. 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 - Prodeo XS, Foundry Operations, and Product Operations. Prodeo XS is in the business of buying and selling pre-owned semiconductor manufacturing equipment. Foundry Operations is in market 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. Product Operations is a supplier of thermal processing systems and complex, ultra high purity gas and vapor control systems used in the manufacture of electronic and optical devices and glass products. The accounting policies applied to determine the segment information are the same as those described in the March 31, 2001 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. Financial information with respects to the reportable segments follows for three and six months ended September 30, 2001 and September 30, 2000:
Three Months Ended Prodeo Foundry Product September 30, 2001 XS Operations Operations TOTAL - ------------------ ----------- ----------- ----------- ----------- Revenue from external customers $ 103,000 $ 122,053 $ 974,916 $ 1,199,969 =========== =========== =========== =========== Segment/Operating Loss $ (53,165) $ (392,071) $(1,039,830) $(1,485,066) Net Other Expense (Loss) $ (3,724) $ (37,547) $ (152,140) $ (193,411) Loss before Income Taxes $ (55,077) $ (413,312) $(1,133,088) $(1,601,477) Depreciation & Amortization $ 2,233 $ 19,340 $ 74,611 $ 96,184 Three Months Ended Prodeo Foundry Product September 30, 2000 XS Operations Operations TOTAL - ------------------ ----------- ----------- ----------- ----------- Revenue from external customers $ 1,648,000 $ 688,319 $ 2,337,723 $ 4,674,042 =========== =========== =========== =========== Segment Operating Income $ (289,870) $ 167,914 $ 775,992 $ 654,036 Net Other Expense Loss $ (93,160) $ (12,373) $ (12,753) $ (118,286) Income (Loss) before Income Taxes $ (383,030) $ 155,541 $ 763,239 $ 535,750 Depreciation & Amortization $ 57,795 $ 10,056 $ 5,812 $ 73,663
10
Six months Ended Prodeo Foundry Product September 30, 2001 XS Operations Operations TOTAL - ------------------ ----------- ----------- ----------- ----------- Revenue from external customers $ 221,000 $ 208,393 $ 2,427,710 $ 2,857,103 =========== =========== =========== =========== Segment Operating Loss $ (77,315) $ (768,296) $(1,906,516) $(2,752,127) Net Other Expense (Loss) $ (4,370) $ (51,010) $ (200,546) $ (255,926) Loss before Income Taxes $ (79,873) $ (803,000) $(2,048,180) $(2,931,053) Depreciation & Amortization $ 3,991 $ 33,111 $ 140,244 $ 177,346 Six months Ended Prodeo Foundry Product September 30, 2000 XS Operations Operations TOTAL - ------------------ ----------- ----------- ----------- ----------- Revenue from external customers $ 4,465,500 $ 804,515 $ 3,930,943 $ 9,200,958 =========== =========== =========== =========== Segment Operating Income $ 26,848 $ (56,462) $ 1,031,998 $ 1,002,384 Net Other (Expense) Income $ (177,809) $ 9,241 $ (12,929) $ (181,498) Income (Loss) before Income Taxes $ (150,962) $ (47,221) $ 1,019,068 $ 820,886 Depreciation & Amortization $ 92,158 $ 25,140 $ 14,579 $ 131,878
9. SUBSEQUENT EVENTS On July 25, 2001, Prodeo notified Advanced Technology Services, Inc. ("ATSI") under the terms of the Separation Agreement that they were in material breach. This breach derives from ATSI's failure to provide royalty payments and sales reports. On November 1, 2001, the Company received a proposed settlement offer for the sale of ATSI which is currently being evaluated. The Company must respond by November 13 with its acceptance or counter proposal. On October 9,2001, Prodeo was named as a defendant in a lawsuit filed in the Arizona State court. The lawsuit involves one plaintiff; Cathy Lynn Colvin. v. Prodeo Technologies, Inc. et al., Superior Court for the State of Arizona, County of Maricopa, Case No. CV 2001-092319. Ms. Colvin, a former employee of Prodeo, claims she was wrongfully terminated. Ms. Colvin also alleges breach of contract and statutory violations for failure to timely pay accrued commissions. Prodeo has paid its estimate of the disputed commission amount due. Prodeo has filed its answer to the complaint, and plans to defend itself vigorously. Ms. Colvin is seeking damages on her disputed commissions and other damages in an amount to be proven at trial. 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS REVENUES. Net sales were $1,199,970 for the three months ended September 30, 2001 compared to $4,674,042 in the same period in 2000, a decline of 74.3%. For the six months ended September 30, 2001, net sales were $2,857,103 compared to $9,200,958 for the same period in 2000, a decline of 68.9%. The decline is due to lower revenues from sales of all semiconductor equipment. Pre-owned semiconductor equipment sales were $103,000 in the three months ended September 30, 2001 compared to $1,648,000 in the same period of 2000. Manufacturing equipment sales by Product Operations for the three months ended September 30, 2001, were down 58.3% to $974,654 compared to $2,337,723 for the same period in 2000. Product Operations sales represent 81.2% of total net sales in the fiscal quarter ended September 30, 2001, with sales of pre-owned equipment being 8.5%. During this same period in 2000, Product Operations sales was 50% of total net sales and pre-owned equipment was 35%. The sales mix between pre-owned equipment sales versus Product Operations manufacturing sales the quarter ended September 30, 2001 continues to reflect the diminished demand of pre-owned equipment. During the fiscal quarter ended September 30, 2001, Foundry Operations continued in its development of a broader customer base. Foundry Operations had revenues of $122,053 during the current fiscal quarter compared to $688,319 in the same period of 2000. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Prodeo incurred $1,580,084 in selling, general and administrative expenses in the three months ended September 30, 2001 compared to $1,532,731 for the same period in 2000. For the six months ended September 30, 2000, selling, general and administrative expenses were $3,202,701 compared to $3,010,807 for the same period in 200. The majority of the selling, general and administrative expenses for the three month period ended September 30, 2001 are related to marketing and advertising and general business activities. However, these expenses also include $178,023 in bad debt write-offs. RESEARCH AND DEVELOPMENT. Research, development and engineering expenses were $429,583 for the three months ended September 30,2001 compared to $605,236 for the same period in 2000. For the six months ended September 30, 2001, research, development and engineering expenses were $871, 072 compared to $1,110,120 for the same period in 2000. NET LOSS. Net Loss for the fiscal quarter ending September 30, 2001 was ($1,678,477) compared to a net income of $309,750, for the fiscal quarter ending September 30, 2000. For the six months ended September 30, 2001, the net loss was ($3,008,053) compared to a net income of $468,885. The net loss resulted from lower sales in semiconductor equipment and the overall severe downturn in the semiconductor sector. LIQUIDITY AND CAPITAL RESOURCES As of September 30, 2001 Prodeo had total cash of $121,351 available for general use. Prodeo will require additional capital during the next twelve months to meet its needs, including repayment of debt obligations (described below), product development and general working capital requirements. Prodeo will need private funding and new available credit to support the Company's plan of operations. Prodeo is currently working with several public and private financial organizations in attempting to restructure our debt obligations and fund product development. In addition, Prodeo is evaluating the strategic alternatives for its lines of business including responding to inquiries from a major customer who has indicated interest in buying one of the Company's business units. If the sale is completed, net proceeds will assist repayment of certain debt obligations. There can be no assurance that funds will be raised or revenues will increase to a level to support our current operations. There is no assurance that Prodeo will attract capital or that the funds, if acquired, will be sufficient to assist meeting Prodeo's debt obligations, operating capital requirements and product development. Neither management nor other of Prodeo's shareholders have made commitments to provide additional funds to Prodeo. As a result, 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 while seeking refinancing and additional funding. The success of this plan depends upon: (i) Product Operations increasing its market position and increasing revenues; (ii) certain business units being acquired by an interested party; (iii) Prodeo XS significantly increasing revenues from its sales of pre-owned equipment inventories which still has substantial market value (estimated $4.0 million); (iv) collecting receivables timely; and (v) new products introduced in fiscals 2001 and 2002 achieving acceptance and revenues. The basis of this plan has been the reorganization of certain non-sales knowledgable and experienced personnel to assist in increasing our sales production, support broader marketing activities and hiring additional sales engineers while reducing non-essential staff. If this contingency plan is not successful, the Company will need to 12 substantially reduce and/or temporarily shutdown operations, until funding is available or significant sales are completed. Under these circumstances, the Company would be forced to stop development activities and reduce its production of semiconductor equipment, all of which could have a materially adverse effect on the Company. Following is a list of current debt obligations due during the in the quarter: DUE DATE LENDER PRINCIPAL AMOUNT DUE -------- ------ -------------------- See Below Comerica Bank $1,200,759 See Below TLD Funding Group $ 207,181 See Below TLD Funding Group $ 554,453 See Below TLD Funding Group $ 532,430 On January 10, 2000, Prodeo entered into a revolving line of credit agreement with Comerica Bank (formerly Imperial) in the principal amount of $2,000,000. The loan bears interest at prime plus 4%, matures March 9, 2001, and is secured by 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. At the recent request of Comerica, the Company anticipates entering into a Forbearance Agreement since the Company is currently not in compliance with certain debt covenants. This Agreement will require the Company to make specific periodic payments sufficient enough to reduce the outstanding balance to an amount that is to be determined. The current outstanding balance as of September 30, 2001 is $1,200,759. In April 1999, Prodeo entered into a loan agreement with TLD Funding Group to borrow $1,000,000 which was 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 current outstanding balance is $532,430. TLD Funding Group has not extended this note. This note is unsecured. In February 1999, Prodeo borrowed $207,000 from TLD Funding Group under a line of credit, which has expired February 28, 2001. The maturity date of the note was extended to August 31, 2001, as mutually agreed, to permit additional time for completion of re-financing. Interest is due monthly on the unpaid balance of $207,181 as of June 30, 2001 at 1.5%. The line is personally guaranteed by a Prodeo executive. TLD Funding Group has not extended this note. 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 September 30, 2001, Prodeo owed approximately $554,453 under this line of credit. TLD Funding Group had extended this note to August 31, 2001 but has not renewed an extension. This note is unsecured. Prodeo also issued convertible debentures of $182,500 at 9.5% interest which 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 and may be paid in restricted common stock. If paid in common stock, the debentures are convertible into common stock at 90% 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, 2002, at which time all debentures outstanding will be converted to shares of common stock. Other notes payable for $168,816 includes debt obligations for insurance and transportation equipment a total of five separate capital leases. These leases have a term of five years and represent purchases of manufacturing equipment, computer equipment and related software. Certain statements in this report constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements, expressed or implied in such forward looking statements. Such risks for Prodeo including but are no limited to, expected sales revenue levels, delays in research and development, inadequate funding, the availability of pre-owned equipment, customers' reactions to the Company's new proprietary equipment and other such uncertainties. Some of these and other uncertainties and risk factors are discussed in greater detail in the Company's Form 10-K for the fiscal year ending March 31, 2001 filed with the Securities and Exchange Commission and available from the Company upon request. 13 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The company is subject to certain risks arising from transactions in the normal course of its business, and from debt instruments. Such risk is principally associated with interest rate and foreign exchange fluctuations, as well as changes in the Company's credit standing. Interest Rate Risk The Company utilizes bank borrowings and borrowings from other soucres to finance the working capital and capital requirements of the business. As of September 30, 2001, the Company had outstanding Convertible Debentures of $182,500 with a fixed interest rate of 9.5% and due in fiscal 2003. Additionally, the Company utilizes a revolving line of credit to support working capital needs. The Company borrowed $73,779 and repaid $666,645 during the quarter ended September 30, 2001 and borrowed and repaid $294,705 and $72,948, respectively during the same quarter in year 2000 at an average interest rate of 19.58% and 19.06% in first quarter of fiscal 2002 and 2001, respectively. Borrowings under the line of credit bear interest at the bank's prime rate plus 4%. The company had borrowings outstanding under an equipment line of credit of $207,181 as of September 30, 2001at an effective rate of aproximately 18%. Additionally, the Company had outstanding borrowings under another equipment line of credit with the same lender of $554,453 and $600,000 as of second fiscal quarter 2002 and 2001, respectively, at an effective annual interest rate of approximately 24%. Finally, the Company had an outstanding balance under an acquisition loan with the same private lender of $532,431and $487,000 for the second fiscal quarter 2002 and 2001, respectively at an effective annual interest rate of approximately 24%. Foreign Currency Risk The Company incurs on-going expenses in foreign countries in which the Company pays in the local currency. However, these expenses accounted for less than 1% of net sales in the quarter ended September 30 in fiscal 2002 and 2001. 14 PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS See Financial Note 7. ITEM 2: CHANGE IN SECURITIES AND USE OF PROCEEDS None ITEM 3: DEFAULT UPON SENIOR SECURITIES None ITEM 5: OTHER INFORMATION None ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K There were no reports filed on Form 8-K in the quarter covered by this 10-Q. 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: November 14, 2001 By: /s/ Dr. Don M. Jackson ------------------------------------- Dr. Don M. Jackson President and Chief Executive Officer Date: November 14, 2001 By: /s/ David A. Bays ------------------------------------- David A. Bays Chief Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----