10-Q 1 pt10q_1202.txt PRODUCTIVITY FORM 10-Q 1202 U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended: December 31, 2002 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ___________________________ to ___________________________ Commission file number 0-24242 PRODUCTIVITY TECHNOLOGIES CORP. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3764753 --------------------------------- ------------------------------------ (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) 3100 Copper Avenue, Fenton, Michigan 48430 (Address of Principal Offices)(Zip Code) Registrant's Telephone Number, Including Area Code ((810) 714-0200 ----------------------------- Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of February 18, 2003: 2,475,000 shares, $ .001 par value common stock. Productivity Technologies Corp. INDEX Page Number PART I FINANCIAL INFORMATION............................................... 3 Item 1. Financial Statements.................................................3 Consolidated Balance Sheets at December 31, 2002 (un-audited) and June 30, 2002................................3 Consolidated Statements of Operations for the three and six months ended December 31, 2002 and 2001 (un-audited).......................5 Consolidated Statement of Stockholders' Equity for December 31, 2002 (un-audited)............................6 Consolidated Statements of Cash Flows for the three and six months ended December 31, 2002 and 2001 (un-audited).......................7 Notes to Unaudited Consolidated Financial Statements.................8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................10 Item 3. Quantitative and Qualitative Disclosure about Market Risk...........12 Item 4. Controls and Procedures.............................................13 PART II OTHER INFORMATION...................................................13 Item 1. Legal Proceedings ..................................................13 Item 2. Changes in Securities and Use of Proceeds (not applicable)..........13 Item 3. Defaults Upon Senior Securities ....................................13 Item 4. Submission of Matters to a Vote of Security Holders (not applicable)............................13 Item 5. Other Information (not applicable) .................................14 Item 6. Exhibits and Reports on Form 8-K .................................14 SIGNATURES...................................................................14 CERTIFICATIONS...............................................................14 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited consolidated financial statements. PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See accompanying notes to unaudited consolidated financial statements. PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

See accompanying notes to unaudited consolidated financial statements. PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)

See accompanying notes to unaudited consolidated financial statements. PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

See accompanying notes to unaudited consolidated financial statements. PRODUCTIVITY TECHNOLOGIES CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation The unaudited consolidated financial statements of Productivity Technologies Corp. and Subsidiaries (the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial information and in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted from the accompanying interim financial statements. The information furnished in the accompanying balance sheets, statements of operations, stockholders' equity and cash flows, reflect all adjustments, which are, in the opinion of management, necessary for a fair presentation of the aforementioned financial statements for the interim periods. Operating results for the six months ended December 31, 2002, are not necessarily indicative of the results that may be expected for the year ending June 30, 2003. The consolidated financial statements should be read in conjunction with the Company's annual report on Form 10-K for the fiscal year ended June 30, 2002 (as amended by amendment no. 1 on Form 10-K/A). Information provided includes the consolidated audited financial statements, including footnotes for the year ended June 30, 2002 and Management's Discussion and Analysis of Financial Condition and Results of Operations. 2. Summary of Significant Accounting Policies History of the Company and Basis of Presentation The Company was incorporated in June 1993 under the name Production Systems Acquisition Corporation with the objective of acquiring an operating business engaged in the production systems industry. The Company completed an initial public offering ("IPO") of common stock in July 1994 and raised net proceeds of approximately $9.0 million. In May 1996, the Company changed its name to Productivity Technologies Corp. and acquired, through a merger, Atlas Technologies, Inc. ("Atlas") as a wholly owned subsidiary. On February 23, 2000, the Company purchased, through a wholly-owned subsidiary formed for this purpose, substantially all of the assets of Westland Control Systems, Inc. ("Westland"). The Company has no other subsidiaries or operations. The Company, which produces industrial machinery, operates in a single segment through its Atlas and Westland subsidiaries. The accompanying financial statements include the consolidated accounts of the Company, Atlas and Westland. All significant inter-company accounts and transactions have been eliminated upon consolidation. Nature of Business The Company operates in a single segment through its Atlas and Westland subsidiaries. Atlas is a leading innovator and supplier of quick die change, flexible transfer, and stacking/destacking equipment used to automate automotive and other metal stamping operations. Atlas operates two manufacturing plants in Fenton, Michigan and has sales and engineering offices in Michigan, Europe and China. Westland designs, manufactures and field installs custom electrical control panels primarily for use in production machinery and machine tools utilized in automotive, adhesive and sealants, food processing and other industrial applications. Westland operates one manufacturing plant in Westland, Michigan, which is located less than one hour from Atlas' plants in Fenton, Michigan. Sales of Atlas products have principally been to automobile and automotive parts manufacturers and appliance manufacturers. Other customers include steel service centers and manufacturers of lawn and garden equipment, office furniture, heating, ventilation and air conditioning equipment, and large construction equipment. Sales to automotive related customers account for the majority of sales. Westland's customers participate in the automotive, food processing, adhesive and sealants, and other industries. Revenue and Cost Recognition At Atlas, revenues from fixed price contracts, and the related contract costs, are recognized using the percentage-of-completion method. The percentage-of-completion method measures the percentage of contract costs incurred to date and compares these costs to the total estimated costs for each contract. Atlas estimates the status of individual contracts when progress reaches a point where experience is sufficient to estimate final results with reasonable accuracy. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as indirect labor, supplies, repairs and depreciation costs. Provisions for estimated losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job condition, estimated profitability, and final contract settlement may result in revisions to costs and income, and are recognized in the period the revisions are determined. Revenues from time-and-material contracts are recognized currently as the work is performed. Westland recognizes sales and cost of sales upon shipment to the customer. Earnings Per Share Earnings per share have been computed by dividing the income by the weighted average number of common shares outstanding. The per share amounts reflected in the consolidated statements of operations are presented in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per share"; the amounts of the Company's "basic" and "diluted" earnings per share (as defined in SFAS No. 128) are the same. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Unaudited revenues earned for the quarter ended December 31, 2002 were $7,616,976, as compared to $6,056,998 for the quarter ended December 31, 2001, an increase of 26%. Atlas's revenues were up 24%, principally due to higher beginning backlog in this year's quarter versus the same time period of a year ago. Westland's revenues increased 35% due to the addition of new customers' accounts, as explained in the September 30, 2002 10 Q, that were not included in the prior year's quarter. Revenues earned for the six months ended December 31, 2002 were $14,353,919 up $837,450 from the six months ended December 31, 2001 revenues earned of $13,516,677. This increase is all associated with the current quarter results. The order backlog as of December 31, 2002 was $15.9 million, up 1% from the June 30, 2002 backlog of $15.7 million. Order backlogs have since increased to $18.6 million at February 18, 2003. Gross profit for the quarter ended December 31, 2002 was $1,717,448, representing a 17% increase compared to the $1,465,564 gross profit for the quarter ended December 31, 2001. The increase in gross profits was principally due to the volume increase at both Atlas and Westland. Gross profit as a percentage of revenues earned for the quarter ended December 31, 2002 as compared to the same quarter in the prior fiscal year decreased from 24.2% to 22.6%, principally as a result of a change in the mix of products sold by Atlas in the face of heightened competition and continued economic softness in the capital goods marketplace. For the six months ended December 31, 2002, the gross profit was $3,291,500, which is $79,670 less than the gross profit of $3,371,170 for the six months ended December 31, 2001. This decline of less than 1% in amount represents a decrease in gross profit as a percentage of revenues earned from 24.9% in the six months ended December 31, 2001 to 22.9% in the six months ended December 31, 2002. This decrease in the amount of gross profit was due to the unfavorable results in the first quarter of fiscal 2003 which were positively offset by the results for the second quarter of fiscal 2003. Consolidated selling, general and administrative (SG&A) expenses were $1,407,758 or 4% lower than SG&A expenses of $1,472,315 for the quarter ended December 31, 2001. For the six months ended December 31, 2002, SG&A expenses were $2,934,174 or $204,095 lower than the six months ended December 31, 2001. The reduction in SG&A expenses for the quarter and six months ended December 31, 2002 was due to continued tighter control of operating expenses at both operating subsidiaries. Income from operations for the quarter ended December 31, 2002 was $309,690, compared to a net loss from operations for the quarter ended December 31, 2001 of $6,751. For the six months ended December 31, 2002, income from operations was $357,326 or $124,425 higher than income from operations for the six months ended December 31, 2001. This increase in income from operations for the quarter and six months ended December 31, 2002 was principally due to the higher sales volumes and lower SG&A expenses described above. Interest expense for the quarter ended December 31, 2002 was $170,307, a decrease of 51% from $345,006 for the quarter ended December 31, 2001. For the six months ended December 31,2002, interest expense was $362,865, a decrease of 53.1% from $683,601 for the six months ended December 31, 2001. The improvement was due principally to continued focus on collections of receivables and inventory management at both Atlas and Westland which reduced borrowing needs and to a lesser extent on the Westland litigation settlement on September 3, 2002 which resulted in the extinguishment of $1.8 million of indebtedness owed to the former owner of Westland. In addition, interest was reduced as the Company made a principal payment of $450,000 to the former owner of Westland under the terms of the litigation settlement. To obtain the consent of the Company's senior bank lender to the litigation settlement, the Company also paid $800,000 on September 3, 2002 and $25,000 on December 3, 2002 to reduce the Company's term debt owed to the bank. The Company also reduced its revolving debt during the quarter and six months periods ended December 31, 2002. The net income for the quarter ended December 31, 2002 was $153,387 compared to a net loss of $323,538 for the quarter ended December 31, 2001. The net income for the six months ended December 31, 2002 was $60,012 as compared to a net loss of $406,863 for the six months ended December 31, 2001. The reported net income for the quarter ended December 31, 2002 was $0.06 per share and for the six months ended December 31, 2002 was $0.02 per share, in each case based on weighted average common shares outstanding of 2,475,000. This compared to a net loss for the quarter ended December 31, 2001 of $0.13 cents per share and of $0.16 per share for the six months ended December 31, 2001, also based on weighted average common shares outstanding of 2,475,000. The gross carrying amount and accumulated amortization of the Company's intangible assets other than goodwill as of December 31, 2002 is as follows: December 31, 2002 -------------------------------------------- Gross Net Carrying Accumulated Book Amount Amortization Value Patents $ 573,132 $170,003 $ 403,129 Non-compete Agreements 348,750 212,422 136,328 Bank Closing Fees 138,785 57,560 81,225 -------------------------------------------- Total $1,060,667 $439,985 $ 620,682 ============================================ Liquidity and Capital Resources At December 31, 2002, the Company had (1) $3,000,000 of a mortgage obligation relating to Atlas' Copper Road facility, payable over a 12 year term, (2) debt of $5,027,770 outstanding under a revolving credit facility with Bank One, Michigan ("Bank One"), (3) deferred executive compensation obligations of $974,933 originally scheduled to be paid over three equal annual installments during the period from July 2000 through July 2002, (4) a five year term loan from Bank One of $2,235,000, bearing interest at 125 basis points over the prime rate, incurred in February 2000 to purchase Westland, and (5) subordinated term debt of $925,000, payable to the former owner of Westland. This total of $12,162,703 at December 31, 2002 compares to a total combined long-term debt financing and line of credit balance of $18,427,330 as of December 31, 2001. The decrease in indebtedness at December 31, 2002 is principally due to the extinguishment of $1.8 million of indebtedness owed to the former owner of Westland and a principal payment of $483,000 made to the former owner of Westland under the terms of the litigation settlement agreement reached in September 2002, and principal repayments on term loan and revolving indebtedness to Bank One approximating $4.0 million. Working capital deficit at December 31, 2002 was ($4,867,772) and the current ratio was (.69) to 1, as compared to a working capital deficit of ($6,835,443) and a current ratio of (.63) to 1 for the Company at June 30, 2002. Prior to the expiration of the Company's revolving credit facility with Bank One on January 31, 2002, the Company was not in compliance with certain financial covenants and borrowing base limitations thereunder. The Company also is not in compliance with certain financial covenants under its term loan with Bank One. To date, Bank One has not demanded that the Company repay either the term loan or the revolving credit facility. The Company and Bank One have, however, engaged in discussions concerning terms of forbearance, the terms of retirement of the revolving credit facility in the event of a refinancing with another bank lender and/or other lenders, and possible modification of the term loan, and Bank One has consented to the settlement with the former owner of Westland. While Bank One is under no legal obligation to continue to forbear in demanding payment of outstanding obligations, management does not believe that it would be in Bank One's interest to take any action in the immediate future that could jeopardize the Company's efforts to refinance the obligations. Since the expiration of the revolving credit facility with Bank One on January 31, 2002, the Company has been able to meet its working capital needs from cash generated from operations without borrowing additional funds under a line of credit In addition, since such time, the Company has sought to pay down its borrowings from Bank One when and as cash has become available from operations. If Bank One continues to forbear in demanding the immediate repayment of these obligations (as to which no assurance can be given), the Company believes that it can continue to operate in the immediate future as it has since January 31, 2002, when the revolving credit facility expired. The Company does not, however, have funds available to it from its operations or otherwise to repay the amounts due under the credit facilities. The Company has engaged an investment-banking firm to advise it in connection with a possible revolving credit facility (senior secured bank facility) and the Company is directly seeking to directly arrange mezzanine financing (secured subordinated notes). In respect of a new revolving credit facility, the Company received a commitment for bank financing to replace the Bank One credit facility. The commitment requires that certain key executives of the Company personally guarantee a portion of the debt. The Company has agreed to accept this commitment subject to obtaining the agreement of these executives to provide these guarantees. In such guarantee arrangements, guarantors typically require consideration in the form of cash, stock or stock options, or a combination thereof, on terms the company's board of directors (in reliance on the opinion of an independent investment banking firm engaged to advise the board) determine to be fair to the company. The Company has initiated a discussion of possible consideration to the guarantors and an examination of the fairness of such consideration to the Company. In addition, the Company has received two proposals for secured subordinated note financing from two separate sources, one for $3.0 million of seven year financing and one for $2.0 million of seven year financing on terms similar to the $3.0 million proposal. The Company is considering the $3.0 million secured subordinated note financing proposal currently. However, no assurance can be provided at this time that either of the parties that have made proposals for secured subordinated note financing will ultimately commit to provide such financing on the terms proposed. Management is hopeful as to the ability of the Company to consummate suitable financing arrangements based upon factors including but not limited to (1) the apparent value of the tangible assets owned by the Company, (2) management's belief concerning the Company's current competitive position in its principal markets, (3) recent improvements the Company has made in its cost structure and (4) the ability of the Company to reduce indebtedness and to meet its expenses with cash generated from operations since January 2002. No assurance can be given, however, that any financing arrangements will be successfully concluded. Forward-Looking Statements Various statements in this Report concerning the manner in which the Company intends to conduct its future operations and potential trends that may affect future results of operations are forward-looking statements. The Company may be unable to realize its plans and objectives due to various important factors. These factors include but are not limited to general economic and business conditions, particularly in light of economic deterioration which has been exacerbated by the terrorist incidents of September 11, 2001, the threat of war with Iraq, and high profile accounting scandals which have raised questions as to the integrity of the stock markets, and in the automotive and other industries principally served by the Company, including continued flat or declining demand in the domestic and foreign markets for automobiles and automotive parts resulting in reduced demand for the Atlas' automation equipment; potential technological developments in the metal forming and handling automation equipment markets which may render Atlas' automation equipment noncompetitive or obsolete; the risk that Atlas or Westland customers may be unwilling or unable to continue ordering products; the potential inability of the Company to renew or replace its credit facilities, as described under "Liquidity and Capital Resources" in this Item 2, due to the Company's inability to achieve adequate operating results or the continued tightening of the credit and capital markets. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by Item 3 has been disclosed in Item 7A of the Company's Annual Report on Form 10-K for the year ended June 30, 2002. There has been no material change in the disclosure regarding market risk. ITEM 4. CONTROLS AND PROCEDURES Within the 90 days prior to the date of this Report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-14 adopted under the Securities Exchange Act of 1934. Based upon that evaluation, the chief executive officer and chief financial officer concluded that the Company's disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Since the date of the filing of the Company's Annual Report on Form 10-K for the year ended June 30, 2002, there have been no material new legal proceedings involving the Company or any material developments to the proceedings described in such 10-K. Item 2. Changes in Securities and Use of Proceeds. Not applicable. Item 3. Defaults Upon Senior Securities. Upon the expiration of the Company's revolving credit facility with Bank One on January 31, 2002, the Company was unable to repay the outstanding principal due thereunder. As of December 31, 2002, debt of $5,027,770 was outstanding under this revolving credit facility plus an obligation for $3.0 million of a mortgage relating to Atlas' Copper Road facility. During the second fiscal quarter, the letters of credits issued earlier in support of the $3,000,000 Industrial Revenue Bonds relating to Atlas' Copper Road facility had expired. As a result, the Company indebtedness related to the Copper Road facility is now in the form of a mortgage. The amortization and payment requirements under the mortgage are the same as they had been under the Industrial Revenue Bonds arrangement except that the interest rate of the mortgage is higher than it was under the IRB arrangement, and approximates the Company's interest rate on its revolving debt. In addition, $2,235,000 is outstanding under the Company's term loan with Bank One, which amounts may be deemed to be in arrears by reason of the Company's failure to repay the amounts due under the revolving credit facility. Although Bank One has continued to forbear in demanding the immediate repayment of these obligations, no assurance can be given that it will continue to do so. Nonetheless, while Bank One is under no legal obligation to continue to forbear in demanding payment of outstanding obligations, management does not believe that it would be in Bank One's interest to take any action in the immediate future that could jeopardize the Company's efforts to refinance the obligations. As more fully described under "Liquidity and Capital Resources" in Item 2, Part I, the Company has received a commitment for bank financing to replace the Bank One credit facility. In addition, the Company has received two proposals for secured subordinated note financing from two separate sources, one for $3.0 million of seven year financing and one for $2.0 million of seven year financing on terms similar to the $3.0 million proposal. No assurance can be given, however, that any of these financing arrangements will be successfully concluded. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 99.1 Certification of chief executive officer and chief financial officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K. None. SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRODUCTIVITY TECHNOLOGIES CORP. Date: February 19, 2003 By: /s/ Samuel N. Seidman ----------------------------------------- Samuel N. Seidman Chairman, Chief Executive Officer and President Date: February 19, 2003 By: /s/ Jesse A. Levine ----------------------------------------- Jesse A. Levine Vice President, Secretary, Treasurer and Chief Financial Officer CERTIFICATIONS I, Samuel N. Seidman, the Chairman, Chief Executive Officer and President of Productivities Technologies Corp., hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of Productivities Technologies Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 19, 2003 By: /s/ Samuel N. Seidman ------------------------------ Samuel N. Seidman Chairman, Chief Executive Officer and President I, Jesse A. Levine, the Vice President, Secretary, Treasurer and Chief Financial Officer of Productivity Technologies Corp., do hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q of Productivities Technologies Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: February 19, 2003 By: /s/ Jesse A. Levine ------------------------------ Jesse A. Levine Vice President, Secretary, Treasurer and Chief Financial Officer

PRODUCTIVITY TECHNOLOGIES CORP / 10-Q