<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM TO
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Commission File No. 0-28102
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BONDED MOTORS, INC.
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(Name of small business issuer in its charter)
California 95-2698520
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7522 South Maie Avenue, Los Angeles, CA 90001
- --------------------------------------- -----
(address of principal executive offices) Zip Code
Issuer's telephone number: (213) 583-8631
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
There were 3,000,000 shares of common stock outstanding at May 2, 1996
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BONDED MOTORS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of March 31, 1996.............................. 3
Statements of Earnings (loss) for the three month periods
ended March 31, 1996 and 1995........................... 4
Statements of Cash Flows for the three month periods
ended March 31, 1996 and 1995............................ 5
Notes to Financial Statements.................................... 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation............. 9-10
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports..................................... 11
Signature........................................................ 12
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BONDED MOTORS, INC.
BALANCE SHEET
MARCH 31, 1996
(Unaudited)
ASSETS
<TABLE>
<S> <C>
Current assets:
Cash $ 105,262
Trade accounts receivable
(less allowance for doubtful accounts of $45,229) 2,213,166
Inventories: (note B)
Parts 689,252
Work in process 256,635
Finished goods 1,437,737
----------
2,383,624
----------
Deferred Tax assets 551,305
Prepaid expenses and other current assets 107,279
----------
Total current assets 5,360,636
----------
Property and equipment, at cost:
Machinery and equipment 990,628
Furniture and fixtures 302,582
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1,293,210
Less accumulated depreciation and amortization 1,036,653
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Net property and equipment 256,557
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Other assets 515,418
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$6,132,611
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,261,378
Accrued expenses 664,107
Income taxes payable 96,029
Current portion of long term debt to bank 183,996
Notes payable to related parties 100,000
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3,305,510
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Notes payable to bank, less current portion (note C) 1,638,888
Shareholders' equity (note E)
Preferred stock, no par value. Authorized 1,000,000 shares;
none issued and outstanding --
Common stock, no par value. Authorized 10,000,000 shares;
issued and outstanding 2,000,000 shares 212,500
Retained earnings 1,175,713
Notes receivable from exercise of stock options (200,000)
----------
Total shareholders' equity 1,188,213
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$6,132,611
==========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
BONDED MOTORS, INC.
STATEMENTS OF EARNINGS (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
For the three Months Ended
March 31
--------------------------
1996 1995
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<S> <C> <C>
Net sales $4,205,375 $2,396,033
Cost of sales 3,297,046 2,019,377
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Gross profit 908,329 376,657
Selling, general and administrative expenses 599,433 456,944
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Earnings from operations 308,896 (80,287)
Other (expenses):
Interest expense (34,850) (20,566)
Other -- (13,558)
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Earnings before income taxes 274,046 (114,411)
Income tax (expense) benefit (90,789) 14,000
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Net earnings (loss) $ 183,257 $ (100,411)
========== ==========
Earnings per common and common equivalent shares $ 0.09 $ (0.05)
========== ==========
Weighted average common and common equivalent shares outstanding 2,000,000 1,965,957
========== ==========
</TABLE>
See accompanying notes to financial statements.
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BONDED MOTORS, INC.
STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 183,257 $ (100,411)
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Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 12,312 7,440
(Increase) decrease in assets:
Accounts receivable (634,983) (264,292)
Inventories (280,869) (13,022)
Deferred tax assets (32,305) (14,000)
Prepaid expenses (393,696) (61,057)
Increase (decrease) in liabilities:
Accounts payable 768,006 191,597
accrued expenses 46,017 37,530
Income taxes payable (226,906) 2,230
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Total adjustments (742,424) (113,574)
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Net cash provided by operating activities (559,167) (213,985)
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Cash flows from investing activities:
Purchases of equipment (104,421) (11,861)
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Net cash provided by investing activities (104,421) (11,861)
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Cash flows from financing activities:
Borrowing from bank 1,105,768 -
Repayment of borrowings from bank (452,884)
Repayment of notes payable to related parties (917,771) (19,514)
Proceeds from long term bank loan 920,000
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Net cash provided by financing activities 655,113 (19,514)
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Net (decrease) in cash (8,475) (245,360)
Cash at beginning of period 113,737 234,564
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Cash at end of period $ 105,262 $ (10,796)
========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
BONDED MOTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE A) - The Company and its Significant Accounting Policies:
- ---------------------------------------------------------------
Bonded Motors, Inc. formerly Production Engine Rebuilding Company, Inc. (the
Company), remanufactures automobile engines primarily for domestic and Japanese
imported cars and light trucks in the United States for resale to automotive
retailers, end users and installers. Substantially all of the Company's sales
are currently generated in the Southwest and Northwest regions of the United
States.
Basis of Presentation:
- -----------------------
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to form 10-QSB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of Management, all
adjustments (consisting of normal recurring journals) considered necessary for a
fair presentation have been included. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1996. For further information,
refer to the financial statements for the year ended December 31, 1995 and
footnotes thereto included in the Company's Prospectus dated April 2, 1996.
Revenue Recognition and Core Accounting
- ---------------------------------------
Revenue is recognized upon shipment of product, net of a provision for core
returns. The Company's customers are encouraged to return their old,
rebuildable core as a credit against the identical engine purchased. The
Company identifies the returned core to the original customer invoice and issues
a credit memo equal to the core charge reflected on the original invoice. These
core returns, recorded as a reduction in net sales, were $623,706 and
$1,145,778 during the quarters ended March 31, 1995 and 1996 respectively.
Cores returned from customers are recorded into inventory on the same basis as
the Company records purchases of cores from independent core suppliers, at the
lower of average cost or market (net realizable value). Customer core returns
provide approximately 60% of the Company's core requirements, and independent
core suppliers provide the remaining 40% of the Company's core requirements.
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<PAGE>
Earnings (loss) per Share
Net earnings (loss) per share is based on the weighted average number of shares
of common and common stock equivalents outstanding. Fully diluted net earnings
(loss) per share is not presented since the amounts either do not differ
significantly from the primary net earnings per share presented or are anti-
dilutive.
Supplemental earnings per share for the three-month period ended March 31, 1996
assuming the Company's initial public offering (note E) occurred on January 1,
1996 would be $.06 per share.
(NOTE B) - Inventories:
- -----------------------
Inventories are comprised of the following at March 31, 1996:
Raw Materials and Cores................... $ 689,252
Work in Process........................... 256,635
Finished Engines.......................... 1,437,737
Total........................... 2,383,624
(NOTE C) - Long-Term Debt:
- --------------------------
The Company's long-term debt at March 31, 1996 consisted of borrowings under
the revolving line of credit from a bank under which the Company may borrow up
to $2,000,000 collateralized by inventory, accounts receivable, and
substantially all other assets of the Company, in addition to a guarantee by the
principal shareholder. Borrowings under the revolving line of credit bear
interest at prime plus .5%. This agreement expires on May 1, 1997 and requires
the Company to maintain certain financial ratios.
The Company's long-term debt also consisted of a $920,000 five year term loan
with the same above referenced collateralization and guarantee. This term loan
bears interest at prime plus .75%, and requires the Company to maintain certain
financial ratios.
(NOTE D) - Income Taxes
- -----------------------
Income taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management.
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(NOTE E) - Stockholders Equity
- ------------------------------
On April 2, 1996, the Company completed its initial public offering of 1,000,000
shares of common stock at $5.875 per share,and warrants to purchase up to
100,000 shares of common stock at $7.05 per share.
The Company adopted a stock option plan in January 1996 which provide for the
issuance of options to employees, officers and directors of the Company to
purchase up to an aggregate of 400,000 shares of common stock. The Company also
adopted a Directors' plan in January 1996 which provides for the issuance of
options to outside directors of the Company to purchase up to an aggregate of
50,000 shares of Common Stock. On March 12, 1996, the Company granted 197,500
stock options to certain members of management at exercise prices ranging from
$5.50 to $6.05 per share which approximates or exceeds the initial public
offering price. The stock options vest ratably over two years.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS:
Net sales for the three months ended March 31, 1996 increased $1,809,342 or
75.5% over the three months ended March 31, 1995. Unit sales increased 62.8%
for domestic remanufactured engines, and 109.1% for Japanese remanufactured
engines. These increases are primarily attributable to increased demand for the
Company's engines from its traditional customer base. In addition, the
Company's distribution center in Auburn, Washington (opened in December, 1994)
experienced an increase of 161% over the same period last year.
In March, 1996 the Company opened its second distribution center in Atlanta,
Georgia. The Company intends to open additional distribution centers in 1996
and 1997.
Cost of goods sold for the three months ended March 31, 1996 increased 63.3%
over the comparable year earlier period. Cost of goods sold as a percentage of
sales decreased to 78.4% in the recent three month period from 84.3% a year
earlier. The decline in cost of goods sold as a percentage of sales for the
current reporting period is attributable to increased sales volume. The cost of
goods sold for the current period were adversely affected by increased overtime
hours utilized in engine production, along with other increased overhead
expenses. Management authorized these increased costs in order to open and stock
its new distribution center in Atlanta, Georgia.
Selling, general and administrative expenses increased 31.2% over the comparable
period a year earlier, due primarily to increase sales and distribution expense.
Selling, general and administrative expenses as a percentage of sales decreased
to 14.3% in the recent three month period from 19.1% a year earlier. This
decrease is attributable to increased sales volume.
Interest expense increased 69.4% to $34,850 for the quarter ended March 31,
1996. Borrowings under the Company's credit facility were greater in the most
recent quarter, due mainly to carrying a larger inventory and openning the
Atlanta, Georgia distribution center.
Pre-tax income for the period ended March 31, 1996 was $274,046. The March 31,
1995 corresponding quarter had a pre-tax loss of ($114,411). After tax earnings
were $183,257 for the quarter ended March 31, 1996 versus an after tax loss of
($100,411) for the quarter ended March 31, 1995.
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LIQUIDITY AND CAPITAL RESOURCES:
The Company's operations have been financed principally by borrowings from its
majority stockholder, borrowings under a bank revolving credit facility, and
cash flows from operations. In March, 1996 the Company repayed all borrowings
from its majority stockholder with a new five year term loan from its major
bank. At March 31, 1996, the Company's working capital was $2,055,126.
Net cash used in operating activities during the three months ended March 31,
1996 of $559,167 was used primarily to finance an increase in accounts
receivable, due to increased sales.
Net cash used in investing activities during the three months ended March 31,
1996 of $104,421 was due to the purchase of new equipment.
Net cash provided by financing activities of $655,113 related primarily from the
Company's new credit facility. In February, 1996, the Company obtained a new
credit facility from Metrobank providing for a revolving line of credit through
May 1, 1997 for borrowings of up to $2,000,000 limited to 50% of eligible
accounts receivable. Interest under the line of credit is due monthly at prime
plus .5%. The credit facility also provides for a five year term loan of
$920,000 with principal payments and interest at prime plus .75% due monthly.
The credit facility is secured by a lien on substantially all of the assets of
the Company, and is additionally guaranteed by the principal stockholder. At May
2, 1996 borrowings under the revolving credit facility were repaid with proceeds
from the Company's IPO (see recent developments), and the balance of the term
loan was approximately $889,333.
The Company's accounts receivable and inventory were $2,213,166 and $2,383,624
respectively, at March 31, 1996. Accounts receivable increased $634,983 (40.2%)
and inventories increased $280,868 (13.4%) from December 31, 1995. These
increases were due primarily to increased sales for the recently ended quarter,
and the addition of inventory at the Atlanta, Georgia distribution center.
The Company believes that internally generated funds, the available borrowings
under its existing credit facilities and the proceeds from its initial public
offering will provide sufficient liquidity and enable it to meet its current and
foreseeable working capital requirements.
RECENT DEVELOPMENTS:
In April, 1996 the Company completed an initial public offering (IPO) of
1,000,000 shares of the Company's stock through underwriters led by Commonwealth
Associates and Cruttenden Roth Incorporated. Details of the offering may be
found in the Company's Prospectus dated April 2, 1996.
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<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
None
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<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrants caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
Bonded Motors, Inc.
/s/ Paul Sullivan
Dated: May 2, 1996 ______________________________
Paul Sullivan
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 105,262 (10,796)
<SECURITIES> 0 0
<RECEIVABLES> 2,258,395 0
<ALLOWANCES> 45,229 0
<INVENTORY> 2,383,624 0
<CURRENT-ASSETS> 5,360,636 0
<PP&E> 1,293,210 0
<DEPRECIATION> 1,036,653 0
<TOTAL-ASSETS> 6,132,611 0
<CURRENT-LIABILITIES> 3,305,510 0
<BONDS> 0 0
0 0
0 0
<COMMON> 212,500 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 6,132,611 0
<SALES> 4,205,375 2,396,033
<TOTAL-REVENUES> 4,205,375 2,396,033
<CGS> 3,297,046 2,019,377
<TOTAL-COSTS> 3,297,046 2,019,377
<OTHER-EXPENSES> 0 13,558
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 34,850 20,566
<INCOME-PRETAX> 274,046 (114,411)
<INCOME-TAX> 90,789 (14,000)
<INCOME-CONTINUING> 183,257 (100,411)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 183,257 (100,411)
<EPS-PRIMARY> 0.09 (0.05)
<EPS-DILUTED> 0 0
</TABLE>
