SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB/A
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________
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
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(Address of principal executive offices) Zip Code
Issuer's telephone number: (213) 583-8631
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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 3,066,040 shares of common stock outstanding at October 22, 1998.
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PART I - FINANCIAL INFORMATION
Item 2. 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 nine months and three months ended September 30, 1998
increased $12,693,045 or 70.8% and $4,230,487 or 64.3%, respectively, over
the comparable periods a year earlier. For such nine month periods the
increase was from $17,924,622 to $30,617,667 and for such three month periods
the increase was from $6,576,528 to $10,807,015. These increases are
attributable to internal growth with the Company's traditional customer base,
and the addition of Genuine Parts/NAPA, for whom the Company is now the
primary remanufactured engine supplier. In March, 1998, the Company closed
its Harrisburg, Pennsylvania distribution center and transferred those goods
to its new Albany, New York distribution center. (its Macon, Georgia
manufacturing plant was purchased in August, 1997, its Auburn, Washington
distribution center was opened in December, 1994 , its Cincinnati, Ohio
distribution center was opened in August, 1996, and its Denver, Colorado
distribution center was opened in January, 1997.)
Cost of goods sold for the nine and three months ended September 30, 1998
increased $10,167,811 or 71.2% and $3,117,791 or 56.6%, respectively, over the
comparable periods a year earlier. For such nine month periods the increase
was from $14,272,545 to $24,440,356 and for such three month periods the
increase was from $5,504,917 to $8,622,708. These increases are attributable
to additional costs during the recent periods in connection with increased
production. Cost of goods sold as a percentage of net sales increased over
the nine month periods from 79.6% to 79.8% and decreased over the three month
periods from 83.7% to 79.8%. The Company believes that this increase in cost
of goods sold for the nine months ended is primarily attributable to the labor
and overhead costs associated with the expansion of the Company's production
capacity, as well as expensed start-up costs associated with the new Macon,
Georgia manufacturing facility. The decrease in costs for the three months
periods was due primarily to more efficient materials handling and to a
greater absorption of direct labor and related overhead expenses as a result
of increased production.
Selling, general and administrative expenses for the nine and three months
ended September 30, 1998 increased $1,440,472 or 52.1% and $328,343 or 32.6%,
respectively, over the comparable periods a year earlier. Selling, general
and administrative expenses as a percentage of sales decreased from 15.4% to
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13.7% for the comparable nine month periods and decreased from 15.3% to 12.4%
for the comparable three month periods. The decreases are primarily
attributable to higher revenues.
Earnings from operations for the nine and three months ended September 30, 1998
increased $1,084,762 or 122.0% and increased $784,353 or 1241.7%, respectively,
over the comparable periods a year earlier.
Interest expense for the nine month and three months ended September 30, 1998
increased $268,241 or 278.4% and increased $59,097 or 118.7%, respectively,
over the comparable periods a year earlier. The increase was primarily
attributable to borrowings for the nine months ended September 30, 1998 due
to a build up of inventory and accounts receivable, which are attributable to
sales increases and due to the acquisition of Wheeler Manufacturing.
Pre-tax income for the nine and three months ended September 30, 1998 increased
$811,740 or 101.2% for the nine month periods and increased $726,360 or 5063.9%
for the three month periods from the year earlier. After tax earnings increased
$158,986 or 17.2% for the nine month periods and increased $265,830 or 125.2%
for the three month periods from a year earlier, due to the items mentioned
above.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's operations have been financed principally by borrowings under a
bank credit facility and cash flows from operations. At September 30, 1998,
the Company's working capital was $11,419,099.
Net cash used by operating activities during the nine months ended
September 30, 1998 of $1,313,879 was primarily to finance an increase in
accounts receivable and inventory, due to increased sales during the period.
Net cash used by investing activities for the nine month periods ended
September 30, 1998 of $772,417 was primarily for the purchase of new equipment.
Net cash provided by financing activities for the nine month periods ended
September 30, 1998 of $1,935,395 was primarily from recent borrowings from the
bank, and cash received upon the exercise of stock options.
In January 1998, the Company entered into an amended credit agreement
(Agreement) providing for a revolving line of credit for borrowings up to
$7,500,000 through May 1, 2000. Borrowings under the Agreement bear
interest at LIBOR (5.84% at December 31, 1997) plus 2.0% or at prime (8.5% at
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December 31, 1997). Borrowings under the line of credit are secured by the
Company's assets. Total amounts outstanding under the revolving line of credit
at September 30, 1998 were $5,213,131. The Company had available borrowings
under the line of credit of $2,286,869 at September 30, 1998.
The Agreement also provides for an acquisition facility for borrowings up to
$8,000,000 for a period of two years from the date of funding. This facility
is to be used for general corporate purposes and in the event the Company
enters into an acquisition in the automotive industry. Borrowings under the
credit agreement bear interest at prime plus 0.25% or LIBOR plus 2.25% or cost
of funds plus 2.25% and are secured by the assets of the Company and of the
acquired company. At September 30, 1998, $721,787 had been drawn down and
were outstanding under this facility. The Company had available borrowings
under this facility of $7,278,213 at September 30, 1998.
The Company's accounts receivable as of September 30, 1998 was $5,158,162.
This represents an increase of $1,429,632 or 38.3% over accounts receivable
on December 31, 1997, and is due to increased sales.
The Company's inventory as of September 30, 1998 was $9,895,959 which
represents an increase of $2,618,998 or 36.0% over inventory as of
December 31, 1997. The increase is primary attributable to the Company's
increasing finished goods inventory at all distribution centers. In addition,
the Company maintains a large inventory at its Los Angeles facility in
anticipation of increased demand for the Company's products in 1998.
In 1996 and prior years, quarterly inventory values were estimated based upon
historical values. At fiscal year ended December 31, 1996, a physical
inventory was taken and an adjustment of $447,977 to inventory valuations
was made. Because quarterly physical inventories were not taken throughout
1996, no quarterly adjustments could be calculated.
Beginning the first quarter of 1997, physical inventories have been taken on a
quarterly basis, resulting in no significant inventory valuation adjustment at
year ended 1997. This procedure continues throughout 1998.
Year 2000
Many computer systems experience problems handling dates beyond the year 1999.
Therefore, some computer hardware and software will need to be modified prior
to the year 2000 in order to remain functional. The Company is assessing the
internal readiness of its computer systems for handling the year 2000. The
Company expects to implement successfully the systems programming changes
necessary to address year 2000 issues, and does not believe that the cost
of such actions will have a material effect on the Company's results of
operations or financial condition. There can be no assurance, however, that
there will not be delay in, or increased costs associated with the
implementation of such changes, and the inability to implement such changes
could have an adverse effect on future results of operations.
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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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
None
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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.
Dated: October 22, 1998 By:/S/PAUL SULLIVAN
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Paul Sullivan
Chief Financial Officer
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