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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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 No. 001-11835
THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 33-0659916
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5915 Rodeo Road
Los Angeles, CA 90016
(Address of principal executive offices)
Issuer's telephone number, including area code: (310) 841-5200
Check whether the issuer (1) 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 and (2) has been subject to such filing requirements for the past 90
days. Yes x No
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State the number of shares of each of the issuer's classes of common stock as of
the latest practicable date: Common stock, $.01 par value, 4,391,770 shares
issued and outstanding on April 30, 1998.
Transitional Small Business Disclosure Format (check one): Yes No x
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THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 64 $ 92
Restricted cash -- 2,528
Accounts receivable, net 7,495 4,107
Inventories 3,592 3,742
Prepaid expenses and other current assets 583 659
-------- --------
Total current assets 11,734 11,128
Property and equipment, net of accumulated
depreciation of $1,751 and $1,589, respectively 5,971 6,235
Goodwill 5,038 5,078
Other assets 602 618
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$ 23,345 $ 23,059
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 1,084 $ 4,212
Accounts payable 6,192 4,875
Accrued liabilities 2,548 3,137
-------- --------
Total current liabilities 9,824 12,224
Long-term debt, less current installments 6,184 4,205
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 5,000 shares; none issued
Common stock, $.01 par value. Authorized 15,000 shares;
4,395 and 4,394 shares issued, respectively 44 44
Additional paid-in capital 12,196 12,194
Accumulated deficit (4,887) (5,237)
Treasury stock, at cost (16) (371)
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Total stockholders' equity 7,337 6,630
-------- --------
Total liabilities and stockholders' equity $ 23,345 $ 23,059
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</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------------
1998 1997
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<S> <C> <C>
Net sales $ 11,715 $ 7,152
Costs and expenses:
Materials 5,822 3,384
Manufacturing 2,513 1,769
Selling, general and administrative 2,351 1,433
Research and development 500 293
-------- --------
11,186 6,879
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Income from operations 529 273
Other income (expense):
Interest expense (207) (84)
Interest and other income 28 81
Minority interest -- 70
-------- --------
(179) 67
-------- --------
Income before income taxes 350 340
Income tax expense -- 66
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Net income $ 350 $ 274
======== ========
Net income per share:
Basic $ 0.08 $ 0.06
======== ========
Diluted $ 0.08 $ 0.06
======== ========
Weighted average number of shares:
Basic 4,355 4,281
======== ========
Diluted 4,540 4,457
======== ========
</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
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<S> <C> <C>
Cash flows from operating activities:
Net income $ 350 $ 274
Depreciation and amortization 355 217
Changes in assets and liabilities (excluding acquisitions):
Accounts receivable (3,388) (407)
Inventories 150 (745)
Prepaid expenses and other assets 76 (433)
Accounts payable and accrued liabilities 728 675
Income taxes payable -- 63
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Net cash used in operating activities (1,729) (356)
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Cash flows from investing activities:
Purchase of property and equipment, net of dispositions (7) (245)
Cash paid for acquisition -- (6,371)
------- -------
Net cash used in investing activities (7) (6,616)
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Cash flows from financing activities:
Borrowings under revolving credit lines 9,180 7,684
Repayments of revolving credit lines (7,165) (4,989)
Repayment of term loans (73) (28)
Repayment of other notes payable (591) --
Issuance of common stock 357 --
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Net cash provided by financing activities 1,708 2,667
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Decrease in cash and cash equivalents (28) (4,305)
Cash and cash equivalents at beginning
of period 92 4,655
------- -------
Cash and cash equivalents at end of period $ 64 $ 350
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</TABLE>
(See accompanying notes to condensed consolidated financial statements)
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THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The information contained in the consolidated financial statements
and footnotes is condensed from that which would appear in the Company's annual
consolidated financial statements. Accordingly, these condensed consolidated
financial statements should be reviewed in conjunction with the consolidated
financial statements and related notes contained in the Annual Report on Form
10-KSB for the year ended December 31, 1997, filed with the Securities and
Exchange Commission. The unaudited condensed consolidated financial statements
as of March 31, 1998 and for the three-month periods ended March 31, 1998 and
1997 include all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
The condensed consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries, Culver City Composites
Corporation and Grafalloy Corporation. All significant intercompany accounts and
transactions have been eliminated.
2. New Accounting Standard
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Statement requires that all items recognized under accounting standards as
components of comprehensive earnings be reported in an annual financial
statement. It also requires that an entity classify items of other comprehensive
earnings (e.g., foreign currency translation adjustments and unrealized gains
and losses on certain marketable securities) by their nature in an annual
financial statement. The Company's total comprehensive earnings for the three
month periods ended March 31, 1998 and 1997 were the same as reported net income
for those periods.
3. Net Income per Share
Net income per share data for the periods ended March 31, 1998 and
1997 were computed using the following weighted average common share amounts (in
thousands):
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Weighted average common shares outstanding 4,355 4,281
Dilutive effect of employee stock options and warrants 185 176
----- -----
Weighted average shares outstanding, assuming dilution 4,540 4,457
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</TABLE>
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THE AMERICAN MATERIALS & TECHNOLOGIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollar amounts in thousands, except per share)
RESULTS OF OPERATIONS
The American Materials & Technologies Corporation ("AMT" or "the
Company") was incorporated in March 1995 to acquire and manage businesses in the
advanced materials and technologies industries. AMT acquired Culver City
Composites Corporation ("CCC"), a supplier of prepreg materials to the aerospace
industry, on December 19, 1995, and Grafalloy Corporation ("Grafalloy"), a
manufacturer of graphite golf club shafts, on February 27, 1997. The results of
operations of the acquired companies are included in the Company's financial
statements from the respective dates of acquisition.
Three months ended March 31, 1998 compared to three months ended March 31, 1997
Sales for the quarter ended March 31, 1998 were $11,715, an increase
of 64% over sales of $7,152 in the corresponding quarter of 1997. Adjusting to
include sales by Grafalloy for the entire first quarter of 1997, the increase in
sales was 32%. Sales for CCC rose 27% compared to the prior year period,
reflecting higher shipments to its aerospace customers and the addition of new
business. Grafalloy's sales growth resulted in part from the addition of two
original equipment manufacturers as customers.
The Company's sales increased 81% compared to the fourth quarter of
1997. That period was marked by depressed aerospace sales because of production
slowdowns at The Boeing Company, and lower sales at Grafalloy caused by seasonal
factors.
Gross profit (net sales less materials and manufacturing costs) was
$3,380 in the first quarter of 1998, an increase of 69% over the gross profit of
$1,999 in the first quarter of 1997. As a percentage of sales, gross profit
improved to 28.9% in the first quarter of 1998 compared to 28.0% in the first
quarter of 1997, reflecting the addition of the higher margin Grafalloy
business. The cost of materials increased as a percentage of sales, but this was
more than offset by lower manufacturing costs as a percentage of sales, as fixed
costs were spread over a larger sales base.
Selling, general and administrative expenses were $2,351 in the
first quarter of 1998, an increase of 64% compared to $1,433 in the prior year's
first quarter. This percentage increase was equal to the percentage increase in
sales. Sales and marketing costs declined as a percentage of sales, but general
and administrative costs rose in relation to sales because of increased goodwill
amortization and higher investor relations and legal expenses.
Research and development expenses rose to $500 for the quarter, an
increase of 71% compared to the first quarter of 1997. The Company has continued
to expand its product
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development activities and its efforts to qualify existing and new products with
customers in the aerospace industry.
Operating income for the first quarter of 1998 was $529, an increase
of 94% over operating income of $273 in the comparable period of 1997. This
growth exceeded the percentage increase in sales, as certain fixed
manufacturing, sales, and marketing costs were spread over the larger sales
base.
Interest expense rose 146% to $207 in the quarter ended March 31,
1998, reflecting the Company's significantly higher debt levels following the
purchase of Grafalloy in February 1997. Similarly, interest income declined
substantially compared to the first quarter of 1997, as cash balances available
in the first two months of 1997 were used in the Grafalloy purchase.
No provision for income taxes is required in 1998 because of the
availability of net operating loss carryforwards. Taxes were accrued at a rate
of 19% in the first quarter of 1997.
Net income for the quarter ended March 31, 1998 was $350, an
increase of 28% over net income of $274 in the corresponding quarter of 1997.
Diluted earnings per share were $0.08 in the first quarter of 1998 compared to
$0.06 in the corresponding 1997 period.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations in the first quarter of 1998 was $1,729,
primarily because of the substantial increase in accounts receivable compared to
December 31, 1997. This was financed by advances on the Company's lines of
credit. Working capital increased to $1,910 at March 31, 1998, compared to a
deficit of $1,096 at December 31, 1997, while long-term debt increased by
$1,979.
In January 1998 the Company issued 172,582 shares of common stock
(from shares held in treasury) upon the exercise of employee stock options.
Payment was made by the cancellation of notes payable of $345.
At March 31, 1998, a total of $5,565 was borrowed under the
Company's revolving credit lines, and approximately $1,000 was available based
on eligible collateral. The Company was in compliance with the financial
covenants in its credit agreements at March 31, 1998. The Company has negotiated
extended payment terms with several of its major suppliers.
At December 31, 1997, the Company had a net operating loss
carryforward for federal income tax purposes of $3,900 available to offset
taxable income of the Company through 2012. Additional carryforwards of
approximately $32,165 are available as a result of the acquisition of CCC in
December 1995. The change-in-ownership provisions of Section 382 of the Internal
Revenue Code limit the amount available to offset future taxable income to
approximately $500 per year through 2010.
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FUTURE OPERATING RESULTS
The matters discussed in this Form 10-QSB other than historical
material are forward-looking statements under the federal securities laws. The
Company advises readers not to place undue reliance on such statements in light
of the risks and uncertainties to which they are subject. Actual events or
results may differ materially as a result of risks and uncertainties facing the
Company, including:
Competition - The Company encounters significant competition in
domestic markets from a number of well-established manufacturers in each of its
product lines, and from foreign sources for some products. In most product
markets the Company faces competition from other manufacturers that have larger
market shares or other competitive advantages.
Pricing Pressures - The aerospace and defense industries have seen
increased concentration in recent years as a result of a number of business
combinations. These larger companies are in a position to negotiate favorable
pricing terms from their suppliers, including the Company. The Company's ability
to maintain its profit margins will depend on the technical and functional
features of its products and the development of new products.
Dependence on Major Customers - Approximately 29% of the Company's
sales in 1997 were made to three customers. The loss of a significant amount of
business from any of these customers would have a material adverse effect on the
sales and operating results of the Company.
Cyclical Nature of the Aerospace Industry - The aerospace industry,
including transportation and communications, accounted for approximately 60% of
the Company's sales in 1997. This industry historically has been subject to
cyclical downturns. For example, after increasing each year from 1985 to 1991,
annual revenues in the aerospace industry dropped significantly in 1992 and
remained depressed through late 1995.
Raw Material Costs - In the past few years, prices paid by the
Company for certain raw materials, such as fabric and resins, have fluctuated.
When prices have increased, the Company has not always been able to pass along
the full effect of such increases to its customers in order to maintain or
enhance its market position.
New Products - The Company's future results will depend in part on
its ability to enhance its existing products and to introduce new products on a
timely and cost-effective basis that meet evolving customer requirements. Delays
in introduction or a disappointing market acceptance could have an adverse
effect on the Company's business.
Government Regulation - The Company must comply with a number of
federal and state environmental regulations. Although these regulations have not
had a significant adverse effect on the overall operations of the Company, the
costs of compliance could increase in future years.
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International Operations - A small but increasing portion of the
Company's sales in recent years has been derived from its international
operations. The Company's operating results could be significantly affected by
such factors as foreign exchange fluctuations, difficulties in staffing and
managing foreign operations, and other risks associated with international
activities.
The Company disclaims any obligation to update any of the factors
that may affect future operating results or to announce publicly the result of
any revisions to any of the forward-looking statements contained in this Form
10-QSB, or to make corrections to reflect future events or developments.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Number Description
- ------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1998.
9
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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.
THE AMERICAN MATERIALS &
TECHNOLOGIES CORPORATION
Date: May 7, 1998 /s/ James L. Russell
--------------------------------
James L. Russell
Vice President and
Chief Financial Officer
(Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE CONDENSED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 64
<SECURITIES> 0
<RECEIVABLES> 8,051
<ALLOWANCES> 556
<INVENTORY> 3,592
<CURRENT-ASSETS> 11,734
<PP&E> 7,722
<DEPRECIATION> 1,751
<TOTAL-ASSETS> 23,345
<CURRENT-LIABILITIES> 9,824
<BONDS> 6,184
0
0
<COMMON> 44
<OTHER-SE> 7,293
<TOTAL-LIABILITY-AND-EQUITY> 23,345
<SALES> 11,715
<TOTAL-REVENUES> 11,715
<CGS> 8,335
<TOTAL-COSTS> 11,186
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 207
<INCOME-PRETAX> 350
<INCOME-TAX> 0
<INCOME-CONTINUING> 350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 350
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
