<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ---- to ----
Commission file number 001-12127
EMPIRE RESOURCES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 22-3136782
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
One Parker Plaza
Fort Lee, NJ 07024
(Address of Principal Executive Offices)
201 944-2200
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 15,211,962 shares of common
stock outstanding as of April 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]
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EMPIRE RESOURCES, INC.
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 2000
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheet as of March 31, 2000
(unaudited)......................................................4
Condensed Consolidated Statements of Operations for the Three
Months Ended March 31, 1999 and 2000 (unaudited).................5
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1999 and 2000 (unaudited).................6
Notes to Condensed Consolidated Financial Statements(unaudited)..7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................9
PART II OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K................................11
Signatures......................................................11
2
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Introduction
The condensed consolidated interim financial statements included herein
have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission with respect to Form
10-QSB. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to such rules and regulations. In the
opinion of management, such financial statements reflect all adjustments
necessary for a fair presentation of the results for the interim periods
presented and to make such financial statements not misleading. The results of
operations of the Company for the three months ended March 31, 2000 are not
necessarily indicative of the results to be expected for the full year. It is
suggested that these interim financial statements be read in conjunction with
the consolidated financial statements and the notes thereto included in the
Company's Form 10-KSB for the year ended December 31, 1999.
3
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Empire Resources, Inc.
Condensed Consolidated Balance Sheet (Unaudited)
March 31
2000
-------------
ASSETS
Current assets:
Cash $ 55,551
Trade accounts receivable, net 31,158,038
Inventories 28,106,524
Other current assets 307,471
-------------
Total current assets 59,627,584
Furniture and equipment 308,770
Less: accumulated depreciation (250,533)
-------------
Net furniture and equipment 58,237
Deferred financing costs, net 35,079
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$ 59,720,900
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable -- banks $ 32,700,000
Trade accounts payable 14,965,027
Accrued expenses 1,774,713
Distribution payable to former stockholders 46,482
-------------
Total current liabilities 49,486,222
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Commitments
Stockholders' equity
Preferred stock
$.01 par value, 5,000,000 shares authorized;
none issued and outstanding
Common stock
$.01 par value; 40,000,000 shares authorized;
15,580,862 shares issued and outstanding,
including 3,824,511 shares held in escrow 155,809
Additional paid in capital 10,013,556
Cumulative translation adjustment 51,166
Retained earnings 527,357
Treasury stock (367,600 shares) (513,210)
-------------
Total stockholders' equity 10,234,678
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$ 59,720,900
=============
See notes to financial statements
4
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Empire Resources, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31,
--------------------------------
2000 1999
------------ ------------
Net sales $ 31,101,411 $ 21,132,340
Cost of goods sold 28,708,807 19,485,713
------------ ------------
Gross profit 2,392,604 1,646,627
Selling, general and administrative expenses 1,185,857 730,218
------------ ------------
Operating income 1,206,747 916,409
Interest expense 539,852 462,723
------------ ------------
Income before income taxes 666,895 453,686
Income taxes 257,811 6,414
------------ ------------
Net income $ 409,084 $ 447,272
============ ============
Income before income taxes $ 453,686
Pro forma income taxes 176,938
------------
Pro forma net income $ 276,748
============
Weighted average shares outstanding--basic 11,388,751 5,560,250
Weighted average shares outstanding--diluted 11,489,387 5,560,250
Earnings per share -- basic $ 0.04
Earnings per share -- diluted $ 0.04
Pro forma earnings per share -- basic $ 0.05
Pro forma earnings per share -- diluted $ 0.05
See notes to financial statements
5
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Empire Resources, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 409,084 $ 447,272
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 17,809 10,654
Translation adjustment 15,014 (7,031)
Transfer of restricted shares to key employee 88,959 --
Changes in:
Trade accounts receivable (5,202,314) 1,789,490
Inventories (8,744,316) (675,500)
Other current assets 461,503 (37,050)
Trade accounts payable 6,860,882 (3,602,439)
Accrued expenses 3,248 (330,085)
------------- -------------
Net cash used in operating activities (6,090,131) (2,404,689)
------------- -------------
Cash flows from investing activities:
Additions to fixed assets -- (8,783)
------------- -------------
Net cash (used in) investing activities -- (8,783)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable--banks 6,400,000 3,150,000
Distributions to stockholders -- (550,000)
Purchase of treasury stock (454,109) --
------------- -------------
Net cash provided by financing activities 5,945,891 2,600,000
------------- -------------
Net (decrease) increase in cash (144,240) 186,528
Cash at beginning of period 199,791 147,719
------------- -------------
Cash at end of period $ 55,551 $ 334,247
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 583,795 $ 368,384
============= =============
Income taxes $ 104,765 $ 3,244
============= =============
Non-cash financing activity
Notes payable to former stockholders--distribution -- $ 10,922,475
============= =============
</TABLE>
See notes to financial statements
6
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Empire Resources, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
1. The Company
The Company (as defined below) is engaged principally in the purchase, sale and
distribution of nonferrous metals to a diverse customer base located throughout
North America and Australia. The Company sells its products through its own
marketing and sales personnel and through its independent sales agents located
in the U.S. who receive commissions on sales. The Company purchases from a wide
array of suppliers located throughout the world.
2. Basis of Presentation
Empire Resources, Inc., formerly known as Integrated Technology USA, Inc.,
("Integrated" or the "Company") was incorporated in 1990. On February 22, 1999,
the Company signed a merger agreement with Empire Resources, Inc. ("Empire"), a
distributor of value added, semi-finished aluminum products. Under the terms of
the Agreement and Plan of Merger, effective September 17, 1999, Empire was
merged with and into the Company.
Upon completion of the merger, the Company changed its name to Empire Resources,
Inc. The merged company is continuing the business of Empire.
In conjunction with the merger, Empire Resources Pacific Ltd.
("Empire-Pacific"), an affiliate of Empire Resources, Inc. operating in
Australia, became a wholly owned subsidiary of Empire in a combination of
companies under common control, which was accounted for at historical cost in a
manner similar to that in a pooling of interests.
In addition, the Company has other two wholly owned subsidiaries, I.T.I.
Innovative Technology, Ltd. ("Innovative") and CompuPrint Ltd. ("CompuPrint"),
both of which are incorporated in Israel and are presently inactive.
For accounting and other financial reporting purposes, the merger has been
treated as a "reverse acquisition." Under this treatment, the surviving
corporation has been treated as a continuation of Empire, and the merger has
been treated as an issuance of shares by Empire to the stockholders of
Integrated in exchange for Integrated's cash. Accordingly, the accompanying
condensed financial statements are the historical financial statements of Empire
and Empire Resources Pacific Ltd., and include the results of operations of
Integrated and the subsidiaries only from the September 17, 1999 merger date.
All significant intercompany transactions and accounts have been eliminated.
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3. Use of estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities at the date of the
financial statements and the reported amount of income and expenses during the
reported period. Actual results could differ from these estimates.
4. Income Taxes and Pro Forma Income Taxes
Empire had elected S corporation status for federal income tax purposes, and
accordingly was not subject to federal tax on its income for periods prior to
the merger with Integrated on September 17, 1999. Income tax expense for periods
prior to the merger date represents state and local taxes.
Pro forma income tax expense represents the provision for income taxes as if
Empire had been a C corporation for the three months ended March 31, 1999.
5. Inventories
Inventories consist of semi-finished aluminum products stored in warehouses or
in transit.
6. Notes Payable--Banks
The Company, on March 13, 2000 and May 12, 2000, entered into amendments of its
revolving credit agreement with two commercial banks under which its line of
credit was increased from $45 million to $50 million until July 31, 2000,
reverting after that date to $45 million. In connection with this modification,
certain of the Company's covenants and ratio requirements were also modified.
Borrowings under this line of credit are collateralized by security interests in
substantially all assets of the Company.
7. Earnings Per Share
Three months ended
March 31,
2000 1999
---- ----
Weighted average shares
outstanding - basic 11,388,751 5,560,250
Dilutive effect of stock
options and warrants 100,636
Weighted average shares
outstanding - diluted 11,489,387 5,560,250
Basic earnings per share for the 2000 period are based upon the Company's number
of common shares outstanding during such period. Earnings per share for the 1999
period are based upon the number of shares of the Company's common stock issued
to the former Empire stockholders in the merger, excluding the 3,824,511 shares
which were placed in escrow.
Diluted earnings per share and pro forma diluted earnings per share are based
upon the weighted average number of common shares outstanding during each
period, assuming the issuance of common shares for all dilutive potential common
shares outstanding during the period.
8
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Empire is a distributor of value added, semi-finished aluminum
products. Consequently, Empire's sales volume has been, and will continue to be,
a function of its ongoing ability to secure quality aluminum products from its
suppliers.
Results of Operations
The merger between Integrated and Empire was completed on September 17,
1999 ("the Merger"). This discussion and analysis compares the results of the
Company for the first quarter of 2000 with Empire's results for the first
quarter of 1999, which was before the date of the Merger. For accounting and
other financial reporting purposes, the Merger has been treated as a "reverse
acquisition." Under this treatment, the Company has been treated as a
continuation of Empire, and the Merger has been treated as an issuance of shares
by Empire to the stockholders of Integrated in exchange for Integrated's cash.
Accordingly, the accompanying financial statements include the historical
financial statements of Empire and Empire-Pacific, and include the results of
operations of the Company only from September 17, 1999, the effective date of
the Merger.
Net sales increased $10.0 million or 47% from $21.1 million in the
first quarter of 1999 to $31.1 million in the first quarter of 2000. The
increase in sales represents an increase in mill availability for export from
existing supply relationships combined with the introduction of new suppliers
and new product lines in the latter part of 1999 and the early part of 2000.
Gross profit increased $.7 million or 45% from first quarter 1999 to
first quarter 2000 as a result of the increase in sales. Gross profit as a
percentage of sales was relatively constant period to period.
Selling, general and administrative expenses increased from $.7 million
to $1.2 million, or 62%, as a result of a non-cash compensation charge of $0.1
million, increased staffing costs associated with customer service enhancements,
costs related to employment contracts with certain executive officers, and costs
related to professional fees as a public company.
Interest expense rose $.1 million or 17% from first quarter 1999 to
first quarter 2000, related to higher levels of outstanding bank indebtedness
required in order to fund the Company's working capital requirements.
Income before income taxes rose $.2 million or 47% from $.5 million to
$.7 million.
Income taxes were $251,397 higher in first quarter 2000 than in first
quarter 1999 due to the change in the tax status of the Company. Prior to the
Merger, Empire had been taxed as an S corporation for Federal income tax
purposes. In general, the income or loss of an S corporation is passed through
to its owners rather than being subject to tax at the entity level. Post Merger
the Company has been taxed as a C corporation. As a result, first quarter 1999
income taxes reflect only state and local income tax, while first quarter 2000
taxes reflect both federal and state and local taxes. Consequently, the Company
has presented pro-forma income taxes as if the Company had been taxed as a C
corporation for the 1999 period, together with the resulting pro-forma net
income for that period.
The Company reported net income of $409,084 for first quarter 2000
compared to net income of $447,272 for first quarter 1999. The change in the
Company's income tax status had a significant impact on net income. The net
income for first quarter 2000 was 48% greater than pro forma net income, net of
pro forma income taxes for first quarter 1999 of $276,748.
9
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Distribution of Surplus Net Worth, Distribution of Promissory Notes and
Restricted Stock Agreement
In February 1999, Empire determined to distribute to the former Empire
stockholders an amount ("Surplus Net Worth") equal to 60% of the
pre-distribution total fair value of Empire's business and net assets , but in
no event more than the total stockholders' equity of Empire as shown on the
balance sheet of Empire as of December 31, 1998 (or $10,922,475). Empire carried
out the foregoing through the distribution to the Empire stockholders of two
promissory notes in the aggregate principal amount of $10,922,475, bearing
interest at the rate of 6% per annum. These notes were paid in full in September
and October of 1999.
In conjunction with the Merger, The Company and Nathan and Sandra Kahn,
the former stockholders of Empire, entered into a restricted stock agreement
with the Vice President of Sales of the Company, (the "VP"). Pursuant to the
restricted stock agreement, the Kahns have transferred to the VP 469,238 shares
("Restricted Shares") of common stock of the Company which represents a portion
of the shares that were received by the Kahns in the Merger.
The transfer of the Restricted Shares from the Kahns to the VP did not
involve the issuance of any shares or any cash expenditure by the Company.
However, under applicable accounting rules, such transfer is being treated the
same as if the Company had issued such shares to the VP as compensation for
services and, accordingly, the Company is required to recognize an expense
relating thereto.
Please refer to the Company's Form 10-KSB for the fiscal year ended
December 31, 1999 for a more detailed discussion of these events and their
effect on the financial statements of the Company.
Liquidity and Capital Resources
Empire currently operates under a revolving line of credit, including a
commitment to issue letters of credit, with two commercial banks. The available
line was $50 million as of March 31, 2000. Borrowings under these lines of
credit are collateralized by security interests in substantially all of Empire's
assets. Under these credit agreements, Empire is required to maintain working
capital and net worth ratios. These facilities expire on June 30, 2001. As of
March 31, 2000, the amount outstanding under Empire's revolving lines of credit
was $32.7 million, and outstanding letters of credit amounted to $11.4 million.
Management believes that cash from operations, together with funds
available under its credit facility, will be sufficient to fund the cash
requirements relating to the Company's existing operations for the next twelve
months. Empire may require additional debt or equity financing in connection
with the future expansion of its operations.
Commitments and Contingencies
Empire has contingent liabilities in the form of letters of credit to
some of its suppliers. As of March 31, 2000, Empire's outstanding letters of
credit amounted to $11.4 million.
Under the terms of some of its supply contracts, the Company is
required to take minimum tonnages as specified in those contracts. As a result,
the Company could, under certain circumstances, be forced to sell the required
tonnage at a loss.
Forward Looking Statements
This report contains certain forward-looking statements reflecting
management's current views with respect to future events and financial
performance. These forward looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those in
the forward looking statements, all of which are difficult to predict and many
of which are beyond the control of the Company.
10
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PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is furnished with this report:
27.1 Financial Data Schedule
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 hereunto duly authorized.
EMPIRE RESOURCES, INC.
By: /s/ Sandra Kahn
-----------------------------
Sandra Kahn
Chief Financial Officer
(signing both on behalf of the registrant and in her capacity as Principal
Financial and Principal Accounting Officer)
Dated: May 15, 2000
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements and is qualified in its entirety by reference
to such consolidated financial statements and notes.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 55,551
<SECURITIES> 0
<RECEIVABLES> 31,283,826
<ALLOWANCES> 125,788
<INVENTORY> 28,106,524
<CURRENT-ASSETS> 59,627,584
<PP&E> 308,770
<DEPRECIATION> 250,533
<TOTAL-ASSETS> 59,720,900
<CURRENT-LIABILITIES> 49,486,222
<BONDS> 0
0
0
<COMMON> 155,809
<OTHER-SE> 10,078,869
<TOTAL-LIABILITY-AND-EQUITY> 59,720,900
<SALES> 31,101,411
<TOTAL-REVENUES> 31,101,411
<CGS> 28,708,807
<TOTAL-COSTS> 28,708,807
<OTHER-EXPENSES> 1,185,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 539,852
<INCOME-PRETAX> 666,895
<INCOME-TAX> 257,811
<INCOME-CONTINUING> 409,084
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 409,084
<EPS-BASIC> $0.04
<EPS-DILUTED> $0.04
</TABLE>
