<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 September 30, 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: 15,093,762 shares of common
stock outstanding as of November 1, 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 SEPTEMBER 30, 2000
INDEX
Page
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2000
(unaudited).........................................................4
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 30, 2000 and 1999
(unaudited).........................................................5
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2000 and 1999
(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 4 Submission of Matters to a Vote of Security Holders................12
Item 6 Exhibits and Reports on Form 8-K...................................13
Signatures.........................................................13
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 nine months ended September 30, 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)
SEPTEMBER 30,
2000
ASSETS
Current assets:
Cash $ 1,315,487
Trade accounts receivable, net 41,358,721
Inventories 23,280,508
Other current assets 867,907
------------
Total current assets 66,822,623
Furniture and equipment 328,076
Less: accumulated depreciation (269,380)
------------
Net furniture and equipment 58,696
Deferred financing costs, net 21,051
------------
$ 66,902,370
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Notes payable -- banks $ 40,000,000
Trade accounts payable 15,007,500
Accrued expenses 615,831
Distribution payable to former stockholders 46,482
------------
Total current liabilities 55,669,813
------------
Commitments
Stockholders' equity
Preferred stock
$.01 par value, 5,000,000 shares authorized;
none issued.
Common stock
$.01 par value; 40,000,000 shares authorized;
15,580,862 shares issued, including
3,824,511 shares held in escrow 155,809
Additional paid in capital 10,183,386
Cumulative translation adjustment 71,402
Retained earnings 1,468,021
Treasury stock (382,800 shares) (646,061)
------------
Total stockholders' equity 11,232,557
------------
$ 66,902,370
============
See notes to financial statements
4
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Empire Resources, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $ 52,383,189 $ 32,887,222 $ 122,094,835 $ 79,172,162
Cost of goods sold 49,415,465 30,372,855 113,882,602 73,297,199
------------ ------------- ------------- ------------
Gross profit 2,967,724 2,514,367 8,212,233 5,874,963
Selling, general and administrative expenses 1,300,825 816,163 3,827,874 2,304,283
------------ ------------- ------------ ------------
Operating income 1,666,899 1,698,204 4,384,359 3,570,680
Interest expense 878,312 701,668 2,175,016 1,678,914
------------ ------------- ------------ ------------
Income before income taxes 788,587 996,536 2,209,343 1,891,766
Income taxes 310,236 59,125 859,593 72,535
------------ ------------- ------------ ------------
Net income $ 478,351 $ 937,411 $ 1,349,750 $ 1,819,231
============ ============= ============= ============
Income before income taxes $ 996,536 $ 1,891,766
Pro forma income taxes 378,684 718,871
------------- ------------
Pro forma net income $ 617,852 $ 1,172,895
============= ============
Weighted average shares outstanding--basic 11,291,435 6,427,774 11,396,496 5,852,602
Weighted average shares outstanding--diluted 11,390,451 6,464,743 11,494,711 5,865,061
Earnings per share -- basic $ 0.04 $ 0.12
Earnings per share -- diluted $ 0.04 $ 0.12
Pro forma earnings per share -- basic $ 0.10 $ 0.20
Pro forma earnings per share -- diluted $ 0.10 $ 0.20
</TABLE>
See notes to financial statements
5
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Empire Resources, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,349,750 $ 1,819,231
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 50,684 37,213
Translation adjustment 35,250 12,244
Transfer of restricted shares to key employee 258,789 ----
Changes in:
Trade accounts receivable (15,402,997) (4,489,686)
Inventories (3,918,300) (4,093,092)
Other current assets (98,945) (704,703)
Deferred financing costs ---- (58,462)
Trade accounts payable 6,903,355 2,345,595
Accrued expenses (1,155,637) 932,756
------------- -------------
Net cash used in operating activities (11,978,051) (4,198,904)
------------- -------------
Cash flows from investing activities:
Additions to fixed assets (19,293) (21,886)
------------- -------------
Net cash used in investing activities (19,293) (21,886)
------------- -------------
Cash flows from financing activities:
Proceeds from notes payable--banks 13,700,000 8,000,000
Distributions to stockholders ---- (11,801,059)
Distributions payable to former stockholders ---- 46,482
Net cash acquired upon merger ---- 9,950,000
Payment of merger costs ---- (569,258)
Purchase of treasury stock (586,960) ----
------------- -------------
Net cash provided by financing activities 13,113,040 5,626,165
------------- -------------
Net increase in cash 1,115,696 1,405,375
Cash at beginning of period 199,791 147,719
------------- -------------
Cash at end of period $ 1,315,487 $ 1,553,094
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,219,617 $ 1,605,809
============= =============
Income taxes $ 737,745 $ 32,500
============= =============
Non-cash financing activity
Notes payable to former stockholders--distribution -- $ 152,898
============= =============
</TABLE>
See notes to financial statements
6
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Empire Resources, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
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1. The Company
The Company (as defined below) is engaged principally in the purchase, sale and
distribution of primarily semi-finished aluminum products 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 suppliers located throughout the world.
2. Organization and 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 two other 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 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, which have been minimal, of
Integrated and its 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 and nine months ended
September 30, 1999.
5. Inventories
Inventories consist of semi-finished aluminum products stored in warehouses or
in transit.
6. Notes Payable--Banks
The Company operates under a line of credit with two commercial banks. During
2000 the Company amended its revolving credit agreement under which its line of
credit was increased from $45 million to $50 million until November 30, 2000.
This temporary increase will revert after that date to the original agreement
amount of $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 Nine months ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Weighted average shares
outstanding - basic 11,291,435 6,427,774 11,396,496 5,852,602
Dilutive effect of stock
options and warrants 99,016 36,969 98,215 12,459
Weighted average shares
outstanding - diluted 11,390,451 6,464,743 11,494,711 5,865,061
8
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Basic earnings per share for the 2000 periods are based upon the Company's
number of common shares outstanding during such periods. For 1999 periods prior
to the merger, earnings per share are based on 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. The 1999 periods
subsequent to the merger include the shares of the former Integrated Technology
stockholders in the calculation of earnings per share.
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. New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 will require the Company to record
all derivatives as assets or liabilities at fair value. The statement requires
that changes in the derivatives' fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS 133 is effective for all
fiscal quarters of all fiscal years beginning after June 15, 2000. The impact of
SFAS 133 on the Company's financial statements will depend on a variety of
factors, including the extent of the Company's hedging activities, the types of
hedging instruments used and the effectiveness of such instruments. The effect
of adopting the statement is currently being evaluated.
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. While the Company maintains long-term supply relationships with
several foreign mills, in the third quarter of 2000 one such supplier began full
scale production at a new facility and accounted for more than 50% of the
Company's purchases in that quarter.
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
operations of the Company for the three and nine months ended September 30, 2000
with Empire's results for the same periods of 1999, which were predominantly
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
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Empire-Pacific, and include the results of operations of Integrated, which have
been minimal, only from September 17, 1999, the effective date of the Merger.
Net sales increased $19.5 million or 59.3% from $32.9 million in the
third quarter of 1999 to $52.4 million in the third quarter of 2000, and
increased by $42.9 million, or 54% in the nine month period. The increase in
sales represents an increase in mill availability for export from existing
supply relationships.
Gross profit increased $.5 million or 18.2% from third quarter 1999 to
third quarter 2000, and increased $2.3 million or 40% in the nine month period
as a result of the increase in sales. Gross profit as a percentage of sales
declined from 7.6% to 5.7% in the quarter and from 7.4% to 6.7% in the nine
months, as a result of various factors including increased costs related to
higher purchasing costs, material handling, product staging and other customer
accommodations.
Selling, general and administrative expenses increased from $.8 million
in the third quarter of 1999 to $1.3 million in the third quarter of 2000, or
63%, and increased from $2.3 million to $3.8 million, or 65% in the nine month
period. The increases were a result of a non-cash compensation charge of $0.2
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 increased from $.7 million during the third quarter of
1999 to $.9 million during the third quarter of 2000, and from $1.7 million to
$2.2 million for the nine months ended September 30, 1999 and 2000 respectively.
The increase in interest expense during these periods is related to higher
levels of outstanding bank indebtedness required in order to fund the Company's
higher sales volume and interest rate increases.
Income before income taxes declined $207,949 or 21% from $996,536 to
$788,587 in the quarterly period and rose $317,577 or 17% from $1,891,766 to
$2,209,343 in the nine month period.
Income taxes were $251,111 higher in third quarter 2000 than in third
quarter 1999, and $787,058 higher in the nine month period 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, income taxes in the third quarter and nine month
periods in 1999 reflect state and local income tax and federal income tax only
for the period from September 17 to September 30, while 2000 taxes reflect
federal, state and local taxes for the entire period. Consequently, for
comparative purposes, the Company has presented pro-forma income taxes as if the
Company had been taxed as a C corporation for all of the 1999 periods, together
with the resulting pro-forma net income for those periods.
The change in the Company's income tax status had a significant impact
on net income. The Company reported net income of $478,351 for third quarter
2000 and $1,349,750 for the nine month period ended September 30, 2000, compared
to net income of $937,411 for third quarter 1999 and $1,819,231 in the nine
month period ended September 30, 1999. The net income for third quarter 2000 was
23% lower than pro forma net income of $617,852 (net of pro forma income taxes)
for third quarter 1999, while net income for the nine
10
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month period ended September 30, 2000 was 15% greater than pro forma net income
(net of pro forma income taxes) for the corresponding period in 1999.
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 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 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 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. These
facilities expire on June 30, 2001. The Company increased its line under the
credit agreement from $45 million to $50 million, of which $40 million can be
borrowed in the form of loans, with the balance available for letters of credit.
This temporary increase will revert on November 30, 2000 to the original credit
agreement amount unless it is further amended. 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. As of September 30, 2000, the amount of loans
outstanding under Empire's revolving lines of credit was $40 million, and
outstanding letters of credit amounted to $3.3 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.
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Commitments and Contingencies
Empire has contingent liabilities in the form of letters of credit to
some of its suppliers. In addition, 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.
PART II
Item 4. Submission of Matters to a Vote of Security Holders.
The annual meeting of stockholders of Empire Resources, Inc. was held
on September 14, 1999. At the annual meeting, the stockholders voted to elect
directors to the board of directors of Empire, and to ratify the appointment of
Richard A. Eisner & Company, LLP as independent auditors for the fiscal year
ending December 31, 2000.
The following table sets forth the number of votes for, against or
withheld, as well as the number of abstentions and broker non-votes, as to each
matter voted upon at the annual meeting and each nominee to the board of
directors.
<TABLE>
<CAPTION>
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Votes Votes Broker Non-
Matter Votes For Against Withheld Votes Abstentions
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Election of:
-------------------------------------------------------------------------------------------------------------
William Spier 13,278,134 -0- 866,485 -0- -0-
-------------------------------------------------------------------------------------------------------------
Nathan Kahn 14,047,195 -0- 97,424 -0- -0-
-------------------------------------------------------------------------------------------------------------
Sandra Kahn 14,047,195 -0- 97,424 -0- -0-
-------------------------------------------------------------------------------------------------------------
Jack Bendheim 13,993,295 -0- 151,324 -0- -0-
-------------------------------------------------------------------------------------------------------------
Barry W. Blank 14,051,695 -0- 92,924 -0- -0-
-------------------------------------------------------------------------------------------------------------
Barry L. Eisenberg 13,831,195 -0- 313,424 -0- -0-
-------------------------------------------------------------------------------------------------------------
Peter G. Howard 13,982,145 -0- 162,474 -0- -0-
-------------------------------------------------------------------------------------------------------------
Nathan Mazurek 13,772,795 -0- 371,824 -0- -0-
-------------------------------------------------------------------------------------------------------------
Morris J. Smith 13,762,345 -0- 382,274 -0- -0-
-------------------------------------------------------------------------------------------------------------
Harvey Wrubel 14,051,695 -0- 92,924 -0- -0-
-------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
Appointment of Richard A. Eisner &
Company LLP as independent auditors 14,015,773 57,200 -0- -0- 71,646
-------------------------------------------------------------------------------------------------------------
</TABLE>
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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: November 14, 2000
13