SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly Period Ended May 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to _________
Commission File Number 1-8381
WELDOTRON CORPORATION
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-1602728
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
1532 South Washington Avenue
Piscataway, New Jersey 08855
(Address of Principal Exec. Offices) (Zip Code)
Registrant's Telephone Number, Including
Area Code (908) 752-6700
Indicate by check mark whether the registrant (1) has 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
2,300,173 Shares of Common Stock were outstanding as of
July 10, 1995.
<PAGE>
<TABLE>
WELDOTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000'S OMITTED EXCEPT SHARE DATA)
<CAPTION>
Three Months Ended
May 31,
1995 1994
(Unaudited) (Unaudited)
(As Restated
See Note A)
<S> <C> <C>
NET SALES $4,273 $4,765
COST AND EXPENSES:
Cost of Sales 2,553 3,314
Selling, General & Administrative Expenses 1,699 1,758
Depreciation and Amortization 123 129
4,375 5,201
LOSS FROM OPERATIONS (102) (436)
OTHER INCOME/(EXPENSES):
Foreign Currency Translation Gain 38 54
Other Revenue 135 165
Interest Expense (169) (129)
4 90
LOSS FROM CONTINUING OPERATIONS BEFORE
TAXES AND MINORITY INTEREST $ (98) $ (346)
INCOME TAX PROVISION $ (5) $ --
MINORITY INTEREST: SHARE OF (INCOME) LOSS (73) 17
LOSS FROM CONTINUING OPERATIONS $ (176) $ (329)
DISCONTINUED OPERATIONS:
INCOME FROM OPERATIONS $ -- $ 42
NET LOSS $ (176) $ (287)
EARNINGS(LOSS) PER COMMON SHARE:
CONTINUING OPERATIONS $ (.08) $ (.15)
DISCONTINUED OPERATIONS -- .02
NET LOSS PER COMMON SHARE $ (.08) $ (.13)
DIVIDEND PER SHARE NONE NONE
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 2,300,173 2,300,173
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
WELDOTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000'S OMITTED)
<CAPTION>
May 31, February 28,
1995 1995
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 324 $ 438
Accounts Receivable (Net) 2,119 2,461
Inventories (Note B) 9,272 9,025
Prepaid Expenses and Other Current Assets 672 303
TOTAL CURRENT ASSETS 12,387 12,227
Property and Equipment at Cost 12,135 12,076
Less Accumulated Depreciation & Amort. (9,273) (9,162)
2,862 2,914
Other Assets 133 145
TOTAL ASSETS $ 15,382 $ 15,286
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES & STOCKHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Short Term Borrowings (Note C) $ 1,868 $ 2,215
Notes Payable: Related Party (Note C) 1,000 --
Accounts Payable 1,953 2,022
Other Current Liabilities 2,510 2,381
TOTAL CURRENT LIABILITIES 7,331 6,618
Long-Term Debt-Net of Current Maturities
(Note C) 750 750
Long Term Debt: Related Party (Note C) -- 500
Notes Payable - Non-Current 12 --
Deferred Compensation 1,062 1,088
Minority Interests in Subsidiary 827 754
Stockholders' Equity 5,400 5,576
TOTAL LIABILIES AND STOCKHOLDERS' EQUITY $ 15,382 $ 15,286
<FN>
The Balance Sheet at February 28, 1995, has been taken from the
audited financial statements at that date, condensed and reclassified.
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
WELDOTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
($000'S OMITTED)
<CAPTION>
Three Months Ended
May 31,
1995 1994
(Unaudited) (Unaudited)
(As Restated
See Note A)
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $(259) $ 202
INVESTING ACTIVITIES
Purchases of Property, Plant and Equipment (74) (88)
Proceeds from the sale of
Property, Plant and Equipment 11 --
NET CASH USED IN INVESTING ACTIVITIES (63) (88)
FINANCING ACTIVITIES
Proceeds (Repayments) of Short-Term Borrowings (335) 311
Proceeds of Short-Term Borrowings - Related Party 500 --
Payment of Capital Lease Obligations -- (17)
NET CASH PROVIDED BY FINANCING ACTIVITIES 165 294
Effect of Exchange Rate Changes on Cash
and Cash Equivalents 43 (382)
Net (Decrease) Increase in Cash
and Cash Equivalents (114) 26
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 438 501
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 324 $ 527
<FN>
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
<PAGE>
WELDOTRON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note A: Basis of Preparation
The unaudited, condensed Consolidated Financial Statements as of
May 31, 1995, and for the three month period ended May 31, 1994,
included herein, have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01. The
information reflects all adjustments which are of a normal
recurring nature and which are, in the opinion of management,
necessary to a fair statement of the results for the period.
Certain financial information and footnote disclosures normally
included in financial statements prepared in accordance with the
generally accepted accounting principles have been condensed or
omitted. The reader is referred to the consolidated financial
statements and notes thereto included in the Registrant's annual
report on Form 10-K for the year ended February 28, 1995.
Results of operations for the interim period are not necessarily
indicative of the operating results for the full year.
Certain reclassifications have been made to the 1994 financial
statements to conform to the 1995 presentation.
The Financial Statements for the three month period ended
May 31, 1994 have been restated to show the effects of the
discontinued operations of the 100% owned subsidiary, Valiant
International Multi-Media Corporation "Valiant".
Note B: Inventories
Inventories at May 31, 1995, and February 28, 1995, are as follows:
($000's - Omitted)
May 31, February 28,
1995 1995
Finished Goods $ 4,277 $ 3,858
Work in Process 2,851 2,852
Raw Materials 2,144 2,315
$ 9,272 $ 9,025
<PAGE>
Note C: Long-Term Debt and Short-Term Borrowings
In June 1991, the Registrant entered into a credit facility (the
Credit Facility) with Congress Financial Corporation, ("Congress") to
provide a revolving line of credit and term loan for working capital
purposes not to exceed $5,000,000. The interest rate is 3.75% over
the CoreStates floating base rate which was 9.0% at May 31,1995.
The Credit Facility further requires that the Registrant pay fees on
the unused line of credit, for administration, and upon early
termination of the Credit Facility. The Credit Facility was amended on
May 19,1995 to decrease the line of credit and the term loan to
$3,500,000 and extend the maturity date to June 25, 1996.
The Credit Facility is collateralized by substantially all of the
assets of the Registrant and its domestic subsidiaries. Borrowings
under the Credit Facility are limited to certain percentages of
eligible inventory and accounts receivable including stipulations as
to the ratio of advances collateralized by receivables compared to
advances collateralized by inventory.
The Company was in compliance with all financial covenants and terms
of the Credit Facility as of May 31, 1995.
On August 31, 1994, the Registrant borrowed Five Hundred Thousand
($500,000) Dollars from Lyford Corp. "Lyford", a related company that
owns 19.56% of the issued and outstanding common stock of the
registrant. The Company executed and delivered to Lyford a promissory
note, a security agreement and a Common Stock Purchase Warrant.
On May 5, 1995, the Registrant concluded the rolling of this note into
a new note in the amount of One Million ($1,000,000) Dollars. The new
obligation is evidenced by a certain Amended, Extended and Restated
Promissory Note dated as of March 1, 1995 (the "Restated Note"). In
consideration for the new loan, the Company executed and delivered to
Lyford the Restated Note and an additional Common Stock Purchase
Warrant. The new loan is secured by a junior lien on all of the
Company's assets. The new warrant grants to Lyford the right to
purchase up to 1,000,000 shares of the Company's common stock at an
initial exercise price of One ($1.00) Dollar per share. The market
price of the Company's common stock was $.875 on the date of the
warrant grant. The new warrant expires by its terms on April 12,
2005. Although an independent appraisal has not been obtained, the
Company management considered the application of APB 14 to the value
of these warrants and believes that they are of no value at this time.
The loan transaction closed pursuant to documents dated as of
March 1, 1995 and in the case of the Warrant, April 13, 1995. These
loan documents were contingent on the Company's obtaining the consent
of its senior lender, which consent was obtained on May 5, 1995.
<PAGE>
WELDOTRON CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition
The Registrant's net working capital decreased from $5,609,000 at
February 28, 1995 to $5,056,000 at May 31, 1995. The current ratio
decreased from 1.85 at February 28,1995 to 1.69 at May 31, 1995. The
changes in net working capital during the first quarter of this year
were primarily related to the following:
- - accounts receivable decreased due to 25% lower sales in the first
quarter of this year compared to the immediately preceding fourth
quarter of last year.
- - inventories increased due to a buildup at our Brazilian subsidiary.
- - prepaid expenses and other current assets increased due to insurance
policy renewals.
- - accounts payable decreased as a result of related party note
financing which was partially used to pay down vendor debt.
- - short-term borrowings decreased due to a lower collateral base and
reduced ability to borrow at May 31, 1995 versus February 28, 1995.
- - notes payable from a related party increased at May 31, 1995 due to
the reclassification of $500,000 from long-term to short-term as
well as an additional $500,000 received in the first quarter of this
year.
- - other current liabilities increased due to accruals of insurance
policy renewals.
At May 31, 1995 the Registrant had used approximately $2,573,000 of
the Congress Credit Facility (See Note C to the consolidated financial
statements). Based on the advance percentages of eligible receivables
and inventories the Registrant had unused borrowing availability of
approximately $170,000 at May 31, 1995.
The availability of future borrowings depends upon the Company's
compliance with the covenants contained in the Credit Facility
agreement and the level of eligible receivables and inventories.
The Registrant's primary and secondary sources of liquidity at May 31,
1995 were the Congress Credit Facility and the note from a related
party, respectively. There can be no assurances that an extended
economic recession will not adversely impact the Registrant's future
financial condition and liquidity.
<PAGE>
The major elements of the net cash provided by (used in) operations
for the quarter ended May 31, 1995 and for the same quarter last year
are as follows ($000's omitted):
Three Months Ended
May 31
1995 1994
NET LOSS $ (176) $ (287)
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating activities:
Decrease(Increase) in Accounts Receivable 261 (12)
(Increase) Decrease in Inventory (245) 456
Increase in Prepaid Expense (292) (257)
Decrease in Accounts Payable (69) (304)
Increase in Other Current Liabilities 87 546
Net Increase in Non-Cash
Expenses and Other Items 175 60
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (259) $ 202
The major components affecting the unfavorable period to period change
in cash flow were the decrease in other current liability changes in
the first quarter of this year due to the "remeasurement" of Brazilian
Cruzeiros to U.S. dollars and an increase in inventory at our
Brazilian subsidiary in the first quarter of this year compared to a
decline in the first quarter last year.
The effect of accounts receivable on cash flow in the first quarter
was a decrease of $238,000 in domestic accounts receivable and a
decrease of $23,000 in Brazil accounts receivable. However, for the
same period last year, domestic accounts receivable increased by
$209,000 and Brazil accounts receivable decreased by $197,000.
The Registrant increased its note obligation to a related party in
this quarter by $500,000 to liquidate accounts payable and other
current liabilities.
The effect of exchange rate changes on cash and cash equivalents for
the first quarter ended May 31, 1995 and for the same period last year
was $43,000 and $(382,000), respectively. This is attributable to
Brazil's inflationary economy and the "remeasurement method" used for
foreign currency translation to be measured into U.S.dollars as
required by SFAS No. 52.
<PAGE>
Results of Continuing Operations for the Period Ended May 31, 1995 and
1994
For the first quarter ended May 31, 1995 sales from continuing
operations were $4,273,000 with loss from continuing operations of
$176,000 or $.08 per share. This compares to sales from continuing
operations of $4,765,000 with loss from continuing operations of
$329,000 or $.15 per share in the first quarter last year.
Loss From Operations
Sales for the first quarter were approximately 10.3% lower than the
same period last year. The sales decrease was mainly in domestic
industrial packaging. Despite the quarter to quarter decrease in
sales, $269,000 of additional gross profit was generated in this
quarter compared to the same period last year.
Cost of sales for the first quarter this year was 59.7% of sales
compared to 69.5% for the prior year. The decrease in cost of sales
is due to sales of higher margin products as well as improved
manufacturing methods.
Selling, general and administrative expense decreased by $59,000 in
the first quarter of this year compared to the same quarter last year
due to staff reductions made in the latter part of fiscal 1995. These
savings were partially offset by certain professional fees, as well as
increases at our Brazilian subsidiary; a direct result of their
increased sales volume.
The gain from foreign currency translation decreased by $16,000 for
the first quarter of this year compared to the same period last year.
A favorable Brazilian currency exchange rate caused this change.
Other Income and Expense
Interest expense increased by approximately $40,000, due to increased
short term borrowings and higher interest rates.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
MTD Service Corp. V. Weldotron Corporation
Information with respect to this litigation is incorporated by
reference to PART I, Item 3, Legal Proceedings, on page 13 of the
Registrant's Report on Form 10-K for the fiscal year ended February
28, 1995, filed with the Securities and Exchange Commission on June 7,
1995.
In July 1994 the Company and its co-defendants filed a motion for
summary judgment to dismiss the amended complaint. The motion was
granted by the Judge in the United State District Court for the
Southern District of New York. The Court's order, which dismissed
MTD's complaint with prejudice, was signed on July 29, 1994.
Subsequently MTD filed an appeal in the matter with the U.S. Court of
Appeals, 2nd Judicial Circuit. On May 5, 1995 this appeal was
dismissed by the Court by affirming the decision
rict Court granting the Company's motion for the summary judgment.
Martin Siegel v. Weldotron Corporation
Information with respect to this litigation is incorporated by
reference to PART I, Item 3, Legal Proceedings, on page 13 of the
Registrant's Report on Form 10-K for the fiscal year ended February
28, 1995, filed with the Securities and Exchange Commission on June 7,
1995.
On April 13, 1995, the Company reached a full and final
settlement with Martin Siegel. Under the terms of the settlement,
which was approved by the Court: (1) all claims and counterclaims by,
between and among Mr. Siegel, the Company and the other parties to the
litigation were dismissed, with prejudice, (2) Mr. Siegel and the
Company exchanged mutual releases, (3) Mr. Siegel's Employment
Agreement with the Company dated March 1, 1988, as amended, was
terminated, and (4) Mr. Siegel was awarded a life secured obligation
of the Company.
Item 2. Changes in Securities
On August 31, 1994, the Registrant borrowed Five Hundred Thousand
($500,000) Dollars from Lyford Corp. "Lyford", a related company that
owns 19.56% of the issued and outstanding common stock of the
registrant. The Company executed and delivered to Lyford a promissory
note, a security agreement and a Common Stock Purchase Warrant.
<PAGE>
On August 31, 1994, the Registrant borrowed Five Hundred Thousand
($500,000) Dollars from Lyford Corp. "Lyford", a related company that
owns 19.56% of the issued and outstanding common stock of the
registrant. The Company executed and delivered to Lyford a promissory
note, a security agreement and a Common Stock Purchase Warrant.
On May 5, 1995, the Registrant concluded the rolling of this note
into a new note in the amount of One Million ($1,000,000) Dollars.
The new obligation is evidenced by a certain Amended, Extended and
Restated Promissory Note dated as of March 1, 1995 (the "Restated
Note"). In consideration for the new loan, the Company executed and
delivered to Lyford the Restated Note and an additional Common Stock
Purchase Warrant. The new loan is secured by a junior lien on all of
the Company's assets. The new warrant grants to Lyford the right to
purchase up to 1,000,000 shares of the Company's common stock at an
initial exercise price of One ($1.00) Dollar per share. The market
price of the Company's common stock was $.875 on the date of the
warrant grant. The new warrant expires by its terms on April 12,
2005. Although an independent appraisal has not been obtained, the
Company management considered the application of APB 14 to the value
of these warrants and believes that they are of no value at this time.
The loan transaction closed pursuant to documents dated as of
March 1, 1995 and in the case of the Warrant, April 13, 1995. These
loan documents were contingent on the Company's obtaining the consent
of its senior lender, which consent was obtained on May 5, 1995.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
One press release issued by the Registrant on
April 18, 1995 regarding settlement with former chairman.
(b) Report on Form 8-K
Two reports on Form 8K were filed in the quarter ended
May 31, 1995 as follows
Date Item Reported
________ __________
April 13, 1995 Settlement with former chairman
May 5, 1995 Loan from related party
<PAGE>
S I G N A T U R E
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.
WELDOTRON CORPORATION
Registrant
By: Varghese Reju
Varghese Reju
Treasurer and
Chief Financial Officer
Date: July 17, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1995
<PERIOD-END> MAY-31-1995
<CASH> 324
<SECURITIES> 0
<RECEIVABLES> 2119
<ALLOWANCES> 0
<INVENTORY> 9272
<CURRENT-ASSETS> 12387
<PP&E> 12135
<DEPRECIATION> 9273
<TOTAL-ASSETS> 15382
<CURRENT-LIABILITIES> 7331
<BONDS> 0
<COMMON> 118
0
0
<OTHER-SE> 5400
<TOTAL-LIABILITY-AND-EQUITY> 15382
<SALES> 4273
<TOTAL-REVENUES> 4273
<CGS> 2553
<TOTAL-COSTS> 4375
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169
<INCOME-PRETAX> (98)
<INCOME-TAX> (5)
<INCOME-CONTINUING> (176)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (176)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> 0
</TABLE>
