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, 1996
[ ] 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, 1996.
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WELDOTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
($000'S OMITTED EXCEPT SHARE DATA)
<TABLE>
Three Months Ended May 31,
<C> <C>
1996 1995
(Unaudited) (Unaudited)
NET SALES $ 3,961 $ 4,273
COST AND EXPENSES:
Cost of Sales 2,882 2,553
Selling, General & Administrative Expenses 1,457 1,699
Depreciation and Amortization 100 123
4,439 4,375
LOSS FROM OPERATIONS (478) (102)
OTHER INCOME/(EXPENSES):
Foreign Currency Translation Gain 25 38
Other Income 116 135
Interest Expense (154) (169)
(13) 4
LOSS FROM OPERATIONS BEFORE
TAXES AND MINORITY INTEREST $ (491) $ (98)
INCOME TAX PROVISION $ -- $ (5)
MINORITY INTEREST: SHARE OF (INCOME) LOSS $ (5) $ (73)
NET LOSS $ (496) $ (176)
NET LOSS PER COMMON SHARE: $ (.22) $ (.08)
DIVIDEND PER SHARE NONE NONE
WEIGHTED AVERAGE OF
COMMON SHARES OUTSTANDING 2,300,173 2,300,173
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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WELDOTRON CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
($000'S OMITTED)
<TABLE>
<C> <C>
May 31, Feb. 29,
1996 1996
(Unaudited) (Audited)
ASSETS
<C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 185 $ 344
Accounts Receivable (Net) 1,675 2,000
Inventories (Note B) 6,163 6,653
Prepaid Expenses and Other Current Assets 550 563
Investment in Real Estate Held for Sale 377 377
TOTAL CURRENT ASSETS 8,950 9,937
Property and Equipment at Cost 11,612 11,603
Less Accumulated Depreciation & Amort. (9,560) (9,497)
Other Assets 176 174
TOTAL ASSETS $11,178 $12,217
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short Term Borrowings (Note C) $ 751 $ 835
Short Term Borrowings: Related Party (Note C) 1,150 150
Accounts Payable 2,360 2,431
Other Current Liabilities 2,116 2,532
TOTAL CURRENT LIABILITIES 6,377 5,948
Long-Term Debt-Net of Current Maturities
(Note C) 750 750
Long Term Debt: Related Party (Note C) - - 1,000
Deferred Compensation 1,209 1,201
Minority Interests in Subsidiary 681 715
Other Long Term Liabilities 216 161
Stockholders' Equity 1,945 2,442
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $11,178 $12,217
</TABLE>
The Balance Sheet at February 29, 1996, has been taken from the audited
financial statements at that date, condensed and reclassified.
See Notes to Condensed Consolidated Financial Statements.
WELDOTRON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($000'S OMITTED)
<TABLE>
<C> <C>
Three Months Ended May 31,
1996 1995
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(496) $ (176)
Adjustments to reconcile net loss to
net cash flows provided by (used in)
operating activities:
Depreciation and amortization 100 122
Foreign currency translation gain (24) (38)
Bad debt provision 6 6
Deferred compensation expense 28 21
Minority interest in subsidiary net income 5 73
Gain on sale of property, plant and equipment (11) (11)
Changes in operating assets and liabilities
(Increase) decrease in assets
Accounts receivable 319 261
Inventories 488 (245)
Prepaid expenses and other current assets (27) (272)
Other assets (2) (18)
Decrease in current liabilities (488) (22)
Increase in other long-term liabilities 37 40
Total adjustments 431 (83)
Net cash provided by (used in)
operating activities (65) (259)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (44) (74)
Proceeds from the sales of
property, plant and equipment 11 11
Net cash used in investing activities (33) (63)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (repayments) under short-term
borrowings (84) (335)
Proceeds from short-term debt - Related Party -- 500
Principal payments under capital lease obligations (1) --
Net cash provided by (used in)
financing activities (85) 165
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 24 43
NET DECREASE IN CASH AND CASH EQUIVALENTS (159) (114)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 344 438
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 185 $ 324
See Notes to Condensed Consolidated Financial Statements.
</TABLE>
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,
1996, and for the three month period ended May 31, 1995, 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 29, 1996.
Results of operations for the interim period are not necessarily indicative
of the operating results for the full year.
Note B: Inventories
Inventories at May 31, 1996, and February 29, 1996, are as follows:
($000's - Omitted)
<TABLE>
May 31, Feb. 29,
1996 1996
<C> <C>
Finished Goods $ 2,633 $ 2,870
Work in Process 2,384 2,508
Raw Materials 1,146 1,275
$ 6,163 $ 6,653
</TABLE>
Note C: Long-Term Debt and Short-Term Borrowings
In June 1991, the Company 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. The
interest rate is 3.75% over the CoreStates floating base rate which was 8.25% at
May 31, 1996. The Credit Facility further requires that the Company pay fees on
the unused line of credit, for administration and upon early termination of the
Credit Facility. The Credit Facility was amended on June 10, 1996, decreasing
the maximum line of credit and term loan to $2,500,000, extending the maturity
date to June 25, 1997, and resetting the financial covenants as follows: minimum
domestic working capital of $1,700,000 and minimum domestic tangible net worth
of $1,050,000.
The Credit Facility is collateralized by substantially all of the assets of
the Company 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, 1996.
On August 31, 1994, the Registrant borrowed $500,000 Dollars from Lyford
Corporation ("Lyford"), an affiliated company that owns 19.56% of the issued and
outstanding common stock of the Company. The Company executed and delivered to
Lyford a promissory note, a security agreement and a Common Stock Purchase
Warrant granting to Lyford the right to purchase up to 200,000 shares of the
Company's common stock at an initial exercise price of two dollars per share,
the closing price for the Company's common stock on the date the warrant was
granted. The warrant expires on August 4, 2004.
On March 1, 1995, the Registrant concluded the rolling of this note into a
new note in the amount of $1,000,000. 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 note was originally due and payable on or before March
31, 1996 and bore interest at 12% per annum. 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. The Company's management
considers the note to be at fair value and has not assigned any value to the
warrants. The loan transaction closed pursuant to documents dated as of March 1,
1995 and, in the case of the new 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. The new note was subsequently
extended until April 1, 1997 and the interest rate was increased to 14%.
In January, 1996 the Registrant entered into a $500,000 revolving loan
agreement with Exford Corp. "Exford", an affiliated company of Lyford. The
Registrant borrowed $150,000 under this agreement which borrowings bear interest
at 14%, and are due on January 31, 1997. In connection with this revolving loan,
the Company has assigned to Exford its right, title and interest as tenant under
the main operating lease, together with any rents due and payable to the
Company.
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 $3,989,000 at February
29, 1996 to $2,573,000 at May 31, 1996. The current ratio decreased from 1.67 at
February 29,1996 to 1.40 at May 31, 1996. The changes in net working capital
during the first quarter of this year were primarily related to the following:
- accounts receivable decreased due to 13% lower sales in the first quarter
of this year compared to the immediately preceding fourth quarter of last year.
- inventories decreased due to efforts to keep inventory levels in line
with reduced sales.
- prepaid expenses and other current assets decreased due to prepaid
insurance amortization.
- accounts payable decreased as a result of the extinguishment of certain
vendor obligations.
- short-term borrowings decreased due to the pay downs of $50,000 of the
domestic revolving bank loan and short-term obligations at our Brazilian
subsidiary.
- short-term borrowings from a related party increased at May 31, 1996 due
to the reclassification of $1,000,000 from long-term to short-term.
- other current liabilities decreased due primarily to reduced customer
deposits.
At May 31, 1996 the Registrant had used approximately $1,464,000 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 $25,000 at May 31,
1996.
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, 1996
were the Congress Credit Facility and the notes 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.
The effect of exchange rate changes on cash and cash equivalents for the
first quarter ended May 31, 1996 and for the same period last year was $24,000
and $43,000, 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.
Results of Operations for the Period Ended May 31, 1996 and 1995
For the first quarter ended May 31, 1996 sales were $3,961,000 with a net
loss of $496,000 or $.22 per share. This compares to sales of $4,273,000 with a
net loss of $176,000 or $.08 per share in the first quarter last year.
Loss From Operations
First Quarter
Sales for the first quarter were approximately 7.3% lower than the same
period last year. The sales decrease was mainly in the domestic Safety and
Automation Systems division, which declined 63% from $709,000 last year to
$265,000 this year. This was due to a recently reintroduced product line
currently produced domestically, following an extended period of no inventory
due to exorbitant price increases from this division's former foreign supplier,
as well as unfavorable exchange rates. Domestic packaging sales were 8.3% higher
than prior year, while sales at our Brazilian subsidiary were 7.5% below last
year's level.
Cost of sales for the first quarter this year was 72.8% of sales compared
to 59.7% for the prior year. The increase in cost of sales is due to a shift
toward domestic industrial packaging sales this quarter, which have lower
margins overall than food packaging, safety and automations systems, parts and
Brazilian subsidiary sales, all of which declined from last year.
Selling, general and administrative expense decreased by $242,000 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 1996 as well as lower commissions,
travel and entertainment and business insurance expenses.
The gain from foreign currency translation decreased by $13,000 for the
first quarter of this year compared to the same period last year, due to slower
movement this year in the Brazilian currency exchange rate.
Other Income and Expenses
Other income in the first quarter this year was $19,000 lower than the
first quarter last year, due primarily to fees associated with certain
modifications made to the Credit Facility.
There was no provision for income taxes in the first quarter this year
versus $5,000 in the first quarter last year. The provision last year was based
solely on taxable income from our Brazilian subsidiary of $115,000 for the
quarter.
Interest expense decreased $15,000 due to reduced borrowings and lower
interest rates.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the ordinary
course of business and several claims have been asserted against the Company as
of May 31, 1996. Some of the actions involve claims for compensatory, punitive
or other damages. The Company presently believes that any compensatory damage
claims are adequately covered by insurance.
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 ranting to Lyford the right to purchase up to
200,000 shares of the Company's common stock at an initial exercise price of Two
($2.00) Dollars per share, the closing price for the Company's common stock on
the date the warrant was granted. The warrant expires on August 4, 2004.
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 new 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. The new note in the amount of one million
($1,000,000) dollars was due and payable on March 31, 1996. On June 10, 1996,
the Company amended, extended and restated the promissory note from Lyford, an
affiliated company. The revised note provides borrowings of $1,000,000 at an
interest rate of 14% per annum. The maturity date of this note has been extended
to April 1, 1997.
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
None.
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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: /s/Michael McKee
Michael McKee
Vice President of Finance
Date: July 15, 1996
