SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended July 25, 1998 Commission File Number 2-37706
------------- -------
Bowles Fluidics Corporation
----------------------------------------------------
(exact name of registrant as specified in its charter)
MARYLAND 52-0741762
-----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6625 Dobbin Road, Columbia, Maryland 21045
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 381-0400
Indicate by check mark whether the registrant has filed all annual,
quarterly and other reports required to be filed with the Commission
within the past 90 days and in addition has filed the most recent
annual report required to be filed.
Yes X No
--- ---
Indicate the number of shares outstanding of each issuer's classes of
common stock, as of July 25, 1998.
Class Outstanding at July 25, 1998
------------------ ----------------------------
Common Stock, $.10 12,685,011 shares
<PAGE>
INDEX
BOWLES FLUIDICS CORPORATION
FOR THE NINE MONTHS ENDED JULY 25, 1998
Page
PART I. Financial Information Number
------
Item 1. Financial Statements
Consolidated Statements of Income
For the three and nine months ended
July 25, 1998, and July 26, 1997 ..................... 3
Consolidated Balance Sheets
July 25, 1998, and October 25, 1997 .................. 4
Consolidated Statements of Cash Flows
For the nine months ended
July 25, 1998, and July 26, 1997 ..................... 5
Notes to Consolidated Financial Statements .............. 6
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial
Condition ............................................ 8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K ........................ 11
Exhibit 20 ........................................... 12
2
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
-------------------------- ---------------------------
July 25, July 26, July 25, July 26,
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S><C>
Net sales $4,632,502 $4,387,924 $15,105,362 $13,615,319
Cost of sales 3,889,714 3,130,132 11,196,107 9,325,310
---------- ---------- ---------- ----------
Gross profit 742,788 1,257,792 3,909,255 4,290,009
Selling, general and
administrative expenses 664,588 672,013 1,993,702 2,409,483
Research and development costs 205,180 225,055 582,743 756,563
---------- ---------- ---------- ----------
Operating income (loss) (126,980) 360,724 1,332,810 1,123,963
Interest income 11,134 30,363 52,022 81,551
Other income (expense), net 9,423 (3,990) 23,749 (5,839)
---------- ---------- ---------- ----------
Income (loss) before taxes (106,423) 387,097 1,408,581 1,199,675
Provision (credit) for income taxes (38,759) 140,345 521,631 432,687
---------- ---------- ---------- ----------
Net income (loss) (67,664) 246,752 886,950 766,988
Preferred stock
dividends accrued 18,662 18,662 55,985 55,985
---------- ---------- ---------- ----------
Income (loss) applicable to
common shareholders $ (86,326) $ 228,090 $ 830,965 $ 711,003
========== ========== ========== ==========
Basic earnings per share $ (.01) $ .02 $ .07 $ .06
========== ========== ========== ==========
Diluted earnings per share $ .00 $ .02 $ .05 $ .05
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
July 25, October 25,
1998 1997
----------- -----------
ASSETS
Current
Cash and cash equivalents $ 970,359 $ 755,525
Investments available for sale -- 1,563,121
Accounts receivable 2,821,583 3,112,063
Inventories 2,992,946 2,130,615
Other current assets 425,689 634,037
----------- -----------
Total current assets 7,210,577 8,195,361
----------- -----------
Property and equipment, net 4,312,460 3,494,335
Other assets 91,230 95,005
----------- -----------
Total assets $11,614,267 $11,784,701
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $ 701,337 $ 1,122,437
Accrued expenses and other liabilities 1,088,139 1,609,807
Income taxes payable -- 48,162
----------- -----------
Total current liabilities 1,789,476 2,780,406
Other liabilities 474,488 492,866
----------- -----------
Total liabilities $ 2,263,964 $ 3,273,272
----------- -----------
Commitments and contingencies
Stockholders' Equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,268,501 1,264,001
Additional paid-in capital 2,732,832 2,728,083
Retained earnings 4,415,890 3,586,265
----------- -----------
Total stockholders' equity 9,350,303 8,511,429
----------- -----------
Total liabilities and stockholders' equity $11,614,267 $11,784,701
=========== ===========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
-----------------------------
July 25, July 26,
1998 1997
----------- -----------
<S><C>
Cash flows from operating activities:
Net income $ 886,950 $ 766,988
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 792,295 699,690
Net loss on disposal of assets 2,221 2,891
Accretion of interest on investments (25,139) (1,580)
----------- -----------
1,656,327 1,467,989
----------- -----------
Change in operating accounts:
Accounts receivable 290,480 580,103
Inventories (862,331) (162,089)
Other assets (13,475) 145,444
Accounts payable (421,100) (408,207)
Accrued expenses and other liabilities (423,125) 44,609
Income taxes payable 93,103 (40,000)
----------- -----------
Change in operating accounts (1,336,448) 159,680
----------- -----------
Net cash provided by operating activities 319,879 1,627,849
----------- -----------
Cash flows from investing activities:
Capital expenditures (1,627,583) (791,063)
Patent and trademark expenditures -- (4,433)
Proceeds from sale of equipment 1,200 425
Purchase of investments -- (1,540,014)
Proceeds from sale of investments 1,586,734 577,837
----------- -----------
Net cash used in investing activities (39,649) (1,757,248)
----------- -----------
Cash flows from financing activities:
Preferred stock dividend (74,646) (74,646)
Proceeds from issuance of common stock 9,250 4,500
----------- -----------
Net cash used in financing activities (65,396) (70,146)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 214,834 (199,545)
Cash and cash equivalents
- Beginning of period 755,525 1,287,110
----------- -----------
- End of period $ 970,359 $ 1,087,565
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - General
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position as of July 25,
1998, and the results of operations and cash flows for three and nine months
ended July 25, 1998, and July 26, 1997.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, it is suggested that these financial
statements be read in conjunction with the financial statements and the notes
included in the Company's latest annual report on Form 10-K.
The Company considers itself as one operating segment due to the similarity
of its products, services, production processes, customers and distribution.
NOTE 2 - Inventories
Inventories are comprised of:
July 25, October 25,
1998 1997
---------- -----------
Raw Material $ 843,762 $ 620,567
Work and tooling in process 1,021,015 1,016,845
Finished Goods 1,128,169 493,203
---------- ----------
Total $2,992,946 $2,130,615
========== ==========
NOTE 3 - Property and Equipment, and Accumulated Depreciation
Property and Equipment, and Accumulated Depreciation are comprised of:
July 25, October 25,
1998 1997
----------- -----------
Production machinery and equipment $ 6,086,011 $ 4,946,390
Office furniture and equipment 2,469,721 2,321,844
Laboratory and machine shop equipment 1,576,988 1,428,516
Leasehold improvements 840,845 812,120
----------- -----------
Total property and equipment 10,973,565 9,508,870
Less accumulated depreciation (6,661,105) (6,014,535)
----------- -----------
Net property and equipment $ 4,312,460 $ 3,494,335
=========== ===========
NOTE 4 - Common Stock
In May 1998, two officers of the Company exercised stock options and
purchased 40,000 and 5,000 shares of common stock at the exercise prices of $.15
and $.65 per share respectively.
NOTE 5 - Quasi-reorganization
Effective October 29, 1994, the Board of Directors approved a
quasi-reorganization which had the impact of eliminating the retained earnings
deficit of $2,407,467 as an adjustment to the additional paid-in capital.
6
<PAGE>
BOWLES FLUIDICS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - Earnings Per Share
Effective October 26, 1997, the Company adopted Statement of Financial
Accounting Standard No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128
replaced the presentation of primary earnings per share (EPS) and fully diluted
EPS with a presentation of basic EPS and diluted EPS. Basic earnings per share
are based on the weighted average number of common shares outstanding during the
periods. Diluted earnings per share are based on the weighted average number of
common shares outstanding and potential dilution of securities that could share
in earnings.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
------------------------------- -----------------------------
July 25, July 26, July 25, July 26,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S><C>
Numerator:
Numerator for basic earnings per share:
Income available to common
shareholders $ (86,326) $ 228,090 $ 830,965 $ 711,003
Effect of dilutive securities:
Preferred Stock Dividends 18,662 18,662 55,985 55,985
----------- ----------- ----------- -----------
Numerator for diluted earnings per share
Income available to common shareholders
after assumed conversion $ (67,664) $ 246,752 $ 886,950 $ 766,988
----------- ----------- ----------- -----------
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding
during the period 12,685,011 12,640,011 12,655,011 12,633,111
Effect of dilutive securities:
Employee Stock Options 14,879 38,615 14,847 45,284
Assumed Conversion of Preferred Stock 3,732,320 3,732,320 3,732,320 3,732,320
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 16,432,210 16,410,946 16,402,178 16,410,715
----------- ----------- ----------- -----------
Earnings per Share:
Basic $ (.01) $ .02 $ .07 $ .06
=== === === ===
Diluted $ .00 $ .02 $ .05 $ .05
=== === === ===
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the attached
financial statements and notes thereto, and with the Company's audited financial
statements and notes thereto for the fiscal year ended October 25, 1997.
RESULTS OF OPERATIONS
Third Quarter FY 1998 Compared with Third Quarter FY 1997
The General Motors strike as well as the normal annual vacation shutdown
significantly affected operations in the third quarter of fiscal year 1998.
Shipments of automotive products declined but sales of production tooling more
than doubled. As a result, a net loss was recorded for the third quarter of
fiscal year 1998 in contrast to a profit in the prior year's third quarter.
Net sales in the third quarter of FY 1998 increased to $4,632,502, 5.6% above
last year's third quarter sales of $4,387,924. The net loss was $67,664 compared
with net income of $246,752 earned in the third quarter of FY 1997.
Sales of light vehicle windshield washer and defroster nozzles of $3,584,894
declined 10% from the prior year's third quarter sales of $3,983,944. The
General Motors strike was the primary cause of the sales decline. Sales of
production and prototype tooling of $1,047,608 principally for future
manufacturing of the new air conditioning outlets increased significantly over
last year's third quarter sales of $403,979.
Gross profit in this year's third quarter was $742,788, 41% below last year's
third quarter profit of $1,257,792. The decrease was due to the lower product
sales and higher unabsorbed manufacturing expenses resulting from lower
production levels. The related personnel were not laid off during the strike,
but rather their efforts were redirected to expedite manufacturing process
improvements.
Selling, general and administrative expenses of $664,588 for the fiscal year
1998 third quarter were approximately equal to those for the prior year's third
quarter. Research and development costs were $205,180, 9% below last year's
third quarter since in 1997 significant effort was directed toward the
development of the new air conditioning outlets.
An operating loss of $126,980 was realized in this year's third quarter compared
to operating income of $360,724 in the prior year's third quarter.
8
<PAGE>
Provision for income taxes, both federal and state, was determined based upon an
estimate of the total year's pretax income using the same tax rates for both
this year and last year.
Nine Months Ended July 25, 1998, Compared with Nine Months Ended July 26, 1997
For the first nine months of the 1998 fiscal year ended July 25, 1998, total
sales increased compared to last year's first nine months due to higher
technical services sales and net income gained because of the reduction of
several expenses and higher production levels. The negative impact of the GM
strike on the FY 1998 third quarter's product sales more than offset the
favorable effect of the increase in product sales in the first six months of the
year.
Net sales for the first nine months of fiscal year 1998 were $15,105,362, 11%
above last year's first nine months of $13,615,319. Net income of $886,950 was
16% higher than the prior year's first nine months results of $766,988.
Sales of light vehicle windshield washer and defroster nozzles of $12,920,701 in
the first nine months of FY 1998 were approximately equal to sales of the
similar period in the last fiscal year. Higher shipments of windshield washer
nozzles were offset by lower sales of defroster nozzles. Technical services
sales amounting to $2,184,662 of production and prototype tooling and product
design related to the future manufacturing of both the new air conditioning
outlets and the current washer nozzle business increased more than three times
over the prior year's first nine months sales of $691,191. The Company has been
selected as the supplier of automotive air conditioning outlets for two future
vehicles scheduled for production by one customer starting in 1999 and by
another in 2000.
Gross profit in the first nine months of the 1998 fiscal year declined 9% to
$3,909,255 from $4,290,009 in the similar fiscal year 1997 period because of
the unfavorable impact of the GM strike in the third quarter of FY 1998.
Selling, general and administrative expenses were $1,993,702 in the first nine
months of fiscal year 1998, 17% less than last year's expenses for a similar
period of $2,409,483. The decrease was the result of the elimination of the
sales commissions to independent manufacturer's representatives and their
replacement with the cost of the Company's own sales force in the Detroit area.
Research and development costs decreased 23% to $582,743 for the first nine
months of fiscal year 1998. Less spending was incurred for washer nozzle and air
conditioning outlet product development.
Operating income of $1,332,810 in this year's first nine months compared with
$1,123,963 in the similar period last year, a 19% increase.
Provision for income taxes, both federal and state, was determined based upon an
estimate of the total year's pretax income. The effective tax rates for both
years' nine months were essentially the same.
9
<PAGE>
FINANCIAL CONDITION
The Company's position in cash, cash equivalents, and current investments
available for sale on July 25, 1998, decreased $1,348,287 to $970,359 from
$2,318,646 at the previous fiscal year end of October 25, 1997. The working
capital of $5,421,101 at July 25, 1998, was approximately the same as the last
fiscal year end. The current ratio rose to 4.03 from 2.95 since October 25,
1997, the previous year end.
Cash provided by operating activities was $319,879 in the first nine months of
fiscal year 1998 compared with $1,627,849 in the prior fiscal year's similar
period. Cash flow from net income and depreciation was higher, but finished
goods and raw material inventories were increased in order to provide safety
stock to ensure on-time delivery, and accounts payable declined as a result of
the slow-down in production during the months of June and July. In addition,
accrued expenses also declined due to the final payments of the accrued sales
commissions related to the termination of the Company's sales agreement with its
manufacturer's representatives.
Capital expenditures were $1,627,583 in the fiscal year's first nine months,
$836,520 greater than those for last year's similar period principally to
increase production capacity and provide additional tooling.
North American light vehicle production decreased 4% in the second calendar
quarter of 1998 versus the same period in 1997. Production for the third quarter
of 1998 is forecasted by Ward's Automotive Reports to decrease in the same
range. It is expected that shipments in the Company's fiscal fourth quarter,
which does not include the GM strike period of July 1998, will reflect more
normal activity levels.
The Company's management believes that the present and planned production
capacity should be satisfactory to meet the anticipated demands of the Company's
share of the North American vehicle production forecast, as well as near-term
new product shipments. Cash flow from operations and available cash are expected
to provide the funds needed for planned working capital requirements and capital
expenditures.
In order to perform the required electronic communication with its customers,
control production and other business functions, and receive product and
services from its suppliers, the Company needs to ensure that its own computer
systems and those of its suppliers will function properly for the year 2000 and
beyond. The Company has taken the necessary steps for its own computer systems
to be compliant with these requirements. It continues to be in the process of
assessing the status of its production equipment and its suppliers. The costs of
compliance have not been and are not expected to be significant to its results
of operations.
Forward-Looking Statements
This report contains certain forward-looking statements subject to risk and
uncertainties which could cause actual results to differ materially from those
anticipated. Readers are cautioned not to place undue reliance on those
forward-looking statements which speak only as of the date of this report.
10
<PAGE>
BOWLES FLUIDICS CORPORATION
PART II. OTHER INFORMATION
FOR THE NINE MONTHS ENDED JULY 25, 1998
Item 6. Exhibits and Reports on Form 8-K
Exhibit Description
------- -----------
(a) Exhibit 20 Report furnished to Security Holders
(b) Reports on Form 8-K None
11
Exhibit 20
BOWLES FLUIDICS CORPORATION
6625 Dobbin Road, Columbia, Maryland 21045-4707 USA
Phone: 410-381-0400 Fax: 410-381-2718
September 8, 1998
TO THE STOCKHOLDERS OF BOWLES FLUIDICS CORPORATION:
Automotive nozzle sales declined 10% in the third quarter primarily
because of the General Motors strike. We elected not to lay off
related personnel in this period, as normal shutdowns for retooling
and the strike would dictate, but rather to redirect efforts toward
accelerating manufacturing process improvements. This, of course,
contributed to a further decrease in the quarter's gross profit.
Two automotive customers have selected BFC as the supplier of AC
outlets for production in 1999 and 2000. Two nonautomotive programs
have been awarded to BFC commencing production in 1998 and 1999.
In spite of the third quarter's negatives, the nine-month results
exceed those of last year and we hope the last quarter will permit a
significant sales recovery.
Sincerely,
_____________________
Ronald Stouffer
President
RS:lto
Attachment
12
<PAGE>
BOWLES FLUIDICS CORPORATION
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 25, 1998 July 26, 1997 July 25, 1998 July 26, 1997
------------- ------------- ------------- -------------
<S><C>
Net Sales $ 4,632,502 $ 4,387,924 $ 15,105,362 $ 13,615,319
Cost of Sales 3,889,714 3,130,132 11,196,107 9,325,310
Selling, General and Administrative Expenses 664,588 672,013 1,993,702 2,409,483
Research and Development Costs 205,180 225,055 582,743 756,563
Interest Income and Other Income and (Expense), Net 20,557 26,373 75,771 75,712
------------- --------------------------------- -------------
Income before Taxes $ (106,423) $ 387,097 $ 1,408,581 $ 1,199,675
Provision for Income Taxes (38,759) 140,345 521,631 432,687
------------- -------------------------------- -------------
Net Income $ (67,664) $ 246,752 $ 886,950 $ 766,988
------------- -------------------------------- -------------
Income applicable to Common Shareholders $ (86,326) $ 228,090 $ 830,965 $ 711,003
============= ================================ =============
Net Income per Share
Basic $ (0.01) $ 0.02 $ 0.07 $ 0.06
Diluted $ 0.00 $ 0.02 $ 0.05 $ 0.05
</TABLE>
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Unaudited Audited
July 25, 1998 October 25,1997
------------- ---------------
<S><C>
Assets
Cash and Cash Equivalents $ 970,359 $ 755,525
Investments - 1,563,121
Accounts Receivable 2,821,583 3,112,063
Inventories 2,992,946 2,130,615
Other Current Assets 425,689 634,037
------------- -------------
Total Current Assets 7,210,577 8,195,361
------------- -------------
Property, Plant and Equipment, Net 4,312,460 3,494,335
Other Assets 91,230 95,005
------------- -------------
Total Assets $ 11,614,267 $ 11,784,701
============= =============
Liabilities and Stockholders' Equity
Accounts Payable--Trade $ 701,337 $ 1,122,437
Accrued Expenses and Other Liabilities 1,088,139 1,609,807
Income Taxes Payable - 48,162
------------- -------------
Total Current Liabilities 1,789,476 2,780,406
Other Liabilities 474,488 492,866
------------- -------------
Total Liabilities 2,263,964 3,273,272
------------- -------------
8% Convertible Preferred Stock 933,080 933,080
Common Stock 1,268,501 1,264,001
Additional Paid-in Capital 2,732,832 2,728,083
Retained Earnings 4,415,890 3,586,265
------------- -------------
Stockholders' Equity 9,350,303 8,511,429
------------- -------------
Total Liabilities and Stockholders' Equity $ 11,614,267 $ 11,784,701
============= =============
</TABLE>
13
<PAGE>
FORM 10-Q
BOWLES FLUIDICS CORPORATION
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.
BOWLES FLUIDICS CORPORATION
Date __________________ By ____________________________
Ronald D. Stouffer
President
Date __________________ By ___________________________
David A. Quinn
Vice President - Finance
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> JUL-25-1998
<CASH> 970,359
<SECURITIES> 0
<RECEIVABLES> 2,821,583
<ALLOWANCES> 0
<INVENTORY> 2,992,946
<CURRENT-ASSETS> 7,210,577
<PP&E> 10,973,565
<DEPRECIATION> 6,661,105
<TOTAL-ASSETS> 11,614,267
<CURRENT-LIABILITIES> 1,789,476
<BONDS> 0
0
933,080
<COMMON> 1,268,501
<OTHER-SE> 7,148,722
<TOTAL-LIABILITY-AND-EQUITY> 11,614,267
<SALES> 4,632,502
<TOTAL-REVENUES> 4,632,502
<CGS> 3,889,714
<TOTAL-COSTS> 4,759,482
<OTHER-EXPENSES> (20,557)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (106,423)
<INCOME-TAX> (38,759)
<INCOME-CONTINUING> (67,664)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (67,664)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> 0.00
</TABLE>
