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 January 30, 1999 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
(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 January 30, 1999.
Class Outstanding at January 30, 1999
------------------ -------------------------------
Common Stock, $.10 12,685,011 shares
<PAGE>
INDEX
BOWLES FLUIDICS CORPORATION
FOR THE THREE MONTHS ENDED JANUARY 30, 1999
<TABLE>
<CAPTION>
Page
PART I. Financial Information Number
------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Statements of Income
For the three months ended January 30, 1999
and January 24, 1998 ........................................... 3
Consolidated Balance Sheets
January 30, 1999 and October 31, 1998............................ 4
Consolidated Statements of Cash Flows
For the three months ended January 30, 1999
and January 24, 1998 ........................................... 5
Notes to Consolidated Financial Statements ....................... 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations ................................................. 8
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K................................... 10
Exhibit 20 ........................................................ 11
</TABLE>
2
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
------------------------------
January 30, January 24,
1999 1998
----------- -----------
<S> <C> <C>
Product sales $ 4,722,161 $ 4,334,677
Technical services sales 568,264 468,994
---------- ----------
Net sales 5,290,425 4,803,671
Cost of sales 3,972,806 3,295,386
--------- ---------
Gross profit 1,317,619 1,508,285
Selling, general and
administrative expenses 730,764 620,748
Research and development costs 314,763 180,966
---------- ----------
Operating income 272,092 706,571
Interest income 20,842 28,101
Other income (expense), net (5,198) 4,398
---------- -----------
Income before taxes 287,736 739,070
Provision for income taxes 117,200 271,218
---------- ----------
Net income 170,536 467,852
Preferred stock dividends accrued (18,662) (18,662)
----------- ----------
Income applicable to
common shareholders $ 151,874 $ 449,190
========== ==========
Basic earnings per share $ .01 $ .04
==== ====
Diluted earnings per share $ .01 $ .03
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
BOWLES FLUIDICS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
January 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 1,124,646 $ 1,734,261
Accounts receivable 3,063,545 3,233,775
Income taxes receivable 89,244 194,213
Inventories 2,220,727 2,263,144
Other current assets 505,253 399,781
------------- ------------
Total current assets 7,003,415 7,825,174
------------- ------------
Property and equipment, net 4,758,697 4,408,404
Other assets 142,367 121,743
------------- ------------
Total assets $11,904,479 $12,355,321
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable - trade $ 934,894 $ 1,109,902
Accrued expenses 904,522 1,326,107
------------- ------------
Total current liabilities 1,839,416 2,436,009
Other liabilities 534,970 541,093
------------- ------------
Total liabilities 2,374,386 2,977,102
------------- ------------
Commitments and contingencies
Stockholders' Equity
8% Convertible preferred stock 933,080 933,080
Common stock 1,268,501 1,268,501
Additional paid-in capital 2,732,833 2,732,833
Retained earnings 4,595,679 4,443,805
------------- ------------
Total stockholders' equity 9,530,093 9,378,219
------------- ------------
Total liabilities and stockholders' equity $11,904,479 $12,355,321
============= ============
</TABLE>
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 Three Months Ended
-------------------------------
January 30, January 24,
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 170,536 $ 467,852
Adjustments to reconcile net income
provided by operating activities:
Depreciation and amortization 299,998 255,599
Loss on disposition of assets - 976
Accretion of interest on investments - (3,291)
----------- -----------
470,534 721,136
----------- -----------
Change in operating accounts:
Accounts receivable 170,230 87,812
Income taxes receivable 104,969 -
Inventories 42,417 (620,455)
Other assets (110,039) 82,579
Accounts payable (175,008) (216,309)
Accrued expenses (365,601) (385,363)
Income taxes payable - 226,677
Other liabilities (6,123) (6,127)
----------- -----------
Change in operating accounts (339,155) (831,186)
----------- -----------
Net cash provided by (used in) operating activities 131,379 (110,050)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (648,124) (592,147)
Patent costs (18,224) -
----------- -----------
Net cash used in investing activities (666,348) (592,147)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of investments - 1,090,821
Preferred stock dividend (74,646) (74,646)
----------- -----------
Net cash (used in) provided by financing activities (74,646) 1,016,175
----------- -----------
Net increase (decrease) in cash and cash
equivalents (609,615) 313,978
CASH AND CASH EQUIVALENTS
- Beginning of period 1,734,261 755,525
----------- -----------
- End of period $ 1,124,646 $ 1,069,503
=========== ===========
</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 January
30, 1999, and the results of operations and cash flows for three months ended
January 30, 1999, and January 24, 1998.
While the Company believes that the disclosures presented are adequate, 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.
NOTE 2 - INVENTORIES
Inventories are comprised of:
January 30, October 31,
1999 1998
------------ ------------
Raw material $ 717,941 $ 720,084
Work in progress 237,743 193,612
Tooling in progress 391,427 598,193
Finished goods 873,616 751,255
----------- -----------
Total $ 2,220,727 $ 2,263,144
=========== ===========
NOTE 3 - PROPERTY AND EQUIPMENT, NET
Property and equipment, net, is comprised of:
<TABLE>
<CAPTION>
January 30, October 31,
1999 1998
------------ ------------
<S> <C> <C>
Production machinery and equipment $ 6,622,700 $ 6,328,351
Office furniture and equipment 2,580,749 2,502,438
Laboratory and machine shop equipment 1,830,307 1,586,801
Leasehold improvements 920,361 894,816
------------ ------------
Total property and equipment 11,954,117 11,312,406
Less accumulated depreciation (7,195,420) (6,904,002)
------------ -----------
Net property and equipment $ 4,758,697 $ 4,408,404
=========== ===========
</TABLE>
NOTE 4 - 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>
NOTE 5 - EARNINGS PER SHARE
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
----------------------------------
January 30, January 24,
1999 1998
------------- -------------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share:
Income applicable to common
shareholders $ 151,874 $ 449,190
Effect of dilutive securities:
Preferred stock dividends 18,662 18,662
------------- -------------
Numerator for diluted earnings per share:
Income applicable to common shareholders
after assumed conversion $ 170,536 $ 467,852
============ ============
Denominator:
Denominator for basic earnings per share:
Weighted average shares outstanding
during the period 12,685,011 12,640,011
Effect of dilutive securities:
Employee stock options - 53,482
Assumed conversion of preferred stock 3,732,320 3,732,320
----------- -----------
Denominator for diluted earnings per share 16,417,331 16,425,813
---------- ----------
Earnings per Share:
Basic $ .01 $ .04
==== ====
Diluted $ .01 $ .03
==== ====
</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 31, 1998.
RESULTS OF OPERATIONS
First Quarter FY 1999 Compared with First Quarter FY 1998
The Company's sales of $5,290,425 in the first quarter of fiscal year 1999
surpassed the prior year's first quarter sales of $4,803,671 by 10% due to
increases in both product and technical services sales. Net income, however,
decreased 64% from $467,852 or $.04 of basic earnings per share ($.03 on a fully
diluted basis) in the first quarter of FY 1998 to $170,536 or $.01 of basic
earnings per share ($.01 also on a fully diluted basis) in the first quarter of
FY 1999. The reasons for the decrease were principally higher manufacturing
costs and also rising expenses in other areas, all accentuated by the tight
labor market at the Company's main location.
The first quarter shipments of light vehicle windshield washer nozzles and
defroster outlets of $4,722,161 were 9% above the FY 1998 first quarter sales of
$4,334,677. Product sales rose for vehicle production by all of the Big Three
car manufacturers and surpassed the overall 5% increase in North American
vehicle production for this period.
Technical services sales of $568,294 in the first quarter of FY 1999 increased
21% over the sales of $468,994 in the prior year's first quarter. In addition to
the normal volume of tooling for new auto washer nozzles, the FY 1999 first
quarter includes the completion of the production tooling for the first vehicle
utilizing the Company's new air conditioning outlets. Full production of these
outlets is currently scheduled for this summer.
Gross profit in the FY 1999 first quarter was $1,317,619, 13% lower than the
profit of $1,508,285 earned in the FY 1998 first quarter. Manufacturing expenses
increased significantly as personnel, machine capacity, and space were added to
meet higher production requirements, to continue the implementation of cell
manufacturing, and to prepare for the start-up of the production of the new air
conditioning outlets. The costs of customizing the Company's washer nozzles for
particular new vehicles also rose for the first quarter of FY 1999 due to the
addition of personnel to improve the design, quality, and manufacturability of
washer nozzles.
Selling, general and administrative expenses at $730,764 were 18% higher than
last year's first quarter expenses of $620,748 principally due to increases in
personnel costs and legal fees, the latter due to the work related to the
proposed reverse stock split and redemption of fractional shares.
8
<PAGE>
Research and development costs increased 74% to $314,763 in FY 1999's first
quarter from the previous year's first quarter costs of $180,966 as more efforts
were focused on the design and development of new products and manufacturing
techniques.
Operating income declined 61% from last year's first quarter income of $706,571
to this fiscal year's first quarter income of $272,092.
The provision for income taxes, both federal and states, has been determined
based upon an estimate of the total year's pretax income. The increase in the
effective tax rate from 37% in the FY 1998 first quarter to 41% in the FY 1999
first quarter was due to higher state taxes.
FINANCIAL CONDITION
The Company's working capital of $5,163,999 at January 30, 1999, decreased
$225,166 from the previous year end at October 31, 1998. The current ratio
increased from 3.2 to 3.8 during the first quarter as current liabilities
decreased at a greater rate than current assets. The principal reason was the
decline in accounts payable and accrued expenses as certain year-end liabilities
and the preferred stock dividend were paid in the first quarter.
Cash flow during the FY 1999 first quarter was a negative $609,615 principally
due to capital expenditures for property and equipment of $648,124. Cash flow
from operating activities was a positive $131,379 as adjusted net income
provided $470,534, lower than last year's first quarter due to the lower net
income, and the changes in operating accounts used $339,155, significantly less
than the prior year's first quarter because of the lack of last year's large
investment in inventories.
North American vehicle production, which generates most of the Company's sales,
increased 3% in the fourth calendar quarter of 1998 versus the same period in
1997. Production for the first calendar quarter of 1999 is forecasted by Ward's
Automotive Reports to increase 8% above the prior year's first quarter.
The Company's management believes that the present and planned production
capacity should be satisfactory to meet the anticipated demands referred to
above, as well as near-term new product deliveries. Cash flow from operations,
available cash, and the Company's credit line are expected to provide the funds
needed for near-term working capital requirements and capital expenditures.
9
<PAGE>
BOWLES FLUIDICS CORPORATION
PART II. OTHER INFORMATION
FOR THE THREE MONTHS ENDED JANUARY 30, 1999
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 Announcement of action taken by the Board of
Directors at its meeting on December 8, 1998,
recommending to the Company's shareholders a
proposal to amend the Company's Articles of
Incorporation to effect a 1,000-for-1 reverse
split of its outstanding shares of common stock.
Any fractional shares resulting therefrom would
be redeemed at the price of $1.25 per share of
common stock outstanding immediately prior to the
adoption of the proposed amendment and giving
effect to the reverse split.
10
Exhibit 20
BOWLES FLUIDICS CORPORATION
6625 Dobbin Road, Columbia, Maryland 21045-4707 USA
Phone: 410-381-0400 Fax: 410-381-2718
March 15, 1999
TO THE STOCKHOLDERS OF BOWLES FLUIDICS CORPORATION:
Sales of the Company's windshield washer nozzles and defroster outlets rose 9%
to $4,722,161 for the first quarter of the 1999 fiscal year ended January 30,
1999, compared with the prior year's first quarter. This increase surpassed the
5% gain for total North American vehicle production for the same period.
Technical services sales in the amount of $568,264 represented a 21% increase
over the first quarter of the prior fiscal year. In addition to the normal
volume of tooling for new auto washer nozzles, the FY 1999 first quarter
included the completion of the production tooling for the first vehicle
utilizing the Company's new air conditioning outlets. Full production of these
new outlets is currently scheduled for this summer.
Despite the increase in product sales, net income declined 64% to $170,536 or
$.01 of basic earnings per share (the same on a fully diluted basis) from
$467,852 or $.04 of basic earnings per share ($.03 on a fully diluted basis) for
last year's first quarter. Manufacturing expenses increased significantly as
personnel, machine capacity, and space were added to meet higher production
requirements, to continue the implementation of cell manufacturing, and to
prepare for the start-up of the production of the new air conditioning outlets.
Product customization costs also rose due to the addition of personnel to
improve the design, quality, and manufacturability of washer nozzles. The
increase in selling, general and administrative expenses resulted from higher
personnel costs and legal fees, the latter due to work related to the proposed
reverse stock split and redemption of fractional shares. In addition, more
efforts were focused on the design and development of new products and
manufacturing tecniques, resulting in a 74% increase in research and development
costs. All of these costs were affected by the tight labor market at the
Company's main location.
Significant efforts are being made by the Company to improve not only the design
and quality of our products but also the efficiency of our manufacturing and
engineering functions. We continue to maintain a high level of customer service
to meet ever-increasing industry demands and look forward to the expansion of
our product line to include the new air conditioning outlets and nozzles for
household products.
Sincerely,
Ronald Stouffer
President
RS:lto
Attachment
11
<PAGE>
<TABLE>
<CAPTION>
BOWLES FLUIDICS CORPORATION EXHIBIT 20
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
January 30,1999 January 24,1998
---------------------- -----------------------
<S> <C> <C>
Net Sales $ 5,290,425 $ 4,803,671
Cost of Sales 3,972,806 3,295,386
Selling, General and Administrative Expenses 730,764 620,748
Research and Development Costs 314,763 180,966
Interest Income and Other Income and (Expense), Net 15,644 32,499
---------------------- -----------------------
Income before Taxes $ 287,736 $ 739,070
Provision for Income Taxes 117,200 271,218
---------------------- -----------------------
Net Income $ 170,536 $ 467,852
---------------------- -----------------------
Income applicable to Common Shareholders $ 151,874 $ 449,190
====================== =======================
Net Income per Share
Basic $ 0.01 $ 0.04
------- ------
Diluted $ 0.01 $ 0.03
------- ------
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Unaudited Audited
January 30,1999 October 31, 1998
ASSETS
Cash and Cash Equivalents $ 1,124,646 $ 1,734,261
Accounts Receivable 3,152,789 3,427,988
Inventories 2,220,727 2,263,144
Other Current Assets 505,253 399,781
---------------------- -----------------------
Total Current Assets 7,003,415 7,825,174
Property, Plant and Equipment, Net 4,758,697 4,408,404
Other Assets 142,367 121,743
---------------------- -----------------------
Total Assets $ 11,904,479 $ 12,355,321
====================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable--Trade $ 934,894 $ 1,109,902
Accrued Expenses and Other Liabilities 904,522 1,326,107
Total Current Liabilities 1,839,416 2,436,009
Other Liabilities and Deferred Income Taxes 534,970 541,093
---------------------- -----------------------
Total Liabilities 2,374,386 2,977,102
---------------------- -----------------------
8% Convertible Preferred Stock 933,080 933,080
Common Stock 1,268,501 1,268,501
Additional Paid-in Capital 2,732,833 2,732,833
Retained Earnings 4,595,679 4,443,805
---------------------- -----------------------
Stockholders' Equity 9,530,093 9,378,219
---------------------- -----------------------
Total Liabilities and Stockholders' Equity $ 11,904,479 $ 12,355,321
====================== =======================
</TABLE>
12
<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
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<FISCAL-YEAR-END> Oct-30-1999
<PERIOD-END> Jan-30-1999
<PERIOD-TYPE> 3-mos
<CASH> 1,124,646
<SECURITIES> 0
<RECEIVABLES> 3,152,789
<ALLOWANCES> 0
<INVENTORY> 2,220,727
<CURRENT-ASSETS> 7,003,415
<PP&E> 11,954,117
<DEPRECIATION> 7,195,420
<TOTAL-ASSETS> 11,904,479
<CURRENT-LIABILITIES> 1,839,416
<BONDS> 0
<COMMON> 1,268,501
0
933,080
<OTHER-SE> 7,328,512
<TOTAL-LIABILITY-AND-EQUITY> 11,904,479
<SALES> 4,722,161
<TOTAL-REVENUES> 5,290,425
<CGS> 3,972,806
<TOTAL-COSTS> 5,018,333
<OTHER-EXPENSES> (15,644)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 287,736
<INCOME-TAX> 117,200
<INCOME-CONTINUING> 170,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,536
<EPS-PRIMARY> 0.01<F1>
<EPS-DILUTED> 0.01
<FN>
<F1>EPS-BASIC
</FN>
</TABLE>
