<PAGE>
<PAGE> 1
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 the three months ended June 30, 1994 Commission file number 1-7894
ERLY INDUSTRIES INC.
(Exact name of registrant as specified in its charter)
California 95-2312900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
10990 Wilshire Boulevard, Los Angeles, California 90024-3955
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (213) 879-1480
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 (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____
As of June 30, 1994, there were 3,674,865 shares of the Registrant's
common stock outstanding (including redeemable common stock).
<PAGE>
<PAGE> 2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, March 31,
1994 1994
------------ -------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash $ 1,776,000 $ 3,065,000
Notes and accounts receivable, less
allowance for doubtful accounts of
$2,064,000 (June 30) and $1,865,000
(March 31) 38,487,000 34,894,000
Inventories:
Raw materials 16,874,000 28,182,000
Finished goods 24,848,000 35,114,000
---------- ----------
41,722,000 63,296,000
Prepaid expenses and other
current assets 1,736,000 1,522,000
---------- -----------
Total current assets 83,721,000 102,777,000
Long-term notes receivable, net 1,791,000 1,792,000
Property, plant and equipment, net 55,464,000 55,034,000
Assets held for sale, net 22,565,000 22,546,000
Other assets 16,500,000 17,001,000
------------ ------------
$180,041,000 $199,150,000
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable, collateralized $ 38,026,000 $ 49,273,000
Accounts payable 23,482,000 37,000,000
Accrued payroll and other
current liabilities 6,195,000 2,724,000
Income taxes payable 3,952,000 3,339,000
Current portion of long-term
and subordinated debt 9,046,000 8,946,000
---------- -----------
Total current liabilities 80,701,000 101,282,000
Long-term debt 59,092,000 60,592,000
Subordinated debt 7,313,000 7,313,000
Minority interest 20,376,000 19,769,000
Redeemable common stock,
300,000 shares issued and outstanding 1,800,000 1,800,000
Stockholders' equity:
Common stock, par value $.01 a share:
Authorized: 5,000,000 shares
Issued and outstanding:
3,374,865 shares (June 30), and
3,374,765 shares (March 31) 34,000 34,000
Additional paid-in capital 16,157,000 16,157,000
Retained earnings (deficit) (4,089,000) (6,450,000)
Cumulative foreign currency
adjustments (1,343,000) (1,347,000)
------------ ------------
Total stockholders' equity 10,759,000 8,394,000
------------ ------------
$180,041,000 $199,150,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 3 ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended June 30,
-----------------------------------
1994 1993
-----------------------------------
(Unaudited)
<S> <C> <C>
Net Sales $121,262,000 $ 51,150,000
Cost of sales 105,599,000 43,996,000
------------ ------------
Gross profit 15,663,000 7,154,000
Selling, general and
administrative expenses 8,613,000 5,124,000
Interest expense 3,474,000 2,387,000
Interest income (66,000) (132,000)
Other expense 136,000 409,000
Investment income (426,000)
Gain on sale of partial
interest in subsidiary (11,768,000)
---------- ----------
12,157,000 (4,406,000)
Income before taxes on income,
discontinued operations,
extraordinary item and
minority interest 3,506,000 11,560,000
Taxes on income 599,000 371,000
---------- ----------
Income from continuing operations
before discontinued operations,
extraordinary item and
minority interest 2,907,000 11,189,000
Loss on discontinued operations (2,016,000)
--------- ----------
Income before extraordinary
item and minority interest 2,907,000 9,173,000
Extraordinary item 10,270,000
--------- ----------
Income before minority interest 2,907,000 19,443,000
Minority interest in earnings of
consolidated subsidiary (546,000) (5,108,000)
------------ -----------
Net income $ 2,361,000 $14,335,000
============ ===========
Net income (loss) per common and
common share equivalents:
Primary:
Continuing operations $ .56 $2.81 *
Discontinued operations (.58)
Extraordinary item 1.88 *
------ -----
$ .56 $4.11
====== =====
Fully diluted:
Continuing operations $ .53 $2.61 *
Discontinued operations (.54)
Extraordinary item 1.75 *
----- -----
$ .53 $3.82
===== =====
</TABLE>
<PAGE>
<PAGE> 4 ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
For the three months ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------------
1994 1993
---------------------------------
(Unaudited)
<S> <C> <C>
Weighted average common and
common share equivalents:
Primary 4,184,000 3,487,000
Fully diluted 4,451,000 3,754,000
</TABLE>
* Net of applicable minority interest ($1.4 million relating to continuing
operations and $3.7 million relating to extraordinary item).
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 5 ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------------
1994 1993
--------------------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,361,000 $14,335,000
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Minority interest in earnings
of consolidated subsidiary 546,000 5,108,000
Gain on sale of partial interest
in subsidiary (11,768,000)
Extraordinary income - debt discount (10,270,000)
Depreciation and amortization 1,722,000 1,125,000
Provision for loss on receivables 13,000 22,000
Equity in net income of
American Rice, Inc. (426,000)
Loss on disposition of subsidiary 880,000
Change in assets and liabilities:
(Increase) in receivables (3,606,000) (237,000)
Decrease in inventories 21,574,000 6,668,000
(Increase) decrease in prepaid
expenses and other current assets (214,000) 386,000
(Decrease) in accounts payable
and other current liabilities (10,047,000) (6,704,000)
Increase in taxes payable 613,000 488,000
Other, net 85,000
---------- ---------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 13,047,000 (393,000)
INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (1,694,000) (315,000)
Disposition of property, plant
and equipment 5,000 175,000
Acquisition of American Rice, Inc. 12,608,000
Disposition of rice subsidiary 2,092,000
Other, net (2,120,000)
--------- ----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (1,689,000) 12,440,000
</TABLE>
<PAGE>
<PAGE> 6 ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the three months ended June 30, 1994 and 1993
<TABLE>
<CAPTION>
Three months ended June 30,
--------------------------------
1994 1993
--------------------------------
(Unaudited)
<S> <C> <C>
FINANCING ACTIVITIES:
Increase (decrease) in notes payable (11,247,000) 983,000
Proceeds from notes and long-term debt 79,458,000
Repayment of notes and term debt
on rice refinancing (93,736,000)
Principal payments on long-term debt (1,400,000) (723,000)
---------- ----------
NET CASH (USED IN)
FINANCING ACTIVITIES (12,647,000) (14,018,000)
---------- ----------
INCREASE (DECREASE) IN CASH
DURING THE QUARTER (1,289,000) (1,971,000)
CASH, BEGINNING OF QUARTER 3,065,000 3,872,000
------------ ------------
CASH, END OF QUARTER $ 1,776,000 $ 1,901,000
============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 7 ERLY INDUSTRIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the three months ended June 30, 1994
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Retained Foreign Total
--------------------- Paid-in Earnings Currency Stockholders'
Shares Dollars Capital (Deficit) Adjustments Equity
---------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance
April 1, 1994 3,374,765 $ 34,000 $16,157,000 ($6,450,000) ($1,347,000) $ 8,394,000
Net income
for the period 2,361,000 2,361,000
Common stock
issued 100 -
Foreign currency
adjustments 4,000 4,000
--------- ------------------------------------------------------------------
Balance
June 30, 1994
(unaudited) 3,374,865 $ 34,000 $16,157,000 ($4,089,000) ($1,343,000) $10,759,000
========= ==================================================================
</TABLE>
See accompanying Notes to Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of Operations.
<PAGE>
<PAGE> 8 ERLY INDUSTRIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended June 30, 1994 and 1993
Basis of Presentation:
The information furnished is unaudited but reflects all adjustments which
are, in the opinion of management, necessary for a fair statement of
results for the interim periods. Results for interim periods are not
necessarily indicative of results to be expected for the entire year.
Reference should be made to the Notes To Consolidated Financial Statements
in the Company's 1994 Form 10-K for a discussion of accounting policies
and other significant matters.
The accompanying consolidated financial statements include the accounts of
ERLY Industries Inc. and its subsidiaries (the "Company" or "ERLY"). All
significant intercompany accounts, intercompany profits and intercompany
transactions are eliminated. As discussed in Note 1, substantially all of
the assets and liabilities of ERLY's wholly owned subsidiary, Comet Rice,
Inc. ("Comet"), were acquired by American Rice, Inc. ("ARI") on May 26,
1993, in a transaction accounted for as a reverse acquisition by its
subsidiary, Comet. Prior to the transaction, ERLY owned 48% of the voting
rights of ARI, and its investment in ARI was accounted for using the
equity method. ERLY's equity in ARI's net results of operations was
reflected as investment income or loss in ERLY's consolidated statements
of operations. As a result of the transaction, ERLY's ownership increased
to 81% of the voting rights of ARI; therefore, beginning in June 1993,
ARI's balance sheet and results of operations are consolidated with ERLY's
with appropriate adjustments to reflect minority interest.
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Deferred income taxes and liabilities are computed for differences between
the financial statement basis and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future. Valuation
allowances have been established to reduce deferred tax assets to the
amount expected to be realized. At March 31, 1994, the Company had net
operating loss carryforwards for federal tax reporting purposes of
approximately $32 million which can be used to offset future taxable
income. Tax expense reflected in the consolidated statements of
operations represents estimated federal and state tax expense on pre-tax
earnings reduced by the utilization of deferred tax assets relating to net
operating loss carryforwards that had previously been reserved.
Primary earnings per share are based on the weighted average number of:
(1) common shares, and (2) dilutive common share equivalents (consisting
of stock options and warrants) outstanding during each period presented.
Fully diluted earnings per share assumes conversion of a $1 million
convertible note payable, unless conversion would be antidilutive.
<PAGE>
<PAGE> 9
Note 1 - Acquisition of Comet Rice, Inc. by American Rice, Inc.
On May 26, 1993, ARI consummated a transaction to acquire substantially
all of the assets of Comet and assume all of Comet's liabilities (the
"Transaction"). The Transaction also involved refinancing the combined
indebtedness of ARI and Comet.
The operating results reflected in the accompanying financial statements
do not include ARI's operating activities prior to May 26, 1993, the date
of the Transaction. The following consolidated unaudited pro forma
results, however, have been prepared assuming the Transaction had occurred
at the beginning of the fiscal year, April 1, 1993.
<TABLE>
<CAPTION> Three months
ended
June 30, 1993
Pro Forma
-------------
<S> <C>
Net sales $77,953
Income from continuing
operations before discontinued
operations, extraordinary item
and minority interest* 1,900
Net income 1,900
Income per common share
from continuing operations*:
Primary $ .54
Fully diluted $ .51
</TABLE>
* Excluding one-time gain on sale of partial interest in subsidiary of
$11,768,000.
Note 2 - Gain on Sale of Partial Interest in Subsidiary
In conjunction with the May 26, 1993 Transaction, ERLY received an
additional 33% interest in ARI in exchange for all of the assets (except
for the ARI stock owned by Comet) and assumed all of the liabilities of
ERLY's wholly owned subsidiary, Comet Rice, Inc.
Since ERLY, the sole shareholder of Comet at the time of the Transaction,
owned the larger portion of the voting rights in the surviving
corporation, the Transaction was accounted for as a reverse step
acquisition of ARI by ERLY through its subsidiary, Comet, reflecting the
change of control that occurred. The Transaction was accounted for under
<PAGE>
<PAGE> 10
Note 2 - Gain on Sale of Partial Interest in Subsidiary (continued)
the guidelines of APB Opinion No. 16, "Business Combinations" and Emerging
Issues Task Force ("EITF") Issue No. 90-13, "Accounting for Simultaneous
Common Control Mergers."
The accounting consists of three steps: Step one consists of a
recognition by ARI of ERLY's historical cost of its original 48% interest.
When ERLY purchased 48% of ARI in 1988 for $20 million, the purchase price
was greater than 48% of ARI stockholders' equity. ERLY attributed the
excess to ARI's Houston property and thus the excess (which was $5.2
million at March 31, 1993) was added to the book value of the Houston
property.
Step two recognizes the acquisition by ERLY of an additional equity
interest in ARI of approximately 33% in exchange for substantially all of
the assets of Comet and all of Comet's liabilities. ARI's assets are
valued at fair market value to the extent acquired.
Step three, in accordance with EITF 90-13, the fair value of Comet's net
assets was determined. ERLY accounted for the Transaction as a partial
sale of 19% of Comet Rice (19% is the percentage ownership of ARI by
minority shareholders), and a step acquisition of ARI, increasing its
ownership from 48% to 81%. Under EITF 90-13, a gain of $11.8 million was
recognized by ERLY in the quarter ended June 30, 1993, to the extent of
the 19% of Comet Rice sold.
In accordance with EITF 90-13, Comet's net assets were revalued in ERLY's
consolidated financial statements to the extent that Comet was acquired by
the minority shareholders of ARI. This resulted in an $11.6 million
increase in the carrying value of Comet assets. This increase was
attributed to Comet's Maxwell, California facility, now owned by ARI. It
is being depreciated over 30 years (buildings and improvements) and 15
years (machinery and equipment).
Note 3 - Discontinued Operations
In December 1993, the Company sold its juice manufacturing facility
located in Eau Claire, Michigan, plus inventory, accounts receivable and
trademarks. As a result of these dispositions, ERLY has no operating
assets or continuing operations remaining in the juice business. It is
ERLY's intention to liquidate the remaining assets of ERLY Juice for the
benefit of the ERLY Juice creditors.
<PAGE>
<PAGE> 11
Note 3 - Discontinued Operations (continued)
The results of ERLY's juice business have been reported separately as
discontinued operations in the consolidated statements of operations.
Prior period consolidated financial statements have been restated to
present the juice business as a discontinued operation. Summarized
results of ERLY Juice for the three months ended June 30, 1993 were as
follows:
<TABLE>
<CAPTION>
1993
-----------
<S> <C>
Net sales $14,669,000
Costs and expenses (15,902,000)
Interest expense (783,000)
-----------
Loss from discontinued
operations ($ 2,016,000)
===========
</TABLE>
At June 30, 1994, ERLY's remaining juice business assets of $609,000 are
included in prepaid expenses and other current assets in the consolidated
balance sheet. In addition, the June 30, 1994 consolidated balance sheet
includes liabilities of the juice business as follows:
<TABLE>
<CAPTION>
<S> <C>
Current liabilities:
Notes payable to ING $ 8,397,000
Accounts payable 4,807,000
Other current liabilities 354,000
Current portion of long-term debt 245,000
-----------
$13,803,000
===========
</TABLE>
Note 4 - Minority Interest
ERLY owns 81% of ARI's voting interests. Parent companies often hold
interests in subsidiaries by ownership of the common stock of the
subsidiary. ERLY's ownership of ARI is more complex, including both
common stock and convertible preferred stock. ERLY's 81% interest in ARI
consists of the following securities of ARI:
* 3,888,888 shares of ARI common stock which represent 32% of ARI's
total outstanding common stock and 9% of ARI's common shares on a
fully converted basis.
<PAGE>
<PAGE> 12
Note 4 - Minority Interest (continued)
* 3,888,888 shares of ARI Series A Preferred Stock, which is
convertible one for one, has voting rights, liquidation preferences
of $5.14 per share, but has no stated dividend. These shares
represent 9% of ARI's common shares on a fully converted basis.
* 14,000,000 shares of ARI Series B Preferred Stock, which is
convertible into 28,000,000 common shares, has voting rights and an
annual cumulative dividend of approximately $5.2 million. These
shares represent 63% of ARI's common shares on a fully converted
basis.
In addition to the preferred stocks issued to ERLY, ARI issued a Series C
Preferred Stock to third parties. This Series C Preferred Stock does not
have voting or conversion rights but does have an annual cumulative
dividend of $750,000. The Series A, Series B and Series C Preferred
Stocks are unique securities with preferential rights which are superior
to common stock rights.
The Minority Interest of ARI in ERLY's consolidated financial statements
represents the 68% of the common stock of ARI which ERLY does not own and
the Series C Preferred Stock.
In the situation where ownership of a subsidiary is represented entirely
by common stock, the minority interest in the earnings or losses of the
subsidiary is the percentage ownership by the minority interest in the
common stock. However, in the case where ownership of a subsidiary
involves complex securities like convertible preferred stocks in addition
to common stocks, specific rules under generally accepted accounting
principles (APB Opinion No. 18, "The Equity Method of Accounting for
Investments in Common Stock") require that earnings or losses of the
subsidiary be allocated between the parent and the minority interest in
accordance with the underlying terms of the various securities, rather
than allocation based on voting ownership of the subsidiary. No
conversion is assumed in the case of convertible preferred stocks for
purposes of this calculation, even though conversion may occur at any time
at the option of the holder.
ARI's cumulative annual dividends of $5.2 million related to the Series B
Preferred Stock and $750,000 related to the Series C Preferred Stock are
deducted from ARI earnings to yield earnings or loss to be allocated to
common stock. The Series B Preferred Stock dividend is allocated entirely
to ERLY, while the Series C Preferred Stock dividend is allocated entirely
to Minority Interest.
The Series B and Series C Preferred Stock dividends are allocated to ERLY
and to the Minority Interest, respectively, even if this allocation
results in a loss being attributed to the common stock as these preferred
stock dividends are based on the underlying terms of the securities.
<PAGE>
<PAGE> 13
Note 4 - Minority Interest (continued)
Similarly, these dividends are allocated even if not declared as the
dividends are cumulative. However, dividends are allocated only if
determined to be ultimately recoverable.
The remaining earnings or losses to be allocated to common stock after
deduction of the preferred stock dividends is allocated in accordance with
the relative common stock ownership of ERLY (32%) and the Minority
Interest (68%).
If ERLY had converted the Series A Preferred Stock to ARI common stock at
the beginning of fiscal year 1994 (April 1, 1993) and converted the Series
B Preferred Stock to common stock at the date of issuance (May 26, 1993),
earnings of ARI allocated to ERLY would have increased ERLY's reported
income and retained earnings by approximately $164,000 and $2.3 million
for the quarters ended June 30, 1994 and 1993, respectively, with a
corresponding decrease in Minority Interest on ERLY's consolidated
statements of operations and consolidated balance sheets.
The Minority Interest reflected on the balance sheets represents: (1)
original investment in the equity of ARI on a historical cost basis on the
part of the Minority Interest, (2) an entry to record the acquisition by
the Minority Interest of a partial interest in Comet Rice, Inc. as of May
26, 1993 in accordance with EITF 90-13 as described in Note 2, and (3) the
effects of the allocation of ARI's earnings and losses from May 26, 1993
based on the ownership terms of the various equity securities of ARI as
previously described.
Minority Interest does not represent amounts distributable to minority
shareholders. Amounts, if any, ultimately distributable to minority
shareholders will depend on the ownership interests which exist at such
time as distributions are made, including the potential conversions of
convertible securities and potential issuance or retirement of other
securities. The timing of distributions and conversions, if any, is at
the discretion of ERLY, since ERLY owns 81% of the voting interest in ARI.
Note 5 - Assets Held for Sale - Long-term
The consolidated balance sheets include assets held for sale classified as
long-term of $23 million at June 30, 1994. This includes ARI property
held for sale in Houston, Texas ($19 million) and the remaining net assets
of the Company's discontinued winery operations ($4 million) which
management intends to dispose of in an orderly manner.
ARI's Board of Directors previously adopted a resolution authorizing its
management to sell 39 acres of land in Houston. Management has had
conversations with developers interested in the property, however, no
decision has yet been made about how to market the property. Management's
intention is an orderly, outright sale to a third party rather than to
develop the property. However, ARI might consider some form of joint
<PAGE>
<PAGE> 14
Note 5 - Assets Held for Sale - Long-term (continued)
venture with a developer in order to maximize the property's value. ARI
has the ability and intent to hold the property over a normal marketing
period. The proceeds of any such sale, when and if it occurs, are
required by the terms of ARI's debt agreements to be used to reduce debt.
Note 6 - Long-term and Subordinated Debt
Certain of the Company's and subsidiaries' long-term debt agreements
require maintenance of minimum amounts or ratios related to working
capital, long-term debt and net worth, in addition to the observance of
other covenants. These restrictions also preclude the payment of cash
dividends.
The Company's Chemonics subsidiary was in violation of certain debt
covenants at June 30, 1994, by not making the last term loan payment of
$1.0 million on December 31, 1993. Negotiations are in process for a
refinancing with new lenders to paydown Chemonics' existing lender. This
refinancing is expected to be completed by the third quarter of the
current fiscal year.
As a result of the discontinuation of the juice operations, there still
remains $8.4 million (plus accrued interest from December 21, 1993) of
ERLY Juice's obligation to ING Capital which the Company guaranteed in
exchange for a $6 million write-down of ERLY Juice obligations. Under the
terms of the guarantee, ERLY is required to paydown the remaining $8.4
million (plus accrued interest) of debt within one year (by December 21,
1994) or ING Capital may declare a default with the right to foreclose on
ERLY's subsidiary, Chemonics Industries, Inc. The Company expects to sell
sufficient assets or refinance Chemonics Industries in order to paydown
the remaining obligations prior to December 21, 1994.
The Company's 12-1/2% Subordinated Sinking Fund Debentures (the "Old
Debentures") with an outstanding balance of $8,880,000 matured on December
1, 1993. The Company has offered to exchange $8,880,000 12-1/2%
Subordinated Sinking Fund Debentures due 2002 (the "New Debentures") for
the Old Debentures. As of June 30, 1994, holders of approximately 95% of
the Old Debentures have agreed to the exchange. The Company does not
currently have adequate cash reserves to redeem the principal amount of
all of the Old Debentures (with a face value of approximately $449,000)
which have not agreed to the exchange but is exploring ways to deal with
those debentureholders who will not exchange and believes that it can
refinance the remaining amounts.
<PAGE>
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
For the three months ended June 30, 1994 and 1993
Results of Operations - Three months ended June 30, 1994 and 1993
For the quarter ended June 30, 1994, the Company reported net income of
$2.4 million on sales of $121 million, as compared to net income of
$14,335,000 on sales of $51 million for the first quarter of the prior
fiscal year. Sales for the first quarter of fiscal 1994 were up
$70 million from the first quarter of fiscal 1993, primarily due to a $69
million increase in sales by ARI as discussed below.
Gross profit for the quarter ended June 30, 1994 was $15.7 million, an
increase of $8.5 million from the quarter ended June 30, 1993, primarily
as a result of a $7.6 million increase at ARI.
Results for the first quarter of the prior fiscal year included an $11.8
million gain on the sale of a partial interest in Comet Rice, Inc. in
conjunction with the May 1993 combination of Comet Rice and ARI (See Note
2). The results for the quarter ended June 30, 1993, also included: (1)
extraordinary income of $6.6 million (net of minority interest) which
represents debt discounts by ARI's former lenders recorded in conjunction
with the refinancing of Comet and ARI , and (2) a $2.0 million loss from
discontinued operations relating to the Company's juice business which was
discontinued in December 1993.
Prior to the combination discussed in Note 1, ERLY owned 48% of the voting
rights of American Rice, Inc. and accounted for its investment using the
equity method of accounting. ERLY therefore recorded its interest in
ARI's results as investment income (loss) in the consolidated statements
of operations. First quarter results from last year include investment
income of $426,000 from ERLY's interest in ARI's net income for April and
May of 1993.
Subsequent to the Transaction, ARI's results of operations are
consolidated with ERLY's and are not reflected as investment income
(loss), but are now accounted for as discussed in Note 4 - Minority
Interest.
Rice Operations
Sales for the quarter ended June 30, 1994 of $105.7 million increased
$68.9 million from the prior year due to $51.5 million in export sales
increases and $17.4 million in domestic sales increases. As a result of
the May 26, 1993 Transaction, three months of ARI sales are included in
1994 versus one month in the corresponding period in 1993. The estimated
increase in sales as a result of the Transaction was approximately $37
million including $13 million in domestic markets and $24 million in
export markets.
Export sales increased due to higher volume and higher average prices.
Total export sales volume increased approximately 5 million equivalent
rough rice hundredweight ("cwt.") due primarily to increases in sales from
<PAGE>
<PAGE> 16
ARI's Maxwell, California facility as a result of exports to Japan and 1.6
million cwt. in increases as a result of the Transaction. Total average
milled rice prices increased 17% due primarily to a higher proportion of
branded export sales as a result of the Transaction.
Domestic sales increased primarily as a result of the Transaction. In
addition to sales added by the Transaction, domestic sales increased due
to higher average prices. Average domestic milled rice sales prices
increased 44% due to the higher value-added retail sales from the ARI
customer base.
Gross profit was 11% and 10% of sales for the three months ended June 30,
1994 and 1993, respectively, increasing $7.6 million from the prior
period. ARI sales included as a result of the Transaction contributed
approximately $800,000 of the increase. Gross profit on other export
sales increased $6.6 million.
ARI's selling, general and administrative expense of $5.3 million
increased $3.2 million from last year primarily due to advertising and
selling expenses associated with the higher value-added sales from the ARI
customer base.
Interest expense of $2.9 million increased $1.1 million due to higher
borrowings and higher average interest rates as a result of the
Transaction. Interest expense in both periods include legal and other
expenses directly associated with the debt.
Chemonics Industries
For the quarter ended June 30, 1994, the Company's subsidiary, Chemonics
Industries, had revenues of $15.6 million, compared to $14.4 million last
year, an increase of 8%. This increase is due entirely to increased sales
by Chemonics' consulting division. Gross profit was $4.3 million (28% of
sales) for the quarter compared to gross profit of $3.5 million (24%) for
the first quarter of last year.
General
Consolidated interest expense totalled $3.5 million for the quarter ended
June 30, 1994, compared with $2.4 million for the same quarter of last
year. This increase reflects the increase in consolidated debt due to the
combination of Comet Rice and American Rice in May 1993.
<PAGE>
<PAGE> 17
Discontinued Operations
In December 1993, the Company discontinued its operations in the juice
business (See Note 3). For the quarter ended June 30, 1993, the Company
reported a loss from discontinued operations of $2.0 million.
Liquidity and Capital Resources
At June 30, 1994, consolidated working capital was $3.0 million, an
improvement of $1.5 million from March 31, 1994 as a result of the
positive operating results for the quarter.
Stockholders' equity was $10,759,000 at June 30, 1994, compared to
$8,394,000 at March 31, 1994, an improvement of $2.4 million as a result
of the net income for the quarter.
As a result of the discontinuation of the juice operations, there still
remains $8.4 million (plus accrued interest from December 21, 1993) of
ERLY Juice's obligation to ING Capital which the Company guaranteed in
exchange for a $6 million write-down of ERLY Juice obligations. Under the
terms of the guarantee, ERLY is required to paydown the remaining $8.4
million (plus accrued interest) of debt within one year (by December 21,
1994) or ING Capital may declare a default with the right to foreclose on
ERLY's subsidiary, Chemonics Industries, Inc. The Company expects to sell
sufficient assets or refinance Chemonics Industries in order to paydown
the remaining obligations prior to December 21, 1994.
The Company's 12-1/2% Subordinated Sinking Fund Debentures (the "Old
Debentures") with an outstanding balance of $8,880,000 matured on December
1, 1993. The Company has offered to exchange $8,880,000 12-1/2%
Subordinated Sinking Fund Debentures due 2002 (the "New Debentures") for
the Old Debentures. As of June 30, 1994, holders of approximately 95% of
the Old Debentures have agreed to the exchange. The Company does not
currently have adequate cash reserves to redeem the principal amount of
all of the Old Debentures (with a face value of approximately $449,000)
which have not agreed to the exchange but is exploring ways to deal with
those debentureholders who will not exchange and believes that it can
refinance the remaining amounts.
Item 6.(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30, 1994.
<PAGE>
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ERLY INDUSTRIES INC.
By /s/ Richard N. McCombs
Date: August 11, 1994 -----------------------
Richard N. McCombs
Vice President and
Chief Financial Officer
<PAGE>
<PAGE> 19
EXHIBIT I.1
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF PRIMARY INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1994 1993
----------------------------
<S> <C> <C>
Income from
continuing operations $ 2,907 $11,189
Income (loss) on
discontinued operations (2,016)
Income from extraordinary item 10,270
Minority interest (546) (5,108)
------- -------
Net income $ 2,361 $14,335
======= =======
Average number of shares of
common stock and common
stock equivalents outstanding:
Average number of shares of
common stock outstanding 3,675 3,487
Common stock equivalents:
Dilutive effect of stock
options and warrants based
on application of treasury
stock method 509
----- -----
Total 4,184 3,487
===== =====
Primary income per
common share:
Income from
continuing operations $ .56 $ 2.81 (a)
Income (loss) on
discontinued operations (.58)
Income from extraordinary
item 1.88 (a)
------ ------
Primary income per
common share $ .56 $ 4.11
====== ======
</TABLE>
(a) Net of applicable minority interest ($1.4 million relating to continuing
operations and $3.7 million relating to extraordinary item).
<PAGE>
<PAGE> 20
EXHIBIT I.2
ERLY INDUSTRIES INC. AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED INCOME PER SHARE
(In thousands except per share data)
<TABLE>
<CAPTION>
Three months ended June 30,
----------------------------
1994 1993
----------------------------
<S> <C> <C>
Income from
continuing operations $ 2,907 $11,189
Interest adjustment - convertible
note payable 20 20
------ ------
Income from continuing operations,
as adjusted 2,927 11,209
Income (loss) on
discontinued operations (2,016)
Income from extraordinary item 10,270
Minority interest (546) (5,108)
------- -------
Net income, as adjusted $ 2,381 $14,355
======= =======
Average number of shares of
common stock and common
stock equivalents outstanding 4,184 3,487
Other potentially
dilutive securities:
Common stock issuable upon
conversion of note payable 267 267
----- -----
Total 4,451 3,754
===== =====
Fully diluted income
per common share:
Income from continuing operations $ .53 $ 2.61 (a)
Income (loss) on discontinued
operations (.54)
Income from extraordinary item 1.75 (a)
------- -------
Fully diluted income
per common share $ .53 $ 3.82
======= =======
</TABLE>
(a) Net of applicable minority interest ($1.4 million relating to continuing
operations and $3.7 million relating to extraordinary item).
