<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1996
OR
[ ] 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 0-9607
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CENTRUM INDUSTRIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 34-1654011
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6135 Trust Drive, Suite 104A, Holland, Ohio 43528
- ------------------------------------------- ----------
(Address of principal executive offices) (Zip code)
(419) 868-3441
--------------
(Registrant's telephone number, including area code)
5580 Monroe Street. Suite 100, Sylvania, Ohio 43560
--------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 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 .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING at September 30, 1996
- ----------------------------- ---------------------------------
Common Stock - $.05 Par Value 7,476,193
1
<PAGE> 2
CENTRUM INDUSTRIES, INC.
INDEX
Page
COVER 1
INDEX 2
PART I - FINANCIAL INFORMATION
ITEM 1: Financial Statements
Condensed Consolidated Balance Sheets
as of September 30, 1996 and March 31,1996. 3
Condensed Consolidated Statements of
Income for the three and six months ended
September 30, 1996 and 1995. 5
Condensed Consolidated Statements of
Cash Flows for the six months ended
September 30, 1996 and 1995. 6
Notes to Condensed Consolidation
Financial Statements 7
ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
NOT APPLICABLE
SIGNATURES 12
2
<PAGE> 3
PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CENTRUM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(unaudited)
September 30, March 31,
1996 1996
---- ----
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 655,885 $ 2,100,749
Accounts receivable, less allowances of $170,682
and $93,761, respectively 10,977,885 10,979,166
Cost and estimated earnings in excess of billings
on uncompleted contracts 1,400,929 372,699
Inventories:
Raw materials 5,240,119 4,756,954
Work in process 5,811,788 4,332,492
Finished goods 1,077,539 305,798
Prepaid expense and other 292,237 347,307
-------------- --------------
Total Current Assets 25,456,382 23,195,165
Fixed Assets:
Oil and gas properties 88,908 88,908
Property, plant and equipment, net 10,678,891 11,062,201
-------------- --------------
Total Fixed Assets 10,767,799 11,151,109
Other Assets:
Deferred income tax benefits 2,098,129 2,066,393
Goodwill, less accumulated amortization of $474,988
and $404,494, respectively 2,369,122 2,439,616
Debt issuance costs 1,095,674 1,133,412
Other 477,168 626,053
-------------- --------------
Total Other Assets 6,040,093 6,265,474
Total Assets $ 42,264,274 $ 40,611,748
============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
CENTRUM INDUSTRIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(unaudited)
September 30, March 31,
1996 1996
---- ----
<S> <C> <C>
Liabilities and Shareholders' Equity
Current Liabilities:
Bank line of credit $ 10,071,635 $ 7,886,486
Current portion of long-term debt 1,760,089 2,976,425
Accounts payable 8,331,085 9,506,022
Accrued employee costs 1,025,686 1,012,655
Accrued interest 72,887 138,055
Deposits 516,933 268,394
Income taxes payable 10,000 251,143
Deferred income taxes 280,551 122,974
Accrued expense and other 1,624,407 2,057,523
--------------- ---------------
Total Current Liabilities 23,693,273 24,219,677
Long-term debt, less current portion 11,856,735 11,982,409
Other liabilities 664,949 826,670
Commitments and Contingent Liabilities (Note B)
Shareholders' Equity:
Preferred stock - $.05 par value, 1,000,000 shares
authorized, 70,000 shares issued and outstanding
(liquidation preference of $10 per share) 3,500 3,500
Common stock - $.05 par value, 15,000,000 authorized
7,476,193 and 6,170,860 issued and outstanding 373,810 308,543
Additional paid-in capital 6,848,301 5,318,767
Accumulated deficit (1,176,294) (2,047,818)
--------------- ---------------
Total Shareholders' Equity 6,049,317 3,582,992
--------------- ---------------
Total Liabilities and Shareholders' Equity $ 42,264,274 $ 40,611,748
=============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
CENTRUM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three For the six
months ended months ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 16,854,151 $ 5,492,344 $ 34,433,347 $ 10,532,218
Cost of sales 12,723,694 4,049,006 25,478,109 7,776,301
----------------- -------------- -------------- ---------------
Gross profit 4,130,457 1,443,338 8,955,238 2,755,917
Depreciation 295,445 18,485 607,023 42,849
Selling, general and
administrative expenses 2,995,763 1,140,543 6,191,600 2,148,403
----------------- -------------- -------------- ---------------
Operating income 839,249 284,310 2,156,615 564,665
----------------- -------------- -------------- ---------------
Other income and (expenses)
Interest income 86,418 3,203 130,671 7,939
Interest expenses (524,462) (83,366) (1,098,817) (178,727)
Amortization (121,348) (37,308) (240,776) (73,804)
Miscellaneous 43,631 22,868 54,059 22,477
----------------- -------------- -------------- ---------------
(515,761) (94,603) (1,154,863) (222,115)
Income before income taxes 323,488 189,707 1,001,752 342,550
Provision for income taxes 28,228 51,222 130,228 92,490
----------------- -------------- -------------- ---------------
Net income $ 295,260 $ 138,485 $ 871,524 $ 250,060
================= ============== ============== ===============
Net income per common
and common equivalent share $0.04 $0.02 $0.12 $0.04
===== ===== ===== =====
Weighted average number of
common and common equivalent
shares outstanding 7,787,076 5,685,378 7,445,760 5,690,232
================= ============== ============== ===============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
CENTRUM INDUSTRIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
For the six For the six
Months ended Months ended
September 30, September 30,
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 871,524 $ 250,060
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 847,799 116,653
Deferred income taxes 125,841
Changes in assets and liabilites that provide (use) cash:
Accounts receivable 1,281 1,170,831
Cost and estimated earnings in excess of billings
on uncompleted contracts (1,028,230) (227,956)
Inventory (2,734,202) (481,798)
Prepaid expenses and other 71,411 12,429
Accounts payable (1,174,937) (364,621)
Accrued expenses and other (888,117) 7,670
Customer deposits 248,539 76,343
------------------- -----------------
Net cash provided by (used in) operating activities (3,659,091) 559,611
------------------- -----------------
Cash flows from investing activities:
Purchase of property and equipment (223,713) (33,785)
------------------- -----------------
Net cash used in investing activities (223,713) (33,785)
------------------- -----------------
Cash flows from financing activities:
Net proceeds (repayments) on short-term debt 2,185,149 (285,000)
Repayments of notes payable (1,342,010) (151,144)
Proceeds from the issuance of notes payable 175,000
Proceeds from the issuance of common stock 1,594,801
Repurchase of common stock (60,000)
------------------- -----------------
Net cash provided by (used in) financing activities 2,437,940 (321,144)
------------------- -----------------
Increase (decrease) in cash and cash equivalents (1,444,864) 204,682
Cash and cash equivalents at beginning of period 2,100,749 472,673
------------------- -----------------
Cash and cash equivalents at end of period $ 655,885 $ 677,355
=================== =================
</TABLE>
See notes to condensed consolidated financial statements.
6
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CENTRUM INDUSTRIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The financial information included herein is unaudited; however, such
information reflects all adjustments (consisting principally of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of the results of operations for the three month and six month
periods ended September 30, 1996 and 1995. Accounting policies followed by the
Company are described in Note 1 to the financial statements in its Annual
Report on Form 10-K for the year ended March 31, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The condensed financial statements should be
read in conjunction with the financial statements, including notes thereto,
contained in the Company's Annual Report on Form 10-K for the year ended March
31, 1996.
The results of operations for the three months and six months ended September
30, 1996 are not necessarily indicative of the results to be expected for the
full year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Certain amounts within the prior year financial statements have been
reclassified in order to be consistent with the current year presentation.
NOTE B: COMMITMENTS AND CONTINGENT LIABILITIES
There has been no significant change from the prior year-end audited
statements.
NOTE C: INCOME PER COMMON AND COMMON EQUIVALENT SHARE
The computation of income per common and common equivalent share is based on
the weighted average number of shares of common stock outstanding during the
respective periods. Common equivalent shares, including shares that would be
issued upon the exercise of outstanding warrants and options, have been
included in the calculations to the extent that they are dilutive in nature.
7
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The changes in sales and operating income for the three and six month periods
ended September 30, 1996 over the comparable period of a year ago were due
primarily to the inclusion of the metal forming subsidiary in the current
period results. As discussed in the Form 10-K filed for the year ended March
31, 1996, the metal forming operations were acquired on March 8, 1996 and,
accordingly, the results of these operations were not included in the
comparable prior year periods. The metal forming operations have continued
their contribution to operating income and cash flow during the current
quarter, however, revenues and profitability were down slightly from the first
quarter of this year. Sales decreased by approximately 8% during the quarter
as a result of seasonal market fluctuations combined with the timing of certain
product shipments to larger customers. It is anticipated that the revenue
stream will benefit during the second half as a result of an increase in
shipments to key customers and, overall, stronger product demand.
Revenue at the material handling subsidiary has increased when compared to the
comparable prior year period, however, there has been a reduction in operating
income due to the mix of products sold. Although backlogs have risen to record
levels this year, management believes that this trend will continue during the
second half of 1996. Sales at the motor production subsidiary have increased
over the prior year period as a result of customer demand, however, operating
profits did not follow this trend due to competitive pressures on margins. The
revenue trend will continue during the second half of this year and operating
margins will be positively impacted by a more profitable product mix at the
motor production subsidiary. The corporate and oil and gas segments did not
record any sales in either period.
Both consolidated revenues and gross margins were impacted during the second
quarter of 1996 by the operating trends described above. The decrease in
consolidated revenues of 4% for the quarter, coupled with a weaker product mix,
resulted in a gross margin of 25% in the second quarter as compared to 27% in
the previous quarter of this year. However, management's continued emphasis on
cost control held total selling, general, and administrative expenses at 18%
for the current quarter, which was consistent with the previous quarter.
Consequently, the Company's operating income for the second quarter of this
year finished at 5% of sales and 6% for the first half year of operations in
1996.
Management believes that both the short-term and long-term fundamentals of each
of the Company's business units remain sound. Backlogs in each business
segment rose throughout the quarter and the mix of product will continue to
support or improve consolidated operating margins during the second half of
fiscal 1996. For these reasons, management believes that current earning
trends can be maintained or improved throughout the year.
The increase in interest expense for the period ended September 30, 1996 over
the comparable period of a year ago is primarily due to the issuance of debt at
the corporate office level and the metal forming subsidiary. The proceeds were
used primarily in connection with
8
<PAGE> 9
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
the acquisition of the metal forming operations in March of this year. Both
depreciation and amortization expense have increased significantly as a result
of the acquisition of the metal forming operations and the inclusion of their
financial results in the current quarter.
The effective income tax rate for the company has been reduced from 27% in the
prior year to 13% in the current year results. The primary cause of the
reduction in this rate is the utilization of previously reserved federal net
operating loss carryforwards at the motor production operations and parent
company level. Management has concluded that the current earning trend would
not result in the reversal of these tax valuation reserves in their entirety at
this time.
Net income per common and common equivalent share has been diluted as a result
of the continued issuance of common shares pursuant to a Confidential Private
Placement Memorandum (Private Placement) issued on November 15, 1995. Please
refer to the Form 10-K filed for the year ended March 31, 1996 for more
detailed discussion of these matters. Management believes that in spite of
these circumstances the current per share earning trend will be maintained.
Summarized unaudited results of operations by business segment for the three
month and six month periods ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Quarter Ended Quarter Ended
September 30, 1996 September 30, 1995
Dollars Percent Dollars Percent
------- ------- ------- -------
<S> <C> <C> <C> <C>
Sales
Metal forming $ 10,968,062 65.08% $ 0 0.00%
Material handling 3,976,215 23.59% 3,886,510 70.76%
Motor production 1,909,874 11.33% 1,605,834 29.24%
Oil and gas 0 0.00% 0 0.00%
Corporate 0 0.00% 0 0.00%
------------ -------- ------------ ---------
Total sales $ 16,854,151 100.00% $ 5,492,344 100.00%
============ ======== ============ =========
Operating income (loss)
Metal forming $ 909,375 108.36% $ 0 0.00%
Material handling 38,082 4.54% 241,867 85.07%
Motor production 110,303 13.14% 188,843 66.43%
Oil and gas (5,460) -0.65% (7,724) -2.72%
Corporate (213,051) -25.39% (138,676) -48.78%
------------ -------- ------------ ---------
Total operating
income $ 839,249 100.00% $ 284,310 100.00%
============ ======== ============ =========
</TABLE>
9
<PAGE> 10
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - CONTINUED
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
September 30, 1996 September 30, 1995
Dollars Percent Dollars Percent
------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Sales
Metal forming $ 22,657,793 65.80% $ 0 0.00%
Material handling 7,901,205 22.95% 7,513,018 71.33%
Motor production 3,874,349 11.25% 3,019,200 28.67%
Oil and gas 0 0.00% 0 0.00%
Corporate 0 0.00% 0 0.00%
------------ -------- ------------ ---------
Total sales $ 34,433,347 100.00% $ 10,532,218 100.00%
============ ======== ============ =========
Operating income (loss)
Metal forming $ 2,169,936 100.62% $ 0 0.00%
Material handling 157,315 7.29% 523,500 92.71%
Motor production 233,365 10.82% 307,434 54.44%
Oil and gas (16,569) -0.77% (15,232) -2.70%
Corporate (387,432) -17.96% (251,037) -44.45%
------------ -------- ------------ ---------
Total operating
income $ 2,156,615 100.00% $ 564,665 100.00%
============ ======== ============ =========
</TABLE>
The Company's operations have been classified into five business segments:
metal forming operations, material handling systems, motor production systems,
oil and gas, and corporate office. The metal forming operations segment
manufactures steel forgings for the power generation, compressor and bearing
markets along with nonferrous casting for the glass container and pump and
valve industries. The material handling segment involves the design,
manufacture and installation of material handling equipment for warehouse and
distribution applications. The motor production systems segment involves the
manufacture of armature winding machines and complete production systems for
numerous complex manufacturing processes. The oil and gas segment includes the
operations of an oil and gas development company.
This quarterly report on Form 10-Q contains forward-looking statements within
the meaning of the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on management's
current expectations and are subject to a number of factors and uncertainties,
as described in the Form 10-K filed for the year-ended March 31, 1996, which
could cause actual results to differ materially from those described in the
forward-looking statements. As a result, the Company's operating results may
fluctuate, especially when measured on a quarterly basis.
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities for the six month period ended September 30,
1996 totaled $3,696,829, as opposed to cash provided by operations of $559,734
in the prior year period. Although net income, taxes and depreciation and
amortization during the period provided $1,845,164 versus $366,713 in the prior
year, the accumulation of additional inventories and the timing of certain
payments resulted in the use of additional capital resources during the first
half of the year. Inventories increased at the metal forming operations due to
increased backlogs and customer demand. Costs and estimated earnings in excess
of billings on uncompleted contracts rose at the motor production segment due
to significant increases in revenue and backlogs. Accounts payable were
reduced at the material handling operations primarily as a result of the timing
of vendor payments. Reductions in the accrued expense category occurred as a
result of certain tax and benefit payments.
The cash absorbed in operating activities was financed primarily through the
$15,500,000 bank line of credit facility maintained by the metal forming
subsidiary and the sale of stock through the Private Placement. Management
believes that sufficient availability exists in the bank line of credit to
finance future operating activities at the metal forming subsidiary and
continued emphasis on inventory reductions will provide additional future
working capital.
Cash used in operating activities at the material handling subsidiary was
primarily financed through cash on-hand at the beginning of the period.
Management is currently negotiating a line of credit with a bank to finance
future working capital needs at this subsidiary. The motor production segment
has been successful in financing its growth utilizing cash on-hand and a bank
line of credit instituted this year. Management believes that the company will
be successful in installing a bank line of credit at the material handling
subsidiary and that both of these segment operations will be able to finance
their growth internally.
The parent company has used cash on-hand and cash from the Private Placement to
finance its operations. In addition, a significant portion of cash raised by
the Private Placement was used to retire debt incurred during the acquisition
of the metal forming operations. The parent company has sufficient cash
on-hand coupled with future amounts to be raised through the Private Placement
to finance the operations at corporate office level.
11
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SIGNATURES
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.
CENTRUM INDUSTRIES, INC.
------------------------
(Registrant)
Date 11/7/96 By: /s/ Timothy M. Hunter
------------ -------------------------
Timothy M. Hunter
Chief Financial Officer
12
<PAGE> 13
EXHIBIT INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 655,885 677,355
<SECURITIES> 0 0
<RECEIVABLES> 11,148,567 2,175,547
<ALLOWANCES> 170,682 72,659
<INVENTORY> 12,129,446 1,592,994
<CURRENT-ASSETS> 292,237 46,734
<PP&E> 11,689,380 1,291,945
<DEPRECIATION> 921,581 177,996
<TOTAL-ASSETS> 42,264,274 9,195,521
<CURRENT-LIABILITIES> 23,693,273 3,749,167
<BONDS> 0 0
0 0
3,500 3,500
<COMMON> 373,810 284,269
<OTHER-SE> 5,672,007 1,408,040
<TOTAL-LIABILITY-AND-EQUITY> 42,264,274 9,195,521
<SALES> 16,854,151 5,492,344
<TOTAL-REVENUES> 16,984,200 5,518,415
<CGS> 12,723,694 4,049,006
<TOTAL-COSTS> 16,136,250 5,245,342
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 524,462 83,366
<INCOME-PRETAX> 323,488 189,707
<INCOME-TAX> 28,228 51,222
<INCOME-CONTINUING> 295,260 138,485
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 295,260 138,485
<EPS-PRIMARY> 0.04 0.02
<EPS-DILUTED> 0.00 0.00
</TABLE>
