<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1995
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Commission file number 0-7473
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HARLYN PRODUCTS, INC.
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(Exact name of registrant as specified in its charter)
California 95-2251025
- ------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. employer I.D. No.)
Incorporation or organization)
1515 South Main Street, Los Angeles, California 90015
- ----------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (213)-746-0745
- --------------------------------------------------- --------------
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 report), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----------- -----------
Indicate number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 1995
- ---------------------------- -----------------------------
Common Stock. $.10 par value 4,753,284
<PAGE>
HARLYN PRODUCTS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I -- FINANCIAL STATEMENTS:
Condensed Balance Sheets
March 31, 1995 and June 30, 1994 4
Condensed Statements of Operations
Three Months and Nine Months Ended
March 31, 1995 and 1994 5
Condensed Statements of Cash Flows
Nine Months Ended March 31, 1995 and 1994 6 & 7
Notes to Condensed Financial Statements
Nine Months Ended March 31, 1995 and 1994 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9 & 10
PART II -- OTHER INFORMATION AND SIGNATURES 11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
<PAGE>
HARLYN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
Mar. 31, June 30,
----------- -----------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 395,000 $ 521,000
Accounts receivable, net 12,803,000 11,299,000
Inventories: Raw materials 3,548,000 2,507,000
Work in process 2,207,000 4,684,000
Finished goods 10,863,000 9,731,000
Deferred income taxes 334,000 334,000
Prepaid expenses and other current assets 908,000 899,000
----------- -----------
Total current assets 31,058,000 29,975,000
Property, plant and equipment, net 5,561,000 4,752,000
Deferred income taxes 65,000 65,000
Other assets 1,491,000 913,000
----------- -----------
Total assets $38,175,000 $35,705,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank line of credit $10,380,000 $ 6,810,000
Current portion of long term debt 1,252,000 1,191,000
Accounts payable and accrued expenses 2,256,000 4,028,000
----------- -----------
Total current liabilities 13,888,000 12,029,000
Long term debt, net of current portion 4,548,000 5,871,000
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Total liabilities 18,436,000 17,900,000
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Shareholders' equity:
Common stock: $.10 par, authorized
10,000,000 shares; issued 4,753,284
at March 31, 1995 and 4,484,533 at
June 30, 1994 475,000 448,000
Additional paid-in capital 2,412,000 1,596,000
Retained earnings 16,852,000 15,761,000
----------- -----------
Total shareholders' equity 19,739,000 17,805,000
----------- -----------
Total liabilities and shareholders' equity $38,175,000 $35,705,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
HARLYN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months Nine months
ended March 31, ended March 31,
------------------------ ---------------------------
1995 1994 1995 1994
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $6,324,000 $6,790,000 $27,324,000 $25,319,000
---------- ---------- ----------- -----------
Cost of sales 3,878,000 4,037,000 17,620,000 15,244,000
---------- ---------- ----------- -----------
Gross profit 2,446,000 2,753,000 9,704,000 10,075,000
Selling, general and
administrative expenses 2,599,000 2,173,000 7,627,000 6,511,000
---------- ---------- ----------- -----------
Income (loss) from operations (153,000) 580,000 2,077,000 3,564,000
Interest expense 458,000 379,000 1,250,000 1,300,000
---------- ---------- ----------- -----------
Income (loss) before income taxes (611,000) 201,000 827,000 2,264,000
Provision (credit) for
income taxes (379,000) 75,000 (264,000) 735,000
---------- ---------- ----------- -----------
Net income (loss) $ (232,000) $ 126,000 $ 1,091,000 $ 1,529,000
========== ========== =========== ===========
Net income (loss) per
common share $(0.05) $0.03 $0.23 $0.33
========== ========== =========== ===========
Average common and common
equivalent shares outstanding 4,828,995 4,616,366 4,831,322 4,578,394
========== ========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE>
HARLYN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months
ended March 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,091,000 $1,529,000
Adjustments to reconcile net income to net
cash used for operating activities:
Depreciation & amortization 1,145,000 1,466,000
Changes in operating assets & liabilities:
Accounts receivable (1,504,000) (1,246,000)
Inventories (311,000) (1,607,000)
Prepaid expenses and other current assets (9,000) (380,000)
Accounts payable and accrued expenses (1,643,000) 726,000
Net cash (used for) provided by operating
activities (1,231,000) 488,000
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (1,954,000) (1,626,000)
Other assets 37,000 (435,000)
---------- ----------
Net cash used for investing activities (1,917,000) (2,061,000)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under line of credit agreement 3,570,000 2,594,000
Repayments/retirements of long term debt (1,262,000) (526,000)
Proceeds from exercise of warrants and options 714,000 61,000
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Net cash provided by financing activities 3,022,000 2,129,000
NET CHANGE IN CASH & CASH EQUIVALENTS (126,000) 556,000
CASH & CASH EQUIVALENTS-BEGINNING OF PERIOD 521,000 92,000
---------- ----------
CASH & CASH EQUIVALENTS-END OF PERIOD $ 395,000 $ 648,000
========== ==========
(continued)
</TABLE>
6
<PAGE>
HARLYN PRODUCTS, INC. AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
CONCLUDED
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
<TABLE>
<CAPTION>
Nine months
ended March 31,
-----------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest $1,216,000 $1,072,000
Income taxes $ 225,000 $ 175,000
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended March 31, 1995, the Company exchanged
inventory in the amount of $615,000 for an equivalent amount of future
benefits under a barter arrangement.
Stock warrants for 214,063 shares of common stock were exercised during
the nine months ended March 31, 1995 at prices ranging from $2.04 to
$2.80. The related income tax benefit increased additional paid in capital
by $129,000.
See accompanying notes to condensed financial statements.
7
<PAGE>
HARLYN PRODUCTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1994
1). The condensed consolidated financial statements are unaudited and include
the financial position, results of operations, and cash flows of Harlyn
Products, Inc. (USA) and its subsidiaries. All intercompany transactions,
accounts and balances have been eliminated. In the opinion of Company
management, the accompanying consolidated financial statements contain all
adjustments, consisting of only normal recurring accruals, necessary to
present fairly the financial position as of March 31, 1995, and the results
of its operations for the three months and nine months ended March 31, 1995
and 1994. The condensed consolidated financial statements should be read in
conjunction with the more detailed financial statements and related footnotes
thereto filed with Form 10-K for the year ended June 30, 1994.
The results of operations for the three months and nine months ended
March 31, 1995 are not necessarily indicative of the results of operations
for the full year ending June 30, 1995. Historically, the Company's business
has followed a seasonal pattern, realizing its greatest sales and net income
in the second and fourth fiscal quarters.
2). The gold pool with Rhode Island Hospital Trust was 23,429 Troy ounces
at March 31, 1995, an increase from its level of 21,472 ounces at June 30,
1994. This was due to normal operational requirements. The Company is
required to maintain gold inventory in addition to its gold pool.
R.I. Hospital Trust has notified the Company that this additional gold
inventory has been insufficient to meet required collateral levels. The lessor
views collateral deficiencies as Events of Default under the Company's
consignment agreement with the Lessor. Management anticipates eliminating
the collateral shortfall by fiscal year end. At that time the Company will be
in compliance with all requirements of its gold lease agreement.
3). The provision (credit) for income taxes is based on the effective annual
tax rate expected for the year ending June 30, 1995. Credit provisions on the
income statement reflect losses in the United States which will be carried back
to prior years in the form of refund claims. Beginning in December 1994, the
Company was granted a three year foreign tax holiday on most income earned in
Thailand. The Company does not provide for U.S. taxes on earnings in Thailand
because it intends to reinvest those earnings indefinitely.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Although consolidated net sales decreased by $466,000, or 7%, for the three
months ended March 31, 1995, net sales for the nine months ended March 31, 1995
increased by $2,005,000, or 8%, as compared with the corresponding periods in
the prior year. Sales by Harlyn's U.S. operations decreased by $1,127,000, or
20% for the three months ended March 31, 1995, primarily due to higher than
estimated sales returns. Sales by Harlyn's U.S. operations increased by
$2,037,000, or 11%, for the nine months ended March 31, 1995 primarily due to
higher sales gained from marketing and promotional programs targeting stock
merchandise sales to independent retailers. Sales by Harlyn's Thailand
operations increased by $661,000, or 55% for the three months ended March
31,1995, and decreased by $30,000 for the nine months ended March 31, 1995.
Higher sales to U.S. and South American markets offset reduced European sales.
A decrease in the average price of gold for the three months ended March 31,
1995 and an increase in the average price of gold for the nine months ended
March 31, 1995 as compared to the prior year had no material impact on sales.
Gross profit as a percentage of net sales was 39% and 36% for the three months
and nine months ended March 31, 1995 compared with 41% and 40% in the
corresponding periods of the prior year. Domestic margins declined due to
higher material costs, increased labor costs, and the sale of certain
discontinued inventory at reduced prices. This decline was somewhat offset
by an increase in the domestic sale of Thailand merchandise produced at more
favorable labor rates.
Selling, general and administrative expenses increased by $426,000 and
$1,116,000 in the three months and nine months ended March 31, 1995 compared
with the corresponding periods of the prior year, and increased as a
percentage of net sales from 32% and 26% to 41% and 28%. The additional costs
were primarily due to greater promotional and marketing expenses required by
the Company's expanded sales effort targeting stock merchandise sales to
independent retailers. These higher levels of selling and administrative
expenses are likely to continue as sales grow in this segment. The increase
in interest expense of $79,000 for the three months and decrease of $50,000
for the nine months ended March 31, 1995, as compared with the corresponding
periods of the prior year is attributed to reductions in bank fees offset by
higher interest rates on higher levels of borrowings in both the United States
and Thailand.
The effective income tax rate was lower than the combined U.S. federal and state
statutory tax rates principally due to the three year tax holiday granted in
Thailand in December 1994. The effective income tax rate differs from the rate
reflected in the three and six months ended December 31, 1994 condensed
statements of income and the corresponding periods of the prior year primarily
due to lower income estimates in the United States for the fiscal year ending
June 30, 1995, and the tax holiday in Thailand, respectively.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net receivables increased by $1,504,000 from $11,299,000 on June 30, 1994 to
$12,803,000 on March 31, 1995; this increase was primarily due to the
seasonality of the Company's business. Inventories decreased by $304,000, or 2%,
from a June 30, 1994 balance of $16,922,000 to $16,618,000 at March 31, 1995.
The Company does not anticipate any unusual cash or working capital
requirements for the remainder of its current fiscal year. Outstanding bank
debt at March 31, 1995 amounted to line of credit borrowings of $10,380,000
(at .5% over prime rate) against available consolidated credit lines of
$12,000,000, and $5,800,000 of long term debt (at .5% above prime rate) of
which $1,252,000 is current. The additional line of credit borrowings were
primarily used to fund increases in accounts receivable and complete
construction of the Company's new Thailand facility.
The Company leases substantially all of its gold and is not required to pay for
the gold until product into which the gold is incorporated is sold. The
Company has a $10,625,000 line of credit for its gold pool, and utilized
$9,184,000 or 23,429 troy ounces of this on March 31, 1995. The Company
maintains gold inventory in addition to its goldpool. R.I. Hospital Trust has
notified the Company that this additional gold inventory has been insufficient
to meet required collateral levels. The lessor views collateral deficiencies
as Events of Default under the Company's consignment agreement with the Lessor.
Management anticipates eliminating the collateral shortfall by fiscal year end.
At that time the Company will be in compliance with all requirements of its
gold lease agreement.
10
<PAGE>
PART II. OTHER INFORMATION
**************************
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.
HARLYN PRODUCTS, INC.
(Registrant)
/s/ HAROLD WEISBROD /s/ WILLIAM HOOD
- --------------------------------- --------------------------------
Harold Weisbrod William Hood
(Chairman of the Board) (Chief Executive Officer)
/s/ EDWARD DUDZIAK /s/ RANDALL MONSON
- --------------------------------- --------------------------------
Edward Dudziak Randall Monson
(President & Chief Operating Officer) (Chief Financial Officer)
Date: May 15, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 387,000
<SECURITIES> 8,000
<RECEIVABLES> 13,308,000
<ALLOWANCES> 505,000
<INVENTORY> 16,618,000
<CURRENT-ASSETS> 31,058,000
<PP&E> 16,967,000
<DEPRECIATION> 11,406,000
<TOTAL-ASSETS> 38,175,000
<CURRENT-LIABILITIES> 13,988,000
<BONDS> 0
<COMMON> 475,000
0
0
<OTHER-SE> 19,264,000
<TOTAL-LIABILITY-AND-EQUITY> 38,175,000
<SALES> 27,324,000
<TOTAL-REVENUES> 27,324,000
<CGS> 17,620,000
<TOTAL-COSTS> 17,620,000
<OTHER-EXPENSES> 7,478,000
<LOSS-PROVISION> 149,000
<INTEREST-EXPENSE> 1,250,000
<INCOME-PRETAX> 827,000
<INCOME-TAX> (264,000)
<INCOME-CONTINUING> 1,091,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,091,000
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
