SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1996
___ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from____________________________________
to________________________________
Commission File number 0-1298
LUNN INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 11-1581582
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1 Garvies Point Road, Glen Cove, New York 11542-2828
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (516) 671-9000
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 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 [ ]
The aggregate number of shares of Common Stock outstanding as of August 6, 1996
was 11,391,999.
Transitional Small Business Disclosure Format (check one)
Yes ________ No X
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996
ASSETS
June 30,
1996
(unaudited)
CURRENT ASSETS
Cash and cash equivalent $85,046
Accounts Receivable - trade, less allowance for doubtful
accounts of $67,857 3,422,471
Inventories 4,741,840
Prepaid expense and other current assets 408,940
TOTAL CURRENT ASSETS 8,658,297
PROPERTY AND EQUIPMENT
Net of Accumulated Depreciation of $4,151,563 7,457,927
Other Assets:
Security deposits and other assets 114,834
Intangible assets - net 453,741
Total other assets 568,575
TOTAL ASSETS $16,684,799
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
JUNE 30,
1996
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade 1,269,261
Accrued liabilities 1,024,410
Accrued income taxes 23,677
Notes payable 833,250
Capital lease obligations 8,140
TOTAL CURRENT LIABILITIES 3,158,738
LONG-TERM LIABILITIES:
Notes Payable 3,246,089
Capital Lease Obligations 12,615
TOTAL LONG TERM LIABILITIES 3,258,704
TOTAL LIABILITIES 6,417,442
STOCKHOLDERS' EQUITY:
Common stock: par value, $.01 per share, authorized 113,470
20,000,000 shares; outstanding 11,346,999
Additional paid-in capital 13,840,328
Accumulated deficit (3,686,104)
10,267,694
Less treasury stock (150 shares) (337)
TOTAL STOCKHOLDERS' EQUITY 10,267,357
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $16,684,799
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
UNAUDITED
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
NET SALES $4,641,694 $3,806,937 $8,855,004 $7,144,709
Cost of Sales 3,679,946 2,990,820 6,942,619 5,664,034
Gross Profit (Loss) 961,748 816,117 1,912,385 1,480,675
Selling, General and
Administrative Expenses 653,850 538,584 1,394,785 1,083,915
Operating Income 307,898 277,533 517,600 396,760
Other Income (Expense)
Interest Income (Expense) (121,376) (111,439) (247,721) (212,088)
Other Income (Expense) 14,844 12,443 24,950 20,589
(106,532) (98,996) (222,771) (191,499)
Income (loss) from Continuing
Operations Before Income
Taxes 201,366 178,537 294,829 205,261
Provision for Income Tax 0 0 0 0
NET INCOME $201,366 $178,537 $294,829 $205,261
Weighted Average Number
of Shares 13,218,710 7,357,519 9,912,769 7,251,927
Income Per Share
Ordinary $0.02 $0.02 $0.03 $0.03
Extraordinary - -
$0.02 $0.02 $0.03 $0.03
Dividends None None None None
<PAGE>
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $294,828 $205,261
Adjustments to Reconcile Net Income
Provided by Operating Activities:
Depreciation and Amortization 561,717 504,696
Allowance for Doubtful Accounts (57,149) 0
Expenses Paid Through Issuance of Stock 71,800 0
Debt Paid Through Issuance of Stock 46,666 0
Changes in Assets & Liabilities:
Accounts Receivable (Increase) (1,099,901) (897,621)
Inventory (Increase) (635,899) (356,158)
Prepaid Exp & Other Assets (Increase) (70,903) (69,312)
Accounts Payable - Increase (Decrease) (360,109) 459,570
Accrued Liabilities Increase (Decrease) 256,128 298,449
Customer Advances Increase (Decrease) 103,021 18,000
Net Cash (Used) Provided by Operating Activities (889,801) 162,885
CASH FLOW FROM INVESTING ACTIVITIES
Sale of Property, Plant & Equipment (Purchase) (244,618) (842,816)
Intangibles 0 (528,515)
Leasehold Improvements (35,094) 0
Construction in Progress (223,301) 0
Net Cash used in Investing Activities (503,013) (1,371,331)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank Overdraft - 9,058
Repayment of Debt (858,830) (101,469)
New Borrowing 850,015 1,175,000
Sale of Capital Stock 1,273,225 127,080
Increase Capital Lease Obligations 7,375 (1,223)
Net Cash Provided by Financing Activities 1,271,785 1,208,446
Net Increase (Decrease) in Cash (121,029) 0
Cash Balance - Beginning 206,075 0
Cash Balance - Ending $85,046 $0
<PAGE>
LUNN INDUSTRIES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED
CONDENSED STATEMENTS
NOTE 1 - CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The information contained in the condensed consolidated financial
statements for the period ended June 30, 1996 is unaudited, but includes all
adjustments, consisting of normal recurring adjustments, which the Company
considers necessary for a fair presentation of the financial position and the
results of operations for these periods.
The financial statements and notes are presented as permitted by Form
10-QSB, and do not contain certain information included in the Company's annual
statements and notes. Those financial statements should be read in conjunction
with the Company's annual financial statement as reported in its most recent
Annual Report on Form 10-KSB.
The unaudited results of operations for the period ended June 30, 1996
are not necessarily indicative of the results to be expected for the full year.
NOTE 2 - STOCK OFFERING
On March 21, 1996, the Company sold 3.5 million shares of its common
stock for $.40 per share in a private placement. Total proceeds, net of
underwriting, commissions and expenses were $1,244,000. The Company has used
$581,000 of the proceeds to reduce its bank debt obligations, pay down a portion
of the outstanding balance due to bridge lenders, and reduce its obligation to a
shareholder. The balance has been applied toward working capital. In addition,
during the first quarter of 1996, the Company issued 229,666 shares of its
common stock to pay expenses and reduce debt valued at $97,000.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The Company reported profitable operating results for the second quarter ended
June 30, 1996. This marks the sixth consecutive quarter the Company has reported
profitable results. Consolidated sales during the second quarter were $4.6
million compared to $3.8 million in the second quarter of 1995, an increase of
21%. Consolidated sales for the first six months of 1996 were $8.9 million
compared to $7.1 million in 1995, an increase of 25%. Quarterly and six month
sales increases were reflected across all business segments of the Company.
Sales for the aluminum honeycomb segment for the second quarter and first six
months of 1996 increased to $3.1 and $6.1 million, respectively, compared to
$2.6 and $5.2 million, respectively during similar periods in 1995. Increased
honeycomb sales resulted from a number of factors, including increased
commercial aircraft manufacturing, increased foreign sales to Asian customers,
improved lead times resulting from a new program to provide small quantity
overnight deliveries, and the general availability of substantially increased
backlog released for shipments during this period compared to previous periods.
Sales for the composite segment for the second quarter and first six months of
1996 increased to $1.5 and $2.8 million, respectively compared to $1.2 and 2.0
million, for 1995. Improved composite sales resulted from increased military
orders for composite fuel tanks, and steadily improving bonded assembly
shipments to both military and commercial aircraft manufacturers. In addition,
first and second quarter results for 1995 were impacted by the relocation and
consolidation of the Company's composite businesses from Wyandanch, New York and
Newtown, Connecticut to Glen Cove, New York at the beginning of 1995.
The backlog of customer orders as of June 30, 1996 was approximately
$16.9 million, an increase of $5.3 million or 46% compared to a backlog of $11.6
million at the end of the second quarter 1995. Approximately $7.9 million or 47%
of the backlog is anticipated to be released for shipments during the second
half of 1996.
Consolidated operating income for the second quarter 1996 was $308
thousand, compared to $278 thousand in the second quarter of 1995, an increase
of 11%. Consolidated operating income for the first six months of 1996 was $518
thousand, compared to $397 thousand in 1995, an increase of 30.5%. The
improvement in operating income resulted entirely from improved operating
results to the aluminum honeycomb segment. Operating income for the honeycomb
segment for the second quarter and first six months of 1996 increased to $292
thousand and $488 thousand, respectively, compared to $225 and $333 thousand
during similar periods in 1995. These year-to-year increases were offset by the
composite segment where operating income for the second quarter and first six
months of 1996, decreased to $16 and $30 thousand, compared to $52 and $64
thousand during similar periods in 1995. The overall improvement in consolidated
operating income for 1996 resulted from a higher sales and a slight (22% vs.
21%) increase in gross margin due primarily to reduced factory overhead
expenses. Selling, marketing and administrative expenses as a
<PAGE>
percentage of revenue for the second quarter and first six months of 1996
remained at approximately the same level for the similar period in 1995. The
decline in composite segment operating income resulted from losses sustained on
two government orders where margins fell below desired levels. These orders have
now been completed. Composite backlog and shipments for the remainder of 1996
have been analyzed to insure higher margins.
Consolidated net income for the second quarter 1996 was $201 thousand,
compared to $179 thousand in the second quarter of 1995, an increase of 12%.
Consolidated net income for the first six months of 1996 was $295 thousand,
compared to $205 thousand in 1995, an increase of 44%. Other non-operating
expenses declined in 1996 compared to last year. This decline was offset by a
slight increase in interest expense due to higher revolving loan borrowing.
FINANCIAL CONDITION
Net cash used by operations during the first six months of 1996 was
$890 thousand compared to $163 thousand generated in the corresponding period of
1995. Net cash provided from operations in the first six months of 1996 was $295
thousand net income plus $623 thousand in non-cash items, offset by
approximately $1.8 million in changes in assets and liabilities related to
increase accounts receivable, inventory, other liabilities and a decrease in
accounts payable. Net cash provided from operations in the first six months of
1995 was $205 thousand net income, offset for non-cash items of approximately
$505 thousand and changes in assets and liabilities of $547 thousand.
Net cash used in investing activities during 1996 was $503 thousand,
comprised of $245 thousand utilized for the purchase of machinery and equipment
and $258 thousand for leasehold improvements and construction in progress at the
Company's Glen Cove, New York and Maryland facilities.
Net cash provided by financing activities was approximately $1.3
million. This was comprised of $2.1 million from the sale of common stock and
new borrowing on the existing revolving line of credit, offset by the use of
$800 thousand to repay Fleet Bank, the bridge lenders, reduce its obligation to
a shareholder and other loan obligations.
On March 21, 1996, the Company sold 3.5 million shares of its common
stock for $.40 per share in a private placement. Total proceeds, net of
underwriting commissions and expenses were $1,244,000. The Company has used
$581,000 of the proceeds to reduce its bank debt obligations, pay down a portion
of the outstanding balance due to bridge lenders, and reduce its obligation to a
shareholder. The balance has been applied toward working capital. In addition,
during the first quarter of 1996,
<PAGE>
the Company issued 229,666 shares of its common stock to pay expenses and reduce
debt valued at $97 thousand.
The Company believes that cash flow from future operations and funds
available under its credit facilities as amended, will be sufficient to meet its
working capital requirements for the foreseeable future. The Company, based on
operating results and continued improvements in backlog, is exploring increases
in its existing credit facility with its primary lender.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports
(a) Exhibits
None
(b) Reports on Form 8-K.
None
THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
<PAGE>
LUNN INDUSTRIES, INC.
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 duly authorized.
LUNN INDUSTRIES, INC.
Dated: August 8, 1996
By: s/ Lawrence Schwartz
----------------------------------------
Lawrence Schwartz
Vice President, Secretary and Treasurer
(Chief Accounting Officer)
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 85,046
<SECURITIES> 0
<RECEIVABLES> 3,490,328
<ALLOWANCES> 67,857
<INVENTORY> 4,741,840
<CURRENT-ASSETS> 8,658,297
<PP&E> 11,609,490
<DEPRECIATION> 4,151,563
<TOTAL-ASSETS> 16,684,799
<CURRENT-LIABILITIES> 3,158,738
<BONDS> 3,258,704
0
0
<COMMON> 113,470
<OTHER-SE> 10,153,887
<TOTAL-LIABILITY-AND-EQUITY> 16,684,799
<SALES> 8,855,004
<TOTAL-REVENUES> 8,855,004
<CGS> 6,942,619
<TOTAL-COSTS> 1,394,785
<OTHER-EXPENSES> (24,950)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 247,721
<INCOME-PRETAX> 294,829
<INCOME-TAX> 0
<INCOME-CONTINUING> 294,829
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,829
<EPS-PRIMARY> 0.03
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