<PAGE>
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: March 31, 1997
[ ] 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 April 10, 1997
was 12,779,791.
Transitional Small Business Disclosure Format (check one)
Yes ________ No X
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
- -------------------------------------------------------------------------------
ASSETS
- -------------------------------------------------------------------------------
March 31,
1997
(unaudited)
================================================================================
CURRENT ASSETS
Cash and cash equivalent $ 7,986
Trade accounts receivable - net of allowance for doubtful
accounts of approximately $171,000 3,139,208
Inventories 4,862,630
Prepaid expense and other current assets 275,267
-----------
TOTAL CURRENT ASSETS 8,285,091
-----------
Property and equipment - net of accumulated
depreciation of $5,148,200 9,914,149
-----------
Other Assets:
Security deposits and other assets 169,167
Goodwill and other intangibles, net of accumulated
amortization of $113,963 409,103
-----------
Total other assets 578,270
TOTAL ASSETS $18,777,510
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2
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1997
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
MARCH 31,
1997
(unaudited)
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash overdraft $ 89,378
Current portion of obligations under capital lease 98,624
Accounts payable - trade 1,492,946
Accrued liabilities 367,774
------------
TOTAL CURRENT LIABILITIES 2,048,722
------------
LONG-TERM LIABILITIES:
Long-term debt 5,030,696
Obligation under capital lease net of current portion 264,707
------------
TOTAL LONG TERM LIABILITIES 5,295,403
------------
TOTAL LIABILITIES 7,344,125
------------
STOCKHOLDERS' EQUITY:
Preferred stock $.01 par value; authorized 1,000,000
shares; no shares issued and outstanding --
Common stock: par value $.01 per share; authorized
30,000,000 shares; issued and outstanding 12,779,791 127,798
Additional paid-in capital 14,400,244
Accumulated deficit (3,094,320)
------------
11,433,722
Less treasury stock (150 shares) (337)
------------
TOTAL STOCKHOLDERS' EQUITY 11,433,385
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,777,510
============
3
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Sales $ 5,020,779 $ 4,213,310
Cost of sales 3,889,290 3,262,673
------------ ------------
Gross income 1,131,489 950,637
Selling, general and administrative expenses 815,525 740,935
------------ ------------
Operating income 315,964 209,702
Other income (expenses):
Interest expense, net (111,082) (126,345)
Other income, net 30,186 10,106
------------ ------------
(80,896) (116,239)
Income before provision for income taxes $ 235,068 $ 93,463
Provision for income taxes 0 0
------------ ------------
Net Income $ 235,068 $ 93,463
============ ============
Weighted average number of common shares outstanding 13,028,410 8,081,181
Income per share $ 0.02 $ 0.01
============ ============
</TABLE>
4
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LUNN INDUSTRIES, INC. AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 235,068 $ 93,212
Adjustments to reconcile net income
Provided by operating activities:
Depreciation and amortization 348,479 288,828
Allowance for doubtful accounts (5,431) (22,089)
Expenses paid through issuance of stock 18,000 50,800
Debt paid through issuance of stock -- 46,666
Changes in assets & liabilities:
Accounts receivable (117,139) (510,716)
Inventory (96,813) (350,908)
Prepaid exp & other assets 46,384 (88,405)
Accounts payable 147,863 (513,171)
Accrued liabilities (183,377) 273,323
Customer advances -- 71,260
----------- -----------
Net cash provided by (used in) operating activities 393,034 (661,200)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property, plant & equipment (1,003,302) (254,764)
Leasehold improvements -- (35,094)
----------- -----------
Net cash used in investing activities (1,003,302) (289,858)
CASH FLOWS FROM FINANCING ACTIVITIES
Bank overdraft (35,551) --
Repayment of debt (15,000) (716,747)
Proceeds from long-term debt, net of repayments 511,573 377,189
Proceeds from issuance of common stock -- 1,243,976
Proceeds from exercise of warrants 175,118
Payment on capital lease obligations (23,062) (1,716)
----------- -----------
Net cash provided by financing activities 613,078 902,702
Net increase (decrease) in cash 2,810 (48,356)
Cash balance - beginning 5,176 206,075
----------- -----------
Cash balance - ending $ 7,986 $ 157,719
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5
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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 March 31, 1997 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 March 31, 1997 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 approximately $1,244,000. Through the first
quarter of 1996, the Company had 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.
6
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Aided by strong gains in both the composite and aluminum honeycomb
segments, the Company reported a 153% increase in first quarter consolidated net
income, which rose to $235 thousand, or $.02 a share, up from $93 thousand or
$.01 per share in the year earlier period.
First quarter 1997 consolidated sales rose by 19% over the prior year
period, from $4.2 million to $5.0 million. In the composite segment, first
quarter 1997 sales were $1.7 million, an increase of $400 thousand or 31%
compared to sales of $1.3 million in the year earlier period. This increase in
composite product sales resulted from increased composite mast fairing, Seawolf
submarine and fuel tank shipments to the U.S. Government, as well as increased
metal bonded assembly shipments to the aerospace and commercial aircraft
markets. Aluminum honeycomb sales for the first quarter 1997 were $3.3 million,
an increase of $400 thousand or 14% compared to sales of $2.9 million in the
year earlier period. The increase in honeycomb product sales reflects the
continued recovery of the aerospace and commercial aircraft markets, development
of non-aerospace business and the broadening of Alcore's product line and
capabilities.
Backlog of customer orders as of March 31, 1997 increased to $29.5 million
compared to $15.7 million, an increase of $13.8 million or 88%.
The Company's consolidated operating income for the first quarter 1997 was
$316 thousand, an increase of $106 thousand or 50% compared to $210 thousand
during the first quarter 1996. First quarter operating income for the composite
segment for 1997 was $70 thousand, an increase of $56 thousand compared to $14
thousand during the first quarter 1996. The aluminum honeycomb segment operating
income was $246 thousand, an increase of $50 thousand or 25%, compared to $196
thousand during the first quarter of 1996. Improved consolidated operating
income for 1997 resulted from higher sales as well as reduced SG & A expenses,
which were 16.2% of sales in the first quarter 1997 compared to 17.6% during a
similar period in 1996.
Interest expense for the first quarter 1997 was $111 thousand, a decrease
of $15 thousand compared to the first quarter of 1996, despite expanded use of
the Company's $6 million credit facility with First Union Bank of Maryland, as a
result of a more favorable interest rate on the new agreement.
The Company strengthened its honeycomb manufacturing organization and
production process, increased its emphasis on value-added special process
production and initiated a program to acquire, expand and upgrade the honeycomb
manufacturing facility in Belcamp, Maryland. On March 17, 1997, the Company
agreed to purchase its Belcamp, Maryland facility. The purchase price for the
building and property is $2.025
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million. The Company intends to finance the purchase with bonds issued by the
Maryland Industrial Development Financing Authority, which is anticipated to be
consummated May 1997.
FINANCIAL CONDITION
Net cash provided from operations during the first three months of 1997 was
$393 thousand, compared to $661 thousand used during the corresponding period of
1996. Net cash provided from operations in the first three months of 1997 was
comprised of $235 thousand net income plus $361 thousand in non-cash items
offset by approximately $203 thousand in change in assets and liabilities
related to accounts receivable, inventory, accounts payable and other
liabilities. Net cash used from operations in the first three months of 1996 was
$661 thousand, and consisted of $93 thousand from net income, $364 thousand of
non-cash items and change in assets and liabilities of approximately $1.118
million.
Net cash used in investing activities during 1997 was $1.0 million,
comprised of $354 thousand utilized for the purchase of machinery and equipment
and $649 thousand for construction in progress at the Glen Cove, New York and
Belcamp, Maryland facilities.
Net cash provided by financing activities was approximately $613 thousand,
comprised of $512 thousand from additional financing from the Company's line of
credit and $175 thousand from the issuance of stock due to the exercise of
437,794 outstanding warrants due to expire in January, 1997, offset by repayment
of debit obligations and cash overdraft of $74 thousand.
In January 17, 1997, the Company converted a $360,000 note and accrued
interest into 945,000 shares of common stock. In January, 1995, the Company had
borrowed $360,000 and issued a note for repayment on or before January 17,1997,
with interest at 10% to be paid semi-annually in common stock. The note was
convertible into 900,000 shares of common stock at the option of the holder at
any time during the term of the note.
On January 31, 1997, 440,363 outstanding warrants were due to expire. These
warrants gave the holders the right to convert each warrant into one share of
Lunn Industries common stock at the exercise price of $.40 per share for each
warrant held. Before expiration, 437,794 warrants were exercised, and 2,569
warrants were not exercised and subsequently expired. Proceeds from the exercise
of the warrants was $175,118.
The Company believes it has sufficient capital resources to operate
successfully over the remainder of 1997. The Company is operating close to its
1997 plan, and capital improvements and enhancements to equipment and facilities
in New York and Maryland
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are under way to support the increased production, provide environmental process
controls and continue to meet environmental compliance requirements. The Company
believes, based on the current quarter results, that operating cash flow and
depreciation will be sufficient to support its capital needs. However, should
circumstances arise affecting cash flow or requiring additional capital
expenditures beyond those anticipated by the Company, there can be no assurance
that such funds will be available. (See "Forward-looking Statements - Cautionary
Factors.")
Recent Accounting Pronouncements:
The Financial Accounting Standards Board has issued Statement 128,
"Earnings per Share" (Statement 128). Statement 128 establishes standards for
computing and presenting earnings per share (EPS). The Statement simplifies the
standards for computing EPS and makes them comparable to international EPS
standards. The provisions of Statement 128 are effective for financial
statements issued for periods ending after December 15,1997, including interim
periods. The Statement does not permit early application and requires
restatement of all prior period EPS data presented. Adoption of Statement 128
will not affect the Company's consolidated financial position or results of
operations; however, the impact on previously reported EPS data is currently
unknown.
Forward Looking Statements - Cautionary Factors
Except for the historical information and statements contained in this
Report, the matters and items set forth in this Report are forward looking
statements that involve uncertainties and risks, some of which are discussed at
appropriate points in the Report and are also summarized as follows:
1. The U.S. Government is a significant customer of the Company,
representing 12.7 percent of its revenue. With the continuing pressure to
reduce government spending, in addition to the worldwide political climate
creating an environment of less visible military threats to the united
States, the de-emphasis in military spending is expected to continue. This
could potentially have a material adverse effect on future projects upon
which the Company's backlog is based and upon programs the Company is
pursuing.
2. Vendor prices for production materials such as aluminum foil,
resins, liquid and film adhesives, reinforcing fiber materials and other
materials and supplies could increase as demand for aircraft parts and
assemblies increase to match higher build rates for commercial aircraft.
Higher material prices and demand for lower aircraft part and assembly
prices could place increasing pressure on the Company's operating margins
and
9
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net income.
3. The Company currently sells honeycomb and bonded panel products to
the commercial aircraft industry. Future planning for the Company
anticipates continuing increases in demand for these products over the next
several years. To the extent these increases fail to materialize or fall
significantly below projections, the Company's business could be materially
affected.
Item 6. Exhibits and Reports
(a) Exhibits
Exhibit 27
Financial Data Schedule
(b) Reports on Form 8-K.
None
10
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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: May 15, 1997
By:/s/ Lawrence Schwartz
--------------------------
Lawrence Schwartz
Vice President, Secretary and Treasurer
(Chief Accounting Officer)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 7,986
<SECURITIES> 0
<RECEIVABLES> 3,310,665
<ALLOWANCES> 171,457
<INVENTORY> 4,862,630
<CURRENT-ASSETS> 8,285,091
<PP&E> 15,062,349
<DEPRECIATION> 5,148,200
<TOTAL-ASSETS> 18,777,510
<CURRENT-LIABILITIES> 2,048,722
<BONDS> 5,295,403
0
0
<COMMON> 127,798
<OTHER-SE> 11,305,587
<TOTAL-LIABILITY-AND-EQUITY> 18,777,510
<SALES> 5,020,779
<TOTAL-REVENUES> 5,020,779
<CGS> 3,889,290
<TOTAL-COSTS> 815,525
<OTHER-EXPENSES> (30,186)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,082
<INCOME-PRETAX> 235,068
<INCOME-TAX> 0
<INCOME-CONTINUING> 235,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 235,068
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
