<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended January 1, 1995
Commission File Number 0-10886
REXON INCORPORATED
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-4317481
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Progress Plaza
Suite 2110
St. Petersburg, Florida 33701
------------------------ -----
(Address of principal executive offices) Zip Code
</TABLE>
(813) 896-9609
Registrant's telephone number including area code
1334 Parkview Avenue Suite # 200, Manhattan Beach, California 90266
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 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
---
At February 3, 1995, Registrant had 10,124,646 shares of Common Stock
outstanding.
(This document contains a total of 13 pages.)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
REXON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 1, October 2,
1995 1994
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,466 $ 2,045
Trade accounts receivable, less
allowance of $1,774 (1995)
and $1,343 (1994) 39,712 36,885
Inventories 24,982 26,538
Prepaid expenses and other current
assets 2,428 2,016
-------- --------
TOTAL CURRENT ASSETS 69,588 67,484
GOODWILL, LESS ACCUMULATED
AMORTIZATION 11,930 12,444
PROPERTY, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS 37,680 36,871
Less: Accumulated depreciation and
amortization (25,864) (24,687)
-------- --------
11,816 12,184
CAPITALIZED SOFTWARE, NET OF
ACCUMULATED AMORTIZATION 6,665 5,777
OTHER ASSETS 3,162 2,495
-------- --------
$103,161 $100,384
======== ========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
REXON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
January 1, October 2,
1995 1994
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 26,077 $ 28,148
Accrued other expenses 8,222 9,005
Accrued income taxes 3,510 3,124
Current portion of long-term obligations 386 387
------ -------
TOTAL CURRENT LIABILITIES 38,195 40,664
LONG-TERM OBLIGATIONS 23,625 18,631
OTHER 2,469 2,643
Redeemable convertible preferred stock, $.01 par value;
authorized 1,000,000 shares; issued and outstanding
480,000 shares at January 1, 1995 and at October 2, 1994 4,800 4,800
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
authorized 15,000,000 shares;
issued and outstanding 10,097,000 shares
at January 1, 1995 and 10,054,000 shares
at October 2, 1994 101 101
Additional paid-in capital -- common stock 50,284 50,129
Accumulated deficit (16,313) (16,584)
-------- --------
34,072 33,646
------ ------
$103,161 $100,384
======== ========
</TABLE>
See notes to consolidated financial statements. 3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
REXON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE FISCAL PERIODS ENDED JANUARY 1, 1995
AND JANUARY 2, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
Net Sales $52,667 $47,882
Cost of Goods Sold 39,564 35,980
------ ------
13,103 11,902
------
Selling, general and administrative 9,505 9,068
Research and development 2,476 2,638
Other, net 761 193
-------- --------
12,742 11,899
------ ------
Net income (loss) before income taxes 361 3
Income taxes 30 -0-
---------- -----------
Net Income $ 331 $ 3
========= =========
Net income per share attributable to
common stock:
Primary $ .03 $ NIL
======= =======
Fully Diluted $ .03 $ NIL
======= =======
Weighted average shares outstanding
Primary 10,294 9,531
Fully Diluted 10,411 9,531
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
REXON INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED JANUARY 1, 1995
AND JANUARY 2, 1994
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income: $ 331 $ 3
Depreciation and amortization 2,072 2,183
Provision for doubtful accounts 389 310
Changes in operating assets and liabilities:
Accounts receivable (3,216) (1,436)
Inventories and prepaid expenses, net 1,144 (974)
Accounts payable and accrued expenses (3,028) (1,165)
Accrued and Deferred Income taxes 386 -0-
------- -------
Net cash used in operating activities (1,922) (1,079)
------- -------
INVESTING ACTIVITIES:
Purchases of property and equipment (809) (895)
Increase in capitalized software, licenses and other assets (1,936) (1,011)
Cash acquired in acquisition of Cal-Emeritus 0 185
------- -------
Net cash used in investing activities (2,745) (1,721)
------- -------
FINANCING ACTIVITIES:
Net proceeds (payments) on line of credit and long term obligations 4,993 (4)
Proceeds from issuance of common and preferred stock 155 136
Preferred dividends paid (60) -0-
------- -------
Net cash provided by financing activities 5,088 132
------- -------
Increase (decrease) in cash and cash equivalents 421 (2,668)
Cash and cash equivalents at beginning of period 2,045 3,273
------- -------
Cash and cash equivalents at end of period $ 2,466 $ 605
======= =======
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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<CAPTION>
Three Months Ended
January 1, January 2,
1995 1994
---- ----
<S> <C> <C>
Cash Paid For:
Interest $ 589 $ 183
Income Taxes $ -0- $ -0-
</TABLE>
6
<PAGE> 7
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
REXON INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. In the opinion of management, adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended January 1, 1995 are not
necessarily indicative of the results that may be expected for the year. For
further information, refer to the consolidated financial statements and notes
thereto for the year ended October 2, 1994, included in the 1994 Annual Report
to Stockholders.
Certain reclassifications have been made to prior year amounts to conform with
current year classifications.
NOTE B -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
January 1, October 2,
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
Raw materials $12,105 $14,255
Work-in-process 8,352 7,870
Finished products 4,525 4,413
------- -------
$24,982 $26,538
======= =======
</TABLE>
7
<PAGE> 8
PART I. FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
NOTE C -- INCOME PER SHARE
Per share data is based on the weighted average number of shares outstanding
and common stock equivalents, excluding those common stock equivalents that
would have the effect of being anti-dilutive.
Income per share computations limit the assumption of the repurchase of
treasury shares to a maximum of twenty percent of the outstanding shares of the
Company, with the remaining pro forma proceeds, where applicable, being applied
to reduce interest-bearing liabilities. Accordingly, interest expense based on
the Company's average cost of funds is reduced, and net income is increased.
For purposes of the income per share computations, the net income
attributable to common stock was computed by deducting preferred stock
dividends from the Company's reported net income for the period.
8
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
which certain items of expense or income bear to the Company's net sales.
<TABLE>
<CAPTION>
Percentage of Net Sales
Quarter Ended
-----------------------
1/1/95 1/2/94
------ ------
<S> <C> <C>
Net sales 100% 100%
Cost of goods sold 75% 75%
Selling, general and administrative 18% 19%
Research & development 5% 6%
Other, net 1% NIL
Net income before income taxes 1% NIL
Net income 1% NIL
</TABLE>
Net sales increased $4.8 million or 10% in the first fiscal quarter of fiscal
1995 compared with the same quarter in fiscal 1994. This quarter's net sales
reflects an increase of $ 3.4 million of the Company's hardware products, a
$ .7 million increase of software products and a $ .7 million increase in
multimedia products.
Cost of goods sold as a percentage of net sales remained constant at 75% for
the first fiscal period in both fiscal 1995 and fiscal 1994. The relocation
of substantially all of the Company's manufacturing operations to Singapore in
fiscal 1994 has helped to reduce manufacturing costs and the Company is
continuing its efforts to reduce manufacturing costs in future fiscal periods
through re-design and engineering efforts.
Selling, general and administrative expenses decreased from 19% of sales in
the first fiscal quarter of 1994 to 18% for the first fiscal quarter of 1995.
This decrease in percentage was due to the 10% increase in net sales as
compared to an increase of only 5% in selling, general and administrative
expenses. The increase in selling, general and administrative expenses was
anticipated and relates to relocation costs (to be expensed in fiscal 1995)
resulting from the Company's fiscal 1994 restructuring. Management does not
anticipate any changes in connection with its previous restructuring plans.
Research and development expenditures decreased to 5% of net sales in the
first quarter of fiscal 1995 compared with 6% in the same period of fiscal
1994. This decrease was also primarily due to the 10% increase in net sales;
comparatively, research and development expenditures decreased by $.2 million
or 6%. The Company continues to work on the development of new products and
new methods to reduce manufacturing costs of the Company's existing products,
while completing the combination and consolidation of resources among various
subsidiaries, which is expected to be completed in fiscal 1995.
9
<PAGE> 10
PART I. FINANCIAL INFORMATION
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Other expenses increased to 1% of sales in the first fiscal quarter of 1995.
This increase is primarily comprised of $.2 million from exchange rate
fluctuations relating to the Company's Singapore operations and $.25 million in
additional interest expense as a result of higher interest rates and an
increase of $5 million in the outstanding balance of long term debt.
Income from continuing operations before income taxes as a percent of net
sales increased to 1% in the first fiscal quarter of 1995 from break even in
the same period of fiscal 1994. The significant increase in selling, general
and administrative expenses resulting from the relocation and consolidation
activities had a material impact on net income for the period.
As of January 1, 1995, the Company's balance of cash and cash equivalents
was $2.5 million compared to $2.0 million at October 2, 1994. Net cash used by
operating activities amounted to $1.9 million after taking into account an
increase of $3.2 million in accounts receivable, a $1.1 million decrease in
inventories and prepaid expenses, and a $3.0 million decrease in accounts
payable and accrued expenses. Major cash expenditures for the period included
the purchase of $.8 million of capital equipment; in addition, $1.9 million of
software license and other costs were capitalized. $5.0 million was provided
from the Company's line of credit to offset the negative cash flows in
operating and investing activities.
The Company entered into a new secured revolving credit agreement with Sanwa
Business Credit Corporation in October 1994 (amended in November 1994 and
December 1994) (the "Credit Agreement"), which provides for a total line of
credit of up to $25 million, consisting of advances against eligible domestic
and foreign accounts receivable. The advances under the credit agreement are
limited to eighty percent (80%) of eligible domestic accounts and sixty percent
(60%) of eligible foreign accounts up to a maximum advance on eligible foreign
accounts of $7.5 million. The financial covenants were modified in December
1994 to reflect the reorganization and other costs incurred in the fourth
fiscal quarter of 1994. These covenants require the Company to meet quarterly
profit levels, specified leverage ratios, and certain levels of tangible net
worth. At January 1, 1995, the Company had approximately $6 million in unused
credit available under the agreement.
The Company believes that its current level of cash, together with cash flow
from operations and its line of credit, should be adequate to meet its current
operating and capital requirements, assuming level to higher revenues.
However, any significant decline in product shipments could materially and
adversely affect the Company's ability to access funds under its credit line;
in such event, the Company would likely be required to seek additional
financing, and such may not be available. Regardless of credit availability
under its existing credit line, the Company is exploring additional
financing which would be used for additional working capital and for increased
marketing initiatives.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5 - Not Applicable
ITEM 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
11.1 Statement of Computation of Per Share Earnings.
(b) No reports on Form 8-K were filed during the fiscal quarter covered by
this Report on Form 10-Q.
11
<PAGE> 12
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.
REXON INCORPORATED
(Registrant)
Dated: February 14, 1995 /S/ Irvin R. Reuling
----------------------------------------
Irvin R. Reuling
Chief Financial Officer & Secretary
(Principal Financial and
Accounting Officer)
12
<PAGE> 1
EXHIBIT 11.1
REXON INCORPORATED AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
Periods Ended January 1, 1995 and January 2, 1994
(in thousands, except per share data)
<TABLE>
<CAPTION>
Quarter Ended
--------------------------
January 1, January 2,
1995 1994
--------- ---------
<S> <C> <C>
Net income $ 331 $ 3
Less Preferred Stock dividends 60 26
Net income (loss ) attributable to Common Stock ------- ------
used to compute primary earnings per share 271 (23)
======= ======
Add interest on convertible subordinated notes payable
(net of taxes at the Company's effective
tax rate of 20%) 0 0
Net income (loss) attributable to Common Stock used
to compute fully diluted earnings per share. $ 271 $ (23)
Primary earnings per share:
Average number of shares of:
Common Stock and Common Stock
Equivalents outstanding: 10,294 9,531
Primary earnings per share $.03 $.00
======= ======
Fully diluted earnings per share:
Weighted average number of Common
shares outstanding 10,294 9,531
Dilutive effect of stock options
after application of treasury stock method 117 -0-
Dilutive effect of convertible subordinated
notes payable and convertible preferred stock -0- -0-
------- ------
Number of shares used to compute fully
diluted earnings per share 10,411 9,531
Fully diluted earnings per share $.03 $.00
======= ======
</TABLE>
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-01-1995
<PERIOD-START> OCT-03-1994
<PERIOD-END> JAN-01-1995
<CASH> 2,466
<SECURITIES> 0
<RECEIVABLES> 39,712
<ALLOWANCES> 1,774
<INVENTORY> 24,982
<CURRENT-ASSETS> 69,588
<PP&E> 37,680
<DEPRECIATION> 25,864
<TOTAL-ASSETS> 103,161
<CURRENT-LIABILITIES> 38,195
<BONDS> 0
<COMMON> 101
0
4,800
<OTHER-SE> 50,284
<TOTAL-LIABILITY-AND-EQUITY> 103,161
<SALES> 52,667
<TOTAL-REVENUES> 52,667
<CGS> 39,564
<TOTAL-COSTS> 39,564
<OTHER-EXPENSES> 12,742
<LOSS-PROVISION> 389
<INTEREST-EXPENSE> 484
<INCOME-PRETAX> 361
<INCOME-TAX> 30
<INCOME-CONTINUING> 331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 331
<EPS-PRIMARY> .03
<EPS-DILUTED> .03
</TABLE>
