<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, 1997
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 No. 0-1412
M. H. Rhodes, Inc
(Exact name of registrant as specified in its charter)
Delaware 06-0509270
(State or other jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
99 Thompson Road, Avon, Connecticut 06001
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (860) 673-3281
Former name, address and 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 _
There were, as of September 30, 1997, 196,736 shares of Common Stock
outstanding.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
M. H. RHODES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
----------- ------------
ASSETS
1996 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 137,750 $ 46,492
Accounts Receivable, net of allow-
ance for doubtful accounts 1,091,401 1,037,541
Inventories 2,839,417 3,086,710
Prepaid Expenses and Other 38,716 149,748
----------- ------------
TOTAL CURRENT ASSETS 4,107,284 4,320,491
----------- ------------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Buildings and Improvements 1,270,698 1,270,698
Machinery and Equipment 2,529,388 2,528,462
Land 65,000 65,000
Construction in Progress 8,250 8,250
----------- ------------
Sub-total 3,873,336 3,872,410
Less: Accumulated Depreciation (3,114,294) (3,173,168)
----------- ------------
NET PROPERTY, PLANT AND EQUIPMENT 759,042 699,242
----------- ------------
OTHER ASSETS 20,206 22,474
----------- ------------
TOTAL ASSETS $ 4,886,532 $ 5,042,207
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $ 393,755 $ 445,842
Current Portion of Long Term Debt 256,173 264,968
Accounts Payable 531,843 478,963
Other Accrued Expenses 321,295 347,976
----------- ------------
TOTAL CURRENT LIABILITIES 1,503,066 1,537,749
----------- ------------
LONG-TERM DEBT, LESS CURRENT PORTION 726,537 579,465
----------- ------------
OTHER NON-CURRENT LIABILITIES 100,000 100,000
----------- ------------
COMMITMENTS AND CONTINGENCIES
Redeemable Common Stock, $1.00 par value,
73,321 shares outstanding in 1996 and
67,458 shares outstanding in 1997 73,321 67,458
SHAREHOLDERS' EQUITY:
Common Stock, $1.00 par value, 400,000
shares authorized, 300,880 issued and
129,278 shares outstanding in 1996
and 1997 227,559 233,422
Paid in Capital 3,697 3,697
Retained Earnings 3,980,871 4,165,414
----------- ------------
4,212,127 4,402,533
Less:Treasury Stock, at cost 104,144
shares in 1997 and 98,281 in 1996 (1,048,431) (1,092,404)
Unallocated ESOP shares, 23,351
shares in 1996 and 18,105 in 1977 (680,088) (552,594)
----------- ------------
$ 2,483,608 $ 2,757,535
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TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 4,886,532 $ 5,042,207
----------- ------------
</TABLE>
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<PAGE> 3
M. H. RHODES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTH PERIOD NINE MONTH PERIOD
SEPTEMBER 30 SEPTEMBER 30
------------ ------------
<S> <C> <C> <C> <C>
NET SALES $2,005,295 $1,978,765 $5,922,460 $6,017,849
COST OF GOODS SOLD 1,552,994 1,483,572 4,818,377 4,582,657
---------- ---------- ---------- ----------
GROSS PROFIT 452,301 495,193 1,104,083 1,435,192
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 394,506 401,146 1,226,753 1,172,228
---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) 57,795 94,047 (122,670) 262,964
OTHER INCOME (EXPENSE):
INTEREST EXPENSE (34,271) (25,002) (102,078) (73,728)
OTHER INCOME/(EXPENSE) NET (677) 1,789 (8,525) 4,307
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES 22,847 70,834 (233,273) 193,543
PROVISION (BENEFIT)
FOR INCOME TAXES 3,000 3,000 (10,452) 9,000
---------- ---------- ---------- ----------
NET INCOME (LOSS) 19,847 67,834 (222,821) 184,543
TRANSLATION ADJUSTMENTS 162 - 146 -
BEGINNING RETAINED EARNINGS 3,916,178 4,097,580 4,158,862 3,980,871
---------- ---------- ---------- ----------
ENDING RETAINED EARNINGS $3,936,187 $4,165,414 $3,936,187 $4,165,414
---------- ---------- ---------- ----------
AVERAGE SHARES OUTSTANDING 202,599 196,736 202,599 196,736
EARNINGS (LOSS) PER SHARE $ .10 $ .35 $(1.09) $ .94
CASH DIVIDENDS PER SHARE $ - $ - $ - $ -
</TABLE>
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<PAGE> 4
M. H. RHODES, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTH PERIOD
ENDED SEPTEMBER 30
-----------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (222,821) $ 184,542
----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on sale of fixed assets (1,000) (950)
Depreciation 108,668 91,681
ESOP expense 127,494 127,494
Translation adjustments 146 --
Amortization of other assets 10,517 7,498
Change in assets and liabilities:
(Increase)decrease in accounts
receivable (103,692) 53,860
(Increase)decrease in inventories 445,248 (247,293)
Increase in prepaid expenses and other (38,132) (119,282)
Increase(decrease) in accounts payable 6,449 (52,880)
Increase(decrease) in accrued expenses (110,815) 26,681
Decrease in other noncurrent
liabilities (18,184) --
----------- -----------
Total adjustments 426,699 (113,191)
----------- -----------
Net cash provided by
operating activities 203,878 71,351
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (36,084) (33,400)
Proceeds from sale of plant, property and
equipment 1,000 950
----------- -----------
Net cash used in investing activities (35,084) (32,450)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from additional borrowings 5,622,049 2,265,026
Repayments of debt (5,812,780) (2,395,185)
----------- -----------
Net cash used in financing activities (190,731) (130,159)
----------- -----------
NET DECREASE IN CASH (21,937) (91,258)
CASH AND CASH EQUIVALENTS, beginning of period 32,502 137,750
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 10,565 $ 46,492
----------- -----------
</TABLE>
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<PAGE> 5
M. H. RHODES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES
1. In the opinion of the Company the accompanying unaudited condensed
consolidated financial statements contain all normal recurring accrual
adjustments necessary to present fairly (A) The results of operations for
the three and nine month periods ended September 30, 1996 and September 30,
1997; (B) The financial position at September 30, 1997 and December 31,
1996; and (C) The cash flows for the nine month periods ended September 30,
1996 and September 30, 1997.
2. The results for the nine month period ended September 30, 1997 are not
necessarily indicative of the results for the entire year.
3. Inventories are valued at the lower of cost or market using the First-in,
First-out method of accounting. Inventories consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1996 1997
---- ----
<S> <C> <C>
Raw materials & component parts.... $1,576,083 $1,442,845
Work-in-process.................... 843,654 1,140,193
Finished goods..................... 419,680 503,672
---------- ----------
$2,839,417 $3,086,710
---------- ----------
</TABLE>
4. The earnings (loss) per share is calculated by dividing the net income
(loss) by the weighted average of the outstanding shares. The weighted
average of shares outstanding is calculated by adding the number of shares
outstanding each day of the period and dividing by the number of days in the
period.
5. The consolidated financial statements for the nine month period ended
September 30, 1996 include the accounts of M. H. Rhodes, Inc. and its 96%
owned subsidiary, M. H. Rhodes (Canada) Limited. On September 30, 1996, the
Company ceased active business operation for the Canadian subsidiary and
transferred its assets and liabilities to its parent company, M. H. Rhodes,
Inc. The Company's Board of Directors dissolved the subsidiary on December
31, 1996.
6. The Company entered into a commercial $750,000 revolving line of credit with
a financial institution in April, 1997. Proceeds from this new line were
used to pay off the prior asset-based line of credit of $404,000 outstanding
on March 31, 1997. The new commercial revolving line of credit is for an
initial fourteen month period and is on a demand basis at a floating rate
per annum equal to the prime rate plus two percent (2.0%).
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<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
New orders for the third quarter of 1997 increased 11% compared to the third
quarter of 1996. The principal reason for this was an increase in government
related business in the Timer & Switch lines. The total backlog on September 30,
1997 was $4,188,000 compared to $3,320,000 on September 30, 1996 or a 26%
increase. The two contributing factors that caused this increase were: (1) An
increase in new export business which was recorded at the end of the second
quarter 1997; and (2) government orders as stated above. Most of these orders
will be shipped in 1997.
Net sales for the third quarter of 1997 were $1,978,765, a decrease of 1%
compared to the third quarter of 1996. Slightly lower sales across all principal
areas of Timer & Switch contributed.
Cost of goods sold as a percentage of net sales favorably decreased to 75.0% for
the third quarter of 1997 as compared to 77.4% for the same quarter of 1996. The
principal reasons were: (1) Price increases for the OEM and distributor
products; (2) Higher margin products shipped during the third quarter of 1997
compared to the same quarter in 1996; and (3) Lower 1997 production labor costs
than for the same period in 1996.
Selling, general and administrative expenses as a percentage of net sales were
20.3% for the third quarter of 1997 as compared to 19.7% for the same quarter of
1996. The principal reason for this increase was additional efforts incurred in
the third quarter of 1997 for marketing research and new product design.
Interest expense for the third quarter of 1997 decreased compared to the same
quarter in 1996. The principal reasons for this were: (1) A $142,000 lower
principal balance on the revolving line of credit; and (2) A decrease of
$206,000 for the long term debt principal balances.
The Net Income for the third quarter of 1997 was $68,000 compared to a Net
Income of $20,000 for the same quarter in 1996. The principal reasons for this
were: (1) The shutdown of the Canadian subsidiary in the third quarter of 1996,
which incurred a net loss of $55,000; and (2) A lower cost of goods sold in 1997
as previously discussed above.
Financial Condition as of September 30, 1997
Working capital for the third quarter of 1997 increased $179,000 over the
December 1996 level. The principal reason for this is the increase in inventory
requirements. The higher level of inventories created increased accounts
payables which were then reduced by using cash.
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<PAGE> 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - 27
b. Reports on Form 8-K
None
7 of 8
<PAGE> 8
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.
M. H. RHODES, INC.
By: /s/ Allan D. Springer
-----------------------------------
Allan D. Springer
Its Vice President of
Finance and Chief
Financial Officer
Dated: October 9, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 46,492
<SECURITIES> 0
<RECEIVABLES> 1,052,801
<ALLOWANCES> 0
<INVENTORY> 3,086,710
<CURRENT-ASSETS> 4,320,491
<PP&E> 3,872,410
<DEPRECIATION> 3,173,168
<TOTAL-ASSETS> 5,042,207
<CURRENT-LIABILITIES> 1,537,749
<BONDS> 0
0
0
<COMMON> 300,880
<OTHER-SE> 2,757,535
<TOTAL-LIABILITY-AND-EQUITY> 5,042,207
<SALES> 1,978,765
<TOTAL-REVENUES> 1,978,765
<CGS> 1,483,572
<TOTAL-COSTS> 1,483,572
<OTHER-EXPENSES> 401,146
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,002
<INCOME-PRETAX> 70,834
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 67,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,834
<EPS-PRIMARY> .35
<EPS-DILUTED> 0
</TABLE>
