<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 March 31, 1998
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 March 31, 1998, 196,736 shares of Common Stock outstanding.
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M. H. RHODES, INC. AND SUBSIDIARY
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
------------ -----------
ASSETS
1997 1998
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 21,786 $ 57,645
Accounts Receivable, net of
allowance for doubtful accounts 1,312,189 1,303,857
Inventories 2,999,584 2,890,404
Prepaid Expenses and Other 32,776 35,675
----------- -----------
TOTAL CURRENT ASSETS 4,366,335 4,287,581
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST:
Buildings and Improvements 1,273,555 1,273,554
Machinery and Equipment 2,565,253 2,572,619
Land 65,000 65,000
----------- -----------
Sub-total 3,903,808 3,911,173
Less:Accumulated Depreciation (3,182,480) (3,203,213)
----------- -----------
NET PROPERTY, PLANT AND EQUIPMENT 721,328 707,960
----------- -----------
OTHER ASSETS 18,729 15,040
----------- -----------
TOTAL ASSETS $ 5,106,392 $ 5,010,581
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable $ 525,212 $ 450,212
Current Portion of Long Term Debt 267,720 267,720
Accounts Payable 469,406 365,167
Other Accrued Expenses 261,688 353,705
----------- -----------
TOTAL CURRENT LIABILITIES 1,524,026 1,436,804
----------- -----------
LONG-TERM DEBT, LESS CURRENT PORTION 515,629 444,284
----------- -----------
OTHER NON-CURRENT LIABILITIES 100,000 100,000
----------- -----------
COMMITMENTS AND CONTINGENCIES
Redeemable Common Stock, 625,256 625,256
STOCKHOLDERS' EQUITY
Common Stock, $1.00 par value, 400,000
shares authorized, 300,880 issued 225,729 225,729
Paid in Capital 3,697 3,697
Retained Earnings 3,695,734 3,715,992
----------- -----------
Less:Treasury Stock, at cost (1,092,404) (1,092,404)
Unallocated ESOP shares (491,275) (448,777)
----------- -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 5,106,392 $ 5,010,581
----------- -----------
</TABLE>
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M. H. RHODES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31
------------------
1997 1998
---- ----
<S> <C> <C>
NET SALES $1,983,341 $2,533,853
COST OF GOODS SOLD 1,519,093 1,981,286
--------- ---------
GROSS PROFIT 464,248 552,567
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 387,435 504,855
--------- ---------
OPERATING INCOME 76,813 47,712
OTHER INCOME(EXPENSE):
INTEREST EXPENSE (23,703) (24,655)
OTHER INCOME (EXPENSE), NET 1,498 201
--------- ---------
INCOME BEFORE INCOME TAXES 54,608 23,258
PROVISION FOR INCOME TAXES 3,000 3,000
--------- ---------
NET INCOME 51,608 20,258
TRANSLATION ADJUSTMENTS - -
BEGINNING RETAINED EARNINGS 3,980,871 3,695,734
--------- ---------
ENDING RETAINED EARNINGS 4,032,479 3,715,992
--------- ---------
AVERAGE SHARES OUTSTANDING 202,599 196,736
EARNINGS PER SHARE $ .25 $ .10
CASH DIVIDENDS PER SHARE $ - $ -
</TABLE>
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M. H. RHODES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTH PERIOD
ENDED MARCH 31
------------------------
1997 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 51,608 $ 20,258
----------- -----------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 29,784 20,733
ESOP expense 42,498 42,498
Amortization of other assets 1,211 3,689
Change in assets and liabilities:
(Increase)decrease in accounts receivable (68,474) 8,332
(Increase)decrease in inventories (142,678) 109,180
(Increase)decrease in prepaid expenses
and other 510 (2,899)
Increase(decrease) in accounts payable 19,152 (104,239)
Increase in accrued expenses 4 93,005
----------- -----------
Total adjustments (117,993) 170,299
----------- -----------
Net cash provided by (used in)
operating activities (66,385) 190,557
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,685) (7,367)
----------- -----------
Net cash used in investing activities (5,685) (7,367)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from additional borrowings 1,789,184 -0-
Repayments of debt (1,833,857) (147,331)
----------- -----------
Net cash used in financing activities (44,673) (147,331)
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NET (DECREASE) INCREASE IN CASH (116,743) 35,859
CASH AND CASH EQUIVALENTS, beginning of period 137,750 21,786
----------- -----------
CASH AND CASH EQUIVALENTS, end of quarter $ 21,007 $ 57,645
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</TABLE>
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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 month periods ended March 31, 1997 and March 31, 1998; (B) The
financial position at March 31, 1998 and December 31, 1997; and (C) The cash
flows for the three month periods ended March 31, 1997 and March 31, 1998.
2. The results for the three month period ended March 31, 1998 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, March 31,
1997 1998
---------- ----------
<S> <C> <C>
Raw materials & component parts.... $1,532,009 $1,474,986
Work-in-process.................... 1,142,911 1,009,839
Finished goods..................... 324,664 405,579
---------- ----------
$2,999,584 $2,890,404
---------- ----------
</TABLE>
4. The earnings per share is calculated by dividing net income 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. M.H. Rhodes (Canada) Limited is a 96% owned subsidiary of M.H. Rhodes, Inc.
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 voted for its
dissolution which is currently in process.
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-backed 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.
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7. Owosso Corporation and M.H. Rhodes, Inc. announced on April 6, 1998
that they have signed a definitive agreement in which Owosso will
acquire all of the outstanding stock of M.H. Rhodes, Inc. The
purchase price of $14.51 per Rhodes share equates to $2.9 million,
and Owosso will assume or repay debt of approximately $1.3 million.
Owosso also announced that it intends to consolidate the operations
of its Cramer subsidiary, located in Old Saybrook, Connecticut,
into Rhodes' manufacturing facility as soon as possible after
closing. Cramer will be merged into Rhodes and will operate as a
division of Rhodes (the "Merger"). The transaction is subject
to various closing conditions including the approval of the Company's
stockholders. Accordingly, there is no assurance that the Merger will be
completed.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
New orders for the first quarter of 1998 increased 28% compared to the first
quarter of 1997. The principal reason for this was that an original equipment
manufacturer (OEM) Timer & Switch customer placed a two-year blanket order in
March 1998 that was not recorded for the comparable period in 1997. The total
backlog on March 31, 1998 was $3,037,000 compared to $3,321,000 on March 31,
1997, or a 9% decrease. This was principally due to the Company cancelling
future two-three year Thermal Photocontrol blanket orders in agreements with
customers. Margins for this line resulting from the relocation from Mexico to
Avon were unfavorable.
Net sales for the first quarter 1998 were $2,533,853 compared to $1,983,431 in
the first quarter of 1997 or a 28% increase. The principal reason for this was a
large government order shipped in the first quarter of 1998.
Cost of goods sold as a percentage of net sales increased to 78.2% for the first
quarter of 1998 as compared to 76.6% for the same quarter of 1997. The principal
reasons for this increase were: (1) Training expenses and rearrangement costs of
the photocontrol production line were incurred in the first quarter of 1998.
This line was relocated from Mexico to Avon, Connecticut in the fourth quarter
of 1997; and (2) Environmental cost studies that were conducted in connection
with the merger.
Selling, general and administrative expenses, ("S,G & A") as a percentage of net
sales were 19.9% for the first quarter of 1998 as compared to 19.5% for the same
quarter in 1997. The principal reason for this resulted from the definitive
agreement between the Owosso Corporation and M.H. Rhodes, Inc. for Owosso to
acquire all the outstanding stock of M.H. Rhodes, Rhodes incurred $103,000 of
legal and other administrative expenses ("M & A costs") relating to the
acquisition. Without the M & A costs, S,G & A would have been 15.9% of net
sales.
Interest expense for the first quarter 1998 increased slightly compared to the
same quarter in 1997. The principal reason for this was higher principal
balances ($70,000 up) on the revolving line of credit.
Net income decreased in the first quarter of 1998 compared to the same quarter
in 1997. The principal reason for this was the $103,000 in the M & A costs
incurred resulting from the merger.
Financial Condition as of March 31, 1998
Working capital for the first quarter of 1998 increased $8,000 over the December
1997 level. This was caused by a decrease in inventories which increased cash.
Cash was then used to reduce both Accounts Payable and Notes Payable.
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - 27
b. Reports on Form 8-K
A report on Form 8-K was filed on April 17, 1998 announcing that
the Company had entered into a merger agreement with Owosso
Corporation on April 6, 1998, providing for the merger of Cramer
Company, a wholly-owned subsidiary of Owosso, with and into the
Company.
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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.
M. H. RHODES, INC.
By: /s/ Allan D. Springer
---------------------
Allan D. Springer
Its Vice President of
Finance and Chief
Financial Officer
Dated: April 25, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 57,645
<SECURITIES> 0
<RECEIVABLES> 1,303,857
<ALLOWANCES> 0
<INVENTORY> 2,890,404
<CURRENT-ASSETS> 4,287,581
<PP&E> 3,911,173
<DEPRECIATION> 3,203,213
<TOTAL-ASSETS> 5,010,581
<CURRENT-LIABILITIES> 1,436,804
<BONDS> 0
0
0
<COMMON> 225,729
<OTHER-SE> 2,178,508
<TOTAL-LIABILITY-AND-EQUITY> 5,010,581
<SALES> 2,533,853
<TOTAL-REVENUES> 2,533,853
<CGS> 1,981,286
<TOTAL-COSTS> 1,981,286
<OTHER-EXPENSES> 504,855
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,655
<INCOME-PRETAX> 23,258
<INCOME-TAX> 3,000
<INCOME-CONTINUING> 20,258
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,258
<EPS-PRIMARY> $.10
<EPS-DILUTED> 0
</TABLE>
