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CEDAR GROUP, INC.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
CEDAR GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1-10372 23-2577796
(State of Incorporation) (Commission File No.) (IRS Employer Identification No.)
500 Notre Dame Street
Lachine, Quebec CANADA H8S 2B2
(Address of principal executive offices)
Registrant's Telephone Number: (514)
634-3550 Indicate by ( X ) whether 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 and (2) has been subject to such filing
requirements for the past 90 days.
(1) Yes X No _____
(2) Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS.
Check whether Registrant filed all documents and reports required to be filed
by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of
securities under a plan confirmed by a Court.
Yes X No _____
APPLICABLE ONLY TO CORPORATE ISSUERS.
As of May 12, 1995, there were 14,524,625 shares of Common Stock, par value
$.001 per share, outstanding.
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INDEX
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PAGE
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at March 31,1995 (Unaudited) and
September 30, 1994 (Audited) 3
Consolidated Statements of Operations for the three months and
the six months ended March 31, 1995 and March 31, 1994
(Unaudited) 5
Consolidated Statement of Cash Flows for the six months ended
March 31, 1995 and September 30, 1994 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Events 14
Item 6. Exhibits and Reports on Form 8-K 14
</TABLE>
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CEDAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
March 31, 1995 and September 30, 1994
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<CAPTION>
MARCH 31, 1995 SEPTEMBER 30, 1994
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Unaudited Audited
(in thousands of US dollars)
ASSETS
CURRENT ASSETS
Cash........................................................... 4,499 5,578
Investments.................................................... 729 1,039
Accounts receivable, net of allowances of $615 in 1995 and $570
in 1994...................................................... 25,248 21,872
Current portion of assets transferred under contractual
arrangements................................................. 185 739
Due from an officer............................................ 565
Inventories.................................................... 5,578 8,293
Prepaid expenses and other assets.............................. 1,254 2,509
------ ------
TOTAL CURRENT ASSETS........................................... 37,493 40,595
------ ------
Property, plant and equipment, net............................. 21,635 24,957
Advances to a shareholder...................................... 569 781
Assets of business transferred under contractual arrangements
(preferred shares)........................................... 3,608 3,792
Pension assets................................................. 2,080 2,053
------ ------
65,385 72,184
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses.......................... 13,318 17,798
Customer advances.............................................. 6,432 5,561
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TOTAL CURRENT LIABILITIES...................................... 19,750 23,359
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Deferred income taxes.......................................... 4,812 4,984
Accrued post-retirement benefits other than pensions........... 500 518
Minority Interest.............................................. 6,481 15,464
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STOCKHOLDERS' EQUITY
Common stock (Note 5).......................................... 13 13
Additional paid-in capital..................................... 35,245 31,927
Retained earnings (Deficit).................................... 1,195 (1,860)
Cumulative translation adjustment.............................. (726) (342)
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35,727 29,738
------ ------
Subscription receivable........................................ (1,885) (1,885)
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TOTAL STOCKHOLDERS' EQUITY..................................... 33,842 27,853
------ ------
65,385 72,184
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</TABLE>
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CEDAR GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended March 31, 1995 and March 31, 1994
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3 MONTHS 3 MONTHS YEAR-TO- YEAR-TO-
ENDED ENDED DATE DATE
31/03/95 31/03/94 31/03/95 31/03/94
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Note A Note a
(in thousands of US dollars)
Sales........................................... $ 25,703 $ 14,793 $ 60,090 $ 17,804
---------- ---------- ---------- ----------
COST OF SALES................................... 22,487 12,604 53,263 14,818
Selling, General and Administrative Expenses.... 959 1,162 3,403 1,708
---------- ---------- ---------- ----------
23,446 13,766 56,666 16,526
---------- ---------- ---------- ----------
Profit (loss) from operations................... 2,257 1,027 3,424 1,278
Interest Expense, net........................... (2) (101) (2) (226)
Other Income.................................... 644 916
---------- ---------- ---------- ----------
Net income (loss) before Taxes and minority
interest...................................... 2,899 926 4,33 1,052
---------- ---------- ---------- ----------
Income Taxes
Current....................................... (873) (1,373)
Deferred...................................... 1 1
---------- ---------- ---------- ----------
(872) 0 (1,372) 0
---------- ---------- ---------- ----------
Net income (loss) before minority interest...... 2,027 926 2,966 1.052
Dividend of preferred shares.................... -- (248) -- (248)
Minority interest............................... 45 (420) 89 (420)
---------- ---------- ---------- ----------
Net Income (loss)............................... 2,072 258 3,055 384
Deficit, beginning of period.................... (1,860) (2,150) (1,860) (2,276)
---------- ---------- ---------- ----------
Deficit end of period........................... 212 (1,892) 1,195 (1,892)
---------- ---------- ---------- ----------
Income per common share and common share
equivalent.................................... 0.14 0.05 0.22 0.07
---------- ---------- ---------- ----------
Weighted average number of common shares and
common share equivalents outstanding.......... 14,464,624 5,721,719 14,109,661 5,406,071
========== ========== ========== ==========
</TABLE>
Note A: The consolidated statements of operations contained in these financial
statements have been adjusted to reflect the Company's acquisition of
Dominion Bridge, Inc. effective March 9, 1994 and not as of January 1,
1994 as previously presumed.
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CEDAR GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended March 31, 1995 and September 30, 1994
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MARCH 31, 1995 SEPTEMBRE 30, 1994
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Unaudited Audited
(in thousands of US dollars)
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss).............................................. $ 3,055 $ 1,040
Adjustment to reconcile net loss to net cash
provided by (used for) operating activities
Depreciation and amortization................................ 3,322 399
Deferred income tax.......................................... (172)
(Increase) decrease in accounts receivable................... (3,376) (19,460)
(Increase) decrease in due from an officer................... 565
(Increase) decrease in prepaid expenses and other assets..... 1,255 (684)
(Increase) decrease in inventories........................... 2,714 (8,937)
(Decrease) increase in accounts payable...................... (4,480) 15,776
(Decrease) increase in customer advances..................... 871 12,763
-------- ---------
Net cash used in operating activities.......................... $ 3,754 $ 897
======== =========
CASH FLOW FROM INVESTING ACTIVITIES
Investment in marketable securities............................ $ 310 $
Cash consideration paid for acquired businesses................ 739
Advance to a shareholder....................................... 212
Cash payment for purchase of equipment......................... (22,500)
Investment in other assets..................................... (27) (1,874)
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Net cash provided by (used in) investing activities............ $ 1,234 $ (24,374)
======== =========
</TABLE>
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CEDAR GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended March 31, 1995 and September 30, 1994
<TABLE>
<CAPTION>
MARCH 31, 1995 SEPTEMBRE 30, 1994
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Unaudited Audited
(in thousands of US dollars)
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock......................... $ 3,318 $ 26,322
Post-retirement benefit other than pension..................... (18)
Minority Interest.............................................. (8,983)
Net repayments of line of credit............................... (357)
Issue of preferred shares of subsidiary to minority interest... 554
Payment of other obligations................................... (255)
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Net cash provided by financing activities...................... (5,683) 26,264
Effect of foreign exchange rate changes on cash................ (384) (673)
NET INCREASE (DECREASE) IN CASH................................ (1,079) 2,114
CASH AT BEGINNING OF YEAR...................................... 5,578 1,135
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CASH AT END OF PERIOD.......................................... 4,499 3,249
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SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest....................................................... $ 2 $ 226
========= ========
</TABLE>
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CEDAR GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the consolidated
accounts of CEDAR GROUP, INC. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in the
consolidation.
2. BUSINESS
The Company is an importer, manufacturer and distributor of industrial,
custom and specialty fasteners for sale throughout Canada and the United
States and through its DOMINION BRIDGE, INC. subsidiary operates as a
manufacturing, engineering and infrastructure Company.
3. INVENTORIES
Work-in-process related to construction contracts is stated at accumulated
cost less amounts charged to income based on the percentage-of-completion
of individual contracts. Raw materials are stated at the lower of cost
(first-in, first-out) or net replacement cost. Finished goods comprise
steel and steel hardware products held for sale and are stated at the
lower of cost (first-in, first-out) or net realizable value.
4. CONSTRUCTION CONTRACTS
Income on construction contracts is recognized on the
percentage-of-completion basis. Provisions for anticipated losses on
uncompleted contracts are made in the period in which such losses are
first determined.
5. CAPITAL STOCK
Preferred stock: $.001 par value; 5,000,000 shares authorized, none issued.
Common Stock: $.001 par value, 20,000,000 shares authorized; as of March
31, 1995: 14,524,625 shares were issued and outstanding and 13,507,918
shares were issued and outstanding as of September 30, 1994.
6. FOREIGN CURRENCY TRANSLATION
Gains and losses on foreign currency transactions are recognized currently
in the Consolidated Statement of Operations, and are not significant. Gains
and losses on translation of the Company's subsidiaries operating outside
the United States are reported separately and accumulated in the
"Cumulative Foreign Currency Translation Adjustment" in the Consolidated
Balance Sheets.
7. COMMITMENTS AND CONTINGENCIES
The Company's wholly-owned Canadian subsidiary, Dominion Bridge, Inc.,
periodically enters into forward exchange contracts to hedge specific
anticipated currency inflows. It does not engage in speculation. The
foreign exchange contracts do not subject the Company to operating risk due
to exchange rate movements because gains and losses on these contracts
offset losses and gains on the transactions being hedged. The forward
exchange contracts generally have maturities which do not exceed one year
and are agreed to at the inception of the contracts. No significant gains
or losses are deferred in the consolidated balance sheets.
The Company leases office and warehouse space under non-cancellable
operating leases. The terms of the various leases run between one and five
years, the last of which expires in November, 1997. Future minimum lease
payments under all non-cancellable leases for the years subsequent to
September 30, 1994 consist of the following:
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1995....................................... $968,000
1996....................................... $730,000
1997....................................... $343,000
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A number of claims and lawsuits seeking unspecified damages and other
relief are pending against the Company. It is impossible at this time for
the Company to predict with any certainty the outcome of such litigation.
However, management is of the opinion, based upon information presently
available, that it is unlikely that any liability, to the extent not
provided for through insurance or otherwise, would be material in relation
to the Company's consolidated financial position.
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PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles in the
United States (US GAAP) for interim financial information and the
instructions to Form 10-QSB and Regulation S-B. Accordingly, the statements
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Consolidated net sales for the three months ended March 31,1995 were
$25,703,000. In accordance with technical requirements for consolidation
under U.S. GAAP, the Company was obligated to consolidate the results of
Dominion Bridge, Inc. from March 9, 1994 and not from January 1, 1994, as
the parties presumed. Accordingly, the results as previously stated for the
three months ended March 31, 1994 would not provide an appropriate
comparison. Net sales for the three month period ended March 31, 1994,
without the results of Dominion Bridge, Inc. were $14,793,000.
Consolidated sales for the three month period ended March 31, 1995 were
$25,703,000 versus $14,793,000 in the comparative prior period (excluding
the results of Dominion Bridge, Inc. for the period January 1, 1994 to
March 9, 1994) resulting in a gross profit of $3,216,000 and $2,189,000,
respectively. Gross margin as a percentage of sales was 12.51% in the
second quarter ended March 31, 1995. Sales, general and administrative
expenses in the three months ended March 31, 1995 were $959,000 compared to
$1,162,000 for the comparative period. The decrease is directly
attributable to cost controls that have been implemented by the Company,
particularly at Dominion Bridge, Inc.
Sales revenue decreased in the quarter ended March 31, 1995 compared to
the quarter ended December 31, 1994. The decrease of revenues is
attributable to the sale of the steel service centers operating in Eastern
and Western Canada that took place in December, 1994 and to the
divestiture of the Company's Canadian commodity fastener distribution
businesses that were formerly carried on by Edinov Corporation.
Minority interests consist of UDIL's remaining balance of Cdn. $9,553,000
of Class "A" Preferred Shares in DB and AHG-FRANCE's 30% ownership of the
common stock of Unimetric.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of operating capital have traditionally
been the private placements of the Company's Common Stock and cash
generated operations.
The Company's cash at the end of March 1995 was $4,499,000.
The CDN. $10 million line of credit that the Company previously
disclosed that it was in the process of putting in place for its Dominion
Bridge, Inc. Subsidiary has not as yet been finalized.
Although the Company anticipates the line of credit will be put in place
shortly, there can be no assurance that the proposed line of credit by
Dominion Bridge will be able to be obtained.
As of May 12, 1995 the Company has paid Cdn. $8,299,000, transferred the
assets and received all of the common shares of Dominion Bridge, Inc. and
Cdn. $8,786,000 face value of the Class "A" Preferred Shares of Dominion
Bridge, Inc.
The Company is currently attempting to structure an agreement with United
Dominion Industries Limited pursuant to which United Dominion would be
issued up to a maximum of 1,592,167 shares of common stock of the Company
along with a cash payment of up to $3 million in exchange for all the
remaining Class "A" preferred shares of Dominion Bridge, Inc. The Company
may also be required to undertake additional equity offerings to raise
funds that may be needed to acquire these securities.
9
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time disagreements with individual employees and disagreements
as to the interpretation, effect and nature of individual agreements arise
in the ordinary course of business and may result in legal proceeding being
commenced against the Company.
On June 2, 1994, the Company entered into a letter of intent (the "Letter
of Intent") with Stelco Inc. ("Stelco") and Stelco Fasteners Ltd. pursuant
to which the Company agreed to invest Cdn. $2 million into Stelco
Fasteners in exchange for 75% of the issued and outstanding common shares
of Stelco Fasteners. In addition, Stelco agreed to convert its
indebtedness into series A Preferred Shares of Stelco Fasteners having a
value of Cdn. $15,911,000 representing a reduction of approximately Cdn.
$5 million of indebtedness. The Series A Preferred Shares were to be
convertible into shares of Common Stock of the Company at Cdn. $8.50 per
share (later changed to Cdn. $8.00 per share). Stelco further agreed to
receive Series B Preferred Shares of Stelco Fasteners in exchange of the
operating loan advanced to Stelco Fasteners by Stelco to a maximum of Cdn.
$4,659,000. The Series B Preferred Shares were to be redeemed from 25% of
the net after tax profits of Stelco Fasteners. The Letter of Intent
provided that the Company and Stelco were to negotiate in good faith to
complete definitive agreements within a sixty day period. This period was
subsequently extended by mutual agreement.
As Stelco had failed to negotiate a collective bargaining agreement with
the Union representing Stelco Fasteners' employees and as Stelco advised
Stelco Fasteners' major customers that it could not guarantee their
requirements beyond July 31, 1994, on July 4, 1994, Stelco transferred
ownership of 75% of the common shares of Stelco Fasteners to the Company
and handed over management and control of Stelco Fasteners to the Company's
principals. In this connection, the Company Chairman, Michel L. Marengere,
and its President, Nicolas Matossian, were elected as two of three
directors on Stelco Fasteners' Board of Directors. In addition, Mr.
Marengere and Mr. Matossian were appointed as Stelco
Fastener's senior officers.
The certificate representing 75% of the common shares of Stelco Fasteners,
the Cdn. $2 million cheque by the Company payable to Stelco Fasteners and
other documents were placed in trust with a law firm pending completion of
the Company's due diligence and its assessment of Stelco Fasteners as a
viable enterprise.
In July, 1994, the Company was successful in negotiating a collective
bargaining agreement with the union representing Stelco Fasteners'
approximately 350 employees. By September 30, 1994 the Company also had an
opportunity to assess the loss of business in June, 1994 and in receiving
confirmation that Stelco Fasteners' major customers would continue doing
business with Stelco Fasteners.
In the period of September 30, 1994 to December 14, 1994, the Company
negotiated in good faith with Stelco to complete its due diligence and to
finalize definitive agreements and in the interim successfully operated
Stelco Fasteners and its business.
On December 15, 1994, Stelco purported to deem the transaction to be
abandoned and proceeded to remove all documents from trust and to assert
management control of Stelco Fasteners.
On December 17, 1994 the Company obtained a temporary court order requiring
both Stelco and the Company to remove themselves from operating control of
Stelco Fasteners pending the determination of a motion for an interim and
interlocutory injunction which would prohibit Stelco from, among other
things, exercising any powers as owner and controlling shareholder of
Stelco Fasteners, pending trial. On January 5, 1995 the motion was not
granted, however, in his oral reasons, Mr. Justice Kent indicated that
based on the evidence before him, it appeared that there were substantial
issues to be tried.
The Company also commenced an action against Stelco Inc. on December 20,
1994 to obtain a declaration that it is the rightful owner or 75% of the
Common Shares of Stelco Fasteners Ltd. and for damages and is presently
pursuing this action. The Company is not presently in any position to
predict the outcome of this litigation. Reference is made to the Company's
Form 10-KSB Annual Report under section 13 of the Securities Exchange Act
of 1934 for the fiscal year ended September 30, 1994.
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ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual General Meeting of stockholders on March 29,
1995. At the meeting, a majority of shareholders voted for the following
matters:
i) the election of The Honourable Marc Lalonde and Micheline Prud'homme
as directors until the 1998 Annual General Meeting;
ii) the appointment of Ernst & Young, Chartered Accountants, as auditors
of the Company for the ensuring year at a fee to be fixed by the
directors of the Company;
iii) the ratification of the Company's 1995 Stock Option Plan (the "Plan")
and the issuance of up to 1,500,000 shares of Common Stock pursuant
to this plan. In addition, shareholders ratified the grant to certain
of the Company's executive officers, officers and employees of
options to purchase up to an aggregate 1,335,000 shares of Common
Stock under the Plan at an exercise price of $4.125 per share. The
ratification of the issuance of options to purchase 1,335,000 shares
of Common Stock is subject to approval or re-assessment by an
independent Compensation Committee of the Board of Directors, and
There were 4,161,805 shares of Common Stock represented in person at the
meeting and 6,275,241 represented by proxy for a total of 10,437,046
shares. All of the shares represented at the meeting voted in favour of the
resolution to ratify the Plan and the issuance of 1,335,000 shares of
Common Stock under the Plan except for 382,060 shares which were
represented by proxy at the meeting.
ITEM 5. OTHER EVENTS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
11
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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 BEHALF OF THE UNDERSIGNED
THEREUNTO DULY AUTHORIZED.
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CEDAR GROUP, INC
DATE : MAY 12, 1995
By: /s/ Michel L. Marengere
----------------------------------------
Michel L. Marengere
Chairman and CEO
(Chief Executive Officer)
By: /s/ Robert Chartier
----------------------------------------
Robert Chartier
Principal Accounting Officer
</TABLE>
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