<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 12 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1996
Commission File Number 000-18680
MODTECH, INC.
CALIFORNIA 33-0044888
- - ------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2830 Barrett Avenue, Perris, CA 92572
- - ------------------------------- --------------------
(Address of principal (Zip Code)
executive office)
Registrant's telephone number: (909) 943-4014
(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
--- ---
As of September 30, 1996, there were 6,429,166 shares of the
Registrant's Common Stock outstanding.
<PAGE> 2
MODTECH, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
PART I. STATEMENT REGARDING FINANCIAL INFORMATION
The financial statements included herein have been prepared by MODTECH,
INC. (The "Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information normally included
in financial statements prepared in accordance with generally accepted
accounting principles has been omitted pursuant to such rules and regulations.
However, the company believes that the financial statements, including the
disclosures herein, are adequate to make the information presented not
misleading. It is suggested that the financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual report on Form 10-K for the year ended December 31, 1995 as
filed with the Securities and Exchange Commission.
<PAGE> 3
MODTECH, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
----------------------------- -----------------------------
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 6,758,000 $14,285,000 $16,135,000 $26,989,000
COST OF SALES 5,800,000 12,164,000 13,784,000 23,026,000
----------- ----------- ----------- -----------
Gross profit 958,000 2,121,000 2,351,000 3,963,000
OPERATING EXPENSES
Selling, general & administrative 328,000 623,000 1,186,000 1,471,000
----------- ----------- ----------- -----------
Income (loss) from operations 630,000 1,498,000 1,165,000 2,492,000
OTHER INCOME (EXPENSE)
Interest expense, net (182,000) (142,000) (420,000) (246,000)
Other - net 9,000 22,000 13,000 41,000
----------- ----------- ------------ -----------
(173,000) (120,000) (407,000) (205,000)
----------- ----------- ----------- -----------
Income before income taxes 457,000 1,378,000 758,000 2,287,000
PROVISION FOR INCOME TAXES, (Benefit) 0 49,000 0 69,000
----------- ----------- ----------- -----------
Net income 457,000 1,329,000 758,000 2,218,000
----------- ----------- ----------- -----------
5% Convertible preferred stock dividend - - - 48,000
----------- ----------- ----------- -----------
Net income available for common stock $ 457,000 $ 1,329,000 $ 758,000 $ 2,170,000
=========== =========== =========== ===========
Primary Earnings per share $ 0.07 $ 0.14 $ 0.12 $ 0.24
----------- ----------- ----------- -----------
Weighted average shares outstanding 6,550,000 9,200,000 6,550,000 9,200,000
----------- ----------- ----------- -----------
Fully diluted Earnings per share $ 0.07 $ 0.14 $ 0.12 $ 0.24
----------- ----------- ----------- -----------
Weighted average shares outstanding 6,550,000 9,200,000 6,550,000 9,200,000
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
<PAGE> 4
MODTECH, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
----------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 561,000 $ 1,501,000
Accounts receivable, net, including costs in
excess of billings of $1,454,000 and $3,432,000 4,623,000 14,353,000
Inventories 646,000 3,091,000
Note receivable from affiliates 483,000 -
Due from affiliates 765,000 986,000
Other current assets 125,000 122,000
----------- -----------
Total current assets 7,203,000 20,053,000
PROPERTY AND EQUIPMENT, NET 7,516,000 7,907,000
OTHER ASSETS
Notes Receivable from affiliates 238,000 -
Deposits and other assets 197,000 245,000
----------- -----------
435,000 245,000
----------- -----------
$15,154,000 $28,205,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 2,061,000 $ 7,307,000
Current portion of long-term debt - 100,000
Billings in excess of costs 760,000 2,003,000
----------- -----------
Total current liabilities 2,821,000 9,410,000
----------- -----------
LONG-TERM DEBT 3,590,000 7,184,000
----------- -----------
STOCKHOLDERS' EQUITY
Convertible preferred stock, Series A, shares
authorized, 5,000,000, issued and outstanding
2,850,000 in 1995 2,685,000 -
Common stock, shares authorized,
20,000,000,000; issued and outstanding,
3,053,350 and 6,429,166 in 1995 and 1996 1,055,000 2,363,000
Additional paid-in capital 13,619,000 15,693,000
Retained earnings (8,616,000) (6,445,000)
----------- -----------
Total stockholders' equity 8,743,000 11,611,000
----------- -----------
$15,154,000 $28,205,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
<PAGE> 5
MODTECH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, SEPTEMBER 30,
1995 1996
------------ ------------
<S> <C> <C>
Operating activities
Net income $ 758,000 $ 2,219,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 336,000 384,000
Loss (gain) on sale of equipment (41,000) (5,000)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,461,000) (9,730,000)
(Increase) decrease in inventory 242,000 (2,445,000
(Increase) in prepaid expenses and other assets 79,000 (45,000)
Increase (decrease) in accounts payable and
accrued liabilities 866,000 5,246,000
Increase (decrease) billings in excess of earnings 297,000 1,243,000
(Increase) decrease in due from affiliates (440,000) 500,000
----------- -----------
Net cash used in operating (364,000) (2,633,000)
----------- -----------
Investing activities:
Proceeds from sale of equipment 46,000 12,000
Purchase of property and equipment (175,000) (782,000)
----------- -----------
Net cash used in investing activities (129,000) (770,000)
----------- -----------
Financing activities:
(Payments) proceeds from long-term
borrowing and revolving credit line 2,097,000 3,694,000
Conversion of stock warrants and options - 697,000
Declared dividends - (48,000)
----------- -----------
Net cash provided by financing activities 2,022,000 4,343,000
----------- -----------
Increase, (Decrease) in cash 1,529,000 940,000
Cash and cash equivalents, at beginning of period 836,000 561,000
----------- -----------
Cash and cash equivalents, at end of period $ 2,365,000 $ 1,501,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed financial statements.
<PAGE> 6
MODTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1996
1) Management Opinion
In the opinion of management, the condensed financial statements reflect
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of
operations as of and for the periods presented.
The results of operations for the three and nine months ended September
30, 1996 are not necessarily indicative of the results to be expected for
the full fiscal year.
2) Taxes on Income
Certain items of income and expense are recorded on different bases for
financial statement and income tax reporting. Deferred state income
taxes have been provided for the effects of these temporary differences.
3) Earnings Per Share
Earnings per share is computed on the basis of the weighted average
number of common equivalent shares outstanding during each year. It is
assumed that all dilutive stock options are exercised at the grant date
and that the proceeds are used to purchase shares of the Company's common
stock at the public market price of $8.00 per share.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The following table sets forth certain items in the Consolidated Statements of
Income as a percent of net sales.
<TABLE>
<CAPTION>
Percent Percent
of Net Sales of Net Sales
-------------------- --------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1995 1996 1995 1996
------ ------- ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 14.2 14.8 14.6 14.7
Selling, general and
administrative 4.9 4.3 7.4 5.5
Income, (loss) from
operations 9.3 10.5 7.2 9.2
Interest income
(expense), net (2.7) (0.9) (2.6) (0.9)
Income, (loss) before
taxes on income 6.8 9.6 4.7 8.5
</TABLE>
The net sales for the three months ended September 30, 1996 increased
$7,527,000 or 111%. Net sales for the nine months ended September 30, 1996,
increased 10,854,000 or 67%. The increases were primarily due to the economic
recovery of California and the implementation of California's class size
reduction program.
Gross profit as a percentage of net sales for the three month ended
September 30, 1996 increased 0.6% and the nine months ended September 30, 1996
gross profit percentage increased 0.1%. The slight increases were due to
product mix.
Selling, general and administrative expense increased for the three
months ended September 30, 1996 by $295,000, an increase of 90%. Costs for the
nine months ended September 30, 1996 increased $285,000, an increase of 24%.
The increase is due to the increase in sales volume.
Due to decreased interest rates and average amounts outstanding net
interest expense for the three and nine months of 1996 decreased $40,000 and
$174,000 or 22% and 41%, respectively. The Company continues to borrow under
its revolving line of credit to support its accounts receivable and
work-in-progress inventories. See "Liquidity and Capital Resources".
Inflation
In the past, the Company has not been adversely affected by inflation
because it has been generally able to pass along to its customers increases in
the costs of labor and materials.
<PAGE> 8
Liquidity and Capital Resources
Operating Activities
To date, the Company has generated cash to meet its needs from
operations, borrowings, private financing and its initial public offering. At
September 30, 1996, the Company had $1,501,000 in cash. During the nine months
ended September 30, 1996 the Company used cash to decrease its borrowings and
trade payables as well as finance trade receivables.
The Company has a revolving loan commitment that will expire September
1998. The Company is entitled to borrow, from time to time up to $10,000,000
with actual borrowings limited to specified percentages of eligible accounts
receivables, equipment and inventories. On September 30, 1996, $5,284,000 was
outstanding under the loan agreement.
During the quarter certain directors and officers of the company as well
as other option holders exercised 60,000 options for a total of $161,900.
Investing Activities
During the three months ending September 30, 1996, the Company had
negligible investment activity. Management believes that the Company's
existing product lines and manufacturing capacity will enable the Company to
generate sufficient cash through operations, supplemented by periodic use of
its existing bank line of credit, to finance the Company's business at current
levels over the next 12 months. Additional cash resources may be required if
the company is able to expand its business beyond current levels. For example,
it will be necessary for the company to construct or acquire additional
manufacturing facilities in order for the Company to compete effectively in new
market areas or states which are beyond a 300 mile radius from one of its
production facilities. The construction or acquisition of new facilities would
require significant additional capital. For these reasons, among others, the
Company may need additional debt or equity financing in the future. There can
be, however, no assurance that the Company will be successful in obtaining such
additional financing, or that any such financing will be available on terms
acceptable to the Company.
<PAGE> 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 -- Financial Data Schedule
(b) Reports on From 8-K
Attached
<PAGE> 10
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.
MODTECH, INC.
Date: November 5, 1995
By: /s/ MICHAEL G. RHODES
-----------------------
Michael G. Rhodes
Chief Operating Officer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,501,000
<SECURITIES> 0
<RECEIVABLES> 14,353,000
<ALLOWANCES> 0
<INVENTORY> 3,091,000
<CURRENT-ASSETS> 20,053,000
<PP&E> 7,907,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,205,000
<CURRENT-LIABILITIES> 9,410,000
<BONDS> 7,184,000
0
0
<COMMON> 11,611,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,205,000
<SALES> 26,989,000
<TOTAL-REVENUES> 26,989,000
<CGS> 23,026,000
<TOTAL-COSTS> 23,026,000
<OTHER-EXPENSES> 1,471,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 246,000
<INCOME-PRETAX> 2,287,000
<INCOME-TAX> 69,000
<INCOME-CONTINUING> 2,218,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,218,000
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
