<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 March 31, 1997
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
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(Address of principal executive (Zip Code)
office)
Registrant's telephone number: (909) 943-4014
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(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 March 31, 1997, there were 8,670,306 of the Registrant's Common Stock
outstanding.
<PAGE> 2
MODTECH, INC.
FORM 10-Q
FOR THE QUARTER ENDED March 31, 1997
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, 1996 as filed with the Securities
and Exchange Commission.
<PAGE> 3
MODTECH, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three
Months Ended
March 31,
1996 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
NET SALES $ 3,621,000 $ 25,813,000
COST OF SALES 3,188,000 21,437,000
------------ ------------
Gross profit 433,000 4,376,000
OPERATING EXPENSES
Selling, general &
administrative 316,000 1,038,000
------------ ------------
Income from operations 117,000 3,338,000
OTHER INCOME (EXPENSE)
Interest expense, net (38,000) (219,000)
Other - net 18,000) 16,000
------------ ------------
(20,000) (203,000)
------------ ------------
Income, before income taxes 97,000 3,135,000
PROVISION FOR
INCOME TAXES, (Benefit) 0 (1,223,000)
------------ ------------
Net income $ 97,000 $ 1,912,000
------------ ------------
5% Convertible preferred stock dividend 36,000 --
------------ ------------
Net income available for common stock 61,000 1,912,000
============ ============
Primary earnings per share $ 0.01 $ 0.20
============ ============
Weighted average shares outstanding 6,712,155 9,350,000
============ ============
Fully diluted earnings per share $ 0.01 $ 0.20
============ ============
Weighted average shares outstanding 7,358,340 9,350,000
============ ============
</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 MARCH 31,
1996 1997
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 405,000 $ 966,000
Accounts receivable, net, including costs in
excess of billings of $9,103,000 and $9,982,000 19,433,000 27,488,000
Inventories 4,167,000 6,229,000
Due from affiliates 799,000 820,000
Other current assets 137,000 141,000
------------ ------------
Total current assets 24,941,000 35,644,000
PROPERTY AND EQUIPMENT, NET 8,888,000 9,231,000
OTHER ASSETS
Deposits and other assets 200,000 185,000
------------ ------------
200,000 185,000
------------ ------------
$ 34,029,000 $ 45,060,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 9,545,000 $ 11,894,000
Current portion of long-term debt 100,000 100,000
Billings in excess of costs 1,148,000 4,189,000
------------ ------------
Total current liabilities 10,793,000 16,183,000
------------ ------------
LONG-TERM DEBT 7,844,000 11,516,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, shares authorized,
20,000,000,000; issued and outstanding,
8,649,436 and 8,670,306 in 1996 and 1997 4,015,000 4,072,000
Additional pain-in capital 15,693,000 15,693,000
Retained earnings (4,316,000) (2,404,000)
------------ ------------
Total stockholders' equity 15,392,000 17,361,000
------------ ------------
$ 34,029,000 $ 45,060,000
============ ============
</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>
Three
Months Ended
MARCH 31,
1996 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net Income $ 97,000 $ 1,912,000
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation and amortization 144,000 128,000
(Gain) on sale of equipment (5,000) --
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (763,000) (8,055,000)
(Increase) decrease in inventory (406,000) (2,062,000)
Decrease (increase) in due from affiliates 148,000 (21,000)
Decrease (increase) in notes receivable from affiliates 483,000 --
(Increase) in prepaid expenses and
other assets 53,000 11,000
(Decrease) in accounts payable and
accrued liabilities 486,000 2,349,000
(Decrease) billings in excess of earnings 53,000 3,041,000
----------- -----------
Net cash provided by (used in) operating activities 290,000 (2,697,000)
----------- -----------
Investing activities:
Proceeds from sale of equipment 5,000 12,000
Purchase of property and equipment (198,000) (483,000)
----------- -----------
Net cash provided by (used in) investing activities (193,000) (471,000)
----------- -----------
Financing activities:
(Payments) proceeds from long-term
borrowing and revolving credit line (291,000) 3,672,000
Conversion of stock warrants 119,000 57,000
Declared dividends (36,000) --
----------- -----------
Net cash provided by (used in) financing activities (208,000) 3,729,000
----------- -----------
Increase, (Decrease) in cash (111,000) 561,000
Cash and cash equivalents, at beginning
of period 561,000 405,000
----------- -----------
Cash and cash equivalents, at end of
period $ 450,000 $ 966,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
<PAGE> 6
MODTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1997
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 months ended March 31, 1997 are
not necessarily indicative of the results to be expected for the full
fiscal year.
2) Taxes on Income
Prior to the Company's initial public offering, which was completed on
July 19, 1990, the Company had elected treatment under Subchapter S of the
Internal Revenue Code which provides that, in lieu of corporate income
taxes, the shareholders are taxed on the Company's taxable income. State
income taxes are accrued at the California S corporation rate of 2.5
percent.
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 $11.13 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
of Net Sales
------------
Three Months Ended
March 31
1996 1997
---------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 12.0 16.9
Selling, general and
administrative 8.7 4.0
Income from operations 3.2 12.9
Interest income
(expense), net (1.0) (0.8)
Income, (loss) before
taxes on income 2.7 12.1
</TABLE>
Net sales for the three months ended March 31, 1997, increased by
$22,192,000 or 613%. The increase in revenue is attributable to the growth in
the school population and the Class Size Reduction program.
Gross profit as a percentage of net sales for the three months ended
March 31, 1996 increased to 16.9% from 12.0% for the same period in 1996. The
increase was due principally to the utilization of the manufacturing facilities
and the realization of manufacturing efficiencies.
Selling, general and administrative expense increased for the three
months ended March 31, 1997 by $722,000, an increase of 228%. The increase is
primarily due to the increase in sales expense as well as the increase in the
number of employees. In addition, as a percentage of sales, selling, general,
and administrative expenses decrease from 8.7% in the first three months of 1996
to 4.0% in 1997.
Due to the increase in interest rates and average amounts outstanding
net interest expense for the first three months of 1997 increased $181,000
representing a 476% increase over net interest expense for the three months
ended March 31, 1996. 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
To date, the Company has generated cash to meet its needs from
operations, bank borrowings and its initial public offering. At March 31, 1997,
the Company had $966,000 in cash. During the three months ended March 31, 1997
the Company provided cash in its operating activities.
The Company has a revolving loan commitment that will expire September
1998. The Company is entitled to borrow, from time to time up to $15,000,000
with actual borrowings limited to specified percentages of eligible accounts
receivables, equipment and inventories. On March 31, 1997, $9,716,000 was
outstanding under that loan.
During the quarter certain directors and officers of the company as
well as other option holders exercised 20,870 options for a total of $57,000.
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 seed 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
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None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27 Financial Data Schedule
(b) Reports on From 8-K
None
<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: May 14, 1997 by: /S/ Michael G. Rhodes
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Michael G. Rhodes
Chief Financial Officer
Chief Operating Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 966,000
<SECURITIES> 0
<RECEIVABLES> 27,488,000
<ALLOWANCES> 0
<INVENTORY> 6,229,000
<CURRENT-ASSETS> 35,644,000
<PP&E> 9,231,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,060,000
<CURRENT-LIABILITIES> 16,183,000
<BONDS> 11,516,000
0
0
<COMMON> 17,361,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,060,000
<SALES> 25,813,000
<TOTAL-REVENUES> 25,813,000
<CGS> 21,437,000
<TOTAL-COSTS> 21,437,000
<OTHER-EXPENSES> 1,038,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 219,000
<INCOME-PRETAX> 3,135,000
<INCOME-TAX> 1,223,000
<INCOME-CONTINUING> 1,912,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,912,000
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
