<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 June 30, 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
- ------------------------------- ----------------------
(Address of principal executive (Zip Code)
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 June 30, 1996, there were 8,678,836 shares of the Registrant's Common
Stock outstanding.
<PAGE> 2
MODTECH, INC.
FORM 10-Q
FOR THE QUARTER ENDED June 30, 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.
MODTECH, INC.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, June 30,
1996 1997 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 9,083,000 $33,093,000 $12,704,000 $58,906,000
COST OF SALES 7,674,000 26,251,000 10,862,000 47,688,000
----------- ----------- ----------- -----------
Gross profit 1,409,000 6 842,000 1,842,000 11,218,000
OPERATING EXPENSES
Selling, general &
administrative 532,000 1,144,000 848,000 2,182,000
----------- ----------- ----------- -----------
Income (loss) from
operations 877,000 5,698,000 994,000 9,036,000
OTHER INCOME (EXPENSE)
Interest expense, net (70,000) (330,000) (108,000) (549,000)
Other - net 5,000 48,000 23,000 64,000
----------- ----------- ----------- -----------
(65,000) (282,000) (85,000) (485,000)
----------- ----------- ----------- -----------
Income, before
income taxes 812,000 5,416,000 909,000 8,551,000
PROVISION FOR
INCOME TAXES, (Benefit) 20,000 2,133,000 20,000 3,356,000
----------- ----------- ----------- -----------
Net income 792,000 3,283,000 889,000 5,195,000
----------- ----------- ----------- -----------
5% Convertible preferred
stock dividend 12,000 - 48,000 -
----------- ----------- ----------- -----------
Net income available for
common stock $ 780,000 $ 3,283,000 $ 842,000 $ 5,195,000
=========== =========== =========== ===========
Primary Earnings per share $ 0.09 $ 0.35 $ 0.10 $ 0.55
----------- ----------- ----------- -----------
Weighted average shares
outstanding 8,750,000 9,370,000 8,750,000 9,370,000
----------- ----------- ----------- -----------
Fully diluted Earnings per share $ 0.09 $ 0.35 $ 0.10 $ 0.55
----------- ----------- ----------- -----------
Weighted average shares
outstanding 8,750,000 9,370,000 8,750,000 9,370,000
----------- ----------- ----------- -----------
</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 JUNE 30,
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 405,000 $ 2,703,000
Accounts receivable, net, including costs in
excess of billings of $9,103,000 and $8,945,000 19,433,000 37,625,000
Inventories 4,167,000 7,852,000
Due from affiliates 799,000 931,000
Other current assets 137,000 204,000
----------- -----------
Total current assets 24,941,000 49,315,000
PROPERTY AND EQUIPMENT, NET 8,888,000 8,912,000
OTHER ASSETS
Deposits and other assets 200,000 160,000
----------- -----------
200,000 160,000
----------- -----------
$34,029,000 $58,387,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 9,545,000 $15,638,000
Current portion of long-term debt 100,000 100,000
Billings in excess of costs 1,148,000 6,851,000
----------- -----------
Total current liabilities 10,793,000 22,589,000
----------- -----------
LONG-TERM DEBT 7,844,000 15,132,000
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, shares authorized,
20,000,000,000; issued and outstanding,
8,649,436 and 8,678,836 in 1996 and 1997 4,015,000 4,043,000
Additional pain-in capital 15,693,000 15,744,000
Retained earnings ( 4,316,000) 879,000
----------- -----------
Total stockholders' equity 15,392,000 20,666,000
----------- -----------
$34,029,000 $58,387,000
=========== ===========
</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>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 890,000 $ 5,195,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 256,000 472,000
Loss (gain) on sale of equipment (5,000) -
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (6,580,000) (18,192,000)
(Increase) decrease in inventory (857,000) (3,685,000)
(Increase) decrease in note receivable from affiliates 473,000 (132,000)
(Increase) decrease in due from affiliates 72,000 -
(Increase) in prepaid expenses and
other assets 93,000 (27,000)
Increase (decrease) in accounts payable and
accrued liabilities 2,198,000 6,093,000
Increase (decrease) billings in excess of earnings 951,000 5,703,000
----------- -----------
Net cash used in operating (2,499,000) (4,573,000)
----------- -----------
Investing activities:
Proceeds from sale of equipment 12,000 12,000
Purchase of property and equipment (353,000) (508,000)
----------- -----------
Net cash used in investing activities (341,000) (496,000)
----------- -----------
Financing activities:
(Payments) proceeds from long-term
borrowing and revolving credit line 2,152,000 7,288,000
Conversion of stock warrants and options 536,000 79,000
Declared dividends (48,000) -
----------- -----------
Net cash provided by financing activities 2,640,000 7,367,000
----------- -----------
Increase, (Decrease) in cash (200,000) 2,298,000
Cash and cash equivalents, at beginning
of period 561,000 405,000
----------- -----------
Cash and cash equivalents, at end of
period $ 361,000 $ 2,703,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE> 6
MODTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
June 30, 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 six months ended June 30, 1997 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 $12.88 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 Six Months Ended
June 30, June 30,
1996 1997 1996 1997
--------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 15.5 20.7 14.5 19.0
Selling, general and
administrative 5.8 3.5 6.7 3.7
Income, (loss) from
operations 9.7 17.2 7.8 15.3
Interest income
(expense), net (0.8) (1.0) (0.8) (0.9)
Income, (loss) before
taxes on income 8.9 16.4 7.2 14.5
</TABLE>
Net sales for the three and six months ended June 30, 1997, increased by
$24,013,000 or 264% and $46,202,000 or 364% respectively. The increase in
revenue is principally attributable to the economic recovery of California and
the California Class Size Reduction Program.
Gross profit as a percentage of net sales for the three months ended
June 30, 1997 increased to 20.7% from 15.5% and the six months ended June 30,
1997 increased to 19.0% from 14.5% for the same periods in 1996. The increase
was due to the increased volume, utilization of a previously idle facility and
the realization of manufacturing efficiencies.
Selling, general and administrative expense increased for the three
months ended June 30, 1997 by $612,000, a increase of 115%. Costs for the six
months ended June 30, 1997 increased $1,134,000, an increase of 157%. The
increase was primarily due to the increase in sales volume.
Due to increased volume and average amounts outstanding net interest
expense for the three and six months ended June 30, 1997 increased by $260,000
and $108,000 or 371% and 408%, 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".
<PAGE> 8
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.
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 June 30, 1997,
the Company had $2,703,000 in cash. During the six months ended June 30, 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 $20,000,000 with
actual borrowings limited to specified percentages of eligible accounts
receivables, equipment and inventories. On March 31, 1997, $13,332,000 was
outstanding under that loan.
During the three and six months ended June 30, 1997, certain directors,
officers or employees exercised 8,530 and 29,400 common stock options for a
total of $17,820 and $60,888, respectively.
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
---------------------------------------------------
None
Item 5. Other Information
-----------------
None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
27.1 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:August 7, 1997 by: /S/ Michael G. Rhodes
-------------------- --------------------------------------
Michael G. Rhodes
Chief Operating Officer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,703,000
<SECURITIES> 0
<RECEIVABLES> 37,625,000
<ALLOWANCES> 0
<INVENTORY> 7,852,000
<CURRENT-ASSETS> 49,315,000
<PP&E> 8,912,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,387,000
<CURRENT-LIABILITIES> 22,589,000
<BONDS> 15,132,000
0
0
<COMMON> 20,666,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 58,387,000
<SALES> 58,906,000
<TOTAL-REVENUES> 58,906,000
<CGS> 47,688,000
<TOTAL-COSTS> 47,688,000
<OTHER-EXPENSES> 2,182,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 549,000
<INCOME-PRETAX> 8,551,000
<INCOME-TAX> 3,356,000
<INCOME-CONTINUING> 5,195,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,195,000
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
