<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, 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 September 30, 1997, there were 8,705,836 shares of the Registrant's Common
Stock outstanding.
<PAGE> 2
MODTECH, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 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.
CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
1996 1997 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $14,285,000 $39,805,000 $26,989,000 $98,711,000
COST OF SALES 12,164,000 31,235,000 23,026,000 78,923,000
----------- ----------- ----------- -----------
Gross profit 2,121,000 8,570,000 3,963,000 19,788,000
OPERATING EXPENSES
Selling, general &
administrative 623,000 1,362,000 1,471,000 3,544,000
----------- ----------- ----------- -----------
Income (loss) from
operations 1,498,000 7,208,000 2,492,000 16,244,000
OTHER INCOME (EXPENSE)
Interest expense, net (142,000) (274,000) (246,000) (823,000)
Other - net 22,000 8,000 41,000 72,000
----------- ----------- ----------- -----------
(120,000) (266,000) (205,000) (751,000)
----------- ----------- ----------- -----------
Income before
income taxes 1,378,000 6,942,000 2,287,000 15,493,000
PROVISION FOR
INCOME TAXES, (Benefit) 49,000 2,456,000 69,000 5,812,000
----------- ----------- ----------- -----------
Net income 1,329,000 4,486,000 2,218,000 9,681,000
----------- ----------- ----------- -----------
5% Convertible preferred
stock dividend -- -- (48,000) --
----------- ----------- ----------- -----------
Net income available for
common stock $ 1,329,000 $ 4,486,000 $ 2,170,000 9,681,000
=========== =========== =========== ===========
Primary Earnings per share $ 0.14 $ 0.47 $ 0.24 $ 1.01
----------- ----------- ----------- -----------
Weighted average shares
outstanding 9,200,000 9,611,000 9,200,000 9,611,000
----------- ----------- ----------- -----------
Fully diluted Earnings per share $ 0.14 $ 0.45 $ 0.24 $ 1.00
----------- ----------- ----------- -----------
Weighted average shares
outstanding 9,200,000 9,647,000 9,200,000 9,647,000
----------- ----------- ----------- -----------
</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
1996 1997
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 405,000 $ 515,000
Accounts receivable, net, including costs in
excess of billings of $9,103,000 and $15,615,000 19,433,000 41,212,000
Inventories 4,167,000 5,561,000
Due from affiliates 799,000 1,289,000
Other current assets 137,000 237,000
----------- -----------
Total current assets 24,941,000 48,814,000
PROPERTY AND EQUIPMENT, NET 8,888,000 9,003,000
OTHER ASSETS
Deposits and other assets 200,000 135,000
----------- -----------
200,000 135,000
----------- -----------
$34,029,000 $57,952,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 9,545,000 $ 12,800,000
Current portion of long-term debt 100,000 100,000
Billings in excess of costs 1,148,000 5,975,000
------------ ------------
Total current liabilities 10,793,000 18,875,000
------------ ------------
LONG-TERM DEBT 7,844,000 13,908,000
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, shares authorized,
20,000,000,000; issued and outstanding,
8,649,436 and 8,705,836 in 1996 and 1997 4,015,000 4,060,000
Additional paid-in capital 15,693,000 15,744,000
Retained earnings ( 4,316,000) 5,365,000
------------ -----------
Total stockholders' equity 15,392,000 25,169,000
------------ -----------
$34,029,000 $57,952,000
=========== ===========
</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,
1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities
Net income (loss) $ 2,219,000 $ 9,681,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 384,000 866,000
Loss (gain) on sale of equipment (5,000) --
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable (9,730,000) (21,779,000)
(Increase) decrease in inventory (2,445,000) (1,394,000)
(Increase) in prepaid expenses and
other assets (45,000) (35,000)
Increase (decrease) in accounts payable and
accrued liabilities 5,246,000 3,255,000
Increase (decrease) billings in excess of earnings 1,243,000 4,827,000
(Increase) decrease in due from affiliates 500,000 (490,000)
----------- -----------
Net cash used in operating (2,633,000) (5,069,000)
----------- -----------
Investing activities:
Proceeds from sale of equipment 12,000 --
Purchase of property and equipment (782,000) (981,000)
----------- -----------
Net cash used in investing activities (770,000) (981,000)
----------- -----------
Financing activities:
(Payments) proceeds from long-term
borrowing and revolving credit line 3,694,000 6,064,000
Conversion of stock warrants and options 697,000 96,000
Declared dividends (48,000) --
----------- -----------
Net cash provided by financing activities 4,343,000 6,160,000
----------- -----------
Increase, (Decrease) in cash 940,000 110,000
Cash and cash equivalents, at beginning
of period 561,000 405,000
----------- -----------
Cash and cash equivalents, at end of
period $ 1,501,000 $ 515,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE> 6
MODTECH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 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 and nine months ended September
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 $22.75 per share.
4) On November 6, 1997 the Company announced that it sold 1,000,000 shares of
common stock and that certain selling shareholders sold 1,012,500 shares
of common stock at $20.00 per share. The shares sold by the selling
shareholders include 262,500 shares granted to the underwriters to cover
over allotments. The aggregate net proceeds to the company (before
deducting expenses) are estimated to be $18,900,000.
The net proceeds of the shares offered by Modtech will be used to reduce
Modtech, Inc.'s outstanding bank indebtedness and for other general
corporate purposes. Modtech will not receive any of the proceeds from the
sale of shares by the selling shareholders.
<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,
1996 1997 1996 1997
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 14.8 21.5 14.7 20.0
Selling, general and
administrative 4.4 3.4 5.5 3.6
Income, (loss) from
operations 10.5 18.1 9.2 16.5
Interest income
(expense), net (1.0) (0.7) (0.9) (0.8)
Income, (loss) before
taxes on income 9.6 17.4 8.5 15.7
</TABLE>
The net sales for the three months and nine months ended September 30,
1997 increased $25,520,000 or 179% and $71,722,000 or 266% 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 month ended
September 30, 1997 increased to 21.5% from 14.9% and the nine months ended
September 30, 1997 increased to 20.1% from 14.7% over 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 September 30, 1997 by $739,000, an increase of 119%. Costs for the
nine months ended September 30, 1997 increased $2,073,000, an increase of 141%.
The increase is due to the increase in sales volume.
Due to increased volume and average amounts outstanding net interest
expense for the three and nine months ended September 30, 1997 increased by
$132,000 and 577,000 or 93% and 235%, 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, bank borrowings and its initial public offering. At September 30,
1997, the Company had $515,000 in cash. During the nine months ended September
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 September 30, 1997, $12,633,000 was
outstanding under the loan.
During the three and nine months ended September 30, 1997, certain
directors, officers or employees exercised 27,000 and 56,400 common stock
options for a total of $17,010 and $77,898 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 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
27 -- Financial Data Schedule
(b) Reports on From 8-K
Attatched
<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 13, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 515,000
<SECURITIES> 0
<RECEIVABLES> 41,212,000
<ALLOWANCES> 0
<INVENTORY> 5,561,000
<CURRENT-ASSETS> 48,814,000
<PP&E> 9,003,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,952,000
<CURRENT-LIABILITIES> 18,875,000
<BONDS> 13,908,000
0
0
<COMMON> 25,169,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 57,952,000
<SALES> 98,711,000
<TOTAL-REVENUES> 98,711,000
<CGS> 78,923,000
<TOTAL-COSTS> 78,923,000
<OTHER-EXPENSES> 3,544,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 823,000
<INCOME-PRETAX> 15,493,000
<INCOME-TAX> 5,812,000
<INCOME-CONTINUING> 9,681,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,681,000
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.00
</TABLE>
