<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
QUARTERLY REPORT ISSUED UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file
December 31, 1999 Number 33-42408-NY
WESTBURY METALS GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 11-3023099
- -------- ----------
(State or other jurisdiction of (IRS Employer Identification
Incorporation) Number)
750 Shames Drive, Westbury, New York 11590
------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code:
(516) 997-8333
-------------------------------------------
(Former name or address if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or 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
----------- -----------
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS
Check whether the 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 No
----------- -----------
APPLICABLE ONLY TO CORPORATE ISSUERS
As at March 26, 2000, 5,270,028 shares of the issuer's Common Stock, $.001 par
value, were outstanding.
<PAGE> 2
WESTBURY METALS GROUP, INC.
FORM 10-QSB
For the Quarter Ended December 31, 1999
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1-FINANCIAL STATEMENTS Page
<S> <C>
Consolidated Balance Sheets as of December 31, 1999 and June 30,1999....................2
Consolidated Statements of Operations for the Three and Six Months Ended
December 31, 1999 and 1998............................................................3
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1999 and 1998............................................................4
Notes to Consolidated Financial Statements.............................................5-8
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................................................9-15
PART II - OTHER INFORMATION
SIGNATURES................................................................................16
</TABLE>
<PAGE> 3
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
---- ----
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 1,364,776 $ 1,242,230
Accounts receivable, net of allowance of $20,130 and $17,000, 2,939,228 2,824,949
respectively
Inventory (Note 3) 2,780,730 1,076,237
Prepaid expenses and other current assets 323,123 161,364
------------ ------------
Total current assets 7,407,857 5,304,780
------------ ------------
PROPERTY, PLANT AND EQUIPMENT - Net 2,256,605 2,273,233
GOODWILL - Net 1,375,612 1,410,480
OTHER ASSETS 240,046 168,452
------------ ------------
TOTAL ASSETS $ 11,280,120 $ 9,156,945
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 879,405 $ 611,574
Due to former Reliable shareholder -- 1,192,578
Notes payable and current portion of long-term debt (Note 4) 1,725,827 1,721,758
Due to customers 770,560 1,773,663
------------ ------------
Total current liabilities 3,375,792 5,299,573
------------ ------------
LONG-TERM DEBT (Notes 4 & 5) 2,680,633 1,342,369
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized, 50,000,000 shares;
4,470,614 and 3,247,312 shares issued and outstanding, respectively 4,470 3,247
Capital in excess of par value 6,571,951 3,284,329
Accumulated comprehensive loss (73,322) (60,678)
Accumulated deficit (1,279,404) (711,895)
------------ ------------
Total stockholders' equity 5,223,695 2,515,003
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,280,120 $ 9,156,945
============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED)
----------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUE:
Precious metal sales $ 13,583,195 $ 7,366,420 $ 31,078,290 $ 12,272,649
Refining 3,179,855 1,901,468 5,396,509 2,321,708
------------ ------------ ------------ ------------
Total revenue 16,763,050 9,267,888 36,474,799 14,594,357
------------ ------------ ------------ ------------
COST OF SALES:
Cost of precious metal sales 13,597,620 6,901,095 30,383,330 11,360,310
Cost of refining 2,405,526 1,766,544 4,191,312 1,908,515
------------ ------------ ------------ ------------
Total cost of sales 16,003,146 8,667,639 34,574,642 13,268,825
------------ ------------ ------------ ------------
GROSS PROFIT 759,904 600,249 1,900,157 1,325,532
------------ ------------ ------------ ------------
OPERATING EXPENSES:
Selling, general and administrative expenses 952,583 540,417 1,827,873 1,174,899
Depreciation and amortization 120,674 39,378 234,288 73,186
------------ ------------ ------------ ------------
Total operating expenses 1,073,257 579,795 2,062,161 1,248,085
------------ ------------ ------------ ------------
(LOSS) INCOME FROM OPERATIONS (313,353) 20,454 (162,004) 77,447
------------ ------------ ------------ ------------
OTHER EXPENSE (INCOME):
Interest expense 183,445 33,715 414,809 69,923
Interest income -- (27,151) -- (31,331)
Other income 8,053 (22,530) 9,304 (28,723)
------------ ------------ ------------ ------------
Total other expense (income) 175,392 (15,966) 405,505 9,869
------------ ------------ ------------ ------------
(LOSS) EARNINGS BEFORE PROVISION
FOR INCOME TAXES (488,745) 36,420 (567,509) 67,578
PROVISION FOR INCOME TAXES -- (1,958) -- 7,974
------------ ------------ ------------ ------------
NET (LOSS) INCOME $ (488,745) $ 38,378 $ (567,509) $ 59,604
============ ============ ============ ============
NET (LOSS) INCOME PER SHARE - Basic
and Diluted $ (0.14) $ 0.01 $ (0.17) $ 0.02
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic and Diluted 3,415,885 3,197,312 3,415,885 3,197,312
============= ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
DECEMBER 31,
(UNAUDITED)
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (567,509) $ 59,604
Adjustments to reconcile net (loss) income to net
Cash used in operating activities:
Depreciation and amortization 234,288 73,186
Warrant conversion inducement charge 2,500 --
Changes in assets and liabilities:
Inventory (1,704,490) 835,565
Accounts receivable (114,278) (1,048,964)
Prepaid expenses and other current assets (161,759) (1,219,145)
Other noncurrent assets (71,594) 28,289
Due to customers (1,003,104) 181,457
Accounts payable and accrued expenses 267,830 116,717
----------- -----------
Net cash used in operating activities (3,118,116) (973,291)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Equipment additions (170,010) (320,631)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to former Reliable shareholder (1,192,578) --
Proceeds from issuance of subordinated debt 2,000,000 --
Net proceeds from credit line 6,184 1,053,478
Repayment of long-term debt (191,779) --
Repayment of subordinated debt (500,000) (1,783)
Proceeds from stock warrants exercised and
private placement 3,288,845 --
----------- -----------
Net cash provided by financing activities 3,410,672 1,051,695
----------- -----------
NET INCREASE (DECREASE) IN CASH 122,546 (242,227)
BEGINNING CASH BALANCE 1,242,230 877,520
----------- -----------
ENDING CASH BALANCE $ 1,364,776 $ 635,293
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ 365,118 $ 69,923
</TABLE>
See notes to consolidated financial statements.
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NOTE 1 - GENERAL
The accompanying consolidated financial statements as of and for the six months
ended December 31, 1999 and 1998 include the accounts of Westbury Alloys, Inc.
("Westbury"), Alloy Trading S.A. ("Alloy"), Reliable-West Tech, Inc. ("RWT"),
Westbury International, Inc. ("International"), Westbury Realty Management Corp.
("Realty"), and Westbury Metals Group, Inc. ("WMG") (collectively, the
"Company").
In the opinion of management, the accompanying unaudited financial statements
contain all the adjustments necessary to present fairly the results of
operations for each of the three- and six-month periods ended December 31, 1999
and 1998, the financial position at December 31, 1999 and the cash flows for the
six-month period ended December 31, 1999 and 1998, respectively. Such
adjustments consist of normal recurring items. The consolidated financial
statements and notes thereto should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1999 as filed with
the Securities and Exchange Commission.
The interim financial results are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - ACQUISITION
Effective June 30, 1999, the Company purchased assets consisting of land,
building, inventory, customer lists, and the business name from Reliable
Corporation for $2,350,655, including related acquisition costs of $58,077. The
acquisition was accounted for as a purchase. Accordingly, the assets of the
acquired business are included in the consolidated balance sheet as of June 30,
1999. The acquisition was financed through amounts payable to the former owner
of Reliable. A cash payment of $1,192,578 was made on July 16, 1999, with the
remaining balance financed through the issuance of promissory notes which bear
interest at an annual interest rate of 7% and are payable over six years. The
purchase price exceeded the fair value of net assets acquired by $1,190,000,
which is being amortized on a straight-line basis over 20 years.
NOTE 3 - INVENTORIES
Inventories are stated at current market value. Consistent with industry
practice, some of the Company's gold, platinum, palladium and silver
requirements are furnished by customers and suppliers on a consignment basis.
Title to the consigned precious metals remains with the Consignor. The value of
consigned precious metals held by the Company is not included in the Company's
balance sheet. On December 31, 1999, the Company held $4,264,398 of precious
metals under a consignment agreement with a bank. The Company's precious metal
requirements are provided from a combination of owned inventories, precious
metals that have been purchased and sold for future delivery, and precious
metals received from suppliers and customers on a consignment basis.
NOTE 4 - REVOLVING CREDIT AGREEMENT
In July 1999, RWT, International and Alloys (the "Co-borrowers") entered into a
two-year revolving credit agreement with a bank under which it may borrow up to
$12,000,000. Of this total, $7,000,000 has been designated for the consignment
of precious metals, $1,000,000 for a forward contract facility, and the
remaining balance may be utilized to meet working capital requirements. Interest
on
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<PAGE> 7
the consignment of precious metals accrues at each metal's Cost of Funds rate
plus 2.50%. The metals' Cost of Funds rates vary by the four metal categories to
include gold, platinum, palladium, and silver. Interest on the remaining
borrowings accrues at the option of the Company at LIBOR plus 2.50% or Prime
plus .5% (Prime rate of 8.50% at December 31, 1999). Borrowings for the
consignment of precious metals is limited to the balance of eligible inventory,
with the remaining borrowings limited to the balance of eligible accounts
receivable. The facility is secured by the assets of the Co-borrowers, and
guaranteed by WMG. The agreement requires the Company to maintain certain
financial ratios and other financial conditions. The Company has agreed to pay
fees of .375% on the unused amount of the facility payable monthly. The Company
was in default of certain financial covenants at December 31, 1999 and has
received a waiver from the bank.
NOTE 5 - SUBORDINATED DEBT
In July 1999, the Co-borrowers and WMG issued a two-year subordinated term note
(the "Note") for the receipt of $2,000,000 from a financing company. Interest on
the Note accrues at a rate equal to prime plus 4% and is payable monthly. The
principal portion of the Note becomes due July 2001. In conjunction with the
issuance of the Note, the Company granted 90,000 warrants to purchase the
Company's common stock at an exercise price of $9.00. The Company, using the
Black-Scholes Model, has determined that the value of the warrants were not
significant at the issuance date. WMG repaid $500,000 of this Note during the
period ending December 31, 1999.
NOTE 6 - NET (LOSS) INCOME PER COMMON SHARE
Basic net (loss) income per common share is calculated using the weighted
average number of common shares outstanding during the period. Diluted (loss)
income per share is calculated by including all dilutive potential common shares
such as stock options and warrants. A reconciliation between the numerators and
denominators of the basic and diluted net income per common share is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------ -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares (denominator for
basic net (loss) income per share) 3,415,885 3,197,512 3,415,885 3,197,312
Effect of dilutive securities:
Employee stock options 325,000 325,000
--------- ---------
Weighted average common and potential common
shares outstanding (denominator for diluted (loss)
income per common share) 3,415,885 3,522,312 3,415,885 3,522,317
</TABLE>
Potential common shares are not included for the period ended December 31, 1999
because they would be antidilutive.
NOTE 7 - INDUSTRY SEGMENTS
The Company operates in three reportable segments, industrial commodities
management, manufacturing, and refining. The Industrial Commodities Management
segment consists principally of the sale of precious metals to end-users. The
Manufacturing segment provides silver in various forms and shapes (plating salt,
tin and tin-lead anodes), which are used in the manufacturing process
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<PAGE> 8
by customers of the Company. The Refining segment provides refining services to
customers of the Company. The Corporate segment combines the activity for the
non-reportable segments.
<TABLE>
<CAPTION>
Industrial
Commodities
Management Manufacturing Refining Corporate Consolidated
----------- ------------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Six months ended December 31, 1999
Sales to unaffiliated customers $ 20,552,553 $ 10,525,737 $ 5,396,509 $ -- $ 36,474,799
Transfers between segments 12,473,381 (12,473,381)
Total revenues 33,025,934 10,525,737 5,396,509 (12,473,381) 36,474,799
Interest expenses 214,263 75,290 15,378 109,878 414,809
Depreciation and amortization 1,524 135,273 81,008 16,483 234,288
(Loss) income before income tax
Benefit provision (870,029) 261,342 411,002 (369,824) (567,509)
<CAPTION>
Industrial
Commodities
Management Manufacturing Refining Corporate Consolidated
----------- ------------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Six months ended December 31, 1998
Sales to unaffiliated customers 7,550,061 4,722,588 2,321,708 -- 14,594,357
Transfers between segments 12,318,899 -- -- (12,318,899) --
Total revenues 19,868,960 4,722,588 2,321,708 (12,318,899) 14,594,357
Interest expenses 44,616 20,486 -- 4,821 69,923
Depreciation and amortization 842 13,452 55,796 3,096 73,186
Income (loss) before income tax
Benefit provision 329,888 51,137 (255,775) (57,672) 67,578
</TABLE>
NOTE 8 - COMPREHENSIVE LOSS
Effective June 30, 1999, the Company adopted Statement of Financial Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
requires the reporting and display of comprehensive loss and its components in
the financial statements.
SFAS No. 130 also requires the Company to classify items of other comprehensive
income or loss by their nature in financial statements.
<PAGE> 9
Changes in stockholders' equity and comprehensive loss during the six months
ended December 31, 1999:
Net loss $(567,509)
Foreign currency translation adjustment (12,645)
----------
Total comprehensive loss $(580,154)
==========
NOTE 9 - PRIVATE PLACEMENT OFFERING
During the fiscal quarter ended December 31, 1999, WMG engaged an
investment-banking firm and commenced a private placement offering. The offering
featured a minimum of 666,667 units and a maximum of 1,833,333 units with each
unit consisting of one share of WMG common stock, at a price of $3.00 per unit,
and a redeemable warrant to purchase one-half share of WMG common stock at $4.00
per share. The first 666,667 units were offered on a `best efforts, all or none'
basis, and the remaining 1,166,666 units on a best efforts basis. The minimum
subscription called for a purchase of 10,000 units. The investment banking firm,
in addition to its commission and expenses, received warrants to purchase common
stock equal to 5% of the aggregate units sold, callable at prices ranging from
$5.50 to $7.00 per share, and up to 250,000 investment banking warrants to
purchase one share of common stock at $4.00 per share. During the quarter ended
December 31, 1999, 1,082,330 units were sold and net proceeds of $2,975,406 were
received. During the quarter ended March 31, 2000, WMG sold an additional
793,164 units and received net proceeds of $2,379,493. The total units sold in
the offering of 1,875,494 exceeded the maximum units offered of 1,833,333 by
42,161 units or 2.30%. This resulted in additional dilution of 0.83% over that
which they would have experienced had only the maximum units been sold.
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<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Form 10-QSB contains forward-looking statements. Additional written and
oral forward-looking statements may be made by the Company from time to time in
Securities and Exchange Commission ("SEC") filings and otherwise. The Company
cautions readers that results predicted by forward-looking Statements,
including, without limitation, those relating to the Company's future business
prospects, revenues, working capital, liquidity, capital needs and income are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements due to
risks and factors identified in this Form 10-QSB and as may be identified from
time to time in the Company's future filings with the SEC.
GENERAL
The Company has positioned itself through its subsidiaries to engage in four
significant areas of the precious metals business.
WESTBURY INTERNATIONAL, INC.
Commodity and risk management services, including metals leasing, financing
arrangements, cash and forward purchases and sales for internal metals
management requirements. This newly formed entity is responsible for the ongoing
management and operations of the Peruvian subsidiary, which is 98% owned by the
Company.
It is expected that long-term contracts for metals will be entered into for both
the procurement and sales of precious metals on both a domestic and
international basis.
RELIABLE-WEST TECH, INC. ("RWT")
Manufacture and sale of precious and base metal products for use by industry.
WESTBURY ALLOYS, INC.
Refining services to accumulators and manufacturers of precious metals.
WEST-CAT (trade name)
Catalyst procurement and collection for the purpose of processing and recovery
of platinum group metals. Revenues from this activity are combined with refining
revenues.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenue, certain items
appearing in the Company's Statements of Operations for the indicated period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------ -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Sales 81.0% 79.5% 85.2% 84.1%
Refining 19.0% 20.5% 14.8% 15.9%
----- ----- ---- -----
Total Revenues 100% 100% 100% 100%
----- ----- ---- -----
</TABLE>
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The net loss for the three months ended December 31, 1999 and September 30, 1999
was $488,745 and $78,762, respectively. The net loss per diluted share for the
three months ended December 31, 1999 and September 30, 1999 was $.14 and $.02,
respectively.
THREE MONTHS ENDED DECEMBER 31, 1999 VERSUS THREE MONTHS ENDED DECEMBER 31, 1998
Revenues were $16,763,050 for three months ended December 31, 1999 compared to
$9,267,888 for three months ended December 31, 1998. Of the total increase,
$6,216,775 related to the industrial product sales and industrial commodities
management divisions, while $1,278,387 related to refining and processing
activities. The increases in industrial product sales and industrial commodities
management are directly related to the new financing arrangement with the bank,
the acquisition of Reliable Corporation, and the expansion of the operations of
the refining division.
RWT commenced operations on April 1, 1998 and acquired substantially all of the
assets of Reliable Corporation on June 30, 1999. For the three months ended
December 31, 1999, this subsidiary recorded gross revenues of $5,427,806. The
industrial commodities management division, which started business in July 1998,
was responsible for an additional $8,155,389 in gross revenues for the three
months ended December 31, 1999. The revenues relate to precious metal sales to
industrial end users. The combined product and precious metal sales were
$13,583,195 for the three months ended December 31, 1999 compared to $7,366,420
for the three months ended December 31, 1998, resulting in an increase of
$6,216,775.
Through the diversification of the refining area and greater efficiencies in the
catalyst operations, net refining revenues for three months ended December 31,
1999 were $3,179,855 compared to $1,901,468 for the three months ended December
31, 1998 for an increase of $1,278,387.
The percentage of total revenues for the three months ended December 31, 1999
compared to the three months ended December 31, 1998 by revenue source were as
follows: product and precious metal sales were 81.0% and 79.5%, respectively,
and refining revenues were 19.0% and 20.5%, respectively.
Cost of precious metal sales were $13,597,620 or 100.1% of sales for three
months ended December 31, 1999 compared to $6,901,095 or 93.7% of sales for
three months ended December 31, 1998. This 6.4% increase in cost of sales is due
to lower than anticipated metal yields and accountability from catalytic
converter processed materials and refining activities. The estimates used to
calculate the precious metals recovery from refining catalytic converter
materials was adjusted during the three months ended December 31, 1999 to more
accurately reflect the current refining yields. This resulted in the decrease of
the amounts recorded for precious metal recoveries and caused the sharp increase
in the cost of sales for the industrial commodities management division.
Cost of refining revenues were $2,405,526 or 75.6% of refining fees for three
months ended December 31, 1999 compared to $1,766,544 or 92.9% of refining fees
for three months ended December 31, 1998. The decrease of 17.3% in the cost of
refining is primarily due to the increased volume in catalysts. The increased
volume resulted in a more efficient usage of production assets, and allowed the
Company to operate at a level, which better covered the primarily fixed labor
and facility costs.
Selling, general and administrative expenses increased by $412,166 or 76.3%,
from $540,417 for the three months ended December 31, 1998 to $952,583 for the
three months ended December 31, 1999.
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<PAGE> 12
This increase is the result of new employees hired at the sales and operations'
levels to facilitate the expansion of RWT and the catalytic converter processing
business.
Depreciation and amortization expense was $120,674 for the three months ended
December 31, 1999 compared to $39,378 for the three months ended December 31,
1998. This increase of $81,296, or 206.5%, was principally due to the
depreciation on the building, machinery and equipment, and related goodwill from
the acquisition of Reliable Corporation.
Interest expense was $183,445 for the three months ended December 31, 1999
compared to $33,715 for the three months ended December 31, 1998. The increase
of $149,730 or 444.1% was primarily due to the expanded credit facility with a
bank along with debt service for the Reliable Corporation acquisition and
interest charges for subordinated debt.
SIX MONTHS ENDED DECEMBER 31, 1999 TO THE SIX MONTHS ENDED DECEMBER 31, 1998
Revenues were $36,474,799 for the six months ended December 31,1999 compared to
$14,594,357 for the six months ended December 31, 1998. Of the total increase,
$18,805,641 related to the industrial product sales and industrial commodities
management divisions, while $3,074,801 related to our refining and processing
activities. The increases at our industrial product sales and our industrial
commodities management divisions are directly related to the new financing
arrangement with the bank, the acquisition of Reliable Corporation, and the
expanded operations of the refining division.
RWT commenced operations on April 1, 1998 and acquired substantially all of the
assets of Reliable Corporation on June 30, 1999. For the six months ended
December 31, 1999, these subsidiary recorded gross revenues of $10,525,737. The
industrial commodities management division, which started business in July 1998,
was responsible for an additional $20,552,553 in gross revenues for the six
months ended December 31, 1999. The revenues relate to precious metal sales to
industrial end users. Combined product and precious metal sales were $31,078,290
for the six months ended December 31, 1999 compared to $12,272,649 for the six
months ended December 31, 1998, resulting in an increase of $18,805,641.
Through the diversification of the refining area and the increased catalytic
converter business, net refining revenues for the six months ended December 31,
1999 were $5,396,509 compared to $2,321,708 for the six months ended December
31, 1998 for an increase of $3,074,801.
The percentage of total revenues for the six months ended December 31, 1999
compared to the six months ended December 31, 1998 by revenue source were as
follows: product and precious metal sales were 85.2% and 84.1%, respectively,
and refining revenues were 14.8% and 15.9%, respectively.
Cost of precious metal sales were $30,383,330 or 97.8% of sales for the six
months ended December 31, 1999 compared to $11,360,310 or 92.6% of sales for the
six months ended December 31, 1998. This 5.2% increase in cost of sales is due
to the lower than anticipated metal yields and accountability from catalytic
converter processed materials and refining activity. The estimates used to
calculate the precious metals recovery from refining catalytic converter
materials was adjusted during the quarter ended December 31, 1999 to more
accurately reflect the current refining yields. This resulted in the decrease of
the amounts recorded for precious metal recoveries and caused the sharp increase
in the cost of sales for the industrial commodities management division.
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<PAGE> 13
Cost of refining revenues were $4,191,312 or 77.7% of refining fees for the six
months ended December 31, 1999 compared to $1,908,515 or 82.2% of refining fees
for the six months ended December 31, 1998. This decrease of 4.5% in cost of
refining is primarily due to the increased volume in catalysts, which more amply
covered the primarily fixed labor and facility costs.
Selling, general and administrative expenses increased by $652,974 or 55.6% from
$1,174,899 for the six months ended December 31, 1998 to $1,827,873 for the six
months ended December 31, 1999. This increase is the result of new employees
hired at the sales and operational levels to facilitate the expansion of RWT and
the catalytic converter processing business.
Depreciation and amortization expense was $234,288 for the six months ended
December 31, 1999 compared to $73,186 for the six months ended December 31,
1998. This increase of $161,102 or 220.1% was principally due to the
depreciation on the building, machinery and equipment, and related goodwill from
the acquisition of Reliable Corporation.
Interest expense was $414,809 for the six months ended December 31, 1999
compared to $69,923 for the six months ended December 31, 1998. The increase of
$344,886 or 493.2% was primarily due to increased working capital usage of the
new bank facility along with debt service for the Reliable Corporation
acquisition and interest charges for the subordinated debt.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash used in operating activities was $3,118,116 for the six months ended
December 31, 1999 compared to $973,291 for the six months ended December 31,
1998, an increase of $2,144,825. Cash used in operating activities was primarily
due to the net loss generated from operations, as well as increases in
inventory, decreases in due to customers and the repayment of the Reliable
shareholder note.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities for the six months ended December 31, 1999
was $170,010 and primarily included the acquisition of equipment for the
processing of materials from the film industry and coin blanking tools and dies.
Net cash used in investing activities for the six months ended December 31, 1998
included the acquisition of the 900 Shames Drive, Westbury, NY facility, for
$510,000, which is primarily used for the processing of catalysts, as well as
for administrative offices.
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing activities for the six months ended December 31,
1999 is primarily due to $3,288,845 of net capital proceeds from the private
placement and exercise of stock warrants. Additionally, proceeds from the new
revolving credit agreement, which commenced in July 1999, and, the issuance of a
note for $2,000,000 in subordinated debt contributed to the cash provided from
financing activities. The increase was offset by the repayment of the note
payable to the former Reliable shareholder of $1,192,578 and the repayment of
$691,779 of long-term debt, which included $500,000 related to the subordinated
note.
-12-
<PAGE> 14
During the six months ended December 31, 1999, the Company issued 140,972 shares
of common stock to warrant holders at exercise prices of $2.00 and $2.25 per
share for net proceeds of $313,438.
LIQUIDITY AND CAPITAL RESOURCES
There was an increase in working capital of $4,026,858, primarily due to the
issuance of stock.
The Company had been relying on a gold consignment program and internally
generated funds to finance its metal purchases, inventories and accounts
receivable. Inventories are stated at current market value. On July 13 1999, the
Company negotiated with a bank a new revolving credit agreement, which included
a precious metal consignment facility. It now may borrow on consignment and fund
its gold, platinum, palladium and silver requirements. Title to the consigned
precious metals remains with the Consignor. The value of consigned gold,
platinum, palladium and silver held by the Company is not included in the
Company's inventory and there is no related liability recorded. At December 31,
1999 the Company held $4,264,398 of precious metal under the consignment
agreement with a bank for which the Company is charged a consignment fee based
on current market rates. There can be no assurances that price fluctuations in
the precious metals markets would not result in an interruption of the Company's
gold, platinum, palladium and silver supplies and use of the precious metals
consignment facility.
The July 13, 1999 financing agreement has an overall limit of $12,000,000, and
it is available to finance all working capital requirements. The Company was
charged an origination fee of .5% of the available line, an underutilized loan
fee of .375% and interest at the prime rate plus .5% for cash transactions and
the metal Cost of Funds plus 2.5% for precious metals transactions.
During the past two years, the Company has raised capital from the sale of
securities and warrants to fund a portion of its cash flow needs and its
business expansion. In addition, the Company entered into the above referenced
financing agreement to fund its working capital. However, to date, the Company
has incurred losses, and therefore has not generated sufficient cash flow to
fund its overall expansion and growth plans. In order to continue its expansion
and growth strategy, the Company will need to raise additional capital from
either the sale of securities or the restructure of its working capital
financing arrangements. There can be no assurances that the Company will be
successful in raising additional capital or restructuring its working capital
financing agreement. If the Company is unable to raise additional capital or
further leverage its assets, then it may have to curtail some of its expansion
and growth plans.
YEAR 2000
Many currently installed computer systems, software products and manufactured
products that utilize microprocessors are coded to accept only two-digit entries
in the date code field. These date code fields will need to accept four-digit
entries to distinguish twenty-first century dates. This is commonly referred to
as the "Year 2000 issue." The Company was aware of the Year 2000 issue and
during fiscal 1998 commenced a program to identify, remediate, test and develop
contingency plans for the Year 2000 issue (the "Y2K Program"). This program was
completed before year-end.
Under the Y2K Program, the Company began to assess the Year 2000 readiness of
the software and computer information systems used in the internal business
("CIS") of the Company ("Company CIS"); and the CIS of its key customers.
-13-
<PAGE> 15
As of December 31, 1999, the results of the assessment being conducted under the
Y2K Program were as follows:
Computer Information Systems (Company CIS): The company has acquired new
software and hardware to replace all non-compliant aspects of existing CIS.
Customers: The Company solicited statements of compliance from its key customers
with respect to their CIS, and as of this writing customer non-compliance or
lack of readiness has not been apparent or in any manner affected the Company.
Costs: The cost to replace the existing software programs used in the Company
CIS of approximately $100,000 has already been expended by the Company. There
are no significant additional expenditures anticipated by the Company.
The Year 2000 issue presented potentially far-reaching implications; however,
the planning along with new software and hardware installations resulted in no
systems problems occurring upon entering the new millennium.
INFLATION
The Company does not believe that inflation has had, or will have in the
foreseeable future, a material impact upon the Company's operating results.
RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
Recent pronouncements of the Financial Accounting Standards Board, which are not
required to be adopted at this date, include Statement of Financial Standards
No.133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133, as deferred by SFAS No. 137, is effective for fiscal quarters
of all fiscal years beginning after June 15, 2000. Based upon current data, the
adoption of this pronouncement is not expected to have a material impact on the
Company's consolidated financial statements.
FORWARD LOOKING STATEMENTS
The Private Placement that commenced during the quarter ending December 31, 1999
was completed during the quarter ending March 31, 2000. After December 31, 1999
WMG received an additional net capital proceeds of $2,379,493 from the offering
for a total net capital raise of $5,354,899. Management is pleased to relate
that the offering was very successful as evidenced by it being oversubscribed.
The proceeds from the offering will allow the Company to continue its program of
expansion through internal growth and acquisition.
Management has been concentrating on building market share at RWT through its
internal sales force. With the acquisition of Reliable, management anticipates
annual sales at RWT to increase 300% from the prior fiscal year. As of March 31,
2000, a definitive Purchase & Sale Agreement has been signed by WMG to acquire a
business complimentary to that of RWT
During the quarter ended December 31, 1999, the Company became aware that the
refinery used to process the catalytic converter materials was returning
recovered precious metals in an amount, which was less than industry averages.
As a result management has negotiated with the refinery and has agreed with the
initiation of an additional processing step, which management feels will
increase
-14-
<PAGE> 16
the Company's recovery of precious metal and correspondingly its revenue. The
Company and the refinery have reached a tentative agreement whereby they have
jointly hired a consultant to handle the installation of these processing
changes. Management anticipates that their processing changes will result in
better recoveries from refined materials. Management expects to review the
results of previous metals refined and negotiate an amicable arrangement to
cover any previous shortfalls from January 1, 1999 forward. Management does not
yet have an estimate of the amount it may recover, if any, nor has it reached
any agreements with respect to these potential recoveries.
Through its continued efforts to diversify refining activities, consolidate
manufacturing activities and broaden its activities in industrial products
management divisions, management anticipates continuing the positive operating
and growth trends for the next two fiscal quarters of the year ending June 30,
2000. There can be no assurances that management will be successful in its
efforts.
-15-
<PAGE> 17
SIGNATURE
In accordance with the requirements of the exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WESTBURY METALS GROUP, INC.
By: /s/ Mark R. Buckley
-------------------------
Mark R. Buckley
Chief Financial Officer
Date: April 6, 2000
-16-
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