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
March 31, 2000 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 May 15, 2000, 5,270,028 shares of the issuer's Common Stock, $.001 par
value, were outstanding.
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WESTBURY METALS GROUP, INC.
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FORM 10-QSB
For the Quarter Ended March 31, 2000
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS Page
Consolidated Balance Sheets as of March 31, 2000 and June 30,1999........................................2
Consolidated Statements of Operations for the Three and Nine Months Ended
March 31, 2000 and 1999................................................................................3
Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 2000 and 1999................................................................................4
Notes to Consolidated Financial Statements...............................................................5-8
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................................9-16
PART II - OTHER INFORMATION
SIGNATURES.................................................................................................17
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WESTBURYMETALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, JUNE 30,
2000 1999
-----------------------------------------
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash $ 728,413 $ 1,242,230
Accounts receivable, net of allowance of $23,284 and $17,000,
respectively 5,878,155 2,824,949
Inventory (Note 3) 4,488,188 1,076,237
Prepaid expenses and other current assets 415,484 161,364
-------------- --------------
Total current assets 11,510,240 5,304,780
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT - Net 2,307,455 2,273,233
GOODWILL - Net 1,358,179 1,410,480
OTHER ASSETS 288,510 168,452
-------------- --------------
TOTAL ASSETS $ 15,464,384 $ 9,156,945
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,900,884 $ 611,574
Due to former Reliable shareholder - 1,192,578
Notes payable and current portion of long-term debt (Note 4) 4,121,351 1,721,758
Due to customers 946,347 1,773,663
-------------- --------------
Total current liabilities 6,968,582 5,299,573
-------------- --------------
LONG-TERM DEBT (Notes 4 & 5) 1,141,901 1,342,369
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized, 50,000,000
shares; 5,270,028 and 3,247,312 shares issued and outstanding,
respectively 5,270 3,247
Capital in excess of par value 8,571,933 3,284,329
Accumulated comprehensive loss (69,265) (60,678)
Accumulated deficit (1,154,037) (711,895)
-------------- --------------
Total stockholders' equity 7,353,901 2,515,003
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,464,384 $ 9,156,945
============== ==============
See notes to consolidated financial statements.
<PAGE>
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
REVENUE:
Precious metal sales $ 24,082,168 $ 10,259,885 $ 55,160,458 $ 22,532,534
Refining 2,890,013 1,391,987 8,286,523 3,713,695
-------------- -------------- -------------- --------------
Total revenue 26,972,181 11,651,872 63,446,981 26,246,229
-------------- -------------- -------------- --------------
COST OF SALES:
Cost of precious metal sales 22,681,510 9,986,697 53,064,841 21,347,007
Cost of refining 2,402,551 838,769 6,593,863 2,747,283
-------------- -------------- -------------- --------------
Total cost of sales 25,084,061 10,825,466 59,658,704 24,094,290
-------------- -------------- -------------- --------------
GROSS PROFIT 1,888,120 826,406 3,788,277 2,151,939
-------------- -------------- -------------- --------------
OPERATING EXPENSES:
Selling, general and administrative expenses 1,296,240 662,759 3,124,112 1,843,196
Depreciation and amortization 139,847 48,612 374,135 116,261
-------------- -------------- -------------- --------------
Total operating expenses 1,436,087 711,371 3,498,247 1,959,457
-------------- -------------- -------------- --------------
INCOME FROM OPERATIONS 452,033 115,035 290,030 192,482
-------------- -------------- -------------- --------------
OTHER EXPENSE (INCOME):
Interest expense 338,414 54,148 753,223 124,071
Interest income - (21,051) -
Other income (11,746) (11,687) - (71,741)
-------------- -------------- -------------- --------------
Total other expense 326,668 42,461 732,172 52,330
-------------- -------------- -------------- --------------
EARNINGS (LOSS) BEFORE PROVISION FOR INCOME TAXES 125,365 75,574 (442,142) 140,152
PROVISION FOR INCOME TAXES - 36,062 - 44,036
-------------- -------------- -------------- --------------
NET INCOME (LOSS) $ 125,365 $ 36,512 $ (442,142) $ 96,116
============== ============== ============== ==============
NET INCOME (LOSS) PER SHARE:
Basic $ 0.02 $ 0.01 $ (0.11) $ 0.03
Diluted $ 0.02 $ 0.01 $ (0.11) $ 0.03
============== ============== ============== ==============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 5,087,306 3,197,312 3,915,205 3,197,312
============== ============== ============== ==============
Diluted 5,537,271 3,522,312 3,915,205 3,522,312
============== ============== ============== ==============
See notes to consolidated financial statements.
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WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTHS ENDED MARCH 31,
2000 1999
----------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (442,142) $ 96,116
Adjustments to reconcile net (loss) income to net
Cash used in operating activities:
Depreciation and amortization 374,135 109,670
Bad debt expense 348,135 -
Warrant conversion inducement charge 2,500 -
Changes in assets and liabilities:
Inventory (3,411,951) (421,764)
Accounts receivable (3,401,300) (1,499,015)
Prepaid expenses and other current assets (254,120) (569,802)
Other non-current assets (119,968) 7,802
Due to customers (827,316) 922,377
Accounts payable and accrued expenses 1,289,309 (74,020)
--------------- ---------------
Net cash used in operating activities (6,442,759) (1,428,636)
--------------- ---------------
Property, plant and equipment additions (299,823) (500,443)
--------------- ---------------
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 2,410,796 1,424,703
Repayment of long-term debt (267,690) (4,506)
Repayment of subordinated debt (2,000,000) -
Proceeds from stock warrants exercised and private placement 5,278,237 -
--------------- -------
Net cash provided by financing activities 6,228,765 1,420,197
--------------- ---------------
NET DECREASE IN CASH (513,817) (508,882)
BEGINNING CASH BALANCE 1,242,230 877,520
--------------- ---------------
ENDING CASH BALANCE $ 728,413 $ 368,638
=============== ===============
Supplemental cash flow information:
Cash paid for interest $ 652,803 $ 124,071
=============== ===============
See notes to consolidated financial statements.
<PAGE>
NOTE 1 - GENERAL
The accompanying consolidated financial statements as of and for the nine months
ended March 31, 2000 and 1999 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 nine-month periods ended March 31, 2000
and 1999, the financial position at March 31, 2000 and the cash flows for the
nine-month period ended March 31, 2000 and 1999, 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 March 31, 2000, the Company held $6,369,989 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
<PAGE>
$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. As of
March 31, 2000 the Company had total borrowings of $10,333,448, which included
$6,369,989 of consigned precious metals and $3,963,459 of working capital loans.
Interest on 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 9 % at March 31, 2000). 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 March 31, 2000 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 and the remaining $1,500,000 of this Note during
the period ending March 31, 2000.
NOTE 6 - NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated using the weighted
average number of common shares outstanding during the period. Diluted income
(loss) 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:
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Net income (loss) (numerator for basic and diluted
net income (loss) per common share) $ 125,365 $ 36,512 $ (442,142) $ 96,116
Weighted average common shares (denominator for
basic net income (loss) per common share) 5,087,306 3,197,312 3,915,205 3,197,312
Effect of dilutive securities - employee stock
and warrants 449,965 325,000 - 325,000
------------ ------------ ------------ ------------
Weighted average common and potential common
shares outstanding (denominator for diluted income
(loss) per common share) 5,537,271 3,522,312 3,915,205 3,522,312
Potential common shares are not included for the nine-month period ended March
31, 2000 because they would be antidilutive.
<PAGE>
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 by
customer 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.
Industrial
Commodities
Management Manufacturing Refining Corporate Consolidated
Nine months ended March 31, 2000
Sales to unaffiliated customers $ 38,129,191 $ 17,031,267 $ 8,286,523 $- $ 63,446,981
Transfers between segments 17,765,141 - - (17,765,141) -
------------ ------------ ------------ ------------ --
Total revenues $ 55,894,332 $ 17,031,267 $ 8,286,523 $(17,765,141) $ 63,446,981
============ ============ ============= ============ ============
Total assets $ 3,991,839 $ 1,278,637 $ 1,732,943 $ 8,460,965 $ 15,464,384
============ ============ ============ ============ ============
Interest expenses $ 489,043 $ 93,053 $ 15,493 $ 155,634 $ 753,223
============ ============ ============= ============ ============
Depreciation and amortization $ 2,769 $ 223,653 $ 122,932 $ 24,781 $ 374,135
============ ============ ============ ============= ============
(Loss) income before income tax
Benefit provision $ (513,342) $ 608,070 $ 208,564 $ (745,434) $ (442,142)
============= ============ ============ ============ =============
Nine months ended March 31, 1999
Sales to unaffiliated customers $ 13,792,572 $ 8,739,962 $ 3,713,695 $ - $ 26,246,229
Transfers between segments 13,045,047 - - (13,045,047) -
------------ ------------ ------------- ------------- ----
Total revenues $ 26,837,619 $ 8,739,962 $ 3,713,695 $(13,045,047) $ 26,246,229
============ ============ ============ ============= ============
Total assets $ 399,132 $ 1,111,975 $ 1,753,451 $ 3,056,786 $ 6,321,344
============ ============ ============ ============ ============
Interest expenses $ 2,761 $ 47,780 $ 61,759 $ 11,771 $ 124,071
============ ============ ============ ============ ============
Depreciation and amortization $ 2,419 $ 18,876 $ 88,245 $ 6,721 $ 116,621
============ ============ ============ =============================
Income (loss) before income tax
Benefit provision $ 374,429 $ 67,933 $ (109,422) $ (192,788) $ 140,152
============ ============ ============= ============= ============
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.
Changes in stockholders' equity and comprehensive loss during the nine months
ended March 31, 2000:
Net loss $ (442,142)
Foreign currency translation adjustment (8,586)
------------
Total comprehensive loss $ (450,728)
============
<PAGE>
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. As of the quarter ended
March 31, 2000, WMG had sold 1,875,494 units and received net proceeds after
deduction of the investment-banking fees of $5,137,699. Subsequent to the
quarter ending March 31, 2000, the Company filed with the Securities and
Exchange Commission a registration of the shares of common stock. The expenses
associated with this registration amounted to $181,963, which the Company
deducted from its `Capital in excess of par value' during the quarter ended
March 31, 2000. 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.
NOTE 10 - SUBSEQUENT EVENTS
a. On April 21, 2000, the Company purchased from Southwestern Services, Inc.
assets consisting of machinery & equipment, accounts receivable, inventory,
customer lists, and the business name. The business and operations will be
combined with the Company's RWT subsidiary. The Company paid $2,651,879,
which included the sum of $1,351,879 paid for the accounts receivable. In
addition, the Company paid the seller $1,075,000 in cash and issued a
promissory note in the amount of $225,000. The promissory note bears
interest at an annual rate of 8% and is payable over eight years. The
purchase price exceeded the fair value of net assets acquired by
$1,250,000, which will be amortized on a straight-line basis over 20 years.
b. On May 10, 2000, the Company signed an amendment to its two-year revolving
credit agreement with a bank, which increased the amount it may borrow from
$12,000,000 up to $13,000,000. All other terms and conditions remained the
same.
<PAGE>
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.
o 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.
o Reliable-West Tech, Inc. ("RWT")
Manufacture and sale of precious and base metal products for use by
industry.
o Westbury Alloys, Inc.
Refining services to accumulators and manufacturers of precious metals.
o 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.
<PAGE>
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.
Three Months Ended Nine Months Ended
March 31, March 31,
----------------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Revenues:
- --------
Sales 89.3% 88.1% 86.9% 85.9%
Refining 10.7% 11.9% 13.1% 14.1%
------- ------- ------- -------
Total Revenues 100.0% 100.0% 100.0% 100.0%
------- ------- ------- -------
The net income (loss) for the three months ended March 31, 2000, December 31,
1999 and September 30, 1999 was $125,365, ($488,745) and ($78,762),
respectively. The net income (loss) per diluted share for the three months ended
March 31, 2000, December 31, 1999 and September 30, 1999 was $0.02, ($.14) and
($.02), respectively.
Three Months Ended March 31, 2000 versus Three Months Ended March 31, 1999
Revenues were $26,972,181 for three months ended March 31, 2000 compared to
$11,651,872 for three months ended March 31, 1999. Of the total increase,
$13,822,283 related to the industrial product sales and industrial commodities
management divisions, while $1,498,026 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
March 31, 2000, this subsidiary recorded gross revenue of $6,505,530. The
industrial commodities management division, which started business in July 1998,
was responsible for an additional $17,576,638 in gross revenues for the three
months ended March 31, 2000. The revenues relate to precious metal sales to
industrial end users. The combined product and precious metal sales were
$24,082,168 for the three months ended March 31, 2000 compared to $10,259,885
for the three months ended March 31, 1999, resulting in an increase of
$13,822,283.
Through the diversification of the refining area and greater efficiencies in the
catalyst operations, net refining revenues for three months ended March 31, 2000
were $2,890,013 compared to $1,391,987 for the three months ended March 31, 1999
for an increase of $1,498,026. 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 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
<PAGE>
installation of these processing changes. Management anticipates that the
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. As of March 31, 2000 the consultant working on behalf of
both parties has continued the installation of the processing changes.
The percentage of total revenues for the three months ended March 31, 2000
compared to the three months ended March 31, 1999 by revenue source were as
follows: product and precious metal sales were 89.3% and 88.1%, respectively,
and refining revenues were 10.7% and 11.9%, respectively.
Cost of precious metal sales were $22,681,510 or 94.2% of sales for three months
ended March 31, 2000 compared to $9,986,697 or 97.3% of sales for three months
ended March 31, 1999. This 3.1% decrease in cost of sales is due to higher
volume in both the industrial commodities management division and Reliable West
Tech subsidiary, which resulted in more efficient usage of production assets.
The higher volume also allowed the Company to operate at a level, which better
covered the primarily fixed labor and facility costs.
Cost of refining revenues were $2,402,551 or 83.1% of refining fees for three
months ended March 31, 2000 compared to $838,769 or 60.3% of refining fees for
three months ended March 31, 1999. The increase of 22.8% in the cost of refining
is primarily due to an unfavorable inventory adjustment for an assay, which had
been disputed by the Company. The arbitrator ruled in favor of the Company's
outside processor.
Selling, general and administrative expenses increased by $633,481 or 95.6%,
from $662,759 for the three months ended March 31, 1999 to $1,296,240 for the
three months ended March 31, 2000. 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. During the quarter ended March 31,
2000, the Company hired a new Chief Financial Officer and Controller and
incurred severance costs for certain finance and operations personnel.
Furthermore, the Company wrote-off a disputed accounts receivable in the amount
of $348,094.
Depreciation and amortization expense was $139,847 for the three months ended
March 31, 2000 compared to $48,612 for the three months ended March 31, 1999.
This increase of $91,235, or 187.7%, was principally due to the depreciation on
the building, machinery and equipment, and related goodwill from the acquisition
of Reliable Corporation.
Interest expense was $338,414 for the three months ended March 31, 2000 compared
to $54,148 for the three months ended March 31, 1999. The increase of $284,266
or 525.0% 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, which was repaid during the fiscal quarter ending March
31, 2000.
Nine Months Ended March 31, 2000 to the Nine Months Ended March 31, 1999
Revenues were $63,446,981 for the nine months ended March 31,2000 compared to
$26,246,229 for the nine months ended March 31, 1999. Of the total increase,
$32,627,924 related to the industrial product sales and industrial commodities
management divisions, while $4,572,828 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.
<PAGE>
RWT commenced operations on April 1, 1998 and acquired substantially all of the
assets of Reliable Corporation on June 30, 1999. For the nine months ended March
31, 2000, these subsidiary recorded gross revenues of $17,031,267. The
industrial commodities management division, which started business in July 1998,
was responsible for an additional $38,129,191 in gross revenues for the nine
months ended March 31, 2000. The revenues relate to precious metal sales to
industrial end users. Combined product and precious metal sales were $55,160,458
for the nine months ended March 31, 2000 compared to $22,532,534 for the nine
months ended March 31, 1999, resulting in an increase of $32,627,925.
Through the diversification of the refining area and the increased catalytic
converter business, net refining revenues for the nine months ended March 31,
2000 were $8,286,523 compared to $3,713,695 for the nine months ended March 31,
1999 for an increase of $4,572,828. 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 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 the
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. As of March 31, 2000 the consultant working on behalf of
both parties has continued the installation of the processing changes.
The percentage of total revenues for the nine months ended March 31, 2000
compared to the nine months ended March 31, 1999 by revenue source were as
follows: product and precious metal sales were 86.9% and 85.9%, respectively,
and refining revenues were 13.1% and 14.1%, respectively.
Cost of precious metal sales were $53,064,841 or 96.2% of sales for the nine
months ended March 31, 2000 compared to $21,347,007 or 94.7% of sales for the
nine months ended March 31, 1999. This 1.5% decrease in cost of sales is due to
higher volume in both the industrial commodities management division and
Reliable West Tech subsidiary, which resulted in more efficient usage of
production assets. The higher volume also allowed the Company to operate at a
level, which better covered the primarily fixed labor and facility costs.
Cost of refining revenues were $6,593,863 or 79.6% of refining fees for the nine
months ended March 31, 2000 compared to $2,747,283 or 74.0% of refining fees for
the nine months ended March 31, 1999. This increase of 5.6% in cost of refining
is primarily due to an unfavorable inventory adjustment for an assay on a
refining lot, which had been disputed by the Company. The arbitrator ruled in
favor of the Company's outside processor.
Selling, general and administrative expenses increased by $1,280,916 or 69.5%
from $1,843,196 for the nine months ended March 31, 1999 to $3,124,112 for the
nine months ended March 31, 2000. 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. During the quarter ended March 31,
2000, the Company hired a new Chief Financial Officer and Controller and
incurred severance costs for certain finance and operations personnel.
Furthermore, the Company wrote-off a disputed accounts receivable in the amount
of $348,094.
Depreciation and amortization expense was $374,135 for the nine months ended
March 31, 2000 compared to $116,261 for the nine months ended March 31, 1999.
This increase of $257,874 or 221.8% was principally due to the depreciation on
the building, machinery and equipment, and related goodwill from the acquisition
of Reliable Corporation.
Interest expense was $753,223 for the nine months ended March 31, 2000 compared
to $124,071 for the nine months ended March 31, 1999. The increase of $629,152
or 507.1% 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.
<PAGE>
Liquidity, Capital Resources and Other Financial Data
Cash flows from Operating activities
Net cash used in operating activities was $6,442,759 for the nine months ended
March 31, 2000 compared to $1,428,636 for the nine months ended March 31, 1999,
an increase of $5,014,123. Cash used in operating activities was primarily due
to the net loss generated from operations, as well as increases in inventory and
accounts receivable, 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 nine months ended March 31, 2000
was $299,823. The net property, plant & equipment expenditures of $299,823
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 nine months ended March 31, 1999
included the acquisition of the 900 Shames Drive, Westbury, NY facility, for
$510,000, which is primarily used for the processing of catalysts and also
serves as the Company's administrative offices.
Cash flows from Financing activities
Net cash provided by financing activities for the nine months ended March 31,
2000 is primarily due to $5,278,237 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
$2,267,690 of long-term debt, which included $2,000,000 related to the
subordinated note.
During the nine months ended March 31, 2000, the Company issued 147,222 shares
of common stock to warrant holders at exercise prices of $2.00 and $2.25 per
share for net proceeds of $327,501.
<PAGE>
Liquidity and Capital Resources
Working capital increased from $5,207 at June 30, 1999 to $4,541,658 at March
31, 2000, an increase of $4,536,451, which was 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 March 31,
2000 the Company held $6,369,989 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. On May 10,
2000, the Company signed an amendment to its two-year revolving credit agreement
with a bank, which increased the amount it may borrow from $12,000,000 up to
$13,000,000. All other terms and conditions remained the same.
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. The most recent Private Placement, which was completed
during the quarter ended March 31, 2000, provided WMG with net capital proceeds
of $5,137,699, and it was oversubscribed. During April, the Company purchased
Southwestern Services, Inc., a business complimentary to that of WMG's
subsidiary, RWT, and it will merge the operations during the quarter ended June
30, 2000. This acquisition creates an excellent opportunity to leverage the RWT
business with nominal increases in fixed costs. Furthermore, the customer list
of Southwestern Services provides Alloy, RWT's sister company, with many
potentially new customers for its refining services. 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.
As of March 31, 2000, 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.
<PAGE>
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
Except for historical information contained herein, this filing contains, within
the meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, forward-looking statements that are based on management's
beliefs and assumptions, current expectations, estimates and projections. Many
of the factors that will determine the Company's financial results are beyond
the ability of the Company to control or predict. These statements are subject
to risks and uncertainties and therefore actual results may differ materially.
The Company disclaims any obligation to update any forward-looking statements
whether as a result of new information, future events, or otherwise. Important
factors and risks that may affect future results include, but are not limited
to, the impact of competitive products, changes in law and regulations,
availability of raw materials, dependence on distributors and customers,
litigation, limitations on future financing, the effect of adverse publicity,
uncertainties relating to acquisitions, managing and maintaining growth,
customer demands, as well as other risks and uncertainties that are described
from time to time in the Company's filings with the Securities and Exchange
Commission, copies of which are available upon request from the Company's
investor relations department.
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 fiscal quarter of the year ending June 30, 2000.
There can be no assurances that management will be successful in its efforts.
</TABLE>
<PAGE>
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:
Mark R. Buckley
Chief Financial Officer
Date: May 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN THE COMPANY'S FORM 10-QSB AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<CASH> 728,413
<SECURITIES> 0
<RECEIVABLES> 5,901,439
<ALLOWANCES> 23,284
<INVENTORY> 4,488,188
<CURRENT-ASSETS> 11,510,240
<PP&E> 2,922,617
<DEPRECIATION> 615,162
<TOTAL-ASSETS> 15,464,384
<CURRENT-LIABILITIES> 6,968,582
<BONDS> 0
0
0
<COMMON> 5,270
<OTHER-SE> 7,348,631
<TOTAL-LIABILITY-AND-EQUITY> 15,464,384
<SALES> 26,972,181
<TOTAL-REVENUES> 26,084,061
<CGS> 25,084,061
<TOTAL-COSTS> 25,084,061
<OTHER-EXPENSES> 1,436,087
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 338,414
<INCOME-PRETAX> 125,365
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,365
<EPS-BASIC> .02
<EPS-DILUTED> .02
</TABLE>
