<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 0-26738
BOYDS WHEELS, INC.
(Exact name of registrant as specified in its charter)
California 93-1000272
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8380 Cerritos Ave.
Stanton, CA 90680
714-952-4038
(Address and telephone number of principal executive offices)
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
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 August 11, 1997, there were outstanding 3,848,618 shares of
registrant's common stock, no par value.
Transitional Small Business Disclosure Format (check one);
Yes__No X
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $2,592,821 $5,792,764
Restricted cash 443,000 -
Accounts receivable, net 1,575,707 2,316,979
Other receivables 405,029 178,339
Income tax refund receivable 599,620 355,623
Inventories 9,522,080 7,710,149
Cost and estimated earnings in excess of billings 250,500 56,616
Prepaids and other current assets 557,807 605,186
Deferred income taxes 296,956 296,956
----------- ------------
Total current assets 16,243,520 17,312,612
Property and equipment, net 14,847,367 11,047,029
Covenants not to compete, net 130,487 145,487
Other assets 77,944 97,655
----------- ------------
Total assets $31,299,318 $28,602,783
----------- ------------
----------- ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $5,435,119 $3,307,176
Accrued liabilities 762,248 663,467
Revolving credit agreements - 1,634,154
Current maturities of long-term debt 8,767,999 560,140
Billings in excess of cost and estimated earnings 205,025 122,286
Other current liabilities 10,163 139,163
----------- ------------
Total current liabilities 15,180,554 6,426,386
Long-term debt 1,454,804 2,397,695
Other long-term liabilities 10,382 53,738
Deferred income taxes 345,572 345,572
----------- ------------
Total liabilities 16,991,312 9,223,391
----------- ------------
Shareholders' equity:
Preferred stock, no par value 5,000,000 shares
Authorized, no shares outstanding
Common stock, no par value; authorized 25,000,000
Shares, issued and outstanding 3,848,618 shares at
June 30, 1997 and 3,780,106 at December 31, 1996 17,856,101 17,585,262
Contributed capital 1,036,516 1,036,516
Unearned compensation - (3,123)
Retained (deficit) earnings (4,584,611) 760,737
----------- ------------
Total shareholders' equity 14,308,006 19,379,392
----------- ------------
Total liabilities and shareholders' equity $31,299,318 $28,602,783
----------- ------------
----------- ------------
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
2
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BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, June 30,
1997 1996 1997 1996
----- ---------- ---- ----------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net sales $4,279,777 $8,130,967 $7,855,870 $13,650,117
Cost of goods sold 7,047,257 5,977,662 10,917,149 10,045,438
----------- ----------- ---------- -----------
Gross (loss) profit (2,767,480) 2,153,305 (3,061,279) 3,604,679
Selling, general and administrative expenses 1,337,799 1,175,439 2,349,379 1,920,367
----------- ----------- ---------- -----------
(Loss) income from operations (4,105,279) 977,866 (5,410,658) 1,684,312
Interest expense (income) and other expenses, net 67,784 (48,552) 178,690 (37,753)
----------- ----------- ---------- -----------
(Loss) income before provision for income taxes (4,173,063) 1,026,418 (5,589,348) 1,722,065
(Benefit) provision for income taxes (29,000) 388,387 (244,000) 624,419
----------- ----------- ---------- -----------
Net (loss) income ($4,144,063) $638,031 ($5,345,348) $1,097,646
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Net (loss) income per share ($1.08) $.22 ($1.39) $.38
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Weighted average common shares and common
equivalent shares outstanding 3,849,000 2,916,000 3,833,000 2,888,000
----------- ----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six
Months Ended
June 30,
1997 1996
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
(Restated)
Net (loss) income ($5,345,348) $1,097,646
Adjustments to reconcile net (loss) income to cash used by
operating activities:
Depreciation and amortization 1,524,711 410,204
Loss on disposal of property and equipment 2,179 50,728
Bad debt expense 674,148 36,370
Reserve for inventory obsolescence 330,487 20,000
Compensation related to stock option vesting 3,123 -
Decrease (increase) in accounts receivable 67,123 (912,045)
Increase in income tax refund receivable (243,997) -
Increase in other receivables (226,690) -
Increase in inventories (2,142,418) (1,952,191)
Increase (decrease) in costs and estimated earnings
in excess of billings on uncompleted contracts (193,884) 2,428
Decrease (increase) in prepaid and other current assets 47,379 (1,906)
Decrease in other assets 19,708 -
Increase in accounts payable 2,123,945 1,016,966
Increase (decrease) in accrued liabilities 98,781 (891,110)
Increase in income taxes payable - 146,219
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 82,739 55,092
Decrease in other current liabilities (125,001) (48,598)
(Decrease) increase in other long term liabilities (43,352) 11,310
----------- ------------
Net cash used by operating activities (3,346,367) (958,887)
----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (5,312,230) (2,298,724)
Proceeds from the sale of property and equipment - 492,400
Decrease in due from affiliates - (41,606)
Payments on covenants not to compete - (24,585)
Increase in restricted cash (443,000) -
----------- ------------
Net cash used by investing activities (5,755,230) (1,872,515)
----------- ------------
Cash flows from financing activities:
Borrowings on revolving lines of credit 956,104 1,400,058
Payments on revolving lines of credit (2,590,258) (1,400,000)
Proceeds from issuance of long-term debt 10,433,569 463,932
Principal repayments of long-term debt (3,168,601) (910,276)
Proceeds from sale of common stock - 12,948,750
Cost of equity issuance - (1,237,502)
Proceeds from exercise of common stock warrants 270,840 -
----------- ------------
Net cash provided by financing activities 5,901,654 11,264,962
----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six
Months Ended
June 30,
1997 1996
----------- ------------
(Restated)
<S> <C> <C>
Net (decrease) increase in cash and cash equivalents ($3,199,943) $8,433,560
Cash and cash equivalents at beginning of year 5,792,764 1,061,889
----------- ------------
Cash and cash equivalents at end of period $2,592,821 $9,495,449
----------- ------------
Cash paid during the period for:
Income taxes - $478,200
Interest $425,130 $148,066
Supplemental schedule of noncash investing
and financing activities:
Equipment leases capitalized $290,687 $124,396
Common stock issued in settlement of an employment
agreement - $50,000
Reversal of unearned compensation related to stock
options granted $12,500 -
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
5
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BOYDS WHEELS, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
BASIS OF PRESENTATION:
The accompanying consolidated financial statements include the accounts of
Boyds Wheels, Inc. (the "Company") and its wholly owned subsidiary, Hot
Rods by Boyd, Inc. ("HRBB"). The acquisition of HRBB in December 1996 was
accounted for as a pooling of interests business combination (see Note 4).
The interim financial data as of and for the three months and six months
ended June 30, 1997 and June 30, 1996 are unaudited and have been prepared
in accordance with the generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The year-end balance sheet information was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. These financial statements should be read
in conjunction with the Company's audited financial statements.
2. Inventories:
Inventories consist of the following:
(Unaudited)
June 30, 1997 December 31, 1996
------------- -----------------
Finished goods $2,804,109 $1,572,189
Work in process 4,624,131 3,869,080
Raw materials 1,321,629 1,814,270
Construction-in-progress automobiles 697,211 380,831
Completed automobile 75,000 73,779
------------- -----------------
$9,522,080 $7,710,149
------------- -----------------
------------- -----------------
3. Long Term Debt
In June 1997, the bank line of credit facility for the Company was reduced
from maximum borrowings of $9,000,000 to $8,000,000 and for HRBB from
$500,000 to $200,000. At June 30, 1997, the Company was not in compliance
with certain loan covenants. As a result, the Company has been requested to
seek alternative financing with another lending institution recommended by
the bank, in which the bank has preliminarily agreed to participate. All
amounts due under these facilities have been classified as current at June
30, 1997.
4. Pooling of Interests:
In 1996, the Company completed an acquisition of HRBB which was accounted for
as a pooling of interests, and accordingly the Company's interim financial
statements for the three and six months ended June 30, 1996, have been
restated to include HRBB for such periods. Unaudited consolidated and
separate results of the Company and HRBB were as follows:
6
<PAGE>
BOYDS WHEELS, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Three Months Six Months
Ended Ended
June 30, 1996 June 30, 1996
------------- ---------------
Net Sales:
Boyds Wheels, Inc., as previously reported $7,676,843 $13,010,917
Hot Rods by Boyds, Inc. 454,124 659,249
Adjustments - (20,049)
------------- ---------------
Consolidated $8,130,967 $13,650,117
------------- ---------------
------------- ---------------
Net Income:
Boyds Wheels, Inc., as previously reported $620,414 $979,540
Hot Rods by Boyds, Inc. 17,617 118,106
------------- ---------------
Consolidated $638,031 $1,097,646
The adjustments relate to intercompany transactions between the two
companies.
5. Statements of Financial Accounting Standards not yet adopted
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". SFAS No. 128 requires companies to adopt its
provisions for fiscal years beginning after December 15, 1997 and
requires restatement of all prior period earnings per share (EPS) data
presented. Earlier application is not permitted. SFAS No. 128 specifies
the computation, presentation and disclosure requirements for EPS. The
implementation of SFAS No. 128 is not expected to have a material effect
on the EPS data presented by the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130, which is effective for fiscal years beginning
after December 15, 1997 and requires restatement of earlier periods
presented, establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and
other events and circumstances from nonowner sources. The implementation
of SFAS No. 130 is not expected to have a material effect on the
Company's results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information". SFAS No. 131, which is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of earlier periods presented, establishes standards for the
way that a public enterprise reports information about key
revenue-producing segments in the annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic
areas and major customers. The implementation of SFAS No. 131 is not
expected to have a material effect on the Company's current reporting
disclosures.
6. Change in accounting estimate
Effective June 30, 1997, the Company changed its estimated useful lives of
its molds used in the manufacturing process. This change was made to
better reflect the estimated periods during which these assets will remain
in service. The change had the effect of increasing depreciation expense
in the second quarter of 1997 by $359,000 and increasing the net loss by
$.09 per share for six months.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER
MATERIALLY FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS
DEPENDING UPON A VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND
UNDER THE SUB-HEADING, "BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996.
GENERAL
The Company designs, manufactures and markets high quality
aluminum wheels for the specialty automotive and motorcycle aftermarkets. The
Company also designs, manufactures and markets a premium line of car care
products and a line of sportswear under its own label. The Company sells its
products domestically through a national distribution network of tire and
performance retailers, warehouse distributors and mail order outlets and
internationally through foreign distribution channels. The Company's wholly
owned subsidiary, Hot Rods By Boyd, Inc., designs and manufactures custom
vehicles which are sold directly to private clientele.
Since the Company utilizes its own facility and equipment for the
manufacture of its products, gross margins are especially dependent upon
sales volumes as a result of substantial fixed manufacturing overhead.
Overhead costs were significantly increased in the third and fourth quarters
of 1996 and the first quarter of 1997, when the Company elected to expand its
manufacturing facility through the acquisition of additional equipment and
increase its square footage by approximately 50%. At low sales volumes it is
unlikely that positive gross margins from proprietary products can be
achieved. However, at higher sales volumes, the allocation of fixed costs
over more sales should result in increased gross margins. Accordingly, the
Company anticipates variances in gross margins from quarter to quarter as a
result of fluctuations in production, which coincide with seasonality of the
Company's business.
Sales of and demand for the Company's wheel products have not met
management's expectations due to a variety of factors including, competitive
pressure, changes in consumer demand, the lack of a fully integrated sales
and marketing plan, and a slower than expected expansion in newer markets.
The Company has responded by: (1) focusing its sales efforts on expanding
its domestic and, to a lesser degree, its international distribution
channels; (2) introducing new product lines to respond to new trends; (3)
streamlining and restructuring its manufacturing process and facility; and
(4) restructuring its sales and customer service departments to more
effectively target new business and service its existing customer base.
Sales are expected to be subject to degrees of month-to-month and
quarter-to-quarter variability due to the limited market penetration in the
Company's new markets to date. The markets for the aluminum aftermarket
wheels are subject to rapidly changing consumer tastes and a high level of
competition. Demand for the Company's products is expected to be influenced
by marketing and advertising expenditures, product positioning through its
distributors and retailers, design trends and general economic conditions.
Because these factors can change rapidly, customer demand can also shift
quickly. The Company may not be able to respond to changes in consumer
demand because of the time required to change or introduce new products,
production limitations or limited financial resources.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND THREE MONTHS ENDED JUNE 30,
1996
ONE-TIME CHARGE
The Company recorded during the current period a one-time charge of $1.8
million which included: a Sales reserve of $1,000,000, which consists mainly
of a $700,000 reserve for motorcycle products; a Cost of Sales charge of
$700,000, which consists of approximately $200,000 from the sale of scrap,
$300,000 resulting from a
8
<PAGE>
change in the estimated useful life of the Company's molds, and $200,000 in the
write-off of leasehold improvements associated with premises to be subleased;
and Selling, General and Administrative expenses of $100,000 relating to the
planned sale of under-utilized equipment.
NET SALES
Net sales for the three months ended June 30, 1997, were $4,279,777
compared to $8,130,967 for the same period in 1996, a decrease of $3,851,190
or 47%. The decrease in sales for the period was the result of continued
weak sales of the Company's two-piece cast wheel line, which accounted for
approximately $3,000,000 of the decrease. This continued decrease is the
result of a lack of newer wheel designs, along with a continued shift in
consumer demand to the one-piece cast wheel. The Company's one-piece cast
wheel line continued to increase its sales to an all-time quarterly high of
$900,000, an increase of $600,000 over the same period in 1996. This
increase was achieved as a result of an ongoing increase in the product line,
even though the Company has experienced delays in tooling and production. The
motorcycle product line experienced a decline in sales of approximately
$200,000 for the three month period resulting from the change in distribution
methods, from selling to distributors to selling direct to dealers. The
Company did not properly anticipate the immediate shipping response required
and therefore lost sales. The Company's private label center business also
has declined for the period by $300,000, as a result of the previously
mentioned shift to one-piece cast wheels. Sales of the Company's two-piece
billet wheels increased during the quarter by $180,000 as the result of
direct sales to the public and a more competitive price structure. The
steering wheels and accessories lines also declined slightly by $50,000 for
the period. The Company also recorded a sales return reserve of
approximately $1,000,000, $700,000 of which is directly related to the
motorcycle line.
GROSS (LOSS) PROFIT
Gross (loss) profit for the three months ended June 30, 1997 was
($2,767,480) compared to $2,153,305 for the same period in 1996, a decrease
of $4,920,785 or 229%. The decrease in gross profit was primarily
attributable to a 47% decrease in sales combined with an increase in fixed
costs and under utilization of the facility, along with one time charges of
approximately $200,000 relating to the sale of scrap, $300,000 associated
with the change in estimated useful life of the Company's molds, and $200,000
for the write-off of leasehold improvements associated with premises to be
subleased. The fixed costs in the second quarter of 1997, compared to the
second quarter of 1996, included higher wages of $260,000, increased
overhead costs of rent of $47,000, utilities of $77,000 and depreciation of
$399,000 as a result of the Company's expansion. During the month of June,
1997, the Company reduced personnel and reduced the salaries of management
personnel in an effort to reduce overhead. In addition the Company has
targeted underutilized machinery and facilities to sell and sublease, in an
effort to reduce its break-even point. These cuts will primarily benefit
future periods of operation.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
June 30, 1997 were $1,337,799 compared to $1,175,439 for the same period in
1996, an increase of $162,360 or 14%. This increase included a one time
charge of $100,000 for the loss on the sale of equipment being sold to reduce
overhead. Period costs were still impacted by increased advertising and
promotional expenses, in addition to the prior period increase in sales,
marketing, investor relations and accounting personnel. During the month of
June, 1997, the Company reduced the number of employees and reduced the
salaries of personnel in an effort to reduce expenses. These cuts will
primarily benefit future periods of operation.
INTEREST AND OTHER EXPENSES (NET)
Interest income (expenses) and other expenses (net) for the three months
ended June 30, 1997 were ($67,784) compared to $48,552 for the same period in
1996, an increase of $116,336 or 240%. Interest expense increased as a
result of increased borrowings for working capital and long-term debt, which
was partially offset by interest income from available funds and other income
in the second quarter of 1997.
9
<PAGE>
INCOME TAX (BENEFIT) PROVISION
Income tax (benefit) for the three months ended June 30,1997 was ($29,000),
compared to a provision of $388,387 for the same period in 1996, a decrease of
$417,387 or 108%. The tax benefit was based upon the benefit resulting from the
carryback of the second quarter loss.
NET (LOSS) INCOME
Net loss for the three months ended June 30, 1997 was ($4,144,063),
compared to net income of $638,031 for the three months ended June 30, 1996, a
decrease of $4,782,094, or 750%.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND SIX MONTHS ENDED JUNE 30, 1996
ONE-TIME CHARGE
The Company recorded during the current period a one-time charge of $1.8
million which included: a Sales reserve of $1,000,000, which consists mainly
of a $700,000 reserve for motorcycle products; a Cost of Sales charge of
$700,000, which consists of approximately $200,000 from the sale of scrap,
$300,000 resulting from a change in the estimated useful life of the
Company's molds, and $200,000 in the write-off of leasehold improvements
associated with premises to be subleased; and Selling, General and
Administrative expenses of $100,000 relating to the planned sale of
under-utilized equipment.
NET SALES
Net sales for the six months ended June 30, 1997, were $7,855,870
compared to $13,650,117 for the same period in 1996, a decrease of $5,794,247
or 42%. The decrease in sales was the result of a reduced backlog and
continued weak sales of the Company's two-piece cast wheel line, which
accounted for approximately $4,200,000 of the decrease. This continued
decrease is the result of a lack of newer wheel designs, along with a
continued shift in consumer demand to the one-piece cast wheel. The
Company's one-piece cast wheel line increased its sales to $1,100,000,
compared to $600,000, for a net increase of $500,000 over the same period in
1996. This increase was achieved as a result of an ongoing increase in the
product line, even though the Company has experienced delays in tooling and
production. The motorcycle product line experienced a decline in sales of
approximately $400,000 for the six month period resulting from the change in
distribution methods, from selling to distributors to selling direct to
dealers. The Company did not properly anticipate the immediate shipping
response required, therefore resulting in lost sales. The private label
center business has also declined for the six months by $600,000, as a result
of the previously mentioned shift to one-piece cast wheels. The Company's
two-piece billet wheels increased during the six months by $100,000 as the
result of direct sales to the public and a more competitive price structure.
The steering wheels and accessories lines also declined slightly by $130,000
for the period. The Company also recorded a sales return reserve of
approximately $1,000,000, $700,000 of which is directly related to the
motorcycle line.
GROSS (LOSS) PROFIT
Gross (loss) profit for the six months ended June 30, 1997 was
($3,061,279) compared to $3,604,679 for the same period in 1996, a decrease
of $6,665,958 or 185%. The decrease in gross profit was the result of a 42%
decrease in sales combined with an increase in fixed costs and under
utilization of the facility, along with one time charges of $200,000
relating to the sale of scrap, $300,000 associated with the change in
the estimated useful life of the Company's molds, and $200,000 for the
write-off of leasehold improvements associated with premises to be subleased.
Fixed costs for the six months ended June 30, 1997, compared to 1996, included
higher wages of $667,000, increased overhead costs of rent $91,000, utilities
of $75,000 and depreciation of $399,800 as a result of the Company's
expansion. The expansion of the manufacturing facility and operating expenses
associated with 65
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more employees in manufacturing have resulted in a significant negative gross
profit margin. The reduced sales and production levels equates to low
absorption of overhead costs, resulting in the expensing of overhead costs
in the period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the six months ended
June 30, 1997 were $2,349,379 compared to $1,920,367 for the same period in
1996, an increase of $429,012 or 22%. This increase included a one time
charge of $100,000 for the loss on the sale of equipment being sold to reduce
overhead. This increase is primarily the result of increased advertising and
promotional expenses in the amount of $160,800, together with expenses of
$238,000 associated with the addition of sales, marketing, investor
relations and accounting personnel. During the month of June, 1997, the
Company reduced personnel and reduced the salaries of personnel. In
addition, the Company is analyzing all advertising and administrative costs
in an effort to further reduce overhead. These cuts will primarily benefit
future periods of operation.
INTEREST AND OTHER EXPENSES (NET)
Interest (income) expenses and other expenses (net) for the six months
ended June 30, 1997 were $178,690 compared to ($37,753) for the same period
in 1996, an expense increase of $216,443 or 573%. Interest expense increased
as a result of increased borrowings for working capital and long-term debt,
which partially were offset by interest income from available funds and other
income in the six months of 1997.
INCOME TAX (BENEFIT) PROVISION
Income tax (benefit) for the six months ended June 30,1997 was
($244,000), compared to a provision of $624,419 for the same period in 1996,
a decrease of $868,419 or 139%. The tax benefit was based upon the benefit
resulting from the carryback of the loss for the six months ended June 30,
1997.
NET (LOSS) INCOME
Net loss for the six months ended June 30, 1997 was ($5,345,348),
compared to net income of $1,097,646 for the six months ended June 30, 1996,
a decrease of $6,442,994, or 587%.
LIQUIDITY AND CAPITAL RESOURCES
Through June 30, 1997, the Company's inventory increased to $9,522,080
from $7,710,149 at December 31, 1996, an increase of $1,811,931 or 24%.
This increase was primarily due to the manufacture of new products and
styles, including new one-piece cast wheels and motorcycle components. The
increases in one-piece cast wheels and other new products and styles were
made in anticipation of the Company's planned expansion of its sales efforts
in the Eastern United States. In order to meet the needs of Harley-Davidson
dealers, the Company increased its motorcycle inventory levels to supply the
dealers directly, as they require shipment in less than one week. Slower
than expected sales overall also contributed to the increase in inventory
levels.
Working capital was $1,062,966 at June 30, 1997 compared to $10,886,226
at December 31, 1996, or a decrease of $9,823,260. The Company's cash
position at June 30, 1997 was $2,592,821 compared to $5,792,764 at December
31, 1996, a decrease of $3,199,943. Cash was utilized, along with the
Company's line of credit to fund operations, increase inventory, and to add
equipment and leasehold improvements. The effect of lower sales and increased
overhead has had a significant impact on cash and working capital. The
Company is currently attempting to secure a new working line of credit and
equipment financing, to replace the current facility, which has been
informally frozen at the bank's request. At June 30, 1997, the revolving
lines of credit had borrowings of $8,126,604, all of which are classified as
current. The borrowings on the line of credit increased during the period as
a result of operating needs, equipment and leasehold improvements of
$3,014,181, the payoff of previous line of credit borrowings of $2,590,258
and the payoff of a long-term capital lease of $888,011. Long-term debt
also
11
<PAGE>
increased by $1,643,000 as these funds were used for the purchase of 2.5
acres of land with 26,000 square feet of buildings to accommodate the
Company's distribution center.
Based on the Company's cash position and currently planned expenditures
and level of operations, the Company estimates it will require additional
capital within the next three months to meet its debts as they become due and
to continue as a going concern. The Company's business may be able to
generate the additional funding required depending on the ability of
manufacturing activities to generate additional revenues, however there can
be no assurance thereof. The Company is currently pursuing various
alternatives to meet its needs for capital including, without limitation, the
bank financing previously described. There can be no assurance the Company
will be successful and any such financing may be dilutive to current
shareholders. The failure to raise additional funds could have a material
adverse effect on the Company and could force the Company to further reduce
or curtail operations.
The Company may, from time to time, seek additional funds through lines
of credit, public or private debt or equity financing. There can be no
assurances that additional capital will be available when needed.
MANAGEMENT'S PLANS FOR IMPROVING OPERATIONS
Management has taken steps to improve operations with the goal of
sustaining the Company operations for the next twelve months and beyond.
These steps include: (1) focusing its sales efforts on expanding its domestic
and, to a lesser degree, its international distribution channels; (2)
introducing new product lines to respond to new trends; (3) streamlining and
restructuring its manufacturing process and facility; (4) restructuring its
sales and customer service departments to more effectively target new
business and service its existing customer base; and (5) reducing overhead
and operating expenses. There can be no assurance the Company can attain
profitable operations in the future.
BUSINESS RISKS
This report contains a number of forward-looking statements which reflect
the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks
and uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are cautioned to
consider the risk factors described above and in the Company's Annual Report
on Form 10-KSB for the year ended December 31, 1996, and not to place undue
reliance on the forward-looking statements contained herein, which speak only
as of the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements, to reflect events or circumstances
that may arise after the date hereof.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in routine litigation incidental to the conduct
of its business. There are currently no material pending legal proceedings
to which the Company is a party or to which any of its property is subject.
ITEM 2 THROUGH ITEM 5.
Have been omitted because the related information is either inapplicable
or has been previously reported.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. (a) Exhibits.
Number
12
<PAGE>
27.1 Financial Data Schedule
2. (b) None.
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.
BOYDS WHEELS, INC.
Date: August 14, 1997 By: /s/ Boyd L. Coddington
------------------------ ------------------------------------
Boyd L. Coddington
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: August 14, 1997 By: /s/ Rex A. Ours
------------------------ ------------------------------------
Rex A. Ours
Chief Financial Officer and
Corporate Secretary
(Principal Financial Officer)
13
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,035,821
<SECURITIES> 0
<RECEIVABLES> 2,904,132
<ALLOWANCES> 923,396
<INVENTORY> 9,522,080
<CURRENT-ASSETS> 16,243,520
<PP&E> 18,924,661
<DEPRECIATION> 4,077,294
<TOTAL-ASSETS> 31,299,318
<CURRENT-LIABILITIES> 15,180,554
<BONDS> 1,454,804
0
0
<COMMON> 17,856,101
<OTHER-SE> 1,036,516
<TOTAL-LIABILITY-AND-EQUITY> 31,299,318
<SALES> 7,855,870
<TOTAL-REVENUES> 7,855,870
<CGS> 10,917,149
<TOTAL-COSTS> 10,917,149
<OTHER-EXPENSES> 2,849,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 178,690
<INCOME-PRETAX> (5,589,348)
<INCOME-TAX> (244,000)
<INCOME-CONTINUING> (5,345,348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,345,348)
<EPS-PRIMARY> (1.39)
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