U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-23332
ELECTRONIC FAB TECHNOLOGY CORP.
(Exact name of registrant as specified in its charter)
Colorado
84-0854616
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
7251 West 4th Street
Greeley, Colorado 80634-9763
(Address of principal executive offices)
(970) 353-3100
(Issuer's telephone number)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports) and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date.
Class of Common Stock
Common Stock, par value $0.01
Outstanding at October 1, 1996
3,942,660 shares
<PAGE>
ELECTRONIC FAB TECHNOLOGY CORP.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
PAGE NUMBER
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets -- September
30, 1996 and December 31, 1995 3
Condensed Statements of Income -- Three
months and nine months ended September
30, 1996 and 1995 4
Condensed Statements of Cash Flows --
Nine months ended September 30, 1996 and
1995 5
Notes to Condensed Financial Statements
-- September 30, 1996 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 7
PART II. OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<TABLE>
<PAGE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED BALANCE SHEETS
(unaudited)
<CAPTION>
September 30, December 31,
1996 1996
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $30,556 $481,086
Accounts receivable, net of allowances of $20,000 3,420,482 4,982,450
Inventories (note 2) 10,147,092 9,859,414
Income taxes receivable 984,675 74,922
Prepaid expenses and other current assets 265,998 528,466
Total current assets 14,848,803 15,926,338
Property, plant and equipment, at cost 13,229,462 12,839,976
Less accumulated depreciation 4,393,291 3,949,163
Net property, plant and equipment 8,836,171 8,890,813
Other assets 45,323 167,148
$23,730,297 $24,984,299
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $2,300,000 $ -
Current portion of long-term debt 170,000 170,000
Accounts payable 2,458,883 4,986,757
Accrued expenses and other liabilities 1,737,430 901,738
Total current liabilities 6,666,313 6,058,495
Long-term debt, net of current portion 2,890,000 3,060,000
Deferred income taxes 334,883 356,606
Shareholders' equity
Preferred stock, $.01 par value. Authorized 5,000,000
shares; none issued or outstanding - -
Common stock, $.01 par value. Authorized 45,000,000
shares; issued 3,942,660 shares and 3,940,860 shares 39,427 39,409
Additional paid-in capital 10,187,180 10,181,204
Retained earnings 3,612,494 5,288,585
Total shareholders' equity 13,839,101 15,509,198
$23,730,297 $24,984,299
<FN>
<F1>
See notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED STATEMENTS OF INCOME
(unaudited)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $13,631,921 $11,691,875 $44,576,291 $36,140,147
Cost of goods sold 13,096,171 11,072,107 42,676,203 33,253,580
Gross profit 535,750 619,768 1,900,088 2,886,567
Selling, general, and
administrative expense 1,746,550 844,243 3,403,090 2,358,576
Impairment of fixed assets 725,869 - 725,869 -
Operating income (loss) (1,936,669) (224,475) (2,228,871) 527,991
Other income (expense):
Interest expense (141,898) (96,769) (384,511) (265,733)
Gain (loss) on disposition of assets (12,723) - (12,723) 51,500
Other, net 13,341 6,959 29,812 22,638
(141,280) (89,810) (367,422) (191,595)
Income (loss) before income taxes (2,077,949) (314,285) (2,596,293) 336,396
Income tax expense (benefit) (718,626) (101,404) (920,203) 124,759
Net income (loss) ($1,359,323) ($212,881) ($1,676,090) $211,637
Income (loss) per common and
common equivalent share ($0.34) ($0.05) ($0.42) $0.05
Weighted average shares outstanding 3,968,417 3,961,007 3,968,417 3,968,417
<FN>
<F2>
See notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
<PAGE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended September 30,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($1,676,090) $211,637
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 999,454 1,301,748
Deferred income taxes (10,103) 300,423
(Gain) loss on sale and impairment of fixed assets 1,181,000 -
Changes in operating assets and liabilities:
Accounts receivable 1,561,968 89,259
Inventories (287,678) (642,215)
Prepaid expenses and other current assets 250,848 (230,549)
Accounts payable (2,527,874) 206,338
Accrued expenses 835,692 (336,995)
Income taxes (909,753) (328,193)
Other assets 121,824 (95,014)
Net cash provided by (used in) operating activities (460,712) 476,439
Cash flows from investing activities
Proceeds from sale of equipment 10,157 -
Purchase of property, plant and equipment (2,135,969) (2,231,860)
Net cash (used in) investing activities (2,125,812) (2,231,860)
Cash flows from financing activities
Common stock issued, net 5,994 165,667
Principal payments on long-term debt (170,000) (170,000)
Borrowings (payments) on notes payable, net 2,300,000 1,625,000
Net cash provided by financing activities 2,135,994 1,620,667
Increase (decrease) in cash and
cash equivalents (450,530) (134,754)
Cash and cash equivalents:
Beginning of period 481,086 153,483
End of period $30,556 $18,729
<FN>
<F3>
See notes to condensed financial statements.
</FN>
</TABLE>
<PAGE>
ELECTRONIC FAB TECHNOLOGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1--Basis of Presentation
The accompanying unaudited condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
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. Operating
results for the nine month period ending September 30, 1996 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1996. The unaudited condensed financial
statements should be read in conjunction with the financial
statements and footnotes thereto included in the Company's annual
report and Form 10-K for the year ended December 31, 1995.
Note 2--Inventories
The components of inventory consist of the following:
September 30, December 31,
1996 1995
Purchased parts
and completed
subassemblies $7,993,503 $8,051,548
Work-in-process 2,153,589 1,807,766
$10,147,092 $9,859,414
Note 3--Supplemental Disclosure of Cash Flow Information
Nine months ended
September 30,
1996 1995
Cash paid during the period for:
Interest $374,960 $167,520
Income taxes $12,728 $152,530
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996
RESULTS OF OPERATIONS
Net sales. Net sales are net of discounts and are
recognized upon shipment to a customer. The Company's net sales
increased by 16.6% to $13,631,921 for the third quarter of fiscal
1996, from $11,691,875 during the same period in fiscal 1995.
The increase in net sales is due primarily to increased material
sales associated with electro-mechanical assembly (box-build) to
one customer.
The company's net sales increased by 23.3% to $44,576,291
during the nine months of fiscal 1996, from $36,140,147 during
the same period of fiscal 1995. Again this increase is primarily
the result of the sales related to the box-build activity noted
above.
Gross profit. Gross profit equals net sales less cost of
goods sold (such as salaries, leasing costs, and depreciation
charges related to production operations); and non-direct,
variable manufacturing costs (such as supplies and employee
benefits). In the third quarter of fiscal 1996, gross profit
decreased 13.6% to $535,750 compared to $619,768 for the same
period in 1995. The gross profit margin for the third quarter of
fiscal 1996 was 3.9% compared to 5.3% for the same period of
fiscal 1995. The primary reason for the decline in gross profit
is related to restructuring charges of $479,029 that were
included in cost of goods sold for the third quarter of 1996.
Without these restructuring charges, gross profit would have
been $1,014,779 or 7.4% of net sales, an increase of 63.7% over
the third quarter of 1995. These restructuring charges were
severance expenses related to a decrease in workforce, write down
of inventory related to changes in the Company's customer mix,
and expenses related to the reorganization of the manufacturing
floor and manufacturing processes.
Gross profit decreased by 34.2% to $1,900,088 compared to
$2,886,567 for the first nine months of fiscal 1996. The gross
profit margin for the first nine months of fiscal 1996 was 4.3%
compared to 8.0% for the first nine months of 1995. Excluding the
restructuring charges as explained above gross profit would have
been $2,379,117 or 5.3% for the third quarter of 1996. The
additional decline not related to the restructuring charge taken
in the third quarter of fiscal 1996 was attributable to increased
overhead associated with the change in product mix from third
quarter of 1995 to third quarter of 1996. The decreased
efficiencies prompted the Company to hire a new Chief Executive
Officer and decrease its workforce and cost structure in order to
position the Company for future success.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses (SGA expense) consist
primarily of non-manufacturing salaries, sales commissions, and
other general expenses. SGA expense increased by 106.9% to
$1,746,550 in the third quarter of 1996, compared with $844,243 a
year earlier. The increase is due to restructuring charges as
explained above related to SGA expense in the amount of $922,404
in the third quarter of 1996. Excluding these costs the SGA
expense would have been $824,146 a decrease of $20,007 from third
quarter of 1995. As a percentage of net sales SGA expenses
increased from 7.2% of net sales in the third quarter of fiscal
1995 to 12.8% of net sales in fiscal 1996. Excluding the
restructuring charges SGA expenses would have been 6.0% of net
sales for the third quarter of 1996.
Selling, general and administrative expenses increased by
44.3% to $3,403,090 for the nine months of fiscal 1996 compared
with $2,358,576 a year earlier. Excluding the restructuring
charges incurred in third quarter of 1996 SGA expenses would have
increased by $122,110 or 5.2% over the first nine months of 1995.
As a percentage of net sales, SGA increased to 7.6% in the first
nine months of 1996 from 6.5% in the same period of fiscal 1995.
Without the restructuring charges SGA expenses would have been
5.6% of net sales for the nine months ended September 30, 1996.
Impairment of fixed assets. During the third quarter of
1996 the Company incurred a write down associated with impaired
assets in the amount of $725,869. Statement of Financial
Accounting Standards No.121-Accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of ;
requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Long-lived assets and certain identifiable intangibles to be
disposed of should be reported at the lower of carrying amount or
fair value less cost to sell. The Company went through a
corporate restructuring in the third quarter of 1996 which
included a workforce reduction and a change in the way product is
manufactured which resulted in several assets both tangible and
intangible to be eliminated from operations. Certain software
that we will no longer be using as well as excess equipment that
is now held for sale was written down to fair value in order to
comply with Statement No.121 as mentioned above.
Operating income. Operating income for the third quarter
of fiscal 1996 decreased 762.8% to a loss of $1,936,669 from a
loss of $224,475 for the third quarter of fiscal 1995. Operating
income as a percentage of net sales decreased to (14.2%) in the
third quarter of fiscal 1996 from (1.9%) in the same period last
year. The decrease in operating income was attributable to the
restructuring charges and impairment of fixed assets write down
as noted above. The total of these items for the third quarter
of 1996 was $2,127,302. Excluding these items operating income
would have been $190,633 or 1.4% of net sales for the third
quarter of 1996.
Operating income for the first nine months of fiscal 1996
decreased 522.1% to a loss of $2,228,871 from income of $527,991
in the first nine months of fiscal 1995. Operating income as a
percent of sales decreased to (5.0%) in the first nine months of
fiscal 1996 compared to 1.5% in the first nine months of 1995.
By excluding the restructuring charges noted above the operating
loss would have been $101,569 or (0.2%) of net sales for the nine
months ended September 30, 1996.
Interest expense. Interest expense for the third quarter
of 1996 was $141,898 compared to $96,769 for the same period in
fiscal 1995. The need to fund the increase in inventory and
accounts receivable levels with operating debt was the primary
reason for the increase in interest expense.
Interest expense for the first nine months of 1996 was
$384,511 compared to $265,733 for the same period a year earlier.
Borrowing due to increases in inventory and accounts receivable
levels is the primary reason for the increase in interest
expense.
Income tax expense. The estimate of the Company's
effective income tax rate for the third quarter of fiscal 1996
and 1995 was 34.6% and 32.3% respectively. This percentage
fluctuates substantially because relatively small dollar amounts
tend to move the rate significantly as estimates change. State
tax credits generated from capital investment and job creation
also continue to effect state taxes because of the Company's
location in a state-designated "enterprise" zone.
The effective income tax rate for the first nine months of
fiscal 1996 was 35.4% compared to 37.1% from the same period a
year earlier. This percentage fluctuates because relatively
small dollar amounts tend to move the rate significantly as
estimates change and the Company is located in a state enterprise
zone which gives access to state tax credits for capital
investment and job creation.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of fiscal 1996 cash used in
operations was $460,712 compared to cash provided by operations
of $476,439 in the same period last year. Cash used to reduce
accounts payable was the key factor that created the use of cash
in 1996.
As of September 30,1996, working capital totaled $8,182,490
compared to $9,867,843 at December 31,1995. The decline is
attributable primarily to the purchase of fixed assets and long-term debt
retirement in the first nine months of the year.
Accounts receivable decreased 9.3% to $3,420,482 at
September 30,1996 from $3,769,264 at September 30,1995. A
comparison of receivable turns (i.e. annualized sales divided by
current accounts receivable) for the third quarter of fiscal 1996
and the third quarter of fiscal 1995 is 15.9 and 12.4 turns,
respectively.
Inventories increased 24.9% to $10,147,092 at September
30,1996 from $8,121,589 at September 30,1995. A comparison of
inventory turns (i.e. annualized cost of sales divided by current
inventory) for the third quarter of fiscal 1996 and 1995 shows a
decrease to 5.2 from 5.5, respectively.
The Company used cash to purchase capital equipment
totaling $2,135,969 in the first nine months of 1996, compared
with $2,231,860 in the same period last year. Capital purchases
for the remainder of 1996 are anticipated to be minimal with the
exception of expenditures related to the installation of the new
management information systems estimated to be about $150,000 for
the fourth quarter of 1996.
On October 2, 1996, the Company renegotiated its revolving
line of credit in the amount of $10,000,000 with a maturity date
of June 5, 1997. The amount outstanding was $2,300,000 at
September 30, 1996. Interest on this credit facility accrues
when drawn down at the Bank One Prime rate plus .25% (8.5% at
September 30, 1996). The credit facility is collateralized by
substantially all of the Company's assets, other than real
estate. The loan agreement from this facility contains
restrictive covenants relating to capital expenditures, borrowing
and payment of dividends, and certain financial statement ratios.
These credit facilities may be withdrawn/canceled at the bank's
option under certain conditions such as default or in the event
the Company experiences a material negative change in financial
condition. The Company also has a term loan that is secured by
deeds of trust on both of the Company's buildings and land. The
term of the loan is seven years with a 20 year amortization.
Principal payments of $85,000 are semi-annual with monthly
payments of interest. The loan rate floats at the Citibank prime
rate plus 1% (9.25% at September 30, 1996) with a cap of 9.5%.
The rate is adjusted annually on September 15. The balance due
on the loan was $3,060,000 at September 30, 1996.
The Company may require additional capital to finance
enhancements to, or expansions of, its manufacturing capacity in
accordance with its business strategy. Management believes that
the need for working capital will continue to grow at a rate
generally consistent with the growth of the Company's operations.
Although no assurance can be given that financing will be
available on terms acceptable to the Company, the Company may
seek additional funds, from time to time, through public or
private debt or equity offerings, bank borrowing, or leasing
arrangements.
QUARTERLY RESULTS
Although management does not believe that the Company's
business is affected by seasonal factors, the Company's sales and
earnings may vary from quarter to quarter, depending primarily
upon the timing of customer orders and product mix. Therefore,
the Company's operating results for any particular quarter may
not be indicative of the results for any future quarter of the
year.<PAGE>
Item 5. Other Information
Mr. Jack Calderon was hired as the Company's Chief
Executive Officer and appointed to the Board of Directors
effective August 5, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) none
(b) The Company did not file any reports on Form 8-K during the
three months ended September 30, 1996.
<PAGE>
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.
ELECTRONIC FAB TECHNOLOGY CORP.
(Registrant)
Date: November 13, 1996 Jack Calderon
Jack Calderon
President and Chief
Executive Officer
Date: November 13, 1996 Stuart Fuhlendorf
Stuart W. Fuhlendorf
Treasurer and Chief
Financial Officer
Date: November 13, 1996 Brent L. Hofmeister
Brent L. Hofmeister
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 30556
<SECURITIES> 0
<RECEIVABLES> 3440482
<ALLOWANCES> 20000
<INVENTORY> 10147092
<CURRENT-ASSETS> 14848803
<PP&E> 13229462
<DEPRECIATION> 4393291
<TOTAL-ASSETS> 23730297
<CURRENT-LIABILITIES> 6666313
<BONDS> 2890000
0
0
<COMMON> 39427
<OTHER-SE> 13799674
<TOTAL-LIABILITY-AND-EQUITY> 23730297
<SALES> 13631921
<TOTAL-REVENUES> 13631921
<CGS> 13096171
<TOTAL-COSTS> 13096171
<OTHER-EXPENSES> 2472419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 141898
<INCOME-PRETAX> (2077949)
<INCOME-TAX> (718626)
<INCOME-CONTINUING> (1359323)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1359323)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
