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: June 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 August 1, 1996
3,942,660 shares
ELECTRONIC FAB TECHNOLOGY CORP.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements (unaudited)
Condensed Balance Sheets -- June 30,
1996 and December 31, 1995 3
Condensed Statements of Income -- Three
months and six months ended June 30,
1996 and 1995 4
Condensed Statements of Cash Flows --
Six months ended June 30, 1996 and 1995 5
Notes to Condensed Financial Statements--
June 30, 1996 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial
Condition 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<TABLE>
<PAGE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED BALANCE SHEETS
(unaudited)
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash and cash equivalents $25,048 $481,086
Accounts receivable, net of allowances of $20,000 7,164,174 4,982,450
Inventories (note 2) 10,816,201 9,859,414
Income taxes receivable 251,041 74,922
Prepaid expenses and other current assets 355,199 528,466
Total current assets 18,611,663 15,926,338
Property, plant and equipment, at cost 13,712,538 12,839,976
Less accumulated depreciation 4,508,230 3,949,163
Net property, plant and equipment 9,204,308 8,890,813
Other assets 191,859 167,148
$28,007,830 $24,984,299
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Note payable $4,200,000 $ -
Current portion of long-term debt 170,000 170,000
Accounts payable 4,255,188 4,986,757
Accrued expenses and other liabilities 855,985 901,738
Total current liabilities 9,481,173 6,058,495
Long-term debt, net of current portion 2,975,000 3,060,000
Deferred income taxes 353,232 356,606
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 4,971,818 5,288,585
Total shareholders' equity 15,198,425 15,509,198
$28,007,830 $24,984,299
<FN>
<F1>
See notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED STATEMENTS OF INCOME
(unaudited)
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $15,941,411 $12,329,715 $30,944,370 $24,448,272
Cost of goods sold 15,176,895 11,008,931 29,580,032 22,181,473
Gross profit 764,516 1,320,784 1,364,338 2,266,799
Selling, general, and administrative
expense 844,920 789,824 1,656,540 1,514,333
Operating income (loss) (80,404) 530,960 (292,202) 752,466
Other income (expense):
Interest expense (147,087) (84,394) (242,613) (168,964)
Other, net 23,615 14,356 16,471 67,179
(123,472) (70,038) (226,142) (101,785)
Income (loss) before income taxes (203,876) 460,922 (518,344) 650,681
Income tax expense (benefit) (74,716) 161,184 (201,577) 226,163
Net income (loss) ($129,160) $299,738 ($316,767) $424,518
Income (loss) per common and common
equivalent share ($0.03) $0.08 ($0.08) $0.11
Weighted average shares outstanding 3,954,660 3,972,804 3,956,836 3,964,698
<FN>
<F1>
See notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
ELECTRONIC FAB TECHNOLOGY CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<CAPTION>
Six months ended June 30,
1996 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($316,767) $424,518
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 661,461 841,971
Deferred income taxes (18,383) 172,887
(Gain) loss on sale of assets (9,479) -
Changes in operating assets and liabilities:
Accounts receivable (2,181,724) (695,336)
Inventories (956,787) 477,479
Prepaid expenses and other current assets 188,276 (163,603)
Accounts payable and accrued expenses (777,322) (708,262)
Income taxes (176,119) (99,252)
Other assets (24,711) (124,625)
Net cash provided by (used in) operating activities (3,611,555) 125,780
Cash flows from investing activities
Proceeds from sale of equipment 96,402 -
Purchase of property, plant and equipment (1,061,879) (1,626,134)
Net cash provided by (used in) investing activities (965,477) (1,626,134)
Cash flows from financing activities
Common stock issued, net 5,994 32,966
Principal payments on long-term debt (85,000) (85,000)
Borrowings (payments) on notes payable, net 4,200,000 1,500,000
Net cash provided by financing activities 4,120,994 1,447,966
Decrease in cash and
cash equivalents (456,038) (52,388)
Cash and cash equivalents:
Beginning of period 481,086 153,483
End of period $25,048 $101,095
<FN>
<F1>
See notes to condensed financial statements.
</FN>
</TABLE>
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 six month period
ending June 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:
June 30, December 31,
1996 1995
Purchased parts
and completed
subassemblies $8,883,639 $8,051,648
Work-in-process 1,932,562 1,807,766
$10,816,201 $9,859,414
Note 3--Supplemental Disclosure of Cash Flow Information
Six months ended
June 30,
1996 1995
Cash paid during the period for:
Interest $232,757 $167,520
Income taxes $ 6,000 $152,530
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
THREE MONTHS ENDED JUNE 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 29.3% to $15,941,411 for
the second quarter of fiscal 1996, from $12,329,715 during the same period in
fiscal 1995. The increase in net sales is due to increased shipments to
existing customers consisting primarily of increased material sales
associated with turnkey manufacturing.
The Company's net sales increased by 26.6% to $30,944,370 during the six
months of fiscal 1996, from $24,448,272 during the same period of fiscal 1995.
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 second quarter of fiscal 1996, gross profit
decreased 42.1% to $764,516 compared to $1,320,784 for the same period in
1995. The gross profit margin for the second quarter of fiscal 1996 was 4.8%
compared to 9.3% for the same period of fiscal 1995. The primary reason for
the decline in gross profit is related to changing product mix and customers
as well as reorganization and re-engineering costs. Direct labor costs and
related benefits increased approximately $412,500 in the second quarter of
1996 compared to the second quarter of 1995, an increase of 24.9%. Variable
manufacturing expenses increased approximately $116,500 in the second quarter of
1996 compared to second quarter of 1995, an increase of 42.0%. The Company
also experienced incremental costs associated with its current re-engineering
project such as expenses related to moving of surface mount lines,
productions lines and various manufacturing equipment and personnel costs
associated with reorganization of business processes and the hiring of a
Chief Executive Officer. These costs were approximately $100,000 in the
second quarter of 1996. Management is creating a plan to reduce expenses
related to direct and non-direct manufacturing expenses.
Gross profit decreased by 39.8% to $1,364,338 compared to $2,266,799 for
the first six months of fiscal 1995. The gross profit margin for the first
six months of fiscal 1996 was 4.4% compared to 9.3% for the first six months
of 1995. Direct labor costs and related benefits increased approximately
$955,500 in the first six months of 1996 compared to the same period in 1995.
Variable manufacturing expenses increased approximately $250,900 in the first
six months of 1996 compared to the first six months of 1995. The Company has
also experienced incremental costs associated with its current re-engineering
project such as expenses related to moving of surface mount lines, production
lines and various manufacturing equipment and personnel costs associated with
reorganization of business processes and the hiring of a Chief Executive
Officer. These costs were approximately $175,000 in the first six months
of 1996.
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 7.0% or $55,096 to $844,920 in the second quarter of
1996, compared with $789,824 a year earlier. The increase is due primarily
to increased variable selling costs associated with higher sales volume. As a
percentage of net sales SGA expenses decreased from 6.4% of net sales in the
second quarter of fiscal 1995 to 5.3% of net sales in fiscal 1996.
Selling, general and administrative expenses increased by 9.4% to
$1,656,540 for the six months of fiscal 1996 compared with $1,514,333 a year
earlier. As a percentage of net sales, SGA decreased to 5.4% in the first six
months of 1996 from 6.2% in the same period of fiscal 1995. The increase in
dollars is associated with variable costs related to higher sales volume.
Operating income. Operating income for the second quarter of fiscal 1996
decreased 115.1% to a loss of $80,404 from income of $530,960 in the second
quarter of fiscal 1995. Operating income as a percentage of net sales
decreased to (0.5%) in the second quarter of fiscal 1996 from 4.3% in the
same period last year. The decrease in operating income was the result of
factors noted above.
Operating income for the first six months of fiscal 1996 decreased
138.8% to a loss of $292,202 from income of $752,466 in the first six months
of fiscal 1995. Operating income as a percent of sales decreased to (0.9%)
in the first six months of fiscal 1996 compared to 3.1% in the first six
months of fiscal 1995. This decrease is the result of items discussed above.
Interest expense. Interest expense for the second quarter of 1996 was
$147,087 compared to $84,394 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 six months of 1996 was $242,613 compared
to $168,964 for the same period a year earlier. Borrowing due to the
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 second quarter of fiscal 1996 and 1995 was 36.6% and 35.0%
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 six months of fiscal 1996
was 38.9% compared to 34.8% 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 second quarter of fiscal 1996 cash used in operations was
$3,611,555 compared to cash provided by operations of $125,780 in the same
period last year. Cash used to fund inventory and accounts receivable growth
were the key factors that created this use of cash.
As of June 30, 1996, working capital totaled $9,130,490 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 half of
the year.
Accounts receivable increased 57.3% to $7,164,174 at June 30,1996 from
$4,553,859 at June 30, 1995. A comparison of receivable turns (i.e.
annualized sales divided by current accounts receivable) for the second
quarter of fiscal 1996 and the second quarter of fiscal 1995 is 8.6 and 10.7
turns, respectively.
Inventories increased 54.4% to $10,816,201 at June 30, 1996 from
$7,001,895 at June 30, 1995. A comparison of inventory turns (i.e.
annualized cost of sales divided by current inventory) for the second quarter of
fiscal 1996 and 1995 shows a decrease to 5.5 from 6.3, respectively.
The Company used cash to purchase capital equipment totaling $1,061,879
in the first six months of 1996, compared with $1,626,134 in the same period
last year. Capital purchases in the second quarter of 1996 consist primarily
of expenditures related to the Company's management information systems driven
by the re-engineering of the Company's business processes. The Company is in
the process of re-engineering its business processes and developing and
purchasing new management information systems which are projected to cost
approximately $2,300,000 of which $380,000 was spent in 1995 and another
$360,000 was spent in the first six months of 1996. The new systems budget
includes hardware, software and consulting fees. In addition, the Company
has another $1,500,000 budgeted for new manufacturing and test equipment.
These acquisitions will be funded out of existing debt facilities or new
operating leases.
At June 30, 1996, the Company had available a revolving line of credit
and a term loan aggregating $10,000,000 under which $4,200,000 was
outstanding. Interest on this credit facility accrues when drawn down at the
Bank One Prime rate plus .25% (8.5% at June 30, 1996). The credit facility is
collateralized by substantially all of the Company's assets, other than real
estate. The loan agreements from the credit facilities contain restrictive
covenants relating to capital expenditures, borrowing and payment of
dividends. 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 June 30, 1996) with a cap of 9.5%. The rate is adjusted
annually on September 15th. The balance due on this loan was $3,145,000 at
June 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 or year.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual meeting of stockholders of Electronic Fab Technology Corp.
was held on May 31, 1996, for the purpose of electing a board of directors,
approving the appointment of auditors, and voting on the proposals described
below. Proxies for the meeting were solicited pursuant to Section 14(a) of
the Securities Exchange Act of 1934 and there was no solicitation in
opposition to management's solicitations.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
Shares Voted Shares
"For" "Withheld"
Lloyd A. McConnell 3,372,896 50,051
David W. VanWert 3,373,496 49,451
Darrayl F. Cannon 3,373,496 49,451
Stuart W. Fuhlendorf 3,373,896 50,051
Robert F. McNamara 3,373,896 50,051
The proposal to amend the Company's Equity Incentive Stock Option Plan
was approved by the following vote:
Shares Voted "Against" "Abstain" Shares Not
"For" Voted
3,332,971 71,345 18,631 520,013
The appointment of KPMG Peat Marwick LLP as independent auditor was
approved by the following vote:
Shares Voted "Against" "Abstain" Shares Not
"For" Voted
3,414,780 2,473 5,694 520,013
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 June 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: August 14, 1996 ____Gerald J. Reid____________________
Gerald J. Reid
President and Chairman of the Board
Date: August 14, 1996 ____Stuart W. Fuhlendorf______________
Stuart W. Fuhlendorf
Treasurer and Chief Financial Officer
Date: August 14, 1996 ____Brent L. Hofmeister_______________
Brent L. Hofmeister
Controller
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