SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORTS PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Commission file number 1-12912
Ended September 30, 1996
CENTENNIAL TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its Charter)
Delaware 04-2978400
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(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
37 Manning Road, Billerica, Massachusetts 01821
-----------------------------------------------
(Address of principal executive offices, Zip code)
(508) 670-0646
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- -----
As of November 13, 1996 there were 8,665,374 shares of Common Stock,
$.01 par value per share, of the issuer outstanding.
CENTENNIAL TECHNOLOGIES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 3
and September 30, 1996 (Unaudited)
Consolidated Income Statements (Unaudited) for the
Three Months Ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) for the
Three Months Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 5. Other Information. 16
Item 6. Exhibits and Reports on Form 8-K. 16
2
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,596,527 $ 6,181,520
Available-for-sale securities 1,000,000 4,932,763
Accounts receivable, net of allowance for
doubtful accounts of $282,000 and $230,000
at September 30, 1996 and June 30, 1996,
respectively 18,533,712 12,592,231
Inventories 24,716,251 18,229,317
Current portion of notes receivable 3,228,568 3,680,750
Deferred income taxes 375,100 211,100
Other current assets 4,526,146 2,362,887
----------- -----------
Total current assets 58,976,304 48,190,568
Equipment and leasehold improvements,
net of accumulated depreciation and
amortization of $1,129,518 and $822,011
at September 30, 1996 and June 30, 1996,
respectively 8,167,720 4,698,616
Notes receivable, less current portion 392,100 _
Investments 2,572,381 2,472,381
Other assets 337,670 170,392
Deferred income taxes 133,800 121,300
Intangible assets, net of accumulated
amortization of $648,165 and $412,463 at
September 30, 1996 and June 30, 1996,
respectively 9,338,212 128,918
----------- -----------
Total assets $79,918,187 $55,782,175
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
3
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, June 30,
1996 1996
---- ----
(Unaudited)
<S> <C> <C>
Current liabilities:
Note payable $ 5,924,777 $ 4,683,876
Subordinated notes payable 164,281 _
Current portion of long-term obligations
under capital leases 1,009,461 336,058
Accounts payable 8,687,566 2,865,173
Accrued expenses 3,181,715 629,520
Income taxes payable 1,358,102 614,036
----------- -----------
Total current liabilities 20,325,902 9,128,663
----------- -----------
Long-term obligations under capital leases 1,766,216 366,944
Deferred income taxes 326,000 241,600
Commitments
Minority interest 4,302,369 _
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000
shars authorized, none issued _ _
Common stock, $.01 par value; 15,000,000
shares authorized 8,522,735 shares issued
and outstanding at September 30, 1996 and
8,315,890 shares issued and outstanding
at June 30, 1996 85,227 83,159
Additional paid-in capital 43,589,368 38,883,677
Retained earnings 9,523,105 7,078,132
----------- -----------
Total stockholders' equity 53,197,700 46,044,968
----------- -----------
Total liabilities and stockholders' equity $79,918,187 $55,782,175
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
4
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Sales $19,535,564 $ 6,382,081
Cost of goods sold 13,330,386 4,007,866
----------- -----------
Gross margin 6,205,178 2,374,215
Selling, general and administrative expenses 1,729,875 1,012,846
Research and development costs 343,506 233,941
----------- -----------
Income from operations 4,131,797 1,127,428
----------- -----------
Other income (expense):
Interest income 93,499 682
Interest expense (163,014) (47,169)
Other income 96,609 _
----------- -----------
27,094 (46,487)
----------- -----------
Income before minority interest and
income taxes 4,158,891 1,080,941
Minority interest 14,869 -
----------- ------------
Income before income taxes 4,144,022 1,080,941
Provision for income taxes 1,699,049 422,200
----------- ------------
Net income $ 2,444,973 $ 658,741
=========== ============
Earnings per share:
Primary $ .28 $ .10
=========== ============
Fully diluted $ .28 $ .10
=========== ============
Weighted average shares outstanding:
Primary 8,842,173 6,789,077
=========== ===========
Fully diluted 8,880,000 6,789,077
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
5
CENTENNIAL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $ 2,444,973 $ 658,741
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation and amortization 558,993 124,818
Provision for loss on receivables 46,432 _
Loss on sale of fixed assets 34,330 _
Minority interest 14,869 _
Compensation from option grants 34,126 _
Tax benefit related to stock option
exercise 57,307 _
Deferred income taxes (92,100) (8,100)
Changes in operating assets and
liabilities, net of effect from
acquisition:
Accounts receviable (4,010,682) (988,595)
Inventories (3,581,241) (4,434,763)
Notes receivable - see Note 3 1,080,750 206,044
Other assets (2,260,622) (750,869)
Accounts payable and accrued expenses 4,793,503 2,313,393
Income taxes payable 744,066 (251,882)
----------- ----------
Net cash used for operating
activities (135,296) (3,131,213)
----------- ----------
Investing activities:
Capital expenditures (2,165,739) (611,995)
Purchase of available-for-sale securities (27,250,000) _
Proceeds from sale of available-for-sale
securities 31,182,763 _
Issuance of notes receivable -
see Note 3 (2,342,100) _
Repayment of notes receivable -
see Note 3 1,187,750 _
Acquisition of business, net of cash
acquired (2,957,849) _
Minority equity interest 1,837,500 _
Proceeds from sale of fixed assets 3,850 _
----------- -----------
Net cash used for investing
activities (503,825) (611,995)
----------- -----------
Financing activities:
Net borrowings under line of credit (428,131) 1,635,369
Repayment of subordinated notes payables (408,500) _
Borrowings from sales leaseback of
equipment 1,661,154 422,079
Payments on equipment financing (261,721) (24,846)
Net proceeds from exercise of stock options 246,701 512,257
Net proceeds from exericse of warrants
and representatives' warrants 244,625 898,978
----------- -----------
Net cash provided by financing
activities 1,054,128 3,443,837
----------- -----------
Net increase (decrease) in cash 415,007 (299,371)
Cash and cash equivalents at beginning
of the period 6,181,520 970,446
----------- -----------
Cash and cash equivalents at end of
the period $6,596,527 $ 671,075
=========== ===========
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
6
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Centennial Technologies, Inc.
(the "Company") include the accounts of the Company, all wholly-owned
subsidiaries and majority-owned subsidiaries. Investments in companies in which
ownership interests range from 20 to 50 percent, and the Company exercises
significant influence over operating and financial policies, are accounted for
using the equity method. Other investments are accounted for using the cost
method. All significant intercompany balances and transactions have been
eliminated. Certain reclassifications have been made to prior period's
consolidated financial statements to conform to the current fiscal period's
presentation.
Unaudited Consolidated Financial Statements
The accompanying consolidated financial statements of the Company as of
September 30, 1996 and for the three months then ended are unaudited, but in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation thereof. The results of
operations for the three months ended September 30, 1996 are not necessarily
indicative of the results to be expected for the full year or any future period.
The accompanying unaudited consolidated financial statements and notes should be
read in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1996 filed with the Securities and Exchange Commission.
Intangible Assets
Intangible assets primarily represents the amount by which the purchase
price paid for an acquisition exceeded the fair value of the tangible net assets
acquired (approximately $9.2 million at September 30, 1996). Such purchase
premiums are being amortized on a straight-line basis over 10 years. Intangible
assets also consists of trademarks, copyrights and a covenant not to compete.
These intangible assets are amortized over a period of three to five years. It
is the Company's policy to evaluate periodically the carrying value of its
intangible assets and to make adjustments if necessary. To date, no adjustments
have been required.
2. INVENTORIES
Inventories consisted of:
September 30, June 30,
1996 1996
---- ----
Raw material, primarily electronic components $ 6,498,000 $ 8,995,000
Work in process 14,880,000 1,637,000
Finished goods 3,338,000 7,597,000
------------- -------------
$ 24,716,000 $ 18,229,000
============= =============
The Company maintains levels of inventories that it believes are
necessary based upon assumptions concerning its growth, mix of sales and
availability of raw materials. Changes in those underlying assumptions could
affect management's estimates of inventory valuation. To date, no adjustments
have been required.
7
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
3. NOTES RECEIVABLE
Operating Activities
In August 1996, a note receivable of approximately $1,081,000 was
repaid, in full, with interest.
Investing Activities
The Company has advanced funds to affiliated and unaffiliated companies
which generally develop technologies complementary to that of the Company. At
June 30, 1996, the advances due from these companies was approximately
$2,600,000. These loans are evidenced by notes (promissory or convertible). The
terms of these notes are one year or less, and bear interest at rates ranging
between prime and prime plus 4% (prime was 8.25% at September 30, 1996).
During the three months ended September 30, 1996, the Company advanced
additional funds totaling approximately $2,342,000 to affiliated and
unaffiliated companies. These loans are evidenced by notes (promissory or
convertible). Approximately $1,950,000 of these notes have terms of one year or
less, and approximately $392,100 have terms ranging from three to six years.
These notes bear interest at rates ranging between 7.75% and prime plus 4%.
During the three months ended September 30, 1996, notes aggregating
approximately $1,188,000 plus accrued interest were repaid to the Company.
During the three months ended September 30, 1996, the Company realized
a gain of approximately $100,000 from the exercise and sale of warrants, which
were attached to one of the notes receivable. This gain has been classified as
other income in the Unaudited Consolidated Income Statement for the three months
ended September 30, 1996.
In September 1996, the Company converted a $100,000 note receivable
into equity of the borrower. As such, the Company has reclassified this note
receivable to investments on the accompanying Unaudited Consolidated Balance
Sheet.
To date there have been no defaults associated with the terms of the
outstanding notes receivable.
4. DEBT
Note Payable
The Company maintained a $7,500,000 revolving line of credit
arrangement with a bank (the "Credit Arrangement"). The Credit Arrangement bore
interest at the bank's prime interest rate. At June 30, 1996 and September 30,
1996, the Company had utilized approximately $4,684,000 and $5,925,000,
respectively, under this Credit Arrangement.
8
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
On November 12, 1996, the Company renewed its credit arrangement with
the bank (the "Amended Credit Arrangement"). The Amended Credit Arrangement
increases the maximum borrowings from $7.5 million to $20 million, and allows
the Company the option to borrow at the bank's prime interest rate or LIBOR plus
2.25%. The Amended Credit Arrangement expires in November 1998.
These credit arrangements limit borrowings to a percentage of
receivables and inventories and contain certain covenants relating to the
Company's net worth and indebtedness, among others. The Company has pledged
substantially all of its assets as collateral for these credit arrangements.
Subordinated Notes Payable
At September 30, 1996, the Company had subordinated notes payable of
approximately $164,000. The Company assumed these notes in conjunction with an
acquisition in July 1996 (see Note 6). The notes are uncollateralized and bear
interest at rates ranging from prime plus one-half percent to 10% per annum. In
November 1996, the Company repaid $132,500 of these subordinated notes payable
plus interest.
Capital Leases
The Company leases certain equipment under lease financing agreements
with the bank that provides the Company with its line of credit. These lease
arrangements have been accounted for as financing transactions. The subject
equipment is recorded as an asset for financial statement purposes, and is being
depreciated accordingly. These loans have terms of three years and bear interest
at rates ranging from 7.2% to 9.7% per annum.
During the three months ended September 30, 1996, the Company financed
approximately $1.7 million of additional capital assets, primarily manufacturing
equipment, by lease arrangements. This loan has a term of three years and bears
interest at a rate of 7.75% per annum.
5. JOINT VENTURE
In May 1996, the Company entered into an agreement to acquire a 51%
interest in a joint venture for $1,250,000 in cash. The joint venture intends to
manufacture, in Thailand, PCMCIA products and related accessories, and to
provide contract manufacturing services to others. The Company expects the joint
venture to begin manufacturing operations in the third quarter of fiscal 1997.
As of September 30, 1996, the Company advanced $75,000 in cash to the joint
venture and incurred acquisition costs, which were capitalized, of approximately
$87,000.
During the three months ended September 30, 1996, the Company's joint
venture partner purchased for $3,750,000 its 49% interest in the joint venture.
The Company recorded approximately $2,450,000 as a minority interest for the
proportionate share of equity held by the joint venture partner.
9
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
6. BUSINESS ACQUISITION
On July 10, 1996, the Company acquired a contract manufacturing
business which provides customized, integrated manufacturing services to
original equipment manufacturers. The Company acquired a majority equity
position in the firm for approximately $3.2 million in cash, 125,000 shares of
the Company's Common Stock and the assumption of certain liabilities. The
transaction was accounted under the purchase method of accounting. The purchase
price was allocated to tangible assets based on their fair market values and to
goodwill. In addition, the Company recorded approximately $2,450,000 as a
minority interest for the proportionate share of equity held by the minority
shareholders.
The purchase price was allocated as follows:
Current assets $5,262,000
Equipment 1,665,000
Other noncurrent assets 22,000
Excess of purchase price 9,445,000
Liabilities assumed (6,496,000)
Presented below is the Unaudited Pro Forma Financial Data for the three
months ended September 30, 1996 and 1995, reflecting the impact of this
acquisition on the Company's financial results as if it had occurred as of the
beginning of the respective period:
1996 1995
---- ----
Sales $19,768,000 $9,015,000
Net income $ 2,395,000 $ 293,000
Net income per share (Primary) $.28 $.04
Net income per share (Fully Diluted) $.28 $.04
7. SUBSEQUENT EVENTS
Investments
In October 1996, the Company purchased for approximately $2.0 million
in cash and approximately 115,000 shares of the Company's Common Stock a
minority interest in a corporation which supplies intelligent hand held data
collection equipment for route and shop floor accounting. The Company will
account for this investment under the equity method of accounting.
Business Acquisition
On November 5, 1996, the Company acquired a provider of contract
manufacturing services located in England. The Company purchased a majority
interest in this corporation for approximately $4.2 million in cash and
approximately 2.0 million shares of common stock of a subsidiary of the Company.
The acquisition will be accounted for under the purchase method of accounting.
10
CENTENNIAL TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) - (Continued)
Equity
On November 6, 1996, the shareholders of the Company approved an
amendment to the Company's Certificate of Incorporation increasing the number of
authorized common shares from 15 million to 50 million. In addition, the Board
of Directors authorized a two-for-one stock split of the Common Stock to be
effective in the form of a stock dividend to be distributed on November 25, 1996
to shareholders of record on November 18, 1996. All references in the
accompanying consolidated financial statements to number of shares, weighted
average number of shares outstanding and related prices, per share amounts, and
stock plan data due not reflect this split.
Earnings per share, on an adjusted basis for the two-for-one
stock split, for the three months ended September 30, 1996 and 1995 will be:
1996 1995
---- ----
Primary $.14 $.05
Fully Diluted $.14 $.05
Stock Option Plan
On November 6, 1996, the shareholders of the Company approved an
increase in the number of shares of Common Stock reserved for issuance under the
Company's 1994 Stock Option Plan (the "Plan") from 750,000 to 1,500,000. Under
the Plan, incentive and non-qualified stock options may be granted to employees,
officers, directors and consultants of the Company.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the discussions
contained throughout this document include forward-looking statements. Such
statements involve a number of risks and uncertainties, including those
discussed under the section "Risk Factors" in the Company's Annual Report on
Form 10-K filed with the Securities and Exchange Commission on September 28,
1996. These risks and uncertainties could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward-looking statements. The Company assumes no obligation
to update these forward-looking statements to reflect events or circumstances
after the date hereof.
OVERVIEW
The Company designs, manufacturers and markets an extensive line of PC
cards used primarily by OEMs for products in industrial and commercial
applications and also provides contract manufacturing services. The Company's PC
cards provide added functionality to devices containing microprocessors by
supplying increased storage capacity, communications capabilities and programmed
software for specialized applications.
The following table sets forth, for the periods indicated, certain
consolidated income statement data as a percentage of sales:
Three Months Ended September 30,
---------------------------------
1996 1995
---- ----
Sales 100.0 % 100.0 %
Cost of goods sold 68.2 62.8
--------- ---------
Gross margin 31.8 37.2
Selling, general and administrative expenses 8.9 15.9
Research and development costs 1.7 3.7
--------- ---------
Income from operations 21.2 17.6
Net interest expense 0.4 0.7
Other income 0.5 0.0
--------- ---------
Income before minority interest and income taxes 21.3 16.9
Minority interest 0.1 0.0
--------- ---------
Income before income taxes 21.2 16.9
Provision for income taxes 8.7 6.6
--------- ---------
Net income 12.5 % 10.3 %
========= =========
The following discussion and analysis should be read in conjunction
with the consolidated financial statements and notes thereto appearing elsewhere
herein.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
Sales. Sales increased 206% to approximately $19.5 million for the
three months ended September 30, 1996 from approximately $6.4 million for the
three months ended September 30, 1995, primarily as a result of increased volume
of sales of PC cards and sales derived from contract manufacturing services of
the company acquired in July 1996. The growth in the Company's sales resulted
primarily from expansion of the PC card market generally, increased sales and
marketing efforts by the Company and the broadening of the Company's PC card
product line.
Gross Margin. Gross margin increased 161% to approximately $6.2 million
for the three months ended September 30, 1996 from approximately $2.4 million
for the three months ended September 30, 1995. As a percentage of sales, gross
margin decreased to 31.8% for the three months ended September 30, 1996 from
37.2% for the same period in the prior year, primarily due to lower margins
realized by its recently acquired contract manufacturing company. The Company
anticipates that its gross margin as a percentage of sales may decrease in
future periods as a result of such factors as lower margins related to its
recently acquired contract manufacturing business, higher component costs and
increased competition.
12
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 71% to approximately $1.7 million for the
three months ended September 30, 1996 from approximately $1.0 million for the
three months ended September 30, 1995. The increase was due to expanded sales
and marketing efforts, increased depreciation expense resulting primarily from
the acquisition of additional manufacturing equipment, an increase in personnel
and increased amortization expense associated with the goodwill from the
acquisition of the contract manufacturing company in July 1996. As a percentage
of sales, selling, general and administrative expenses decreased to 8.9% for the
three months ended September 30, 1996 from 15.9% for the same period in the
prior year due primarily to the higher sales level.
Research and Development Costs. Research and development costs
increased 47% to approximately $344,000 for the three months ended September 30,
1996 from approximately $234,000 for the three months ended September 30, 1995.
As a percentage of sales, research and development costs were 1.7% for the three
months ended September 30, 1996 as compared to 3.7% for the same period of the
prior year. In addition to its research and development spending, the Company
has invested in companies with technologies and capabilities complementary to
those of the Company and has licensed proprietary technology from third parties.
Income from Operations. Income from operations increased 266% to
approximately $4.1 million for the three months ended September 30, 1996 from
approximately $1.1 million for the three months ended September 30, 1995
primarily as a result of increased sales, which were partially offset by higher
cost of goods sold and increases in selling, general and administrative expenses
and research and development costs. As a percentage of sales, income from
operations was 21.2% for the three months ended September 30, 1996 as compared
to 17.6% for the same period of the prior year.
Net Interest Expense. Net interest expense was approximately $69,500
for the three months ended September 30, 1996 compared to the net interest
expense of $46,500 for the three months ended September 30, 1995. Interest
expense increased by approximately $116,000 due to increased borrowing under the
Company's credit arrangement with its bank. This increase was offset by an
increase in interest income of approximately $93,000.
Other Income. During the three months ended September 30, 1996, the
Company realized a gain of approximately $100,000 from the exercise and sale of
warrants obtained in conjunction with a note receivable.
Provision for Income Taxes. Provision for income taxes increased 302%
to approximately $1.7 million for the three months ended September 30, 1996 from
approximately $422,000. The effective tax rates were 41.0% and 39.1% for the
three months ended September 30, 1996 and 1995, respectively. The increase in
the effective tax rate was primarily due to the nondeductibility of the
amortization associated with the acquisition of the contract manufacturing
company in July 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its activities primarily from
public and private offerings of equity securities and loans from financial
institutions and others.
13
Operating Activities
At September 30, 1996, working capital was approximately $38.7 million
compared to working capital of $39.1 million at June 30, 1996. For the three
months ended September 30, 1996, the Company experienced negative cash flow from
operations of approximately $135,000. For the three months ended September 30,
1995, the Company experienced negative cash flow from operations of
approximately $3.1 million. Cash from operations during these periods was used
primarily to finance inventory and accounts receivable.
During the three months ended September 30, 1996 and 1995, the Company
used cash from operations of approximately $3.6 million, and $4.4 million,
respectively, to finance increases in inventory. The Company maintains a level
of inventory that it believes is necessary to offer a wide variety of products,
to respond quickly to customer orders and to lessen exposure to supply shortages
and price increases associated with components used in the Company's products.
In the past, there have been shortages of such components. If the Company's mix
of sales or its assumptions with respect to availability of supplies were to
change, management's estimate of inventory valuation may also change, which
could result in a write-down of the inventory value and could materially
adversely affect the Company's financial condition and results of operations.
During the three months ended September 30, 1996 and 1995, the Company
used cash from operations of approximately $4.0 million and $989,000,
respectively, to finance increases in accounts receivable resulting from
increased sales. The Company's days sales outstanding at September 30, 1996 and
June 30, 1996 were 72 days and 77 days, respectively. At September 30, 1996, two
customers of the Company accounted for approximately $8.6 million, or 46 % of
the Company accounts receivable balance. If either of these customers fail to
pay the Company on a timely basis, it could have a material adverse effect on
the Company's financial condition and results of operations.
Financing Transactions
At September 30, 1996, approximately $5.9 million was outstanding under
the Company's credit arrangement with approximately $1.6 remaining available for
borrowing.
In November 1996, the Company renewed its revolving line of credit
arrangement with a bank, pursuant to which the Company may borrow up to the
lesser of (i) $20 million or (ii) an amount based on the Company's eligible
accounts receivable and inventory. Under the terms of this credit arrangement,
the Company is required to comply with certain covenants relating to the
Company's net worth and indebtedness, among others. The arrangement expires in
November 1998 and is collateralized by substantially all of the assets of the
Company.
Part of the Company's credit arrangement is available for lease
financing and a foreign exchange line. During the quarter ended September 30,
1996, the Company financed approximately $1.7 million of additional capital
assets, primarily manufacturing equipment, by leasing arrangements. This loan
has a term of three years and bears interest at 7.75% annum. At June 30, 1996,
there were loans outstanding aggregating approximately $771,000 with respect to
the leasing of certain equipment. These loans have terms of three years and bear
interest at rates ranging from 7.2% to 9.7% annum.
During the three months ended September 30, 1996 and 1995, options to
purchase 40,550 and 140,498 shares of Common Stock of the Company were
exercised, resulting in net proceeds to the Company of approximately $247,000
and $512,000, respectively.
During the three months ended September 30, 1996 and 1995, warrants to
purchase approximately 41,250 and 201,503 shares of Common Stock were exercised,
resulting in net proceeds to the Company of approximately $245,000 and $899,000,
respectively. These proceeds were used for working capital and general corporate
purposes.
14
Investing Transactions
On July 10, 1996, the Company completed the acquisition of a contract
manufacturing business which provides customized, integrated manufacturing
services to original equipment manufacturers in the electronic industry,
primarily the production of printed circuit boards. The Company acquired a
majority equity position in the contract manufacturing firm for approximately
$3.2 million of cash and 125,000 shares of the Company's Common Stock and the
assumption of liabilities. The transaction was accounted for under the purchase
method of accounting.
During the three months ended September 30, 1996 and 1995, the Company
invested approximately $2.1 million and $612,000, respectively, in capital
assets, primarily manufacturing equipment. The Company anticipates that it will
continue to invest in capital assets as required to support its product
development efforts and general business needs. The Company may also enter into
license agreements and joint ventures in the future, which could require capital
outlays.
The Company has commitments to invest approximately $1.5 million for
manufacturing equipment, which it expects to finance through lease financing
arrangements.
The Company has invested and intends to continue to invest in
early-stage companies that have technologies or capabilities complementary to
those of the Company. Because these companies are typically privately held, the
Company may not have the ability to liquidate such investments. No assurance can
be given that the companies in which the Company has invested or may invest in
the future will develop successful products or technologies beneficial to the
Company or that such investments will be economically justified. In addition, if
companies in which the Company invests are not successful, the Company would
have to write-off or write-down such investments, which would result in the
Company recognizing an expense in the period in which such adjustment occurs.
Management believes that the Company's existing cash, cash equivalents
and available-for-sale securities, together with its existing credit facility,
will be sufficient to meet the Company's current cash requirements.
INFLATION
The impact of inflation on the operations of the Company is not
considered to be significant.
SEASONALITY
The Company generally does not experience seasonality with respect to
the sale of its products; however, the Company has experienced reduced sales to
certain customers in European countries during the months of July and August.
During the three months ended September 30, 1996 and 1995, the Company derived
approximately 3% and 12%, respectively, of its sales from outside of the United
States.
15
PART II - OTHER INFORMATION
Items 1 through 5: Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) No exhibits are filed herewith.
(b) During the quarter ended September 30, 1996, the Company filed
a Form 8-K on July 23, 1996 related to the acquisition of Design Circuits, Inc.
On September 23, 1996, the Company filed a Form 8-K/A that contained the
financial statements of Design Circuits, Inc. and the related Unaudited Pro
Forma Condensed Consolidated Financial Statements and Notes of Centennial
Technologies, Inc. and Design Circuits, Inc.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf of the
undersigned thereunto duly authorized.
Centennial Technologies, Inc.
(Registrant)
/s/ Emanuel Pinez
----------------------------------
Emanuel Pinez
Chief Executive Officer
/s/ James M. Murphy
-----------------------------------
James M. Murphy
Chief Financial Officer
17
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