UNITED STATES
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 |
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| | For the quarterly period ended March 31, 2007 |
| | |
| | or |
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o | | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| | Commission File Number 0-21872 |
ALDILA, INC.
(Exact name of registrant as specified in its charter)
Delaware | | 13-3645590 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
| | |
13450 STOWE DRIVE, POWAY, CALIFORNIA 92064 | | |
(Address of principal executive offices) | | |
| | |
Registrant’s telephone number, including area code – 858-513-1801 |
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Registrant’s website – www.aldila.com |
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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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer x | Non-accelerated filer o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
Common shares outstanding as of May 7, 2007 was — 5,530,400
ALDILA, INC.
Table of Contents
Form 10-Q for the Quarterly Period
Ended March 31, 2007
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
(In thousands, except share data)
| | March 31, | | December 31, | |
| | 2007 | | 2006 | |
ASSETS | | | | | |
| | | | | |
CURRENT ASSETS: | | | | | |
Cash and cash equivalents | | $ | 18,088 | | $ | 15,182 | |
Restricted cash | | 1,627 | | 1,444 | |
Accounts receivable | | 9,886 | | 8,862 | |
Income taxes receivable | | 304 | | 1,237 | |
Inventories | | 12,677 | | 13,691 | |
Deferred tax assets | | 1,383 | | 1,360 | |
Prepaid expenses and other current assets | | 667 | | 795 | |
Total current assets | | 44,632 | | 42,571 | |
| | | | | |
PROPERTY, PLANT AND EQUIPMENT | | 10,755 | | 8,794 | |
| | | | | |
INVESTMENT IN JOINT VENTURE | | 3,195 | | 3,091 | |
| | | | | |
DEFERRED TAXES | | 1,144 | | 1,144 | |
| | | | | |
OTHER NON-CURRENT ASSETS | | 299 | | 296 | |
| | | | | |
TOTAL ASSETS | | $ | 60,025 | | $ | 55,896 | |
| | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | |
| | | | | |
CURRENT LIABILITIES: | | | | | |
Accounts payable | | $ | 5,249 | | $ | 4,479 | |
Dividend payable | | 830 | | — | |
Accrued expenses | | 1,911 | | 2,042 | |
Other current liability | | 137 | | — | |
Total current liabilities | | 8,127 | | 6,521 | |
| | | | | |
LONG-TERM LIABILITIES: | | | | | |
Deferred rent | | 50 | | 49 | |
Other long-term liability | | 629 | | — | |
Total liabilities | | 8,806 | | 6,570 | |
| | | | | |
COMMITMENTS AND CONTINGENCIES | | | | | |
| | | | | |
STOCKHOLDERS’ EQUITY: | | | | | |
Preferred stock, $.01 par value; authorized 5,000,000 shares; no shares issued | | | | | |
Common stock, $.01 par value; authorized 30,000,000 shares; issued and outstanding 5,529,250 shares as of March 31, 2007 and 5,524,250 shares as of December 31, 2006 | | 55 | | 55 | |
Additional paid-in capital | | 49,981 | | 49,903 | |
Retained earnings (accumulated deficit) | | 1,183 | | (632 | ) |
Total stockholders’ equity | | 51,219 | | 49,326 | |
| | | | | |
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | | $ | 60,025 | | $ | 55,896 | |
See notes to consolidated financial statements.
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ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(In thousands, except per share data)
| | Three months ended | |
| | March 31, | |
| | 2007 | | 2006 | |
| | | | | |
NET SALES | | $ | 20,662 | | $ | 20,770 | |
COST OF SALES | | 13,472 | | 11,102 | |
Gross profit | | 7,190 | | 9,668 | |
| | | | | |
SELLING, GENERAL AND ADMINISTRATIVE | | 3,372 | | 2,861 | |
Operating income | | 3,818 | | 6,807 | |
| | | | | |
OTHER INCOME (EXPENSE): | | | | | |
Interest income | | 199 | | 158 | |
Other, net | | 43 | | (8 | ) |
Equity in earnings of joint venture | | 105 | | 46 | |
| | | | | |
INCOME BEFORE INCOME TAXES | | 4,165 | | 7,003 | |
PROVISION FOR INCOME TAXES | | 1,470 | | 2,661 | |
| | | | | |
NET INCOME | | $ | 2,695 | | $ | 4,342 | |
| | | | | |
NET INCOME PER COMMON SHARE | | $ | 0.49 | | $ | 0.80 | |
| | | | | |
NET INCOME PER COMMON SHARE, ASSUMING DILUTION | | $ | 0.48 | | $ | 0.78 | |
| | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | | 5,525 | | 5,408 | |
| | | | | |
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON EQUIVALENT SHARES | | 5,588 | | 5,545 | |
See notes to consolidated financial statements.
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ALDILA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(In thousands)
| | Three months ended | |
| | March 31, | |
| | 2007 | | 2006 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | |
Net income | | $ | 2,695 | | $ | 4,342 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
Depreciation and amortization | | 376 | | 292 | |
Stock-based compensation | | 61 | | 38 | |
Loss on disposal of fixed assets | | 9 | | 1 | |
Undistributed income of joint venture, net | | (104 | ) | (86 | ) |
Changes in assets and liabilities: | | | | | |
Restricted cash | | (183 | ) | — | |
Accounts receivable | | (1,024 | ) | (3,149 | ) |
Inventories | | 1,014 | | (1,462 | ) |
Deferred tax assets | | (23 | ) | (15 | ) |
Prepaid expenses and other assets | | 120 | | 128 | |
Accounts payable | | 770 | | (1,215 | ) |
Accrued expenses | | (131 | ) | (1,344 | ) |
Income taxes receivable | | 933 | | 2,660 | |
Other current liabilities | | 87 | | — | |
Deferred rent and other long-term liability | | 630 | | 5 | |
Net cash provided by operating activities | | 5,230 | | 195 | |
| | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | |
Purchases of property, plant and equipment | | (2,341 | ) | (741 | ) |
Net cash used for investing activities | | (2,341 | ) | (741 | ) |
| | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | |
Proceeds from issuance of common stock | | 17 | | 1,433 | |
Net cash provided by financing activities | | 17 | | 1,433 | |
| | | | | |
NET INCREASE IN CASH AND CASH EQUIVALENTS | | 2,906 | | 887 | |
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | 15,182 | | 15,821 | |
CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 18,088 | | $ | 16,708 | |
| | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | |
Income taxes paid | | $ | 23 | | $ | 15 | |
| | | | | |
NONCASH INVESTING AND FINANCING ACTIVITY: | | | | | |
Dividend declared | | $ | 830 | | $ | 824 | |
See notes to consolidated financial statements.
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ALDILA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. Basis of Presentation
The consolidated balance sheet as of March 31, 2007 and the consolidated statements of operations and cash flows for the three month periods ended March 31, 2007 and 2006, are unaudited and reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The consolidated balance sheet as of December 31, 2006 was derived from the Aldila, Inc. and subsidiaries’ (the “Company’s”) audited financial statements. Operating results for the interim periods presented are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2007. These consolidated financial statements should be read in conjunction with the Company’s December 31, 2006 consolidated financial statements and notes thereto included in the Company’s Annual Report and filed on Form 10-K with the Securities and Exchange Commission.
2. Inventories
Inventories consist of the following (in thousands):
| | March 31,
2007 | | December 31,
2006 | |
Raw materials | | $ | 8,790 | | $ | 8,364 | |
Work in process | | 734 | | 1,204 | |
Finished goods | | 3,153 | | 4,123 | |
Net inventories | | $ | 12,677 | | $ | 13,691 | |
| | | | | |
Inventory reserves included in net inventories | | $ | 1,280 | | $ | 1,370 | |
3. Accrued Expenses
Accrued expenses consist of the following (in thousands):
| | March 31,
2007 | | December 31,
2006 | |
Payroll and employee benefits | | $ | 1,462 | | $ | 1,490 | |
Warranty reserve [1] | | 141 | | 157 | |
Legal and professional fees | | 13 | | 12 | |
Plant consolidation | | 81 | | 81 | |
Other | | 214 | | 302 | |
| | $ | 1,911 | | $ | 2,042 | |
| | | | | |
[1] Warranty reserve rollforward | | | | | |
Beginning Balance | | $ | 157 | | $ | 180 | |
Settlement of Warranty | | (32 | ) | (119 | ) |
Adjustments to Warranty | | 16 | | 96 | |
Ending Balance | | $ | 141 | | $ | 157 | |
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4. Summarized Financial Information
Summarized financial information for Carbon Fiber Technology LLC (“CFT”), the Company’s 50% owned joint venture for the three months ended March 31, 2007 and 2006 is as follows (in thousands):
| | Three months ended
March 31, | |
| | 2007 | | 2006 | |
Sales | | $ | 4,069 | | $ | 3,267 | |
Cost of sales | | 3,871 | | 3,106 | |
Gross profit | | 198 | | 161 | |
Net income | | $ | 196 | | $ | 162 | |
5. Accounting for Stock-Based Compensation
On January 1, 2006 the Company adopted Statement of Financial Accounting Standards (“SFAS”) No.123R (Revised 2004), “Share Based Payment,” (“SFAS 123R”), using the modified prospective method. In accordance with SFAS No. 123R, the Company measures the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which an employee is required to provide service in exchange for the award — the requisite service period. The Company determines the grant-date fair value of employee share options using the Black-Scholes option-pricing model.
In 1992, the Company adopted a Stock Option Plan for management. The Company has reserved 175,431 shares for issuance under this Plan. Options are granted at the fair market value of the shares at the date of grant, generally become fully vested three years after grant, and expire ten years from the date of grant. In May of 1994, the stockholders adopted the 1994 Stock Incentive Plan (“Plan”) for employees, directors and consultants of the Company. The Company has reserved 1,366,667 shares for issuance under this Plan. Equity incentive programs covered under the Plan, include incentive stock options, non-qualified stock options and restricted stock awards. Stock options and restricted stock awards are granted at the fair market value of the shares at the date of grant, generally become fully vested over three years after grant, and expire ten years from the date of grant.
There were no capitalized stock-based compensation costs as of March 31, 2007 and 2006, respectively. There were no modifications to stock options awards during the first quarter of 2007. The Company recognizes stock-based compensation expense using the straight line attribution method. The remaining unrecognized compensation cost related to unvested awards at March 31, 2007 and 2006 was approximately $518,000 and $194,000, respectively. This amount does not include the cost of any additional options or restricted stock awards that may be awarded in future periods nor any changes in the Company’s forfeiture rate. The following table summarizes compensation costs related to the Company’s stock-based compensation plans for the three month periods ended March 31, 2007 and March 31, 2006 (in thousands):
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| | Three month
periods ended
March 31, | |
| | 2007 | | 2006 | |
Cost of sales | | $ | — | | $ | — | |
Selling, general and administrative | | 61 | | 38 | |
Pre-tax stock-based compensation expense | | 61 | | 38 | |
Income tax benefit | | 23 | | 15 | |
Net stock-based compensation expense | | $ | 38 | | $ | 23 | |
Stock Option Activity
Cash proceeds, tax benefits and intrinsic value of related total stock options exercised during the three month periods ended March 31, 2007 and 2006, respectively, are as follows (in thousands):
| | Three month
periods ended
March 31, | |
| | 2007 | | 2006 | |
Proceeds from stock options exercised | | $ | 17 | | $ | 1,433 | |
Tax benefit related to stock options exercised | | $ | 22 | | $ | 744 | |
Intrinsic value of stock options exercised | | $ | 64 | | $ | 1,957 | |
The fair value of stock options at date of grant was estimated using the Black-Scholes model. The expected life of employee stock options is estimated by taking the average of the vesting period and the contractual life of the option, which was six years for the year ended December 31, 2006. Prior to that the expected life was estimated by using historical data of employee exercises and represents the period of time that stock options are expected to be outstanding. The risk free interest rate is based on the U.S. Treasury constant maturity for the expected life of the stock option. Expected volatility is based on the historical volatilities of the Company’s common stock. Below is the information for the grants issued for 2006, which were reported in the Company’s consolidated financial statements and notes thereto for the period ended December 31, 2006. There have not been any grants during the three month period ended March 31, 2007.
| | 2006 | |
Expected life (years) | | 6 | |
Risk-free interest rate | | 5.0 | % |
Expected volatility | | 72.3 | % |
Expected dividend yield | | 1.9 | % |
Weighted average fair value of options granted | | $ | 18.84 | |
| | | | |
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The following table summarizes the stock option transactions during the three month period ended March 31, 2007 :
| | | | | | Weighted | | | |
| | | | | | average | | | |
| | | | Weighted | | remaining | | | |
| | | | average | | contractual | | Aggregate | |
| | | | exercise | | Life | | Intrinsic | |
| | Shares | | price | | (in years) | | Value | |
Options outstanding 1/1/2007 | | 161,630 | | $ | 13.41 | | | | | |
Options granted | | — | | — | | | | | |
Options exercised | | 5,000 | | 3.29 | | | | | |
Options terminated | | — | | — | | | | | |
Options outstanding 03/31/2007 | | 156,630 | | $ | 13.73 | | 7.2 | | $ | 6.64 | |
Options exercisable 03/31/2007 | | 128,142 | | $ | 11.16 | | 7.0 | | $ | 5.09 | |
The total intrinsic value of options exercised during the three month periods ended March 31, 2007 and 2006 was approximately $64,000 and $2.0 million, respectively. There were not any shares that vested during the period ended March 31, 2007. A summary of the status of the Company’s nonvested shares as of March 31, 2007 and changes during the three month period ended March 31, 2007 is presented below.
Nonvested Shares | | Shares | | Weighted
Average
Grant-Date
Fair Value | |
Nonvested at 1/1/2007 | | 28,488 | | $ | 13.63 | |
Granted | | — | | — | |
Vested | | — | | — | |
Forfeited | | — | | — | |
Nonvested at 03/31/2007 | | 28,488 | | $ | 13.63 | |
Restricted Stock Activity
Restricted stock awards were issued to employees under the Company’s Plan. Restricted stock awards vest over three years and are subject to the employees’ continuing service to the Company. The cost of restricted stock awards is determined using the fair value of the Company’s common stock on the date of the grant. The compensation expense is recognized ratably over the vesting period. A summary of the status of and changes in restricted stock units granted under the Company’s Plan as of and during the three month period ended March 31, 2007 is presented below:
| | March 31, 2007 | |
| | | | Weighted | |
| | | | average | |
| | | | exercise | |
| | Shares | | price | |
Restricted stock outstanding 1/1/2007 | | 28,473 | | $ | 15.70 | |
Restricted stock awarded | | — | | — | |
Restricted stock terminated | | — | | — | |
Restricted stock outstanding 03/31/2007 | | 28,473 | | $ | 15.70 | |
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6. Segment Reporting
The Company classifies its business into two segments based on products offered; Composite Products and Composite Materials. The Composite Products segment is primarily comprised of sales of graphite golf shafts and hockey sticks. The Composite Materials segment is comprised of external sales of prepreg uni-tapes, fabrics, film adhesives and the Company’s 50% interest in CFT. The Company evaluates performance based on profit or loss from operations. The Company does not evaluate inter-segment sales and has never tracked such sales. The Composite Materials segment produces the majority of its materials for the Composite Products segment. Certain SG&A costs and other shared support costs are recorded initially in the Composite Products segment and allocated for segment reporting.
Segment Operating Results
| | Three month period ended March 31, 2007 | |
| | Composite | | Composite | | | |
| | Products | | Materials | | Total | |
Revenues from external customers | | $ | 17,830 | | $ | 2,832 | | $ | 20,662 | |
Operating income | | $ | 2,539 | | $ | 1,279 | | $ | 3,818 | |
Income before income taxes | | $ | 2,700 | | $ | 1,465 | | $ | 4,165 | |
| | Three month period ended March 31, 2006 | |
| | Composite | | Composite | | | |
| | Products | | Materials | | Total | |
Revenues from external customers | | $ | 18,654 | | $ | 2,116 | | $ | 20,770 | |
Operating income | | $ | 6,270 | | $ | 537 | | $ | 6,807 | |
Income before income taxes | | $ | 6,420 | | $ | 583 | | $ | 7,003 | |
Segment Long-Lived Assets
| | As of March 31, | |
| | 2007 | | 2006 | |
Property, Plant and Equipment | | | | | |
Composite Products | | $ | 6,750 | | $ | 2,963 | |
Composite Materials [1] | | 4,005 | | 3,060 | |
Total Property, Plant and Equipment | | $ | 10,755 | | $ | 6,023 | |
| | | | | |
Investment in Joint Venture | | | | | |
Composite Products | | $ | — | | $ | — | |
Composite Materials | | 3,195 | | 2,981 | |
Total Investment in Joint Venture | | $ | 3,195 | | $ | 2,981 | |
| | | | | |
Total Long-Lived Assets | | | | | |
Composite Products | | $ | 6,750 | | $ | 2,963 | |
Composite Materials | | 7,200 | | 6,041 | |
Total Long-Lived Assets | | $ | 13,950 | | $ | 9,004 | |
Notes
[1] These assets also support the Composite Products segment as the Composite Materials segment manufactures the majority of the materials consumed by the Composite Products segment.
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7. Income Taxes
The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” (“FIN 48”), on January 1, 2007. As a result of the implementation of FIN 48, the Company recognized an increase of approximately $50,000 to the liability for uncertain tax positions, which was accounted for as an adjustment to the beginning balance of retained earnings. As of the date of adoption, including the increase in the liability noted above, the Company had approximately $754,000 of unrecognized tax benefits. As of March 31, 2007, the Company had approximately $766,000 of unrecognized tax benefits. If the Company were to recognize these tax benefits, it would favorably affect the annual effective income tax rate. Prior to the adoption of FIN 48, the Company had recorded its liability for unrecognized tax benefits in its income taxes payable/receivable line item on the face of the Company’s balance sheet. In accordance with FIN 48, the unrecognized tax benefits that do not relate to temporary differences should be classified as either a current or non-current liability. As such, the Company has recorded a other current liability of $137,000 and other long term liability of $629,000 as of March 31, 2007.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. During the three month period ended March 31, 2007, the Company recognized approximately $13,000 in interest and penalties associated with uncertain tax positions. As of March 31, 2007, the Company has approximately $43,000 and $38,000 accrued for interest and penalties, respectively. For unrecognized tax benefits that exist as of March 31, 2007, the Company does not anticipate any significant changes in the next twelve months. The Company is subject to taxation in the U. S. Federal jurisdiction and various state and foreign tax jurisdictions. The earliest tax year open to examination by the U.S., State, or foreign tax jurisdictions is 2001. The Company is currently under audit by the State of California Franchise Tax Board as it relates to the Company’s amended tax return for 2004.
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Item 2. Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations
The Company’s MD&A is comprised of significant accounting estimates made in the normal course of its operations, overview of the Company’s business conditions, results of operations, liquidity and capital resources and contractual obligations. The Company is disclosing segment information for two segments. The Company has historically considered its operations to be comprised of one business segment. However, due to the significance of its external sales of prepreg in the first quarter of 2006, which continued throughout 2006, a trend which management believes will continue, the Company believes its business to be comprised of two operating segments, Composite Products and Composite Materials. The Company began reporting two segments for the first quarter of 2006. Composite Products is comprised of sales of golf shafts, hockey sticks and other composite products. Composite Materials is comprised of external sales of prepreg products in the forms of uni-tapes, fabrics and film adhesives along with contributions from its interest in CFT.
Significant Accounting Estimates
We prepared the consolidated financial statements of the Company in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented.
We have several significant accounting estimates, such as; revenue recognition, accounts receivab le and inventories, which were discussed in the 2006 Annual Report filed on Form 10-K, that are both important to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective and complex judgments. Typically, the circumstances that make these judgments complex and difficult have to do with making estimates about the effect of matters that are inherently uncertain. During the three months ended March 31, 2007, we did not make any new accounting estimates that are considered significant accounting estimates nor were there any significant changes related to our significant accounting estimates that would have a material impact on our consolidated financial position, results of operations, cash flows or our ability to conduct business.
Overview - - Business Conditions
Composite Products
The Composite Products segment is mainly comprised of graphite golf shafts and, to a lesser extent, hockey sticks, see discussion below regarding the Company’s decision to exit the hockey business. The graphite shaft market consists of customized OEM production shafts, both premium and value and Aldila branded and co-branded shafts. The Company sells customized OEM production and co-branded shafts directly to its OEM customers and sells Aldila branded shafts through the OEM custom stock and custom fit programs and to distributors. The Company has re-emerged over the past couple of years as an innovator in the branded segment of the business, in which shafts tend to sell at higher prices and have higher gross margins than the customized OEM production shafts sold to club manufacturers.
The Company introduced the Aldila NVTM in 2003, featuring the Company’s exclusive Micro Laminate Technologyä. The NVTM has had numerous Tour victories. The Company introduced NVä line extensions in 2004, including the NVSä, NV ProtoPypeä, Pink NVä, NVä Irons and NVä Hybrid shafts. The Company
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began shipping its newest shaft offering – the VS ProtoTM and the VS ProtoTM Hybrid in 2006. The VS ProtoTM was used by the winner of the 2006 U.S. Open and is quickly becoming Aldila’s single most popular shaft model on Tour. As with the NV ProtoPypeTM, the VS ProtoTM is a high performance shaft featuring carbon nanotubes as well as aerospace carbon fibers and Aldila’s exclusive high performance resin system. In addition, the Company unveiled the new VS ProtoTM Hybrid shaft for high-end hybrid clubs.
In 2006, PGA Tour, LPGA Tour and Nationwide Tour professionals using Aldila NVTM or VS ProtoTM shafts in their clubs won a total of 32 Tour events. In 2006, the Aldila VS ProtoTM and NVTM Hybrid shafts combined were the number one hybrid shafts at every event last year on the PGA Tour, according to the Darrell Survey Company. In addition, Aldila Hybrid shafts won the Annual Golf Magazine Club Test for 2006. Forty club testers evaluated hybrid clubs for Golf Magazine and clubs featuring Aldila Hybrid shafts received the highest rating in every category for hybrid clubs. Overall the Aldila shafts helped give the testers the best feel, playability, forgiveness and distance with their hybrids compared to the competition.
Aldila has had a good start on Tour in 2007. Players using Aldila shafts have won eight of the first seventeen events on the PGA Tour and have won five of seven events on the Nationwide Tour. Aldila shafts were used by the winner of The Masters as well as the winner of the World Golf Championship-Accenture Match Play Championship; two of the year’s first limited field events for the world’s top players. Paula Creamer, who is a member of the Aldila advisory staff, won the SBS Open playing her customary pink NVTM. The Aldila VS ProtoTM and NVTM continue to be the top wood shaft series on both the PGA Tour and Nationwide Tour in 2007. The Company believes that it will continue to be successful in the branded segment and has focused its marketing and advertising effort in support of this business.
The Company continues to maintain a broad customer base in both the OEM production shaft and branded shaft market segments and competes aggressively with foreign-based shaft manufacturers for OEM production shafts and branded shafts. However, the Company’s sales have tended to be concentrated among a limited number of major club companies, thus making the Company’s results of operations dependent on those customers, their continued willingness to purchase a significant portion of their shafts from the Company, and their success in selling clubs containing the Company’s shafts to their customers. In 2006, net sales to Ping, Acushnet Company and Callaway Golf represented 18%, 17% and 15% of the Company’s net sales, respectively, and the Company anticipates that these companies will continue, collectively, to represent the largest portion of its sales in 2007. Although it is generally difficult to predict in advance the success of any particular club or of any particular manufacturer, the Company believes that it is protected to some extent from normal periodic fluctuations in sales among the various golf club companies by virtue of the broad depth and range of its customer base. Golf club companies regularly introduce new clubs, frequently containing innovations in design. Sometimes these new clubs achieve dramatic success in the marketplace, thus increasing the overall volatility of club sales among the major companies. While the Company seeks to have its shafts represented on as many major product introductions as possible, it can provide no assurance that its shafts will be included in any particular “hot” club or that sales of a “hot” club that does not include the Company’s shafts will not have a negative impact on the sales of those clubs that do. The Company’s sales could also suffer a significant drop-off from period to period to the extent that they may be dependent in any period on sales of one or more “hot” clubs, which then tail off in subsequent periods and at the same time, new offerings fail to achieve a high level of new sales sufficient to exceed or replace the previous sales levels of “hot” clubs.
During the 1990’s, the graphite golf shaft industry became increasingly competitive, placing extraordinary pressure on the selling prices of the Company’s golf shafts and adversely affecting its gross profit margins and level of profitability. The Company’s average selling price decreased by 64% from December 31, 1990 through December 31, 2002. The pressure was mainly attributed to the increased competition for OEM production shafts, and a shift of our customers away from branded shafts to customized OEM production shafts.
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Beginning in 2003, the Company was able to achieve higher average selling prices as it enjoyed increasing success in the branded segment of the business. In late 2004, the Company began to see its OEM customers choose co-branded shafts for their stock offerings. The introduction of co-branded shafts and the continued success in the branded segment had the effect of increasing the Company’s average selling prices over prior years. The Company’s average selling price increased by approximately 70% for the year ended December 31, 2006 as compared to the comparable period in 2002. However, the Company’s average selling price decreased by 6% for the year ended December 31, 2006 as compared to the comparable period in 2005. The Company’s average selling price decreased by 5% for the period ended March 31, 2007 as compared the comparable period in 2006. The percentage of the total branded and co-branded shaft revenue to total Composite Products revenue decreased to 53% for the period ended March 31, 2007 as compared to 57% for the period ended March 31, 2006. As the Company’s branded and co-branded shafts typically sell at higher selling prices than OEM production shafts, a significant change in product mix in any one period will have the effect of increasing or decreasing the average selling price of shafts sold. In addition, increases in carbon fiber prices passed on to its customers will also have the effect of increasing average selling prices in the future.
The Company’s response to the pricing pressure it faced during the 1990’s, and continues to face in the OEM production shaft segment, has been to vertically integrate, reduce its cost structure and to focus on continued penetration of the branded and co-branded shaft segments. The vertical integration began in 1994 when the Company started manufacturing prepreg, the principal raw material in the manufacture of graphite golf shafts, at its facility in Poway, California. See Composite Materials. In addition to the Company’s efforts to reduce its costs through vertical integration, the Company also reduced its cost structure by shifting more of its shaft production to lower cost labor markets, such as Mexico, China and in 2007, Vietnam.
In addition to golf shafts, the Company also manufactures hockey sticks for one customer. The Company began manufacturing and selling hockey sticks in 2002. The Company has not seen a significant increase in sales of hockey sticks and is not satisfied with the current status of its hockey business. The Company has elected to discontinue its hockey operations in the third quarter of this year and has notified our customer of this decision. The Company believes this decision will not have a material impact on our business.
Composite Materials
The Composite Materials segment is comprised of external sales of prepreg, film adhesives, fabrics and other materials and the contribution provided by the Company’s 50% owned interest in CFT. The Company has never tracked inter-segment sales and has always looked at the contribution provided by Composite Materials based upon the external sales of materials. The Company records all shared cost to Composite Products and allocates certain costs for segment reporting, such as shipping, purchasing and other administrative costs based upon the net revenues of each segment. Costs that are specific to one segment are charged directly to the respective segment.
The Company began the manufacture of composite materials in 1994. Initially, the prepreg produced was mainly consumed by the Composite Products segment. The Company’s external sales of prepreg and other materials have increased over the past several years. Sales of prepreg as a percentage of net sales were 14% for the period ended March 31, 2007 as compared to 10% for the comparable period in 2006. In the second half of 2005, the Company purchased a second resin filmer. The addition of a second resin filmer provides additional supply of resin film, which is one of the key raw materials in the production of prepreg. The increase in resin film capacity enables the Company to add additional capacity to the Company’s prepreg composite manufacturing operations as well as provide increased capacity for film products. In addition, it provides capacity protection should the Company encounter problems with its other resin filmer. The Company completed the installation of its sixth prepreg tape line in late 2006, which enables it to support anticipated
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growth for shaft and prepreg sales. In addition, an additional wide prepreg tape line will be installed late this year to add further capacity to support anticipated growth in this business segment.
The Company continues to look for opportunities to sell its prepreg and film adhesive products to other fabricators of products manufactured from composite materials. The Company has achieved some success in these areas and management believes that growth opportunities in these areas will continue to exist. In addition, management believes that vertical integration through its prepreg operation has been successful to date and is allowing the Company to maintain, or in some cases enhance, its competitive position with respect to the major United States golf club companies that are its principal customers.
In addition to vertical integration through prepreg, the Company established a manufacturing facility in Evanston, Wyoming for the production of carbon fiber in 1998, which is a significant raw material used in the prepreg production process. During 1998 and through the first ten months of 1999, the Company used the material from this facility to satisfy a significant portion of its internal demand for carbon fiber in the manufacturing of prepreg used for graphite shaft production. During 1999, the Company also produced and sold carbon fiber from this facility to other unrelated entities for the manufacture of other carbon-based products. On October 29, 1999, SGL purchased a 50% interest in the Company’s carbon fiber manufacturing operation.
The Company and SGL Carbon Fibers and Composites, Inc. (“SGL”) entered into an agreement to operate the facility as a limited liability company with equal ownership interests between the venture members. The Company and SGL also entered into supply agreements with the new entity, CFT, for the purchase of carbon fiber at cost plus an agreed-upon mark-up. The Company and SGL are each responsible to bear 50% of the fixed costs to operate the facility as a term of this supply agreement. The partners share profits and losses of CFT equally. The joint venture partners primarily consume the carbon fiber manufactured from this facility.
If the carbon fiber facility is not operated at high production levels, either because of production difficulties or because there is not enough demand by the joint venture owners to justify that level of production, the cost per unit of carbon fiber consumed by the Company (and thus the cost of producing the Company’s golf shafts and other products) is increased due to spreading the fixed costs of production over smaller volumes. If demand is lower than production capacity, CFT also runs the risk of building up excess inventory. Given the relatively low costs historically in the market for carbon fiber and the highly competitive market for graphite golf shafts, the failure to operate at high levels could adversely affect the Company’s gross margins or its ability to maintain profitable competitive prices for its products. Although selling prices of carbon fiber had been depressed for the 1998 through mid 2003 period based on a surplus of supply in the market for carbon fiber, in the second half of 2003 the Company began to see increases in carbon fiber prices and a constriction of supply of all types of carbon fiber not manufactured at CFT. If the prices continue to increase or if the company cannot obtain an adequate supply at a reasonable price, it could have an adverse effect on the Company’s business. The Company does not expect third party sales at CFT to have a significant effect on the Company’s profitability.
CFT purchased substantially all of its raw acrylic fibers for the carbon fiber operation from one supplier for the years 2000 through 2006. Previous to 2000, the Company purchased raw acrylic fibers from another supplier who in May 2005, filed bankruptcy and announced its intention to cease producing acrylic fibers, which left CFT in a true sole source position. The assets of this previous supplier are now owned by China Bluestar who continues to operate the business. There is no certainty that China Bluestar will be successful. CFT is continuing to pursue alternate sources of supply for this material and has run several trials with results that are encouraging. The current supplier of precursor has recently notified CFT that it does not intend to continue to supply precursor beyond late October 2007. CFT management projects that precursor in inventory when supply ends from the current supplier should carry the operation through the first half of 2008. However, if the current
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supplier is unable to deliver and CFT cannot qualify and source material from a new supplier prior to this event, it could have a material adverse effect on the Company’s business.
Prior to late 2003, the Company believed that the cost saving benefits of its efforts to vertically integrate through the manufacture of carbon fiber had not benefited the Company. Market prices for golf shaft raw materials, which are primarily based on carbon fiber costs, have been historically low with carbon fiber readily available at attractive prices when compared to the Company’s cost to purchase it from CFT. The Company’s gross margins and profitability were adversely affected when the market prices of carbon fiber were low. However, in the second half of 2003, the availability of carbon fiber began to tighten and prices began to increase. The Company believes the shortage of carbon fiber in the world markets over the past several years is a long term concern, as forecasted demand driven by current applications and future applications are projected to outpace forecasted capacity expansions. However, it appears in the short term that the supply of carbon fiber is sufficient and the Company’s Composite Products competitors currently appear to be able to obtain adequate supplies of prepreg raw materials. The Company believes that CFT is a valuable strategic asset.
Results of Operations
First Quarter 2007 Compared to First Quarter 2006
Net Sales
| | As of March 31, | |
| | 2007 | | 2006 | | Chg | | % Chg | |
Composite Products | | $ | 17,830 | | $ | 18,654 | | $ | (824 | ) | (4 | )% |
Composite Materials | | 2,832 | | 2,116 | | 716 | | 34 | % |
Total Net Sales | | $ | 20,662 | | $ | 20,770 | | $ | (108 | ) | (1 | )% |
Net sales decreased by $108,000 for the three month period ended March 31, 2007 from the comparable period in 2006. The decrease in sales was attributed to a decrease in Composite Product sales, which were partially offset by an increase in Composite Materials sales. The decrease in the Composite Product sales is mainly attributed to a change in product mix in 2007 as compared to 2006. The Company’s average selling price of golf shaft sales decreased by 5% in 2007 as compared to 2006 on an overall increase in units sold of 1%. There were decreases in sales of branded products, which were partially offset by increases in co-branded and OEM products. Branded golf shaft sales declined by 19%. Co-branded golf shaft sales increased by 5% and OEM stock type shaft sales increased by 7%. Branded and co-branded golf shaft sales declined to 53% of Composite Products sales in 2007 from 57% in 2006. Composite Materials sales increased by $716,000, or a 34% increase. Composite Materials have increased to approximately 14% of the Company’s consolidated net revenues. The Company believes that Composite Materials sales will continue to increase and is installing an additional wide prepreg tape line projected to be completed by the end of 2007 to support this anticipated growth.
Gross Profit
| | As of March 31, | |
| | 2007 | | 2006 | | Chg | | % Chg | |
Composite Products | | $ | 5,691 | | $ | 8,975 | | $ | (3,284 | ) | (37 | )% |
Composite Materials | | 1,499 | | 693 | | 806 | | 116 | % |
Total Gross Profit | | $ | 7,190 | | $ | 9,668 | | $ | (2,478 | ) | (26 | )% |
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Total gross profit decreased by approximately $2.5 million, or 26% in 2007 as compared to 2006. The decrease in gross profit was primarily attributed to a decrease in gross profit of Composite Products, which was partially offset by an increase in gross profit of Composite Materials. The decrease in Composite Products gross profit was mainly attributed to the decrease in branded sales in 2007 as compared to 2006. Composite Products gross margin decreased to 32% for 2007 as compared to 48% for 2006. Gross profit was also negatively impacted by higher material costs, manufacturing costs, start-up costs of our new Vietnam factory and lower absorption of United States golf shaft manufacturing costs. In 2006, the Company benefited from the carryover of lower material costs, which were somewhat offset by an increase in inventory reserves. There were no significant changes in inventory reserves during the 2007 quarter. The Composite Materials gross profit increased by approximately $806,000, or 116%, in 2007 as compared to 2006. The increase is mainly attributed to an increase in contribution provided by the operations of CFT and the increase in gross profit provided by the sales of external materials.
Operating Income
| | As of March 31, | |
| | 2007 | | 2006 | | Chg | | % Chg | |
Gross profit | | $ | 7,190 | | $ | 9,668 | | $ | (2,478 | ) | (26 | )% |
| | | | | | | | | |
Selling, General & Administrative (“SG&A) Expense | | | | | | | | | |
Composite Products | | 3,152 | | 2,705 | | 447 | | 17 | % |
Composite Materials | | 220 | | 156 | | 64 | | 41 | % |
Total SG&A | | 3,372 | | 2,861 | | 511 | | 18 | % |
| | | | | | | | | |
Operating Income | | | | | | | | | |
Composite Products | | 2,539 | | 6,270 | | (3,731 | ) | (60 | )% |
Composite Materials | | 1,279 | | 537 | | 742 | | 138 | % |
Operating Income | | $ | 3,818 | | $ | 6,807 | | $ | (2,989 | ) | (44 | )% |
Operating Margin | | 18 | % | 33 | % | (15 | )% | | |
Operating income decreased by approximately $3.0 million, or 44%, in 2007 as compared to 2006. The decrease was attributed to a decrease in gross profit and an increase in SG&A. The Company’s SG&A expenses increased by approximately $511,000 in 2007 as compared to 2006. SG&A increased as a percentage of revenues to 16% in 2007 as compared to 14% for 2006. The increases were attributed to SOX compliance and other accounting expenses, higher audit fees and administrative cost at our Vietnam facility as compared to the first quarter of 2006. The Company anticipates administrative costs will increase in 2007 due to having a full years worth of operations in Vietnam. The Company’s stock-based compensation expense was $61,000 in 2007 as compared to $38,000 in 2006. The Company anticipates that stock-based compensation expense will increase in the future to the extent that the Company’s Board of Directors approves additional grants of equity awards to employees and officers of the Company. In addition, each May there is an automatic grant of options to the external directors of the Company.
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Other Income
| | As of March 31, | |
| | 2007 | | 2006 | | Chg | | % Chg | |
| | | | | | | | | |
Operating income | | $ | 3,818 | | $ | 6,807 | | $ | (2,989 | ) | (44 | )% |
Interest income | | 199 | | 158 | | 41 | | 26 | % |
Other, net | | 43 | | (8 | ) | 51 | | 638 | % |
Equity in earnings of joint venture | | 105 | | 46 | | 59 | | 128 | % |
Total other income | | 347 | | 196 | | 151 | | 77 | % |
Income before income taxes | | $ | 4,165 | | $ | 7,003 | | $ | (2,838 | ) | (41 | )% |
Other Income increased by approximately $151,000 for 2007, or 77%, as compared to 2006. The Company benefited from increased earnings from its equity investment in CFT, increased interest income on its invested cash balance and an increase in other income.
Income Taxes
| | As of March 31, | |
| | 2007 | | 2006 | | Chg | | % Chg | |
Income before income taxes | | $ | 4,165 | | $ | 7,003 | | $ | (2,838 | ) | (41 | )% |
Provision for income taxes | | 1,470 | | 2,661 | | (1,191 | ) | (45 | )% |
Net income | | $ | 2,695 | | $ | 4,342 | | $ | (1,647 | ) | (38 | )% |
Effective tax rate | | 35 | % | 38 | % | (3 | )% | | |
Profit margin | | 13 | % | 21 | % | (8 | )% | | |
The Company recorded a provision for income taxes in the amount of $1.5 million in 2007 as compared to $2.7 for 2005. The Company’s effective tax rate was 35% in 2007 as compared to 38% in 2006. The Company estimates that its effective tax rate going forward will be between 35% and 38%.
Liquidity and Capital Resources
Cash and cash equivalents (“cash”) increased by approximately $2.9 million as of March 31, 2007 as compared to December 31, 2006. The increase in cash was attributed to net income and changes in working capital, which were partially offset by capital spending. The majority of the cash generated by working capital was attributed to a decrease in inventories of $1.0 million, an increase in accounts payable of approximately $770,000 and a decrease in income tax receivable of approximately $930,000, which was partially offset by an increase in accounts receivable of $1.0 million. The Company has been actively trying to reduce its inventories and generate cash from its inventory balances. The Company was able to reduce its finished goods inventory by approximately $1.0 million in the three month period ended March 31, 2007, although the Company’s accounts receivable increased from December 31, 2006 and used cash of approximately $1.0 million, the accounts receivable balance as of March 31, 2007 is approximately $500,000 lower than the accounts receivable balance as of March 31, 2006 on relatively flat sales comparing the two three month periods ended March 31.
The Company’s restricted cash balance increased by $183,000 as of March 31, 2007 as compared to December 31, 2006. The restricted cash is associated with cash on deposit in China for customs duties and taxes based upon raw materials imported. The Company’s custom status was downgraded during 2006. The Company was informed in April of 2007 that its custom status has been upgraded one level. As such, the Company anticipates that it will be able to use the restricted cash in operations as it consumes the raw materials that the restricted cash is associated with. Cash provided by operating activities for the three month period ended March 31, 2007 was approximately $5.2 million, compared to approximately $195,000 for the comparable period in 2006.
The Company used $2.3 million for capital expenditures during the three month period ended March 31, 2007 as compared to $741,000 for the comparable period in 2006. The majority of the capital expenditures in 2007 were attributed to the final construction of the Company’s plant in Vietnam. The Company has spent
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approximately $1.7 million in support of Composite Products, which is attributed to the aforementioned final construction of the Vietnam plant. In addition, the Company has spent approximately $671,000 in support of Composite Materials, as the Company has made its initial deposit on its wide tape line expansion project, which it anticipates will be installed by the end of 2007. Management anticipates capital expenditures will approximate between $5.0 million and $6.0 million for 2007.
The Company declared a $0.15 per share quarterly dividend during the three month period ended March 31, 2007 and subsequently paid the dividend in April of 2007. The Company did not repurchase any of its common stock during the three month period ended March 31, 2007. The Company’s dividend policy and stock repurchase policy are discussed quarterly during the Company’s Board of Directors meetings and subject to board approval. The Company has $3.8 million remaining that can be repurchased against its current approved stock buyback plan.
Seasonality
Because the Company’s customers have historically built inventory in anticipation of purchases by golfers in the spring and summer, the principal selling season for golf equipment, the Company’s operating results have been affected by seasonal demand for golf clubs, which has generally resulted in the highest sales occurring in the first and second quarter. The timing of customers’ new product introductions has frequently mitigated the impact of seasonality in recent years.
Backlog
As of March 31, 2007, the Company had a sales backlog of approximately $9.5 million compared to approximately $12.3 million as of March 31, 2006. The Company believes that the dollar volume of its current backlog will be shipped over the next three months. Orders can typically be cancelled without penalty up to 30 days prior to shipment. Historically, the Company’s backlog generally has been highest in the first and second quarters, due in large part to seasonal factors. Due to the timing and receipt of customer orders, backlog is not necessarily indicative of future operating results.
“Safe Harbor” Statement Under the Private Securities Litigation Reform Act of 1995
With the exception of historical information (information relating to the Company’s financial condition and results of operations at historical dates or for historical periods), the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations may contain forward-looking statements that necessarily are based on certain assumptions and are subject to certain risks and uncertainties. These forward-looking statements are based on management’s expectations as of the date hereof, that necessarily contain certain assumptions and are subject to certain risks and uncertainties. The Company does not undertake any responsibility to update these statements in the future. The Company’s actual future performance and results could differ from that contained in or suggested by these forward-looking statements as a result of a variety of factors.
The Company’s Report on Form 10-K for the year ended December 31, 2006 (the “Form 10-K”) presents a more detailed discussion of these and other risks related to the forward-looking statements in this 10-Q, in particular under “Risk Factors” in Part I, Item 1A of the Form 10-K and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part I, Item 7 of the Form 10-K. The forward-looking statements in this 10-Q are particularly subject to the risks that:
· we will not maintain or increase our market share at our principal customers;
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· demand for clubs manufactured by our principal customers will decline, thereby affecting their demand for our shafts;
· the market for graphite shafts will continue to be extremely competitive, affecting selling prices and profitability;
· our product offerings, including the Aldila NVä shaft line and product offerings outside the golf industry, will not continue to achieve success with consumers or OEM customers;
· our international operations will be adversely affected by political instability, currency fluctuations, export/import regulations or other risks typical of multi-national operations, particularly those in less developed countries;
· CFT will be unsuccessful as a result, for example, of internal operational problems, raw material supply problems, changes in demand for carbon fiber based products, or difficulties in operating a joint venture;
· the Company will not be able to acquire adequate supplies of carbon fiber, other than that being produced at CFT, at reasonable market prices;
· acts of terrorism, natural disasters, or disease pandemics interfere with our manufacturing operations or our ability to ship our finished product to meet customer demand.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes from the information that was disclosed in the Company’s Annual Report for the period ended December 31, 2006 filed on Form 10-K.
Item 4. Controls and Procedures
(a) As of the end of the period covered by this report, Aldila management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to Aldila required to be included in Aldila’s periodic filings under the Exchange Act.
(b) There have been no material changes in the Company’s internal controls over financial reporting, which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.
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PART II - OTHER INFORMATION
Item 1. | | Legal Proceedings |
| | Not applicable. |
| | |
Item 1A. | | Risk Factors |
| | There have been no material changes from risk factors as previously disclosed in the Company’s Form 10K for the year ended December 31, 2006. |
| | |
Item 2. | | Changes in Securities |
| | Not applicable. |
| | |
Item 3. | | Defaults Upon Senior Securities |
| | Not applicable. |
| | |
Item 4. | | Submission of Matters to a Vote of Security Holders |
| | Not applicable. |
| | |
Item 5. | | Other Information |
| | Not applicable. |
| | |
Item 6. | | Exhibits |
|
| 10.0 | Danielson Lease Agreement |
| | |
| 11.1 | Statement re: Computation of Net Income (Loss) per Common Share |
| | |
| 31.1 | Certification of Chief Executive Officer |
| | |
| 31.2 | Certification of Chief Financial Officer |
| | |
| 32.1 | Certifications of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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SIGNATURE
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.
Dated: | | ALDILA, INC. |
| | |
May 9, 2007 | | /s/ Robert J. Cierzan |
| | Robert J. Cierzan |
| | Signing both in his capacity as |
| | Vice President, Finance and as Chief Accounting |
| | Officer of the Registrant |
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