UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarter Ended April 30, 2006
Commission File No. 0-8190
WILLIAMS INDUSTRIES, INCORPORATED
(Exact name of registrant as specified in its charter)
Virginia 54-0899518
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8624 J.D. Reading Drive, Manassas, Virginia 20109
(Address of principal executive offices)
P.O. Box 1770, Manassas, VA 20108
(Mailing address of principal executive offices)
(703) 335-7800
(Registrant's telephone number, including area code)
Not Applicable
(Former names, former addresses 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 _
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
YES _ NO X
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
YES _ NO X
At January 31, 2006, the Registrant had outstanding 3,653,400
shares of Common Stock.
WILLIAMS INDUSTRIES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED April 30, 2006
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
April 30, 2006 and July 31, 2005
(Unaudited) 1
Condensed Consolidated Statements of Operations -
Three and nine months ended April 30, 2006
and 2005 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows -
Nine months ended April 30, 2006 and 2005
(Unaudited) 3
Notes to Condensed Consolidated Financial Statements
(Unaudited) 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS 23
ITEM 4. CONTROLS AND PROCEDURES 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 27
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 27
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 28
ITEM 5. OTHER INFORMATION 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
CERTIFICATIONS AND SIGNATURES 29
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands except share data)
ASSETS
------
April 30, July 31,
2006 2005
CURRENT ASSETS ---------- ----------
Cash and cash equivalents $ 1,156 $ 764
Accounts receivable, net 16,204 14,432
Inventory 2,696 5,251
Costs and estimated earnings in excess
of billings on uncompleted contracts 3,007 1,517
Prepaid and other assets 1,961 1,834
---------- ----------
Total current assets 25,024 23,798
---------- ----------
PROPERTY AND EQUIPMENT, AT COST 22,891 25,091
Accumulated depreciation (14,106) (13,486)
---------- ----------
Property and equipment, net 8,785 11,605
---------- ----------
OTHER ASSETS 312 133
---------- ----------
TOTAL ASSETS $ 34,121 $ 35,536
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable $ 9,407 $ 9,760
Accounts payable 9,634 8,388
Billings in excess of costs and
estimated earnings on uncompleted
contracts 2,501 6,343
Deferred income - 9
Financing obligations resulting from
sale-leaseback transactions 453 -
Other liabilities 2,387 2,474
---------- ----------
Total current liabilities 24,382 26,974
LONG-TERM LIABILITIES
Notes payable, less current portion 840 3,512
Financing obligations resulting from
sale-leaseback transactions 3,760 -
---------- ----------
Total Liabilities 28,982 30,486
---------- ----------
MINORITY INTERESTS 167 172
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock -
3,653,400 and 3,649,535 shares
issued and outstanding 365 365
Additional paid-in capital 16,608 16,594
Accumulated deficit (12,001) (12,081)
---------- ----------
Total stockholders' equity 4,972 4,878
---------- ----------
TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 34,121 $ 35,536
========== ==========
See Notes To Condensed Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited - in thousands except share data)
Three Months Ended Nine Months Ended
April 30, April 30,
2006 2005 2006 2005
-------- -------- -------- --------
REVENUE
Construction $ 3,325 $ 4,702 $10,732 $14,245
Manufacturing 7,020 7,335 22,759 22,711
Other 420 88 527 226
-------- -------- -------- --------
Total revenue 10,765 12,125 34,018 37,182
-------- -------- -------- --------
DIRECT COSTS
Construction 2,165 3,110 7,373 10,021
Manufacturing 4,951 6,147 16,205 18,255
-------- -------- -------- --------
Total direct costs 7,116 9,257 23,578 28,276
-------- -------- -------- --------
GROSS PROFIT 3,649 2,868 10,440 8,906
-------- -------- -------- --------
EXPENSES
Overhead 1,225 1,606 3,506 4,861
General and admin. 1,639 1,734 4,842 5,328
Depreciation 377 509 1,207 1,562
Interest 333 247 780 635
-------- -------- -------- --------
Total expenses 3,574 4,096 10,335 12,386
-------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES, MINORITY INTERESTS
AND EXTRAORDINARY ITEM 75 (1,228) 105 (3,480)
INCOME TAX PROVISION - 2,589 - 3,089
-------- -------- -------- --------
INCOME (LOSS) BEFORE
MINORITY INTERESTS AND
EXTRAORDINARY ITEM 75 (3,817) 105 (6,569)
Minority interests (13) (5) (25) (17)
-------- -------- -------- --------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM $ 62 $(3,822) $ 80 $(6,586)
EXTRAORDINARY ITEM
Gain on
extinguishment of debt - - - 828
-------- -------- -------- --------
NET INCOME (LOSS) $ 62 $(3,822) $ 80 $(5,758)
======== ======== ======== ========
NET INCOME (LOSS)
PER COMMON SHARE:
BASIC:
Income (loss) before
extraordinary item 0.02 (1.05) 0.02 (1.81)
Extraordinary item 0.00 0.00 0.00 0.23
-------- -------- -------- --------
INCOME (LOSS) PER
COMMON SHARE-BASIC $ 0.02 $ (1.05) $ 0.02 $ (1.58)
======== ======== ======== ========
DILUTED:
Income (loss) before
extraordinary item 0.02 (1.05) 0.02 (1.81)
Extraordinary item 0.00 0.00 0.00 0.23
-------- -------- -------- --------
INCOME (LOSS) PER
COMMON SHARE-DILUTED $ 0.02 $ (1.05) $ 0.02 $ (1.58)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING:
BASIC AND DILUTED 3,653,400 3,649,535 3,651,206 3,641,171
--------- --------- --------- ---------
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Nine Months Ended
April 30,
2006 2005
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 80 $(5,758)
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (2,196) 2,773
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property, plant and equipment (184) (2,460)
Decrease in restricted cash - 1,003
Proceeds from sale of
property, plant and equipment 1,874 -
-------- --------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 1,690 (1,457)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 8,145 6,859
Repayments of notes payable (7,311) (3,606)
Issuance of common stock 14 59
Minority interest in dividends (30) -
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 818 3,312
-------- --------
NET INCREASE (DECREASE)
IN CASH AND CASH EQUIVALENTS 392 (1,130)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 764 1,343
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,156 $ 213
======== ========
See Notes To Condensed Consolidated Financial Statements.
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
April 30, 2006
1. INTERIM FINANCIAL STATEMENTS
This document includes unaudited interim financial statements that
should be read in conjunction with the Company's latest audited annual
financial statements. However, in the opinion of management, these
financial statements contain all adjustments, consisting only of normal
recurring items, necessary for a fair presentation of the Company's
financial position as of April 30, 2006 and July 31, 2005, the results
of its operations for the three and nine months ended April 30, 2006 and
2005, respectively, and its cash flows for the nine months ended April
30, 2006 and 2005, respectively. Operating results for the nine months
ended April 30, 2006 are not necessarily indicative of the results
expected for the full fiscal year. For further information, refer to the
consolidated financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended July 31, 2005.
The Company is facing a liquidity and business crisis after
suffering operating losses for several years. It has tapped its
available sources of operating cash, and borrowed approximately $2.7
million from its largest shareholder and his affiliated entities. The
Company is operating under a Forbearance Agreement with United Bank, its
major lender, pursuant to which it owes approximately $4.7 million.
During the quarter ended April 30, 2006, the Company entered into a
Second Amendment to Forbearance Agreement which provides:
(1) The Company make a payment of $250,000 (Payment was made April 4,
2006);
(2) The Company remit $200,000 into a money market account to be drawn
against to pay interest (the account was opened during the quarter);
(3) The term of the Forbearance Agreement be extended through July 31,
2006 (the term was extended to July 31, 2006);
(4) The Williams Family Limited Partnership (WFLP) increase the amount
of its pledge of additional collateral by $758,000 in addition to $1
million pledged in the original agreement (the pledge was increased);
(5) Frank E. Williams, Jr., reaffirm his personal guarantee of $242,000
of the Company's obligations to United Bank (Mr. Williams reaffirmed his
guarantee);
(6) In the event the Company makes an additional principal payment to
the bank of $1 million by July 31, 2006, the term of the Forbearance
Agreement will be extended through December 31, 2006.
On June 9, 2006, the Company sold, to an unaffiliated third party,
2.72 acres of its Manassas, Virginia land for $865,000, recording a gain
of approximately $820,000. The net proceeds from the sale, of $856,000,
was paid to United Bank and will be applied to the July 31, 2006 payment
under the Forbearance Agreement. In addition, the Company has a signed
agreement to sell its remaining ten acres of Bedford, Virginia land for
$155,000. The sale, which is expected to close prior to the end of the
fourth quarter, will generate a net profit of approximately $150,000
with those proceeds being paid to United Bank to satisfy the balance of
the payment under the terms of the Forbearance Agreement.
In addition, the Company is in default of nearly all of its other
debts and leases by virtue of failing to make scheduled payments in a
timely fashion.
Because of the Company's financial condition and the highly
competitive market in its areas of operation, there remains significant
risk that the Company may not be able to maintain its level of
operations. The Company operates in an industry where such problems are
common, and where there are large risks related to estimating and
performing work and collecting amounts earned.
The Company is pursuing a number of contingency plans to address
these issues. During the nine months ended April 30, 2006, the Company
sold and leased back its Richmond, Virginia property, paying debt of
approximately $2 million. Additionally, the Company sold owned and
leased cranes and other equipment, reducing debt by $1.4 million, and
reducing future annual cash outflows by approximately $500,000.
Additional plans may include negotiations with lenders and customers,
additional sales of equipment and real property, asset and stock-based
credit facilities, and the sale, discontinuance, reorganization or
liquidation of one or more subsidiaries.
The Company applied Statement of Financial Accounting Standards
("SFAS") No. 123(R), "Share-Based Payment", which replaced SFAS No. 123
"Accounting for Stock-Based Compensation" as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure" to
account for its stock option plans. The standard requires public
companies to treat stock options and all other forms of shared-based
payments to employees as compensation costs in the income statement;
however, the approach is similar to the guidance set forth in SFAS No.
123. The adoption of SFAS No. 123 (R) had no impact on the Company's
condensed consolidated financial statements for the three and nine
months ended April 30, 2006 since there were no grants during those
periods and all prior grants were fully vested at that date, and at
August 1, 2005, the date the statement was first applied. The Company
generally grants options for common stock at an option price equal to
the fair market value of the stock on the date of grant. The Company's
stock option plans are more fully described in Note 8 and in the
Company's Annual Report on Form 10-K for fiscal year ended July 31,
2005.
No stock options were issued during the quarter ended April 30,
2006 and 2005, respectively. During the quarter ended January 31, 2005,
the Company issued a total of 30,000 common stock options to its non-
employee directors (6,000 shares per director) at a price of $4.10 a
share. The Company used the intrinsic method of valuing stock options,
and as prescribed by APB No. 25, it did not expense the value of stock
options. The following table shows the effect as if compensation cost
for all options had been determined based on the fair market value
recognition provisions of Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation" as amended by
SFAS No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure."
Three Months Ended Nine Months Ended
April 30, April 30,
2006 2005 2006 2005
-------- -------- -------- --------
AS REPORTED
Net Income (Loss) $62 $(3,822) $80 $(5,758)
(in thousands)
Net Income (Loss) Per Common
Share Basic and Diluted $0.02 $(1.05) $0.02 $(1.58)
Stock-based compensation - - - (43)
(in thousands)
PRO-FORMA
Net Income (Loss) $62 $(3,822) $80 $(5,801)
(in thousands)
Net Income (Loss) Per Common
Share Basic and Diluted $0.02 $(1.05) $0.01 $(1.59)
2. RELATED-PARTY TRANSACTIONS
Mr. Frank E. Williams, Jr., who owned or controlled approximately
45% of the Company's stock at April 30, 2006, and is a director of the
Company, also owns controlling interests in the outstanding stock of
Williams Enterprises of Georgia, Inc., and Structural Concrete Products,
LLC. Additionally, Mr. Williams, Jr. owns a substantial interest in
Bosworth Steel Erectors, Inc. Amounts receivable and payable to these
entities at April 30, 2006 and July 31, 2005, and revenue earned and
costs incurred with these entities during the three and nine months
ended April 30, 2006 and 2005 are reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
2006 2005 2006 2005
-------- -------- -------- --------
(in thousands)
Revenue $129 $239 $338 $742
Billings to entities $355 $259 $533 $811
Costs and expenses incurred $ 71 $ 67 $341 $108
Balance
April 30, July 31,
2006 2005
-------- --------
Accounts receivable $804 $663
Notes Payable $ 88 $667
Accounts Payable $719 $400
Billings in excess of costs and estimated
earnings on uncompleted contracts net of Costs
and Estimated Earnings in Excess of Billings $ (37) $ 82
Accrued Interest Payable $7 $106
During the quarter ended October 31, 2005, the Company sold its
Richmond, Virginia property to Mr. Williams, Jr. and leased it back on a
long-term basis, with an option to buy it back for the same price for
which it was sold (See Note 6).
The Company is obligated to the Williams Family Limited Partnership
(WFLP) under a lease agreement for real property with an option to
purchase up to ten of the seventeen acres at the "original pro-rata
cost" of $567,500. WFLP is controlled by individuals who own, directly
or indirectly, approximately 49% of the Company's stock. The lease,
which had an original term of five years and an extension option for
five years, commenced February, 2000. The original term was extended by
agreement one year to February, 2006, and subsequently the Company gave
notice of its extension through February, 2010, which has been disputed
by the WFLP as a result of defaults under the lease agreement. The
Company intends to resolve these disputes and defaults without material
adverse impact on its financial position, results of operations or cash
flows. The Company currently incurs annual lease expense of
approximately $43,000.
During the three months ended April 30, 2006, the Company borrowed
$905,000 from WFLP. Lease and interest expense for the three and nine
months ended April 30, 2006 and 2005 are reflected below. Additionally,
at April 30, 2006 and July 31, 2005, Notes Payable, Accounts Payable,
representing lease payments, and Accrued Interest Payable to WFLP are
reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
2006 2005 2006 2005
-------- -------- -------- --------
(in thousands)
Lease Expense $ 11 $ 11 $ 21 $ 23
Interest Expense $ 45 $ 7 $ 99 $13
Balance
April 30, July 31,
2006 2005
-------- --------
Notes Payable $2,685 $1,381
Accounts Payable $ 181 $ 149
Accrued Interest Payable $ 123 $ 18
Directors Frank E. Williams, Jr. and Stephen N. Ashman are
shareholders and directors of a commercial bank from which the Company
obtained a $240,000 note payable on December 23, 2002. The note is
payable in sixty equal monthly payments of principal of $4,000 plus
interest at the current Prime Rate plus .75%, which was 8.5% at April
30, 2006. The note, which replaced an existing note payable that had a
higher interest rate and payment, was negotiated at arms length under
normal commercial terms. Interest expense for the three and nine months
ended April 30, 2006 and 2005 is reflected below. The balance
outstanding at April 30, 2006 and July 31, 2005 is also reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
2006 2005 2006 2005
-------- -------- -------- --------
(in thousands)
Interest Expense $2 $3 $7 $9
Balance
April 30, July 31,
2006 2005
-------- --------
Note Payable $80 $116
Directors
On January 1, 2006, the Company executed notes payable to the non
- -employee members of the Board of Directors, excluding Frank E.
Williams, Jr., for unpaid director related fees totaling $60,000. The
notes accrue interest at 7% and are payable by September 1, 2006.
3. SEGMENT INFORMATION
Information about the Company's operations for the three and nine
months ended April 30, 2006 and 2005 is as follows (in thousands):
Three Months Ended Nine Months Ended
April 30, April 30,
2006 2005 2006 2005
-------- -------- -------- --------
Revenues:
Construction $3,856 $5,443 $12,078 $16,589
Manufacturing 7,361 8,560 23,630 25,538
Other 562 242 954 701
-------- -------- -------- --------
11,779 14,245 36,662 42,828
-------- -------- -------- --------
Intersegment revenues:
Construction 531 741 1,346 2,344
Manufacturing 341 1,225 871 2,827
Other 142 154 427 475
-------- -------- -------- --------
1,014 2,120 2,644 5,646
-------- -------- -------- --------
Consolidated revenues:
Construction 3,325 4,702 10,732 14,245
Manufacturing 7,020 7,335 22,759 22,711
Other 420 88 527 226
-------- -------- -------- --------
Total Consolidated
Revenues $10,765 $12,125 $34,018 $37,182
-------- -------- -------- --------
Operating income (loss):
Construction $ 48 $ 418 $ 60 $ 411
Manufacturing 429 (817) 1,586 (2,020)
-------- -------- -------- --------
Consolidated operating
income (loss) 477 (399) 1,646 (1,609)
General corporate expense, net (69) (582) (761) (408)
Interest expense (333) (247) (780) (635)
Income tax provision - (2,589) - (3,089)
Minority interests (13) (5) (25) (17)
-------- -------- -------- --------
Coporate income (loss) $62 $(3,822) $80 $(5,758)
-------- -------- -------- --------
The majority of revenues are derived from projects on which the
Company is a subcontractor of a material supplier, contractor or
subcontractor. Where the Company acts as a subcontractor, it is invited
to bid by firms seeking construction services or materials. Therefore,
it is important to maintain favorable business relations with those
firms. Over a period of years, the Company has established such
relationships with a number of companies. During the nine months ended
April 30, 2006, two customers in the manufacturing segment accounted for
21% and 16% of total "consolidated revenue" and 32% and 24% of
"manufacturing revenue". One customer in the construction segment
accounted for 11% of "consolidated revenue" and 36% of "construction
revenue". For the nine months ended April 30, 2005, two customers in the
manufacturing segment accounted for 28% and 15% of total "consolidated
revenue" and 46% and 25% of "manufacturing revenue". Two customers in
the construction segment accounted for 16% and 11% of "construction
revenue".
The Company's bridge girder subsidiary is dependent upon one
supplier of rolled steel plate. The Company's stay-in-place metal
decking subsidiary has several suppliers of galvanized rolled steel. The
Company strives to maintain good relations with these vendors, generally
receiving orders on a timely basis at reasonable cost for this market.
If the relations with these vendors were to deteriorate or the vendors
were to go out of business, the Company would have trouble meeting
contract deadlines. Other major suppliers of rolled steel plate have
limited excess production available to "new" customers.
4. INVENTORIES
Materials inventory consists of structural steel, steel plates and
galvanized steel coils. Cost of materials inventory is accounted for
using either the specific identification or the average cost method. The
cost of supplies inventory is accounted for using the first-in, first-
out, (FIFO) method. No significant amount of inventory is included in
contracts in process.
5. PURCHASE OF ASSETS
During the nine months ended April 30, 2006, the Company
capitalized Property and Equipment, for use in its operations, of
approximately $184,000, which was mainly for capital repairs to
equipment.
6. SALE-LEASEBACK TRANSACTIONS
On September 23, 2005, the Company sold its Richmond, Virginia
property for $2,750,000 to the Company's founder and largest
shareholder, and concurrently entered into an agreement to lease the
property back at $228,000 per year through April 30, 2011, subject to
increases related to the variable interest rate in the buyer's
financing. In addition, the Company received an option to buy the
property back any time during the lease term for the same price for
which it was sold. Consideration equal to the full purchase price was
received at closing. Because the Company has an option to repurchase the
property at the same price for which it was sold and therefore has the
ability to benefit from future appreciation in the value of the
property, and because the present value of future payments is
significantly less than the property's fair value, the transaction has
been accounted for as a financing transaction. As a result,
consideration received from the purchaser is included in the
accompanying consolidated balance sheet as a financing obligation and
payments made under the lease are being treated as interest expense (at
an effective rate of approximately 8.7%). A sale will be recognized if
and when the Company's lease and related option to repurchase expire.
The land and building in this transaction are included in property
and equipment as follows:
Balance
April 30,
2006
--------
(In thousands)
Land $ 357
Building & improvements 2,190
--------
Total property at cost 2,547
Less: Accumulated depreciation (1,463)
--------
Property, net $1,084
========
Depreciation on the building will continue to be charged to
operations until a sale has been recognized.
Future minimum payments required under the leaseback, as of
April 30, 2006, are due as follows:
During the year ending April 30:
2007 $ 228
2008 228
2009 228
2010 228
2011 228
-------
Total $1,140
Interest expense relating to this financing agreement was $57,000
and $138,000 for the three and nine months ended April 30, 2006,
respectively.
Prior to the quarter ended April 30, 2006, Mr. Williams, Jr. and
two officers of the Company formed a company named "FlexLease LLC" to
address crane finance and lease defaults and to assist with financing
and disposing of cranes and other assets. All transactions with
FlexLease were approved in advance by the Company's independent
directors. On November 30, 2005, FlexLease acquired four cranes, two of
which were leased by the Company, for aggregate consideration of
$950,000. The cranes were leased back to the company for approximately
$7,000 per month, subject to the Company's right to buy each crane for
the amount paid by FlexLease plus a fee of 1%-2% depending on when such
right is exercised. Three of the cranes were expected to remain in
company operations. The fourth was sold to an unaffiliated third party
subsequent to the quarter ended January 31, 2006. The deferred gains on
the transactions with FlexLease are shown as "Financing obligations
resulting from sale-leaseback transactions" under Current and Long Term
Liabilities on the Condensed Consolidated Balance Sheet.
During the quarter ended April 30, 2006, FlexLease acquired three
additional Company cranes including one of which was leased, for
approximately $1.4 million. The Company will lease back the two owned
cranes for approximately $11,000 per month for the next nine months and
$28,000 per month for five years subject to the Company's right to buy
the cranes for the amount paid plus a fee of 1-3% depending on when such
right is exercised. The crane that was previously leased was leased back
to the Company for approximately $3,000 per month for six months,
subject to the right to buy the crane for the amount paid by FlexLease
plus a 1% fee.
FlexLease owes the Company approximately $6,000 at April 30, 2006
related to this transaction.
The Company cranes, in these transactions, are included in property
and equipment as follows:
Balance
April 30,
(In thousands) 2006
--------
Cranes & Heavy Equipment $ 2,342
Less: Accumulated depreciation (1,085)
--------
Property, net $1,257
========
Depreciation on the previously owned cranes will continue to be
charged to operations until a sale has been recognized.
7. Extraordinary Item
During the three months ended January 31, 2005, the Company
recognized income of $828,000 on the write-off of debt on which the
statute of limitations had run. The debt was a bank loan, which was
personally obtained by Frank E. Williams, Jr. for the Company, and for
which he was indemnified by the Company. In 1995, Mr. Williams, Jr. was
released from the loan by the bank, leaving the Company directly liable.
The bank failed to pursue collection of the loan, and in the opinion of
counsel, the bank is now precluded from collection of this debt. In
prior periods, the loan had been carried in "Other liabilities" on the
Balance Sheet.
8. COMMON STOCK OPTIONS
At the November 1996 annual meeting, the shareholders approved the
establishment of a new Incentive Compensation Plan (1996 Plan) to
provide an incentive for maximum effort in the successful operation of
the Company and its subsidiaries by their officers and key employees and
to encourage ownership of the common shares of the Company by those
persons. Under the 1996 Plan, 200,000 shares were reserved for issue.
The Company may issue options to non-employee directors on an
annual basis. The options and the shares, issued upon exercise of these
director options, are issued pursuant to Rule 144 of the 1933 Securities
Act.
The Company applied Statement of Financial Accounting Standards
("SFAS") No. 123(R), "Share-Based Payment", which replaced SFAS No. 123
"Accounting for Stock-Based Compensation" as amended by SFAS No. 148,
"Accounting for Stock-Based Compensation-Transition and Disclosure" to
account for its stock option plans. The standard requires public
companies to treat stock options and all other forms of shared-based
payments to employees as compensation costs in the income statement;
however, the approach is similar to the guidance set forth in SFAS No.
123.
Stock options, when issued by the Company, are fully vested at the
time they are granted and expire five years from the date of the grant.
They have exercise prices ranging from the quoted market value to 110%
of the quoted market value on the date of the grant.
The adoption of SFAS No. 123 (R) had no impact on the Company's
condensed consolidated financial statements for the three and nine
months ended April 30, 2006 since there were no grants issued and all
prior grants were fully vested. On January 19, 2006, 25,500 stock
options expired. The Company generally grants options for common stock
at an option price equal to the fair market value of the stock on the
date of grant. The Company's stock option plans are more fully described
in the Company's Annual Report on Form 10-K for fiscal year ended July
31, 2005.
The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model. The Black-Scholes option
valuation model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price
volatility. Because the Company's stock options have characteristics
significantly different from those of traded options, and because
changes in the subjective input assumptions can materially affect the
fair value estimate, the existing models may not be a reliable single
measure of the fair value of its stock options.
At April 30, 2006, the Company had 97,500 stock options outstanding
and exercisable at a weighted average exercise price of $4.23 per share.
The exercise price ranges from $3.55 per share to $5.61 per share. All
unexercised shares expire by January 20, 2010.
9. SUBSEQUENT EVENT
On June 9, 2006, the Company sold to an unaffiliated third party
2.72 acres of its Manassas, Virginia land for $865,000, recording a gain
of approximately $820,000. The net proceeds from the sale of $856,000
was paid to United Bank and will be applied to the July 31, 2006 payment
under the Forbearance Agreement.
10. RECLASSIFICATIONS
Certain Balance Sheet and Statement of Operations items for prior
periods have been reclassified to conform to current period
classifications.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
General
- -------
The subsidiaries of Williams Industries, Inc. provide specialized
services and products for the construction industry. They operate in
the commercial, industrial, governmental and infrastructure construction
markets, with the operating components divided into construction and
manufacturing segments. The services provided include: steel, precast
concrete and miscellaneous metals erection and installation; crane
rental; rigging; fabrication of welded steel plate girders and rolled
beams, "stay-in-place" bridge decking, and light structural and other
metal products.
The Company is facing a liquidity and business crisis after
suffering operating losses for several years. It has utilized its
available sources of operating cash and borrowed approximately $2.7
million from its largest shareholder and his affiliated entities. The
Company is operating under a Forbearance Agreement with its major lender
pursuant to which it owes approximately $4.7 million. During the
quarter ended April 30, 2006, the Company entered into a Second
Amendment to Forbearance Agreement which provides:
(1) The Company make a payment of $250,000 (Payment was made April 4,
2006);
(2) The Company remit $200,000 into a money market account to be drawn
against to pay interest (the account was opened during the quarter);
(3) The term of the Forbearance Agreement be extended through July 31,
2006 (the term was extended to July 31, 2006);
(4) The Williams Family Limited Partnership (WFLP) increase the amount
of its pledge of additional collateral by $758,000 in addition to $1
million pledged in the original agreement (the pledge was increased);
(5) Frank E. Williams, Jr., reaffirm his personal guarantee of $242,000
of the Company's obligations to United Bank (Mr. Williams reaffirmed his
guarantee);
(6) In the event the Company makes an additional principal payment to
the bank of $1 million by July 31, 2006, the term of the Forbearance
Agreement will be extended through December 31, 2006.
On June 9, 2006, the Company sold, to an unaffiliated third party,
2.72 acres of its Manassas, Virginia land for $865,000, recording a gain
of approximately $820,000. The net proceeds from the sale, of $856,000,
was paid to United Bank and will be applied to the July 31, 2006 payment
under the Forbearance Agreement. In addition, the Company has a signed
agreement to sell its remaining ten acres of Bedford, Virginia land for
$155,000. The sale, which is expected to close prior to the end of the
fourth quarter, will generate a net profit of approximately $150,000
with those proceeds being paid to United Bank to satisfy the balance of
the payment under the terms of the Forbearance Agreement.
In addition, the Company is in default on nearly all of its other
debts and leases by virtue of failing to make scheduled payments in a
timely fashion. Because of the Company's financial condition and the
highly competitive market in its areas of operation, there remains
significant risk that the Company may not be able to maintain its level
of operations. The Company operates in an industry where such problems
are common, and where there are large risks related to estimating and
performing work and collecting amounts earned.
During the quarter ended April 30, 2006, FlexLease acquired three
additional Company cranes including one of which was leased, for
approximately $1.4 million. The Company will lease back the two owned
cranes for approximately $11,000 per month for the next nine months and
$28,000 per month for five years subject to the Company's right to buy
the cranes for the amount paid plus a fee of 1-3% depending on when such
right is exercised. The crane that was previously leased was leased back
to the Company for approximately $3,000 per month for six months,
subject to the right to buy the crane for the amount paid by FlexLease
plus a 1% fee.
The Company requires significant working capital to procure
materials for contracts to be performed over relatively long periods,
and for purchases and modifications of specialized equipment.
Furthermore, in accordance with normal payment terms, the Company's
customers often retain a portion of amounts otherwise payable to the
Company as a guarantee of project completion. To the extent the Company
is unable to receive progress payments in the early stages of a project,
the Company's cash flow could be adversely affected. Collecting
progress payments is a common problem in the construction industry as
are short-term cash considerations.
The Company's manufacturing segment produced an operating profit of
$429,00 for the quarter ended April 30, 2006 compared to an operating
loss of $817,000 for the quarter ended April 30, 2005. The increase in
income was attributed to less overhead expense in the Company's bridge
girder subsidiary, which had closed its Bessemer, Alabama plant in
November 2005, and the ability to work on more profitable jobs at each
of the manufacturing subsidiaries. Although cash flow has been affected
by slow payments from customers, the segment's subsidiaries were able to
secure materials necessary to fabricate at efficient levels.
The construction segment produced an operating profit of $48,000
for the quarter ended April 30, 2006 compared to an operating profit of
$418,000 for the quarter ended April 30, 2005. The segment's erection
company was impacted by the close out of several low gross margin contracts
and delays in starting new contracts in its backlog. The crane rental
company continues to be profitable.
Due to acceleration of the Company's line of credit and other
defaulted loans, these loans are now classified as Current portion of
Notes Payable on the Condensed Consolidated Balance Sheet and included
in Total current liabilities.
Material Changes in Financial Condition
- --------------------------------------
For the nine months ended April 30, 2006, the following changes
occurred:
The Company's Cash and Cash Equivalents increased $392,000. The
Company borrowed $680,000, during the quarter ended April 30, 2006, to
fund ongoing operations and to set up a money market account with United
Bank to make interest payments on its note obligation. The balance in
the account at April 30, 2006 was approximately $160,000.
Accounts Receivable increased approximately $1.8 million from
increased billings and slower collections in the manufacturing segment.
Inventory decreased $2.6 million as the Company used and/or shipped
steel plate and galvanized steel coils to produce its work, mainly on
the I95/395/495 Springfield Interchange and the Woodrow Wilson Bridge
contracts. The Company believes it has adequate inventory on hand and on
order to meet current needs.
Property and Equipment, at Cost decreased approximately $2.2
million as the Company sold eight cranes with a cost of approximately
$2.2 million. The Company sold manufacturing equipment with a cost of
$141,000. The Company purchased or capitalized major repairs on
equipment amounting to $184,000.
Prepaid and Other Assets increased $127,000 as the Company financed
its workers' compensation insurance premiums for the current policy
year.
Other Assets increased $179,000 from the deferral of financing fees
related to the Richmond property sale and the deferral of future capital
repair costs on equipment.
At April 30, 2006, the Company had approximately $7.9 million in
variable rate notes payable. Total Notes Payable increased $834,000
during the nine months ended April 30, 2006. The Company borrowed
approximately $8.1 million which included the financing obligation
resulting from the sale-leaseback transaction of $2.8 million, $1.7
million used to finance annual insurance renewals, $605,000 borrowed to
fund prior years workers' compensation insurance payments, $2.6 million
borrowed from related parties to fund operations and $440,000 for
operations. The Company repaid $7.3 million, of which approximately $2
million was paid from the proceeds of the Richmond, Virginia property
sale, $2.6 million from crane sales and $2.7 million from operations.
Accounts Payable increased $1.2 million related to the increase in
Accounts Receivable of $1.8 million above.
Billings In Excess of Costs and Estimated Earnings on Uncompleted
Contracts net of Costs and Estimated Earnings in Excess of Billings,
decreased $5.3 million, mainly related to billings associated with the
completion of the I-95/395/495 contract.
Stockholders' Equity increased $94,000 to $5 million due to the
profit of $80,000 for the nine months ended April 30, 2006, and the
issuance of stock under the Company's Stock Purchase Plan of $14,000.
For the nine months ended April 30, 2006, the Company generated net
cash of $392,000. It used $2.2 million in operations. It generated $1.7
million from investing activities, mainly from the sale of eight heavy
lift cranes. The Company generated net cash of approximately $800,000
from financing activities, as it borrowed $8.1 million and repaid $7.3
million. The borrowings included financing insurance premiums and
expenses of $2.3 million, other operational borrowings of $400,000, and
$2.6 borrowed from related parties for operations. The balance of the
borrowing was due to the sale and leaseback of the Company's Richmond,
Virginia property for $2.8 million, treating the sale as a financing
transaction due to the leaseback and option to repurchase the property.
Material Changes in Results of Operations
- ----------------------------------------
Three Months Ended April 30, 2006 Compared to
Three Months Ended April 30, 2005
For the quarter ended April 30, 2006, the Company reported a
decrease in revenues, an increase in gross profit and gross profit
percentage and an increase in its net income when compared to the
quarter ended April 30, 2005.
The Company reported net income of $62,000, or $0.02 per share, on
total revenue of $10.8 million for 2006 as compared to a net loss of
$3.8 million, or $1.05 per share, on total revenue of $12.1 million for
2005. Included in the loss for 2005 was the reversal of $2.6 million of
tax benefit.
In the manufacturing segment, while revenues decreased $315,000,
gross profit increased $881,000 and gross profit percentage increased
from 16.2% in 2005 to 29.5% in 2006 as the segment's subsidiaries
fabricated steel under contracts with more favorable gross margins.
Operating income increased by approximately $1.2 million from a loss of
$817,000 for 2005 to income of $429,000 for 2006. The Company's bridge
girder subsidiary continued work on its remaining backlog, including its
Woodrow Wilson Bridge contract outside of Washington, DC. The Company's
other manufacturing subsidiaries were also more profitable as material
prices stabilized and they worked on more profitable contracts.
Construction segment revenues declined $1.4 million when the two
quarters are compared. Gross profit decreased $432,000 and the gross
profit percentage increased from 34% in 2005 to 35% in 2006. The
segment's crane rental subsidiary continued to be profitable as it
operated on lower direct cost, overhead expense and interest expense
related to its crane sales during the year. The segments erection
subsidiary operated at a loss as contracts were delayed and it closed
out older less profitable contracts. The segment's operating income fell
to $48,000 for 2006 from $418,000 for 2005.
Overhead decreased $381,000 due in part to the close down of the
Company's Bessemer, Alabama plant, which was operational in 2005, as
well as a reduction in the construction segment, related to the crane
rental operation.
General and Administrative expenses decreased $95,000, mainly in
the Company's manufacturing segment where it reduced costs.
Depreciation expense decreased $132,000 related to equipment sales
over the past four quarters, the close down of the Bessemer, Alabama
plant and fewer depreciable assets.
Interest expense increased $86,000 due to higher interest rates.
Nine Months Ended April 30, 2006 Compared to
Nine Months Ended April 30, 2005
For the nine months ended April 30, 2006, the Company reported a
decrease in revenue, an increase in gross profit and gross profit
percentage and an increase in its net income when compared to the nine
months ended April 30, 2005.
The Company reported net income of $80,000, or $0.02 per share, on
total revenue of $34 million for 2006 as compared to a net loss of $5.8
million, or $1.58 per share, on total revenue of $37.2 million for 2005.
Included in the loss for 2005 was a gain on extinguishment of debt of
$828,000, related to the write off of debt, and the reversal of $3.1
million of tax benefit.
In the manufacturing segment, revenues, gross profit and gross
profit percentage were not significantly different when 2006 is compared
to 2005. Operating income increased by approximately $3.6 million from a
loss of $2 million for 2005 to a profit of $1.6 for 2006. During 2006,
the Company's bridge girder subsidiary's Manassas, Virginia plant
substantially completed work on the I-95/395/495 contract, which had
operated at a loss during the prior year, and resumed work on its
remaining backlog. It also completed the closedown of its Bessemer,
Alabama plant, selling all remaining assets and terminating all lease
obligations without further liability to the Company. The Alabama plant
had operated at a loss. The Company's two other manufacturing
subsidiaries were also more profitable as material prices have
stabilized and they worked on more profitable contracts.
Construction segment revenues declined $3.5 million when the
periods are compared. Gross profit decreased $865,000 and the gross
profit percentage increased from 29.7% in 2005 to 31.3% in 2006. The
segment's crane rental subsidiary was profitable as it sold ten owned
cranes, three leased cranes and other excess equipment. These sales
resulted in lower interest, lease expense and maintenance cost. The
segment's steel erection subsidiary was not profitable as contracts have
been delayed and it worked on contracts with low profit margins. The
segment's operating profit was approximately $60,000 for 2006 compared
to an operating profit of $411,000 for 2005.
Overhead decreased $1.4 million due partly to labor and other costs
that were charged directly to the Company's bridge girder fabrication
company's I-95/395/495 contract. Since that was the only contract the
Company's Manassas, Virginia plant worked during the first four months
of the nine months ended April 30, 2006, all resources of labor and
other costs were charged directly to that contract. There were
additional savings due to the close down, in November 2005, of the
Company's Bessemer, Alabama plant. There was a reduction of
approximately $280,000 in the construction segment due to lower labor
and related costs.
General and Administrative expenses decreased $486,000, due mainly
to lower professional fees and other cost reductions in the
manufacturing segment.
Depreciation expense decreased $355,000 related to equipment sales
over the past four quarters, the close down of the Bessemer, Alabama
plant and fewer depreciable assets.
Interest expense increased $145,000 due to higher interest rates.
BACKLOG
At April 30, 2006, the Company's backlog was $26 million, a
decrease of approximately $25 million from April 2005 and $13 million
from July 31, 2005. It is anticipated that substantially all of the $26
million backlog will be completed within the next twelve months.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company's cash equivalents, invested in interest-bearing
instruments, are presented at fair value on the Company's balance
sheets. The Company's exposure to market risks for changes in interest
rates relate primarily to these investments and current and long-term
debt.
Item 4. Controls and Procedures
As of April 30, 2006, an evaluation was performed under the
supervision and with the participation of the Company's management,
including Chief Executive Officer (CEO) and Controller, of the
effectiveness of the design and operation of the Company's disclosure
controls and procedures. Based on that evaluation, the Company's
management, including the CEO and Controller, concluded that the
disclosure controls and procedures were effective as of April 30, 2006.
There have been no significant changes in the Company's internal
controls or in other factors that could significantly affect internal
controls subsequent to April 30, 2006.
Disclosure controls and procedures are the Company's controls and
procedures that are designed to ensure that information required to be
disclosed by the Company in the reports that it files or submits under
the Exchange Act, is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's
rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information
required to be disclosed by the Company in the reports that it files
under the Exchange Act are accumulated and communicated to management,
including the principal executive officers and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.
Safe Harbor for Forward-Looking Statements
The Company is including the following cautionary statements to
make applicable and take advantage of the safe harbor provisions within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 for any forward-looking
statements made by, or on behalf of, the Company in this document and
any materials incorporated herein by reference. Forward-looking
statements include statements concerning plans, objectives, goals,
strategies, future events or performance and underlying assumptions and
other statements, which are other than statements of historical facts.
Such forward-looking statements may be identified, without limitation,
by the use of the words "anticipates," "estimates," "expects,"
"intends," and similar expressions. From time to time, the Company or
one of its subsidiaries individually may publish or otherwise make
available forward-looking statements of this nature. All such forward-
looking statements, whether written or oral, and whether made by or on
behalf of the Company or its subsidiaries, are expressly qualified by
these cautionary statements and any other cautionary statements which
may accompany the forward-looking statements. In addition, the Company
disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
Forward-looking statements made by the Company are subject to risks
and uncertainties that could cause actual results or events to differ
materially from those expressed in, or implied by, the forward-looking
statements. These forward-looking statements may include, among others,
statements concerning the Company's revenue and cost trends, cost
reduction strategies and anticipated outcomes, planned capital
expenditures, financing needs and the availability of such financing,
and the outlook for future activity in the Company's market areas.
Investors or other users of forward-looking statements are cautioned
that such statements are not a guarantee of future performance by the
Company and that such forward-looking statements are subject to risks
and uncertainties that could cause actual results to differ materially
from those expressed in, or implied by, such statements. Some, but not
all of the risks and uncertainties, in addition to those specifically
set forth above, include general economic and weather conditions, market
prices, environmental and safety laws and policies, federal and state
regulatory and legislative actions, tax rates and policies, rates of
interest and changes in accounting principles or the application of such
principles to the Company.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
General
The Company is party to various claims arising in the ordinary
course of its business. Generally, claims exposure in the construction
services industry consists of workers' compensation, personal injury,
products' liability and property damage. The Company believes that its
insurance and other expense accruals, coupled with its primary and
excess liability coverage, provide adequate coverage for such claims or
contingencies.
The Company is operating under a Forbearance Agreement with its
major lender pursuant to which it owes approximately $4.7 million.
During the quarter ended April 30, 2006, the Company entered into a
Second Amendment to Forbearance Agreement which provides:
(1) The Company make a payment of $250,000 (Payment was made April 4,
2006);
(2) The Company remit $200,000 into a money market account to be drawn
against to pay interest (the account was opened during the quarter);
(3) The term of the Forbearance Agreement be extended through July 31,
2006 (the term was extended to July 31, 2006);
(4) The Williams Family Limited Partnership (WFLP) increase the amount
of its pledge of additional collateral by $758,000 in addition to $1
million pledged in the original agreement (the pledge was increased);
(5) Frank E. Williams, Jr., reaffirm his personal guarantee of $242,000
of the Company's obligations to United Bank (Mr. Williams reaffirmed his
guarantee);
(6) In the event the Company makes an additional principal payment to
the bank of $1 million by July 31, 2006, the term of the Forbearance
Agreement will be extended through December 31, 2006.
On June 9, 2006, the Company sold, to an unaffiliated third party,
2.72 acres of its Manassas, Virginia land for $865,000, recording a gain
of approximately $820,000. The net proceeds from the sale, of $856,000,
was paid to United Bank and will be applied to the July 31, 2006 payment
under the Forbearance Agreement. In addition, the Company has a signed
agreement to sell its remaining ten acres of Bedford, Virginia land for
$155,000. The sale, which is expected to close prior to the end of the
fourth quarter, will generate a net profit of approximately $150,000
with those proceeds being paid to United Bank to satisfy the balance of
the payment under the terms of the Forbearance Agreement.
As a result of payment and other alleged defaults, the Company has
been negotiating with CIT Group, who has offered to restructure a note
secured by three heavy lift cranes and to waive defaults on a note
secured by another crane. These notes totaled approximately $1.1 million
at January 31, 2006. The Company expects to enter into an agreement
along the lines offered by CIT, providing that the Company will sell one
of the three cranes, restructure the payments on the two remaining
cranes, and continue making payments under the other note.
As a result of payment and other alleged defaults, the Company had
been negotiating with Financial Federal Credit, Inc. (FFCI), who offered
to restructure two notes which were secured by five cranes. Three of the
cranes were sold by the Company for approximately $560,000 during the
quarter ended October 31, 2005 and the proceeds paid to FFCI. After FFCI
filed suit to collect the remaining amounts it claimed, the Company
entered into a settlement agreement providing for payment of $100,000
which was delivered, and further payment of $1,009,000 due not later
than March 17, 2006, or else the Company has agreed to entry of a
judgment for $1,067,000 and possession of the cranes at issue. On March
17, 2006, in order to raise the funds necessary to pay FFCI, the Company
sold the two cranes to an entity owned by related parties, and leased
back to the Company for approximately $11,000 per month for nine months,
then $28,000 per month for five years subject to the Company's right to
buy the cranes for the amount paid plus a fee of 1%-3% depending on when
such right is exercised.
ITEM 2. Changes in Securities and Use of Proceeds
On October 18, 2005, the Company received notice from NASDAQ that
it was not in compliance with certain continued listing criteria for the
NASDAQ National Market per Marketplace Rule 4450(a)(3). Specifically,
the notice stated that the stockholder's equity at July 31, 2005, as
published in the Company's Form 10-K filed on October 14, 2005, was less
than the required $10 million.
Subsequent to the Company's appeal to a NASDAQ panel, NASDAQ ruled
that the Company's stock should be transferred to the NASDAQ Capital
Market. The Company's stock began trading on the NASDAQ Capital Market
on February 21, 2006.
ITEM 3. Defaults Upon Senior Securities
United Bank: The Company is operating under a Forbearance Agreement with
its major lender pursuant to which it owes approximately $4.7 million.
During the quarter ended April 30, 2006, the Company entered into a
Second Amendment to Forbearance Agreement which provides:
(1) The Company make a payment of $250,000 (Payment was made April 4,
2006);
(2) The Company remit $200,000 into a money market account to be drawn
against to pay interest (the account was opened during the quarter);
(3) The term of the Forbearance Agreement be extended through July 31,
2006 (the term was extended to July 31, 2006);
(4) The Williams Family Limited Partnership (WFLP) increase the amount
of its pledge of additional collateral by $758,000 in addition to $1
million pledged in the original agreement (the pledge was increased);
(5) Frank E. Williams, Jr., reaffirm his personal guarantee of $242,000
of the Company's obligations to United Bank (Mr. Williams reaffirmed his
guarantee);
(6) In the event the Company makes an additional principal payment to
the bank of $1 million by July 31, 2006, the term of the Forbearance
Agreement will be extended through December 31, 2006.
On June 9, 2006, the Company sold, to an unaffiliated third party,
2.72 acres of its Manassas, Virginia land for $865,000, recording a gain
of approximately $820,000. The net proceeds from the sale, of $856,000,
was paid to United Bank and will be applied to the July 31, 2006 payment
under the Forbearance Agreement. In addition, the Company has a signed
agreement to sell its remaining ten acres of Bedford, Virginia land for
$155,000. The sale, which is expected to close prior to the end of the
fourth quarter, will generate a net profit of approximately $150,000
with those proceeds being paid to United Bank to satisfy the balance of
the payment under the terms of the Forbearance Agreement.
In order to fund the repayment of the United Bank notes, the
Company is pursuing various financing options, including conventional,
asset-based, and equity secured financing. Because of the Company's
financial condition, management believes that the cost of debt may be
higher than normal market rates.
Equipment Notes/Leases. Elsewhere in this document and in the
quarterly filings for October 31, 2005 and January 31, 2006, the Company
described the status of its notes and leases with several other
equipment lenders and lessors. The Company continues to pursue
negotiations with these parties and the sale and/or refinancing of
equipment as necessary to meet or satisfy its obligations.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 31.1 Section 302 Certification for
Frank E. Williams, III
Exhibit 31.2 Section 302 Certification for
Christ H. Manos
Exhibit 32.1 Section 906 Certification for
Frank E. Williams, III and
Christ H. Manos
Exhibit 99 Press Release announcing
third quarter earnings
(b) Reports on Form 8-K
(1) March 6, 2006
Item 2.04. Announcing that the Company failed to make its
payment of approximately $4.8 million on March 6, 2006 to United
Bank under its Forbearance Agreement dated June 30, 2005, as
amended September 30, 2005.
(2) June 15, 2006
Item 8.01 Other Events, reporting the sale of 2.72 acres of
real property on June 9, 2006, and the payment of $856,000 to
United Bank.
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 by the
undersigned thereunto duly authorized:
June 20, 2006 Williams Industries, Incorporated
--------------------------------
Registrant
/s/ Frank E. Williams, III
--------------------------------
Frank E. Williams, III
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial Officer