UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10Q/A
Quarterly Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For quarterly period ended April 30, 2008
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 a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of "large accelerated filer and
accelerated filer" in Rule 12b-2 of the Exchange Act.
Large accelerated filer __ Accelerated filer __
Non-accelerated filer _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, 2008, the Registrant had outstanding 3,666,850
shares of Common Stock.
WILLIAMS INDUSTRIES, INCORPORATED
FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2008
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets -
April 30, 2008 and July 31, 2007 (Unaudited) ....... 1
Condensed Consolidated Statements of Operations -
Three and nine months ended April 30, 2008 and
2007 (Unaudited) ............................. 2
Condensed Consolidated Statements of Cash Flows -
Nine months ended April 30, 2008 and 2007 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements
(Unaudited)......................................... 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS 24
ITEM 4T. CONTROLS AND PROCEDURES 24
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS............................. 25
ITEM 1A. RISK FACTORS................................... 26
ITEM 2. UNREGISTERED SALES OF EQUITY IN SECURITIES
AND USE OF PROCEEDS............................. 26
ITEM 3. DEFAULTS UPON SENIOR SECURITIES................ 26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS............................... 27
ITEM 5. OTHER INFORMATION............................... 27
ITEM 6. EXHIBITS........................................ 27
CERTIFICATIONS AND SIGNATURES............................ 28
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited - in thousands except share data)
ASSETS
--------
April 30, July 31,
2008 2007
---------- ----------
CURRENT ASSETS
Cash and restricted cash $ 720 $ 694
Accounts receivable, net 14,535 13,988
Inventory 3,091 2,105
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,226 2,602
Prepaid and other assets 887 787
---------- ----------
Total current assets 21,459 20,176
---------- ----------
PROPERTY AND EQUIPMENT, AT COST 21,448 22,010
Accumulated depreciation (14,711) (14,485)
---------- ----------
Property and equipment, net 6,737 7,525
---------- ----------
OTHER ASSETS 187 99
---------- ----------
TOTAL ASSETS $ 28,383 $ 27,800
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current portion of notes payable
Unaffiliated third parties $ 6,902 $ 5,907
Related parties 3,903 3,323
Accounts payable 7,168 6,831
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,842 1,308
Financing obligations resulting from
sale-leaseback transactions 264 314
Other liabilities 2,945 2,894
---------- ----------
Total current liabilities 23,024 20,577
LONG-TERM LIABILITIES
Notes payable, less current portion
Unaffiliated third parties 164 403
Financing obligations resulting from
sale-leaseback transactions 3,806 3,957
---------- ----------
Total Liabilities 26,994 24,937
---------- ----------
MINORITY INTEREST 40 168
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock -3,669,442 and 3,666,850
shares issued and outstanding 367 366
Additional paid-in capital 16,643 16,638
Accumulated deficit (15,661) (14,309)
Total stockholders' equity 1,349 2,695
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,383 $ 27,800
========== ==========
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,
2008 2007 2008 2007
-------- -------- -------- --------
REVENUE
Manufacturing $ 6,628 $ 6,953 $19,180 $19,805
Construction 2,845 4,457 9,516 10,923
Other 18 64 43 245
-------- -------- -------- --------
Total revenue 9,491 11,474 28,739 30,973
-------- -------- -------- --------
DIRECT COSTS
Manufacturing 4,442 4,889 12,570 14,389
Construction 1,815 3,552 6,788 8,057
-------- -------- -------- --------
Total direct costs 6,257 8,441 19,358 22,446
-------- -------- -------- --------
GROSS PROFIT 3,234 3,033 9,381 8,527
-------- -------- -------- --------
GAIN ON LAND SALE - - - 1,136
-------- -------- -------- --------
EXPENSES
Overhead 1,235 1,142 3,668 3,502
General and administrative 1,860 1,872 5,129 5,440
Depreciation 330 366 1,038 1,136
Interest 262 305 871 738
-------- -------- -------- --------
Total expenses 3,687 3,685 10,706 10,816
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES
AND MINORITY INTEREST (453) (652) (1,325) (1,153)
INCOME TAX PROVISION - - - -
-------- -------- -------- --------
LOSS BEFORE MINORITY INTEREST (453) (652) (1,325) (1,153)
Minority interest (12) (8) (27) (18)
-------- -------- -------- --------
NET LOSS $ (465) $ (660) $(1,352) $(1,171)
======== ======== ======== ========
NET LOSS PER COMMON SHARE:
LOSS PER COMMON SHARE-BASIC $ (0.13) $ (0.18) $ (0.37) $ (0.32)
======== ======== ======== ========
LOSS PER COMMON SHARE-DILUTED $ (0.13) $ (0.18) $ (0.37) $ (0.32)
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING: BASIC AND DILUTED 3,666,879 3,662,783 3,666,859 3,659,810
--------- --------- --------- ---------
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited in thousands)
Nine Months Ended
April 30, April 30,
2008 2007
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,352) $ (1,171)
---------- ----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 601 (1,284)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property,
plant and equipment (352) (789)
Proceeds from sale of property,
plant and equipment 143 1,678
---------- ----------
NET CASH (USED IN) PROVIDED BY
INVESTING ACTIVITIES (209) 889
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from borrowings 14,252 7,933
Repayments of notes payable (13,117) (7,031)
Issuance of common stock 6 25
Minority interest in dividends (155) (30)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 986 897
---------- ----------
NET INCREASE (DECREASE) IN CASH 26 (669)
CASH, BEGINNING OF PERIOD 694 952
---------- ----------
CASH, END OF PERIOD $ 720 $ 283
========== ==========
See Notes To Condensed Consolidated Financial Statements
WILLIAMS INDUSTRIES, INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 2008
1. INTERIM FINANCIAL STATEMENTS AND COMPANY LIQUIDITY
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, 2008 and July 31, 2007 and the results of its operations for
the three and nine months ended April 30, 2008 and 2007, respectively; and
its cash flows for the nine months ended April 30, 2008 and 2007,
respectively. Operating results for the three and nine months ended April 30,
2008 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, 2007.
During its regular meeting on March 7, 2007, the Williams Industries
Board of Directors, after reviewing the current and future costs of remaining
a public corporation, approved the appointment of a committee of independent
directors to explore the possibility of taking the company private. On
January 10, 2008, The Williams Industries Board of Directors and the
committee of independent directors approved the filing of a preliminary
Schedule 13E-3 with the Securities and Exchange Commission (the "SEC") to
reflect a proposed odd-lot tender offer by the Company, which, if fully
subscribed, would result in the Company being able to file a Form 15 to cease
its reporting obligations. The Company is currently responding to comments
from the Staff of the SEC regarding the Schedule 13E-3.
Williams Industries, Incorporated (the Company) continues to face a
liquidity and business crisis, after suffering operating losses for several
years, tapping its available sources of operating cash, and borrowing $3.6
million from its largest shareholder. The Company is operating under a
Forbearance Agreement with its major lender, United Bank, pursuant to which
approximately $1.9 million was outstanding at April 30, 2008 and is scheduled
to be repaid by August 1, 2008. Under the current "Fifth Amendment to
Forbearance Agreement" the Bank has agreed that if the Company obtains a real
estate appraisal of at least 300% of the remaining balance and posts a
$100,000 CD as additional collateral, the Bank will release all collateral
other than real estate and "term out" the $1.9 million remaining through
August 1, 2011, with interest payable monthly and annual principal
curtailments of $300,000.
In addition, the Company has been in default of nearly all of its other
debts and leases. Many of these obligations have been replaced with related
party loans and leases which are not expected to result in delinquency
actions or seizure of the collateral. Because of the Company's financial
condition and uncertain market conditions in its areas of operation, there
remains a significant risk that the Company may not be able to book
additional work to maintain its level of operations. The Company operates in
an industry where there are large risks related to estimating and performing
work and collecting amounts earned. The Company may continue to suffer
operating losses and have difficulty meeting its obligations.
Since January 2008, the Company's steel plate and rolled steel suppliers
have increased their prices by at least 70%. Because of these increases, the
Company's manufacturing subsidiaries have withdrawn or cancelled quotations,
bids or contracts where customers were not willing to adjust the contract
prices for steel price escalation. While the Company is including material
escalation clauses in its quotations and bids, not all its customers are
accepting these clauses, limiting the amount of work the Company can obtain.
In view of the Company's liquidity problems and in order to fund the
repayment of the United Bank notes, the Company is pursuing various financing
options, including conventional and asset-based financing, and exploring its
strategic options relative to the sale of individual assets or subsidiaries.
For example, the Company's present use of its land in Manassas, Virginia may
not be its "highest and best" use. Based on the sale price of the 3-acre
parcel sold in June 2006, the value of the Company's real property in
Manassas, Virginia may exceed $15 million. However, due to recent changes in
the real estate market, the value realized from the sale in June 2006 may not
reflect the value that would be realized at the present time. Management has
not ruled out any measure that may be necessary to protect the Company's
assets and preserve shareholder value.
As of this filing, the Company's three manufacturing subsidiaries have
made principal payments to United Bank to release their individual assets
from the Company's corporate financing. One of the subsidiaries has obtained
high interest, asset-based financing to meet its cash needs, which may limit
its ability to assist the parent company in meeting its remaining obligations
on the United Bank debt. The principal payments made by the three
manufacturing subsidiaries to United Bank, including a payment made through
the sale/leaseback of the Company's Richmond facility, have aggregated $2.5
million.
2. RELATED-PARTY TRANSACTIONS
The Company is obligated to the Williams Family Limited Partnership
(WFLP) under a lease agreement for real property, located in Manassas,
Virginia. WFLP is controlled by individuals who own, directly or indirectly,
approximately 55% of the Company's stock. The lease, which had an original
term of five years and an extension option for five years, commenced February
15, 2000. The original term was extended, by agreement, one year to February
2006, and subsequently, on July 31, 2006, the agreement was modified as
follows: (i) the Agreement was extended through February 2010, (ii) unpaid
rent aggregating approximately $200,000 was deferred until September 30,
2007, (iii) Rent payments due after August 1, 2006 (approximately $6,000 per
month), if delinquent, will be subject to a 5% penalty on the payment amount
and will accrue interest at prime plus 3%; (iv) the option to purchase the
property which the Company had under the original lease was terminated and
replaced with an equity sharing formula which in the event of the sale of the
property would yield payment to the Company of 75% of the gain on the ten
acres previously subject to the option; and (v) in the event of a sale,
Williams Bridge shall have the option to continue its lease of the portion of
the property which has been cleared (approximately 2 acres) for the duration
of the lease term. The Company will incur annual rent expense of
approximately $54,000. The Company has not made payments to WFLP for rent
during the fiscal year ended July 31, 2007 and the nine months ended April
30, 2008, therefore those unpaid payments incurred a five percent penalty and
the unpaid amounts accrue interest at the prime interest rate plus three
percent. As reported in Form 8-K filed January 7, 2008, the WFLP has agreed
to extend the balances owed under (ii) above, now aggregating approximately
$315,000, to September 30, 2008.
During the nine months ended April 30, 2008, the Company borrowed
$475,000 from WFLP while repaying $151,000.
Lease and interest expense for the three and nine months ended April 30,
2008 and 2007 are reflected below. Additionally, Notes Payable and Accounts
Payable, representing lease payments to WFLP at April 30, 2008 and July 31,
2007,are reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
(in thousands) 2008 2007 2008 2007
-------- -------- -------- --------
Lease Expense $13 $11 $39 $32
Interest Expense $66 $70 $233 $210
Balance Balance
April 30, July 31,
2008 2007
-------- --------
Notes Payable $3,647 $3,323
Accounts Payable $ 709 $ 659
As reported in Form 8-K filed January 7, 2008, the WFLP has agreed to
extend balances due September 30, 2007, aggregating approximately $3.3
million, to September 30, 2008.
Prior to July 31, 2007, in order to resolve loan and lease defaults, the
Company sold previously owned or leased cranes to FlexLease, LLC, an entity
owned by Director Frank E. Williams, Jr., his son H. Arthur Williams,
President of Williams Steel Erection Company, Inc. and General Counsel Daniel
K. Maller, also a Vice President of Williams Bridge Company. Details of these
transactions have been previously detailed in the Company's 10K for the year
ended July 31, 2007. During the year ended July 31, 2007, the Company entered
into a short-term lease agreement for a crane previously leased by the
Company in contemplation of the sale of the crane on the open market,
providing for the buyout of the crane by FlexLease, with FlexLease to earn a
fee of 3% or to share any proceeds above the appraised value 50/50. This
crane was sold to an unaffiliated third party during the quarter ended
January 31, 2008. The Company received $67,500 on the sale, recording an
immaterial gain, while FlexLease retained a fee of $27,500.
Additionally, during the three months ended January 31, 2008, the
Company entered into a lease/purchase agreement with FlexLease to finance an
additional crane, previously leased by the Company. The negotiated buyout of
the lease was $200,000. The Company agreed to pay FlexLease based on a
capitalized cost of $210,000 with interest at FlexLease's cost of funds + 1%.
In connection with financing this transaction, FlexLease negotiated a lower
rate on two cranes previously financed, which resulted in cost savings to the
Company of approximately $1,000 per month.
These transactions, which were approved by the Company's independent
directors and offered on better terms than available from unrelated lenders
and lessors, include buy-back provisions, which will allow the Company to
pursue alternate financing. These cranes support the construction activities
of the Company. At April 30, 2008, the Company had lease or financing
arrangements with FlexLease on eight cranes.
Lease and interest expense for the three and nine months ended April 30,
2008 and 2007 are reflected below. Additionally, Notes payable and Accounts
payable, representing lease payments at April 30, 2008 and July 31, 2007 are
reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
(in thousands) 2008 2007 2008 2007
-------- -------- -------- --------
Lease Expense $ 49 $ 40 $159 $154
Interest Expense $ 11 $ 34 $ 69 $104
Balance Balance
April 30, July 31,
2008 2007
-------- --------
Financing obligation resulting from
sale-leaseback transaction $922 $1,106
Accounts Payable $214 $154
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.
Mr. Frank E. Williams, Jr., who owned or controlled approximately 51% of
the Company's stock at April 30, 2008, also owns controlling interests in
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,
2008 and July 31, 2007, and revenue earned and costs incurred with these
entities during the three and nine months ended April 30, 2008 and 2007 are
reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
(in thousands) 2008 2007 2008 2007
-------- -------- -------- --------
Revenue $ 5 $162 $357 $736
Billings to entities $ 5 $206 $318 $805
Costs and expenses incurred $86 $ 69 $272 $199
Interest Expense $ 5 $ - $ 15 $ -
Balance Balance
April 30, July 31,
2008 2007
-------- --------
Accounts receivable $762 $965
Notes Payable $256 $ -
Accounts Payable $681 $538
Billings in excess of costs and estimated
earnings on uncompleted contracts net of Costs
and Estimated Earnings in Excess of Billings $ 49 $ 39
Directors Frank E. Williams, Jr. and Stephen N. Ashman are shareholders
and directors of Capital Bank, from which the Company obtained a $602,000
note payable, at 7% interest, on March 10, 2008 to finance workers
compensation insurance premiums. The note was negotiated at arms length under
normal commercial terms. The note is payable in eight monthly installments
with the final payment due November 25, 2008. Previously, the Company had a
note that was paid in full prior to entering into this agreement. Interest
expense for the three and nine months ended April 30, 2008 and 2007,
respectively, is reflected below. The balance outstanding at April 30, 2008
and July 31, 2007 is also reflected below.
Three Months Ended Nine Months Ended
April 30, April 30,
(in thousands) 2008 2007 2008 2007
-------- -------- -------- --------
Interest Expense $6 $1 $7 $5
Balance Balance
April 30, July 31,
2008 2007
-------- --------
Note Payable $467 $21
At April 30, 2008, the Company owed its non-employee members of the
Board of Directors approximately $226,000 for unpaid director fees.
3. SEGMENT INFORMATION
Information about the Company's operations for the three and nine months
ended April 30, 2008 and 2007 is as follows (in thousands):
Three Months Ended Nine Months Ended
April 30, April 30,
2008 2007 2008 2007
-------- -------- -------- --------
Revenues:
Manufacturing $ 6,683 $ 8,097 $19,906 $21,090
Construction 3,235 5,132 10,857 12,591
Other 18 64 43 245
-------- -------- -------- --------
9,936 13,293 30,806 33,926
-------- -------- -------- --------
Intersegment revenues:
Manufacturing 55 1,144 726 1,285
Construction 390 675 1,341 1,668
Other - - - -
-------- -------- -------- --------
445 1,819 2,067 2,953
-------- -------- -------- --------
Consolidated revenues:
Manufacturing 6,628 6,953 19,180 19,805
Construction 2,845 4,457 9,516 10,923
Other 18 64 43 245
-------- -------- -------- --------
Total Consolidated Revenues 9,491 11,474 28,739 30,973
-------- -------- -------- --------
Operating (loss) income:
Manufacturing 260 283 1,254 12
Construction 44 (144) (431) (322)
-------- -------- -------- --------
Consolidated operating income
(loss) 304 139 823 (310)
General corporate expense, net (495) (486) (1,277) (1,241)
Interest expense (262) (305) (871) (738)
Gain on land sale - - - 1,136
Minority interests (12) (8) (27) (18)
-------- -------- -------- --------
Net loss $(465) $(660) $(1,352) $(1,171)
======== ======== ======== ========
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. In the manufacturing
segment, for the nine months ended April 30, 2007, one customer accounted for
16% of "consolidated revenue" and two customers accounted for 25% and 11% of
"manufacturing revenue".
The Company's bridge girder subsidiary is dependent upon one producer of
discrete steel plate and one producer of heavy rolled steel beams for its
product, although the rolled beams are generally purchased through one of
several competitive "warehouse" vendors. The Company maintains good relations
with its vendors, generally receiving orders on a timely basis at reasonable
cost for this market. If the vendors were unwilling or unable to continue
selling steel to the Company, the Company would have trouble meeting
production deadlines in its contracts, as the other major suppliers of these
products have limited excess production available to "new" customers.
Subsequent to October 31, 2007, the Company learned that the discrete
steel plate producer agreed to be acquired by another company. While the
Company did not expect this acquisition to impair its important relationship
with the vendor, subsequently the vendor has changed its payment terms and
forward pricing agreements. In addition, steel prices have recently
escalated sharply, and suppliers have withdrawn or modified pricing
commitments and predictions upon which the Company depends for bidding. These
developments have and may continue to impact the Company's ability to perform
its contracts in an orderly and efficient way and to realize the expected
margins on certain work in its backlog. While the range of the possible
impact is large, management originally expected that the direct impact may be
approximately $250,000 or 5% of approximately $5 million of contracts. The
Company has revised this estimate and now expects the impact to be in the
range of $500,000 to $1 million over the next two quarters. Current and
future bidding is also affected, but because these factors are in place
across the industry the Company expects that the future cost of raw materials
can be estimated so that new work can be awarded. However, prices have
continued to rise and steel producers have implemented "price at the time of
shipment," which introduces additional uncertainty into the estimating and
bidding process. In addition, because of the dynamics of public funding of
infrastructure projects, cost escalation does create additional risk of
projects not being awarded because of overall limits on appropriated funds.
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 majority
of "Inventory" is purchased for specific jobs in the estimated quantity
needed, and the Company does not maintain any substantial non-specific
inventory.
5. PURCHASE OF ASSETS
During the three months ended April 30, 2008, the Company purchased
equipment and capitalized major repairs of equipment of approximately
$152,000 in Property and Equipment.
6. NOTES PAYABLE
During the quarter ended April 30, 2008, the Company entered into the
following financing arrangements:
Williams Bridge Company entered into a Financing Agreement with Summit
Financial Resources, secured by accounts receivable and inventory in the
maximum amount of $3.5 million. The loan, which is due on March 5, 2009,
bears interest at the prime rate of interest plus 1% and each advance is
subject to fees of .4% for each 15 days it is outstanding. Proceeds from the
loan were used to pay United Bank $500,000, to purchase inventory and to fund
operations. There was a balance of $2.7 million outstanding at April 30,
2008.
S.I.P., Inc of Delaware entered in to a $2.5 million Commercial Loan with
EagleBank, at the prime rate of interest plus 1.5%, payable on demand. The
loan is secured by the inventory and accounts receivable of the company and
is guaranteed by Mr. Frank E. Williams, Jr. The proceeds of the note were
used to pay off the subsidiary's note with Summit Financial and to fund
operations. There was a balance of $1.3 million outstanding at April 30,
2008.
Williams Steel Erection executed a Promissory Note with Capital Bank, NA for
$602,164, at 7% interest, payable in eight monthly payments through November
2008. The proceeds of this note were used to pay the subsidiary's workers
compensation insurance premium. There was a balance of $467,000 outstanding
at April 30, 2008.
7. 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 $252,000
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 "Financing
obligations resulting from sale-leaseback transactions" and payments made
under the lease are being treated as rent expense (at an effective rate of
approximately 9.2%). A sale will be recognized if and when the Company's
lease and related option to repurchase expire or terminate.
The land and building in this transaction are included in property and
equipment as follows:
Balance Balance
April 30, July 31,
(In thousands) 2008 2007
---------- ----------
Land $ 357 $ 357
Building & improvements 2,097 2,155
---------- ----------
Total property at cost 2,454 2,512
Less: Accumulated depreciation (1,564) (1,571)
---------- ----------
Property, net $ 890 $ 941
========== ==========
Depreciation on the building and improvements will continue to be
charged to operations until a sale has been recognized.
Future minimum annual payments required under the leaseback, as of April
30, 2008, are as follows:
For the year ending April 30,
2009 $252
2010 252
2011 252
------
Total $756
======
Rent expense relating to this financing agreement was $63,000 and
$57,000 for the three months ended April 30, 2008 and 2007, respectively, and
$189,000 and $171,000 for the nine months ended April 30, 2008 and 2007,
respectively.
Prior to July 31, 2007, in order to resolve loan and lease defaults, the
Company sold previously owned or leased cranes to FlexLease, LLC, an entity
owned by Director Frank E. Williams, Jr., his son H. Arthur Williams,
President of Williams Steel Erection Company, Inc. and General Counsel Daniel
K. Maller, also a Vice President of Williams Bridge Company. Details of these
transactions have been previously detailed in the Company's 10K for the year
ended July 31, 2007. During the year ended July 31, 2007, the Company entered
into a short-term lease agreement for a crane previously leased by the
Company in contemplation of the sale of the crane on the open market,
providing for the buyout of the crane by FlexLease, with FlexLease to earn a
fee of 3% or to share any proceeds above the appraised value 50/50. This
crane was sold to an unaffiliated third party during the quarter ended
January 31, 2008. The Company received $67,500 on the sale, recording an
immaterial gain, while FlexLease retained a fee of $27,500.
Additionally, during the three months ended January 31, 2008, the
Company entered into a lease/purchase agreement with FlexLease to finance an
additional crane, previously leased by the Company. The negotiated buyout of
the lease was $200,000. The Company agreed to pay FlexLease based on a
capitalized cost of $210,000 with interest at FlexLease's cost of funds + 1%.
In connection with financing this transaction, FlexLease negotiated a lower
rate on two cranes previously financed, which resulted in cost savings to the
Company of approximately $1,000 per month.
These transactions, which were approved by the Company's independent
directors and offered on better terms than available from unrelated lenders
and lessors, include buy-back provisions, which will allow the Company to
pursue alternate financing. These cranes support the construction activities
of the Company. At April 30, 2008, the Company had lease or financing
arrangement with FlexLease on eight cranes.
The Company cranes, in these transactions, are included in property and
equipment as follows at April 30, 2008 and July 31, 2007:
Balance Balance
April 30, July 31,
(In thousands) 2008 2007
---------- ----------
Cranes & Heavy Equipment $ 2,508 $ 2,475
Less: Accumulated depreciation (1,374) (1,282)
---------- ----------
Property, net $ 1,134 $ 1,193
========== ==========
Depreciation on the previously owned cranes will continue to be charged to
operations until a sale has been recognized.
8. INCOME TAXES
In June 2006, the Financial Accounting Standards Board (FASB) issued
FASB Interpretation No. 48 - Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109 (FIN 48). This interpretation
applies to all tax positions accounted for in accordance with SFAS No. 109 by
defining the criteria that an individual tax position must meet in order for
the position to be recognized within the financial statements and provides
guidance on measurement, de-recognition, classification, interest and
penalties, accounting in interim periods, disclosure and transition of tax
positions. This interpretation is effective for fiscal years beginning after
December 15, 2006, with earlier adoption permitted. The Company adopted FIN
48 effective August 1, 2007. There were no adjustments from the adoption of
this standard in the three and nine months ended April 30, 2008. The Company
is subject to U.S. federal income tax as well as income tax of multiple state
jurisdictions. Currently, no examinations are open in any jurisdiction.
For federal purposes, tax years 2004-2006 remain open to examination as
a result of earlier net operating losses being utilized in recent years. The
statute of limitations remains open on the earlier years for three years
subsequent to the utilization of net operating losses. For state purposes,
the statute of limitations remains open in a similar manner for states that
have generated net operating losses.
The Company does not anticipate any significant increases or decreases
in unrecognized tax benefits within the next twelve months. In October of
2007, the statute of limitations expired on federal issues related to tax
years 2003 and prior. There was no material impact on the unrecognized tax
benefits related to the expiration of the statute of limitations for tax
years 2003 and prior.
9. COMMON STOCK OPTIONS
The Company applies 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, 2008 and 2007 since no stock based grants were issued and all
prior grants were fully vested. 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, 2007.
At April 30, 2008, the Company had 30,000 stock options outstanding and
exercisable at an actual and weighted average exercise price of $4.10 per
share. All unexercised stock options expire by January 20, 2010.
10. SUBSEQUENT EVENTS
S.I. P. Inc. of Delaware (SIP) operates from leased facilities in
Wilmington, Delaware and Gadsden, Alabama, and Williams Bridge Company (WBC)
operates from company-owned facilities in Prince William County and the City
of Richmond, Virginia. During their regular board meetings in May, 2008,
these two subsidiary boards made the following decisions concerning the
reorganization and consolidation of operations.
SIP. The Wilmington, Delaware facility was sold in 2007 and leased back by
SIP. The Gadsden, Alabama facility has performed well and is deemed capable
of handling the bulk of SIP's manufacturing. The Wilmington plant is being
shut down, although some administrative offices will be maintained in
Delaware for the foreseeable future. SIP will co-locate certain ancillary
manufacturing, storage and staging functions at the Company's Richmond
property. These actions are expected to yield cost savings to SIP without
short or longer term negative impact on the Company's capacity to increase
production to take advantage of future market conditions. These changes will
result in a reduction of approximately 10 jobs at the Wilmington Plant.
WBC. WBC's backlog has declined significantly and the Company has not booked
sufficient work to maintain its level of operations at the Manassas and
Richmond plants. Given the discussion elsewhere in this document concerning
the highest and best use of the Manassas property, management has decided to
significantly curtail the Manassas operation effective about July 31, 2008,
and to relocate certain equipment to and invest in new equipment for the
Richmond Plant. The planned consolidation and investment are expected to
take approximately one year to fully implement and to result in a
substantially more competitive operation. These changes will result in a
reduction of approximately 20-30 production and administrative jobs, although
the Company has notified affected workers that jobs are available at the
Richmond Plant.
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 $3.6 million from its largest
shareholder and his affiliated entities.
The Company is operating under a Forbearance Agreement with its major
lender, United Bank, pursuant to which approximately $1.9 million was
outstanding at April 30, 2008 and is scheduled to be repaid by August 1,
2008. Under the current "Fifth Amendment to Forbearance Agreement" the Bank
has agreed that if the Company obtains a real estate appraisal of at least
300% of the remaining balance and posts a $100,000 CD as additional
collateral, the Bank will release all collateral other than real estate and
"term out" the $1.9 million remaining through August 1, 2011, with interest
payable monthly and annual principal curtailments of $300,000.
In addition, the Company has been in default on nearly all of its other
debts and leases by virtue of failing to make scheduled payments in a timely
fashion. Many of these obligations have substantially been replaced with
related party loans and leases which are not expected to result in
delinquency actions or seizure of collateral. 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
there are large risks related to estimating and performing work and
collecting amounts earned.
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 is adversely
affected. Collecting progress payments is a common problem in the
construction industry as are short-term cash considerations.
In view of the Company's liquidity problems and in order to fund the
repayment of the United Bank notes, the Company is pursuing various financing
options, including conventional and asset-based financing, and exploring its
strategic options relative to the sale of individual assets or subsidiaries.
For example, the Company's present use of its land in Manassas, Virginia may
not be its "highest and best" use. Based on the sale price of the 3-acre
parcel sold in June 2006, the value of the Company's real property in
Manassas, Virginia may exceed $15 million. However, due to recent changes in
the real estate market, the value realized from the sale in June 2006 may not
reflect the value that would be realized at the present time. Management has
not ruled out any measure that may be necessary to protect the Company's
assets and preserve shareholder value.
As of this filing, the Company's three manufacturing subsidiaries have
made principal payments to United Bank to release their individual assets
from the Company's corporate financing. One of the subsidiaries had obtained
a high interest, asset-based financing to meet its cash needs, which may
limit its ability to assist the parent company in meeting remaining
obligations on the United Bank debt. The principal payments made by the
three manufacturing subsidiaries, including a payment made through the
sale/leaseback of the Company's Richmond facility, have aggregated $2.5
million to United Bank.
The Company's manufacturing segment produced an operating profit of
$260,000 for the quarter ended April 30, 2008 compared to an operating profit
of $283,000 for the quarter ended April 30, 2007. While this segment
continued to manufacture its product more efficiently, increasing steel
prices have begun to affect profit margins where materials had previously
been ordered for existing contracts. As steel prices continue to rise, it is
difficult to obtain price commitments for future delivery, hampering the
segments ability to estimate and bid new work. These developments have and
may continue to impact the Company's ability to book additional work and to
perform its contracts in an orderly and efficient way and to realize the
expected margins on certain work in the backlog. While the range of the
possible impact is large, management originally expected that the direct
impact may be approximately $250,000 or 5% of approximately $5 million of
contracts. The Company has revised this estimate and now expects the impact
to be in the range of $500,000 to $1 million over the next two quarters.
The construction segment produced an operating profit of $44,000 for the
quarter ended April 30, 2008 compared to an operating loss of $144,000 for
the quarter ended April 30, 2007. The segment reduced its work force and has
worked on contracts with more customary profit margins. In the prior quarter,
it had completed several major contracts which had operated at a loss.
Material Changes in Financial Condition
- ---------------------------------------
For the Nine months ended April 30, 2008, the following changes
occurred:
The Company's Cash and restricted cash increased $26,000.
Accounts Receivable increased $547,000 mainly from increased billings in
the Company's manufacturing segment related to its stay-in-place decking
subsidiary.
Inventory increased $986,000 as the Company purchased materials for
contracts about to start. While inventory is adequate for current
manufacturing needs, recent steel price increases and steel mill delivery
delays may impact future production.
Property and Equipment, at Cost decreased $562,000. The Company
capitalized major repairs and purchased other fixed assets of approximately
$352,000; and wrote off costs related to the sale of two leased cranes and
other fully depreciated capital repairs of $914,000.
At April 30, 2008, the Company had approximately $9.2 million in
variable rate notes payable. Total Notes payable increased $1.3 million.
During the nine months ended April 30, 2008, the Company borrowed
approximately $14.3 million, including $12.3 million in revolving balances
financed by the accounts receivable of two of the Company's manufacturing
subsidiaries; $1.1 million to finance Company insurance premiums; and
$741,000 from related parties to fund operations; and an additional $95,000
to fund operations. The Company repaid $13.1 million, which included payments
of $10.5 million on revolving debt secured by Company accounts receivables;
$335,000 on related party debt; $1 million to United Bank and $1.2 million on
other operating notes.
Billings In Excess of Costs and Estimated Earnings on Uncompleted
Contracts, net of Costs and Estimated Earnings in Excess of Billings,
increased $910,000.
Financing obligations resulting from sale-leaseback transactions
decreased $201,000 related to payments on amortizing notes.
Other Liabilities increased $51,000.
Stockholders' Equity decreased $1.3 million to $1.3 million as the
Company recorded a loss of $1.4 million for the period. The Company issued
2,592 shares of stock under its Employee Stock Purchase Plan for
approximately $6,000.
For the nine months ended April 30, 2008, the Company generated net cash
of $26,000. Exclusive of the net loss of $1.4 million for the nine months
ended April 30, 2008, the Company generated $601,000 in operations and used
$209,000 in investing activities related to fixed asset acquisitions offset
by cash received from sales. Net cash of $986,000 was provided by financing
activities as the Company borrowed $14.3 million, repaid $13.1 million on
notes payable, issued stock through its Employee Stock Purchase Plan for
approximately $6,000 and recorded minority interest dividends of $155,000.
Material Changes in Results of Operations
- -----------------------------------------
Three Months Ended April 30, 2008 Compared to
Three Months Ended April 30, 2007
For the quarter ended April 30, 2008, the Company reported a decrease in
revenues and an increase in gross profit. The Company's loss decreased by
$195,000 when compared to the quarter ended April 30, 2007
The Company reported a net loss of $465,000, or $0.13 per share, on
total revenue of $9.5 million for 2008 as compared to a net loss of $660,000,
or $.18 per share, on total revenue of $11.5 million for 2007.
While manufacturing segment revenues decreased $325,000, gross profit
increased approximately $122,000 as gross profit percentages increased from
30% in 2007 to 33% in 2008. Labor efficiencies continue to contribute to
better gross margins, but increasing steel prices are beginning to affect
profit margins where the segment had not purchased steel for certain
contracts.
Construction segment revenues decreased $1.6 million when the two
periods are compared. While gross profit increased slightly, gross profit
percentages increased from 20% in 2007 to 36% in 2008. In 2007, revenues were
higher as the segment worked on its Woodrow Wilson Bridge contract outside of
Washington, DC. That contract operated at reduced profit margins. The segment
has reduced its labor force and is working on contracts with higher gross
margins.
Overhead increased $93,000 mainly related to the purchase of consumables
and supplies for operations.
General and Administrative expenses decreased $12,000.
Depreciation expense declined $36,000 on reduced spending on capital
assets.
Interest expense decreased $43,000 as the Company incurred lower
interest on related party debt, paid down its debt to United Bank, and
refinanced a high interest loan at its stay-in-place decking subsidiary with
a lower rate loan during the quarter.
Nine Months Ended April 30, 2008 Compared to
Nine Months Ended April 30, 2007
For the nine months ended April 30, 2008, the Company reported a
decrease in revenues and an increase in gross profit. While the Company's
loss increased by $181,000 when compared to the nine months ended April 30,
2007, included in the prior year's loss was a Gain On Land Sale of $1.1
million. Without the land sale in 2007, the Company's loss declined $955,000
when comparing the years.
The Company reported a net loss of $1.4 million, or $0.37 per share, on
total revenue of $28.7 million for 2008 as compared to a net loss of $1.2
million, or $.32 per share, on total revenue of $31 million for 2007.
While manufacturing segment revenues decreased $625,000, gross profit
increased approximately $1.2 million as gross profit percentages increased
from 27% in 2007 to 35% in 2008. Increased labor efficiency and stable steel
pricing for most of the period contributed to the increased percentages. All
subsidiaries in this segment were profitable for the nine-month period. It is
anticipated that future steel price increases could erode profit margins in
the future.
Construction segment revenues decreased $1.4 million when the two
periods are compared. While gross profit decreased $138,000, its gross profit
percentages increased from 26% in 2007 to 28% in 2008. The segment has
reduced its labor force and is working on contracts with higher gross
margins.
Overhead increased $166,000 due to increased consumables and supplies
purchases and increased rent at the Company's stay-in-place decking
subsidiary in Wilmington, DE.
General and Administrative expenses decreased $311,000 due to reduced
bonus accruals, lower taxes and licenses and lower insurance expenses.
Depreciation expense decreased $98,000 due to reduced spending on
capital assets.
Interest expense increased $133,000 mainly related to the financing on
accounts receivable in the Company's manufacturing segment.
BACKLOG
At April 30, 2008, the Company's backlog was $16.4 million, a decrease
of approximately $7.5 million from April 30, 2007 and a decrease of
approximately $7.1 million from July 31, 2007. It is anticipated that
substantially all of the $16.4 million backlog will be completed within the
next twelve months.
Off-Balance Sheet Arrangements
Except as shown below in Aggregate Contractual Obligations and in Note
14, Leases, in the Company's "Notes to Consolidated Financial Statements" of
the Company's Annual Report on Form 10K for July 31, 2007, the Company has no
off balance sheet arrangements.
Aggregate Contractual Obligations
The table below summarizes the payment timetable for certain contractual
obligations of the Company.
(Amounts in thousand $) Payments Due By Period
-------------------------------------
Less Than 1-3 4-5 More Than
Contractual Obligations Total 1 Year Years Years 5 Years
- --------------------------- ------- -------- -------- ------ --------
Long Term Debt $10,969 $10,807 $ 159 $ 3 $ -
Financing Obligation from
Sale-Leaseback Transactions 1,531 516 873 142 -
Operating Leases 243 135 108 - -
------- -------- -------- ------ --------
Total $12,743 $11,458 $1,140 $145 $ -
======= ======== ======== ====== ========
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.
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 4T. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
As of the end of the period of this report, under the supervision and
with the participation of management, including our Chief Executive Officer
and Chief Financial Officer, management evaluated the effectiveness of our
controls and procedures, as such term is defined under Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of
April 30, 2008.
(b) Changes in internal controls over financial reporting.
There have not been any changes in our internal control over financial
reporting during the fiscal quarter ended April 30, 2008 that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
(c) Inherent limitations on effectiveness of controls
The Company's management, including its Chief Executive Officer and
Chief Financial officer, believes that its disclosure controls and procedures
and internal control over financial reporting are effective at a reasonable
assurance level. However, the Company's management does not expect that its
disclosure controls and procedures or internal control over financial
reporting will prevent all errors and all fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the
design of a control system must reflect the fact that these are resource
constraints, and the benefits of controls must be considered relative to
their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurances that all control
issues and instances of fraud, if any, within the company have been detected.
These inherent limitations include the realities that judgments in decision-
making can be faulty, and that breakdowns can occur because of a simple error
or mistake. Additionally, controls can be circumvented by the individual acts
of some persons, by collusion of two or more people or by management override
of the controls. The design of any system of controls also is based in part
upon certain assumptions about the likelihood of future events, and there can
be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions; over time, controls may become
inadequate because of changes in conditions, or the degree of compliance with
policies or procedures may deteriorate. Because of the inherent limitations
in a cost-effective control system, misstatements due to error or fraud may
occur and not be detected.
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, product
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, United Bank, pursuant to which approximately $1.9 million was
outstanding at April 30, 2008 and is scheduled to be repaid by August 1,
2008. During the quarter ended April 30, 2008 the Company paid $500,000 to
United Bank. Under the current "Fifth Amendment to Forbearance Agreement" the
Bank has agreed that if the Company obtains a real estate appraisal of at
least 300% of the remaining balance and posts a $100,000 CD as additional
collateral, the Bank will release all collateral other than real estate and
"term out" the $1.9 million remaining through August 1, 2011, with interest
payable monthly and annual principal curtailments of $300,000.
As disclosed in the 10-K for the year ended July 31, 2007, a customer of
the Company has asserted a claim for alleged delay damages relating to its
Woodrow Wilson Bridge contract outside of Washington, DC, which the Company
believes is not well founded. The Company's surety had retained an expert to
review the asserted claim, who concluded the claim is without merit. The
Company intends to aggressively defend itself against the claim and will
attempt to recover its expenses resulting from the customer's actions, as
well as collect the $2.6 million the Company is owed under the contract at
April 30, 2008.
The Company's construction segment has been in default of nearly all of
its other debts and leases. Many of these obligations have been replaced with
related party loans and leases which are not expected to result in
delinquency actions or seizure of the collateral.
ITEM 1A. RISK FACTORS
There have been no material changes to the Company's risk factors as
previously disclosed in Item 1A, "Risk Factors", in its Form 10K for the
fiscal year ended July 31, 2007, except that steel price and availability,
which were cited as risk factors, have again begun to experience dislocation
as described elsewhere in this report.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
The Company is operating under a Forbearance Agreement with its major
lender, United Bank, pursuant to which approximately $1.9 million was
outstanding at April 30, 2008 and is scheduled to be repaid by August 1,
2008. During the quarter ended April 30, 2008 the Company paid $500,000 to
United Bank. Under the current "Fifth Amendment to Forbearance Agreement" the
Bank has agreed that if the Company obtains a real estate appraisal of at
least 300% of the remaining balance and posts a $100,000 CD as additional
collateral, the Bank will release all collateral other than real estate and
"term out" the $1.9 million remaining through August 1, 2011, with interest
payable monthly and annual principal curtailments of $300,000.
In view of the Company's liquidity problems and in order to fund the
repayment of the United Bank notes, the Company is pursuing various financing
options, including conventional and asset-based financing, and exploring its
strategic options relative to the sale of individual assets or subsidiaries.
For example, the Company's present use of its land in Manassas, Virginia may
not be its "highest and best" use. Based on the sale price of the 3-acre
parcel sold in June 2006, the value of the Company's real property in
Manassas, Virginia may exceed $15 million. However, due to recent changes in
the real estate market, the value realized from the sale in June 2006 may not
reflect the value that would be realized at the present time. Management has
not ruled out any measure that may be necessary to protect the Company's
assets and preserve shareholder value.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
ITEM 5. Other Information
None.
ITEM 6. 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 losses
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 19, 2008 Williams Industries, Incorporated
----------------------------------
Registrant
/s/ Frank E. Williams, III
----------------------------------
Frank E. Williams, III
Chairman of the Board, President,
Chief Executive Officer,
Chief Financial Officer