UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18083
Williams Controls, Inc.
(Exact name of registrant as specified in its charter)
Delaware 84-1099587
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14100 SW 72nd Avenue, Portland, Oregon 97224
- --------------------------------------- ----------
(Address of principal executive office) (zip code)
Registrant's telephone number, including area code:
(503) 684-8600
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 No X
--- ---
The number of shares outstanding of the registrant's common stock as of April
30, 2001: 19,921,114
Williams Controls, Inc.
Index
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets, March 31, 2001
(unaudited) and September 30, 2000 1
Unaudited Consolidated Statements of Operations,
three and six months ended March 31, 2001 and 2000
(as restated) 2
Unaudited Consolidated Statements of Cash Flows,
six months ended March 31, 2001 and 2000
(as restated) 3
Notes to Unaudited Consolidated Financial Statements 4-7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
Signature Page 12
Part I
Item 1.
Williams Controls Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
March 31, September 30,
2001 2000
(unaudited)
------------------- ---------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 935 $ 30
Trade and other accounts receivable, less allowance of $618 and
$508 at March 31, 2001 and September 30, 2000, respectively 9,352 11,357
Inventories 4,691 8,016
Other current assets 819 1,158
------------------- ---------------------
Total current assets 15,797 20,561
Property plant and equipment, net 18,618 21,486
Investment in and note receivable from affiliate 1,615 1,615
Goodwill and intangible assets, net 510 5,165
Other assets 520 322
------------------- ---------------------
Total assets $ 37,060 $ 49,149
=================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 11,222 $ 11,363
Accrued expenses 6,024 4,574
Non-refundable deposit - 500
Current portion of long-term debt and capital leases 15,127 21,802
Secured subordinated debt, net 4,280 -
------------------- --------------------
Total current liabilities 36,653 38,239
Long-term debt and capital lease obligations 3,866 4,567
Other liabilities 3,671 3,259
Convertible subordinated debt, net 2,061 2,040
Commitments and contingencies
Shareholders' equity (deficit):
Preferred stock ($.01 par value, 50,000,000 authorized;
78,400 issued and outstanding at March 31, 2001
and September 30, 2000) 1 1
Common stock ($.01 par value, 50,000,000 authorized;
19,921,114 issued at March 31, 2001 and
September 30, 2000) 199 199
Additional paid-in capital 23,069 21,744
Accumulated deficit (31,583) (20,023)
Treasury stock (130,200 shares at March 31, 2001
and September 30, 2000) (377) (377)
Note receivable (500) (500)
------------------- --------------------
Total shareholders' equity (deficit) (9,191) 1,044
------------------- --------------------
Total liabilities and shareholders' equity (deficit) $ 37,060 $ 49,149
=================== ====================
The accompanying notes are an integral part of these balance sheets.
1
Williams Controls, Inc.
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(unaudited)
Three months Three months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
(as restated, (as restated,
see Note 3) see Note 3)
-------------- -------------- -------------- --------------
Sales $15,030 $17,596 $30,009 $33,473
Cost of sales 12,207 13,089 24,831 24,475
-------------- -------------- -------------- --------------
Gross margin 2,823 4,507 5,178 8,998
Operating expenses:
Research and development 1,022 1,474 1,967 3,171
Selling 339 425 767 865
Administration 2,362 2,404 4,777 4,256
Loss on impairment of assets - PPT - - 1,996 -
Loss on impairment of assets - ProActive 4,366 - 4,366 -
-------------- -------------- -------------- --------------
Total operating expenses 8,089 4,303 13,873 8,292
-------------- -------------- -------------- --------------
Earnings (loss) from operations (5,266) 204 (8,695) 706
Other (income) expenses:
Interest income - (40) - (110)
Interest expense 1,067 562 2,140 1,191
Other (income) expense, net (16) (28) (24) (36)
Equity interest in loss of affiliate - 867 - 2,233
-------------- -------------- -------------- --------------
Total other expenses 1,051 1,361 2,116 3,278
-------------- -------------- -------------- --------------
Loss from operations before
income tax benefit (6,317) (1,157) (10,811) (2,572)
Income tax benefit - (169) - (272)
-------------- -------------- -------------- --------------
Net loss (6,317) (988) (10,811) (2,300)
Dividends on preferred stock (602) (150) (749) (297)
-------------- -------------- -------------- --------------
Net loss allocable to common
shareholders $(6,919) $ (1,138) $(11,560) $(2,597)
============== ============== ============== ==============
Net loss per common share - basic $ (0.35) $ (0.06) $ (0.58) $ (0.13)
============== ============== ============== ==============
Weighted average shares used in per share
calculation basic 19,790,914 19,786,742 19,790,914 19,782,585
============== ============== ============== ==============
Net loss per common share - diluted $ (0.35) $ (0.06) $ (0.58) $ (0.13)
============== ============== ============== ==============
Weighted average shares used in per share
calculation - diluted 19,790,914 19,786,742 19,790,914 19,782,585
============== ============== ============== ==============
The accompanying notes are an integral part of these statements.
2
Williams Controls, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six Months Six Months
Ended Ended
March 31, March 31,
2001 2000
(as restated,
see Note 3)
-------------- ---------------
Cash flows from operating activities:
Net loss $(10,811) $ (2,300)
Adjustments to reconcile net loss
to net cash provided by operations:
Depreciation and amortization 2,193 1,439
Equity interest in loss of affiliate - 2,233
Loss from impairment of assets - PPT 1,996 -
Loss from impairment of assets - ProActive 4,366 -
Changes in working capital:
Receivables, net 2,005 (319)
Inventories 3,325 (449)
Accounts payable and accrued expenses 662 785
Other 787 335
-------------- ---------------
Net cash provided by operating activities 4,523 1,724
Cash flows from investing activities:
Payments for property, plant and equipment (671) (1,148)
-------------- ---------------
Net cash used in investing activities (671) (1,148)
Cash flows from financing activities:
Net borrowings (repayments) of long-term
debt and capital lease obligations (7,376) 1,800
Net proceeds from secured subordinated debt 4,576 -
Payments under term notes - (2,368)
Preferred dividends (147) (147)
Proceeds from issuance of common stock - 36
-------------- ---------------
Net cash used in financing activities (2,947) (679)
Net cash used in discontinued operations - (1,470)
Net increase (decrease) in cash and cash 905 (1,573)
equivalents
Cash and cash equivalents at beginning of
period 30 2,323
-------------- ---------------
Cash and cash equivalents at end of period $ 935 $ 750
-------------- ---------------
Supplemental disclosure of cash flow
information:
Interest paid $ 1,066 $ 1,170
Income taxes paid (refund) $ (158) $ -
-------------- ---------------
Supplemental disclosure of non-cash
investing and financing activities
Capital leases for equipment $ - $ 200
Dividends accrued not paid $ 147 $ 150
Dividends for implied return on preferred $ 455 $ -
stock
Secured subordinated debt issuance costs $ 57 $ -
Secured subordinated debt discount $ 813 $ -
-------------- ---------------
The accompanying notes are an integral part of these statements.
3
Williams Controls, Inc.
Notes to Unaudited Consolidated Financial Statement
Three and Six Months ended March 31, 2001 & 2000
(Dollars in thousands, except share & per share amounts)
Cautionary Statement: This report contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements include, without limitation, those statements relating to development
of new products, the financial condition of the Company, the ability to increase
distribution of the Company's products, integration of businesses the Company
acquires, disposition of any current business of the Company. These
forward-looking statements are subject to the business and economic risks faced
by the Company including the ability of the Company to generate or obtain
sufficient working capital to continue its operations. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of the factors described above and other factors
described elsewhere in this report.
1. Organization
Williams Controls, Inc., including its wholly-owned subsidiaries, Williams
Controls Industries, Inc. ("Williams"); Aptek Williams, Inc. ("Aptek"); Premier
Plastic Technologies, Inc. ("PPT"); ProActive Acquisition Corporation
("ProActive"); GeoFocus, Inc. ("GeoFocus"); NESC Williams, Inc. ("NESC");
Williams Technologies, Inc. ("Technologies"); Williams World Trade, Inc.
("WWT"); Kenco/Williams, Inc. ("Kenco"); Techwood Williams, Inc. ("TWI");
Agrotec Williams, Inc. ("Agrotec") and its 80% owned subsidiaries Hardee
Williams, Inc. ("Hardee") and Waccamaw Wheel Williams, Inc. ("Waccamaw") is
hereinafter referred to as the "Company" or "Registrant."
2. Interim Consolidated Financial Statements
The unaudited interim consolidated financial statements have been prepared by
the Company and, in the opinion of management, reflect all material adjustments
which are necessary to a fair statement of results for the interim periods
presented. The interim results are not necessarily indicative of the results
expected for the entire fiscal year. Certain information and footnote disclosure
made in the last annual report on Form 10-K have been condensed or omitted for
the interim consolidated statements. Certain costs are estimated for the full
year and allocated to interim periods based on activity associated with the
interim period. Accordingly, such costs are subject to year-end adjustment. It
is the Company's opinion that, when the interim consolidated statements are read
in conjunction with the September 30, 2000 annual report on Form 10-K, the
disclosures are adequate to make the information presented not misleading. The
interim consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company accounts and transactions
have been eliminated.
3. Restatement
During the fourth quarter of the fiscal year ended September 30, 2000, the
Company applied the provisions of Emerging Issues Task Force 99-10 "Percentage
Used to Determine the amount of Equity Method Losses" (EITF 99-10) in the
calculation of Equity Interest in Loss of Affiliate in its Consolidated
Financial Statements. This pronouncement provides for the percentage of
ownership to be determined by the liquidation order of the investment held to
the total of each particular level of investment held by the investor contained
in the financial statements of the investee. The Company's investment in Ajay
Sports, Inc., an affiliate, consists of common and preferred stock and notes
receivable. For the first three-quarters of the fiscal year ended September 30,
2000, the Equity Interest in Loss of Affiliate was computed utilizing only the
percentage of common stock ownership held by the Company in Ajay. The effect of
EITF 99-10 in the fourth quarter of 2000 was to substantially increase the
Company's Equity Interest in Loss of Affiliate from amounts that were recorded
using only the percentage of common stock ownership. EITF 99-10 was effective
for the Company's first quarter of fiscal 2000, accordingly, the Company has
restated its previously reported quarterly and six month amounts to reflect the
proper application of EITF 99-10. The effect of this restatement on the
operating results for the three and six months ended March 31, 2000 as follows:
Three Months Ended Six Months Ended
March 31, 2000 March 31, 2000
As Previously As As Previously As
Reported Restated Reported Restated
Loss from operations
before income tax benefit $ (440) $ (1,157) $ (709) $ (2,572)
Net loss (271) (988) (437) (2,300)
Net loss allocable to common
shareholders (421) (1,138) (734) (2,597)
Net loss per common share-basic (0.02) (0.06) (0.04) ( 0.13)
Net loss per common share-diluted (0.02) (0.06) (0.04) (0.13)
No additional income tax benefit was recorded in the three or six months ended
March 31, 2000 as a result of the restatement of the Equity Interest in Loss of
Affiliate.
4. Going Concern Matters
The accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. For the three months ended
March 31, 2001 and 2000, the Company incurred losses of $6,919 and $1,138,
respectively, and for the six months ended March 31, 2001 and 2000 the Company
incurred losses of $11,560 and $2,597, respectively. In addition, the majority
of the Company's accounts payable are significantly past due; the Company's
working capital deficit increased from $(17,678) at September 30, 2000 to
$(20,856) at March 31, 2001; and stockholders' equity has decreased from $1,044
at September 30, 2000 to a deficit of $(9,191) at March 31, 2001. Also, as
described in Note 8 to the Unaudited Consolidated Financial Statements, the
Company was not in compliance with its debt covenants under the credit facility
with its primary bank (the Bank) and the Company has extended the debt due with
another bank. The Company was also in default on debt payments to the Bank for
Bank Term Loans III and IV, each as defined in Note 8, below. Although a
forbearance agreement was reached with the Bank through the original terms of
the credit facility and term loans, no waivers have been obtained and the
default has not been cured. Furthermore, the credit facility with the Company's
primary bank matures on July 11, 2001. As a result, although the forbearance
agreement was reached, the Company has classified its debt owed to the Bank of
$13,598 as current liabilities in the accompanying Consolidated Balance Sheet at
March 31, 2001.
During the second quarter of fiscal 2001, the Company had fully borrowed and was
in an overadvance position under its credit facility until the Company raised
$4,576, net of expenses, from a private placement of debt in February 2001. The
$4,576 raised was in the form of $4,950 of secured subordinated debentures which
are due March 1, 2002, bearing interest at 12% and include warrants to purchase
the Company's common stock at $1.375 per share for each $2.00 of principal
amounts of the debentures purchased. The Private Placement funds were used to
pay down bank debt, including the overadvance from the Bank and to support the
operations of the Company. Due to the lack of borrowing capacity under the
credit facility, the Company's working capital deficit, the Company's debts,
including accounts payable, and other factors as outlined herein, the Company
has a significant lack of liquidity. Accordingly, the Company's continuation as
a going concern is dependent upon, among other things, its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply with
the terms of its credit facility, to obtain additional financing or refinancing
as may be required, and ultimately to attain profitability. The above matters
raise a substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might result should the Company be unable to
continue as a going concern.
5. Comprehensive Income (Loss)
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") 130, "Reporting Comprehensive
Income", which requires companies to report a measure of all changes in equity
except those resulting from investments by owners and distributions to owners.
Total comprehensive (loss) for the three months ended March 31, 2001 and 2000
was $(6,317) and $(988), respectively, and consisted solely of net loss, and for
the six months ended March 31, 2001 and 2000 the total comprehensive (loss) was
$(10,811) and $(2,300), respectively, and consisted solely of net loss. As of
March 31, 2001, accumulated other comprehensive loss was $(31,583) and consisted
of accumulated deficit.
6. Earnings (loss) per Share
Basic earnings per share ("EPS") and diluted EPS are computed using the methods
prescribed by Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Basic EPS is calculated using the weighted-average number of common
shares outstanding for the period and diluted EPS is computed using the
weighted-average number of common shares and dilutive common equivalent shares
outstanding
Following is a reconciliation of basic EPS and diluted EPS:
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
(as restated)
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net loss from operations $(6,317) $ (988)
Less-Preferred stock dividends (602) (150)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders $(6,919) 19,790,914 $ (0.35) $(1,138) 19,786,742 $(0.06)
========= =========
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(6,919) 19,790,914 $ (0.35) $(1,138) 19,786,742 $(0.06)
========= ============ ========= ========= =========== =========
Six Months Ended Six Months Ended
March 31, 2001 March 31, 2000
(as restated)
-------------------------------- -------------------------------
Per Per
Share Share
Loss Shares Amount Loss Shares Amount
Net loss from operations $(10,811) $(2,300)
Less-Preferred stock dividends (749) (297)
--------- ---------
Basic EPS-
Net loss allocable to
common shareholders $(11,560) 19,790,914 $ (0.58) $(2,597) 19,782,585 $(0.13)
========= =========
Effect of dilutive securities -
Stock options and warrants - - - -
Convertible preferred stock - - - -
Convertible subordinated debt - - - -
Diluted EPS - --------- ---------- -------- ----------
Net loss allocable to
common shareholders $(11,560) 19,790,914 $ (0.58) $(2,597) 19,782,585 $(0.13)
========= ============ ========= ========= =========== =========
At March 31, 2001 and 2000, the Company had options and warrants covering
6,236,879 and 3,412,106 shares, respectively, of the Company's common stock
that were not considered in the respective dilutive EPS calculations since
they would have been antidilutive. In both periods, conversion of the
preferred shares and convertible subordinated debt would have been
antidilutive and therefore was not considered in the computation of diluted
earnings per share.
7. Inventories
Inventories consisted of the following:
March 31, September 30,
2001 2000
------------------- ------------------
Raw material $3,130 $6,108
Work in process 1,108 1,088
Finished goods 453 820
------------------- -------------------
$4,691 $8,016
------------------- -------------------
Finished goods include component parts and finished product ready for shipment.
8. Debt
On June 30, 1998, the Company restructured its credit facility with the Bank to
consist of a revolving credit facility of up to $16,500, a $3,100 term loan
(Term Loan I) and a $2,700 real estate loan. In December 1998, the Company
borrowed $2,500 under Term Loan II. In July 1999, the Company borrowed $2,500
under Term Loan III. In February 2000, the Company borrowed $1,000 as an
over-advance (Term Loan IV) of its credit agreement. Under the revolver, the
Company can borrow up to $14,000 (as per amendment to the credit agreement)
based upon a borrowing base availability calculated using specified percentages
of eligible accounts receivable and inventory. The revolver bears interest at
the Bank's prime rate plus 2.00%, (10% at March 31, 2001). The Real Estate and
Term Loan I loans bear interest at the Bank's prime rate plus 2.25% and Term
Loan III and an over-advance bear interest at the banks prime rate plus 3.25%.
The loans and the revolving credit facility mature on July 11, 2001. The Real
Estate loan is being amortized over twenty years and Term Loan I is being
amortized over seven years with all remaining principal outstanding due at July
11, 2001. The advance under Term Loan II was repaid during 2000. Term Loan III
is being amortized over eighteen months, with an original maturity date of
February 2000. The over-advance is non-amortizing with an original maturity of
July 15, 2000. Subsequent amendments to the credit agreement provided for
payment by November 15, 2000, of both Term Loan III and the over-advance. The
Company did not repay Term Loan III or the over-advance as per the amended due
date, and is in default under the terms of the credit agreement under this
provision. All loans are secured by substantially all of the assets of the
Company.
The loan agreement prohibits payment of dividends by the Company except for the
Series A Preferred dividend, and requires the Company to maintain minimum
working capital of $12,000 and minimum tangible net worth, as defined, of
$11,500. The loan also prohibits additional indebtedness and common stock
repurchases except through the use of proceeds from stock options exercised, and
restricts capital expenditures to an amount not to exceed $10,500 for the two
years ended September 30, 1999 and not to exceed $2,500 annually thereafter. In
addition, the loan limits incremental operating lease obligations to $600
annually. Fees under the loan agreement include an unused revolver fee of .25%
and a prepayment penalty fee declining from 3% in 1998 to 0.5% in the year 2001.
The prepayment fee is waived if the loan is repaid with proceeds from the sale
of assets or is refinanced with an affiliate of the Bank. At March 31, 2001, the
Company was not in compliance with its debt covenants for debt with the Bank and
was in default on debt payments to the Bank for Bank Term Loans III and IV. No
waivers have been obtained and the default has not been cured. Furthermore, the
credit facility matures on July 11, 2001. As a result, although the forbearance
agreement was reached, the Company has classified all of its debt with the Bank
of $13,598 as a current liability in the accompanying Consolidated Balance Sheet
at March 31, 2001. (See Note 4)
9. Subordinated Debt and Preferred Stock
In February 2001, the Company issued 12% secured subordinated debentures
totaling $4,950, due March 1, 2002. Net proceeds to the Company after expenses,
were $4,576 and were used for the payment of bank debt obligations and general
operating purposes. The debentures are secured by mortgages on certain real
property owned by the Company, subordinate to certain other senior indebtedness
(as defined). In addition, the Company issued to each purchaser of debentures a
three year warrant to purchase common stock of the Company, par value $0.01 per
share, at $1.375 per share for each $2.00 of principal amount of debentures
purchased. The Company also issued the placement agent a three year warrant to
purchase shares of the Company's common stock equal to 7.0% of the number of
warrants issued to the purchasers. The exercise price of the placement agent
warrants is $1.375 per share. The fair value of warrants issued, totaling $870,
is included as "Additional Paid in Capital" within Shareholders' Equity with an
offset of $813 against the "Secured Subordinated Debt" for the warrants issued
to debenture holders and an increase of $57 in other assets for the placement
agent warrants in the accompanying Consolidated Balance Sheet. The fair value of
the warrants has been allocated using relative fair values. The discount of the
debentures and the debt issuance costs are being amortized using the effective
interest method over the lives of the debt, which is one year.
The conversion price for the warrants issued in connection with the secured
subordinated debt shall be adjusted if the Company sells or distributes common
stock, options or warrants to purchase common stock or securities convertible
into common stock at a price below the conversion price of the warrants issued
in connection with the secured subordinated debt, subject to certain exceptions
defined in the agreement. The formula for adjustment is as defined in the
agreement.
In April 2000, the Company issued 7.5% convertible subordinated debentures in an
aggregate principal amount of $2,140, due March 31, 2003 including $140 issued
in lieu of the underwriting fee. The debentures are unsecured obligations,
subordinate to all senior indebtedness (as defined). The debentures are
convertible into shares of the Company's common stock, at a conversion price of
$2.00 per share. In addition, the Company issued to each purchaser of debentures
a three year warrant to purchase common stock of the Company equal to 20% of the
shares of common stock into which such purchaser's debenture is convertible. The
exercise price of the warrants is $2.375 per share. The conversion price for the
convertible subordinated debt and warrants shall be adjusted if the Company
sells or distributes common stock, options or warrants to purchase common stock
or securities convertible into common stock at a price below the conversion
price of the convertible subordinated debt, subject to certain exceptions
defined in the agreement. The formula for adjustment is as defined in the
agreement. As a result of the issuance of the secured subordinated debt in
February 2001, the conversion prices of the convertible subordinated debt and
the warrants were adjusted to approximately $1.93 and $2.28, respectively. The
revised conversion price does not represent a beneficial conversion feature to
the holders of the convertible subordinated debt.
In April 1998, the Company completed a private placement of 80,000 shares of
Series A convertible redeemable preferred stock at $100 per share. The preferred
stock bears a dividend rate of 7.5%, which is payable quarterly, and was
convertible at the option of the holder into 2,909,091 shares of the Company's
common stock. Dividends are cumulative and have preference over other equity
distributions. The preferred stock conversion price shall be adjusted if the
Company sells or distributes common stock, options or warrants to purchase
common stock or securities convertible into common stock at a price below the
preferred stock conversion price. The formula for adjustment is as defined in
the agreement. The preferred stock conversion price was previously adjusted to
approximately $2.70 as a result of the issuance of the convertible subordinated
debt in April 2000. As a result of the issuance of the secured subordinated debt
in February 2001, the preferred stock conversion price was adjusted to
approximately $2.54. The revised conversion price resulted in a beneficial
conversion feature. Accordingly, the Company recorded a non-cash charge of
approximately $455 for additional preferred dividends to account for the implied
value of the beneficial conversion feature.
10. Dispositions
PPT
In July 2000, the Company entered into an agreement to sell PPT, its plastic
injection molding subsidiary, subject to certain conditions. This transaction
was not consummated and has been terminated. As a result of the inability to
sell PPT and after reviewing PPT's history of operating problems, workforce
levels and profitability, PPT operations have been terminated. Management of PPT
has evaluated the realizability of the assets of PPT based on the closure.
Accordingly, the Company recorded an impairment loss on PPT's property, plant,
and equipment of $1,996 and established additional reserves of $490 for
estimated un-collectible accounts receivable. Total assets of PPT at March 31,
2001 and September 30, 2000 were $4,519 and $9,469, respectively. Net sales and
loss from operations of PPT were $1,827, $(1,227) and $2,565 and $(1,094) for
the three months ended March 31, 2001 and 2000, respectively. Net sales and loss
from operations of PPT were $4,026 and $(4,833) and $3,796 and $(1,902) for the
six months ended March 31, 2001 and 2000, respectively.
Geofocus
The Company continues to market its GPS equipment subsidiary, However as of
March 31, 2001 no sale had been consummated. Accordingly, GeoFocus continues to
be consolidated in the accompanying consolidated financial statements. Total
assets of GeoFocus at March 31, 2001 were not material to the consolidated
financial statements. Net sales and income (loss) of GeoFocus were $204 and
$(152) and $270 and $(26) for the three months ended March 31, 2001 and 2000,
respectively. Net sales and income (loss) of GeoFocus were $332 and $(299) and
$658 and $7 for the six months ended March 31, 2001 and 2000, respectively.
11. Loss on Impairment of Assets - ProActive
In July 1999, the Company purchased the ProActive Pedals (ProActive) division of
Active Tools Manufacturing Co., Inc. ProActive is a designer and developer of
patented adjustable food pedal systems and modular pedal systems. The
acquisition was accounted for using the purchase method of accounting and
resulted in $1,820 being allocated to developed technology, $1,439 to a patent
and patent license agreement acquired and $2,162 to goodwill, representing the
excess of the purchase price over the fair value of the assets acquired and
liabilities assumed. At March 31, 2001, the carrying value of the goodwill and
intangible assets of ProActive was $4,366.
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" (SFAS 121), long-lived assets held and used by the Company are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. For purposes of
evaluating the recoverability of long-lived assets, the recoverability test is
performed using undiscounted net cash flows of the assets.
ProActive's current sales volumes of adjustable and modular foot pedal systems
are limited to one contract that ProActive has with a third party. Additionally,
as a result of the Company's overall capital constraints, the Company does not
possess the financial resources to further develop additional sales volumes or
to achieve the sales volumes originally projected for ProActive. Further, as a
result of the recent efforts by W.Y. Campbell & Co. to assist in the sale of the
Company or its operating units, limited interest in ProActive has been expressed
by potential buyers.
As a result of the above factors, management performed an analysis to measure
the impairment of the long-lived assets of ProActive in accordance with SFAS 121
as of March 31, 2001. Based on management's analysis it was concluded that the
undiscounted value of the projected cash flows of ProActive's current business
was less than the carrying value of the assets of ProActive as of March 31,
2001. As a result of this conclusion, the Company recorded an impairment charge
related to ProActive's remaining carrying value of the goodwill and intangible
assets, totaling $4,366. This amount has been reflected as a separate line item
within the operating expenses of the consolidated statements of operations for
the three and six month periods ended March 31, 2001.
12. Reclassifications
Certain amounts previously reported in the financial statements as of September
30, 2000 and for the three and six months ended March 31, 2000 have been
reclassified to conform to current fiscal year presentation.
6
13. Segment Information
Three months Three Months Six months Six months
Ended Ended Ended Ended
March 31, March 31, March 31, March 31,
2001 2000 2001 2000
--------------- -------------- --------------- --------------
Sales by classes of similar products
Vehicle components $14,457 $16,908 $29,109 $31,932
Electrical components and GPS 573 688 900 1,541
--------------- -------------- --------------- --------------
$15,030 $17,596 $30,009 $33,473
=============== =============== =============== ==============
Earnings (loss) from operations
Vehicle components
Before loss on impairment of assets $ (473) $ 470 $ (714) $ 2,120
Loss on impairment of assets (4,366) - (6,362) -
--------------- -------------- --------------- --------------
Total vehicle components (4,839) 470 (7,076) 2,120
Electrical components and GPS (427) (266) (1,619) (1,414)
--------------- -------------- --------------- --------------
$(5,266) $ 204 $(8,695) $ 706
=============== ============== =============== ==============
Identifiable assets
Vehicle components $24,039 $45,013
Electrical components and GPS 10,793 11,619
Corporate 2,228 5,783
--------------- --------------
Total assets - continuing operations 37,060 62,415
--------------- --------------
Agricultural equipment - discontinued operations - 1,468
--------------- --------------
Total assets $37,060 $63,883
=============== ==============
Capital expenditures
Vehicle components $ 555 $ 766 $ 658 $ 961
Electrical components and GPS 9 183 13 187
--------------- -------------- --------------- --------------
Total capital expenditures $ 564 $ 949 $ 671 $ 1,148
=============== ============== =============== ==============
Depreciation and amortization
Vehicle components $ 861 $ 646 $ 2,034 $ 1,264
Electrical components and GPS 95 72 159 175
--------------- -------------- --------------- --------------
Total depreciation and amortization $ 956 $ 718 $ 2,193 $ 1,439
=============== ============== =============== ==============
7
Item 2.
Williams Control, Inc.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
(Dollars in thousands, except per share amounts)
Financial Position and Capital Resources
Financial Condition, Liquidity and Capital Resources
The Company continued to experience liquidity difficulties during the second
fiscal quarter ended March 31, 2001. During the second quarter of fiscal 2001
the Company reported a $6,919 loss compared to a loss of $1,138 for the second
quarter of fiscal 2000. Included in the second quarter 2001 loss was a charge of
$4,366, for an impairment loss for the full amount of the goodwill and other
intangible assets related to the Company's adjustable pedal business, which was
acquired in July 1999. The Company's working capital deficit has increased from
$(17,678) at September 30, 2000 to $(20,856) at March 31, 2001 stockholders'
equity has declined to a deficit of $(9,191) at March 31, 2001 and the Company
has accrued, but not paid, dividends on its preferred stock.
Also, as described in Note 8 to the Unaudited Consolidated Financial Statements,
the Company was not in compliance with its debt covenants with the Bank and was
in default on debt payments to the Bank for Bank Term Loans III and IV. No
waivers have been obtained and the default has not been cured, and although a
forbearance agreement was reached with the Bank through the original terms of
the loans, all of the debt with the Bank of $13,598 has been classified as
current liabilities in the accompanying Consolidated Balance Sheet at March 31,
2001. During the second quarter of fiscal 2001, the Company had fully borrowed
and was in an overadvance position under its credit agreement until the Company
raised $4,576, net of expenses, from a Private Placement in February 2001. The
$4,576 raised was in the form of $4,950 of secured subordinated debentures which
are due March 1, 2002, bearing interest at 12% and include warrants to purchase
the Company's common stock at $1.375 per share for each $2.00 of principal
amounts of the debentures purchased. The Private Placement funds were used to
pay down bank debt, including an overadvance from the Bank and to support the
operations of the Company.
As previously reported, the Company retained the investment banking firm of W.Y.
Campbell & Co. to investigate available strategic alternatives including selling
all or part of the Company to a third party or raising sufficient equity and/or
debt financing to support the operations of the Company. On February 22, 2001,
the board of directors of the Company announced that based on the review of
these strategic alternatives, it would immediately pursue a sale of the Company,
or its individual operating subsidiaries, as a means to maximize value to its
shareholders. The Company has retained W.Y. Campbell & Co. to assist in the sale
of the Company or its operating units. Although the Company has obtained the
private placement funds and a forbearance from the Bank to enable the Company to
pursue the sale process, additional financing may be required to complete the
sale process. There is no assurance that the Company will be able to obtain
adequate working capital in the amounts needed to sustain its operations or sell
its business or parts of it in a timely fashion. If the Company is not
successful in these pursuits it may be forced into a reorganization under the
United States Bankruptcy Code.
In addition, due to the Company's financial difficulties, it has substantial
outstanding payables with essentially all of its suppliers of raw materials,
components and services. As a result of these long outstanding payables, these
vendors could decide to discontinue the Company's supply of raw materials,
components and services which could cause a disruption in the Company's
production and operations. The Company's business, prospects, financial
condition and results of operations may be materially adversely affected by such
a disruption or delay.
The above matters raise a substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
Cash increased $905 at March 31, 2001 compared to September 30, 2000, primarily
as a result of cash flow from operations, the secured subordinated debentures
issued in February 2001, offset by the paydown of debt. Cash flow from
operations increased to $4,523 for the six months ended March 31, 2001 from
$1,724 for the six months ended March 31, 2001. The increase was primarily due
to the decrease in receivables and inventories between years. The positive cash
flow from operations for the six months ended March 31, 2001 differs from the
net loss from operations primarily because of noncash operating expenses of
$2,193 for depreciation and amortization, an impairment loss on assets at PPT of
$1,996, an impairment loss on assets at ProActive of $4,366, a decrease in
receivables of $2,005, a decrease in inventories of $3,325 and an increase in
accounts payable and accrued expenses of $662.
Cash flow from financing activities was a use of $2,947 for the six months ended
March 31, 2001 as compared to a use of $679 for the six months ended March 31,
2000, reflecting net payments on debt of $6,791, $585 of capital lease
obligations, $147 of preferred stock dividends paid, all partially offset by
$4,576 of net proceeds received from the secured subordinated debentures issued
in February 2001.
Guaranty of Affiliate Debt
United States National Bank has notified the Company that it intends to exercise
its rights under the Company's guaranty of $1.3 million of the debt of Ajay
Sports, Inc. ("Ajay"), an affiliate of the Company. The Company's former chief
executive officer, Thomas W. Itin, who is an officer and shareholder of Ajay,
has guaranteed this obligation to the Company, along with certain loans and
investments made by the Company to and in Ajay. Mr. Itin has taken the position
that, as a result of his retirement, this guarantee and his other guarantees of
certain loans and investment in and to Ajay are no longer in effect. The Company
disagrees with the position taken by Mr. Itin.
Delisting from the Nasdaq National Market
The Company received a ruling from the Nasdaq that the Company's common stock
will be de-listed from the Nasdaq National Market as its net tangible assets are
below the required minimum for listing on the Nasdaq National Market. The
Company is currently appealing this ruling. If the Company's securities are
delisted from the Nasdaq National Market, it may apply for listing on the Nasdaq
Small Cap Market, provided at that time it meets the requirement for inclusion
on that market. If the Company's securities do not meet the requirement for
inclusion of the NASDAQ Small Cap Market, the price of its common stock may be
obtained on either the electronic bulletin board or on pink sheets.
Recent Appointment of New Director
The Company recently appointed Douglas Hailey to fill the vacant position on the
Board of Directors. Mr. Hailey is a Vice President of the Investment Banking
Division of the investment banking firm of Taglich Brothers, Inc. As part of the
Placement Agent Agreement for the Private Placement of the $4,950 of Secured
Subordinated Debentures due March 1, 2002 Taglich Brothers, Inc. was permitted
one board seat. Mr Hailey was appointed on March 13, 2001 and his term expires
in 2002.
Market Risk
The Company may be exposed to future interest rate changes on its variable rate
debt which totalled $13,598 at March 31, 2001. The Company does not believe that
a hypothetical 10 percent change in end of period interest rates would have a
material effect on the Company's cash flow.
Recent FASB Pronouncements
In June 2000 the FASB issued Statement of Financial Accounting Standards No.138,
"Accounting for Certain Derivative Instruments and Hedging Activities - an
amendment of FASB Statement No. 133" ("SFAS 138"). In June 1999 the FASB issued
Statement of Financial Accounting Standards No. 137, Accounting for Derivative
Instruments and Hedging Activities." ("SFAS 137") SFAS 137 is an amendment to
SFAS 133, "Accounting for Derivative Instruments and hedging Activities." SFAS
133, as amended by SFAS 137 and 138 establishes accounting and reporting
standards for all derivative instruments. SFAS 133 and 138 are effective for
fiscal years beginning after June 15, 2000. The Company adopted the new standard
in fiscal 2001. The Company has made an assessment of its potential derivative
instruments and based on that assessment the adoption of SFAS 133 and 138 has
had no impact on the Company's financial position or results of operations.
Results of Operations
Three months ended March 31, 2001 compared to the three months ended March 31,
2000, as restated (Note 3)
Sales
Total sales decreased $2,566, or 14.6%, to $15,030 in the second quarter of
fiscal 2001 from $17,596 in the second quarter of fiscal 2000, primarily due to
lower unit sales volumes in the Company's Vehicle Components segment and to a
lesser degree, the Company's Electrical Components and GPS business segment.
Sales in the Vehicle component business segment decreased $2,451, or 14.5% to
$14,457 from the sales levels achieved in the second quarter of fiscal 2000. The
most significant factor in the decline was lower unit sales of electronic
throttle controls (ETC). Additionally, in February the management of the Company
began closing the operations of its Premier Plastics Technology (PPT) plastic
injection molding and tooling subsidiary, resulting in lower sales volumes.
Except for some completion of existing orders, PPT ceased operations on March
31, 2001. The Company previously recorded an impairment loss of $1,996 related
to PPT in the first quarter of 2001. PPT sales were $1,827 and $2,566 for the
quarter ended March 31, 2001 and 2000, respectively.
The Electrical Components and GPS component business segment sales decreased
$115 to $573 from the second quarter fiscal 2000 sales levels primarily as a
result of lower sales volumes of the Company's electronic sensors.
Gross Margin
Gross Margins from operations were $2,823, or 18.8% of sales in the second
quarter of 2001 compared to $4,507, or 25.6% of sales in the corresponding
quarter of 2000. The reduced gross profit margins were partially due to lower
sales levels. Additionally, the Company's liquidity constraints have caused
disruptions in the Company's materials flow, resulting in production
inefficiencies and higher product shipping costs, thus further reducing gross
profit margins.
Operating Expenses
Operating expenses, excluding Loss on Impairment of Assets, were $3,723 for the
three months ended March 31, 2001 compared to $4,303 for the comparable fiscal
2000 period, a decrease of $580, or 13.5%, primarily as a result of decreased
research and development expenses and administrative expenses. Operating
expenses, excluding Loss on Impairment of Assets, as a percentage of net sales,
increased to 24.8% in the second quarter of fiscal 2001 compared to 24.5% in the
comparable 2000 quarter.
Research and development expenses decreased $452, to $1,022 during the second
quarter of fiscal 2001 compared to $1,474 in the comparable fiscal 2000 period.
As a percent of sales, research and development expenses decreased from 8.4% to
6.8%. This is primarily due to significant expenditures and higher payroll for
employees working for the Chrysler RS Program in early fiscal 2000. This program
was cancelled during the latter half of fiscal 2000. Last year research and
development expenses increased to support new product development for the
automotive and truck ETC and adjustable foot pedal products, and for development
of sensor-related products and for existing customers. This year the focus has
shifted to production of adjustable foot pedals and sensor-related products.
Administrative expenses declined $42 to $2,362 during the second quarter of
fiscal 2001 compared to $2,404 in comparable fiscal 2000 period due to lower
overall spending on administrative expenditures offset by expenses related to
the closing of PPT.
In July 1999, the Company acquired the Adjustable Pedal Business and patent
rights and contributed additional working capital for product development of the
Company's adjustable pedal design. The Company's current sales volume of this
product is limited and as a result of the Company's capital constraints the
Company does not possess the resources to further develop additional sales
volumes and to achieve the sale volumes originally projected. The current level
of cash flows from the adjustable pedal business do not support the realization
of the carrying value of the business' intangible assets. Accordingly, the
Company recognized an impairment loss of $4,366 in the quarter ended March 31,
2001 for the Goodwill and other intangible assets related to this business.
Interest and Other Expenses
Interest expense increased $505 or 89.9% to $1,067 in the second quarter of
fiscal 2001 from $562 in the second quarter of fiscal 2000 due to amortization
of the Secured Subordinated Debenture warrant discounts (Note 9), amortization
of costs related to obtaining the additional financing and higher interest
rates.
The Company recognized no share of equity income (loss) in its affiliate, Ajay,
for the quarter ended March 31, 2001 due to unavailability of information. The
Company's share of any loss is not expected to be material based on Ajay's
previously reported results for continuing operations for the period ended
September 30, 2000 and the Company's percentage to be used for recording its
equity interest in results of affiliate. As such, current figures report a
decrease in recognized equity loss in Ajay of $867 for the quarter ended March
31, 2001 compared to the quarter ended March 31, 2000 primarily due to Ajay's
prior year's losses from discontinued operations.
Net loss available to common shareholders
Net loss allocable to common shareholders was $(0.35) in the quarter ended March
31, 2001 compared to $(0.06) in the comparative prior year period due to
decreased gross margins, the loss on the impairment of the goodwill and other
intangibles related to the Company's adjustable pedal business and increased
interest expense offset by decreased research and development and administration
expenses and equity interest in loss of affiliate. The effective income tax
rates were 0.00% and 14.6% for the quarters ended March 31, 2001 and 2000,
respectively. The Company is in a net operating loss carry forward position and
is providing a 100% valuation allowance on all deferred tax assets in the
current fiscal year due to going concern issues.
Results of Operations
Six months ended March 31, 2001 compared to the six months ended March 31, 2000,
as restated (Note 3)
Total sales decreased $3,464, or 10.3%, to $30,009 for the first six months of
fiscal 2001 from $33,473 for the first six months of fiscal 2000, primarily due
to lower unit sales volumes in the Company's Vehicle Components segment and to a
lesser degree, the Company's Electrical Components and GPS business segment.
Sales in the Vehicle component business segment decreased $2,823, or 8.8% to
$29,109 over the sales levels achieved in the first six months of fiscal 2000.
The most significant factor in the decline was lower unit sales of electronic
throttle controls (ETC). Additionally, in February the management of the Company
began closing the operations of PPT, resulting in lower sales volumes. Except
for some completion of existing orders, PPT ceased operations on March 31, 2001.
PPT sales were $4,026 and $3,796 for the six months ended March 31, 2001 and
2000, respectively.
The Electrical Components and GPS component business segment sales decreased
$641 to $900 over the second quarter fiscal 2000 sales levels primarily as a
result of lower sales volumes of the Company's electronic sensors.
Gross Margin
Gross Margins from operations were $5,178, or 17.3% of sales in the first six
months of fiscal 2001 compared to $8,998, or 26.9% of sales in the corresponding
six month period of 2000. The reduced gross profit margins were partially due to
lower overall sales levels. Additionally, the Company's liquidity constraints
have caused disruptions in the Company's materials flow, resulting in production
inefficiencies and higher shipping costs, thus further reducing gross profit
margins.
Operating Expenses
Operating expenses, excluding Loss on Impairment of Assets, were $7,511 for the
six months ended March 31, 2001 compared to $8,292 for the comparable fiscal
2000 period, a decrease of $781, or 9.4%, primarily as a result of decreased
research and development expenses. Operating expenses, excluding Loss on
Impairment of Assets, as a percentage of net sales, increased to 25.0% in the
second quarter of fiscal 2001 compared to 24.8% in the comparable 2000 quarter.
Research and development expenses decreased $1,204, to $1,967 during the first
six months of fiscal 2001 compared to $3,171 in the comparable fiscal 2000
period, a 38.0% decline. As a percent of sales, research and development
expenses decreased from 9.5% to 6.6%. This is primarily due to significant
expenditures and higher payroll for employees working for the Chrysler RS
Program in early fiscal 2000. This program was cancelled during the latter half
of fiscal 2000. Last year research and development expenses increased to support
new product development for the automotive and truck ETC and adjustable foot
pedal products, and for development of sensor-related products for existing
customers. This year the focus has shifted to production of adjustable foot
pedals and sensor-related products.
Administrative expenses increased $521 to $4,777 during the first six months of
fiscal 2001 compared to $4,256 in comparable fiscal 2000 period due to expenses
related to the closing of PPT.
After reviewing PPT's history of operating losses and operating problems and
profitability, the PPT operations have been terminated. Management of PPT has
evaluated the realizability of the assets of PPT based on the closure.
Accordingly, the Company recorded an impairment loss on PPT's property, plant
and equipment of $1,966 and established additional reserves of $490 for
estimated uncollectible accounts receivable during the first six months of
fiscal 2001. Except for some completion of existing orders, PPT ceased all
operations by March 31, 2001.
In July 1999 the Company acquired the Adjustable Pedal Business and patent
rights and contributed additional working capital for product development of the
Company's adjustable pedal design. The Company's current sales volume of this
product is limited and as a result of the Company's capital constraints the
Company does not possess the resources to further develop additional sales
volumes and to achieve the sale volumes originally projected. The current level
of cash flows from the adjustable pedal business do not support the realization
of the carrying value of the business' intangible assets. Accordingly, the
Company recognized an impairment loss of $4,366 in the quarter ended March 31,
2001 for the Goodwill and other intangible assets related to this business.
Interest and Other Expenses
Interest expense increased $949 or 79.7%, to $2,140 in the first six months of
fiscal 2001 from $1,191 in the first six months of fiscal 2000 due to
amortization of the Secured Subordinated Debenture warrant discounts (Note 9),
amortization of costs related to obtaining the additional financing and higher
interest rates.
The Company recognized no share of equity income (loss) in its affiliate, Ajay,
for six months ended March 31, 2001 due to unavailability of information. The
Company's share of any loss is not expected to be material based on Ajay's
previously reported results for continuing operations for the period ended
September 30, 2000 and the Company's percentage to be used for recording its
equity interest in results of affiliate. As such, current figures report a
decrease in recognized equity loss in Ajay of $2,233 for the six months ended
March 31, 2001 compared to the six months ended March 31, 2000 primarily due to
Ajay's prior year's losses from discontinued operations.
Net loss available to common shareholders
Net loss allocable to common shareholders was $(0.58) for the first six months
ended March 31, 2001 compared to $(0.13) in the comparative prior year period
due to decreased gross margins, the loss on the impairment of the goodwill and
other intangible assets related to the Company's adjustable pedal business, loss
on impairment of assets of PPT, additional expenses related to the closing of
PPT and increased interest expense offset by decreased research and development
and equity interest in loss of affiliate. The effective income tax rates were
0.00% and 10.6% for the six months ended March 31, 2001 and 2000, respectively.
The Company is in a net operating loss carry forward position and is providing a
100% valuation allowance on all deferred tax assets in the current fiscal year
due to going concern issues.
11
Part II
Item 1. Legal Proceedings
None
Item 2. Changes in Securities and Use of Proceeds
On February 28, 2001, the Company completed a private placement of 200
units, each unit consisting of: (i) a $25,000 12% secured subordinated
debenture; and (ii) a three year common stock purchase warrant to
purchase 12,500 shares of the Company's common stock at an exercise
price of $1.375 per share (the "Warrant"). The aggregate consideration
received by the Company was $5,000,000. The Company relied upon the
exemptions from registration provided by Section 4(2) and/or 4(6) of
the Securities Act of 1933 (the "Securities Act"), as amended, and/or
Rule 506 of Regulation D promulgated thereunder based upon (i)
representations from each of the Purchasers of the Units that they are
accredited investors with experience in investing in securities such
that they could evaluate the merits and risks related to the Company's
securities; (ii) that no general solicitation of the securities was
made by the Company; (iii) each of the Purchasers of the Units
represented to the Company that they were acquiring the shares for
their own account and not with a view towards further distribution;
(iv) the securities issued to the Purchasers of the Units were
"restricted securities" as that term is defined under Rule 144
promulgated under the Securities Act; (v) the Company placed
appropriate restrictive legends on the Certificates representing the
securities; and (vi) prior to completion of the transaction, the
Purchasers of the Units were informed in writing of the restricted
nature of the securities, provided with all information regarding the
Company as required under Rule 502 of Regulation D and were given the
opportunity to ask questions of and receive additional information
from the Company regarding its financial condition and operations. The
Company issued a Warrant (as discussed in the following paragraph) and
paid a cash fee of $350,000 to Taglich Brothers, Inc. ("Taglich") for
its services as Placement Agent in connection with the private
placement.
Concurrently with the closing of the private placement, the Company
issued a three year common stock purchase warrant to purchase 175,000
shares of the Company's common stock at an exercise price of $1.375
per share (the "Warrant") to Taglich. The Company relied upon the
exemptions from registration provided by Section 4(2) and/or 4(6) of
the Securities Act, as amended, and/or Rule 506 of Regulation D
promulgated thereunder based upon (i) representations from Taglich or
its principals that they are accredited investors with experience in
investing in securities such that they could evaluate the merits and
risks related to the Company's securities; (ii) that no general
solicitation of the securities was made by the Company; (iii) Taglich
or its principals represented to the Company that they were acquiring
the securities for their own account and not with a view towards
further distribution; (iv) the Warrants are "restricted securities" as
that term is defined under Rule 144 promulgated under the Securities
Act; (v) the Company placed appropriate restrictive legends on the
certificates representing the securities regarding the restricted
nature of these securities; and (vi) prior to completion of the
transaction, Taglich or its principals were informed in writing of the
restricted nature of the securities, provided with all information
regarding the Company as required under Rule 502 of Regulation D and
were given the opportunity to ask questions of and receive additional
information from the Company regarding its financial condition and
operations.
Item 3. Defaults Upon Senior Securities
On November 15, 2000, the Company defaulted under the terms of its
credit agreement with the Bank when it failed to repay Term Loans III
and IV in the remaining principal amounts of $694 and $1,000,
respectively, both due on November 15, 2000. As of December 31, 2000,
the Company was not in compliance with its debt covenants with the
Bank. No waivers have been obtained and the default has not been
cured, and although a forebearance agreement was reached in February
2001 with the Bank, all of the debt with the Bank of $13,598 has been
classified as current liabilities in the accompanying Consolidated
Balance Sheet at March 31, 2001.
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
None
(b) Reports on Form 8-K
None
12
Williams Controls, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
By: /s/ Thomas K. Ziegler
----------------------------
Thomas K. Ziegler
President and
Chief Executive Officer
By: /s/ Dennis E. Bunday
----------------------------
Dennis E. Bunday,
Chief Financial Officer
Date: May 18, 2001
13
Williams Controls, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLIAMS CONTROLS, INC.
----------------------------
Thomas K. Ziegler
Presidend and
Chief Executive Officer
----------------------------
Dennis E. Bunday,
Chief Financial Officer
Date: May 18, 2001
13