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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 0-28681
CCM MANUFACTURING TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-2201514
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15635 Vision Drive
Pflugerville, Texas 78660-3203
---------------------------------------------------
(Address of principal executive offices (zip code))
512/251-3484
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 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
As of August 25, 2000, 16,227,083 shares of the Registrant's common stock,
$0.0001 par value, were outstanding.
CCM MANUFACTURING TECHNOLOGIES, INC.
INDEX
PART 1 - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the periods ended
June 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the periods ended
June 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CCM MANUFACTURING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, 2000 December 31, 1999
----------------- ------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................... $ 33,255 $ 11,649
Accounts receivable, net of allowance for doubtful
Accounts of $0 and $9,197 at June 30, 2000 and
December 31, 1999, respectively.............................. 363,140 545,433
Inventories................................................... 500,991 603,485
Prepaid expenses.............................................. 11,009 35,107
----------------- ------------------
Total current assets.................................... 908,395 1,195,674
PROPERTY AND EQUIPMENT
Machinery and equipment....................................... 1,072,867 1,072,867
Furniture and fixtures........................................ 47,617 47,617
Automobiles................................................... 1,500 1,500
Leasehold improvements........................................ 896 896
----------------- ------------------
1,122,880 1,122,880
Accumulated depreciation and
Amortization............................................... (928,880) (884,763)
----------------- ------------------
Net property and equipment............................ 194,000 238,117
OTHER ASSETS...................................................... 33,887 33,219
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS OF COMPANIES ACQUIRED, net............................. 1,746,321 1,843,339
----------------- ------------------
TOTAL ASSETS...................................................... $ 2,882,603 $ 3,310,349
================= ==================
The accompanying notes are an integral part of these financial statements.
3
CCM MANUFACTURING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS - Continued
(Unaudited)
June 30, 2000 December 31, 1999
----------------- ------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Line of credit................................................ $ 182,167 $ 252,257
Current portion of long-term debt............................. 577,661 200,000
Notes payable to shareholders................................. 681,853 1,142,698
Current portion of capital lease obligations.................. 44,833 42,792
Accounts payable.............................................. 792,502 1,035,706
Accrued liabilities........................................... 1,033,573 1,044,711
Deferred compensation......................................... 116,250 1,852,000
---------------- ----------------
Total current liabilities.................................. 3,428,839 5,570,164
LONG TERM LIABILITIES
Long term debt, less current portion.............................. - 391,667
Capital lease obligations, less current portion................... 69,458 96,045
---------------- ----------------
Total long term liabilities................................ 69,458 487,712
---------------- ----------------
Total liabilities............................................. 3,498,297 6,057,876
---------------- ----------------
SHAREHOLDERS' DEFICIT
Preferred stock, $0.0001 par value, 30,000,000 shares
authorized, 2,972,504 and 1,375,413 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively (liquidation preference of $4,458,756
and $825,248 at June 30, 2000 and December 31, 1999,
respectively).............................................. 297 138
Class A common stock., $0.0001 par value, 60,000,000 shares
authorized, 16,227,083 and 11,812,500 shares issued and
outstanding at June 30, 2000 and December 31, 1999,
respectively............................................... 1,623 1,181
Class B common stock, $0.0001 par value, 10,000,000 shares
authorized, none issued and outstanding at June 30, 2000
and December 31, 1999...................................... - -
Additional paid-in-capital.................................... 4,446,946 1,051,047
Accumulated deficit........................................... (5,064,560) (3,799,893)
---------------- ----------------
Total shareholders' deficit................................ (615,694) (2,747,527)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT....................... $ 2,882,603 $ 3,310,349
================ ================
The accompanying notes are an integral part of these financial statements.
4
CCM MANUFACTURING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Unaudited)
Three Months Ended June 30 Six Months Ended June 30
---------------------------- ---------------------------------
2000 1999 2000 1999
---- ---- ---- ----
Net Sales $ 712,358 $ 867,826 $ 1,515,025 $ 1,776,086
Cost of sales 921,386 675,694 1,853,870 1,369,727
------------- ------------- -------------- -------------
Gross Profit (loss) (209,028) 192,132 (338,845) 406,359
Selling, general and administrative 437,999 380,286 835,355 554,389
------------- ------------- -------------- -------------
Income (loss) from operations (647,027) (188,154) (1,174,200) (148,030)
Other income (expenses)
Interest expense (76,656) (30,850) (92,028) (51,062)
Other, net (72) 627 1,561 (1,592)
------------- ------------- ------------- -------------
Total other income (expensess) (76,728) (30,223) (90,467) (52,654)
------------- ------------- ------------- -------------
Income (loss) before provision
for income taxes (723,755) (218,377) (1,264,667) (200,684)
Provision for income taxes - -
------------- ------------- ------------- -------------
Net income (loss) $ (723,755) $ (218,377) (1,264,667) $ (200,684)
============= ============= ============= =============
Net income (loss) attributable
to common stockholders $ (723,755) $ (218,377) (1,264,667) $ (200,684)
============= ============= ============= =============
Basic and diluted net income (loss) per share
attributable to common stockholders $ (0.01) $ (0.01)
============= ============= ============= =============
Number of weighted average shares
of common stock outstanding 16,227,083 16,227,083
============= ============= ============= =============
The accompanying notes are an integral part of these financial statements.
5
CMM MANUFACTURING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Month Ended
June 30
-----------------
2000 1999
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (1,264,667) $ (200,684)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization..................................... 44,117 34,102
Amortization of excess of net assets
of companies acquired over cost.............................. 97,018 19,416
Change in operating assets and liabilities
Accounts receivable............................................ 182,294 (196,609)
Inventories.................................................... 102,494 (232,678)
Prepaid expenses............................................... 24,098 (1,970)
Other assets................................................... (668) (1,655)
Accounts payable............................................... (243,204) 367,451
Accrued expenses............................................... (11,139) (32,228)
Deferred compensation.......................................... 232,500 -
-------------- --------------
Cash flows provided (used) by operating activities (837,157) (244,855)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................... - (652)
-------------- --------------
Cash flows used in investing activities - (652)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock............................. 928,250 -
Net activity on line of credit.................................... (70,090) 17,107
Additional capital contributed.................................... - 62,000
Proceeds from long-term debt...................................... 154,869 -
Repayment of long-term debt....................................... (168,875) -
Payments on capital leases........................................ (24,546) (16,577)
Net proceeds (payments) on notes payable to shareholders.......... 39,155 166,456
-------------- --------------
Cash flows provided by financing activities 858,763 228,986
-------------- --------------
Net increase (decrease) in cash and cash equivalents 21,606 (16,521)
Cash and cash equivalents, beginning of period 11,649 20,068
-------------- --------------
Cash and cash equivalents, end of period $ 33,255 $ 3,547
============== ==============
The accompanying notes are an integral part of these financial statements.
6
CMM MANUFACTURING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
(Unaudited)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Six Month Ended
June 30
---------------------
2000 1999
---- ----
Issuance of Class A common stock in lieu of payment of
Class A deferred compensation $1,968,250 $ -
========== ============
Issuance of Class A common stock in exchange for
Note payable to shareholders; retirement of $ 500,000 $ -
========== ============
7
CCM Manufacturing Technologies, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - Basis of Presentation
The accompanying unaudited financial statements of CCM Manufacturing
Technologies, Inc. ("Company") and subsidiaries have been prepared from the
records of the Company in accordance with generally accepted accounting
principles. These financial statements reflect all adjustments which are, in the
opinion of management, necessary to provide a fair statement of the results of
operations and financial position for the interim periods. Such financial
statements generally conform to the presentation reflected in the Company's
Forms 10-KSB filed with the Securities and Exchange Commission for the year
ended December 31, 1999. The current interim period reported herein should be
read in conjunction with the Company's Forms 10-KSB subject to independent audit
at the end of the year.
The results of operations for the three months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2000.
NOTE B - GOING CONCERN
The consolidated financial statements have been prepared on the assumption that
the Company will continue as a going concern. The Company incurred a net loss of
$1,264,667 during the six-month period ended June 30, 2000. Cash used by
operating activities for the same period aggregated $837,157. Current
liabilities at June 30, 2000 of $3,428,839 exceed current assets of $908,395 by
$2,520,444. Total liabilities at June 30, 2000 of $3,498,297 exceed total assets
of $2,882,603 by $615,694. The Company's continued existence depends upon the
success of management's efforts to raise the additional capital necessary to
meet the Company's obligations as they come due and to obtain sufficient capital
to execute its business plan. The Company intends to obtain additional capital
primarily through the issuance of preferred stock. There can be no degree of
assurance given that the Company will be successful in completing additional
financing transactions. The consolidated financial statements do not include any
adjustments to reflect the possible effects on the recoverability and
classification of assets or classification of liabilities which may result from
the inability of the Company to continue as a going concern.
NOTE C - INCOME (LOSS) PER SHARE
Basic net income per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares and common stock equivalents
outstanding for the period. CCM's common stock equivalents are not included in
the diluted loss per share for June 30, 2000 and 1999 as they are antidilutive.
Therefore, diluted and basic loss per share is identical.
NOTE D - INVENTORIES
Inventories consist of the following:
June 30 December 31
2000 1999
------------------ -----------------
Raw materials $ 82,130 $ 530,959
Work-in process 346,335 -
Finished goods 72,526 72,526
------------------ -----------------
$ 500,991 $ 603,485
================== =================
NOTE E - LINE OF CREDIT
Line of credit at June 30, 2000 consists of a $500,000 revolving credit
agreement with a financial institution with monthly
8
interest payments at prime rate plus 5.5% and all outstanding principal and
interest due at maturity, December 30, 2000. At June 30, 2000 $182,167 was
outstanding under this agreement. The line of credit is collateralized by
accounts receivable, inventory and equipment, and personally guaranteed by
certain shareholders.
NOTE F - NOTES PAYABLE TO SHAREHOLDERS
The Company has unsecured note payables, due to several shareholders totaling
$681,853 at June 30, 2000. The notes bear interest at 9.5% per annum and
payments are made as cash flow permits with the total outstanding balance of
principal and accrued interest due September 2, 2000.
NOTE G - LONG TERM DEBT
Long-term debt at December 31, 1999 consists of the following:
Installment note payable to financial institution, due in monthly
installments of $8,333, including interest at the 30 day rate of commercial
paper plus 3.25%, matures August 2004, secured by all assets of the Company
excluding accounts receivable and inventory $ 429,667
Installment note payable to financial institution, due in weekly principal
installments of $2,000, interest is payable monthly at the prime rate plus
5.5% matures December 2000,secured by accounts receivable, inventory, and
equipment and personally guaranteed by certain shareholders
(cross-collateralized with the line of credit) 50,000
Installment note payable to vendor due in monthly installments of $20,092
including 10% interest, matures November 20, 2000, secured by certain
inventories 97,994
---------
577,661
Less current portion 577,661
---------
Long-term debt, less current portion $ -
==========
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is intended to provide an analysis of the Company's
financial condition and plan of operation and should be read in conjunction with
the Company's financial statements and the notes thereto. The matters discussed
in this section that are not historical or current facts deal with potential
future circumstances and developments. Such forward-looking statements include,
but are not limited to, the development plans for the growth of the Company,
trends in the results of the Company's development, anticipated development
plans, operating expenses and the Company's anticipated capital requirements and
capital resources. The Company's actual results could differ materially from the
results discussed in the forward-looking statements.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934.
Although the Company believes that the expectations reflected in the
forward-looking statements and the assumptions upon which the forward-looking
statements are based are reasonable, it can give no assurance that such
expectations and assumptions will prove to be correct.
Other factors that could adversely affect forward-looking statements
include the level of overall growth in the electronics industry, the Company's
ability to integrate and extract value from acquired operations, the Company's
ability to secure new customers and maintain its current customer base, the
results of cost reduction efforts, material cost fluctuations and the adequate
availability of components and related parts for production, the effect of
changes in average selling prices, the risk of customer delays or cancellations
in both on-going and new programs, the effect of start-up costs related to new
programs and facilities, the overall economic conditions, the impact of
increased competition, the ability to attract and retain both technical and
management personnel and other factors and risks detailed herein and in the
Company's other Securities and Exchange Commission filings.
GENERAL
CCM Manufacturing Technologies, Inc. is a contract service provider of
design, manufacturing and testing services to the electronics industry,
headquartered in Austin, Texas. Through its wholly owned subsidiary, Syntec
Corporation, the Company provides product realization services to original
equipment manufacturers in the industrial, computer and telecommunications
industries. The Company offers a full range of services including product
development and design, material procurement and management, prototyping,
assembly, testing, manufacturing, final system box build, distribution and after
market support. CCM is a certified minority business enterprise (MBE) by the
National Minority Supplier Development Council (NMSDC) and a certified
Historically Underutilized Business (HUB) by the State of Texas.
The Company's contract manufacturing services are provided on a turnkey
basis, where the Company procures certain or all of the materials required for
product assembly. Turnkey services include material procurement and warehousing,
in addition to manufacturing, and involve greater resource investment and
inventory risk management than consignment services. Turnkey manufacturing
currently represents almost all of the Company's sales. Turnkey sales typically
generate higher net sales and higher gross profit dollars with lower gross
margin percentages than consignment sales due to the inclusion of component
costs, and related markup, in the Company's net sales. However, the Company
takes on the risk of inventory management, and a change in component costs can
directly impact the average selling price, gross margins and the Company's net
sales. Due to the nature of turnkey manufacturing, the Company's quarterly and
annual results are affected by the level and timing of customer orders,
fluctuations in materials costs, and the degree of automation used in the
assembly process.
Since a substantial portion of the Company's sales are derived from
turnkey manufacturing, net sales can be negatively impacted by component
shortages and their lead-times. Shortages of key electronic components which are
provided directly from customers or suppliers and their lead-times can cause
manufacturing interruptions, customer rescheduling issues, production downtime
and production set-up and restart inefficiencies. From time to time, allocations
of components can be an integral part of the electronics industry and component
shortages and extended lead-time issues
10
can occur with respect to specific industries or particular components (such as
memory and logic devices). In such cases, supply shortages could substantially
curtail production of some or all assemblies utilizing a particular component.
In addition, at various times industry wide shortages of electronic components
have occurred, particularly for memory and logic devices. Over the past twelve
plus months the marketplace for certain electronic components, primarily in the
telecommunications and wireless markets (in particular flash memory, tantalum
capacitors, and SAW filters), has tightened from recent periods. In addition,
recent tightening has occurred with complex, high layer count (12 layers and
above) raw printed circuit boards (PCBs). This has resulted in the extension of
certain component lead-times, increased pricing and in certain instances has
resulted in the allocation of such components by the suppliers. In response to
this dynamic environment, the Company has initiated a plan whose primary purpose
is to create strong supplier alliances to assure a steady flow of components at
competitive prices, and mitigate shortages. The Company has established
strategic relationships with key component suppliers to improve shortage and
pricing issues. However, because of the limited number of suppliers for certain
electronic components and whether further tightening in the marketplace for
components could result in missed deliveries or de-commits from our suppliers,
along with other supply and demand concerns, the Company can neither eliminate
component shortages nor determine the timing or impact of such shortages on the
Company's results. In addition, because we provide our customers component
procurement services, we may bear the risk of price increases for these
components if we are unable to purchase them at the same price that we agree
with our customer on the pricing for the components. As a result, the Company's
sales and profitability can be affected from period to period. In order to
attempt to mitigate the Company's financial risk of component price increases,
the Company regularly reviews and adjusts for price fluctuations with customers.
Many of the industries for which the Company currently provides
electronic products are subject to rapid technological changes, product
obsolescence, increased competition, and pricing pressures. These and other
factors which affect the industries or the markets that the Company serves, and
which affect any of the Company's major customers in particular, could have a
material adverse effect on the Company's results of operations. The Company
depends on a relatively small number of customer for the majority of its
revenues - the result of a strategic business decision made in 1999. The Company
began transitioning its customer base during the past year, to implement the new
strategy, ensure customer focus, and balance current production capabilities
with the growth objectives. This transition involved moving towards developing
long-term relationships with select original equipment manufacturers ("OEMs")
with whom the Company could develop significant synergies. The Company's status
as a certified minority business enterprise (MBE) is a key differentiator,
especially in the communications industry. XEL Communications, Inc. is the first
OEM to select CCM as one of their EMS providers with the anticipation of
leveraging the minority manufactured content provided by the Company as a
competitive differentiator.
The Company has no long-term volume commitments from its customers, and
lead-times for customer orders and product-life cycles continue to contract.
Although the Company obtains firm purchase orders and/or schedules from its
customers, they typically do not make firm orders for delivery of products more
than 30 to 90 days in advance. The Company does not believe that the backlog of
expected product sales covered by firm purchase orders is a meaningful measure
of future sales since orders may be canceled and volume levels can be changed or
delayed at any time. The timely replacement of delayed, canceled or reduced
programs with new business cannot be assured. In recent periods, an increasing
percentage of the Company's sales have been sales to its largest customers,
which may increase the Company's dependence upon them. Because of these and
other factors, there can be no assurance that the Company's historical sales
growth rate will continue.
The Company participates within the electronic manufacturing services
("EMS") segment of the electronics industry. This segment is currently growing
at a faster rate than the overall electronics industry, being spurred by the
wave of manufacturing outsourcing by communications OEMs. The EMS segment is
comprised of a large number of companies, with only a few attaining significant
market share. The Company's growth plan calls for a mix of both internal growth
- - fueled by increased business from some current key customers combined with an
expansion in the overall customer base through focused prospecting - and
external growth gained through the acquisition of businesses that complement the
Company's model and strategy by delivering incremental capabilities, vertical
integration, or geographic coverage.
11
The Company believes that its growth has been achieved in significant
part by its approach to partnering with customers. In order to achieve expanded
sales growth, the Company must continue to generate additional sales from
existing customers from both current and future programs, and must successfully
market to new customers. In addition, the Company must continue to attract and
retain top quality product development engineers in order to continue to expand
its design and development services. Because of these and other factors, there
can be no assurance that the Company's historic growth rate or profitability
levels will continue.
Start-up costs and the management of labor and equipment efficiencies
for new programs and new customers can have an effect on the Company's gross
margins. Due to these and other factors, gross margins can be negatively
impacted early on in the life cycle of new programs. In addition, labor
efficiency and equipment utilization rates ultimately achieved and maintained by
the Company for new and current programs impact the Company's gross margins.
The Company continues to look for opportunities for geographical
expansion that will improve the Company's ability to provide services to its
customers. Geographical expansion and growth by acquisition can have an effect
on the Company's operations. The successful integration and operation of an
acquired business, requires communication and cooperation among key managers,
along with the transition of customer relationships. Acquisitions also involve
risks including the retention of key personnel and customers, the integration of
information systems and purchasing operations, the management of an increasingly
larger and more geographically dispersed business, and the diversion of
management's attention from other ongoing business concerns. In addition, while
the Company anticipates cost savings, operating efficiencies and other synergies
as a result of its acquisitions, the consolidation of functions and the
integration of departments, systems and procedures present significant
management challenges. The Company cannot assure that it will successfully
accomplish those actions as rapidly as expected. Also, the Company cannot assure
the extent to which it will achieve cost savings and efficiencies in any
transaction or expansion. There can be no assurance that the Company will
successfully manage the integration of new locations or acquired operations, and
the Company may experience certain inefficiencies that could negatively impact
the results of operations or the Company's financial condition. Additionally, no
assurance can be given that any past or future acquisition by the Company will
enhance the Company's business.
The Company operates in a highly competitive industry. The Company
faces competition from a number of domestic and foreign electronic manufacturing
services companies, some with financial and manufacturing resources
significantly greater than the Company's. The Company also faces competition in
the form of current and prospective customers that have the capabilities to
develop and manufacture products internally. In order to remain a viable
alternative, the Company must continue to enhance its total engineering and
manufacturing technologies.
RESULTS OF OPERATIONS
Net Sales
Net sales for the three months ended June 30, 2000, decreased 18% to
$712,358 from $867,826 for the same period in the prior fiscal year. Net sales
for the six months ended June 30, 2000, decreased $261,061 from $1,776,086 to
$1,515,025 for the same fiscal period in the prior fiscal year. The decrease in
Net Sales during these two comparative time frames was due primarily to a severe
industry wide material/components shortage, which in turn effected the company's
cash flow and subsequent ability to procure additional parts inventory. Customer
backlog grew to over $1.6 million by May 31, 2000 before closing out at $1.3
million at the end of June 30, 2000. The Company believes that it has made
significant progress in alleviating the materials/components shortage issues by
establishing strategic alliances with some of the industries largest
materials/components suppliers.
Gross Profit
Gross profit decreased to ($209,028) for the three months ended June
30, 2000 from $192,132 for the same period in the prior fiscal year. Gross
profit decreased to ($338,845) for the six months ended June 30, 2000 from
12
$406,359 for the same period in the prior fiscal year. The decrease in gross
profit was due primarily to an increase in materials/components costs due to the
industry wide material/components shortage and a 15% increase in personnel in
the direct/indirect labor module, and manufacturing burden. The Company's gross
margin also reflects a number of factors which can vary from period to period,
including product mix, the level of start-up costs and efficiencies of new
programs, product life cycles, sales volumes, price erosion within the
electronics industry, capacity utilization for surface mount and other
equipment, labor costs and efficiencies, the management of inventories,
component pricing and shortages, average sales prices, the mix of turnkey and
consignment business, fluctuations and timing of customer orders, changing
demand for customer's products and competition within the electronics business.
Operating Expenses
Selling, general and administrative (SG&A) expenses increased 15% to
$437,999 for the three months ended June 30, 2000 from $380,286 for the same
period in the prior fiscal year. SG&A increased $280,966 to $835,355 for the six
months ended June 30, 2000 from $554,389 for the same period in the prior fiscal
year. The increase in absolute dollars reflects the Company's planned increase
in its sales and marketing efforts, coupled with increase in personnel in the
purchasing and engineering departments. Also reflected in this section is
deferred compensation expense that is being accrued for certain officers of the
company. Other costs reflected in this category are professional fees of
$100,210 for the six months ended June 30, 2000 directly attributable to the
Reverse Merger (going public process) that was not an issue during the same
period in the prior fiscal year. The Company anticipates that future GS&A
expenses will increase in absolute dollars as the company continues to expand
these support areas.
Net Income
Net income (loss) increased to ($723,755) for the three months ended
June 30, 2000 from ($218,377) for the same period in the prior fiscal year. Net
income (loss) increased to ($1,264,667) for the six months ended June 30, 2000
from ($200,684) for the same period in the prior fiscal. Of the current six
months ended June 30, 2000 net loss from operations, approximately $373,635 was
due to non-cash charges and for accrual of deferred compensation.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $837,157 for the six
month period ending June 30, 2000 compared to $244,855 for the same period in
the prior fiscal year. Cash from operations was used primarily by increases in
cost of good sold, and selling, general, and administrative expenses. Additional
cash to finance operations came from the proceeds of sale of preferred stock.
The Company utilizes available cash, debt and operating leases to fund
its operational needs. The Company utilizes operating leases primarily in
situations where technical obsolescence concerns are determined to out weigh the
benefits of financing the equipment purchase.
Because the Company's cash needs have increased significantly, the
Company expects to renegotiate and increase the size of its credit agreements
with its banks in the near term so as to provide sufficient funding levels for
anticipated working capital needs to support growth, significant expansion of
its current facilities and for potential additional acquisitions. The Company's
credit facilities, its leasing capabilities, cash and short-term investments and
projected cash from operations should be sufficient to meet its working capital
and capital requirements through fiscal 2000 and the foreseeable future. As the
Company reviews its capital needs, the Company may seek to raise additional
capital through the issuance of either public or private equity securities to
finance anticipated future growth.
While there can be no assurance that future financing will be
available on terms acceptable to the Company, the Company may seek to raise
additional capital through the issuance of either public or private debt or
equity securities to finance future acquisitions. Debt financing may require the
Company to pledge assets as collateral. Equity financing may
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result in dilution to stockholders. Failure to arrange additional financing
could affect the Company's ability to continue to expand its operations.
The Company has not paid dividends on its common stock, but has
reinvested its earnings to support its working capital and expansion
requirements. The Company intends to continue to utilize its earnings in the
development and expansion of the business and does not expect to pay cash
dividends in the foreseeable future.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of
any proceedings contemplated against it.
ITEM 2. CHANGES IN SECURITIES
The following information is given with respect to all unregistered securities
sold or issued by the Company in the period covered by this report:
On June , 2000, the Company issued 300,000 restricted shares of its common stock
to TPG Capital Corporation, the sole shareholder of Mayford Acquisition
Corporation, pursuant to an Agreement and Plan of Reorganization between Syntec
Acquistion Corporation and Mayford Acquisition Corporation in exchange for 99.9%
of the outstanding shares of common stock of Syntec Acquisition Corporation.
These shares were issued by the Company pursuant to Section 4(2) of the
Securities Act of 1933.
Subsequent Events:
On July 13, 2000, pursuant to an Agreement and Plan of Reorganization between
Mayford Acquisition Corporation ("Mayford"), Syntec Acquisition Corporation
("Syntec") and the owners of the outstanding shares of Syntec, Mayford acquired
99.9% of the outstanding shares of Syntec from the shareholders thereof in an
exchange of stock at a ratio of one share of Syntec stock for 2.5 shares of
identical class of shares of Mayford, for an aggregate issuance of 16,208,333
shares of Class A common stock of Mayford and 2,972,504 shares of the Series A
preferred stock of Mayford. The outstanding warrants and options of Syntec and
other outstanding rights to purchase shares of common stock of Syntec represent
the right to purchase the equivalent number of shares of common stock of Mayford
(subject to the adjustment provisions therein). On July 14, 2000, pursuant to an
Agreement and Plan of Merger between Mayford and its subsidiary, Syntec, Syntec
was merged with and into Mayford. In connection with the merger, Mayford changed
its name to "CCM Manufacturing Technologies, Inc.". Effective as of July 14,
2000, the officer and director of Mayford resigned and certain other persons
became the officers and directors of the Company, as described in the Current
Report on Form 8-K filed on July 19, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
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Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 - Current Report on Form 8-K filed by the Company on June 28,
2000, and incorporated herein by reference.
4.2 - Current Report on Form 8-K filed by the Company on July 19,
2000 and incorporated herein by reference.
(b) Reports on Form 8-K
On June 28, 2000, the Company filed a Current Report on Form 8-K (file
No. 000-28681) reporting the acquisition by Syntec of the outstanding
shares of common stock of Mayford from the shareholder thereof in an
exchange for an aggregate of 120,000 restricted shares of common stock
of Syntec. No audited financial statements were filed therewith.
On July 19, 2000, the Company filed a Current Report on Form 8K
reporting the acquisition by Mayford of 99.9% of the outstanding shares
of Syntec from the shareholders thereof in an exchange of stock at a
ratio of one share of Syntec stock for 2.5 shares of identical class of
shares of Mayford, for an aggregate issuance of 16,227,083 shares of
Class A common stock of Mayford and 2,972,504 shares of the Series A
preferred stock of Mayford. The outstanding warrants and options of
Syntec and other outstanding rights to purchase shares of common stock
of Syntec represent the right to purchase the equivalent number of
shares of common stock of Mayford (subject to the adjustment provisions
therein). The Company's Current Report on Form 8-K, filed on July 19,
2000, further reported the Company's name change from "Mayford
Acquisition Corporation" to "CCM Manufacturing Technologies, Inc."
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.
CCM Manufacturing Technologies, Inc.
By: /s/ Jaime Munoz
----------------------
President
Dated: August 28, 2000
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