SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTER FOR THE ENDED - September 30, 1998 COMMISSION FILE NUMBER 0-965
BOGUE ELECTRIC MANUFACTURING COMPANY AND SUBSIDIARIES
(name of registrant)
NEW JERSEY 22-1437844
(state of incorporation) (IRS employer number)
100 PENNSYLVANIA AVE
PATERSON, NEW JERSEY 07509
(principal address)
(201) 523-2200
(telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [_]
The number of shares of common stock outstanding at September 30, 1998 was
1,272,539.
BOGUE ELECTRIC MANUFACTURING CO. & SUBSIDIARIES
FORM 10Q - QUARTERLY REPORT
INDEX
PART 1 - FINANCIAL INFORMATION: PAGE
----
Accountant's Report 1
Balance Sheet - September 30, 1998 2-3
Statement of Operations for the Nine months
ended September 30, 1998 and 1997
with Earnings per common Share computations 4
Statement of Cash Flows for the Nine months
ended September 30, 1998 and 1997 5
Notes to the Financial Statements
as of September 30, 1998 and 1997 6 - 11
Management's Discussion and Analysis of the
Statement of Operations and Financial Condition 12
PART II - OTHER INFORMATION:
ITEMS 1 - 6 13
SIGNATURES 14
To the Stockholders and Board of Directors
Bogue Electric Manufacturing Company
Paterson, New Jersey 07059
The accompanying balance sheet of Bogue Electric Manufacturing Company as of
September 30, 1998 and 1997 and the related statements of operations, retained
earnings (deficit), and cash flows for the periods ended September 30, 1998 and
1997 were not audited by us, and accordingly, we do not express an opinion on
them.
We are not independent with respect to Bogue Electric Manufacturing Company.
October 31, 1998 MARSAN ASSOCIATES, PC
1
BOGUE ELECTRIC MANUFACTURING COMPANY
BALANCE SHEET
(UNAUDITED)
ASSETS
September 30,
-----------------------------
CURRENT ASSETS: 1998 1997
Cash and Cash Equivalents $ 5,755 $ 82,698
Accounts Receivable, Less allowance for
Doubtful Accounts of $5,000 42,154 254,866
Inventory 143,518 169,491
Prepaid Expenses 0 0
Other Current Assets 0 0
-----------------------------
TOTAL CURRENT ASSETS 191,427 507,055
PROPERTY, PLANT & EQUIPMENT
Property, Plant & Equipment 1,450,259 1,450,259
Accumulated Depreciation (534,009) (516,926)
-----------------------------
Net Property, Plant & Equipment 916,250 933,333
NON CURRENT ASSETS:
Other Assets 11,000 11,000
-----------------------------
Total Long Term Assets 11,000 11,000
-----------------------------
TOTAL ASSETS $ 1,118,677 $ 1,451,388
=============================
See accountants' report and accompanying notes
2
BOGUE ELECTRIC MANUFACTURING COMPANY
BALANCE SHEET
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,
---------------------------------------
1998 1997
CURRENT LIABILITIES:
Accounts Payable $ 140,154 140,739
Accrued Expenses 0 1,225
Current Portion of Long Term Debt 609,111 615,000
Estimated Contract Losses 0 0
Due To Affiliates 0 0
Due To Officers, Directors, & Shareholders 0 --
Progress Payments Received 0 0
Other Current Liabilities 0 48,000
ECRA Reserve 0 0
---------------------------------------
TOTAL CURRENT LIABILITIES 749,265 804,964
LONG TERM LIABILITIES:
Loans Payable - Less Current Maturities 0 0
---------------------------------------
TOTAL LONG TERM LIABILITIES 0 0
STOCKHOLDERS' EQUITY (DEFICIENCY)
Common Stock - $1.0 par value,
Authorized - 2,500,000 shares
Issued & Outstanding - 1,312,512 shares
in 1992 and 1991 1,315,039 1,315,039
Capital In Exess Of Par Value 1,013,422 1,013,422
Accumulated Deficit (1,874,048) (1,597,037)
---------------------------------------
454,413 731,424
LESS: Cost of Treasury Stock - 42,600 Shares (85,000) (85,000)
---------------------------------------
TOTAL STOCKHOLDERS' EQUITY 369,413 646,424
---------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,118,677 $ 1,451,388
=======================================
See accountants' report and accompanying notes
3
BOGUE ELECTRIC MANUFACTURING COMPANY
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------------------------------------
1998 1997 1998 1997
REVENUE:
Sales $ 562,701 $ 1,498,721 $ 157,719 $ 537,744
COSTS AND EXPENSES:
Cost of Sales 326,074 1,023,115 40,948 160,189
Selling, General & Administrative 390,251 447,514 140,749 140,338
------------------------------------------------------------------
716,325 1,470,629 181,697 300,527
OPERATING INCOME (LOSS) (153,624) 28,092 (23,978) 237,217
OTHER INCOME (EXPENSE):
Interest Expense 0 813 0 813
Management Fees 0 0 0 0
Other Income 3,542 119,665 33 91,929
INCOME (LOSS) BEFORE TAXES AND
EXTRAORDINARY ITEMS (150,082) 148,570 (23,945) 329,959
INCOME TAXES 0 17,398 0 17,398
------------------------------------------------------------------
INCOME BEFORE EXTRAORDINARY ITEMS (150,082) 131,172 (23,945) 312,561
EXTRAORDINARY ITEMS:
Extinguishment of Debt 0 0 0 0
Gain on Sale of Assets 0 3,473,040 0 0
------------------------------------------------------------------
0 3,473,040 0 0
NET INCOME (LOSS) ($ 150,082) $ 3,604,212 ($ 23,945) $ 312,561
RETAINED EARNINGS (DEFICIT) - Beginning of Period (1,723,966) (5,201,249) (1,850,103) (1,909,598)
------------------------------------------------------------------
RETAINED EARNINGS (DEFICIT) - End of period (1,874,048) (1,597,037) (1,874,048) (1,597,037)
==================================================================
NET INCOME (LOSS) PER COMMON SHARE (0.12) 2.83 (0.02) 0.25
==================================================================
See accountants' report and accompanying notes
4
BOGUE ELECTRIC MANUFACTURING COMPANY
STATEMENTS OF CASH FLOW
(UNAUDITED)
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------------------------------------------
1998 1997 1998 1997
CASH FLOW FROM OPERATING ACTIVITIES:
Cash Received from Customers 699,757 1,489,650 0 529,329
Cash paid to Suppliers and Employees (748,049) (1,475,061) 0 (438,745)
Interest Paid 0 0 0 0
Interest and Dividends Received 0 813 0 813
Other Income 3,542 36,332 (8,957) 8,596
Taxes Paid 0 (17,398) 0 (17,398)
------------------------------------------------------------------
Net Cash Provided (Used) By Operating Activities (44,750) 34,336 (8,957) 82,595
------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder/Director Loans 0 0 0 0
Extinguishment of Long Term Debt 0 0 0 0
------------------------------------------------------------------
Net Cash Provided (Used) by Financing Activities 0 0 0 0
------------------------------------------------------------------
Net Increase (Decrease) in Cash (44,750) 34,336 (8,957) 82,595
Cash At Beginning of Period 50,505 48,362 19,389 103
------------------------------------------------------------------
Cash at End of Period $ 5,755 $ 82,698 $ 10,432 $ 82,698
==================================================================
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net Income ($ 150,082) $ 3,604,212 ($ 23,945) $ 312,561
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
(Increase) Decrease in Accounts Receivable 137,056 (9,071) 54,990 (8,415)
(Increase) Decrease in Inventories 0 0 0 0
(Increase) Decrease in other Assets 0 (4,431) (5,927) (123,849)
Increase (Decrease) in Accounts Payable (48,474) (83,334) 42,836 (83,334)
Gain on Debt Forgiveness 0 0 0 (14,368)
Increase (Decrease) in Other Current Liabilities 0 0 (70,439) 0
Gain on Sale of Land & Building - (3,473,040) 0 0
Depreciation/Amortization 16,750 0 0 0
------------------------------------------------------------------
TOTAL ADJUSTMENTS 105,332 (3,569,876) 21,460 (229,966)
------------------------------------------------------------------
Net Cash Provided (Used) By Operating Activities (44,750) 34,336 (2,485) 82,595
==================================================================
See accountants' report and accompanying notes
5
BOGUE ELECTRIC MANUFACTURING COMPANY
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 AND 1997
NOTE 1: Summary of Significant Accounting Policies
Nature of Business - The Company began operations in 1892 in the State of
New Jersey. It is engaged in the manufacture of electrical motors, generators,
and related components, whose primary customer is the United States Government.
All of the Company's wholly owned, inactive subsidiaries; Faith Manufacturing
Co., Inc. BEMC, Bogue International (Virgin Islands), and Bogue International,
Inc. were dissolved during 1994 and 1993. There were no intercompany
transactions. The Company is registered with the Securities and Exchange
Commission, and its stock is traded Over The Counter.
Revenue Recognition - Sales and costs are recorded at the time of delivery
under production contracts and as incurred under repair, spare parts, and
research and development contracts. The Company did not have any research and
development contracts for the current period. Contract costs include all direct
material and labor costs along with those indirect costs related to contract
performance, such as indirect labor, supplies, toolings, repairs and
depreciation. Selling, general and administrative costs are charged to expense
as incurred. Provisions for estimated losses on uncompleted contracts are
charged to expense in the period in which such losses are determined. Changes in
job performance, conditions, and profitability are recognized in the period in
which the revisions are determined. Contract settlements, which may arise as
results of contract terminations or work order changes are recognized in the
year of such settlements or changes.
Inventories - Raw material inventories are valued at the lower of cost,
(determined by the first-in, first-out method), or market. Work-in-process
inventories are valued at accumulated cost less the estimated average cost of
shipments invoiced to customers based as a percentage of the estimated total
cost of the contract. Progress payments received against material costs incurred
are classified as current liabilities until liquidated.
Property, Plant & Equipment - Property, Plant & Equipment are recorded at
cost. Depreciation and amortization is computed under the straight-line method,
based on estimated useful lives. The cost of maintenance and repairs are charged
to operations as incurred. All significant renewals and betterments are
capitalized.
Net Income (Loss) Per Common Share - Net income (loss) per common share is
determined by dividing the net income (loss) by the weighted average number of
shares of common stock outstanding during the current period end. Weighted
average shares outstanding for the period was 1,315,039 shares.
6
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Actual results could differ from those estimates
Concentration of Credit Risk - The Company maintains cash balances at a
single financial institution located in Fairlawn, New Jersey. The balances are
insured by the FDIC up to $100,000 at each account. The Company may, from time
to time during the year, have cash balances exceeding this limit. At the current
period end, the Company did not have any uninsured balances.
Customer Risk - The United States Government, Department of Defense and
related agencies is the Company's largest customer.
Cash & Cash Equivalents - For purposes of the statement of cash flows, the
Company considers all short term debt securities purchased with a maturity of
three months or less to be cash equivalents.
NOTE 2: Financial Condition
The Company's current liabilities exceed its current assets by $482,095.
Management has been negotiating with the FDIC and the USAF with respect to the
outstanding debts owed these agencies. A settlement was reached with the FDIC as
of May 31, 1996 in which $3,629,241 of principal and accrued interest was
canceled in return for a settlement payment of $150,000. This has resulted in
the recognition of debt cancellation income in the amount of $3,479,241.
As of the financial statement date, the Company has entered into a standby
agreement with the Defense Finance Accounting Service (DFAS) pending final
approval of a settlement agreement. The standby agreement provides for a one
time setoff payment of $68,000, plus additional set off payments equal to 10% of
all future payments due to Bogue Electric upon its invoicing of the DFAS under
any existing or future contracts, until the final settlement agreement is
approved.
The Company's manufacturing facility has been held for sale and/or lease for the
past 6 years. To date, no firm orders have been received. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of assets and the amounts and classifications
of liabilities that might be necessary should the company be forced to terminate
its operations.
NOTE 3: Due To/From Affiliates
Represents trade receivable/payable to B.F. Systems, Inc. for subcontractor
services rendered by B.F. Systems, Inc. on behalf of the company or management
and subcontracting services performed by the Company on behalf of B.F. Systems,
Inc.
7
These amounts do not bear interest since they are revolving in nature and it is
not management's intentions that they be construed as loans or investments. As
of September 30, 1998 and 1997 the inter-affiliate account balance was $0 and
$0, respectively.
NOTE 4: Loans Payable and Long Term Debt
(A) United States Air Force
Loan dated August, 1977 at a rate of 8.125% with monthly payments of $3,800
first applied to interest. Loan is deemed to be default and has been classified
as current.
(B) Anthony Sabbatino & Henry Schinman
Three-year loan dated May 31, 1996. Terms of the loan do not require installment
payments during the three- (3) year period. Repayment of principal and accrued
interest at 11% due May 31, 1999. Lenders have the option of extending the term
in three (3) year increments at the end of each period. These loans were paid in
full upon the sale of the building to B.F. Systems, Inc.
Balance as of September 30:
1998 1997
---------------------------
(A) $ -0- $ -0-
(B) 609,111 615,000
(C) -0- 150,000
---------------------------
609, 111 765,000
LESS: Current Portion (609,111) (765,000)
---------------------------
Long Term Portion $ -0- $ -0-
===========================
NOTE 5: Other Current Liabilities
Primarily consists of accrued interest on the defaulted debt (see note 4) and
accrued property taxes due to the City of Paterson along with accrued interest
thereon accruing at 18%. Options to acquire the tax liens on two substantial
parcels of land have been sold by the City of Paterson to investors unrelated to
the Company. This liability was assumed by B.F. Systems, Inc as part of the
purchase of the building by B.f. Systems, Inc.
8
NOTE 6: Secured Debt To Related Parties
Loans payable to shareholders, former shareholders, officers, and affiliated
companies represents borrowing on a revolving basis in prior years. Such amounts
include interest at 16% and do not have a stated maturity. On February 1, 1993
management (with the approval of the Board of Directors) agreed to sell certain
assets, which collateralized this debt, in exchange for the cancellation of
$1,200,000 in outstanding debt. The transaction has been accounted for as a
sale/leaseback arrangement as of December 31, 1992. See Note 11. These loans
were considered paid as part of the sale of the building to B.F. Systems, Inc.
NOTE 7: Income Taxes
The Company has adopted FAS 109 effective January 1, 1993. As a result of net
operating losses incurred in prior years and use of these losses in future
periods, the adoption of FAS 109 did not have a material effect on the financial
statements. No deferred income tax benefits or liabilities have been recorded.
Net operating losses available as of December 31, 1997 for financial accounting
and income tax purposes are approximately $0. These losses were fully utilized
in 1996 and 1997.
The Company had General Business Credits in the amount of $131,000 representing
credits for investment in property, plant and equipment (ITC), research and
development, and new job creation in prior years. These credits were fully
utilized in 1997.
NOTE 8: Commitments and Contingencies
The Company has various lawsuits, claims, commitments and contingencies arising
from the conduct of business. However, in the opinion of management, they are
not expected to have a material effect on the financial statements of the
Company.
NOTE 9: Related Party Transaction
The Company performs certain services for B.F. Systems, Inc. (a corporation
owned by two officers-directors) and B.F. Systems, Inc purchases certain
materials on behalf of the Company and/or performs assembly functions for the
Company. B.F., Systems, Inc receives the same payment terms as other unrelated
customers. For the period ended September 30, 1998 and 1997, sales to B.F.
Systems, Inc. were $350,000 and $300,000, respectively.
9
NOTE 10: Boiler Fire
The Company's heating system was significantly impaired as a result of a boiler
fire in January, 1993. The Company properly maintains and regularly inspects the
heating facilities. The damage to the boiler has rendered the main boiler
inoperable. The Company received $94,151 in net insurance proceeds which it used
switch from an oil based heating systems to a gas fired hot air system.
NOTE 11: Sale/Leaseback Transaction
In February, 1993 the Company entered into a sales/leaseback arrangement whereby
all of its technical drawings, engineering data, quality control reports,
blueprints, customer lists, contractual rights, tools and dyes, and other
related assets were sold to the officers, directors, shareholders, former
shareholders and affiliates in exchange for $1,200,000 in outstanding secured
debt due these individuals and entities. The outstanding debt was collateralized
by these assets via a UCC filing. These individuals and entities subsequently
transferred, as a capital contribution, the assets under this arrangement to
B.F. Systems, Inc. as permitted under the terms of the agreement, B.F. Systems,
Inc. has the right to waive the royalty fee and/or interest, or to offset the
amount due under this agreement against amounts that it may owe Bogue Electric.
The Company has the right to utilize these assets for a period of ten (10) years
in exchange for a royalty fee. The royalty fee is computed on a sliding scale as
a cumulative percentage of gross sales per year as follows:
5% of the first $1.0 million in gross sales
PLUS: 4% of the second $1.0 million in gross sales
PLUS: 3% of the third $1.0 million in gross sales
PLUS: 2% of the fourth $1.0 million in gross sales
PLUS: 1% of the excess sales over $4.0 million
This agreement was cancelled in full satisfaction upon the sale of building to
BF Systems, Inc. effective as of December 31, 1997.
NOTE 12: FDIC SETTLEMENT
As of May 31, 1996 the Company entered into a settlement agreement with the
Federal Deposit Insurance Corporation, Division of Resolutions and Receiverships
(herein after "FDIC"). The settlement agreement called for a one time payment of
$150,000 in full satisfaction of all outstanding claims arising from mortgages
held by the Broadway Bank & Trust and the FDIC as its successor in interest. The
agreement also provided for the full satisfaction of all outstanding claims
against a now defunct affiliate corporation, Ron Matic Systems, Inc. Debt
cancellation income in the amount of $3,479,241 is reflected as an extraordinary
item in the Company's financial statements.
10
NOTE 13: SALE OF BUILDING
During the first quarter of 1997 the Company sold its physical plant facilities
to an affiliated corporation, B.F. Systems, Inc. for $2,830,000. The sale price
was based upon third party estimate as to the value of the land and buildings
after taking into account the outstanding property taxes, environmental clean up
(ECRA) issues, and the condition of the buildings. The terms of the sale called
for B. F. Systems, Inc. to assume all outstanding tax liens, unpaid property
taxes and environmental clean up expenses in addition to the cancellation of the
sale/lease back agreement. The cancellation of the sales/lease back transaction
required the return of all intangible assets previously acquired in that
transaction (see note 11 for further discussion of the sales/leaseback
transaction), and resulted in the Company recognizing the deferred gain of
$720,000 into income in 1997.
11
BOGUE ELECTRIC MANUFACTURING COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998
Sales for the nine months ended September 30, 1998 were $562,701 representing a
62% decrease for the same period in 1997. The decrease in sales is related to
the Company's inability to secure new contracts for spare parts orders on
existing product lines or as a replacement on other vendor's products.
Selling, general and administrative expenses increased from $447,514 (29.86% of
sales) in 1997 to $390,251 (69.35% of sales) in 1998. The increase as a
percentage of sales is a function of the drastic drop in sales for the current
period. The absolute change in expenses reflects an actual decrease of 13% for
the same period last year. The reduction of SGA expenses reflects the cost
reduction in personnel and overhead expenses as part of a continuing effort by
management.
The net loss for the current period ended was $150,082 as compared to a net
profit of $3,604,212 for the same period in 1997. The 1997 net profit is
directly related to the sale of the land and building and the related
recognition of the deferred gain under the sale/leaseback transaction that was
terminated upon the sale of the land and building. This accounted for $3,473,040
of the net income reflected. Operating results posted a profit of $131,172.
LIQUIDITY AND FINANCIAL RESOURCES:
Stockholders' equity in the Company reflects a net equity of $ 369,413. Working
capital has marginally improved, but continues to be a severe problem for the
Company as it still is experiencing a restricted cash flow resulting from a
majority of its vendors providing limited credit terms.
MATERIAL EVENT - SALE OF LAND AND BUILDING
The company has sold its land and buildings to an affiliate in exchange for the
assumption of tax liens and ECRA liabilities associated with the physical
facilities, and the cancellation of the sale/leaseback transaction that occurred
in February of 1993. The sale price for the facilities was $2,839,343 based upon
the assumption of liabilities associated with the property and the return of the
Company's intangible assets. The value is consistent with appraisals obtained by
management regarding the land and buildings. The cancellation of the
sale/leaseback transaction transfers intangible assets (including the name
"Bogue Electric Manufacturing Company") back to the Company.
12
PART II
BOGUE ELECTRIC MANUFACTURING COMPANY & SUBSIDIARIES
ITEM 1. LEGAL PROCEEDINGS:
There are no legal matters pending that would have a material adverse effect
upon the Company.
ITEM 2. CHANGES IN SECURITIES:
NONE
ITEM 3. DEFAULTS ON SECURITIES:
The Company is in default of certain covenants with respect to working capital
ratios and payments of principal and interest on the following loans:
U.S.AIR FORCE - Unsecured
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
NONE
13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOGUE ELECTRIC MANUFACTURING CO.
--------------------------------
(registrant)
DATED:
-------------------- --------------------------------
H.L. Schinman, President & CEO
14