1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 0-26738 BOYDS WHEELS, INC. State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) California 93-1000272 8380 Cerritos Ave. Stanton, CA 90680 714-952-4038 Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 --- ---- (APPLICABLE ONLY TO CORPORATE REGISTRANTS) State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of August 13, 1996: Title Outstanding Common Stock, No Par Value 3,704,579 Transitional Small Business Disclosure Format (check one); Yes No X --- --- 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. BOYDS WHEELS, INC BALANCE SHEETS (UNAUDITED) JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- ASSETS: Current Assets: Cash and Cash Equivalents $ 9,493,736 $ 1,039,552 Accounts receivable, net 2,170,826 1,287,275 Inventories 5,508,767 3,643,512 Due from affiliate 100,000 100,000 Prepaids and other current assets 585,936 593,642 Deferred tax asset 156,946 156,946 ----------- ----------- Total current assets 18,016,211 6,820,927 Due from affiliate 54,969 72,684 Property and equipment,net 6,481,963 4,689,372 Covenants not to compete, net 164,585 150,000 Other assets 16,749 49,034 ----------- ----------- Total assets $24,734,477 $11,782,017 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY: Current Liabilities: Accounts payable $ 3,480,926 $ 2,449,674 Accrued liabilities 606,481 1,458,980 Revolving Credit Agreements - 289,554 Current maturities of long-term debt 621,149 343,413 Due to affiliate 39,770 35,769 Income taxes payable 276,908 130,689 ----------- ----------- Total current liabilities 5,025,234 4,708,079 Long-term debt 820,337 902,754 Other long-term liabilities 66,067 79,757 Income taxes payable 235,179 235,179 ----------- ----------- Total liabilities 6,146,817 5,925,769 Preferred stock, no par value; 5,000,000 shares authorized, no shares issued and outstanding - - ----------- ----------- Shareholders' equity: Common stock, no par value;25,000,000 shares authorized, 3,704,579 shares issued and outstanding at June 30, 1996 17,718,457 5,957,207 Contributed capital 826,511 826,511 Unearned compensation (9,375) - Accumulated earnings (deficit) 52,067 (927,470) ----------- ----------- Total shareholders' equity 18,587,660 5,856,248 ----------- ----------- Total liabilities and shareholders' equity $24,734,477 $11,782,017 =========== =========== The accompanying notes are an integral part of these financial statements. 2 3 BOYDS WHEELS, INC. STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------------ ------------------------------- 1996 1995 1996 1995 ---------- ---------- ----------- ---------- Net sales $7,676,843 $4,680,736 $13,010,917 $8,340,405 Cost of goods sold 5,633,475 3,517,039 9,609,493 6,298,760 ---------- ---------- ----------- ---------- Gross margin 2,043,368 1,163,697 3,401,424 2,041,645 Selling, general and administrative expenses 999,739 607,030 1,714,765 1,071,963 ---------- ---------- ----------- --------- Income from operations 1,043,629 556,667 1,686,659 969,682 Interest and other expenses,net 34,828 116,358 82,700 258,750 ---------- ---------- ----------- --------- Income before provision for income taxes 1,008,801 440,309 1,603,959 710,932 Provision for incometaxes 388,387 173,299 624,419 284,373 ---------- ---------- ----------- ---------- Net income $ 620,414 $ 267,010 $ 979,540 $ 426,559 ========== ========== =========== ========== Net income per common share and common equivalent share, before accretion of Series A redeemable preferred stock $ 0.21 $ 0.16 $ 0.34 $ 0.25 ========== ========== =========== ========== Accretion of Series A redeemable preferred stock: Net income, as above $ 620,414 $ 267,010 $ 979,540 $ 426,559 Adjustment for accretion of Series A redeemable preferred stock - (313,840) - (627,679) ---------- ---------- ----------- ---------- Net income (loss) applicable to common shareholders $ 620,414 $ (46,830) $ 979,540 $ (201,120) ========== ========== =========== ========== Net income per share as above $ 0.21 $ 0.16 $ 0.34 $ 0.25 Adjustment for accretion of Series A redeemable preferred stock - (0.19) $ - (0.37) ---------- ---------- ----------- ---------- Net income (loss) per common share and common equivalent share $ 0.21 $ ( 0.03) $ 0.34 $ (0.12) ========== ========== =========== ========== Weighted average common shares and common equivalent shares outstanding 2,916,000 1,699,000 2,888,000 1,699,000 ========== ========== =========== ========== The accompanying notes are an integral part of these financial statements. 3 4 BOYDS WHEELS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30, ------------------------------- 1996 1995 ----------- ----------- Cash flows from operating activities: Net income $ 979,540 $ 426,569 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 399,580 259,414 Loss on disposal of property and equipment 50,729 3,882 Bad debt expense 36,370 - Reserve for inventory obsolencence 20,000 - Deferred taxes - 230,083 Increase in accounts receivable (912,045) (609,626) Increase in inventories (1,853,668) (1,042,968) Increase in prepaids and other assets (7,706) (56,895) Increase in accounts payable 1,028,536 855,529 Decrease in accrued liabilities (876,939) (50,381) Increase in income taxes payable 146,219 - (Decrease) increase in other long-term liabilities (13,690) 35,909 ----------- ----------- Net cash (used)provided by operating activities (1,003,074) 51,516 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (2,298,724) (543,576) Proceeds from the sale of property and equipment 492,400 1,500 Payments on covenants not to comppete (24,585) - Decrease in due to (from) affiliates 21,716 32,816 ----------- ----------- Net cash used by investing activities (1,809,193) (509,260) ----------- ----------- Cash flows from financing activities: (Decrease) in due to (from) majority shareholder - (32,347) Borrowing on revolving line of credit 1,400,000 550,000 Payments on revolving line of credit (1,400,000) - Proceeds from issuance of long-term debt 463,932 1,195,512 Principal repayments of long-term debt (908,729) (1,206,923) Proceeds from sale of common stock 12,948,750 - Cost of equity issuances (1,237,502) - ----------- ----------- Net cash provided by financing activities 11,266,451 506,242 ----------- ----------- Net increase in cash 8,454,184 48,498 Cash at beginning of period 1,039,552 144,595 ----------- ----------- Cash at end of period $ 9,493,736 $ 193,093 =========== =========== Continued The accompanying notes are an integral part of these financial statements. 4 5 BOYDS WHEELS, INC. STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30 1996 1995 ---------------- --------- Supplemental schedule of noncash investing and financing activities: Equipment leases capitalized $124,396 $ 18,400 Equipment financed with long-term debt - 20,000 Accretion of Series A redeemable preferred stock - (627,679) Common stock issued in settlement of employment contract 50,000 - The accompanying notes are an integral part of these financial statements. 5 6 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS For the Period Ending June 30, 1996 (Unaudited) 1. Summary of Significant Accounting Policies: Basis of Presentation: The interim financial data as of and for the six months ended June 30, 1996 is unaudited; however, in the opinion of the Company, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The year-end balance sheet information was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. These financial statements should be read in conjunction with the Company's audited financial statements. 2. Inventories: Inventories consist of the following: (UNAUDITED) ------------- JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- Raw materials $1,043,539 $ 921,819 Work in process 3,683,735 1,805,882 Finished goods 781,493 915,811 ---------- ---------- $5,508,767 $3,643,512 ========== ========== 3. Public Offering: On June 11, 1996, the Company completed a secondary public offering of 1,151,000 common shares at $11.25 per share. The proceeds to the Company from the secondary public offering were $12,948,750. The net proceeds to the Company, net of issuance costs of $1,237,502, were $11,711,248.The additional shares sold were listed on the Nasdaq (NMS) Stock Exchange. Continued 6 7 BOYDS WHEELS, INC. NOTES TO FINANCIAL STATEMENTS For the Period Ending June 30, 1996 (Unaudited) 4. Net Income Per Common Share: Net income per share is based on the reported net income, with such reported net income reduced for the accretion of the Series A Redeemable Preferred Stock. The resulting amount is presented below as income applicable to common shareholders. Such income applicable to common shareholders in each period is divided by the weighted average number of outstanding common shares and common equivalent shares in accordance with Securities and Exchange Commission Staff Accounting Bulletin ("SAB") No. 83. The SAB requires that common stock issued by the Company in the twelve months immediately preceding a proposed public offering plus the number of common equivalent shares which became issuable during the same period pursuant to the issuance of common stock options and warrants (using the modified treasury stock method) at prices substantially less than the initial public offering price be included in the calculation of common stock and common stock equivalents as if they were outstanding for all periods presented. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------------------- ------------------------------------- 1996 1995 1996 1995 --------------- --------------- --------------- ---------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Reported net income and net income per share $ 620 $ .21 $ 267 $ .16 $ 979 $ .34 $ 426 $ .25 Adjustment for accretion of Series A redeemable preferred stock - - (313) (.19) - - (627) (.37) ------ ----- ------ ----- ------ ----- ------ ----- Net income (loss) applicable to common shareholders and net income per share $ 620 $ .21 $ (46) $(.03) $ 979 $ .34 $ (201) $(.12) ====== ===== ====== ===== ====== ===== ====== ===== Weighted average number of: Common shares 2,737 1,317 2,718 1,317 Common equivalent shares 179 382 170 382 ------ ------ ------ ------ Weighted average common shares and common equivalent shares 2,916 1,699 2,888 1,699 ====== ====== ====== ====== 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The Company designs, manufactures and markets high quality aluminum wheels for the specialty automotive aftermarket. In addition to its premium aluminum wheels, the Company designs, manufactures and markets motorcycle wheels, steering wheels and billet aluminum accessories, and also sells car care products under its own label. The Company sells its products domestically through a national distribution network of tire and performance retailers, warehouse distributors and mail order outlets and internationally through foreign distribution channels. COMPARISON OF THREE MONTHS ENDED JUNE 30, 1996, AND THREE MONTHS ENDED JUNE 30, 1995 NET SALES Net sales for the three months ended June 30, 1996, were $7,676,843 compared to $4,680,736 for the same period in 1995, an increase of $2,996,107 or 64.0%. The increase was primarily attributable to the continued demand for the Company's main product lines, two-piece cast wheels and billet wheels, sales of which increased approximately $1,800,000. The new motorcycle wheels and accessories, introduced in mid 1995 accounted for approximately $ 600,000 of the increase. The new one-piece cast wheels, introduced in the fourth quarter of 1995, contributed approximately $ 200,000 to the increase in net sales and private label sales contributed approximately $ 400,000 to the increase in net sales. GROSS MARGIN Gross margin for the three months ended June 30, 1996, was $2,043,368 compared to $1,163,697 for the same period in 1995, an increase of $879,671 or 75.6%. The increase in gross margin was primarily attributable to volume discounts associated with larger quantity purchases of raw materials, an increase in average sales price and a change in sales mix including new products at higher gross margins. The increase in gross margin was slightly offset by an increase in general factory overhead. Selling, General and Administrative Expenses Selling, general and administrative expenses for the three months ended June 30, 1996, were $999,739 compared to $607,030 for the same period in 1995, an increase of $392,709 or 64.7%. This increase was attributable to additional administrative facility costs incurred to support the Company's growth. As a percentage of sales, selling, general and administrative expenses remained constant. Interest and Other Expense Interest and other expenses for the three months ended June 30, 1996 , were $34,828 compared to $116,358 for the same period in 1995, a decrease of $81,530 or 70.1%. This decrease was attributable to the partial application of the proceeds from the Company's initial public offering which were used to reduce debt and invest in short-term interest bearing securities. Income Taxes Income taxes for the three months ended June 30, 1996 were $388,387 compared to 173,299 for the same period in 1995, an increase of $ 215,088 or 124.1 %. The provision for income taxes in the three months of 1996 and 1995 represents the Company's expected annual effective tax rate of approximately 39.0%. NET INCOME As a result of the above, net income for the three months ended June 30, 1996, was $620,414 compared to $267,010 for the same period in 1995, an increase of $353,404 or 132.4%. 8 9 COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996, AND SIX MONTHS ENDED JUNE 30 , 1995 NET SALES Net sales for the six months ended June 30, 1996, were $13,010,917 compared to $8,340,405 for the same period in 1995, an increase of $4,670,512 or 56.0%. The increase was primarily attributable to the continued demand for the Company's main product lines, two-piece cast wheels and billet wheels, sales of which increased approximately $ 2,300,000. The new motorcycle wheels and accessories, introduced in mid 1995 accounted for approximately $ 1,100,000 of the increase. The new one-piece cast wheels, introduced in the fourth quarter of 1995, contributed approximately $ 400,000 to the increase in net sales and private label sales contributed approximately $ 700,000 to the increase in net sales. GROSS MARGIN Gross margin for the six months ended June 30, 1996, was $3,401,424 compared to $2,041,645 for the same period in 1995, an increase of $1,359,779 or 66.5%. As a percentage of net sales, gross margin increased to 26.1 % in 1996 from 24.5 % in 1995. The increase in gross margin was primarily attributable to volume discounts associated with larger quantity purchases of raw materials, an increase in average sales price and a change in sales mix including new products at higher gross margins. The increase in gross margin was slightly offset by an increase in general factory overhead. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the six months ended June 30, 1996, were $1,714,765 compared to $1,071,963 for the same period in 1995, an increase of $642,802 or 60.0%. This increase was primarily attributable to an increase in expenditures related to new product development, advertising and promotional costs associated with new product introductions and legal, accounting and other costs related to being a public company. As a percentage of sales, selling, general and administrative expenses remained constant. INTEREST AND OTHER EXPENSE Interest and other expenses for the six months ended June 30, 1996, were $82,700 compared to $258,750 for the same period in 1995, a decrease of $176,050 or 68.0%. The decrease is attributable to the reduction of debt and interest revenue earned on short-term interest bearing investments. INCOME TAXES Income taxes for the six months ended June 30, 1996 were $ 624,419 compared to $ 284,373 for the same period in 1995, an increase of $ 340,046 or 120.0 %. The provision for income taxes in the first quarter of 1996 and 1995 represents the Company's expected annual effective tax rate of 38.9 % and 40.0 % for 1996 and 1995, respectfully.. NET INCOME As a result of the above, net income for the six months ended June 30, 1996, was $979,540 compared to $426,559 for the same period in 1995, an increase of $552,981 or 129.6%. LIQUIDITY AND CAPITAL RESOURCES Working capital was $12,990,977 at June 30, 1996 as compared to $2,113,000 at December 31, 1995 or an increase of $10,877,977. The increase in working capital was the result of the Company's secondary stock offering, completed on June 11, 1996. The Company intends to utilize these funds, along with cash generated from operations to continue the growth of the Company. In addition the Company has available a revolving line of credit and equipment line of credit. At June 30, 1996, the $2,500,000 revolving line of credit had available funds, based on assets, of $2,015,000, in addition to $1,000,000 available for equipment financing. To the extent that such amounts are insufficient to finance the Company's working capital requirements, the Company will be required to raise additional funds through additional equity or debt financing. 9 10 PART II. OTHER INFORMATION ITEM 1 THROUGH 3 AND ITEM 5 Have been omitted because the related information is either inapplicable or has been previously reported. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The Company's 1995 annual meeting of shareholders was held on June 12, 1996. The matters voted upon at the meeting included the election of members of the Board of Directors, the approval of an amendment to the Company's 1995 stock plan, and to ratify the appointment of Coopers & Lybrand L.L.P. as independent accountants for the company. The persons elected at the meeting to the Company's Board of Directors were Boyd Coddington, Stanley Clark, Marcus Sorenson, Curt Barwick and Melanie McCaffery. The 1995 Stock option plan amendment submitted to the shareholders for approval provides for an increase to the number of share of common stock reserved for issuance there under by 200,000 shares bringing the total number of shares issuable under the plan to 450,000 shares. Upon the recommendation of the Audit Committee, the Board has selected Coopers & Lybrand L.L.P. to provide audit service to the Company for the fiscal year ending December 31, 1996. The number of shares voting in favor of, against, and abstaining from the above matters were as follows: ELECTION OF DIRECTORS Name of Nominee Votes in Favor Votes Withholding Authority --------------- -------------- --------------------------- Boyd Coddington 1,981,235 278,674 Stanley Clark 1,981,235 278,674 Marcus Sorenson 1,981,235 278,674 Curt Barwick 1,981,235 278,674 Melanie McCaffery 1,981,235 278,674 1995 STOCK OPTION PLAN AMENDMENT The proposal to approve an amendment to the 1995 Stock Option Plan was approved by a vote of 1,559,629 shares voting in favor of the amendment, 36,835 shares voting against and 663,445 shares abstaining. INDEPENDENT PUBLIC ACCOUNTANTS The proposal to approve the selection of Coopers & Lybrand L.L.P., to provide audit services to the Company was approved by a vote of 1,959,621 shares voting in favor of the selection, 13,050 shares voting against and 287,238 shares abstaining. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. 27. Financial Data Schedule (b) None 10 11 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. Boyds Wheels, Inc. By: /s/ Boyd L. Coddington -------------------------------------------------------------------- Boyd L. Coddington Chief Executive Officer (Principal Executive Officer) Date: August 14, 1996 By: /s/ Rex A. Ours -------------------------------------------------------------------- Rex A. Ours Chief Financial Officer and Corporate Secretary (Principal Financial Officer) Date: August 14, 1996 11