1
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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 SEPTEMBER 30, 1997
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.
(Exact name of registrant as specified in its charter)
California 93-1000272
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8380 Cerritos Ave.
Stanton, CA 90680
714-952-4038
(Address and telephone number of principal executive offices)
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
--- ---
As of October 12, 1997, there were outstanding 3,848,618 shares of registrant's
common stock, no par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
--- ---
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
Sept. 30, 1997 December 31, 1996
-------------- -----------------
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 556,527 $ 5,792,764
Restricted cash 443,000 --
Accounts receivable, net 1,328,106 2,316,979
Other receivables 121,649 178,339
Income tax refund receivable 736,975 355,623
Inventories 8,627,449 7,710,149
Cost and estimated earnings in excess of billings
250,500 56,616
Prepaids and other current assets 563,647 605,186
Deferred income taxes 296,956 296,956
------------ ------------
Total current assets 12,924,809 17,312,612
Property and equipment, net 14,785,772 11,047,029
Covenants not to compete, net 122,987 145,487
Other assets 61,167 97,655
------------ ------------
Total assets $ 27,894,735 $ 28,602,783
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,228,055 $ 3,307,176
Accrued liabilities 709,808 663,467
Revolving credit agreements -- 1,634,154
Current maturities of long-term debt 8,861,763 560,140
Billings in excess of cost and estimated
earnings 205,025 122,286
Other current liabilities 1,348 139,163
------------ ------------
Total current liabilities 14,005,999 6,426,386
Long-term debt 1,344,419 2,397,695
Other long-term liabilities 10,382 53,738
Deferred income taxes 345,572 345,572
------------ ------------
Total liabilities 15,706,372 9,223,391
------------ ------------
Shareholders' Equity:
Preferred stock, no par value 5,000,000 shares
authorized, no shares outstanding
Common stock, no par value; authorized
25,000,000 shares, issued and outstanding
3,848,618 shares at Sept. 30, 1997 and
3,780,106 at December 31, 1996 17,856,101 17,585,262
Contributed capital 1,036,516 1,036,516
Unearned compensation -- (3,123)
Retained (deficit) earnings (6,704,254) 760,737
------------ ------------
Total shareholders' equity 12,188,363 19,379,392
------------ ------------
Total liabilities and shareholders' equity $ 27,894,735 $ 28,602,783
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Nine
Months Ended Months Ended
Sept.30, Sept 30,
-------- --------
1997 1996 1997 1996
---- ---- ---- ----
(Restated) (Restated)
Net sales $ 4,777,007 $ 7,629,621 $ 12,632,877 $ 21,299,787
Cost of goods sold 5,202,547 5,652,091 16,119,696 15,717,578
----------- ----------- ------------ ------------
Gross (loss) profit (425,540) 1,977,530 (3,486,819) 5,582,209
Selling, general and administrative
expenses 1,762,842 1,051,930 4,112,221 2,972,297
----------- ----------- ------------ ------------
(Loss) income from operations (2,188,382) 925,600 (7,599,040) 2,609,912
Interest expense (income) and other
expenses, net 43,461 (55,714) 222,151 (93,467)
----------- ----------- ------------ ------------
(Loss) income before provision for
income taxes (2,231,843) 981,314 (7,821,191) 2,703,379
(Benefit) provision for income taxes (112,200) 413,476 (356,200) 1,037,895
----------- ----------- ------------ ------------
Net (loss) income ($2,119,643) $ 567,838 ($ 7,464,991) $ 1,665,484
=========== =========== ============ ============
Net (loss) income per share ($ .55) $ .14 ($ 1.95) $ .55
=========== =========== ============ ============
Weighted average common shares and common
equivalent shares outstanding 3,849,000 3,932,000 3,838,000 3,052,000
=========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
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4
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine
Months Ended
Sept 30,
------------------------------
1997 1996
------------ ------------
(Restated)
Cash flows from operating activities:
Net (loss) income $ (7,464,991) $ 1,665,484
Adjustments to reconcile net (loss) income to
cash used by operating activities:
Depreciation and amortization 1,881,427 725,121
Loss on disposal of property and equipment 9,654 78,264
Bad debt expense 1,138,822 36,370
Reserve for inventory obsolescence 777,763 20,000
Compensation related to stock option vesting 3,123 6,251
Increase in accounts receivable (149,949) (327,532)
Increase in income tax refund receivable (381,352) --
Decrease in other receivables 56,690 8,558
Increase in inventories (1,695,063) (3,646,629)
(Increase) decrease in costs and estimated
earnings in excess of billings on
uncompleted contracts (193,884) 83,302
(Increase) decrease in prepaid and other
current assets 41,539 (221,050)
Decrease in other assets 36,488 155,958
Increase in accounts payable 920,879 137,573
Increase (decrease) in accrued liabilities 46,341 (584,088)
Increase in income taxes payable -- 364,695
Increase (decrease) in billings in excess
of costs and estimated earnings on
uncompleted contracts 82,739 (72,432)
Decrease in other current liabilities (137,815) (100,660)
Decrease in other long term liabilities (43,356) (18,731)
------------ ------------
Net cash used by operating activities (5,070,945) (1,689,546)
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (5,356,638) (4,198,102)
Proceeds from the sale of property and
equipment 40,000 6,400
Payments on covenants not to compete -- (24,585)
Increase in restricted cash (443,000) --
------------ ------------
Net cash used by investing activities (5,759,638) (4,216,287)
------------ ------------
Cash flows from financing activities:
Borrowings on revolving lines of credit 956,104 1,689,554
Payments on revolving lines of credit (2,590,258) (1,689,554)
Proceeds from issuance of long-term debt 10,126,261 938,887
Principal repayments of long-term debt (3,168,601) (997,141)
Proceeds from sale of common stock -- 12,936,250
Cost of equity issuance -- (1,266,000)
Proceeds from exercise of common stock
warrants 270,840 --
------------ ------------
Net cash provided by financing
activities 5,594,346 11,611,996
------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
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5
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine
Months Ended
Sept 30,
---------------------------
1997 1996
----------- ----------
(Restated)
Net (decrease) increase in cash and cash
equivalents $(5,236,237) $5,706,163
Cash and cash equivalents at beginning of year 5,792,764 1,061,889
----------- ----------
Cash and cash equivalents at end of period $ 556,527 $6,768,052
=========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
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BOYDS WHEELS, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation:
----------------------
The accompanying consolidated financial statements include the accounts
of Boyds Wheels, Inc. (the "Company") and its wholly owned subsidiary,
Hot Rods by Boyd, Inc. ("HRBB"). The acquisition of HRBB in December
1996 was accounted for as a pooling of interests business combination
(see Note 4).
The interim financial data as of and for the three months and nine
months ended September 30, 1997 and September 30, 1996 are unaudited and
have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.
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)
Sept 30, 1997 December 31, 1996
------------- -----------------
Finished goods $3,488,809 $1,572,189
Work in process 3,946,929 3,869,080
Raw materials 334,102 1,814,270
Construction-in-progress automobiles 782,609 380,831
Completed automobile 75,000 73,779
---------- ----------
$8,627,449 $7,710,149
========== ==========
3. Long Term Debt
In June 1997, the bank line of credit facility for the Company was
reduced from maximum borrowings of $9,000,000 to $8,000,000 and for HRBB
from $500,000 to $200,000. At September 30, 1997, the Company was not in
compliance with certain loan covenants. As a result, the Company has
been requested to seek alternative financing with another lending
institution recommended by the bank. All amounts due under these
facilities have been classified as current at September 30, 1997.
4. Pooling of Interests:
In 1996, the Company completed an acquisition of HRBB which was
accounted for as a pooling of interests, and accordingly the Company's
interim financial statements for the three and nine months ended
September 30, 1996, have been restated to include HRBB for such periods.
Unaudited consolidated and separate results of the Company and HRBB were
as follows:
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7
BOYDS WHEELS, INC., AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1996 1996
---- ----
Net Sales:
Boyds Wheels, Inc., as
previously reported $ 7,521,026 $ 20,531,943
Hot Rods by Boyds, Inc. 108,595 787,893
Adjustments -- (20,049)
----------- ------------
Consolidated $ 7,629,621 $ 21,299,787
=========== ============
Net Income (Loss):
Boyds Wheels, Inc., as
previously reported $ 614,848 $ 1,594,388
Hot Rods by Boyds, Inc. (47,010) 71,096
----------- ------------
Consolidated $ 567,838 $ 1,665,484
=========== ============
The adjustments relate to intercompany transactions between the two
companies.
5. Statements of Financial Accounting Standards not yet adopted
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". SFAS No. 128 requires companies to adopt its provisions for fiscal years
beginning after December 15, 1997 and requires restatement of all prior period
earnings per share (EPS) data presented. Earlier application is not permitted.
SFAS No. 128 specifies the computation, presentation and disclosure requirements
for EPS. The implementation of SFAS No. 128 is not expected to have a material
effect on the EPS data presented by the Company.
In September 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" SFAS No. 130, which is effective for fiscal years beginning after
December 15, 1997 and requires restatement of earlier periods presented,
establishes standards for the reporting and display of comprehensive income and
its components in a full set of general purpose financial statements.
Comprehensive income is defined as the change in equity of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. The implementation of SFAS No. 130 is not expected to have a
material effect on the Company's results of operations.
In September 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", SFAS No. 131, which is effective for
fiscal years beginning after December 15, 1997 and requires restatement of
earlier periods presented, establishes standards for the way that a public
enterprise reports information about key revenue-producing segments in the
annual financial statements and selected information in interim financial
reports. It also establishes standards for related disclosures about products
and services, geographic areas and major customers. The implementation of SFAS
No. 131 is not expected to have a material effect on the Company's current
reporting disclosures.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
COMPANY'S FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY
FROM THOSE CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A
VARIETY OF FACTORS, INCLUDING THOSE DESCRIBED BELOW AND UNDER THE SUB-HEADING,
"BUSINESS RISKS." SEE ALSO THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE
YEAR ENDED DECEMBER 31, 1996.
GENERAL
The Company designs, manufactures and markets high quality aluminum
wheels for the specialty automotive and motorcycle aftermarkets. The Company
also markets a premium line of car care products and a line of sportswear 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. The Company's wholly owned subsidiary, Hot Rods By Boyd, Inc., designs
and manufactures custom vehicles which are sold directly to private clientele
and promotional businesses.
Since the Company utilizes its own facility and equipment for the
manufacture of its products, gross margins are especially dependent upon sales
volumes as a result of substantial fixed manufacturing overhead. Overhead costs
were significantly increased in the third and fourth quarters of 1996 and the
first quarter of 1997, when the Company elected to expand its manufacturing
facility through the acquisition of additional equipment and increase its square
footage by approximately 50% in anticipation of higher sales volumes which did
not materialize. At the low sales volumes currently being realized by the
Company, it is unlikely that positive gross margins from proprietary products
can be achieved. However, at higher sales volumes, the allocation of fixed costs
over more sales should result in increased gross margins. Accordingly, the
Company anticipates variances in gross margins from quarter to quarter as a
result of fluctuations in production, which coincide with seasonality of the
Company's business.
Sales of and demand for the Company's wheel products have not met
management's expectations due to a variety of factors including, competitive
pressure, changes in consumer demand, the lack of a fully integrated sales and
marketing plan, and a slower than expected expansion in newer markets. The
Company has responded by: (1) focusing its sales efforts on expanding its
domestic and, to a lesser degree, its international distribution channels; (2)
introducing new product lines to respond to new trends; (3) streamlining and
restructuring its manufacturing process and facility to eliminate underutilized
equipment and consolidate manufacturing operations; and (4) restructuring its
sales and customer service departments to more effectively target new business
and service its existing customer base.
Sales are expected to be subject to month-to-month and
quarter-to-quarter variability due to the limited market penetration in the
Company's new markets to date. The markets for the aluminum aftermarket wheels
are subject to rapidly changing consumer tastes and a high level of competition.
Demand for the Company's products is expected to be influenced by marketing and
advertising expenditures, product positioning through its distributors and
retailers, design trends and general economic conditions. Because these factors
can change rapidly, customer demand can also shift quickly. The Company may not
be able to respond to changes in consumer demand because of the time required to
change or introduce new products, production limitations or limited financial
resources.
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RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1997 AND THREE MONTHS ENDED
SEPTEMBER 30, 1996
Net Sales
- ---------
Net sales for the three months ended September 30, 1997, were $4,777,007
compared to $7,629,621 for the same period in 1996, a decrease of $2,852,614 or
37.4%. The decrease in sales for the period was the result of continued weak
sales of the Company's two-piece cast wheel line, which accounted for the
majority of the decrease. This continued decrease is the result of a lack of
newer wheel designs, along with a continued shift in consumer demand to the
one-piece cast wheel. The Company's one-piece cast wheel line was relatively
flat for the third quarter. The private label segment of the business continued
to experience declining sales. The Company did not properly anticipate the
immediate shipping response required and therefore lost sales. The steering
wheels and accessories lines also declined slightly which is consistent with the
previous periods.
Gross (Loss) Profit
- -------------------
Gross (loss) profit for the three months ended September 30, 1997 was
($425,540) compared to $1,977,530 for the same period in 1996, a decrease of
$2,403,070. The decrease in gross profit was primarily attributable to a 37.4%
decrease in sales combined with under utilization of the facility. The fixed
costs in the third quarter of 1997, compared to the third quarter of 1996,
included higher wages, increased overhead costs for rent, utilities and
depreciation as a result of the Company's expansion. During the three months
ended September 30, 1997, the Company continued to reduce personnel and the
salaries of management personnel in an effort to reduce overhead. In addition,
the Company has continued to sell or sublease underutilized machinery and
facilities in an effort to reduce its break-even point, as well as, introduce
additional purchasing and inventory controls designed to reduce future product
costs. These cuts and changes will primarily benefit future periods of
operation.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the three months ended
September 30, 1997 were $1,762,842 compared to $1,051,930 for the same period in
1996, an increase of $710,912 or 67.6%. Period costs were impacted by increased
expenses related to the restructuring of the management team and the relocation
of certain individuals to the Company's facilities, increased legal and
accounting fees and a bad debt charge of $464,674 for one customer who filed for
bankruptcy protection. In September 1997, the Company further reduced the number
of employees in an effort to reduce expenses. These cuts will primarily benefit
future periods of operation.
Interest and Other Expenses (Net)
- ---------------------------------
Interest income (expenses) and other expenses (net) for the three months
ended September 30, 1997 were ($43,461) compared to $55,714 for the same period
in 1996, a change of $99,175. Interest expense increased as a result of
increased borrowings for working capital and long-term debt, which was partially
offset by interest income from available funds and other income in the third
quarter of 1997.
Income Tax (Benefit) Provision
- ------------------------------
Income tax (benefit) provision for the three months ended September 30,
1997 was ($112,200), compared to a provision of $413,476 for the same period in
1996, a change of $525,676. The tax benefit was based upon the benefit
resulting from the carryback of the third quarter 1997 loss.
Net (Loss) Income
- -----------------
Net loss for the three months ended September 30, 1997 was ($2,119,643),
compared to net income of $567,838 for the three months ended September 30,
1996, a decrease of $2,687,481.
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COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND NINE MONTHS ENDED
SEPTEMBER 30, 1996
Net Sales
- ---------
Net sales for the nine months ended September 30, 1997, were $12,632,877
compared to $21,299,787 for the same period in 1996, a decrease of $8,666,910 or
40.7%. The decrease in sales was the result of a reduced backlog and continued
weak sales of the Company's two-piece cast wheel line, which accounted for
approximately $7,200,000 of the decrease. This continued decrease is the result
of a lack of newer wheel designs, along with a continued shift in consumer
demand to the one-piece cast wheel. The Company's one-piece cast wheel line
increased its sales to $1,424,000, compared to $756,000, for a net increase of
$668,000 over the same period in 1996. This increase was achieved as a result of
an ongoing increase in the product line, even though the Company has experienced
delays in tooling and production. The motorcycle product line experienced a
decline in sales of approximately $537,000 for the nine month period resulting
from the change in distribution methods, from selling to distributors to selling
direct to dealers and from the overall reduction in the motorcycle accessories
product line in light of the Company's effort to concentrate on wheels. The
Company did not properly anticipate the immediate shipping response required,
and therefore lost sales. The private label center business also declined for
the nine month period by $1,113,000, as a result of the previously mentioned
shift to one-piece cast wheels. The Company's two-piece billet wheels increased
during the nine months by $196,000 as the result of direct sales to the public
and a more competitive price structure. The steering wheels and accessories
lines also declined by $409,000 for the period.
Gross (Loss) Profit
- -------------------
Gross (loss) profit for the nine months ended September 30, 1997 was
($3,486,819) compared to $5,582,209 for the same period in 1996, a decrease of
$9,069,028. The decrease in gross profit was the result of a 40.7% decrease in
sales combined with an increase in fixed costs and under utilization of the
facility. Fixed costs for the nine months ended September 30, 1997, compared to
the same period of 1996, included higher wages and increased overhead costs of
rent, utilities, and depreciation as a result of the Company's expansion.
The expansion of the manufacturing facility which continued through the first
quarter of 1997, and the operating expenses associated with having more
employees in manufacturing during the first, second, and a portion of the third
quarter of 1997 resulted in a significant negative gross profit margin. The
reduced sales and production levels equate to low absorption of overhead costs,
resulting in the expensing of overhead costs in the period.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses for the nine months ended
September 30, 1997 were $4,112,221 compared to $2,972,297 for the same period in
1996, an increase of $1,139,924 or 38.4%. This increase is primarily the result
of increased advertising and promotional expenses, together with a bad debt
charge of $464,674 for one customer who filed for bankruptcy protection. During
the second and third quarters of 1997, the Company reduced personnel and reduced
the salaries of personnel. In addition, the Company is analyzing all advertising
and administrative costs in an effort to further reduce overhead. These cuts
will primarily benefit future periods of operation.
Interest and Other Expenses (Net)
- ---------------------------------
Interest (income) expenses and other expenses (net) for the nine months
ended September 30, 1997 were $222,151 compared to ($93,467) for the same period
in 1996, an expense increase of $315,618. Interest expense increased as a result
of increased borrowings for working capital and long-term debt, which partially
were offset by interest income from available funds and other income in the nine
months of 1997.
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Income Tax (Benefit) Provision
- ------------------------------
Income tax (benefit) for the nine months ended September 30, 1997 was
($356,200), compared to a provision of $1,037,895 for the same period in 1996.
The tax benefit was based upon the benefit resulting from the carryback of the
loss for the nine months ended September 30, 1997.
Net (Loss) Income
- -----------------
Net loss for the nine months ended September 30, 1997 was ($7,464,991),
compared to net income of $1,665,484 for the nine months ended September 30,
1996, a decrease of $9,130,475.
LIQUIDITY AND CAPITAL RESOURCES
Through September 30, 1997, the Company's inventory increased to
$8,627,449 from $7,710,149 at December 31, 1996, an increase of $917,300 or
11.9%. This increase was primarily due to the manufacture of new products and
styles, including new one-piece cast wheels and motorcycle components. The
increase in one-piece cast wheels and other new products and styles was made in
anticipation of the Company's planned expansion of its sales efforts in the
Eastern United States. In order to meet the needs of Harley-Davidson dealers,
the Company increased its motorcycle inventory levels to supply the dealers
directly, as they require shipment in less than one week. Slower than expected
sales overall also contributed to the increase in inventory levels.
Working capital was ($1,081,190) at September 30, 1997 compared to
$10,886,226 at December 31, 1996, or a decrease of $11,967,416. The Company's
cash position at September 30, 1997 was $556,527 compared to $5,792,764 at
December 31, 1996, a decrease of $5,236,237. Cash was utilized, along with the
Company's line of credit to fund operations, increase inventory, and to add
equipment and leasehold improvements. The effect of lower sales and increased
overhead has had a significant impact on cash and working capital. The Company
is currently attempting to secure a new working line of credit and equipment
financing, to replace the current facility, which has been informally frozen at
the bank's request. At September 30, 1997, the revolving lines of credit had
borrowings of $8,126,604, all of which are classified as current. The borrowings
on the line of credit increased during the period as a result of operating
needs, equipment and leasehold improvements of $3,014,181, the payoff of
previous line of credit borrowings of $2,590,258 and the payoff of a long-term
capital lease of $888,011. Long-term debt also increased by $1,643,000 as these
funds were used for the purchase of 2.5 acres of land with 26,000 square feet of
buildings to accommodate the Company's distribution center.
Based on the Company's cash position and currently planned expenditures
and level of operations, the Company estimates it will require additional
capital within the next three months to meet its debts as they become due and to
continue as a going concern. The Company's business may be able to generate the
additional funding required depending on the ability of manufacturing activities
to generate additional revenues, however there can be no assurance thereof. The
Company is currently pursuing various alternatives to meet its needs for capital
including, without limitation, the bank financing previously described. There
can be no assurance the Company will be successful and any such financing may be
dilutive to current shareholders. The failure to raise additional funds could
have a material adverse effect on the Company and could force the Company to
further reduce or curtail operations.
The Company may, from time to time, seek additional funds through lines
of credit, public or private debt or equity financing. There can be no
assurances that additional capital will be available when needed.
MANAGEMENT'S PLANS FOR IMPROVING OPERATIONS
Management has taken steps to improve operations with the goal of
sustaining the Company operations for the next twelve months and beyond. These
steps include: (1) focusing its sales efforts on expanding its domestic and, to
a lesser degree, its international distribution channels; (2) introducing new
product lines to respond to new trends; (3) streamlining and restructuring its
manufacturing process and facility to eliminate underutilized equipment and
consolidate manufacturing operations; (4) restructuring its sales and customer
service departments to more effectively target new business and service its
existing customer base; and (5) reducing overhead and operating expenses. There
can be no assurance the Company can attain profitable operations in the future.
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12
BUSINESS RISKS
This report contains a number of forward-looking statements which
reflect the Company's current views with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical results or those anticipated. In this report, the words
"anticipates," "believes," "expects," "intends," "future" and similar
expressions identify forward-looking statements. Readers are cautioned to
consider the risk factors described above and in the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1996, and not to place undue
reliance on the forward-looking statements contained herein, which speak only as
of the date hereof. The Company undertakes no obligation to publicly revise
these forward-looking statements, to reflect events or circumstances that may
arise after the date hereof.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is involved in routine litigation incidental to the conduct
of its business. There are currently no material pending legal proceedings to
which the Company is a party or to which any of its property is subject.
ITEM 2 THROUGH ITEM 4.
Have been omitted because the related information is either inapplicable
or has been previously reported.
ITEM 5. OTHER INFORMATION.
On September 23, 1997, Rex A. Ours resigned as Chief Financial Officer
of the Company to accept a position in public accounting. Mr. Ours' duties are
being performed by current members of management and outside consultants until a
new Chief Financial Officer can be located and retained.
On October 31, 1997, Boyd L. Coddington resigned as Chairman of the
Board and Chief Executive Officer of the Company, and effective November 1,
1997, became a consultant to the Company. Pursuant to the terms of the
Separation Agreement executed by the parties, Mr. Coddington agreed to
immediately terminate his Employment Agreement (previously due to terminate
December 31, 1999) and to release the Company from any claims which Mr.
Coddington may have against the Company and others for payment of salary or
otherwise which arose or pertained to his employment or the termination of his
employment. The terms of the Separation Agreement provide that Mr. Coddington
will continue to serve on the Company's Board of Directors for the term
prescribed by, and otherwise in accordance with, the Bylaws of the Company,
although Mr. Coddington shall cease being Chairman of the Board. At the time of
his resignation, Mr. Coddington entered into a Consulting Agreement with the
Company. Under the terms of the Consulting Agreement, Mr. Coddington has agreed,
upon request of the executive officers of the Company, to assist Company
personnel with the executive, sales, marketing, operations, design and other
functions previously performed by Mr. Coddington for the Company for an amount
of time each month, not to exceed 50% of the time previously spent by Mr.
Coddington on such duties while an employee. The Consulting Agreement is for an
initial term of five years and is renewed automatically thereafter for
successive renewal periods of five years each, unless either party gives notice
of termination to the other party at least thirty (30) days prior to the
commencement of any successive five (5) year renewal period. The Consulting
Agreement prohibits Mr. Coddington from (i) competing, directly or indirectly,
against the Company (during the term of the Consulting Agreement), (ii)
soliciting, directly or indirectly, for himself or for any other person or
entity, any employee, independent contractor or existing or potential customer
of the Company (during the term of the Consulting Agreement and for a period of
two years thereafter) and (iii) disclosing to any third party any confidential
or proprietary trade secrets, know how, processes, business practices, finances,
suppliers, customers or potential customers of the Company. In consideration of
the agreements made by Mr. Coddington and the consulting services to be
rendered, the Company has agreed to pay Mr. Coddington (i) base compensation
equal to $6,000 per month for the first thirteen months and $12,500 per month
for each month thereafter, plus (ii) incentive
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compensation, payable annually, equal to one-half of one percent of the
Company's sales in excess of $24,000,000 with such incentive compensation not to
exceed $60,000 annually.
On October 31, 1997, Gardiner S. Dutton was elected to succeed Mr.
Coddington as Chairman of the Board and Chief Executive Officer of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. (a) Exhibits.
Number
------
10.43 Separation Agreement and General Release by and between
the Company and Boyd L. Coddington;
10.44 Consulting Agreement by and between the Company and Boyd
L. Coddington dated October 31, 1997;
27.1 Financial Data Schedule
2. (b) None.
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.
Date: November 14, 1997 By: /s/ Gardiner S. Dutton
------------------------
Gardiner S. Dutton
Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
Date: November 14, 1997 By: /s/ David M. Asher
--------------------
David M. Asher
President and
Chief Operating Officer
(Principal Operating Officer)
13