1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarter ended: Commission file number:
January 31, 1999 0-8624
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ALFA LEISURE, INC
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(Exact name of registrant as specified in its charter)
TEXAS 75-1309458
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(State or other jurisdiction (IRS Employer identification
of incorporation or organization) number)
13501 "5th" Street, Chino, California 91710
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(Address of principal executive office)
(909) 628-5574
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required 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
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Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
YES X NO
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The number of shares outstanding of each of the Registrant's classes of common
stock, as of January 31, 1999 was:
Common Stock, without par value - 3,048,137 shares
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ALFA LEISURE, INC.
Index
PART I. FINANCIAL INFORMATION Page
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
as of January 31, 1999 (Unaudited) and April 30, 1998
Unaudited Condensed Consolidated Statements of 4
Income for the Three and Nine Months Ended
January 31, 1999 and 1998
Unaudited Condensed Consolidated Statements of 5
Cash Flows for the Nine Months Ended
January 31, 1999 and 1998
Notes to Unaudited Condensed Consolidated Financial 6
Statements
Item 2 Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 8
Signature Page 9
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ALFA LEISURE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
January 31, April 30,
(Unaudited)
1999 1998
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Current Assets:
Cash and cash equivalents $ 0 $ 410,671
Restricted cash 122,735 150,247
Accounts receivable 2,020,426 1,614,276
Inventories (Note 2) 1,866,089 1,415,794
Prepaid expenses and other current assets 40,675 139,623
Deferred tax asset 7,438 7,438
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Total Current Assets 4,057,363 3,738,049
Property, plant and equipment, net 2,330,551 1,300,407
Other assets and deposits 72,977 50,064
Deferred tax asset 470,403 470,403
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Total Assets $ 6,931,294 $ 5,558,923
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 698,102 $ 0
Accounts payable 1,214,937 1,271,896
Accrued expenses 896,747 596,805
Accrued compensation 535,764 586,028
Note payable to President 300,000 0
Bank line of credit 304,912 0
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Total Current Liabilities 3,950,462 2,454,729
Deferred income 8,200 8,200
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Total Liabilities 3,958,662 2,462,929
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Stockholders' equity:
Common stock, no par value; authorized
30,000,000 shares, issued and
outstanding 3,048,137 shares 62,000 62,000
Note receivable from President 0 (363,236)
Retained earnings 2,910,632 3,397,230
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Total Stockholders' Equity 2,972,632 3,095,994
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Total Liabilities and Stockholder's Equity $ 6,931,294 $ 5,558,923
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See accompanying notes to the condensed consolidated financial statements
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ALFA LEISURE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Nine Months
Ended January 31, Ended January 31,
1999 1998 1999 1998
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Sales $ 9,583,814 $ 8,748,288 $27,750,102 $24,882,486
Cost of Sales 8,077,265 7,542,962 24,392,551 21,792,577
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Gross Profit 1,506,549 1,205,326 3,357,551 3,089,909
Operating Expenses:
Selling, General/Admin 943,239 905,879 2,470,396 2,294,805
Interest expense 7,043 26,255 7,544 76,929
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950,282 932,134 2,477,940 2,371,734
Income before income taxes 556,267 273,192 879,611 718,175
Provision for income taxes 223,063 140,142 352,724 287,988
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Net Income $ 333,204 $ 133,050 $ 526,887 $ 430,187
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Net Income per share - basic
and diluted $ .11 $ .04 $ .17 $ .14
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Weighted average shares outstanding -
basic and diluted 3,048,137 3,048,137 3,048,137 3,048,137
See accompanying notes to the condensed consolidated financial statements.
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ALFA LEISURE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended January 31,
1999 1998
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Cash flows from operating activities:
Net income $ 526,887 $ 430,187
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 204,597 126,137
Changes in operating assets and Liabilities:
Accounts receivable (406,150) 359,457
Inventories (450,295) (260,267)
Prepaid expense 98,948 150,559
Accounts payable (56,959) (562,612)
Accrued compensation (50,264) (239,234)
Accrued expenses 299,942 118,486
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Net cash provided by operating activities 166,706 122,713
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Cash flows from investing activities:
(Increase) Decrease in restricted cash 27,512 (14,567)
Acquisition of PP&E (1,948,226) (286,059)
(Increase) Decrease other assets (22,913) 10,000
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Net cash used in investing activities (1,943,627) (290,626)
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Cash flows from financing activities:
Increase in bank overdraft 698,102 259,604
(Increase) Decrease in note from president - net 363,236 (43,264)
Increase (Decrease) in credit line 304,912 (441,609)
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Net cash provided by (used in) financing activities 1,366,250 (225,269)
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Net decrease in cash (410,671) (393,182)
Cash at beginning of period 410,671 393,182
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Cash at end of period $ 0 $ 0
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Supplemental cash flow disclosures:
Interest paid $ 794 $ 76,929
Income taxes paid 217,000 27,129
See accompanying notes to the condensed consolidated financial statements.
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ALFA LEISURE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis Of Presentation
The accompanying Condensed Consolidated Balance Sheets of ALFA
LEISURE, INC. ("Registrant") at January 31, 1999 and April 30, 1998,
Condensed Consolidated Statements of Income for the three month and nine
month periods ended January 31, 1999 and January 31, 1998, and the
Condensed Consolidated Statements of Cash Flows for the nine month periods
ended January 31, 1999 and January 31, 1998 are unaudited, but include all
adjustments, consisting only of normal recurring adjustments, which
management considers necessary for a fair presentation of Registrant's
financial condition and results of operations in accordance with generally
accepted accounting principles. The information for the three month period
ended January 31, 1999 is not necessarily indicative of the operating
results for the entire year. Financial statements for the year ended April
30, 1998 are available for a full discussion of Registrant's organization
and background and for a summary of its significant accounting policies.
Registrant's fiscal year ends on the Sunday in April between the 17th
and the 23rd. It's fiscal quarters are measured in increments of thirteen
(13) week periods beginning on the day following the ending Sunday in
April. While the financial statements reflect operations of Registrant as
of and for the periods ending on those dates they have been presented as if
Registrant's fiscal year ends on April 30 to simplify the presentation.
2. Inventories
Inventories are summarized as follows:
January 31, 1999 April 30, 1998
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Raw materials $1,034,972 $ 869,762
Work in process 591,698 514,728
Finished products 239,419 31,304
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$1,866,089 $1,415,794
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3. Line of Credit
In January 1999 the Company renewed its line of credit with Wells
Fargo Bank for an additional two years. The line was increased from
$1,000,000 to $1,750,000. The interest rate was reduced from Wells Fargo
Bank's prime rate plus 1% to Wells Fargo Bank's prime rate. All other terms
and conditions remained the same.
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4. Property
In January 1999 the Company acquired the land and buildings where its
executive offices and principal manufacturing facilities in Chino are
located. It was purchased from Hercules Land Holding, Inc., a corporation
owned by the Company's chairman, president and principal shareholder. The
purchase price was $1,575,000, paid $1,275,000 in cash and $300,000 in a
promissory note due upon demand. The note pays monthly interest at Wells
Fargo Bank's prime interest rate. The purchase price was based on fair
market value as determined by an independent appraisal. The net assets were
booked at $561,515, which was the carrying value of Hercules Land Holding,
Inc. The difference between the Hercules carrying value and the purchase
price, $1,013,485 was included as a reduction in retained earnings on the
balance sheet. In conjunction with this transaction the note receivable
from the president, included in the equity section of the balance sheet,
was paid off.
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ALFA LEISURE INC.
January 31,1999
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operation
Sales increased 9.6% for the three months ended January 31, 1999
compared to the same period of the previous year, and 11.5% for the nine months
ended January 31, 1999 compared to the same period of the previous year. These
increases are attributable to an increase in units shipped, due to market
acceptance of the current models and floor plans.
Cost of sales, expressed as a percentage of sales, was 84.3% in the
three months ended January 31, 1999 and 86.2% in the same period of the prior
year. This decrease in fiscal year 1999 compared to fiscal year 1998 is due
primarily to reductions in warranty cost and material scrap cost.
Cost of sales, expressed as a percentage of sales, was 87.9% in the
nine months ended January 31, 1999 and 87.6% in the same period of the prior
year. This increase is due to a one time cost to improve the Chino facilities
and production line. In July 1998. the Company shutdown for three weeks to
perform deferred maintenance on the facilities, and layout a new production line
to improve efficiencies and increase capacity.
Selling, General and Administrative expenses, expressed as a percentage
of sales, was 9.8% in the three months ended January 31, 1999 and 10.4% in the
same period of the prior year. This decease in fiscal 1999 over 1998 is due
primarily to a decrease in insurance cost.
Selling, General and Administrative expenses, expressed as a
percentage of sales, was 8.9% in the nine months ended January 31, 1999 and 9.2%
in the same period of the prior year.
Interest expense was $7,043 in the three months ended January 31,1999
and $26,255 in the same period of the prior year. This decrease was due to a
reduction in borrowing, as a result of cash flow from operations.
Interest expense was $7,544 in the nine months ended January 31, 1999
and $76,929 in the same period of the prior year. This decrease was due to a
reduction in borrowing, as a result of cash flow from operations.
Liquidity and Capital Resources
Cash decreased $410,671 during the nine months ended January 31, 1999.
This was due primarily to the acquisition of the land and buildings where its
executive offices and principal manufacturing facilities in Chino are located.
It was purchased from Hercules Land Holding, Inc., a corporation owned by the
Company's chairman, president and principal shareholder. The purchase price was
$1,575,000, paid $1,275,000 in cash and $300,000 in a promissory note due upon
demand. The note pays monthly interest at Wells Fargo Bank's prime interest
rate. The purchase price was based on fair market value as determined by an
independent appraisal.
The Company runs a zero balance checking account. Funds are borrowed or
invested daily for cash flow purposes. This will result in a daily bank
overdraft as seen in the balance sheet.
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In January 1999 the Company renewed its line of credit with Wells Fargo
Bank for an additional two years. The line was increased from $1,000,000 to
$1,750,000. The interest rate was reduced from Wells Fargo Bank's prime rate
plus 1% to Wells Fargo Bank's prime rate. All other terms and conditions
remained the same.
Capital expenditures during the remainder of fiscal 1999 are expected
to be primarily for routine periodic replacement of existing plant and
equipment. The Company believes that it has sufficient available capacity to
meet the demand for its products in the foreseeable future. The Company meets
its needs for working capital and capital expenditures with internally generated
funds and from the lines of credit. The Company has been able to take discounts
on trade payables as a result of the Company's lines of credit and favorable
credit terms with its vendors.
The Company is confident of overall profitability in fiscal 1999 as a
result of dealer and consumer acceptance of the improved 1999 product lines,
resulting in strong sales activity. The Company currently has no significant
commitments for cash expenditures other than normal operations and debt service
during 1999.
Year 2000 Plan
The Company is working to resolve the potential impact of the year 2000
on its business processes and the ability of the Company's computerized
information systems to accurately process information that may be date
sensitive. The Company began its risk assessment in fiscal 1998. The Company
purchased a new operating and applications computer system in November 1998. The
new system chosen is year 2000 compliant. The Company plans to implement the new
system prior to year 2000. The cost of this implementation should not have a
material impact on the Company's financial position. The total cost of hardware,
software and implementation is estimated to be approximately $250,000, of which
$50,000 has been expended through January 31, 1999. The Company believes that
compliance of its customers and vendors will not have a material effect on the
Company's operations.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
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
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Not Applicable.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
January 31, 1999.
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SIGNATURE
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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.
ALFA LEISURE, INC.
a Texas Corporation
Dated: February 25, 1999
BY JOHNNIE R. CREAN
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Johnnie R. Crean
President
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EXHIBIT INDEX
Exhibit
Number Description
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27 Financial Data Schedule