FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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.
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
--- ---
State the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Title Outstanding as of May 13th
Common Stock No Par Value 3,848,618
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
March 31, December 31,
1997 1996
---- ----
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $2,690,779 $5,792,764
Restricted cash 443,000 -
Accounts receivable, net 2,016,542 2,316,979
Other receivables 185,328 178,339
Income tax receivable 570,623 355,623
Inventories 9,947,667 7,710,149
Cost and estimated earnings in excess of billings 92,423 56,616
Prepaids and other current assets 539,242 605,186
Deferred income taxes 296,956 296,956
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Total current assets 16,782,560 17,312,612
Property and equipment, net 14,118,388 11,047,029
Covenants not to compete, net 137,987 145,487
Other assets 110,461 97,655
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Total assets $31,149,396 $28,602,783
----------- -----------
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LIABILITITES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $3,919,058 $3,307,176
Accrued liabilities 760,572 663,467
Revolving credit agreements - 1,634,154
Current maturities of long-term debt 669,721 560,140
Billings in excess of cost and estimated earnings 230,886 122,286
Other current liabilities 50,663 139,163
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Total current liabilities 5,630,900 6,426,386
Long-term debt 6,708,514 2,397,695
Other long-term liabilities 12,340 53,738
Deferred income taxes 345,572 345,572
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Total liabilities 12,697,326 9,223,391
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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
3,816,850 shares at March 31, 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 (440,547) 760,737
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Total shareholders' equity 18,452,070 19,379,392
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Total liabilities and shareholders' equity $31,149,396 $28,602,783
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The accompanying notes are an integral part of these consolidated
financial statements.
2
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three
Months Ended
March 31,
-------------------------
1997 1996
----------- ----------
(Restated)
Net sales $3,576,093 $5,519,150
Cost of goods sold 3,869,892 4,067,776
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Gross (loss) profit (293,799) 1,451,374
Selling, general and administrative expenses 1,011,580 744,928
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(Loss) income from operations (1,305,379) 706,446
Interest and other expenses, net 110,906 10,799
----------- -----------
(Loss) income before provision for income taxes (1,416,285) 695,647
(Benefit) provision for income taxes (215,000) 236,032
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Net (loss) income ($1,201,285) $459,615
----------- -----------
----------- -----------
Net (loss) income per share ($0.32) $0.17
----------- -----------
----------- -----------
Weighted average common shares and common
equivalent shares outstanding 3,817,000 2,655,000
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----------- -----------
The accompanying notes are an integral part of these consolidated
financial statements.
3
BOYDS WHEELS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three
Months Ended
March 31
--------------------------
1997 1996
------------- ----------
Cash flows from operating activities: (Restated)
Net (loss) income $ (1,201,285) $ 459,615
Adjustments to reconcile net income to cash
used by operating activities:
Depreciation and amortization 412,568 189,016
Loss on on disposal of property and equipment - 8,160
Bad debt expense 70,150 20,000
Reserve for inventory obsolescence - 20,000
Compensation related to stock option vesting 3,123 -
Decrease (increase) in accounts receivable 230,287 (100,302)
Increase in income tax receivable (215,000) -
Increase in other receivable (6,989) -
Increase in inventories (2,237,51) (1,038,886)
Increase in costs and estimated earnings in excess
of billings on uncompleted contracts (35,807) (164,045)
Decrease in prepaid and other current assets 65,944 3,300
Increase in other assets (12,806) -
Increase in accounts payable 611,882 222,662
Increase (decrease) in accrued liabilities 97,105 (504,199)
Increase in income taxes payable - 72,832
Increase in billings in excess of costs and
estimated earnings on uncompleted contracts 108,600 24,397
Decrease in other current liabilities (88,500) (20,098)
(Decrease) increase in other long term liabilities (41,397) 18,222
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Net cash used by operating activities (2,239,643) (789,326)
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Cash flows from investing activities:
Purchase of property and equipment (3,476,428) (442,049)
Proceeds from the sale of property and equipment - 2,400
Cash acquired in acquisition - 37,693
Payments on covenants not to compete - (24,585)
Decrease in due from affiliates - (62,206)
Increase in restricted cash (443,000) -
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Net cash used by investing activities (3,919,428) (488,747)
Cash flows from financing activities:
Borrowings on revolving lines of credit 956,104 550,000
Payments on revolving lines of credit (2,590,258) -
Proceeds from issuance of long-term debt 7,141,950 332,407
Principal repayments of long-term debt (2,721,550) (88,032)
Proceeds from exercise of common stock warrants 270,840 -
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Net cash provided by financing activities 3,057,086 794,375
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The accompanying notes are an integral part of these consolidated financial
statements.
4
BOYDS WHEELS, INC, AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31
---------------------------
1997 1996
----------- ----------
(Restated)
Net decrease in cash and cash equivalents (3,101,985) (483,698)
Cash and cash equivalents at beginning of year 5,792,764 1,061,889
----------- ----------
Cash and cash equivalents at end of year $ 2,690,779 $ 578,191
----------- ----------
----------- ----------
Cash paid during the year for:
Income taxes $ - $ 163,200
----------- ----------
----------- ----------
Interest $ 262,798 $ 142,956
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----------- ----------
Supplemental schedule of noncash investing
and financing activities:
Equipment leases capitalized $ 162,297 $ 40,084
Common stock issued in settlement of an
employment agreement - 50,000
Noncash reductions of due from shareholder - 14,542
Reversal of unearned compensation related to stock
options granted 12,500 -
5
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 ended March 31,
1997 and March 31, 1996 are unaudited and have been prepared in accordance
with the 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)
March 31, 1997 December 31, 1996
-------------- -----------------
Finished goods $2,472,455 $1,572,189
Work in process 5,212,128 3,869,080
Raw Materials 1,507,505 1,814,270
Construction-in-progress automobiles 680,579 380,831
Completed automobile 75,000 73,779
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$9,947,667 $7,710,149
3. Long Term Debt
In March 1997, the Company negotiated new bank credit facilities with a
bank to replace an existing revolving line of credit agreement, a term note
payable and a capital lease obligation. The new credit facilities allow
for borrowings up to $9,000,000 for Boyds Wheels, Inc. and $500,000 for Hot
Rods by Boyd, Inc. The notes mature in April 1999, and require interest
only payments until maturity. Total borrowings at March 31, 1997 under the
combined notes are $5,335,933. At March 31, 1997 the Company was not in
compliance with certain loan covenants, for which a waiver has been
obtained.
In January 1997 the Company entered into two loan agreements with a bank,
to finance the purchase of land and building for a total of $1,643,000
($1,200,000 and $443,000). The note for $1,200,000 matures January 1,
2002, has an interest rate of 9.125% and is collateralized by land and
building. Interest and principal payments are $123,117 annually with
payment of the remaining principal and interest of $1,130,986 on January 1,
2002.
6
The note for $443,000 matures January 9, 1998 and has an interest rate of
6.980%. As a part of the loan agreement the Company is required to
maintain a cash balance of $443,000 in a money market account to
collateralize this loan (restricted cash). Interest and principal payments
are due upon maturity.
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 months ended March 31, 1996 have been
restated to include HRBB for such period. Consolidated and separate
results of the Company and HRBB were as follows:
Net Sales:
Boyds Wheels, Inc., as previously reported $5,334,074
Hot Rods by Boyds, Inc. 200,385
Adjustments (15,309)
----------
Consolidated $5,519,150
----------
----------
Net income:
Boyds Wheels, Inc, as previously reported $360,008
Hot Rods by Boyds, Inc. 99,607
----------
Consolidated $459,615
----------
----------
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 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
GENERAL
The Company designs, manufactures and markets high quality aluminum
wheels for the specialty automotive and motorcycle aftermarkets. The Company
also designs, manufactures and 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 sold directly
to private clientele.
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 by the Company's recent
expansion, in which it increased square footage by approximately 50%. At low
sales volumes 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 could 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.
7
Sales of and demand for the Company's wheel products during the first
quarter of 1997 did not meet management's expectations due to a variety of
factors including, competitive pressure, changes in consumer demand and
slower than expected sales in its 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; and 3) streamlining and 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 degrees of 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.
Comparison of Three Months Ended March 31, 1997 and Three Months Ended March
31, 1996
NET SALES
Net sales for the three months ended March 31, 1997, were $3,576,093
compared to $5,519,150 for the same period in 1996, a decrease of $1,943,057
or 35%. The decrease in sales for the period was the result of a reduced
backlog from year end 1996, resulting from greater production capacity and
strong fourth quarter 1996 sales. Sales in the first of quarter 1997 were
driven by actual bookings during the quarter, which is traditionally the
weakest quarter in the industry. The seasonality impact was not felt in the
first quarter of 1996 as a result of the backlog accumulated by general
capacity constraints.
GROSS (LOSS) PROFIT
Gross (loss) profit for the three months ended March 31, 1997 was
($293,799) compared to $1,451,374 for the same period in 1996, a decrease of
$1,745,173 or 120%. The decrease in gross profit was primarily attributable
to a 35% decrease in sales combined with an increase in fixed costs and under
utilization of the facility. The fixed costs in the first quarter of 1997,
compared to the same period in 1996 included higher wages of $406,067 and
increased overhead costs of rent of $43,944 and depreciation of $205,572 as a
result of the Company's expansion.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three months ended
March 31, 1997 were $1,011,580 compared to $744,928 for the same period in
1996, an increase of $266,652 or 36%. This increase is primarily the result
of increased advertising and promotional expenses in the amount of $118,872,
together with expenses of $70,087 associated with the addition of sales,
marketing, investor relations and accounting personnel.
INTEREST AND OTHER EXPENSES (NET)
Interest and other expenses (net) for the three months ended March 31,
1997 were $110,906 compared to $10,799 for the same period in 1996, an
increase of $100,107 or 927%. Interest expense increased as a result of a
one-time charge on the payoff of a capital lease in the amount of $124,909
along with increased borrowings for working capital and long-term debt, which
partially were offset by interest income from available funds and other
income in the first quarter of 1997.
8
INCOME TAX (BENEFIT) PROVISION
Income tax (benefit) for the three months ended March 31,1997 was
($215,000), compared to a provision of $236,032 for the same period in 1996, a
decrease of $451,032 or 191%.
NET (LOSS) INCOME
As a result of the above, net loss for the three months ended March 31,
1997 was ($1,201,285), compared to net income of $459,615 for the three
months ended March 31, 1996, a decrease of $1,660,900, or 361%.
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of 1997 the Company's inventory increased to
$9,947,667 from $7,710,149 at December 31, 1996, an increase of $2,237,518.
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 $11,151,660 at March 31, 1997 compared to $10,886,226
at December 31, 1996, or an increase of $265,434. The Company's cash position
at March 31, 1997 was $2,690,779 compared to $5,792,764 at December 31, 1996,
a decrease of $3,101,985. Cash was utilized with the Company's line of credit
to increase inventory, add equipment and leasehold improvements and finance
the Company's ongoing operations. The Company intends to utilize the current
funds, along with cash generated from operations to repay debt and for other
general corporate purposes. In addition, the Company has negotiated a new
line of credit, which is available for working capital needs and equipment
financing. At March 31, 1997, the $9,500,000 two year revolving line of
credit had available funds of $4,164,067. The borrowing on the line of credit
increased during the period as a result of equipment and leasehold
improvements of $1,826,426, the payoff of previous line of credit borrowings
of $2,590,258 and the payoff of a long-term capital lease of $888,011. Total
borrowings 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. To the extent that such
amounts are insufficient to finance the Company's working capital
requirements, it will be required to raise funds through additional equity or
debt financing.
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.
On January 21, 1997 the Company filed a registration statement on Form
S-3 with the Securities and Exchange Commission (registration no. 333-20099),
registering 1,019,565 shares to be sold from time to time by certain
Shareholders of the Company. The Company will receive no proceeds from the
sale of such shares.
9
The Company purchased 2.5 acres of land with two buildings totaling
approximately 26,000 square feet on January 10, 1997. The purchase was
financed in the amount of $1,643,000. See Note 3 to the financial statements .
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. (a) Exhibits.
Number
10.37 Promissory Note dated January 9,1997 by and between Boyds
Wheels, Inc. and Eldorado Bank
10.38 Promissory Note dated January 9, 1997 by and between Boyds
Wheels, Inc. and Eldorado Bank
10.39 Revolving Note and Security Agreement dated March 25, 1997
by and between Boyds Wheels, Inc. and City National Bank
10.40 Revolving Note and Security Agreement dated March 25, 1997
by and between Hot Rods By Boyd and City National Bank
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.
By: /s/ Boyd L. Coddington
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Boyd L. Coddington Chief Executive Officer (Principal Executive Officer)
Date: May 15, 1997
By: /s/ Rex A. Ours
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Rex A. Ours Chief Financial Officer and Corporate Secretary
(Principal Financial Officer)
Date: May 15, 1997