================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-28681
CCM MANUFACTURING TECHNOLOGIES, INC.
--------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
Delaware 52-2201514
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15635 Vision Drive
Pflugerville, Texas 78660-3203
---------------------------------------------------
(Address of principal executive offices (zip code))
512/251-3484
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the last 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 No X
As of November 30, 2000, 17,499,517 shares of the registrants common stock,
$0.0001 par value were outstanding.
CCM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX
PART 1 - FINANCIAL INFORMATION Page No.
--------
Item 1. Financial Statements
Consolidated Balance Sheets at September 30, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Operations for the nine and three months ended
September 30, 2000 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis or Plan of Operation 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CCM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS September 30, December 31,
2000 1999
---------------- ------------------
CURRENT ASSETS
Cash and cash equivalents.................................... $ 606 $ 11,649
Accounts receivable, net of allowance for doubtful
accounts of $0 and $9,197 at September 30, 2000 and
December 31, 1999, respectively.............................. 632,994 545,433
Inventories................................................... 582,352 603,485
Prepaid expenses.............................................. 5,069 35,107
----------------- ------------------
Total current assets.................................... 1,221,021 1,195,674
PROPERTY AND EQUIPMENT
Machinery and equipment....................................... 1,076,342 1,072,867
Furniture and fixtures........................................ 47,617 47,617
Automobiles................................................... 1,500 1,500
Leasehold improvements........................................ 896 896
----------------- ------------------
1,126,355 1,122,880
Accumulated depreciation and
amortization............................................... (950,992) (884,763)
----------------- ------------------
Net property and equipment............................ 175,363 238,117
EXCESS OF COST OVER FAIR VALUE OF NET
ASSETS OF COMPANIES ACQUIRED, net............................. 1,697,812 1,843,339
OTHER ASSETS...................................................... 33,887 33,219
----------------- ------------------
TOTAL ASSETS...................................................... $ 3,128,083 $ 3,310,349
================= ==================
The accompanying notes are an integral part of these consolidated
financial statements.
3
CCM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(Unaudited)
September 30, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 2000 1999
---------------- ----------------
CURRENT LIABILITIES
Line of credit................................................ $ - $ 252,257
Current portion of long-term debt............................. 380,377 200,000
Notes payable to shareholders................................. 684,567 1,142,698
Current portion of capital lease obligations.................. 45,737 42,792
Factoring advances............................................ 242,231 -
Accounts payable.............................................. 958,776 1,035,706
Accrued liabilities........................................... 238,836 172,403
Deferred compensation......................................... 192,115 232,000
---------------- ----------------
Total current liabilities............................... 2,742,639 3,077,856
LONG-TERM LIABILITIES
Long-term debt, less current portion.............................. 316,667 391,667
Capital lease obligations, less current portion................... 57,678 96,045
---------------- ----------------
Total long-term liabilities............................. 374,345 487,712
---------------- ----------------
Total liabilities....................................... 3,116,984 3,565,568
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.0001 par value, 25,500,000 shares
authorized, none issued and outstanding at September 30,
2000 and December 31, 1999................................ - -
Series A Preferred stock, $0.0001 par value, 3,000,000 shares
authorized, 2,972,504 and 1,375,413 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively (liquidation preference of $4,458,756 and
$2,063,120 at September 30, 2000 and December 31, 1999,
respectively)............................................. 297 138
Series B Preferred stock, $0.0001 par value,1,500,000 shares
authorized, none issued and outstanding at September 30,
2000 and December 31, 1999................................ - -
Class A Common stock, $0.0001 par value, 60,000,000 shares
authorized, 17,409,517 and 11,812,500 shares issued and
outstanding at September 30, 2000 and December 31, 1999,
respectively.............................................. 1,741 1,181
Class B Common stock, $0.0001 par value, 10,000,000 shares
authorized, none issued and outstanding at September 30,
2000 and December 31, 1999................................ - -
Common stock subscriptions receivable........................ (75,470) -
Additional paid-in capital................................... 3,194,798 1,051,047
Accumulated deficit.......................................... (3,110,267) (1,307,585)
---------------- ----------------
Total stockholders' equity (deficit)................... 11,099 (255,219)
---------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT).................................................... $ 3,128,083 $ 3,310,349
================ ================
CCM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ----------- ----------- -----------
Net sales............................................ $ 958,986 $ 1,041,883 $ 2,474,011 $ 2,817,969
Cost of sales........................................ 855,674 1,088,961 2,709,544 2,458,688
------------ ----------- ----------- -----------
Gross profit (loss).................................. 103,312 (47,078) (235,533) 359,281
Selling, general and administrative expenses......... 554,015 229,030 1,419,370 783,419
------------ ----------- ----------- -----------
Loss from operations................................. (450,703) (276,108) (1,654,903) (424,138)
Other income (expenses)
Interest expense................................. (46,754) (15,184) (138,782) (66,246)
Other, net....................................... (44,269) (13,670) (8,997) (15,262)
------------ ----------- ----------- -----------
Total other income (expenses)........................ (91,023) (28,854) (147,779) (81,508)
------------ ----------- ----------- -----------
Loss before provision for income taxes............... (541,726) (304,962) (1,802,682) (505,646)
Provision for income taxes........................... - - - -
------------ ----------- ------------ -----------
Net loss ............................................ $ (541,726) $ (304,962) $(1,802,682) $ (505,646)
============ =========== =========== ===========
Net loss attributable
to common stockholders........................... $ (541,726) $ (304,962) $(1,802,682) $ (505,646)
============ =========== =========== ===========
Basic and diluted net loss per share
attributable to common stockholders.............. $ (0.04) $ (0.03) $ (0.14) $ (0.04)
============ =========== =========== ===========
Number of weighted average shares
of common stock outstanding...................... 14,032,782 11,812,500 13,140,698 11,812,500
============ =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
5
CMM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
--------------------------------------------
2000 1999
------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.............................................................. $ (1,802,682) $ (505,646)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization..................................... 66,229 67,770
Amortization of excess of cost over fair value of net
assets of companies acquired................................... 145,527 67,925
Preferred stock issued as compensation............................ 30,000 -
Change in operating assets and liabilities
Accounts receivable............................................ (87,561) (328,406)
Inventories.................................................... 21,133 (257,178)
Prepaid expenses............................................... 30,038 (4,143)
Other assets................................................... (668) 10,628
Accounts payable............................................... (76,930) 361,450
Accrued liabilities............................................ 66,433 401,445
Deferred compensation.......................................... 308,365 116,000
------------- -------------
Cash flows used in operating activities....................... (1,300,116) (70,155)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment............................... (3,475) (41,335)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock warrants................... 115,000 -
Proceeds from sale of preferred stock............................. 928,250 507,000
Proceeds from sale of common stock................................ 147,500 150,374
Net activity on line of credit.................................... (252,257) (777,938)
Additional capital contributed.................................... - 62,000
Factoring advances................................................ 242,231 -
Proceeds from long-term debt...................................... 289,869 -
Repayment of long-term debt....................................... (184,492) -
Payments on capital leases........................................ (35,422) (18,922)
Net proceeds on notes payable to shareholders..................... 41,869 197,363
------------- -------------
Cash flows provided by financing activities.................... 1,292,548 119,877
------------- -------------
Net increase (decrease) in cash and cash equivalents.................. (11,043) 8,387
Cash and cash equivalents, beginning of period........................ 11,649 20,068
------------- -------------
Cash and cash equivalents, end of period.............................. $ 606 $ 28,455
============= =============
CMM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Unaudited)
Nine Months Ended
September 30,
----------------------------------
2000 1999
----------- --------------
NON-CASH FINANCIAL AND INVESTING ACTIVITIES:
- --------------------------------------------
Issuance of Class A common stock as payment of
compensation................................................... $ 348,250 $ -
=========== ==============
Issuance of Class A common stock in exchange for
note payable to shareholders................................... $ 500,000 $ -
=========== ==============
Issuance of Class A common stock for subscription
receivable..................................................... $ 75,470 $ -
=========== ==============
SUPPLEMENTAL DISCLOSURE:
- ------------------------
Cash paid for interest during period............................... $ 138,000 $ 66,000
=========== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
7
CMM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of CCM Manufacturing
Technologies, Inc. (formerly Syntec Acquisitions Corp.) and subsidiaries ("CCM"
or "Company") have been prepared from the records of the Company in accordance
with generally accepted accounting principles "GAAP" for interim financial
information and in accordance with the instructions pursuant to item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. These financial
statements reflect all adjustments which are, in the opinion of management,
necessary to provide a fair statement of the results of operations and financial
position for the interim periods. The current interim period reported herein
should be read in conjunction with the Company's Form 8-K/A and the related
financial statements included therein.
The results of operations for the three and nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000.
The preparation of the financial statements in accordance with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
NOTE B - GOING CONCERN
The consolidated financial statements have been prepared on the assumption that
the Company will continue as a going concern. The Company incurred a net loss of
$1,802,682 during the nine-month period ended September 30, 2000. Cash used in
operating activities for the same period aggregated $1,300,116. Current
liabilities at September 30, 2000 of $2,742,639 exceed current assets of
$1,221,021 by $1,521,618. The Company's continued existence depends upon the
success of management's efforts to raise the additional capital necessary to
meet the Company's obligations as they come due and to obtain sufficient capital
to execute its business plan. The Company intends to obtain additional capital
primarily through the issuance of non-voting preferred stock. There can be no
degree of assurance given that the Company will be successful in completing
additional financing transactions. The consolidated financial statements do not
include any adjustments to reflect the possible effects on the recoverability
and classification of assets or classification of liabilities which may result
from the inability of the Company to continue as a going concern.
NOTE C - LOSS PER SHARE
Basic net loss per share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. CCM's common stock
equivalents are not included in the diluted loss per share for September 30,
2000 and 1999 as they are antidilutive. Therefore, diluted and basic loss per
share are the same.
NOTE D - REVERSE MERGER
Pursuant to an agreement and Plan of Reorganization dated June 19, 2000, Syntec
Acquisition Corp. ("Acquisition") entered into a reverse merger acquisition
agreement with Mayford Acquisition Corporation ("Mayford"), a publicly held
"shell" Delaware Corporation. Mayford purchased 100% of Acquisition's
outstanding stock in a tax free reorganization. Mayford issued 13,527,083 shares
of its $.0001 par value Class A common stock and 2,972,504 shares of its $.0001
par value Series A convertible preferred stock in exchange for all of the
outstanding common and preferred shares of Acquisition. Also effective June 19,
2000, Mayford changed its name to CCM Manufacturing Technologies, Inc. For
accounting purposes, the merger was treated as a recapitalization of Acquisition
with Acquisition as the acquirer (a reverse merger).
CMM MANUFACTURING TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - NOTES PAYABLE TO SHAREHOLDERS
The Company has unsecured note payables due to several shareholders totaling
$684,567 at September 30, 2000.
The first note bears interest at 9.5% per annum and payments are made as cash
flow permits with the total outstanding balance of principal and accrued
interest due December 31, 2000. The remaining $184,567 is due on demand and
bears interest at 18% per annum.
NOTE F - LONG TERM DEBT
Long-term debt at September 30, 2000 consists of the following:
Installment note payable to financial institution, due in
monthly installments of $8,333, including interest at the 30
day rate of commercial paper plus 3.25%, matures August 2004,
secured by all assets of the Company excluding accounts
receivable and inventory $ 416,667
Installment note payable to financial institution, due in
weekly principal installments of $2,000, interest is payable
monthly at the prime rate plus 5.5% matures December 2000,
secured by accounts receivable, inventory, and equipment and
personally guaranteed by certain shareholders 24,000
Installment note payable to vendor due in monthly
installments of $20,092 including 10% interest, matures
November 2000, secured by certain inventories 121,377
Unsecured note payable, accrues interest at the prime rate
plus 2%, principal and accrued interest due at maturity on
February 11, 2001 (net of discount of $46,000) 54,000
Unsecured note payable, accrues interest at the prime rate
plus 2%, principal and accrued interest due at maturity on
January 18, 2001 (net of discount of $69,000) 81,000
-------
697,044
Less current portion 380,377
-------
Long-term debt, less current portion $316,667
=======
NOTE G - FACTORING ADVANCES
The Company has entered into a factoring agreement with a financial institution.
Under this agreement, the Company sells certain accounts receivable with
recourse at a discount to the financial institution. The factoring advance
liability included on the balance sheet represents advances received for
accounts receivable that have not yet been collected by the financial
institution.
NOTE H - STOCKHOLDERS' EQUITY
Effective September 20, 2000, the Company sold 3,372,500 shares of Class A
common stock in exchange for a subscription receivable of $125,000 or $.037 per
share. $62,500 of the subscribed amount was collected prior to September 30,
2000 and the remaining amount is shown as a subscription receivable at September
30, 2000. Also effective September 20, 2000, the Company sold 349,934 shares of
Class A common stock in exchange for a subscription receivable of $12,970 or
$.037 per share to "friends and family" of the Company. This entire amount is
shown as a subscription receivable in the financial statements at September 30,
2000.
During the quarter ended September 30, 2000, the Company issued warrants to
purchase 100,000 shares of Class A common stock with an exercise price of $.10
per share associated with $250,000 in debt obtained from two individuals. The
fair value of the warrants, using the Black-Scholes model, has been determined
to be $115,000 and has been recorded as additional paid-in capital and a
discount to the related debt in the financial statements. These warrants were
exercised during the third quarter of 2000. During this quarter, the Company
also sold 60,000 shares of Class A common stock to three individuals for an
aggregate of $75,000 or $1.25 per share. This amount was collected in full prior
to September 30, 2000.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion is intended to provide an analysis of the Company's
financial condition and Plan of Operation and should be read in conjunction with
the Company's financial statements and the notes thereto. The matters discussed
in this section that are not historical or current facts deal with potential
future circumstances and developments. Such forward-looking statements include,
but are not limited to, the development plans for the growth of the Company,
trends in the results of the Company's development, anticipated development
plans, operating expenses and the Company's anticipated capital requirements and
capital resources. The Company's actual results could differ materially from the
results discussed in the forward-looking statements.
This report contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, and Section 21E of the Exchange Act of 1934.
Although the Company believes that the expectations reflected in the forward-
looking statements and the assumptions upon which the forward-looking statements
are based are reasonable, it can give no assurance that such expectations and
assumptions will prove to be correct.
GENERAL
CCM Manufacturing Technologies, Inc. and subsidiaries (the "Company") is a
contract service provider of design, manufacturing and testing services to the
electronics industry, headquartered in Austin, Texas. Through its wholly owned
subsidiary, Syntec Corporation, the Company provides product realization
services to original equipment manufacturers in the industrial, computer and
telecommunications industries. The Company offers a full range of services
including product development and design, material procurement and management,
prototyping, assembly, testing, manufacturing, final system box build,
distribution and after market support.
CCM is a certified Minority Business Enterprise ("MBE") by the National Minority
Supplier Development Council ("NMSDC"). A Minority Business Enterprise is a for-
profit enterprise, physically located in the United States or its trust
territories, which meet the following criteria:
(1) at least 51% of the stock is owned by one or more minority group
members which include United States citizens who are Black, Hispanic,
Native American or Asian, or at least 30% of the stock is owned by one
or more minority group members who control 51% of the voting stock of
the company; and
(2) the daily operation of the minority owned business must be conducted
by these minority group members; and
(3) the minority group members must control a majority of the seats on the
board.
If at any time the Company no longer meets these criteria (as, for example, if
future stock offerings reduce the stock ownership of minority group members
below their required percentages), it may lose its Minority Business Enterprise
status, which could have a material adverse effect upon its business operations.
CCM is also certified by the General Services Commission of the State of Texas
as compliant with the Historically Underutilized Business ("HUB") program and is
recognized as a HUB. Should the number of individuals employed by CCM exceed
500, CCM would lose its HUB status.
The Company's contract manufacturing services are provided primarily on a
turnkey basis, where the Company procures certain or all of the materials
required for product assembly. Turnkey services include material procurement and
warehousing, in addition to manufacturing, and involve greater resource
investment and inventory risk management than consignment services. Turnkey
manufacturing currently represents almost all of the Company's sales. Turnkey
sales typically generate higher net sales and higher gross profit dollars with
lower gross margin percentages than consignment sales due to the inclusion of
component costs, and related markup, in the Company's net sales. However, the
Company takes on the risk of inventory management, and a change in component
costs can directly impact the average selling price, gross margins and the
Company's net sales. Due to the nature of turnkey manufacturing, the Company's
quarterly and annual results are affected by the level and timing of customer
orders, fluctuations in materials costs, and the degree of automation used in
the assembly process.
Since a substantial portion of the Company's sales are derived from turnkey
manufacturing, net sales can be
negatively impacted by component shortages and their lead-times. Shortages of
key electronic components which are provided directly from customers or
suppliers and their lead-times can cause manufacturing interruptions, customer
rescheduling issues, production downtime and production set-up and restart
inefficiencies. From time to time, allocations of components can be an integral
part of the electronics industry and component shortages and extended lead-time
issues can occur with respect to specific industries or particular components
(such as memory and logic devices). In such cases, supply shortages could
substantially curtail production of some or all assemblies utilizing a
particular component. In addition, at various times industry wide shortages of
electronic components have occurred, particularly for memory and logic devices.
Over the past twelve plus months the marketplace for certain electronic
components, primarily in the telecommunications and wireless markets (in
particular flash memory, tantalum capacitors, and SAW filters), has tightened.
In addition, recent tightening has occurred with complex, high layer count (12
layers and above) raw printed circuit boards ("PCB"s). This has resulted in the
extension of certain component lead-times, increased pricing and in certain
instances has resulted in the allocation of such components by the suppliers. In
response to this dynamic environment, the Company has initiated a plan whose
primary purpose is to create strong supplier alliances to assure a steady flow
of components at competitive prices, and mitigate shortages. The Company has
established strategic relationships with key component suppliers to improve
shortage and pricing issues. However, because of the limited number of suppliers
for certain electronic components and whether further tightening in the
marketplace for components could result in missed deliveries or de-commits from
our suppliers, along with other supply and demand concerns, the Company can
neither eliminate component shortages nor determine the timing or impact of such
shortages on the Company's results. In addition, because we provide our
customers component procurement services, we may bear the risk of price
increases for these components if we are unable to purchase them at the same
price that we agree with our customer on the pricing for the components. As a
result, the Company's sales and profitability can be affected from period to
period. In order to attempt to mitigate the Company's financial risk of
component price increases, the Company regularly reviews and adjusts for price
fluctuations with customers.
Many of the industries for which the Company currently provides electronic
products are subject to rapid technological changes, product obsolescence,
increased competition, and pricing pressures. These and other factors which
affect the industries or the markets that the Company serves, and which affect
any of the Company's major customers in particular, could have a material
adverse effect on the Company's results of operations. The Company depends on a
relatively small number of customers for the majority of its revenues - the
result of a strategic business decision made in 1999. The Company began
transitioning its customer base during the past year, implement the new
strategy, to ensure customer focus, and to balance current production
capabilities with the growth objectives. This transition involved moving towards
developing long-term relationships with select original equipment manufacturers
("OEM") with whom the Company could develop significant synergies. The Company's
status as a certified MBE is a key differentiator, especially in the
communications industry. XEL Communications, Inc. is the first OEM to select CCM
as one of their electronic manufacturing services ("EMS") providers with the
anticipation of leveraging the minority manufactured content provided by the
Company as a competitive differentiator.
The Company has no long-term volume commitments from its customers, and lead-
times for customer orders and product-life cycles continue to contract. Although
the Company obtains firm purchase orders and/or schedules from its customers,
they typically do not make firm orders for delivery of products more than 30 to
90 days in advance. The Company does not believe that the backlog of expected
product sales covered by firm purchase orders is a meaningful measure of future
sales since orders may be canceled and volume levels can be changed or delayed
at any time. The timely replacement of delayed, canceled or reduced programs
with new business cannot be assured. In recent periods, an increasing percentage
of the Company's sales have been sales to its largest customers, which may
increase the Company's dependence upon them. Because of these and other factors,
there can be no assurance that the Company's historical sales rate will
continue.
The Company participates within the EMS segment of the electronics industry.
This segment is currently growing at a faster rate than the overall electronics
industry, being spurred by the wave of manufacturing outsourcing by
communications OEMs. The EMS segment is comprised of a large number of
companies, with only a few attaining significant market share. The Company's
growth plan calls for a mix of both internal growth - fueled by increased
business from some current key customers combined with an expansion in the
overall customer base through focused prospecting and external growth gained
through the acquisition of businesses that complement the Company's model and
strategy by delivering incremental capabilities, vertical integration, or
geographic coverage.
The Company believes that its current sales level growth has been achieved in
significant part by its approach to
11
partnering with customers. In order to achieve expanded sales growth, the
Company must continue to generate additional sales from existing customers from
both current and future programs, and must successfully market to new customers.
In addition, the Company must continue to attract and retain top quality product
development engineers in order to continue to expand its design and development
services. Because of these and other factors, there can be no assurance that the
Company's historic sales levels will continue.
Costs and the management of labor and equipment efficiencies for new programs
and new customers can have an effect on the Company's gross margins. Due to
these and other factors, gross margins can be negatively impacted early on in
the life cycle of new programs. In addition, labor efficiency and equipment
utilization rates ultimately achieved and maintained by the Company for new and
current programs impact the Company's gross margins.
The Company continues to look for opportunities for geographical expansion that
will improve the Company's ability to provide services to its customers.
Geographical expansion and growth by acquisition can have an effect on the
Company's operations. The successful integration and operation of an acquired
business, requires communication and cooperation among key managers, along with
the transition of customer relationships. Acquisitions also involve risks
including the retention of key personnel and customers, the integration of
information systems and purchasing operations, the management of an increasingly
larger and more geographically dispersed business, and the diversion of
management's attention from other ongoing business concerns. In addition, while
the Company anticipates cost savings, operating efficiencies and other synergies
as a result of its acquisitions, the consolidation of functions and the
integration of departments, systems and procedures present significant
management challenges. The Company cannot assure that it will successfully
accomplish those actions as rapidly as expected. Also, the Company cannot assure
the extent to which it will achieve cost savings and efficiencies in any
transaction or expansion. There can be no assurance that the Company will
successfully manage the integration of new locations or acquired operations, and
the Company may experience certain inefficiencies that could negatively impact
the results of operations or the Company's financial condition. Additionally, no
assurance can be given that any past or future acquisition by the Company will
enhance the Company's business.
The Company operates in a highly competitive industry. The Company faces
competition from a number of domestic and foreign electronic manufacturing
services companies, some with financial and manufacturing resources
significantly greater than the Company's. The Company also faces competition in
the form of current and prospective customers that have the capabilities to
develop and manufacture products internally. In order to remain a viable
alternative, the Company must continue to enhance its total engineering and
manufacturing technologies.
Other factors that could adversely affect forward-looking statements include the
level of overall growth in the electronics industry, the Company's ability to
integrate and extract value from acquired operations, the Company's ability to
secure new customers and maintain its current customer base, the results of cost
reduction efforts, material cost fluctuations and the adequate availability of
components and related parts for production, the effect of changes in average
selling prices, the risk of customer delays or cancellations in both on-going
and new programs, the effect of start-up costs related to new programs and
facilities, the overall economic conditions, the impact of increased
competition, the ability to attract and retain both technical and management
personnel and other factors and risks detailed herein and in the Company's other
Securities and Exchange Commission filings.
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended September 30, 2000, decreased $82,897
(7.96%) to $958,986 from $1,041,883 for the same period in the prior fiscal
year. Net sales for the nine months ended September 30, 2000, decreased $343,958
(12.20%) to $2,474,011 from $2,817,969 for the same fiscal period in the prior
fiscal year. The decrease in net sales was largely attributable to a severe
industry wide material/components shortage, which in turn negatively effected
the Company's cash flow and subsequent ability to procure additional parts
inventory. The Company believes that it has made significant progress in
alleviating the materials/components shortage issues by establishing strategic
alliances with some of the industries largest materials/components suppliers.
GROSS PROFIT (LOSS)
The Company generated a gross profit of $103,312 for the three months ended
September 30, 2000 compared to a gross loss of $47,078 for the same period in
the prior fiscal year. The Company incurred a gross loss of $235,533 for the
nine months ended September 30, 2000 compared to a gross profit of $359,281for
the same period in the prior fiscal year. The decrease in the gross profit was
due primarily to an increase in materials/components costs due
to the industry wide material/components shortage and a 15% increase in
personnel in the direct/indirect labor module, and manufacturing burden. The
Company's gross margin also reflects a number of factors which can vary from
period to period, including product mix, the level of start-up costs and
efficiencies of new programs, product life cycles, sales volumes, price erosion
within the electronics industry, capacity utilization for surface mount and
other equipment, labor costs and efficiencies, the management of inventories,
component pricing and shortages, average sales prices, the mix of turnkey and
consignment business, fluctuations and timing of customer orders, changing
demand for customer's products and competition within the electronics business.
OPERATING EXPENSES
Selling, general and administrative ("SG&A") expenses increased $324,985
(141.90%) to $554,015 for the three months ended September 30, 2000 from
$229,030 for the same period in the prior fiscal year. SG&A increased $635,951
(81.18%) to $1,419,370 for the nine months ended September 30, 2000 from
$783,419 for the same period in the prior fiscal year. The increase in 2000 is
largely due to additional costs associated with the Company intensifying its
sales and marketing efforts, coupled with increases in personnel in the
purchasing and engineering departments, which was done in anticipation of
increased sales, and legal fees and acquisition costs associated with the
reverse acquisition of Mayford Acquisition Corporation.
INTEREST EXPENSE
Interest expense increased $31,570 (207,92%) to $46,754 for the three months
ended September 30, 2000 from $15,184 from the same period in the prior fiscal
year. Interest expense increased $72,536 (109.49%) to $138,782 for the nine
months ended September 30, 2000 from $66,246 for the same period in the prior
fiscal year. These increases are due to increased debt obtained from
shareholders and financial institutions to fund operations during late 1999 and
throughout 2000.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities were $1,300,116 for the nine month
period ending September 30, 2000 compared to $70,155 for the same period in the
prior fiscal year. Cash flows used in operations for the nine months ended
September 30, 2000 resulted primarily from the Company's net loss of $1,802,682,
less the increase in deferred compensation of $308,365 and depreciation and
amortization expense for the period of $211,756. Cash flows used in operations
for the nine months ended September 30, 1999 resulted primarily from the
Company's net loss of $505,646 and the increase in accounts receivable of
$585,584, less depreciation and amortization expense for the period of $135,695
and the increase in accounts payable, deferred compensation and accrued
liabilities of $878,895.
Cash flows provided by financing activities were $1,292,584 for the nine month
period ended September 30, 2000 and resulted primarily from the proceeds from
the sale of preferred stock of $928,250, factoring advances of $242,231,
proceeds from the sale of common stock and common stock warrants of $262,500,
less net reductions of the Company's line of credit and long-term debt of
$146,880.
Cash flows provided by financial activities were $119,877 for the nine month
period ended September 30, 1999 and resulted primarily from the proceeds from
the sale of preferred and common stock of $657,374, plus advances from
shareholders of $197,363, less net payments on the Company's line of credit of
$777,938.
The Company utilizes available cash, factoring advances, advances from
shareholders, debt obtained from financial institutions and operating leases to
fund its operational needs. The Company utilizes operating leases primarily in
situations where technical obsolescence concerns are determined to out weigh the
benefits of financing the equipment purchase. The Company's working capital note
payable of $416,667 at September 30, 2000 requires monthly payments of $8,333
and matures August 2004. The remaining $280,037 of long-term debt outstanding at
September 30, 2000 is due at various dates through February 2001.
Because the Company's cash needs have increased significantly, the Company
expects to renegotiate and increase the size of its credit agreements with its
banks in the near term so as to provide sufficient funding levels for
anticipated working capital needs to support growth, significant expansion of
its current facilities and for potential additional acquisitions. The Company's
credit facilities, its leasing capabilities, cash and projected cash from
operations should be sufficient to meet its working capital and capital
requirements through fiscal 2000 and the
13
foreseeable future. As the Company reviews its capital needs, the Company may
seek to raise additional capital through the issuance of either public or
private equity securities to finance anticipated future growth.
While there can be no assurance that future financing will be available on terms
acceptable to the Company, the Company may seek to raise additional capital
through the issuance of either public or private debt or equity securities to
finance future acquisitions. Debt financing may require the Company to pledge
assets as collateral. Equity financing may result in dilution to stockholders.
Failure to arrange additional financing could affect the Company's ability to
continue to expand its operations.
The Company has not paid dividends on its preferred stock, but has reinvested
all available capital to support its working capital and expansion requirements.
The Company intends to continue to utilize its earnings in the development and
expansion of the business and does not expect to pay cash dividends in the
foreseeable future.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of
any proceedings contemplated against it.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The following information is given with respect to all unregistered securities
sold or issued by the Company in the period covered by this report:
On June 13, 2000, the Company issued 300,000 restricted shares of its common
stock to TPG Capital Corporation, the sole shareholder of Mayford Acquisition
Corporation, pursuant to an Agreement and Plan of Reorganization between Syntec
Acquistion Corporation and Mayford Acquisition Corporation in exchange for 99.9%
of the outstanding shares of common stock of Syntec Acquisition Corporation.
These shares were issued by the Company pursuant to Rule 506, Regulation D of
the Securities Act of 1933.
On June 19, 2000, pursuant to an Agreement and Plan of Reorganization between
Mayford Acquisition Corporation ("Mayford"), Syntec Acquisition Corporation
("Syntec") and the owners of the outstanding shares of Syntec, Mayford acquired
99.9% of the outstanding shares of Syntec from the shareholders thereof in an
exchange of stock at a ratio of one share of Syntec stock for 2.5 shares of
identical class of shares of Mayford, for an aggregate issuance of 13,527,083
shares of Class A common stock of Mayford and 2,972,504 shares of the Series A
preferred stock of Mayford. The outstanding warrants and options of Syntec and
other outstanding rights to purchase shares of common stock of Syntec represent
the right to purchase the equivalent number of shares of common stock of Mayford
(subject to the adjustment provisions therein). On July 14, 2000, pursuant to an
Agreement and Plan of Merger between Mayford and its subsidiary, Syntec, Syntec
was merged with and into Mayford. In connection with the merger, Mayford changed
its name to CCM Manufacturing Technologies, Inc. Effective as of June 19, 2000,
the officer and director of Mayford resigned and certain other persons became
the officers and directors of the Company, as described in the Form 8-K.
From July 1, 2000 through September 30, 2000 the Company sold 3,882,434 of its
Class A common stock to sixty-eight individuals for an aggregate purchase price
of $222,970.
In August 2000, in connection with a loan for an aggregate of $250,000, the
Company granted two individuals warrants to purchase an aggregate of 100,000
shares of Class A common stock exercisable at $.10 per share. As of September
30, 2000 all of such warrants were exercised and paid for in full and are
included in the total shares issued and aggregate purchase price for the third
quarter of 2000.
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
1.1 - Current reports on Form 8-K filed by the Company on June 28, 2000
and July 19, 2000, and incorporated herein by reference.
1.2 - Current report on Form 8-K/A filed by the Company on October 20,
2000 and incorporated herein by reference.
27 - Financial data schedule
(b) Reports on Form 8-K
On June 28, 2000, the Company filed a Current Report on Form 8-K (file
No. 000-28681) reporting the acquisition by Syntec of the outstanding
shares of common stock of Mayford from the shareholder thereof in an
exchange for an aggregate of 120,000 restricted shares of common stock
of Syntec. No audited financial statements were filed therewith.
On July 19, 2000, the Company filed a Current Report on Form 8K
reporting the acquisition by Mayford of 99.9% of the outstanding shares
of Syntec from the shareholders thereof in an exchange of stock at a
ratio of one share of Syntec stock for 2.5 shares of identical class of
shares of Mayford, for an aggregate issuance of 13,527,083 shares of
Class A common stock of Mayford and 2,972,504 shares of the Series A
preferred stock of Mayford. The outstanding warrants and options of
Syntec and other outstanding rights to purchase shares of common stock
of Syntec represent the right to purchase the equivalent number of
shares of common stock of Mayford (subject to the adjustment provisions
therein). The Company's Current Report, filed on July 19, 2000, further
reported the Company's name change from Mayford Acquisition Corporation
to CCM Manufacturing Technologies, Inc.
On October 20, 2000, the Company filed a Current Report of Form 8-K/A
which included the audited financial statements of Syntec Acquisition
Corp. and subsidiaries as of and for the periods ended December 31,
1999, June 30, 1999, December 31, 1998 and May 31, 1998 and the
unaudited financial statements of Syntec Acquisition Corp. and
subsidiaries as of and for the quarter ended March 31, 2000. This Form
8-K/A also included information relating to the Company's change in
certifying accountant from Weinberg & Company, P.A. to King Griffin &
Adamson P.C.
SIGNATURES
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.
CCM Manufacturing Technologies, Inc.
By: /s/ Jaime Munoz
--------------
President
15