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INDEX TO EXHIBITS - PAGE 13 OF 14
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission file number 0-14057
MET-COIL SYSTEMS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 42-1027215
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer No.)
5486 SIXTH STREET SW, CEDAR RAPIDS, IOWA 52404
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (319) 363-6566
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed 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 _______
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
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 ________ No ________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 2,985,971
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MET-COIL SYSTEMS CORPORATION
INDEX
PAGE
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated condensed balance sheets, August 31, 1995
(unaudited) and May 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Unaudited consolidated condensed statements of operations,
three months ended August 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Unaudited consolidated condensed statements of cash flows,
three months ended August 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to financial statements (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. DEFAULTS UPON SENIOR SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Exhibit 11 - Computation of loss per common
and common equivalent share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MET-COIL SYSTEMS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except shares) August 31, May 31,
1995 1995*
(Unaudited)
========================================================================================================
Current assets
Cash $ 362 $ 159
Cash, restricted for debt repayment 750 750
Trade receivables, net 7,025 8,436
Notes and other receivables 667 968
Inventories 13,402 13,265
Prepaid expenses 1,090 1,413
- --------------------------------------------------------------------------------------------------------
Total current assets 23,296 24,991
Property and equipment, net 7,646 7,953
Cash, restricted for debt repayment 236 236
Investments and other assets 2,389 2,471
Intangibles, net 2,996 3,084
- --------------------------------------------------------------------------------------------------------
Total Assets $ 36,563 $ 38,735
========================================================================================================
Current liabilities
Notes payable to banks and current maturities
of long-term debt $ 18,258 $ 18,445
Accounts payable and accrued expenses 7,548 9,449
Customer deposits and progress payments 3,428 2,367
- --------------------------------------------------------------------------------------------------------
Total current liabilities 29,234 30,261
Long-term debt 3,874 3,838
Other 794 783
Preferred stock, convertible and redeemable at $13 3,520 3,457
Stockholders' Equity:
Common stock, $.01 par value, authorized 10,000,000; 30 29
1996 issued 3,014,048; 1995 issued 2,932,573
Additional paid-in capital 15,993 15,809
Retained earnings (deficit) (16,917) (15,570)
Foreign currency translation 164 257
Cost of common stock reacquired for treasury (129) (129)
- --------------------------------------------------------------------------------------------------------
Net equity (859) 396
- --------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity $ 36,563 $ 38,735
========================================================================================================
* Condensed from audited financial statements
See notes to financial statements
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MET-COIL SYSTEMS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
August 31,
1995 1994
(Restated)
====================================================================================
Net revenues $ 9,654 $ 9,458
Cost of goods sold 8,114 6,720
Operating expenses 2,241 2,234
Interest expense, net 693 616
Other (income) expense, net (47) (21)
- ------------------------------------------------------------------------------------
Loss before income taxes (1,347) (91)
Income taxes - - - - - -
- ------------------------------------------------------------------------------------
Net loss (1,347) (91)
Preferred stock dividends 54 24
- ------------------------------------------------------------------------------------
Loss applicable to common stock $ (1,401) $ (115)
====================================================================================
Weighted average common shares 2,942 2,787
====================================================================================
Loss per share $ (0.48) $ (0.04)
====================================================================================
See notes to financial statements
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MET-COIL SYSTEMS CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (UNAUDITED)
(In thousands)
Three Months Ended
August 31,
1995 1994
(Restated)
=========================================================================================================
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net loss $ (1,347) $ (91)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation 422 400
Amortization 88 55
Accretion of discount on debt and preferred stock 177 143
Undistributed (earnings) loss of affiliate 42 (60)
- ---------------------------------------------------------------------------------------------------------
(618) 447
Changes in assets and liabilities:
Trade receivables 1,411 (721)
Notes and other receivables 301 30
Inventories (137) (1,050)
Accounts payable and accrued expenses (1,901) 721
Customer deposits and progress billings 1,061 84
Prepaid expenses and other 323 141
- ---------------------------------------------------------------------------------------------------------
Net cash flows from operating activities 440 (348)
- ---------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property and equipment, net (115) (74)
Other, net (42) 72
- ---------------------------------------------------------------------------------------------------------
Net cash flows from investing activities (157) (2)
- ---------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net repayments under revolving credit agreements (179) (176)
Repayments of long-term debt (86) (43)
Issuance of common stock 185 85
- ---------------------------------------------------------------------------------------------------------
Net cash flows from financing activities (80) (134)
- ---------------------------------------------------------------------------------------------------------
CASH
Increase (decrease) 203 (484)
Beginning balance 159 1,304
- ---------------------------------------------------------------------------------------------------------
Ending balance $ 362 $ 820
=========================================================================================================
See notes to financial statements
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MET-COIL SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PRESENTATION OF FINANCIAL INFORMATION
The condensed unaudited consolidated financial statements have been
prepared by the Company in accordance with the instructions for
Securities and Exchange Commission's Form 10-Q and do not include all
of the information and footnotes required by generally accepted
accounting principles for audited financial statements. The condensed
unaudited consolidated financial statements include the accounts of
the Company and its subsidiaries. All material intercompany items and
transactions have been eliminated in the consolidation. In the
preparation of the unaudited amounts, all adjustments (consisting
solely of normal recurring adjustments) have been made which are, in
the opinion of management, necessary for a fair statement of the
results for the interim periods. The results for the interim periods
are not necessarily indicative of the results of operations that may
be expected for the year. It is suggested that the condensed
unaudited consolidated financial statements contained herein be read
in conjunction with the consolidated statements and notes included in
the Company's Annual Report on Form 10-K for the year ended May 31,
1995.
NOTE 2. The Company has restated its previously issued fiscal 1995 quarterly
financial statements to increase cost of goods sold and decrease
work-in-process inventory at August 31, 1994, as a result of
improperly relieving inventory for the cost of Items shipped to
customers. This adjustment reduced previously reported income for the
three months ended August 31, 1994 by $143,000 or $.06 per common
share.
NOTE 3. INVENTORIES
The composition of the inventories, using the FIFO method, which
approximates replacement cost, is as follows:
(in thousands)
August 31, May 31,
1995 1995
----------- ----------
Raw materials & parts ........ $10,318 $9,840
Work in process ............. 2,332 2,507
Finished goods ............... 661 827
------- -------
$13,311 $13,174
Increase to LIFO basis 91 91
------- -------
$13,402 $13,265
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NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 4. INVESTMENT IN AFFILIATE
The Company is accounting for its investment in Met-Coil Ltd. (50%
owned) by the equity method of accounting. Selected financial
information of the investment in affiliate is as follows (in
thousands):
Three Months Ended
August 31,
1995 1994
------ ------
Net revenues ........................... $ 1,495 $ 2,608
Gross profit ........................... 423 992
Operating income (loss)................ (195) 258
Net income (loss)....................... (84) 120
======= =======
Income (loss) from equity investments,
included in net revenues......... $ (42) $ 60
======= =======
NOTE 5. DEBT
Revolving lines of credit:
At May 31, 1995 the Company had revolving credit agreements with
two banks under which it could borrow up to $2,000,000 from each bank
in current notes payable. Borrowings, which can be utilized in the
form of a letter of credit facility, are limited pursuant to a
borrowing base formula (primarily a certain percentage of eligible
trade receivables), bear interest at the banks' prime rate, plus 1.5%
require compensating balances of 5% of the committed revolving lines
of credit and require the payment of certain fees. The credit
agreements originally expired on September 30, 1995. As of May 31,
1995 and August 31, 1995, the Company was not in compliance with
various debt covenants. On September 29, 1995 the banks amended and
extended the credit agreements through November 1, 1995. This
amendment also reduced the available borrowing from each bank to
$1,625,000.
Senior debt:
The Company has $12,750,000 of senior notes with two insurance
companies. Interest is at 11% payable quarterly. The notes are due in
annual payments of $750,000 increasing to $1,000,000 in October, 1996
with the remaining principal due in October, 2001. As of May 31, 1995
and August 31, 1995, the Company was not in compliance with various
covenants of the senior notes. Since waivers of these covenants have
not been obtained, $12,000,000 of senior notes have been classified as
current.
For additional information concerning the Company's loan agreements
and accompanying terms and restrictions see Note 5 to Financial
Statements in the Company's Annual Report on Form 10-K for the year
ended May 31, 1995 herein incorporated by reference thereto.
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NOTE 6. PREFERRED STOCK - REDEEMABLE CONVERTIBLE
The Company has authorized 1,000,000 shares of $1 par value
preferred stock. During the years ended May 31, 1995 and 1994 the
Company issued 200,000 and 162,000 shares of preferred stock
respectively, at $10 per share ($10 liquidation value per share). The
preferred stock provides for cumulative annual dividends of 6% payable
semi-annually. The preferred stock is convertible into three shares
of common stock at any time at the option of the holder. After
December 31, 1998 either the Company or the holder may redeem the
preferred stock at a redemption price of $13 per share, plus
accumulated but unpaid dividends.
The Company is increasing the carrying amount of the preferred stock,
using the interest method, so that the carrying amount will equal the
redemption amount of $4,706,000 at December 31, 1998.
NOTE 7. LITIGATION SETTLEMENT
For information concerning the 1992 litigation settlement see Note 12
to Financial Statements in the Company's Annual Report on Form 10-K
for the year ended May 31, 1995 herein incorporated by reference
thereto.
NOTE 8. SUPPLEMENTAL CASH FLOW DATA
Cash paid for Interest ............... $ 480 $ 491
======= =======
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MET-COIL SYSTEMS CORPORATION
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
FIRST QUARTER 1996 COMPARED TO FIRST QUARTER 1995
Revenues of $9.7 million for the first quarter increased 2% from $9.5
million in the first quarter of fiscal year 1995. The 1996 first
quarter margin of 16% decreased significantly from a 1995 first
quarter margin of 29% due primarily to lower margins recognized by the
Lockformer subsidiary as a result of low margin orders that were on
hand at the end of the prior fiscal year end. These low margin orders
were due to the pricing formula for large distributors implemented in
the prior year which decreased margins and which went undetected until
the significant 1995 year end inventory write-down.
Operating, interest and other income and expenses remained relatively
constant with the prior year with the slight increase in interest
expense due to the accretion of interest on the additional preferred
stock issued in fiscal 1995. The first quarter 1996 loss of $1.3
million or $0.48 loss per share increased significantly from a first
quarter 1995 loss of $91,000 or $0.04 loss per share due to the lower
margins.
As noted in the financial statements (Note 2) the financial results
for the first quarter of fiscal 1995 have been restated to reflect
adjustments to the August 31, 1994 inventory balance of the Lockformer
facility. The balance of the inventory was inaccurate due to the
undercosting of sales which had taken place during the quarter.
LIQUIDITY AND CAPITAL RESOURCES
An operating working capital deficit of $5.9 million at August 31,
1995 was caused by the classification of $12 million of senior notes
as current (see discussion below) that would have been reflected as
long-term had the Company been in compliance with loan covenants. The
operating working capital deficit was $5.3 million at May 31, 1995.
The Company generated cash from operating activities of $440,000 for
the first quarter of 1996 compared to a use of $348,000 for the
corresponding period last year. Backlog was $18.5 million at August
31, 1995, an increase of 47% over the August 31, 1994 level of 12.6
million.
As a result of the net loss for the year ended May 31, 1995, the
Company was in violation of various covenants of the revolving credit
agreements and senior notes. Noncompliance with loan covenants permit
the lenders to declare the Company in default of its loan agreements
and demand repayment of the loans in full. The revolving credit
agreements originally expired on September 30, 1995. While the
revolving credit agreements have been amended and extended to November
1, 1995 the various covenant violations have not been waived,
therefore $12 million of senior notes have been classified as current
at
10
August 31, 1995. The Company is engaged in discussions with new
lenders and has engaged a potential new lender in their due diligence,
however, does not have a formal commitment in place.
Assuming the current revolving credit agreements are either further
extended or replaced, cash flows from on hand balances (including cash
for debt repayment) and from operations are expected to meet the
Company's operating and debt service requirements. In the event the
revolving credit agreements are not extended or replaced, the Company
would need to raise additions capital in order to continue to meet
operating and debt service requirements. There are no assurances that
the Company would be able to raise additional capital. If the Company
is unable to extend or replace the revolving credit agreement or raise
additional capital the Company would not be able to continue as a
going concern without effecting a reorganization or restructuring.
Dividends of 6% were not paid on the preferred stock when scheduled to
be paid on September 30, 1995 due to restrictions as a result of the
loan covenant violations, however, it is the Company's intent to pay
these dividends when either compliance is achieved or new loan
agreements are obtained. The Company continues to omit quarterly
common stock dividends due to loan covenants, which prohibit the
payment of common stock dividends. It is uncertain when, and if, the
Company will pay common stock dividends in the future.
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MET-COIL SYSTEMS CORPORATION
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 29, 1995, the Note Agreement relating to the Company's
Senior Notes and its Loan Agreement with its bank lenders were amended
and extended as described in Note 5 to the Financial Statements
included in Part 1, Item 1 of this Quarterly Report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At August 31, 1995, the Company was in violation of certain financial
covenants contained in its loan agreements. Since waivers of these
violations have not been obtained, $12,000,000 of Senior Notes have
been classified as current in the Financial Statements in Part 1, Item
1 of this Quarterly Report. For further information see "Liquidity and
Capital Resources" in Part 1, Item 2 of this Quarterly Report.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders on October 5, 1995,
the following action was voted on:
Board of Directors
a. All nominees for election were elected as follows:
Keith Moore Harold Spriggs Roy Carver
b. Continuing in office:
Ray Blakeman Frank Jones John Logan
Gary Neal Michael Nonnemann
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS -- See Index to Exhibits included elsewhere herein.
(b) FORM 8-K -- A report on Form 8-K was filed on October 11, 1995
regarding a change in independent auditors
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: October 16, 1995 Met-Coil Systems Corporation
Joseph H. Ceryanec
Vice President Finance,
Chief Financial Officer and
Chief Accounting Officer
Joseph H. Ceryanec/s/
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MET-COIL SYSTEMS CORPORATION
INDEX TO EXHIBITS
Page
EXHIBIT 11 Computation of Loss Per Common and
Common Equivalent Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14