SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[x] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO __________
Commission File No. 0-28102
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BONDED MOTORS, INC.
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(Name of small business issuer in its charter)
California 95-2698520
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7522 South Maie Avenue, Los Angeles, CA 90001
- - --------------------------------------- -----
(Address of principal executive offices) Zip Code
Issuer's telephone number: (213) 583-8631
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act 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 [_]
There were 3,000,000 shares of common stock outstanding at July 30, 1996
BONDED MOTORS, INC.
INDEX
Part I - Financial Information Page
Item 1. Financial Statements
Balance Sheet as of June 30, 1996............................. 3
Statements of Earnings for the three and six month periods
ended June 30, 1996, and 1995......................... 4
Statements of Cash Flows for the six month periods
ended June 30, 1996 and 1995.......................... 5
Notes to Financial Statements................................ 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation......... 9-11
Part II - Other Information
Item 6. Exhibits and Reports................................. 12
Signature.................................................... 13
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BONDED MOTORS, INC.
BALANCE SHEET
JUNE 30, 1996
(Unaudited)
ASSETS
Current assets:
Cash $2,518,146
Trade accounts receivable
(less allowance for doubtful accounts of $45,229) 2,767,578
Inventories:
Parts 843,745
Work in process 301,848
Finished goods 2,006,762
----------
3,152,355
----------
Deferred Tax assets 625,511
Prepaid expenses and other current assets 172,792
----------
Total current assets 9,236,382
----------
Property and equipment, at cost:
Machinery and equipment 1,204,667
Furniture and fixtures 305,570
----------
1,510,237
Less accumulated depreciation and amortization 1,051,293
----------
Net property and equipment 458,944
----------
$9,695,326
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,815,863
Accrued expenses 706,825
Income taxes payable 56,339
Current portion of long term debt to bank 400,000
Notes payable to related parties 100,000
----------
3,079,027
----------
Notes payable to bank, less current portion (note B) 574,000
Shareholders' equity (note D)
Preferred stock, no par value. Authorized 1,000,000 shares;
none issued and outstanding -
Common stock, no par value. Authorized 10,000,000 shares;
issued and outstanding 3,000,000 shares 4,648,651
Retained earnings 1,593,648
Notes receivable from exercise of stock options (200,000)
----------
Total shareholders' equity 6,042,299
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$9,695,326
==========
See accompanying notes to financial statements
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BONDED MOTORS, INC.
STATEMENTS OF EARNINGS
(Unaudied)
For the Three Months For the Six Months
Ended June 30 Ended June 30
---------------------- ----------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales $5,027,299 $3,655,939 $9,232,674 $6,051,972
Cost of sales 3,861,618 2,557,786 7,158,664 4,577,163
---------- ---------- ---------- ----------
Gross profit 1,165,681 1,098,153 2,074,010 1,474,809
Selling, general and admini-
strative expenses 655,341 472,436 1,254,774 929,379
---------- ---------- ---------- ----------
Earnings from operations 510,340 625,717 819,235 545,430
Other (expenses) Income:
Interest (expense), net (6,301) (18,322) (41,151) (38,887)
Other - 52,100 - 38,541
---------- ---------- ---------- ----------
Earnings before income taxes 504,039 659,495 778,085 545,084
Income tax (expense) (86,104) (76,000) (176,893) (62,000)
---------- ---------- ---------- ----------
Earnings before extraordianry
item 417,935 583,495 601,192 483,084
Extraordinary item - gain from
forgiveness of debt, net of
income tax effect of $15,000 - 119,000 - 119,000
---------- ---------- ---------- ----------
Net Earnings $ 417,935 $ 702,495 $ 601,192 $ 602,084
========== ========== ========== ==========
Earnings per common and common
equivalent shares:
Earnings before extraordinary
item $ 0.14 $ 0.30 $ 0.24 $ 0.25
Extraordinary item 0.06 0.06
---------- ---------- ---------- ----------
Net earnings $ 0.14 $ 0.36 $ 0.24 $ 0.31
========== ========== ========== ==========
Weighted average common and
common equivalent shares
outstanding 3,044,000 1,966,000 2,522,000 1,966,000
========== ========== ========== ==========
See accompanying notes to financial statements.
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BONDED MOTORS, INC.
STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30
(Unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net earnings $ 601,193 $ 602,084
---------- ----------
Adjustments to reconcile net earnings to net
cash provided (used) by operating activities:
Depreciation and amortization 26,951 14,880
Gain from forgiveness of debt (119,000)
(Increase) decrease in assets:
Accounts receivable (1,189,396) (461,148)
Inventory (1,049,599) 6,631
Deferred tax assets (106,511) (14,000)
Prepaid expenses 56,208 6,670
Increase (decrease) in liabilities:
Accounts payable 327,655 182,615
Accrued expenses 83,572 109,827
Income taxes payable (266,596) 84,430
---------- ----------
Total adjustments (2,117,716) (189,095)
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Net cash provided (used) by operating activities (1,516,523) 412,989
--------- ----------
Cash flows from investing activities:
Purchases of equipment (321,448) (12,184)
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Net cash used by investing activities (321,448) (12,184)
---------- ----------
Cash flows from financing activities:
Issuance of common stock 4,436,151 -
Borrowing from bank 2,012,028 -
Repayment of borrowings from bank (1,288,028) -
Repayment of notes payable to related parties (917,771) (98,961)
Repayment of amounts due creditors under
deferral/reduction arrangement (320,696)
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Net cash provided by financing activities 4,242,380 (419,657)
---------- ----------
Net increase (decrease) in cash 2,404,409 (18,852)
Cash at beginning of period 113,737 234,564
---------- ----------
Cash at end of period $2,518,146 $ 215,712
========== ==========
See accompanying notes to financial statements.
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BONDED MOTORS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(NOTE A) - The Company and its Significant Accounting Policies:
- - ---------------------------------------------------------------
Bonded Motors, Inc. formerly Production Engine Rebuilding Company, Inc. (the
Company), remanufactures automobile engines primarily for domestic and Japanese
imported cars and light trucks in the United States for resale to automotive
retailers, end users and installers.
Basis of Presentation:
- - ----------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to form 10-QSB. 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 journals)
considered necessary for a fair presentation have been included. Operating
results for the six and three month periods ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the financial statements
for the year ended December 31, 1995 and footnotes thereto included in the
Company's Prospectus dated April 2, 1996.
Revenue Recognition and Core Accounting
- - ---------------------------------------
Revenue is recognized upon shipment of product, net of a provision for core
returns. The Company's customers are encouraged to return their old,
rebuildable core as a credit against the identical engine purchased. The
Company identifies the returned core to the original customer invoice and
issues a credit memo equal to the core charge reflected on the original
invoice. These core returns, recorded as a reduction in net sales, were
$1,309,633 and $2,503,985 during the six months ended June 30, 1995 and 1996
respectively, and $677,927 and $1,358,207 during the three months ended June
30, 1995 and 1996 respectively.
Cores returned from customers are recorded into inventory on the same basis as
the Company records purchases of cores from independent core suppliers, at the
lower of average cost or market (net realizable value). Customer core returns
provide approximately 60% of the Company's core requirements, and independent
core suppliers provide the remaining 40% of the Company's core requirements.
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Earnings per Share
- - ------------------
Net earnings per share is based on the weighted average number of shares
of common and common stock equivalents outstanding. Fully diluted net earnings
per share is not presented since the amounts either do not differ significantly
from the primary net earnings per share presented or are anti-dilutive.
Supplemental earnings per share for the six-month period ended June 30, 1996
assuming the Company's initial public offering (note D) occurred on January 1,
1996 would be $.20 per share.
(NOTE B) - Long-Term Debt:
- - --------------------------
The Company's long-term debt at June 30, 1996 consisted of borrowings under
the revolving line of credit from a bank under which the Company may borrow
up to $3,000,000 collateralized by inventory, accounts receivable, and
substantially all other assets of the Company. Borrowings under the revolving
line of credit bear interest at prime plus .25% (or at LIBOR rate plus 2%, at
the option of the Company). This agreement expires on May 1, 1998 and requires
the Company to maintain certain financial ratios.
The Company's long-term debt also consisted of a $874,000 five year term loan
with the same above referenced collateralization. This term loan bears
interest at Cost of Funds plus 2% fixed, and requires the Company to maintain
certain financial ratios.
(NOTE C) Income Taxes
Income taxes for the interim periods were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to
ongoing review and evaluation by management.
(NOTE D) Stockholders Equity
- - ----------------------------
On April 2, 1996, the Company completed its initial public offering of 1,000,000
shares of common stock at $5.875 per share, and warrants to purchase up to
100,000 shares of common stock at $7.05 per share.
The Company adopted a stock option plan in January 1996 which provides for the
issuance of options to employees, officers and directors of the Company to
purchase up to an aggregate of 400,000 shares of common stock. The Company
also adopted a Directors' plan in January 1996 which provides for the issuance
of options to outside directors of the Company to purchase up to an aggregate of
50,000 shares of Common Stock. On March 12, 1996, the Company granted 197,500
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stock options to certain members of management at exercise prices ranging from
$5.50 to $6.05 per share which approximates or exceeds the initial public
offering price. The stock options vest ratably over two years.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
RESULTS OF OPERATIONS:
Net sales for the six months and three months ended June 30, 1996 increased
$3,180,702 or 52.6% and $1,371,360 or 37.5%, respectively, over the
comparable periods a year earlier. For such six month periods the increase was
from $6,051,972 to $9,232,674 and for such three month periods the increase was
from $3,655,939 to $5,027,299. These increases are primarily attributable to
increased demand for the Company's engines from its traditional customer base.
In addition, the Company opened its second distribution center in Atlanta
Georgia in March, 1996 (its Auburn, Washington distribution center was opened
in December, 1994).The company intends to open additional distribution centers
in 1996 and 1997.
Cost of goods sold for the six and three months ended June 30, 1996 increased
$2,581,501 or 56.4% and $1,303,832 or 51.0%, respectively, over the comparable
periods a year earlier. For such six month period the increase was from
$4,577,163 to $7,158,664 and for such three month period the increase was from
$2,557,786 to $3,861,618. These increases are attributable to additional costs
during the recent periods in connection with increased production. Cost of
goods sold as a percentage of net sales increased over the six month periods
from 75.6% to 77.5% and over the three month periods from 70.0% to 76.8%.
During the three month period ended June 30, 1995 the Company received
significant special discounts from two of its suppliers, which reduced cost of
sales for that quarter. Also, the Company received the benefit of a temporary
wage reduction during the June 30, 1995 quarter (resulting from its first
quarter 1995 loss) that were not available in the June 30, 1996 quarter.
Selling, general and administrative expenses for the six and three months ended
June 30, 1996 increased $325,394 or 35.0% and $183,905 or 38.7% respectively
over the comparable periods a year earlier. Selling, general and
administrative expenses as a percentage of sales decreased from 15.4% to 13.6%
for the comparable six month periods and from 12.9% to 13.0% for the comparable
three month periods. These changes are primarily attributable to increased
sales volume for the comparable periods.
Earnings from operations for the six and three months ended June 30, 1996
increased $273,806 or 50.2% and decreased $115,377 or 18.4% respectively over
the comparable periods a year earlier.
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Interest expense for the six and three months ended June 30, 1996 increased
$2,264 or 5.8% and decreased $12,021 or 65.6% respectively over the
comparable periods a year earlier. The increase was primarily attributable
to borrowings in the first quarter, 1996 due to inventory build-up and
increased sales. The decrease in the second quarter, 1996 was primarily
attributable to debt reduction as a result of proceeds generated from the
Company's initial public stock offering in April, 1996. Details of the
offering may be found in the Company's Prospectus dated April 2, 1996.
There was no other or extraordinary income for the six and three months
ended June 30, 1996 versus $157,541 for the comparable six month period in 1995
and $171,100 for the comparable three month period in 1995. The other and
extraordinary income for 1995 was primarily due to supplier concessions for
early debt retirement ($119,000) and commissions earned for the export of
supplier automotive parts.
Pre-tax income for the six and three months ended June 30, 1996 increased
$233,001 or 42.7% for the six month period and decreased $155,456 or 23.6% for
the three month period from the year earlier. After tax earnings decreased
$892 or 0.1% for the six month period and $284,560 or 40.5% for the three
month period from a year earlier, due to the items mentioned above.
LIQUIDITY AND CAPITAL RESOURCES:
- - --------------------------------
The Company's operations have been financed principally by borrowings under a
bank credit facility, proceeds from its initial public offering, and cash flows
from operations. At June 30, 1996, the Company's working capital was
$6,157,355.
Net cash used in operating activities during the six months ended June 30, 1996
of $1,516,523 was primarily to finance an increase in accounts receivable and
inventory, due to increased sales.
Net cash used in investing activities for the six month period ended June 30,
1996 of $321,448 was for the purchase of new equipment.
Net cash provided by financing activities for the six period ended June 30,
1996 of $4,242,380 related primarily to the Company's recent initial public
offering, and bank borrowings. Also, in the second quarter of 1996 the Company
amended its facility with its bank providing for a revolving line of credit
through May 1, 1998 for borrowings of up to $3,000,000. Interest under the
line of credit is due monthly at prime plus .25% (or at LIBOR rate plus 2.00%
at the option of the Company). The credit facility also provides for a five
year term loan of up to $1,500,000 with principal payments and interest at Cost
of Funds plus 2% fixed. The credit facility is secured by a lien on
substantially all of the assets of the Company. At July 30, 1996 there were no
borrowings under the revolving line, and the balance on the term loan was
$839,333.
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The Company's accounts receivable as of June 30, 1996 was $2,767,578. This
represents an increase of $1,189,395 or 75.4% over accounts receivable on
December 31, 1995, and is due to increased sales.
The Company's inventory as of June 30, 1996 was $3,152,355, which represents an
increase of $1,049,599 or 49.9% over inventory as of December 31, 1995. The
increase is due to the opening of our Atlanta, Georgia distribution center
(March, 1996) and the anticipation of opening our third distribution center
during the summer months.
The Company believes that internally generated funds, the available borrowings
under its existing credit facilities and the proceeds from its initial public
offering will provide sufficient liquidity and enable it to meet its current
and foreseeable working capital requirements.
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K
None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrants caused this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
Bonded Motors, Inc.
Dated: July 30, 1996 -----------------------
Paul Sullivan
Chief Financial Officer
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