U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission file
December 31, 1999 Number 33-42408-NY
WESTBURY METALS GROUP, INC.
(Exact name of registrant as specified in its charter)
New York 11-3023099
- -------- ----------
(State or other jurisdiction of (IRS Employer Identification
Incorporation) Number)
750 Shames Drive, Westbury, New York 11590
(Address of principal executive offices)
Registrant's telephone number, including area code:
(516) 997-8333
-------------------------------------------
(Former name or address if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all
documents and reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or 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
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13, or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.
Yes _______ No _______
APPLICABLE ONLY TO CORPORATE ISSUERS
As at March 26, 2000, 5,270,028 shares of the issuer's Common Stock, $.001 par
value, were outstanding.
Explanatory note: This amendment number one is being filed due to the Company's
post period recognition of accounting matters described in Note 11 to the
unaudited Consolidated Financial Statements, which are reflected in the
Company's restated financial statements.
WESTBURY METALS GROUP, INC.
FORM 10-Q/A
For the Quarter Ended December 31, 1999
TABLE OF CONTENTS
PART 1 - FINANCIAL INFORMATION
ITEM 1-FINANCIAL STATEMENTS Page
Consolidated Balance Sheets as of December 31, 1999 (as restated) and June 30,1999
(as restated)...........................................................................................2
Consolidated Statements of Operations for the Three and Six Months Ended
December 31, 1999 (as restated) and 1998...............................................................3
Consolidated Statements of Cash Flows for the Six Months Ended
December 31, 1999 (as restated) and 1998...............................................................4
Notes to Consolidated Financial Statements...............................................................5-12
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................................................13-20
PART II - OTHER INFORMATION
SIGNATURE..................................................................................................21
2
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- -------------------------------------------------------------------------
DECEMBER 31, JUNE 30,
1999 1999
---- ----
ASSETS (As (As Restated)
Restated) See Note 11
See Note 11
CURRENT ASSETS:
Cash $ 1,364,776 $ 1,242,230
Accounts receivable, net of allowance of $20,130 and $17,000, 2,939,228 2,824,949
respectively
Inventory (Note 3) 2,780,730 1,022,479
Prepaid expenses and other current assets 323,123 161,364
--------------------- -------------------
Total current assets 7,407,857 5,251,022
PROPERTY, PLANT AND EQUIPMENT - Net 2,256,605 2,273,233
GOODWILL - Net 1,375,612 1,410,480
OTHER ASSETS 240,046 168,452
--------------------- -------------------
TOTAL ASSETS $ 11,280,120 $ 9,103,187
===================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 879,405 $ 611,574
Due to former Reliable shareholder - 1,192,578
Notes payable and current portion of long-term debt (Note 4) 1,725,827 1,721,758
Due to customers 770,560 1,773,663
--------------------- -------------------
Total current liabilities 3,375,792 5,299,573
LONG-TERM DEBT (Notes 4 & 5) 2,680,633 1,342,369
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value - authorized, 50,000,000 shares;
4,470,614 and 3,247,312 shares issued and outstanding, respectively 4,470 3,247
Capital in excess of par value (Notes 9 & 10) 7,772,521 3,284,329
Accumulated other comprehensive loss
(73,322) (60,678)
Accumulated deficit (2,479,974) (765,653)
--------------------- -------------------
Total stockholders' equity 5,223,695 2,461,245
--------------------- -------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 11,280,120 $ 9,103,187
===================== ===================
See notes to unaudited consolidated financial statements
10
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
- -----------------------------------------------------------------------------
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------ -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(As Restated) (As Restated)
------------- -------------
See Note 11 See Note 11
REVENUE:
Precious metal sales $13,583,195 $ 7,366,420 $ 31,078,290 $ 12,272,649
Refining 3,179,855 1,901,468 5,396,509 2,321,708
----------------- ------------------ ----------------- ------------------
Total revenue 16,763,050 9,267,888 36,474,799 14,594,357
----------------- ------------------ ----------------- ------------------
COST OF SALES:
Cost of precious metal sales 13,597,620 6,901,095 30,383,330 11,360,310
Cost of refining 2,212,635 1,766,544 4,137,554 1,908,515
----------------- ------------------ ----------------- ------------------
Total cost of sales 15,810,255 8,667,639 34,520,884 13,268,825
----------------- ------------------ ----------------- ------------------
GROSS PROFIT 952,795 600,249 1,953,915 1,325,532
----------------- ------------------ ----------------- ------------------
OPERATING EXPENSES:
Selling, general and administrative expenses 934,182 540,417 1,827,873 1,174,899
Depreciation and amortization 39,378 73,186
120,674 234,288
----------------- ------------------ ----------------- ------------------
Total operating expenses 1,054,856 579,795 2,062,161 1,248,085
----------------- ------------------ ----------------- ------------------
(LOSS) INCOME FROM OPERATIONS 20,454 77,447
(102,061) (108,246)
----------------- ------------------ ----------------- ------------------
OTHER EXPENSE (INCOME):
Interest expense 183,445 33,715 414,809 69,923
Interest income - (27,151) - (31,331)
Non-cash warrant charge (Note 10) 1,159,642 - 1,200,570
Other income (8,053) (22,530) (9,304) (28,723)
----------------- ------------------ ----------------- ------------------
Total other expense (income) 1,335,034 (15,966) 1,606,075 9,869
----------------- ------------------ ----------------- ------------------
(LOSS) EARNINGS BEFORE PROVISION FOR INCOME TAXES
(1,437,095) 36,420 (1,714,321) 67,578
PROVISION FOR INCOME TAXES - (1,958) - 7,974
----------------- ------------------ ----------------- ------------------
NET (LOSS) INCOME $ (1,437,095) $ 38,378 $ (1,714,321) $ 59,604
================= ================== ================= ==================
NET (LOSS) INCOME PER SHARE
Basic $ (0.42) $ 0.01 $ (0.51) $ 0.02
================= ================== ================= ==================
Diluted $ (0.42) $ 0.01 $ (0.51) $ 0.02
================= ================== ================= ==================
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 3,415,885 3,197,312 3,335,525 3,197,312
================= ================== ================= ==================
Diluted 3,415,885 3,522,312 3,335,525 3,522,312
========= ========= ========= ================
See notes to unaudited consolidated financial statements
WESTBURY METALS GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
- --------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
DECEMBER 31,
1999 1998
---- ----
(As Restated)
-------------
See Note 11
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (1,714,321) $ 59,604
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Depreciation and amortization 234,288 73,186
Warrant charge 1,200,570 -
Changes in assets and liabilities:
Inventory (1,758,248) 835,565
Accounts receivable (114,279) (1,048,964)
Prepaid expenses and other current assets (161,759) (1,219,145)
Other noncurrent assets (71,594) 28,289
Due to customers (1,003,104) 181,457
Accounts payable and accrued expenses 288,242 116,717
------------------- ---------------------
Net cash used in operating activities (3,100,205) (973,291)
------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES -
Equipment additions (182,792) (320,631)
------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to former Reliable shareholder (1,192,578) -
Proceeds from issuance of subordinated debt 2,000,000 -
Net proceeds from credit line 34,112 1,053,478
Repayment of long-term debt (191,779) -
Repayment of subordinated debt (500,000) (1,783)
Proceeds from stock warrants exercised and private placement 3,255,788 -
------------------- ---------------------
Net cash provided by financing activities 3,405,543 1,051,695
------------------- ---------------------
NET INCREASE (DECREASE) IN CASH 122,546 (242,227)
BEGINNING CASH BALANCE 1,242,230 877,520
------------------- ---------------------
ENDING CASH BALANCE $ 1,364,776 $ 635,293
=================== =====================
Supplemental cash flow information:
Cash paid for interest $365,118 $ 69,923
See notes to unaudited consolidated financial statement
NOTE 1 - GENERAL
The accompanying unaudited consolidated financial statements as of and for the
three and six months ended December 31, 1999 and 1998 include the accounts of
Westbury Metals Group, Inc. ("WMG") five subsidiaries, which are Westbury
Alloys, Inc., Alloy Trading S.A., Reliable-West Tech, Inc., Westbury
International, Inc., and Westbury Realty Management Corp., (collectively, the
"Company"). The Company was formed, initially as Rosecap, Inc., on March 31,
1998 through a reverse merger of Westbury Acquisition Corp. and Westbury Alloys,
Inc. On June 18, 1998, the Company's name was changed to Westbury Metals Group,
Inc. from Rosecap, Inc.
The Company primarily operates three inter-related businesses:
Industrial Commodities Management segment is comprised of two subsidiaries: (i)
Westbury International, Inc. ("International"), which engages in the risk
management of precious metals and foreign currency for the Company. The
Company's policy is to hedge all financed transactions so no gains and losses
occur due to market fluctuations. International was formed in July 1998; and
(ii) Alloy Trading S.A. ("Alloy"), which is a 98% owned Peruvian subsidiary of
the Company. Local managers of Alloy own the remaining 2%. Alloy primarily
exports precious metals for the Company's own use or sale to third parties.
Alloy is also engaged in the development of precious metal opportunities in
South America, which may include gold and silver bullion transactions with the
mining industry and other industrial users of precious metals.
Metal Processing & Refining segment is comprised of one subsidiary, Westbury
Alloys, Inc. ("Westbury"). Westbury principally reclaims gold, silver, platinum
and palladium from scrap and residues from the electronics, jewelry, petroleum,
dental, chemical, automotive, mining and aerospace industries. Once reclaimed,
the precious metals are weighed, sampled and assayed to determine values and
settled with the customer. Westbury either purchases the precious metal or
returns the metal to the customer. Using the trade name "West Cats", Westbury
purchases catalytic converters and recovers the platinum, palladium and rhodium.
Industrial Products segment is comprised of Reliable-West Tech, Inc. ("RWT").
RWT manufactures and sells silver in various forms and shapes, plating salts and
tin and tin-lead anodes used in manufacturing. RWT also will be involved in
precious metal casting grains, alloys and mill products as its business expands.
The Corporate segment includes the operations of one subsidiary, Westbury Realty
Management, Inc. ("Realty"). Realty acquired and now owns and manages properties
used by Westbury and RWT in their industrial product sales and metal processing
and refining segments. Realty was formed in June 1998, and did not have
financial activity during that year.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all the adjustments necessary to present fairly the results
of operations for each of the three- and six-month periods ended December 31,
1999 and 1998, the financial position at December 31, 1999 and the cash flows
for the six-month periods ended December 31, 1999 and 1998, respectively. Such
adjustments consist of normal recurring items. The consolidated financial
statements and notes thereto should be read in conjunction with the Company's
Annual Report on Form 10-K for the fiscal years ended June 30, 2000 and 1999 as
filed with the U. S. Securities and Exchange Commission.
The interim financial results are not necessarily indicative of the results to
be expected for the full year.
NOTE 2 - ACQUISITION
On June 30, 1999, West Tech, a subsidiary of the Company, which was formed in
March 1998, purchased assets consisting of land, building, inventory, customer
lists, and the business name from Reliable Corporation ("Reliable") for
$2,350,655, including related acquisition costs of $58,077. After the
acquisition of Reliable, the operations of Reliable and West Tech merged and the
new entity was named Reliable-West Tech, Inc. ("RWT"). The acquisition was
accounted for as a purchase. The acquisition was financed through amounts
payable to the former owner of Reliable. A cash payment of $1,192,578 was made
on July 16, 1999, with the remaining balance financed through the issuance of
promissory notes which bear interest at an annual interest rate of 7% and are
payable over six years. The purchase price exceeded the fair value of net assets
acquired by $1,190,000, which is being amortized on a straight-line basis over
20 years.
The following unaudited pro forma consolidated results of operations have been
prepared as if the acquisition of Reliable had occurred as of July 1, 1998:
Six Months Ended
December 31,
1998
---------------
Total revenue $ 23,594,357
============
Net income (loss) $ 269,604
===========
Net income (loss)
Basic $ 0.08
==========
Diluted $ 0.08
===========
The unaudited pro forma consolidated results of operations are not indicative of
the actual results that would have occurred had the acquisition been consummated
on the date indicated or of future operations of the combined companies under
the ownership and management of the Company.
NOTE 3 - INVENTORY
Precious metal inventories are stated at market value. Other inventories are
stated at the lower of cost or market value. As of December 31, 1999, the market
value of the precious metals inventories was less than cost. For the period
ended December 31, 1999, the Company's precious metals inventories at market
value and other inventories at lower of cost or market totaled $2,780,730.
Consistent with industry practice, some of the Company's gold, platinum,
palladium and silver requirements are furnished by customers and suppliers on a
consignment basis.
Title to the consigned precious metals remains with the consignor. The values of
consigned precious metals held by the Company are not included in the Company's
balance sheets. On December 31, 1999, the Company held $4,264,398 of precious
metals under a consignment agreement with a bank. The Company's precious metal
requirements are provided from a combination of owned inventories, precious
metals that have been purchased and sold for future delivery, and precious
metals received from suppliers and customers on a consignment basis.
NOTE 4 - REVOLVING CREDIT AGREEMENT
In July 1999, RWT, International and Westbury (the "Co-borrowers") entered into
a two-year revolving credit agreement with a bank under which it may borrow up
to $12,000,000. Of this total, $7,000,000 has been designated for the
consignment of precious metals, $1,000,000 for a forward contract facility, and
the remaining balance may be utilized to meet working capital requirements.
Interest on the consignment of precious metals accrues at each metal's Cost of
Funds rate plus 2.50%. The metals' Cost of Funds rates vary by the four metal
categories to include gold, platinum, palladium, and silver. Interest on the
remaining borrowings accrues at the option of the Company at LIBOR plus 2.50% or
Prime plus .5% (Prime rate of 8.50% at December 31, 1999). Consignments of
precious metals are limited to the balance of eligible inventory, with the
remaining borrowings limited to the balance of eligible accounts receivable. The
facility is collateralized by the assets of the Co-borrowers, and guaranteed by
WMG. The agreement requires the Company to maintain certain financial ratios and
other financial conditions. The Company has agreed to pay fees of .375% on the
unused amount of the facility payable monthly. The Company was in default of its
cash flow coverage financial covenant at December 31, 1999 and has received a
waiver from the bank.
NOTE 5 - SUBORDINATED DEBT
In July 1999, the Co-borrowers and WMG issued a two-year subordinated term note
(the "Note") for the receipt of $2,000,000 from a financing company. Interest on
the Note accrues at a rate equal to prime plus 4% and is payable monthly. The
principal portion of the Note becomes due July 2001. In conjunction with the
issuance of the Note, the Company granted 90,000 warrants to purchase the
Company's common stock at an exercise price of $9.00. The warrants vest
commencing in July 2000 and expire in July 2002. WMG repaid $500,000 of this
Note during the period ending December 31, 1999.
NOTE 6 - NET (LOSS) INCOME PER COMMON SHARE
Basic net (loss) income per common share is calculated using the weighted
average number of common shares outstanding during the period. Diluted (loss)
income per share is calculated by including all dilutive potential common shares
such as stock options and warrants. A reconciliation between the numerators and
denominators of the basic and diluted net income (loss) per common share is as
follows:
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------ -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Net (loss) income (numerator for basic and diluted
net (loss) income per common share) $(1,437,095) $ 38,378 $ (1,714,321) $ 59,604
--------- ------------ ----------------- --------
Weighted average common shares (denominator for
basic net (loss) income per share) 3,415,885 3,197,312 3,335,525 3,197,312
Effect of dilutive securities:
Employee stock options - 325,000 - 325,000
---------- ------------- ------------- -------------
Weighted average common and potential common
shares outstanding (denominator for diluted (loss)
income per common share) 3,415,885 3,522,312 3,335,525 3,522,312
--------------- ------ ------------- --------------
Net (loss) income per common share - Basic $ (0.42) $ 0.01 $ (0.51) $ 0.02
------------ -------- ------------- ----------
Net (loss) income per common share - Diluted $ (0.42) $ 0.01 $ (0.51) $ 0.02
------------ ----------- ------------- ----------
Potential common shares are not included for the periods ended December 31, 1999
because they would be anti-dilutive.
NOTE 7 - INDUSTRY SEGMENTS
The Company operates in three reportable segments, industrial commodities
management, industrial products, and metal processing & refining. The Industrial
Commodities Management segment consists principally of the sale of precious
metals to end-users. The Industrial Products segment provides silver in various
forms and shapes (plating salt, tin and tin-lead anodes), which are used in the
manufacturing process by customers of the Company. The Metal Processing &
Refining segment provides refining services to customers of the Company. The
Corporate segment combines the activity for the non-reportable segments. The
following table presents certain data by business segment. In the table, the
income (loss) before provision for income taxes is presented with the precious
metal inventories and other inventories stated at market value:
Industrial
Commodities Industrial Metal Procesing
Management Products & Refining Corporate Consolidated
Six months ended December 31, 1999
Sales to unaffiliated customers $20,552,553 $ 10,525,737 $ 5,396,509 $ - $36,474,799
Transfers between segments 12,473,381 - - (12,473,381) -
------------- ----------- ---------- ---------- -----------
Total revenues 33,025,934 10,525,737 5,396,509 (12,473,381) 36,474,799
========== =========== ============ ============== ==========
Interest expenses 214,263 75,290 15,378 109,878 414,809
============ =========== =========== ============ ==========
Non-cash warrant charge - - - 1,200,570 1,200,570
============ ============ ============== ========= =========
Total assets 2,215,962 1,122,387 1,507,233 6,434,538 11,280,120
========= ========= ========= =========== ==========
Depreciation and amortization 1,524 135,273 81,008 16,483 234,288
=========== ========= =========== ============ ============
Income (loss) before provision
for income taxes (870,029) 261,342 464,760 (1,570,394) (1,714,321)
========= ======= ======= =========== ============
Industrial
Commodities Industrial Metal Processing
Management Products & Refining Corporate Consolidated
Six months ended December 31, 1998
Sales to unaffiliated customers $ 7,550,061 $ 4,722,588 $ 2,321,708 $ - $ 14,594,357
Transfers between segments 12,318,899 - - (12,318,899) -
---------- ----------- -------------- ------------ ------------
Total revenues 19,868,960 4,722,588 2,321,708 (12,318,899) 14,594,357
============ ============ ============= ============= ============
Interest expenses 44,616 20,486 - 4,821 69,923
============ ============ ============= ============= ============
Total assets 542,122 970,406 508,701 3,344,918 5,366,147
========== ============ ============ ============ ============
Depreciation and amortization 842 13,452 55,796 3,096 73,186
=========== =========== =========== =========== ============
Income (loss) before provision for
income taxes 329,888 51,137 (255,775) (57,672) 67,578
=========== =========== =========== =========== ============
RECONCLIATION TO CONSOLIDATED STATEMENT OF OPERATIONS
For the six months ended December 31, 1999, precious metals are stated at market
value and the market value of other inventories was lower than cost, therefore
no reconciliation between market value and lower of cost or market is presented.
For the six months ended December 31, 1998, no adjustment to income (loss)
before provision for income taxes is shown as the accounting for other
inventories approximated the lower of cost or market.
NOTE 8 - COMPREHENSIVE LOSS
Effective July 1, 1998, the Company adopted Statement of Financial Standards No.
130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires
the reporting and display of comprehensive loss and its components in the
financial statements.
SFAS No. 130 also requires the Company to classify items of other comprehensive
income or loss by their nature in financial statements.
Changes in stockholders' equity and comprehensive loss during the six months
ended December 31, 1999:
Net loss $(1,714,321)
Foreign currency translation adjustment (12,644)
------------
Total comprehensive loss $(1,726,965)
============
NOTE 9 - PRIVATE PLACEMENT OFFERING
During the fiscal quarter ended December 31, 1999, WMG engaged an
investment-banking firm and commenced a private placement offering. The offering
featured a minimum of 666,667 units and a maximum of 1,833,333 units with each
unit consisting of one share of WMG common stock, at a price of $3.00 per unit,
and a warrant to purchase one-half share of WMG common stock at $4.00 per share.
The first 666,667 units were offered on a `best efforts, all or none' basis, and
the remaining 1,166,666 units on a best efforts basis. The minimum subscription
called for a purchase of 10,000 units. Upon completion of the private placement
offering, the investment banking firm, in addition to its commission and
expenses, received 82,071 warrants to purchase common stock and 250,000
investment banking warrants to purchase one share of common stock, each warrant
exercisable at $4.00 per share. Any unexercised warrants are callable by the
Company, when the quoted market price for its common stock closes for 20
consecutive business days at prices ranging from $5.50 to $7.00 per share, at
$0.001 per warrant. During the quarter ended December 31, 1999, 1,082,330 units
were sold and the Company received net proceeds of $2,975,406 after payment of
commissions and expenses of $271,584.
The Company granted the shareholders the right to purchase 541,165 shares of
common stock redeemable upon exercise of their warrants. The warrants issued in
conjunction with the Private Placement were granted at an exercise price of
$4.00 per share, a value less than the market price of the Company's stock at
the time. The Private Placement was initiated in November 1999. From mid
November 1999 until December 31, 1999, the Company's stock price ranged from
$4.14 to $4.50 per share. Using the Black-Scholes Model, the fair value of the
warrants granted in conjunction with the Private Placement was determined to be
$919,143. This non-cash charge is represented within Warrant paid in capital,
which is included within Capital in excess of par value on the Company's balance
sheet.
NOTE 10 - WARRANTS
In 1997, the Company issued 700,000 warrants in conjunction with a $700,000
bridge loan financing. The warrants' expiry date was December 19, 1999. During
fiscal 1999 and through December 14, 1999, 197,222 of the 700,000 warrants were
exercised. As of December 14, 1999, 502,778 warrants were still unexercised. On
December 14, 1999, the Company, in its effort to extend the maturity date of the
unexercised warrants, issued new warrants to the former warrant holders. All
terms and conditions of the new warrant agreement remained the same, including
the grant of an exercise price of $2.25 per share. The maturity date of the new
warrant issuance was December 14, 2001. As a result, the Company determined the
fair value of the warrants on the date of the new warrant issuance and incurred
a non-cash expense for the quarter ended December 31, 1999. The fair value of
the warrants as determined by the Black Scholes Model at December 14, 1999, the
date of the grant, was $1,118,714.
During the first six months of the year ended June 30, 2000, the Company offered
the warrant holders an inducement to convert warrants into common stock at an
exercise price of $2.00 per share, which represented an inducement of $0.25
below the exercise price, up until the December 19, 1999 expiry date of the
warrants. A total of 147,222 warrants were exercised based upon this inducement.
The Company recorded an expense of $118,661, which represented an incremental
increase in the fair value of the warrants based on the Black-Scholes Model. The
inducement charge of $118,661 was partially a cash expense totaling $36,805 and
partially a non-cash expense totaling $81,856. The Company incurred one-half of
the $118,661 warrant inducement charge or $59,331 for the three months ended
December 31, 1999.
For the six months ended December 31, 1999, the non-cash expenses related to the
new warrant issuance and the inducement totaled $1,200,570 and are recorded in
other expense' in the Company's Statement of Operations. The Company's
Accumulated deficit and Capital in excess of par value increased by an equal
amount.
NOTE 11 - RESTATEMENT
Subsequent to the issuance of the Company's quarterly report for the fiscal
period ended December 31, 1999, management determined that the value of
unrefined inventory, which contains precious metals and had previously been
recorded at market value, should have been accounted for at the lower of cost or
market. Management also determined that, in its effort to extend the maturity
date of previously unexercised warrants, it had issued new warrants on December
14, 1999, which warrants should have been accounted for at fair value
previously, and such warrants had not been recorded. In addition, management
determined that an expense associated with the $0.25 per warrant inducement
during the six month period ended December 30, 1999 should be applied to all
warrants and not just those that had been exercised as a result of the
inducement. As a result, the accompanying unaudited consolidated financial
statements have been restated from amounts previously reported to appropriately
account for the transactions described above. A summary of the significant
effects of the restatement is as follows:
As Previously As
Reported Restated
-------------- -------
As of December 31, 1999
Capital in excess of par value $6,571,951 $7,772,521
Accumulated deficit (1,279,404) (2,479,974)
Stockholders' equity 5,223,695 5,223,695
For the Three Months Ended December 31, 1999
Cost of refining 2,405,526 2,212,635
Total other expense 175,392 1,335,034
Loss before provision for income taxes (488,745) (1,437,095)
Net loss (488,745) (1,437,095)
Basic and diluted net loss per share (0.14) (0.42)
For the Six Months Ended December 31, 1999
Cost of refining 4,191,312 4,137,554
Total other expense 405,505 1,606,075
Loss before provision for income taxes (567,509) (1,714,321)
Net loss (567,509) (1,714,321)
Basic and diluted loss per share (0.17) (0.51)
As of June 30, 1999
Inventory $1,076,237 $1,022,479
Accumulated deficit (711,895) (765,653)
Stockholders' equity 2,515,003 2,461,245
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Form 10-Q/A contains forward-looking statements. Additional written and
oral forward-looking statements may be made by the Company from time to time in
the U.S. Securities and Exchange Commission ("SEC") filings and otherwise. The
Company cautions readers that results predicted by forward-looking Statements,
including, without limitation, those relating to the Company's future business
prospects, revenues, working capital, liquidity, capital needs and income are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those indicated in the forward-looking statements due to
risks and factors identified in this Form 10-Q/A and as may be identified from
time to time in the Company's future filings with the SEC.
General
Through its subsidiaries, the Company operates in three inter-related areas of
the precious metals business:
Industrial Products -- The Company manufactures and sells customized,
value-added precious and base metal products principally to the North American
metal finishing and plating industry.
Metal Processing & Refining -- The Company reclaims precious and specialty
metals' materials through processing and refining services, including the
reclamation of platinum group metals from used automotive catalytic converters.
Industrial Commodities Management -- The Company buys, sells and finances metal
for its own account and its customers and offers hedging and risk management
services, including spot fixing market pricing and forward contracts to its
customers.
Subsequent to the issuance of the Company's quarterly report for the fiscal
period ended December 31, 1999, management determined that the value of
unrefined inventory, which contains precious metals and had previously been
recorded at market value, should have been accounted for at the lower of cost or
market. Management also determined that, in its effort to extend the maturity
date of previously unexercised warrants, it had issued new warrants on December
14, 1999, which warrants should have been accounted for at fair value
previously, and such warrants had not been recorded. In addition, management
determined that an expense associated with the $0.25 per warrant inducement
during the six month period ended December 30, 1999 should be applied to all
warrants and not just those that had been exercised as a result of the
inducement.
The Management's Discussion and Analysis of Financial Condition and Results of
Operations for the periods ended December 31, 1999 presented below reflect
certain restatements to the Company's previously reported results of operations
for these periods. See Note11of the notes to the unaudited consolidated
financial statements for a summary of significant effects.
Results of Operations
The following table sets forth, as a percentage of revenue, certain items
appearing in the Company's Statements of Operations for the indicated period.
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------ -------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
- --------
Sales .......................................... 81.0% 79.5% 85.2% 84.1%
Refining ....................................... 19.0% 20.5% 14.8% 15.9%
----- ----- ----- -----
Total Revenues ................................. 100% 100% 100% 100%
----- ----- ----- -----
The net loss for the three months ended December 31, 1999 and September 30, 1999
was $1,437,095 and $277,226, respectively. The net loss per diluted share for
the three months ended December 31, 1999 and September 30, 1999 was $.42 and
$.09, respectively.
Three Months Ended December 31, 1999 versus Three Months Ended December 31, 1998
Revenues were $16,763,050 for three months ended December 31, 1999 compared to
$9,267,888 for three months ended December 31, 1998. Of the total increase,
$6,216,775 related to the industrial products and industrial commodities
management segments, while $1,278,387 was related to the metal processing and
refining segment. The increased sales in the industrial products and industrial
commodities management segments are directly related to the new financing
arrangement with the bank and the acquisition of Reliable.
West Tech, a subsidiary of the Company formed in March 1998, acquired
substantially all of the assets of Reliable on June 30, 1999. Reliable and West
Tech merged their operations and the new entity was named Reliable-West Tech,
Inc. ("RWT"), which comprises the industrial products segment. For the three
months ended December 31, 1999, the industrial products segment recorded gross
revenues of $5,427,806. The industrial commodities management segment, which
started business in July 1998, was responsible for an additional $8,155,389 in
gross revenues for the three months ended December 31, 1999. The revenues relate
to precious metal sales to industrial end users. The combined sales of the
industrial products and industrial commodities management segments were
$13,583,195 for the three months ended December 31, 1999 compared to $7,366,420
for the three months ended December 31, 1998, resulting in an increase of
$6,216,775.
Through the diversification of the refining area and greater efficiencies in the
catalyst operations, net metal processing and refining segment revenues for
three months ended December 31, 1999 were $3,179,855 compared to $1,901,468 for
the three months ended December 31, 1998 for an increase of $1,278,387.
Cost of precious metal sales were $13,597,620 or 100.1% of sales for three
months ended December 31, 1999 compared to $6,901,095 or 93.7% of sales for
three months ended December 31, 1998. This 6.4% increase in cost of sales is due
to lower than anticipated metal yields and accountability from catalytic
converter processed materials and refining activities. The estimates used to
calculate the precious metals recovery from refining catalytic converter
materials was adjusted during the three months ended December 31, 1999 to more
accurately reflect the current refining yields. This resulted in the decrease of
the amounts recorded for precious metal recoveries and caused the sharp increase
in the cost of sales for the industrial commodities management segment.
Cost of refining revenues were $2,212,635 or 69.6% of refining fees for three
months ended December 31, 1999 compared to $1,766,544 or 92.9% of refining fees
for three months ended December 31, 1998. The decrease of 23.3% in the cost of
refining is primarily due to the increased volume in catalysts. The increased
volume resulted in a more efficient usage of production assets, and allowed the
metal processing and refining segment to operate at a level, which better
covered the primarily fixed labor and facility costs.
Selling, general and administrative expenses increased by $393,765 or 72.9%,
from $540,417 for the three months ended December 31, 1998 to $934,182 for the
three months ended December 31, 1999. This increase is the result of new
employees hired at the sales and operations' levels to facilitate the expansion
of RWT and the catalytic converter processing business, which is part of the
metal processing and refining segment.
Depreciation and amortization expense was $120,674 for the three months ended
December 31, 1999 compared to $39,378 for the three months ended December 31,
1998. This increase of $81,296, or 206.5%, was principally due to the
depreciation on the building, machinery and equipment, and related goodwill from
the acquisition of Reliable.
Interest expense was $183,445 for the three months ended December 31, 1999
compared to $33,715 for the three months ended December 31, 1998. The increase
of $149,730 or 444.1% was primarily due to the expanded credit facility with a
bank along with debt service for the Reliable acquisition and interest charges
for subordinated debt.
The Company also incurred non-recurring non-cash charges of $1,159,642 for the
three months ended December 31, 1999 related to: (i) the issuance of warrants to
third parties, which enabled the third parties to buy the Company's common stock
at a price less the market price of the Company's stock and (ii) an inducement
by the Company to warrant holders to exercise their warrant rights. On December
14, 1999, new warrants were issued to the Company's former bridge loan holders
at an exercise price of $2.25, which was below the market value of Company's
common stock, and it resulted in a non-cash charge of $1,118,714. Also, an
inducement was offered to warrant holders during the period July 1999 through
December 1999, and it resulted in the exercise of 147,222 shares of common
stock. The inducement charge was partially a cash expense totaling $36,805 and
partially a non-cash expense totaling $81,856, which represented an incremental
increase in the fair value of the warrants based on the Black-Scholes Model. The
Company incurred one-half of the $118,661 warrant inducement charge or $59,331
for the three months ended December 31, 1999.
Six Months Ended December 31, 1999 to the Six Months Ended December 31, 1998
Revenues were $36,474,799 for the six months ended December 31,1999 compared to
$14,594,357 for the six months ended December 31, 1998. Of the total increase,
$18,805,641 related to the industrial products and industrial commodities
management segments, while $3,074,801 related to the metal processing and
refining segment. The increased sales in the industrial products and the
industrial commodities management segments are directly related to the new
financing arrangement with the bank and the acquisition of Reliable.
West Tech, a subsidiary of the Company formed in March 1998, acquired
substantially all of the assets of Reliable on June 30, 1999. Reliable and West
Tech merged their operations and the new entity was named Reliable-West Tech,
Inc. ("RWT"), which comprises the industrial products segment. For the six
months ended December 31, 1999, the industrial products segment recorded gross
revenues of $10,525,737. The industrial commodities management segment, which
started business in July 1998, was responsible for an additional $20,552,553 in
gross revenues for the six months ended December 31, 1999. The revenues relate
to precious metal sales to industrial end users. Combined sales of the
industrial products and industrial commodities management segments were
$31,078,290 for the six months ended December 31, 1999 compared to $12,272,649
for the six months ended December 31, 1998, resulting in an increase of
$18,805,641.
Through the diversification of the refining area and the increased catalytic
converter business, net metal processing and refining segment revenues for the
six months ended December 31, 1999 were $5,396,509 compared to $2,321,708 for
the six months ended December 31, 1998 for an increase of $3,074,801.
Cost of precious metal sales were $30,383,330 or 97.8% of sales for the six
months ended December 31, 1999 compared to $11,360,310 or 92.6% of sales for the
six months ended December 31, 1998. This 5.2% increase in cost of sales is due
to the lower than anticipated metal yields and accountability from catalytic
converter processed materials and refining activity. The estimates used to
calculate the precious metals recovery from refining catalytic converter
materials was adjusted during the quarter ended December 31, 1999 to more
accurately reflect the current refining yields. This resulted in the decrease of
the amounts recorded for precious metal recoveries and caused the sharp increase
in the cost of sales for the industrial commodities management segment.
Cost of refining revenues were $4,137,554 or 76.7% of refining fees for the six
months ended December 31, 1999 compared to $1,908,515 or 82.2% of refining fees
for the six months ended December 31, 1998. This decrease of 5.5% in cost of
refining is primarily due to the increased volume in catalysts, which more amply
covered the primarily fixed labor and facility costs.
Selling, general and administrative expenses increased by $652,974 or 55.6% from
$1,174,899 for the six months ended December 31, 1998 to $1,827,873 for the six
months ended December 31, 1999. This increase is the result of new employees
hired at the sales and operational levels to facilitate the expansion of RWT and
the catalytic converter processing business, which is part of the metal
processing and refining segment.
Depreciation and amortization expense was $234,288 for the six months ended
December 31, 1999 compared to $73,186 for the six months ended December 31,
1998. This increase of $161,102 or 220.1% was principally due to the
depreciation on the building, machinery and equipment, and related goodwill from
the acquisition of Reliable.
Interest expense was $414,809 for the six months ended December 31, 1999
compared to $69,923 for the six months ended December 31, 1998. The increase of
$344,886 or 493.2% was primarily due to increased working capital usage of the
new bank facility along with debt service for the Reliable acquisition and
interest charges for the subordinated debt.
The Company also incurred non-recurring non-cash charges of $1,200,570 for the
six months ended December 31, 1999 related to: (i) the issuance of warrants to
third parties, which enabled the third parties to buy the Company's common stock
at a price less the market price of the Company's stock and (ii) an inducement
by the Company to warrant holders to exercise their warrant rights. On December
14, 1999, new warrants were issued to the Company's former bridge loan holders
at an exercise price of $2.25, which was below the market value of Company's
common stock, and it resulted in a non-cash charge of $1,118,714. Also, an
inducement was offered to warrant holders during the period July 1999 through
December 1999, and it resulted in the exercise of 147,222 shares of common
stock. The inducement charge was partially a cash expense totaling $36,805 and
partially a non-cash expense totaling $81,856, which represented an incremental
increase in the fair value of the warrants based on the Black-Scholes Model.
Liquidity, Capital Resources and Other Financial Data
Cash flows from Operating activities
Net cash used in operating activities was $3,100,205 for the six months ended
December 31, 1999 compared to $973,291 for the six months ended December 31,
1998, an increase of $2,126,914. Cash used in operating activities was primarily
due to the net loss generated from operations, as well as increases in inventory
and decreases in due to customers.
Cash flows from Investing activities
Net cash used in investing activities for the six months ended December 31, 1999
was $182,792 and primarily included the acquisition of equipment for the
processing of materials from the film industry and coin blanking tools and dies.
Net cash used in investing activities for the six months ended December 31, 1998
included the acquisition of the 900 Shames Drive, Westbury, NY facility, for
$510,000, which is primarily used for the processing of catalysts, as well as
for administrative offices.
Cash flows from Financing activities
Net cash provided by financing activities for the six months ended December 31,
1999 is primarily due to $3,255,788 of net capital proceeds from the private
placement (see Note 9) and exercise of stock warrants (see below). Additionally,
proceeds from the new revolving credit agreement, which commenced in July 1999,
and, the issuance of a note for $2,000,000 in subordinated debt contributed to
the cash provided from financing activities. The increase was offset by the
repayment of the note payable to the former Reliable shareholder of $1,192,578
and the repayment of $691,779 of long-term debt, which included $500,000 related
to the subordinated note.
During the six months ended December 31, 1999, the Company issued 140,972 shares
of common stock to warrant holders at an exercise price of $2.25 per share and
received, after payment of warrant inducement charges of $36,805, net proceeds
of $280,382.
Liquidity and Capital Resources
There was an increase in working capital of $4,080,616, primarily due to the
issuance of stock.
The Company had been relying on a gold consignment program and internally
generated funds to finance its metal purchases, inventories and accounts
receivable. On July 13 1999, the Company negotiated with a bank a new revolving
credit agreement, which included a precious metal consignment facility. It now
may borrow on consignment and fund its gold, platinum, palladium and silver
requirements. Title to the consigned precious metals remains with the consignor.
The value of consigned gold, platinum, palladium and silver held by the Company
is not included in the Company's inventory and there is no related liability
recorded. At December 31, 1999 the Company held $4,264,398 of precious metal
under the consignment agreement with a bank for which the Company is charged a
consignment fee based on current market rates. There can be no assurances that
price fluctuations in the precious metals markets would not result in an
interruption of the Company's gold, platinum, palladium and silver supplies and
use of the precious metals consignment facility.
The July 13, 1999 financing agreement has an overall limit of $12,000,000, and
it is available to finance all working capital requirements. The Company was
charged an origination fee of .5% of the available line, an underutilized loan
fee of .375% and interest at the prime rate plus .5% for cash transactions and
the metal Cost of Funds plus 2.5% for precious metals transactions.
During the past two years, the Company has raised capital from the sale of
securities and warrants to fund a portion of its cash flow needs and its
business expansion. In addition, the Company entered into the above referenced
financing agreement to fund its working capital. However, to date, the Company
has incurred losses, and therefore has not generated sufficient cash flow to
fund its overall expansion and growth plans. In order to continue its expansion
and growth strategy, the Company will need to raise additional capital from
either the sale of securities or the restructure of its working capital
financing arrangements. There can be no assurances that the Company will be
successful in raising additional capital or restructuring its working capital
financing agreement. If the Company is unable to raise additional capital or
further leverage its assets, then it may have to curtail some of its expansion
and growth plans.
Year 2000
Many currently installed computer systems, software products and manufactured
products that utilize microprocessors are coded to accept only two-digit entries
in the date code field. These date code fields will need to accept four-digit
entries to distinguish twenty-first century dates. This is commonly referred to
as the "Year 2000 issue." The Company was aware of the Year 2000 issue and
during fiscal 1998 commenced a program to identify, remediate, test and develop
contingency plans for the Year 2000 issue (the "Y2K Program"). This program was
completed before year-end.
Under the Y2K Program, the Company began to assess the Year 2000 readiness of
the software and computer information systems used in the internal business
("CIS") of the Company ("Company CIS"); and the CIS of its key customers.
As of December 31, 1999, the results of the assessment being conducted under the
Y2K Program were as follows:
Computer Information Systems (Company CIS): The company has acquired new
software and hardware to replace all non-compliant aspects of existing CIS.
Customers: The Company solicited statements of compliance from its key customers
with respect to their CIS, and as of this writing customer non-compliance or
lack of readiness has not been apparent or in any manner affected the Company.
Costs: The cost to replace the existing software programs used in the Company
CIS of approximately $100,000 has already been expended by the Company. There
are no significant additional expenditures anticipated by the Company.
The Year 2000 issue presented potentially far-reaching implications; however,
the planning along with new software and hardware installations resulted in no
systems problems occurring upon entering the new millennium.
Inflation
The Company does not believe that inflation has had, or will have in the
foreseeable future, a material impact upon the Company's operating results.
Recent Pronouncements of the Financial Accounting Standards Board
Recent pronouncements of the Financial Accounting Standards Board, which are not
required to be adopted at this date, include Statement of Financial Standards
No.133 "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133, as deferred by SFAS No. 137, is effective for fiscal quarters
of all fiscal years beginning after June 15, 2000. Based upon current data, the
adoption of this pronouncement is not expected to have a material impact on the
Company's consolidated financial statements.
Forward Looking Statements
The Private Placement offering that commenced during the quarter ended December
31, 1999 was completed during the quarter ending March 31, 2000. After December
31, 1999 WMG received additional net cash proceeds of $2,162,242 from the
offering after payment of investment-banking fees of $217,601. Total net capital
proceeds from the private placement offering were $5,137,648. In addition, the
Company is required to register the shares sold in the offering within 60 days
of the offering's closing. The Company estimates it will incur fees of $175,000
in order to register the shares with the SEC. Management is pleased to relate
that the offering was very successful as evidenced by it being oversubscribed.
The proceeds from the offering will allow the Company to continue its program of
expansion through internal growth and acquisition.
Management has been concentrating on building market share at RWT through its
internal sales force. With the acquisition of Reliable, management anticipates
annual sales at RWT to increase 300% from the prior fiscal year. As of March 31,
2000, a definitive Purchase & Sale Agreement has been signed by WMG to acquire a
business complimentary to that of RWT.
During the quarter ended December 31, 1999, the Company became aware that a
refinery used to process the catalytic converter materials was returning
recovered precious metals in an amount, which was less than industry averages.
As a result management has negotiated with the refinery and has agreed with the
initiation of an additional processing step, which management feels will
increase the Company's recovery of precious metal and correspondingly its
revenue. The Company and the refinery have reached a tentative agreement whereby
they have jointly hired a consultant to handle the installation of these
processing changes. Management anticipates that their processing changes will
result in better recoveries from refined materials. Management expects to review
the results of previous metals refined and negotiate an amicable arrangement to
cover any previous shortfalls from January 1, 1999 forward. Management does not
yet have an estimate of the amount it may recover, if any, nor has it reached
any agreements with respect to these potential recoveries.
Through its continued efforts to diversify refining activities, consolidate
manufacturing activities and broaden its activities in industrial products
management divisions, management anticipates continuing the positive operating
and growth trends for the next two fiscal quarters of the year ending June 30,
2000. There can be no assurances that management will be successful in its
efforts.
SIGNATURE
In accordance with the requirements of the exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
WESTBURY METALS GROUP, INC.
By: /s/ Mark R. Buckley
----------------------------------
Mark R. Buckley
Chief Financial Officer
Date: March 27, 2001