UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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 September 30, 2008
OR
o
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: 000-25781
STAMFORD
INDUSTRIAL GROUP, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
41-1844584
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
One
Landmark Square
Stamford,
Connecticut 06901
(Address
of principal executive offices, Zip Code)
(203)
428-2200
(Registrant’s
telephone number, including area code)
(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
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer
o
Accelerated filer
x
Non-accelerated filer
o
Smaller reporting company
o
.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) YES
o
NO
x
As
of November 07, 2008, there were
outstanding 42,043,935
shares of the registrant’s Common Stock, $0.0001 par
value.
STAMFORD
INDUSTRIAL GROUP, INC.
FORM
10-Q
For
the
Quarter Ended September 30, 2008
TABLE
OF CONTENTS
|
Page
|
|
|
PART
I. FINANCIAL INFORMATION
|
|
|
|
Item
1
.
Financial Statements (Unaudited)
|
|
|
|
Consolidated
Balance Sheets as of September 30, 2008 and December 31,
2007
|
1
|
|
|
Consolidated
Statements of Income for the three and nine months ended September
30,
2008 and September 30, 2007
|
2
|
|
|
Consolidated
Statements of Cash Flows for the nine months ended September 30,
2008 and
September
30, 2007
|
3
|
|
|
Notes
to the Consolidated Financial Statements
|
4
|
|
|
Item
2
.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
|
17
|
|
|
Item
3
.
Quantitative and Qualitative Disclosures about Market Risk
|
24
|
|
|
Item
4
.
Controls and Procedures
|
24
|
|
|
PART
II. OTHER INFORMATION
|
|
|
|
Item
1
.
Legal Proceedings
|
25
|
|
|
Item
1A
.
Risk Factors
|
26
|
|
|
Item
2. Unregistered Sales of Equity Securities
|
26
|
|
|
Item
6. Exhibits
|
27
|
|
|
SIGNATURES
|
28
|
|
|
EXHIBIT
INDEX
|
29
|
PART
I.
FINANCIAL
INFORMATION
Item
1
.
Financial
Statements
STAMFORD
INDUSTRIAL GROUP, INC.
CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
(in
thousands)
|
|
September
30,
2008
|
|
December
31,
2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
610
|
|
$
|
1,236
|
|
Accounts
receivable, net
|
|
|
18,491
|
|
|
8,341
|
|
Inventories
|
|
|
25,367
|
|
|
13,825
|
|
Deferred
tax asset
|
|
|
5,505
|
|
|
2,684
|
|
Prepaid
expenses and other current assets
|
|
|
48
|
|
|
496
|
|
Total
current assets
|
|
|
50,021
|
|
|
26,582
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
8,397
|
|
|
8,608
|
|
|
|
|
|
|
|
|
|
Deferred
financing costs, net
|
|
|
530
|
|
|
645
|
|
Intangible
assets, net
|
|
|
19,738
|
|
|
20,524
|
|
Deferred
tax asset
|
|
|
33,608
|
|
|
5,368
|
|
Other
assets
|
|
|
205
|
|
|
210
|
|
Total
assets
|
|
$
|
112,499
|
|
$
|
61,937
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Notes
payable
|
|
$
|
3,786
|
|
$
|
5,286
|
|
Current
portion of long-term debt
|
|
|
4,000
|
|
|
4,000
|
|
Accounts
payable
|
|
|
17,865
|
|
|
7,768
|
|
Accrued
expenses and other liabilities
|
|
|
3,583
|
|
|
2,742
|
|
Income
taxes payable
|
|
|
586
|
|
|
73
|
|
Total
current liabilities
|
|
|
29,820
|
|
|
19,869
|
|
|
|
|
|
|
|
|
|
Long-term
debt, less current portion
|
|
|
18,533
|
|
|
21,533
|
|
Other
long-term liabilities
|
|
|
1,308
|
|
|
889
|
|
Total
liabilities
|
|
|
49,661
|
|
|
42,291
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
Preferred
stock — $.0001 par value; 5,000 shares authorized; no shares issued or
outstanding
|
|
|
—
|
|
|
—
|
|
Common
stock — $.0001 par value; 100,000 shares authorized; 42,101 and 41,801
shares issued and outstanding at September 30, 2008 and December
31, 2007,
respectively
|
|
|
3
|
|
|
3
|
|
Additional
paid-in capital
|
|
|
247,032
|
|
|
246,346
|
|
Accumulated
deficit
|
|
|
(184,197
|
)
|
|
(226,703
|
)
|
Total
stockholders’ equity
|
|
|
62,838
|
|
|
19,646
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
112,499
|
|
$
|
61,937
|
|
See
accompanying notes to the consolidated financial statements.
STAMFORD
INDUSTRIAL GROUP, INC.
CONSOLIDATED
STATEMENTS OF INCOME (UNAUDITED)
(in
thousands, except per share amounts)
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
|
September
30,
2008
|
|
September
30,
2007
|
|
September
30,
2008
|
|
September
30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
41,484
|
|
$
|
28,197
|
|
$
|
116,342
|
|
$
|
84,382
|
|
Cost
of revenues
|
|
|
32,366
|
|
|
23,102
|
|
|
90,594
|
|
|
69,540
|
|
Gross
margin
|
|
|
9,118
|
|
|
5,095
|
|
|
25,748
|
|
|
14,842
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
and marketing
|
|
|
517
|
|
|
368
|
|
|
1,460
|
|
|
1,043
|
|
General
and administrative
|
|
|
2,856
|
|
|
2,933
|
|
|
9,454
|
|
|
8,028
|
|
Related
party stock compensation
|
|
|
262
|
|
|
132
|
|
|
713
|
|
|
394
|
|
Total
operating expenses
|
|
|
3,635
|
|
|
3,433
|
|
|
11,627
|
|
|
9,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
5,483
|
|
|
1,662
|
|
|
14,121
|
|
|
5,377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
(expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
6
|
|
Interest
expense
|
|
|
(198
|
)
|
|
(720
|
)
|
|
(1,492
|
)
|
|
(1,935
|
)
|
Other
income (expense)
|
|
|
5
|
|
|
—
|
|
|
48
|
|
|
(139
|
)
|
Total
other expense, net
|
|
|
(193
|
)
|
|
(720
|
)
|
|
(1,443
|
)
|
|
(2,068
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before taxes
|
|
|
5,290
|
|
|
942
|
|
|
12,678
|
|
|
3,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
(benefit) for income taxes
|
|
|
845
|
|
|
331
|
|
|
(29,828
|
)
|
|
636
|
|
Net
income
|
|
$
|
4,445
|
|
$
|
611
|
|
$
|
42,506
|
|
$
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
net income per share
|
|
$
|
0.11
|
|
$
|
0.01
|
|
$
|
1.02
|
|
$
|
0.06
|
|
Shares
used in basic calculation
|
|
|
41,904
|
|
|
41,717
|
|
|
41,866
|
|
|
41,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
0.09
|
|
$
|
0.01
|
|
$
|
0.88
|
|
$
|
0.06
|
|
Shares
used in diluted calculation
|
|
|
48,600
|
|
|
48,826
|
|
|
48,090
|
|
|
48,578
|
|
See
accompanying notes to the consolidated financial statements.
STAMFORD
INDUSTRIAL GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in
thousands)
|
|
Nine
Months Ended
|
|
|
|
September
30,
2008
|
|
September
30,
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
42,506
|
|
$
|
2,673
|
|
Reconciliation
of net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
Provision
for doubtful accounts
|
|
|
289
|
|
|
25
|
|
Depreciation
|
|
|
795
|
|
|
290
|
|
Amortization
of intangible assets
|
|
|
786
|
|
|
786
|
|
Amortization
of deferred financing costs
|
|
|
115
|
|
|
114
|
|
Deferred
tax benefit
|
|
|
(31,061
|
)
|
|
—
|
|
Stock-based
compensation
|
|
|
558
|
|
|
2,001
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(10,439
|
)
|
|
(3,774
|
)
|
Inventories
|
|
|
(11,542
|
)
|
|
(1,773
|
)
|
Prepaid
expenses and other current assets
|
|
|
448
|
|
|
521
|
|
Other
assets
|
|
|
5
|
|
|
56
|
|
Accounts
payable
|
|
|
10,097
|
|
|
(556
|
)
|
Accrued
expenses and other liabilities
|
|
|
1,862
|
|
|
220
|
|
Other
liabilities
|
|
|
39
|
|
|
—
|
|
Net
cash provided by operating activities
|
|
|
4,458
|
|
|
583
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Capital
expenditures for property and equipment
|
|
|
(584
|
)
|
|
(4,819
|
)
|
Net
cash used in investing activities
|
|
|
(584
|
)
|
|
(4,819
|
)
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Borrowings
from revolving credit facility
|
|
|
1,500
|
|
|
3,500
|
|
Payments
on revolving credit facility
|
|
|
(3,000
|
)
|
|
—
|
|
Principal
payments on long-term debt
|
|
|
(3,000
|
)
|
|
(3,000
|
)
|
Proceeds
from exercise of stock options
|
|
|
—
|
|
|
47
|
|
Net
cash (used in) provided by financing activities
|
|
|
(4,500
|
)
|
|
547
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(626
|
)
|
|
(3,689
|
)
|
Cash
and cash equivalents at beginning of period
|
|
|
1,236
|
|
|
3,703
|
|
Cash
and cash equivalents at end of period
|
|
$
|
610
|
|
$
|
14
|
|
|
|
|
|
|
|
|
|
Supplemental
cash flow disclosures:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
1,340
|
|
$
|
1,895
|
|
Taxes
paid
|
|
$
|
720
|
|
$
|
335
|
|
See
accompanying notes to the consolidated financial statements.
STAMFORD
INDUSTRIAL GROUP, INC.
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(dollars
and shares in thousands, except per share amounts unless otherwise
indicated)
Note
1. Overview and Basis of Presentation
Overview
Stamford
Industrial Group, Inc.
(
the
“Company”), through its wholly-owned subsidiary
Concord
Steel, Inc. (“Concord”)
,
is a
leading independent manufacturer of steel counterweights and structural
weldments. The Company
sells
its products primarily in the United States to original equipment manufacturers
(“OEM”) of certain construction and industrial related equipment that employ
counterweights
for
stability through counterweight leverage in the operation of equipment used
to
hoist heavy loads, such as elevators and cranes. The counterweight market
the
Company
targets
is primarily comprised of OEMs within the (i) commercial and industrial
construction equipment industry that manufactures aerial work platforms,
telehandlers, scissor lifts, cranes, and a variety of other construction
related
equipment and vehicles; and (ii) the elevator industry, that incorporates
counterweights as part of the overall elevator operating mechanism to balance
the weight of the elevator cab and load.
The
Company was initially established in 1996 under the name “Net Perceptions, Inc.”
as a provider of marketing software solutions. In 2003, as a result of
continuing losses and the decline of its software business, the Company began
exploring various strategic alternatives, including sale or liquidation, and
ceased the marketing and development of its marketing solutions software
business in 2004. On April 21, 2004, the Company announced an investment into
the Company by Olden Acquisition LLC (“Olden”), an affiliate of Kanders &
Company, Inc., an entity owned and controlled by the Company’s Non-Executive
Chairman, Warren B. Kanders, for the purpose of initiating a strategy to
redeploy the Company’s assets and use its cash and cash equivalents and
marketable securities to enhance stockholder value. As part of this strategy,
on
October 3, 2006, the Company acquired the assets of CRC Acquisition Co. LLC
(“CRC”), a manufacturer of steel counterweights doing business as Concord Steel.
With this initial acquisition, management is now focused on building a
diversified global industrial manufacturing group through both organic and
acquisition growth initiatives that are expected to complement and diversify
existing business lines.
Basis
of Presentation
The
accompanying unaudited consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles in
the
United States of America and instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information in
notes
required by generally accepted accounting principles in the United States of
America for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals, unless otherwise noted)
necessary for a fair presentation of the unaudited consolidated financial
statements have been included. The results of the three and nine months ended
September 30, 2008 are not necessarily indicative of the results to be obtained
for the year ending December 31, 2008. These interim financial statements should
be read in conjunction with the Company’s audited consolidated financial
statements and footnotes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2007, filed with the Securities and
Exchange Commission on March 17, 2008.
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries. All inter-company accounts and transactions have
been
eliminated. Certain prior period balances have been reclassified to conform
to
current period presentation.
Significant
Accounting Policies
The
Company believes the following accounting policies affect significant judgments
and estimates used in the preparation of its consolidated financial statements.
Events occurring subsequent to the preparation of the consolidated financial
statements may cause the Company to re-evaluate these policies.
Use
of estimates
.
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amounts therein.
Management’s estimates are based on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances.
Estimates
inherent in the preparation of the accompanying consolidated financial
statements include the carrying value of long-lived assets, valuation allowances
for receivables, inventories and deferred income tax assets, liabilities for
potential litigation claims and settlements, and potential liabilities related
to tax filings in the ordinary course of business.
Management’s
estimates and assumptions are evaluated on an on-going basis. Due to the
inherent uncertainty involved in making estimates, actual results may differ
from those estimates.
Revenue
recognition.
The
Company’s revenue recognition policy for the sale of steel counterweights or
structural weldments requires the recognition of sales when there is evidence
of
a sales agreement, the delivery of goods has occurred, the sales price is fixed
or determinable and the collectability of revenue is reasonably assured. The
Company generally records sales upon shipment of product to customers and
transfer of title under standard commercial terms.
Allowance
for doubtful accounts.
The
Company
maintains allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. If the financial
condition of our customers deteriorates, resulting in an impairment of their
ability to make payments, additional allowances will be required.
Litigation.
The
Company is involved in legal proceedings and claims arising from time to time.
Management, in connection with outside advisors, periodically assesses
liabilities and contingencies in connection with these matters, based on the
latest information available. For those matters where it is probable that a
loss
has been or will be incurred, we record the loss, or a reasonable estimate
of
the loss, in the consolidated financial statements. As additional information
becomes available, estimates of probable losses are adjusted based on an
assessment of the circumstances.
Income
taxes.
Deferred
income taxes are
evaluated
on the
liability method whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards and
deferred tax liabilities are recognized for taxable temporary differences.
These
temporary
differences are the differences between the reported amounts of assets and
liabilities and their income tax bases.
If
,
in the
opinion of management, it
becomes
more
likely than not that some portion or all of the deferred tax assets will
not be
realized
,
deferred tax assets would be
reduced
by a valuation allowance
and
any
such reduction could be material
.
The
recognition of a valuation allowance for deferred taxes requires management
to
make estimates
and
judgments
about
the
Company’s future profitability
which
are inherently uncertain but
are
considered critical due to the amount of deferred taxes recorded on the
Company’s
consolidated
balance sheet.
Derivatives
and hedging activities.
The
Company recognizes all derivatives on the balance sheet as either an asset
or
liability measured at fair value. Changes in the derivative’s fair value are
recognized currently in income unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative’s gains and
losses to offset related results on the hedged item in the statement of income
and requires the Company to formally document, designate and assess
effectiveness of transactions that receive hedge accounting. Derivatives that
are not hedges are adjusted to fair value through income. If the derivative
qualifies as a hedge, depending on the nature of the hedge, changes in the
fair
value of derivatives are either offset against the change in fair value of
hedged assets, liabilities, or firm commitments through earnings, or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative’s change in fair value is immediately
recognized in earnings.
During
the nine months ended September 30, 2008, there have been no significant changes
to the Company’s significant accounting policies and estimates as disclosed in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2007,
other than the change in estimate for deferred tax asset valuation (see Note
9).
Recent
Accounting Pronouncements
In
March
2008
,
the
Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 161, Disclosures about Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133 ("SFAS 161"). SFAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Under SFAS 161, entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b)
how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The SFAS 161 encourages, but does
not require, comparative disclosures for earlier periods at initial adoption.
The Company does not anticipate any material impact on its future disclosure
from the adoption of this standard.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring fair value under generally accepted
accounting principles, and requires expanded disclosures about fair value
measurements. SFAS 157 emphasizes that fair value is a market-based measurement,
not an entity-specific measurement, and states that a fair value measurement
should be determined based on the assumptions that market participants would
use
in pricing the asset or liability. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, SFAS 157 does not require any
new
fair value measurements. In February 2008, the FASB issued Staff Positions
157-1 and 157-2 which remove certain leasing transactions from the scope of
SFAS
157 and partially defer the effective date of SFAS 157 for one year for certain
nonfinancial assets and liabilities. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. The adoption of FAS 157 on January 1,
2008 did not have a material impact on the Company's financial position, results
of operations and cash flows. The Company is currently assessing the impact
of
fully adopting SFAS 157 on its future disclosure for nonfinancial assets and
liabilities, with no impact on its consolidated financial position and resulting
operations expected.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”), which replaces SFAS No. 141, “Business
Combinations (“SFAS 141”).” SFAS 141R retains the underlying concepts of SFAS
141 in that all business combinations are still required to be accounted for
at
fair value under the acquisition method of accounting, but SFAS 141R changes
the
application of the acquisition method in a number of significant aspects.
Acquisition costs will generally be expensed as incurred; non-controlling
interests will be valued at fair value at the acquisition date; in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date; restructuring costs associated with
a
business combination will generally be expensed subsequent to the acquisition
date; and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax
expense. SFAS 141R is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of
the
first annual period subsequent to December 15, 2008. Early adoption is not
permitted. SFAS 141R will only be applicable to future business combinations,
it
will not have a significant effect on the Company’s financial statements prior
to such an acquisition.
Note
2. Inventories
Inventories,
net of inventory reserves at September 30, 2008 and December 31, 2007 are as
follows:
|
|
September
30,
2008
|
|
December
31,
2007
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
1,296
|
|
$
|
101
|
|
Work-in-process
|
|
|
1,095
|
|
|
1,197
|
|
Raw
materials
|
|
|
22,976
|
|
|
12,527
|
|
|
|
$
|
25,367
|
|
$
|
13,825
|
|
Note
3
.
Property, Plant and Equipment
Property,
plant and equipment, net, as of September 30, 2008 and December 31, 2007 are
as
follows:
|
|
September
30,
2008
|
|
December
31,
2007
|
|
Land
|
|
$
|
350
|
|
$
|
350
|
|
Building
and improvements
|
|
|
1,307
|
|
|
1,294
|
|
Leasehold
improvements
|
|
|
1,238
|
|
|
1,275
|
|
Machinery
and equipment
|
|
|
5,633
|
|
|
5,361
|
|
Office
equipment and furniture
|
|
|
1,260
|
|
|
985
|
|
Construction
in progress
|
|
|
61
|
|
|
—
|
|
|
|
|
9,849
|
|
|
9,265
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
(1,452
|
)
|
|
(657
|
)
|
Property,
plant and equipment, net
|
|
$
|
8,397
|
|
$
|
8,608
|
|
Note
4. Intangible Assets
As
part
of the acquisition of Concord on October 3, 2006, the Company allocated a
portion of the purchase cost to intangible assets consisting of trade names,
customer relationships and non-compete agreements. These intangible assets
are
amortized over their expected useful lives which are between 3 and 12 years
using the straight-line method.
Intangible
assets, net of amortization at September 30, 2008 and December 31, 2007 are
as
follows:
|
|
September
30, 2008
|
|
|
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
12,399
|
|
$
|
(2,071
|
)
|
$
|
10,328
|
|
|
12
yrs
|
|
Non-compete
agreements
|
|
|
37
|
|
|
(24
|
)
|
|
13
|
|
|
3
yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name
|
|
|
9,397
|
|
|
—
|
|
|
9,397
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles,
net
|
|
$
|
21,833
|
|
$
|
(2,095
|
)
|
$
|
19,738
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
relationships
|
|
$
|
12,399
|
|
$
|
(1,294
|
)
|
$
|
11,105
|
|
|
12
yrs
|
|
Non-compete
agreements
|
|
|
37
|
|
|
(15
|
)
|
|
22
|
|
|
3
yrs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles
not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade
name
|
|
|
9,397
|
|
|
—
|
|
|
9,397
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles,
net
|
|
$
|
21,833
|
|
$
|
(1,309
|
)
|
$
|
20,524
|
|
|
|
|
Note
5. Accrued expenses and other liabilities
Accrued
expenses and other liabilities of the Company as of September 30, 2008 and
December 31, 2007
are
as
follows
:
|
|
September
30,
2008
|
|
December
31,
2007
|
|
|
|
|
|
|
|
Accrued
compensation, benefits and c
ommissions
|
|
$
|
1,352
|
|
$
|
705
|
|
Accrued
interest payable
|
|
|
338
|
|
|
339
|
|
Accrued
professional services
|
|
|
236
|
|
|
343
|
|
Accrued
insurance
|
|
|
254
|
|
|
426
|
|
Accrued
property taxes
|
|
|
95
|
|
|
33
|
|
Accrued
related party stock fee
|
|
|
713
|
|
|
507
|
|
Accrued
transaction costs
|
|
|
200
|
|
|
—
|
|
Other
accrued liabilities
|
|
|
395
|
|
|
389
|
|
|
|
$
|
3,583
|
|
$
|
2,742
|
|
Note
6. Long-Term Debt and Notes Payable
In
connection with the Company’s acquisition of the assets of Concord, Concord
entered
into a senior secured credit facility (the “Credit Agreement”) dated October 3,
2006 with LaSalle Bank National Association which was acquired by Bank of
America on October 1, 2007, as administrative agent (the “Agent”) and the
lenders party thereto.
The
Credit Agreement establishes a commitment by the lenders to Concord to provide
up to $40.0 million in the aggregate of loans and other financial accommodations
consisting of (i) a five-year senior secured term loan in an aggregate principal
amount of $28.0 million, (ii) a five-year senior secured revolving credit
facility in the aggregate principal amount of $10.0 million (the “Revolving
Facility”) and (iii) a five-year senior secured capital expenditure facility in
the aggregate principal amount of $2.0 million. The Revolving Facility is
further subject to a borrowing base consisting of up to 85% of eligible accounts
receivable and up to 55% of eligible inventory. The Revolving Facility includes
a sublimit of up to an aggregate amount of $5.0 million in letters of credit
and
a sublimit of up to an aggregate amount of $2.5 million in swing line loans.
The
capital expenditure facility permitted the Company to draw funds for the
purchase of machinery and equipment during the 6-month period ended March 3,
2007, and then converted into a 4.5-year term loan. Immediately following the
closing of the Concord acquisition, the Company drew down approximately $31.3
million and had additional availability under the Revolving Facility of
approximately $6.7 million. There were no amounts drawn under the capital
expenditure facility at the time of closing of the credit facility nor were
there any amounts drawn down prior to March 3, 2007, the date the capital
expenditure facility expired.
On
March
13, 2008, the Company entered into a second amendment to the Credit Agreement
to
provide for, among other things, revisions to certain of the financial covenants
under the bank credit facilities discussed above.
At
September 30, 2008 and December 31, 2007, the outstanding balance under the
Revolving Facility was $3.8 million and $5.3 million, respectively. At September
30, 2008, the Company had $4.6 million available in additional borrowings net
of
$1.6 million in outstanding letters of credit which have not been drawn upon.
The balance under the term loan at September 30, 2008 and December 31, 2007
was
$20.0 million and $23.0 million, respectively. At September 30, 2008 and
December 31, 2007, the Company had $4.0 million, classified as current at both
dates, and $16.0 million and $19.0 million, respectively, classified as
long-term. The bank credit facilities have various financial covenants and
also
have various non-financial covenants, requiring the Company to refrain from
taking certain actions and requiring it to take certain actions, such as keeping
in good standing the corporate existence, maintaining insurance, and providing
the bank lending group with financial information on a timely
basis.
Borrowings
under the Credit Agreement bear interest, at the Company’s election, at either
(i) a rate equal to three month variable London Interbank Offer Rate (“LIBOR”),
plus an applicable margin ranging from 1.25% to 2.5%, depending on certain
conditions, or (ii) an alternate base rate which will be the greater of (a)
the
Federal Funds rate plus 0.5% or (b) the prime rate publicly announced by the
Agent as its prime rate, plus, in both cases, an applicable margin ranging
from
0% to 1.0%, depending on certain conditions. At September 30, 2008 and December
31, 2007, the applicable interest rate for the outstanding borrowings under
the
Credit Agreement was 4.99% and 7.24%, respectively.
The
Credit Agreement is guaranteed by the Company and its direct and indirect
subsidiaries and is secured by, among other things, (a) (i) all of the equity
interests of Concord’s subsidiaries and (ii) a pledge by the Company of all of
the issued and outstanding shares of stock of Concord by the Company and (b)
a
first priority perfected security interest on substantially all the assets
of
the Company and its direct and indirect subsidiaries pursuant to a guaranty
and
collateral agreement dated October 3, 2006 and delivered in connection with
the
Credit Agreement (the “Guaranty Agreement”). In addition, LaSalle Bank National
Association, acting as the Agent for the benefit of the lenders, has a mortgage
on all owned real estate of the Company and its direct and indirect
subsidiaries, as well as deposit account control agreements with respect to
funds on deposit in bank accounts of the Company and its direct and indirect
subsidiaries. The Credit Agreement expires on October 2, 2011.
The
Company is exposed to interest rate volatility with regard to existing issuances
of variable rate debt. Primary exposure includes movements in the U.S. prime
rate and LIBOR. The Company uses interest rate swaps to reduce interest rate
volatility. On January 2, 2007, the Company entered into an interest rate
protection agreement that currently has approximately $10.8 million of interest
rate swaps fixing interest rates between 5.0% and 5.8%.
On
April
21, 2004, the Company closed on an investment into the Company by
Olden
,
an
affiliate of Kanders & Company, Inc.,
for
the
purpose of initiating a strategy to redeploy the Company’s assets and use the
Company’s cash, cash equivalent assets and marketable securities to enhance
stockholder value. The Company issued and sold to Olden a 2% ten-year
Convertible Subordinated Note, which is presently convertible and (subject
to
a call
by the Company under certain circumstances)
at
a
conversion price of $0.45 per share of Company common stock into approximately
19.9% of the outstanding common equity of the Company as of the closing date.
Proceeds to the Company from this transaction totaled approximately $2.5 million
before transaction costs of $0.3 million. The transaction costs are being
amortized over ten years, the term of the debt. Interest on the note accrues
semi-annually but is not payable currently or upon conversion of the note.
The
note matures on April 21, 2014. Because the convertible subordinated note was
deemed to include a beneficial conversion feature, at the date of issue the
Company allocated $0.1 million to the beneficial conversion feature and
amortized the beneficial conversion feature over one year (the period after
which the note is convertible). As of September 30, 2008 and December 31, 2007,
the outstanding balance on the note payable amounted to $2.5 million and is
classified as long-term debt.
Note
7. Other long-term liabilities
|
|
September
30,
2008
|
|
December
31,
2007
|
|
|
|
|
|
|
|
Deferred
compensation
|
|
$
|
1,079
|
|
$
|
699
|
|
Accrued
interest payable
|
|
|
229
|
|
|
190
|
|
|
|
$
|
1,308
|
|
$
|
889
|
|
Effective
December 27, 2007, the Company and Albert Weggeman entered into a deferred
compensation agreement pursuant to which Mr. Weggeman would be entitled to
receive deferred compensation of up to $1,519,766, which may be reduced if
the
stock price at the time of distribution is less than $1.25. The deferred
compensation shall vest on the following basis: (i) 19.4% shall be immediately
vested; (ii) 30.6% shall vest in twenty-two equal monthly consecutive tranches
commencing on December 27, 2007, subject to Mr. Weggeman being employed by
the Company on each vesting date; (iii) up to 50.0% shall vest as follows,
provided that Mr. Weggeman is actively employed as of the applicable vesting
date: (A) 16.7% shall vest as of March 31, 2008, if the Company’s adjusted
earnings before interest taxes depreciation and amortization (“Adjusted
EBITDA”), as more fully described in the agreement, for the year ending December
31, 2007 (“Year 1”) is not less than $13,800,000 (the “Year 1 Target”); if
the Year 1 Target is not achieved, and if the sum of the Company’s Adjusted
EBITDA for the years ending December 31, 2007 and 2008 is not less than the
sum
of the Year 1 Target plus the Year 2 Target (as defined below), then such 16.7%
shall vest as of March 31, 2009; (B) 16.7% shall vest as of March 31, 2009,
if
the Company’s Adjusted EBITDA for the year ending December 31, 2008
(“Year 2”) is not less than $15,700,000 (the “Year 2 Target”); if the Year
2 Target is not achieved, and if the sum of the Company’s Adjusted EBITDA for
the years ending December 31, 2008 and 2009 is not less than the sum of the
Year
2 Target plus the Year 3 Target (as defined below), then such 16.7% shall vest
as of March 31, 2010; (C) 16.6% shall vest as of March 31, 2010, if the
Company’s Adjusted EBITDA for the year ending December 31, 2009 (“Year 3”)
is not less than $17,200,000 (the “Year 3 Target”); if (i) the Year 3
Target is not achieved, and (ii) the Company renews the employment
agreement of Mr. Weggeman for another three-year term, and (iii) the sum of
the Company’s Adjusted EBITDA for the years ending December 31, 2009 and 2010 is
not less than the sum of the Year 3 Target plus the Year 4 Target (as defined
hereinafter), then such 16.6% shall vest as of March 31, 2011. “Year 4 Target”
means an amount of the Company’s Adjusted EBITDA for the year ending December
31, 2010 that will be agreed upon by the parties in the renewed employment
agreement, if any.
Amounts
vesting on or before October 1, 2009 shall be payable not later than October
31,
2009. Amounts vesting after October 1, 2009 shall be payable promptly after
vesting. Payments shall be made in cash or in common stock of the Company,
as
determined by the Compensation Committee of our Board of Directors in its
absolute discretion.
Accrued
interest payable represents interest on the Olden note. Interest on the note
accrues semi-annually on the last day of June and December in each year and
is
payable, together with the principal sum of the note, on the maturity date
of
such note (see Note 6 for further details).
Note
8. Per Share Data
Basic
earnings per share is computed using net income and the weighted average
number
of shares of common stock outstanding. Diluted earnings per share reflects
the
weighted average number of shares of common stock outstanding plus any
potentially dilutive shares outstanding during the period. Potentially dilutive
shares
consist of shares issuable upon the exercise of stock options, convertible
notes
and restricted stock awards. Shares used in the diluted net income per share
for
the three months ended September 30, 2008 exclude the impact of 2,676 potential
shares of common stock issuable upon the exercise of stock options,
which
were anti-dilutive
.
Shares
used in the diluted net income per share for the nine months ended September
30,
2008, exclude the impact of 2,993 potential shares of common stock issuable
upon
the exercise of stock options,
which
were anti-dilutive
.
Shares
used in the diluted net income per share for the three and nine months ended
September 30, 2007, exclude the impact of 250 of potential shares of common
stock issuable upon the exercise of stock options,
which
were anti-dilutive
.
|
|
Three
Months Ended
September
30,
|
|
Nine
Months Ended
September
30,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
Basic
net income per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
4,445
|
|
$
|
611
|
|
$
|
42,506
|
|
$
|
2,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
41,904
|
|
|
41,717
|
|
|
41,866
|
|
|
41,690
|
|
Basic
net income per share
|
|
$
|
0.11
|
|
$
|
0.01
|
|
$
|
1.02
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share calculation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income as reported
|
|
$
|
4,445
|
|
$
|
611
|
|
$
|
42,506
|
|
$
|
2,673
|
|
Add:
convertible debt interest
|
|
|
13
|
|
|
13
|
|
|
39
|
|
|
39
|
|
Adjusted
net income
|
|
$
|
4,458
|
|
$
|
624
|
|
$
|
42,545
|
|
$
|
2,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
|
|
41,904
|
|
|
41,717
|
|
|
41,866
|
|
|
41,690
|
|
Effect
of dilutive stock options
|
|
|
366
|
|
|
1,277
|
|
|
49
|
|
|
1,039
|
|
Effect
of restricted stock awards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
Effect
of convertible note
|
|
|
5,628
|
|
|
5,628
|
|
|
5,628
|
|
|
5,628
|
|
Effect
of stock fee
|
|
|
702
|
|
|
204
|
|
|
547
|
|
|
148
|
|
Weighted
average common shares - diluted
|
|
|
48,600
|
|
|
48,826
|
|
|
48,090
|
|
|
48,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
net income per share
|
|
$
|
0.09
|
|
$
|
0.01
|
|
$
|
0.88
|
|
$
|
0.06
|
|
Note
9. Income Taxes
For
federal income tax purposes, the Company has available net operating loss
carry-forwards of approximately $110.8 million and research and development
credit carry-forwards of $0.2 million at September 30, 2008. The net operating
loss and research and development credit carry-forwards expire in 2011 through
2026, if not previously utilized. The utilization of these carry-forwards may
be
subject to limitations based on past and future changes in ownership of the
Company pursuant to Section 382 of the Internal Revenue Code, as
amended.
During
the second quarter of 2008, based on the Company’s revised projections for
future taxable income over the periods that the Company's deferred tax assets
are deductible, the Company determined that it was more likely than not that
it
will
have future taxable income sufficient to realize an additional portion of
the
Company’s net
deferred
tax assets and therefore released a significant portion of the remaining
valuation allowance as a discrete item via a credit to income tax expense.
During the third quarter of 2008, the Company released an additional portion
of
the valuation allowance to income tax expense. The reversal of the valuation
allowance resulted in the recognition of $0.9 million and $32.3 million of
income tax benefits in the three and nine months ended September 30, 2008,
respectively. The Company has a remaining $0.9 million valuation allowance
as of
September 30, 2008 and anticipates releasing the remaining allowance in the
fourth quarter of 2008.
Deferred
tax assets were $39.1 million at September 30, 2008 and $8.1 million at December
31, 2007, respectively, net of a valuation allowance of $0.9 and $35.4 million,
respectively.
The
recognition of a valuation allowance for deferred taxes requires management
to
make estimates
and
judgments
about
the
Company’s future profitability
which
are inherently uncertain
.
Deferred tax assets are reduced by valuation allowance when, in the opinion
of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The estimates
and
judgments associated with the Company’s
valuation of deferred taxes are considered critical due to the amount of
deferred taxes recorded
by
the
Company on its
consolidated balance sheet and the judgment required in determining the
Company’s future profitability.
If, in
the opinion of management, it becomes more likely than not that some portion
or
all of the deferred tax assets will not be realized, deferred tax assets would
be reduced by a valuation allowance and any such reduction could have a material
adverse effect on the financial condition of the Company.
The
Company’s conclusion, based upon applicable accounting guidelines, that the
additional portion of the deferred tax assets noted above is more likely
than
not to be realized reflects, among other things, its ability to generate
taxable
income and its projections of future taxable income and includes future years
that the Company estimates it would have available net operating loss
carryforwards. While the Company believes that its estimate of future taxable
income is reasonable, it is inherently uncertain. If the Company realizes
unforeseen material losses in the future, or its ability to generate future
taxable income necessary to realize a portion of the deferred tax assets
is
materially reduced, additions to the valuation allowance which reduce the
deferred tax assets could be recorded. Moreover, because the majority of
the
Company’s deferred tax assets consist of net operating loss carryforwards for
federal tax purposes, if change in control events occur which could limit
the
availability of the net operating loss carryforwards under Section 382 of
the
Internal Revenue Code of 1986, as amended, additions to the valuation allowance
which would reduce the deferred tax assets could also be recorded. Any such
reduction could have a material adverse effect on the financial condition
of the
Company.
The
Company has an effective tax rate of 16.0% for the three months ended September
30, 2008. The effective tax rate consists of the release of a portion of the
deferred tax asset valuation allowance, offset by a federal alternative minimum
tax, state tax and deferred federal income tax due to the utilization of a
portion of the Company’s net operating loss carry-forward. The Company has an
effective tax rate benefit of 235.3% for the nine months ended September 30,
2008. The effective tax rate benefit consists primarily of the reversal of
a
significant portion of the deferred tax asset valuation allowance, offset by
federal alternative minimum tax, state tax and deferred federal income tax
due
to the utilization of a portion of the Company’s net operating loss
carry-forward
The
Company files income tax returns in the U.S. federal jurisdiction and various
state jurisdictions.
Note
10. Employee Benefit Plan
The
Company sponsors a 401(k) Plan (the "Plan"), covering substantially all
employees of the Company. Under the Plan, eligible employees who elect to
participate in the Plan may contribute between 2% and 20% of eligible
compensation to the Plan. For the three months ended September 30, 2008 and
2007
the Company made matching contributions of approximately $45 thousand and $52
thousand, respectively. For the nine months ended September 30, 2008 and 2007
the Company made matching contributions of approximately $127 thousand and
$106
thousand, respectively.
Note
11. Stockholders’ Equity
The
Company measures compensation costs for all share-based payments (including
employee stock options) at fair value and recognizes such costs in the
consolidated statements of income. The Company estimates the fair value of
share-based payments using the binomial stock option valuation model and the
market price of the Company’s common stock at date of award for restricted stock
awards. Total share-based compensation expense for the three and nine months
ended September 30, 2008 was $0.1 million and $0.6 million, respectively. Total
share-based compensation expense for the three and nine months ended September
30, 2007 was $0.6 million and $2.0 million, respectively.
On
September 24, 2008, the Company’s Board of Directors granted a stock option
award to each of our non-employee directors to purchase 15,000 shares of the
Company’s common stock with an exercise price of $1.40 per share, under the
Company’s 2007 Stock Incentive Plan (“The 2007 Stock Option Plan”). These stock
options will vest and become exercisable in four equal consecutive quarterly
tranches commencing on September 30, 2008.
On
June
21, 2007, the Company’s stockholders approved the Company’s 2007 Stock Incentive
Plan (the “2007 Stock Incentive Plan”). Under the 2007 Stock Incentive Plan,
10,000,000 shares of the Company’s common stock will be initially reserved for
issuance and available for awards, subject to an automatic annual increase
equal
to 4% of the total number of shares of the Company’s common stock outstanding at
the beginning of each fiscal year (the “Annual Share Increase”). Awards under
the 2007 Stock Incentive Plan may include non-qualified stock options, incentive
stock options, stock appreciation rights, restricted shares of common stock,
restricted units and performance awards. Awards under the 2007 Stock Incentive
Plan may be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any subsidiary of the Company. In
any
calendar year, no participant may receive awards under the 2007 Stock Incentive
Plan for more than 2,500,000 shares of the Company’s common stock. Additionally,
no more than 2,500,000 of the total shares of common stock available for
issuance under the 2007 Stock Incentive Plan may be granted in the form of
restricted shares, restricted units or performance awards, subject to an
automatic annual increase, beginning with January in year 2008 and continuing
through January in year 2017, equal to 75% of the total number of shares of
the
Company’s common stock increased pursuant to the Annual Share Increase. The 2007
Stock Incentive Plan will have a term of ten years expiring on June 21, 2017.
For the three and nine months ended September 30, 2008 the Company recorded
$0.1
million and $0.6 million, respectively, of compensation expense relating to
these awards.
On
June
21, 2007, the Company’s stockholders approved the Company’s 2007 Annual
Incentive Plan (the “2007 Annual Incentive Plan”). The 2007 Annual Incentive
Plan allows the Company to award certain executive officers of the Company
or
any subsidiary of the Company, with “performance-based compensation” as defined
under Section 162(m) of the Internal Revenue Code of 1986, as amended, which
enables the Company to deduct such compensation from its taxable income. As
of
June 30, 2008, no awards have been issued under this plan.
In
April
2000, the Company’s Board of Directors adopted the 2000 Stock Plan (the “2000
Plan”), which provides for the issuance of non-qualified stock options to
employees who are not officers. The options allow the holder to purchase shares
of the Company’s common stock at fair market value on the date of the grant.
Stock options granted under the 2000 Plan typically vest over three years and
generally expire ten years from the date of grant. As a result of shareholder
approval of the 2007 Stock Incentive Plan, the Company's 2000 Plan has been
frozen and will remain in effect only to the extent of awards outstanding under
the plan as of June 21, 2007.
In
February 1999, the Company’s Board of Directors adopted the 1999 Equity
Incentive Plan (the “1999 Plan”), which provides for the issuance of both
incentive and non-qualified stock options. The options allow the holder to
purchase shares of the Company’s common stock at fair market value on the date
of the grant. For options granted to holders of more than 10% of the outstanding
common stock, the option price at the date of the grant must be at least equal
to 110% of the fair market value of the stock. Stock options granted under
the
1999 Plan typically vest when performance conditions are met or over three
years
and generally expire ten years from the date of grant. As a result of
shareholder approval of the 2007 Stock Incentive Plan, the Company's 1999 Plan
has been frozen and will remain in effect only to the extent of awards
outstanding under the plan as of June 21, 2007.
A
summary
of option activity
,
excluding performance-based awards,
under
the
Plans for the nine months ended September 30, 2008, is presented
below:
Options
|
|
Shares
(000)
|
|
Weighted-Average
Exercise Price
|
|
Weighted-Average
Remaining Contractual Term (years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at January 1, 2008
|
|
|
1,541
|
|
$
|
1.22
|
|
|
|
|
|
|
|
Granted
|
|
|
30
|
|
|
1.40
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
1,571
|
|
$
|
1.23
|
|
|
8.0
|
|
$
|
270
|
|
Vested
or expected to vest at September 30, 2008
|
|
|
1,571
|
|
$
|
1.23
|
|
|
8.0
|
|
$
|
270
|
|
Exercisable
at September 30, 2008
|
|
|
908
|
|
$
|
1.21
|
|
|
7.3
|
|
$
|
175
|
|
A
summary
of the option activity under the performance-based awards for the nine months
ended September 30, 2008, is presented below:
Performance
Options
|
|
Shares
(000)
|
|
Weighted
Average Exercise Price
|
|
Remaining
Contractual Term (years)
|
|
Aggregate
Intrinsic Value
|
|
Outstanding
at January 1, 2008
|
|
|
1,471
|
|
$
|
1.25
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Forfeited
or expired
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
Outstanding
at September 30, 2008
|
|
|
1,471
|
|
$
|
1.25
|
|
|
9.24
|
|
$
|
221
|
|
Vested
or expected to vest at September 30, 2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Exercisable
at September 30, 2008
|
|
|
—
|
|
$
|
—
|
|
|
—
|
|
$
|
—
|
|
Effective
February 6, 2008, the Company issued to Albert W. Weggeman, the Company's
President and Chief Executive Officer, a restricted stock award of 56,818 shares
of common stock pursuant to the 2007 Stock Incentive Plan. The terms of the
award provide that the award would vest and Mr. Weggeman would be entitled
to
receive the common stock on the earliest to occur of (i) a
Change-of-Control Event as defined in the 2007 Stock Incentive Plan,
(ii) the termination of his employment by the Company without "cause" as
defined in the 2007 Stock Incentive Plan and his employment agreement, or
(iii) the third anniversary of the grant of the restricted stock award,
provided that he is then employed by the Company as its President and Chief
Executive Officer. The restricted stock award will become fully vested on the
occurrence of the earliest of the aforementioned events.
Note
12. Commitments and Contingencies
Except
as
set forth below, t
he
Company
is not a
party to, nor are any of its properties, subject to any pending legal,
administrative or judicial proceedings other than routine litigation incidental
to our business.
Public
Offering Securities Litigation
On
November 2, 2001, Timothy J. Fox filed a purported class action lawsuit against
the Company; FleetBoston Robertson Stephens, Inc., the lead underwriter of
the
Company’s April 1999 initial public offering; several other underwriters who
participated in the initial public offering; Steven J. Snyder, the Company’s
then president and chief executive officer; and Thomas M. Donnelly, the
Company’s then chief financial officer. The lawsuit was filed in the United
States District Court for the Southern District of New York and was assigned
to
the pretrial coordinating judge for substantially similar lawsuits involving
more than 300 other issuers. An amended class action complaint, captioned
In
re
Net Perceptions, Inc. Initial Public Offering Securities
Litigation,
01
Civ.
9675 (SAS), was filed on April 22, 2002, expanding the basis for the action
to
include allegations relating to the Company’s March 2000 follow-on public
offering in addition to those relating to its initial public offering. The
action against the Company was coordinated with the other substantially similar
class actions as
In
re
Initial Public Offering Securities Litigation
,
21 MC
(SAS) (the “Coordinated Class Actions”).
On
August
31, 2005, the Court gave preliminary approval to a settlement reached by the
plaintiffs and issuer defendants in the Coordinated Class Actions. On December
5, 2006, the United States Court of Appeals for the Second Circuit overturned
the District Court's certification of the class of plaintiffs who are pursuing
the claims that would be settled in the settlement against the underwriter
defendants. Plaintiffs filed a Petition for Rehearing with the Second Circuit
on
January 5, 2007 in response to the Second Circuit's decision. On April 6, 2007,
the Second Circuit denied plaintiffs' Petition for Rehearing. On June 25, 2007,
the District Court signed an Order terminating the settlement. On November
13,
2007, the issuer defendants in certain designated “focus cases” filed a motion
to dismiss the second consolidated amended class action complaints that were
filed in those cases. On March 26, 2008, the District Court issued an Opinion
and Order denying, in large part, the motions to dismiss the amended complaints
in the “focus cases.” In the opinion of management, the ultimate
disposition of this matter will not have a material effect on the Company’s
financial position, results of operation or cash flows.
Concord
Steel, Inc. v. Wilmington Steel Processing Co., Inc., et al.
On
November 21, 2007, Concord filed a Verified Complaint in the Delaware Chancery
Court against Wilmington Steel, Kenneth Neary and William Woislaw for violation
of non-compete provisions contained in an Asset Purchase Agreement, dated
September 19, 2006 and certain related agreements, and at the same time moved
for a preliminary injunction to prohibit breaches of those restrictive
covenants. On January 18, 2008, the defendants in that case served an
Answer denying the material allegations of the Complaint and asserting
counterclaims for tortious interference with business relations and
defamation arising from alleged telephone calls made by Concord to the
customer to which Wilmington was selling. On April 3, 2008, the Court
granted the preliminary injunction sought by the Company and thereafter denied
defendants’ request for a stay and for certification of an interlocutory appeal.
On July 22, 2008, defendants withdrew their counterclaims without prejudice.
A
three-day trial was held during the week of October 20, 2008 and a decision
from the Court is expected in the first quarter of next year.
Terrence
P. Meehan v. Concord Steel, Inc.
On
May
30, 2008, the former General Manger at the Company’s Essington, PA facility
commenced a lawsuit against Concord in the United States District Court for
the
Eastern District of Pennsylvania. In his complaint, Plaintiff Terrence Meehan
alleges that he was wrongfully terminated by Concord in violation of
Pennsylvania public policy and seeks compensatory damages in excess of $150,000,
punitive damages, interest and cost of suit. Defense of the suit has been
assumed by Concord's employment practices liability carrier and the action
is
being defended vigorously. On August 12, 2008, the District Court denied
Concord’s motion to dismiss the complaint for legal insufficiency. In the
opinion of management, the ultimate disposition of this matter will not have
a
material effect on the Company’s financial position, results of operation or
cash flows.
John
F. Steward v. Concord Steel, Inc.
Former
employee of CRC Acquisition Corp. filed suit against Concord in June 2007 in
the
Court of Common Pleas, Trumbull County, Ohio alleging that he was terminated
by
Concord in August 2006 (prior to the acquisition on October 3,
2006 by Concord (formerly known as SIG Acquisition Corp.) of the assets of
CRC Acquisition Co. LLC (“CRC”)) in violation of his rights under the federal
Family and Medical Leave Act. Plaintiff John F. Steward seeks compensatory
damages in an unstated amount, liquidated damages, injunctive relief and
reinstatement to his job. Concord is resisting the action and
maintains that CRC is the proper party defendant, denominated as “Concord
Steel.” In June 2008, Concord served CRC with a claim notification
under the Asset Purchase Agreement between CRC, Net Perceptions, Inc and SIG
Acquisition Corp. dated September 22, 2006, in order to obtain indemnification
and defense of the case and to reserve its rights in this matter. On August
18, 2008, the Plaintiff served its amended complaint to add as named as
defendants in addition to Concord, the original named defendant, each of
Concord, SIG Acquisition Corp., and CRC. CRC subsequently asserted cross claims
against Concord which we intend to defend vigorously. Discovery on this matter
is continuing and the Court has set January 12, 2009 as a trial
date.
The
Company believes that the outcome of these matters, individually and in the
aggregate, will not have a material adverse effect on the consolidated financial
statements.
Note
13. Related Party Transactions
On
September 22, 2006, the Company entered into a five-year consulting agreement
(the “Consulting Agreement”) with Kanders & Company, Inc. (“Kanders &
Company”). The Consulting Agreement provides that Kanders & Company will
render investment banking and financial advisory services to the Company on
a
non-exclusive basis, including strategic planning, assisting in the development
and structuring of corporate debt and equity financings, introductions to
sources of capital, guidance and advice as to (i) potential targets for mergers
and acquisitions, joint ventures, and strategic alliances, including
facilitating the negotiations in connection with such transactions, (ii) capital
and operational restructuring, and (iii) shareholder
relations.
The
Consulting Agreement provides for Kanders & Company to receive a fee equal
to (i) $0.5 million in cash per year during the term of the Consulting
Agreement, payable monthly, and (ii) 1% of the amount by which the Company’s
revenues as reported in the Company’s Form 10-K, or if no such report is filed
by the Company, as reflected in the Company’s audited financial statements for
the applicable fiscal year, exceeds $60.0 million, payable in shares of common
stock of the Company (the “Stock Fee”) valued at the weighted average price of
the Company’s common stock for the applicable fiscal year. Upon a
“change-in-control” (as defined in the Consulting Agreement), Kanders &
Company will be entitled to a one-time lump sum cash payment equal to three
times the average amount Kanders & Company received during each of the two
fiscal years preceding such “change-in-control,” subject to certain limitations
as set forth in the Consulting Agreement. Upon the death or permanent disability
of Mr. Kanders, the Company has agreed to make a one-time lump sum cash payment
to Kanders & Company equal to that amount Kanders & Company would be
entitled to receive upon a “change-in-control.” Upon payment of the amounts due
to Kanders & Company either upon the occurrence of a “change-in-control,” or
upon the death or permanent disability of Mr. Kanders, the Consulting Agreement
will terminate. For the three months ended September 30, 2008 and 2007, the
Company recorded consulting fees of $0.4 million and $0.2 million, respectively,
related to the Consulting Agreement. For the nine months ended September 30,
2008 and 2007, the Company recorded consulting fees of $1.1 million and $0.8
million, respectively, related to the Consulting Agreement. As of September
30,
2008 and December 31, 2007, the accrued balance due to Kanders & Company
under this agreement amounted to $0.7 million and $0.5 million,
respectively.
During
2008 and 2007, Kanders & Company was issued 231 shares and 41
shares, respectively, of the Company’s common stock representing
the Stock Fee for services provided under the Consulting
Agreement.
For
the
three months ended September 30, 2008 and 2007, the Company reimbursed Clarus
Corporation (“Clarus”) an entity it shared office space with until October 1,
2007, an aggregate of $11 thousand and $18 thousand, respectively; and for
the
nine months ended September 30, 2008 and 2007, the Company reimbursed Clarus
$29
thousand and $101 thousand, respectively, for telecommunication, professional
and general office expenses which Clarus incurred on behalf of the Company.
Warren B. Kanders, the Company’s Non-Executive Chairman, also serves as the
Executive Chairman of Clarus.
On
April
21, 2004, the Company closed on an investment into the Company by Olden for
the
purpose of initiating a strategy to redeploy the Company’s assets and use the
Company’s cash, cash equivalent assets and marketable securities to enhance
stockholder value (see Note 6). The Company issued and sold to Olden a 2%
ten-year Convertible Subordinated Note, which is presently convertible
(and
subject to a call by the Company under certain circumstances)
at
a
conversion price of $0.45 per share of Company common stock into approximately
19.9% of the outstanding common equity of the Company as of the closing date.
Proceeds to the Company from this transaction totaled approximately $2.5 million
before transaction costs of $0.3 million. The transaction costs are being
amortized over ten years, the term of the debt. Interest on the note accrues
semi-annually on the last day of June and December in each year and is payable,
together with the principal sum of the note, on the maturity date of the note.
The note matures on April 21, 2014 unless accelerated earlier as provided by
the
note. Because the convertible subordinated note was deemed to include a
beneficial conversion feature, at the date of issuance the Company allocated
$0.1 million to the beneficial conversion feature and amortized the beneficial
conversion feature over one year (the period after which the note is
convertible). As of December 31, 2006, zero remains to be amortized of the
note
discount due to the beneficial conversion feature. Also in connection with
this
transaction, the Company entered into a Registration Rights Agreement, which
requires the Company, upon request of the purchaser of the note or its assignee,
to register under the Securities Act of 1933, as amended, the resale of the
shares of common stock into which the note is convertible. As of September
30,
2008
and
December 31, 2007, the outstanding balance on the note payable amounted
to
$2.5
million and is classified as long-term debt.
Note
14. Fair Value Measurements
SFAS
157
defines fair value, establishes a framework for measuring fair value in
accordance with accounting principles generally accepted in the United States
of
America, and expands disclosures about fair value measurements. The Company
has
adopted the provisions of SFAS 157 as of January 1, 2008 for its financial
instruments. Although the adoption of SFAS 157 did not materially impact its
financial condition, results of operations, or cash flows, the Company is now
required to provide additional disclosures as part of its financial
statements.
SFAS
157
establishes a three-tier fair value hierarchy, which prioritizes the inputs
used
in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, defined
as
inputs other than quoted prices in active markets that are either directly
or
indirectly observable; and Level 3, defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity to develop its
own assumptions.
As
of
September 30, 2008, the Company has interest rate swap contracts that are
required to be measured at fair value on a recurring basis.
The
inputs utilized to determine the fair values of these contracts are determined
using published market prices or estimates based on observable inputs such
as
interest rates, yield curves, and spot rates. The Company has consistently
applied these valuation techniques in all periods presented.
The
Company’s liabilities measured at fair value on a recurring basis subject to the
disclosure requirements of SFAS 157 at September 30, 2008, were as
follows:
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
Description
|
|
9/30/2008
|
|
Quoted
Prices
in
Active
Markets
for
Identical
Liabilities
(Level
1)
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate derivatives
|
|
$
|
209
|
|
$
|
—
|
|
$
|
209
|
|
$
|
—
|
|
Total
liabilities measured at fair value
|
|
$
|
209
|
|
$
|
—
|
|
$
|
209
|
|
$
|
—
|
|
Note
15. Rights Agreement
On
February 11, 2008, the Company entered into
an
amendment to its shareholder rights agreement (the “Rights Agreement”)
that
decreases the trigger threshold to 4.9%, from 15%, as the amount of the
Company’s outstanding common stock that a person must beneficially own before
being deemed to be an “Acquiring Person” under the Rights Agreement.
Stockholders who own 4.9% or more of the Company’s outstanding common stock as
of the effective date of the amendment would not trigger the Rights Agreement
so
long as they do not subsequently increase their ownership of the Company’s
common stock. The amendment also provides that if a person inadvertently
becomes
an Acquiring Person by acquiring shares of the Company’s common stock, and
thereafter promptly disposes of shares to bring its ownership of shares below
4.9% of the common stock, such person shall not be deemed an Acquiring Person.
The Company’s Board of Directors determined that the amendment would be in the
best interests of the Company and its stockholders, because it is expected
to
assist in limiting the number of 5% or more owners and thus is expected to
reduce the risk of a possible “change of ownership” as defined under Section 382
of the Internal Revenue Code of 1986, as amended. Any such “change of ownership”
under these rules would limit or eliminate the ability of the Company to
use its
existing NOL’s for federal income tax purposes. There is no guaranty that the
objective of the amendment of preserving the value of NOL’s will be achieved.
There is a possibility that certain stock transactions may be completed by
stockholders or prospective stockholders that could trigger a “change of
ownership,” and there are other limitations on the use of NOL’s set forth in the
Internal Revenue Code of 1986, as amended.
Item
2
.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
This
report on Form 10-Q contains certain forward-looking statements, including
information about or related to our future results, certain projections and
business trends. Assumptions relating to forward-looking statements involve
judgments with respect to, among other things, future economic, competitive
and
market conditions and future business decisions, all of which are difficult
or
impossible to predict accurately and many of which are beyond our control.
When
used in this report, the words "estimate," "project," "intend," "believe,"
"expect" and similar expressions are intended to identify forward-looking
statements. Although we believe that our assumptions underlying the
forward-looking statements are reasonable, any or all of the assumptions could
prove inaccurate, and we may not realize the results contemplated by the
forward-looking statements. Management decisions are subjective in many respects
and susceptible to interpretations and periodic revisions based upon actual
experience and business developments, the impact of which may cause us to alter
our business strategy or capital expenditure plans that may, in turn, affect
our
results of operations. In light of the significant uncertainties inherent in
the
forward-looking information included in this report, you should not regard
the
inclusion of such information as our representation that we will achieve any
strategy, objectives or other plans. The forward-looking statements contained
in
this report speak only as of the date of this report, and we have no obligation
to update publicly or revise any of these forward-looking statements.
These
forward-looking and other statements, which are not historical facts, are
based
largely upon our current expectations and assumptions and are subject to
a
number of risks and uncertainties that could cause actual results to differ
materially from those contemplated by such forward-looking statements. These
risks and uncertainties include, among others, our inability to secure necessary
financing, our inability to implement our acquisition growth strategy and
integrate and successfully manage any businesses that we acquire, our inability
to continue to generate revenues at historic levels in our newly acquired
operating divisions, changes in the demand for counterweights, changes in
the
elevator or construction industries
,
changes
in our relationship with our unionized employees, the current economic downturn
and its effect on the credit and capital markets as well as the industries
and
customers that utilize our products, decline in the business of our customers,
reductions to our deferred tax assets or recognition of such assets
and our
ability to fully use our net operating loss carry forward, and the risks
and
uncertainties set forth in the section headed “Risk Factors” of Part I, Item 1A
of our Annual Report on Form 10-K, for the fiscal year ended December 31,
2007
and described below. The Company cannot guarantee its future performance.
We
cannot assure you that we will be successful in the implementation of our
growth
strategy or that any such strategy will result in the Company’s future
profitability. Our failure to successfully implement our growth strategy
could
have a material adverse effect on the market price of our common stock and
our
business, financial condition and results of operations.
References
in this report to “Stamford Industrial Group,” the “Company,” “we,” “our” and
“us” refer to Stamford Industrial Group, Inc. (formerly known as “Net
Perceptions, Inc.”) and, if so indicated or the context requires, includes our
wholly-owned subsidiary, Concord Steel, Inc. (formerly known as “SIG Acquisition
Corp., Inc.”) (which is doing business as Concord Steel and is referred to in
this report as “Concord”).
OVERVIEW
Stamford
Industrial Group,
through
its wholly-owned subsidiary Concord,
is a
leading independent manufacturer of steel counterweights and structural
weldments. We sell our products primarily in the United States to original
equipment manufacturers (“OEM”) of certain construction and industrial related
equipment that employ counterweights for stability through counterweight
leverage in the operation of equipment used to hoist heavy loads, such as
elevators and cranes. The counterweight market we target is primarily comprised
of OEMs within the (i) commercial and industrial construction equipment industry
that manufactures aerial work platforms, telehandlers, scissor lifts, cranes,
and a variety of other construction related equipment and vehicles; and (ii)
the
elevator industry, that incorporates counterweights as part of the overall
elevator operating mechanism to balance the weight of the elevator cab and
load.
Stamford
Industrial Group was initially established in 1996 under the name “Net
Perceptions, Inc.” as a provider of marketing software solutions. In 2003, as a
result of continuing losses and the decline of its software business, the
Company began exploring various strategic alternatives, including sale or
liquidation, and ceased the marketing and development of its marketing solutions
software business in 2004. On April 21, 2004, the Company announced an
investment into the Company by Olden Acquisition LLC (“Olden”), an affiliate of
Kanders & Company, Inc., an entity owned and controlled by the Company’s
Non-Executive Chairman, Warren B. Kanders, for the purpose of initiating a
strategy to redeploy the Company’s assets and use its cash, cash equivalent
assets and marketable securities to enhance stockholder value. As part of this
strategy, on October 3, 2006, the Company acquired the assets of CRC Acquisition
Co. LLC (“CRC”), a manufacturer of steel counterweights doing business as
Concord Steel. With this initial acquisition, management is now focused on
building a diversified global industrial manufacturing group through both
organic and acquisition growth initiatives that are expected to complement
and
diversify existing business lines. The Company’s acquisition program is focused
on building a diversified industrial growth company providing engineered
products and solutions for global niche markets. The Company seeks acquisitions
with transactions valued up to $150 million and having an EBITDA range of $5-$25
million.
Our
subsidiary, Concord Steel, has been engaged in negotiations to replace our
collective bargaining agreement covering approximately 100 employees at its
Warren, Ohio facility which initially expired on August 31, 2008. On November
1,
2008, Concord Steel, in order to protect its business and facility, determined
to temporarily not have the Warren, Ohio employees return to work until the
contract and security issues are appropriately resolved. As previously
disclosed, a work stoppage or any strike or slowdown could significantly
disrupt
our operations at our Warren, Ohio facility and materially adversely affect
our
business, results of operations and financial condition. Moreover, there
can be
no assurance that Concord Steel will be able to negotiate a new collective
bargaining agreement on terms satisfactory to it
.
The
following management’s discussion and analysis of financial condition and
results of operations of Stamford Industrial Group, Inc. should be read in
conjunction with the historical financial statements and footnotes of Stamford
Industrial Group included elsewhere in this report and in the Company’s 2007
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
Our future results of operations may change materially from the historical
results of operations reflected in Stamford Industrial Group’s historical
financial statements.
Consolidated
Operating Results for the Three Months Ended September 30, 2008 Compared to
the
Three Months Ended September 30, 2007
REVENUES
Revenue
increased $13.3 million or 47.2% to $41.5 million for the three months ended
September 30, 2008, as compared to $28.2 million for the three months ended
September 30, 2007. The increase of $13.3 million is primarily due to higher
sales volume resulting from increased demand for our products from existing
customers, as a result of increased spending in commercial and industrial
construction, and infrastructure building end markets, price increases to
customers, and an increase in average scrap selling prices.
GROSS
MARGIN
Gross
margin was $9.1 million or 21.9% of sales for the three months ended September
30, 2008, as compared to $5.1 million or 18.1% of sales for the three months
ended September 30, 2007. The 21.0% increase in gross margin percentage was
due
to favorable product mix, lower scrap material rates, higher scrap sales price,
higher sales volume and price increases to customers, partially offset by higher
cost of raw material, and an increase in direct labor cost associated with
the
ramp up of our Essington, Pennsylvania manufacturing facility.
OPERATING
EXPENSES
Operating
expenses for the three months ended September 30, 2008 increased $0.2 million
or
5.9% to $3.6 million as compared to $3.4 million
for
the
three months ended September 30, 2007
.
Sales
and marketing
.
Sales
and marketing expenses consisted primarily of freight costs, salaries, other
employee-related costs, commissions and other incentive compensation, travel
and
entertainment and expenditures for marketing programs such as collateral
materials, trade shows, public relations and creative services. For the three
months ended September 30, 2008, sales and marketing expenses increased $0.1
million or 25.0% to $0.5 million as compared to $0.4 million for the three
months ended September 30, 2007. The increase was primarily due to increased
freight costs of $0.1 million.
General
and administrative
.
General
and administrative expenses consist primarily of employee compensation,
insurance, legal, accounting, other professional fees and public reporting
expenses. For the three months ended September 30, 2008, general and
administrative expenses was $2.9 million as compared to $2.9 million for the
three months ended September 30, 2007. Stock-based compensation expense
decreased by $0.5 million as a result of a stock option modifications made
in
the fourth quarter of 2007, offset by an increase in employee-related expenses
of $0.2 million due to the transition of temporary employees to full-time and
an
increase in incentive-based compensation, transaction costs of $0.1 million,
depreciation expense of $0.1 million related to capital expenditures associated
with the establishment of the Company’s corporate office, and an increase in
professional fees of $0.1 million.
Related
party stock compensation.
For
the
three months ended September 30, 2008, the Company had related party stock
compensation expense of $0.3 million associated with the Consulting Agreement
with Kanders & Company as compared to $0.1 million for the three months
ended September 30, 2007. The increase of $0.2 million is the result of
increased revenues for the quarter. (See Note 13 to the consolidated financial
statements.)
Interest
expense.
Interest
expense was $0.2 million for the three months ended September 30, 2008, compared
to interest expense of $0.7 million for the three months ended September 30,
2007. Interest expense was down for the quarter due to the reduction in our
outstanding debt balance. (See Note 6 to the financial statements.)
PROVISION
FOR INCOME TAXES
For
federal income tax purposes, the Company has available net operating loss
carry-forwards of approximately $110.8 million and research and development
credit carry-forwards of $0.2 million at September 30, 2008. The net operating
loss and research and development credit carry-forwards expire in 2011 through
2026 if not previously utilized. The utilization of these carry-forwards may
be
subject to limitations based on past and future changes in ownership of the
Company pursuant to Section 382 of the Internal Revenue Code of 1986, as
amended.
During
the second quarter of 2008, based on the Company’s revised projections for
future taxable income over the periods that the Company's deferred tax assets
are deductible, the Company determined that it was more likely than not that
it
will
have future taxable income sufficient to realize an additional portion of the
Company’s net
deferred
tax assets and therefore released a significant portion of the remaining
valuation allowance as a discrete item in the quarter via a credit to income
tax
expense. During the third quarter of 2008 the Company released an additional
amount to income tax expense. The reversal of the valuation allowance resulted
in the recognition of $0.9 million and $32.3 million of income tax benefits
in
the three and nine months ended September 30, 2008, respectively. The Company
has remaining $0.9 million valuation allowance as of September 30, 2008 and
anticipates releasing the remaining allowance in the fourth quarter of
2008.
Deferred
tax assets were $39.1 million at September 30, 2008 and $8.1 million at December
31, 2007, respectively, net of a valuation allowance of $0.9 and $35.4 million,
respectively.
The
recognition of a valuation allowance for deferred taxes requires management
to
make estimates
and
judgments about the Company’s future profitability which are inherently
uncertain. Deferred tax assets are reduced by valuation allowance
when
,
in the
opinion of management, it
is
more
likely than not that some portion or all of the deferred tax assets will
not be
realized. The estimates and judgments associated with the Company’s
valuation of deferred taxes are considered critical due to the amount of
deferred taxes recorded
by
the
Company on its
consolidated balance sheet and the judgment required in determining the
Company’s future profitability.
If, in
the opinion of management, it becomes more likely than not that some portion
or
all of the deferred tax assets will not be realized, deferred tax assets
would
be reduced by a valuation allowance and any such reduction could have a material
adverse effect on the financial condition of the Company.
The
Company’s conclusion, based upon applicable accounting guidelines, that the
additional portion of the deferred tax assets noted above is more likely
than
not to be realized reflects, among other things, its ability to generate
taxable
income and its projections of future taxable income and includes future years
that the Company estimates it would have available net operating loss
carryforwards. While the Company believes that its estimate of future taxable
income is reasonable, it is inherently uncertain. If the Company realizes
unforeseen material losses in the future, or its ability to generate future
taxable income necessary to realize a portion of the deferred tax assets
is
materially reduced, additions to the valuation allowance which reduce the
deferred tax assets could be recorded. Moreover, because the majority of
the
Company’s deferred tax assets consist of net operating loss carryforwards for
federal tax purposes, if change in control events occur which could limit
the
availability of the net operating loss carryforwards under Section 382 of
the
Internal Revenue Code of 1986, as amended, additions to the valuation allowance
which could reduce the deferred tax assets could also be recorded. Any such
reduction could have a material adverse effect on the financial condition
of the
Company.
The
Company has an effective tax rate of 16.0% for the three months ended September
30, 2008 which consists of the release of a portion of the deferred tax asset
valuation allowance, offset by a federal alternative minimum tax, state tax
and
deferred federal income tax due to the utilization of a portion of the Company’s
net operating loss carry-forward. For the three months end September 30, 2007,
the Company had an effective tax rate of 35.1%.
Consolidated
Operating Results for the Nine Months Ended September 30, 2008 Compared to
the
Nine Months Ended September 30, 2007
REVENUES
Revenue
increased $31.9 million or 37.8% to $116.3 million for the nine months ended
September 30, 2008, as compared to $84.4 million for the nine months ended
September 30, 2007. The increase of $31.9 million is primarily due to higher
sales volume resulting from increased demand for our products from existing
customers, as a result of increased spending in commercial and industrial
construction, and infrastructure building end markets, price increases to
customers, and an increase in average scrap selling prices.
GROSS
MARGIN
Gross
margin was $25.7 million or 22.1% of sales for the nine months ended September
30, 2008, as compared to $14.8 million or 17.5% of sales for the nine months
ended September 30, 2007. The 26.3% increase in gross margin percentage was
due
to favorable product mix, lower scrap material rates, higher sales volume and
price increases, partially offset by higher cost of raw material, and an
increase in direct labor cost associated with the ramp up of our Essington,
Pennsylvania manufacturing facility.
OPERATING
EXPENSES
Operating
expenses for the nine months ended September 30, 2008, increased $2.1 million
or
22.1% to $11.6 million as compared to $9.5 million for the nine months ended
September 30, 2007.
Sales
and marketing
.
Sales
and marketing expenses consisted primarily of freight costs, salaries, other
employee-related costs, commissions and other incentive compensation, travel
and
entertainment and expenditures for marketing programs such as collateral
materials, trade shows, public relations and creative services. For the nine
months ended September 30, 2008, sales and marketing expenses increased $0.5
million or 50.0% to $1.5 million as compared to $1.0 million for the nine months
ended September 30, 2007. The increase was primarily due to increased freight
cost of $0.2 million, increased travel expenses of $0.2 million and employee
related costs of $0.1 million.
General
and administrative
.
General
and administrative expenses consist primarily of employee compensation,
insurance, legal, accounting and other professional fees as well as public
company expenses such as transfer agent expenses. For the nine months ended
September 30, 2008, general and administrative expenses was $9.5 million as
compared to $8.0 million for the nine months ended September 30, 2007.
Stock-based compensation expense decreased by $1.4 million as a result of a
stock option modifications made in the fourth quarter of 2007, offset by an
increase in employee related expenses of $0.8 million due to the transition
of
temporary employees to full-time and an increase in incentive-based
compensation, legal fees of $0.5 million, transaction costs of $0.6 million,
depreciation expense of $0.3 million related to capital expenditures associated
with the establishment of the Company’s corporate office, leasing expense of
$0.1 million for the corporate office, and an increase in utilities and other
overhead expenses of $0.6 million.
Related
party stock compensation.
For
the
nine months ended September 30, 2008, the Company had related party stock
compensation expense of $0.7 million associated with the Consulting Agreement
with Kanders & Company as compared to $0.4 million for the nine months ended
September 30, 2007. The increase of $0.3 million is the result of increased
revenues for the period. (See Note 13 to the consolidated financial
statements.)
Interest
expense.
Interest
expense was $1.5 million for the nine months ended September 30, 2008 compared
to interest expense of $1.9 million for the nine months ended September 30,
2007. The primary reason for the decrease in interest expense is due to the
overall reduction in the company’s revolving credit facility and term loan, the
mark to market adjustment of $0.2 million on interest rate swap agreements,
offset by higher temporary interest rates associated with the second amendment
to the credit facility. (See Note 6 to the consolidated financial
statements.)
PROVISION
FOR INCOME TAXES
The
Company has an effective tax rate benefit of 235.3% for the nine months ended
September 30, 2008. The effective tax rate benefit consists primarily of the
reversal of a significant portion of the deferred tax asset valuation allowance,
offset by federal alternative minimum tax, state tax and deferred federal income
tax due to the utilization of a portion of the Company’s net operating loss
carry-forward. For the nine months ended September 30, 2007, the Company had
an
effective tax rate of 19.2%. See Note 9 for further discussion of the valuation
allowance.
LIQUIDITY
AND CAPITAL RESOURCES
Liquidity
In
connection with the Company’s acquisition of the assets of Concord, Concord
entered
into a senior secured credit facility (the “Credit Agreement”) dated October 3,
2006 with LaSalle Bank National Association, which was acquired by Bank of
America on October 1, 2007, as administrative agent (the “Agent”) and the
lenders party thereto.
The
Credit Agreement establishes a commitment by the lenders to Concord to provide
up to $40.0 million in the aggregate of loans and other financial accommodations
consisting of (i) a five-year senior secured term loan in an aggregate principal
amount of $28.0 million, (ii) a five-year senior secured revolving credit
facility in the aggregate principal amount of $10.0 million (the “Revolving
Facility”) and (iii) a five-year senior secured capital expenditure facility in
the aggregate principal amount of $2.0 million. The Revolving Facility is
further subject to a borrowing base consisting of up to 85% of eligible accounts
receivable and up to 55% of eligible inventory. The Revolving Facility includes
a sublimit of up to an aggregate amount of $5.0 million in letters of credit
and
a sublimit of up to an aggregate amount of $2.5 million in swing line loans.
The
capital expenditure facility permitted the Company to draw funds for the
purchase of machinery and equipment during the 6-month period ended March 3,
2007, and then converted into a 4.5-year term loan. Immediately following the
closing of the Concord acquisition, the Company drew down approximately $31.3
million and had additional availability under the Revolving Facility of
approximately $6.7 million. There were no amounts drawn under the capital
expenditure facility at the time of closing of the credit facility nor were
there any amounts drawn down prior to March 3, 2007 the date the capital
expenditure facility expired.
On
March
13, 2008, we entered into a second amendment to the Credit Agreement to provide
for, among other things, revisions to certain of the financial covenants under
the bank credit facilities discussed above.
At
September
30, 2008
and December 31, 2007, the outstanding balance from the revolving credit
facility was $3.8 million and $5.3 million, respectively. At
September
30,
2008, the Company had $4.6 million available in additional borrowings net of
$1.6 million in outstanding letters of credit which have not been drawn upon.
The balance under the term loan at
September
30, 2008
and December 31, 2007 was $20.0 million and $23.0 million, respectively. At
September
30, 2008
and December 31, 2007, the Company had $4.0 million, respectively, classified
as
current and $16.0 million and $19.0 million, respectively classified as
long-term. During the three month and nine month periods ended
September
30,
2008, the Company was in compliance with all financial covenants under the
bank
credit facilities. The Company’s future compliance with its financial covenants
under the bank credit facilities will depend on its ability to generate earnings
and manage its assets effectively. The bank credit facilities also have various
non-financial covenants, requiring the Company to refrain from taking certain
actions and requiring it to take certain actions, such as keeping in good
standing the corporate existence, maintaining insurance, and providing the
bank
lending group with financial information on a timely basis.
Borrowings
under the Credit Agreement bear interest, at the Company’s election, at either
(i) a rate equal to three month variable London Interbank Offer Rate (“LIBOR”),
plus an applicable margin ranging from 1.25% to 2.5%, depending on certain
conditions, or (ii) an alternate base rate which will be the greater of (a)
the
Federal Funds rate plus 0.5% or (b) the prime rate publicly announced by the
Agent as its prime rate, plus, in both cases, an applicable margin ranging
from
0% to 1.0%, depending on certain conditions. At
September
30, 2008
and December 31, 2007, the applicable interest rate for the outstanding
borrowings under the Credit Agreement was 4.99% and 7.24%,
respectively.
The
Credit Agreement is guaranteed by the Company and its direct and indirect
subsidiaries and is secured by, among other things, (a) (i) all of the equity
interests of Concord’s subsidiaries and (ii) a pledge by the Company of all of
the issued and outstanding shares of stock of Concord by the Company and (b)
a
first priority perfected security interest on substantially all the assets
of
the Company and its direct and indirect subsidiaries pursuant to a guaranty
and
collateral agreement dated October 3, 2006 and delivered in connection with
the
Credit Agreement (the “Guaranty Agreement”). In addition, LaSalle Bank National
Association, acting as the Agent for the benefit of the lenders, has a mortgage
on all owned real estate of the Company and its direct and indirect
subsidiaries, as well as deposit account control agreements with respect to
funds on deposit in bank accounts of the Company and its direct and indirect
subsidiaries.
The
Company is exposed to interest rate volatility with regard to existing issuances
of variable rate debt. Primary exposure includes movements in the U.S. prime
rate and LIBOR. The Company uses interest rate swaps to reduce interest rate
volatility. On January 2, 2007, the Company entered into an interest rate
protection agreement that currently has approximately $10.8 million of interest
rate swaps fixing interest rates between 5.0% and 5.8%.
Market
volatility in LIBOR has recently exposed the Company to higher pricing for
outstanding borrowings provided under the Credit Agreement. Based on available
information, we believe the financial institutions syndicated under our Credit
Agreement are able to fulfill their commitments as of our filing date, however,
there can be no assurance that one or more financial institutions may not cease
to be able to fulfill their funding obligations.
On
April
21, 2004, the Company closed on an investment into the Company by Olden
Acquisition LLC (“Olden”)
,
an
affiliate of Kanders & Company, Inc.,
for
the
purpose of initiating a strategy to redeploy the Company’s assets and use the
Company’s cash, cash equivalent assets and marketable securities to enhance
stockholder value. The Company issued and sold to Olden a 2% ten-year
Convertible Subordinated Note, which is presently convertible
(and
subject to a call by the Company under certain circumstances)
at
a
conversion price of $0.45 per share of Company common stock into approximately
19.9% of the outstanding common equity of the Company as of the closing date.
Proceeds to the Company from this transaction totaled approximately $2.5 million
before transaction costs of $0.3 million. The transaction costs are being
amortized over ten years, the term of the debt. Interest on the note accrues
semi-annually but is not payable currently or upon conversion of the note.
The
note matures on April 21, 2014. Because the convertible subordinated note was
deemed to include a beneficial conversion feature at the date of issue the
Company allocated $0.1 million to the beneficial conversion feature and
amortized the beneficial conversion feature over one year (the period after
which the note is convertible). As of
September
30, 2008
and December 31, 2007, the outstanding balance on the note payable amounted
to
$2.5 million and is classified as long-term debt.
Operating
Activities
Net
cash
provided by operating activities was $4.5 million for the nine months ended
September 30, 2008, reflecting net income of $42.5 million, depreciation and
amortization of $1.7 million, non-cash deferred stock-based compensation
expenses of $0.6 million, provision for doubtful accounts of $0.3 million offset
by the impact of the change in deferred tax assets of $31.1 million and the
changes in working capital of $9.5 million. The change in working capital is
primarily due to the timing of price increases to customers, tight credit
markets experienced by our vendors and the timing difference between increased
revenues generated and cash collections. Net cash provided by operating
activities was $0.6 million for the nine months ended September 30, 2007,
reflecting net income of $2.7 million, depreciation and amortization of $1.2
million, non-cash deferred stock-based compensation expenses of $2.0 million
offset by the impact of changes in working capital of $5.3 million. The change
in working capital is primarily due to the timing difference between increased
revenues generated and cash collections.
Investing
Activities
Net
cash
used in investing activities was $0.6 million for the nine months ended
September 30, 2008, primarily resulting from implementation of Concord’s new
information technology platform and the purchase of machinery and equipment.
Net
cash used in investing activities was $4.8 million for the nine months ended
September 30, 2007, primarily resulting from the purchase of machinery and
equipment and the ramp-up of Essington, PA.
Financing
Activities
Net
cash
used in financing activities was $4.5 million for the nine months ended
September 30, 2008. The net cash used in financing activities was primarily
from
an increase in the Company’s line of credit facility of $1.5 million which was
used for working capital expansion and capital expenditures, offset by cash
used
to paydown a portion of the Company’s line of credit facility in the amount of
$3.0 million and to paydown long-term debt in the amount of $3.0 million. Net
cash provided by financing activities was $0.5 million for the nine months
ended
September 30, 2007. The net cash provided by financing activities was primarily
from an increase in the Company’s line of credit facility of $3.5 million which
was used for working capital expansion and capital expenditures, offset by
cash
used to paydown long-term debt in the amount of $3.0 million.
We
believe that the Company’s Revolving Facility and cash from operations will be
sufficient to meet our expected working capital needs for at least the next
twelve months. However, the various sectors of the credit markets and financial
services industry have been experiencing a period of unprecedented turmoil
and
upheaval characterized by disruption in the credit markets and availability
of
credit and other financing, the failure, bankruptcy, collapse or sale of various
financial institutions and an unprecedented level of intervention from the
United States federal government. While the ultimate outcome of these events
cannot be predicted, they may have a material adverse effect on our ability
to
obtain financing necessary to effectively execute our acquisition strategy,
the
ability of our customers and suppliers to continue to operate their businesses
or the demand for our products which could have a material adverse effect on
the
market price of our common stock and our business, financial condition and
results of operations. If the Company has a need for funding, we believe our
liquidity requirements can be satisfied by drawing upon our contractually
committed credit facility, but under extreme market conditions, there can be
no
assurance that this agreement would be available or sufficient. Based on
available information, we believe the financial institutions syndicated under
our Credit Agreement are able to fulfill their commitments as of our filing
date, however, there can be no assurance that one or more financial institutions
may not cease to be able to fulfill their funding obligations.
Recent
distress in the financial markets has had an adverse impact on financial market
activities including among other things, extreme volatility in security prices,
severely diminished liquidity and credit availability, rating downgrades of
certain investments and declining valuations of others. The Company has assessed
the implication of these factors on our current business and determined that
there has not been a significant impact to our financial position, results
of
operations or liquidity during the nine months ended September 30,
2008.
Capital
Expenditures
The
Company anticipates capital expenditures, excluding acquisitions, of $0.3
million for the remainder of fiscal 2008. The Company expects capital
expenditures will be funded from cash generated by operations and its revolving
credit facility.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
March
2008
,
the
Financial Accounting Standards Board (“FASB”) issued Statement of Financial
Accounting Standards No. 161, Disclosures about Derivative Instruments and
Hedging Activities - an amendment of FASB Statement No. 133 ("SFAS 161"). SFAS
161 changes the disclosure requirements for derivative instruments and hedging
activities. Under SFAS 161, entities are required to provide enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b)
how
derivative instruments and related hedged items are accounted for under
Statement 133 and its related interpretations, and (c) how derivative
instruments and related hedged items affect an entity's financial position,
financial performance, and cash flows. SFAS 161 is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Statement encourages, but
does
not require, comparative disclosures for earlier periods at initial adoption.
The Company does not anticipate any material impact on its future disclosure
from the adoption of this standard.
In
September 2006, FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair
value, establishes a framework for measuring fair value under generally accepted
accounting principles, and requires expanded disclosures about fair value
measurements. SFAS 157 emphasizes that fair value is a market-based measurement,
not an entity-specific measurement, and states that a fair value measurement
should be determined based on the assumptions that market participants would
use
in pricing the asset or liability. SFAS 157 applies under other accounting
pronouncements that require or permit fair value measurements, the FASB having
previously concluded in those accounting pronouncements that fair value is
the
relevant measurement attribute. Accordingly, SFAS 157 does not require any
new
fair value measurements. In February 2008, the FASB issued Staff Positions
157-1 and 157-2 which remove certain leasing transactions from the scope of
SFAS
157 and partially defer the effective date of SFAS 157 for one year for certain
nonfinancial assets and liabilities. SFAS 157 is effective for fiscal years
beginning after November 15, 2007. The adoption of FAS 157 did not have a
material impact on the Company's financial position, results of operations
and
cash flows. The Company is currently assessing the impact of fully adopting
SFAS
157 on its future disclosure for nonfinancial assets and liabilities, with
no
impact on its consolidated financial position and resulting
operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (“SFAS 141R”), which replaces SFAS No. 141, “Business
Combinations.” SFAS 141R retains the underlying concepts of SFAS No. 141 in that
all business combinations are still required to be accounted for at fair value
under the acquisition method of accounting, but SFAS 141R changes the
application of the acquisition method in a number of significant aspects.
Acquisition costs will generally be expensed as incurred; noncontrolling
interests will be valued at fair value at the acquisition date; in-process
research and development will be recorded at fair value as an indefinite-lived
intangible asset at the acquisition date; restructuring costs associated with
a
business combination will generally be expensed subsequent to the acquisition
date; and changes in deferred tax asset valuation allowances and income tax
uncertainties after the acquisition date generally will affect income tax
expense. SFAS No. 141R is effective on a prospective basis for all business
combinations for which the acquisition date is on or after the beginning of
the
first annual period subsequent to December 15, 2008. Early adoption is not
permitted. SFAS No. 141R will only be applicable to future business
combinations, it will not have a significant effect on the Company’s financial
statements prior to such an acquisition.
Item
3
.
Quantitative and Qualitative Disclosures about Market Risk
Through
September 30, 2008, the majority of our recognized revenues were denominated
in
United States dollars and were primarily from customers in the United States,
and our exposure to foreign currency exchange rate changes has been immaterial.
Accordingly, we do not consider our exposure to foreign currency exchange rate
changes arising from revenues being denominated in foreign currencies to be
significant.
The
Company’s primary exposure to market risk is interest rate risk associated with
our senior credit facilities under our Credit Agreement.
The
Company has a long-term credit facility that bears interest, at the Company’s
election, at either (i) a rate equal to three month variable
LIBOR
,
plus an
applicable margin ranging from 1.25% to 2.5%, depending on certain conditions,
or (ii) an alternate base rate which will be the greater of (a) the Federal
Funds rate plus 0.5% or (b) the prime rate publicly announced by the Agent
as
its prime rate, plus, in both cases, an applicable margin ranging from 0% to
1.0%, depending on certain conditions. At September 30, 2008, the applicable
interest rate for the outstanding borrowings under the Credit Agreement was
4.99%.
The
Company is exposed to interest rate volatility with regard to existing issuances
of variable rate debt. Primary exposure includes movements in the United States
prime rate and LIBOR. The Company uses interest rate swaps to reduce interest
rate volatility. On January 2, 2007, the Company entered into an interest rate
protection agreement that has approximately $10.8 million of interest rate
swaps
fixing interest rates between 5.0% and 5.8%. At September 30, 2008, the net
benefit of $0.2 million on the interest rate swap is reported in the statement
of operations as a reduction of interest expense.
Market
volatility in LIBOR has recently exposed the Company to higher pricing for
outstanding borrowings provided under the Credit Agreement. Based on available
information, we believe the financial institutions syndicated under our Credit
Agreement are able to fulfill their commitments as of our filing date, however,
there can be no assurance that one or more financial institutions may not cease
to be able to fulfill their funding obligations.
Item
4
.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer, its principal
executive officer and principal financial officer, respectively, carried out
an
evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) as of September 30, 2008, pursuant to Exchange Act Rule 13a-15.
Based upon that evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that the Company’s disclosure controls and
procedures as of September 30, 2008 are effective.
Changes
in Internal Control over Financial Reporting
There
have not been any changes in the Company’s internal control over financial
reporting during the three months ended September 30, 2008 that have materially
affected, or are reasonably likely to materially affect the Company’s internal
control over financial reporting.
PART
II. OTHER INFORMATION
Item
1
.
Legal Proceedings
Except
as
set forth below, there have been no material changes to the legal proceedings
described in the Company’s Annual Report Form 10-K for the year ended December
31, 2008.
Public
Offering Securities Litigation
On
November 2, 2001, Timothy J. Fox filed a purported class action lawsuit against
the Company; FleetBoston Robertson Stephens, Inc., the lead underwriter of
the
Company’s April 1999 initial public offering; several other underwriters who
participated in the initial public offering; Steven J. Snyder, the Company’s
then president and chief executive officer; and Thomas M. Donnelly, the
Company’s then chief financial officer. The lawsuit was filed in the United
States District Court for the Southern District of New York and was assigned
to
the pretrial coordinating judge for substantially similar lawsuits involving
more than 300 other issuers. An amended class action complaint, captioned
In
re
Net Perceptions, Inc. Initial Public Offering Securities
Litigation,
01
Civ.
9675 (SAS), was filed on April 22, 2002, expanding the basis for the action
to
include allegations relating to the Company’s March 2000 follow-on public
offering in addition to those relating to its initial public offering. The
action against the Company was coordinated with the other substantially similar
class actions as
In
re
Initial Public Offering Securities Litigation
,
21 MC
(SAS) (the “Coordinated Class Actions”).
On
August
31, 2005, the Court gave preliminary approval to a settlement reached by the
plaintiffs and issuer defendants in the Coordinated Class Actions. On December
5, 2006, the United States Court of Appeals for the Second Circuit overturned
the District Court's certification of the class of plaintiffs who are pursuing
the claims that would be settled in the settlement against the underwriter
defendants. Plaintiffs filed a Petition for Rehearing with the Second Circuit
on
January 5, 2007 in response to the Second Circuit's decision. On April 6, 2007,
the Second Circuit denied plaintiffs' Petition for Rehearing. On June 25, 2007,
the District Court signed an Order terminating the settlement. On November
13,
2007, the issuer defendants in certain designated “focus cases” filed a motion
to dismiss the second consolidated amended class action complaints that were
filed in those cases. On March 26, 2008, the District Court issued an Opinion
and Order denying, in large part, the motions to dismiss the amended complaints
in the “focus cases.” In the opinion of management, the ultimate
disposition of this matter will not have a material effect on the Company’s
financial position, results of operation or cash flows.
Concord
Steel, Inc. v. Wilmington Steel Processing Co., Inc., et al.
On
November 21, 2007, Concord filed a Verified Complaint in the Delaware Chancery
Court against Wilmington Steel, Kenneth Neary and William Woislaw for violation
of non-compete provisions contained in an Asset Purchase Agreement, dated
September 19, 2006 and certain related agreements, and at the same time moved
for a preliminary injunction to prohibit breaches of those restrictive
covenants. On January 18, 2008, the defendants in that case served an
Answer denying the material allegations of the Complaint and asserting
counterclaims for tortious interference with business relations and
defamation arising from alleged telephone calls made by Concord to the
customer to which Wilmington was selling. On April 3, 2008, the Court
granted the preliminary injunction sought by the Company and thereafter denied
defendants’ request for a stay and for certification of an interlocutory appeal.
On July 22, 2008, defendants withdrew their counterclaims without prejudice.
A
three-day trial was held during the week of October 20, 2008 and a decision
from the Court is expected in the first quarter of next year.
Terrence
P. Meehan v. Concord Steel, Inc.
On
May
30, 2008, the former General Manger at the Company’s Essington, PA facility
commenced a lawsuit against Concord in the United States District Court for
the
Eastern District of Pennsylvania. In his complaint, Plaintiff Terrence Meehan
alleges that he was wrongfully terminated by Concord in violation of
Pennsylvania public policy and seeks compensatory damages in excess of $150,000,
punitive damages, interest and cost of suit. Defense of the suit has been
assumed by Concord's employment practices liability carrier and the action
is
being defended vigorously. On August 12, 2008, the District Court denied
Concord’s motion to dismiss the complaint for legal insufficiency. In the
opinion of management, the ultimate disposition of this matter will not have
a
material effect on the Company’s financial position, results of operation or
cash flows.
John
F. Steward v. Concord Steel, Inc.
Former
employee of CRC Acquisition Corp. filed suit against Concord in June 2007 in
the
Court of Common Pleas, Trumbull County, Ohio alleging that he was terminated
by
Concord in August 2006 (prior to the acquisition on October 3,
2006 by Concord (formerly known as SIG Acquisition Corp.) of the assets of
CRC Acquisition Co. LLC (“CRC”)) in violation of his rights under the federal
Family and Medical Leave Act. Plaintiff John F. Steward seeks compensatory
damages in an unstated amount, liquidated damages, injunctive relief and
reinstatement to his job. Concord is resisting the action and
maintains that CRC is the proper party defendant, denominated as “Concord
Steel.” In June 2008, Concord served CRC with a claim notification
under the Asset Purchase Agreement between CRC, Net Perceptions, Inc and SIG
Acquisition Corp. dated September 22, 2006, in order to obtain indemnification
and defense of the case and to reserve its rights in this matter. On August
18, 2008, the Plaintiff served its amended complaint to add as named as
defendants in addition to Concord, the original named defendant, each of
Concord, SIG Acquisition Corp., and CRC. CRC subsequently asserted cross claims
against Concord which we intend to defend vigorously. Discovery on this matter
is continuing and the Court has set January 12, 2009 as a trial
date.
The
Company believes that the outcome of these matters, individually and in the
aggregate, will not have a material adverse effect on the consolidated financial
statements.
Item
1A
.
Risk
Factors
Recent
turmoil across various sectors of the financial markets may negatively impact
the Company’s business, financial condition and/or operating
results.
Recently,
the various sectors of the credit markets and the financial services industry
have been experiencing a period of unprecedented turmoil and upheaval
characterized by disruption in the credit markets and availability of credit
and
other financing, the failure, bankruptcy, collapse or sale of various financial
institutions and an unprecedented level of intervention from the United States
federal government. While the ultimate outcome of these events cannot be
predicted, they may have a material adverse effect on our ability to obtain
financing necessary to effectively execute our acquisition strategy, the ability
of our customers and suppliers to continue to operate their businesses or the
demand for our products which could have a material adverse effect on the market
price of our common stock and our business, financial condition and results
of
operations.
Except
as
discussed above, there are no material changes to the risk factors disclosed
in
the factors discussed in “Risk Factors” in Part I, Item 1A of the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007, which
could materially affect the Company’s business, financial condition or future
results. The risks described in the Company’s filings with the Securities and
Exchange Commission are not the only risks facing the Company. Additional risks
and uncertainties not currently known to the Company or that the Company
currently deems to be immaterial also may materially adversely affect the
Company’s business, financial condition and/or operating results.
Item
2. Unregistered Sales of Equity Securities.
On
September 11, 2008, the Company issued 230,790 shares of common stock to
Kanders
& Company in exchange for services provided pursuant to the Consulting
Agreement by and between the Company and Kanders & Company dated September
22, 2006. The issuance did not involve any public offering, general advertising
or solicitation. Such shares were issued pursuant to an exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as amended
(the “Securities Act”) and/or Regulation D promulgated under the Securities Act.
In connection with the issuance, Kanders & Company represented its intention
to acquire the securities for investment purposes only and not with a view
to or
for sale in connection with any distribution thereof and the share certificates
representing such shares will bear appropriate legends to that effect. These
securities may not be offered or sold in the United States in the absence
of an
effective registration statement or exemption from the registration requirements
under the Securities Act.
Item
6
.
Exhibits
Exhibit
Number
|
|
Description
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1
|
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
32.2
|
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
|
|
|
Stamford
Industrial Group, Inc.
|
|
|
|
Date:
November 10, 2008
|
By:
|
/s/
Albert W. Weggeman Jr.
|
|
Albert
W. Weggeman, Jr.
|
|
President
and
Chief Executive Officer
|
|
|
|
|
|
|
|
By:
|
/s/
Jonathan LaBarre
|
|
Jonathan
LaBarre
|
|
Chief
Financial Officer, Secretary and
Treasurer
|
EXHIBIT
INDEX
Exhibit
Number
|
|
Description
|
31.1
|
|
Certification
of Principal Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
31.2
|
|
Certification
of Principal Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
32.1
|
|
Certification
of Principal Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
32.2
|
|
Certification
of Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|