SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2004
Commission File Number 0-7092
RELIABILITY INCORPORATED
(Exact name of registrant as specified in its charter)
| TEXAS | 75-0868913 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
| 16400 Park Row Post Office Box 218370 Houston, Texas |
77218-8370 | |
| (Address of principal executive offices) | (Zip Code) |
(281) 492-0550
(Registrant’s telephone number, including area code)
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 twelve 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 ninety days. YES x NO ¨
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
6,335,965—Common Stock—No Par Value
as of August 9, 2004
FORM 10-Q
TABLE OF CONTENTS
June 30, 2004
| Page No. | ||||
| PART I - FINANCIAL INFORMATION | ||||
| Item 1. |
Financial Statements: | |||
|
Consolidated Balance Sheets: June 30, 2004 and December 31, 2003 |
3 | |||
|
Consolidated Statements of Operations: Six Months Ended June 30, 2004 and 2003 |
4 | |||
| Three Months Ended June 30, 2004 and 2003 | 5 | |||
|
Consolidated Statements of Cash Flows: Six Months Ended June 30, 2004 and 2003 |
6 | |||
| Notes to Consolidated Financial Statements | 7-13 | |||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14-18 | ||
| Item 3. |
Quantitative and Qualitative Disclosure of Market Risk | 18 | ||
| Item 4. |
Controls and Procedures | 18 | ||
| PART II - OTHER INFORMATION | ||||
| Item 4. |
Submission of Matters to a Vote of Security Holders | 19 | ||
| Item 6. |
Exhibits and Reports on Form 8-K. | 19 | ||
| 20 | ||||
2
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(In thousands)
| June 30, 2004 |
December 31, 2003 |
|||||||
| (unaudited) | (Note 1) | |||||||
| ASSETS | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 2,637 | $ | 4,454 | ||||
| Accounts receivable |
456 | 476 | ||||||
| Inventories |
703 | 727 | ||||||
| Other current assets |
83 | 156 | ||||||
| Total current assets |
3,879 | 5,813 | ||||||
| Property, plant and equipment, at cost: |
||||||||
| Machinery and equipment |
14,094 | 14,107 | ||||||
| Buildings and improvements |
4,640 | 4,640 | ||||||
| Land |
230 | 230 | ||||||
| 18,964 | 18,977 | |||||||
| Less accumulated depreciation |
15,316 | 14,915 | ||||||
| 3,648 | 4,062 | |||||||
| Investments |
216 | 231 | ||||||
| Goodwill |
598 | 598 | ||||||
| Assets held for sale |
1,000 | 1,000 | ||||||
| $ | 9,341 | $ | 11,704 | |||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 194 | $ | 429 | ||||
| Accrued liabilities |
551 | 438 | ||||||
| Income taxes payable |
12 | 20 | ||||||
| Total current liabilities |
757 | 887 | ||||||
| Deferred tax liabilities |
28 | 33 | ||||||
| Stockholders’ equity: |
||||||||
| Common stock, without par value; 20,000,000 shares authorized; 6,690,265 shares issued |
9,721 | 9,721 | ||||||
| Retained earnings (deficit) |
(89 | ) | 2,129 | |||||
| Accumulated other comprehensive income (loss) |
18 | 28 | ||||||
| Less treasury stock at cost, 354,300 shares |
(1,094 | ) | (1,094 | ) | ||||
| Total stockholders’ equity |
8,556 | 10,784 | ||||||
| $ | 9,341 | $ | 11,704 | |||||
See accompanying notes.
3
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Six Months Ended June 30,
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| Revenues |
||||||||
| Product sales |
$ | 792 | $ | 455 | ||||
| Services |
754 | 412 | ||||||
| 1,546 | 867 | |||||||
| Costs and expenses: |
||||||||
| Cost of product sales |
768 | 679 | ||||||
| Cost of services |
910 | 890 | ||||||
| Marketing, general and administrative |
1,738 | 1,778 | ||||||
| Research and development |
383 | 833 | ||||||
| Asset impairment and restructuring costs |
— | 237 | ||||||
| 3,799 | 4,417 | |||||||
| Operating loss |
(2,253 | ) | (3,550 | ) | ||||
| Interest income |
11 | 36 | ||||||
| Other income |
25 | 356 | ||||||
| Loss before income taxes |
(2,217 | ) | (3,158 | ) | ||||
| Provision (benefit) for income taxes: |
||||||||
| Current |
— | (74 | ) | |||||
| Deferred |
— | 74 | ||||||
| — | — | |||||||
| Net loss |
$ | (2,217 | ) | $ | (3,158 | ) | ||
| Loss per share: |
||||||||
| Basic |
$ | (.35 | ) | $ | (.50 | ) | ||
| Diluted |
$ | (.35 | ) | $ | (.50 | ) | ||
| Weighted average shares: |
||||||||
| Basic |
6,336 | 6,336 | ||||||
| Diluted |
6,336 | 6,336 | ||||||
See accompanying notes.
4
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data)
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| Revenues |
||||||||
| Product sales |
$ | 449 | $ | 250 | ||||
| Services |
390 | 189 | ||||||
| 839 | 439 | |||||||
| Costs and expenses: |
||||||||
| Cost of product sales |
372 | 350 | ||||||
| Cost of services |
415 | 469 | ||||||
| Marketing, general and administrative |
816 | 864 | ||||||
| Research and development |
213 | 363 | ||||||
| Asset impairment and restructuring costs |
— | 237 | ||||||
| 1,816 | 2,283 | |||||||
| Operating loss |
(977 | ) | (1,844 | ) | ||||
| Interest income |
6 | 20 | ||||||
| Other income |
12 | 115 | ||||||
| Loss before income taxes |
(959 | ) | (1,709 | ) | ||||
| Provision (benefit) for income taxes: |
||||||||
| Current |
— | — | ||||||
| Deferred |
— | — | ||||||
| — | — | |||||||
| Net loss |
$ | (959 | ) | $ | (1,709 | ) | ||
| Loss per share: |
||||||||
| Basic |
$ | (.15 | ) | $ | (.27 | ) | ||
| Diluted |
$ | (.15 | ) | $ | (.27 | ) | ||
| Weighted average shares: |
||||||||
| Basic |
6,336 | 6,336 | ||||||
| Diluted |
6,336 | 6,336 | ||||||
See accompanying notes.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended June 30,
| 2004 |
2003 |
|||||||
| (unaudited) | ||||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (2,217 | ) | $ | (3,158 | ) | ||
| Adjustments to reconcile net loss to cash provided (used) by operating activities: |
||||||||
| Depreciation and amortization |
423 | 432 | ||||||
| Provision (benefit) for deferred income taxes |
— | 74 | ||||||
| Provision for inventory obsolescence |
68 | 58 | ||||||
| Gain on sale of assets held-for-sale |
— | (155 | ) | |||||
| Gain on sale of investments |
— | (30 | ) | |||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable |
20 | 12 | ||||||
| Inventories |
(44 | ) | 26 | |||||
| Refundable income taxes |
— | 3,677 | ||||||
| Other current assets |
73 | 36 | ||||||
| Accounts payable |
(235 | ) | (27 | ) | ||||
| Accrued liabilities |
112 | (31 | ) | |||||
| Income taxes payable |
(8 | ) | (9 | ) | ||||
| Cash payments charged to restructuring reserve |
— | (55 | ) | |||||
| Total adjustments |
409 | 4,008 | ||||||
| Net cash provided (used) by operating activities |
(1,808 | ) | 850 | |||||
| Cash flows from investing activities: |
||||||||