MHLX - Highlights from FORM 10-QSB
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THREE AND SIX MONTHS ENDED JUNE 30, 2006 AND 2005
On April 8, 2005 the Company acquired 100% of the outstanding stock of Moore and as result of this acquisition date the second quarter, ended June 30, 2006, can effectively be compared with the same quarter in 2005. The results for the six months ended June 30, 2006 will differ, as the Moore acquisition did not occur until early April 2005.
Total sales in the second quarter of 2006 were $3,949,315 compared to $2,443,595 in the second quarter of 2005, an increase of 62%. The sales increases in both the Moore and MicroCoax divisions were a result of increased demand from existing customers while at the same time new customers contributed significantly to the increased sales levels. For the six months ended June 30, 2006 total sales were $7,727,299 compared to $2,862,279, or an increase of $4,865,020 on a year to year basis, an increase of 170%. The primary reason for this increase was due to the acquisition of Moore Electronics and the increase in business during the second quarter as previously discussed.
Gross profit in the second quarter of 2006 was $804,008 compared to $125,427 in the second quarter of 2005. The significant increase in gross profit margin from 5.1% in the second quarter of 2005 compared to 20.3% in the second quarter of 2006 can be attributed to operating the plants at a higher capacity, lower manufacturing expenses, improved inventory management and the sales of higher margin products. For the six months ended June 30, 2006 the total gross profit was $1,014,031 compared to gross profit of $204,003 recorded during the first six months of 2005. The increase in gross profit during this period of $810,028 is primarily due to the acquisition of Moore Electronics and the improvements in operating efficiency achieved during the second quarter of 2006.
Total operating expenses in the second quarter of 2006 were $760,483 compared to total operating expenses of $964,370 incurred during the same quarter a year earlier. The primarily reason for the decrease in expenses of $203,887 is due to the additional expenses incurred by the Company associated with the acquisition of Moore Electronics in the second quarter of 2005. For the six-month period ending June 30, 2006 total operating expenses were $1,412,115 compared to $1,165,112, or an increase of $247,003. This increase is attributed to an increase in the sales and administrative personnel related to the Moore division.
Interest expense for the second quarter of 2006 was $88,996 compared to $57,245 for the same quarter in 2005. On a six month basis interest expense for 2006 was $156,399 compared to $65,212 in 2005, or an increase of $91,187. The increase in interest expense is attributed to the increase in the outstanding line of credit balance needed to support the increased level of business and the interest expense is related to a shareholder note used in part to acquire Moore Electronics.
Primarily as a result of the significant increase in sales and the associated improvements in gross profit the Company earned a profit of $469 in the second quarter of this year compared to a loss of $895,738 recorded in the second quarter of 2005, or an improvement of $896,207. On a year to date basis for the six months ended June 30, 2006 the Company recorded a loss of $462,296 compared to a loss of $1,025,871 recorded during the first six months of 2005, or an improvement of $563,575 that can primarily be attributed to second quarter changes previously discussed.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2006 the Company had $24,269 of cash and cash equivalents. Cash used in operating activities for the six-month period ended June 30, 2006 was $108,893 compared to $157,291 used in the same period a year ago. The cash used in operations during the first six months of the year primarily related to an increase in inventories of $674,326 and a decrease in customer deposits of $163,456 that were offset by an increase in accounts payable of $859,337. The decrease in cash of $34,043 since December 31, 2005 reflects $108,893 used for operating activities plus $225,529 invested in capital expenditures for tooling and equipment to support our manufacturing partner in Malaysia, and the installation of a new ERP software system. These expenditures were partially financed by $300,379 of cash proceeds from a note and through an increase in our line of credit.
As of June 30, 2006, the Company had a $2,000,000 line of credit for working capital, secured by accounts receivable and inventory. As of June 30, 2006, there was $1,430,165 outstanding on the line of credit and the availability on the line of credit was $569,835. The line of credit expires on April 7, 2007. |
