? Risks related to the global outbreak of COVID-19 and other public health
? Risks associated with sourcing from overseas;
? Disruption in the global capital and credit markets;
? Unforeseen inventory adjustments or changes in purchasing patterns;
? Exposure to fluctuations in energy prices;
? Exposure to fluctuations within the cost of raw materials;
? The strength of the retail economy in the United States and abroad;
? Adverse changes in currency exchange rates;
? Debt and debt service requirements;
? Borrowing and compliance with covenants under our credit facility;
? Impairment of long-lived assets and goodwill;
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
? The threat of terrorism and related political instability and economic
? Business disruptions or other costs associated with information technology,
cyber-attacks, system implementations, data privacy or catastrophic losses,
During the second quarter of 2022, significant factors that impacted our results of operations were the:
? Ongoing negative impact of the COVID-19 pandemic on revenue, income, and supply
? The acquisition of the Jackson Gear Company business.
? A stocking rollout to our largest retail customer.
? Weak customer mix at Hy-Tech.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
Hy-Tech's "Engineered Solutions" products are sold directly to Original Equipment Manufacturers ("OEM's"), and industrial branded products are sold through a broad network of specialized industrial distributors serving the power generation, petrochemical, aerospace, construction, railroad, mining, ship building and fabricated metals industries. Hy-Tech works directly with its industrial customers, designing and manufacturing products from finished components to complete turnkey systems to be sold under their own brand names.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
INTERNATIONAL SUPPLY CHAIN - Continued
? Congestion at the ports in Asia and the United States; and
? Shortage of truck drivers in the United States.
IMPACT OF INFLATION/GEOPOLITCAL ISSUES
During the six-month period ended June 30, 2022, we do not believe we were directly materially impacted by current geopolitical global events.
Unless otherwise discussed elsewhere in the Management's Discussion and Analysis, we believe that our relationships with our key customers and suppliers remain satisfactory.
The tables below provide an analysis of our net revenue for the three and six-month periods ended June 30, 2022 and 2021:
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - (Continued)
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - (Continued)
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
GROSS MARGIN/PROFIT - Continued
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During the second quarter of 2022, our SG&A was $5,479,000, compared to $5,458,000 incurred during the same three-month period in 2021. Key components to the net change are:
During the second quarter of 2021, we incurred approximately $288,000 in costs
i) related to the May 2021 ransomware attack at our Florida Pneumatic subsidiary,
incentives and associated payroll taxes and employee benefits. Several
ii) factors contributed to this increase, among them the staffing added in
We incurred increases this quarter, compared to the same quarter in 2021 in
iii) professional fees, stock-based compensation, and amortization of $47,000,
Our six-month 2022 total SG&A was $10,652,000, compared to $10,449,000 incurred during the same period in the prior year. Key components to the net change are:
Compensation expenses increased $316,000. Compensation expense is comprised of
base salaries and wages, accrued performance-based bonus incentives and
associated payroll taxes and employee benefits. Several factors contributed
i) to this increase, among them the staffing added in connection with the JGC
acquisition, increased wages primarily related to retention incentives and
Professional fees and expenses increased $280,000, due primary to legal,
ii) accounting, and other fees incurred in connection with the JGC acquisition.
Other expenses that contributed to the increase in professional fees were
cyber security related costs and recruitment fees.
Our variable expenses decreased $253,000. Driving this decline were
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Continued
Our computer-related expenses declined $248,000, when comparing the six-month
periods ended June 30, 2022 and 2021. During the second quarter of 2021 we
iv) incurred approximately $288,000 in costs related to the May 2021 ransomware
attack at our Florida Pneumatic subsidiary, where no such costs were incurred
during the second quarter of 2022.
v) Lastly, our general corporate expenses declined $61,000 this quarter, compared
to the same period in 2021.
Other expense in 2022 consists primarily of adjustments to the fair value of certain assets.
As discussed earlier, during the second quarter of 2021, we applied for and received forgiveness of the PPP loan. Accordingly, we recorded the reversal of associated interest expense.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
INTEREST EXPENSE (INCOME) - Continued
Debt issue costs are associated with an amendment to the Credit Agreement.
There were no amortizable debt issue costs incurred with Amendment No. 9, or Amendment No. 10 to the Credit Agreement.
Other interest relates to interest received in connection with federal income tax refunds received.
We gauge our liquidity and financial stability by various measurements, some of which are shown in the following table:
At June 30, 2022, there was $7,000,000 available to us under our Revolver arrangement.
Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued
RESULTS OF OPERATIONS - Continued
LIQUIDITY AND CAPITAL RESOURCES - Continued
Our total debt to total book capitalization (total debt divided by total debt plus equity) on June 30, 2022, was 18.9%, compared to 11.6% on December 31, 2021.
During the six-month period ended June 30, 2022, we used $923,000 for capital expenditures, compared to $247,000 during the same period in the prior year.
Capital expenditures currently planned for the remainder of 2022 are approximately $700,000, which we expect will be financed through the Credit Facility.
Our liquidity and capital is primarily sourced from our credit facility, described in Note 9 - Debt, to our Consolidated Financial Statements, and cash from operations.
Refer to Note 1 - Business and summary of accounting policies - Customer Concentration for a detailed discussion.
There were no new accounting standards or pronouncements issued during the three and six-month periods ended June 30, 2022 that were applicable to us.
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