Back to GetFilings.com
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, 2004
-------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------------------------------------------
COMMISSION FILE NUMBER 1-5005
---------------------------------------------------------
SELAS CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1069060
- ------------------------------- --------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO)
INCORPORATION OR ORGANIZATION)
1260 RED FOX ROAD, ARDEN HILLS, MINNESOTA 55112
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(651) 636-9770
- --------------------------------------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
N/A
- --------------------------------------------------------------------------------
(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.
(X) YES ( ) NO
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED BY RULE 12B-2 OF THE EXCHANGE ACT)
( ) YES (X ) NO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
COMMON SHARES, $1.00 PAR VALUE 5,129,214 (exclusive of 515,754
- ------------------------------ --------------------------------------
CLASS treasury shares)
---------------
OUTSTANDING AT November 12, 2004
SELAS CORPORATION OF AMERICA
I N D E X
---------
Page
Number
------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed (Unaudited) Balance Sheets
as of September 30, 2004 and December 31, 2003 1,2
Consolidated Condensed (Unaudited) Statements
of Operations for the Three Months Ended
September 30, 2004 and 2003 3
Consolidated Condensed (Unaudited) Statements
of Operations for the Nine Months Ended
September 30, 2004 and 2003 4
Consolidated Condensed (Unaudited) Statements
of Cash Flows for the Nine Months Ended
September 30, 2004 and 2003 5
Notes to Consolidated Condensed (Unaudited)
Financial Statements 6-11
Item 2. Management's Discussion and Analysis 12-19
of Financial Condition and Results of
Operations
Item 3. Quantitative and Qualitative Disclosures 20
About Market Risk
Item 4. Controls and Procedures 20
PART II: OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of 21
Security Holders
Item 5. Other Information 21
Item 6. Exhibits 21
i
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
--------------------
SELAS CORPORATION OF AMERICA
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
(UNAUDITED)
September 30, December 31,
2004 2003
------------- ------------
Current assets:
Cash, including cash equivalents of
$435,000 in 2004 and $431,000 in 2003 (all
cash equivalents are restricted) $ 1,006,097 $ 624,867
Accounts receivable (less allowance for
doubtful accounts of $247,000 in 2004
and $254,000 in 2003) 5,576,698 4,537,830
Inventories (Note 6) 4,213,618 5,709,642
Refundable income tax 14,205 728,351
Deferred income taxes (Note 8) -- 890,230
Asset held for sale (Note 12) -- 540,175
Other current assets 485,283 480,305
Assets of discontinued operations (Note 3) 5,547,363 5,729,410
----------- -----------
Total current assets 16,843,264 19,240,810
Property, plant and equipment:
Land 170,500 170,500
Buildings 1,732,914 1,732,914
Machinery and equipment 26,821,486 26,353,715
----------- -----------
28,724,900 28,257,129
Less: Accumulated depreciation 19,944,565 18,621,161
----------- -----------
Net property, plant and equipment 8,780,335 9,635,968
Goodwill 5,264,585 5,264,585
Other assets, net 1,149,735 1,253,186
----------- -----------
$32,037,919 $35,394,549
=========== ===========
(See accompanying notes to the consolidated condensed financial statements)
1
SELAS CORPORATION OF AMERICA
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
September 30, December 31,
2004 2003
-------------------- --------------------
Current liabilities:
Bank debt (Note 7) $ 6,353,708 $ 8,568,162
Accounts payable 2,079,557 2,757,942
Customers' advance payments on contracts 164,965 172,279
Accrued salaries, wages, and commissions 1,602,550 1,522,231
Other accrued liabilities 1,055,498 1,930,855
Liabilities of discontinued operations(Note 3) 1,551,412 2,341,493
------------ -----------
Total current liabilities 12,807,690 17,292,962
Accrued pension liability 2,684,887 2,714,763
Other postretirement benefit obligations 2,827,417 2,827,417
Deferred income taxes 124,260 123,529
Contingencies and commitments (Notes 10 and 11)
Shareholders' equity:
Common shares, $1 par; 10,000,000 shares
authorized; 5,644,968 shares issued 5,644,968 5,644,968
Additional paid-in capital 12,025,790 12,025,790
Accumulated deficit (2,036,521) (3,231,009)
Accumulated other comprehensive loss (775,494) (738,793)
Less: 515,754 common shares held
in treasury, at cost (1,265,078) (1,265,078)
----------- -----------
Total shareholders' equity 13,593,665 12,435,878
----------- -----------
$32,037,919 $35,394,549
=========== ===========
(See accompanying notes to the consolidated condensed financial statements)
2
SELAS CORPORATION OF AMERICA
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
------------------
September 30, September 30,
2004 2003
------------- -------------
Sales, net $8,524,215 $9,232,049
Cost of sales 6,922,737 6,897,910
---------- ----------
Gross margin 1,601,478 2,334,139
Operating expenses:
Selling expense 889,371 989,823
General and administrative expense 1,245,042 1,481,528
Research and development expense 338,199 373,244
---------- ----------
Total operating expenses 2,472,612 2,844,595
Operating loss (871,134) (510,456)
Interest expense (102,863) (128,190)
Interest income 489 1,715
Other income (expense) 19,047 (8,259)
---------- ----------
Loss from continuing operations
before income taxes (954,461) (645,190)
Income tax expense 14,295 1,034,449
---------- ----------
Loss from continuing operations (968,756) (1,679,639)
Income from discontinued operations,
net of income tax expense, before
extraordinary gain (Note 3) 285,972 869,691
Extraordinary gain from discontinued operations (Note 13) 683,630 --
---------- ----------
Net income (loss) $ 846 $ (809,948)
========== ==========
Income (loss) per share:
Basic:
Continuing operations $( .19) $( .33)
Discontinued operations .06 .17
Extraordinary gain discontinued operations .13 --
------ ------
$ -- $( .16)
====== ======
Diluted:
Continuing operations $( .19) $( .33)
Discontinued operations .06 .17
Extraordinary gain discontinued operations .13 --
------ ------
$ -- $( .16)
====== ======
Average shares outstanding:
Basic 5,129,214 5,124,214
Diluted 5,129,214 5,124,214
(See accompanying notes to the consolidated condensed financial statements)
3
SELAS CORPORATION OF AMERICA
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine Months Ended
-----------------
September 30, September 30,
2004 2003
------------- -------------
Sales, net $ 26,216,712 $ 27,899,945
Cost of sales 20,274,892 20,317,220
------------ ------------
Gross margin 5,941,820 7,582,725
Operating expenses:
Selling expense 2,817,667 2,789,768
General and administrative expense 4,125,911 4,206,617
Research and development expense 1,060,044 1,079,302
------------ ------------
Total operating expenses 8,003,622 8,075,687
Gain on sale of asset held for sale (Note 12) 3,109,627 --
------------ ------------
Operating income (loss) 1,047,825 (492,962)
Interest expense (350,765) (444,037)
Interest income 1,834 6,252
Other income 118,300 37,409
------------ ------------
Income (loss) from continuing operations
before income taxes 817,194 (893,338)
Income tax expense 1,122,199 988,883
------------ ------------
Income (loss) from continuing operations (305,005) (1,882,221)
Income from discontinued operations,
net of income tax expense, before extraordinary gain (Note 3) 815,862 (495,168)
Extraordinary gain from discontinued operations (Note 13)
683,630 --
------------ ------------
Net income (loss) $ 1,194,487 $ (2,377,389)
============ ============
Income (loss) per share:
Basic:
Continuing operations $( .06) $( .37)
Discontinued operations .16 ( .10)
Extraordinary gain discontinued operations .13 --
------ ------
$ .23 $( .47)
====== ======
Diluted:
Continuing operations $( .06) $( .37)
Discontinued operations .16 ( .10)
Extraordinary gain discontinued operations .13 --
------ ------
$ .23 $( .47)
====== ======
Average shares outstanding:
Basic 5,129,214 5,124,214
Diluted 5,129,214 5,124,214
(See accompanying notes to the consolidated condensed financial statements)
4
SELAS CORPORATION OF AMERICA
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
-----------------
September 30, September 30,
2004 2003
------------- -------------
Cash flows from operating activities:
Net income (loss) $ 1,194,487 $(2,377,389)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Loss (income) from discontinued operations (815,862) 495,168
Extraordinary gain from discontinued operations (683,630) --
Depreciation and amortization 1,934,553 1,966,757
Provision for deferred taxes 890,230 965,703
Gain (loss) on disposition of property (1,684) 3,276
Gain on sale of asset held for sale (3,109,627) --
Changes in operating assets and liabilities:
Accounts receivable (1,257,150) (3,952,559)
Inventories 1,502,016 (202,633)
Other assets 690,707 (987,874)
Accounts payable (486,004) 1,207,428
Accrued expenses (873,954) 2,742,288
Customer advances (7,314) (77,460)
Other liabilities 44,654 29,522
------------ -----------
Net cash used by continuing operations (978,578) (187,773)
Net cash provided by discontinued operations 846,734 1,611,644
------------ -----------
Net cash provided (used) by operating activities (131,844) 1,423,871
Cash flows from investing activities:
Proceeds from sales of assets 3,800 --
Proceeds from sale of asset held for sale 3,649,802 --
Purchases of property, plant and equipment (898,192) (1,027,019)
------------ -----------
Net cash provided (used) by investing activities 2,755,410 (1,027,019)
Net cash provided (used) by discontinued operations (29,464) 6,583,546
------------ -----------
Net cash provided by investing activities 2,725,946 5,556,527
Cash flows from financing activities:
Proceeds from bank borrowings 2,057,931 (303,131)
Repayments of bank borrowings (4,226,916) (8,018,068)
------------ -----------
Net cash used by financing activities (2,168,985) (8,321,199)
Effect of exchange rate changes on cash (43,887) 44,891
------------ -----------
Net increase (decrease) in cash and cash equivalents 381,230 (1,295,910)
Cash and cash equivalents, beginning of period 624,867 2,031,690
------------ -----------
Cash and cash equivalents, end of period $ 1,006,097 $ 735,780
============ ===========
(See accompanying notes to the consolidated condensed financial statements)
5
SELAS CORPORATION OF AMERICA
Notes to Consolidated Condensed Financial Statements (Unaudited)
- ----------------------------------------------------------------
1. General
In the opinion of management, the accompanying consolidated condensed
financial statements contain all adjustments (consisting of normal
recurring adjustments) necessary to present fairly Selas Corporation of
America's consolidated financial position as of September 30, 2004 and
December 31, 2003, and the consolidated results of its operations for the
three and nine months ended September 30, 2004 and 2003. Certain
reclassifications have been made to the December 31, 2003 balance sheet,
these reclassifications had no impact on net income.
The Company applies Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees," and related interpretations
in accounting for its stock option plans. Therefore, no compensation
expense has been recognized for the stock option plans. Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for
Stock-Based Compensation", amended by SFAS No. 148 "Accounting for
Stock-Based Compensation-Transition and Disclosure", requires the Company
to disclose pro forma net earnings (loss) and pro forma earnings (loss)
per share amounts as if compensation expense was recognized for all
options granted. The pro forma amounts are as follows:
Three Months Ended
September 30,
-------------
2004 2003
-------- ----------
Net income (loss) as reported $ 846 $(809,948)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (19,721) (21,711)
--------- ---------
Pro forma net loss $ (18,875) $(831,659)
========= =========
Loss per share:
Basic and diluted - as reported $ -- $(.16)
Basic and diluted - pro forma $ -- $(.16)
Nine Months Ended
September 30,
-------------
2004 2003
-------- ----------
Net income (loss) as reported $ 1,194,487 $(2,377,389)
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of related tax effects (59,163) (65,133)
----------- -----------
Pro forma net income (loss) $ 1,135,324 $(2,442,522)
=========== ===========
Income (loss) per share:
Basic and diluted - as reported $ .23 $(.46)
Basic and diluted - pro forma $ .22 $(.47)
2. New Accounting Pronouncements
Financial Accounting Standards Board Interpretation No. ("FIN") 46,
"Consolidation of Variable Interest Entities, an interpretation of ARB
NO. 51" addresses consolidation by business enterprises of variable
6
interest entities that possess certain characteristics. FIN 46 requires
that if a business enterprise has a controlling financial interest in a
variable interest entity, the assets, liabilities, and results of the
activities of the variable interest entity must be included in the
consolidated financial statements with those of the business enterprise.
The consolidation requirements of FIN 46 are effective for the first
reporting period ending after December 15, 2003, for entities considered
to be special-purpose entities. The consolidation requirements for all
other entities subject to FIN 46 are effective for financial statements
of the first reporting period ending after March 15, 2004. The Company
does not have any ownership or other interests in any variable interest
entities as of September 30, 2004. The Company will apply the
consolidation requirements of FIN 46 in future periods should an interest
in a variable interest entity be acquired.
3. Discontinued Operations
Burners and Components Business - In 2003, the Company initiated its plan
to sell the remainder of its Heat Technology segment. This segment
consists of the operating assets of Selas Corporation of America located
in Dresher, Pennsylvania, Nippon Selas located in Tokyo, Japan and Selas
Waermetechnik in Ratingen, Germany. In the third quarter of 2004, Selas
Corporation of America reacquired Selas Waermetechnik GmbH, which was
previously part of Selas SAS. Selas SAS filed insolvency in August of 2003
(note 11). The Company recorded an extraordinary gain of approximately
$684,000 on the reacquisition of Selas Waermetechnik, GmbH (note 13). The
Company plans to sell the segment during 2004 and has classified the
segment as a discontinued operation and, accordingly, has reclassified the
historical financial data. Net income figures are included in the table
below.
Tire Holders, Lifts and Related Products Business - On July 21, 2003, the
Company sold 100 percent of the shares of its Tire Holders, Lifts and
Related Products segment. This segment consisted of one wholly-owned
subsidiary, Deuer Manufacturing, Inc. (Deuer), operating on a stand alone
basis that sold tire holders, lifts and related products to automotive
customers. This subsidiary was included in discontinued operations at
September 30, 2003.
Small Furnace Business - In August 2003, the Company's subsidiary Selas
SAS, which made up the small furnace business, filed insolvency in France
and is under the control of a French insolvency court administrator. As
Selas SAS and its subsidiaries are no longer under the control of the
Company, their results of operations are excluded from the continuing
operations and the historical financial information has been restated to
reflect these subsidiaries as discontinued operations.
The consolidated condensed financial statements reflect the Company's
presentation of discontinued operations. A recap of income (loss) from
discontinued operations, net of income tax expense (benefit) at September
30, 2004 is as follows:
7
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2004 2003 2004 2003
--------- ---------- ----------- ------------
Small furnace $ (1,518) $ - $ (75,858) $(1,580,336)
Burners and components 287,490 (37,076) 891,720 (118,686)
Deuer - - - 297,087
Gain on sale of Deuer - 1,246,794 - 1,246,794
Loss on abandonment of Europe - (2,176,929) - (2,176,929)
Tax benefit on European loss 1,836,902 1,836,902
--------- ---------- ----------- -----------
Income (loss) net of income tax 285,972 869,691 815,862 (495,168)
Gain on acquisition of SWT 683,630 - 683,630 -
--------- ---------- ----------- -----------
$ 969,602 $ 869,691 $ 1,499,492 $ (495,168)
========= ========== =========== ===========
4. Statements of Cash Flows
Supplemental disclosures of cash flow information:
Nine Months Ended
------------------------------------
September 30, September 30,
2004 2003
------------- -------------
Interest received $ 1,932 $ 2,366
Interest paid $ 322,171 $ 375,518
Income taxes paid $ 5,800 $ 2,288
5. Business Segment Information
The Company has made a strategic decision to focus its future on the
Precision Miniature Medical and Electronics business. As part of this
strategy, the Company expects to sell the remaining operations of its Heat
Technology segment of the Burners and Components business. As a result of
these decisions and other divestures the Company has made over the past two
years, the Company now operates in only one segment.
6. Inventories consist of the following at:
September 30, December 31,
2004 2003
------------- ------------
Raw material $ 2,221,852 $ 3,086,127
Work-in-process 1,007,911 1,550,498
Finished products and components 983,855 1,073,017
------------ ------------
$ 4,213,618 $ 5,709,642
============ ============
7. Bank debt
Bank debt at September 30, 2004 and December 31, 2003 is summarized below:
September 30, December 31,
2004 2003
------------- ------------
Notes payable:
Short term borrowings, Europe $ -- $ 1,473,618
Short term borrowings, domestic 4,147,430 4,588,952
Short term borrowings, Asia 448,074 538,792
Term loans, domestic 1,758,204 1,964,756
Other borrowings -- 2,044
----------- -----------
$ 6,353,708 $ 8,568,162
=========== ===========
8
The Company and its domestic subsidiaries have a revolving credit loan
facility which expires April 1, 2005. This loan facility, which has a
maximum limit of $4,500,000, had borrowings of $4,147,430 as of September
30, 2004 bearing an interest rate of 7.75% (Prime plus 3.0%). This facility
carries a commitment fee of .25% per annum, payable on the unborrowed
portion of the line.
The terms of the domestic term loan agreement requires quarterly principal
payments of $300,000 beginning in June 2004 through March 2005, with a
balloon payment due at the end of the loan on April 1, 2005. The loan also
requires proceeds from the sale of certain assets be applied against the
loan. At September 30, 2004, the borrowings under the loan agreement bore
interest, payable monthly, at an interest rate of 7.75% (Prime plus 3.00%).
The note balance at September 30, 2004 was approximately $1,758,000.
The Company has various other credit facilities in Asia with borrowing
limits aggregating $1,057,000 and bearing interest between 5.5 to 6.75%
(prime plus .5 to 2.0%). Total borrowings under these facilities were
$448,074 at September 30, 2004.
Our ability to pay the principal and interest on our indebtedness as it
comes due will depend upon our current and future performance. Our
performance is affected by general economic conditions and by financial,
competitive, political, business and other factors. Many of these factors
are beyond our control.
We believe that funds expected to be generated from operations, management
of our working capital, the available borrowing capacity through our
revolving credit loan facilities, the potential sale of certain assets, and
the control of capital spending will be sufficient to meet our anticipated
cash requirements for operating needs through September 30, 2005. If,
however, we do not generate sufficient cash from operations, or complete
the sale of certain assets on a timely basis, or if we incur additional
liabilities as a result of the Selas SAS insolvency (note 11), we may be
required to seek additional financing or sell equity on terms which may not
be as favorable as we could have otherwise obtained. No assurance can be
given that any refinancing, additional borrowing or sale of equity will be
possible when needed or that we will be able to negotiate acceptable terms.
In addition, our access to capital is affected by prevailing conditions in
the financial and equity capital markets, as well as our own financial
condition. While management believes that the Company will meet its
liquidity needs through September 30, 2005, no assurance can be given that
the Company will be able to do so.
8. Income Taxes
Income taxes expense for the nine months ended September 30, 2004 and
September 30, 2003 was $1,122,199 and $988,883, respectively. This results
in an effective tax rate of 137.3% for the nine months ended September 30,
2004 compared to (110.7)% for the nine months ended September 30, 2003. The
high effective rate for the nine months ended September 30, 2004 was due to
the elimination of the deferred tax asset of $890,230. The deferred tax
asset represented the expected benefit from net operating losses available
at December 31, 2003 utilized to offset the anticipated gain on the asset
held for sale (note 12). This asset was sold in June 2004 at a gain of
approximately $3.1 million and consequently, the deferred tax asset was
eliminated. The effective rate in 2003 was the result of establishing
approximately a $1.2 million net valuation reserve against prior deferred
tax assets.
9
Income taxes expense for the three months ended September 30, 2004 and
September 30, 2003 was $14,295 and $1,034,449, respectively. This results
in an effective tax rate of (1.5)% and (160.3)% for the three months ended
September 30, 2004 and September 30, 2003, respectively. At September 30,
2004 the Company had net operating loss carryforwards for Federal income
tax purposes of approximately $14.7 million that expire in 2023.
9. Income (Loss) Per Share
Excluded from the computation of diluted earnings per share at September
30, 2004 were options to purchase approximately 392,000 common shares, with
an average exercise price of $5.65, because the effect would have been
anti-dilutive. Excluded from the computation of diluted earnings per share
at September 30, 2003 were options to purchase approximately 429,000 common
shares, because the effect would have been anti-dilutive.
10. Legal Proceedings
The Company is a defendant along with a number of other parties in
approximately 91 lawsuits as of September 30, 2004(approximately 101
lawsuits as of December 31, 2003)alleging that plaintiffs have or may have
contracted asbestos-related diseases as a result of exposure to asbestos
products or equipment containing asbestos sold by one or more named
defendants. Due to the noninformative nature of the complaints, the Company
does not know whether any of the complaints state valid claims against the
Company. The lead insurance carrier has informed the Company that the
primary policy for the period July 1, 1972 - July 1, 1975 has been
exhausted and that the lead carrier will no longer provide a defense under
that policy. The Company has requested that the lead carrier substantiate
its position. The Company has contacted representatives of the Company's
excess insurance carrier for some or all of this period. The Company does
not believe that the asserted exhaustion of the primary insurance coverage
for this period will have a material adverse effect on the financial
condition, liquidity, or results of operations of the Company. Management
believes that the number of insurance carriers involved in the defense of
the suits and the significant number of policy years and policy limits to
which these insurance carriers are insuring the Company make the ultimate
disposition of these lawsuits not material to the Company's consolidated
financial position or results of operations.
As more fully described in Note 11, the Company's wholly owned French
subsidiary, Selas SAS, filed insolvency in France and is being managed by
a court appointed judiciary administrator. The Company may be subject to
additional litigation or liabilities as a result of the French insolvency.
The Company is also involved in other lawsuits arising in the ordinary
course of business. While it is not possible to predict with certainty the
outcome of these matters, management is of the opinion that the
disposition of these lawsuits and claims will not materially affect the
Company's consolidated financial position, liquidity, or results of
operations.
11. Subsidiary Insolvency
On August 4, 2003, the Company's wholly owned French subsidiary, Selas
SAS, filed insolvency in the Commercial Court of Nanterre, France and is
being managed through a court appointed judiciary administrator.
Historical financial information has been restated to include this
European operation in discontinued operations. In addition, the Company
10
may be subject to additional litigation or liabilities as a result of the
French insolvency.
12. Sale of Dresher Property
On June 23, 2004, the Company completed the sale of its property in
Dresher, PA, to BT Limekiln LP, a Pennsylvania limited partnership, for
approximately $3.6 million in cash, net of expenses. A gain of $3.1
million was recognized on the sale. The property is the headquarters for
the Company's discontinued Heat Technology business and was previously
classified as an asset held for sale on the Company's consolidated balance
sheet. In connection with the sale, the Company leased back the property
for a term of nine months at a base rental of $20,000 per month, plus
expenses. Proceeds of the sale were used to reduce the Company's
outstanding bank debt (note 7).
13. Acquisition of Selas Waermetechnik, GmbH
In the third quarter of 2004, Selas Corporation of America reacquired
Selas Waermetechnik GmbH, which was previously part of Selas SAS. Selas
SAS filed insolvency in August of 2003. Since that time Selas
Waermetechnik GmbH was under the control of a French court administrator.
Selas Corporation of America owns the rights to the Selas name and the
technology for the European market. This enabled the company to reacquire
the subsidiary for the minimal amount of $10,500 and record an
extraordinary gain within discontinued operations of approximately
$684,000 on the acquisition. The components of the gain are illustrated in
the following table.
Fair market value of assets acquired $1,060,666
Fair market value of liabilities assumed (366,528)
----------
Net fair market value acquired 694,138
Purchase price 10,508
----------
Gain on acquisition $ 683,630
The Company plans on selling the subsidiary during 2004, as part of its
Burners and Components business; therefore it has classified the segment
as a discontinued operation and, accordingly, has reclassified the
historical data.
14. Subsequent Events
In response to softness in the Company's primary hearing health market, in
November 2004 the Company eliminated several management and other
positions. These steps represent a reduction in employee costs of
approximately $916,000 on an annualized basis. The Company will take a
fourth quarter charge of approximately $225,000 associated with severance
costs from these lay-offs.
11
ITEM 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
and Results of Operations
-------------------------
Business Overview
- -----------------
Headquartered in Arden Hills, Minnesota, Selas Corporation of America is an
international firm that designs, develops, engineers and manufactures
micro-miniature medical and electronic products. The Company supplies
micro-miniaturized components, systems and molded plastic parts, primarily to
the hearing instrument manufacturing industry, as well as the computer,
electronics, telecommunications and medical equipment industries. In addition to
its Arden Hills headquarters, the Company has facilities in Minnesota,
California, Singapore, and Germany. Within discontinued operations, the Company
has facilities in Pennsylvania, Japan and Germany. See also notes 3 and 5 to the
Condensed Consolidated Financial Statements.
Currently, the Company has one operating segment, its precision miniature
medical and electronics products segment. In the past, the Company had operated
three segments, precision miniature medical and electronics products segment,
heat technology segment, and tire holders, lifts and related products segment.
In 2001, the Company began focusing on its precision miniature medical and
electronics products segment and developing plans to exit the businesses that
comprised the heat technology segment, and tire holders, lifts and related
products segment. The Company successfully exited the tire holders, lifts and
related products business in 2003 and is in the process of exiting the heat
technology segment. The Company has classified its heat technology segment as
discontinued operations.
The Company manufactures micro-miniature components, systems and molded plastic
parts for hearing instruments, medical equipment, electronics,
telecommunications and computer industry manufacturers.
Components are sold into the hearing health market and consist of volume
controls, microphones, trimmer potentiometers and switches. The Company also
manufactures hybrid amplifiers and integrated circuit components ("hybrid
amplifiers"), along with faceplates for in-the-ear and in-the-canal hearing
instruments. Components are offered in a variety of sizes, colors and capacities
in order to accommodate a hearing manufacturer's individualized specifications.
Sales to hearing instrument manufacturers represented approximately 52% of the
Company's continuing operations sales in the nine-months ended September 30,
2004.
In the medical market, the Company is focused on sales of microelectronics,
micromechanical assemblies and high-precision plastic molded components to
medical device manufacturers. Targeted customers include medical product
manufacturers of portable and lightweight battery powered devices, large
AC-powered units often found in clinics and hospitals, as well as a variety of
sensors designed to connect a patient to an electronic device.
The medical industry is faced with pressures to reduce the costs of healthcare.
The Company offers medical manufacturers the capabilities to design, develop and
manufacture components for medical devices that are easier to use, measure with
greater accuracy and provide more functions while reducing the costs to
manufacture these devices. Examples of the Company's products used by medical
device manufacturers include components found in intravenous fluid
administration pumps that introduce drugs into the bloodstream. The Company
manufacturers and supplies bubble sensors and flow restrictors that monitor and
control the flow of fluid in an intravenous infusion system.
The Company also manufactures a family of safety needle products for an OEM
customer that utilizes the Company's insert and straight molding capabilities.
These products are assembled using full automation including
12
built-in quality checks within the production lines. Other examples include
sensors used to detect pathologies in specific organs of the body and monitoring
devices to detect cardiac and respiratory functions. The early and accurate
detection of pathologies allows for increased likelihood for successful
treatment of chronic diseases and cancers. Accurate monitoring of multiple
functions of the body, such as heart rate and breathing, aids in generating more
accurate diagnosis and treatments for patients.
The Company has also expanded its micro-miniature components business through
the manufacture of thermistors and film capacitors. The Company manufactures and
sells thermistors and thermistor assemblies, which are solid state devices that
produce precise changes in electrical resistance as a function of any change in
absolute body temperature. The Company's Surge-GardTM product line is an inrush
electric current limiting device used primarily in computer power supplies.
Sales of thermistors and film capacitors represented approximately 21% of the
Company's continuing operations sales in the nine-months ended September 30,
2004.
2004 Developments
- -----------------
In 2004, the Company has seen weakness in the hearing health markets. The
weakness is due to competitive pricing pressures, customer inventory management
programs resulting in more just-in-time inventory, as well as unfavorable
legislation in the German market reducing the reimbursement amount for the
purchase of hearing aids. These factors have resulted in both reduced sales and
lower product margins. In an effort to return to operating profitability, the
Company took steps in November 2004 to reduce its overhead.
In June 2004, the Company sold its property in Dresher Pennsylvania for
approximately $3.6 million in cash and recognized a pre-tax gain of $3.1
million. The property is the headquarters for the Company's discontinued Burners
and Components business. The Company leased back the property for nine months,
beginning in July 2004, at base rent of $20,000 per month plus expenses.
Proceeds of the sales were used to reduce the Company's outstanding bank debt.
In August 2004, the Company reacquired Selas Warmetechnik (Germany). This was
previously a wholly owned subsidiary of Selas SAS (France) which filed
insolvency in 2003. The Company was able to reacquire it for a nominal amount as
it was closely associated with its Dresher, Pennsylvania business and reliant on
using the Selas name and technology. Any other acquirer would not have been able
to operate Selas Waermetechnik as an ongoing business. Selas Warmetechnik is
included as part of the Burner and Component business and, consequently, as part
of discontinued operations. It was important to reacquire Selas Warmetechnik as
the Company believes it adds value to the overall Burners and Components
business.
Forward-Looking and Cautionary Statements
- ------------------------------------------
Certain statements included in this Quarterly Report on Form 10-Q or documents
the Company files with the Securities and Exchange Commission, which are not
historical facts, are forward-looking statements (within the meaning of the
Private Securities Litigation Reform Act of 1995), which are intended to be
covered by the safe harbors created thereby. These statements may include, but
are not limited to:
o statements in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" such as, new digital products to gain market
share, recovery of the telecommunications market, potential growth in the
Company's medical profits, future gross profit margins, future cost
savings, net operating loss carryforwards, the impact of future cash
13
flows, the ability to maintain financial covenants, the ability to meet
working capital requirements, future level of funding of employee benefit
plans, the ability to negotiate extension on purchases, the impact of
foreign currencies and litigation; and
o statements in "Notes to the Company's Condensed Consolidated Financial
Statements".
Forward-looking statements also include, without limitation, statements as to
the Company's:
o expected future results of operations and growth;
o ability to meet working capital requirements; o business strategy;
o expected benefits from staff reductions;
o planned sale of the remaining Heat Technology operations, and use of
proceeds there from;
o expected increases in operating efficiencies;
o anticipated trends in the hearing-health market; and
o estimate of goodwill impairment and amortization expense of the intangible
assets.
In addition, forward-looking statements also include the effects of changes in
accounting pronouncements, the effects of litigation and the amount of insurance
coverage, and statements as to trends or the Company's or management's beliefs,
expectations and opinions. Forward-looking statements are subject to risks and
uncertainties and may be affected by various factors that may cause actual
results to differ materially from those in the forward-looking statements. In
addition to the factors discussed in this Quarterly Report on Form 10-Q, certain
risks, uncertainties and other factors can cause actual results and developments
to be materially different from those expressed or implied by such
forward-looking statements, including, without limitation, the following:
o the ability to implement the Company's business strategy;
o risks arising in connection with the insolvency of Selas SAS, and
potential liabilities and actions arising in connection therewith;
o the volume and timing of orders received by the Company;
o changes in estimated future cash flows;
o foreign currency movements in markets the Company services;
o changes in the global economy and financial markets;
o changes in the mix of products sold;
o acceptance of the Company's products;
o reliance on two customers in the Company's medical products business;
o competitive pricing pressures;
o pending and potential future litigation;
o availability of electronic components for the Company's products;
o ability to create and market products in a timely manner;
o ability to pay debt when it comes due;
o ability to sell businesses and assets marked for sale; and
o the risks associated with terrorist attacks, war and threats of attacks.
For a description of these and other risks see "Risk Factors" in Part 1, Item 1:
Business in the Company's Annual Report on Form 10-K for the year ended December
31, 2003, or in other filings the Company makes from time to time with the
Securities and Exchange Commission. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
14
2004 compared with 2003
- -----------------------
SALES, NET
Consolidated net sales for the three and nine months ended September 30 were as
follows (in thousands):
Change
------
2004 2003 Dollars Percent
---- ---- ------- -------
Three months ended September 30 $ 8,524 $ 9,232 $ (708) (7.7)%
Nine months ended September 30 $ 26,217 $ 27,900 $(1,683) (6.0)%
Sales for both the three and nine month period ended September 30, 2004 have
been impacted by weakness in our primary hearing health market. Competitive
pricing issues, reduction in customer inventory levels, and German legislation
impacting reimbursement for purchasing hearing aids resulted in approximately a
21 and 17 percent decline in sales in this market for the three and nine months
ended September 30, 2004, respectively when compared to the three and nine
months ended September 30, 2003. Our medical products market experienced a 17
percent increase in sales for the three months ended September 30, 2004 compared
to the three months ended September 30, 2003. Sales to this market for the nine
months ended September 30, 2004 have declined 21 percent from the same year ago
period. Sales to our medical product businesses are extremely reliant on orders
from two customers and are volatile quarter-to-quarter depending on sales
levels, inventory levels and acceptance of these customer's end products. We do
not believe the quarterly increase or the nine-month decline in medical sales
represents a predictable long-term trend. The decline in sales for the nine
months ended September 30, 2004 were partially offset by a $1.1 million order in
the first quarter of 2004 from the Singapore military for helmets and from
strong sales in our electronic products throughout the first nine months of
2004.
GROSS PROFIT
Gross profit margin for the three and nine months ended September 30 was as
follows (in thousands):
2004 2003 Change
---- ---- ------
Percent Percent
Dollars of Sales Dollars of Sales Dollars Percent
------- -------- ------- -------- ------- -------
Three months ended September 30 $1,601 18.8% $2,334 25.3% $ (733) (6.5)%
Nine months ended September 30 $5,942 22.7% $7,583 27.2% $(1,641) (4.5)%
Gross profit margins for the three months ended September 30, 2004 decreased due
to the lower overall sales volume, along with an increase in inventory reserves
of approximately $392,000. The increase in inventory reserves was the result of
the continued evaluation of the Company's inventory levels associated with sales
programs to sell specialized analog and digital circuits. Sales for the nine
months ended September 30, 2004, included a $1.1 million order from the
Singapore military containing a large portion of third party content, which
provided a lower gross profit margin than we were able to obtain on our own
products.
15
OPERATING EXPENSES
Operating expenses for the three months ended September 30 were as follows:
2004 2003 Change
---- ---- ------
Year-over-
Percent of Percent of year
Dollars Sales Dollars Sales Dollars Change
------- ----- ------- ----- ------- ------
Selling $ 889 10.4% $ 990 10.7% $(101) (10.2)%
General and
administrative $1,245 14.6% $1,482 16.0% $(237) (16.0)%
Research and
development $ 338 4.0% $ 373 4.0% $ (35) (9.4)%
The lower operating expenses for the three months ended September 30, 2004
compared with the same year ago period was a result of our efforts to control
our costs. The decrease in general and administrative expense was primarily due
to headcount reductions done at the end of the first quarter of 2004, partially
offset by increased outside professional fees. Additionally, the three months
ended September 30, 2003 included a reserve for bad debt of $170,000, related to
one of our hearing health customers filing insolvency in France. Research and
development expenses decreased slightly as some of the major development
projects for the three months ended September 30, 2004 were partially customer
funded.
Operating expenses for the nine months ended September 30 were as follows:
2004 2003 Change
---- ---- ------
Year-over-
Percent of Percent of year
Dollars Sales Dollars Sales Dollars Change
------- ----- ------- ----- ------- ------
Selling $2,818 10.7% $2,790 10.0% $ 28 1.0%
General and
administrative $4,126 15.7% $4,207 15.1% $(81) (1.9)%
Research and
development $1,060 4.0% $1,079 3.9% $(19) (1.8)%
The higher selling expense in the nine months ended September 30, 2004 over the
same year-ago period was the result of hiring a sales and marketing manager for
our medical products market and the associated fees paid to a third party
recruiter. In addition, we incurred higher expenses associated with tradeshows
and travel; these were partially offset by a lower bad debt expense for the
period.
The administrative expenses for the nine months ended September 30, 2004 are
slightly lower than the nine months ended September 30, 2003 due to a first
quarter charge of $170,000 associated with staff reductions and higher bank fees
associated with the renewal of our bank facilities. These were partially offset
by headcount reductions done at the end of the first quarter of 2004.
Research and development expenses were relatively flat for the nine months ended
September 30, 2004 compared with the same year-ago period as we were controlling
our spending level while continuing to invest in product development.
16
OPERATING INCOME
Operating income for the nine months ended September 30, 2004 included a gain on
sale of our Dresher property of approximately $3.1 million. This had been
carried on the balance sheet under the title, "Asset held for sale".
INTEREST EXPENSE
Interest expense for the three and nine months ended September 30, 2004 was
$103,000 and $351,000, respectively, compared to $128,000 and $444,000 for the
same periods in 2003, respectively. The decrease over last year's expense was
due to the lower outstanding debt balance partially offset by an increase in the
interest rate.
OTHER INCOME (EXPENSE)
Other income for the three and nine months ended September 30, 2004 was $19,000
and $118,000, respectively, compared to an expense of $8,000 for the three
months ended September 30,2003 and income of $37,000 for the nine months ended
September 30, 2003. The change was primarily due to currency fluctuations
affecting a portion of the Company's debt that was Euro denominated until the
Company's bank agreement was amended in March 2004.
INCOME TAXES
Income taxes expense for the nine months ended September 30, 2004 and September
30, 2003 was $1,122,199 and $988,883, respectively. This results in an effective
tax rate of 137.3% for the nine months ended September 30, 2004 compared to
(110.7)% for the nine months ended September 30, 2003. The high effective rate
for the nine months ended September 30, 2004 was due to the elimination of the
deferred tax asset of $890,230. The deferred tax asset represented the expected
benefit from net operating losses available at December 31, 2003 utilized to
offset the anticipated gain on the asset held for sale (note 12). This asset was
sold in June 2004 at a gain of approximately $3.1 million and consequently, the
deferred tax asset was eliminated. The effective rate in 2003 was the result of
establishing approximately a $1.2 million net valuation reserve against prior
deferred tax assets.
Income taxes expense for the three months ended September 30, 2004 and September
30, 2003 was $14,295 and $1,034,449, respectively. This resulted in an effective
tax rate of (1.5)% and (160.3)% for the three months ended September 30, 2004
and September 30, 2003, respectively. Taxes in the third quarter of 2004 were
primarily due to income taxes on foreign operations. Taxes in the third quarter
of 2003 were primarily due to establishing a valuation reserve against prior
deferred tax assets. At September 30, 2004, the Company had net operating loss
carryforwards for Federal income tax purposes of approximately $16.1 million
that expire in 2018.
LOSS FROM CONTINUING OPERATIONS
For the three and nine months ended September 30, 2004, the net loss from
continuing operations was $969,000, and $305,000, respectively, compared to $1.7
million and $1.9 million, for the three and nine months ended September 30,
2003, respectively. The current year loss was due to the combination of the
factors noted above reflecting decreased sales and lower gross margin profits,
partially offset by the gain on the sale of the Dresher property. A large
portion of the 2003 loss was due to an increase in income taxes as a result of
establishing a $1.2 million dollar valuation reserve.
17
DISCONTINUED OPERATIONS
Discontinued operations generated income of $286,000 and $816,000 for the three
and nine months ended September 30, 2004, respectively, compared to income of
$870,000 for the three months ended September 30, 2003 and a loss of $495,000
for the nine months ended September 30, 2003. Results for 2004 benefited from
increased sales and higher gross margins due to product mix and reduced
estimated costs associated with the completion of a large contract in Brazil.
The loss in 2003 included the results from the Company's European Heat
Technology operations, which were not included in the 2004 results, because of
the insolvency of Selas SAS, the Company's French subsidiary in August 2003. The
2003 loss from the European Heat Technology operations was partially offset by
income from the Company's wholly owned subsidiary, Deuer Manufacturing, Inc.,
which was sold in the third quarter of 2003. See note 3 of the Consolidated
Condensed Financial Statements.
During the three months ended September 30, 2004 an extraordinary gain of
$684,000 was recorded related to the reacquisition of Selas Warmetechnik
(Germany). In August 2004, the Company reacquired this subsidiary that was
previously a wholly owned subsidiary of Selas SAS (France) which filed
insolvency in August 2003. The Company was able to reacquire it for a nominal
amount as it was closely associated with its Dresher, Pennsylvania business and
reliant on using the Selas name and technology. Any other acquirer would not
have been able to operate Selas Waermetechnik as an ongoing business.
Liquidity and Capital Resources
- -------------------------------
Consolidated net working capital increased to $4.0 million at September 30, 2004
compared to $1.9 million at December 31, 2003. The increase was mainly due to
the reduction in bank debt, as a result of the sale of the Dresher property.
The cash flows from operating, investing and financing activities, as reflected
in the statement of cash flows, are summarized as follows (in thousands):
Nine Months Ended
-----------------
September 30, September 30,
2004 2003
---- ----
Cash provided (used) by:
Continuing operations $(978) $ (188)
Discontinued operations 817 8,195
Investing activities 2,755 (1,027)
Financing activities (2,169) (8,321)
Effect of exchange rate
changes on cash (44) 45
----- --------
Increase (decrease) in cash $ 381 $ (1,296)
===== ========
The Company had the following bank arrangements (in thousands):
September 30, December 31,
2004 2003
---- ----
Total availability under
existing facilities $7,315 $10,399
Bank debt outstanding 6,354 8,568
----- -------
Remaining availability under
existing facilities $ 961 $ 1,831
===== =======
Borrowings under the majority of our credit facilities bear interest at prime
plus 3%. See Note 7 of the Consolidated Condensed Financial Statements.
18
We entered into a revolving credit loan facility maturing April 1, 2005 for
which borrowings of $4,500,000 could be outstanding at any one time. Borrowings
of $4,147,430 were outstanding as of September 30, 2004 bearing an interest rate
of 7.75% (prime plus 3.0%). The loan carries a commitment fee of .25% per annum,
payable on the unborrowed portion of the line.
We entered into a $5,510,000 note maturing April 1, 2005. This note requires
quarterly principal payments of $300,000 commencing June 30, 2004 and bears
interest of 7.75% (prime plus 3.0%). Proceeds of approximately $3.1 million from
the sale of the Dresher building were applied to the note in the quarter ended
June 30, 2004. The note balance at September 30, 2004 was approximately
$1,758,000.
The Company has various other credit facilities in Asia with borrowing limits
aggregating $1,057,000 and bearing interest between 5.5 to 6.75% (prime plus .5
to 2.0%). Total borrowings under these facilities were $448,074 at September 30,
2004.
Any proceeds from the sale of the burner and components business will be used to
reduce the outstanding borrowings and will represent a permanent reduction in
the availability under these facilities.
We believe that funds expected to be generated from operations, management of
our working capital, the available borrowing capacity through our revolving
credit loan facilities, the potential sale of certain assets, curtailment of the
dividend payment and control of capital spending will be sufficient to meet
anticipated cash requirements for operating needs through September 30, 2005.
However, our ability to pay the principal and interest on our indebtedness as it
comes due will depend upon current and future performance. Performance is
affected by general economic conditions and by financial, competitive,
political, business and other factors, many of these factors are beyond our
control. If we do not generate sufficient cash or complete such financings on a
timely basis, it may require us to seek additional financing or sell equity on
terms, which may not be as favorable as we could have otherwise obtained. No
assurance can be given that any refinancing, additional borrowing or sale of
equity will be possible when needed, or that Selas will be able to negotiate
acceptable terms. In addition, access to capital is affected by prevailing
conditions in the financial and equity capital markets, as well as our financial
condition.
Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expense during the reporting period.
Certain accounting estimates and assumptions are particularly sensitive because
their significance to the consolidated condensed financial statements and the
possibility that future events affecting them may differ markedly. The
accounting policies with significant estimates and assumptions include revenue
recognition, accounts receivable reserves, inventory reserves, discontinued
operations, goodwill, long-lived assets and deferred taxes policies. These and
other significant accounting policies are described in and incorporated by
reference from "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and Note 1 to the financial statements contained in or
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended December 31, 2003.
19
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
For information regarding exposure to certain market risks, see Item 7A,
Quantitative and Qualitative Disclosures About Market Risk, in the Company's
Annual Report on Form 10-K for the year ended December 31, 2003. There have been
no material changes in the Company's portfolio of financial instruments or
market risk exposures which have occurred since December 31, 2003.
ITEM 4. Controls and Procedures
-----------------------
Quarterly evaluation of the Company's Disclosure Controls and Procedures.
The Company's management, with the participation of its chief executive officer
and chief financial officer, conducted an evaluation of the effectiveness of the
Company's disclosure controls and procedures, as defined in Exchange Act Rule
13a-15(e), as of September 30, 2004. Based on that evaluation, the Company's
chief executive officer and chief financial officer concluded that the Company's
disclosure controls and procedures were effective in reaching a reasonable level
of assurance that management is timely alerted to material information relating
to the Company during the period when the Company's periodic reports are being
prepared.
During the quarter ended September 30,2004, there has not occurred any change in
the Company's internal control over financial reporting, as defined in Exchange
Act Rule 13a-15(f), that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
A control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.
20
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
-----------------
The information contained in Notes 10 and 11 to the Consolidated Condensed
Financial Statements in part 1 of this quarterly report is incorporated by
reference herein.
ITEM 2. Unregistered Sales of Equity in Securities and Use of Proceeds
---------------------------------------------------------------
None.
ITEM 3. Defaults upon Senior Securities
-------------------------------
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
ITEM 5. Other Information
-----------------
None.
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
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 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of principal financial officer to U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
21
SELAS CORPORATION OF AMERICA
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELAS CORPORATION OF AMERICA
(Registrant)
Date: November 15, 2004 By: /s/ Mark S. Gorder
---------------------
Mark S. Gorder
President and Chief Executive
Officer (principal executive
officer)
Date: November 15, 2004 By: /s/ Robert F. Gallagher
----------------------------
Robert F. Gallagher
Chief Financial Officer
(principal financial officer)
and Treasurer
22
EXHIBIT INDEX
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 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
32.2 Certification of principal financial officer pursuant to U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
23