SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C., 20459
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
COMMISSION FILE # 0-8027
EASTCO INDUSTRIAL SAFETY CORP.
(Exact name of registrant as specified in its charter)
NEW YORK 11-1874010
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
130 West 10th Street, Huntington Station, N.Y. 11746
(Address of principal executive offices and zip code)
(516) 427-1802
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
------ ------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at September 30, 1995
----------------------- ---------------------------------
Common Stock, par value 3,614,883
$.12 per share
PART I - FINANCIAL INFORMATION
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1995 1995
ASSETS ------------- --------
CURRENT ASSETS:
Cash and cash equivalents $ 127,242 $ 521,210
Accounts receivable - (less allowance
for doubtful accounts of $297,529 at
September 30, 1995 and $304,000 at
June 30, 1995) (note 3) 4,505,810 3,898,173
Inventories - (notes 2 and 3 ) 5,008,452 4,363,898
Other 484,202 481,868
------- -------
TOTAL CURRENT ASSETS 10,125,706 9,265,149
--------- ---------
PROPERTY, PLANT AND EQUIPMENT, at cost - 2,568,465 2,562,815
(note 3)
Less accumulated depreciation and
amortization 1,280,084 1,243,704
--------- ---------
1,288,381 1,319,111
OTHER ASSETS 136,388 131,788
--------- ---------
TOTAL ASSETS $11,550,475 $10,716,048
========== ===========
See accompanying notes to consolidated financial statements.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1995 1995
------------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan Payable (Note 3) $5,559,300 $4,928,908
Current maturities of long-term debt 50,489 48,762
Accounts payable 3,111,766 2,891,043
Accrued expenses 294,790 331,907
-------- --------
TOTAL CURRENT LIABILITIES 9,016,345 8,200,620
--------- ---------
LONG-TERM DEBT, less current maturities 476,493 489,782
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $.12 par value;
authorized - 20,000,000 shares,
issued 3,614,883 shares
in September 1995 and 3,477,383
shares in June 1995 433,786 417,286
Additional paid-in capital 5,959,201 5,848,952
Retained deficit (4,335,350) (4,240,592)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 2,057,637 2,025,646
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $11,550,475 $10,716,048
=========== ===========
See accompanying notes to consolidated financial statements.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
Three Months Ended September 30,
--------------------------------
1995 1994
---------- ----------
Net Sales $6,522,386 $5,829,245
Cost of Sales 5,271,764 4,819,496
--------- ---------
Gross Profit 1,250,622 1,009,749
--------- ---------
Selling, general & administrative expenses 1,085,855 1,016,118
Interest expense (NET) 194,416 126,362
Other income (NET) (12,891) (21,266)
Settlement with underwriter 78,000
--------- ---------
Net loss (94,758) (111,465)
Opening (deficit) (4,240,592)(4,318,529)
----------- -----------
Closing (deficit) $(4,335,350)$4,429,994)
============ ===========
Loss per common share $ (.03 )$ (.03)
============ ===========
Weighted average number of
common shares outstanding 3,566,758 3,477,383
============= ==========
See accompanying notes to consolidated financial statements.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended September 30,
--------------------------------
1995 1994
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) $(94,759) $(111,465)
Adjustment to reconcile --------- ----------
results of operations to net
cash effect of operating activities:
Depreciation and amortization 36,380 46,238
Settlement with underwriter 78,000
Net changes in assets and liabilities:
(Increase) in accounts receivable (607,637) (155,986)
(Increase) in inventories (644,554) (68,119)
(Increase)/Decrease in other
current assets (2,334) 38,713
(Increase)/Decrease in other assets (4,600) 9,921
Increase in accounts payable 220,723 30,257
(Decrease) in accrued expenses (37,117) (73,929)
Increase in current maturities
of long-term debt 1,726
------- --------
Total Adjustments (959,413) 172,905
-------- --------
Net cash (used for)/provided by
operating activities (1,054,171) (284,370)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,650) ( 38,001)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 48,750
Repayments of long-term debt (13,289) (10,060)
Borrowings under line of credit agreement 6,948,132 6,241,142
Repayments under line of credit agreement (6,317,740) (5,822,777)
(Decrease) in cash overdrafts (121,255)
---------- -----------
Net cash provided from financing activities 665,853 287,050
---------- -----------
NET (DECREASE) IN CASH (393,968) (35,321)
---------- -----------
CASH, beginning of period 521,210 517,506
---------- -----------
CASH, end of period $ 127,242 $ 482,185
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 194,416 $ 126,362
========= ==========
Income taxes $ 7,508 $ 488
========= ==========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in connection
with settlement with underwriter $ 78,000
=========
See accompanying notes to consolidated financial statements.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Company's Opinion on Unaudited Financial Statements
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting of only normal
accruals) necessary to present fairly the consolidated balance sheets as of
September 30, 1995 and June 30, 1995 (audited) and the related statements of
operations and deficit for each of the three months in the periods ended
September 30, 1995 and 1994.
The results of operations for the three months ended September 30, 1995 and
1994 are not necessarily indicative of the results for the entire year.
2. Inventories
Inventories consist of the following:
September 30, June 30,
1995 1995
------------ -----------
Raw materials $ 1,971,038 $ 1,688,881
Work-in-process 361,301 440,164
Finished goods 2,676,113 2,234,853
---------- ---------
Total $ 5,008,452 $ 4,363,898
=========== ==========
3. Loan Payable
In November 1995, Congress Financial Corporation agreed to reduce the interest
rate on the amounts outstanding under the Company's line of credit by 1/4%.
4. Litigation
The Company is a party to various asbestos lawsuits alleging damages from
exposure to asbestos products sold by the Company. Refer to Part II, Other
Information, Item I "Legal Proceedings" in this form 10-QSB and Note 11 to June
30, 1995 Notes to Audited Consolidated Financial Statements regarding the
asbestos litigation.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had working capital as of September 30, 1995 of approximately
$1,109,000 as compared to approximately $1,065,000 as of June 30, 1995. A
substantial portion of the Company's working capital consists of inventory,
which was approximately $5,008,000 and $4,364,000 as of September 30, 1995 and
June 30, 1995, respectively. The Company is required to maintain substantial
inventories of its numerous products in order to meet the immediate shipping
requirements of its customers who require products on short notice. In
addition, with the Company's available working capital and its ability to
obtain and maintain sufficient inventories, there can be no assurance that the
additional inventory will be sufficient to meet sales demands, or that the
Company will be able to achieve or maintain sufficient inventories in the
future. The Company believes that its current working capital position will be
sufficient to satisfy its needs for the current fiscal year.
In November 1995, Congress Financial Corporation agreed to reduce the interest
rate by 1/4% on the amounts outstanding under the Company's line of credit
agreement. The amounts outstanding under this agreement at September 30 and
June 30, 1995 were $5,359,000 and $4,829,000 respectively. The Company has
$64,000 available for borrowing at September 30, 1995, after adjusting for its
liability for outstanding checks.
The Company's restructuring efforts are beginning to bear results, particularly
in the manufacturing segment, where market share is increasing. This segment
continues to show an increased gross profit percentage as a result of
implementing additional efficiencies in production as well as economies of
scale in its operations. The distribution segment showed lower sales than
anticipated, but the Company believes that its efforts in telemarketing and new
customer visits will have a positive effect on sales.
At the present time, the Company, together with a variety of defendants, is
party to various asbestos-related lawsuits involving a number of plaintiffs
alleging damages from exposure to asbestos products sold by the Company. The
Company may become a party to additional asbestos-related actions in the
future. The Company is also party to other non-asbestos-related litigation.
The Company cannot, at this time, determine the outcome of this uncertainty.
To date, the Company's insurance coverage has been adequate and the Company's
costs relative to asbestos litigation against it has not been material.
Results of Operations
Net sales for the three months ended September 30, 1995 were $6,522,000 as
compared to $5,829,000 for the three months ended September 30, 1994, an
increase of $693,000 or 11.9%. Sales in the manufacturing segment increased
28.0% to $4,080,000 from $3,187,000 for the same quarter last year, while sales
in the distributing segment decreased 7.6% to $2,442,000 compared to the
comparable quarter last year.
The overall increase in sales was due to the improvement in the Company's
inventory position. The increase in the sales in the manufacturing segment,
although at 28% for the quarter, was somewhat below the Company's anticipated
figure as a result of adverse weather conditions that disrupted the flow of
manufactured products from the plant in Puerto Rico.
The Company's gross profit margin increased to 19.2% of sales for the first
quarter of fiscal 1996 as compared to 17.3% for the first quarter of fiscal
1995. The Company believes that the increase in gross profit is the result of
efficiencies in production, improved purchasing due to the availability of
working capital, as well as improved demand for its products.
Selling, general and administrative expenses for the quarter ended September
30, 1995 were approximately $1,086,000 or 16.6% of sales compared to
approximately $1,016,000 or 17.4% for the same period last year. The decrease
in selling, general and administrative expenses as a percentage of sales was
due to the increase in sales volume experienced in the quarter, as well as the
effect of the Company's continuing efforts to reduce costs. Included in the
selling, general and administrative expense for the quarter ending September
30, 1995 was non-recurring expenses of approximately $18,000.
Interest expense was approximately $194,000 for the first quarter of fiscal
1996, an increase of approximately $68,000 when compared to the same quarter of
fiscal 1995, and was principally due to the increase in borrowing.
During the quarter ended September 30, 1995, the Company canceled its
underwriting agreement with Lew Lieberbaum and Co., Inc. and appointed Donald
& Co. as its investment banker. The Company exchanged 100,000 common shares in
return for, among other benefits, 230,000 warrants that allowed acquisition of
units that consisted of one warrant and one common share each. This settlement
resulted in a charge to operations of $78,000.
The loss per share was $.03 for the quarter ended September 30, 1995, the same
loss per share as the September 30, 1994 quarter. The increase in shares
outstanding was due to shares issued in connection with the settlement with the
Company's underwriter as well as the exercise of warrants.
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the fiscal quarter ended September 30, 1995 an action entitled
Richard Bader v. A.C.& S., Inc., Eastco Industrial Safety Corp.,
a/k/a Charkate Glove and Specialty Company, et al was instituted
against the Company in the Supreme Court of the State of New York,
County of New York. There is 1 plaintiff and 60 defendants in this
action involving asbestos.
Item 2. CHANGES IN SECURITIES
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
NONE
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 9, 1995
EASTCO INDUSTRIAL SAFETY CORP.
By:/s/ Anthony P. Towell
------------------------------
ANTHONY P. TOWELL
Chief Financial Officer,
Vice President of Finance, and
Treasurer