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 MARCH 31, 1997
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COMMISSION FILE # 0-8027
EASTCO INDUSTRIAL SAFETY CORP.
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(Exact name of registrant as specified in its charter)
NEW YORK 11-1874010
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(State or other jurisdiction of (Employer. I.D. #)
incorporation or organization)
130 West 10th Street, Huntington Station, N.Y. 11746
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(Address of principal executive offices and zip code)
(516) 427-1802
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(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
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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 May 1, 1997
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Common Stock, par value 1,683,079
$.12 per share
PART I - FINANCIAL INFORMATION
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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March 31, June 30,
1997 1996
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 51,341 $ 646,030
Accounts receivable - (less allowance
for doubtful accounts of $146,000 at
March 31, 1997 and $155,000 at
June 30, 1996) 5,166,589 4,669,070
Inventories - (note 2) 6,163,734 5,230,237
Other 751,626 441,763
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TOTAL CURRENT ASSETS 12,133,290 10,987,100
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PROPERTY, PLANT AND EQUIPMENT, at cost - 2,691,135 2,625,703
Less accumulated depreciation and
amortization 1,304,686 1,347,608
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1,386,449 1,278,095
OTHER ASSETS 76,960 206,910
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TOTAL ASSETS $13,596,699 $12,472,105
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
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March 31, June 30,
1997 1996
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LIABILITIES AND SHAREHOLDERS' EQUITY
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CURRENT LIABILITIES:
Loans Payable $4,846,758 $5,853,075
Current maturities of long-term debt 32,415 56,044
Accounts payable 2,731,882 3,234,127
Accrued expenses 273,370 291,341
TOTAL CURRENT LIABILITIES 7,884,425 9,434,587
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LONG-TERM DEBT, less current maturities 416,073 433,738
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SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock, $.12 par value;
authorized - 20,000,000 shares,
issued 1,583,079 shares
in March 1997 and 765,488 shares
in June 1996 189,970 91,859
Additional paid-in capital 9,407,208 6,742,476
Retained deficit (4,300,977) (4,230,555)
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TOTAL SHAREHOLDERS' EQUITY 5,296,201 2,603,780
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $13,596,699 $12,472,105
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
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Three Months Ended March 31,
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1997 1996
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Net Sales $7,623,275 $6,966,572
Cost of Sales 6,132,861 5,491,100
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Gross Profit 1,490,414 1,475,472
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Selling, general & administrative expenses 1,204,501 1,188,754
Interest expense (NET) 154,879 212,729
Other expense (income) (NET) 10,065 ( 15,987)
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1,369,445 1,385,496
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Net income 120,969 89,976
Opening (deficit) (4,421,946) (4,271,814)
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Closing (deficit) $(4,300,977) $(4,181,838)
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Income per common share $ .08 $ .25
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Weighted average number of
common shares outstanding 1,583,079 361,488
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
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Nine Months Ended March 31,
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1997 1996
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Net Sales $20,472,420 $19,739,719
Cost of Sales 16,645,526 15,624,922
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Gross Profit 3,826,894 4,114,797
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Selling, general & administrative expenses 3,421,068 3,431,369
Interest expense (NET) 502,761 599,496
Other income (NET) (26,513) (52,822)
Settlement with underwriter - 78,000
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3,897,316 4,056,043
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Net (loss) / income (70,422) 58,754
Opening (deficit) (4,230,555) (4,240,592)
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Closing (deficit) $(4,300,977) $(4,181,838)
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(Loss) / income per common share $ (.06) $ .16
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Weighted average number of
common shares outstanding 1,219,884 357,564
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENT OF CASH FLOWS
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Nine Months Ended March 31,
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1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) / Income $ (70,422) $ 58,754
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Adjustment to reconcile results of operations
to net cash effect of operating activities:
Depreciation and amortization 90,438 112,910
Settlement with underwriter - 72,025
Net changes in assets and liabilities:
(Increase) in accounts receivable (497,519) (781,424)
(Increase) in inventories (933,497) (1,027,163)
(Increase) / Decrease in other current assets (309,863) 171,518
Decrease / (Increase) in other assets 129,950 (62,104)
(Decrease) / Increase in accounts payable (502,245) 82,545
(Decrease) in accrued expenses (17,971) (87,593)
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Total Adjustments (2,040,707) (1,519,286)
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Net cash (used for) operating activities (2,111,129) (1,460,532)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (198,792) (37,608)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants - 48,750
Repayments of long-term debt (41,294) (35,928)
Borrowings under line of credit agreement 22,863,989 20,553,406
Repayments under line of credit agreement (23,870,306) (19,490,727)
Proceeds from convertible subordinated debenture - 250,000
Net proceeds of private placement 154,000 -
Net proceeds of public offering 2,608,843 -
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Net cash provided by financing activities 1,715,232 1,325,501
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NET (DECREASE) IN CASH (594,689) (172,639)
CASH, beginning of period 646,030 521,210
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CASH, end of period $ 51,341 $ 348,571
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 497,310 $ 607,131
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Income taxes $ 10,533 $ 5,179
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SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in connection
with settlement with underwriter $ 78,000
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EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1. Company's Opinion on Unaudited Financial Statements
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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
March 31, 1997 and June 30, 1996 (audited) and the related statements of
operations and deficit for each of the three month and nine month periods
ended March 31, 1997 and 1996 and cash flows for the nine month periods
ending March 31, 1997 and 1996.
The results of operations for the three and nine month periods ended March
31, 1997 and 1996 are not necessarily indicative of the results for the
entire year.
2. Inventories
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Inventories consist of the following:
March 31, June 30,
1997 1996
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Raw materials $ 2,317,329 $ 1,701,676
Work-in-process 744,042 514,555
Finished goods 3,102,363 3,014,006
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Total $ 6,163,734 $ 5,230,237
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3. Litigation
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The Company is a party to various asbestos lawsuits alleging damages
from exposure to asbestos products allegedly sold by the Company. Refer
to Part II, Other Information, Item 1 "Legal Proceedings" in Form 10-QSB
December 31, 1996, and Item 3 in Form 10-KSB for June 30, 1996.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
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FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS
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Liquidity and Capital Resources
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The Company had working capital as of March 31, 1997 of approximately
$4,249,000 as compared to approximately $1,553,000 as of June 30, 1996. A
substantial portion of the Company's working capital consists of inventory,
which was approximately $6,164,000 and $5,230,000 as of March 31, 1997 and
June 30, 1996, 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. The
Company believes that its current working capital position will be sufficient
to satisfy its needs for the next twelve months.
The amounts outstanding under the Company's loan agreement with Congress
Financial Corporation at March 31, 1997 and June 30, 1996 were $4,847,000 and
$5,558,000, respectively. The Company has $1,397,000 available for borrowing
at March 31, 1997 after adjusting for its liability for outstanding checks,
as compared to $76,000 at June 30, 1996.
Net cash used for operating activities was principally a result of an
increase in inventory, accounts receivable and other current assets and a
decrease in accounts payable, which was partially offset by a decrease in
other assets. Cash flows used in investing activities was for the purchase
of machinery and equipment. Cash flows provided by financing activities was
principally from private placements and the successful public offering of the
Company's common stock, offset by a pay down of the Company's line of credit.
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 previously 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 can not, 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.
In April 1997, the Company, through a newly formed wholly-owned subsidiary,
acquired for cash and stock certain assets of PR Industries and the stock of
Protective Knitting, Inc., two branded protective glove manufacturers. A
portion of the cash paid for these two companies came from the Company's
capital expenditure line with Congress Financial Corp. Reference is made to
Part II other information, Item 5 (d) and 5 (e).
Results of Operations
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Net sales for the three months ended March 31, 1997 were $7,623,000 as
compared to $6,967,000 for the three months ended March 31, 1996, an increase
of $656,000 or 9.4%. Sales in the manufacturing segment increased 12.4% to
$5,647,000 from $5,023,000 compared to the same quarter last year, while
sales in the distribution segment reversed its trend of the prior two
quarters and increased 1.6% to $1,976,000.
Net sales for the nine months ended March 31, 1997 were $20,472,000, compared
with sales for the period ending March 31, 1996 of $19,740,000. For the nine
months ended March 31, 1997 distribution sales were $6,023,000, a decrease of
$631,000 or 9.5% compared to the same period last year, while the
manufacturing sales increased 10.4% to $14,449,000 from $13,086,000 for the
same period in the prior year. The increase in sales for the manufacturing
division is due to the improvement in the Company's inventory position, as
well as the continued improvement in overall industry conditions. The lower
sales in the distribution division was due in part to stricter customer
credit criteria for environmental accounts.
The Company's gross profit margin decreased to 19.6% of sales for the third
quarter of fiscal 1997 as compared to 21.2% for the third quarter fiscal
1996, and the gross profit margin for the nine months ended March 31, 1997
dropped to 18.7% from 20.8% for the similar period in the prior year. The
Company's decrease in gross profit is primarily the result of a change in the
sales mix and also, in part, an increase in the minimum wage in its
manufacturing plant in Puerto Rico.
Selling, general and administrative expenses for the quarter ended March 31,
1997 were approximately $1,205,000 or 15.8% of sales compared to
approximately $1,189,000 or 17.1% for the same period last year. These
expenses for the nine months ended March 31, 1997 were approximately
$3,421,000 (or 16.7% of sales) as compared to approximately $3,431,000 (or
17.4% of sales) for the same period in the prior year. These decreases in
selling, general and administrative expenses as a percentage of sales were
due to the increase in sales volume experienced as well as the effect of the
Company's continuing cost reductions.
Interest expense was approximately $155,000 for the third quarter of fiscal
1997, a decrease of approximately $58,000 when compared to the same quarter
of fiscal 1996. For the nine months ended March 31, 1997, the interest
expense was approximately $503,000, against approximately $599,000 in the
same period in the prior year. These decreases were due to the lower rates
charged by Congress Financial Corporation and the reduced borrowing under our
line of credit due to funds received from the public offering.
The Company showed earnings of $.08 per share for the quarter ended March 31,
1997 against earnings of $.25 per share in the quarter ended March 31, 1996.
For the nine months ended March 31, 1997 the Company showed a per share loss
of $.06 against $.16 per share earnings for the same period in the prior
year. In both the quarter and nine-month comparisons, the March 31, 1996
figures were restated to reflect a 1 for 10 reverse stock split.
The increase in shares outstanding was mainly due to shares issued in connection
with private placements that occurred in the fourth quarter of fiscal 1996
and the first quarter of fiscal 1997 and the public offering in the second
quarter of 1997.
Risks
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From time to time, information provided by the Company or statements made by
its employees, or information provided in its filings with the Securities and
Exchange Commission may contain forward looking information. The Company's
actual future results may differ materially from those projections or
statements made in such forward looking information as a result of various
risks and uncertainties, including but not limited to competition,
management, losses, availability of capital, asbestos litigation,
substantial availability of Tyvek(R), the absence of dividends, and tax
incentives. There can be no assurances that asbestos litigation will not
have an adverse effect upon the Company in the future. The market price of
the Company's Common Stock may be volatile at times in response to
fluctuations in the Company's quarterly operating results, changes in analyst
earnings estimates, market conditions, as well as general conditions and
other factors general to the Company.
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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See Form 10-QSB for the quarter ended December 31, 1996 with
respect to the annual meeting of shareholders held on January
22, 1997.
Item 5. OTHER INFORMATION
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(a) Effective March 1, 1997, Lawrence Densen became president and chief
executive officer; Alan E. Densen and Anthony P. Towell became
senior vice presidents;
(b) Effective February 1, 1997, Arthur Wasserspring became chief
financial officer and vice president of finance; and Richard
Boyen was elected vice president of manufacturing.
(c) On April 16, 1997, Dr. Bruce Friedman was elected to the board of
directors to serve until the next annual meeting and until his
successor is chosen.
(d) On April 17, 1997 Eastco Glove Technologies Inc., a newly formed
wholly owned subsidiary of the Company, acquired all of the
outstanding shares of Protective Knitting Inc. from Steven Robins
and Phillip Robins for 100,000 shares of the Company's common stock
which was issued to a voting trust of which Alan E. Densen,
Lawrence Densen and Anthony P. Towell, as trustees, have the voting
rights for a term of five years. Except for the voting rights,
Steven Robins and Phillip Robins each acquired the beneficial
rights to 50,000 shares and may sell same under Rule 144 after one
year. At the same time, PR Industries Inc. (wholly owned by Steven
Robins and Phillip Robins) sold to Eastco Glove Technologies Inc.
inventory in the amount of $139,000 and machinery and equipment for
the satisfaction of liens and encumbrances in the amount of
$500,000 thereon. The acquired business manufactures protective
gloves and had approximate revenues of $1.1 million in 1996.
(e) On April 22, 1997 the Company borrowed $440,000 on a $1,000,000
capital expenditure line that it presently has with Congress
Financial Corp. The proceeds of this borrowing were used to partly
finance the acquisition referred to in the above paragraph. The
interest rate on this loan is at 1 1/4 % over prime. The loan is to
be paid back in twenty-nine monthly installments commencing June 1,
1997.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a)
10.01.1 Modification to employment agreement with Alan E.
Densen dated March 1, 1997.
10.02.1 Modification to employment agreement with Lawrence
Densen dated March 1, 1997.
10.03.1 Modification to employment agreement with Anthony
P. Towell dated March 1, 1997.
10.08 Stock Exchange Agreement among Eastco Glove
Technologies Inc., Eastco Industrial Safety Corp., Steven Robins
and Phillip Robins dated April 17, 1997.
10.09 Asset Purchase Agreement among PR Industries Inc.,
Steven Robins, Phillip Robins, Eastco Glove Technologies Inc.
and Eastco Industrial Safety Corp., dated April 17, 1997.
10.10 Voting Trust Agreement among Eastco Industrial
Safety Corp., Alan E. Densen, Anthony P. Towell, Lawrence Densen,
Steven Robins and Phillip Robins dated April 17, 1997.
10.11 Employment agreement with Arthur Wasserspring
dated February 1, 1997.
10.12 Employment agreement with Richard Boyen dated
February 1, 1997.
10.13 Amendment #8 to Financing Agreements with Congress
Financial Corp. dated April 17, 1997.
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: May 13, 1997
EASTCO INDUSTRIAL SAFETY CORP.
By: /s/LAWRENCE DENSEN
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Lawrence Densen
President & Chief Executive
Officer
By: /s/ ARTHUR WASSERSPRING
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Arthur J. Wasserspring
Vice President of
Finance/Chief Financial
Officer