SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C., 20459
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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)
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the 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.
YES X NO
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State the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at September 30, 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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CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, June 30,
1997 1997
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ASSETS (UNAUDITED)
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CURRENT ASSETS:
Cash and cash equivalents $ 40,342 $ 112,258
Accounts receivable - (less allowance
for doubtful accounts of $214,200 at
September 30, 1997 and $219,000 at
June 30, 1997) 5,482,488 4,561,053
Inventories - (note 2) 6,675,906 5,972,904
Other 739,987 670,155
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TOTAL CURRENT ASSETS 12,938,723 11,316,370
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PROPERTY, PLANT AND EQUIPMENT, at cost - 3,674,488 3,568,095
Less accumulated depreciation and
amortization 1,408,834 1,354,124
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2,265,654 2,213,971
EXCESS OF COST OVER NET ASSETS ACQUIRED 443,210 448,910
OTHER ASSETS 48,985 61,338
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TOTAL ASSETS $15,696,572 $14,040,589
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
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September 30, June 30,
1997 1997
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UNAUDITED
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Loans Payable $6,948,287 $5,417,675
Current maturities of long-term debt 282,375 278,821
Accounts payable 2,914,433 2,770,626
Accrued expenses 387,068 374,764
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TOTAL CURRENT LIABILITIES 10,532,163 8,841,886
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LONG-TERM DEBT, less current maturities 739,701 811,410
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CONTINGENCIES (Note 3)
SHAREHOLDERS' EQUITY
Preferred stock; $.01 par value; authorized
1,000,000 shares; no shares outstanding
Common stock, $.12 par value;
authorized - 20,000,000 shares, issued
and outstanding 1,683,079 shares
in September 1997 and in June 1997 201,970 201,970
Additional paid-in capital 9,807,708 9,807,708
(Deficit) (5,584,970) (5,622,385)
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TOTAL SHAREHOLDERS' EQUITY 4,424,708 4,387,293
-------------------------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $15,696,572 $14,040,589
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
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Three Months Ended September 30,
--------------------------------
1997 1996
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(Unaudited) (Unaudited)
Net Sales $7,709,241 $6,055,707
Cost of Sales 6,217,725 5,031,730
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Gross Profit 1,491,516 1,023,977
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Selling, general & administrative expenses 1,283,470 1,020,275
Interest expense (NET) 187,214 181,643
Other income (NET) (16,583) (18,219)
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Net income (loss) 37,415 (159,722)
Opening (deficit) (5,622,385) (4,230,555)
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Closing (deficit) $(5,584,970) $(4,390,277)
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Income/(loss) per common share $ .02 $ (.18)
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Weighted average number of
common shares outstanding 1,683,079 868,336
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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Three Months Ended September
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1997 1996
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(loss) $37,415 $(159,722)
Adjustment to reconcile results of operations ------- ----------
to net cash effect of operating activities:
Depreciation and amortization 60,410 28,215
Net changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (921,435) 475,162
(Increase) in inventories (703,002) (652,141)
(Increase) in other current assets (69,832) (194,998)
Decrease/(Increase) in other assets 12,353 (20,477)
Increase in accounts payable 143,807 110,415
Increase/(Decrease) in accrued expenses 12,304 (40,260)
Increase/(Decrease) in current maturities of
long-term debt 3,554 (7,575)
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Total Adjustments (1,461,841) (301,659)
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Net cash(used for)operating activities (1,424,426) (461,381)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (106,393) (46,447)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (71,709) (5,714)
Borrowings under line of credit agreement 8,500,902 6,897,224
Repayments under line of credit agreement (6,970,290) (7,004,441)
Net proceeds from private placement of
common stock - 171,000
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Net cash provided from financing activities 1,458,903 58,069
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NET (DECREASE) IN CASH (71,916) (449,759)
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CASH, beginning of period 112,258 646,030
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CASH, end of period $40,342 $ 196,271
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 187,214 $ 181,643
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Income taxes $ 3,375 $ 296
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See accompanying notes.
EASTCO INDUSTRIAL SAFETY CORP.
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NOTES TO CONDENSED 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 condensed consolidated balance
sheets as of September 30, 1997 and June 30, 1997 (audited) and the related
statements of operations and deficit for each of the three months in the
periods ended September 30, 1997 and 1996.
The results of operations for the three months ended September 30, 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:
September 30, June 30,
1997 1997
---- ----
Raw materials $1,686,658 $2,049,328
Work-in-process 868,529 1,145,395
Finished goods 4,120,719 2,778,181
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Total $6,675,906 $5,972,904
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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 sold by the Company. Refer to Part II, Other
Information, Item I "Legal Proceedings" in this form 10-Q, and Note 11 to
the June 30, 1997 Audited Consolidated Financial Statements regarding the
asbestos litigation.
4. The attached summarized financial information does not include all
disclosures required to be included in a complete set of financial
statements prepared in conformity with generally accepted accounting
principles. Such disclosures were included with the consolidated financial
statements of the Company at June 30, 1997, included in its annual report
on Form 10-KSB. Such statements should be read in conjunction with the data
herein.
5. Quarterly Results of Operations:
--------------------------------
The Company previously reported unaudited net loss for the nine months
ended March 31, 1997 was $70,422, whereas the audited financial statements
for the year ended June 30, 1997 reflected a net loss of approximately
$1,392,000.
As a result of the magnitude of the net loss recorded by the Company in the
fourth quarter of its year ended June 30, 1997, management is currently
analyzing its previously issued interim financial statements during such
year in order to determine the extent, if any, that such financial data
requires restatement. Management believes that the quarter ended September
30, 1996 will not have to be restated.
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
- - -------------------------------
The Company had working capital as of September 30, 1997 of approximately
$2,407,000 as compared to approximately $2,474,000 as of June 30, 1997. A
substantial portion of the Company's working capital consists of inventory,
which was approximately $6,676,000 and $5,973,000 as of September 30, 1997
and June 30, 1997, 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 current fiscal year.
The amounts outstanding under the Company's loan agreement with Congress
Financial Corporation at September 30 and June 30, 1997 were $6,948,000 and
$5,418,000, respectively. The Company had $187,000 available for borrowing
at September 30, 1997 after adjusting for its liability for outstanding
checks.
Net cash used for operating activities was principally a result of an
increase in inventory and accounts receivable which was partially offset by
an increase in accounts payable. Cash flows used in investing activities was
for the purchase of property, plant and equipment. Cash flows provided by
financing activities was principally from borrowings under the Company's loan
agreement with Congress Financial Corporation.
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.
Under Financial Accounting Standards Statement No. 128, "Earnings Per Share",
public companies are required to calculate their primary earnings per share
based upon the weighted average number of common shares outstanding during
the period presented. Diluted earnings per share is to be calculated giving
effect to all potentially dilutive common shares that could be issued. This
new rule becomes effective for annual and interim periods ending after
December 15, 1997 and it is not currently expected to have a material effect
on the Company's reported earnings per share.
Results of Operations
- - ---------------------
Net sales for the three months ended September 30, 1997 were $7,709,000 as
compared to $6,056,000 for the three months ended September 30, 1996, an
increase of $1,653,000 or 27.3%. Sales in the manufacturing segment
increased 31.7% to $5,278,000 from $4,009,000 for the same quarter last year,
while sales in the distribution segment increased 18.8% to $2,431,000
compared to $2,047,000 for the comparable quarter last year. The increased
sales for the manufacturing division was due to the increase in the Company's
inventory position, in part because of an increased flow of production from
Mexico, as well as the continued improvement of industry conditions. The
increase in the distribution division is due to the improvements in the need
for our products by both the industrial and hazardous material abatement
customers.
The Company's gross profit margin increased to 19.3% of sales for the first
quarter of fiscal 1998 as compared to 16.9% for the first quarter fiscal
1997. This increase is a result of the higher production of a major product
in Mexico where goods are being produced at lower costs. In addition, the
production efficiencies in Puerto Rico continue to improve and the negative
effects of the weather-related problems in the first quarter of fiscal 1997
did not exist in the first quarter of fiscal 1998.
Selling, general and administrative expenses for the quarter ended September
30, 1997 were approximately $1,283,000 or 16.6% of sales compared to
approximately $1,020,000 or 16.8% 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 which offset
increased costs of marketing. The Company continues its efforts to reduce
costs.
Interest expense was approximately $187,000 for the first quarter of fiscal
1998, an increase of approximately $6,000 when compared to the same quarter
of fiscal 1997, and was principally due to the increased average borrowings
from Congress Financial Corporation.
The income per share was $.02 for the quarter ended September 30, 1997
against a loss of $.18 per share in the September 30, 1996 quarter. The
increase in the weighted average number of common shares outstanding was
mainly due to shares issued in connection with the Company's shareholder
rights and public offering that occurred in the second quarter of fiscal 1997.
Risks
- - -----
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 1 LEGAL PROCEEDINGS
- - ------ -----------------
During the quarter ended September 30, 1997, the following
asbestos cases pending in the State of New York to which Eastco
Industrial Safety Corp. was a party, were settled or dismissed.
These cases are as follows and each was settled or dismissed for
the amount in the aggregate indicated.
CASE NUMBER OF PLAINTIFFS SETTLEMENT PAID(B)
- - ---- -------------------- ---------------
Pavitt 6 $ 600.00
Rambadt 63 6,100.00
Perez 12 1,200.00
Delligatti 61 6,300.00
Kestlor 50 5,200.00
Acquistor 52 5,800.00
Ivers 11 1,500.00
Jackson 1 100.00
Heaphy 6 800.00
Champi (A) 27 -0-
Davidsen (A) 7 -0-
McShane (A) 1 -0-
Bellia (A) 19 -0-
Siebert (A) 4 -0-
Belickia (A) 20 -0-
Flecker 10 -0-
Sartori 18 -0-
Tortorici 7 -0-
Birner 10 -0-
Carpino 29 -0-
Avello (A) 10 -0-
Scanzano (A) 7 -0-
Yapko (A) 29 -0-
Yates 6 -0-
Lagonikas 16 -0-
Barthelmas 24 -0-
Sheppard (A) 17 -0-
Morse 28 -0-
Cacioppio 7 -0-
Stout 29 -0-
Fusco 8 -0-
(A) These cases not previously reflected on schedules filed (see
Exhibit 99.05 to the Form 10-KSB for the year ended June 30, 1997).
(B) All of the above cases were settled pursuant to the settlement
agreement reached during fiscal 1994. (See Exhibit 99.11 to the
Company's registration on Form SB-2, No. 333-09517, filed on August
2, 1996.) Pursuant to this settlement, an aggregate of $27,800 was
paid. The entire amount was paid by Eastco's insurance carriers with
the exception of $2,989 paid by Eastco.
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 10 , 1997
EASTCO INDUSTRIAL SAFETY CORP.
By: /S/ LAWRENCE DENSEN
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LAWRENCE DENSEN
PRESIDENT & CHIEF EXECUTIVE OFFICER
By: /S/ ARTHUR J. WASSERSPRING
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ARTHUR J. WASSERSPRING
VICE PRESIDENT OF FINANCE/
CHIEF FINANCIAL OFFICER