SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2001 __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from _______________ to ________________ Commission File No. 0-2052 GODDARD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2268165 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 705 Plantation Street, Worcester, Massachusetts 01605 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (508)852-2435 Check whether the registrant (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 stock, as of the latest practicable date. Title of Each Class of Number of Shares Outstanding Common Stock Outstanding at March 31, 2001 Common Stock, $.01 par value 2,160,684 Transitional Small Business Disclosure Format Yes ___ No __X__ GODDARD INDUSTRIES, INC. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE Item 1 Financial Statements Consolidated Balance Sheet - March 31, 2001 and September 30,2000 3 Consolidated Statement of Income - Six Months Ended March 31, 2001 and April 1, 2000 4 Consolidated Statement of Cash Flows - Six Months Ended March 31, 2001 and April 1, 2000 5 Notes to Consolidated Financial Statements 6 Item 2 Management Discussion and Analysis 11 PART II - OTHER INFORMATION Item 4 Submission of Matters to a Vote of Security Holders 12 Item 6 Exhibits and Reports on Form 8-K 12 -2- GODDARD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS March 31, 2001 September 30, 2000 ASSETS Unaudited Audited CURRENT ASSETS: Cash and cash equivalents $ 823,360 $1,630,711 Accounts receivable, net of allowances 1,316,674 466,076 Inventories 2,977,334 2,046,476 Refundable income taxes 91,763 91,763 Prepaid expenses and taxes 95,813 46,920 Deferred income taxes 162,798 116,000 TOTAL CURRENT ASSETS 5,467,742 4,397,946 PROPERTY, PLANT AND EQUIPMENT, at cost 5,184,749 4,569,201 Less - Accumulated depreciation (3,369,431) (3,216,815) 1,815,318 1,352,386 OTHER ASSETS: Deferred charges 54,268 150,761 Deferred income taxes - long term 160,760 73,000 Investment 250,000 250,000 Financing 54,720 - Goodwill 2,217,807 - TOTAL OTHER ASSETS 2,737,555 473,761 TOTAL ASSETS $10,020,615 $6,224,093 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt $ 339,173 $ 44,572 Accounts payable 452,834 150,040 Accrued expenses 431,089 273,819 Deferred compensation 71,280 71,280 Income taxes payable 10,084 0 Taxes payable 47,373 0 TOTAL CURRENT LIABILITIES 1,351,833 539,711 LONG TERM DEBT 3,157,349 - DEFERRED COMPENSATION 460,539 446,290 SHAREHOLDERS' EQUITY: Common stock - par value $.01 per share, authorized 3,000,000 shares, issued and outstanding 2,160,684 at March 31, 2001 and 2,142,271 at September 30, 2000 21,607 21,423 Additional paid-in capital 498,487 488,398 Accumulated other comprehensive income (144,472) - Retained earnings 4,675,272 4,728,271 TOTAL SHAREHOLDERS'EQUITY 5,050,894 5,238,092 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,020,615 $6,224,093 -3- GODDARD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) March 31, 2001 April 1, 2000 For The Three For the Six For The Three For The Six Months Ended Months Ended Months Ended Months Ended NET SALES $1,995,920 $3,390,793 $1,016,845 $1,986,383 COST OF SALES 1,181,016 2,014,975 610,781 1,195,173 GROSS PROFIT 814,904 1,375,818 406,064 791,210 SELLING AND ADMINISTRATIVE EXPENSES 721,548 1,296,640 304,711 607,854 INCOME FROM OPERATIONS 93,356 79,178 101,353 183,356 OTHER INCOME (EXPENSE): Interest expense (80,598) (151,629) (11,780) (24,398) Other income, net 17,378 62,151 66,445 148,592 Foreign currency - (75,200) - - TOTAL OTHER INCOME (EXPENSE) (63,220) (164,678) 54,665 124,194 INCOME (LOSS) BEFORE INCOME TAXES 30,136 (85,500) 156,018 307,550 PROVISION FOR (BENEFIT FROM) INCOME TAXES 8,648 (32,500) 63,400 126,100 NET INCOME (LOSS) $ 21,488 $ (53,000) $ 92,618 $ 181,450 EARNING PER SHARE Net Income: Basic $ 0.01 $ 0.02 $ 0.04 $ 0.09 Diluted $ 0.01 N/A $ 0.04 $ 0.08 -4- GODDARD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS ENDED March 31,2001 April 1, 2000 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(53,000) $181,450 Adjustments to reconcile net income to net cash provided by operating activities: Gain on disposal of assets (3,848) - Depreciation and amortization 309,677 121,716 Deferred income taxes (47,669) 8,700 Changes in assets and liabilities: Accounts Receivable (368,884) (28,539) Refundable taxes on income - 13,942 Inventories (64,591) (227,019) Prepaid expenses and other (43,526) (8,880) Accounts payable 219,570 143,867 Accrued expenses (68,113) (125,104) Income taxes payable 15,260 - Deferred compensation (12,718) (16,945) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (117,842) 63,188 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred charges 96,493 - Property, plant and equipment additions (45,825) (66,286) Proceeds from sale of equipment 15,962 - Investment in net assets of subsidiary net of cash (4,262,831) - NET CASH USED IN INVESTING ACTIVITIES (4,196,201) (66,286) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long term debt 3,694,800 - Repayments of long term debt (157,836) (63,831) Financing Fees Deferred (59,892) - Issuance of common stock 10,273 - NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 3,487,345 (63,831) EFFECT OF EXCHANGE RATE CHANGES ON CASH 19,347 - NET INCREASE (DECREASE) IN CASH (807,351) (66,929) CASH AND EQUIVALENTS - BEGINNING 1,630,711 1,773,389 CASH AND EQUIVALENTS - ENDING $ 823,360 $1,706,460 Supplemental Disclosures of Cash Flow Information -5- CASH PAID DURING THE PERIOD: Interest $ 151,629 $ 24,398 Income taxes $ 0 $115,000 -6- GODDARD INDUSTRIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS March 31, 2001 (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reference is made to the financial statements included in the Annual Report for the year ended September 30, 2000 for a summary of significant accounting policies and other disclosures. Revenue Recognition: The Company recognizes revenue when goods are shipped from its facilities. Title passes when goods are shipped, or in rare instances, on different terms specifically negotiated by a customer. Foreign Currency Translation: The assets and liabilities of Mack are translated into U.S. dollars at the rates of exchange in effect at the balance sheet dates, and revenues and expenses are translated at the average rates for the year. Adjustments resulting from these translations are included in Accumulated other comprehensive income. Amortization of Deferred Finance Fees: Deferred finance fees are being amortized on the straight-line method over the five to ten year lives of the related debt. Amortization of Goodwill: Goodwill, which represents the excess of the purchase price over the fair value of assets purchased, together with transaction costs associated with the acquisition, is being amortized on a straight line basis over thirty years. Derivatives: Effective October 1, 2000, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires the Company to record all derivatives on the balance sheet at fair value. The Company generally does not have any derivative instruments and Generally does not engage in any hedging activities. Consequently, the adoption of SFAS No. 133 does not have a material impact on the Company. NOTE 2. BASIS OF PRESENTATION: The accompanying financial statements include the accounts of Goddard Industries, Inc. (Industries) and its wholly-owned subsidiaries, Goddard Valve Corporation (Goddard Valve), Goddard Management Corporation (Management), and Mack Valves Pty Ltd (Mack), acquired on November 1, 2000 (collectively, Company). The results of Mack operations are reported for the period beginning with the date of its acquisition on November 1, 2000. All material intercompany transactions have been eliminated. -7- The information shown in the consolidated financial statements reflects all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim period. NOTE 3. INVENTORIES: Consolidated inventories are comprised of: March 31, September 30, 2001 2000 Finished goods $ 2,242,037 $1,811,356 Work in process 438,686 21,329 Raw materials 296,611 213,791 $2,977,334 $2,046,476 NOTE 4. LONG-TERM DEBT: At March 31, 2001 Long-term debt consisted of the following: LONG-TERM CURRENT Note payable, Fleet National Bank, due in monthly installments of approximately $17,000 plus interest at the bank's prime rate plus 0.50% through October, 2005. $716,667 $200,000 Revolving line of credit, Fleet National Bank, bearing interest at the bank's prime rate plus 0.25%, due in February 2003. 1,100,000 - Note payable, National Australia Bank, due in quarterly installments of approximately A$71,000 ($40,000) including interest at 8.85% through November 2005 (Denominated in AUD). 458,910 102,178 Revolving line of credit, National Australia Bank, current rate of 7.29%, through October 2005. Commencing November 1, 2005 quarterly payments of principal plus interest in amounts sufficient to amortize the then outstanding balance by October 31, 2010. Interest may not exceed 9.55% for the life of the loan. (Denominated in AUD). 878,580 - Capital lease obligations for machinery, with interest imputed at the rate of approximately 8.5% - 11,380 Capital lease obligations for machinery. (Denominated in AUD). 3,192 25,615 $ 3,157,349 $339,173 -8- All of the above bank debt is secured by substantially all assets of the Company. NOTE 5. INCOME TAXES: The tax effects of the principal temporary differences giving rise to the net current and non-current deferred tax assets are as follows: March 31, September 30, 2001 2000 Deferred tax asset Deferred compensation $ 207,000 $ 207,000 Capital loss carry-forward 167,700 167,700 Inventory valuation 51,200 51,200 Accrued salaries and long service leave 104,500 7,500 Bad debts 8,100 8,100 Loss on foreign currency 18,000 18,000 Net operation loss carry-forward 20,000 - Other 1,000 - 577,500 459,500 Depreciation 85,800 102,800 $ 491,700 $ 356,700 Less valuation allowance (167,700) (167,700) $ 324,000 $ 189,000 Management has established a valuation allowance against the deferred tax asset attributable to the capital loss carry-forward. NOTE 6. ENVIRONMENTAL MATTER Environmental Matters: In 1998, the Company filed a Class "C" Response Action Outcome Statement with the Massachusetts Department of Environmental Protection regarding its facility in Worcester, Massachusetts. Based upon the information presently available, periodic monitoring is required. -9- NOTE 7. EARNING PER SHARE: The following data show the amounts used in computing earnings per share (EPS) from continuing operations and the effects on income and the weighted average number of shares of dilutive potential common stock. Six Months ended March 31,2001 (Loss) Common Shares EPS Basic EPS: Income available to common shareholders $(53,000) 2,151,273 $(0.02) Diluted EPS are not applicable for a period in which a loss is reported. Three Months ended March 30,2001 Income Common Shares EPS Basic EPS: Income available to common shareholders $ 21,488 2,157,309 $0.01 Dilutive effect of potential common stock: Stock options - 462 Diluted EPS: Income available to common shareholders after assuming exercise of dilutive securities $ 21,488 2,157,771 $0.01 Six Months ended April 1, 2000 Income Common Shares EPS Basic EPS: Income available to common shareholders $181,450 2,131,531 $0.09 Dilutive effect of potential common stock: Stock options - 13,475 Diluted EPS: Income available to common shareholders after assuming exercise of dilutive securities $181,450 2,145,006 $0.08 -10- Three months ended April 1, 2000 Income Common Shares EPS Basic EPS: Income available to common shareholders $ 92,618 2,126,649 $0.04 Dilutive effect of potential common stock: Stock options - 19,185 Diluted EPS: Income available to common shareholders after assuming exercise of dilutive securities $ 92,618 2,145,834 $0.04 NOTE 8. ACQUIRED BUSINESS: On November 1, 2000, the Company acquired substantially all of the assets of Mack Valves Pty. Ltd. (Mack) of Melbourne, Australia for a purchase price of $3,614,900. The acquisition was financed through secured credit facilities furnished by Fleet National Bank and National Australia Bank Limited, totaling approximately $3,668,100. The Company acquired net assets valued at $1,359,500. The excess of purchase price plus transaction costs over the fair value of the assets acquired (Goodwill) was approximately $2,772,600 and is being amortized on a straight-line basis over 30 years. In addition, contingent consideration of approximately A$800,000 ($390,000) in cash and A$423,000 ($206,000) in non-qualified stock options will be required if Mack achieves various sales levels during the forthcoming five years. Such payments, if any, will be added to Goodwill and amortized over its remaining life. Note 9. FOREIGN CURRENCY TRANSACTION: In connection with the transaction described in Note 8, the company entered into a foreign currency exchange contract to acquire A$4,000,000, to fix the amount of its future investment in US dollars. Losses resulting from currency fluctuations approximated $75,000 (pre-tax) during the 6 months ended March 31, 2001, all of which incurred during the first 3 months of the year, and were attributable to the decline in the value of the Australian dollar in relation to the U.S. dollar. All losses associated with this contract have been recognized in current earnings. -11- NOTE 10. SEGMENT INFORMATION: The company conducts operations through business segments established along geographic lines: Western Hemisphere, which is represented by Goddard Valve, and Asia/Pacific, represented by Mack. Certain expenses that are related to corporate activities, and unrelated to business segment activities, are separately stated. Summarized segment financial information for the six months ended March 31, 2001 is as follows: Western Corporate Hemisphere Asia/Pacific Total (five months) Sales to external Customers - $1,699,000 $1,691,000 $3,390,000 Operating profit(loss) $(78,000) (31,000) 188,000 79,000 Long-lived Assets - 1,277,000 538,000 1,815,000 Total assets $471,000 $5,420,000 $4,130,000 $10,021,000 For the six months ended April 1, 2000 the company conducted its operations through only one segment. -12- PART I - FINANCIAL INFORMATION Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS ACQUISITION OF MACK VALVES PTY LTD On November 1, 2000, the Company acquired substantially all the assets of Mack Valves Pty Ltd of Melbourne, Australia for a price of approximately $3,614,900. In its last full year of operations prior to the acquisition, the revenues of Mack Valve were approximately $4,407,000. (Details of the transaction can be found in Note 8 to the financial statements.) Consolidated results for the six months reported herein include only five months of Mack Valves performance, whereas the results include a full six months of Goddard Valve Corporation, the Company's US subsidiary. Results for the second quarter of this year include three months of both Mack and Goddard. The results of last year's second quarter and six months contain only the results of Goddard Valve Corporation, since Mack Valves had not yet been acquired. RESULTS OF OPERATIONS Three months ended March 31, 2001 Net sales for the second quarter ended March 31, 2001 were 1,996,000 with net income of $21,000 or basic earnings per share of $.01 compared with net sales of $1,017,000 and net income of $93,000, or basic earnings per share of $.04 for the same period last year. Consolidated new orders received in the three months ended March 31, 2001 were 86% higher than for the same period last year. This increase was the result of an increase of new orders at Goddard Valve of 6% over last year with the remainder resulting from the addition of new orders at Mack Valves. At Goddard Valve, new orders in the second quarter increased 25% over the first quarter of this fiscal year. At March 31, 2001 the backlog of orders was 144% higher than at the end of last year's second quarter, reflecting the addition of Mack Valves' backlog as well as a 52% improvement in the backlog at Goddard Valve. For the second quarter, the year to year $8,000 decrease in consolidated Income from Operations is the net effect of an added $150,000 from the addition of Mack Valves, a year to year reduction at Goddard Valve of $114,000 and Corporate expenses of $44,000 which are separately classified for the first time this year. Included within the quarter's operating expenses of Mack Valves are $10,000 of goodwill. The reduced operating performance at Goddard Valve is attributable to more than $100,000 lower volume, cost of goods which have increased by approximately 1.8% of net sales due primarily to lower volume, and $53,000 higher SG&A expenses due to higher selling costs. -13- Consolidated Other Expense for the quarter was $63,000 compared with Other Income of $55,000 during the same period last year. The resulting year to year change of $118,000 was principally the result of $69,000 of higher interest expense associated with loans incurred for the acquisition of Mack Valves, $14,000 lower interest income and $31,000 of income received last year under a management agreement with another company which was no longer in effect this year. Six Months Ended March 31, 2001 Net sales for the six months ended March 31, 2001 were $3,391,000 with a net loss of $53,000 or basic loss of $.02 per share compared with net sales of $1,986,000 and net income of $181,000, or basic earnings per share of $.09. Consolidated new orders received in the six months ended March 31, 2001 were 59% higher than for the same period last year, with the increase the result of the addition of new orders at Mack Valves, offsetting a 12% decline in new orders at Goddard Valve. For the six months the year to year decrease of $104,000 in consolidated Income from Operations is the net effect of an added $188,000 from the addition of Mack Valves, a year to year reduction at Goddard Valve of $215,000, and Corporate expenses of $78,000 which are separately classified for the first time this year. Included within the six months' operating expenses of Mack Valves are $29,000 of goodwill. The reduced operating performance at Goddard Valve is attributable to nearly $300,000 lower volume, cost of goods which have increased by approximately 1.7% of net sales due primarily to lower volumes, and $72,000 of higher SG&A expenses due to higher selling costs. Consolidated Other Expense for the six months was $165,000 compared with Other Income of $124,000 during the same period last year. The resulting year to year change of $289,000 was the result of $127,000 of higher interest expense resulting from loans incurred for the acquisition of Mack Valves, $25,000 of lower interest income, $64,000 of income received last year under a management agreement with another company which is no longer in effect this year, and $74,000 loss on a foreign exchange contract which was entered into to protect the US dollar value of the Mack Values acquisition. LIQUIDITY AND CAPITAL RESOURCES The acquisition of Mack Valves was financed through secured credit facilities amounting to approximately $3,668,100 furnished by Fleet National Bank and National Australia Bank Limited. At March 31, 2001, long term debt equaled $3,157,000. The Company believes that it has sufficient liquidity generated from operations to handle normal working capital and debt service requirements of the business. FORWARD LOOKING INFORMATION Information in this report may contain certain forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, -14- that address such matters as new product introductions and projected future sales. These statements can be identified by the use of forward looking terminology such as "expect", "anticipate", "believe", "intend", "estimate", "is a promising sign", or other comparable terminology. All forward-looking statements involve risks and uncertainties, and actual results could differ materially from those set forth in the forward-looking statements. Some of the principal factors that could affect the Company's future operations include the loss of or decline in level of orders from major customers, delays in introducing new products, the failure to adequately integrate the operations of new acquisitions, the failure of the market to accept new products, changes in general economic conditions and conditions in major customer industries such as the industrial gas business. -15- PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 	The Company held a Special Meeting in Lieu of the Annual Meeting of Stockholders on March 23, 2001. At the meeting, the stockholders approved the election of two Class 2 directors to serve until 2004 and until their successors are duly elected and qualified. a) Election of Directors: Nominee For Against, Withheld or Abstained (Including Broker Non-Votes) Lyle E. Wimmergren 1,201,367 2500 Robert E. Humphreys 1,203,867 0 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (10) Material Contracts Loan and Security Agreement dated October 30, 2000 between the Company and Fleet National Bank, Boston, Massachusetts. (11) Statement Re: Computation of Per Share Earnings. The information set forth in Note 7 to the Financial Statements found in PART I hereof is hereby incorporated. (b) The Company did not file any reports on Form 8-K during the quarter ended March 31, 2001. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated as of May 21, 2001 GODDARD INDUSTRIES, INC. By:/s/Salvatore J. Vinciguerra ----------------------------------- Salvatore J. Vinciguerra 	President, 	Chief Executive Officer and 	Chief Financial Officer -16-