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-