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 June 29, 2002
[ ] 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 Identification No.)
incorporation or organization)
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
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.
Title of Each Class of Number of Shares Outstanding
Common Equity Outstanding at June 29, 2002
Common Stock, $.01 par value 2,560,684
Transitional Small Business Disclosure Format
Yes [ ] No [ X ]
GODDARD INDUSTRIES, INC.
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Balance Sheets - June 29, 2002
and September 29, 2001 3
Consolidated Statements of Operations - Three and Nine
Months Ended June 29, 2002 and June 30, 2001 5
Consolidated Statement of Shareholders' Equity - Nine Months
Ended June 29, 2002 6
Consolidated Statement of Cash Flows - Nine Months Ended
June 29, 2002 and June 30, 2001 7
Notes to Consolidated Financial Statements 9
Item 2 Management Discussion and Analysis 16
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K 20
- 2 -
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 29, 2002 September 29, 2001
ASSETS Unaudited Audited
CURRENT ASSETS:
Cash and cash equivalents $ 412,927 $ 815,704
Accounts receivable, net of allowances 772,616 1,198,049
Inventories 2,741,959 2,645,007
Refundable taxes on income 192,889 222,672
Prepaid expenses 105,724 166,085
Deferred income taxes 300,778 283,943
TOTAL CURRENT ASSETS 4,526,893 5,331,460
NET PROPERTY, PLANT AND EQUIPMENT 1,624,722 1,732,675
OTHER ASSETS:
Deferred charges 113,198 83,084
Deferred income taxes - long term 193,344 245,864
Investment 250,000 250,000
Deferred financing charges 175,875 52,101
Goodwill 2,414,618 2,239,917
TOTAL OTHER ASSETS 3,147,035 2,870,966
TOTAL ASSETS $9,298,650 $9,935,101
LIABILITIES AND SHAREHOLDERS'EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 144,364 $2,040,771
Accounts payable 534,887 727,511
Accrued expenses 546,091 505,119
Taxes payable 178,426 99,753
Deferred compensation 60,000 77,976
TOTAL CURRENT LIABILITIES 1,463,768 3,451,130
LONG-TERM DEBT 2,789,013 1,332,937
DEFERRED COMPENSATION 423,907 439,863
- 3 -
SHAREHOLDERS' EQUITY:
Capital Stock:
Preferred stock - par value $.01 per share;
3,000,000 shares authorized, none issued
or outstanding at June 29, 2002. -
Common stock - par value $.01 per share;
12,000,000 shares authorized, 2,560,684
issued and outstanding at June 29, 2002;
3,000,000 shares authorized, 2,160,684
issued and outstanding at
September 29, 2001. 25,607 21,607
Additional paid-in capital 700,487 498,487
Accumulated other comprehensive income 88,857 (67,971)
Retained earnings 3,807,011 4,259,048
TOTAL SHAREHOLDERS'EQUITY 4,621,962 4,711,171
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $9,298,650 $9,935,101
The accompanying notes are an integral part
of the consolidated financial statements
- 4 -
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three For the Nine For the Three For the Nine
Months Ended Months Ended Months Ended Months
Ended
June 29, 2002 June 30, 2001
NET SALES $1,592,617 $4,666,561 $1,997,683 $5,388,476
COST OF SALES 969,276 2,977,067 1,658,488 3,673,463
GROSS PROFIT 623,341 1,689,494 339,195 1,715,013
SELLING AND ADMINISTRATIVE
EXPENSES 785,703 2,255,977 769,213 2,065,853
INCOME (LOSS) FROM
OPERATIONS (162,362) (566,483) (430,018) (350,840)
OTHER INCOME (EXPENSE):
Interest expense (60,658) (190,096) (86,992) (238,621)
Other income (loss), net (7,929) 14,028 23,621 85,772
Income(loss)on foreign
exchange (2,869) (9,486) - (75,200)
TOTAL OTHER
INCOME (EXPENSE) (71,456) (185,554) (63,371) (228,049)
INCOME (LOSS) BEFORE
INCOME TAXES (233,818) (752,037) (493,389) (578,889)
PROVISION FOR (BENEFIT
FROM) INCOME TAXES (93,600) (300,000) (196,500) (229,000)
NET INCOME (LOSS) $(140,218) $(452,037) $(296,889) $(349,889)
EARNINGS PER SHARE:
Net Income(loss):
Basic $(0.05) $(0.19) $(0.14) $(0.16)
The accompanying notes are an integral part
of the consolidated financial statements
- 5 -
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS'EQUITY
NINE MONTHS ENDED JUNE 29,2002
Unaudited
Accum.
Additional Compre- Other Com-
Common paid-in hensive Retained prehensive
stock capital income earnings income Total
Balance at
September 29, 2001
2,160,684 shares $21,607 $498,487 $4,259,048 $(67,971) 4,711,171
Net loss - - (452,037) (452,037) - (452,037)
Other comprehensive
income:
Foreign currency
translation, net of
taxes of $(105,000) - - 156,828 - 156,828 156,828
Comprehensive loss (295,209)
Proceeds from sale of
common stock
400,000 shares 4,000 396,000 - - - 400,000
Payment of private
placement costs - (194,000) - - - (194,000)
Balance at
June 29, 2002
2,560,684 shares $25,607 $700,487 - $3,807,011 $ 88,857 $4,621,962
The accompanying notes are an integral part
of the consolidated financial statements
- 6 -
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
June 29, 2002 June 30, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating loss $ (452,037) $ (349,889)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on disposal of assets - (3,798)
Depreciation and amortization 356,134 295,701
Deferred income taxes 108,981 (110,157)
Changes in assets and liabilities:
Accounts receivable 490,774 (187,109)
Inventories 17,717 (140,000)
Refundable income taxes 85,876 308,143
Prepaid expenses and other 63,899 (21,866)
Accounts payable (233,130) 200,454
Accrued expenses 2,387 (90,934)
Income taxes payable 72,410 21,247
Deferred compensation (37,100) (18,386)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 257,949 (96,594)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred charges (30,945) 92,227
Property, plant and equipment additions (90,128) (64,517)
Proceeds from sale of equipment - 15,752
Investment in net assets of
subsidiary, net of cash - (4,109,380)
NET CASH USED IN INVESTING
ACTIVITIES (121,073) (4,065,918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 1,060,172 3,673,800
Repayments of long term debt (1,693,961) (245,361)
Financing Fees Deferred (141,263) (58,422)
Issuance of common stock 206,000 10,273
NET CASH PROVIDED BY
FINANCING ACTIVITIES (569,052) 3,380,290
EFFECT OF EXCHANGE RATE CHANGES ON CASH 29,399 (1,815)
NET (DECREASE) IN CASH (402,777) (784,037)
CASH AND EQUIVALENTS - BEGINNING 815,704 1,630,711
CASH AND EQUIVALENTS - ENDING $ 412,927 $1,658,721
- 7 -
Supplemental Disclosures of Cash Flow Information
CASH PAID DURING THE PERIOD:
Interest $167,096 $234,599
Income taxes $129,923 -
The accompanying notes are an integral part
of the consolidated financial statements
- 8 -
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2002
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the United States Securities
and Exchange Commission for interim reporting and include all normal and
recurring adjustments that are, in the opinion of management, necessary for a
fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. These financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
annual report for the year ended September 29, 2001 that is included in the
Company's Form 10-KSB. The Company believes the disclosures contained herein
are adequate to make the information presented not misleading.
Recent Accounting Pronouncements:
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141 "Business Combinations" and
SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires
that all business combinations initiated after June 30, 2001 be accounted
for under the purchase method of accounting and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired
in a business combination. SFAS No. 142 addresses the initial recognition
and measurement of intangible assets acquired outside of a business
combination and the accounting for goodwill and other intangible assets
subsequent to acquisition. SFAS No. 142 provides that intangible assets
with finite lives be amortized, and that goodwill and intangible assets with
indefinite lives be tested at least annually for impairment, rather than
being amortized. Upon adoption of SFAS Nos. 141 and 142 the Company will
stop amortization of goodwill that resulted from business combinations
completed prior to the adoption of SFAS No. 141. The Company currently has
goodwill and other intangible assets on its balance sheet. The Company is
required to adopt SFAS Nos. 141, and 142, on October 1, 2002. Management is
in the process of evaluating the impact of adopting the above standards.
In October 2001 the Financial Accounting Standards Board issued SFAS No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets." This
pronouncement supersedes SFAS No. 121. The Company is required to adopt SFAS
No. 144 on October 1, 2002. Management is in the process of evaluating the
impact of adopting the above standard.
In October 2001 the Financial Accounting Standards Board also issued SFAS
No. 143 "Accounting for Asset Retirement Obligations." The Company does not
hold any assets affected by this statement and it is not expected to have a
material impact on the Company's financial statements.
- 9 -
Asset Impairment:
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of", long-lived assets
to be held and used by the Company are reviewed to determine whether any
events or changes in circumstances indicate that the carrying amount of the
asset may not be recoverable. For long-lived assets to be held and used,
the Company bases its evaluation on such impairment indicators as the nature
of the assets, the future economic benefits of the assets, any historical or
future profitability measurements, as well as other external market
conditions or factors that may be present. If such impairment indicators
are present or other factors exist that indicate that the carrying amount of
the asset may not be recoverable, the Company determines whether an
impairment has occurred through the use of an undiscounted cash flow
analysis of assets at the lowest level for which identifiable cash flows
exist. If impairment has occurred, the Company recognizes a loss for the
difference between the carrying amount and the estimated value of the asset.
The fair value of the asset is measured using an estimate of discounted cash
flow analysis.
NOTE 2. BASIS OF PRESENTATION:
The accompanying financial statements include the accounts of Goddard
Industries, Inc. (Industries), its wholly-owned subsidiaries Goddard Valve
Corporation (Goddard Valve), Goddard Management Company, Inc. and Mack Valves
Pty Ltd (Mack Valves) (collectively, the Company). The results of Mack Valves
operations are reported for the period beginning with the date of its
acquisition on November 1, 2000. Goddard Management Company, Inc., incorporated
on July 29, 1999, was dissolved during the quarter ended June 29, 2002.
All material intercompany transactions have been eliminated.
NOTE 3. INVENTORIES:
Consolidated inventories are comprised of:
June 29, September 29,
2002 2001
Finished goods $2,227,887 $2,171,206
Work in process 120,302 109,169
Raw materials 393,770 364,632
$2,741,959 $2,645,007
- 10 -
NOTE 4. LONG-TERM DEBT:
On March 22, 2002, the Company entered into a Loan Agreement with Commerce Bank
and Trust Company which includes a $1,550,000 revolving line of credit
("Revolver"); a $700,000 real estate mortgage loan ("Mortgage"); and a
$1,000,000 acquisition guidance line of credit ("Acquisition Loan"). These
facilities replaced all of the Company's previously existing facilities at
Fleet National Bank. The Revolver is committed for two years at a time with an
annual review, with a floating interest rate at the bank's prime rate plus 1.5%
The Mortgage is for a ten year term with a twenty year amortization schedule.
Interest is fixed at 8% for the first five years, after which the rate reverts
to the bank's prime rate plus 1.5%. The terms of the Acquisition Loan are to be
negotiated at the time the loan is activated. All loans are secured by
substantially all the properties of the Company and are subject to certain
covenant requirements, the most restrictive of which relate to minimum tangible
net worth and maximum leverage ratios. On March 22, 2002, in a non-cash
transaction to the Company, the notes payable to Fleet National Bank, with
balances aggregating $1,798,333, were repaid from the proceeds of the Commerce
Bank and Trust Company financing.
On April 16, 2002, Mack Valves renewed its loan facility with National
Australia Bank Limited. This renewal resulted in an increase of .45 percentage
points in the facility fee that is charged by the bank, and the addition of a
financial covenant on interest coverage.
At June 29, 2002, long-term debt consisted of the following:
LONG-TERM CURRENT
Mortgage payable, Commerce Bank and Trust Company, due
in 120 monthly installments of approximately $5,900
including interest at 8% for the first five years and
then at the bank's prime rate plus 1.5% thereafter. $ 681,566 $15,000
Revolving line of credit, Commerce Bank and Trust
Company, bearing interest at the bank's prime rate
plus 1.5%, due in March 2004. 696,325 -
Note payable, National Australia Bank, due in
quarterly installments of approximately A$71,000
($40,000) including interest at 9.30% through
November 2005. (Denominated in AUD.) 368,989 119,208
Revolving line of credit, National Australia Bank,
current rate of 6.35%, 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 10.00%
for the life of the loan. (Denominated in AUD.) 1,013,040 -
Capital lease obligations for machinery.
(Denominated in AUD.) 29,093 10,156
$2,789,013 $ 144,364
All of the above bank debt is secured by substantially all assets of the
Company.
- 11 -
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:
June 29, September 29,
2002 2001
Deferred tax assets:
Deferred compensation $ 198,000 $ 198,000
Capital loss carry forward 167,700 167,700
Inventory valuation 142,800 142,800
Foreign currency exchange - 46,000
Accrued salaries and long service leave 86,000 100,900
Bad debts 22,000 28,300
Foreign tax credit carry forward 108,500 93,000
Net operating loss carry forward 74,000 37,000
Other 18,322 2,307
Total gross deferred tax assets 817,322 816,007
Deferred tax liabilities:
Depreciation (88,300) (88,300)
Amortization (30,200) (30,200)
Foreign currency exchange (37,000) -
Total gross deferred tax
liabilities (155,500) (118,500)
Deferred tax asset before valuation
allowance 661,822 697,507
Less valuation allowance (167,700) (167,700)
$494,122 $529,807
Management has established a valuation allowance against the
deferred tax asset attributable to the capital loss carry forward.
NOTE 6. ENVIRONMENTAL MATTERS:
In 1998, the Company filed a Class "C" Response Action Outcome (RAO)
Statement with the Massachusetts Department of Environmental Protection
regarding its facility in Worcester, Massachusetts. The Company has been
conducting periodic monitoring as required by the RAO. No further action is
required at this time.
- 12 -
NOTE 7. EARNINGS 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.
Nine Months ended June 29,2002
(Loss) Common Shares EPS
Basic EPS:
Income available to common
shareholders $(452,037) 2,428,816 $(0.19)
Diluted EPS are not applicable for a period in which a loss is reported.
Three Months ended June 29,2002
(Loss) Common Shares EPS
Basic EPS:
Income available to common
shareholders $(140,218) 2,560,684 $(0.16)
Diluted EPS are not applicable for a period in which a loss is reported.
Nine Months ended June 30,2001
(Loss) Common Shares EPS
Basic EPS:
Income available to common
shareholders $(349,899) 2,154,410 $(0.16)
Diluted EPS are not applicable for a period in which a loss is reported.
Three Months ended June 30,2001
Income Common Shares EPS
Basic EPS:
Income available to common
shareholders $(296,889) 2,160,684 $(0.14)
Diluted EPS are not applicable for a period in which a loss is reported.
- 13 -
NOTE 8. SEGMENT INFORMATION:
The Company conducts operations through business segments established along
the following geographic lines: Western Hemisphere, which is represented by
Goddard Valve, and Asia/Pacific, represented by Mack Valves. Certain
expenses that are related to corporate activities, and unrelated to business
segment activities, are separately stated.
Summarized segment financial information for the nine months ended June 29,
2002, in thousands of dollars, is as follows:
Western
Corporate Hemisphere Asia/Pacific Total
Sales to external
Customers - $2,395 $2,272 $4,667
Intercompany sales 39 95 134
Total sales - $2,434 $2,367 $4,801
Operating profit (413) (66) (87) (566)
Total interest (expense) (27) (4) (159) (190)
Total other income (loss) 3 15 (16) 2
Foreign exchange - (8) 11 3
Segment net (loss) (182) (38) (232) (452)
Segment assets 7,806 7,902 4,324 20,032
Eliminations in
consolidation (6,696) (3,909) (128) (10,733)
Total assets $1,110 $3,993 $4,196 $9,299
- 14 -
Summarized segment financial information for the nine months ended June 30,
2001, in thousands of dollars, is as follows:
Western
Corporate Hemisphere Asia/Pacific Total
(five months)
Sales to external
Customers - $2,821 $2,567 $5,388
Operating profit(loss) $(156) (387) 192 (351)
Total interest (expense) (28) (2) (209) (239)
Total other income (loss) - 70 16 86
Foreign exchange (75) - - (75)
Segment net income (86) (194) (70) (350)
(loss)
Segment assets 6,000 7,369 4,280 17,649
Eliminations in
consolidation (5,457) (2,352) - (7,809)
Total assets $ 543 $5,017 $4,280 $9,840
NOTE 9 CAPITAL STOCK
On October 31, 2001, the stockholders of the Company approved resolutions to
amend the corporation's Restated Articles of Organization to increase the
number of shares of the Company's common stock authorized to be issued from
3,000,000 to 12,000,000 shares and to authorize 3,000,000 shares of a new
class of preferred stock, as yet undesignated as to series.
In December 2001, the Company initiated an offering of common stock, and
warrants to purchase common stock, on a private placement basis in order to
raise up to $3,000,000 of equity capital to fund its acquisition strategy
and working capital needs. In the offering, each share of common stock and
each warrant, which is exercisable for an additional share of common stock,
comprise one unit (each a Unit). Units are being offered at $1.00 per Unit,
with the warrants exercisable at $2.00 per share of common stock. On
December 28, 2001, the Company consummated an initial closing of the private
placement at which certain executive officers and directors of the Company
purchased Units for an aggregate purchase price of $400,000. Expenses
associated with the private placement, totaling $194,000, have been charged
to additional paid-in capital during the quarter ending December 29, 2001.
- 15 -
PART I - FINANCIAL INFORMATION
Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
Three months ended June 29, 2002
Net sales for the third quarter ended June 29, 2002 were $1,593,000 with a net
loss of $140,000 or $.05 basic loss per share, compared with net sales of
$1,998,000 and net loss of $297,000 or $.14 basic loss per share for the same
period last year. Last year's third quarter results included a one-time charge
to cost of goods of $192,000 for slow-moving inventories at the Company's
Goddard Valve subsidiary.
New orders received in the three months ended June 29, 2002 were 27% lower
than for the same period last year. This decrease was the net result of a 35%
decrease in new orders at Goddard Valve and an 18% decrease in new orders at
Mack Valves compared with the same period last year. Goddard Valve's decrease
was the result of continuing lower levels of demand for cryogenic equipment in
the industrial gas industry. With only a part of its business dependent upon
the industrial gas industry, Mack Valves' new orders were less affected, but
also suffered from continuation of the effects of the global economic
slowdown, particularly in Australia and Southeast Asia.
At June 29, 2002 the backlog of orders was 26% lower than at the end of last
year's third quarter, with a decline of backlog at Goddard Valve of 37%
and a decline of backlog at Mack Valves of 14%.
The improvement in pretax results of $260,000 in the third quarter of this year
compared with last year was primarily the result of an improvement in gross
margins of $284,000, offset slightly by higher selling and administrative
costs. Of the $284,000 gross margin improvement, $92,000 resulted from lower
unit costs and $192,000 from the one time reserve taken in last year's third
quarter against slow moving inventory. The gross margin improvement was
achieved on a lower sales base, thus showing overall improvement in efficiency.
Earlier this year, the Company began a policy of selective component sourcing
from Mack Valves, where the costs of raw casting and machining labor are lower
than at Goddard Valve in the United States. Mack Valves is fully capable of
producing components which meet the Company's exacting standards, but at lower
cost. These lower cost components are now beginning to appear in valves shipped
from Goddard Valve, with the result that the Company is beginning to achieve an
anticipated decrease in costs of goods.
At the end of May 2002, actions were taken to reduce the Company's expense base
- - particularly in the United States - because of lower business levels. These
actions consisted of substituting stock options for salary for certain senior
members of the management team; substituting stock options for fees for
directors of the company; reducing professional fees associated with being a
public company; and reducing administrative functions within the company.
Management believes that no reductions were made which will impair the
Company's ability to obtain and deliver new business or to produce high quality
products and services.
- 16 -
Nine months ended June 29, 2002
Since Mack Valves was acquired on November 1, 2000, results for the nine months
ended June 30, 2001 contain only eight months of Mack Valves' operations,
whereas the nine months ended June 29, 2002 contain nine months of Mack Valves
operations.
Net sales for the nine months ended June 29, 2002 were $4,667,000 with a net
loss of $452,000 or $.19 basic loss per share, compared with net sales of
$5,388,000 with a net loss of $350,000 or $.16 basic loss per share for the
same period last year.
New orders received in the nine months ended June 29, 2002 were 16% lower
than for the same period last year, with new orders at Goddard Valve 19% lower
than for the same period last year and new orders at Mack Valves 12%
lower than for the same period last year.
Pretax results declined by $173,000 for the first nine months of this year
compared with the same period last year. The relative improvement in third
quarter pre-tax results described above was more than offset by the unfavorable
difference for the first six months of this year's operations compared with
last year's. The $173,000 year to year pre-tax difference was made up of:
$26,000 unfavorable difference in gross margins; $190,000 of unfavorable
difference in selling and administrative expenses; and a favorable improvement
of $42,000 in other expense. The unfavorable difference of $190,000 in selling
and administrative expenses was affected by having a full nine months of Mack
Valves and European expenses in this year's results compared to having only
eight months of Mack Valves and one month of European office expense in last
year's results. The improvement of $42,000 in other expense is the net result
of: a year to year improvement in interest costs of $48,000; a $66,000
improvement resulting from a foreign exchange loss of $9,000 in the first nine
months of this year compared to foreign exchange losses of $75,000 in the same
period last year arising from a foreign exchange contract entered into to
protect the US dollar value of the Mack Valves acquisition; and a $72,000
decline in other income that included $36,000 lower interest income and a loss
of $31,000 rental income in the first nine months of this year compared with
last year. The loss of rental income resulted from our former tenant moving its
operations to another facility.
LIQUIDITY AND CAPITAL RESOURCES
On March 22, 2002, the Company entered into an agreement with Commerce Bank and
Trust Company of Worcester, Massachusetts (Commerce Bank) which provides the
Company with working capital, long-term capital, and acquisition standby funds.
This agreement replaces the agreement which had been in effect with Fleet
National Bank since the acquisition of Mack Valves on November 1, 2000. The
Mack Valves acquisition was financed through secured credit facilities
amounting to approximately $3,668,000 furnished by Fleet National Bank and
National Australia Bank Limited.
- 17 -
Under the new agreement with Commerce Bank, the Company may borrow up to
$1,550,000 on a revolving line of credit; has obtained a loan of $700,000
secured by a mortgage against its land and building in Worcester,
Massachusetts; and obtained a $1,000,000 guidance line of credit for approved
acquisitions. All loans are secured by substantially all of the assets of the
Company, and are subject to certain covenants.
On April 16, 2002, Mack Valves renewed its agreement with National Australia
Bank Limited under substantially the same terms as its previous agreement, but
with slightly higher interest rates and a financial covenant added.
At June 29, 2002, consolidated long-term debt equaled $2,933,000, of which
$144,000 was short term and $2,789,000 was long-term. Commerce Bank accounts
for $15,000 short-term and $1,378,000 long-term debt while National Bank of
Australia Limited accounts for $119,000 short-term and $1,382,000 long-term
debt. The balance of long-term debt represents capital lease obligations. At
June 29, 2002 cash and cash equivalents were $413,000 and working capital was
$3,063,000.
In December 2001, the Company initiated an offering of common stock and
warrants to purchase common stock on a private placement basis in
order to raise additional equity capital. These funds will be aimed
primarily at funding the Company's acquisition strategy and secondarily at
supplementing working capital for operations. An initial closing of the
sale of common stock and warrants to certain executive officers and
directors of the Company was completed on December 28, 2001, with gross
proceeds to the Company of $400,000. The securities offered in the private
placement have not been and will not be registered under the Securities Act
of 1933, as amended (Securities Act), and may not be offered or sold in the
United States absent registration under the Securities Act or an applicable
exemption from the registration requirements of the Securities Act. The
private placement could be dilutive to existing stockholders of the Company
on a book value basis. There is no guarantee that the Company will be
successful in completing the private placement.
Management believes that the new Commerce Bank facility described above and
the renewed facility with National Bank of Australia Limited will be
sufficient to provide normal working capital and debt service requirements
of the Company's current business on both a short-term and on a long-term
basis, as well as providing some degree of ability to fund expansion through
acquisition.
The Company has incurred debt, and therefore increased interest costs, as a
result of its acquisition of Mack Valves, and these increased costs could have
an effect on the Company's liquidity and capital resources. Management of the
Company recognizes that it is necessary to return to profitability in the long
term to assure continued funding of its operations. The Company plans to do so
by increasing business levels, as well as by reducing its costs and expenses as
mentioned above.
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CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 1 to
our financial statements. However, certain of our accounting policies are
particularly important to the portrayal of our financial position and results
of operations and require the application of significant judgment by our
management; as a result, they are subject to an inherent degree of uncertainty.
In applying these policies, our management makes estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
related disclosures. Those estimates and judgments are based upon our
historical experience, the terms of existing contracts, our observance of
trends in the industry, information that we obtain from our customers and
outside sources, and various other assumptions that we believe
to be reasonable and appropriate under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. Our most significant accounting policies include:
Deferred Tax Assets: Deferred tax assets arise from temporary differences
between recognition of certain expenses for financial reporting and income tax
purposes. Valuation allowances are established when realization of these tax
assets becomes doubtful. Periodically management reviews the components of the
deferred tax assets and records allowances based upon the nature of the items
giving rise to them, economic conditions, and management's plans related to
realization of the deferred tax assets.
Goodwill: Goodwill, created in connection with the acquisition of Mack Valves
on November 1, 2000, is stated at cost. Amortization is computed over an
estimated useful life of thirty years. In connection with periodic reviews
of this useful life, we consider changes in the economic environment,
technological advances, and management's assessment of future revenue
potential.
As described in note 1, adoption of SFAS nos. 141 and 142 will require the
Company to conduct annual testing for impairment of goodwill. The carrying
value and valuation of these assets is dependant upon estimates of future
earnings and benefits that the Company expects to generate. If our expectations
of future results are significantly diminished, under SFAS 141 and 142,
intangible assets and goodwill may be impaired, and resulting charges to
operations could be material.
FORWARD LOOKING INFORMATION
Information in this report includes various forward-looking statements
within the meaning of Section 27A of the Securities Act, and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including statements with words such as "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to the Company, the Company's business or the
Company's management. Forward-looking statements are based largely on the
Company's current expectations and projections about future events and
financial trends affecting the financial condition of the business. These
forward-looking statements are subject to a number of risks, uncertainties and
assumptions about
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the Company, including, among other things: general economic and business
conditions, both nationally, internationally and in the Company's markets; the
Company's expectations and estimates concerning the Company's future financial
performance, financing plans and the effect of competition; the ability of the
Company to reduce expenses as planned without impairing its core business
operations; capital expenditures by competitors; market acceptance of new
products; the development of new competitive technologies; the ability to
satisfy demand for the Company's products; the ability to achieve low cost
sourcing, including from Mack Valves to Goddard Valve; the availability of key
components for the Company's products; the availability of qualified personnel;
the impact of future acquisitions; international, national, regional and local
economic and political changes; and trends affecting the cryogenic valve
industry, the Company's financial condition or the results of its operations.
Given the uncertainties that attach to the Company's forward-looking
statements, undue reliance should not be placed on them. The Company's
actual results could differ materially from those anticipated in its
forward-looking statements.
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PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(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 covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated as of August 13, 2002
GODDARD INDUSTRIES, INC.
By:/s/Salvatore J. Vinciguerra
----------------------------
Salvatore J. Vinciguerra
President,
Chief Executive Officer
By:/s/Kenneth E. Heyman
----------------------------
Kenneth E. Heyman
Principal Financial and
Accounting Officer
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