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 December 28, 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 December 28, 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 as of December 28, 2002
and September 28, 2002 3
Consolidated Statements of Operations - Three Months Ended
December 28, 2002 and December 29, 2001 5
Consolidated Statement of Shareholders' Equity - Three Months
Ended December 28, 2002 6
Consolidated Statements of Cash Flows - Three Months Ended
December 28, 2002 and December 29, 2001 7
Notes to Consolidated Financial Statements 9
Item 2 Management Discussion and Analysis 15
PART II - OTHER INFORMATION
Item 2 Changes in Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 6 Exhibits and Reports on Form 8-K 18
-2-
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
GODDARD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
December 28, 2002 September 28, 2002
ASSETS Unaudited Audited
CURRENT ASSETS:
Cash and cash equivalents $ 137,089 $ 301,417
Cash - restricted 250,000 200,000
Accounts receivable, net of allowances 1,045,957 995,003
Inventories 2,288,204 2,300,792
Refundable taxes on income 427,753 373,765
Prepaid expenses and taxes 74,919 97,171
Deferred income taxes 279,337 276,122
TOTAL CURRENT ASSETS 4,503,259 4,544,270
NET PROPERTY, PLANT AND EQUIPMENT 1,498,835 1,542,034
OTHER ASSETS:
Deferred charges 12,291 12,291
Deferred income taxes - long term 149,592 164,454
Investment 250,000 250,000
Deferred financing charges 169,679 173,332
Intangible assets 112,908 115,108
Goodwill 2,388,074 2,331,512
TOTAL OTHER ASSETS 3,082,544 3,046,697
TOTAL ASSETS $9,084,638 $9,133,001
LIABILITIES AND SHAREHOLDERS'EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $1,492,088 $ 151,499
Accounts payable 494,724 567,736
Accrued expenses 459,998 465,641
Deferred compensation 68,988 68,988
TOTAL CURRENT LIABILITIES 2,515,798 1,253,864
LONG-TERM DEBT 1,779,001 3,039,338
DEFERRED COMPENSATION 352,787 345,571
-3-
SHAREHOLDERS' EQUITY:
Capital Stock:
Preferred stock - par value $.01 per share;
3,000,000 shares authorized, none issued
or outstanding. - -
Common stock - par value $.01 per share;
12,000,000 shares authorized, 2,560,684
issued and outstanding at December 28, 2002
and September 28, 2002 25,607 25,607
Additional paid-in capital 700,487 700,487
Accumulated other comprehensive income 85,988 49,440
Retained earnings 3,624,970 3,718,694
TOTAL SHAREHOLDERS'EQUITY 4,437,052 4,494,228
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $9,084,638 $9,133,001
The accompanying notes are an integral part
of the consolidated financial statements
-4-
GODDARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three For the Three
Months Ended Months Ended
December 28, 2002 December 29, 2001
NET SALES $1,624,805 $1,643,336
COST OF SALES 1,067,909 1,061,243
GROSS PROFIT 556,896 582,093
SELLING AND ADMINISTRATIVE
EXPENSES 654,553 731,711
INCOME (LOSS) FROM OPERATIONS (97,657) (149,618)
OTHER INCOME (EXPENSE):
Interest expense (65,777) (58,521)
Other income, net 7,075 7,957
Foreign exchange (864) (3,423)
TOTAL OTHER INCOME (EXPENSE) (59,566) (53,987)
INCOME (LOSS) BEFORE TAXES (157,223) (203,605)
BENEFIT FROM INCOME TAXES (63,499) (80,600)
NET LOSS ($93,724) $(123,005)
EARNINGS PER SHARE:
Net Income:
Basic $(0.04) ($0.06)
Diluted N/A N/A
The accompanying notes are an integral part
of the consolidated financial statements
-5-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS'EQUITY
THREE MONTHS ENDED DECEMBER 28, 2002
Accum
Additional Compre- Other Com-
Common paid-in hensive Retained prehensive
stock capital income earnings income Total
Balance at
September 28, 2002
2,560,684 shares $25,607 $700,487 $3,718,694 $49,440 $4,494,228
Net loss - - (93,724) (93,724) - (93,724)
Other comprehensive income:
Foreign currency
translation, net
of taxes of ($25,000) - - 36,548 - 36,548 36,548
Comprehensive loss $(57,176)
Balance at
December 28, 2002
2,560,684 shares $25,607 $700,487 $3,624,970 $85,988 $4,437,052
The accompanying notes are an integral part
of the consolidated financial statements
-6-
GODDARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Three Months Ended
December 28, 2002 December 29, 2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net operating loss $(93,724) $(123,005)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 80,989 119,014
Changes in assets and liabilities:
Accounts receivable (34,230) 367,190
Inventories 37,943 (22,126)
Refundable income taxes - 10,108
Prepaid expenses and other 23,127 113,244
Accounts payable (83,702) (248,848)
Accrued expenses (13,978) 23,416
Income taxes receivable/payable - 2,045
Deferred income taxes (63,500) (82,645)
Deferred compensation 6,451 (6,546)
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES (140,624) 151,847
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred charges - (17,330)
Property, plant and equipment additions (13,875) (29,054)
NET CASH USED IN INVESTING
ACTIVITIES (13,875) (46,384)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 817,679 -
Repayments of long term debt (782,508) (122,311)
Issuance of common stock - 206,000
NET CASH PROVIDED BY
FINANCING ACTIVITIES 35,171 83,689
EFFECT OF EXCHANGE RATE CHANGES ON CASH 5,000 10,800
NET INCREASE (DECREASE) IN CASH (114,328) 199,952
CASH AND EQUIVALENTS - BEGINNING 501,417 $815,704
CASH AND EQUIVALENTS - ENDING $ 387,089 $1,015,656
-7-
Supplemental Disclosures of Cash Flow Information
CASH PAID DURING THE PERIOD:
Interest $61,200 $49,600
Income taxes - -
The accompanying notes are an integral part
of the consolidated financial statements
-8-
GODDARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 28, 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 28, 2002 that is
included in the Company's Form 10-KSB and 10-KSB/A. The Company believes the
disclosures contained herein are adequate to make the information presented
not misleading.
Intangible Assets:
The Company adopted Financial Accounting Standards Statements Nos. 141,
"Business Combinations" (SFAS No. 141), and 142, "Goodwill and Other
Intangible Assets" (SFAS No. 142), effective September 29,2002. 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 not be amortized, but rather be
tested at least annually for impairment.
Asset Impairment:
The Company adopted Financial Accounting Standards Statement No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", effective
September 29, 2002. In accordance with SFAS No. 144, long-lived assets to be
held and used by the Company are reviewed at least annually 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 flow exist. If
-9-
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.
Reclassifications:
Certain amounts in the September 28, 2002 financial statements have been
reclassified to conform with the December 28, 2002 presentation, with no
affect on previously reported net income, earnings per share, or
shareholders' equity.
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"). 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.
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, and are subject to
adjustment at year end.
NOTE 3. INVENTORIES:
Consolidated inventories are comprised of the following:
December 28, September 28,
2002 2002
Finished goods $1,908,731 $1,925,843
Work in process 79,888 78,436
Raw materials 299,585 296,513
$2,288,204 $2,300,792
NOTE 4. GOODWILL AND INTANGIBLE ASSETS
Prior to the Company's adoption of SFAS Nos. 141, 142 and 144, management
conducted a preliminary review of the impact of adopting these new standards
and, as a result of this review, expected that there would be no impairment
-10-
or other negative impact, and made no adjustment to the carrying value of
goodwill and other intangibles. In conjunction with the Company's adoption
of SFAS Nos. 141, 142 and 144 the Company completed transitional goodwill
impairment testing for its reporting units. The testing requires the Company
to compare the fair value of its reporting units to the carrying value of the
net assets of the respective reporting units. The Company concluded that the
fair value exceeded the carrying value, and that no transitional impairment
should be recognized. In addition, it was determined that no
reclassification of goodwill to amortizable intangible assets was warranted
as a result of the adoption of SFAS 142.
The following table displays the effect on prior period earnings, had SFAS
142 been adopted and in effect at that time:
Three months ended
December 28, December 29
2002 2001
Net loss ($ 93,724) ($123,005)
Add back: goodwill amortization, net of tax - 14,117
Adjusted net loss ($ 93,724) ($108,888)
Basic earnings per share:
Net income ($0.04) ($0.06)
Goodwill amortization - 0.01
Adjusted net income ($0.04) ($0.05)
At December 28, 2002 intangible assets are comprised of the following:
Gross carrying Accumulated
Amount Amortization
Amortized intangible assets:
Patent pending $ 26,938 $ 200
CE Mark 88,170 2,000
Total $115,108 $ 2,200
Unamortized intangible asset:
Goodwill $2,388,074
Amortization expense for the three months ended December 28, 2002 totaled
$2,200.
Approximate future amortization expense for the remaining life of the
intangible assets is $10,100 for each of the fiscal years 2003, 2004, 2005,
2006 and 2007, and $62,408 thereafter.
There has been no change in the carrying value of unamortizable intangible
assets during the three months ended December 28, 2002
-11-
NOTE 5. LONG-TERM DEBT:
At December 28, 2002, The Company's 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 at the bank's prime rate plus l.5% thereafter. $ 674,328 $ 15,000
Revolving line of credit, Commerce Bank and Trust
Company, bearing interest at the bank's prime rate
plus l.5%, due in March 2004. 1,104,673 -
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). - 434,354
Revolving line of credit, National Australia Bank,
current rate of 6.36% 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). - 1,008,720
Capital lease obligations for machinery.
(Denominated in AUD). - 34,014
$1,779,001 $1,492,088
All of the above bank debt is secured by substantially all of the assets of
the Company. At December 28, 2002 the Company was not in compliance with
certain financial covenants of its loans with National Australia Bank, and
accordingly, the Company has classified the National Australia Bank debt as
current. See Note 10, Subsequent Events, for further discussion of long-term
debt.
-12-
NOTE 6. 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:
December 28, September 28,
2002 2002
Deferred tax asset
Deferred compensation $ 156,200 $ 156,200
Capital loss carry forward 167,700 167,700
Inventory valuation 156,200 141,100
Accrued salaries 95,500 95,500
Bad debts 31,800 31,800
Foreign tax credit carry forward 93,000 93,000
Net operating loss carry forward 113,000 109,000
Other 13,229 3,976
Total gross deferred tax assets 826,629 798,276
Deferred tax liabilities:
Depreciation (92,200) (92,200)
Amortization (64,800) (64,800)
Gain on foreign currency (58,000) (33,000)
Total gross deferred
tax liabilities (215,000) (190,000)
Deferred tax asset before
valuation allowance 611,629 608,276
Less valuation allowance (182,700) (167,700)
$428,929 $440,576
Management has established valuation allowances against the deferred tax
assets attributable to the capital loss and a portion of the net operating
loss carry forwards.
NOTE 7. ENVIRONMENTAL MATTERS:
In 1998, the Company filed a Class "C" Response Action Outcome (RAO)
Statement with the Massachusetts Department of Environmental Protection
regarding its facility in Worcester, Massachusetts. The Company has been
conducting periodic monitoring as required by the RAO. No further action is
required at this time.
-13-
NOTE 8. EARNING PER SHARE:
The following data show the amounts used in computing earnings per share
(EPS) from operations.
Three months ended December 28, 2002
Loss Common Shares EPS
Basic EPS:
Loss available to common
shareholders ($ 93,724) 2,560,684 ($.04)
Diluted EPS are not applicable for a period in which a loss is reported.
Three months ended December 29, 2001
Loss Common Shares EPS
Basic EPS:
Loss available to common
shareholders ($123,005) 2,165,080 ($.06)
Diluted EPS are not applicable for a period in which a loss is reported.
-14-
NOTE 9. 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 three months ended December
28, 2002, in thousands of dollars, is as follows:
Western Asia/
Corporate Hemisphere Pacific Total
Total sales - $ 798 $ 870 $1,668
Intercompany sales 7 36 43
Sales to external
Customers - 791 834 1,625
Operating profit (loss) (110) ( 9) 21 (98)
Total interest 9 31 53 93
Intercompany interest 27 27
Interest expense 9 31 26 66
Total other income - 35 (1) 34
Intercompany interest - 27 - 27
Other income - 8 (1) 7
Foreign exchange - - 1 1
Depreciation
and amortization - 52 29 81
Segment profit (loss) (119) (4) (34) (157)
Expenditures
for segment assets - 3 11 14
Segment assets 8,002 8,122 4,234 20,359
Eliminations in
consolidation (6,699) (4,454) (121) (11,274)
Total assets $1,303 $3,669 $4,113 $9,085
-15-
Summarized segment financial information for the three months ended December
29, 2001, in thousands of dollars, is as follows:
Western Asia/
Corporate Hemisphere Pacific Total
Total sales - $ 830 $ 834 $1,664
Intercompany sales 2 19 21
Sales to external
customers - 828 815 1,643
Operating profit (139) ( 4) ( 7) (150)
Total interest 9 27 50 86
Intercompany interest 27 27
Interest expense 9 27 23 59
Total other income - 31 4 34
Intercompany interest - 27 - 27
Other income - 4 4 8
Foreign exchange - - (3) (3)
Depreciation
and amortization - 72 47 119
Segment profit (loss) (60) 18 (12) (53)
Expenditures
for segment assets - 20 9 29
Segment assets 7,880 8,401 4,119 20,400
Eliminations in
Consolidation (6,688) (3,783) (150) (10,621)
Total assets $1,192 $4,618 $3,969 $9,779
NOTE 10 SUBSEQUENT EVENTS
On January 31, 2003, the Company sold substantially all of the operating
assets of the business of Goddard Valve to Engineered Controls International,
Inc. (ECII), for $4.1 million dollars less the reduction, if any, in the
total value of Goddard Valve's inventory and accounts receivable at the date
of sale as compared to the total value of inventory and accounts receivable
at June 30, 2002. At the time of sale, $3.2 million was paid in cash,
$700,000 was held back pending the final determination of inventory values,
and $200,000 was held back pending the collection of accounts receivable.
Reference is hereby made to the Company's Form 8-K filed on February 3, 2003.
Approximately $1.9 million of the proceeds from the sale was used to retire
all of the Company's outstanding debt to Commerce Bank and Trust Company.
-16-
Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED DECEMBER 28, 2002
The discussion of results of operations set forth below includes the
operations of Goddard Valve Corporation ("Goddard Valve"). The reader should
bear in mind that the assets of Goddard Valve were sold on January 31, 2003
(see Footnote 10 to the financial statements, Subsequent Events).
Net sales for the three months ended December 28, 2002 were $1,625,000 with a
net loss of $94,000, or $.04 per share, compared with net sales of $1,643,000
with a net loss of $123,000, or $.06 per share, for the corresponding period
last year. Had SFAS 142 been adopted for the three months ended December 29,
2001, the net loss would have been $109,000 or $.05 per share.
New orders received in the first quarter were 4.3% higher than for the same
period last year. New orders at Goddard Valve were 10% higher than for the
same quarter last year, while new orders at Mack Valves were level with the
same quarter last year. At December 28, 2002, the backlog of orders was 22%
lower than at the end of last year's first quarter, with Goddard Valve's
backlog down 57% and Mack Valves' up 29%.
The consolidated operating loss improved by $52,000 from a loss of $150,000
to a loss of $98,000. Of the $52,000 improvement, $29,000 was a result of a
reduction in Corporate expenses and $28,000 as a result of an improvement in
operating profit at Mack Valves; these were partially offset by a $5,000
increase in operating loss at Goddard valve.
The slightly greater operating loss of $5,000 at Goddard Valve was the net
result of expenses which were $21,000 less than the previous year period and
$26,000 of lower gross margins. Lower expenses followed actions taken in
October 2001 which included reductions in management salaries of 10%, a
freeze on all other salaries, a 15% workforce reduction, and selected
reductions in other costs. The lower gross margins were primarily from
underabsorption of overhead on lower net sales, which declined by 4% from the
same period last year.
The improvement of $29,000 in operating profit at Mack Valves resulted from a
$8,000 improvement from operations and a $21,000 reduction in Goodwill
amortization resulting from a change in accounting for Goodwill (see Note 4
to the Financial Statements). The $8,000 operating improvement resulted from
increased net sales, which were 2 % higher than the same period last year,
while cost of goods and expenses were essentially the same as the same period
last year.
The reduction in Corporate expenses of $28,000 was the result of actions
taken in October of 2001, similar to those described above at Goddard Valve,
and in May of 2002, which consisted of substituting stock options in lieu of
salary for certain senior members of the management team; stock options in
lieu of fees for directors of the company; reducing professional fees
associated with being a public company; and reducing administrative functions
within the company.
-17-
This year's other expenses increased by $6,000 when compared to the same
period last year, the net result of an increase of interest charges of $7,000
partially offset by slightly lower losses on foreign exchange.
LIQUIDITY AND CAPITAL RESOURCES
Subsequent to the end of the quarter, the Company's liquidity and capital
resources were significantly changed as a result of the sale of the operating
assets of Goddard Valve, as discussed below.
At December 28, 2002, cash and cash equivalents were $137,000, and working
capital was $1,987,000. On that date, consolidated long-term debt equaled
$3,271,000 of which $1,492,000 was short-term and $1,779,000 was long-term.
Loans from Commerce Bank and Trust Company ("CBTC") accounted for $15,000 of
short-term and $1,779,000 long-term debt. National Australia Bank ("NAB")
accounted for $1,443,000 ( denominated in AUD), all of which is classified as
current because Mack Valves had not met its debt service coverage covenant
with NAB. NAB is aware of the matter and has elected to not take any action
at this time with regard to its loan. The sale of Goddard Valve's assets was
unrelated to the default debt service coverage covenant with NAB.
On January 31, 2003, the Company sold substantially all of the operating
assets of its Goddard Valve subsidiary to Engineered Controls International,
Inc., a Delaware corporation. The purchase price was approximately $4.1
million, less an adjustment, if any, for a reduction in the value of
inventory and accounts receivable at closing as compared to the value of
inventory and accounts receivable at June 30, 2002. Of the total purchase
price, approximately $3.2 million was paid in cash at the closing. Up to an
additional $700,000 is payable after the determination of the value of
inventory at the time of closing, and up to an additional $200,000 is payable
upon collection of transferred accounts receivable. On January 31, 2003,
approximately $1.9 million of the cash proceeds were used to retire all of
the Company's outstanding debt to Commerce Bank and Trust Company.
While the Company continues to have debt service obligations to NAB from the
financing of its acquisition of Mack Valves, the Company's liquidity has been
dramatically improved with the sale of the assets of Goddard Valve.
Management believes that this new liquidity plus the facility with NAB will
be sufficient to provide normal working capital and debt service requirements
of the Company's current business in the near and long term.
CRITICAL ACCOUNTING POLICIES
Our significant accounting policies are more fully described in Note 1 to our
annual financial statements included in Form 10-KSB and 10-KSB/A for the year
ended September 28, 2002. 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
-18-
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 form 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.
Intangible Assets and Goodwill: Goodwill, created in connection with the
acquisition of Mack Valves on November 1, 2000, and other intangible assets,
are stated at cost, less accumulated amortizaton. Until September 29, 2002,
amortization of goodwill had been computed over an estimated useful life of
thirty years. On September 29, 2002, the Company adopted Financial
Accounting Standards Statement ("SFAS") No. 141 "Business Combinations," SFAS
No. 142, "Goodwill and Other Intangible Assets," and SFAS No. 144, "
Accounting for the Impairment or Disposal of Long-Lived Assets." As a result
of the adoption of SFAS Nos. 141, 142 and 144, the Company no longer
amortizes Goodwill and other intangible assets with indefinite lives, but
instead, tests the value of these assets for impairment at least annually.
Asset Impairment: The Company adopted Financial Accounting Standards
Statement No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", effective September 29, 2002. In accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", 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 flow 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.
-19-
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 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 possible 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.
Item 3 - Controls and Procedures
Within the 90-day period prior to the date of this report, our Chief
Executive Officer and Chief Financial Officer performed an evaluation of the
effectiveness of the Company's disclosure controls and procedures (as defined
in SEC Rule 13a-14), which have been designed to ensure that material
information related to the Company is made known to them and timely
disclosed. Based upon that evaluation, they concluded that the disclosure
controls and procedures were effective.
Since the last evaluation of the Company's internal controls and procedures
for financial reporting, the Company has made no significant changes in those
internal controls and procedures or in other factors that could significantly
affect the Company's internal controls and procedures for financial
reporting.
The Company's management, including the CEO and CFO, does not expect that our
disclosure controls or our internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect
-20-
the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent
limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any,
within the company have been detected.
PART II - OTHER INFORMATION
Item 2 - Changes in Securities
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. In connection with the offering, Fechtor, Detwiler & Co., Inc. is
providing the Company with financial advisory services for a fee.
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.
The warrants which comprise part of each Unit have not yet been issued by the
Company. Each warrant will be exercisable for one share of Common Stock at a
price of $2.00 per share. In addition, each warrant will be separately
tradeable and exercisable at any time after its issuance until December 29,
2006.
The Units were sold in reliance upon the exemption provided by Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"), and
Regulation D promulgated thereunder.
Item 3 - Defaults Upon Senior Securities
At December 28, 2002, the Company was in default on its revolving Line of
credit and note payable to National Australia Bank because it was out of
compliance with certain of the financial covenants of the loans. However,
NAB elected not to take any action at this time
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.
-21-
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 February 14, 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
- 22 -
CERTIFICATIONS
I, Salvatore J. Vinciguerra, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Goddard
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
- 23 -
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date February 14, 2003
By /s/Salvatore J. Vinciguerra
Salvatore J. Vinciguerra Principal Executive Officer
(Signature and Title)
-24 -
CERTIFICATIONS
I, Kenneth E. Heyman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Goddard
Industries, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
-25 -
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls;
and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date February 14, 2003
By /s/Kenneth E. Heyman
Kenneth E. Heyman Principal Financial Officer
(Signature and Title)
-26-
Exhibit 99.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of
Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of Goddard Industries, Inc., a Massachusetts corporation
(the "Company"), does hereby certify, to the best of such officer's knowledge
and belief, that:
(1) the Quarterly Report on Form 10-QSB for the period ended
December 28, 2002 (the "Report") of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly presents, in all
materials respects, the financial condition and results of operations of the
Company.
Dated: February 14, 2003
_______________________________________
Salvatore J. Vinciguerra
Chief Executive Office
-27 -
Exhibit 99.2
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of
Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
(a) and (b) of section 1350, chapter 63 of title 18, United States Code), the
undersigned officer of Goddard Industries, Inc., a Massachusetts corporation
(the "Company"), does hereby certify, to the best of such officer's knowledge
and belief, that:
(1) the Quarterly Report on FORM, 10-KSB for the period ended
December 28, 2002 (the "Report") of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
(2) the information contained in the Report fairly presents, in all
materials respects, the financial condition and results of operations of the
Company.
Dated: February 14, 2003
_______________________________________
Kenneth E. Heyman
Chief Financial Officer
-28 -