SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 29, 2003
[ ] TRANSITION REPORT UNDER 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)852-2436
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 March 29, 2003
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 March 29, 2003
and September 28, 2002 (Unaudited) 3
Consolidated Statements of Operations - Three and Six Months
Ended March 29, 2003 and March 30, 2002 (Unaudited) 5
Consolidated Statement of Shareholders' Equity - Six
Months Ended March 29, 2003 (Unaudited) 7
Consolidated Statements of Cash Flows - Six Months
Ended March 29, 2003 and March 30, 2002 (Unaudited) 8
Notes to Consolidated Financial Statements 10
Item 2 Management Discussion and Analysis 19
Item 3 Controls and Procedures 23
PART II - OTHER INFORMATION
Item 3 Defaults Upon Senior Securities 24
Item 6 Exhibits and Reports on Form 8-K 24
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, 2003 September 28, 2002
ASSETS Unaudited Audited
CURRENT ASSETS:
Cash and cash equivalents $1,159,130 $ 251,417
Cash - restricted - 250,000
Accounts receivable, net of allowances 626,115 532,167
Inventories 868,673 826,940
Refundable taxes on income 445,967 373,765
Prepaid expenses and taxes 87,596 93,964
Deferred income taxes 114,897 276,122
TOTAL CURRENT ASSETS 3,302,378 2,604,375
NET PROPERTY, PLANT AND EQUIPMENT 605,476 870,705
OTHER ASSETS:
Deferred charges - 12,291
Deferred income taxes - long term 166,801 164,454
Real estate held for sale 265,029 -
Investment 250,000 250,000
Deferred Financing Charges 33,543 32,437
Goodwill 2,521,063 2,331,512
Net assets of discontinued operations 407,998 738,388
TOTAL OTHER ASSETS 3,644,434 3,529,082
TOTAL ASSETS $7,552,288 $7,004,162
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $1,543,134 $ 136,499
Accounts payable 427,806 351,432
Accrued expenses 409,646 277,875
Deferred compensation 68,988 68,988
TOTAL CURRENT LIABILITIES 2,449,574 834,794
LONG-TERM DEBT - 1,329,569
DEFERRED COMPENSATION 352,483 345,571
The accompanying notes are an integral part
of the consolidated financial statements
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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 March 29, 2003
and September 28, 2002 25,607 25,607
Additional paid-in capital 700,487 700,487
Accumulated other comprehensive income 176,808 49,440
Retained earnings 3,847,329 3,718,694
TOTAL SHAREHOLDERS' EQUITY 4,750,231 4,494,228
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,552,288 $7,004,162
The accompanying notes are an integral part
of the consolidated financial statements
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GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three For the Six For The Three For the Six
Months Ended Months Ended Months Ended Months Ended
March 29, 2003 March 30, 2002
NET SALES $825,612 $1,695,532 $604,675 $1,442,463
COST OF SALES 494,427 1,026,097 343,459 843,714
GROSS PROFIT 331,185 669,435 261,216 598,749
SELLING AND ADMINISTRATIVE
EXPENSES 528,479 914,754 459,035 901,150
LOSS FROM
OPERATIONS (197,294) (245,319) (197,819) (302,401)
OTHER INCOME (EXPENSE):
Interest expense (56,861) (119,034) (70,942) (129,463)
Other income (loss), net (22,863) 11,442 14,010 21,968
Gain(loss)on foreign
exchange (820) (1,685) 4,603 1,180
TOTAL OTHER
INCOME (EXPENSE) (80,544) (109,277) (52,329) (106,315)
LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES (277,838) (354,596) (250,148) (408,716)
BENEFIT FROM
INCOME TAXES (110,501) (141,502) (100,009) (162,780)
LOSS FROM CONTINUING
OPERATIONS, NET OF TAXES (167,337) (213,094) (150,139) (245,936)
LOSS FROM DISCONTINUED
OPERATIONS NET OF
INCOME TAX BENEFIT (306,721) (354,688) (38,675) (65,883)
GAIN ON DISPOSITION OF
DISCONTINUED OPERATIONS
NET OF INCOME TAX EXPENSE
OF $336,822 696,417 696,417 - -
NET INCOME (LOSS) $222,359 $128,635 $(188,814) $(311,819)
The accompanying notes are an integral part
of the consolidated financial statements
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GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Continued)
(Unaudited)
For the Three For the Six For The Three For the Six
Months Ended Months Ended Months Ended Months Ended
March 29, 2003 March 30, 2002
EARNINGS (LOSS) PER SHARE:
Basic:
Continuing operations $(0.06) $(0.08) $(0.06) $(0.10)
Discontinued operations (0.12) (0.14) (0.01) (0.03)
Gain on disposition of
Discontinued operations 0.27 0.27 - -
Net income (loss) $0.09 $0.05 $(0.07) $(0.13)
Weighted average shares 2,560,684 2,560,684 2,560,684 2,362,882
The accompanying notes are an integral part
of the consolidated financial statements
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GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 29,2003
(Unaudited)
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 income - - 128,635 128,635 - 128,635
Other comprehensive income:
Foreign currency
translation, net
of taxes of ($85,000) - - 127,368 - 127,368 127,368
Comprehensive income $256,003
Balance at
March 29, 2003
2,560,684 shares $25,607 $700,487 $3,847,329 $176,808 $4,750,231
The accompanying notes are an integral part
of the consolidated financial statements
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GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
March 29, 2003 March 30, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 128,635 $ (311,819)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss from discontinued operations 354,688 65,883
Gain on disposal of assets (696,417) -
Depreciation and amortization 77,997 112,192
Deferred income taxes 223,730 (39,516)
Changes in assets and liabilities:
Accounts receivable (39,464) 248,019
Inventories 43,848 22,055
Refundable income taxes (70,567) (268,739)
Prepaid expenses and other 13,953 59,742
Accounts payable (58,047) (186,225)
Accrued expenses 14,036 44,363
Deferred compensation 4,435 (15,515)
NET CASH USED IN OPERATING ACTIVITIES (3,173) (269,560)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of business 3,200,000 -
Deferred charges 12,291 (24,856)
Property, plant and equipment additions (18,032) (52,872)
Cash provided by (used in)
discontinued operations (759,282) 216,818
NET CASH PROVIDED BY
INVESTING ACTIVITIES 2,434,977 139,090
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 203,574 40,220
Repayments of long term debt (2,003,005) (249,860)
Issuance of common stock - 206,000
Finance fees deferred - (92,721)
NET CASH USED IN FINANCING ACTIVITIES (1,799,431) (96,361)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 25,340 16,558
NET INCREASE (DECREASE) IN CASH 657,713 (210,273)
CASH AND EQUIVALENTS - BEGINNING 501,417 815,704
CASH AND EQUIVALENTS - ENDING $1,159,130 $ 605,431
The accompanying notes are an integral part
of the consolidated financial statements
-8-
Supplemental Disclosures of Cash Flow Information
CASH PAID DURING THE PERIOD:
Interest $116,772 $129,438
Income taxes $ - $115,964
The accompanying notes are an integral part
of the consolidated financial statements
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GODDARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 29, 2003
(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 are
included in the Company's Forms 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
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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 fair value of the
asset, measured using an estimate of discounted cash flow analysis.
Stock Options:
The Company adopted Financial Accounting Standards Statement No. 148,
"Accounting for Stock-Based Compensation", effective September 29, 2002.
(Note 8)
Reclassifications:
Certain amounts in the March 30, 2002 and September 29, 2002 financial
statements have been reclassified to conform with the March 29, 2003
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. (the "Company"), its wholly-owned subsidiaries Mack Valves
Corporation, formerly known as Goddard Valve Corporation ("Mack - USA"),
Goddard Management Company, Inc. and Mack Valves Pty Ltd ("Mack Valves")
(collectively, the "Company"). Goddard Management Company, Inc. 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.
On January 31, 2003 the Company sold substantially all of the assets of Mack-
USA to Engineered Controls International, Inc. ("ECII"),a Delaware corporation,
for a total purchase price of approximately $3,900,000. Of the purchase price,
$3,200,000 was paid in cash at the closing and an additional approximate
$500,000 had been paid by April 1, 2003. Up to an additional $200,000 is
payable upon collection of transferred accounts receivable. The assets sold
included Mack-USA's machinery and equipment, office equipment, inventory,
accounts receivable, intellectual property and proprietary information,
including rights to the use of the names "Goddard Industries, Inc." and
"Goddard Valve Corporation." The Company is restricted from competing with
ECII in certain geographical areas for certain cryogenic valve types.
On February 05, 2003, Goddard Valve Corporation was renamed Mack Valves
Corporation. The Company must discontinue its use of the names "Goddard",
"Goddard Industries, Inc." and "Goddard Valve Corporation".
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The Mack-USA business that was sold designed, manufactured, and sold cryogenic
valves that are used primarily by the industrial gas industries, including
atmospheric gases, LNG, liquid hydrogen and specialty gases used in
semiconductor manufacture.
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.
Reference is hereby made to the Company's Form 8-K filed on February 3, 2003
and Form 8K/A filed on April 7, 2003 for additional information.
As a result of the sale of Mack-USA assets, the operations of that segment
have been reclassified to discontinued operations (Note 9.)
In addition, the Company put the real estate that formerly housed Mack-USA on
the market for sale and hopes to complete a sale within one year.
Accordingly, as required by SFAS No. 144, the real estate has been classified
as real estate held for sale at March 29, 2003.
NOTE 3. INVENTORIES:
Inventories are comprised of the following:
March 29, September 28,
2003 2002
Finished goods $677,527 $680,442
Work in process 79,483 47,035
Raw materials 111,663 99,463
$868,673 $826,940
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
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 on September 29,2002, 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.
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The following table displays the effect on prior period earnings, had SFAS
142 been adopted and in effect at that time:
Six months ended
March 29, March 30,
2003 2002
Net loss from continuing operations $(213,094) $(245,936)
Add back: goodwill amortization, net of tax - 29,348
Adjusted net loss $ (213,094) $(216,588)
Basic earnings (loss) per share:
Net loss from continuing operations $(0.08) $(0.10)
Goodwill amortization - 0.01
Adjusted net loss from continuing
operations $(0.08) $(0.09)
Three months ended
March 29, March 30,
2003 2002
Net loss from continuing operations $(167,337) $(150,139)
Add back: goodwill amortization, net of tax - 15,231
Adjusted net loss $(167,337) $(134,908)
Basic earnings per share:
Net loss from continuing operations $(0.06) $(0.06)
Goodwill amortization - 0.01
Adjusted net loss from continuing
operations $(0.06) $(0.05)
At March 29, 2003 intangible assets are comprised of an unamortized
intangible asset of Goodwill of $2,521,063. There was no amortization expense
for the three or six months ended March 29, 2003.
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NOTE 5. LONG-TERM DEBT:
At March 29, 2003 the Company's long-term debt consisted of the following:
LONG-TERM CURRENT
Note payable, National Australia Bank, due in
quarterly installments of approximately A$71,000
($41,000) including interest at 9.30% through
November 2005 (Denominated in AUD). - 428,993
Revolving line of credit, National Australia Bank,
current rate of 6.50%, 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). - 1,080,540
Capital lease obligations for machinery.
(Denominated in AUD). - 33,601
- $1,543,134
All of the above bank debt is secured by substantially all of the assets of
Mack Valves Pty Ltd, with a letter of comfort provided by the Company. At
March 29, 2003 Mack Valves was not in compliance with certain financial
covenants related to these loans and accordingly, the Company has classified
the National Australia Bank debt as current.
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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:
March 29, September 28,
2003 2002
Deferred tax asset
Deferred compensation $ 156,200 $ 156,200
Capital loss carry forward - 167,700
Inventory valuation 9,000 141,100
Accrued salaries 92,200 95,500
Bad debts 13,500 31,800
Foreign tax credit carry forward 93,000 93,000
Net operating loss carry forward 126,500 109,000
Other 5,598 3,976
Total gross deferred tax assets 495,998 798,276
Deferred tax liabilities:
Depreciation (1,500) (92,200)
Amortization (64,800) (64,800)
Gain on foreign currency (118,000) (33,000)
Total gross deferred
tax liabilities (184,300) (190,000)
Deferred tax asset before
valuation allowance 311,698 608,276
Less valuation allowance (30,000) (167,700)
$281,698 $440,576
Management had established a valuation allowance in connection with the
deferred tax asset related to the capital loss carry forward as of
September 28, 2002. The sale of Mack-USA assets allowed the Company to
eliminate this valuation allowance. The valuation allowance at March 29, 2003
relates to a portion of the net operating loss carry forward.
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.
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NOTE 8. COMMON STOCK OPTIONS
The Company applies APB Opinion 25 in accounting for employee stock options.
Accordingly, no compensation cost has been recognized. Had compensation
costs been determined in accordance with SFAS No. 123 in the three and six
months ended March 29, 2003 and March 30, 2002, pro forma net income (loss)
would have been as shown:
For the Three For the Six For The Three For the Six
Months Ended Months Ended Months Ended Months Ended
March 29, 2003 March 30, 2002
Net income (loss) $222,359 $128,635 $(188,814) $(311,819)
Cost of stock options
Net of taxes (7,920) (47,041) (20,530) (110,117)
Pro forma net income
(loss) $214,439 $ 81,594 $(209,344) $(421,936)
Pro forma net income (loss)
per share $0.08 $0.03 $(0.08) $(0.18)
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Note 9. DISCONTINUED OPERATIONS
Mack-USA's discontinued operations are presented as follows:
For the Three For the Six For The Three For the Six
Months Ended Months Ended Months Ended Months Ended
March 29, 2003 March 30, 2002
NET SALES $ 341,210 $1,132,360 $802,837 $1,631,481
COST OF SALES 238,537 811,041 579,993 1,164,077
GROSS PROFIT 102,673 321,319 222,844 467,404
SELLING AND ADMINISTRATIVE
EXPENSES 603,084 874,213 279,528 569,124
LOSS FROM
OPERATIONS (500,411) (552,894) (56,684) (101,720)
OTHER INCOME (EXPENSE) (4,516) - (7,772) (7,772)
LOSS BEFORE
INCOME TAXES (504,927) (552,894) (64,456) (109,492)
BENEFIT FROM INCOME TAXES (198,206) (198,206) (25,781) (43,609)
NET LOSS $(306,721) $(354,688) $(38,675) $(65,883)
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The net assets of Mack-USA's discontinued operations as of September 28, 2002
are summarized as
follows:
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowances $ 462,836
Inventories 1,473,852
Prepaid expenses and taxes 3,207
TOTAL CURRENT ASSETS 1,939,895
NET PROPERTY, PLANT AND EQUIPMENT 671,329
OTHER ASSETS:
Deferred charges 115,108
Deferred financing charges 140,895
TOTAL OTHER ASSETS 256,003
TOTAL ASSETS $2,867,227
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 15,000
Accounts payable 216,304
Income taxes payable 187,766
TOTAL CURRENT LIABILITIES 419,070
LONG-TERM DEBT 1,709,769
TOTAL LIABILITIES 2,128,839
NET ASSETS 738,388
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Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS
SALE OF ASSETS OF GOODARD VALVE CORPORATION
On January 31, 2003 the Company, sold substantially all of the assets of
Mack-USA (then Goddard Valve Corporation) to Engineered Controls
International, Inc. ("ECII"),a Delaware corporation, for a total purchase
price of approximately $3,900,000. $3,200,000 of the purchase price was paid
in cash at the closing and approximately $500,000 was paid on April 1, 2003.
Up to an additional $200,000 is payable upon collection of transferred
accounts receivable. The assets sold included Mack-USA's machinery & equip-
ment, office equipment, inventory, accounts receivable, intellectual property
and proprietary information, including rights to the use of the names
"Goddard" and "Goddard Valve Corporation." The Company is restricted from
competing with ECII in certain geographical areas for certain cryogenic valve
types.
As a result of the above sale, on February 05, 2003 Goddard Valve Corporation
was renamed Mack Valves Corporation (Mack-USA), and the Company must
discontinue its use of the name "Goddard Industries, Inc." and "Goddard Valve
Corporation".
The Mack-USA business that was sold designed, manufactured, and sold cryogenic
valves that are used primarily by the industrial gas industries, including
atmospheric gases, LNG, liquid hydrogen and specialty gases used in
semiconductor manufacture. After the sale of the business, Mack Valves in
Australia becomes the principal operating subsidiary of the Company. Mack -
USA will support Mack Valves' business in the United States. Mack
Valves manufactures a range of industrial valves for specialized areas
of industry, including water, steam, fire service and other valves used
extensively in clean water, fire prevention, mining and other industrial
applications, as well as a range of cryogenic valves.
The Company has put the building and property which formerly housed Mack-USA
in Worcester, Massachusetts, on the market for sale and hopes to complete a
sale within one year.
RESULTS OF OPERATIONS - SIX MONTHS ENDED MARCH 29, 2003 COMPARED TO
MARCH 30, 2002
As a result of the sale of substantially all of the assets of Mack-USA, the
Company has three classes of income for reporting purposes: income from
continuing operations; income from discontinued operations (the disposed
Mack-USA assets), and the gain on the sale of the Mack-USA assets. Mack
Valves becomes the principal operating subsidiary of the Company, and the
results of operations reported herein consist of the operating results of
Mack Valves and expenses associated with the corporate office in the United
States.
Net sales from continuing operations for the six months ended March 29, 2003
were $1,696,000, with a net loss from continuing operations of $213,000 or
$.08 basic loss per share, compared with net sales of $1,442,000 and a net
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loss from continuing operations of $246,000 or $.10 basic loss per share in
the same period last year. During the six months ended March 29, 2003, the
net loss from discontinued operations was $355,000 or $.14 basic loss per
share, with a net gain on the sale of Mack-USA assets of $696,000 or $.27 per
share, resulting in consolidated net income of $129,000 or $.05 per share.
During the comparable period last year, the net loss from discontinued
operations was $66,000 or $.03 basic loss per share, resulting in a consoli-
dated net loss of $312,000 or $.13 basic loss per share.
New orders received in the six months ended March 29, 2003 were 9% higher than
for the same period last year when stated in US dollars. When stated in
Australian dollars, there was a decline of 2% as a result of differing exchange
rates in effect. At March 29, 2003 the backlog of orders was 6% lower than at
the comparable date last year when stated in US dollars, and 16% lower when
stated in Australian dollars.
Operating losses from continuing operations improved by $57,000 from a loss
of $302,000 in the first six months of last year to a loss of $245,000 in the
first six months of this year. The improvement was made up of four component
parts: an increase in gross margin of $70,000 all of which resulted from the
difference in rates between the US dollar and the Australian dollar; a decrease
in expenses of $84,000 all of which took place at Mack Valves; a difference
(cost) of $65,000 when Australian expenses were translated into US dollars at
differing exchange rates in effect; and deferred charges of $32,000 written off
at March 29, 2003.
The loss from discontinued operations of $355,000 in the six months ended
March 29, 2003 consisted of a combination of losses from normal operations
and certain costs associated with cessation of operations of Mack-USA at the
Company's Worcester, Massachusetts facility prior to moving of assets to
ECII's North Carolina plant. Stated in after tax dollars, $40,000 was
attributed to normal operating losses; $233,000 to severance costs associated
with the plant closure; and the remainder to deferred charges written off at
the time of the sale.
The loss from discontinued operations during the six months ended March 30,
2002 was made up of losses from normal operations of the business.
The gain on sale of Mack-USA assets of $696,000 represents a pre-tax gain of
approximately $1,033,000, which was made up of the sale price of $3,924,000
less the cost of the assets sold of $2,756,000 and closing costs of $135,000.
THREE MONTHS ENDED MARCH 29, 2003 COMPARED TO MARCH 30, 2002
Net sales from continuing operations for the three months ended March 29,
2003 were $826,000, with a net loss from continuing operations of $167,000 or
$.06 basic loss per share, compared with net sales of $605,000 and a net loss
from continuing operations of $150,000 or $.06 basic loss per share in the
same period last year.
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During the three months ended March 29, 2003, the net loss from discontinued
operations was $307,000 or $.12 basic loss per share, with a net gain on the
sale of Mack-USA assets of $696,000 or $.27 per share, resulting in
consolidated net income of $222,000 or $.09 income per share. During the
comparable period last year, the net loss from discontinued operations was
$39,000 or $.01 basic loss per share, resulting in a consolidated net loss of
$189,000 or $.07 basic loss per share.
Operating losses from continuing operations were level in the three months
ended March 29, 2003 when compared to the comparable period last year. An
improvement in gross margin between the second quarter of this year and the
comparable period last year of $70,000 (of which $42,000 resulted from the
difference in rates between the US dollar and the Australian dollar) was offset
by a difference (cost) of $38,000 when Australian expenses were translated into
US dollars at differing exchange rates in effect and deferred charges of $32,000
written off at March 29, 2003.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the sale of the operating assets of Mack-USA, the Company's
liquidity and capital resources have been significantly improved.
At March 29, 2003, cash and cash equivalents were $1,159,000, and working
capital was $852,000. On that date, consolidated debt equaled $1,543,000
(denominated in AUD), substantially all of which is held by National
Australia Bank ("NAB") and 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 Company continues to have debt service obligations to NAB from the
financing of its acquisition of Mack Valves. Management believes that the
liquidity generated from the sale of Mack-USA assets 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 the Forms 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
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
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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 at September 28, 2002. 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.
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,"
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"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
including, among other things: general economic and business conditions, both
internationally and in the Company's markets; the Company's expectations and
estimates concerning the Company's future financial performance; the ability
of the Company to reduce expenses 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; the availability of key components for the Company's products; the
availability of qualified personnel; the impact of possible future
acquisitions; risks associated with foreign operations, including currency
fluctuations; international, national, regional and local economic and
political changes; and trends affecting the 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
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.
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PART II - OTHER INFORMATION
Item 3 - Defaults Upon Senior Securities
At March 29, 2003, the Company was in default on its approximately $1.5
million revolving line of credit and note payable to National Australia Bank
because it was out of compliance with the debt service coverage covenant 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 8 to the Financial Statements
found in PART I hereof is hereby incorporated.
(b) The Company filed a Form 8-K on February 3, 2003 and a Form
8-K/A on April 7, 2003
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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 May 19, 2003
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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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
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
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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 May 19, 2003
By /s/Salvatore J. Vinciguerra
Salvatore J. Vinciguerra Principal Executive Officer
(Signature and Title)
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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
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
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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 May 19, 2003
By /s/Kenneth E. Heyman
Kenneth E. Heyman Principal Financial Officer
(Signature and Title)
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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
March 29, 2003 (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: May 19, 2003
_______________________________________
Salvatore J. Vinciguerra
Chief Executive Office
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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-QSB for the period ended March
29,2003 (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: May 19, 2003
_______________________________________
Kenneth E. Heyman
Chief Financial Officer
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