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 June 28, 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 June 28, 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 June 28, 2003
and September 28, 2002 (Unaudited) 3
Consolidated Statements of Operations - Three and Nine Months
Ended June 28, 2003 and June 29, 2002 (Unaudited) 5
Consolidated Statement of Shareholders' Equity - Nine
Months Ended June 28, 2003 (Unaudited) 7
Consolidated Statements of Cash Flows - Nine Months
Ended June 28, 2003 and June 29, 2002 (Unaudited) 8
Notes to Consolidated Financial Statements 10
Item 2 Management Discussion and Analysis 18
Item 3 Controls and Procedures 23
PART II - OTHER INFORMATION
Item 3 Defaults Upon Senior Securities 23
Item 6 Exhibits and Reports on Form 8-K 23
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PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 28, 2003 September 28, 2002
ASSETS Unaudited Audited
CURRENT ASSETS:
Cash and cash equivalents $2,522,738 $ 301,417
Cash - restricted - 200,000
Accounts receivable, net of allowances 647,488 532,167
Inventories 1,124,744 826,940
Refundable taxes on income - 373,765
Prepaid expenses and taxes 83,619 93,964
Deferred income taxes 127,377 276,122
TOTAL CURRENT ASSETS 4,505,966 2,604,375
NET PROPERTY, PLANT AND EQUIPMENT 640,902 594,402
OTHER ASSETS:
Deferred charges - 12,291
Deferred income taxes - long term 55,523 164,454
Investment 250,000 250,000
Deferred Financing Charges 35,938 32,437
Goodwill 2,740,579 2,331,512
Net assets of discontinued operations - 1,014,691
TOTAL OTHER ASSETS 3,082,040 3,805,385
TOTAL ASSETS $8,228,908 $7,004,162
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $1,668,623 $ 136,499
Accounts payable 576,843 351,432
Income taxes payable 17,788 -
Accrued expenses 440,348 277,875
Deferred compensation 95,209 68,988
TOTAL CURRENT LIABILITIES 2,798,811 834,794
LONG-TERM DEBT - 1,329,569
DEFERRED COMPENSATION 343,622 345,571
NET LIABILITIES OF DISCONTINUED OPERATIONS 50,165 -
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 June 28, 2003
and September 28, 2002 25,607 25,607
Additional paid-in capital 700,487 700,487
Accumulated other comprehensive income 324,186 49,440
Retained earnings 3,986,030 3,718,694
TOTAL SHAREHOLDERS' EQUITY 5,036,310 4,494,228
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $8,228,908 $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 Nine For The Three For the Nine
Months Ended Months Ended Months Ended Months Ended
June 28, 2003 June 29, 2002
NET SALES $979,919 $2,675,451 $924,067 $2,366,530
COST OF SALES 597,004 1,623,101 579,139 1,422,853
GROSS PROFIT 382,915 1,052,350 344,928 943,677
SELLING AND ADMINISTRATIVE
EXPENSES 561,149 1,475,903 464,375 1,365,525
LOSS FROM
OPERATIONS (178,234) (423,553) (119,447) (421,848)
OTHER INCOME (EXPENSE):
Interest expense (29,750) (148,784) (60,633) (190,096)
Other income (loss), net 11,914 23,356 (7,940) 14,028
Gain(loss)on foreign
exchange 59 (1,626) (2,869) (1,689)
TOTAL OTHER
INCOME (EXPENSE) (17,777) (127,054) (71,442) (177,757)
LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES (196,011) (550,607) (190,889) (599,605)
BENEFIT FROM
INCOME TAXES (122,318) (263,820) (76,412) (239,192)
LOSS FROM CONTINUING
OPERATIONS, NET OF TAXES (73,693) (286,787) (114,477) (360,413)
LOSS FROM DISCONTINUED
OPERATIONS NET OF
INCOME TAX BENEFIT (45,596) (400,284) (25,741) (91,624)
GAIN ON DISPOSITION OF
DISCONTINUED OPERATIONS
NET OF INCOME TAX EXPENSE
OF $567,641 257,990 954,407 - -
NET INCOME (LOSS) $138,701 $267,336 $(140,218) $(452,037)
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 Nine For The Three For the Nine
Months Ended Months Ended Months Ended Months Ended
June 28, 2003 June 29, 2002
EARNINGS (LOSS) PER SHARE:
Basic:
Continuing operations $(0.03) $(0.11) $(0.04) $(0.15)
Discontinued operations (0.02) (0.16) (0.01) (0.04)
Gain on disposition of
Discontinued operations 0.10 0.37 - -
Net income (loss) $0.05 $0.10 $(0.05) $(0.19)
Weighted average shares 2,560,684 2,560,684 2,560,684 2,428,816
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
NINE MONTHS ENDED JUNE 28, 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 - - 267,336 267,336 - 267,336
Other comprehensive income:
Foreign currency
translation, net of
taxes of ($216,000) - - 274,746 - 274,746 274,746
Comprehensive income $ 542,082
Balance at
June 28, 2003
2,560,684 shares $25,607 $700,487 $3,986,030 $324,186 $5,036,310
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 Nine Months Ended
June 28, 2003 June 29, 2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 267,336 $ (452,037)
Adjustments to reconcile net income
to net cash provided by operating
activities:
Loss from discontinued operations 400,284 91,624
Gain on disposal of assets (954,407) -
Depreciation and amortization 116,681 157,323
Deferred income taxes (237,715) (55,281)
Changes in assets and liabilities:
Accounts receivable 3,233 222,235
Inventories (101,433) 27,556
Refundable income taxes 393,086 104,586
Prepaid expenses and other 19,421 65,407
Accounts payable 146,047 (102,787)
Accrued expenses 71,473 36,653
Deferred compensation 14,055 (37,100)
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 138,061 $ 58,179
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of business 4,704,368 -
Deferred charges 12,291 (30,114)
Property, plant and equipment additions (32,112) (77,083)
Cash provided by (used in)
discontinued operations (1,006,627) 185,894
NET CASH PROVIDED BY
INVESTING ACTIVITIES 3,677,920 78,697
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 203,574 1,060,172
Repayments of long term debt (2,040,336) (1,693,961)
Issuance of common stock - 206,000
Finance fees deferred - (141,263)
Restricted cash 200,000 -
NET CASH USED IN FINANCING ACTIVITIES (1,636,762) (569,052)
EFFECT OF EXCHANGE RATE CHANGES ON CASH 42,102 29,399
NET INCREASE (DECREASE) IN CASH 2,221,321 (402,777)
CASH AND EQUIVALENTS - BEGINNING 301,417 815,704
CASH AND EQUIVALENTS - ENDING $2,522,738 $ 412,927
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 $148,704 $167,096
Income taxes $ - $129,923
The accompanying notes are an integral part
of the consolidated financial statements
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GODDARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 28, 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 29, 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, and 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 June 29, 2002 and September 28, 2002 financial
statements have been reclassified to conform with the June 28, 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 approximately
$657,000 had been paid by June 28, 2003. Up to an additional $43,000 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 geographic 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.)
On June 18, 2003, the Company sold all of the real estate that was owned by
Mack-USA to WRT Management Corp. of Marlboro, Massachusetts. The purchase price
of $825,000 was paid as of the closing date. The property formerly housed the
operations of Mack-USA. The gain on this sale is included in the gain on
disposition of discontinued operations in 2003.
The company rents approximately 2,000 square feet of office space at the same
location, as a tenant at will, from the new owners.
NOTE 3. INVENTORIES:
Inventories are comprised of the following:
June 28, September 28,
2003 2002
Finished goods $ 858,544 $680,442
Work in process 99,825 47,035
Raw materials 166,375 99,463
$1,124,744 $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:
Nine months ended
June 28, June 29,
2003 2002
Net loss from continuing operations $(286,787) $(360,413)
Add back: goodwill amortization, net of tax - 36,840
Adjusted net loss $ (286,787) $(323,573)
Basic earnings (loss) per share:
Net loss from continuing operations $(0.11) $(0.15)
Goodwill amortization - 0.02
Adjusted net loss from continuing
operations $(0.11) $(0.13)
Three months ended
June 28, June 29,
2003 2002
Net loss from continuing operations $(73,693) $(114,477)
Add back: goodwill amortization, net of tax - 7,492
Adjusted net loss $(73,693) $(106,985)
Basic earnings per share:
Net loss from continuing operations $(0.03) $(0.04)
Goodwill amortization - -
Adjusted net loss from continuing
operations $(0.03) $(0.04)
At June 28, 2003 intangible assets are comprised of an unamortized
intangible asset of Goodwill of $2,740,579. There was no amortization expense
for the three or nine months ended June 28, 2003.
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NOTE 5. LONG-TERM DEBT:
At June 28, 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
($46,000) including interest at 9.30% through
November 2005 (Denominated in AUD). - 436,322
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). - 1,197,900
Capital lease obligations for machinery.
(Denominated in AUD). - 34,401
- $1,668,623
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
June 28, 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:
June 28, September 28,
2003 2002
Deferred tax asset
Deferred compensation $ 156,200 $ 156,200
Capital loss carry forward - 167,700
Inventory valuation 10,000 141,100
Accrued salaries 102,200 95,500
Bad debts 15,000 31,800
Foreign tax credit carry forward 93,000 93,000
Net operating loss carry forward 112,600 109,000
Other 6,200 3,976
Total gross deferred tax assets 495,200 798,276
Deferred tax liabilities:
Depreciation (1,500) (92,200)
Amortization (64,800) (64,800)
Gain on foreign currency (216,000) (33,000)
Total gross deferred
tax liabilities (282,300) (190,000)
Deferred tax asset before
valuation allowance 212,900 608,276
Less valuation allowance (30,000) (167,700)
$182,900 $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 June 28, 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. Until the sale of the
property (see note 2) the Company had been conducting periodic monitoring as
was required by the RAO. The Company has no further interest in the building
or the property but continues to be subject to laws covering the period of its
ownership. Periodic monitoring is now the responsibility of the buyer of the
property. The Company does not plan to take any further action in this matter.
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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 nine
months ended June 28, 2003 and June 29, 2002, pro forma net income (loss)
would have been as shown:
For the Three For the Nine For The Three For the Nine
Months Ended Months Ended Months Ended Months Ended
June 28, 2003 June 29, 2002
Net income (loss) $138,701 $267,336 $(140,218) $(452,037)
Cost of stock options
Net of taxes (7,290) (54,331) (20,530) (130,647)
Pro forma net income
(loss) $131,411 $213,005 $(160,748) $(582,684)
Pro forma net income (loss)
per share $0.05 $0.08 $(0.06) $(0.24)
Note 9. DISCONTINUED OPERATIONS
Mack-USA's discontinued operations are presented as follows:
For the Three For the Nine For The Three For the Nine
Months Ended Months Ended Months Ended Months Ended
June 28, 2003 June 29, 2002
NET SALES $ - $1,132,360 $802,793 2,434,274
COST OF SALES - 811,041 524,380 1,688,457
GROSS PROFIT - 321,319 278,413 745,817
SELLING AND ADMINISTRATIVE
EXPENSES 74,390 948,603 321,328 890,452
LOSS FROM OPERATIONS (74,390) (627,284) (42,915) (144,635)
OTHER INCOME (EXPENSE) - - (25) (7,797)
LOSS BEFORE INCOME TAXES (74,390) (627,284) (42,940) (152,432)
BENEFIT FROM INCOME TAXES (28,794) (227,000) (17,199) (60,808)
NET LOSS $ (45,596) $(400,284) $ (25,741) $(91,624)
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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 947,632
OTHER ASSETS:
Deferred charges 115,108
Deferred financing charges 140,895
TOTAL OTHER ASSETS 256,003
TOTAL ASSETS $3,143,530
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 $1,014,691
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Item 2 - MANAGEMENT DISCUSSION AND ANALYSIS
SALE OF ASSETS OF GODDARD VALVE CORPORATION
On January 31, 2003 the Company, sold substantially all of the assets employed
in the operations 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. Of that amount, $3,200,000 was paid
in cash at the closing, and another $657,000 was paid through June
28, 2003. An additional $43,000 is payable pending collection of transferred
accounts receivable. The assets sold included Mack-USA's machinery &
equipment, 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 became 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.
As a result of the above sale to ECII, Mack-USA had no further need for its
real estate in Worcester, Massachusetts, and on June 18, 2003, the Company sold
all of that real estate. The purchase price of $825,000 was paid at closing.
The net book value of the assets sold was approximately $265,000, realizing a
gain on the sale, after closing costs of $75,000, of approximately $485,000
before taxes. Approximately $227,000 was accrued for taxes on the gain.
The company rents approximately 2,000 square feet of office space at the same
location, as a tenant at will, from the new owners.
RESULTS OF OPERATIONS - NINE MONTHS ENDED JUNE 28, 2003 COMPARED TO
JUNE 29, 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 operations); and the gain on the sale of the Mack-USA assets and
related real estate which housed Mack-USA. Mack Valves becomes the principal
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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 nine months ended June 28, 2003
were $2,675,000, with a net loss from continuing operations of $287,000 or
$.11 basic loss per share, compared with net sales of $2,367,000 and a net
loss from continuing operations of $360,000 or $.15 basic loss per share in
the same period last year. During the nine months ended June 28, 2003, the
net loss from discontinued operations was $400,000 or $.16 basic loss per
share, with a net gain on the sale of Mack-USA assets and related real estate
of $954,000 or $.37 basic income per share, resulting in consolidated net
income of $267,000 or $.10 basic income per share. During the comparable period
last year, the net loss from discontinued operations was $92,000 or $.04 basic
loss per share, resulting in a consolidated net loss of $452,000 or $.19 basic
loss per share. The difference in rates between the US dollar and the
Australian dollar accounted for the entire 13% increase in net sales since when
stated in Australian dollars, net sales in the first nine months of this year
were level when compared to the same period last year.
New orders received in the nine months ended June 28, 2003 were 13% higher than
for the same period last year when stated in US dollars, but were actually 1%
lower when stated in Australian dollars. At June 28, 2003 the backlog of order
was 16% higher than at the comparable date last year when stated in US dollars,
and 2% lower when stated in Australian dollars.
The loss from operations increased by $2,000 from a loss of $422,000 in the
first nine months of last year to a loss of $424,000 in the first nine months
of this year. The increase consisted of an improvement in gross margin of
$109,000, all but $32,000 of which resulted from the difference in rates
between the US dollar and the Australian dollar, offset by an increase in
selling, general, and administrative expenses of $110,000. The increase in SG&A
was the result a number of factors including: $30,000 of expenses associated
with the Company's investigation of a reverse split; $61,000 internal costs
associated with the sale of the assets of Mack-USA and related real estate;
$32,000 of deferred finance charges written off at the end of the second
quarter of FY2003; and $54,000 lower selling general and administrative cost
(primarily at Mack Valves), offset by an increase in cost of $41,000 resulting
when Australian expenses were translated into US dollars at differing exchange
rates in effect.
The loss from discontinued operations of $400,000 in the nine months ended
June 28, 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, $278,000 to severance costs associated
with the plant closure, and the remainder to deferred finance charges written
off at the time of the sale. The loss from discontinued operations during the
nine months ended June 29, 2002 was made up of losses from normal operations of
the business.
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The net gain on sale of assets of $954,000 consisted a net gain of $696,000
from the sale of assets of Mack-USA and $258,000 from the sale of the related
real estate. The net 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. The net gain on sale of the related real estate of $258,000
represents a pre-tax gain of approximately $485,000, which was made up of the
sale price of $825,000 less the net book value of the assets sold of $265,000
and brokerage and legal fees of $75,000.
THREE MONTHS ENDED JUNE 28, 2003 COMPARED TO JUNE 29, 2002
Net sales from continuing operations for the three months ended June 28,
2003 were $980,000, with a net loss from continuing operations of $74,000 or
$.03 basic loss per share, compared with net sales of $924,000 and a net loss
from continuing operations of $114,000 or $.04 basic loss per share in the
same period last year. However, stated in Australian dollars, net sales for the
three months ended June 28, 2003 actually declined by 4% when compared to the
same period last year.
During the three months ended June 28, 2003, the net loss from discontinued
operations was $46,000 or $.02 basic loss per share, with a net gain on the
sale of assets of $258,000 or $.10 basic income per share, resulting in
consolidated net income of $139,000 or $.05 basic income per share. During the
comparable period last year, the net loss from discontinued operations was
$26,000 or $.01 basic loss per share, resulting in a consolidated net loss of
$140,000 or $.05 basic loss per share.
The loss from continuing operations increased by $59,000 from $119,000 in the
three months ended June 29, 2002 to $178,000 in the three months ended June 28,
2003. The $59,000 increase was the result of an increase in selling general and
administrative expenses of $97,000, which was offset by a $38,000 increase in
gross margin, all of which was the result of translation gains when
converting Mack Valves results in Australian dollars into US dollars. The
increase in SG&A was the result a number of factors including: $30,000 of
expenses associated with the Company's investigation of a reverse split;
$28,000 internal costs associated with the sale of assets of Goddard Valve and
the related real estate; and $9,000 lower selling general and administrative
cost (primarily at Mack Valves) offset by an increase in cost of $48,000
resulting when Australian expenses were translated into US dollars at differing
exchange rates in effect.
LIQUIDITY AND CAPITAL RESOURCES
As a result of the sale of the operating assets of Mack-USA and the related
real estate, the Company's liquidity and capital resources have been
significantly improved. At June 28, 2003, cash and cash equivalents were
$2,523,000, and working capital was $1,707,000. On that date, consolidated
debt equaled $1,669,000 (denominated in AUD), substantially all of which is
held by National Australia Bank ("NAB"). This debt arose from the financing of
the acquisition of Mack Valves. All of this debt is classified as current
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because at June 28, 2003, Mack Valves had not met its debt service coverage
covenant with NAB. The Company and NAB are currently discussing ways of
resolving this issue, which may involve a pay-down of some portion of the NAB
debt.
The Company continues to have debt from the financing of its acquisition of
Mack Valves. Management believes that the liquidity generated from the sale of
Mack-USA assets and related real estate 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 future. On June 26,
2003, the Company filed preliminary proxy materials related to a reverse split.
The amounts of cash required to implement that proposed transaction would not
be material to the Company's liquidity position. At June 28, 2003, the Company
had sufficient cash to pay down its entire debt to NAB, if necessary, and still
have sufficient working capital to meet the company's needs for the next twelve
months. The Company does not have any off-balance sheet financing.
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
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 amortization at September 28, 2002. Until
September 28, 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
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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,"
"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.
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Item 3 - Controls and Procedures
As of June 28, 2003, 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-15(e)), which
have been designed to ensure that material information related to the Company
is made known to them and timely disclosed. The Company's management,
including the CEO and CFO, does not expect that the Company's disclosure
controls or 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.
Notwithstanding the foregoing, however, based upon their evaluations, our CEO
and CFO concluded that the Company's disclosure controls are effective to
provide a reasonable level of assurance that material information relating to
the Company is accumulated and communicated to management, including the CEO
and CFO, as appropriate, to allow timely decisions regarding required
disclosure.
There have been no changes in the Company's internal control over
financial reporting that occurred during the period covered by this report that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II - OTHER INFORMATION
Item 3 - Defaults Upon Senior Securities
At June 28, 2003, the Company was in default on its approximately $1.7
million revolving line of credit and note payable to National Australia Bank
(NAB) because it was out of compliance with the debt service coverage covenant
of the loans. The Company and NAB are currently discussing ways of resolving
this issue, which may involve a pay-down of some portion of the long term debt.
At June 28, 2003, the Company had sufficient cash to pay down its entire debt
to NAB, if necessary, and still have sufficient working capital to meet the
company's needs for the next twelve months.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
11 Statement Re: Computation of Per Share Earnings. The
information set forth in the Consolidated Statements of
Operations found in Part I hereof is hereby incorporated.
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31.1 Certification of CEO pursuant to Section 302 of Sarbanes-Oxley
Act
31.2 Certification of CFO pursuant to Section 302 of Sarbanes-Oxley
Act
32.1 Certification of CEO pursuant to Section 906 of Sarbanes-Oxley
Act
32.2 Certification of CFO pursuant to Section 906 of Sarbanes-Oxley
Act
(b) The Company filed a Form 8-K on February 3, 2003 and a Form
8-K/A on April 7, 2003
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 22,2003
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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EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Salvatore J. Vinciguerra, President and Chief Executive Officer of Goddard
Industries, Inc., certify that:
1. I have reviewed this report on Form 10-QSB of Goddard Industries, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) (Omitted)
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal controls which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial
data; and
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b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
Date: August 22, 2003
/s/ Salvatore J. Vinciguerra
Salvatore J. Vinciguerra
President and Chief Executive Officer
(Principal Executive Officer)
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EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth E. Heyman, Chief Financial Officer of Goddard Industries, Inc.,
certify that:
1. I have reviewed this report on Form 10-QSB of Goddard Industries, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, 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 report is being prepared;
b) (Omitted)
c) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report; and
d) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, 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 and material weaknesses in the design or
operation of internal controls which are reasonably likely to adversely affect
the registrant's ability to record, process, summarize and report financial
data; and
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b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls.
Date: August 22, 2003
/s/ Kenneth E. Heyman
Kenneth E. Heyman
Chief Financial Officer
(Principal Financial Officer)
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Exhibit 32.1
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
June 28, 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: August 22, 2003
_______________________________________
Salvatore J. Vinciguerra
Chief Executive Officer
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Exhibit 32.2
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 June 28,
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: August 22, 2003
_______________________________________
Kenneth E. Heyman
Chief Financial Officer
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