SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ___________ Commission File: No. 0-2052 GODDARD INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Massachusetts 04-2268165 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 705 Plantation Street, Worcester, Massachusetts 01605 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (508)852- 2435 Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No State the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Title of Each Class of Number of Shares Outstanding Common Stock Outstanding at June 30, 1996 Common Stock, $.01 par value 2,038,618 Transitional Small Business Disclosure Format Yes ___ No _X_ GODDARD INDUSTRIES, INC. TABLE OF CONTENTS PART I - FINANCIAL INFORMATION PAGE Item 1. Financial Statements Consolidated Balance Sheet - June 30, 1996 and September 30, 1995............................. 3 Consolidated Statement of Income - Nine Months Ended June 30, 1996 and June 30, 1995 .................. 4 Consolidated Statement of Cash Flows - Nine Months Ended June 30, 1996 and June 30, 1995............... 5 Notes to Consolidated Financial Statements....... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 10 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8- K...................12 -2- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) June 30, September 30, 1996 1995 ASSETS (ALL PLEDGED, NOTE 4) CURRENT ASSETS: Cash $141,201 $74,937 Accounts receivable, net of allowances 1,081,531 973,477 Inventories (Note 3) 3,125,944 2,911.234 Prepaid expenses and taxes 37,897 23,018 Deferred income taxes (Note 5) 59,600 56,000 TOTAL CURRENT ASSETS 4,446,173 4,038,666 PROPERTY, PLANT AND EQUIPMENT, at cost 3,451,551 3,336,001 Less - Accumulated depreciation -2,533,195 - 2,385,267 918,356 950,734 OTHER ASSETS: Excess of cost of investment in subsidiaries over equity in net assets acquired 19,319 22,136 Deferred income taxes - long term (Note 5) 156,400 139,000 Total other assets 175,719 161,136 TOTAL ASSETS $5,540,248 $5,150,536 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) $ - $ 109,191 Accounts payable 509,529 305,655 Accrued expenses 335,180 256,631 Income taxes payable 32,515 222,626 TOTAL CURRENT LIABILITIES 877,224 894,103 LONG-TERM DEBT, net of current maturities (Note 4) 1,085,503 1,092,503 DEFERRED COMPENSATION 541,500 513,000 SHAREHOLDERS' EQUITY: Common stock - par value $.01 per share; authorized 3,000,000 shares, issued and outstanding 2,038,618 shares. 20,386 20,328 Additional paid-in capital 398,612 395,763 Retained earnings 2,617,023 2,234,839 TOTAL SHAREHOLDERS' EQUITY 3,036,021 2,650,930 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,540,248 $5,150,536 -3- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) JUNE 30, 1996 JUNE 30, 1995 FOR THE THREE FOR THE NINE FOR THE THREE FOR THE NINE MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED NET SALES $2,118,487 $5,965,745 $1,923,086 $4,977,317 COST OF SALES 1,426,342 4,023,784 1,266,108 3,279,844 GROSS PROFIT 692,145 1,941,961 656,978 1,697,473 SELLING AND ADMINISTRATIVE EXPENSES 421,412 1,235,400 449,416 1,214,469 INCOME FROM OPERATIONS 270,733 706,561 207,562 483,004 OTHER INCOME (EXPENSE): Interest expense -24,733 -78,705 -36,019 - -108,926 Other income, net 7,471 24,728 9,848 19,519 TOTAL OTHER INCOME (EXPENSE) -l7,262 -53,977 -26,171 - -89,407 INCOME BEFORE INCOME TAXES 253,471 652,584 181,391 393,597 PROVISION FOR INCOME TAXES 105,600 270,400 76,200 166,400 NET INCOME $147,871 $382,184 $105,191 $227,197 EARNINGS (LOSS) PER SHARE (Note 7) Primary Net Income $0.07 $0.19 $.05 $.11 -4- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED JUNE 30, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $382,184 $227,197 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 150,745 141,194 Deferred income taxes -21,000 - -20,500 Changes in assets and liabilities: Accounts receivable -108,054 - -210,366 Inventories -214,710 - -143,291 Prepaid expenses and other -14,879 60,519 Accounts payable 203,874 - -155,398 Accrued expenses 78,549 65,401 Income taxes payable -190,111 143,692 Deferred Compensation 28,500 28,500 Total Adjustments -87,086 - -90,249 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 295,098 136,948 CASH FLOWS FROM INVESTING ACTIVITIES: Property, plant and equipment additions -115,550 - -99,828 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 2,907 - - Increase in long-term debt 2,108,000 1,384,000 Repayments of long-term debt -2,224,191 - 1,414,558 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -113,284 - -30,558 NET INCREASE IN CASH 66,264 6,562 CASH - BEGINNING 74,937 62,634 CASH - ENDING $141,201 $69,196 CASH PAID DURING THE PERIOD: Interest $79,370 $105,313 Income taxes $481,511 $ 29,214 -5- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1996 (UNAUDITED) NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reference is made to the financial statements included in the Annual Report for the year ended September 30, 1995 for a summary of significant accounting policies and other disclosures. NOTE 2 BASIS OF PRESENTATION: The information shown in the consolidated financial statements reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the interim period. NOTE 3 INVENTORIES: Consolidated inventories are comprised of: June 30, September 30, 1996 1995 Finished goods 2,919,993 $2,705,283 Work in process 11,003 11,003 Raw materials 194,948 194,948 $3,125,944 $2,911,234 The following factors were taken into consideration in determining inventory values: Goddard Valve Corp. - June 30, 1996 - $1,461,299 (estimated) and September 30, 1995 - $1,132,582. Interim inventories were valued by management using the gross profit method. Webstone Company, Inc. - June 30, 1996 $1,664,645 (estimated) and Sepember 30,1995 - $1,778,652. Interim inventory was valued by management using the gross profit method. Total inventory is comprised of finished goods. NOTE 4. LONG-TERM OBLIGATIONS The Company has available a revolving line of credit totaling $1,750,000 bearing interest at the greater of (i) prime plus 3/4% or (ii) the Federal Funds Effective Rate plus 1 1/4% per annum. On March 31, 1996 the effective interest rate was 9.0%. The agreement expires March 30, 1998 and is secured by all property and assets. Advances are restricted by certain limitations on eligible receivables and inventories. -6- continued LONG-TERM OBLIGATIONS (continued) The credit agreement contains a number of covenants, the most restrictive of which relate to working capital, tangible net worth, and profitability levels, and restrict payment of cash dividends to 10% of the immediately preceding year's net income before taxes. At June 30, 1996 long-term obligations consisted of the following: LONG-TERM CURRENT Revolving line of credit $1,050,503 $ - - Note due 1997, unsecured, interest at 10% 35,000 - - $1,085,503 - - NOTE 5 INCOME TAXES The tax effects of the principal temporary differences giving rise to the net current and non-current deferred tax assets are as follows: June 30, September 30, 1996 1995 Deferred tax asset: Deferred Compensation $216,600 $205,200 Inventory valuation 39,600 39,000 Accrued Salaries 5,800 5,800 Bad Debts 14,000 11,000 276,000 261,000 Deferred tax liability: Depreciation 60,000 66,000 $216,000 $ 195,000 Management does not believe that any valuation allowance is necessary. - - 7 - NOTE 6 CONTINGENCIES In 1990, the Town of Shrewsbury, Massachusetts commenced a lawsuit in Massachusetts Superior Court against the Company and another corporation, Neles-Jamesbury, alleging that they had caused the Town to incur response costs for assessment, containment and removal of oil and hazardous materials in relation to the Town's Home Farm wells. The Town is seeking approximately $7 million in damages. The Company is defending itself vigorously against this claim and has joined, as third party defendants, several other businesses which could be identified as likely to have used the types of compounds detected as contaminating the Town's wells. Motions for summary judgement were made during 1992 and 1993 resulting in dismissal of some, but not all, of the Shrewsbury complaint. In September 1995, the court issued an order providing for a single, unified trial of all claims related to this matter. Discovery between the Company and the Town of Shrewsbury, with the exception of expert discovery, is complete. Discovery between the Company, Neles Jamesbury, and the third party defendants is ongoing. All discovery is to be completed by November 1, 1996 and the trial is scheduled to begin on January 6, 1997. The Company and legal counsel are unable to form an opinion regarding the outcome of this matter. Consequently, no loss provision with respect to this lawsuit has been recorded. In connection with a proposed bank financing in 1987, the Company retained an environmental engineering firm to perform a site assessment at its corporate headquarters. The results of that assessment revealed that the ground water is contaminated and that an off-site source may be introducing the contaminants. As required by law, the Company notified the Massachusetts Department of Environmental Protection (DEP). The DEP has issued a Notice of Responsibility designating the site as a priority disposal site. A Phase One Limited Site Investigation report has been submitted to the DEP. In November 1995 the Company received a Tier I Transition Classification and Permit Statement Cover Letter designating the site as a Tier 1C Site under the Massachusetts Contingency Plan. Under DEP regulations, the Company must complete further site investigaion by November 1997. Until that investigation is completed, it is not possible to ascertain the cost, if any, of remediation or whether the Company will be able to obtain reimbursement for such costs from any third party causing the contamination or any insurance carrier. Accordingly, the Company has not recorded any provision for loss with respect to this DEP matter. Several of the Company's insurers are participating in the Company's defense in both the DEP matter and the Town of Shrewsbury litigation under a reservation of rights. The Company's principal insurer has also filed suit for a declaratory judgement that they have no duty to defend or indemnify the Company. This action is currently stayed. - -8- NOTE 6 CONTINGENCIES (continued) In the event that the Company does not prevail, these matters could have a material adverse impact on the Company's financial condition, results of operations, and liquidity. NOTE 7 COMMON STOCK: Primary earnings per share are computed on a weighted average number of shares outstanding. Fully diluted earnings per share are not presented because the effect of the exercise of the stock options would not be dilutive. -9- PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition FISCAL QUARTER ENDED JUNE 30, 1996 COMPARED TO FISCAL QUARTER ENDED JUNE 30, 1995 Consolidated sales for the June 30, 1996 quarter were $2,118,000 compared to $1,923,000 for the same period in 1995. This represents a 10.2% sales increase for the current period. Both divisions are shipping at record levels as a result of increased levels of incoming orders since last Fall. New product lines that have recently been introduced in both the Goddard Valve and Webstone divisions combined with a policy of superior customer service have been major factors in sales growth. Selling and Administrative expenses have been reduced 6.2% for the June 1996 quarter compared to last year while Interest Expense has dropped approximately one-third for the same period. Net earnings for the quarter ended June 30, 1996 were $147,900 ($.07/Share) 44% more than the $105,200 ($.05/Share) reported in 1995. NINE MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO NINE MONTH PERIOD ENDED JUNE 30, 1995 For the nine months ended June 30, 1996, consolidated sales were $5,966,000 compared to sales of $4,977,000 for the same period in 1995 (a 19.9% increase). While both operating divisions shared in the increased sales, the Goddard Valve division has gone through a recent period where orders for future deliveries have reached an all time high. This is attributable to new products which are now available and others in design stages. Goddard has taken an active role in the research and development needed by many of its customers to develop new valve designs. Much of this effort results in new product lines and expanded sales. As of June 30, 1996, back orders, which are indicative of future sales, are well over double the level of a year earlier. The Company's inventory levels have increased in order to properly handle the increased sales and, in particular, the new product lines. The foreign location of many of the suppliers of Webstone products, and the long lead times required to obtain many of those products, require the Company to maintain relatively high levels. - 10 - NINE MONTH PERIOD ENDED JUNE 30, 1996 COMPARED TO NINE MONTH PERIOD ENDED JUNE 30, 1995 (CONTINUED) Gross profit margins, at 32.6% of sales, are slightly lower for the first nine months of 1996 than the 34.1% that was reported for 1995 due to lower margins in the Webstone division which have helped produce nearly 13% more sales. Selling and Administrative expenses as a percentage of sales, were 20.7% compared to 24.4% in 1995. As sales increased by $989,000 these expenses remained substantially unchanged. Interest expense for the nine month period was reduced due to lower borrowing levels. Net earnings of $382,000 were 68.2% ahead of a year ago. Earnings per share were $0.19 and $0.11 respectively. LIQUIDITY AND CAPITAL RESOURCES Operating activities of the Company provided $295,000 of cash during the nine months ended June 30, 1996. Cash was generated from earnings ($382,000), depreciation and amortization ($151,000), increases in accounts payable ($204,000), and increases in accrued expenses ($79,000). The major uses of cash were increases in accounts receivable ($108,000) and inventories ($214,000) and reductions in income tax liabilities ($190,000). The cash provided by operating activities was used to reduce long-term debt by $116,000 and to invest in new equipment totaling $116,000. The Company presently maintains a line of credit of $1,750,000 with The First National Bank of Boston collateralized by substantially all of the assets of the Company. The agreement expires on March 30, 1998. On June 30, 1996, approximately $1,050,500 had been drawn under that line of credit. The Company believes that the line of credit provides sufficient liquidity to handle the normal working capital requirements of its present business. The Company borrows funds for periods of up to five years for the purchase of new machinery and meets the required amortization and interest payments from its current working capital. The Company believes that its future capital requirements for equipment can be met from the cash flow from operations, bank borrowings and other available sources. - 11 - PART II - OTHER INFORMATION Item 1 - Legal Proceedings As more fully described in the Company's Form 10-KSB for the year ended September 30, 1995, the Company is a defendant in a suit by the Town of Shrewsbury, Massachusetts alleging that the defendant caused Shrewsbury to incur various environmental response costs and a suit by certain of its prior insurers contesting coverage for environmental claims under insurance policies. There have been no material developments in those cases since the filing of the Form 10-KSB. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (10)(I) Letter agreement between Company's subsidiaries and the bank dated March 31, 1996 modifying banking arrangement. (11) Statement Re: Computation of Per Share Earnings. The information set forth in Note 7 to the Financial Statements found in PART I hereof is hereby incorporated. (27) Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the quarter ended June 30, 1996. - 12 - SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused the Report to be signed on its behalf by the undersigned thereunto duly authorized. Dated as of August 13, 1996 GODDARD INDUSTRIES,INC. by /s/ Saul I. Reck Saul I. Reck, President, Chief Executive Officer and Principal Financial Officer - 13 -