SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended December 31, 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 December 31, 1996 Common Stock, $.01 par value 2,040,129 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 - December 31, 1996 and September 28, 1996 3 Consolidated Statement of Income - Three Months Ended December 31, 1996 and December 31, 1995 4 Consolidated Statement of Cash Flows - Three Months Ended December 31, 1996 and December 31, 1995 5 Notes to Consolidated Financial Statements 6 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II - OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K 11 -2- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (UNAUDITED) December 31, September 28, 1996 1996 AUDITED ASSETS (ALL PLEDGED, NOTE 4) CURRENT ASSETS: Cash $ 97,818 $ 65,951 Accounts receivable, net of allowances 1,358,528 1,154,871 Other receivables (Note 6) 785,000 785,000 Inventories (Note 3) 3,310,550 3,312,449 Prepaid expenses and taxes 44,745 33,809 Deferred income taxes (Note 5) 84,400 82,000 TOTAL CURRENT ASSETS 5,681,041 5,434,080 PROPERTY, PLANT AND EQUIPMENT, at cost 3,678,995 3,641,818 Less - Accumulated depreciation -2,642,446 - -2,589,252 1,036,549 1,052,566 OTHER ASSETS: Excess of cost of investment in subsidiaries over equity in net assets acquired 17,441 18,380 Deferred income taxes - long term(Note 5)169,000 167,000 Total other assets 186,441 185,380 TOTAL ASSETS $6,904,031 $6,672,026 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) $ 54,000 $ 51,000 Accounts payable 404,627 317,321 Accrued expenses 285,681 399,861 Accrued environmental costs (Note 6) 795,000 795,000 Income taxes payable 147,771 191,771 TOTAL CURRENT LIABILITIES 1,687,079 1,754,953 LONG-TERM DEBT, net of current maturities (Note 4) 1,019,011 1,026,398 DEFERRED COMPENSATION 551,000 551,000 SHAREHOLDERS' EQUITY: Common stock - par value $.01 per share, authorized 3,000,000 shares, issued and outstanding 2,040,129 shares. 20,401 20,401 Additional paid-in capital 399,353 399,353 Retained earnings 3,227,187 2,919,921 TOTAL SHAREHOLDERS'EQUITY 3,646,941 3,339,675 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,904,031 $6,672,026 -3- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED December 31, 1996 1995 NET SALES $2,989,523 $1,791,242 COST OF SALES 1,957,321 1,200,956 GROSS PROFIT 1,032,202 590,286 SELLING AND ADMINISTRATIVE EXPENSES 502,668 382,065 INCOME FROM OPERATIONS 529,534 208,221 OTHER INCOME (EXPENSE): Interest expense -19,383 - -28,004 Other income, net 7,716 6,895 TOTAL OTHER INCOME (EXPENSE) -11,667 - -21,109 INCOME BEFORE INCOME TAXES 517,867 187,112 PROVISION FOR INCOME TAXES 210,600 77,900 NET INCOME $307,267 $109,212 EARNINGS PER SHARE (Note 7) Primary $ 0.14 $ 0.05 -4- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED December 31, 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $307,267 $109,212 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 54,132 50,749 Deferred income taxes -4,400 - -7,000 Changes in assets and liabilities: Accounts receivable -203,657 98,059 Inventories 1,899 - -100,890 Prepaid expenses and other -10,936 - -16,832 Accounts payable 87,306 43,984 Accrued expenses -114,180 19,468 Income taxes payable -44,000 - -180,100 Deferred compensation 0 9,500 Total Adjustments -233,836 - -83,062 NET CASH PROVIDED BY OPERATING ACTIVITIES 73,431 26,150 CASH FLOWS FROM INVESTING ACTIVITIES: Property,plant and equipment additions -37,177 - -11,773 CASH FLOWS FROM FINANCING ACTIVITIES: Increase in long-term debt 989,000 809,000 Repayments of long-term debt -993,387 - -760,803 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -4,387 48,197 NET INCREASE IN CASH 31,867 62,574 CASH - BEGINNING 65,951 74,937 CASH - ENDING $ 97,818 $137,511 CASH PAID DURING THE PERIOD Interest $ 20,168 $ 27,649 Income taxes $259,000 $265,000 -5- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 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 28, 1996 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: December 31, September 28, 1996 1996 Finished goods $3,001,999 $3,003,898 Work in process 21,687 21,687 Raw materials 286,864 286,864 $3,310,550 $3,312,449 The following factors were taken into consideration in determining inventory values: Goddard Valve Corp. - December 31, 1996 - $1,834,838 (estimated) and September 28, 1996 - $1,657,426. Interim inventories were valued by management using the gross profit method. Webstone Company, Inc. - December 31, 1996 - $1,475,712 (estimated) and September 28, 1996 - $1,655,023. Interim inventory was valued by management using the gross profit method. Total inventory is comprised of finished goods. NOTE 4. LONG-TERM DEBT 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 December 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. continued -6- 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 December 31, 1996 long-term obligations consisted of the following: LONG-TERM CURRENT Revolving line of credit $ 927,503 $ - Capital lease obligation for machinery, payable in monthly installments of $5,274, through July 1, 1999, with imputed interest rate of 8.936% 91,508 54,000 $1,019,011 $54,000 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: December 31, September 28, 1996 1996 Deferred tax asset Deferred compensation $ 220,400 $ 220,400 Inventory valuation 61,200 60,800 Accrued salaries 6,200 6,200 Environmental matters 4,000 4,000 Bad debts 13,000 11,000 304,800 302,400 Depreciation 51,400 53,400 $ 253,400 $ 249,000 Management does not believe that any valuation allowance is necessary. -7- NOTE 6 ENVIRONMENT MATTERS The Company has been a party to the following environmental matters: DEP Matter: An environmental assessment of the Corporate headquarters in connection with a proposed bank financing in 1987 revealed that there may have been a release or threat of release of oil or hazardous materials and that an off-site source may be introducing the contaminants. The Company notified the Massachusetts Department of Environmental Protection (DEP). In 1995 the site was designated as a Tier 1C Site under the Massachusetts Contingency Plan and the Company must complete a further site investigation by November 1997. One of the Company's insurance carriers has agreed to pay the Company $70,000 to be used as the Company determines in defense of the DEP proceeding in exchange for a release of any further claim with respect to this matter. In addition, environmental engineers employed by the Company estimate that the required remediation costs will be a minimum of $45,000. Shrewsbury matter: The Shrewsbury environmental litigation was settled in January, 1997 and the effects of that settlement reflected in the financial statements for the year ended September 28, 1996. In the accompanying financial statements, other receivables represents amounts due from insurance carriers with respect to environmental matters and accrued environmental costs represents amounts due the Town of Shrewsbury and the minimum estimated remediation costs related to the DEP matter. 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. -8- PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition RESULTS OF OPERATIONS FISCAL QUARTER ENDED DECEMBER 31, 1996 COMPARED TO FISCAL QUARTER ENDED DECEMBER 31, 1995 The pattern of increased Company sales and earnings continued in the first quarter of fiscal 1997. Consolidated sales for the three months ended December 31, 1996 were a record $2,990,000, a 66.9% increase over sales for the same quarter of fiscal 1996. The increase in sales in the Valve division resulted from substantially larger orders for both standard and newly designed product lines. The increase in Webstone division revenues resulted from larger orders in a newly acquired faucet line and from an increased market share of standard catalog items. Levels of new orders and the trade press indicate that the strength in revenues should continue for at least the near term. The Company's gross profit margins increased to 34.5% from 32.9% in the same quarter last year, reflecting the efficiencies resulting from increased sales volume, while sales and administrative expenses declined as a percentage of sales from 21.3% to 16.8% for the same reason. Interest expense declined by approximately one third in the first quarter of fiscal 1997 compared to the same period last year as a result of lower interest rates and somewhat lower borrowing levels. The increased sales and relatively lower expenses resulted in a 182% increase in the Company's net income to $307,000 (or $.14 per share) in the first quarter of fiscal 1997, compared to $109,000 (or $.05 per share) in the corresponding quarter last year. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company has funded operations primarily through earnings and bank borrowings. At December 31, 1996, the Company had net working capital of approximately $3,994,000, including $98,000 in cash. The Company also had 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. On December 31, 1996, approximately $928,000 had been drawn under that line of credit, which bears interest at a rate equal to the bank's prime rate plus 3/4 of 1%. During the first quarter of fiscal 1997, the operations of the Company produced $73,000 of cash. The major sources of cash were net income ($307,000), increases in accounts payable ($87,000) and depreciation ($54,000). Principal uses of cash were increased accounts receivable ($204,000), reduced accrued expenses ($114,000), and a net reduction in income taxes ($44,000). During the quarter, the Company used approximately $37,000 in investment activities for the purchase of machinery and equipment, compared to $11,000 in the same period of the prior year. Financing activities consumed approximately $4,000 as the Company paid down long term debt. -9- The Company plans to add an additional 10,000 square feet of manufacturing and warehouse space to the rear of its existing building in Worcester and to finance the addition using moneys available under The First National Bank of Boston line of credit. After the use of a portion of the line of credit for that purpose, the Company believes that the remaining amounts available under line of credit should still provide 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. As more fully described in Note 6 to the financial statements, the Company is a party to an administrative proceeding relating to environmental matters. Based upon presently available information, the Company does not anticipate that the resolution of the DEP proceeding will have a material effect on the Company's financial resources. The Company's results of operations have not been materially affected by seasonality. -10- PART II - OTHER INFORMATION Item 1 - Legal Proceedings There have been no further developments in the DEP environmental proceeding from those described in the Company's Form 10-KSB for the year ended September 28, 1996. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits (11) Statement Re: Computation of Per Share Earnings. The information set forth in Note 7 to the Financial Statements found in PART I hereof is hereby incorporated. (27) Financial Data Schedule (b) The Company did not file any reports on Form 8-K during the quarter ended December 31, 1996. -11- 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 February 14, 1997 GODDARD INDUSTRIES, INC. by/s/Saul I. Reck Saul I. Reck, President Chief Executive Officer and Principal Financial Officer