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 June 30, 1998
__ 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, 1998
Common Stock, $.01 par value 2,129,198
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, 1998
and September 27, 1997
3
Consolidated Statement of Income - Nine Months Ended
June 30, 1998 and June 30, 1997
4
Consolidated Statement of Cash Flows - Nine Months
Ended
June 30, 1998 and June 30, 1997
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
13
-2-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30,
September 27,
1998
1997
UNAUDITED
AUDITED
ASSETS
(ALL PLEDGED, NOTE 4)
CURRENT ASSETS:
Cash $ 113,037
$ 82,943
Accounts receivable, net of allowances 1,280,718
1,203,244
Inventories (Note 3) 3,571,384
3,541,862
Prepaid expenses and taxes 80,453
31,420
Deferred income taxes (Note 5) 136,500
133,000
TOTAL CURRENT ASSETS 5,182,092
4,992,469
PROPERTY, PLANT AND EQUIPMENT,
at cost 4,659,435
4,266,837
Less - Accumulated depreciation -3,010,145
- -2,826,006
1,649,290
1,440,831
OTHER ASSETS:
Excess of cost of investment in
subsidiaries over equity in net
assets acquired 11,807
14,624
Deferred income taxes - long term(Note 5) 158,900
165,000
Total other assets 170,707
179,624
TOTAL ASSETS $7,002,089
$6,612,924
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 4) $ 187,500
$ 119,000
Accounts payable 313,150
374,689
Accrued expenses 298,201
423,035
Accrued environmental costs (Note 6) 4,648
45,000
Income taxes payable 0
52,660
TOTAL CURRENT LIABILITIES 803,499
1,014,384
LONG-TERM DEBT, net of
current maturities (Note 4) 921,941
786,668
DEFERRED COMPENSATION 551,000
551,000
SHAREHOLDERS' EQUITY:
Common stock - par value $.01 per share,
authorized 3,000,000 shares, issued
and outstanding 2,129,198 shares.
(2,126,649 shares at September 27,
1997) 21,291
21,266
Additional paid-in capital 431,700
429,353
Retained earnings 4,272,658
3,810,253
TOTAL SHAREHOLDERS'EQUITY 4,725,649
4,260,872
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $7,002,089
$6,612,924
-3-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
June 30, 1998 June
30, 1997
For The Three For the Nine For The Three
For the Nine
Months Ended Months Ended Months Ended
Months Ended
NET SALES $2,302,369 $7,201,616 $2,277,240
$8,139,492
COST OF SALES 1,465,639 4,682,959 1,511,003
5,358,005
GROSS PROFIT 836,730 2,518,657 766,237
2,781,487
SELLING AND
ADMINISTRATIVE
EXPENSES 519,130 1,583,633 485,827
1,526,087
INCOME FROM
OPERATIONS 317,600 935,024 280,410
1,255,400
OTHER INCOME
(EXPENSE):
Interest expense -21,900 -66,792 -21,136
- -64,363
Other income, net 9,780 24,432 9,198
25,701
TOTAL OTHER
INCOME (EXPENSE) -12,120 -42,360 -11,938
- -38,662
INCOME BEFORE
INCOME TAXES 305,480 892,664 268,472
1,216,738
PROVISION FOR
INCOME TAXES 125,200 366,400 107,000
493,600
NET INCOME (loss) $180,280 $526,264 $161,472
$723,138
EARNINGS PER SHARE
(Note 7)
Basic $ 0.08 $ 0.25 $ 0.08
$ 0.35
Diluted $ 0.08 $ 0.24 $ 0.08
$ 0.35
-4-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
For The
Nine Months
Ended
June 30,
1998
1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $526,264
$723,138
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 186,956
181,386
Deferred income taxes 2,600
- -23,500
Changes in assets and liabilities:
Accounts receivable -77,474
- -14,995
Inventories -29,522
- -237,993
Miscellaneous receivable 0
785,000
Prepaid expenses and other -49,033
- -35,921
Accounts payable -61,539
- -79,613
Accrued expenses -124,834
- -27,352
Accrued environmental costs -40,352
- -750,000
Income taxes payable -52,660
- -163,511
Total Adjustments -245,858
- -366,499
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 280,406
356,639
CASH FLOWS FROM INVESTING ACTIVITIES:
Property,plant and equipment additions -210,398
- -105,478
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares 2,372
26,020
Payment of Dividends -63,859
0
Increase in long-term debt 2,501,000
2,534,000
Repayments of long-term debt -2,479,427
- -2,784,381
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES -39,914
- -224,361
NET INCREASE(DECREASE) IN CASH 30,094
26,800
CASH AND EQUIVALENTS - BEGINNING 82,943
65,951
CASH AND EQUIVALENTS - ENDING $113,037
$ 92,751
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD:
Interest $ 66,340
$ 64,363
Income taxes $459,195
$680,611
-5-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
June 30, 1998
(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 27, 1997
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 27,
1998
1997
Finished goods $3,135,571
$3,106,049
Work in process 66,441
66,441
Raw materials 369,372
369,372
$3,571,384
$3,541,862
The following factors were taken into consideration in
determining inventory values:
Goddard Valve Corp. - June 30, 1998 - $1,963,808.
(estimated) and September 27, 1997 - $1,966,653.
Interim
inventories were valued by management using the
gross profit method.
Webstone Company, Inc. - June 30, 1998 - $1,607,576.
(estimated) and September 27, 1997 - $1,575,209.
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 1/2% or
(ii) the Federal Funds Effective Rate plus 1 1/4% per
annum. On
June 30, 1998 the effective interest rate was 9%. The
agreement
expires March 30, 2000 and is secured by all property and
assets. Advances are restricted by certain limitations
on eligible
receivables and inventories.
continued
-6-
LONG-TERM DEBT (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, 1998 long-term obligations consisted of
the following:
LONG-TERM
CURRENT
Revolving line of credit $ 740,000
$ 0
Capital lease obligations for machinery,
payable in monthly installments of
$17,831, through 2001, with imputed
interest rate of approximately 9%. 181,941
187,500
$ 921,941
$ 187,500
During the nine months ended June 30, 1998 the Company
directly
financed machinery with a cost of $182,200 through a
capital
lease arrangement. At June 30, 1998 the related assets
are
included in Property, Plant, and Equipment.
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 27,
1998
1997
Deferred tax asset
Deferred compensation $ 220,400 $
220,400
Inventory valuation 93,800
93,300
Accrued salaries 9,200
9,200
Environmental matters 6,000
18,000
Bad debts 15,300
12,400
344,700
353,300
Depreciation 49,300
55,300
$ 295,400 $
298,000
Management does not believe that any valuation allowance is
necessary.
-7-
NOTE 6. ENVIRONMENTAL MATTER
In 1995, the Massachusetts Department of Environmental
Protection (DEP) designated the Company's facility in
Worcester, MA as a Tier 1C site under the Massachusetts
Contingency Plan as a result of a prior release of oil or
hazardous materials onto the site. The Company engaged an
environmental consulting firm to perform further site
investigation and file reports with the DEP. In February,
1998 a Phase II report was submitted to the DEP and in March
1998 a Phase III report was submitted that recommended
continued monitoring of the site for the next five years.
The cost of such monitoring over the next five years is not
expected to materially exceed the $4,600 that the Company
has recorded as a liability in the financial statements.
NOTE 7. EARNING PER SHARE:
The Company adopted Statement of Financial Accounting
Standards
No. 128 (SFAS No. 128), "Earnings per Share", effective with
the quarter ended December 31, 1997. SFAS No. 128 changes
the method of computing earnings per share and requires that
they be presented on both a basic and diluted basis. In
accordance with SFAS No. 128 earnings per share for the
periods ended June 30, 1997 have been restated.
The following data show the amounts used in computing
earnings per share
(EPS) and the effects on income and the weighted average
number of
shares of dilutive potential common stock.
Nine Months ended
June 30, 1998
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $526,264
2,128,156 $0.25
Dilutive effect of potential common
Stock:
Stock options -
43,546
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $526,264
2,171,702 $0.24
Nine Months ended
June 30, 1997
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $723,138
2,047,699 $0.35
Dilutive effect of potential common
Stock:
Stock options -
18,791
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $723,138
2,066,490 $0.35
-8-
NOTE 7. EARNING PER SHARE: (continued)
Quarter ended June
30, 1998
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $180,280
2,129,198 $0.08
Dilutive effect of potential common
Stock:
Stock options -
17,737
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $180,280
2,146,935 $0.08
Quarter ended June
30, 1997
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $161,472
2,062,867 $0.08
Dilutive effect of potential common
Stock:
Stock options -
34,217
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $161,472
2,097,084 $0.08
-9-
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial
Condition
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED JUNE 30, 1998 COMPARED TO
FISCAL QUARTER ENDED JUNE 30, 1997
For the quarter ended June 30, 1998, consolidated sales
were $2,302,000, a 1.1% increase over the same quarter of
fiscal 1997. Sales of the Webstone division increased 14.1%
over the same quarter of fiscal 1997, reflecting the
addition of more product lines and the contribution to
revenue of the retail distribution group which began
operations in April, 1998. Sales of the Valve division
decreased 7.8% from sales in the corresponding quarter of
fiscal 1997, as delays in introducing new product lines
resulted in deferral of orders and sales. These new product
lines were introduced during the months of June and July
fiscal 1998, and management expects that these lines will
begin to make a significant contribution to revenue as
production and sales gain momentum.
Gross profit margins for the quarter ended June 30,
1998 improved to 36.3% from 33.6% in the corresponding
quarter of fiscal 1997, reflecting a favorable change in
product mix. Selling and administrative expenses as a
percentage of revenue increased from 21.3% in the
corresponding quarter of fiscal 1997 to 22.5% in the quarter
ended June 30, 1998. Net earnings for the most recent
quarter increased to $180,000 ($.08 per share) compared to
$161,500 ($.08 per share) reported for the corresponding
quarter in fiscal 1997.
NINE MONTH PERIOD ENDED JUNE 30, 1998 COMPARED TO
NINE MONTH PERIOD ENDED JUNE 30, 1997
For the nine months ended June 30, 1998, consolidated
sales were $7,202,000, an 11.4% decrease from $8,139,000
consolidated sales for the corresponding period of fiscal
1997, primarily as a result of lower revenues in the Valve
division. For the nine month period, revenues of the Valve
division decreased 22.1% and revenues of the Webstone
division increased 12.3% compared to the corresponding
periods of fiscal 1997. The Webstone division has had sales
increases in line with management forecasts in each of the
first three quarters of fiscal 1998, as both wholesale and
retail operations have grown. While revenues of the Valve
division for the nine month period have declined, there has
been a noticeable improvement in new orders since the spring
of 1998, resulting in a substantial increase in backlog from
June 30, 1997 ($385,000) to June 30, 1998 ($1,033,000).
Many of these orders are scheduled for delivery in the last
quarter of fiscal 1998 and the first two quarters of fiscal
1999.
For the nine months ended June 30, 1998, gross profit
margins were 35%, compared to 34.2% for the corresponding
period of fiscal 1997, while selling and administrative
expenses increased as a percentage of revenue to 22% during
the first nine months of fiscal 1998, compared to 18.8%
during the corresponding period of fiscal 1997. The
increase in selling and administrative expenses as a
percentage of revenues was due
- 10 -
to higher professional fees. As a result, income from
operations declined to 13% of revenue in the first nine
months of fiscal 1998, compared to 15.9% in fiscal 1997.
Net earnings for the nine month period ended June 30, 1998,
were $526,300 ($.24 per share), compared to $723,000 ($.35
per share) for the corresponding period in fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has funded operations
through earnings and bank borrowings. At June 30, 1998 the
Company had net working capital of approximately $4,379,000,
including approximately $113,000 in cash. The Company also
has a line of credit of $1,750,000 with BankBoston
collateralized by substantially all of the assets. As of
June 30, 1998 approximately $740,000 had been drawn under
that credit line, which bears interest at a rate equal to
the bank's prime rate plus 1/2%. The Company believes that
its working capital and cash position, together with the
line of credit, provide sufficient liquidity to handle the
normal working capital requirements of its business.
During the first nine months of fiscal 1998, operating
activities produced $280,000 of cash. The major sources of
cash were net income of $526,000 and depreciation and
amortization of $187,000. The major uses of cash were a
reduction in accrued expenses of $124,000, an increase in
accounts receivable of $77,000, a reduction in accounts
payable of $62,000, and a reduction in income taxes payable
of $53,000.
The Company invested approximately $210,000 in
property and equipment during the nine months ended June 30,
1998, compared to $105,000 during the corresponding period
of the prior year. This additional investment was required
to enable the Company to produce new product lines for the
Valve division and to improve the production of existing
manufactured product lines.
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's results of operations have not been
materially affected by seasonality.
YEAR 2000
The Company has completed its assessment of the
ability of its own information technology systems [and non-
IT systems] to process information involving the Year 2000
and beyond accurately. The Company estimates that the total
cost to address this "Year 2000" problem for its internal
systems is approximately $50,000, which will be paid out of
working capital and expensed currently. As of June 30,
1998, the Company had completed approximately 60% of this
work. The Company to date has only been able to obtain a
limited amount of information from suppliers and customers
as to the possible impact of Year 2000 problems on its
dealings with them.
- 11 -
FORWARD LOOKING INFORMATION
Information contained in this Form 10-QSB contains
certain "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, that
address such matters as new product introductions and
projected future sales. These statements can be identified
by the use of forward looking terminology such as "expect",
"anticipate", "believe", "intend", "estimate" or other
comparable terminology. All forward looking statements
involve risks and uncertainties, and actual results could
differ materially from those set forth in the forward
looking statements. Some of the principal factors which
could affect the Company's future operations include the
loss of or decline in level of orders from major customers,
delays in introducing new products, the failure of the
market to accept new products, changes in general economic
conditions, and unanticipated Year 2000 problems.
- 12 -
PART II - OTHER INFORMATION
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 June 30, 1998.
- 13 -
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 14, 1998
GODDARD INDUSTRIES, INC.
by/s/Saul I. Reck
Saul I. Reck, President
Chief Executive Officer
and Principal Financial
Officer