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 January 2, 1999 __ 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 January 2, 1999 Common Stock, $.01 par value 2,129,982 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 - January 2, 1999 and October 3, 1998 3 Consolidated Statement of Income - Three Months Ended January 2, 1999 and December 31, 1997 4 Consolidated Statement of Cash Flows - Three Months Ended January 2, 1999 and December 31, 1997 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 12 -2- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET January 2, October 3, 1999 1998 (UNAUDITED) AUDITED ASSETS (ALL PLEDGED, NOTE 4) CURRENT ASSETS: Cash $ 45,819 $ 283,473 Accounts receivable, net of allowances 1,166,942 1,174,946 Inventories (Note 3) 3,413,724 3,410,767 Prepaid expenses and taxes 15,206 27,184 Refundable taxes on income - 92,723 Deferred income taxes (Note 5) 113,400 111,000 TOTAL CURRENT ASSETS 4,755,091 5,100,093 PROPERTY, PLANT AND EQUIPMENT, at cost 4,742,236 4,694,485 Less - Accumulated depreciation -3,146,146 - -3,079,727 1,596,090 1,614,758 OTHER ASSETS: Excess of cost of investment in subsidiaries over equity in net assets acquired 9,929 10,868 Deferred income taxes - long term(Note 5)133,000 131,000 TOTAL OTHER ASSETS 142,929 141,868 TOTAL ASSETS $6,494,110 $6,856,719 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Current maturities of long-term debt (Note 4) $ 190,000 $ 184,000 Accounts payable 206,100 289,775 Accrued expenses 246,765 457,406 Accrued environmental costs (Note 6) - 4,648 Deferred compensation 60,000 42,500 Income taxes payable 9,359 - - TOTAL CURRENT LIABILITIES 712,224 978,329 LONG-TERM DEBT, net of current maturities (Note 4) 136,593 377,515 DEFERRED COMPENSATION 491,000 508,500 SHAREHOLDERS' EQUITY: Common stock - par value $.01 per share, authorized 3,000,000 shares, issued and outstanding 2,129,982 shares. 21,299 21,299 Additional paid-in capital 477,923 477,923 Retained earnings 4,655,071 4,493,153 TOTAL SHAREHOLDERS'EQUITY 5,154,293 4,992,375 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,494,110 $6,856,719 -3- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) FOR THE THREE MONTHS ENDED January 2, December 31, 1999 1997 NET SALES $2,392,171 $2,529,264 COST OF SALES 1,519,722 1,624,072 GROSS PROFIT 872,449 905,192 SELLING AND ADMINISTRATIVE EXPENSES 594,233 562,977 INCOME FROM OPERATIONS 278,216 342,215 OTHER INCOME (EXPENSE): Interest expense -7,905 - -17,804 Other income, net 4,007 8,285 TOTAL OTHER INCOME (EXPENSE) -3,898 - -9,519 INCOME BEFORE INCOME TAXES 274,318 332,696 PROVISION FOR INCOME TAXES 112,400 136,000 NET INCOME $161,918 $196,696 EARNINGS PER SHARE (Note 7) Basic $ 0.08 $ 0.09 Diluted $ 0.08 $ 0.09 -4- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED January 2, December 31, 1999 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $161,918 $196,696 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 67,358 60,942 Deferred income taxes -4,400 - -4,400 Changes in assets and liabilities: Accounts receivable 8,004 21,461 Refundable taxes on income 92,723 - - Inventories -2,957 - -29,551 Prepaid expenses and other 11,978 - -9,563 Accounts payable -83,675 - -88,550 Accrued expenses -210,641 - -214,387 Accrued environmental costs -4,648 - -9,554 Income taxes payable 9,359 15,400 Total Adjustments -116,899 - -258,202 NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 45,019 - -61,506 CASH FLOWS FROM INVESTING ACTIVITIES: Property,plant and equipment additions -47,751 - -110,768 CASH FLOWS FROM FINANCING ACTIVITIES: Increase in long-term debt 550,000 861,000 Repayments of long-term debt -784,922 - -735,322 Issuance of common stock - 1,000 NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES -234,922 126,678 NET INCREASE (DECREASE) IN CASH -237,654 - -45,596 CASH AND EQUIVALENTS - BEGINNING 283,473 82,943 CASH AND EQUIVALENTS - ENDING $ 45,819 $ 37,347 CASH PAID DURING THE PERIOD: Interest $ 7,694 $ 19,176 Income taxes $ 15,000 $125,000 -5- GODDARD INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 2, 1999 (UNAUDITED) NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Reference is made to the financial statements included in the Annual Report for the year ended October 3, 1998 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: January 2, October 3, 1999 1998 Finished goods $2,850,615 $2,847,658 Work in process 139,945 139,945 Raw materials 423,164 423,164 $3,413,724 $3,410,767 The following factors were taken into consideration in determining inventory values: Goddard Valve Corp. - January 2, 1999 - $2,121,467. (estimated) and October 3, 1998 - $2,066,224. Interim inventories were valued by management using the gross profit method. Webstone Company, Inc. - January 2, 1999 - $1,292,257. (estimated) and October 3, 1998 - $1,344,543. 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 January 2, 1999 the effective interest rate was 8.25%. 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 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 January 2, 1999 long-term obligations consisted of the following: LONG-TERM CURRENT Revolving line of credit $ 50,000 $ - Capital lease obligations for machinery, payable in monthly installments of $12,080, through 2000, with imputed interest rate of approximately 8.5% 136,593 190,000 $ 186,593 $190,000 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: January 2, October 3, 1999 1998 Deferred tax asset Deferred compensation $ 220,400 $ 220,400 Inventory valuation 69,000 68,600 Accrued salaries 9,300 9,300 Environmental matters 1,900 1,900 Bad debts 16,100 14,100 316,700 314,300 Depreciation 70,300 72,300 $ 246,400 $ 242,000 Management does not believe that any valuation allowance is necessary. -7- NOTE 6. ENVIRONMENTAL MATTER The results of a site assessment at the Company's headquarters 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. As required by law, the Company notified the Massachusetts Department of Environmental Protection (DEP). In 1995, the Company received a Tier 1 Transition Classification and Permit Statement Cover Letter designating the site as a Tier 1C Site under the Massachusetts Contingency Plan. Those response actions culminated in the filing of a Class "C" Response Action Outcome Statement with the DEP in September 1998. Based upon the information presently available, periodic monitoring is required, the cost of which is not expected to be significant. NOTE 7. EARNING PER SHARE: 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. Quarter ended January 2, 1999 Income Common Shares EPS Basic EPS: Income available to common shareholders $161,918 2,126,649 $.08 Dilutive effect of potential common Stock: Stock options - 12,588 Diluted EPS: Income available to common shareholders after assumed exercise of dilutive securities $161,918 2,139,237 $.08 Quarter ended December 31, 1997 Income Common Shares EPS Basic EPS: Income available to common shareholders $196,696 2,126,670 $.09 Dilutive effect of potential common Stock: Stock options - 41,638 Diluted EPS: Income available to common shareholders after assumed exercise of dilutive securities $196,696 2,168,308 $.09 NOTE 8. RECLASSIFICATIONS Certain amounts in the 1997 financial statements have been reclassified to conform with the 1998 presentation with no effect on previously reported net income or retained earnings. -8- PART I - FINANCIAL INFORMATION Item 2 - Management's Discussion and Analysis of Financial Condition RESULTS OF OPERATIONS FISCAL QUARTER ENDED JANUARY 2, 1999 COMPARED TO FISCAL QUARTER ENDED DECEMBER 31, 1997 Consolidated net sales for the three months ended January 2, 1999 were $2,392,000 with net income of $161,900, or $.08 per share, compared with net sales of $2,529,000 and consolidated net income of $196,700, or $.09 per share, in the same period one year earlier. Net sales of Webstone - the plumbing supplies division - were up 5.6% over the same quarter last year while net sales at Goddard Valve Corp. - the cryogenic valve division - were 11.6% lower than the same quarter last year. The lower sales of cryogenic valves reflect continuation of lower demand in the cryogenic industry as a whole, which has been impacted by the Asian economic situation. Gross profit improved from 35.8% of net sales in last year's first quarter to 36.5% this year, while SG&A expenses increased year on year largely as a result of costs associated with the transition in the position of President and Chief Executive Officer of Goddard Industries. LIQUIDITY AND CAPITAL RESOURCES The Company funds operations primarily through earnings and bank borrowings when required. At January 2, 1999, the Company had working capital of approximately $4,043,000 including $46,000 in cash. The Company continues its $1,750,000 line of credit with BankBoston, which is collateralized by substantially all of its assets. At January 2, 1999, approximately $50,000 had been drawn under that line of credit, which bears interest at a rate equal to the bank's prime rate plus 1/2 of 1%. During the 3 months ended January 2, 1999, the Company produced $45,000 of cash from its operations. The major sources of cash were net income ($162,000), depreciation and amortization ($67,000), and refundable taxes on income ($93,000). The major uses of cash were reduction in accrued expenses ($211,000), and reduction in accounts payable ($83,000). In the first quarter, the company invested $48,000 in property, plant and equipment versus $111,000 in the same period last year. Long term debt was reduced by $235,000. The Company believes that the amounts available under the line of credit should provide sufficient liquidity to handle its normal working capital requirements, although there can be no assurance that that will be the case. 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 its operations, bank borrowings, and other available sources. - 9 - PART I - FINANCIAL INFORMATION (continued) The Company's results of operations have not been materially effected by seasonality. YEAR 2000 With respect to the "Year 2000 problem," all of the Company's financial applications have been tested and the Company has concluded that they will be able to process information or logic involving the Year 2000 and beyond completely and accurately. The Company anticipates that work on its Valve Division's inventory, order processing and related applications will be Year 2000 compliant by the second quarter of fiscal 1999. Most of the Company's PC- based software is currently able to process information or logic involving the Year 2000 and beyond or performs functions that are not data-dependent. The Company is testing all of its personal computers to insure that the hardware and firmware is Year 2000 capable, and will perform upgrades as needed. The Company anticipates that this work will be completed by early in the fourth quarter of fiscal 1999. The Company has contacted its critical vendors and major customers with regard to the Year 2000 and is not yet aware of any major Year 2000 problems in its dealings with them. The Company will continue to follow up on these contacts to insure an uninterrupted flow of supplies and services into the new millennium. The Company's Webstone Division will be converting to a Year 2000 compliant hardware and software package rather than upgrading its existing software. The Company is in the process of evaluating packages and intends to select a package during the second quarter of fiscal 1999. The Company anticipates that the conversion process will be completed by the fourth quarter of fiscal 1999. As a contingency plan for converting to the new system, the Webstone Division's purchasing system, the only system that uses dates more than one month into the future, can be upgraded in a matter of weeks. The Company anticipates that it will be fully Year 2000 compliant by the end of fiscal 1999 and well before the end of calendar 1999. The Company has not yet prepared any contingency plan for dealing with a reasonable worst case scenario, but anticipates that it will do so by the fourth quarter of fiscal 1999. 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 - 10 - FORWARD LOOKING INFORAMTION (continued) introducing new products, the failure of the market to accept new products, changes in general economic conditions, and unanticipated Year 2000 problems. - 11 - 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 January 2, 1999. -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 February 16, 1999 GODDARD INDUSTRIES, INC. By:/s/Salvatore J. Vinciguerra -------------------------------- - --- Salvatore J. Vinciguerra, President