1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 July 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-4338
EAC INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
New York 21-0702336
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
282 PROSPECT STREET, NEW HAVEN, CT 06511
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(Address of principal executive offices) (Zip Code)
(203) 865-1661
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(Issuer's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1995
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Common Stock, par value $.10 per share 2,311,687 shares
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- INDEX -
PAGE(S)
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PART I. Financial Information:
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - July 31, 1995 (Unaudited)
and January 31, 1995 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Six and Three Months Ended July 31, 1995 and 1994 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six Months Ended July 31, 1995 and 1994 5.
Notes to Interim Consolidated Condensed Financial Statements (Unaudited) 6.
ITEM 2. Management's Discussion and Analysis or Plan of Operation 8.
PART II. Other Information 9.
SIGNATURES 10.
Page 2.
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PART I. FINANCIAL INFORMATION:
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
- ASSETS -
JULY 31, January 31,
1995 1995
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(UNAUDITED)
CURRENT ASSETS:
Cash $ 678,538 $ 988,507
Notes and accounts receivable - net of allowance for doubtful accounts
of $15,980 1,512,340 816,623
Inventories 411,016 518,320
Prepaid taxes and expenses 105,718 70,430
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TOTAL CURRENT ASSETS 2,707,612 2,393,880
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PROPERTY, PLANT AND EQUIPMENT, NET 559,262 499,885
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OTHER ASSETS:
Costs in excess of net assets acquired - net 308,584 317,800
Restrictive covenant - net 62,500 75,000
Deferred income taxes 510,000 510,000
Other assets 27,500 27,500
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908,584 930,300
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$ 4,175,458 $ 3,824,065
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Short-term debt - bank $ 200,000 $ 150,000
Accounts payable and accrued expenses 1,285,191 1,147,140
Long-term debt - current portion 4,885 4,349
Deferred income 75,264 41,238
Income taxes payable 19,029 500
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TOTAL CURRENT LIABILITIES 1,584,369 1,343,227
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LONG-TERM DEBT - NET OF CURRENT PORTION 489,668 492,168
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DEFERRED INCOME 37,636 137,968
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COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares authorized,
2,319,285 shares issued 231,929 231,929
Capital in excess of par value 10,504,380 10,504,380
Accumulated deficit (8,621,924) (8,835,007)
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2,114,385 1,901,302
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
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2,063,785 1,850,702
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$ 4,175,458 $ 3,824,065
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The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3.
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EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Six Months For The Three Months
Ended July 31, Ended July 31,
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1995 1994 1995 1994
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NET SALES $4,366,655 $3,245,691 $2,452,180 $1,786,234
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COSTS AND EXPENSES:
Cost of products sold 3,053,835 2,156,233 1,737,630 1,200,573
Selling, general and administrative expenses 1,169,237 907,294 613,917 512,623
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 4,223,072 3,063,527 2,351,547 1,713,196
---------- ---------- ---------- ----------
OPERATING EARNINGS 143,583 182,164 100,633 73,038
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OTHER INCOME (EXPENSES):
Interest expense (11,408) - (5,104) -
Interest and other income 99,437 33,604 22,771 17,099
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88,029 33,604 17,667 17,099
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EARNINGS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES 231,612 215,768 118,300 90,137
Income taxes, net of operating
loss carryforwards 18,529 22,000 17,396 4,000
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INCOME FROM CONTINUING OPERATIONS 213,083 193,768 100,904 86,137
Gain from discontinued operations - net
of income tax effect - 76,314 - 38,000
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NET INCOME $ 213,083 $ 270,082 $ 100,904 $ 124,137
========== ========== ========== ==========
INCOME PER SHARE (NOTE 2):
Continuing operations $ .09 $ .08 $ .04 $ .04
Discontinued operations - .04 - .01
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$ .09 $ .12 $ .04 $ .05
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The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 4.
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EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Six Months
Ended July 31,
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1995 1994
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 213,083 $ 270,082
Adjustments to reconcile net income to cash provided from (used by)
operating activities:
Depreciation and amortization 64,111 43,352
Amortization of deferred rental income (66,306) (20,620)
Gain on disposal of fixed assets (21,277) -
Net income from discontinued subsidiaries - (76,314)
Change in assets and liabilities:
(Increase) in accounts and notes receivable (695,717) (160,404)
Decrease in inventories 107,304 9,901
(Increase) in prepaid expenses (35,288) (7,404)
Increase (decrease) in accounts payable, accrued expenses and accrued
income taxes 156,580 (52,140)
Increase in other, net - 8,500
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NET CASH PROVIDED FROM (USED BY) OPERATING ACTIVITIES (277,510) 14,953
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 47,112 -
Capital expenditures (127,607) (21,150)
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NET CASH (USED BY) INVESTING ACTIVITIES (80,495) (21,150)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term debt 50,000 -
Payments of long-term debt (1,964) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 48,036 -
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (309,969) (6,197)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 988,507 1,024,232
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CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 678,538 $1,018,035
========= ==========
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 5.
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EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of EAC Industries, Inc.
(the "Company") and its subsidiaries contain all adjustments
necessary (consisting of normal recurring accruals or adjustments
only) to present fairly the Company's financial position as of July
31, 1995 and the results of its operations for the six and three
month periods ended July 31, 1995 and 1994, and cash flows for the
six month periods ended July 31, 1995 and 1994.
The accounting policies followed by the Company are set forth in Note
2 to the Company's consolidated financial statements included in its
Annual Report on Form 10-KSB for the year ended January 31, 1995,
which is incorporated herein by reference. Specific reference is
made to this report for a description of the Company's securities and
the notes to consolidated financial statements.
The results of operations for the six and three month periods ended
July 31, 1995 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares and common equivalent shares
outstanding during each period presented.
NOTE 3 - ACQUISITION:
On December 12, 1994, the Company, through a newly formed subsidiary,
FPP Acquisition Corp. ("Flexible"), acquired certain of the assets of
Flexible Printed Products, Inc. The cost of this acquisition,
$340,000, exceeded the fair market value of the assets acquired by
$140,000 which amount was assigned to goodwill and is being amortized
on a straight line basis over 15 years. In connection with this
acquisition, the Company also entered into an employment agreement
with the President of Flexible which includes a non-compete agreement
during the period of employment. Pursuant to such agreement, the
Company paid $75,000 which amount is being amortized on a straight
line basis over three years. The acquisition was accounted for using
the purchase method of accounting.
Page 6.
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EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 - ACQUISITION (CONTINUED):
The Company's consolidated statements of operations include the
revenues and expenses of Flexible for the six and three month period
ended July 31, 1995. The following pro forma results for the Company
were developed assuming the acquisition had occurred at the beginning
of the earliest period presented (February 1, 1994).
Six Months Ended Three Months Ended
July 31, 1994 July 31, 1994
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(unaudited) (unaudited)
Net sales $3,855,314 $2,087,040
Net earnings 403,440 175,275
Earnings per share $ .17 $ .08
This unaudited pro forma sales and earnings information is not
necessarily indicative of the combined results that would have
occurred had the acquisition actually taken place on February 1,1994,
nor are they necessarily indicative of the results that may occur in
the future.
NOTE 4 - CONTINGENCY:
Goodren has withdrawn from participating in the District 65 Union
Pension Plan (the "Plan"). The withdrawal has resulted in the
assessment of a withdrawal liability owed to the Plan by Goodren.
The exact amount of the withdrawal liability is unknown at this time,
however, in February 1994, the Plan, based on a 1993 plan year
valuation, estimated the potential withdrawal liability to be
approximately $480,000. Accordingly, the Company has accrued the
$480,000 liability which counsel to the Company believes would be
payable over a period of approximately 22 years beginning
approximately one year from the withdrawal date. The Company has
reflected this liability as long-term debt.
Additionally, Goodren is potentially liable for its proportionate
share (approximately $138,000) of the shortfall between the District
65 Union Pension Plan's contributions and the federal minimum funding
standards which the Plan's actuary estimates to be an aggregate of
$34 million. Goodren is also potentially liable to the Internal
Revenue Service ("IRS") for excise taxes under paragraph 4971 of the
Internal Revenue Code. The Plan is requesting a waiver from the IRS
for both the shortfall and the excise taxes. It will be several
months before the IRS will issue its decision. If a waiver is
denied, Goodren must pay its proportionate share of the shortfall,
and possibly a 5% excise tax on the amount of the deficiency for each
plan year in violation. To the extent the deficiencies are not
timely corrected, the excise tax becomes 100% of the accumulated
funding deficiency. The Company believes that any such liability
will be satisfied through legal remedies against the plan as well as
the Plan's insurance coverage and therefore has not provided for this
potential liability.
Page 7.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
RESULTS OF OPERATIONS:
Sales for the three months ended July 31, 1995 as compared to the three months
ended July 31, 1994 increased to $2,452,000 from $1,786,000, an increase of
$666,000 or 37.3%. For the six months ended July 31, 1995 as compared to July
31, 1994, sales increased by $1,121,000 or 34.5% to $4,367,000 from $3,246,000.
Management attributes these increases primarily to its' new subsidiary,
Flexible, which generated net sales of $693,000 for the six months ended July
31, 1995. This subsidiary was not part of the consolidated group for the prior
year. The balance of the increases were due to increased sales to existing
customers.
For the three and six month periods ended July 31, 1995, the Company generated
gross profits of 29.1% and 30.1%, respectively. For the comparative periods of
the prior year, the gross profit percentages were 32.8% and 33.6%,
respectively. Management attributes the decrease in overall gross margins to
the loss of higher gross margin sales to one significant customer of Goodren
and to the Company having to be more competitive in its marketplace. It should
be noted that the Company's new Flexible subsidiary reflected a gross profit of
approximately 40% on its sales of $693,000 for the six month period ended July
31, 1995, which helped reduce the overall decline in gross profit. Without
Flexible the Company's gross margin was 28.2% as compared to the 30.1%
mentioned above, for the six months ended July 31, 1995.
Selling, general and administrative costs were $614,000 and $1,169,000 for the
three and six months ended July 31, 1995 as compared to $513,000 and $907,000
for the comparable periods of the prior year. The increases in costs when
comparing the three and six month periods were $101,000 and $262,000,
respectively. The primary reason for the increase in operating costs was the
overhead of the new Flexible subsidiary which had not yet been acquired in the
prior period. Flexible's selling, general and administrative expenses for the
six months ended July 31, 1995 aggregated approximately $164,000.
Income from continuing operations increased from $86,000 to $101,000 when
comparing the three months ended July 31, 1994 and 1995, respectively. Income
from continuing operations increased from $194,000 to $213,000 when comparing
the six months ended July 31, 1994 and 1995, respectively. These increases
were a direct result of the increases in sales, net of the reduced gross
profits and increases in overhead, mentioned above.
Net income for the three months ended July 31, 1995 as compared to July 31,
1994 was $101,000 ($.04 per share) and $124,000 ($.05 per share), respectively.
For the six months ended July 31, 1995 as compared to the six months ended July
31, 1994, net income was $213,000 ($.09 per share) and $270,000 ($.12 per
share), respectively. The decreases in net income and income per share were
due to the fact that the 1994 periods benefitted from a gain from discontinued
operations. This gain aggregated $38,000 and $76,314 for the three and six
months ended July 31, 1994, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
At July 31, 1995 the Company had working capital of $1,123,000, cash of
$678,000, a current ratio of 1.7:1 and a debt to net worth ratio of 1.02:1. At
its year ended January 31, 1995, working capital was $1,051,000, cash was
$989,000 and there was a debt to net worth ratio of 1.07:1.
The Company has no additional material capital commitments at the present time
and none are contemplated.
Management of the Company believes that its present resources and the resources
it hopes to generate from operations, will be sufficient for at least the
ensuing twelve month period.
Page 8.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings:
None
Item 2. Changes in Securities:
None
Item 3. Defaults upon Senior Securities:
None
Item 4. Submission of Matters to a Vote of Security Holders:
(a) The Registrant held its Annual Meeting of Stockholders on
August 2, 1995.
(b) Four directors were elected at the Annual Meeting to serve
until the Annual Meeting of Stockholders in 1996. The names
of these Directors and votes cast in favor of their election
and votes withheld are as follows:
Names Yes No
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Peter B. Fritzsche 2,005,430 40,141
John B. Millet, Jr. 2,011,693 33,878
E. Donald McKenzie, Jr. 2,011,693 33,878
P. Bartley Fritzsche 1,999,878 45,693
(c) In addition to the election of Directors, the stockholders
ratified the adoption of the Company's 1995 Stock Option
Plan. The voting summary is as follows:
Yes No Abstain
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1,224,435 106,982 32,794
Item 5. Other Information:
None
Item 6. Exhibits and Reports:
(a) Exhibits:
(11) Computation of Earnings per Common Share - See Exhibit 11
(27) Financial Data Schedule
Page 9.
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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.
EAC INDUSTRIES, INC.
Registrant
/s/ Peter B. Fritzsche
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Date: September 11, 1995 Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
Page 10.
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EXHIBIT INDEX
Exhibit No. Description
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EX-11 Computation of Earnings per Common Share
EX-27 Financial Data Schedule