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, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-4338
EAC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York 21-0702336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20 BLACKSTONE AVENUE, BRANFORD, CT 06405
(Address of principal executive offices) (Zip Code)
(203) 315-8020
(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
--- ---
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, 1996
- -------------------------------------- ----------------------------
Common Stock, par value $.10 per share 2,311,687 shares
2
- INDEX -
PAGE(S)
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PART I. Financial Information:
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - July 31, 1996 (Unaudited)
and January 31, 1996 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Six and Three Months Ended July 31, 1996 and 1995 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six and Three Months Ended July 31, 1996 and 1995 5.
Notes to Interim Consolidated Condensed Financial Statements (Unaudited) 6.
ITEM 2. Management's Discussion and Analysis or Plan of Operation 7.
PART II. Other Information 8.
SIGNATURES 9.
EXHIBITS:
Exhibit 11 - Earnings Per Share 10.
Exhibit 27 - Financial Data Schedule 11.
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,
1996 1996
----------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 664,897 $ 628,380
Notes and accounts receivable - net of allowance for doubtful accounts
of $38,578 and $45,980 at July 31, and January 31, 1996, respectively 929,305 996,132
Inventories 182,548 302,840
Prepaid taxes and expenses 103,730 101,649
----------- -----------
TOTAL CURRENT ASSETS 1,880,480 2,029,001
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 625,745 563,619
----------- -----------
OTHER ASSETS:
Costs in excess of net assets acquired - net 359,120 367,967
Deferred income taxes 510,000 510,000
Other assets 58,969 52,500
----------- -----------
928,089 930,467
----------- -----------
$ 3,434,314 $ 3,523,087
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 199,454 $ 246,897
Accrued expenses 546,633 571,960
Long-term liabilities - current portion 68,811 34,232
Deferred income 37,634 75,268
Income taxes payable 6,359 6,359
----------- -----------
TOTAL CURRENT LIABILITIES 858,891 934,716
----------- -----------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION 686,835 608,474
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
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 (8,797,121) (8,705,812)
----------- -----------
1,939,188 2,030,497
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
----------- -----------
1,888,588 1,979,897
----------- -----------
$ 3,434,314 $ 3,523,087
=========== ===========
The accompanying notes are an integral part of these consolidated 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,
---------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
NET SALES $3,448,400 $4,366,655 $1,742,596 $2,452,180
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of products sold 2,575,746 3,053,835 1,381,521 1,737,630
Selling, general and administrative expenses 1,010,470 1,169,237 461,217 613,917
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 3,586,216 4,223,072 1,842,738 2,351,547
---------- ---------- ---------- ----------
OPERATING EARNINGS (LOSS) (137,816) 143,583 (100,142) 100,633
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSES):
Interest expense (2,439) (11,408) (2,296) (5,104)
Interest and other income 48,946 99,437 26,461 22,771
---------- ---------- ---------- ----------
46,507 88,029 24,165 17,667
---------- ---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES (91,309) 231,612 (75,977) 118,300
Income taxes, net of operating loss carryforwards -- 18,529 -- 17,396
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (91,309) $ 213,083 $ (75,977) $ 100,904
========== ========== ========== ==========
INCOME (LOSS) PER SHARE (NOTE 2) $ (.04) $ .09 $ (.03) $ .04
========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated 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,
-------------------------
1996 1995
-------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(91,309) $ 213,083
Adjustments to reconcile net income to cash provided from operating activities:
Depreciation and amortization 53,424 64,111
Amortization of deferred rental income (37,634) (66,306)
Gain on disposal of fixed assets -- (21,277)
Change in assets and liabilities:
Decrease (increase) in accounts and notes receivable 66,826 (695,717)
Decrease in inventories 120,292 107,304
(Increase) in prepaid expenses and other assets (2,081) (35,288)
(Decrease) increase in accounts payable, accrued expenses and accrued
income taxes (46,569) 156,580
-------- ---------
NET CASH PROVIDED (UTILIZED) FROM OPERATING ACTIVITIES 62,949 (277,510)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets -- 47,112
Capital expenditures (12,853) (127,607)
-------- ---------
NET CASH (USED BY) INVESTING ACTIVITIES (12,853) (80,495)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in short-term debt -- 50,000
Payments of long-term debt (13,579) (1,964)
-------- ---------
NET CASH (USED BY) PROVIDED FINANCING ACTIVITIES (13,579) 48,036
-------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 36,517 (309,969)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 628,380 988,507
-------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $664,897 $ 678,538
======== =========
OTHER:
During the current period the company leased certain new equipment which has
been reflected as a capitalized lease.
The accompanying notes are an integral part of these consolidated 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, 1996 and the results of its operations for the six and three
month periods ended July 31, 1996 and 1995, and its cash flows for
the six month periods ended July 31, 1996 and 1995.
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, 1996,
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, 1996 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 - CONTINGENCY:
Goodren, in early 1995, withdrew 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, the Plan, based on a 1994 plan year valuation, estimated the
potential withdrawal liability to be approximately $560,000.
Accordingly, the Company accrued a reserve for the $560,000 liability
which counsel to the Company believed would be payable over a period
of approximately 22 years beginning approximately one year from the
withdrawal date. In March of 1996, the Company signed an agreement
with the Plan whereby they will make quarterly payments of $7,548.
These payments shall terminate on the date the Plan issues a final
assessment to the Company of either a withdrawal or a minimum funding
contribution.
Additionally, Goodren is potentially liable for its proportionate
share (approximately $154,000) 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 has provided a reserve for this potential
liability, which is included in long-term liabilities.
Page 6.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
RESULTS OF OPERATIONS:
Sales for the six month period ended July 31, 1996 were $3,448,000
as compared to $4,367,000 for the same period of the prior year,
reflecting a decrease of $919,000 or 21%.
Sales for the three month period ended July 31, 1996 were
$1,743,000 as compared to $2,452,000 for the comparable period of
the prior year, reflecting a decrease of $709,000 or 29%.
Management attributes these decreases primarily to a decline in
sales to certain customers. Management does not believe this is a
permanent trend.
Costs of sales for the six month period ended July 31, 1996 was
$2,576,000 (75% of sales) as compared to $3,054,000 (70% of sales)
for the same period of the prior year. Cost of sales for the three
month period ended July 31, 1996 was $1,382,000 (79% of sales) as
compared to $1,738,000 (70% of sales) for the same period of the
prior year. This increase in cost of sales as a percent of sales
for the current periods is primarily due to higher raw material
costs and the effect that lower sales have on fixed costs.
Selling, general and administrative expenses decreased from
$1,169,000 to $1,010,000 ($159,000 or 14%) for the six month
period ended July 31, 1996 when compared to the same period of the
prior year. For the three month ended July 31, 1996, selling,
general and administrative expenses decreased from $614,000 to
$461,000 ($153,000 or 25%) when compared to the same period of the
prior year. The Company believes that these decreases are due to
cost reduction programs which have been recently instituted.
For the six and three months ended July 31, 1996 the Company
reflected a net loss of $91,309 ($.04 per share) and $75,977 ($.03
per share), respectively. For the six and three months ended July
31, 1995 the Company reflected net income of $213,083 ($.09 per
share) and $100,904 ($.04 per share) respectively. These decreases
in earnings were primarily due to the reduction in sales and lower
gross profit margins mentioned above.
LIQUIDITY AND CAPITAL RESOURCES:
At July 31, 1996, the Company's working capital was $1,022,000
compared to a working capital of $1,094,000 at its year ended
January 31, 1996. Cash amounted to $665,000 at July 31, 1996
compared to $628,000 at January 31, 1996.
The Company has signed a letter of intent to acquire all of the
outstanding shares of Athena Packaging, Inc. This company produces
high quality labels for the cosmetics and other industries. The
anticipated purchase price is $350,000 and the closing is expected
to occur during the quarter ended October 31, 1996.
Management of the Company believes that its present resources and
the resources it hopes to generate from future profitable
operations, will be sufficient for at least the ensuing twelve
month period.
Page 7.
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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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
(11) Computation of Earnings per Common Share
(27) Financial Data Schedule
Page 8.
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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
-------------------------------------
Date: September 11, 1996 Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
Page 9.
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
11 Computation of Earnings per Common Share
27 Financial Data Schedule