1
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 July 31, 1997
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)
22 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, 1997
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, 1997 (Unaudited)
and January 31, 1997 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Six Months Ended July 31, 1997 and 1996 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six Months Ended July 31, 1997 and 1996 5.
Notes to Interim Consolidated Condensed Financial Statements (Unaudited) 6. - 7.
ITEM 2. Management's Discussion and Analysis or Plan of Operation 8. - 10.
PART II. Other Information 11.
SIGNATURES 12.
EXHIBITS:
Exhibit 11 - Earnings Per Share 13.
Exhibit 27 - Financial Data Schedule 14.
Page 2.
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PART I. FINANCIAL INFORMATION:
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
- ASSETS (NOTE 2) -
JULY 31, January 31,
1997 1997
---- ----
(UNAUDITED)
CURRENT ASSETS:
Cash $ 463,808 $ 594,412
Notes and accounts receivable - net of allowance for doubtful accounts
of $45,566 at July 31, and January 31, 1997, respectively 739,534 666,379
Inventories 336,244 300,238
Prepaid taxes and expenses 69,560 50,907
------------ ------------
TOTAL CURRENT ASSETS 1,609,146 1,611,936
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 646,302 710,166
------------ ------------
OTHER ASSETS:
Costs in excess of net assets acquired - net 432,985 453,601
Deferred income taxes 510,000 510,000
Other assets 29,182 29,182
------------ ------------
972,167 992,783
------------ ------------
$ 3,227,615 $ 3,314,885
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Bank line of credit (Note 2) $ 35,000 $ --
Accounts payable 257,360 247,152
Accrued expenses 568,133 579,441
Long-term liabilities - current portion 91,558 223,770
Income taxes payable 1,200 5,161
------------ ------------
TOTAL CURRENT LIABILITIES 953,251 1,055,524
------------ ------------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION 503,778 440,734
------------ ------------
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 (8,915,123) (8,867,082)
------------ ------------
1,821,186 1,869,227
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
------------ ------------
1,770,586 1,818,627
------------ ------------
$ 3,227,615 $ 3,314,885
============ ============
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 Three Months For The Six Months
Ended July 31, Ended July 31,
1997 1996 1997 1996
---- ---- ---- ----
NET SALES $ 1,429,473 $ 1,742,596 $ 3,172,129 $ 3,448,400
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 1,032,142 1,381,521 2,272,395 2,575,746
Selling, general and administrative expenses 455,097 461,217 931,133 1,010,470
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,487,239 1,842,738 3,203,528 3,586,216
----------- ----------- ----------- -----------
OPERATING (LOSS) (57,766) (100,142) (31,399) (137,816)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (8,629) (2,296) (19,185) (2,439)
Interest and other income 407 26,461 2,543 48,946
----------- ----------- ----------- -----------
(8,222) 24,165 (16,642) 46,507
----------- ----------- ----------- -----------
(LOSS) BEFORE INCOME TAXES (65,988) (75,977) (48,041) (91,309)
Income taxes, net of operating loss carryforwards -- -- -- --
----------- ----------- ----------- -----------
NET (LOSS) $ (65,988) $ (75,977) $ (48,041) $ (91,309)
=========== =========== =========== ===========
(LOSS) PER SHARE (NOTE 3) $ (.03) $ (.03) $ (.02) $ (.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,
1997 1996
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (48,041) $ (91,309)
Adjustments to reconcile net (loss) to cash provided from operating activities:
Depreciation and amortization 81,530 53,424
Amortization of deferred rental income -- (37,634)
Change in assets and liabilities:
(Increase) decrease in accounts and notes receivable (73,155) 66,826
(Increase) decrease in inventories (36,006) 120,292
(Increase) in prepaid expenses and other assets (22,614) (2,081)
Increase (decrease) in accounts payable, accrued expenses and accrued
income taxes 107,997 (46,569)
--------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 9,711 62,949
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,520) (12,853)
--------- ---------
NET CASH (USED BY) INVESTING ACTIVITIES (1,520) (12,853)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from bank line of credit 35,000 --
Payments of long-term debt (173,795) (13,579)
--------- ---------
NET CASH (USED BY) FINANCING ACTIVITIES (138,795) (13,579)
--------- ---------
NET (DECREASE ) INCREASE IN CASH AND CASH EQUIVALENTS (130,604) 36,517
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 594,412 628,380
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 463,808 $ 664,897
========= =========
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, 1997, the results of its operations for
the three and six month periods ended July 31, 1997 and 1996 and
cash flows for the six month periods ended July 31, 1997 and
1996.
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, 1997, 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 three and six month periods
ended July 31, 1997 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - BANK LINE OF CREDIT:
In May 1997, Goodren entered into an agreement with its bank
providing for a line of credit in the aggregate amount of
$500,000 through March 31, 1998. Interest is payable at 2% above
the bank's prime rate. Borrowings under this line are secured by
all assets of Goodren, and guaranteed by EAC, Athena and
Flexible.
NOTE 3 - 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.
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 - Earnings Per Share, which pronouncement
changes the method for calculating earnings per share. SFAS 128
requires presentation of "basic " and "diluted" earnings per
share as opposed to "primary" and "fully diluted" earnings per
share, and is effective for periods ending after December 15,
1997. Early adoption is not permitted. Management does not
believe that SFAS 128 will result in earnings per share that is
materially different from that currently reported.
Page 6.
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EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - CONTINGENCY:
Goodren has withdrawn from participating in the District 65
Union Pension Plan (the "Plan"). This withdrawal resulted in the
assessment of a withdrawal liability owed to the Plan by
Goodren. During the year ended January 31, 1995, the Company
accrued a reserve for an estimated liability of $560,000 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. On September 30, 1996, the Company and
Goodren entered into a Settlement Agreement with the Trustees of
the union pension plan whereby Goodren's pension fund liability
was reduced to $360,000 payable in 80 equal quarterly payments
of $8,752 including annual interest at a rate of 8%. The Company
has applied for a hardship case pursuant to the Settlement
Agreement, whereby the Company would reduce its quarterly
obligations to $3,000 until such time as the Company is out of
hardship. Goodren is also potentially liable to the Internal
Revenue Service ("IRS") for excise taxes of approximately $5,000
under paragraph 4971 of the Internal Revenue Code.
Page 7.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
INTRODUCTION:
EAC Industries, Inc., the Company, is a holding company with
three operating subsidiaries: Goodren Products Corporation
("Goodren"), Athena Packaging, Inc. ("Athena") and Flexible
Printed Products, Inc. ("Flexible"). Goodren designs and prints
point-of-purchase advertising displays and wall decorations on
semi-durable plastic. Athena produces printed, laminated
embossed and hot-stamped labels, wraps, seals and decals for the
cosmetics, pharmaceutical and health and beauty aids industries.
Flexible produces and prints on plastic, pre-cure in-mold heat
transfer labels for the identification and decoration of rubber
and silicone hoses, belts and tire patches.
The financial information presented herein includes: (I)
Consolidated condensed balance sheets as of July 31, 1997 and
January 31, 1997; (ii) Consolidated condensed statements of
operations for the three and six month periods ended July 31,
1997 and 1996 and (iii) Consolidated condensed statements of
cash flows for the six month periods ended July 31, 1997 and
1996.
RESULTS OF OPERATIONS:
Consolidated sales for the three-month period ended July 31,
1997 were $1,430,000 as compared to $1,743,000 for the
comparable period of the prior year, reflecting a decrease of
$313,000 or 18%. Consolidated sales for the six-month period
ended July 31, 1997 were $3,172,000 as compared to $3,448,000
for the comparable period of the prior year, reflecting a
decrease of $276,000 or 8%. The primary reason for the decrease
in sales was due to a decrease in the sales generated by the
Goodren group, which now includes Athena.
Combined sales for Goodren and Athena for the three and six
month periods ended July 31, 1997 were $1,050,000 and
$2,404,000, respectively. For the comparable periods of the
previous year (prior to the acquisition of Athena by EAC), sales
were $1,415,000 and $2,746,000, respectively. The decrease of
$365,000 for the three-month period is due to a 60% drop in
Goodren's sales to the wall decoration segment of its business
net of a 38% increase in point-of-purchase sales. The decline in
sales for the six-month period of $342,000 was due to decreased
sales in both the point of purchase (31%) and wall decoration
(26%) segments of Goodren's business.
Sales for the Company's Flexible subsidiary for the three and
six month periods ended July 31, 1997 were $379,000 and
$769,000, respectively, as compared to $328,000 and $702,000,
respectively, for the same periods of the prior year. Management
believes that these increases were due to additional sales to
existing customers.
Consolidated gross profit as a percentage of sales for the
three-month periods ended July 31, 1997 and 1996 was 27.8% and
20.7%, respectively. Consolidated gross profit as a percentage
of sales for the six-month periods ended July 31, 1997 and 1996
was 28.4% and 25.3%, respectively.
Page 8.
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Combined gross profit percentage for Goodren and Athena for the
three and six month periods ended July 31, 1997 were 24.1% and
25.4%, respectively. For the comparable periods of the previous
year (prior to the acquisition of Athena by EAC), gross profit
percentages of Goodren were 19.6% and 24.5%, respectively.
Management attributes this improvement in the gross profit
percentages to lower material costs and reduced manufacturing
labor costs associated with the reduced sales as mentioned
above.
Gross profit percentage realized by Flexible for the three and
six month periods ended July 31, 1997 were 38.2% and 37.5%,
respectively, as compared to 25.7% and 29.1%, respectively, for
the same periods of the prior year. Management believes that the
increased gross profit percentages experienced by Flexible were
largely due to a decline in raw materials cost.
Consolidated selling, general and administrative expenses
decreased by $79,000 or 7.8% when comparing the six month
periods ended July 31, 1997 to the same period in 1996. The
Company reflected a small decrease of approximately 1% in
selling, general and administrative expenses for the three-month
period ended July 31, 1997 when compared to the three-month
period ended July 31, 1996.
Selling, general and administrative expenses for the combined
operations of Goodren and Athena for the three and six month
periods ended July 31, 1997 were $293,000 and $582,000,
respectively. For the comparable periods of the prior year, such
expenses were $294,000 and $662,000, respectively. The Company
believes that this decrease is due a reduction in payroll and
related costs resulting from the decreased sales as discussed
above as well as the monitoring of costs more effectively.
Selling, general and administrative expenses for Flexible for
the three and six month periods ended July 31, 1997 were $82,000
and $164,000, respectively. For the comparable periods of the
prior year, such expenses were $100,000 and $216,000,
respectively. These decreases are attributable to the monitoring
of costs more effectively.
For the three months ended July 31, 1997 and 1996, the Company
reflected net losses of $65,988 ($.03 per share) and $75,977
($.03 per share), respectively. For the six months ended July
31, 1997 and 1996, the Company reflected net losses of $48,041
($.02 per share) and $91,309 ($.04 per share), respectively.
These decreases in the net loss were primarily due to the
decrease in cost of sales and reduced operating overhead net of
the decreases in sales as mentioned above.
LIQUIDITY AND CAPITAL RESOURCES:
At July 31, 1997, the Company's working capital was $656,000
compared to working capital of $556,000 at its year ended
January 31, 1997. Cash amounted to $464,000 at July 31, 1997
compared to $594,000 at January 31, 1997.
In May 1997, Goodren entered into an agreement with its bank
providing for a line of credit in the aggregate amount of
$500,000 through March 31, 1998. Interest is payable at 2% above
the bank's prime rate. Borrowings under this line are secured by
all assets of Goodren, and guaranteed by EAC, Athena and
Flexible.
Page 9.
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The Company is anticipating capital expenditures of
approximately $200,000, during the next year, in order to expand
the operations of Goodren, Athena and Flexible. Management
believes that these expenditures can be funded from existing
resources.
The Company believes that its cash flows from operations will be
sufficient to meet its financial requirements over the next
twelve months.
OTHER:
This report contains forward-looking statements and information
that is based on management's beliefs and assumptions, as well
as information currently available to management. When used in
this document, the words "anticipate," "estimate," "expect,"
"intend" and similar expressions are intended to identify
forward-looking statements. Although the Company believes that
the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations
will prove to be correct. Such statements are subject to certain
risks, uncertainties and assumptions. Should one or more of
these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated or expected. Among
the key factors that may have a direct bearing on the Company's
operating results are fluctuations in the economy, the degree
and nature of competition, the risk of delay in product
development and release dates and acceptance of, and demand for,
the Company's products.
Page 10.
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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 11.
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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 12, 1997 -----------------------------------------
Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
Page 12.
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EXHIBIT INDEX
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EXHIBIT DESCRIPTION
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(11) Computation of Earnings per Common Share
(27) Financial Data Schedule