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 October 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 October 31, 1997
- ---------------------------------------------------- --------------------------------------
Common Stock, par value $.10 per share 2,311,687 shares
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- INDEX -
PAGE(S)
PART I. Financial Information:
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets -
October 31, 1997 (Unaudited) and January 31, 1997 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Nine Months Ended October 31, 1997 and 1996 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Nine Months Ended October 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.
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PART I. FINANCIAL INFORMATION:
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
- ASSETS (NOTE 2) -
OCTOBER 31, January 31,
1997 1997
------------ ------------
(UNAUDITED)
CURRENT ASSETS:
Cash $ 594,775 $ 594,412
Notes and accounts receivable - net of allowance for doubtful accounts
of $45,566 at October 31 and January 31, 1997, respectively 839,945 666,379
Inventories 312,009 300,238
Prepaid taxes and expenses 82,844 50,907
------------ ------------
TOTAL CURRENT ASSETS 1,829,573 1,611,936
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 519,862 710,166
------------ ------------
OTHER ASSETS:
Costs in excess of net assets acquired - net 424,627 453,601
Deferred income taxes 510,000 510,000
Other assets 29,182 29,182
------------ ------------
963,809 992,783
------------ ------------
$ 3,313,244 $ 3,314,885
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 398,971 $ 247,152
Accrued expenses 683,647 579,441
Long-term liabilities - current portion 102,276 223,770
Income taxes payable 1,200 5,161
------------ ------------
TOTAL CURRENT LIABILITIES 1,186,094 1,055,524
------------ ------------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION 481,623 440,734
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 2 AND 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 (9,040,182) (8,867,082)
------------ ------------
1,696,127 1,869,227
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
------------ ------------
1,645,527 1,818,627
------------ ------------
$ 3,313,244 $ 3,314,885
============ ============
The accompanying notes are an integral part of these consolidated statements.
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EAC INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For The Three Months For The Nine Months
Ended October 31, Ended October 31,
------------------------------ ------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
NET SALES $ 1,447,492 $ 1,367,964 $ 4,619,621 $ 4,816,364
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 1,123,921 959,367 3,396,316 3,535,113
Selling, general and administrative expenses 465,478 402,111 1,396,611 1,412,581
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,589,399 1,361,478 4,792,927 4,947,694
----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) (141,907) 6,486 (173,306) (131,330)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (10,389) (9,202) (29,574) (11,641)
Gain on sale of fixed assets 19,745 -- 19,745 --
Interest and other income 7,492 28,715 10,035 77,661
----------- ----------- ----------- -----------
16,848 19,513 206 66,020
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (125,059) 25,999 (173,100) (65,310)
Income taxes, net of operating loss carryforwards -- -- -- --
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (125,059) $ 25,999 $ (173,100) $ (65,310)
=========== =========== =========== ===========
INCOME (LOSS) PER SHARE (NOTE 3) $ (.05) $ .01 $ (.07) $ (.03)
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
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EAC INDUSTRIES, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For The Nine Months
Ended October 31,
--------------------------
1997 1996
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(173,100) $ (65,310)
Adjustments to reconcile net (loss) to cash provided from operating activities:
Depreciation and amortization 122,826 75,722
Amortization of deferred rental income -- (56,451)
Gain on disposal of fixed assets (19,745)
Change in assets and liabilities:
(Increase) decrease in accounts and notes receivable (173,566) 160,717
(Increase) decrease in inventories (11,771) 58,781
(Increase) decrease in prepaid expenses and other assets (35,898) 24,186
Increase (decrease) in accounts payable, accrued expenses and accrued
income taxes 373,336 (95,887)
--------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 82,082 101,758
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,520) (294,721)
Proceeds from sale of fixed assets 113,248 --
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 111,728 (294,721)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt -- 314,297
Payments of long-term debt (193,447) (51,092)
--------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES (193,447) 263,205
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 363 70,242
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 594,412 628,380
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 594,775 $ 698,622
========= =========
The accompanying notes are an integral part of these consolidated statements.
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EAC INDUSTRIES, INC.
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 October 31, 1997,
the results of its operations for the three and nine month periods
ended October 31, 1997 and 1996 and cash flows for the nine month
periods ended October 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 nine month periods ended
October 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. As of October 31 and January
31, 1997, there were no balances outstanding under this line.
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.
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EAC INDUSTRIES, INC.
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%. Pursuant to the Settlement Agreement, the
Company applied for a hardship case, which was granted in December
1997, whereby the Company is able to 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.
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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 October 31, 1997 and January 31, 1997;
(ii) Consolidated condensed statements of operations for the three and
nine month periods ended October 31, 1997 and 1996 and (iii)
Consolidated condensed statements of cash flows for the nine month
periods ended October 31, 1997 and 1996.
RESULTS OF OPERATIONS:
Consolidated sales for the three-month period ended October 31, 1997
were $1,448,000 as compared to $1,368,000 for the comparable period of
the prior year, reflecting an increase of $80,000 or 6%. Consolidated
sales for the nine-month period ended October 31, 1997 were $4,620,000
as compared to $4,816,000 for the comparable period of the prior year,
reflecting a decrease of $196,000 or 4%. 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 nine month
periods ended October 31, 1997 were $1,034,000 and $3,438,000,
respectively. For the comparable periods of the previous year (prior to
the acquisition of Athena by EAC), sales were $976,000 and $3,722,000,
respectively. The increase of $58,000 for the three-month period
represents sales generated by Athena since its acquisition in September
1996. The decline in sales for the nine-month period of $284,000 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 nine
month periods ended October 31, 1997 were $413,000 and $1,182,000,
respectively, as compared to $392,000 and $1,095,000, 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 October 31, 1997 and 1996 was 22.4% and 29.9%,
respectively. Consolidated gross profit as a percentage of sales for
the nine month periods ended October 31, 1997 and 1996 was 26.5% and
26.6%, respectively.
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Combined gross profit percentages for Goodren and Athena for the three
and nine month periods ended October 31, 1997 were 16.3% and 22.7%,
respectively. For the comparable periods of the previous year (prior to
the acquisition of Athena by EAC), gross profit percentages of Goodren
were 29% and 25.6%, respectively. Management attributes this decline in
the gross profit percentages to higher material and manufacturing labor
costs.
Gross profit percentage realized by Flexible for the three and nine
month periods ended October 31, 1997 were 37.6% and 37.5%,
respectively, as compared to 31.3% and 30.1%, 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 costs.
Consolidated selling, general and administrative expenses decreased by
$16,000 when comparing the nine month period ended October 31, 1997 to
the same period in 1996. The Company reflected an increase of
approximately 16% in selling, general and administrative expenses for
the three-month period ended October 31, 1997 when compared to the
three-month period ended October 31, 1996.
Selling, general and administrative expenses for the combined
operations of Goodren and Athena for the three and nine month periods
ended October 31, 1997 were $246,000 and $829,000, respectively. For
the comparable periods of the prior year, such expenses were $200,000
and $862,000, respectively. The Company believes that this decrease is
due to 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 nine month periods ended October 31, 1997 were $90,000 and
$254,000, respectively. For the comparable periods of the prior year,
such expenses were $77,000 and $293,000, respectively. These decreases
are attributable to the monitoring of costs more effectively.
For the three months ended October 31, 1997 and 1996, the Company
reflected a loss of $125,059 ($.05 per share) and income of $25,999
($.01 per share), respectively. For the nine months ended October 31,
1997 and 1996, the Company reflected net losses of $173,100 ($.07 per
share) and $65,310 ($.03 per share), respectively.
LIQUIDITY AND CAPITAL RESOURCES:
At October 31, 1997, the Company's working capital was $643,000
compared to working capital of $556,000 at its year ended January 31,
1997. Cash balances at October 31, 1997 remained relatively unchanged
from 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, which were zero as of October 31, 1997 and
January 31 1997, are secured by all assets of Goodren, and guaranteed
by EAC, Athena and Flexible.
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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 certain 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.
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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
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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: December 17, 1997
Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
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