<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended SEPTEMBER 30, 1999
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: 000-25423
EAGLE SUPPLY GROUP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 13-3889248
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
122 EAST 42ND STREET, SUITE 1116, NEW YORK, NEW YORK 10168
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(Address of Principal Executive Offices) (Zip Code)
212-986-6190
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(Registrant's Telephone Number, Including Area Code)
- ---------------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 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
--- ---
The number of shares outstanding of the Registrant's Common Stock, as of
November 10, 1999, was 8,510,000 shares.
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EAGLE SUPPLY GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
and June 30, 1999 (Audited) 3
Consolidated Unaudited Statements of Operations for the Three Months
Ended September 30, 1999 and 1998 4
Consolidated Unaudited Statement of Shareholders' Equity for the Three Months
Ended September 30, 1999 5
Consolidated Unaudited Statements of Cash Flows for the Three Months
Ended September 30, 1999 and 1998 6-7
Notes to Consolidated Unaudited Financial Statements 8-9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10-16
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 5. OTHER INFORMATION 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 18
</TABLE>
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,096,393 $ 8,519,406
Accounts and notes receivable, net 30,284,381 27,172,426
Inventories 21,690,912 18,972,548
Deferred tax assets 836,924 654,474
Other current assets 1,045,107 1,342,827
------------ ------------
Total current assets 59,953,717 56,661,681
PROPERTY AND EQUIPMENT, net 6,627,225 6,617,261
EXCESS COST OF INVESTMENTS OVER
NET ASSETS ACQUIRED, net 12,426,201 12,147,824
DEFERRED FINANCING COSTS, net 246,335 266,189
------------ ------------
$ 79,253,478 $ 75,692,955
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,418,689 $ 20,138,146
Accrued expenses and other current liabilities 4,638,902 5,654,890
Current portion of long-term debt 2,166,638 2,523,843
Federal and state income taxes payable 775,065 608,160
Income taxes due to TDA Industries, Inc. 1,143,537 1,143,537
------------ ------------
Total current liabilities 30,142,831 30,068,576
LONG-TERM DEBT 31,860,987 30,139,072
DEFERRED TAX LIABILITIES 92,572 97,512
------------ ------------
Total liabilities 62,096,390 60,305,160
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred shares, $.0001 par value per share, 2,500,000 shares
authorized, none issued and outstanding -- --
Common shares, $.0001 par value per share, 25,000,000 shares
authorized, issued and outstanding - 8,510,000 shares, September 30, 1999;
8,450,000 shares, June 30, 1999 851 845
Additional paid-in capital 16,958,141 16,658,147
Retained earnings (deficit) 198,096 (783,992)
------------ ------------
17,157,088 15,875,000
Less: Due from TDA Industries, Inc. -- (487,205)
------------ ------------
Total shareholders' equity 17,157,088 15,387,795
------------ ------------
$ 79,253,478 $ 75,692,955
============ ============
</TABLE>
See notes to consolidated unaudited financial statements.
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
REVENUES $ 48,558,429 $ 36,359,431
COST OF SALES 36,513,112 28,074,642
------------ ------------
12,045,317 8,284,789
------------ ------------
OPERATING EXPENSES 9,403,498 6,262,064
DEPRECIATION AND AMORTIZATION 273,379 348,248
AMORTIZATION OF EXCESS COST
OF INVESTMENTS OVER NET ASSETS ACQUIRED 156,253 47,953
AMORTIZATION OF DEFERRED FINANCING COSTS 19,854 14,515
------------ ------------
9,852,984 6,672,780
------------ ------------
INCOME FROM OPERATIONS 2,192,333 1,612,009
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 89,882 8,938
Interest expense (720,127) (585,260)
------------ ------------
(630,245) (576,322)
------------ ------------
INCOME BEFORE PROVISION FOR INCOME TAXES 1,562,088 1,035,687
PROVISION FOR INCOME TAXES 580,000 386,000
------------ ------------
NET INCOME $ 982,088 $ 649,687
============ ============
BASIC AND DILUTED NET INCOME PER SHARE $ .12 $ .12
============ ============
COMMON SHARES USED IN BASIC AND
DILUTED NET INCOME PER SHARE 8,510,000 5,400,000
============ ============
</TABLE>
See notes to consolidated unaudited financial statements.
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENT OF SHAREHOLDERS' EQUITY
THREE MONTHS ENDED SEPTEMBER 30, 1999
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<TABLE>
<CAPTION>
DUE FROM
ADDITIONAL TDA
PREFERRED SHARES COMMON SHARES PAID-IN RETAINED INDUSTRIES,
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS INC. TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1999 - $ - 8,450,000 $ 845 $16,658,147 $ (783,992) $ (487,205) $15,387,795
Net income - - - - - 982,088 - 982,088
Shares issued in connection with the
acquisition of MSI Co. - - 60,000 6 299,994 - - 300,000
Net change in Due from TDA
Industries, Inc. - - - - - - 487,205 487,205
---- ---- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30, 1999 - $ - 8,510,000 $ 851 $16,958,141 $ 198,096 $ - $17,157,088
==== ==== =========== =========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated unaudited financial statements.
-5-
<PAGE>
EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 982,088 $ 649,687
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 449,486 410,716
Deferred income taxes (187,390) (90,528)
Increase in allowance for doubtful accounts 518,432 232,231
Changes in assets and liabilities:
Increase in accounts and notes receivable (3,630,387) (1,810,045)
Increase in inventories (2,718,364) (96,711)
Decrease in other current assets 297,720 106,605
Increase in accounts payable 1,280,543 2,814,655
Decrease in accrued expenses and other current liabilities (1,150,618) (19,813)
Increase in federal and state income taxes payable 166,905 -
Increase in income taxes due to TDA Industries, Inc. - 90,815
------------ ------------
Net cash (used in) provided by operating activities (3,991,585) 2,287,612
------------ ------------
INVESTING ACTIVITIES:
Capital expenditures (283,343) (194,376)
------------ ------------
Net cash used in investing activities (283,343) (194,376)
------------ ------------
FINANCING ACTIVITIES:
Principal borrowings on long-term debt 47,457,083 34,905,373
Principal reductions on long-term debt (46,092,373) (37,477,222)
Proceeds from issuance of notes payable -shareholders - 100,000
Cash dividend to TDA Industries, Inc. - (150,000)
Decrease in amounts due from TDA Industries, Inc. 487,205 25,262
------------ ------------
Net cash provided by (used in) financing activities 1,851,915 (2,596,587)
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,423,013) (503,351)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 8,519,406 1,686,003
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,096,393 $ 1,182,652
============ ============
</TABLE>
See notes to consolidated unaudited financial statements.
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EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
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<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 720,127 $ 585,260
============ ============
Cash paid during the period for income taxes $ 503,891 $ --
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
60,000 Common Shares issued in connection with the
acquisition of MSI Co. $ 300,000 $ --
============ ============
Additional consideration pursuant to the acquisition
of JEH Co. $ 134,630 $ --
============ ============
</TABLE>
See notes to consolidated unaudited financial statements.
-7-
<PAGE>
EAGLE SUPPLY GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
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1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATED UNAUDITED INTERIM FINANCIAL STATEMENTS -- The accompanying
consolidated unaudited interim financial statements of Eagle Supply
Group, Inc. and subsidiaries (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim
financial information and in a manner consistent with that used in the
preparation of the annual financial statements of the Company at June 30,
1999. In the opinion of management, the accompanying consolidated
unaudited interim financial statements reflect all adjustments,
consisting only of normal and recurring adjustments, necessary for a fair
presentation of the financial position and results of operations and cash
flows for the periods presented.
Operating results for the three months ended September 30, 1999 and 1998
are not necessarily indicative of the results that may be expected for a
full year. In addition, the unaudited interim consolidated financial
statements do not include all information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles. These consolidated unaudited
interim financial statements should be read in conjunction with the
financial statements and related notes thereto which are included in the
Company's Annual Report on Form 10-K for the fiscal year ended June 30,
1999 filed with the Securities and Exchange Commission.
BUSINESS DESCRIPTION -- The Company is a majority-owned subsidiary of TDA
Industries, Inc. ("TDA" or the "Parent") and was organized to acquire,
integrate and operate seasoned, privately-held companies which distribute
products to or manufacture products for the building
supplies/construction industry.
INITIAL PUBLIC OFFERING -- On March 17, 1999, the Company completed the
sale of 2,500,000 shares of Common Stock at $5.00 per share and 2,875,000
Redeemable Common Stock Purchase Warrants at $.125 per warrant in
connection with its initial public offering (the "Offering"). The net
proceeds to the Company aggregated approximately $10,206,000.
ACQUISITIONS AND BASIS OF PRESENTATION -- Upon consummation of the
Offering, the Company acquired all of the issued and outstanding common
shares of Eagle Supply, Inc. ("Eagle"), JEH/Eagle Supply, Inc. ("JEH
Eagle") and MSI/Eagle Supply, Inc. ("MSI Eagle") (the "Acquisitions")
from TDA for consideration consisting of 3,000,000 of the Company's
common shares. The Acquisitions have been accounted for as the combining
of four entities under common control, similar to a pooling of interests,
with the net assets of Eagle, JEH Eagle and MSI Eagle recorded at
historical carryover values. The 3,000,000 common shares of the Company
issued to TDA were recorded at Eagle's, JEH Eagle's and MSI Eagle's
historical net book values at the date of acquisition. Accordingly, this
transaction did not result in any revaluation of Eagle's, JEH Eagle's or
MSI Eagle's assets or the creation of any goodwill. Upon the consummation
of the Acquisitions, Eagle, JEH
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<PAGE>
Eagle and MSI Eagle became wholly-owned subsidiaries of the Company and
currently constitute the sole business operations of the Company.
As a result of the Acquisitions, the consolidated unaudited interim
financial statements of the Company, Eagle, JEH Eagle and MSI Eagle have
been prepared as if all of the entities had operated as a single
consolidated group for all periods presented. The unaudited interim
financial statements of Eagle and JEH Eagle have been included in the
consolidated unaudited interim financial statements for all periods
presented, and the unaudited interim financial statements of MSI Eagle
have been included in the consolidated unaudited interim financial
statements only for the period subsequent to the acquisition of Masonry
Supply, Inc. ("MSI Co.") by MSI Eagle on October 22, 1998. Eagle, JEH
Eagle and MSI Eagle operate in a single industry segment and all of their
revenues are derived from sales to third party customers in the United
States.
BASIC NET INCOME PER SHARE -- Basic net income per share was calculated
by dividing net income by the weighted average number of common shares
outstanding during the periods presented and excludes any potential
dilution. Diluted net income per share was calculated similarly and would
generally include potential dilution from the exercise of stock options
and warrants. There were no such dilutive options or warrants for the
periods presented. Both basic and diluted net income per share includes,
for the periods presented, the 3,000,000 of the Company's common shares
issued to TDA in connection with the Acquisitions.
COMPREHENSIVE INCOME -- For the three months ended September 30, 1999
and 1998, comprehensive income was equal to net income.
*****
-9-
<PAGE>
EAGLE SUPPLY GROUP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS DOCUMENT INCLUDES STATEMENTS THAT MAY CONSTITUTE FORWARD-LOOKING
STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THE COMPANY WOULD LIKE TO
CAUTION READERS REGARDING CERTAIN FORWARD-LOOKING STATEMENTS IN THIS
DOCUMENT AND IN ALL OF ITS COMMUNICATIONS TO SHAREHOLDERS AND OTHERS,
PRESS RELEASES, SECURITIES FILINGS, AND ALL OTHER COMMUNICATIONS.
STATEMENTS THAT ARE BASED ON MANAGEMENT'S PROJECTIONS, ESTIMATES AND
ASSUMPTIONS ARE FORWARD-LOOKING STATEMENTS. THE WORDS "BELIEVE,"
"EXPECT," "ANTICIPATE," "INTEND," AND SIMILAR EXPRESSIONS GENERALLY
IDENTIFY FORWARD-LOOKING STATEMENTS. WHILE THE COMPANY BELIEVES IN THE
VERACITY OF ALL STATEMENTS MADE HEREIN, FORWARD-LOOKING STATEMENTS ARE
NECESSARILY BASED UPON A NUMBER OF ESTIMATES AND ASSUMPTIONS THAT, WHILE
CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY SUBJECT TO
SIGNIFICANT BUSINESS, ECONOMIC AND COMPETITIVE UNCERTAINTIES AND
CONTINGENCIES AND KNOWN AND UNKNOWN RISKS. MANY OF THE UNCERTAINTIES AND
CONTINGENCIES CAN AFFECT EVENTS AND THE COMPANY'S ACTUAL RESULTS AND
COULD CAUSE ITS ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED
IN ANY FORWARD-LOOKING STATEMENTS MADE BY, OR ON BEHALF OF, THE COMPANY.
SOME OF THE FACTORS THAT COULD CAUSE ACTUAL RESULTS OR FUTURE EVENTS TO
DIFFER MATERIALLY INCLUDE THE COMPANY'S INABILITY TO FIND SUITABLE
ACQUISITION CANDIDATES OR FINANCING ON TERMS COMMERCIALLY REASONABLE TO
THE COMPANY, INABILITY TO FIND SUITABLE FACILITIES OR PERSONNEL TO OPEN
OR MAINTAIN NEW BRANCH LOCATIONS, INTERRUPTIONS OR CANCELLATION OF
EXISTING SOURCES OF SUPPLY, THE PRICING OF AND DEMAND FOR DISTRIBUTED
PRODUCTS, THE PRESENCE OF COMPETITORS WITH GREATER FINANCIAL RESOURCES,
ECONOMIC AND MARKET FACTORS, AND OTHER FACTORS. PLEASE SEE THE "RISK
FACTORS" IN THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR A DESCRIPTION OF SOME, BUT NOT ALL, RISKS, UNCERTAINTIES
AND CONTINGENCIES.
The following discussion and analysis should be read in conjunction with
the financial statements and related notes thereto which are included in
the Company's Annual Report on Form 10-K for the fiscal year ended June
30, 1999 filed with the Securities and Exchange Commission.
The Company is a majority-owned subsidiary of TDA and was organized to
acquire, integrate and operate seasoned, privately-held companies which
distribute products to or manufacture products for the building
supplies/construction industry.
On March 17, 1999, the Company completed the sale of 2,500,000 shares of
Common Stock at $5.00 per share and 2,875,000 Redeemable Common Stock
Purchase Warrants at $.125 per warrant in connection with the Offering.
The net proceeds to the Company aggregated $10,206,000.
-10-
<PAGE>
Upon consummation of the Offering, the Company acquired all of the issued
and outstanding common shares of Eagle, JEH Eagle and MSI Eagle from TDA
for consideration consisting of 3,000,000 of the Company's common shares.
The Acquisitions have been accounted for as the combining of four
entities under common control, similar to a pooling of interests, with
the net assets of Eagle, JEH Eagle and MSI Eagle recorded at historical
carryover values. The 3,000,000 common shares of the Company issued to
TDA were recorded at Eagle's, JEH Eagle's and MSI Eagle's historical net
book values at the date of acquisition. Accordingly, this transaction did
not result in any revaluation of Eagle's, JEH Eagle's or MSI Eagle's
assets or the creation of any goodwill. Upon the consummation of the
Acquisitions, Eagle, JEH Eagle and MSI Eagle became wholly-owned
subsidiaries of the Company and currently constitute the sole business
operations of the Company.
As a result of the Acquisitions, the consolidated unaudited interim
financial statements of the Company, Eagle, JEH Eagle and MSI Eagle have
been prepared as if all of the entities had operated as a single
consolidated group for all periods presented. The unaudited interim
financial statements of Eagle and JEH Eagle have been included in the
consolidated unaudited interim financial statements for all periods
presented, and the unaudited interim financial statements of MSI Eagle
have been included in the consolidated unaudited interim financial
statements only for the period subsequent to the acquisition of MSI Co.
by MSI Eagle on October 22, 1998. Eagle, JEH Eagle and MSI Eagle operate
in a single industry segment and all of their revenues are derived from
sales to third party customers in the United States.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 1998
Revenues of the Company during the three-month period ended September 30,
1999 increased by approximately $12,199,000 (33.6%) compared to the 1998
three-month period. Approximately $3,207,000 of this increase may be
attributed to the acquisition on October 22, 1998 of MSI Co. by MSI
Eagle. The remaining increase may be attributed to the opening of six new
locations since September 1998 (approximately $4,725,000) and a general
improvement in market conditions.
Cost of sales increased between the 1999 and 1998 three-month periods at
a lesser rate than the increase in revenues between these three-month
periods. Accordingly, cost of sales as a percentage of revenues decreased
to 75.2% in the three-month period ended September 30, 1999 from 77.2% in
the three-month period ended September 30, 1998, and gross profit as a
percentage of revenues increased to 24.8% in the three-month period ended
September 30, 1999 from 22.8% in the three-month period ended September
30, 1998. The gross profit related to MSI Eagle (approximately
$1,448,000) for the three-month period ended September 30, 1999 was
included in calculating these percentages. If MSI Eagle's gross profit
had been excluded, cost of sales as a percentage of revenues would have
been 76.5% and gross profit would have been 23.5%.
-11-
<PAGE>
Operating expenses of the Company increased by approximately $3,180,000
(47.7%) between the 1999 and 1998 three-month periods. Approximately
$814,000 of this increase are operating expenses of MSI Eagle and include
approximately $41,000 of amortization of excess cost of investments over
net assets acquired (goodwill) and approximately $5,000 of deferred
financing costs attributable to the acquisition. Further, approximately
$585,000 may be attributed to the operating expenses of six new
distribution centers opened since September 1998, and approximately
$304,000 consists of corporate operating expenses incurred subsequent to
the Offering. Of the remaining increase, approximately $713,000 is
attributable to an increase in payroll costs due primarily to the
additional manpower needed to service the increased sales revenues, an
increase in delivery expenses of approximately $472,000, an increase in
rents of approximately $63,000 and an increase in office expenses and
related costs of approximately $121,000 primarily related to the
integration and relocation of the administrative functions of the Company
to Texas, increased travel of approximately $120,000 and an increase in
the amortization of goodwill of approximately $67,000, offset by a
decrease in depreciation of approximately $104,000 and reductions in
other expense areas. Operating expenses as a percentage of revenues was
20.2% in the 1999 three-month period compared to 18.4% in the 1998
three-month period. If MSI Eagle's operating expenses had been excluded,
operating expenses as a percentage of revenues would have changed
minimally in the three-month period ended September 30, 1999.
Interest expense increased by approximately $135,000 (23%) between the
1999 and 1998 three-month periods. This increase is due to the increase
in interest expense on borrowings under revolving credit facilities
($34,000), increased debt to finance the acquisition of MSI Co. by MSI
Eagle on October 22, 1998 ($106,000), offset by a decrease in short-term
borrowings by the Company ($5,000).
Net income and EBITDA (earnings before interest, taxes, depreciation and
amortization) for the three-month period ended September 30, 1999 were
$982,088 and $2,622,601, respectively, compared to net income and EBITDA
of $649,687 and $1,958,663, respectively, for the comparable period in
fiscal 1998, representing a 51.2% increase in net income and a 33.9%
increase in EBITDA.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was approximately $29,811,000 and
$26,953,000 at September 30, 1999 and June 30, 1999, respectively. At
September 30, 1999, the Company's current ratio was 1.99 to 1 compared to
1.88 to 1 at June 30, 1999.
Cash used in operating activities during the three months ended September
30, 1999 was approximately $3,992,000. Such amount consisted primarily of
increased levels of deferred income taxes of $187,000, accounts and notes
receivable of $3,630,000, inventories of $2,718,000 and decreased level
of accrued expenses and other current liabilities of $1,151,000, offset
by net income of $982,000, depreciation and amortization of $449,000, an
increase in the allowance for doubtful accounts of $518,000, decreased
levels of other current assets of $298,000, increased levels of accounts
payable of $1,280,000 and an increase in federal and state income taxes
payable of $167,000.
-12-
<PAGE>
Cash used in investing activities during the three months ended September
30, 1999 was approximately $283,000 for capital expenditures. Management
of the Company presently anticipates such expenditures in the next twelve
months of not less than $1,300,000, of which approximately $650,000 is
anticipated to be financed and used for the purchase of trucks and
forklifts for the Company's currently existing operations in anticipation
of increased business and to upgrade its vehicles and facilities to
compete better in its market areas. Management's anticipation of
increased business is based on sales to be generated by the opening of
new distribution centers, the location of some of which have not yet been
decided.
Cash provided by financing activities during the three months ended
September 30, 1999 was approximately $1,852,000. Such amount consisted
primarily of net principal borrowing on long-term debt of $1,365,000 and
a change in the TDA intercompany account of approximately $487,000.
ACQUISITIONS
In July 1997, JEH Eagle acquired the business and substantially all of
the assets of JEH Co., a Texas corporation, wholly-owned by James E.
Helzer, now the President of the Company. The purchase price, as
adjusted, including transaction expenses, was approximately $14,774,000,
consisting of $13,909,000 in cash, net of $250,000 due from JEH Co., and
a five-year note bearing interest at the rate of 6% per annum in the
principal amount of $864,652. The purchase price and the note are subject
to further adjustments under certain conditions. Certain, potentially
substantial, contingent payments, as additional future consideration to
JEH Co., or its designee, are to be paid by JEH Eagle. Upon consummation
of the Offering, the Company issued 300,000 of its common shares to James
E. Helzer, the designee of JEH Co., in fulfillment of certain of such
future consideration. For the fiscal year ended June 30, 1999,
approximately $1,773,000 of additional consideration was paid to JEH Co.
Such additional consideration increased goodwill and is being amortized
over the remaining life of the goodwill. No additional consideration was
payable to JEH Co. for fiscal 1998.
In October 1998, MSI Eagle acquired the business and substantially all of
the assets of MSI Co., a Texas corporation, wholly-owned by Gary L.
Howard, now a Vice President of the Company. The purchase price, as
adjusted, including transaction expenses, was approximately $8,538,000,
consisting of $6,492,000 in cash and a five-year note bearing interest at
the rate of 8% per annum in the principal amount of $2,045,972. The
purchase price is subject to further adjustment under certain conditions.
Upon consummation of the Offering, the Company issued 50,000 of its
common shares to Gary L. Howard, the designee of MSI Co., in payment of
$250,000 principal amount of the note. The balance of the note was paid
in full in March 1999 out of the proceeds of the Offering. Certain,
potentially substantial, contingent payments, as additional future
consideration to MSI Co., or its designee, are to be paid by MSI Eagle.
Upon consummation of the Offering, the Company issued 200,000 of its
common shares, and, as of July 1, 1999, the Company issued 60,000 of its
common shares, to Gary L. Howard in fulfillment of certain of such future
consideration. All of such additional consideration increased goodwill
and is being
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<PAGE>
amortized over the remaining life of the goodwill. No additional
consideration is payable to MSI Co. for fiscal 1999.
CREDIT FACILITIES
Eagle is a party to a loan agreement (last amended December 11, 1998)
which provides for a credit facility in the aggregate amount of
$10,900,000. The credit facility consists of a $10 million revolving
credit loan and a $900,000 equipment loan. The initial term of the credit
facility matures on October 22, 2003. Certain current assets and
automotive equipment of Eagle (aggregating approximately $15,883,000 at
September 30, 1999) collateralize the obligations under the credit
facility. The revolving credit and equipment loans bear interest at the
lender's prime rate, plus one-half percent, or at the London inter-bank
offered rate, plus two and one-half percent, at the option of Eagle. The
equipment loan is payable in equal monthly installments, based on a
seventy-five month amortization schedule, each in the amount of $11,000,
with a balloon payment due on the earlier of August 1, 2004 or at the end
of the loan agreement's initial or renewal term. This credit facility is
guaranteed by the Company and TDA.
In order to finance the purchase of substantially all of the assets and
business of JEH Co. and to provide for working capital needs, JEH Eagle
entered into a loan agreement (last amended on December 11, 1998) for a
credit facility in the aggregate amount of $20 million which is
collateralized by substantially all of the tangible and intangible assets
of JEH Eagle. The initial term of the credit facility matures on October
22, 2003 and consists of a $3,000,000 term loan, a $2,475,000 equipment
loan, and the balance in the form of a revolving credit loan. The term
loan is payable in 48 equal monthly installments, each in the amount of
$62,500; the equipment loan is payable in equal monthly installments,
based on a seventy-six month amortization schedule, each in the amount of
$26,000, with a balloon payment due on the earlier of August 1, 2004 or
the end of the loan agreement's initial or renewal term. The equipment
and revolving credit loans bear interest at the lender's prime rate, plus
one-half percent, or at the London inter-bank offered rate, plus two and
one-half percent, at the option of JEH Eagle. The term loan bears
interest at the lender's prime rate, plus one and one-half percent, or at
the London inter-bank offered rate, plus three and one-quarter percent,
at the option of JEH Eagle. This credit facility is guaranteed by the
Company and TDA.
In order to finance the purchase of substantially all of the assets and
business of MSI Co. and to provide for working capital needs, MSI Eagle
entered into a loan agreement for a credit facility in the aggregate
amount of $9,075,000, which is collateralized by substantially all of the
tangible and intangible assets of MSI. The credit facility has an initial
maturity of October 22, 2003 and consists of a $3,075,000 term loan and
the balance in the form of a revolving credit loan. The term loan is
payable in equal monthly installments, based on an eighty-three month
amortization schedule, each in the amount of $37,000, and a final payment
of the then outstanding principal amount. The revolving credit loan bears
interest at the lender's prime rate, plus one-half percent, or at the
London inter-bank offered rate, plus two and one-half percent, at the
option of MSI Eagle. The term loan bears interest at the lender's
prime rate, plus one and one-half percent, or at the London
-14-
<PAGE>
inter-bank offered rate, plus three and one-quarter percent, at the
option of MSI Eagle. This credit facility is guaranteed by the Company
and TDA.
In October 1998, in connection with the purchase of substantially all of
the assets and business of MSI Co. by MSI Eagle, TDA lent MSI Eagle
$1,000,000 pursuant to a 6% two-year note. The note is payable in full in
October 2000, and TDA has agreed to defer the interest payable on the
note until its maturity.
IMPACT OF INFLATION
General inflation in the economy has driven the operating expenses of
many businesses higher, and, accordingly, the Company has experienced
increased salaries and higher prices for supplies, goods and services.
The Company continuously seeks methods of reducing costs and streamlining
operations while maximizing efficiency through improved internal
operating procedures and controls. While the Company is subject to
inflation as described above, the Company's management believes that
inflation currently does not have a material effect on its operating
results, but there can be no assurance that this will continue to be so
in the future.
YEAR 2000 COMPLIANCE
The Year 2000 ("Y2K") compliance issue is the result of computer programs
being written using two digits rather than four to define the applicable
year. Computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900, rather than the year 2000. This could
result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to
process transactions, send invoices or engage in similar normal business
activities.
In 1997, systems were identified and purchased that would meet, at that
time, Eagle's requirements and be Y2K compliant in regard to the
maintenance and management of its operating system and distribution
software package. Eagle then commenced the upgrade of its hardware and
the conversion to new software programs that are Y2K compliant.
Additionally, the Company's management has started to integrate and
centralize certain of Eagle's, JEH Eagle's and MSI Eagle's administrative
functions, including data processing. Additionally, JEH Eagle and MSI
Eagle will be utilizing and adopting Eagle's upgraded data processing
equipment and new software programs. As their hardware and software
vendors have certified that their products are Y2K compliant, management
of the Company have determined that the Y2K compliance issue will not
pose significant operational problems for their computer systems. The
Company's desktop systems are running products which management believes
are compliant except for minor issues.
The Company has initiated formal communications with all of their
significant suppliers and large customers to determine the extent to
which the Company may be vulnerable to those third parties' failure to
remediate their own Y2K compliance issues. There can be no guarantee that
the systems of other companies on which the Company's systems rely will
be timely converted and would not have an adverse effect on the Company's
systems.
-15-
<PAGE>
Management of the Company has completed all significant testing for all
potential Y2K issues and believes that their computer systems are Y2K
compliant. However, there can be no assurances that customers, suppliers
and/or service providers on which the Company relies will resolve their
Y2K issues accurately, thoroughly and/or on time. Contingency plans have
been considered and are in place in the event that the Company is at risk
in regard to suppliers, customers or any unforeseen problems in their own
internal hardware and software.
Based on management's assessment of the cost of addressing Y2K compliance
issues, such cost did not have a material adverse impact on the Company's
financial position. The total cost of the project was approximately
$300,000 and is being expensed over the three-year term of the operating
lease for the equipment and software.
-16-
<PAGE>
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USES OF PROCEEDS
On March 12, 1999, the Company's Registration Statement, Securities and
Exchange Commission ("SEC") File No. 333-09951, became effective under
the Securities Act of 1933 for an offering of 2,500,000 shares of the
Company's Common Stock ("Shares") and 2,500,000 Redeemable Common Stock
Purchase Warrants ("Warrants") exclusive of an additional 375,000 Shares
and Warrants registered to cover an overallotment option granted to the
Underwriter. A closing of the offering of 2,500,000 Shares and 2,875,000
Warrants was held on March 17, 1999 resulting in gross and net proceeds
of approximately $12,859,000 and $10,206,000, respectively. The Company
reported on its use and expenditures of the net proceeds in filings
previously made with the SEC. There have been no material changes in such
use or expenditures from those previously reported.
ITEM 5. OTHER INFORMATION
Effective November 1, 1999, the Company, Eagle and JEH Eagle amended
their employment agreements with each of Douglas P. Fields and Frederick
M. Friedman by extending the term of said agreements to June 30, 2004.
The Company's and Eagle's employment agreements with Messrs. Fields and
Friedman were scheduled to expire on March 17, 2004, while JEH Eagle's
employment agreements with Messrs. Fields and Friedman were to expire on
March 17, 2002. The employment agreements were amended to have all of
them expire contemporaneously and at the end of the fiscal year ending
June 30, 2004. Douglas P. Fields is the Chairman of the Board and Chief
Executive Officer of the Company, Eagle, JEH Eagle and MSI Eagle.
Frederick M. Friedman is the Executive Vice President, Treasurer,
Secretary and a Director of the Company, Eagle, JEH Eagle and MSI Eagle.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed with this Report:
Exhibit 10.37 First Amendment to Employment Agreement among the
Registrant, Eagle Supply, Inc. and Douglas P. Fields,
Exhibit 10.38 First Amendment to Employment Agreement among the
Registrant, Eagle Supply, Inc. and Frederick M.
Friedman,
Exhibit 10.39 Second Amendment to Employment Agreement between
JEH/Eagle Supply, Inc. and Douglas P. Fields,
Exhibit 10.40 Second Amendment to Employment Agreement between
JEH/Eagle Supply, Inc. and Frederick M. Friedman,
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K. None.
-17-
<PAGE>
SIGNATURES
In accordance with 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.
EAGLE SUPPLY GROUP, INC.
Dated: November 12, 1999 By: /s/ DOUGLAS P. FIELDS
------------------------------------------
Douglas P. Fields, Chairman of the
Board of Directors, Chief Executive
Officer and a Director (Principal
Executive Officer)
Dated: November 12, 1999 By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------
Frederick M. Friedman, Executive Vice
President, Treasurer, Secretary and a
Director (Principal Financial and
Accounting Officer)
-18-
<PAGE>
EXHIBIT 10.37
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
DOUGLAS P. FIELDS
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "First Amendment")
is made effective as of the 1st day of November 1999, by EAGLE SUPPLY, INC., a
Florida corporation, EAGLE SUPPLY GROUP, INC., a Delaware corporation, and
DOUGLAS P. FIELDS, an individual resident in Greenwich, Connecticut (the
"Executive"), amending that certain Employment Agreement among the parties dated
March 17, 1999 (the "Agreement").
1. Section 1 of the Agreement is amended in its entirety to
read as follows:
1. TERM. Subject to and conditioned upon TDA's and PSC's
acknowledgement, approval and consent to Executive's entering into
this Agreement and TDA's and PSC's acknowledgement that this
Agreement shall not be deemed to be a violation of any of the terms
and conditions of Executive's agreements with TDA and PSC, the term
of this Agreement shall commence on the consummation of the
Acquisitions and terminate on June 30, 2004, subject to earlier
termination as provided herein or unless extended by mutual consent
of the parties.
2. Except for this First Amendment, the Agreement remains unchanged,
and is in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment as
of the day and year first above written.
EAGLE SUPPLY, INC.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
-19-
<PAGE>
EAGLE SUPPLY GROUP, INC.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED:
TDA INDUSTRIES, INC.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
PEMBERTON SERVICES CORP.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
-20-
<PAGE>
EXHIBIT 10.38
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
FREDERICK M. FRIEDMAN
THIS FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "First Amendment")
is made effective as of the 1st day of November 1999, by EAGLE SUPPLY, INC., a
Florida corporation, EAGLE SUPPLY GROUP, INC., a Delaware corporation, and
FREDERICK M. FRIEDMAN, an individual resident in New York, New York (the
"Executive"), amending that certain Employment Agreement among the parties dated
March 17, 1999 (the "Agreement").
1. Section 1 of the Agreement is amended in its entirety to
read as follows:
1. TERM. Subject to and conditioned upon TDA's
and PSC's acknowledgement, approval and consent to
Executive in entering into this Agreement and TDA's and
PSC's acknowledgement that this Agreement shall not be
deemed to be a violation of any of the terms and conditions
of Executive's agreements with TDA and PSC, the term of
this Agreement shall commence on the consummation of the
Acquisitions and terminate on June 30, 2004, subject to
earlier termination as provided herein or unless extended
by mutual consent of the parties.
2. Except for this First Amendment, the Agreement remains unchanged,
and is in full force and effect.
IN WITNESS WHEREOF, the parties have duly executed this First Amendment as
of the day and year first above written.
EAGLE SUPPLY, INC.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, Chief Executive Officer
-21-
<PAGE>
EAGLE SUPPLY GROUP, INC.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, Chief Executive Officer
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED:
TDA INDUSTRIES, INC.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, President
PEMBERTON SERVICES CORP.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, President
-22-
<PAGE>
EXHIBIT 10.39
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
DOUGLAS P. FIELDS
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Second
Amendment") is made effective as of the 1st day of November 1999, by JEH/EAGLE
SUPPLY, INC., a Delaware corporation, formerly known as JEH Acquisition Corp.
(the "Company"), and DOUGLAS P. FIELDS, an individual resident in Greenwich,
Connecticut (the "Executive"), amending that certain Employment Agreement
between the parties dated as of July 1, 1997, as amended on April 30, 1998 (the
"Agreement").
3. Section 1 of the Agreement is amended in its entirety to read as
follows:
1. TERM. Subject to and conditioned upon TDA's
and PSC's acknowledgement, approval and consent to
Executive's entering into this Agreement and TDA's and
PSC's acknowledgement that this Agreement shall not be
deemed to be a violation of any of the terms and conditions
of Executive's agreements with TDA and PSC, the term of
this Agreement shall commence on the consummation of the
Acquisitions and terminate on June 30, 2004, subject to
earlier termination as provided herein or unless extended
by mutual consent of the parties.
4. Except for this Second Amendment, the Agreement remains unchanged,
and is in full force and effect.
-23-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Second
Amendment as of the day and year first above written.
JEH/EAGLE SUPPLY, INC.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED:
TDA INDUSTRIES, INC.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
PEMBERTON SERVICES CORP.
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive Vice President
-24-
<PAGE>
EXHIBIT 10.40
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
FREDERICK M. FRIEDMAN
THIS SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (this "Second
Amendment") is made effective as of the 1st day of November 1999, by JEH/EAGLE
SUPPLY INC., a Delaware corporation, formerly known as JEH Acquisition Corp.
(the "Company"), and FREDERICK M. FRIEDMAN, an individual resident in New York,
New York (the "Executive"), amending that certain Employment Agreement between
the parties dated as of July 1, 1997, as amended on April 30, 1998 (the
"Agreement").
1. Section 1 of the Agreement is amended in its entirety to read as
follows:
1. TERM. Subject to and conditioned upon TDA's and PSC's
acknowledgment, approval and consent to Executive's entering into
this Agreement and TDA's and PSC's acknowledgment that this Agreement
shall not be deemed to be a violation of any of the terms and
conditions of Executive's agreements with TDA and PSC, the term of
this Agreement shall commence on the consummation of the Acquisitions
and terminate on June 30, 2004, subject to earlier termination as
provided herein or unless extended by mutual consent of the parties.
2. Except for this Second Amendment, the Agreement remains unchanged,
and is in full force and effect.
-25-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Second
Amendment as of the day and year first above written.
JEH/EAGLE SUPPLY, INC.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, Chief Executive Officer
By: /s/ FREDERICK M. FRIEDMAN
-----------------------------------------------
Frederick M. Friedman, Executive
ACKNOWLEDGED, CONSENTED TO
AND APPROVED:
TDA INDUSTRIES, INC.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, President
PEMBERTON SERVICES CORP.
By: /s/ DOUGLAS P. FIELDS
-----------------------------------------------
Douglas P. Fields, President
-26-
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
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<RECEIVABLES> 32,402,813
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0
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