<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 31, 1996 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)
282 Prospect Street
New Haven, CT 06511
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-865-1661
Securities registered pursuant to Section 12 (B) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10
par value (Title of Class)
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 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
Issuers revenues for the most recent fiscal year - $7,659,689.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 15, 1996 was $1,304,598.
Indicate by check mark whether the registrant has filed all documents and
reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes No
--- ---
As of April 15, 1996, the registrant had outstanding 2,311,687 shares of Common
Stock ($.10 par value).
<PAGE> 2
PART I
ITEM 1. BUSINESS
The Registrant (also referred to as "EAC" or "the Company") was organized in
1958 as a New York corporation. The common stock of the Company is currently
traded on the over-the-counter market and the principal market makers are Bishop
Rosen & Company and Troster, Singer Corporation.
The Company has two operating subsidiaries, Goodren Products Corporation
("Goodren") and Flexible Printed Products, Inc. ("Flexible"). Goodren designs
and produces point-of-purchase advertising displays and wall decorations on
semi-durable plastic. Goodren's major market is consumer product manufacturers
and one marketer of children's wall decorations. Goodren sales were backlogged
at approximately $191,000 and $578,000 at January 31, 1996 and 1995,
respectively. The Company believes it can fulfill the 1996 backlog on a timely
basis.
Goodren faces strong competition in its businesses and its competition has been
mainly on the basis of quality, service and price. Goodren employs 30 persons of
whom 13 are represented by unions.
The business and certain of the assets of Flexible were acquired on December 11,
1994. 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. Flexible sales were backlogged at approximately $75,000 at
January 31, 1996 and $70,000 at January 31, 1995. Flexible believes that it can
fulfill its 1996 backlog on a timely basis.
Flexible also faces strong competition in its business and its competition has
been mainly on the basis of quality, service and price. Flexible employs 14
persons, none of whom are represented by unions.
FINANCIAL CONDITION OF THE COMPANY
The following is a discussion concerning the Company, Goodren, Flexible and
certain of the Company's discontinued businesses.
The Company's financial condition has improved somewhat from January 31, 1995.
The primary reasons for the Company's improved financial condition were: (a) the
operating earnings of Flexible and Goodren for the 1996 fiscal year and (b) the
benefits of a tax loss carryforward. The combination of the above factors has
resulted in the Company's average secured debt obligations being less in 1996 as
compared to 1995. The Company's secured debt obligations were zero at January
31, 1996 and $150,000 as of January 31, 1995. The Company's total current assets
decreased to $2,029,001 in 1996 from $2,393,880 in 1995, while its total current
liabilities declined to $934,716 as of January 31, 1996 from $1,343,227 as of
January 31, 1995. Net working capital increased to $1,094,285 as of January 31,
1996 from $1,050,653 on January 31, 1995.
- 2 -
<PAGE> 3
The Loan and Security Agreement with BT Commercial Corporation, to which both
Goodren and the Company were previously parties, expired on November 30, 1994.
The Company and Goodren are now parties to a credit line and Note Agreement with
Chemical Bank of New Jersey, N.A., which was originally entered into on
September 28, 1994. This Note Agreement is with Goodren, secured by all of
Goodren's assets and property and is guaranteed by the Company. The Note
Agreement was extended to and expired on January 31, 1996 and a new Note
Agreement with Chemical was entered into on January 16, 1996, which expires on
January 12, 1997. For additional details with respect to the Note Agreement, see
Note 7 to the Consolidated Financial Statements.
POINT-OF-PURCHASE ADVERTISING
Goodren designs and produces point-of-purchase advertising and sales aids such
as signs, posters, decals and product identifiers. These products are used in
retail stores on shelves, price channels and display cases. Other products
include wall decorations. Goodren's products are produced on semi-durable
plastic through processes known as flexographic, lithographic and silk screen
printing.
Goodren's products are sold nationwide to manufacturers of consumer products by
both an in-house sales force as well as regional, independent manufacturers'
representatives. Goodren is a service business which competes on the basis of
its ability to produce high quality printing on very short notice. The following
table summarizes the percentage of sales attributable to major classes of
products:
<TABLE>
<CAPTION>
For the Fiscal Years
ended January 31,
1996 1995
---- ----
<S> <C> <C>
Point-of-Purchase 41% 67%
Wallcoverings 59% 33%
--- ---
100% 100%
=== ===
</TABLE>
Management estimates that Goodren has a 10% share in its portion of the printed
on plastic point-of-purchase ("P.O.P.") advertising industry. Overall, the
P.O.P. industry is a $16 billion business with over 200 manufacturing companies
involved. Products for the entire industry range from a wide variety of counter
displays and large end-of-aisle displays to small printed products produced by
Goodren. The total printed-on-plastic portion of the industry in which Goodren
competes, represents approximately $30 million. The Company estimates that
approximately seven companies compete directly with Goodren.
IN-MOLD HEAT TRANSFER LABELS
Flexible produces and markets in-mold, pre-cure heat transfer labels to the
rubber and silicone industry primarily for identification and decoration of
hoses and belts. Other products include post cure heat transfer labels for
rubber patches, tires and other rubber and silicone products.
- 3 -
<PAGE> 4
Flexible's products are sold nationwide primarily to rubber and silicone hose
and belt manufacturers, principally by its in-house sales personnel. The
remainder is sold by a limited number of manufacturers representatives.
Management believes that the total in-mold decal/label market is approximately
$8 million with Flexible's share estimated at approximately 18%. The Company
estimates that approximately five companies compete directly with Flexible,
including the parent company of one of its customers. Flexible is a service
business which competes on the basis of its ability to produce and deliver high
quality printing on short notice.
DISCONTINUED OPERATIONS
For the year ended January 31, 1995, the Company reflected a gain from
discontinued operations of $149,000, as a result of eliminating reserves
previously anticipated but not necessary to cover miscellaneous payables of
discontinued subsidiaries.
As of January 31, 1995, the Company no longer reflected a reserve for previously
discontinued operations.
ITEM 2. PROPERTIES
The following table shows the location of each plant or facility of the
Registrant and its subsidiaries and sets forth related information. The
properties listed below are believed adequate to serve the Company's needs for
the foreseeable future.
<TABLE>
<CAPTION>
Approx. Lease
Area Expiration Annual
(Sq. Ft.) Date Rental Principal Use
--------- ---- ------ -------------
<S> <C> <C> <C> <C>
101 W. Forest Avenue
Englewood, New Jersey 20,000 6/2000 $57,000 Manufacturing and general
110-B Orchard Street
Hackensack, New Jersey 2,000 6/1/96 $14,000 Warehousing for Goodren
15237 Proctor Avenue
City of Industry, California 12,000 Month to $60,000 Manufacturing and general
Month office for Flexible
2923 South Pullman
Santa Ana, California 500 Month to $6,000 Sales office for Flexible
Month
282 Prospect Street
New Haven, Connecticut 500 Month to $3,600 Office space and head-
Month quarters for the Company
</TABLE>
- 4 -
<PAGE> 5
ITEM 3. LEGAL PROCEEDINGS
Goodren is included in a threatened claim concerning environmental cleanup
costs. Goodren is included among a large number of companies involved, and is
not one of the major parties. Goodren previously settled the Federal claims
related to such cleanup costs and is in the process of settling the State of New
Jersey claims related thereto. The amount, if any, that Goodren may ultimately
have to pay, is subject to change and is uncertain at this time. It is
management's opinion that the Company is adequately reserved for this matter and
the ultimate resolution of this case should not have a material impact on the
financial condition of the Company.
For additional information regarding contingencies and/or litigation see Note
14c of notes to consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
- 5 -
<PAGE> 6
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's stock is traded on the over-the-counter market. Bishop Rosen &
Company (212-602-0681) and Troster, Singer Corporation are the principal market
makers. As of April 15, 1996, the Company believes there were approximately
2,500 shareholders of record. The Company's line of credit agreement with
Chemical Bank prohibits it from paying dividends without the lender's consent.
No dividends have been declared or paid during the past two fiscal years. The
following table sets forth, by fiscal quarters, the closing bid prices of the
Registrant's Common Stock per share for 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
-------------------------- ----------------------------
<S> <C> <C> <C>
First Quarter $ 1/2 First Quarter $ 3/8
Second Quarter 9/16 Second Quarter 7/16
Third Quarter 7/16 Third Quarter 5/8
Fourth Quarter 1/4 Fourth Quarter 3/8
</TABLE>
The volume of trading is sporadic and infrequent and the prices quoted may not
be representative.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
In fiscal 1996, the Company had income of $129,195 ($.06 income per share) from
continuing operations compared to income of $704,188 ($.31 income per share)
from continuing operations and a net gain of $149,314 ($.06 income per share)
from discontinued operations in fiscal 1995.
The income from discontinued operations for 1995 was wholly attributable to the
elimination of reserves previously established but no longer necessary to cover
payables of discontinued operations, which is discussed in further detail in
Note 4 to the Consolidated Financial Statements.
On December 11, 1994, the Company acquired the business and certain assets of
Flexible Printed Products, Inc. a manufacturer of in-mold heat transfer decals,
primarily for rubber and silicone hose and belt manufacturers. This acquisition
is accounted for using the purchase method of accounting and accordingly
Flexible's operations are included in the consolidated operations from the date
of acquisition.
- 6 -
<PAGE> 7
NET SALES
1996 TO 1995
Goodren's sales for 1996 were virtually equal. A decline in sales to Goodren's
point of purchase customers were offset by an increase in sales to Goodren's
wallcovering customer.
Flexible's sales increased by approximately 7%, compared to last year, most of
which was under the direction of former owners, until December 11, 1994.
EARNINGS FROM CONSOLIDATED CONTINUING OPERATIONS
1996 TO 1995
The Company's decrease in operating income from $157,198 in 1995 to $131,443 in
1996 was primarily attributable to Goodren's decline in gross profit margins.
Goodren's gross profit margins decreased from 38% in 1995 to 26.7% in 1996.
Goodren's selling, general and administrative expenses decreased 30%,
representing 23% of sales in 1996 compared to 30% of sales for 1995. EAC's
corporate overhead expenses remained approximately the same when comparing 1996
to 1995.
The Company's income from continuing operations before income taxes decreased by
40% due primarily to Goodren's lower profit margins. The Company's income from
continuing operations after taxes decreased by 82% due to Goodren's lower profit
margins and the Company recognizing the benefits of a deferred tax asset
aggregating $510,000 in 1995 due to the anticipated use of future loss
carryovers and no such benefits being recognized in 1996 (see Note 10 of Notes
to financial statements).
INFLATION
The Company expects inflation to be moderate and to be offset by cost reduction
programs and price increases.
INTEREST AND OTHER
The Company's interest expense increased in 1996 over 1995 as a result of higher
average borrowings for the year. The Company's outstanding debt was zero at
January 31, 1996 compared to $150,000 at January 31, 1995.
PROVISION (BENEFIT) FOR INCOME TAXES
The 1996 and 1995 federal income tax provisions from continuing operations are
offset in their entirety by net operating loss carryforwards from prior years.
The Company has a loss carryforward of approximately $7,000,000 at January 31,
1996 which is available to offset future operating earnings. These carryforward
losses will expire in years after 2005.
- 7 -
<PAGE> 8
FINANCIAL RESOURCES AND LIQUIDITY
The Company's financial condition improved somewhat in 1996 from January 31,
1995. The Company had working capital of $1,094,000 as of January 31, 1996
compared to $1,051,000 as of January 31,1995. The Company and its subsidiaries,
Goodren and Flexible, are current on all of their accounts payable and accrued
expenses.
On January 16, 1996, the Company and Goodren entered into a credit line and Note
Agreement with Chemical Bank New Jersey NA, whereby Goodren can borrow up to
$750,000 on a short term basis to be paid on January 12, 1997. For details with
respect to the credit line and Note Agreement, see Note 7 to the Consolidated
Financial Statements.
In March 1996 the Company entered into an agreement to make quarterly payments
of $7,548 against a union pension withdrawal liability/shortfall (see Note 14d
of Notes to Financial Statements). These payments are to continue until there is
an agreed upon final assessment of the liability.
The Company's improved financial condition is primarily the result of Goodren's
and Flexible's operating earnings, and the benefits of the reduction of income
taxes from the tax loss carryfoward.
The Company believes that its cash on hand as well as its line of credit
availability will be sufficient to fund planned operations for at least the next
twelve month period.
The Company is anticipating possible capital expenditures of approximately
$150,000, during the next year, in order to expand the operations of Flexible.
Management believes that these expenditures can be funded from existing
resources.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Independent Auditors' Report F - 1
Consolidated Balance Sheets F - 2
Consolidated Statements of Operations F - 3
Consolidated Statement of Changes in Shareholders' Equity F - 4
Consolidated Statements of Cash Flows F - 5
Notes to the Consolidated Financial Statements F - 6
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE:
None
- 8 -
<PAGE> 9
PART III
ITEMS 9, 10, 11 AND 12, DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
EXECUTIVE COMPENSATION; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT; AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The response to these items will be included in a definitive proxy statement
filed within 120 days after the end of the Registrant's fiscal year, which proxy
statement is incorporated herein by reference.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Consolidated Financial Statements of the Registrant (Included
in Part II, Item 7)
2. EXHIBITS
(11) Computation of Earnings per Common Share
See Exhibit 11
(22) Subsidiaries of the Registrant
Goodren Products Corporation
Flexible Printed Products, Inc.
(27) Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
- 9 -
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By: /s/Peter B. Fritzsche
-----------------------------------
Peter B. Fritzsche
President, Chief Executive
Officer and Principal Financial
and Accounting Officer
Date: May 4, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ Peter B. Fritzsche May 4, 1996
- -----------------------------
Peter B. Fritzsche, Director
/s/ P. Bartley Fritzsche May 4, 1996
- -------------------------------
P. Bartley Fritzsche, Director
/s/ John B. Millet, Jr May 4, 1996
- ------------------------------
John B. Millet, Jr., Director
/s/ E. Donald McKenzie, Jr. May 4, 1996
- ----------------------------------
E. Donald McKenzie, Jr., Director
- 10 -
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To The Board of Directors
EAC Industries, Inc.
New Haven, Connecticut
We have audited the accompanying consolidated balance sheets of EAC Industries,
Inc. and subsidiaries as of January 31, 1996 and 1995 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the two year period ended January 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of EAC Industries, Inc.
and subsidiaries as of January 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/LAZAR, LEVINE & COMPANY LLP
------------------------------
LAZAR, LEVINE & COMPANY LLP
New York, New York
March 29, 1996
F - 1
<PAGE> 12
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1996 AND 1995
- ASSETS (NOTE 7) -
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash (Notes 2d and 2h) $ 628,380 $ 988,507
Accounts receivable - net of allowance for doubtful accounts of $45,980
and $15,980 for 1996 and 1995, respectively (Note 2d) 996,132 816,623
Inventories (Notes 2e and 5) 302,840 518,320
Prepaid taxes and expenses 101,649 70,430
------------ ------------
TOTAL CURRENT ASSETS 2,029,001 2,393,880
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 2F, 6 AND 9) 563,619 499,885
------------ ------------
OTHER ASSETS:
Costs in excess of net assets acquired (Notes 2g and 3) 367,967 392,800
Deferred taxes 510,000 510,000
Other assets (Note 2h) 52,500 27,500
------------ ------------
930,467 930,300
------------ ------------
$ 3,523,087 $ 3,824,065
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Short-term debt (Note 7) $ -- $ 150,000
Accounts payable 246,897 211,378
Accrued expenses (Note 8) 571,960 935,762
Long-term liabilities - current portion (Note 9) 34,232 4,349
Deferred income 75,268 41,238
Income taxes payable (Notes 2i and 10) 6,359 500
------------ ------------
TOTAL CURRENT LIABILITIES 934,716 1,343,227
------------ ------------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION (NOTE 9) 608,474 492,168
------------ ------------
DEFERRED INCOME -- 137,968
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTES 12, 13 AND 14)
SHAREHOLDERS' EQUITY (NOTE 11):
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 (8,705,812) (8,835,007)
------------ ------------
2,030,497 1,901,302
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
------------ ------------
1,979,897 1,850,702
------------ ------------
$ 3,523,087 $ 3,824,065
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F - 2
<PAGE> 13
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
NET SALES (NOTE 13) $ 7,659,689 $ 6,428,340
----------- -----------
COSTS AND EXPENSES:
Cost of products sold 5,435,681 3,995,840
Selling, general and administrative expenses 2,092,565 2,275,302
----------- -----------
TOTAL COSTS AND EXPENSES 7,528,246 6,271,142
----------- -----------
OPERATING EARNINGS 131,443 157,198
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (14,295) (3,613)
Interest and other income 22,809 80,636
----------- -----------
8,514 77,023
----------- -----------
EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 139,957 234,221
Income taxes (benefit), net of operating loss carryforwards
(Notes 2i and 10) 10,762 (469,967)
----------- -----------
INCOME FROM CONTINUING OPERATIONS 129,195 704,188
Gain from discontinued operations,
net of income tax effect (Note 4) -- 149,314
----------- -----------
NET INCOME $ 129,195 $ 853,502
=========== ===========
INCOME PER SHARE (NOTE 2J):
Continuing operations $ .06 $ .31
Discontinued operations -- .06
----------- -----------
$ .06 $ .37
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 3
<PAGE> 14
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in Common Total
Number of Common Excess Accumulated Stock in Shareholders'
Shares Stock of Par Deficit Treasury Equity
--------- -------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1994 2,319,285 $231,929 $10,837,436 $(9,688,509) $(383,656) $ 997,200
Shares issued from treasury re: litigation
settlement (Note 14c) -- -- (333,056) -- 333,056 --
Net income for the year -- -- -- 853,502 -- 853,502
--------- -------- ----------- ----------- --------- ----------
Balance at January 31, 1995 2,319,285 231,929 10,504,380 (8,835,007) (50,600) 1,850,702
NET INCOME FOR THE YEAR -- -- -- 129,195 -- 129,195
--------- -------- ----------- ----------- --------- ----------
BALANCE AT JANUARY 31, 1996 2,319,285 $231,929 $10,504,380 $(8,705,812) $ (50,600) $1,979,897
========= ======== =========== =========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 4
<PAGE> 15
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 129,195 $ 853,502
Adjustments to reconcile net income to cash (utilized) provided
from operating activities:
Depreciation and amortization 105,201 93,510
Decrease in short-term debt of discontinued subsidiaries -- (149,314)
Allowance for doubtful accounts 30,000 --
Amortization of deferred rental income (103,938) (186,240)
Deferred income taxes -- (510,000)
Changes in assets and liabilities:
(Increase) in accounts and notes receivable (209,509) (201,614)
Decrease in inventories 215,480 27,727
(Increase) decrease in prepaid expenses (35,622) 3,314
(Decrease) increase in accounts payable, accrued expenses and accrued
income taxes (167,130) 373,618
(Decrease) increase in other, net (25,000) 4,500
----------- -----------
NET CASH (UTILIZED) PROVIDED FROM OPERATING ACTIVITIES (61,323) 309,003
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (144,102) (112,694)
Investment in new subsidiary -- (415,000)
----------- -----------
NET CASH (USED BY) INVESTING ACTIVITIES (144,102) (527,694)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term debt (150,000) 150,000
Proceeds from long-term debt -- 35,447
Payments of long-term debt (4,702) (2,481)
----------- -----------
NET CASH (USED BY) PROVIDED FROM FINANCING ACTIVITIES (154,702) 182,966
----------- -----------
(DECREASE) IN CASH AND CASH EQUIVALENTS (360,127) (35,725)
Cash and cash equivalents, at beginning of year 988,507 1,024,232
----------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 628,380 $ 988,507
=========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 14,295 $ 3,613
Income taxes paid 50,070 69,407
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F - 5
<PAGE> 16
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 1 - DESCRIPTION OF THE COMPANY:
EAC Industries, Inc., the Company, was organized in 1958 as a
New York corporation. The Company is a holding company with two
wholly-owned operating subsidiaries, Goodren Products
Corporation ("Goodren") and FPP Acquisition Corp. ("Flexible")
see Note 3. Goodren designs and produces point-of-purchase
advertising displays and wall decorations on semi-durable
plastic. Goodren's major market is consumer product
manufacturers and one marketer of children's wall decorations.
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. Each of these
subsidiaries sells their products to customers throughout the
United States.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with
generally accepted accounting principles. Outlined below are
those policies considered particularly significant.
(a) USE OF ESTIMATES:
In preparing financial statements in accordance with generally
accepted accounting principles, management makes certain
estimates and assumptions, where applicable, that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, as well as the reported amounts of revenues and
expenses during the reporting period. While actual results could
differ from those estimates, management does not expect such
variances, if any, to have a material effect on the financial
statements.
(b) BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of
the Company and its operating subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation.
(c) STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, the Company
considers all investments purchased with an original maturity of
three months or less to be a cash equivalent.
(d) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash
investments and accounts receivable.
F - 6
<PAGE> 17
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(d) CONCENTRATION OF CREDIT RISK (CONTINUED):
The Company and its subsidiaries maintain, at times, deposits in
federally insured financial institutions in excess of federally
insured limits. Management attempts to monitor the soundness of
these financial institutions and feels the Company's risk is
negligible.
Concentrations of credit risk with respect to accounts
receivable are limited due to the large customer base maintained
by the operating subsidiaries.
(e) INVENTORIES:
Inventories are stated at the lower of cost or market,
determined on a first-in, first-out basis.
(f) PROPERTY, PLANT AND EQUIPMENT:
Fixed assets are reflected at cost. The Company principally uses
the straight-line method to compute depreciation of fixed
assets. Depreciation lives generally range from three to ten
years for furniture and fixtures, machinery and equipment and
transportation equipment. Buildings are being amortized over 20
years and leasehold improvements are amortized over the useful
life of the asset or the term of the lease, whichever is
shorter. Major renewals and betterments of fixed assets are
capitalized while maintenance and repairs are expensed as
incurred. Upon retirement of fixed assets, the related cost and
accumulated depreciation are written off and any gain or loss is
reflected in income.
(g) GOODWILL:
Costs in excess of net assets acquired are considered goodwill
and are being amortized over fifteen and forty year periods on a
straight line basis. Amortization costs were $24,833 and $11,200
for the years ended January 31, 1996 and 1995, respectively.
Accumulated amortization as of January 31, 1996 and 1995
aggregated $243,042 and $218,209, respectively.
The Company will periodically review the valuation and
amortization of goodwill to determine possible impairment by
comparing the carrying value to the undiscounted future cash
flows of the related assets in accordance with Statement of
Financial Accounting Standard No. 121 Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of.
(h) RESTRICTED CASH:
Cash balances required to be maintained in a severance fund
($25,000) as per Goodren's contract with a labor union, is
considered as restricted cash, and is included in non-current
assets.
F - 7
<PAGE> 18
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) INCOME TAXES (SEE ALSO NOTE 10):
The Company adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" ("SFAS No. 109")
effective February 1, 1993. The standards of SFAS No. 109
require that the Company utilize an asset and liability approach
for financial accounting and reporting for income taxes. The
primary objectives of accounting for income taxes under SFAS No.
109 are to (a) recognize the amount of tax payable for the
current year and (b) recognize the amount of deferred tax
liability or asset based on management's assessment of the tax
consequences of events that have been reflected in the Company's
financial statements or tax returns.
(j) INCOME PER SHARE:
Net income per share has been computed based upon the weighted
average number of common and common equivalent shares
outstanding during each period presented.
NOTE 3 - ACQUISITION:
On December 12, 1994, the Company through a newly formed
subsidiary, FPP Acquisition Corp. (Flexible), acquired certain
of the assets of Flexible Printed Products, Inc. Subsequently,
Flexible changed its name to Flexible Printed Products, Inc. The
cost of this acquisition, $340,000, exceeded the fair market
value of the assets acquired by $215,000 which amount was
assigned to goodwill and is being amortized on a straight line
basis over fifteen years (see Note 2g).
The acquisition has been accounted for using the purchase method
of accounting. The Company's consolidated statements of
operations include the revenues and expenses of Flexible
beginning December 12, 1994, the date of acquisition. The
following pro forma results were developed assuming the
acquisition had occurred at the beginning of the earliest period
presented (February 1, 1994).
<TABLE>
<CAPTION>
Year Ended January 31,
1995
---------------------
(Unaudited)
<S> <C>
Net sales $7,663,607
Net earnings 1,182,382
Earnings per share $.51
</TABLE>
F - 8
<PAGE> 19
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 3 - ACQUISITION (CONTINUED):
This unaudited pro forma sales and earnings information is not
necessarily indicative of the combined results that would have
occurred had the acquisition actually taken place on February 1,
1994, nor are they necessarily indicative of the results that
may occur in the future.
NOTE 4 - DISCONTINUED OPERATIONS:
For the year ended January 31, 1995, the Company reflected a
gain from discontinued operations as a result of the settlement
of litigation with a former customer of a subsidiary which was
discontinued in prior years, and the reversal of all reserves
for payables associated with discontinued subsidiaries.
NOTE 5 - INVENTORIES:
Inventories at January 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Raw materials $250,005 $362,622
Work in process 48,435 155,698
Finished goods 4,400 -
-------- --------
$302,840 $518,320
======== ========
</TABLE>
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT:
Fixed assets and accumulated depreciation at January 31, 1996
and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Building and improvements $ 388,973 $ 359,495
Machinery and equipment 1,100,347 987,714
Label artwork 150,000 150,000
Transportation equipment 47,812 47,812
Furniture and fixtures 45,528 43,537
----------- -----------
1,732,660 1,588,558
Less: accumulated depreciation and amortization 1,206,541 1,126,173
----------- -----------
526,119 462,385
Add: Land 37,500 37,500
----------- -----------
$ 563,619 $ 499,885
=========== ===========
</TABLE>
For the years ended January 31, 1996 and 1995, depreciation
expense aggregated $80,368 and $82,310, respectively.
F - 9
<PAGE> 20
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 7 - SHORT-TERM DEBT:
In September 1994, the Company terminated its then existing loan
agreement and entered into a new agreement with a new bank. This
new facility, effective in January 1996, offers a maximum line
of credit of $750,000, provides for advances of up to 80% of
eligible accounts receivable and 50% of finished goods inventory
(for a maximum of $350,000) and is collateralized by all of the
assets of the Company and its subsidiaries. This line of credit
expires in January 1997 and accrues interest at the annual rate
of prime plus 2%. As of January 31, 1996 and 1995 the
outstanding borrowings under this agreement aggregated $-0- and
$150,000, respectively.
NOTE 8 - ACCRUED EXPENSES:
In November 1992, the Company reached an agreement with the
Internal Revenue Service ("the IRS") as regards certain income
tax balances due. The agreement provided for monthly installment
payments of $5,000 for eighteen months with the balance to be
paid in full or continue on a monthly basis, dependent on the
Company's financial condition. The IRS has not demanded payment
in full and the principal amount of taxes has been paid as of
January 31, 1996. The Company is continuing to make monthly
payments of $5,000 in payment of accrued interest owed. As of
January 31, 1996 and 1995, the entire balance owed of $52,000
and $108,337, respectively, is included in accrued expenses.
At January 31, 1996 and 1995 accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Salaries and wages $ 37,063 $184,415
Employee benefits 375,041 323,407
Income taxes payable 52,000 108,337
Other 107,856 319,603
--------- --------
$ 571,960 $935,762
========= ========
</TABLE>
F - 10
<PAGE> 21
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 9 - LONG-TERM LIABILITIES:
At January 31, 1996 and 1995 long-term liabilities consisted of
the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
9% equipment note payable in monthly installment of
$427, inclusive of interest, maturing in April 1998 $ 10,092 $ 14,794
Reserve for union pension withdrawal liability/
shortfall, presently payable in quarterly installments
of $7,548 (see Note 14d) 632,614 481,723
-------- --------
642,706 496,517
Less: current portion 34,232 4,349
-------- --------
$608,474 $492,168
======== ========
</TABLE>
Aggregate maturities of long-term liabilities for the next five
years are $34,232, $34,232, $32,204, $30,192 and $30,192,
respectively.
NOTE 10 - INCOME TAXES:
The provision for income taxes consisted of the following for
the years ended January 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current:
Federal (net of benefit of operating
loss carryforward) $ -- $ --
State and local 10,762 40,033
--------- ---------
10.762 40,033
--------- ---------
Deferred:
Federal (510,000)
State and local -- --
--------- ---------
-- (510,000)
--------- ---------
PROVISION FOR INCOME TAXES $ 10,762 $(469,967)
========= =========
</TABLE>
F - 11
<PAGE> 22
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 10 - INCOME TAXES (CONTINUED):
The components of the net deferred income tax asset, pursuant to
SFAS 109, as of January 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 5,400 $ 1,500
Inventory 1,800 3,000
Operating loss carryforward 2,040,000 2,380,000
---------- ----------
Total deferred tax asset 2,047,200 2,384,500
Valuation allowance 1,537,200 1,874,500
---------- ----------
NET DEFERRED INCOME TAXES $ 510,000 $ 510,000
========== ==========
</TABLE>
The Company has available operating loss carryforwards for
federal tax purposes of approximately $7,000,000. These losses
expire in various years beginning in 2005 and may result in
deferred tax assets. The Company has recognized this asset but
has provided a valuation allowance based on the portion of the
asset considered realizable over the next three years. This
allowance will be evaluated at the end of each year, considering
both positive and negative evidence concerning the realizability
of the asset, and will be increased or reduced accordingly.
Reconciliation of the statutory Federal income tax rate to the
Company's negative effective tax rate for the years ended
January 31, 1996 and 1995 is not provided due to the utilization
of net operating losses and the recognition of the deferred tax
asset above.
NOTE 11 - COMMON STOCK:
In April 1994, the Company issued 50,000 shares of common stock,
which shares were held in treasury, in connection with a class
action settlement agreement entered into in January 1993 (see
Note 14c).
NOTE 12 - RETIREMENT PLANS:
Goodren has a defined contribution profit sharing plan covering
a substantial portion of its employees. Contributions are based
on a percentage of each participant's compensation or a fixed
annual contribution for union employees based on a collective
bargaining agreement. The cost of the plan amounted to $44,000
and $73,000 in 1996 and 1995. See also Note 14d.
F - 12
<PAGE> 23
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 12 - RETIREMENT PLANS (CONTINUED):
The Company is also liable for unfunded pension benefits
applicable to one of its discontinued subsidiaries (see Note 4).
These benefits, which aggregate approximately $147,000, are
included in accrued expenses.
NOTE 13 - ECONOMIC DEPENDENCY:
The Company recorded sales of 10% or more of net sales to two
customers during the two years in the period ended January 31,
1996 as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Customer 1 - Wallcoverings 39% 36%
Customer 2 - Point-of-purchase advertising -- 23%
</TABLE>
NOTE 14 - COMMITMENTS AND CONTINGENCIES:
(a) OPERATING LEASES:
The Company and its subsidiaries lease certain administrative
and manufacturing facilities and equipment under operating
leases expiring at various times through 2000. Other locations
are rented on a month to month basis. Rental and lease expense
aggregated approximately $147,000 and $86,000 for the years
ended January 31, 1996 and 1995, respectively.
Future minimum rental commitments for existing operating leases
and in the aggregate are as follows:
<TABLE>
<S> <C>
Fiscal year ending January 31, 1997 - $ 80,032
1998 - 70,699
1999 - 66,032
2000 - 66,032
2001 - 27,513
---------
$ 310,308
=========
</TABLE>
F - 13
<PAGE> 24
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(b) EMPLOYMENT CONTRACTS:
The Company has an employment contract (the "Contract") with the
President of Goodren which expired on January 31, 1994 and which
is subject to automatic renewals for successive one year terms.
The contract specifies base compensation of $155,000 for the
initial term and is subject to annual increases based on changes
in the consumer price index. The contract also provides for
additional compensation equal to 5% of the operating income of
Goodren provided such operating income exceeds $650,000 for the
fiscal year. In December 1994, Goodren entered into a further
agreement with this executive whereby the proceeds of a newly
purchased term life insurance policy in the amount of $250,000
will be paid to the spouse upon the death of this executive.
Flexible has entered into an employment contract with its
President for a three year period ending December 15, 1997,
which is subject to renewals for successive one year terms. The
base compensation under this contract is $75,000 with
adjustments to be made annually based on changes in the consumer
price index. The contract also provides for additional
compensation based on annual sales revenue and/or gross profit
performance of Flexible. The contract also encompasses
non-compete provisions, availability of medical benefits and the
use of an automobile.
(c) LITIGATION:
(I) Goodren is included in a threatened claim concerning
environmental cleanup costs. Goodren is included among a
large number of companies involved, and is not one of the
major parties. The amount, if any, that Goodren may
ultimately have to pay, is not considered material, is
subject to change and is uncertain at this time. It is
management's opinion that the Company is adequately
reserved for this matter and the ultimate resolution of
this case should not have a material impact on the
financial condition of the Company.
(II) In connection with a prior litigation matter in September
1992, the Company reached a settlement agreement with
Chromalloy Compressor Technologies Corporation. This
agreement called for the payment of $300,000 and an eight
year extension on a lease agreement, through 2006,
representing the balance owed of $360,000. In addition,
the agreement provided that in the event the Company was
able to pay $100,000 of the $300,000 to Chromalloy by
December 1992, the balance of $200,000 would be forgiven.
This payment was made in December 1992 as agreed to.
In November 1994, the Company amended its base agreement
with Chromalloy whereby the expiration date of said lease
is the earlier of December 31, 1996 or the date of sale of
the building. This amendment also provides that Chromalloy
will receive 50% of the proceeds of such sale, net of
certain expenses.
F - 14
<PAGE> 25
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1996 AND 1995
NOTE 14 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
(d) OTHER:
Goodren has withdrawn from participating in the District 65
Union Pension Plan (the "Plan"), see Note 12. 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 has accrued
a reserve for the $560,000 liability which counsel to the
Company believes would be payable over a period of approximately
22 years beginning approximately one year from the withdrawal
date. In March of 1996, subsequent to the balance sheet, 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 liability or a minimum funding contribution
(see Note 9).
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,
as of January 31, 1996.
F - 15
<PAGE> 26
EXHIBIT INDEX
(11) Computation of Earnings per Common Share
See Exhibit 11
(22) Subsidiaries of the Registrant
Goodren Products Corporation
Flexible Printed Products, Inc.
(27) Financial Data Schedule
<PAGE> 1
EAC INDUSTRIES, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended
January 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
INCOME FROM CONTINUING OPERATIONS $ 129,195 $ 704,188
========== ==========
INCOME FROM DISCONTINUED OPERATIONS $ -- $ 149,314
========== ==========
NET INCOME $ 129,195 $ 853,502
========== ==========
SHARES:
Weighted average shares outstanding 2,311,687 2,300,591
Other - options, warrants etc -- --
---------- ----------
2,311,687 2,300,591
========== ==========
PRIMARY EARNINGS PER SHARE:
Continuing operations $ .06 $ .31
Discontinued operations -- .06
---------- ----------
$ .06 $ .37
========== ==========
</TABLE>
- Exhibit 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended January 31, 1996 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 628,380
<SECURITIES> 0
<RECEIVABLES> 1,042,112
<ALLOWANCES> 45,980
<INVENTORY> 302,840
<CURRENT-ASSETS> 2,029,001
<PP&E> 1,770,160
<DEPRECIATION> 1,206,541
<TOTAL-ASSETS> 3,523,087
<CURRENT-LIABILITIES> 934,716
<BONDS> 0
0
0
<COMMON> 231,929
<OTHER-SE> 1,747,968
<TOTAL-LIABILITY-AND-EQUITY> 3,523,087
<SALES> 7,659,689
<TOTAL-REVENUES> 7,659,689
<CGS> 5,435,681
<TOTAL-COSTS> 7,528,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,295
<INCOME-PRETAX> 139,957
<INCOME-TAX> 10,762
<INCOME-CONTINUING> 129,195
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 129,195
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
