<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, 1997 Commission File Number 1-4338
EAC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York 21-0702336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
22 Blackstone Avenue
Branford, CT 06405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-315-8020
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 registrants' 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 - $5,988,315.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 15, 1997 was $1,444,804.
Indicate by check mark whether the registrant has filed all documents and
reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No
--- ---
As of April 15, 1997, the registrant had outstanding 2,311,687 shares of Common
Stock ($.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 three operating subsidiaries, Goodren Products Corporation
("Goodren"), Athena Packaging, Inc. ("Athena") and Flexible Printed Products,
Inc. ("Flexible"). Goodren designs and provides 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's sales were backlogged at approximately $218,000 and $191,000 at
January 31, 1997 and 1996 respectively.
The business and all of the outstanding common shares of Athena were acquired on
September 27, 1996. Athena produces printed, laminated, embossed and hot stamped
labels, wraps, seals and decals for the cosmetics, pharmaceutical and health and
beauty aids industries. Athena's production equipment and administrative
operations were moved to Goodren's facility in Englewood, New Jersey in January
1997. Athena's sales were backlogged at approximately $65,000, at January 31,
1997. Athena believes that it can fulfil the 1997 backlog on a timely basis.
Goodren and Athena both face strong competition in their respective businesses,
based mainly on quality, service and price. Goodren and Athena combined, employ
30 persons of whom 12 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's sales were backlogged at approximately $80,000 at
January 31, 1997 and $75,000 at January 31, 1996. Flexible believes that it can
fulfill its 1997 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, Athena and
Flexible.
The Company's financial condition has declined from January 31, 1996. The
primary reasons for this decline were: (a) the operating loss of the Company for
the 1997 fiscal year, (b) the costs of acquiring, moving and integrating
Athena's operations and (c) the purchase of additional capital equipment for
Flexible. The combination of the above factors has resulted in the Company's
average secured debt obligations being higher in 1997 as compared to 1996. The
Company's secured debt obligations were $175,000 at January 31, 1997 as compared
to zero at January 31, 1996. The Company's current assets decreased to
$1,611,936 in 1997 from $2,029,001 in 1996, while its total current liabilities
- 2 -
<PAGE> 3
increased to $1,055,524 as of January 31, 1997 from $934,716 as of January 31,
1996. Working capital decreased to $556,412 as of January 31, 1997 from
$1,094,285 on January 31, 1996.
The Company's and Goodren's credit line and Note Agreement with Chemical Bank of
New Jersey, N.A., which was originally entered into on September 29, 1994,
expired on January 12, 1997. The Company is currently negotiating a new
borrowing facility.
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,
--------------------
1997 1996
---- ----
<S> <C> <C>
Point-of-Purchase 45% 41%
Wall coverings 55% 59%
--- ---
100% 100%
=== ===
</TABLE>
Management estimates that Goodren has a 5% 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 $40 million. The Company estimates that
approximately ten companies compete directly with Goodren.
PRESSURE SENSITIVE LABELS, WRAPS, SEALS AND DECALS
Athena produces and markets primarily pressure sensitive labels for the premium
cosmetics, pharmaceutical, health and beauty aids industries. Other products
include non-pressure sensitive labels, soap wraps, decals and seals. Athena's
products are sold primarily in the Northeast by manufacturer's representatives
as well as in-house sales personnel.
- 3 -
<PAGE> 4
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.
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 for decorating
rubber hoses and belts 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.
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 offices
for Goodren and Athena
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
22 Blackstone Avenue
Branford, Connecticut 500 Month to $ 4,800 Office space and headquarters
Month for the Company
</TABLE>
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<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
12c 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, 1997, the Company believes there were
approximately 2,500 shareholders of record. The Company's line of credit
agreement (which is presently being re-negotiated) 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 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
-------------------------- -------------------------
<S> <C> <C> <C>
First Quarter $ 3/8 First Quarter $ 3/8
Second Quarter 7/16 Second Quarter 1/4
Third Quarter 5/8 Third Quarter 3/16
Fourth Quarter 3/8 Fourth Quarter 3/16
</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 1997, the Company had a net loss of $161,270 ($.07 per share as
compared to net income of $129,195 ($.06 per share) in fiscal 1996.
The loss for fiscal 1997 was due to lower operating income of Flexible and
Goodren, higher general and administrative costs of EAC, and the costs of
acquiring, moving and integrating Athena's operations.
On September 27, 1996, the Company acquired the business and all of the
outstanding shares of Athena Packaging, Inc., a manufacturer of labels, wraps,
seals, and decals for premium cosmetics, pharmaceutical and health and beauty
aids manufacturers. Athena's operations are included in the consolidated
operations of the Company from the date of acquisition.
NET SALES
1997 TO 1996
Goodren's sales for 1997 declined 31% from 1996, due to lower sales of both the
point of purchase and wall covering segments of its business. Flexible's sales
increased by 4% compared to last year.
- 6 -
<PAGE> 7
EARNINGS FROM CONSOLIDATED CONTINUING OPERATIONS
1997 TO 1996
The Company's decrease in operating income from $131,443 in 1996 to an operating
loss of $459,296 in 1997, was primarily attributable to a decline in gross
profit margins for both Goodren and Flexible, the costs of acquiring and
integrating Athena, and higher general and administrative costs of EAC.
Goodren's gross profit margins decreased from 27% in 1996 to 25% in 1997.
Goodren's selling, general and administrative expenses decreased 32%,
representing 26% of sales in 1997 compared to 27% of sales in 1996.
Flexible's gross profit margins decreased from 37% in 1996 to 32% in 1997.
Flexible's selling, general and administrative expenses increased 12%,
representing 25% of sales in 1997 compared to 24% of sales in 1996.
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 1997 over 1996 as a result of higher
average borrowings for the year. The Company's outstanding debt was $489,504 at
January 31, 1997 compared to $642,706 at January 31, 1996.
PROVISION (BENEFIT) FOR INCOME TAXES
The 1997 and 1996 federal income tax provisions 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, 1997 which is available
to offset future operating earnings. These carryforward losses will expire in
years after 2005.
FINANCIAL RESOURCES AND LIQUIDITY
The Company's financial condition declined somewhat in 1997 from 1996. The
Company had working capital of $556,412 as of January 31, 1997 compared to
$1,094,285 as of January 31, 1996. The Company and its subsidiaries, Goodren,
Athena and Flexible are current on all of their accounts payable and accrued
expenses.
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 12d
of Notes to the Consolidated Financial Statements). Subsequently, on September
30, 1996, the Company and Goodren entered into a Settlement Agreement with the
Trustees of the union pension plan whereby Goodren's pension fund liability was
reduced from $560,000 to $360,000 payable in 80 equal quarterly payments of
$8,752 including annual interest at a rate of 8%. The Company has applied for a
hardship case pursuant to the Settlement Agreement, whereby the Company would
reduce its quarterly obligations to $3,000 until such time as the Company is out
of hardship.
- 7 -
<PAGE> 8
The Company believes that its cash on hand as well as the availability of a new
borrowing facility will be sufficient to fund planned operations for at least
the next 12 month period. The Company is anticipating capital expenditures of
approximately $200,000, during the next year, in order to expand the operations
of Goodren, Athena and Flexible.
Management believes that these expenditures can be funded from existing
resources.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENT
<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.
Athena Packaging, 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 14, 1997
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 14, 1997
- ---------------------------------
Peter B. Fritzsche, Director
/s/ P. Bartley Fritzsche May 14, 1997
- ---------------------------------
P. Bartley Fritzsche, Director
/s/ John B. Millet, Jr May 14, 1997
- ---------------------------------
John B. Millet, Jr., Director
/s/ E. Donald McKenzie, Jr. May 14, 1997
- ---------------------------------
E. Donald McKenzie, Jr., Director
- 10 -
<PAGE> 11
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
EAC Industries, Inc.
Branford, Connecticut
We have audited the accompanying consolidated balance sheets of EAC Industries,
Inc. and subsidiaries as of January 31, 1997 and 1996 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the two year period ended January 31, 1997. 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, 1997 and 1996 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
April 4, 1997
F - 1
<PAGE> 12
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1997 AND 1996
- ASSETS (NOTE 6) -
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash (Notes 2d and 2h) $ 594,412 $ 628,380
Accounts receivable - net of allowance for doubtful accounts of $45,566
and $45,980 for 1997 and 1996, respectively (Note 2d) 666,379 996,132
Inventories (Notes 2e and 4) 300,238 302,840
Prepaid taxes and expenses 50,907 101,649
----------- -----------
TOTAL CURRENT ASSETS 1,611,936 2,029,001
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET (NOTES 2f, 5 AND 8) 710,166 563,619
----------- -----------
OTHER ASSETS:
Costs in excess of net assets acquired (Notes 2g and 3) 453,601 367,967
Deferred taxes (Notes 2i and 9) 510,000 510,000
Other assets (Note 2h) 29,182 52,500
----------- -----------
992,783 930,467
----------- -----------
$ 3,314,885 $ 3,523,087
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 247,152 $ 246,897
Accrued expenses (Note 7) 579,441 571,960
Capital lease obligations - current portion (Note 8b) 34,589 --
Long-term liabilities - current portion (Note 8a) 14,181 34,232
Deferred income -- 75,268
Acquisition note payable (Note 3) 175,000 --
Income taxes payable (Notes 2i and 9) 5,161 6,359
----------- -----------
TOTAL CURRENT LIABILITIES 1,055,524 934,716
----------- -----------
LONG-TERM DEBT - NET OF CURRENT PORTION (NOTE 8):
Capital lease obligations 81,377 --
Other liabilities 359,357 608,474
----------- -----------
440,734 608,474
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 10, 11 AND 12)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares authorized;
2,319,285 shares issued 231,929 231,929
Capital in excess of par value 10,504,380 10,504,380
Accumulated deficit (8,867,082) (8,705,812)
----------- -----------
1,869,227 2,030,497
Less: Common stock in treasury, 7,598 shares at cost (50,600) (50,600)
----------- -----------
1,818,627 1,979,897
----------- -----------
$ 3,314,885 $ 3,523,087
=========== ===========
</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,
----------------------------
1997 1996
---------- ----------
<S> <C> <C>
NET SALES (NOTE 11) $5,988,315 $7,659,689
---------- ----------
COSTS AND EXPENSES:
Cost of products sold 4,392,978 5,435,681
Selling, general and administrative expenses 2,054,633 2,092,565
---------- ----------
TOTAL COSTS AND EXPENSES 6,447,611 7,528,246
---------- ----------
OPERATING (LOSS) INCOME (459,296) 131,443
---------- ----------
OTHER INCOME (EXPENSE):
Interest expense (22,176) (14,295)
Gain on sale of fixed assets 242,000 --
Interest and other income 99,072 22,809
---------- ----------
318,896 8,514
---------- ----------
(LOSS) INCOME BEFORE PROVISION FOR INCOME TAXES (140,400) 139,957
Income taxes, net of operating loss carryforwards (Notes 2i and 9) 20,870 10,762
---------- ----------
NET (LOSS) INCOME $ (161,270) $ 129,195
========== ==========
(LOSS) INCOME PER SHARE (NOTE 2j) $ (.07) $ .06
========== ==========
</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, 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
Net loss for the year -- -- -- (161,270) -- (161,270)
--------- -------- ----------- ----------- -------- ----------
BALANCE AT
JANUARY 31, 1997 2,319,285 $231,929 $10,504,380 $(8,867,082) $(50,600) $1,818,627
========= ======== =========== =========== ======== ==========
</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,
-----------------------------
1997 1996
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(161,270) $ 129,195
Adjustments to reconcile net (loss) income to cash (utilized) by operating activities:
Depreciation and amortization 141,035 105,201
Allowance for doubtful accounts 75,000 30,000
Amortization of deferred rental income (75,268) (103,938)
Gain on sale of fixed assets (242,000) --
Changes in assets and liabilities:
Decrease (increase) in accounts and notes receivable 461,728 (209,509)
Decrease in inventories 105,166 215,480
Decrease (increase) in prepaid expenses 116,880 (35,622)
(Decrease) in accounts payable, accrued expenses and accrued income taxes (442,961) (167,130)
(Decrease) in other, net -- (25,000)
--------- ---------
NET CASH (UTILIZED) BY OPERATING ACTIVITIES (21,690) (61,323)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 242,000 --
Capital expenditures (48,598) (144,102)
Investment in new subsidiary (175,000) --
--------- ---------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 18,402 (144,102)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) in short-term debt -- (150,000)
Payments of capital lease obligations (25,870) --
Payments of long-term debt (4,810) (4,702)
--------- ---------
NET CASH (USED BY) FINANCING ACTIVITIES (30,680) (154,702)
--------- ---------
(DECREASE) IN CASH AND CASH EQUIVALENTS (33,968) (360,127)
Cash and cash equivalents, at beginning of year 628,380 988,507
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 594,412 $ 628,380
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 17,906 $ 14,295
Income taxes paid 6,260 50,070
</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, 1997 AND 1996
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
three wholly-owned operating subsidiaries, Goodren Products
Corporation ("Goodren"), Flexible Printed Products, Inc.
("Flexible") and Athena Packaging, Inc. ("Athena"), 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. Athena produces printed
laminated, embossed and hot stamped labels, wraps, seals and
decals for the cosmetics, pharmaceutical and health and beauty
aids industries. 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 effect 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 a remaining 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, 1997 AND 1996
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 periods ranging from 15 to 40 years
on a straight line basis. Amortization costs were $24,208 and
$24,833 for the years ended January 31, 1997 and 1996,
respectively. Accumulated amortization as of January 31, 1997
and 1996 aggregated $257,250 and $243,042, respectively.
The Company periodically reviews 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, 1997 AND 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(i) INCOME TAXES (SEE ALSO NOTE 9):
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 (loss) 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 September 27, 1996, the Company purchased all of the
outstanding capital stock of Athena Packaging, Inc. ("Athena"),
for $350,000. The acquisition agreement required that 50% of the
purchase price be paid at closing and the balance paid on March
1, 1997. The acquisition was accounted for as a purchase,
accordingly, the acquired assets and liabilities assumed through
this purchase have been recorded at their estimated fair market
values at the date of acquisition. The cost of the acquisition
exceeded the fair market value of the assets acquired by
$124,050, which amount was assigned to goodwill and is being
amortized on a straight-line basis over 15 years (see Note 2g).
The Company's consolidated statements of operations include the
revenues and expenses of Athena beginning September 27, 1996,
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, 1995).
<TABLE>
<CAPTION>
Year Ended January 31,
----------------------------
1997 1996
---------- ----------
(UNAUDITED) (Unaudited)
<S> <C> <C>
Net sales $6,541,000 $8,512,000
Net (loss) earnings $ (135,000) $ 127,000
(Loss) earnings per share $ (.06) $ .05
</TABLE>
F - 8
<PAGE> 19
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
NOTE 4 - INVENTORIES:
Inventories at January 31, 1997 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Raw materials $234,768 $250,005
Work in process 60,470 48,435
Finished goods 5,000 4,400
-------- --------
$300,238 $302,840
======== ========
</TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Fixed assets and accumulated depreciation at January 31, 1997
and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Building and improvements $ 343,874 $ 388,973
Machinery and equipment 1,093,170 1,100,347
Label artwork 150,000 150,000
Transportation equipment 22,275 47,812
Furniture and fixtures 65,977 45,528
---------- ----------
1,675,296 1,732,660
Less: accumulated depreciation and amortization 1,002,630 1,206,541
---------- ----------
672,666 526,119
Add: Land 37,500 37,500
---------- ----------
$ 710,166 $ 563,619
========== ==========
</TABLE>
For the years ended January 31, 1997 and 1996, depreciation
expense aggregated $116,827 and $80,368, respectively.
NOTE 6 - SHORT-TERM DEBT:
The Company established a new loan facility, effective in
January 1996 which offered a maximum line of credit of $750,000,
provided for advances of up to 80% of eligible accounts
receivable and 50% of finished goods inventory (for a maximum of
$350,000) and was collateralized by all of the assets of the
Company and its subsidiaries. This line of credit expired in
January 1997. Interest accrued at the annual rate of prime plus
2%. As of January 31, 1997 and 1996 there were no outstanding
borrowings under this agreement. The Company is in the process
of negotiating a new credit facility with its bank.
F - 9
<PAGE> 20
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
NOTE 7 - ACCRUED EXPENSES:
At January 31, 1997 and 1996 accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Salaries and wages $ 47,649 $ 37,063
Employee benefits 282,558 375,041
Accrued interest payable -- 52,000
Other 249,234 107,856
-------- --------
$579,441 $571,960
======== ========
</TABLE>
NOTE 8 - LONG-TERM DEBT:
(a) OTHER LIABILITIES:
At January 31, 1997 and 1996 long-term liabilities included the
following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
9% equipment note payable in monthly installments of
$427, inclusive of interest, maturing in April 1998 $ 5,283 $ 10,092
Union pension withdrawal liability/shortfall, presently
payable in quarterly installments of $8,752 (including
interest at 8% per annum (see Note 12d) 368,255 632,614
-------- --------
373,538 642,706
Less: current portion 14,181 34,232
-------- --------
$359,357 $608,474
======== ========
</TABLE>
Aggregate maturities of long-term liabilities for the next five
and in the aggregate are $14,181, $9,525, $10,194 $10,911, $11,678
and $317,049 thereafter.
(b) CAPITAL LEASE OBLIGATIONS:
The Company and its subsidiaries are the lessees of machinery and
equipment under leases expiring at various dates through July
2001. The assets and liabilities are recorded at the lower of the
present value of the minimum lease payments or the fair market
value of the assets. The assets are depreciated over their
estimated useful lives. Depreciation of assets under capital
leases included in depreciation expense for the year ended January
31, 1997, aggregated $4,440.
F - 10
<PAGE> 21
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
NOTE 8 - LONG-TERM DEBT (CONTINUED):
(b) CAPITAL LEASE OBLIGATIONS (CONTINUED):
Minimum future lease payments under capital leases as of January
31, 1997 and for each of the next five years are as follows:
<TABLE>
<S> <C>
1998 $ 48,593
1999 40,978
2000 33,228
2001 17,448
2002 8,724
--------
Total minimum lease payments 148,971
Less: amount representing interest (33,005)
--------
$115,966
========
</TABLE>
NOTE 9 - INCOME TAXES:
The provision for income taxes consisted of the following for the
years ended January 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current:
Federal (net of benefit of operating
loss carryforward) $ -- $ --
State and local 20,870 10,762
------- -------
20,870 10,762
------- -------
Deferred:
Federal -- --
State and local -- --
------- -------
-- --
------- -------
PROVISION FOR INCOME TAXES $20,870 $10,762
======= =======
</TABLE>
The components of the net deferred income tax asset, pursuant to
SFAS 109, as of January 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 5,400 $ 5,400
Inventory 1,800 1,800
Operating loss carryforward 2,040,000 2,040,000
---------- ----------
Total deferred tax asset 2,047,200 2,047,200
Valuation allowance 1,537,200 1,537,200
---------- ----------
NET DEFERRED INCOME TAX ASSET $ 510,000 $ 510,000
========== ==========
</TABLE>
F - 11
<PAGE> 22
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
NOTE 9 - INCOME TAXES (CONTINUED):
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, 1997 and 1996 is not provided due to the utilization of net
operating losses and the recognition of the deferred tax asset
above.
NOTE 10 - 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 $35,000 and $44,000 in
1997 and 1996. See also Note 12d.
NOTE 11 - ECONOMIC DEPENDENCY:
One of the Company's customers accounted for 39% of net sales for
each of the years ended January 31, 1997 and 1996.
NOTE 12 - 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 $146,512 and $147,000 for the years ended January
31, 1997 and 1996, respectively.
Future minimum rental commitments for existing operating leases
and in the aggregate are as follows:
<TABLE>
<S> <C>
Fiscal year ending January 31, 1998 - $ 70,699
1999 - 66,032
2000 - 66,032
2001 - 27,513
--------
$230,276
========
</TABLE>
F - 12
<PAGE> 23
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1997 AND 1996
NOTE 12 - 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:
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.
(d) OTHER:
Goodren has withdrawn from participating in the District 65 Union
Pension Plan (the "Plan"), see Note 10. The withdrawal has
resulted in the assessment of a withdrawal liability owed to the
Plan by Goodren. During the year ended January 31, 1995, the
Company accrued a reserve for an estimated liability of $560,000
which counsel to the Company believed would be payable over a
period of approximately 22 years beginning approximately one year
from the withdrawal date. In March of 1996, subsequent to the
balance sheet, the Company signed an agreement with the Plan
whereby they will make quarterly payments of $7,548. A September
30, 1996, the Company and Goodren entered into a Settlement
Agreement with the Trustees of the union pension plan whereby
Goodren's pension fund liability was reduced to $360,000 payable
in 80 equal quarterly payments of $8,752 including annual interest
at a rate of 8%. The Company has applied for a hardship case
pursuant to the Settlement Agreement, whereby the Company would
reduce its quarterly obligations to $3,000 until such time as the
Company is out of hardship. Goodren is also potentially liable to
the Internal Revenue Service ("IRS") for excise taxes of
approximately $5,000 under paragraph 4971 of the Internal Revenue
Code.
F - 13
<PAGE> 24
EXHIBIT INDEX
Item No. Description
- -------- -----------
(11) Computation of Earnings per Common Share
See Exhibit 11
(27) Financial Data Schedule
<PAGE> 1
EAC INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Year Ended
January 31,
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
NET (LOSS) INCOME $ (161,270) $ 129,195
========== ==========
SHARES:
Weighted average shares outstanding 2,311,687 2,311,687
Other - options, warrants etc -- --
---------- ----------
2,311,687 2,311,687
========== ==========
PRIMARY (LOSS) EARNINGS PER SHARE $ (.07) $ .06
========== ==========
</TABLE>
- Exhibit 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JANUARY 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 594,412
<SECURITIES> 0
<RECEIVABLES> 711,945
<ALLOWANCES> 45,566
<INVENTORY> 300,238
<CURRENT-ASSETS> 1,611,936
<PP&E> 1,712,796
<DEPRECIATION> 1,002,630
<TOTAL-ASSETS> 3,314,885
<CURRENT-LIABILITIES> 1,055,524
<BONDS> 440,734
0
0
<COMMON> 231,929
<OTHER-SE> 1,586,698
<TOTAL-LIABILITY-AND-EQUITY> 3,314,885
<SALES> 5,988,315
<TOTAL-REVENUES> 5,988,315
<CGS> 4,392,978
<TOTAL-COSTS> 6,447,611
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,176
<INCOME-PRETAX> (140,400)
<INCOME-TAX> 20,870
<INCOME-CONTINUING> (161,270)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (161,270)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
