<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 1-4338
EAC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
New York 21-0702336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 WEST MADISON STREET, SUITE 4-3004, CHICAGO, IL 60661
(Address of principal executive offices) (Zip Code)
(312) 902-2662
(Issuer's telephone number, including area code)
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. YES X NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1998
Common Stock, par value $.10 per share 3,030,588 shares
<PAGE> 2
- INDEX -
<TABLE>
<CAPTION>
PAGE(S)
<S> <C>
PART I. Financial Information:
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - July 31, 1998 (Unaudited)
and January 31, 1998 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Six Months Ended July 31, 1998 and 1997 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Six Months Ended July 31, 1998 and 1997 5.
Notes to Interim Consolidated Condensed Financial Statements (Unaudited) 6.- 7.
ITEM 2. Management's Discussion and Analysis or Plan of Operation 8.- 9.
PART II. Other Information 10.
SIGNATURES 11.
EXHIBITS:
Exhibit 11 - Earnings Per Share 12.
Exhibit 27 - Financial Data Schedule 13.
</TABLE>
Page 2.
<PAGE> 3
PART I. FINANCIAL INFORMATION:
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
- ASSETS -
<TABLE>
<CAPTION>
JULY 31, January 31,
1998 1998
------------ ------------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash $ 548,511 $ 450,031
Notes and accounts receivable - net of allowance for doubtful accounts of
$45,566 at July 31, and January 31, 1998, respectively 724,238 775,748
Inventories 193,468 293,089
Prepaid expenses and other current assets 69,096 42,244
Net assets of discontinued operations (Note 5) 256,563 --
------------ ------------
TOTAL CURRENT ASSETS 1,791,876 1,561,112
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 299,955 472,291
------------ ------------
OTHER ASSETS:
Costs in excess of net assets acquired - net 169,815 269,269
Other assets 6,904 4,182
------------ ------------
176,719 273,451
------------ ------------
$ 2,268,550 $ 2,306,854
============ ============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 567,170 $ 434,383
Accrued expenses 445,307 580,528
Long-term liabilities - current portion 7,160 78,414
Income taxes payable 2,200 2,200
------------ ------------
TOTAL CURRENT LIABILITIES 1,021,837 1,095,525
------------ ------------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION 365,059 393,197
------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 3)
SHAREHOLDERS' EQUITY (NOTE 4):
Common stock, $.10 par value; 20,000,000 shares authorized, 2,892,819 and
2,319,285 shares issued at July 31, and January 31, 1998, respectively 289,282 231,929
Capital in excess of par value 10,546,048 10,504,380
Accumulated deficit (9,905,074) (9,867,577)
------------ ------------
930,256 868,732
Less: Common stock in treasury, 7,298 and 7,598 shares at cost at
July 31, and January 31, 1998, respectively (48,602) (50,600)
------------ ------------
881,654 818,132
------------ ------------
$ 2,268,550 $ 2,306,854
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 3.
<PAGE> 4
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended July 31, Ended July 31,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 1,115,533 $ 1,286,705 $ 2,244,385 $ 2,730,503
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold 994,028 930,910 1,916,566 2,038,199
Selling, general and administrative expenses 309,393 418,070 648,208 836,260
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES 1,303,421 1,348,980 2,564,774 2,874,459
----------- ----------- ----------- -----------
OPERATING (LOSS) (187,888) (62,275) (320,389) (143,956)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (20,598) (8,303) (22,542) (15,952)
Interest and other income 40,271 407 276,106 2,543
----------- ----------- ----------- -----------
19,673 (7,896) 253,564 (13,409)
----------- ----------- ----------- -----------
(LOSS) BEFORE INCOME TAXES (168,215) (70,171) (66,825) (157,365)
Income taxes, net of operating loss carryforwards -- -- -- --
----------- ----------- ----------- -----------
(LOSS) FROM CONTINUING OPERATIONS (168,215) (70,171) (66,825) (157,365)
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS (NOTE 5):
Income (loss) from operations of discontinued
subsidiary - net of taxes (86,055) 4,183 (57,945) 109,324
Gain on disposal of operating assets of discontinued
subsidiary - net of taxes 87,273 -- 87,273 --
----------- ----------- ----------- -----------
1,218 4,183 29,328 109,324
----------- ----------- ----------- -----------
NET (LOSS) $ (166,997) $ (65,988) $ (37,497) $ (48,041)
=========== =========== =========== ===========
(LOSS) PER SHARE (NOTE 2):
Continuing operations $ (.06) $ (.03) $ (.02) $ (.07)
Discontinued operations -- -- .01 .05
----------- ----------- ----------- -----------
$ (.06) $ (.03) $ (.01) $ (.02)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4.
<PAGE> 5
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For The Six Months
Ended July 31,
1998 1997
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) $ (37,497) $ (48,041)
Adjustments to reconcile net (loss) to net cash (utilized) provided from
operating activities:
Depreciation and amortization 36,985 81,530
Gain on sale of fixed assets (270,855) --
Change in assets and liabilities:
(Increase) in accounts and notes receivable (51,174) (73,155)
Decrease (increase) in inventories 5,781 (36,006)
(Increase) in prepaid expenses and other assets (31,256) (22,614)
Increase in accounts payable, accrued expenses and accrued income taxes 25,627 107,997
Net cash flows from discontinued operations 68,455 --
--------- ---------
NET CASH (UTILIZED) PROVIDED FROM OPERATING ACTIVITIES (253,934) 9,711
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets 293,100 --
Proceeds from sale of operating assets - discontinued operations 92,000 --
Capital expenditures (27,678) (1,520)
--------- ---------
NET CASH PROVIDED (USED BY) INVESTING ACTIVITIES 357,422 (1,520)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings from bank line of credit (59,573) 35,000
Payments of long-term debt (46,454) (173,795)
Net proceeds from sale of stock 101,019 --
--------- ---------
NET CASH PROVIDED (USED BY) FINANCING ACTIVITIES (5,008) (138,795)
--------- ---------
NET INCREASE (DECREASE ) IN CASH AND CASH EQUIVALENTS 98,480 (130,604)
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR 450,031 594,412
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD $ 548,511 $ 463,808
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 5.
<PAGE> 6
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited interim
consolidated condensed financial statements of EAC Industries,
Inc. (the "Company") and its subsidiaries, contain all
adjustments necessary (consisting of normal recurring accruals
or adjustments only) to present fairly the Company's financial
position as of July 31, 1998, the results of its operations for
the three and six month periods ended July 31, 1998 and 1997 and
cash flows for the six month periods ended July 31, 1998 and
1997.
The accounting policies followed by the Company are set forth in
Note 2 to the Company's consolidated financial statements
included in its Annual Report on Form 10-KSB for the year ended
January 31, 1998, which is incorporated herein by reference.
Specific reference is made to this report for a description of
the Company's securities and the notes to consolidated financial
statements.
The results of operations for the three and six month periods
ended July 31, 1998 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - EARNINGS (LOSS) PER SHARE:
Earnings (loss) per share has been computed on the basis of the
weighted average number of common shares outstanding during each
period presented, in accordance with the provisions of SFAS No.
128.
NOTE 3 - CONTINGENCY:
Goodren Products Corp., a subsidiary of the Company, withdrew
from participating in the District 65 Union Pension Plan (the
"Plan"). This withdrawal resulted in the assessment of a
withdrawal liability owed to the Plan by Goodren. During the
year ended January 31, 1995, the Company accrued a reserve for
an estimated liability of $560,000 which counsel to the Company
believed would be payable over a period of approximately 22
years beginning approximately one year from the withdrawal date.
In March of 1996, the Company signed an agreement with the Plan
whereby they will make quarterly payments of $7,548. On
September 30, 1996, the Company and Goodren entered into a
Settlement Agreement with the Trustees of the union pension plan
whereby Goodren's pension fund liability was reduced to $360,000
payable in 80 equal quarterly payments of $8,752 including
annual interest at a rate of 8%. The Company applied for relief
as a "hardship case" pursuant to the Settlement Agreement and
received approval to reduce its quarterly obligations to $3,000
until such time as the Company is out of hardship.
Page 6.
<PAGE> 7
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 - COMMON STOCK:
In November 1997, the Company filed a statement with the
Securities and Exchange Commission to register 2,283,551 shares
of its common stock to be issued upon exercise of the rights to
subscribe for such shares, "the Rights Offering". Shareholders
holding 100 shares of common stock or more at the close of
business on November 10, 1997 (the record date) received one
non-transferable Right for each share of common stock held. Each
Right entitles the holder to purchase one share of Company
common stock at an exercise price of $.22 per share.
Simultaneously with the closing, the Company effected (i) a 100
to 1 reverse split of its common stock through a
reclassification of its common stock and (ii) an immediate
subsequent reclassification with a forward stock split pursuant
to which each holder of the reclassified common stock would
receive 99 additional shares of reclassified common stock. The
effect of this was to eliminate all holders of less than 100
shares (pre-reverse split) of common stock, such stockholders
receiving cash of $.28125 per share in lieu of their fractional
interests.
This offering was successfully consummated in February 1998. The
Company issued 595,541 shares of common stock and realized gross
proceeds aggregating $131,019.
NOTE 5 - DISCONTINUED OPERATIONS:
In June 1998, the Company completed the sale of substantially
all of the assets of Goodren Label Corporation (formerly Athena
Packaging Inc.) for an aggregate sale price of $202,000
including inventory valued at the lower of cost or market.
Simultaneously with the sale, the Company entered into a
consulting agreement with the buyer which terminates 180 days
after the closing. The value of this agreement, $75,000, was
included with the payment made at closing. The buyer will pay
the sales price as follows: (i) $167,000 at closing, (ii) buyer
to pay for inventory 90 days after the closing plus interest
accrued at an annual rate of 7% and (iii) $62,500 to be received
180 days after closing plus accrued interest at 7% per annum.
Page 7.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
INTRODUCTION:
EAC Industries, Inc., the Company, is a holding company with three
subsidiaries: Flexible Printed Products, Inc. ("Flexible"),
Goodren Products Corporation ("Goodren") and Goodren Label
Corporation, formerly Athena Packaging, Inc. ("Athena"). 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. Goodren designs and
provides point-of-purchase advertising displays and wall
decorations on semi-durable plastic. In December 1997, the Company
decided to cease Goodren's production operations and establish an
outsourcing arrangement with another manufacturer. Goodren still
continues to market and distribute these products. In June 1998,
the Company completed the sale of the operating assets of Athena,
namely inventories and manufacturing equipment. Prior to this
sale, Athena produced printed, laminated, embossed and hot-stamped
labels, wraps, seals and decals for the cosmetics, pharmaceutical
and health and beauty aids industries. See Note 5 of Notes to
Financial Statements.
The financial information presented herein includes: (i)
Consolidated condensed balance sheets as of July 31, 1998 and
January 31, 1998; (ii) Consolidated condensed statements of
operations for the three and six month periods ended July 31, 1998
and 1997 and (iii) Consolidated condensed statements of cash flows
for the six month periods ended July 31, 1998 and 1997.
RESULTS OF CONTINUING OPERATIONS:
Sales for the three-month period ended July 31, 1998 were
$1,116,000 as compared to $1,287,000 for the comparable period of
the prior year, reflecting a decrease of $171,000 or 13%. Sales
for the six-month period ended July 31, 1998 were $2,244,000 as
compared to $2,731,000 for the comparable period of the prior
year, reflecting a decrease of $487,000 or 18%. Cost of sales as a
percentage of sales was 89.1% for the three-month period ended
July 31, 1998 as compared to 72.3% for the three-month period
ended July 31, 1997. Cost of sales as a percentage of sales was
85.4% for the six-month period ended July 31, 1998 as compared to
74.6% for the six-month period ended July 31, 1997. These
decreases in sales and the resulting increase in cost of sales is
a result (i) higher raw material and labor costs experienced by
Flexible and (ii) Goodren shifting the focus of its operations
from manufacturing to a sales oriented business.
Selling, general and administrative expenses decreased by $109,000
(from $418,000 to $309,000) when comparing the three-month periods
ended July 31, 1997 and 1998. Selling, general and administrative
expenses decreased from $836,000 to $648,000 ($188,000 or 22%)
when comparing the six-month periods ended July 31, 1997 and 1998.
These expenses remained at a relatively constant percent of sales
for all periods.
For the six-month period ended July 31, 1998, the Company realized
a gain of $271,000 ($38,000 for the three-month period ended July
31, 1998) from the sale of manufacturing equipment no longer being
used by Goodren.
For the three months ended July 31, 1998 and 1997, the Company
reflected a net loss from continuing operations of $168,000 and
$70,000, respectively. For the six months ended July 31, 1998 and
1997, the Company reflected a net loss from continuing operations
of $67,000 and $157,000, respectively.
Page 8.
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(CONTINUED):
RESULTS OF DISCONTINUED OPERATIONS:
During the quarter ended July 31, 1998, the Company completed the
sale of the operating assets (inventories and manufacturing
equipment) of Athena and realized a gain from such sale of
$87,000. The operating results of this discontinued subsidiary
reflected a loss of $58,000 for the six-month period ended July
31, 1998 compared to operating income of $109,000 for the same
period of the prior year.
For the three months ended July 31, 1998 and 1997, the Company
reflected a net loss of $167,000 and $66,000, respectively. For
the six months ended July 31, 1998 and 1997, the Company reflected
a net loss of $37,000 and $48,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
At July 31, 1998, the Company's working capital was $770,000
compared to working capital of $466,000 at its year ended January
31, 1998. Cash amounted to $549,000 at July 31, 1998 compared to
$450,000 at January 31, 1997.
During the period ended July 31, 1998, the Company successfully
completed an offering of its shares of common stock and realized
net proceeds of approximately $101,000. See also Note 4 of Notes
to Financial Statements.
The Company believes that its cash on hand will be sufficient to
fund planned operations for at least the next 12-month period. The
Company (primarily Flexible) is anticipating capital expenditures
of approximately $50,000, during the next year. Management
believes that these expenditures can be funded from existing
resources.
OTHER:
This report contains forward-looking statements and information
that is based on management's beliefs and assumptions, as well as
information currently available to management. When used in this
document, the words "anticipate," "estimate," "expect," "intend"
and similar expressions are intended to identify forward-looking
statements. Although the Company believes that the expectations
reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be
correct. Such statements are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks
or uncertainties materialize, or should the underlying assumptions
prove incorrect, actual results may vary materially from those
anticipated, estimated or expected. Among the key factors that may
have a direct bearing on the Company's operating results are
fluctuations in the economy, the degree and nature of competition,
the risk of delay in product development and release dates and
acceptance of, and demand for, the Company's products.
Page 9.
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports
(a) Exhibits:
(11) Computation of Earnings per Common Share
(27) Financial Data Schedule
Page 10.
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EAC INDUSTRIES, INC.
Registrant
/s/ Peter B. Fritzsche
Date: October 12, 1998
Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
Page 11.
<PAGE> 1
EAC INDUSTRIES, INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months For The Six Months
Ended July 31, Ended July 31,
------------------------------ ------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
NET (LOSS):
<S> <C> <C> <C> <C>
Continuing operations $ (168,215) $ (70,171) $ (66,825) $ (157,365)
Discontinued operations 1,218 4,183 29,328 109,324
----------- ----------- ----------- -----------
NET (LOSS) $ (166,997) $ (65,988) $ (37,497) $ (48,041)
=========== =========== =========== ===========
(LOSS) PER SHARE:
Continuing operations $ (.06) $ (.03) $ (.02) $ (.07)
Discontinued operations -- -- .01 .05
----------- ----------- ----------- -----------
$ (.06) $ (.03) $ (.01) $ (.02)
=========== =========== =========== ===========
SHARES:
Weighted average shares outstanding 2,885,521 2,311,687 2,815,569 2,311,687
Other - options, warrants etc -- -- -- --
----------- ----------- ----------- -----------
2,885,521 2,311,687 2,815,569 2,311,687
=========== =========== =========== ===========
</TABLE>
- Exhibit 11 -
Page 12.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the six months ended July 31, 1998 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 548,511
<SECURITIES> 0
<RECEIVABLES> 769,804
<ALLOWANCES> 45,566
<INVENTORY> 193,468
<CURRENT-ASSETS> 1,791,876
<PP&E> 831,545
<DEPRECIATION> 531,590
<TOTAL-ASSETS> 2,268,550
<CURRENT-LIABILITIES> 1,021,837
<BONDS> 365,059
0
0
<COMMON> 289,282
<OTHER-SE> 592,372
<TOTAL-LIABILITY-AND-EQUITY> 2,258,550
<SALES> 2,244,385
<TOTAL-REVENUES> 2,244,385
<CGS> 1,916,566
<TOTAL-COSTS> 2,564,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,542
<INCOME-PRETAX> (66,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (66,825)
<DISCONTINUED> 29,328
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37,497)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
