SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A2
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 31, 1999 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)
2111 Claridge Lane
Northbrook, IL 60062
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 847-509-8657
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-B 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-KSB or any amendment to
this Form 10-KSB. [ ]
Issuers revenues for the most recent fiscal year - $4,324,714.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 30, 1999 was approximately $135,000.
Indicate by check mark whether the registrant has filed all documents and
reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No ___.
As of April 30, 1999, the registrant had outstanding 2,885,521 shares of Common
Stock ($.10 par value).
- 1 -
<PAGE>
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 currently has one operating subsidiary, Flexible Printed Products,
Inc. ("Flexible"). 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 $60,000 at January 31, 1999 and $75,000 at January 31, 1998.
Flexible believes that it can fulfill its 1999 backlog on a timely basis.
Flexible 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.
In June 1998, the Company completed the sale of substantially all of the assets
of Goodren Label Corporation (formerly Athena Packaging Inc.). Goodren Label
Corporation ("Athena"), is a wholly owned subsidiary of the Company which was in
the business of producing printed, laminated, embossed and hot stamped labels,
wraps, seals and decals for the cosmetics, pharmaceutical and health and beauty
aids industries. The aggregate sales price of $277,000 including inventory
valued at the lower of cost or market. Simultaneously with the sale, the Company
entered into a consulting agreement, valued at $75,000, with the buyer which
terminated 180 days after the closing
On March 1, 1999, the Company completed the sale of the operating assets of
Goodren Products Corporation ("Goodren"), a wholly owned subsidiary of the
Company, for a price of $400,000 plus the assumption of all trade payable
liabilities. Goodren was in the business of designing and providing
point-of-purchase advertising displays and wall decorations on semi-durable
plastic.
FINANCIAL CONDITION OF THE COMPANY
The Company's financial condition has declined from January 31, 1998. The
primary reasons for this decline were: (a) the decline in sales and gross profit
margins at Goodren and Flexible and (b) a moderate increase in the operating
overhead of the Company (EAC). The combination of the above factors has resulted
in the Company's working capital declining to $448,128 in 1999 from $755,321 in
1998. Current assets decreased to $935,125 in 1999 from $1,258,249 in 1998 and
current liabilities also decreased to $486,997 in 1999 from $502,928 in 1998.
Dues to the above factors, shareholders' equity decreased to $479,121 in 1999
from $818,132 in 1998.
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
- 2 -
<PAGE>
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 $10 million with Flexible's share
estimated at approximately 15%. 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>
<S> <C> <C> <C> <C>
Approx. Lease
Area Expiration Annual
(Sq.Ft) Date Rental Principal Use
------- ---- ------ -------------
101 W. Forest Avenue
Englewood, New Jersey 20,000 6/2000 $57,000 Manufacturing and general offices
for Goodren and Athena
1600 North Orangethorp Avenue
Anaheim, California 7,500 3/2001 $41,600 Manufacturing and general office for
Flexible
2111 Claridge Lane
Northbrook, Illinois 600 Month to $7,800 Office space and headquarters
Month for the Company
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings to which the Company or its subsidiaries are
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
- 3 -
<PAGE>
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 30, 1999, the Company believes there were approximately
1,650 shareholders of record. 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 1999 and 1998:
1997 1998
---- ----
First Quarter $ First Quarter $ 3/6
Second Quarter Second Quarter 3/8
Third Quarter Third Quarter 3/16
Fourth Quarter Fourth Quarter 3/16
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
CONTINUING OPERATIONS
In fiscal 1999, the Company had a net loss from continuing operations of
$426,040 ($.15 per share) as compared to a net loss of $696,885 ($.30 per share)
in fiscal 1998. The loss for fiscal 1999 was primarily due to lower sales and
gross profit margins at Flexible. In addition, during fiscal 1999, the Company
experienced a slight increase of approximately 2% in its operating overhead.
During the current year, the Company reflected a write-down of its union
liability (see discussion below and Note 11c of Notes to the Consolidated
Financial Statements). The decreased sales and gross profit, increased overhead
and the effect of the write-down resulted in a pre-tax loss of $426,040 for the
current year compared to a loss of $179,591 sustained in the previous year. In
1998, the Company reversed a deferred tax asset of $510,000 which it had
recognized in prior years, since it was determined that it was not likely that
such asset will be realized in the near future. This reversal resulted in a net
loss from continuing operations of $696,885 in 1998 compared to $426,040 in the
current year.
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
sales price of $277,000 including inventory valued at the lower of cost or
market. On March 1, 1999, the Company completed the sale of the operating assets
of Goodren Products Corporation ("Goodren") for a price of $400,000 plus the
assumption of all trade payable liabilities. See Note 2 of Notes to the
Consolidated Financial Statements for a further description of these
transactions.
- 4 -
<PAGE>
For the fiscal 1999 year, these two discontinued subsidiaries reported a loss
from operations of $101,264 as compared to a loss in the prior year of $303,610.
The gain realized from the sale of the assets of Athena aggregated $87,274. The
results of the sale of Goodren's assets have not been recorded as of January 31,
1999 since this is a post-balance sheet event.
NET LOSS
Consolidated net loss for the year ended January 31, 1999 was $440,030 ($.15 per
share) compared to a loss of $1,000,495 ($.43 per share) for the previous year.
INFLATION
The Company expects inflation to be moderate and to be offset by cost reduction
programs and price increases.
FINANCIAL RESOURCES AND LIQUIDITY
The Company's financial condition declined in 1999 from 1998. The Company had
working capital of $445,731 as of January 31, 1999 compared to $755,321 as of
January 31, 1998. The Company and its subsidiaries 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 11c
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%. In December 1997, the Company
entered into a Hardship Settlement Agreement with the Trustees whereby it was
able to reduce its quarterly payments/obligations to $3,000 because of the
Company's poor financial condition. If the Company's financial condition should
improve so that there would be no hardship in making future payments (i.e.
payment of the withdrawal liability does not impede its ability to operate),
then the Plan may terminate the Hardship Settlement and require the Company to
make all payments due after the date of such improvement in accordance with the
original Settlement Agreement. Should this occur, then the Company's quarterly
payment would revert back to $8,752. During the current fiscal year, the Company
further reduced its liability to approximately $150,000, its deemed fair value.
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.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
Page Number
-----------
Independent Auditors' Report F - 1
Consolidated Balance Sheets F - 2
Consolidated Statements of Operations F - 3
- 5 -
<PAGE>
Consolidated Statement of Changes in Shareholders' Equity F - 4
Consolidated Statements of Cash Flows F - 5
Notes to the Consolidated Financial Statements F - 6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE:
None
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS ACT
The following table sets forth the names of the nominees for the election
to the Board of Directors, their business experience during the past five years,
their positions, if any, with EAC, their previous terms as directors and the
number of Shares of Common Stock of EAC owned beneficially by each of them as of
January 31, 1999. Each nominee's Common Stock ownership represents less than 1%
of the aggregate amount of Common Stock outstanding, except for Peter B.
Fritzsche and P. Bartley Fritzsche whose beneficial ownership represents
approximately 33% and 1% respectively of the outstanding Common Stock of the
Company.
<TABLE>
Common Stock
Director Owned Beneficially
Name Principal Occupation for Last 5 Years Since As of 1/31/99
- ---- ------------------------------------- ----- --------------
<S> <C> <C> <C>
Peter B. Fritzsche(1) Chairman of the Board of Directors, President 1991 and 943,208(2)
Age 64 and CEO and Assistant Secretary, EAC - July from
1992 to present; Chairman of the Board of 1978-
Director and Assistant Secretary, EAC - 1990
December 1991 to July 1992; Yale University
Development Office, New Haven, CT - January
1992 to July 1994; consultant - 1990 to 1992;
Director of EAC - 1989 to 1990; Chairman of
the Board of Directors, President and CEO,
EAC - 1979 to 1989.
E. Donald McKenzie, Jr. President, Supercoups, Inc. Avon, MA (printer 1994 1,000
Age 47 of coupons) 1997 to present; Vice President -
Sales and Marketing, Health Tour, Inc. (agency for
temporary help / occupational therapists) -
January, 1996-1997; President Graphic Systems West
(manufacturers' representative for printing
equipment), Irvine, CA - 1991 to 1995.
John B. Millet, Jr. President and Owner of Mohawk Metal 1994 38,254
Age 57 Products Co., Utica, NY (suppliers to the retail
petroleum industry) - since 1977.
P. Bartley Fritzsche(1) Regional Account Manager, Neuberger & 1994 38,000
Age 30 Berman Management Inc., Chicago, IL.
Financial Services Company; John Marshall
Law School - 1993-1997 (LLB); Account
Representative, John Nuveen & Co., Chicago,
IL - 1991 to 1993.
</TABLE>
(1) Peter B. Fritzsche and P. Bartley Fritzsche are father and son.
(2) Includes 942,408 Shares held directly or through an IRA and 800 Shares
held of record by Mr. Fritzsche's spouse, whose beneficial ownership
may be attributable to Mr. Fritzsche, but which he disclaims.
- 6 -
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
Set forth below is the compensation paid to the executive officers of the
Company and its Goodren Products Corporation subsidiary (which was sold on July
1, 1999) and for all such persons as a group:
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
Peter B. Fritzsche FY 1999 $132,000 $ -0- $ -0-
Chairman and CEO FY 1998 $132,000 $ -0- $ -0-
FY 1997 $132,000 $ -0- $ -0-
Steven Mann (1) FY 1999 $165,697 $ -0- $ -0-
President and Goodren FY 1998 $179,372 $ -0- $ -0-
Products Corp. FY 1997 $177,398 $ -0- $ -0-
Total FY 1999 $297,657 $ -0- $ -0-
FY 1998 $311,372 $ -0- $ -0-
FY 1997 $309,398 $ -0- $ -0-
(1) Mr. Mann had an employment contract, renewable annually, which called
for base compensation of $155,000 (subject to annual inflation
adjustments) and a bonus equal to 5% of Goodren's total operating
income, provided that operating income was in excess of $650,000 in
the pertinent fiscal year. Mr. Mann was not paid a discretionary bonus
in fiscal 1997, fiscal 1998 or fiscal 1999.
Board members who are not employees (three presently) are paid fees equal
to $4,000 per year, plus $1,250 for each board or committee meeting attended.
Each non-employee director earned $9,000 during the fiscal year, having
attended a total of five board or committee meetings. As of September 30, 1999
Board members agreed to waive board compensation while the Company's financial
hardship situation continues.
- 7 -
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of EAC, as of January 31, 1999 the only beneficial
owner of 5% or more of EAC's Common Stock was:
Amount
Principal Name and Address Beneficially Percent of
Class of Beneficial Owner Owned Class
- ----- ------------------- ----- -----
Common Stock Peter B. Fritzsche 943,208 33%
EAC Industries, Inc.
2111 Claridge Lane
Northbrook, Illinois 60062-8615
As of that date, all directors and officers as a group owned 1,020,462
Shares (35%). See Item 9 above for additional information.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 9 above for relevant information.
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
(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
-8 -
<PAGE>
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 13, 1999
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 13, 1999
_________________________
Peter B. Fritzsche, Director
/s/ P. BARTLEY FRITZSCHE May 13, 1999
_________________________
P. Bartley Fritzsche, Director
/s/ JOHN B. MILLET, JR. May 13, 1999
_________________________
John B. Millet, Jr., Director
/s/ E. DONALD MCKENZIE, JR. May 13, 1999
_________________________
E. Donald McKenzie, Jr., Director
- 9 -
<PAGE>
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: __________________________
Peter B. Fritzsche
President, Chief Executive
Officer and Principal Financial
and Accounting Officer
Date: May 13, 1999
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.
_________________________ May 13, 1999
Peter B. Fritzsche, Director
_________________________ May 13, 1999
P. Bartley Fritzsche, Director
_________________________ May 13, 1999
John B. Millet, Jr., Director
_________________________ May 13, 1999
E. Donald McKenzie, Jr., Director
-10-
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
EAC Industries, Inc.
Northbrook, Illinois
We have audited the accompanying consolidated balance sheets of EAC Industries,
Inc. and subsidiaries as of January 31, 1999 and 1998 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the two year period ended January 31, 1999. 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, 1999 and 1998 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
April 19, 1999
F - 1
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1999 AND 1998
- ASSETS (Note 6) -
<TABLE>
<S> <C> <C>
1999 1998
---- ----
CURRENT ASSETS:
Cash (Note 3d) $ 467,910 $ 308,539
Accounts receivable - net of allowance for doubtful accounts of $20,000
for 1999 and 1998 (Note 3d) 180,161 227,674
Inventories (Notes 3e and 4) 60,041 85,055
Prepaid taxes and expenses 20,878 30,432
Net assets of discontinued operations (Note 2) 206,135 606,549
----------- -----------
TOTAL CURRENT ASSETS 935,125 1,258,249
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 3f and 5) 224,885 265,101
----------- -----------
OTHER ASSETS:
Costs in excess of net assets acquired (Note 3g) 162,621 177,009
Other assets 4,404 -
----------- -----------
167,025 177,009
----------- -----------
$ 1,327,035 $ 1,700,359
=========== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 143,899 $ 185,451
Accrued expenses (Note 6) 319,353 305,817
Long-term debt - current portion (Note 7) 23,745 9,460
Income taxes payable (Notes 3h and 9) - 2,200
----------- -----------
TOTAL CURRENT LIABILITIES 486,997 502,928
----------- -----------
LONG-TERM DEBT - NET OF CURRENT PORTION (NOTE 7): 360,917 379,299
----------- -----------
COMMITMENTS AND CONTINGENCIES (NOTES 10 AND 11)
SHAREHOLDERS' EQUITY (NOTE 8):
Common stock, $.10 par value; 20,000,000 shares authorized; 2,892,819
and 2,319,285 shares issued in 1999 and 1998, respectively 289,282 231,929
Capital in excess of par value 10,546,048 10,504,380
Accumulated deficit (10,307,607) (9,867,577)
----------- -----------
527,723 868,732
Less: Common stock in treasury, 7,298 and 7,598 shares at cost
in 1998 and 1998, respectively (48,602) (50,600)
----------- -----------
479,121 818,132
----------- -----------
$ 1,327,035 $ 1,700,359
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 2
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<S> <C> <C>
Year Ended January 31,
1999 1998
---- ----
NET SALES $1,436,489 $ 1,669,739
---------- -----------
COSTS AND EXPENSES:
Cost of products sold 1,058,519 1,077,519
Selling, general and administrative expenses 803,707 787,769
---------- -----------
TOTAL COSTS AND EXPENSES 1,862,226 1,865,288
---------- -----------
(LOSS) FROM OPERATIONS (425,737) (195,549)
---------- -----------
OTHER INCOME (EXPENSE):
Interest expense (10,417) (8,094)
Interest and other income 10,114 24,052
---------- -----------
(303) 15,958
---------- -----------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (426,040) (179,591)
Provision for income taxes (Notes 3h and 9) - 517,294
---------- -----------
(LOSS) FROM CONTINUING OPERATIONS (426,040) (696,885)
---------- -----------
DISCONTINUED OPERATIONS (Note 2):
Loss from operations of discontinued subsidiary - net of taxes (101,264) (303,610)
Gain on disposal of operating assets of discontinued subsidiary - net of taxes 87,274 -
---------- -----------
(13,990) (303,610)
---------- -----------
NET LOSS $ (440,030) $(1,000,495)
========== ===========
BASIC LOSS PER SHARE (Note 3i)
Continuing operations $(0.15) ($0.30)
Discontinued operations - (0.13)
---------- -----------
$(0.15) $(0.43)
========== ===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,837,427 2,311,687
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 3
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital in Common Total
Number of Common Excess Accumulated Stock in Shareholders'
Shares Stock of Par Deficit Treasury Equity
------ ----- ------ ------- -------- ------
Balance at January 31, 1997 2,319,285 $231,929 $10,504,380 $ (8,867,082) $(50,600) $ 1,818,627
Net loss for the year - - - (1,000,495) - (1,000,495)
--------- -------- ----------- ------------ -------- -------------
Balance at January 31, 1998 2,319,285 231,929 10,504,380 (9,867,577) (50,600) 818,132
Sale of common stock 573,534 57,353 41,668 - 1,998 101,019
Net loss for the year - - - (440,030) - (440,030)
--------- -------- ----------- ------------ -------- -------------
BALANCE AT,
JANUARY 31, 1999 2,892,819 $289,282 $10,546,048 $(10,307,607) $(48,602) $ 479,121
========= ======== =========== ============ ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 4
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C>
Year Ended January 31,
1999 1998
---- ----
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(440,030) $(1,000,495)
Adjustments to reconcile net (loss) to cash provided (utilized) by operating activities:
Depreciation and amortization 65,614 100,571
Allowance for doubtful accounts - 4,470
Loss (gain) on sale of fixed assets 9,812 (19,745)
Deferred income taxes - 510,000
Changes in assets and liabilities:
Decrease (increase) in accounts and notes receivable 47,513 (65,589)
Decrease (increase) in inventories 25,014 (23,129)
Decrease in prepaid expenses 5,150 1,219
Increase in accounts payable, accrued expenses and accrued income taxes 386,419 122,999
Net cash from discontinued operations 27,834 97,703
--------- -----------
NET CASH PROVIDED (UTILIZED) BY OPERATING ACTIVITIES 127,326 (271,996)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets - 113,249
Capital expenditures (20,823) (2,773)
--------- -----------
NET CASH (UTILIZED) PROVIDED BY INVESTING ACTIVITIES (20,823) 110,476
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock 101,019 -
Payments of long-term debt (48,151) (149,353)
--------- -----------
NET CASH PROVIDED (USED BY) FINANCING ACTIVITIES 52,868 (149,353)
--------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 159,371 (310,873)
Cash and cash equivalents, at beginning of year 308,539 619,412
--------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 467,910 $ 308,539
========= ===========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $29,189 $40,364
Income taxes paid - 15,170
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F - 5
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
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, as of January 31,
1998, three wholly owned operating subsidiaries, Goodren Products
Corporation ("Goodren"), Flexible Printed Products, Inc. ("Flexible")
and Athena Packaging, Inc. ("Athena"). See Note 2 for a description of
Discontinued Operations. Flexible, currently the Company's only
operating subsidiary, 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.
NOTE 2 - 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 sales price of $277,000 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
terminated 180 days after the closing. The value of this agreement,
$75,000, was included with the payment made at closing. The buyer paid
the sales price as follows: (i) $167,000 at closing, (ii) value of
inventory 90 days after the closing plus interest accrued at an annual
rate of 7% and (iii) $62,500 which was to be paid 180 days after
closing plus accrued interest at 7% per annum. As of January 31, 1999,
all payments due had been received.
On March 1, 1999, subsequent to the balance sheet date, the Company
completed the sale of the operating assets of Goodren Products
Corporation ("Goodren") for a price of $400,000 plus the assumption of
all trade payable liabilities. The payment terms are as follows: (i)
$200,000 at closing, (ii) $30,000 to be paid 180 days after closing
plus interest accrued at an annual rate of 7% (iii) $50,000 to be paid
360 days after closing plus interest accrued at an annual rate of 7%,
(iv) $60,000 to be paid 540 days after closing plus interest accrued
at an annual rate of 7% (v) $60,000 to be paid 720 days after closing
plus interest accrued at an annual rate of 7%.
NOTE 3 - 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.
F - 6
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(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/FAIR VALUE:
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash investments
and accounts receivable.
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.
The carrying value of cash and cash equivalents, accounts receivable
and accounts payable reasonably approximate fair value because of the
short maturity of those instruments.
(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.
F - 7
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(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 included in continuing operations were
$14,388 for each of the years ended January 31, 1999 and 1998.
Accumulated amortization as of January 31, 1999 and 1998 aggregated
$52,379 and $37,991, 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) INCOME TAXES:
The Company accounts for income taxes using the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" ("SFAS No. 109") which 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. See also Note 9.
(i) INCOME PER SHARE:
The Company reports earnings per share as required by SFAS 128
"Earnings Per Share" ("SFAS 128"). SFAS 128 requires the presentation
of "basic" and "diluted" earnings per share on the face of the income
statement. Basic loss per common share is computed by dividing net
loss by the weighted average number of common shares outstanding
during each period.
(j) RECLASSIFICATIONS:
Certain reclassifications have been made to the 1998 financial
statements in order to conform to the 1999 presentation. These
reclassifications relate to the disposition of assets as disclosed in
Note 2.
F - 8
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(k) NEW ACCOUNTING PRONOUNCEMENTS:
SFAS 130 "Reporting Comprehensive Income" is effective for years
beginning after December 15, 1997 and early adoption is permitted.
This statement prescribes standards for reporting comprehensive income
and its components. The Company currently has no items of other
comprehensive income.
SFAS 131 "Disclosures About Segments of an Enterprise and Related
Information" is effective for years beginning after December 15, 1997
and early adoption is encouraged. The Company does not presently
believe that it operates in more than one identifiable segment.
(l) IMPACT OF THE YEAR 2000 ISSUE:
The year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's computer programs that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year
2000. This could potentially result in a system failure or
miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send
invoices, or engage in other similar normal business activities. The
Company has ensured that its software is already year 2000 compliant,
and as such, this issue is not expected to have a material effect on
the operations of the Company.
NOTE 4 - INVENTORIES:
Inventories at January 31, 1999 and 1998 consisted of the following:
1999 1998
---- ----
Raw materials $57,691 $80,055
Finished goods 2,350 5,000
------- -------
$60,041 $85,055
======= =======
F - 9
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Fixed assets and accumulated depreciation at January 31, 1999 and 1998
consisted of the following:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
Building and improvements $ 18,543 $ 8,242
Machinery and equipment 216,496 206,727
Label artwork 150,000 150,000
Transportation equipment 22,275 22,275
Furniture and fixtures 48,922 58,844
--------- ---------
456,236 446,088
Less: accumulated depreciation and amortization 231,351 180,987
--------- ---------
$ 224,885 $ 265,101
========= =========
</TABLE>
For the years ended January 31, 1999 and 1998, depreciation expense
from continuing operations aggregated $51,226 and $67,706,
respectively.
NOTE 6 - ACCRUED EXPENSES:
At January 31, 1999 and 1998 accrued expenses consisted of the
following:
1999 1998
---- ----
Salaries and wages $ 9,239 $ 7,603
Employee benefits 162,048 162,048
Other 148,066 136,166
---------- ----------
$ 319,353 $ 305,817
========== ==========
F - 10
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 7 - LONG-TERM DEBT:
(a) OTHER LIABILITIES:
At January 31, 1999 and 1998 long-term liabilities included the
following:
<TABLE>
<S> <C> <C>
1999 1998
---- ----
9.9% equipment note payable in monthly installments of
$1,454, inclusive of interest $ 35,283 $ 44,434
Union pension withdrawal liability/shortfall, presently
payable in quarterly installments of $3,000 (including
interest at 8% per annum (see Note 11c) 349,379 344,325
--------- ---------
384,662 388,759
Less: current portion 23,745 9,460
--------- ---------
$ 360,917 $ 379,299
========= =========
</TABLE>
Aggregate maturities of long-term liabilities for the next five years
and in the aggregate are $23,745, $25,960, $16,673, $12,007,
$12,935 and $293,342 thereafter.
NOTE 8 - SHAREHOLDERS' EQUITY:
In November 1997, the Company filed a statement with the Securities
and Exchange Commission registering 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 entitled the holder to purchase one share of
Company common stock at an exercise price of $.22 per share. This
offering closed in February 1998 and the Company realized net proceeds
of $101,019. 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.
F - 11
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 9 - INCOME TAXES:
The provision for income taxes consisted of the following for the
years ended January 31, 1999 and 1998:
<TABLE>
<S> <C> <C> <C>
1999 1998
---- ----
Current:
Federal - $ -
State and local - 7,294
----------- ----------
- 7,294
Deferred
Federal, state and local - 510,000
----------- ----------
PROVISION FOR INCOME TAXES $ - $ 517,294
The components of the net deferred income tax asset, pursuant to SFAS
109, as of January 31, 1999 and 1998 are as follows:
1999 1998
---- ----
Deferred tax assets:
Accounts receivable $ 6,500 $ 3,700
Inventory 3,200 2,800
Operating loss carryforward 3,115,000 3,000,000
Total deferred tax asset 3,124,700 3,006,500
Valuation allowance 3,124,700 3,006,500
----------- ----------
NET DEFERRED INCOME TAX ASSET $ - $ -
=========== ==========
</TABLE>
The Company has available operating loss carryforwards for federal tax
purposes of approximately $9,000,000. These losses expire in various
years beginning in 2005 and may result in deferred tax assets. The
Company had previously recorded a deferred tax asset based on the
assumed recoverability of the net operating loss carryforward. Since
the Company realized a significant net operating loss for the year
ended January 31, 1998, this deferred tax asset was reversed during
that year. The Company has provided a 100% valuation allowance against
its deferred tax asset since it is not more likely than not that such
asset will be realized in the near future. 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,
1999 and 1998 is not meaningful and therefore not provided due to the
reversal of the deferred tax asset.
F - 12
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 10 - RETIREMENT PLANS:
Goodren has a defined contribution profit sharing plan covering
substantially all 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 approximated $35,000 in 1998. No
contributions were made in 1999.
Due to the sale of Goodren's operating assets in March 1999, the
Company is currently in the process of terminating this plan.
NOTE 11 - 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 2002. Other locations are rented on a month
to month basis. Rental and lease expense aggregated approximately
$109,000 and $102,000 for the years ended January 31, 1999 and 1998,
respectively.
Future minimum rental commitments for existing operating leases and in
the aggregate are as follows:
Fiscal year ending January 31, 2000 - $108,325
2001 - 71,075
2002 - 3,639
$183,039
(b) EMPLOYMENT CONTRACTS:
The Company had an employment contract (the "Contract") with the
President of Goodren which, after its expiration on January 31, 1994,
was renewed automatically for successive one-year terms. The contract
specified base compensation of $155,000 for the initial term with
annual increases based on changes in the consumer price index. The
contract also provided 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. As a result of
the sale of the operating assets in March 1999, this contract has now
been terminated.
Flexible entered into an employment contract with its President for a
three-year period ending December 15, 1997, subject to renewals for
successive one-year terms. The base compensation under this contract
was $75,000 with adjustments made annually based on changes in the
consumer price index. The contract also provided for additional
compensation based on annual sales revenue and/or gross profit
performance of Flexible. The contract also covered non-compete
provisions, availability of medical benefits and the use of an
automobile. During the year ended January 31, 1999, this employee
resigned thus terminating the contract.
F - 13
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1999 AND 1998
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
(c) OTHER:
Goodren has withdrawn from participating in the District 65 Union
Pension Plan (the "Plan"). 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, the Company signed an agreement with the Plan whereby they will
make quarterly payments of $7,548. At 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%. In December 1997, the
Company entered into a Hardship Settlement Agreement with the Trustees
whereby it was able to reduce its quarterly payments/obligations to
$3,000 because of the Company's poor financial condition. If the
Company's financial condition should improve so that there would be no
hardship in making future payments (i.e. payment of the withdrawal
liability does not impede its ability to operate), then the Plan may
terminate the Hardship Settlement and require the Company to make all
payments due after the date of such improvement in accordance with the
original Settlement Agreement. Should this occur, then the Company's
quarterly payment would revert back to $8,752. 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.
F - 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended January 31, 1999 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> Jan-31-1999
<PERIOD-START> Feb-01-1998
<PERIOD-END> Jan-31-1999
<CASH> 467,910
<SECURITIES> 0
<RECEIVABLES> 200,161
<ALLOWANCES> 20,000
<INVENTORY> 60,041
<CURRENT-ASSETS> 935,125
<PP&E> 456,236
<DEPRECIATION> 231,351
<TOTAL-ASSETS> 1,327,035
<CURRENT-LIABILITIES> 486,997
<BONDS> 360,917
<COMMON> 289,282
0
0
<OTHER-SE> 189,839
<TOTAL-LIABILITY-AND-EQUITY> 1,327,035
<SALES> 1,436,489
<TOTAL-REVENUES> 1,436,489
<CGS> 1,058,519
<TOTAL-COSTS> 1,862,226
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,417
<INCOME-PRETAX> (426,040)
<INCOME-TAX> 0
<INCOME-CONTINUING> (426,040)
<DISCONTINUED> (13,990)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (440,030)
<EPS-BASIC> (.15)
<EPS-DILUTED> (.15)
</TABLE>
