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 October 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-4338
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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)
(847) 509-8657
- -------------------------------------------------------------------------------
(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 October 31, 1999
- -------------------------------------- -------------------------------------
Common Stock, par value $.10 per share 2,885,521 shares
<PAGE>
- INDEX -
PAGE(S)
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PART I. Financial Information:
ITEM 1. Financial Statements
Consolidated Condensed Balance Sheets - October 31, 1999
(Unaudited) and January 31, 1999 3.
Consolidated Condensed Statements of Operations (Unaudited) -
Three and Nine Months Ended October 31, 1999 and 1998 4.
Consolidated Condensed Statements of Cash Flows (Unaudited) -
Nine Months Ended October 31, 1999 and 1998 5.
Notes to Interim Consolidated Condensed Financial Statements
(Unaudited) 6.
ITEM 2. Management's Discussion and Analysis or Plan of Operation 8.
PART II. Other Information 11.
SIGNATURES 12.
EXHIBITS:
Exhibit 27 - Financial Data Schedule
Page 2.
<PAGE>
PART I. FINANCIAL INFORMATION:
ITEM I. FINANCIAL STATEMENTS:
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
- ASSETS -
<TABLE>
<CAPTION>
OCTOBER 31, January 31,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash .............................................. $ 623,688 $ 467,910
Notes and accounts receivable - net of allowance
for doubtful accounts of $20,000 at October 31,
and January 31, 1999, respectively ............... 155,651 180,161
Inventories ....................................... 78,684 60,041
Prepaid expenses .................................. 29,934 20,878
Due from buyer (Note 2) ........................... 110,000 --
Net assets of discontinued operations (Note 2) .... -- 206,135
---------- ---------
TOTAL CURRENT ASSETS .................................. 997,957 935,125
---------- ---------
PROPERTY, PLANT AND EQUIPMENT, NET .................... 216,961 224,885
---------- ---------
OTHER ASSETS:
Due from buyer (Note 2) ........................... 60,000 --
Costs in excess of net assets acquired - net ...... 151,830 162,621
Other assets ...................................... 4,404 4,404
---------- ----------
216,234 167,025
---------- ----------
$1,431,152 $1,327,035
========== ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable .................................. $ 170,025 $ 143,899
Accrued expenses .................................. 264,332 319,353
Long-term liabilities - current portion ........... 19,160 26,142
---------- ----------
TOTAL CURRENT LIABILITIES ............................. 453,517 489,394
---------- ----------
LONG-TERM LIABILITIES - NET OF CURRENT PORTION ........ 151,789 158,520
---------- ----------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
SHAREHOLDERS' EQUITY:
Common stock, $.10 par value; 20,000,000 shares
authorized, 2,892,819 shares issued at
October 31, and January 31, 1999 ................. 289,282 289,282
Capital in excess of par value .................... 10,546,048 10,546,048
Accumulated deficit ............................... (9,960,882) (10,107,607)
---------- -----------
874,448 727,723
Less: Common stock in treasury, 7,298
shares at cost at October 31, and
January 31, 1999 ............................ (48,602) (48,602)
---------- -----------
825,846 679,121
---------- -----------
$1,431,152 $ 1,327,035
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 3.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For The Three Months For The Nine Months
Ended October 31 October 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES ............................................. $ 384,620 $ 362,802 $ 1,139,368 $ 1,141,673
----------- ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of products sold ............................. 238,960 252,416 726,319 796,907
Selling, general and administrative expenses ...... 161,395 207,561 479,501 593,542
----------- ----------- ----------- -----------
TOTAL COSTS AND EXPENSES .............................. 400,355 459,977 1,205,820 1,390,449
----------- ----------- ----------- -----------
OPERATING (LOSS) ...................................... (15,735) (97,175) (66,452) (248,776)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense .................................. (1,220) (1,715) (4,050) (24,257)
Interest and other income ......................... 13,043 1,928 34,511 6,639
----------- ----------- ----------- -----------
11,823 213 30,461 (17,618)
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES ..................... (3,912) (96,962) (35,991) (266,394)
Income taxes, net of operating loss carryforward .. -- -- -- --
----------- ----------- ----------- -----------
INCOME (LOSS) FROM CONTINUING OPERATIONS .............. (3,912) (96,962) (35,991) (266,394)
----------- ----------- ----------- -----------
DISCONTINUED OPERATIONS (NOTE 2):
(Loss) from operations of discontinued subsidiaries
- net of taxes ................................ (22,766) (29,964) (57,502) (131,029)
Gain on disposal of operating assets of
discontinued subsidiary - net of taxes ........ -- 56,505 240,218 289,505
----------- ----------- ----------- -----------
(22,766) 26,541 182,716 158,476
----------- ----------- ----------- -----------
NET INCOME (LOSS) ..................................... $ (26,678) $ (70,421) $ 146,725 $ (107,918)
=========== =========== =========== ===========
BASIC AND DILUTED INCOME (LOSS)
PER SHARE (NOTE 3):
Continuing operations .......................... $ -- $ (.03) $ (.01) $ (.09)
Discontinued operations ........................ (.01) .01 .06 .05
----------- ----------- ----------- -----------
$ (.01) $ (.02) $ .05 $ (.04)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING ....................................... 2,885,521 2,885,521 2,885,521 2,846,147
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 4.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(UNAUDITED)
<TABLE>
<CAPTION>
For The Nine Months
Ended October 31,
1999 1998
--------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ..................................... $ 146,725 $(107,918)
Adjustments to reconcile net income (loss) to
cash used by operating activities:
Depreciation and amortization ...................... 35,098 42,431
Gain on sale of assets ............................. (240,218) (289,505)
Change in assets and liabilities:
Decrease in accounts and notes receivable .......... 24,510 143,520
(Increase) in inventories .......................... (18,643) (15,852)
Decrease (increase) in prepaid expenses and
other assets .................................... 1,705 (5,629)
(Decrease) in accounts payable, accrued expenses
and accrued income taxes ........................ (12,552) (113,435)
Net cash flow from discontinued operations ......... 13,123 70,110
--------- ---------
NET CASH (USED) BY OPERATING ACTIVITIES .......... (50,252) (276,278)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets .......................... 230,000 311,750
Capital expenditures .................................. (19,257) (27,678)
--------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES ......... 210,743 284,072
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock ................ -- 101,019
Payments of long-term debt ............................ (4,713) (50,945)
--------- ---------
NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES .. (4,713) 50,074
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 155,778 57,868
CASH AND CASH EQUIVALENTS, AT BEGINNING OF YEAR ........... 467,910 450,031
--------- ---------
CASH AND CASH EQUIVALENTS, AT END OF PERIOD ............... $ 623,688 $ 507,899
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
Page 6.
<PAGE>
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 October 31,1999 and the results of its operations
for the three and nine month periods ended October 31, 1999 and
1998, and its cash flows for the nine month periods ended
October 31, 1999 and 1998.
The accounting policies followed by the Company are set forth in
Note 3 to the Company's consolidated financial statements
included in its Annual Report on Form 10-KSB/A for the year
ended January 31, 1999, 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 nine month periods
ended October 31, 1999 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 - DISCONTINUED OPERATIONS:
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. 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%.
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 $277,000
including inventory valued at the lower of cost or market. The
full sales price was paid in cash at closing.
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 above.
The accompanying financial statements have been presented to
reflect the results of the discontinued subsidiaries separately.
The following is a summary of the results of operations of
Goodren and Athena for the periods ended October 31, 1999 and
1998.
<TABLE>
<CAPTION>
For The Nine Months Ended
October 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Goodren Products Corp.:
Revenues .................... $ 181,928 $2,000,204
Income (loss) from operations (36,546) 48,155
Gain on sale of assets ...... 240,218 --
Net income .................. 203,672 48,155
Income per share ............ $ .07 $ .02
</TABLE>
Page 7.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
-------------------------------------
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
------------------------------------------------------------
(UNAUDITED)
NOTE 2 - DISCONTINUED OPERATIONS (CONTINUED):
<TABLE>
<CAPTION>
For The Nine Months
Ended October 31,
----------------------
1999 1998
--------- ---------
<S> <C> <C>
Goodren Label Corp. (Athena):
Revenues ................. $ -- $ 414,708
Loss from operations ..... (20,956) (179,184)
Gain on sale of assets.... -- 289,505
Net income (loss) ........ (20,956) 110,321
Income (loss) per share... $ (.01) $ .04
</TABLE>
NOTE 3 - EARNINGS (LOSS) PER SHARE:
Earnings 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 4 - CONTINGENCY:
Goodren withdrew from participating in the District 65 Union
Pension Plan (the "Plan"), which 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 would 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. However, the agreement provides that 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 continues to
make quarterly payments of $3,000.
Page 7.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION:
INTRODUCTION:
EAC Industries, Inc., the Company, is a holding company with
currently one operating subsidiary, Flexible Printed Products,
Inc. ("Flexible"). 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.
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"), a wholly
owned subsidiary of the Company, 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
included 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"), 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.
The financial information presented herein includes: (i)
Consolidated condensed balance sheets as of October 31, 1999 and
January 31, 1999; (ii) Consolidated condensed statements of
operations for the three and nine month periods ended October 31,
1999 and 1998 and (iii) Consolidated condensed statements of cash
flows for the nine month periods ended October 31, 1999 and 1998.
RESULTS OF CONTINUING OPERATIONS:
Sales for the three-month period ended October 31, 1999 were
$385,000 as compared to $363,000 for the comparable period of the
prior year, reflecting an increase of $22,000 or 6.1%. Cost of
sales as a percentage of sales was 62.1% for the three-month
period ended October 31, 1999 as compared to 69.6% for the
three-month period ended October 31, 1998. Sales for the
nine-month period ended October 31, 1999 were $1,139,000 as
compared to $1,142,000 for the comparable period of the prior
year, reflecting a decrease of $3,000. Cost of sales as a
percentage of sales was 63.7% for the nine-month period ended
October 31, 1999 as compared to 69.8% for the nine-month period
ended October 31, 1998. This decrease in cost of sales is a
result of reductions in raw material and labor costs.
Selling, general and administrative expenses decreased by $46,000
and $114,000 when comparing the three and nine month periods
ended October 31, 1999 and 1998. These decreases result from
reductions in marketing costs as well as the implementation of
various cost saving techniques initiated by management.
For the three months ended October 31, 1999 the Company reflected
a net loss from continuing operations of $3,912 compared to a net
loss of $96,962 for the comparative period of the prior year. For
the nine month periods ended October 31, 1999 and 1998, the
Company reflected net losses from operations of $35,991 and
$266,394, respectively. This decrease in the operating losses was
primarily due to the reduced operating overhead as mentioned
above.
Page 8.
<PAGE>
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. The
gain recognized on the sale of these assets aggregated $289,505.
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.
The Company realized a gain of $240,218 upon the sale of
Goodren's assets. See Note 2 of Notes to the Consolidated
Financial Statements for a further description of these
transactions.
For the nine month period ended October 31, 1999, Goodren and
Athena reported a combined loss from operations of $57,502. The
gain realized from the sale of the assets of Goodren during the
current period aggregated $240,218. For the nine month period
ended October 31, 1998, Goodren and Athena reported a combined
operating loss of $131,029 and recognized a gain from the sale of
equipment of $289,505.
LIQUIDITY AND CAPITAL RESOURCES:
At October 31, 1999, the Company's working capital was $544,000
compared to working capital of $446,000 at its year ended January
31, 1999. Cash amounted to $624,000 at October 31, 1999 compared
to $468,000 at January 31, 1999.
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) has no planned capital
expenditures for the next year.
YEAR 2000 ISSUES
The Year 2000 ("Y2K") problem is the result of computer programs
being written using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have
time-sensitive software may recognize a date using "00" as the
year 1900 rather than the year 2000, which could result in
miscalculations or system failures. The Company has instituted a
Y2K compliance program, the objective of which is to determine
and assess the risks of the Y2K issue, and plan and institute
mitigating actions to minimize those risks. The Company's
standard for compliance requires that, for a computer system or
business process to be Y2K compliant, it must be designed to
operate without error in date and date-related data prior to, on
and after January 1, 2000. The Company's computer's hardware is
Y2K compliant and it has purchased an "off-the-shelf" business
software program, for internal use, which is also Y2K compliant.
The Company has spent less than $10,000 to date and expects that
any further expenditures will be minimal.
CONTINGENCY PLANS
The Company's management is in the process of developing a
"worst-case scenario" with respect to Y2K noncompliance and to
develop contingency plans designed to minimize the effects of
such scenario. Although management believes that it is very
unlikely that any of these worst-case scenarios will occur,
contingency plans will be developed and will address both IT
system and non-IT system failure.
Page 9.
<PAGE>
The Company intends to request assurances of Y2K readiness from
its telephone and electrical suppliers. However, management has
been informed that some suppliers have either declined to provide
the requested assurances, or have limited the scope of assurances
that they are willing to give. If suppliers of services that are
critical to the Company's operations were to experience business
disruptions as a result of their lack of Y2K readiness, their
problems could have a material adverse effect on the financial
position and results of operations of the Company. The impact of
a failure of readiness by critical suppliers cannot be estimated
with confidence, and the effectiveness of contingency plans to
mitigate the effect of any such failure is largely untested.
Management cannot provide any assurance that there will be no
material adverse effects to the financial condition or results of
operations of the Company as a result of Y2K issues.
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 10.
<PAGE>
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:
(27) Financial Data Schedule
Page 11.
<PAGE>
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: December 14, 1999 Peter B. Fritzsche
Chief Executive Officer and Principal
Accounting Officer
Page 12.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
consolidated financial statements for the nine months ended October 31, 1999 and
is qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 623,688
<SECURITIES> 0
<RECEIVABLES> 175,651
<ALLOWANCES> 20,000
<INVENTORY> 78,684
<CURRENT-ASSETS> 997,957
<PP&E> 405,024
<DEPRECIATION> 188,063
<TOTAL-ASSETS> 1,431,152
<CURRENT-LIABILITIES> 453,517
<BONDS> 151,789
<COMMON> 289,282
0
0
<OTHER-SE> 536,564
<TOTAL-LIABILITY-AND-EQUITY> 1,431,152
<SALES> 1,139,368
<TOTAL-REVENUES> 1,139,368
<CGS> 726,319
<TOTAL-COSTS> 1,205,820
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,050
<INCOME-PRETAX> (35,991)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,991)
<DISCONTINUED> 182,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 146,725
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
