SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended January 31, 2000
Commission File Number 1-4338
EAC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
New York 21-0702336
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
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 - $1,510,608.
The aggregate market value of voting stock held by non-affiliates of the
registrant as of April 30, 2000 was $___________
Indicate by check mark whether the registrant has filed all documents and
reports required by Sections 12, 13, or 15(d) of the Securities Exchange Act of
1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No --
As of April 30, 2000, the registrant had outstanding 2,885,521 shares of Common
Stock ($.10 par value).
<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 $55,000 at January 31, 2000 and $60,000 at January 31, 1999.
Flexible believes that it can fulfill its 2000 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.
In-Mold Heat Transfer Labels
Flexible produces and markets in-mold, pre-cure heat transfer labels to the
rubber and silicone industry primarily for identification and decoration of
hoses and belts. Other products include post cure heat transfer labels for
rubber patches, tires and other rubber and silicone products.
Flexible's products are sold nationwide primarily to rubber and silicone hose
and belt manufacturers, principally by its in-house sales personnel. The
remainder is sold by a limited number of manufacturers' representatives.
Management believes that the total in-mold decal/label market for decorating
rubber hoses and belts is approximately $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.
<PAGE>
ITEM 2. PROPERTIES
The following table shows the location of each plant or facility of the
Registrant and its subsidiaries and sets forth related information. The
properties listed below are believed adequate to serve the Company's needs for
the foreseeable future.
<TABLE>
<CAPTION>
Approx. Lease
Area Expiration Annual
(Sq. Ft.) Date Rental Principal Use
<S> <C> <C> <C> <C>
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
<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, 2000, 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 2000 and
1999:
<TABLE>
<CAPTION>
2000 1999
----------------------------------------------- --------------
<S> <C> <C> <C> <C>
First Quarter $ 1/8 First Quarter $ 1/8
Second Quarter 1/32 Second Quarter 1/16
Third Quarter 1/8 Third Quarter 1/16
Fourth Quarter 1/16 Fourth Quarter 1/8
</TABLE>
The volume of trading is sporadic and infrequent and the prices quoted may not
be representative.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS
Continuing Operations
In fiscal 2000, the Company had a net loss from continuing operations of $85,198
($.03 per share) as compared to a net loss of $426,040 ($.15 per share) in
fiscal 1998. This improvement was due to a 5% increase in sales and improved
gross profit margins realized by Flexible. The increased gross profit margin is
a result of reductions in raw material and labor costs. In addition, during
fiscal 2000, the Company was able to reduce its operating overhead by
approximately $140,000 due to reductions in marketing costs and the
implementation of cost savings techniques initiated by management. The Company
also earned approximately $56,000 in interest and other income, an increase of
$46,000 over the prior 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.
<PAGE>
For the fiscal 2000 year, these discontinued subsidiaries reported a loss from
operations of $57,502 as compared to a loss in the prior year of $101,264. The
gain realized from the sale of the assets of Goodren (in fiscal 2000) was
$240,218 and from Athena (in fiscal 1999) was $87,274.
Net Loss
Consolidated net income for the year ended January 31, 2000 was $97,518 ($.03
per share) compared to a loss of $44,030 ($.15 per share) for the previous year.
Inflation
The Company expects any inflation to be moderate and to be offset by cost
reduction programs and selling price increases.
Financial Resources and Liquidity
The Company had working capital of $421,729 as of January 31, 2000 as compared
to $425,128 as of January 31, 1999. 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 10c
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. The Company continues to make quarterly
payments of $3,000 (including interest) and believes that such payments can be
funded from cash generated by the continuing operations of Flexible. Based upon
the Company's current operating results, management believes that there is a
good likelihood that they can negotiate a permanent $3,000 per quarter payment
plan. The gains realized from these reduced payments will be recognized on a
quarterly basis under the standards of SFAS 15, "Accounting for Debtors and
Creditors for Troubled Debt Restructuring". However, should the payments revert
back to $8,752 per quarter, the Company would accordingly cease reflecting the
gains currently being recorded quarterly in accordance with SFAS 15.
The Company believes that funds to be generated from operations and its cash on
hand will be sufficient to fund planned operations for at least the next
12-month period. The Company (primarily Flexible) does not anticipate any major
capital expenditures during the next year.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
<TABLE>
<CAPTION>
Page Number
<S> <C>
Independent Auditors' Report F - 1
Consolidated Balance Sheets F - 2
Consolidated Statements of Operations F - 3
Consolidated Statement of Changes in Shareholders' Equity F - 4
Consolidated Statements of Cash Flows F - 5
Notes to the Consolidated Financial Statements F - 6
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE:
None
<PAGE>
PART III
ITEM 9. DIRECTORS AND 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, 2000. 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>
<CAPTION>
Common Stock
Director Owned Beneficially
Name Principal Occupation for Last 5 Years Since As of 1/31/00
- ---- ------------------------------------- ----- --------------
<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.
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:
<TABLE>
<CAPTION>
Name and All Other
Principal Position Year Salary Bonus Compensation
- ------------------ ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Peter B. Fritzsche FY 2000 $132,000 $ -0- $ -0-
Chairman and CEO FY 1999 $132,000 $ -0- $ -0-
FY 1998 $132,000 $ -0- $ -0-
Steven Mann (1) FY 2000 $ -0- $ -0- $ -0-
President and Goodren FY 1999 $165,697 $ -0- $ -0-
Products Corp. FY 1998 $179,372 $ -0- $ -0-
Total FY 2000 $132,000 $ -0- $ -0-
FY 1999 $297,657 $ -0- $ -0-
FY 1998 $311,372 $ -0- $ -0-
</TABLE>
<PAGE>
(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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL HOLDERS OF SECURITIES
To the best knowledge of EAC, as of January 31, 2000 the only beneficial owner
of 5% or more of EAC's Common Stock was:
<TABLE>
<CAPTION>
Amount
Principal Name and Address Beneficially Percent of
Class of Beneficial Owner Owned Class
- ----- ------------------- ----- -----
<S> <C> <C> <C>
Common Stock Peter B. Fritzsche 943,208 33%
EAC Industries, Inc.
2111 Claridge Lane
Northbrook, Illinois 60062-8615
</TABLE>
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.
<PAGE>
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
<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 12, 2000
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.
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Peter B. Fritzsche May 12, 2000
- ---------------------------------
Peter B. Fritzsche, Director
/s/ P. Bartley Fritzsche May 12, 2000
- -----------------------------------
P. Bartley Fritzsche, Director
/s/ John B. Millet, Jr May 12, 2000
- ----------------------------------
John B. Millet, Jr., Director
/s/ E. Donald McKenzie, Jr. May 12, 2000
- -------------------------------------
E. Donald McKenzie, Jr., Director
</TABLE>
<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, 2000 and 1999 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for the two year period ended January 31, 2000. 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, 2000 and 1999 and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Lazar Levine & Felix LLP
LAZAR LEVINE & FELIX LLP
New York, New York
May 8, 2000
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 2000 AND 1999
<TABLE>
<CAPTION>
- ASSETS -
2000 1999
---------------- ------------
CURRENT ASSETS:
<S> <C> <C> <C>
Cash (Note 3d) $ 552,096 $ 467,910
Accounts receivable - net of allowance for doubtful accounts of $20,000
for 2000 and 1999 (Note 3d) 159,666 180,161
Inventories (Notes 3e and 4) 74,746 60,041
Prepaid taxes and expenses 22,672 20,878
Due from buyer (Note 2) 110,000 -
Net assets of discontinued operations (Note 2) - 206,135
--------------- --------------
TOTAL CURRENT ASSETS 919,180 935,125
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, NET (Notes 3f, 5 and 7) 260,668 224,885
-------------- --------------
OTHER ASSETS:
Costs in excess of net assets acquired (Note 3g) 148,233 162,621
Due from buyer (Note 2) 60,000 -
Other assets 5,184 4,404
---------------- ----------------
213,417 167,025
-------------- --------------
$ 1,393,265 $ 1,327,035
============ =============
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 154,613 $ 143,899
Accrued expenses (Note 6) 279,402 319,353
Long-term debt - current portion (Note 7) 63,436 46,745
--------------- ---------------
TOTAL CURRENT LIABILITIES 497,451 509,997
-------------- --------------
LONG-TERM DEBT - NET OF CURRENT PORTION (Note 7) 319,175 337,917
-------------- --------------
COMMITMENTS AND CONTINGENCIES (Note 10)
SHAREHOLDERS' EQUITY (Note 8):
Common stock, $.10 par value; 20,000,000 shares authorized; 2,892,819
shares issued 289,282 289,282
Capital in excess of par value 10,546,048 10,546,048
Accumulated deficit (10,210,089) (10,307,607)
------------ -------------
625,241 527,723
Less: Common stock in treasury, 7,298 shares at cost (48,602) (48,602)
--------------- ---------------
576,639 479,121
-------------- ---------------
$ 1,393,265 $ 1,327,035
============ =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended January 31,
2000 1999
<S> <C> <C>
NET SALES $1,510,608 $1,436,489
------------- --------------
COSTS AND EXPENSES:
Cost of products sold 985,053 1,058,519
Selling, general and administrative expenses 661,065 803,707
------------- --------------
TOTAL COSTS AND EXPENSES 1,646,118 1,862,226
------------- --------------
(LOSS) FROM OPERATIONS (135,510) (425,737)
------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (5,510) (10,417)
Interest and other income 55,822 10,114
------------- --------------
50,312 (303)
------------- --------------
(LOSS) BEFORE PROVISION FOR INCOME TAXES (85,198) (426,040)
Provision for income taxes (Notes 3h and 9) - -
------------- --------------
(LOSS) FROM CONTINUING OPERATIONS (85,198) (426,040)
------------- --------------
DISCONTINUED OPERATIONS (Note 2):
Loss from operations of discontinued subsidiary - net of taxes (57,502) (101,264)
Gain on disposal of operating assets of discontinued subsidiary - net of taxes 240,218 87,274
------------- --------------
182,716 (13,990)
------------- --------------
NET INCOME (LOSS) $ 97,518 $ (440,030)
============= ============
BASIC INCOME (LOSS) PER SHARE (Note 3i)
Continuing operations $(0.03) ($0.15)
Discontinued operations 0.06 -
------------- --------------
$ 0.03 $(0.15)
============= ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 2,885,521 2,837,427
============= ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital in Common Total
Number of Common Excess Accumulated Stock in Shareholders'
Shares Stock of Par Deficit Treasury Equity
------------- ---------------------------------------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income for the year - - - 97,518 - 97,518
--------------------------------------------------------------------------------- ----------------
BALANCE AT
JANUARY 31, 2000 2,892,819 $289,282 $10,546,048 $(10,210,089) $(48,602) $ 576,639
========= ======== =========== ============ ======== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended January 31,
2000 1999
------------ -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ 97,518 $(440,030)
Adjustments to reconcile net income (loss) to net cash (utilized) provided by
operating activities:
Depreciation and amortization 45,633 65,614
Loss on sale of fixed assets - 9,812
Gain on sale of assets (238,435) -
Changes in assets and liabilities:
Decrease in accounts and notes receivable 26,944 47,513
(Increase) decrease in inventories (14,705) 25,014
Decrease in prepaid expenses and other assets 6,062 5,150
(Decrease) increase in accounts payable, accrued expenses and accrued income taxes (20,513) 386,419
Net cash from discontinued operations 13,123 27,834
----------- --------------
Net cash (utilized) provided by operating activities (84,373) 127,326
---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 230,000 -
Capital expenditures (71,487) (20,823)
----------- -------------
Net cash provided (utilized) by investing activities 158,513 (20,823)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common stock - 101,019
Proceeds from long-term debt 23,333 -
Payments of long-term debt (13,287) (48,151)
----------- ------------
Net cash provided by financing activities 10,046 52,868
----------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 84,186 159,371
Cash and cash equivalents, at beginning of year 467,910 308,539
---------- -----------
CASH AND CASH EQUIVALENTS, AT END OF YEAR $ 552,096 $ 467,910
========= ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 5,510 $ 29,189
Income taxes paid - -
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
EAC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 2000 AND 1999
NOTE 1 - DESCRIPTION OF THE COMPANY:
EAC Industries, Inc., the Company, was organized in
1958 as a New York corporation. The Company is a holding
company with three wholly-owned 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:
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 sales
price of $277,000 including inventory valued at the lower of
cost or market. The full sales price was paid at closing.
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 years
ended January 31, 2000 and 1999:
<TABLE>
<CAPTION>
2000 1999
--------------- -----------
Goodren Products Corp:
<S> <C> <C>
Revenues $181,928 $2,459,550
(Loss) from operations (36,546) (122,857)
Gain on sale of assets 240,218 -
Net income 203,672 (122,857)
Income per share $.07 $.05
2000 1999
--------------- -----------
Goodren Label Corp (Athena):
Revenues $ - $429,550
Income (loss) from operations (20,956) 21,593
Gain on sale of assets - 87,274
Net income (loss) (20,956) 108,867
Income (loss) per share $(.01) $.05
</TABLE>
<PAGE>
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.
(b) Basis of Consolidation:
The consolidated financial statements include the accounts of
the Company and its 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.
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(f) Property, Plant and Equipment:
Fixed assets are reflected at cost. The Company principally uses
the straight-line method to compute depreciation of fixed
assets. Depreciation lives generally range from three to ten
years for furniture and fixtures, machinery and equipment and
transportation equipment. Buildings are being amortized over 20
years and leasehold improvements are amortized over the useful
life of the asset or the term of the lease, whichever is
shorter. Major renewals and betterments of fixed assets are
capitalized while maintenance and repairs are expensed as
incurred. Upon retirement of fixed assets, the related cost and
accumulated depreciation are written off and any gain or loss is
reflected in income.
(g) Goodwill:
Costs in excess of net assets acquired are considered goodwill
and are being amortized over 15 years on a straight line basis.
Amortization costs included in continuing operations were
$14,388 for each of the years ended January 31, 2000 and 1999.
Accumulated amortization as of January 31, 2000 and 1999
aggregated $66,767 and $52,379, 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 1999 financial
statements in order to conform to the 2000 presentation.
<PAGE>
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(k) New Accounting Pronouncements:
SFAS 130 "Reporting Comprehensive Income" which is effective for
years beginning after December 15, 1997, prescribes standards
for reporting other 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. The Company does not presently believe that
it operates in more than one identifiable segment.
NOTE 4 - INVENTORIES:
Inventories at January 31, 2000 and 1999 consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
----------- ---------
<S> <C> <C>
Raw materials $74,746 $57,691
Finished goods - 2,350
-------- ---------
$74,746 $60,041
======= =======
</TABLE>
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:
Fixed assets and accumulated depreciation at January 31, 1999
and 1998 consisted of the following:
<TABLE>
<CAPTION>
2000 1999
--------------- -----------
<S> <C> <C>
Leasehold improvements $ 4,476 $ 18,543
Machinery and equipment 258,704 216,496
Label artwork 188,148 150,000
Transportation equipment - 22,275
Furniture and fixtures 5,926 48,922
----------- ----------
457,254 456,236
Less: accumulated depreciation and amortization 196,586 231,351
--------- ---------
$260,668 $224,885
=========== =========
</TABLE>
For the years ended January 31, 2000 and 1999, depreciation
expense from continuing operations aggregated $31,245 and
$51,226, respectively.
NOTE 6 - ACCRUED EXPENSES:
At January 31, 2000 and 1999 accrued expenses consisted of the
following:
<TABLE>
<CAPTION>
2000 1999
------------ --------
<S> <C> <C>
Salaries and wages $ 12,409 $ 9,239
Employee benefits 126,830 162,048
Other 140,163 148,066
--------- ---------
$279,402 $319,353
=========== =========
</TABLE>
NOTE 7 - LONG-TERM DEBT:
At January 31, 2000 and 1999 long-term liabilities included the
following:
<TABLE>
<CAPTION>
2000 1999
------------ ---------
<S> <C> <C> <C>
Equipment notes payable in monthly installments of
$2,803, inclusive of interest $ 61,319 $ 35,283
Union pension withdrawal liability/shortfall, presently
payable in quarterly installments of $3,000 (including
interest at 8% per annum (see Note 10c) 321,292 349,379
--------- ---------
382,611 384,662
Less: current portion 63,436 46,745
---------- ----------
$319,175 $337,917
=========== =========
</TABLE>
Aggregate maturities of long-term liabilities for the next five
years and in the aggregate are $63,436, $65,052, $48,507,
$35,008, $35,008 and $135,600 thereafter.
NOTE 8 - SHAREHOLDERS' EQUITY:
In November 1997, the Company filed a registration 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.
NOTE 9 - INCOME TAXES:
The components of the net deferred income tax asset, pursuant
to SFAS 109, as of January 31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
2000 1999
------------- ----------
Deferred tax assets:
<S> <C> <C>
Accounts receivable $ 6,500 $ 6,500
Inventory 4,000 3,200
Operating loss carryforward 3,060,000 3,115,000
----------- -----------
Total deferred tax asset 3,070,500 3,124,700
Valuation allowance 3,070,500 3,124,700
----------- -----------
Net Deferred Income Tax Asset $ - $ -
================ ===========
</TABLE>
<PAGE>
NOTE 9 - INCOME TAXES (Continued):
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 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.
NOTE 10 - 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 $50,093 and $109,000 for the years
ended January 31, 2000 and 1999, respectively.
Future minimum rental commitments for existing operating leases
and in the aggregate are as follows:
Fiscal year ending January 31, 2001 - $49,400
2002 - 3,639
---------
$53,039
(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 was terminated thus
canceling the contract.
<PAGE>
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
(c) Other:
In 1995, Goodren withdrew from participating in the District 65
Union Pension Plan (the "Plan"). The 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. 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EAC INDUSTRIES, INC.
EXHIBIT 27
FINANCIAL DATA SCHEDULE
ARTICLE 5 OF REGULATION S-X
The schedule contains summary financial information extracted from the
consolidated financial statements for the year ended January 31, 2000 and is
qualified in its entirety by reference to such statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> jan-31-2000
<PERIOD-END> jan-31-2000
<CASH> 552,096
<SECURITIES> 0
<RECEIVABLES> 179,666
<ALLOWANCES> 20,000
<INVENTORY> 74,746
<CURRENT-ASSETS> 919,180
<PP&E> 457,254
<DEPRECIATION> 196,586
<TOTAL-ASSETS> 1,393,265
<CURRENT-LIABILITIES> 497,451
<BONDS> 319,175
0
0
<COMMON> 289,282
<OTHER-SE> 287,357
<TOTAL-LIABILITY-AND-EQUITY> 1,393,265
<SALES> 1,510,608
<TOTAL-REVENUES> 1,510,608
<CGS> 985,053
<TOTAL-COSTS> 1,646,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,510
<INCOME-PRETAX> (85,198)
<INCOME-TAX> 0
<INCOME-CONTINUING> (85,198)
<DISCONTINUED> 182,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 97,518
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
