SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C., 20459
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
--------------
COMMISSION FILE # 0-8027
------
EASTCO INDUSTRIAL SAFETY CORP.
------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 11-1874010
------------------------------- ----------
(State or other jurisdiction of (Employer. I.D. #)
incorporation or organization)
130 West 10th Street, Huntington Station, N.Y. 11746
-----------------------------------------------------
(Address of principal executive offices and zip code)
(516) 427-1802
--------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---- ------------
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding at April 30, 1996
--------------------- ----------------------------
Common Stock, par value 3,664,883
$.12 per share
<PAGE>
PART I - FINANCIAL INFORMATION
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1996 1995
--------- --------
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalent $ 348,571 $ 521,210
Accounts receivable - (less allowance
for doubtful accounts of $169,618 at
March 31, 1996 and $304,000 at
June 30, 1995) 4,679,597 3,898,173
Inventories - (note 2) 5,391,061 4,363,898
Other 310,350 481,868
----------- ----------
TOTAL CURRENT ASSETS 10,729,579 9,265,149
----------- ----------
PROPERTY, PLANT AND EQUIPMENT, at cost - 2,600,423 2,562,815
Less accumulated depreciation and
amortization 1,356,614 1,243,704
--------- ---------
1,243,809 1,319,111
OTHER ASSETS 193,892 131,788
--------- ---------
TOTAL ASSETS $12,167,280 $10,716,048
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
March 31, June 30,
1996 1995
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES:
Loans Payable (Note 4) $ 5,991,587 $ 4,928,908
Current maturities of long-term debt 54,128 48,762
Accounts payable 2,973,588 2,891,043
Accrued expenses 244,314 331,907
Convertible Subordinated Debenture
(Note 3) 250,000
---------- -----------
TOTAL CURRENT LIABILITIES 9,513,617 8,200,620
---------- -----------
LONG-TERM DEBT, less current maturities 448,488 489,782
---------- -----------
SHAREHOLDERS' EQUITY (DEFICIENCY)
Common stock, $.12 par value;
authorized - 20,000,000 shares,
issued 3,614,883 sharesin March
1996 and 3,477,383 shares in
June 1995 433,786 417,286
Additional paid-in capital 5,953,227 5,848,952
Retained deficit (4,181,838) (4,240,592)
----------- ------------
TOTAL SHAREHOLDERS' EQUITY 2,205,175 2,025,646
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $12,167,280 $10,716,048
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------
Three Months Ended March 31,
----------------------------
1996 1995
------ ------
Net Sales $ 6,966,572 $ 5,968,852
Cost of Sales 5,491,100 4,670,976
--------- ---------
Gross Profit 1,475,472 1,297,876
--------- ---------
Selling, general & administrative expenses 1,188,754 1,111,103
Interest expense (NET) 212,729 146,168
Other (income) (NET) ( 15,987) ( 21,758)
------------ -----------
1,385,496 1,235,513
------------ ----------
Net income 89,976 62,363
Opening (deficit) (4,271,814) (4,395,032)
----------- ----------
Closing (deficit) $(4,181,838) $(4,332,669)
============ ============
Income per common share $ .02 $ .02
============ ============
Weighted average number of
common shares outstanding 3,614,883 3,477,383
============ ===========
See accompanying notes to consolidated financial statements.
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
-------------------------------------------------
Nine Months Ended March 31,
---------------------------
1996 1995
-------- --------
Net Sales $19,739,719 $17,365,091
Cost of Sales 15,624,922 13,887,720
---------- ----------
Gross Profit 4,114,797 3,477,371
---------- ----------
Selling, general & administrative expenses 3,431,369 3,183,097
Interest expense (NET) 599,496 405,081
Other income (NET) (52,822) (96,654)
Settlement with underwriter 78,000
--------- ---------
4,056,043 3,491,524
--------- ---------
Net income/(loss) 58,754 (14,153)
Opening (deficit) (4,240,592) (4,318,516)
----------- ----------
Closing (deficit) $(4,181,838) $(4,332,669)
------------ -----------
Income/(loss) per common share $ .02 $ - 0 -
============ ============
Weighted average number of
common shares outstanding 3,575,633 3,477,383
============ ===========
See accompanying notes to consolidated financial statements.
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
-----------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
Nine Months Ended March 31,
--------------------------
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES: ----- -----
Net (Loss) $ 58,754 $ (14,153)
---------- -----------
Adjustment to reconcile results of operations
to net cash effect of operating activities:
Depreciation and amortization 112,910 140,523
Settlement with underwriter 72,025
Net changes in assets and liabilities:
(Increase)/Decrease in accounts receivable (781,424) 65,762
(Increase) in inventories (1,027,163) (979,350)
Decrease in other current assets 171,518 171,686
(Increase) / Decrease in other assets (62,104) 1,070
Increase in accounts payable 82,545 414,156
(Decrease) in accrued expenses ( 87,593) (155,853)
------------ ---------
Total Adjustments (1,519,286) (342,006)
------------ --------
Net cash (used for) operating activities (1,460,532) (356,159)
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ( 37,608) (136,291)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of warrants 48,750
Repayments of long-term debt (35,928) (31,260)
Borrowings under line of credit agreement 20,553,406 18,709,316
Repayments under line of credit agreement (19,490,727) (17,810,205)
Proceeds from convertible subordinated debenture 250,000
(Decrease) in cash overdrafts (365,277)
--------- --------
Net cash provided by financing activities 1,325,501 502,574
--------- --------
NET (DECREASE) / INCREASE IN CASH (172,639) 10,124
CASH, beginning of period 521,210 517,506
--------- -------
CASH, end of period $ 348,571 $ 527,630
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 607,131 $ 428,219
============ ========
Income taxes $ 5,179 $ 2,572
============ ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:
Issuance of common stock in connection
with settlement with underwriter $ 78,000
=============
See accompanying notes to consolidated financial statements.
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
-----------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Company's Opinion on Unaudited Financial Statements
---------------------------------------------------
In the opinion of the Company, the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of only normal accruals)
necessary to present fairly the consolidated balance sheets as of March 31, 1996
and June 30, 1995 (audited) and the related statements of operations and deficit
for each of the three month and nine month periods ended March 31, 1996 and 1995
and cash flows for the nine month periods ending March 31, 1996 and 1995.
The results of operations for the three and nine month periods ended March 31,
1996 and 1995 are not necessarily indicative of the results for the entire year.
2. Inventories
-----------
Inventories consist of the following:
March 31, June 30,
1996 1995
--------- --------
Raw materials $ 1,605,259 $ 1,688,881
Work-in-process 300,107 440,164
Finished goods 3,485,695 2,234,853
----------- ---------
Total $ 5,391,061 $ 4,363,898
=========== ===========
3. Convertible Subordinated Debenture
----------------------------------
During the quarter ended March 31, 1996, the Company issued a convertible
subordinated debenture in the amount of $250,000. During April 1996, the
debenture holder converted $150,000 of the debenture into 263,736 shares
of common stock, of which 213,736 shares were repurchased by the Company
for $180,000 and the remaining portion of the debenture was repurchased
for $120,000, including interest.
4. Loan Payable
------------
In February 1996, Congress Financial Corporation increased its revolving
line of credit to $6,000,000 from $5,750,000. In addition, the Company
was granted an excess collateral over-advance of $500,000, (which was
reduced to $350,000 in March 1996) that is guaranteed by three officers/
directors of the Company. For their guaranty, the officers/directors
were issued a warrant to purchase 123,000 shares in the aggregate at
an exercise price of $1.175 per share for a term of five years.
5. Litigation
----------
The Company is a party to various asbestos lawsuits alleging damages from
exposure to asbestos products sold by the Company. Refer to Part II,
Other Information, Item I "Legal Proceedings" in this form 10-Q, Forms
10-QSB of September 30, 1995 and December 31, 1995, Form 10-KSB for June
30, 1995 as well as its Note 11 to June 30, 1995 Notes to Audited
Consolidated Financial Statements regarding asbestos litigation.
<PAGE>
EASTCO INDUSTRIAL SAFETY CORP. AND SUBSIDIARIES
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
----------------------------------------------------
FINANCIAL CONDITION AND CONSOLIDATED RESULTS OF OPERATIONS
----------------------------------------------------------
Liquidity and Capital Resources
- - -------------------------------
The Company had working capital as of March 31, 1996 of approximately
$1,216,000 as compared to approximately $1,065,000 as of June 30, 1995.
A substantial portion of the Company's working capital consists of inventory,
which was approximately $5,391,000 and $4,364,000 as of March 31, 1996 and
June 30, 1995, respectively. The Company is required to maintain substantial
inventories of its numerous products in order to meet the immediate shipping
requirements of its customers who require products on short notice and who do
not maintain an inventory of such products. In addition, with the Company's
available working capital and its ability to obtain and maintain sufficient
inventories, there can be no assurance that the additional inventory will be
sufficient to meet sales demands, or that the Company will be able to
achieve or maintain sufficient inventories in the future.
In January 1996, Congress Financial Corporation ("Congress") increased its
revolving line of credit to $6,000,000, with the maximum borrowable on
inventories remaining at $2,875,000. At the same time, Congress approved a
$500,000 excess collateral advance, which was subsequently lowered in March to
$350,000. As of March 31, 1996, the Company is fully advanced on its
collateral availability and has $263,000 remaining on its excess collateral
advance, after adjusting for its liability for outstanding checks.
The Company's restructuring efforts continue to bear results, particularly in
the manufacturing segment, where market share is increasing. This segment
continues to show improved gross profit percentages for the nine months ended
March 1996 due to efficiencies in production as well as economies of scale in
its operations. The distribution segment showed higher sales in the third
quarter, due to the Company's efforts in obtaining new customers and increasing
its sales to continuing customers.
Presently the Company, together with a variety of defendants, is party to
various asbestos-related lawsuits involving a number of plaintiffs alleging
damages from exposure to asbestos products sold by the Company. The Company
may become a party to additional asbestos-related actions in the future.
The Company is also party to other non-asbestos-related litigation. To date,
the Company's insurance coverage has been adequate and the Company's cost
relative to asbestos litigation against it has not been material.
The Company, at the present time, is searching for sources of capital to ensure
its future growth.
Results of Operations
- - ---------------------
Net sales for the three months ended March 31, 1996 were $6,967,000 as
compared to $5,969,000 for the three months ended March 31, 1995, an increase
of $998,000 or 16.7%. Sales in the distribution segment increased 2.5% to
$1,944,000 from $1,897,000 for the same quarter last year, while sales in the
manufacturing segment increased 23.4% to $5,023,000 from $4,072,000 compared
to the comparable quarter last year.
Net sales for the nine months ended March 31, 1996 were $19,740,000, an
increase of 13.7% from the comparable sales for the period ending March 31,
1995 of $17,365,000. In the nine months ended March 31, 1996 distribution
sales were $6,654,000, a decrease of $19,000 (or 0.3%) compared to the same
nine months in the prior year, while the manufacturing sales increased 22.4%
to $13,086,000 from $10,692,000 for the same period in the prior year. The
overall increase in sales is due to the improvement in the Company's inventory
position, as well as the continued improvement in overall industry conditions.
The Company's gross profit margin decreased to 21.2% of sales for the third
quarter of fiscal 1996 as compared to 21.7% for the third quarter fiscal 1995,
primarily due to product mix, and the gross profit margin for the nine months
ended March 31, 1996 rose to 20.8% from 20.0% for the similar period in the
prior year. The Company believes that the continued increase in gross profit
is primarily the result of efficiencies in production, improved purchasing and
the improved industry conditions.
Selling, general and administrative expenses for the quarter ended March 31,
1996 were approximately $1,189,000 or 17.1% of sales compared to approximately
$1,111,000 or 18.6% for the same period last year. These expenses for the nine
months ended March 31, 1996 were approximately $3,431,000 (or 17.4% of sales)
as compared to approximately $3,183,000 (or 18.3% of sales) for the same
<PAGE>
period in the prior year. These decreases in selling, general and
administrative expenses as a percentage of sales were due to the increase in
sales volume experienced in the quarter, as well as the effect of the Company's
continuing cost reductions.
Interest expense was approximately $213,000 for the third quarter of fiscal
1996, an increase of approximately $67,000 when compared to the same quarter of
fiscal 1995. For the nine months ended March 31, 1996 the interest expense was
approximately $599,000, against approximately $405,000 in the same period in
the prior year. These increases were due to increased borrowings during
these periods for working capital.
The Company earned $.02 per share for the quarter ended March 31, 1996 against
earnings of $.02 per share in the quarter ended March 31, 1995. For the nine
months ended March 31, 1996 the Company showed earnings of $.02 per share
against $0.00 for the same period in the prior year. The increase in the
average weighted shares was due to shares issued in connection with the
settlement with the Company's underwriter as well as the exercise in warrants
which occurred during the first quarter of fiscal June 1996.
<PAGE>
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
The Company was advised by counsel designated by its insurance carriers
to represent it in the State of New York that since July 1995, actions
involving 559 plaintiffs were served upon such counsel in the State of
New York of which 515 plaintiffs have nonmalignant claims and 44
plaintiffs have malignant claims. Pursuant to the terms of a
settlement reached during fiscal 1994 (see Item #3 in the Company's
Form 10-KSB for the fiscal year ended June 30, 1995), each claimant
with a Powerhouse exposure and malignant claim will receive $300 and
each claimant with a Powerhouse exposure and non-malignant claim will
receive $100. It is accordingly estimated that total payments for
these actions will be approximately $64,700 of which the Company's
share will be less than $6,000.
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 ON FORM 8-K
---------------------------------
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 9, 1996
EASTCO INDUSTRIAL SAFETY CORP.
By: /s/ ANTHONY P. TOWELL
_______________________________
ANTHONY P. TOWELL
Chief Financial Officer,
Vice President of Finance, and
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 348,571
<SECURITIES> 0
<RECEIVABLES> 4,848,215
<ALLOWANCES> (169,618)
<INVENTORY> 5,391,061
<CURRENT-ASSETS> 10,729,579
<PP&E> 2,600,423
<DEPRECIATION> (1,356,614)
<TOTAL-ASSETS> 12,167,280
<CURRENT-LIABILITIES> 9,513,617
<BONDS> 0
0
0
<COMMON> 433,786
<OTHER-SE> 1,771,389
<TOTAL-LIABILITY-AND-EQUITY> 12,167,280
<SALES> 19,739,719
<TOTAL-REVENUES> 19,739,719
<CGS> 15,624,922
<TOTAL-COSTS> 15,624,922
<OTHER-EXPENSES> 3,456,547
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 599,496
<INCOME-PRETAX> 58,754
<INCOME-TAX> 0
<INCOME-CONTINUING> 58,754
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,754
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
