SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1995
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ____________
Commission File: No. 0-2052
GODDARD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2268165
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
705 Plantation Street, Worcester, Massachusetts 01605
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (508) 852-2435
Check whether the registrant (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 stock, as of the latest practicable date.
Title of Each Class of Number of Shares Outstanding
Common Stock Outstanding at March 31, 1995_________
Common Stock, $.01 par value 2,032,804
Transitional Small Business Disclosure Format
Yes ___ No _X_
<PAGE>
GODDARD INDUSTRIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1995
and October 1, 1994 .............................................. 3
Consolidated Statement of Income - Six Months Ended
March 31, 1995 and March 31, 1994 ................................ 4
Consolidated Statement of Cash Flows - Six Months Ended
March 31, 1995 and March 31, 1994 ................................ 5
Notes to Consolidated Financial Statements ....................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .............................. 10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................... 12
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<PAGE>
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, October 1,
1995 1994
UNAUDITED AUDITED
ASSETS
(ALL PLEDGED, NOTE 4)
CURRENT ASSETS:
Cash and equivalents $133,519 $ 62,634
Accounts receivable, net of allowances 774,510 750,205
Inventories (Note 3) 2,938,361 2,578,217
Prepaid expenses and taxes 15,593 75,116
Deferred income taxes (Note 5) 62,100 60,000
TOTAL CURRENT ASSETS 3,924,083 3,526,172
PROPERTY, PLANT AND EQUIPMENT, 3,260,10 209,793
at cost
Less - Accumulated depreciation -2,284,723 -2,188,825
975,384 1,020,968
OTHER ASSETS:
Excess of cost of investment in subsidiaries
over equity in net assets acquired 24,215 25,893
Deferred income taxes - long term 129,600 118,000
Total other assets 153,815 143,893
TOTAL ASSETS $ 5,053,282 $ 4,691,033
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 4) $ 198,640 $ 203,807
Accounts payable 331,667 374,423
Accrued expenses 179,358 157,147
Income taxes payable 47,388 -
TOTAL CURRENT LIABILITIES 757,053 735,377
LONG-TERM DEBT, net of
current maturities (Note 4) 1,459,359 1,259,814
DEFERRED COMPENSATION 494,000 475,000
STOCKHOLDERS' EQUITY:
Common stock - par value $.01 per share;
authorized 3,000,000 shares, issued and
outstanding 2,032,804 shares. 20,328 20,328
Additional paid-in capital 395,763 395,763
Retained earnings 1,926,779 1,804,751
TOTAL STOCKHOLDERS' EQUITY 2,342,870 2,220,842
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $5,053,282 $ 4,691,033
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<PAGE>
<TABLE>
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
MARCH 31, 1995 MARCH 31, 1994
FOR THE THREE FOR THE SIX FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
<S> <C> <C> <C>
NET SALES $ 1,648,998 $ 3,054,251 $1,197,448 $2,389,746
COST OF SALES 1,078,753 2,013,736 774,772 1,541,046
GROSS PROFIT 570,245 1,040,515 422,676 848,700
SELLING AND ADMINISTRATIVE
EXPENSES 389,222 765,053 407,820 765,517
INCOME FROM OPERATIONS 181,323 275,462 14,856 83,183
OTHER INCOME (EXPENSE):
Interest expense -38,439 -72,907 -16,509 -32,194
Other income, net 6,267 9,671 3,491 4,514
TOTAL OTHER INCOME
EXPENSE) -32,172 -63,236 -13,018 -27,680
INCOME BEFORE INCOME TAXES 148,851 212,226 1,838 55,503
PROVISION FOR INCOME TAXES 62,500 90,200 1,000 23,000
NET INCOME $ 86,351 $122,026 $ 838 $ 32,503
PRIMARY EARNINGS PER SHARE (Note 7)
Net Income $.04 $.06 $.00 $.02
</TABLE>
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<PAGE>
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED MARCH 31,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 122,026 $ 32,503
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 97,578 98,112
Deferred income taxes -13,700 -28,000
Changes in assets and liabilities:
Accounts receivable -24,305 52,418
Inventories -360,144 -60,336
Prepaid expenses and other 59,523 -2,515
Accounts payable -42,756 37,844
Accrued expenses 22,211 -29,261
Income taxes payable 47,388 -53,812
Deferred Compensation 19,000 60,000
Total Adjustments -195,205 74,450
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES -73,179 106,953
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment additions -50,314 -66,428
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 1,020,000 615,500
Repayments of long-term debt -825,622 -733,674
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 194,378 -118,174
NET INCREASE (DECREASE) IN CASH 70,885 -77,649
CASH AND EQUIVALENTS - BEGINNING 62,634 119,588
CASH AND EQUIVALENTS - ENDING $ 133,519 $ 41,939
CASH PAID DURING THE PERIOD:
Interest $ 69,294 $ 28,672
Income taxes $ 11,483 $ 109,820
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<PAGE>
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
MARCH 31, 1995
(UNAUDITED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Reference is made to the financial statements included in the
Annual Report for the year ended October 1, 1994 for a
summary of significant accounting policies and other
disclosures.
NOTE 2 BASIS OF PRESENTATION:
The information shown in the consolidated financial
statements reflects all adjustments which are, in the opinion
of management, necessary for a fair presentation of the
results for the interim period.
NOTE 3 INVENTORIES:
Consolidated inventories are comprised of:
March 31, October 1,
1995 1994
Finished goods $ 2,832,941 $ 2,472,797
Work in process 12,596 12,596
Raw materials 92,824 92,824
$ 2,938,361 $ 2,578,217
The following factors were taken into consideration in
determining inventory values:
Goddard Valve Corp. - March 31, 1995 - $1,045,062
(estimated) and October 1, 1994 - $867,801. Interim
inventories were valued by management using the
gross profit method.
Webstone Company, Inc. - March 31, 1995 -
$1,893,299 (estimated) and October 1, 1994 -
$1,710,416. Interim inventory was valued by
management using the gross profit method.
Total inventory is comprised of finished goods.
NOTE 4. LONG-TERM DEBT
The Company has available a revolving line of credit totaling
$1,750,000 bearing interest at the greater of (i) prime plus 3/4% or (ii) the
Federal Funds Effective Rate plus 1 1/4% per annum. The agreement
expires March 31, 1997 and is secured by all property and assets.
Advances are restricted by certain limitations on eligible receivables and
inventories.
- -6- continued
<PAGE>
LONG-TERM OBLIGATIONS (continued)
The credit agreement contains a number of covenants,
the most restrictive of which relate to working capital,
tangible net worth, and profitability levels, and restrict
payment of cash dividends to 10% of the immediately
preceding year's net income before taxes.
At March 31, 1995 long-term obligations consisted of the
following:
LONG-TERM CURRENT
Revolving line of credit $1,431,503 $ -
Capital lease obligations for machinery,
payable in monthly installments of
$8,455, through July 1, 1996, with
imputed interest rates between 7.34%
and 8.02%. 27,856 93,000
Note due 1995, unsecured, interest
at 10% - 35,000
Term note due 1996, principal payments of
$5,880 per month beginning June 1, 1993
plus interest at 7%, secured by all
property and assets. - 70,640
$1,459,359 $ 198,640
NOTE 5 INCOME TAXES
Included in other assets at March 31, 1995 and October 1, 1994 is
a deferred tax asset of $129,600 and $118,000, respectively.
The tax effects of the principal temporary differences giving rise to
the net current and non-current deferred tax assets are as follows:
March 31, October 1,
1995 1994
Deferred tax asset
Deferred Compensation $197,100 $190,000
Inventory valuation 35,200 35,000
Accrued Salaries 11,000 11,000
Bad Debts 12,700 10,000
256,000 246,000
Depreciation 64,300 68,000
$191,700 $178,000
Management does not believe that any valuation allowance is
necessary.
- - 7 -
<PAGE>
NOTE 6 CONTINGENCIES
In 1990, the Town of Shrewsbury, Massachusetts commenced a
lawsuit in Massachusetts Superior Court against the Company and
another corporation alleging that they had caused the Town to incur
response costs for assessment, containment and removal of oil and
hazardous materials in relation to the Town's Home Farm wells.
The Town is seeking damages which now exceed $6,500,000. The
Company is defending itself vigorously against this claim and has
joined, as third party defendants, eight other businesses which could
be identified as likely to have used the types of compounds detected
as contaminating the Town's wells. Motions for summary
judgement were made during 1992 and 1993 resulting in dismissal
of some, but not all, of the Shrewsbury complaint. Non-expert
discovery in this case has been completed, while expert discovery
continues. Trial is presently scheduled to begin October 1995.
At the present time, it is not possible to predict the outcome
of this matter. Accordingly, the Company has not recorded any
loss provision with respect to this lawsuit.
In connection with a proposed bank financing in 1987,
the Company retained an environmental engineering firm to perform
a site assessment at its corporate headquarters. The results of that
assessment revealed that the ground water is contaminated and that
an off-site source may have introduced the contaminants. As
required by law, the Company notified the Massachusetts
Department of Environmental Protection (DEP). The DEP
issued a Notice of Responsibility designating the site as a priority
disposal site. A Phase One Limited Site Investigation report was
submitted to the DEP. On August 10, 1994 the Company received
a Tier I Transition Classification and Permit Statement Cover Letter
designating the site as a Tier IA Site under the Massachusetts
Contingency Plan. The Company submitted a request to the DEP to
reclassify the site as Tier IB or IC, which will remove any response
actions from DEP oversight. At the present time, it is not possible
to ascertain the cost, if any, of remediation or whether the Company
will be able to obtain reimbursement for such costs from any third
party causing the contamination or any insurance carrier.
Accordingly, the Company has not recorded any provision for loss
with respect to this DEP matter.
Several of the Company's insurers are participating in
the Company's defense in both the DEP matter and the Town of
Shrewsbury litigation under a reservation of rights. The trial in the
Town of Shrewsbury litigation is presently scheduled to begin
October, 1995. The Company's principal insurer has also filed suit
for a declaratory judgement that they have no duty to defend or
indemnify the Company. This action is currently stayed until
October 1995.
In the event that the Company does not prevail in its defense
of either Shrewsbury litigation or the DEP claim and is
unsuccessful in obtaining reimbursement from insurance
carriers or other parties, these matters could have a material
adverse impact on the Company's financial condition.
- - 8 -
<PAGE>
NOTE 7 COMMON STOCK:
Primary earnings per share are computed on a
weighted average number of shares outstanding. Fully diluted
earnings per share are not presented because the effect of the
exercise of the stock options would not be dilutive.
- -9-
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial
Condition and results of Operations
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED MARCH 31, 1995 COMPARED TO
FISCAL QUARTER ENDED MARCH 31, 1994
Consolidated sales for the quarter ended fiscal 1995 were
$1,649,000, 37.8% ahead of sales of $1,197,000 reported for the
same quarter last year. The Goddard Valve division was
responsible for 74% of this increase because of substantially
increased sales volume.
During the quarter, the Valve division enjoyed a relatively heavy
period of incoming orders while the month of March 1995 alone
was at record levels for both new orders and shipments for the
Goddard Valve division.
Selling and administrative expenses were relatively unchanged
despite the increase in revenues. Interest expense more than
doubled for the current quarter because both interest rates and
borrowing levels have increased substantially. The increased
borrowing levels were necessitated by the increase in inventory
to meet increased orders.
Net earnings increased to $86,351 for the second quarter of 1995
compared to $838 for the same quarter last year.
SIX MONTH PERIOD ENDED MARCH 31, 1995 COMPARE
TO SIX MONTH PERIOD ENDED MARCH , 31, 1994
For the six month period ended March 31, 1995 sales were
$3,054,000 compared to last years sales of $2,390,000, a 27.8%
increased. Both divisions shared in the $664,000 increase as a
result of additional large orders.
Gross profit margins for the six month period were 34.6%,
a slight reduction from the 35.5% recorded last year.
Selling and administrative expenses at $765,000 were the same
for both periods, even though sales were substantially increased.
Net earnings for the current six months were $122,026, 375%
ahead of 1994 results. Per share earnings were $.06 for 1995
against $.02 for 1994.
- -10-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Operating activities of the Company consumed $73,000 of
cash during the six months ended March 31, 1995. Cash was used
primarily to increase inventories ($360,000) and also to increase
receivables ($24,000) and reduce accounts payable ($43,000) while
the major sources of cash were earnings ($122,000) and
depreciation and amortization ($98,000) and increased accounts
receivable ($24,000).
The Company also invested $50,000 in additional
equipment. This equipment as well as operations were financed
through $274,000 of additional net borrowings on the Company's
line of credit. The Company also prepaid nearly $80,000 of
long-term debt.
The Company presently maintains a line of credit of
$1,750,000 with The First National Bank of Boston
collateralized by substantially all of the assets of the Company
which expires on March 31, 1997. On March 31, 1995,
approximately $1,432,000 had been drawn under that line of
credit. The Company believes that the line of credit provides
sufficient liquidity to handle the normal working capital
requirements of its present business and will be increased, if
required, as sales and earnings expand.
The Company borrows funds for periods of up to five years
for the purchase of new machinery and meets the required
amortization and interest payments from its current working capital.
The Company believes that its future capital requirements for
equipment can be met from the cash flow from operations, bank
borrowings and other available sources.
As more fully described under Note 6 to the financial
statements, the Company is a party to two lawsuits and
an administrative proceeding relating to environmental matters. At
the present time, because of the numerous uncertainties which
surround the litigation and administrative proceedings (including
without limitation the origin of the alleged contamination, the scope
and cost of any required remediation, the ability to obtain
reimbursement from third parties who may have caused the alleged
contamination, and the extent of insurance coverage which may be
available), it is not possible to estimate the amount of loss, if any,
the Company may incur with respect to these matters. If the
Company does not prevail either in its defense of the proceedings or
in its third-party claims for contribution or coverage, the adverse
resolution of the DEP or Shrewsbury proceedings could have a
material adverse effect on the results of operations on the
Company's financial resources.
Inflation has not been a major factor in the Company's
business for the last several years. There can be no assurance that
this will continue. The Company's results of operations have not
been materially affected by seasonality.
- -11-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As more fully described in the Company's Form 10-KSB for
the year ended October 1, 1994, the Company is a defendant in a
suit by the Town of Shrewsbury, Massachusetts to incur various
environmental response costs and a suit by certain of its prior
insurers contesting overage for environmental claims under
insurance policies. There have been no material developments in
those cases since the filing of the Form 10-KSB.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(10) (I) Letter agreement between
Company's subsidiaries and the bank
dated February 1, 1995 modifying
banking arrangement.
(11) Statement Re: Computation of Per
Share Earnings. The information set
forth in Note 7 to the Financial
Statements found in PART I hereof is
hereby incorporated.
(b) The Company did not file any reports on Form 8-K
during the quarter ended March 31, 1995.
- - 12 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused the Report to be signed on its behalf
by the undersigned thereunto duly authorized.
Dated as of May 9, 1995.
GODDARD INDUSTRIES, INC.
by /s/ Saul I. Reck
Saul I. Reck, President,
Chief Executive Officer
and Principal Financial
Officer
- - 13 -
<PAGE>
EXHIBIT (10) (I)
(Bank of Boston/Worcester appears here)
As of February 1, 1995
Goddard Valve Corp.
Webstone Company, Inc.
705 Plantation Street
Worcester, MA 01605
Attention: Saul I. Reck
Ladies and Gentlemen:
Goddard Valve Corp. (the "Company") and Webstone
Company, Inc. ("Webstone") have entered into a certain Consolidating
Revolving and Term Credit and Security Agreement dated as of
January 3, 1991 (as amended, the "Agreement") with The First National
Bank of Boston (the "Bank"). Revolving loans made pursuant to the
Agreement are evidenced by a certain Revolving Loan Note dated as
of January 3, 1991, as amended (the "Note") in the original principal
amount of $1,600,000 made by the Company and Webstone and
payable to the Bank. The Company and Webstone have requested,
and the Bank has agreed upon the terms contained herein, to amend
the Agreement and the Note and waive compliance with a certain
financial convenant for a certain period as provided herein. Therefore,
for good and valuable consideration, the receipt of which is hereby
acknowledged, the Comapny, Webstone and the Bank hereby agree
as follows:
I. Amendments to the Agreement
1. Section 1.1 "Borrowing Base" of the Agreement is
hereby amended by deleting there from the following "$1,100,000"
and substituting the following therefor: "$1,300,000 until July 31, 1995
and $1,100,000 thereafter."
2. Section 1.1 "Cash Flow" is hereby deleted in its entirety
and the following substituted therefor:
"Cash Flow. At any date as of which the amount thereof shall
be determined for the Company and Webstone for any period,
the sum of the Company's and Webstone's (a) consolidated
earnings from continuing operations after provision for taxes
paid in cash for such period, but excluding any extraordinary
items included in such consolidated income plus (b) consolidated
depreciation and amortization for such period plus (c)
consolidated interest expense, including imputed interest in
capital lease obligations (for such period) plus (d) any increases
in deferred compensation payable to Saul I. Reck in an amount
not to exceed $150,000 per year for such period minus (e) capital
expenditures together with those of its Subsidiaries
permitted during such period plus (f) capitalized
expenditures financed by amortizing long term debt
or capitalized leases."
3. Section 1.1 "Commitment Amount" of the
Agreement is hereby deleted in its entirety and the
following substituted therefor:
"1.1 Commitment Amount $1,750,000"
4. Section 1.1 "Debt Service" is hereby amended by
adding at the end of subsection (b) the following:
"plus" any decreases in deferred compensation payble to
Saul I. Reck"
5. Section 1.1 "Revolving Loan Termination Date" is
hereby amended by deleting therefrom the following: "March 29,
1996" and substituting the following therefor: "March 31, 1997".
All references in the Agreement to "Revolving Loan Termination
Date" shall refer to March 31, 1997.
6. Section 5.10 of the Agreement is hereby amended by
deleting "and 1994 and during each fiscal year thereafter" and
inserting in lieu thereof the following:
"through September 30, 1994; 1.2 to 1.0 from October 1,
1994 through June 30, 1995; and 1.0 to 1.0 thereafter.":
7. Section 5.11 of the Agreement is hereby amended
be deleting" and (vi) $2,000,000 during the Company's fiscal year
1995" therefrom and inserting in lieu thereof the following:
(vi) $2,000,000 until June 30, 1995 and (vii) $2,100,000
thereafter."
8. Section 5.12 of the Agreement is hereby amended by
deleting the section in its entirety and replacing it with the
following:
"5.12 Cash Flow to Debt Service. The Company shall at
the end of each fiscal quarter for the four fiscal quarters
then ended maintain the ratio of Cash Flow to Debt Service
of (i) 1.0 to 1.0 for the period ended December 31, 1994;
(ii) 1.15 to 1.0 from January 1, 1995 until June 30, 1995;
(iii) 1.25 to 1.0 from July 1, 1995 until October 1, 1995;
and (iv) 1.35 to 1.0 thereafter."
9.0 All financial and covenant compliance documentation
required to be provided to the Bank by either the Company or
Webstone pursuant to the Agreement shall be deemed to be
amended to reflect the amendments described herein.
II. Amendments to the Note
The Note is hereby amended by deleting "$1,600,000" and
"One Million Six Hundred Thousand and no/100 Dollars
($1,600,000)" and inserting "$1,7500,000" and "One Million
Seven Hundred Fifty Thousand and no/100 Dollars ($1,750,000)",
respectively, in lieu thereof.
III. Waiver
1. The Bank hereby waives any Event of Default which
may have occurred solely as a result of the Company's failure to
maintain the Leverage covenant set forth in Section 5.10 of the
Agreement for the fiscal quarter ending December 31, 1994.
2. The waiver described above is limited to the
covenant for the period described above and is not to be construed
as a waiver of any other term or provision of the Agreement or the
Note or a waiver of compliance with such covenant for any other
period.
IV. Miscellaneous
1. Goddard Industries, Inc. has executed this letter for
the purpose of acknowledging the terms hereof and affirming the
terms of its Unlimited Guaranty dated as of January 3, 1991 as of
the date hereof after giving effect to the amendments provided for
herein.
2. Other than as amended hereby, all terms and
provisions of the Agreement and the Note are ratified and affirmed
as of the date hereof and the Company and Webstone represent to
the Bank that except as set forth in Section III above, there has
occurred no Default of Event or Default under the Agreement or
the Note.
3. The Company agrees to pay on demand all costs and
expenses of the Bank in connection with the preparation,
execution, delivery and enforcement of this letter, including the
fees and allocation costs of its in-house counsel.
4. This letter may be executed in counterparts each of
which shall be deemed to be an original document.
5. Upon receipt of an executed copy of this letter this
letter shall be deemed to be an amendment to the Agreement and
the Note effective as of the date first written above as an
instrument under seal to be governed by the laws of The
Commonwealth of Massachusetts.
Please evidence your agreement to the foregoing by having
an authorized officer of each of the Company and Webstone
execute this letter whre indicated below and returning it to the
undersigned.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ George M. Mandt
Its: Vice President
Acknowledged and Agreed:
GODDARD VALVE CORP.
By: /s/Saul I. Reck
Its: Treasurer
WEBSTONE COMPANY, INC.
By: /s/Saul I. Reck
Its. Treasurer
GODDARD INDUSTRIES, INC.
By: /s/Saul I. Reck
Its: Treasurer
