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 March 31, 1998
__ 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, 1998
Common Stock, $.01 par value 2,129,198
Transitional Small Business Disclosure Format
Yes ___ No __X__
GODDARD INDUSTRIES, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
PAGE
Item 1 Financial Statements
Consolidated Balance Sheet - March 31, 1998
and September 27, 1997
3
Consolidated Statement of Income - Six Months Ended
March 31, 1998 and March 31, 1997
4
Consolidated Statement of Cash Flows - Six Months Ended
March 31, 1998 and March 31, 1997
5
Notes to Consolidated Financial Statements
6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
9
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
11
-2-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
March 31,
September 27,
1998
1997
AUDITED
ASSETS
(ALL PLEDGED, NOTE 4)
CURRENT ASSETS:
Cash $ 161,120
$ 82,943
Accounts receivable, net of allowances 1,074,916
1,203,244
Inventories (Note 3) 3,767,684
3,541,862
Prepaid expenses and taxes 64,006
31,420
Deferred income taxes (Note 5) 131,300
133,000
TOTAL CURRENT ASSETS 5,199,026
4,992,469
PROPERTY, PLANT AND EQUIPMENT,
at cost 4,458,973
4,266,837
Less - Accumulated depreciation -2,946,012
- -2,826,006
1,512,961
1,440,831
OTHER ASSETS:
Excess of cost of investment in
subsidiaries over equity in net
assets acquired 12,746
14,624
Deferred income taxes - long term(Note 5) 173,000
165,000
Total other assets 185,746
179,624
TOTAL ASSETS $6,897,733
$6,612,924
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 4) $ 130,700
$ 119,000
Accounts payable 550,888
374,689
Accrued expenses 247,566
423,035
Accrued environmental costs (Note 6) 25,762
45,000
Income taxes payable 21,785
52,660
TOTAL CURRENT LIABILITIES 976,701
1,014,384
LONG-TERM DEBT, net of
current maturities (Note 4) 824,663
786,668
DEFERRED COMPENSATION 551,000
551,000
SHAREHOLDERS' EQUITY:
Common stock - par value $.01 per share,
authorized 3,000,000 shares, issued
and outstanding 2,129,198 shares.
(2,126,649 shares at September 27,
1997) 21,291
21,266
Additional paid-in capital 431,700
429,353
Retained earnings 4,092,378
3,810,253
TOTAL SHAREHOLDERS'EQUITY 4,545,369
4,260,872
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,897,733
$6,612,924
-3-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
March 31, 1998 March
31, 1997
For The Three For the Six For The Three
For the Six
Months Ended Months Ended Months Ended
Months Ended
NET SALES $2,369,983 $4,899,247 $2,872,729
$5,862,252
COST OF SALES 1,553,248 3,217,320 1,889,681
3,847,002
GROSS PROFIT 816,735 1,681,927 983,048
2,015,250
SELLING AND
ADMINISTRATIVE
EXPENSES 541,526 1,064,503 537,592
1,040,260
INCOME FROM
OPERATIONS 275,209 617,424 445,456
974,990
OTHER INCOME
(EXPENSE):
Interest expense -27,088 -44,892 -23,844
- -43,227
Other income, net 6,367 14,652 8,787
16,503
TOTAL OTHER
INCOME (EXPENSE) -20,721 -30,240 -15,057
- -26,724
INCOME BEFORE
INCOME TAXES 254,488 587,184 430,399
948,266
PROVISION FOR
INCOME TAXES 105,200 241,200 176,000
386,600
NET INCOME (loss) $149,288 $345,984 $254,399
$561,666
EARNINGS PER SHARE
(Note 7)
Basic $ 0.07 $ 0.16 $ 0.12
$ 0.28
Diluted $ 0.07 $ 0.16 $ 0.12
$ 0.27
-4-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE SIX
MONTHS
ENDED
March 31,
1998
1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $345,984
$561,666
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 121,884
116,330
Deferred income taxes -6,300
- -6,300
Changes in assets and liabilities:
Accounts receivable 128,328
- -320,858
Inventories -225,822
- -13,714
Miscellaneous receivable 0
695,000
Prepaid expenses and other -32,586
- -17,580
Accounts payable 176,199
118,526
Accrued expenses -175,469
- -14,171
Accrued environmental liability -19,238
- -750,000
Income taxes payable -30,875
- -100,100
Total Adjustments -63,879
- -292,867
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES 282,105
268,799
CASH FLOWS FROM INVESTING ACTIVITIES:
Property,plant and equipment additions -192,136
- -66,881
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares 2,372
7,270
Payment of Dividends -63,859
0
Increase in long-term debt 1,776,000
1,616,000
Repayments of long-term debt -1,726,305
- -1,781,340
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES -11,792
- -158,070
NET INCREASE(DECREASE) IN CASH 78,177
43,848
CASH AND EQUIVALENTS - BEGINNING 82,943
65,951
CASH AND EQUIVALENTS - ENDING $161,120
$109,799
CASH PAID DURING THE PERIOD
Interest $ 42,913
$ 43,100
Income taxes $278,375
$493,000
-5-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
March 31, 1998
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reference is made to the financial statements included in
the Annual Report for the year ended September 27, 1997
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,
September 27,
1998
1997
Finished goods $3,331,871
$3,106,049
Work in process 66,441
66,441
Raw materials 369,372
369,372
$3,767,684
$3,541,862
The following factors were taken into consideration in
determining inventory values:
Goddard Valve Corp. - March 31, 1998 - $1,941,271.
(estimated) and September 27, 1997 - $1,966,653.
Interim
inventories were valued by management using the
gross profit method.
Webstone Company, Inc. - March 31, 1998 - $1,826,413.
(estimated) and September 27, 1997 - $1,575,209.
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 1/2% or
(ii) the Federal Funds Effective Rate plus 1 1/4% per
annum. On
March 31, 1998 the effective interest rate was 9.25%.
The
agreement expires March 30, 2000 and is secured by all
property and
assets. Advances are restricted by certain limitations
on eligible
receivables and inventories.
continued
-6-
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, 1998 long-term obligations consisted of
the following:
LONG-TERM
CURRENT
Revolving line of credit $ 732,000
$ -
Capital lease obligations for machinery,
payable in monthly installments of
$12,080, through 2000, with imputed
interest rate of approximately 9%. 92,663
130,700
$ 824,663
$130,700
NOTE 5. INCOME TAXES:
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,
September 27,
1998
1997
Deferred tax asset
Deferred compensation $ 220,400 $
220,400
Inventory valuation 93,700
93,300
Accrued salaries 9,200
9,200
Environmental matters 18,000
18,000
Bad debts 14,300
12,400
355,600
353,300
Depreciation 51,300
55,300
$ 304,300 $
298,000
Management does not believe that any valuation allowance is
necessary.
-7-
NOTE 6. ENVIRONMENTAL MATTER
In 1995, the Massachusetts Department of Environmental
Protection (DEP) designated the Company's facility in
Worcester, MA as a Tier 1C site under the Massachusetts
Contingency Plan as a result of a prior release of oil or
hazardous materials onto the site. The Company engaged an
environmental consulting firm to perform further site
investigation and file reports with the DEP. In February,
1998 a Phase II report was submitted to the DEP and in March
1998 a Phase III report was submitted that recommended
continued monitoring of the site for the next five years.
The cost of such monitoring over the next five years is not
expected to materially exceed the $26,000 that the Company
has recorded as a liability in the financial statements.
NOTE 7. EARNING PER SHARE:
The Company adopted Statement of Financial Accounting
Standards
No. 128 (SFAS No. 128), "Earnings per Share", effective with
the quarter ended December 31, 1997. SFAS No. 128 changes
the method of computing earnings per share and requires that
they be presented on both a basic and diluted basis. In
accordance with SFAS No. 128 earnings per share for the
period ended March 31, 1997 have been restated.
The following data show the amounts used in computing
earnings per share
(EPS) and the effects on income and the weighted average
number of
shares of dilutive potential common stock.
Six Months ended
March 31, 1998
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $345,984
2,127,641 $0.16
Dilutive effect of potential common
Stock:
Stock options -
43,546
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $345,984
2,171,187 $0.16
Six Months ended
March 31, 1997
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $561,666
2,040,129 $0.28
Dilutive effect of potential common
Stock:
Stock options -
72,750
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $561,666
2,112,879 $0.27
-8-
NOTE 7. EARNING PER SHARE: (continued)
Quarter ended
March 31, 1998
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $149,288
2,128,655 $0.07
Dilutive effect of potential common
Stock:
Stock options -
43,546
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $149,288
2,172,201 $0.07
Quarter ended
March 31, 1997
Income Common
Shares EPS
Basic EPS:
Income available to common
shareholders $254,399
2,040,129 $0.12
Dilutive effect of potential common
Stock:
Stock options -
106,826
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $254,399
2,146,955 $0.12
-9-
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial
Condition
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED MARCH 31, 1998 COMPARED TO
FISCAL QUARTER ENDED MARCH 31, 1997
Consolidated sales for the March 31, 1998 quarter were
$2,370,000 compared to $2,873,000 for the same period in
fiscal 1997. Sales of the Valve division declined 30.8% as
a result of a lower level of incoming orders. The Company
experienced porosity problems with castings provided by
certain suppliers which had to be reworked and resulted in
temporary delays in the Company's introduction of certain
new products to the marketplace during the quarter.
However, the Company believes that it will begin making
delivery of these products during the second half of fiscal
1998 and that those products will make a significant
contribution toward revenues for fiscal 1998.
Sales for the Webstone division increased 16.1%
compared to the same quarter last year. The Company
anticipates that new distribution channels recently opened
will result in further sales growth for that division.
Consolidated gross profit margins improved slightly
from 34.2% in the second quarter of fiscal 1997 to 34.5% in
the second quarter of fiscal 1998. Sales and administrative
expenses for the second quarter of fiscal 1998 were 22.8%,
compared to 18.7% for the corresponding quarter in fiscal
1997, relfecting an increase in expenses for research and
development programs.
As a result of the foregoing, net income declined to
$149,000 (or basic earnings of $.07 per share) for the
quarter, compared to $254,000 (or basic earnings of $.12 per
share) in the second quarter of fiscal 1997.
SIX MONTH PERIOD ENDED MARCH 31, 1998 COMPARED TO
SIX MONTH PERIOD ENDED MARCH 31, 1997
Consolidated sales for the six month period ended March
31, 1998 were $4,899,000, compared to a record $5,862,000
during the first six months of fiscal 1997. Sales of the
Valve division for the first six months of fiscal 1998
declined 27.5%, from the corresponding period last year,
reflecting a lower level of incoming orders for that
division. Sales of the Webstone division increased by 11.4%
compared to the first six months of fiscal 1997 as a result
of a broader marketing effort.
Consolidated gross profit margins for the first six
months of fiscal 1998 were essentially unchanged from the
corresponding period of fiscal 1997. Selling and
administrative expenses increased to 21.7% of net sales,
compared to 17.7% for the first six months of 1997,
reflecting non-recurring expenses related to the changes
being made in production work layout at the Company's
expanded facility.
- 10 -
As a result of the foregoing, income from operations
declined from $975,000 for the first six months of fiscal
1997 to $617,000 for the first six months of fiscal 1998.
Net income declined to $346,000 (or basic earnings of $.16
per share) for the first six months of fiscal 1998, compared
to $562,000 (or basic earnings of $.28 per share) for the
corresponding period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operation, for the most part,
through earnings and bank borrowings. As of March 31, 1998
the Company had working capital of $4,222,000, including
cash of $161,000. The Company also had a line of credit of
$1,750,000 with BankBoston collateralized by substantially
all of the assets. As of March 31, 1998 approximately
$732,000 had been drawn under that line of credit which
bears interest at a rate equal to the bank's prime rate plus
1/2%.
During the first six months of fiscal 1998 operating
activities produced approximately $282,000 of cash. The
major sources of cash were net income of $345,000,
depreciation and amortization of $122,000, a reduction in
accounts receivable of $128,000 and increases in accounts
payable of $176,000. The major uses of cash were increases
in inventories of $226,000 and reductions in accrued
expenses of $175,000.
The Company invested approximately $192,000 in property
and equipment during the six months ended March 31, 1998
compared to $67,000 during the same period in 1997. This
additional investment is necessitated by additional tooling
related to new products that were recently introduced and
that will be in production during the June 1998 quarter.
The Company has completed a 10,000 square foot addition
to its existing building which is being shared by both its
operating divisions for manufacturing and warehousing. The
building costs were financed using funds available under the
BankBoston line of credit. The Company believes that
sufficient availability remains for its normal working
capital needs.
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.
The Company performed an internal assessment of the
cost to modify its computer systems so that it will be able
to process information or logic involving the year 2000 and
beyond completely and accurately. The Company estimates
that the total cost to address this "Year 2000 problem" is
approximately $50,000, and to date the Company has performed
approximately one-half of the anticipated work. The Company
is not able to assess the impact the Year 2000 problem may
have on its suppliers and customers.
The Company's results of operations have not been
materially affected by seasonality.
- 11 -
FORWARD LOOKING INFORMATION
Information contained in this Form 10-QSB contains
certain "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, that
address such matters as new product introductions and
projected future sales. These statements can be identified
by the use of forward looking terminology such as "expect",
"anticipate", "believe", "intend", "estimate" or other or
comparable terminology. All forward looking statements
involve risks and uncertainties, and actual results could
differ materially from those set forth in the forward
looking statements. Some of the principal factors which
could affect the Company's future operations include the
loss of or decline in level of orders from major customers,
delays in introducing new products, the failure of the
market to accept new products and changes in general
economic conditions.
- 12 -
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In 1995, the Company's facility in Worcester, MA was
designated by the Massachusetts Department of Environmental
Protection ("DEP") as a Tier 1C site under the Massachusetts
Contingency Plan because of a previous release of oil or
hazardous materials onto the site. As required by the
Massachusetts Contingency Plan, the Company hired an
environmental consulting firm to perform further site
investigation and to file reports with the DEP. In
February, 1998 the consulting firm submitted a Phase II
report to the DEP and in March 1998 a Phase III report was
submitted that recommended continued monitoring for the next
five years. The cost of such monitoring for the 5 year
period would not be material to the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
(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.
(27) Financial Data Schedule
(b) The Company did not file any reports on Form 8-K
during the quarter ended March 31, 1998.
- 13 -
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 14, 1998
GODDARD INDUSTRIES, INC.
by/s/Saul I. Reck
Saul I. Reck, President
Chief Executive Officer
and Principal Financial
Officer
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<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> OCT-03-1998 OCT-03-1998
<PERIOD-END> MAR-31-1998 MAR-31-1998
<CASH> 0 161,120
<SECURITIES> 0 0
<RECEIVABLES> 0 1,110,070
<ALLOWANCES> 0 35,154
<INVENTORY> 0 3,767,684
<CURRENT-ASSETS> 0 5,199,026
<PP&E> 0 4,458,973
<DEPRECIATION> 0 2,946,012
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<BONDS> 0 0
0 0
0 0
<COMMON> 0 21,291
<OTHER-SE> 0 4,524,078
<TOTAL-LIABILITY-AND-EQUITY> 0 6,897,733
<SALES> 2,369,983 4,899,247
<TOTAL-REVENUES> 0 0
<CGS> 1,553,248 3,217,320
<TOTAL-COSTS> 541,526 1,064,503
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<LOSS-PROVISION> 3,000 6,000
<INTEREST-EXPENSE> 20,721 30,240
<INCOME-PRETAX> 254,488 587,184
<INCOME-TAX> 105,200 241,200
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
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