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 December 31, 1997
__ 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 December 31, 1997
Common Stock, $.01 par value 2,128,649
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 - December 31, 1997
and September 27, 1997 3
Consolidated Statement of Income - Three Months Ended
December 31, 1997 and December 31, 1996 4
Consolidated Statement of Cash Flows - Three Months Ended
December 31, 1997 and December 31, 1996 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
December 31, September 27,
1997 1997
(UNAUDITED) AUDITED
ASSETS
(ALL PLEDGED, NOTE 4)
CURRENT ASSETS:
Cash $ 37,347 $ 82,943
Accounts receivable, net of allowances 1,181,783 1,203,244
Inventories (Note 3) 3,571,413 3,541,862
Prepaid expenses and taxes 40,983 31,420
Deferred income taxes (Note 5) 135,400 133,000
TOTAL CURRENT ASSETS 4,966,926 4,992,469
PROPERTY, PLANT AND EQUIPMENT,
at cost 4,377,605 4,266,837
Less - Accumulated depreciation -2,886,009 -2,826,006
1,491,596 1,440,831
OTHER ASSETS:
Excess of cost of investment in
subsidiaries over equity in net
assets acquired 13,685 14,624
Deferred income taxes - long term(Note 5)167,000 165,000
Total other assets 180,685 179,624
TOTAL ASSETS $6,639,207 $6,612,924
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of
long-term debt (Note 4) $ 123,000 $ 119,000
Accounts payable 286,139 374,689
Accrued expenses 208,648 423,035
Accrued environmental costs (Note 6) 35,446 45,000
Income taxes payable 68,060 52,660
TOTAL CURRENT LIABILITIES 721,293 1,014,384
LONG-TERM DEBT, net of
current maturities (Note 4) 908,346 786,668
DEFERRED COMPENSATION 551,000 551,000
SHAREHOLDERS' EQUITY:
Common stock - par value $.01 per share,
authorized 3,000,000 shares, issued
and outstanding 2,128,649 shares.
(2,126,649 shares at September 27,
1997) 21,286 21,266
Additional paid-in capital 430,333 429,353
Retained earnings 4,006,949 3,810,253
TOTAL SHAREHOLDERS'EQUITY 4,458,568 4,260,872
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $6,639,207 $6,612,924
-3-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS
ENDED December 31,
1997 1996
NET SALES $2,529,264 $2,989,523
COST OF SALES 1,664,072 1,957,321
GROSS PROFIT 865,192 1,032,202
SELLING AND ADMINISTRATIVE
EXPENSES 522,977 502,668
INCOME FROM OPERATIONS 342,215 529,534
OTHER INCOME (EXPENSE):
Interest expense -17,804 -19,383
Other income, net 8,285 7,716
TOTAL OTHER INCOME
(EXPENSE) -9,519 -11,667
INCOME BEFORE INCOME TAXES 332,696 517,867
PROVISION FOR INCOME TAXES 136,000 210,600
NET INCOME $196,696 $307,267
EARNINGS PER SHARE (Note 7)
Basic $ 0.09 $ 0.15
Diluted $ 0.09 $ 0.14
-4-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED December 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $196,696 $307,267
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 60,942 54,132
Deferred income taxes -4,400 -4,400
Changes in assets and liabilities:
Accounts receivable 21,461 -203,657
Inventories -29,551 1,899
Prepaid expenses and other -9,563 -10,936
Accounts payable -88,550 87,306
Accrued expenses -214,387 -114,180
Accrued environmental costs -9,554 0
Income taxes payable 15,400 -44,000
Total Adjustments -258,202 -233,836
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES -61,506 73,431
CASH FLOWS FROM INVESTING ACTIVITIES:
Property,plant and equipment additions -110,768 -37,177
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in long-term debt 861,000 989,000
Repayments of long-term debt -735,322 -993,387
Issuance of common stock 1,000 0
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 126,678 -4,387
NET INCREASE (DECREASE) IN CASH -45,596 31,867
CASH AND EQUIVALENTS - BEGINNING 82,943 65,951
CASH AND EQUIVALENTS - ENDING $ 37,347 $ 97,818
CASH PAID DURING THE PERIOD
Interest $ 19,176 $ 20,168
Income taxes $125,000 $259,000
-5-
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 1997
(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:
December 31, September 27,
1997 1997
Finished goods $3,135,600 $3,106,049
Work in process 66,441 66,441
Raw materials 369,372 369,372
$3,571,413 $3,541,862
The following factors were taken into consideration in
determining inventory values:
Goddard Valve Corp. - December 31, 1997 - $1,904,100.
(estimated) and September 27, 1997 - $1,966,653. Interim
inventories were valued by management using the
gross profit method.
Webstone Company, Inc. - December 31, 1997 - $1,667,313.
(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 3/4% or
(ii) the Federal Funds Effective Rate plus 1 1/4% per annum. On
December 31, 1997 the effective interest rate was 9.25%. The
agreement expires March 30, 1998 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 December 31, 1997 long-term obligations consisted of
the following:
LONG-TERM CURRENT
Revolving line of credit $ 777,000 $ -
Capital lease obligations for machinery,
payable in monthly installments of
$12,080, through 2000, with imputed
interest rate of approximately 9%. 131,346 123,000
$ 908,346 $123,000
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:
December 31, September 27,
1997 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 14,400 12,400
355,700 353,300
Depreciation 53,300 55,300
$ 302,400 $ 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 a Phase III report is expected to
be submitted in the near future that will recommend continued monitoring
of the site for the next five years. The cost of such monitoring is not
expected to exceed the $35,000 that the Company has recorded as a
liability in the accompanying 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 December 31, 1996 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.
Quarter ended December 31, 1997
Income Common Shares EPS
Basic EPS:
Income available to common
shareholders $196,696 2,126,670 $.09
Dilutive effect of potential common
Stock:
Stock options - 41,638
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $196,696 2,168,308 $.09
Quarter ended December 31, 1996
Income Common Shares EPS
Basic EPS:
Income available to common
shareholders $307,267 2,040,129 $.15
Dilutive effect of potential common
Stock:
Stock options - 81,350
Diluted EPS:
Income available to common
shareholders after assumed
exercise of dilutive securities $307,267 2,121,659 $.14
-8-
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial
Condition
RESULTS OF OPERATIONS
FISCAL QUARTER ENDED DECEMBER 31, 1997 COMPARED TO
FISCAL QUARTER ENDED DECEMBER 31, 1996
Consolidated sales for the quarter ended December 31, 1997 were
$2,529,000, a 15.4% decline from the $2,990,000 consolidated sales in
the same quarter last year. Sales of the Valve division declined 24.2%
from the very strong sales during the same quarter last fiscal year when
the Company shipped a number of large orders that had been on backorder.
Sales of the Webstone division increased by 7% over the same quarter
last fiscal year as a result of newly added product lines.
Gross profit margins for the first quarter of fiscal 1998 declined
slightly to 34.2%, compared to 34.5% for the first quarter of fiscal
1997.
Sales and administrative expenses for the first quarter of fiscal
1998 were 20.7% of sales, compared to 16.8% of sales for the same
quarter last year, as additional tooling and design funds were expended
to complete the final stages of some new products. Interest expense was
reduced approximately 8% from the comparable quarter of fiscal 1997
because of lower borrowing levels.
The reduced sales and increased selling and administrative expenses
results in lower primary net income of $197,000 for the quarter (or
$.09/share)compared to primary net income of $307,000 (or $.14/share) in
the corresponding quarter last year.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operation for the most part through earnings
and bank borrowings. As of December 31, 1997 the Company had working
capital of $4,246,000, including cash of $37,000. The Company also had
a line of credit of $1,750,000 with BankBoston collateralized by
substantially all of the assets. On December 31, 1997 approximately
$777,000 had been drawn under that line of credit, which bears interest
at a rate equal to the bank's prime rate plus 3/4 of 1%.
During the first quarter of fiscal 1998, the operations of the
Company used $61,000 of cash. Cash was used to reduce accrued expenses
($214,000) and accounts payable ($88,000), and to purchase additional
inventory ($29,000). The major sources of cash were net income of
($197,000) and depreciation ($61,000).
During the quarter, the Company used approximately $111,000 in
investment activities for the purchase of machinery and equipment,
compared to $37,000 in the same period of the prior year. Financing
activities consumed approximately $127,000 as the Company paid down long
term debt.
- 9 -
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, yet after
this transaction 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. The Company has performed
approximately one-third of the anticipated work. The Company is not
able to assess what the impact of the Year 2000 problem may be on its
suppliers and customers.
The Company's results of operations have not been materially
affected by seasonality.
-10-
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 on the results of further
testing. The Company anticipates that the consulting firm will submit a
Phase III report within a few weeks concluding that no remediation
action is presently required, but recommending 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 December 31, 1997.
-11-
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 February 11, 1998
GODDARD INDUSTRIES, INC.
by/s/Saul I. Reck
Saul I. Reck, President
Chief Executive Officer
and Principal Financial
Officer
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