<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the Fiscal Year Ended October 2, 1999
or
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the Transition Period from to
Commission File Number 0-2052
GODDARD INDUSTRIES, INC.
(Name of Small Business Issuer as Specified in Its Charter)
Massachusetts 04-2268165
(State or Other Juris- (I.R.S. Employer Identifi-
diction of Incorporation cation No.)
or Organization)
705 Plantation Street, Worcester, Massachusetts 01605
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (508) 852-2435
Securities registered under Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
None N/A
Securities registered under Section 12(g) of the Exchange Act:
Common Stock $.01 par value
(Title of class)
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
<PAGE> 2
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and if no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB [ X ]
The registrant's net revenues for its most recent fiscal year are $4,976,104.
The aggregate market value of the registrant's Common Stock, par value $.01 per
share, held by non-affiliates of the registrant at December 20, 1999 was
approximately $1,607,000, based on the mean of the high and low sale prices on
that date as reported by the National Quotation Bureau, Inc.
As of December 20, 1999, there were outstanding 2,131,531 shares of Common
Stock, par value $.01 per share.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's Proxy
Statement involving the election of directors, which is expected to be filed
within 120 days after the end of the registrant's fiscal year, are incorporated
by reference in Part III of this Report.
Transitional Small Business Disclosure Format:
Yes No X
-2-
<PAGE> 3
PART I
ITEM 1. BUSINESS.
General.
Goddard Industries, Inc. (which together with its wholly-owned
subsidiaries is hereinafter referred to as the "Company") is engaged primarily
in the design, manufacture, distribution and sale of cryogenic valves for
industrial and commercial use. During the quarter ended July 3, 1999, the
Company sold The Webstone Company, Inc. (referred to as the "Webstone Division"
or "Webstone"), its former plumbing supplies division, to the President of that
division for approximately $1,789,000, as more fully described below.
The Company is a Massachusetts corporation organized in 1959. Its
executive offices are located at 705 Plantation Street, Worcester, Massachusetts
01605.
The Company's Goddard Valve Corp. subsidiary (referred to as the "Valve
Division") designs, manufactures and sells cryogenic gate, globe and check
valves and control devices required for the handling of liquefied oxygen,
nitrogen, liquefied natural gas, and other liquefied gases. Additionally, the
Company has developed a manifold system to allow addition of controls to a
cryogenic tank as a single unit. The principal markets for the Valve Division's
cryogenic valves historically have been air separation companies and
manufacturers of cryogenic tanks and transport trailers. In more recent years,
markets for special cryogenic valves have developed for use on tanks required by
the semi-conductor manufacturing and medical technology industries. The Valve
Division's cryogenic valves are distributed domestically both by direct sales to
customers and through independent sales representatives. The Valve Division also
makes direct sales of the valves to customers in Canada, Europe and Asian
countries.
The decision by the Board of Directors to sell the Webstone Division
followed a strategic analysis of the Company's position in both the plumbing
supplies business, where it was a relatively small competitor, and the cryogenic
valve business, where it is a market leader in the Western Hemisphere. The Board
of Directors determined that there was little synergy between these two business
sectors, and that the decision to sell the Webstone Division would enable the
Company to focus its financial and management resources on the cryogenic valve
industry.
The Board of Directors was also aware that Michael E. Reck, President
of the Webstone Division since 1996, had expressed interest in acquiring the
Webstone business from the Company. Because Michael Reck is the son of Saul I.
Reck, founder and Chairman of the Board of the Company, and the brother of Joel
M. Reck, Clerk and legal counsel to the Company, the Board of Directors
appointed a special committee of the Board of Directors to conduct negotiations
with Michael Reck concerning the sale of the Webstone business to him. The
special committee consisted of Messrs. Humphreys, Knopp, and Wimmergren, the
three outside directors, and Mr. Salvatore J. Vinciguerra, the President and
Chief Executive Officer of the Company. Messrs. Saul Reck and Joel Reck did not
participate in discussions concerning the transaction. In addition, because Joel
Reck is a member of the law firm of Brown Rudnick Freed & Gesmer which normally
acts as the Company's legal counsel, the special committee retained separate
legal counsel for the
-3-
<PAGE> 4
purpose of negotiating the transaction with Michael Reck. The special committee
also retained the investment-banking firm of Fechtor Detwiler, Inc. to advise it
on the transaction. After several months of negotiations between the Company and
Michael Reck, the special committee reached an agreement to sell the stock of
the Webstone subsidiary to him for a purchase price of $1,789,000 - $1,389,000
in cash at closing, $150,000 in the form of a ninety day non-interest-bearing
loan, and $250,000 in preferred stock of Webstone. Fechtor Detwiler, Inc.
provided an opinion to the Board of Directors that the transaction was fair to
the Company.
The sale of the Webstone subsidiary to Michael Reck was completed July
2, 1999. At the time of the sale, the Webstone subsidiary had a book value of
$2,053,000. As a result of the difference in value between book value and
purchase price, transactional costs associated with the sale, and reserves
taken, there was a loss on the sale of $419,000 or $.19 per share.
Sources of Supply.
Raw materials for the Valve Division's business consist of stainless
steel, aluminum and bronze castings and bar stock, which are available from a
variety of regular and competitive suppliers. The Company does not anticipate
difficulty in obtaining sufficient raw materials for that business.
Dependence upon Principal Customers.
During fiscal 1999 the Valve Division was dependent on one customer for
23% of its cryogenic valve business and any loss or significant decrease in
business from this customer would have a material adverse effect on the business
of the Company.
Backlog.
The dollar amount of backlog of orders believed to be firm for the
Valve Division was approximately $230,000 as of the end of the 1999 fiscal year,
compared with approximately $886,000 as of the end of the 1998 fiscal year and
$860,000 at the end of fiscal 1997. The lower backlog at the end of fiscal 1999
reflects the lower level of bookings for the year, coupled with the need to meet
delivery dates determined by customer requirements.
No part of the backlog is seasonal. Backlog varies according to
business conditions within the industry, and all backlog is expected to be
shipped within the current fiscal year.
Competition.
All aspects of the Company's business are highly competitive. The
Company believes there are between six and eight principal competitors in the
Valve Division's cryogenic valve business. The Valve Division competes on the
basis of product performance, dependability, and price. In the last year,
foreign competitors have been more aggressive in pursuing business in the United
States. The Company believes that the Valve Division's competitive position
within that industry is strong, although there can be no assurance that that
situation will continue.
-4-
<PAGE> 5
Research and Development.
During the last fiscal year, the Company spent approximately $197,000
and had six employees working full or part time on Company-sponsored research
and development, all of which was spent on cryogenic valve development. During
the previous year the Company spent approximately $156,000 for research and
development.
The Company has obtained a number of patents and has additional patent
applications pending with respect to certain of the products of the Valve
Division. There can be no assurance that any of the pending patent applications
will be granted or that existing patents will be enforceable. While the Company
believes the patents have value, it believes that the success of the Valve
Division depends more upon the technical competence and manufacturing skills of
its employees than upon patents.
Employees.
As of December 20, 1999, the Company had a total of 33 employees, 32 of
whom were full time employees of the Company.
ITEM 2. PROPERTIES.
The Company's executive offices and the business of the Valve Division
are located at 705 Plantation Street, Worcester, Massachusetts in a one-story
building on a main thoroughfare owned by Goddard Valve Corporation. The building
has approximately 37,000 square feet: a 27,000 square foot masonry structure
erected in 1961 and a 10,000 square foot steel structure added in 1997. The
Company leases approximately 15,000 square feet to Webstone pursuant to a lease
with terms that were negotiated on an arms-length basis.
The Company believes that the facility is adequate to meet Company
needs for the foreseeable future. The Company believes that its existing
facilities and equipment are well maintained and in good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
In 1995 the Massachusetts Department of Environmental Protection
("DEP") designated the Company's facility at 705 Plantation Street, Worcester as
a Tier 1C Site under the Massachusetts Contingency Plan as a result of a prior
release of hazardous materials on the site. The Company was required to conduct
response actions required under the Massachusetts Contingency Plan. These
actions culminated in the filing of a Class C Response Action Outcome Statement
with the DEP in September 1998. Based upon the information presently available,
no further corrective response actions are required; however, the Company must
continue to monitor the site and file reports of the monitoring results with the
DEP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
-5-
<PAGE> 6
No matters were submitted to the stockholders of the Company during the
fourth quarter of the 1999 fiscal year.
-6-
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market on
the OTC Bulletin Board. As of December 20, 1999, there were approximately 551
holders of the Company's Common Stock. The quarterly high and low bid prices of
the Company's Common Stock for the two fiscal years ending October 3, 1998 and
October 2, 1999 are set forth below. Prices are based upon quotations from the
National Quotation Bureau, Inc.
FISCAL 1998 BID PRICES
<TABLE>
<CAPTION>
High Low
---------- ----------
<S> <C> <C> <C>
Quarter Ending: 12/31/97 $ 4.50 $ 3.50
3/31/98 $ 4.50 $ 2.00
6/30/98 $ 3.75 $ 2.375
10/3/98 $ 2.875 $ 1.50
</TABLE>
FISCAL 1999 BID PRICES
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C> <C>
Quarter Ending: 1/2/99 $ 2.625 $ 1.375
4/3/99 $ 2.625 $ 2.00
7/3/99 $ 2.25 $ 2.00
10/2/99 $ 2.25 $ 1.375
</TABLE>
The Company has paid stock dividends from time to time in the past and
paid a single cash dividend of $.03/share in February, 1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Results of Operations - 1999 Compared to 1998
As a result of the sale of Webstone, the Company has three classes of
income (loss) for reporting purposes for the year: income from continuing
operations; income from discontinued operations (the sold Webstone Division),
and loss on the sale of the Webstone Division.
Net sales from continuing operations for the fiscal year ended October
2, 1999 were $4,976,000, with net income from continuing operations of $463,000
or $.21 per share. This compared with net sales of $5,838,000 and net income of
$786,000 or $.37 per share from continuing operations for the prior year. Net
income from discontinued operations was $30,000 or $.01 per share in 1999
compared with a net loss of $39,000 or $.02 per share in the prior year. The
sale of Webstone resulted in a book loss of $419,000, or $.19 per share. As a
result, the
-7-
<PAGE> 8
consolidated net income for the fiscal year was $74,000 or $.03 per share,
compared with $747,000 or $.35 per share last year.
The downward trend in orders received year-to-year from cryogenic valve
operations continued throughout the year. Orders received from cryogenic valve
operations in the year ended October 2, 1999 were $4,351,000 compared with
$5,887,000 in fiscal year 1998. The Valve Division's two largest customers
accounted for two thirds of this decline. Management believes that those
reductions are representative of reductions in spending by those customers and
the remainder of the industry, and do not reflect losses in the Company's market
share. Few new air separation plants are being constructed anywhere in the world
at the moment, reflecting continued stagnation in new plant and equipment
spending in air separation plants in Asia, coupled with extra capacity in the
industry created during the 1996-1997 expansion.
Gross profit margins from continuing operations for fiscal 1999
declined slightly to 40% from 43% in fiscal 1998 as a result of lower volumes.
Selling and administrative expenses from continuing operations increased as a
percentage of revenue to 25% during fiscal 1999, compared to 21% during fiscal
1998. The increase in selling and administrative expenses as a percentage of
revenues was due in part to the lower volume as well as costs associated with
the transition in the position of President and Chief Executive Officer in the
first quarter of the fiscal year.
Results of Operations - 1998 Compared to 1997
Net sales from continuing operations for the fiscal year ended October
3, 1998 were $5,838,000 with net income from continuing operations of $786,000
or $.37 per share. This compared with net sales of $6,727,000 and net income of
$920,000 or $.44 per share from continuing operations for the fiscal year 1997.
The net loss from discontinued operations in fiscal 1998 was $39,000 or $.02 per
share compared with a net loss of $30,000 or $.01 per share in fiscal 1997. As a
result, the consolidated net income for the fiscal year was $747,000 or $.35 per
share, compared with $890,000 or $.43 per share in fiscal 1997.
Gross profit margins for fiscal 1998 improved over 1997 to 43% from 37%
reflecting improvements in the Division's manufacturing process. Sales and
administrative expenses increased from 15% to 21% as a result of increases in
personnel in engineering and production.
Liquidity and Capital Resources
Historically, the Company has funded operations through earnings and
bank borrowings. However, the sale of the Webstone business has enhanced the
Company's balance sheet and provides it with additional liquidity. At July 3,
1999, the Company had paid off all long term debt except equipment leases of
$140,000 and had approximately $1,770,000 in cash and cash equivalents. The
Company's line of credit with BankBoston has been temporarily discontinued
pending specific requirements for additional capital.
-8-
<PAGE> 9
During fiscal 1999, operating activities from continuing operations
produced $854,000 of cash. The major sources of cash were net income from
continuing operations and depreciation.
The Company received $1,539,000 from the sale of Webstone, and spent
$475,000 in its discontinued operations throughout the year, compared with
$304,000 in fiscal 1998. Approximately $115,000 was invested in property and
equipment during fiscal 1999, compared to $225,000 during the prior year.
The Company believes that its working capital and cash position provide
sufficient liquidity to handle the normal working capital requirements of its
business.
The Company's results of operations have not been materially effected
by seasonality.
Year 2000 Readiness Disclosure
Some computers, software, and other equipment include programming code
in which calendar year data is abbreviated to only two digits. As a result of
this design decision, some of the systems do not properly recognize a year that
begins with "20" instead of "19". These problems are commonly referred to as the
"Year 2000 problem".
In March 1999 the Company completed its assessment of the ability of
the computers, systems and electronic equipment of the Valve division to process
information involving the Year 2000 and beyond accurately, and completed the
necessary corrective actions. The total cost for assessment and correction of
internal "Year 2000" problems for the Valve division was approximately $50,000,
which was paid out of working capital and expensed currently. The Company's
discussions with its suppliers and customers of the Valve division as to the
possible impact of Year 2000 problems have not disclosed any anticipated
problems. Management believes that a reasonable "worst case scenario" is that
Year 2000 problems would cause delays in deliveries of production material.
Management has developed contingency plans to address this worst case scenario,
including identifying alternative supply sources and planning for alternative
delivery arrangements.
ITEM 7. FINANCIAL STATEMENTS.
The financial statements and supplementary data are listed under Part
III, Item 13 in this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
There have not been any changes in the Company's auditors in more than
two fiscal years.
-9-
<PAGE> 10
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information required by this Item 9 is hereby incorporated in part by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
Executive Officers of the Company
The executive officers of the Company who are neither directors of the
Company or nominees for director are as follows:
<TABLE>
<CAPTION>
Name Age Position Executive Officer Since
- ---- --- -------- -----------------------
<S> <C> <C> <C>
Donald R. Nelson 64 Vice President 1973
of the Company
</TABLE>
The term of office for all officers is from one annual meeting of the
Board of Directors to the next, subject to the right of the Board of Directors
to remove an officer at any time, and subject to the provisions of the
Employment Agreement of the Chief Executive Officer, Mr. Salvatore Vinciguerra.
Mr. Nelson has been employed by the Company in the above-described
capacity for more than five years.
ITEM 10. EXECUTIVE COMPENSATION.
Information required by this Item 10 is hereby incorporated by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this Item 11 is hereby incorporated in part by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item 12 is hereby incorporated in part by
reference to the Company's definitive Proxy Statement which is expected to be
filed by the Company within 120 days after the close of its fiscal year.
-10-
<PAGE> 11
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
1. Report of Greenberg, Rosenblatt, Kull & Bitsoli, P.C. dated
November 15, 1999. (See page 14 hereof.)
2. Consolidated Balance Sheet as of October 2, 1999 and October
3, 1998. (See page 15 hereof.)
3. Consolidated Statement of Income for the fifty-two weeks ended
October 2, 1999, the fifty-three weeks ended October 3, 1998,
and the fifty-two weeks ended September 27, 1997. (See page
16 hereof.)
4. Consolidated Statement of Stockholders' Equity for the
fifty-two weeks ended October 2, 1999, the fifty-three weeks
ended October 3, 1998, and the fifty-two weeks ended September
27, 1997. (See page 17 hereof.)
5. Consolidated Statement of Cash Flows for the for the fifty-two
weeks ended October 2, 1999, the fifty-three weeks ended
October 3, 1998, and the fifty-two weeks ended September 27,
1997. (See page 18 hereof.)
6. Notes to the Consolidated Financial Statements. (See pages 19
- 31 hereof.)
(a)(2) Exhibits.
(3) Articles of Incorporation and By-Laws:
(a)(1) Restated Articles of Organization, dated March 31,
1971. (Filed as Exhibit 3 to the Company's Form 10-K
for the fiscal year ended September 28, 1985.)*
(a)(2) Articles of Amendment to Restated Articles of
Organization, dated June 1, 1972. (Filed as Exhibit 3
to the Company's Form 10-K for the fiscal year ended
September 28, 1985.)*
(a)(3) Articles of Amendment to Restated Articles of
Organization, dated October 11, 1985. (Filed as
Exhibit 3 to the Company's Form 10-K for the fiscal
year ended September 28, 1985.)*
(a)(4) Articles of Amendment to Restated Articles of
Organization dated March 13, 1987. (Filed as Exhibit
3 to the Company's Form 10-Q for the quarter ended
March 28, 1987.)*
(b)(1) By-Laws (filed as Exhibit 19 to the Company's Form
10-Q for the quarter ended March 31, 1984.)*
-11-
<PAGE> 12
(b)(2) By-Law Amendment dated as of September 28, 1990.
(Filed as Exhibit 3(b)(2) to the Company's Form 10-K
for the fiscal year ended September 29, 1990.)*
(4) Instruments Defining the Rights of Security Holders:
(a) Specimen certificate of common stock. (Filed as
Exhibit 4(a) of Registration Statement on Form S-1
Registration No. 2-16854 of Reva Enterprises, Inc.,
now Goddard Industries, Inc.))*
(10) Material Contracts:
(a) Adoption Agreement (Non-Standardized Code
Section 401(k) Profit Sharing Plan) dated July 31,
1991, together with related Defined Contribution
Prototype Plan and Trust Agreement. (Filed as Exhibit
10(h) to the Company's Form 10-K for the fiscal year
ended September 28, 1991.)*
(b) Employee Stock Purchase Plan dated December 9, 1993.
(Filed as Exhibit 10(h) to the Company's Form 10-KSB
for the fiscal year ended October 1, 1994.)*
(c) Employment Agreement between the Company and
Salvatore J. Vinciguerra dated October 19, 1998.
(Filed as Exhibit 10(h) to the Company's Form 10-KSB
for the fiscal year ended October 3, 1998.)*
(d) 1998 Equity Incentive Plan. (Filed as Exhibit 10(i)
to the Company's Form 10-KSB for the fiscal year
ended October 3, 1998.)*.
(11) Statement Re Computation of Per Share Earnings. The Statement
Re Computation of Per Share Earnings is set forth in Note 13
to the Company's Consolidated Financial Statements.
(21) Subsidiaries of the Registrant. (Filed as Exhibit 22 to the
Company's Form 10-K for the fiscal year ended September 30,
1989.)*
(27) Financial Data Schedule.
- ----------------------
*Not filed herewith. In accordance with Rule 12b-23 under the Securities
Exchange Act of 1934, as amended, reference is made to the documents previously
filed with the Commission.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last
quarter of its fiscal year ended October 3, 1998.
-12-
<PAGE> 13
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.
GODDARD INDUSTRIES, INC.
Dated: December 29 1999 By: /s/ Salvatore J. Vinciguerra
------------------------------------
Salvatore J. Vinciguerra, President
In accordance with the Exchange Act, 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>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Salvatore J. Vinciguerra Principal Executive Officer, Principal December 29, 1999
- ------------------------------------ Financing and Accounting Officer
Salvatore J. Vinciguerra
/s/ Saul I. Reck Chairman of the Board of Directors December 29, 1999
- ------------------------------------
Saul I. Reck
/s/ Jacky Knopp, Jr. Director December 29, 1999
- ------------------------------------
Jacky Knopp, Jr.
/s/ Robert E. Humphreys Director December 29, 1999
- ------------------------------------
Robert E. Humphreys
/s/ Lyle E. Wimmergren Director December 29, 1999
- ------------------------------------
Lyle E. Wimmergren
</TABLE>
-13-
<PAGE> 14
Independent Auditors' Report
The Shareholders and Board of Directors
Goddard Industries, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Goddard
Industries, Inc. and Subsidiaries as of October 2, 1999 and October 3, 1998 and
the related consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended October 2, 1999. 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 audit 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 consolidated financial position of Goddard
Industries, Inc. and Subsidiaries as of October 2, 1999 and October 3, 1998 and
the consolidated results of their operations and cash flows for each of the
three years in the period ended October 2, 1999, in conformity with generally
accepted accounting principles.
GREENBERG, ROSENBLATT, KULL & BITSOLI, P.C.
Worcester, Massachusetts
November 15, 1999
14
<PAGE> 15
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 2, 1999 AND OCTOBER 3, 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $1,773,389 $ 149,756
Accounts receivable (less allowance for doubtful
accounts of $17,900 in 1999 and $15,500 in 1998) 478,941 527,284
Inventories 1,924,507 2,066,224
Refundable income taxes 33,708 92,723
Prepaid expenses 49,550 22,067
Deferred income taxes 87,000 82,000
---------- ----------
Total current assets 4,347,095 2,940,054
---------- ----------
Property, plant and equipment 1,433,110 1,556,032
---------- ----------
Other assets:
Deferred income taxes 92,000 123,000
Investment 250,000 --
Net assets of discontinued operations -- 1,703,639
---------- ----------
Total other assets 342,000 1,826,639
---------- ----------
Total assets $6,122,205 $6,322,725
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of capital lease obligations $ 96,000 $ 184,000
Accounts payable 75,380 122,381
Accrued expenses 291,336 328,806
Accrued environmental costs -- 4,648
Deferred compensation 69,000 42,500
---------- ----------
Total current liabilities 531,716 682,335
---------- ----------
Capital lease obligations 44,222 139,515
---------- ----------
Deferred compensation 476,791 508,500
---------- ----------
Shareholders' equity:
Common stock - par value $.01 per share;
authorized 3,000,000 shares, issued
and outstanding 2,131,531 shares
in 1999 and 2,129,982 in 1998 21,315 21,299
Additional paid-in capital 480,713 477,923
Retained earnings 4,567,448 4,493,153
---------- ----------
Total shareholders' equity 5,069,476 4,992,375
---------- ----------
Total liabilities and shareholders' equity $6,122,205 $6,322,725
========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statement
15
<PAGE> 16
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED OCTOBER 2, 1999
OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 4,976,104 $ 5,838,295 $ 6,726,853
Cost of sales 2,994,077 3,335,363 4,211,032
----------- ----------- -----------
Gross profit 1,982,027 2,502,932 2,515,821
Selling and administrative expenses 1,255,818 1,227,276 1,017,619
----------- ----------- -----------
Operating profit 726,209 1,275,656 1,498,202
----------- ----------- -----------
Other income (expense):
Interest expense (56,464) (24,621) (21,900)
Other income 102,432 69,774 68,875
----------- ----------- -----------
Total other income 45,968 45,153 46,975
----------- ----------- -----------
Income from continuing operations
before income taxes 772,177 1,320,809 1,545,177
----------- ----------- -----------
Income taxes (benefit):
Current 283,000 480,000 674,700
Deferred 26,000 55,000 (49,000)
----------- ----------- -----------
Total income taxes 309,000 535,000 625,700
----------- ----------- -----------
Income from continuing operations 463,177 785,809 919,477
----------- ----------- -----------
Discontinued operations:
Income (loss) from operations, net of tax 30,295 (39,049) (29,145)
Loss on disposal, net of tax (419,177) -- --
----------- ----------- -----------
Loss from discontinued operations (388,882) (39,049) (29,145)
----------- ----------- -----------
Net income $ 74,295 $ 746,760 $ 890,332
=========== =========== ===========
Earnings per share:
Continuing operations:
Basic $ 0.22 $ 0.37 $ 0.44
=========== =========== ===========
Diluted $ 0.21 $ 0.37 $ 0.44
=========== =========== ===========
Net Income:
Basic $ 0.03 $ 0.35 $ 0.43
=========== =========== ===========
Diluted $ 0.03 $ 0.35 $ 0.43
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
16
<PAGE> 17
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED OCTOBER 2, 1999
OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
Shares Additional
of common Common paid-in Retained
stock stock capital earnings Total
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at September 28, 1996 2,040,129 $ 20,401 $ 399,353 $ 2,919,921 $ 3,339,675
Net income -- -- -- 890,332 890,332
Stock options exercised 80,000 800 62,608 -- 63,408
Stock issued under
employee stock
purchase plan 6,520 65 9,550 -- 9,615
--------- ----------- ----------- ----------- -----------
Balance at September 27, 1997 2,126,649 21,266 471,511 3,810,253 4,303,030
Net income -- -- -- 746,760 746,760
Dividends paid
($.03 per share) -- -- -- (63,860) (63,860)
Stock options exercised 2,000 20 3,680 -- 3,700
Stock issued under
employee stock
purchase plan 1,333 13 2,732 -- 2,745
--------- ----------- ----------- ----------- -----------
Balance at October 3, 1998 2,129,982 21,299 477,923 4,493,153 4,992,375
Net income -- -- -- 74,295 74,295
Stock issued under
employee stock
purchase plan 1,549 16 2,790 -- 2,806
--------- ----------- ----------- ----------- -----------
Balance at October 2, 1999 2,131,531 $ 21,315 $ 480,713 $ 4,567,448 $ 5,069,476
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
17
<PAGE> 18
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED OCTOBER 2, 1999
OCTOBER 3, 1998, AND SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 74,295 $ 746,760 $ 890,332
Adjustments to reconcile net income to net cash
provided by operating activities:
Income (Loss) from discontinued operations (30,295) 39,049 29,145
Loss on disposition of business 419,177 -- --
----------- ----------- -----------
Income from continuing operations 463,177 785,809 919,477
Depreciation and amortization 237,683 239,398 223,604
Provision for losses on accounts receivable 2,400 (1,374) (1,849)
Changes in assets and liabilities:
Accounts receivable 45,943 142,428 87,023
Other receivables -- -- 785,000
Inventories 141,717 (99,571) (309,227)
Refundable income taxes 59,015 (92,723) --
Prepaid expenses (27,483) 5,489 (1,868)
Accounts payable (47,001) (118,384) 20,405
Accrued expenses (37,470) (33,816) 47,466
Accrued environmental costs (4,648) (40,352) (750,000)
Income taxes payable -- (52,660) (139,111)
Deferred income taxes 26,000 56,000 (49,000)
Deferred compensation (5,209) -- --
----------- ----------- -----------
Net cash provided by operating activities 854,124 790,244 831,920
----------- ----------- -----------
Investing activities:
Net proceeds from disposition of business 1,539,324 -- --
Investment in former subsidiary (474,567) (304,405) (379,536)
Property, plant and equipment additions (114,761) (224,867) (397,889)
----------- ----------- -----------
Net cash provided by (used in) investing activities 949,996 (529,272) (777,425)
----------- ----------- -----------
Financing activities:
Repayments of long-term debt (183,293) (143,153) (89,227)
Issuance of common stock 2,806 48,603 30,865
Cash dividends paid -- (63,860) --
----------- ----------- -----------
Net cash used in financing activities (180,487) (158,410) (58,362)
----------- ----------- -----------
Net increase (decrease) in cash 1,623,633 102,562 (3,867)
Cash and cash equivalents - beginning 149,756 47,194 51,061
----------- ----------- -----------
Cash and cash equivalents - ending $ 1,773,389 $ 149,756 $ 47,194
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the year:
Interest $ 58,538 $ 90,413 $ 87,754
=========== =========== ===========
Income taxes $ 282,500 $ 558,525 $ 813,111
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements
18
<PAGE> 19
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of Goddard
Industries, Inc., its wholly-owned subsidiaries Goddard Valve
Corporation (Valve) and Goddard Management Corporation, incorporated
on July 28, 1999, and Valve's wholly-owned subsidiary, Webstone
Company, Inc. (Webstone). On July 2, 1999, Webstone was sold (Note
15). All material intercompany transactions have been eliminated.
Fiscal Year:
The Company's fiscal year ends on the Saturday nearest to September
30. The years ended October 2, 1999 and September 27, 1997 each
contain 52 weeks while the year ended October 3, 1998 contains 53
weeks.
Cash and Cash Equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. The
Company's cash and cash equivalents are on deposit with financial
institutions. At times, such deposits are in excess of Federal
Deposit Insurance Corporation (FDIC) insurance limits.
Inventories:
Inventories are valued at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost and depreciated
using the straight-line method over the following estimated useful
lives:
YEARS
-----
Building and improvements 10 - 35
Machinery, equipment and tools 3 - 10
Office equipment and fixtures 5 - 10
Advertising:
Advertising costs are expensed when incurred.
Income Taxes:
Taxes are provided for items entering into the determination of net
income for financial reporting purposes, irrespective of when such
items are reported for income tax purposes. Accordingly, deferred
income taxes have been provided for all temporary differences. Tax
credits are accounted for on the flow-through method, whereby credits
earned during the year are used to reduce the current income tax
provision.
Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Although these estimates are based on management's knowledge of
current events and actions to be undertaken in the future, they may
differ from actual results.
19
<PAGE> 20
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition:
The Company recognizes revenue when goods are shipped from its
facilities.
Forward Exchange Contracts:
The Company periodically enters into forward exchange contracts in
foreign currencies to hedge against anticipated foreign currency
commitments with respect to inventory purchases. The gains or losses
on these contracts are included as part of the cost of sales.
(2) INVENTORIES
Inventories are comprised of the following:
1999 1998
----------- -----------
Finished goods $ 1,607,495 $ 1,503,116
Work in process 30,646 139,945
Raw materials 286,366 423,163
----------- -----------
$ 1,924,507 $ 2,066,224
=========== ===========
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
1999 1998
----------- -----------
Land $ 12,865 $ 12,865
Building and improvements 913,643 911,427
Machinery, equipment and tools 3,363,935 3,290,298
Office equipment and fixtures 148,516 109,608
----------- -----------
4,438,959 4,324,198
Accumulated depreciation (3,005,849) (2,768,166)
----------- -----------
$ 1,433,110 $ 1,556,032
=========== ===========
Depreciation expense charged to income was approximately $238,000,
$239,000 and $224,000 in 1999, 1998 and 1997, respectively.
20
<PAGE> 21
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(4) CAPITAL LEASE OBLIGATIONS
The Company is obligated under the following capital lease obligations
for machinery and equipment:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Capital lease obligation, payments of $5,750
per month including interest at 8.5%, due in 2001. $ 106,893 $ 164,161
Capital lease obligation, payments of $6,807
per month including interest at 8.5%, due in 2000. 33,329 108,713
Capital lease obligation, payments of $5,273
per month including interest at 9%, due in 1999. -- 50,641
--------- ---------
140,222 323,515
Current maturities 96,000 184,000
--------- ---------
$ 44,222 $ 139,515
========= =========
</TABLE>
Future minimum lease payments are as follows:
2000 $ 103,000
2001 46,000
---------
149,000
Amount representing interest (8,778)
---------
$ 140,222
=========
Assets directly financed through leases totaling $182,000 for 1998 and
$216,000 for 1997 are included in property, plant and equipment.
Amortization of these assets totaling $47,000 in 1999 and 1998 and
$35,000 in 1997 is included in depreciation expense and accumulated
depreciation. The net book value of the assets under capital leases at
the end of 1999 and 1998 was approximately $418,000 and $474,000,
respectively.
(5) COMMON STOCK OPTIONS
In October 1998, the Company granted qualified options for 200,000
shares to its President under the 1998 Equity Incentive Plan. This Plan
provides for the grant of options for a maximum of 300,000 shares.
21
<PAGE> 22
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(5) COMMON STOCK OPTIONS (Continued)
In 1998 and 1997, the Company granted non-qualified options for 5,000
shares to each non-employee director and in varying amounts to certain
employees, for an aggregate of 110,000 shares of common stock. The
exercise price of each option equals the market price of the Company's
stock on the date of grant and the option's maximum term is five years.
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions:
1999 1998 1997
---- ---- ----
Dividend yield None None None
Expected volatility 75.18% 74.01% 68.19%
Risk-free interest rate 6.43% 4.79% 5.80%
Expected lives 10 years 5 years 5 years
A summary of the status of the Company's outstanding options as of
October 2, 1999, October 3, 1998 and September 27, 1997 and the changes
during the years ending on those dates are presented below:
<TABLE>
<CAPTION>
October 2, 1999 October 3, 1998 September 27, 1997
-------------------- ------------------- --------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year: 103,000 $ 1.97 64,000 $ 1.34 105,000 $ 0.32
Granted 200,000 1.63 41,000 2.88 39,000 1.88
Exercised -- -- (2,000) 0.50 (80,000) 0.27
-------- -------- --------
Outstanding at
end of year 303,000 $ 1.75 103,000 $ 1.97 64,000 $ 1.34
======== ====== ======== ====== ======== =======
Options exercisable
at year-end 103,000 103,000 64,000
======== ======== ========
Weighted average fair
value of options granted
During the year $ 1.35 $ 1.84 $ 1.16
======== ======== ========
</TABLE>
22
<PAGE> 23
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(5) COMMON STOCK OPTIONS (Continued)
The following summarizes information about fixed stock options
outstanding at October 2, 1999:
<TABLE>
<CAPTION>
Weighted
average
remaining Weighted Weighted
Number contractual average Number average
Exercise outstanding at life exercise exercisable at exercise
price October 2, 1999 in years price October 2, 1999 price
----- --------------- -------- ----- --------------- -----
<S> <C> <C> <C> <C> <C>
$ 0.50 23,000 1.25 $ 0.50 23,000 $ 0.50
$ 1.63 200,000 9.00 $ 1.63 -- $ 1.63
$ 1.88 39,000 2.50 $ 1.88 39,000 $ 1.88
$ 2.88 41,000 3.50 $ 2.88 41,000 $ 2.88
------- -------
303,000 103,000
======= =======
</TABLE>
The Company applies APB Opinion 25 in accounting for employee stock
options. Accordingly, no compensation cost has been recognized. Had
compensation costs been determined on the basis of FASB Statement 123 in
1999, 1998 and 1997, net income from continuing operations would have
been reduced to $422,677, $740,545 and $894,912 which would have
decreased basic earnings per share by $.02 in 1999 and 1998 and $.01 in
1997. Diluted earnings per share in 1999 and 1997 would have been
decreased by $.01 while in 1998 they would have been decreased by $.02.
In October 1999 the Company granted qualified options for an additional
50,000 shares to its President under the 1998 Equity Incentive Plan, and
non-qualified options for 5,000 shares to each non-employee director
(20,000 in total).
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reflected in the consolidated balance sheets for
cash, accounts receivable, accounts payable and accrued expenses
approximate fair value due to the short maturities of these instruments.
The investment is carried at cost, which approximates fair value. The
carrying value of capital lease obligations approximates fair value since
the rates and terms of these instruments are substantially equivalent to
those the Company would offer or obtain at the balance sheet date.
23
<PAGE> 24
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(7) INCOME TAXES
The following is a reconciliation of income tax expense computed at the
Federal statutory income tax rate to the provision for income taxes:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Federal income taxes at
statutory rate $ 262,500 $ 449,100 $ 525,400
State income taxes net of
federal income tax benefit 48,400 82,800 96,900
Nondeductible expenses 300 2,800 2,800
Other (2,200) 300 600
--------- --------- ---------
Income taxes $ 309,000 $ 535,000 $ 625,700
========= ========= =========
The provision for income taxes is summarized as follows:
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 215,000 $ 367,000 $ 517,700
State 68,000 113,000 157,000
--------- --------- ---------
283,000 480,000 674,700
--------- --------- ---------
Deferred:
Federal 20,000 42,000 (37,000)
State 6,000 13,000 (12,000)
--------- --------- ---------
26,000 55,000 (49,000)
--------- --------- ---------
$ 309,000 $ 535,000 $ 625,700
========= ========= =========
</TABLE>
24
<PAGE> 25
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(7) INCOME TAXES (Continued)
The tax effects of the principal temporary differences giving rise to the
net current and noncurrent deferred tax assets totaling $179,000 at
October 2, 1999 and $205,000 at October 3, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1999
---- ----
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 218,300 $ 220,400
Capital loss carryforward 167,700 --
Inventory valuation 45,800 49,400
Accrued salaries 6,000 7,500
Environmental matters -- 1,900
Bad debts 7,200 6,200
--------- ---------
Total gross deferred tax assets 445,000 285,400
Deferred tax liabilities:
Depreciation 98,300 80,400
--------- ---------
346,700 205,000
Valuation allowance (167,700) --
--------- ---------
$ 179,000 $ 205,000
========= =========
</TABLE>
Management has established a valuation allowance in connection with the
deferred tax asset related to the capital loss carryforward.
(8) COMMITMENTS AND CONTINGENCIES
Employment Agreements:
In October 1998, the Board of Directors entered into an employment
agreement with the Company's President requiring minimum annual
payments of $140,000.
The Company has a non-qualified, unfunded deferred compensation plan
for the Chairman of the Board providing for payments, in the form of
a joint and survivor annuity, of $60,000 for his life and, upon his
death $30,000 to his spouse for her life. The payments will be
adjusted annually for increases in the Consumer Price Index (CPI)
since 1993 with a lump sum payment due annually within forty-five
days of the fiscal year end. As of October 2, 1999, the deferred
compensation liability represents the actuarial present value of this
obligation based upon the following assumptions.
25
<PAGE> 26
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(8) COMMITMENTS AND CONTINGENCIES (Continued)
Employment Agreements: (continued)
Interest rate 7.25%
Annual increases in the CPI 3.00%
Post-retirement mortality 1983 Group Annuity Table
The Company has employment agreements with certain key executive
officers and directors that become operative only upon a change in
control of the Company without the approval of the Board of
Directors. Compensation which might be payable under these agreements
has not been reflected in the consolidated financial statements of
the Company as of October 2, 1999, since a change in control, as
defined, has not occurred.
Environmental matters:
In 1998, the Company filed a Class "C" Response Action Outcome
Statement with the Massachusetts Department of Environmental
Protection regarding its facility in Worcester, Massachusetts. Based
upon the information presently available, periodic monitoring is
required.
(9) RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to operations in 1999, 1998, and
1997 were approximately $197,000, $156,000, and $175,000, respectively.
(10) ADVERTISING COSTS
Advertising costs charged to operations in 1999, 1998, and 1997 were
approximately $ 8,000, $6,000, and $7,000, respectively.
(11) PROFIT SHARING PLAN
The Company has a profit sharing plan covering substantially all
employees. The Company's profit sharing contribution is determined
annually by the Board of Directors.
Incorporated into the plan are the provisions of Section 401(k) of the
Internal Revenue Code, which allows employees to contribute to their
accounts on a pretax basis. The Company matches employee contributions up
to a maximum of 25% of each employee's contribution.
Total contributions by the Company amounted to approximately $ 53,000,
$59,000, and $61,000 in 1999, 1998, and 1997 respectively.
26
<PAGE> 27
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(12) EMPLOYEE STOCK PURCHASE PLAN
The Company has a qualified employee stock purchase plan covering all
employees except officers and directors. Employees participating in the
plan are granted options semi-annually to purchase common stock of the
Company. The number of full shares available for purchase is a function
of the employee's accumulated payroll deductions at the end of each
six-month interval. The option price is the lesser of 85% of the fair
value of the Company's common stock on the first day of the payment
period or 85% of the fair value of the Company's common stock on the last
day of the payment period. As of October 2, 1999, October 3, 1998, and
September 27, 1997, there were no options outstanding under the plan.
(13) EARNINGS PER SHARE
The following data show the amounts used in computing earnings per share
from continuing operations and the effects on income and the weighted
average number of shares of dilutive potential common stock.
27
<PAGE> 28
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
Year ended October 2, 1999
-----------------------------
Net Common
income shares EPS
------ ------ ---
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $ 463,177 2,130,385 $ 0.22
=========
Dilutive effect of potential common stock:
Stock options -- 30,733
--------- ---------
Diluted EPS:
Income available to common shareholders
after assuming exercise of dilutive securities $ 463,177 2,161,118 $ 0.21
========= ========= =========
<CAPTION>
Year ended October 3, 1998
-----------------------------
Net Common
income shares EPS
------ ------ ---
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $ 785,809 2,128,414 $ 0.37
=========
Dilutive effect of potential common stock:
Stock options -- 20,445
--------- ---------
Diluted EPS:
Income available to common shareholders
after assuming exercise of dilutive securities $ 785,809 2,148,859 $ 0.37
========= ========= =========
<CAPTION>
Year ended September 27, 1997
-----------------------------
Net Common
income shares EPS
------ ------ ---
<S> <C> <C> <C>
Basic EPS:
Income available to common shareholders $ 919,477 2,066,503 $ 0.44
=========
Dilutive effect of potential common stock:
Stock options -- 18,829
--------- ---------
Diluted EPS:
Income available to common shareholders
after assuming exercise of dilutive securities $ 919,477 2,085,332 $ 0.44
========= ========= =========
</TABLE>
28
<PAGE> 29
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(13) EARNINGS PER SHARE (Continued)
Per share amounts attributable to discontinued operations and the loss
on disposal, net of tax, are as follows:
1999 1998 1997
---- ---- ----
Earnings (loss) per share:
Basic
Discontinued operations $ 0.01 $ (0.02) $ (0.01)
========= ========= =========
Loss on disposal $ (0.20) $ -- $ --
========= ========= =========
Diluted
Discontinued operations $ 0.01 $ (0.02) $ (0.01)
========= ========= =========
Loss on disposal $ (0.19) $ -- $ --
========= ========= =========
Options for 80,000 common shares were not included in computing diluted
earnings per share in 1999 because their effects are antidilutive.
(14) MAJOR CUSTOMERS
The Company sells a majority of its products to a limited number of
customers, predominantly manufacturers of cryogenic vessels. Sales, in
thousands of dollars, to individual customers constituting 10% or more of
total sales were as follows:
1999 1998 1997
--------------- ---------------- ----------------
Customer A $1,149 23% $1,724 30% $2,194 33%
====== == ====== == ====== ==
29
<PAGE> 30
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(15) DISCONTINUED OPERATIONS
On July 1, 1999, the Board of Directors of Goddard Valve Corp. approved
the sale of Webstone Company, Inc. (Webstone), its wholly-owned
subsidiary, to Michael E. Reck, President of Webstone since 1996. The
sale was consummated on July 2,1999. The selling price of $1,789,324 was
received in the form of $1,389,324 of cash, $250,000 of preferred stock
in the Webstone Company, Inc., and a non-interest bearing loan of
$150,000 due within 90 days of closing. Webstone's results are reported
as a discontinued operation in the consolidated financial statements for
all periods presented. The assets and liabilities of Webstone have been
reported in the consolidated balance sheet as net assets of discontinued
operations and are included in other assets.
Webstone's discontinued operations are presented as follows:
<TABLE>
<CAPTION>
For the For the years ended
nine months ----------------------------
ended July 2, October 3, September 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Sales $ 3,017,982 $ 3,893,947 $ 3,381,526
Cost of sales 2,022,990 2,747,238 2,275,892
------------ ----------- ------------
Gross profit 994,992 1,146,709 1,105,634
Selling and administrative expenses 943,994 1,146,862 1,073,082
------------ ----------- ------------
Income (loss) from operations 50,998 (153) 32,552
------------ ----------- ------------
Other income (expense):
Interest expense (2,074) (61,581) (63,754)
Other income, net 1,671 1,685 1,357
------------ ----------- ------------
Total other income (expense) (403) (59,896) (62,397)
------------ ----------- ------------
Income (loss) before income taxes (benefit) 50,595 (60,049) (29,845)
Provision for (benefit from) income taxes 20,300 (21,000) (700)
------------ ----------- ------------
Net income (loss) $ 30,295 (39,049) (29,145)
============ =========== ============
</TABLE>
30
<PAGE> 31
GODDARD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 27, 1997
(15) DISCONTINUED OPERATIONS (Continued)
Webstone's balance sheet as of October 3, 1998 is summarized as follows:
ASSETS
------
Current assets:
Cash $ 133,717
Accounts receivable, net of allowance 647,662
Inventories 1,344,543
Prepaid expenses 5,116
Deferred income taxes 37,000
-----------
Total current assets 2,168,038
Property, plant and equipment 58,726
Other assets 10,869
-----------
Total assets $ 2,237,633
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 167,394
Accrued expenses 128,600
-----------
Total current liabilities 295,994
Long-term debt 238,000
Shareholders' equity 1,703,639
-----------
Total liabilities and shareholders' equity $ 2,237,633
===========
31
<PAGE> 32
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER
(a)(1) Financial Statements.
1. Report of Greenberg, Rosenblatt, Kull & Bitsoli, P.C. dated
November 15, 1999. (See page 14 hereof.)
2. Consolidated Balance Sheet as of October 2, 1999 and October
3, 1998. (See page 15 hereof.)
3. Consolidated Statement of Income for the fifty-two weeks ended
October 2, 1999, the fifty-three weeks ended October 3, 1998,
and the fifty-two weeks ended September 27, 1997. (See page
16 hereof.)
4. Consolidated Statement of Stockholders' Equity for the
fifty-two weeks ended October 2, 1999, the fifty-three weeks
ended October 3, 1998, and the fifty-two weeks ended September
27, 1997. (See page 17 hereof.)
5. Consolidated Statement of Cash Flows for the for the fifty-two
weeks ended October 2, 1999, the fifty-three weeks ended
October 3, 1998, and the fifty-two weeks ended September 27,
1997. (See page 18 hereof.)
6. Notes to the Consolidated Financial Statements. (See pages 19
- 31 hereof.)
(a)(2) Exhibits.
(3) Articles of Incorporation and By-Laws:
(a)(1) Restated Articles of Organization, dated March 31,
1971. (Filed as Exhibit 3 to the Company's Form 10-K
for the fiscal year ended September 28, 1985.)*
(a)(2) Articles of Amendment to Restated Articles of
Organization, dated June 1, 1972. (Filed as Exhibit 3
to the Company's Form 10-K for the fiscal year ended
September 28, 1985.)*
(a)(3) Articles of Amendment to Restated Articles of
Organization, dated October 11, 1985. (Filed as
Exhibit 3 to the Company's Form 10-K for the fiscal
year ended September 28, 1985.)*
(a)(4) Articles of Amendment to Restated Articles of
Organization dated March 13, 1987. (Filed as Exhibit
3 to the Company's Form 10-Q for the quarter ended
March 28, 1987.)*
<PAGE> 33
(b)(1) By-Laws (filed as Exhibit 19 to the Company's Form
10-Q for the quarter ended March 31, 1984.)*
(b)(2) By-Law Amendment dated as of September 28, 1990.
(Filed as Exhibit 3(b)(2) to the Company's Form 10-K
for the fiscal year ended September 29, 1990.)*
(4) Instruments Defining the Rights of Security Holders:
(a) Specimen certificate of common stock. (Filed as
Exhibit 4(a) of Registration Statement on Form S-1
Registration No. 2-16854 of Reva Enterprises, Inc.,
now Goddard Industries, Inc.))*
(10) Material Contracts:
(a) Adoption Agreement (Non-Standardized Code
Section 401(k) Profit Sharing Plan) dated July 31,
1991, together with related Defined Contribution
Prototype Plan and Trust Agreement. (Filed as Exhibit
10(h) to the Company's Form 10-K for the fiscal year
ended September 28, 1991.)*
(b) Employee Stock Purchase Plan dated December 9, 1993.
(Filed as Exhibit 10(h) to the Company's Form 10-KSB
for the fiscal year ended October 1, 1994.)*
(c) Employment Agreement between the Company and
Salvatore J. Vinciguerra dated October 19, 1998.
(Filed as Exhibit 10(h) to the Company's Form 10-KSB
for the fiscal year ended October 3, 1998.)*
(d) 1998 Equity Incentive Plan. (Filed as Exhibit 10(i)
to the Company's Form 10-KSB for the fiscal year
ended October 3, 1998.)*.
(11) Statement Re Computation of Per Share Earnings. The Statement
Re Computation of Per Share Earnings is set forth in Note 13
to the Company's Consolidated Financial Statements.
(21) Subsidiaries of the Registrant. (Filed as Exhibit 22 to the
Company's Form 10-K for the fiscal year ended September 30,
1989.)*
(27) Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-KSB
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-03-1998
<PERIOD-END> OCT-02-1999
<CASH> 1,773,389
<SECURITIES> 0
<RECEIVABLES> 496,841
<ALLOWANCES> 17,900
<INVENTORY> 1,924,507
<CURRENT-ASSETS> 4,347,095
<PP&E> 1,433,110
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,122,205
<CURRENT-LIABILITIES> 531,716
<BONDS> 0
0
0
<COMMON> 21,315
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,122,205
<SALES> 4,976,104
<TOTAL-REVENUES> 4,976,104
<CGS> 2,994,077
<TOTAL-COSTS> 1,255,818
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,464
<INCOME-PRETAX> 772,177
<INCOME-TAX> 309,000
<INCOME-CONTINUING> 463,177
<DISCONTINUED> (388,882)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 74,295
<EPS-BASIC> 0.03
<EPS-DILUTED> 0.03
</TABLE>
