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
June 30, 1996.
- 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. 0-22388
EIF HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
HAWAII 99-0273889
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
727 South Ninth Avenue
City of Industry, CA 91745
----------------------------------------
(Address of principal Offices) (Zip Code)
Registrant's telephone number including area code: (818) 330-7221
--------------
N/A
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 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
------- -------
The number of shares of common stock outstanding as of October 14,
1996 was 24,681,201.
<PAGE> EIF HOLDINGS, INC.
Table of Contents
Page
PART I. FINANCIAL INFORMATION
Item I. Financial Statements -
Consolidated Balance Sheets as of June 30, 1996 and
September 30, 1995 3
Consolidated Unaudited Statements of Operations, nine months
ended June 30, 1996 and 1995 and the three months
ended June 30, 1996 and 1995 4
Consolidated Unaudited Statements of Cash Flows, nine months
ended June 30, 1996 and 1995 5
Notes to Consolidated Unaudited Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Part II. OTHER INFORMATION 9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
EIF HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, September 30,
1996 1995
---------- -------------
ASSETS
Current assets
Cash 109,350 70,775
Contracts receivable, net
allowance for doubtful
accounts 7,104,144 5,579,506
Costs and estimated earnings
in excess of billings on
uncompleted contracts 267,707 349,512
Supplies inventory 531,854 529,954
Income tax receivable 170,000 265,916
Prepaid assets 243,295 701,485
---------- -----------
Total current assets 8,426,350 7,497,148
Machinery and equipment, net
of accumulated depreciation 1,442,117 1,679,957
Goodwill 895,150 933,493
Other assets 68,258 34,693
---------- -----------
$10,831,875 $10,145,291
=========== ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Outstanding checks payable $ 690,665 $ 478,696
Note payable, bank 2,616,446 1,710,504
Accounts payable and accrued
expenses 3,905,672 4,046,137
Billings in excess of cost
and estimated earnings on
uncompleted contracts 399,341 516,871
Current maturities of 153,209 219,313
long-term debt ---------- -----------
Total current liabilities 7,765,333 6,971,521
Long-term debt 4,052,074 2,537,396
Stockholders' equity
Common stock 3,019,246 2,019,246
Additional paid-in capital 804,696 804,696
Deficit (4,809,474) (2,187,568)
---------- -----------
(985,532) 636,374
---------- -----------
$10,831,875 $10,145,291
=========== ===========
See accompanying notes to consolidated financial statements
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended
June 30,
------------------
1996 1995
---- ----
Contract revenues earned $ 7,863,783 $ 7,876,818
Cost of contract revenues 5,886,902 5,762,889
----------- -----------
Gross profit 1,976,881 2,113,929
Selling, general and 2,684,248 2,789,867
administrative ----------- -----------
Operating loss (707,367) (675,938)
Other income (expense) (3,653) (92,509)
----------- -----------
Loss before interest
expense (711,020) (768,447)
Interest expense 93,596 112,261
----------- -----------
Loss before benefit for
income taxes (804,616) (880,708)
Benefit for income taxes 0 (326,000)
----------- -----------
Net loss $ (804,616) $ (554,708)
=========== ===========
Net loss per share $ (0.03) $ (0.04)
=========== ===========
Weighted average number 24,618,201 15,133,887
of shares outstanding =========== ===========
Nine Months Ended
June 30,
-----------------
1996 1995
---- ----
Contract revenues earned $19,160,454 $23,862,574
Cost of contract revenues 13,606,949 16,371,497
----------- -----------
Gross profit 5,553,505 7,491,077
Selling, general and 7,919,916 8,153,239
administrative ----------- -----------
Operating loss (2,366,411) (662,162)
Other income (expense) 47,378 (389,284)
----------- -----------
Loss before interest
expense (2,319,033) (1,051,446)
Interest expense 302,873 289,923
----------- -----------
Loss before benefit for
income taxes (2,621,906) (1,341,369)
Benefit for income taxes 0 (429,000)
----------- -----------
Net loss $(2,621,906) $ (912,369)
=========== ===========
Net loss per share $ (0.13) $ (0.06)
=========== ===========
Weighted average number 20,056,157 15,076,345
of shares outstanding =========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
Nine Months Ended
June 30,
-----------------
1996 1995
---- ----
Net cash used in
operating activities $(3,362,602) $(290,566)
Cash flows from
investing activities
Proceeds from sale of
machinery and
equipment - 23,537
Cash acquired through
Kelar Controls, Inc.
acquisition - 17,087
Purchase of property (165,308) (180,779)
and equipment ----------- ---------
Net cash used in (165,308) (140,155)
investing activities ----------- ---------
Cash flows from
financing activities
Change in cash
overdraft 211,969 10,549
Net advances from
notes payable,
bank 905,942 729,227
Proceeds from sale
of common stock 1,000,000 -
Advances on behalf
of officer - (7,968)
Net advances from
(payments on) 1,448,574 (100,675)
long-term debt ----------- ---------
Net cash provided by 3,566,485 631,133
financing activities ----------- ---------
Net increase in cash 385,759 200,412
Cash, beginning of 70,775 28,337
period ----------- ---------
Cash, end of period $ 109,350 $ 228,749
=========== =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
On December 31, 1994 the Company purchased all of the common
stock of Kelar Controls, Inc. in exchange for 200,000 shares of
Company stock plus closing costs. In conjunction with the
transaction, liabilities were assumed as follows:
Fair value of assets acquired $ 373,174
Consideration paid 96,200
---------
Liabilities assumed $ 276,974
=========
During the nine months ended June 30, 1996, the company acquired
$150,512 of machinery and equipment under capitalized leases.
See accompanying notes to consolidated financial statements.
<PAGE>
EIF HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996
(UNAUDITED)
-----------
NOTE 1 - BASIS OF PRESENTATION:
The unaudited interim consolidated financial statements of EIF
Holdings, Inc. and its subsidiaries (the Company) have been
prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These interim
consolidated financial statements should be read in conjunction
with the Company's consolidated financial statements and related
notes as contained in Form 10-KSB for the year ended September
30, 1995.
In the opinion of management, the interim consolidated financial
statements reflect all adjustments necessary for fair
presentation of the interim period.
NOTE 2 - NOTES PAYABLE, BANK:
Notes payable, bank includes a line of credit secured by
VonGuard's contracts receivable, inventory and machinery and
equipment. The note matured February 16, 1996. The bank has
extended the maturity of this note while the Company and the bank
continue to renegotiate new terms.
Notes payable, bank also includes a line of credit secured by P.
W. Stephens' contracts receivable and supplies inventory. As of
June 30, 1996 the outstanding balance on this note was
$2,235,000. As of September 25, 1996 this note had been paid
down to $1,200,000 and the Company had reached an agreement with
the lender whereby the loan balance will be reduced by $200,000
per month until paid in full. The Company anticipates securing a
replacement line of credit and repaying the existing line in full
prior to the required final payment date.
NOTE 3 - LONG-TERM DEBT:
In order to fund continuing operating needs and debt service, the
Company arranged to borrow funds from American Eco Corporation,
an Ontario corporation ("American Eco"), pursuant to a long-term
note that bears interest at prime plus 2.50%. At June 30, 1996,
the outstanding balance on this note was $3,805,000.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations.
------------------------------------
RESULTS OF OPERATIONS:
In February 1996 a new management team was assembled to begin to
assess and assist the management with the Company's operations.
Their first priority was to review the Company's financial
reporting and track operations. It became clear that the
financial affairs of the Company were not at acceptable levels
for the new team which included managers of American Eco. The
Company's operations were being directed by personnel that did
not clearly understand the financial status of the operations or
even of the projects specifically. The new management team
requested assistance from financial professionals to clarify the
accurate status of each project and of the Company as a whole.
The newly appointed executives of the Company delayed the release
of the interim financial information until such time as its
accuracy could be ascertained
For the nine months ended June 30, 1996, the net loss was
$2,621,906 compared to a net loss of $912,369 during the same
period in 1995. Continued decline during the most recent period
reflect a continuation of losses from the year ended September
30, 1995 stemming from the VonGuard companies and further losses
directly attributable to both the P. W. Stephens, Inc. whose
demand for service has fallen off substantially, and Kelar's
operations which continue in a start-up mode.
REVENUES:
Revenue declines $4,702,120 or 19.7% from $23,862,574 last year
to $19,160,454 for the nine months ended June 30, 1996. P. W.
Stephens Contracting Inc. the Company's largest subsidiary had
declines in revenues of $3,017,722 of 17.1% from the same period
last year. Because all aspects of the Company's operations were
being carefully evaluated by the new management of the Company,
management restricted submission of bids on prospective projects
and acceptance of new orders until funding was in place to
execute any such awards. The Company's bonding lines were also
very restricted at this time. VonGuard's total revenues also ran
behind last year $1,548,730 or 27.6% and Kelar Controls followed
suit with a decline of $135,688 or 20.7%, because the funding was
not available to accept new awards. In addition, the issuance of
payment and performance bonds which was needed to secure
contracts were severely restricted.
During the quarter ended June 30, 1996, sales for both VonGuard
and for P. W. Stephens have declined as the Company had not
aggressively marketed its products in earlier quarters and the
full impact of management's earlier changes had not yet been
felt. Much of the new management's effort has been consumed
negotiating with the former owners and management and
reorganizing the Company for the future.
Actions were taken to improve revenue generation as the Company
moved into the fourth quarter of operation. A bon-fide sales
department is now operating within the VonGuard group. At P. W.
Stephens, efforts have also been put in place to expand the sales
of its operations primarily through the addition of QHI Stephens
as a new subsidiary that specializes in commercial asbestos and
lead abatement and other environmental services.
GROSS PROFIT:
During the nine months ended June 30, 1996, the Company produced
an overall gross profit margin of 28.9% or $4,553,505 compared to
31.3% or $7,491,076 for the same period in 1995.
P. W. Stephens gross profit for the nine months ending June 30,
1996 is at 31.6%. This reflects gross profit reductions on jobs
that have been reevaluated by new management.
VonGuard's gross profit increased from the six month average of
12.7% to 17.1% for the nine months ending June 30, 1996.
<PAGE>
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Selling, general, and administrative expenses decreased $363,767
or 4.4% from June 30, 1995, as a result of staff reductions and
termination of senior executives that were no longer needed to
manage these consolidated businesses.
P. W. Stephens third quarter costs ran $1,641,224, a decrease of
$136,487 from second quarter of $1,777,711. Planned cost
reduction efforts were put into effect late in the second quarter
by the new management. The benefits of these cost reductions
should continue to be seen in future periods.
Kelar's selling, general, & administrative expenses remain nearly
constant. No significant changes are expected in this company's
overhead levels.
INTEREST EXPENSE:
Interest expense for the Company amounts to $289,923 for the
first nine months of fiscal 1996. This is an increase of $31,615
from the same period 1995. Losses during the period have been
funded by additional borrowings on the lines of credit and by
advances from American Eco. The continued need for working
capital has kept the lines of credit fully utilized and this has
increased interest costs.
LIQUIDITY AND CAPITAL RESOURCES:
Stephen's and VonGuard's lines of credit continue to be the
Company's main source of capital. These lines provide an
availability to borrow based on formulas involving contracts
receivable, certain inventory, and certain property and
equipment. As of June 30, 1996, the Company has borrowed the
maximum amount permitted under the aforementioned formulas.
As previously stated, VonGuard's line of credit matured on
February 16, 1996. As of September 25, 1996, $260,000 was
outstanding on this line of credit. The Company is continuing to
negotiate with the bank regarding an extension on a more
permanent basis and arrangements for a complete pay down of the
loan. In the interim, American Eco continues to support fundings
necessary for operations of the Company. As of June 30, 1996,
American Eco had advanced $3,805,000 to the Company pursuant to a
long-term note that bears interest at prime plus 2.50%.
As of September 25, 1996 $1,200,000 was outstanding on P. W.
Stephens' line of credit and an agreement had been reached with
the lender whereby the loan balance will be reduced by $200,000
per month until paid in full.
PAGE
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
On July 1, 1996, P. W. Stephens terminated the employment of
Richard R. Austin as President of P. W. Stephens, effective July
16, 1996. On July 1, 1996, Mr. Austin filed suit in the
California Superior Court for the County of Los Angeles against
the Company, American Eco, P. W. Stephens, Julbin International,
Ltd., a British Virgin Islands corporation ("Julbin"), QHI
Stephens Contractors, Inc., a subsidiary of P. W. Stephens
("QHI"), Michael McGinnis and unnamed defendants, seeking
unspecified damages and specific performance. Mr. Austin's
claims arose out of a series of transactions pursuant to which
Mr. Austin had sold his controlling interest in the Company to
Julbin and American Eco had acquired shares of the Company's
Common Stock. Mr. Austin also alleged breaches of the purchase
agreements pursuant to which he had sold shares of the Company's
Common Stock to some of the defendants.
Mr. Austin's complaint further alleged that American Eco, the
Company and P. W. Stephens are in breach of an indemnification
agreement pursuant to which certain defendants had promised to
hold Mr. Austin harmless under a bank line of credit of P. W.
Stephens which Mr. Austin had personally guaranteed, and that
those defendants had improperly used the line of credit, seeking
unspecified damages and specific performance.
The defendants answered the complaint denying the allegations
therein, and filed a cross-complaint against Mr. Austin, Dawn
Seubert (Mr. Austin's wife), Patricia Kennedy and others for
fraudulent misrepresentation and similar claims alleging that Mr.
Austin had induced American Eco to invest in the Company by
making material misrepresentations to American Eco and its
representatives about the financial and operating condition of
the Company and P. W. Stephens. The cross-complaint further
alleges that throughout Mr. Austin's tenure at the Company and P.
W. Stephens he had, in concert with others, engaged in a
sustained pattern of self-dealing in breach of his fiduciary
duties to such companies.
On August 5, 1996, Mr. Austin served P. W. Stephens and the
Company with a demand for arbitration before the American
Arbitration Association claiming that P. W. Stephens and the
Company had breached his employment agreement, by, among other
things, failing to pay him a $1,000,000 signing bonus to be paid
in the form of a promissory note as well as salary earned by Mr.
Austin through the Termination of his employment and through the
period of notice following his termination.
The parties have been engaged in settlement discussions in an
effort to resolve all outstanding matters among them.
<PAGE>
Item 5. Other Information
-----------------
On January 12, 1996, the Company and American Eco entered into a
Stock Purchase Agreement pursuant to which American Eco is to
purchase 10 million shares of the Company's common stock at $0.10
per share subject to the approval of the Company's shareholders
of an increase of the Company's authorized common stock. It is
anticipated that the shareholders' meeting will be held in the
fall of 1996. During the interim period, a team of managers from
American Eco has assumed the management of the Company. Richard
Austin has stepped down as Chairman of the Company. Ken
Vonderahe has resigned as a Director of the Company and as
President of VonGuard Holdings, Inc., a St. Louis based
subsidiary of the Company. Ronald K. Mann has assumed the
Chairmanship of the Company's Board of Directors. Mr. Mann was
then a Director of American Eco. Mr. Michael E. McGinnis now
serves as the Company's President and Chief Executive Officer and
as a director. Mr. McGinnis currently is the President and Chief
Executive Officer and a Director of American Eco. Joseph Miller
has been appointed Executive Vice President and Chief Operating
Officer of the Company of the Company. Mr. Miller has acted as a
consultant to American Eco. Mr. Mann and Mr. McGinnis shall
devote as much time to the management of the Company as each, in
his sole discretion, shall deem necessary.
Subsequent Events:
During the 3rd Quarter of this year the former President and CEO
of P. W. Stephens was relieved of his responsibilities. The
Company, as a temporary measure, assigned the chief operating
officer of EIFH to deal with the day to day operations of P. W.
Stephens. The former President was assigned the responsibility
of sales and marketing of P. W. Stephens and, in the Company's
opinion, did not adequately discharge his responsibilities. The
Company has recruited a new president and CEO for EIFH who will
also function in the day to day role of operations leader of
EIFH's subsidiary companies. Our new president and CEO, Mr.
David Norris, is a resident of California and therefore is better
positioned to provide the day to day leadership that is required
for the successful turnaround of EIFH and its operating
subsidiaries. Mr. Michael E. McGinnis has relinquished the title
of President and CEO of EIFH to Mr. Norris, but remains as a
director of EIFH.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(b) Reports on Form 8-K: None
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
EIF HOLDINGS, INC.
------------------
Registrant
September 25, 1996 By: /s/ Davil L. Norris
-----------------------------
David L. Norris
President and Duly Authorized
Officer
By: /s/ Lanell Matlock
-----------------------------
Lanell Matlock
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
FINANCIAL DATA SCHEDULE
EIF HOLDINGS, INC.
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM EIF HOLDINGS, INC. FORM 10-Q FOR THE
QUARTER ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 109,350
<SECURITIES> 0
<RECEIVABLES> 7,254,144
<ALLOWANCES> (150,000)
<INVENTORY> 531,854
<CURRENT-ASSETS> 8,426,350
<PP&E> 5,459,141
<DEPRECIATION> (4,017,024)
<TOTAL-ASSETS> 10,831,875
<CURRENT-LIABILITIES> 7,765,333
<BONDS> 0
<COMMON> 3,019,246
0
0
<OTHER-SE> (4,004,778)
<TOTAL-LIABILITY-AND-EQUITY> 10,831,875
<SALES> 19,160,454
<TOTAL-REVENUES> 19,160,454
<CGS> 13,606,949
<TOTAL-COSTS> 21,526,865
<OTHER-EXPENSES> (47,378)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302,873
<INCOME-PRETAX> (2,621,906)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,261,906)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,261,906)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
