UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
------------
{X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
Commission File Number 0-22388
EIF HOLDINGS, INC.
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(Exact name of small business issuer as specified in its charter)
HAWAII 99-0273889
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
54 Stiles Road
Salem, NH 03079
----------------------------------------
(Address of principal executive offices)
(603) 890-3680
---------------------------
(Issuer's telephone number)
53 Stiles Road, Suite 101, Salem, NH 03079
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last report
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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as the latest practicable date.
Class Outstanding at May 12, 1998
----- -------------------------------
Common stock, no par value 24,618,201
Transitional Small Business Disclosure Format (Check one):
Yes ; No X
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Page 1 of 18
<PAGE>
EIF HOLDINGS INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1998
and September 30, 1997............................................ 3
Consolidated Statements of Operations for the Three and Six
Months Ended March 31, 1998 and 1997.............................. 4
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 1998 and 1997..................................... 5
Notes to Consolidated Interim 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.................................... 12
Signatures.......................................................... 12
Page 2 of 18
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EIF HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1998 1997
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash........................................... $ 3,799,970 $ 304,678
Accounts receivable, net....................... 9,819,507 3,807,367
Note Receivable................................ 2,748,231 2,562,500
Securities available for sale.................. 1,362,697 5,562,697
Receivable officer............................. 110,370 70,000
Costs and estimated earnings on contracts
in progress in excess of billings............. 490,437 52,003
Prepaid assets and other current assets........ 680,166 726,684
------------ ------------
Total current assets...................... 19,011,378 13,085,929
Machinery and equipment, net...................... 7,084,581 603,940
Other noncurrent assets:
Goodwill....................................... 4,215,374 755,597
Receivable officer............................. 338,054 210,000
Investments.................................... 427,836 --
Retention bonus agreements..................... 837,500 --
Other assets................................... 845,620 20,520
------------ ------------
6,664,384 986,117
------------ ------------
Total assets................................... $ 32,760,343 $ 14,675,986
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses........... $ 4,628,770 $ 2,408,077
Notes payable................................... 1,185,798 1,695,120
Billings in excess of costs and estimated
earnings on contracts in progress.............. 458,434 178,921
Note payable due to shareholder................. 17,263,105 17,609,424
Reserve for contingencies....................... 2,868,986 1,349,000
Net liabilities for discontinued operations..... 1,033,132 1,776,041
Current maturities of long-term debt............ 2,279,326 --
Income taxes payable............................ 275,054 --
Deferred income taxes........................... 155,000 --
------------ ------------
30,147,605 25,016,583
Non-current liabilities:
Long term debt................................. 12,306,579 --
Deferred taxes................................. 384,000 --
------------ ------------
12,690,579 --
------------ ------------
Total liabilities......................... 42,838,184 25,016,583
Stockholders' deficit
Common stock................................... 3,019,246 3,019,246
Additional paid-in capital..................... 804,696 804,696
Accumulated deficit............................ (13,901,783) (14,164,539)
------------ ------------
Total stockholders' deficit.............. (10,077,841) (10,340,597)
------------ ------------
Total liabilities and stockholders' deficit... $ 32,760,343 $ 14,675,986
============ ============
The balance sheet at September 30, 1997 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statement presentation.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 3 of 18
<PAGE>
<TABLE>
<CAPTION>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue........................................... $ 10,563,169 $ 2,205,631 $ 21,016,569 $ 5,595 574
Cost of revenue................................... 8,199,506 1,284,456 16,007,808 3,496,136
------------ ------------ ------------ ------------
Gross profit..................................... 2,363,663 921,175 5,008,761 2,099,438
Selling, general and administrative expenses...... 2,126,307 1,776,205 4,006,435 4,198,666
------------ ------------ ------------ ------------
237,356 (855,030) 1,002,326 (2,099,228)
Other:
Other income (expense)........................... 371,005 -- 424,673 --
Interest expense................................. (602,608) (395,988) (1,144,243) (623,016)
------------ ------------ ------------ ------------
Income (loss) before income taxes................ 5,753 (1,251,018) 282,756 (2,722,244)
Income taxes...................................... -- -- 20,000 --
------------ ------------ ------------ ------------
Income (loss) from continuing operations.......... 5,753 $ (1,251,018) $ 262,756 $ (2,722,244)
Loss from discontinued operations................. -- (508,017) -- (5,703,812)
------------ ------------ ------------ ------------
Net income (loss)................................. $ 5,753 $ (1,759,035) $ 262,756 $ (8,426,056)
============ ============ ============ ============
Net income (loss) per share....................... $ 0.00 $ (0.07) $ 0.01 $ (0.34)
============ ============ ============ ============
Weighted average number of common
shares outstanding.............................. 24,618,201 24,618,201 24,618,201 24,618,201
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 18
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended
March 31,
----------------------------
1998 1997
------------ ------------
Net cash provided by (used in) operating
activities net of effects of business
acquired...................................... $ 129,346 $ (3,059,161)
Cash flow from investing activities
Purchase of machinery and equipment........... (915,868) (197,673)
Proceeds from sale of equipment............... 233,129 --
Acquisition of business net of cash acquired.. 192,253 --
------------ ------------
Net cash used in investing activities............. (490,486) (197,673)
Cash flow from financing activities
Proceeds from sale of marketable securities..... 4,200,000 --
Net advances (payments) on notes payable....... 520,457 940,825
Net advances on notes due to shareholder....... 2,272,325
Net payments on long-term debt................. (218,185) (73,882)
------------ ------------
Net cash provided by financing activities......... 3,856,432 3,139,268
------------ ------------
Net increase (decrease)in cash.................... 3,495,292 (117,566)
Cash, beginning of period......................... 304,678 178,231
------------ ------------
Cash, end of period............................... $ 3,799,970 $ 60,665
============ ============
Supplemental disclosure of Non-cash Investing and Financing Activities
During the six months ended March 31, 1998, the Company assumed $9,000,000 of
liabilities associated with the acquisition of a business.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 18
<PAGE>
EIF HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements have been
prepared by EIF Holdings, Inc., (the "Company"), in accordance with generally
accepted accounting principles pursuant to Regulation SB of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in audited financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. Accordingly,
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, 1997. In the opinion
of management, the interim consolidated financial statements reflect all
adjustments, including normal recurring adjustments, necessary for fair
presentation of the interim periods presented. The results of operations for the
six months ended March 31, 1998 are not necessarily indicative of results of
operations to be expected for the full year.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries; J.L. Manta, Inc.("Manta"), P.W.
Stephens Residential, Inc.("Residential"), and P.W. Stephens Contractors, Inc.
and P.W. Stephens Services, Inc. (collectively referred to as "St. Louis"). The
P.W. Stephens Contractors, Inc. and QHI Stephens Contractors, Inc. subsidiaries
were discontinued in May 1997 and have been accounted for as discontinued
operations for all prior year periods reported under this Form 10-QSB. Kelar
Controls, Inc. was divested on June 30, 1997, and is also accounted for as
discontinued operations for all prior periods reported under this Form 10-QSB.
Net Income (Loss) Per Share Information. The net income (loss) per share amounts
have been computed by dividing net income (loss) by the weighted-average number
of common shares outstanding during the respective periods.
In February 1997, The Financial Accounting Standards Board Issued Statement No.
128, Earnings Per Share, which was required to be adopted on December 31, 1997.
The Company is now required to exclude the dilutive effect of stock options in
its calculation of primary earnings per share and to restate prior periods. The
impact of statement 128 on the calculation of fully diluted earnings per share
was not material.
Fair Value of Financial Instruments: The Company's financial instruments consist
of cash and cash equivalents, accounts receivable, accounts payable and notes
payable. The Company believes that the carrying value of these instruments on
the accompanying balance sheet approximates their fair value.
Reclassifications: Certain reclassifications have been made to prior year
financial statements to conform with the current year presentation.
NOTE 2 - SECURITIES AVAILABLE FOR SALE
Securities available for sale consist of 570,333 common shares of American Eco
Corporation ("AEC"). These shares were issued to the Company by AEC in lieu of
cash in conjunction with an Amendment dated September 30, 1997, to the existing
line of credit which increased the maximum borrowing amount under the line to
$20,000,000. The Company intends to sell these securities to settle certain
existing obligations (see NOTE 3 - TRANSACTIONS WITH AFFILIATES and Item 2
Liquidity for additional disclosures).
NOTE 3 - FIXED ASSETS
At the beginning of the current quarter, the Company initiated an evaluation of
the useful lives of trucks and machinery and equipment used in the recently
acquired industrial maintenance services operations. The evaluation resulted in
an increase in useful life from 5 years to 7 years on certain of the machinery
and equipment and trucks to better reflect the equipments' capacity. The total
cost of these assets is $4,142,000 with a net book value of $2,398,000. The
effect of the change in useful life decreases the monthly depreciation
allocation by $21,700.
Page 6 of 18
<PAGE>
NOTE 4 - TRANSACTIONS WITH AFFILIATES
On February 18, 1998, AEC executed a "Third Amendment" to the existing
$20,000,000 line of credit facility which is unsecured and carries interest at
the prime rate plus 2% per annum. The Third Amendment extends the maturity to
August 18, 1998 from February 18, 1998. As of March 31, 1998 and September 30,
1997, the total amounts outstanding under the AEC facility were $17,263,105 and
$17,609,424 respectively and include accrued interest of $378,680 and $835,311.
In the current quarter, the Company made an interest payment to AEC in the
amount of $1,038,627 of 1998 (See Note - Notes Payable and liquidity for further
disclosure). The line of credit facility also provides AEC an option to convert
the entire outstanding principal amount of the line of credit plus any accrued
interest outstanding at the time of conversion, into common shares of EIF
Holdings, Inc. subject to stockholder approval to increase the number of
authorized shares. The conversion price for each common share is equal to 85% of
the five day weighted average closing price of the common shares as quoted in
the over-the-counter "pink sheets" immediately prior to the conversion date. On
May 4, 1998, the shareholders approved a 10 to 1 reverse stock spilt which has
not yet been implemented. The Company is currently discussing with AEC the terms
and conditions of the conversion from debt to equity.
In connection with the acquisition of Manta, the Company issued convertible
promissory notes totalling $2,235,312 to certain of Manta's former stockholders.
The convertible notes are non-interest bearing and payable in installments with
a final payment due on November 18, 2000. The notes allow for the conversion of
any principal payment due under the Stockholder Notes into shares of the
Company's common stock, at a conversion price equal to the closing transaction
price of the EIF Stock on the date of conversion. The conversion option was
subject to shareholder approval of an increase in the authorized number of
outstanding shares which was attained on May 4, 1998.
Concurrent with the closing of the Manta acquisition, the Company entered into
Retention Bonus Agreements with certain Manta Stockholders and key employees.
The Retention Bonus Agreements provide for bonus payments in the aggregate
amount of $900,000 to be made by the Company over a three year period. The
non-compete provisions associated with the Retention Bonus Agreements extend
over a six year period.
NOTE 5 - NOTES PAYABLE
On September 30, 1996 the Company obtained a $1,300,000 line of credit from an
investor group. The terms of the revolving credit facility provide for an
interest rate of 10% per annum and matures on March 1, 1998. The Company is
currently negotiating an amendment to the line of credit which includes an
extension. The outstanding balance under the facility as of March 31, 1998 was
$1,030,000.
In connection with the financing of the Manta acquisition the Company issued a
$6,500,000 Convertible Promissory Note to Deere Park Capital. The Note bears
interest at the rate of 5 1/4% per annum, becomes due on May 18, 1999 and is
secured by a pledge of all of the Manta Stock. The Note is convertible into 5
1/4% convertible preferred stock at a conversion price of One Dollar $1.00 per
share, with such convertible preferred stock convertible into EIF common stock
subject to approval of the Company's Stockholders of an amendment to EIF's
charter authorizing the requisite amount of preferred and common stock. On May
4, 1998, the shareholders approved a proposal to establish a class of preferred
stock which has not yet been implemented.
Also in connection with the acquisition, the Company issued a $2,500,000
Promissory Note. The note bears interest at the rate of Nine Percent (9%) per
annum and was to mature on February 16, 1998. On February 6, 1998 the Company
paid in full the outstanding obligation using funds borrowed under the LaSalle
credit facility. See below for additional disclosure.
In February 1998, the Company's subsidiary, JL Manta, signed a $9.5 million
credit facility with LaSalle National Bank. A portion of the facility was used
to refinance certain indebtedness of JL Manta with the remainder available to
meet working capital requirements. The facility is comprised of a $5,500,000 one
year renewable term loan used for capital expenditures and a $4,000,000 working
capital revolving loan and letters of credit. The facility is secured by the
assets of Manta and guaranteed by the Company. Total amounts outstanding under
the capital note on March 31, 1998 were $5,028,000. No amounts were outstanding
under the working capital line. The facility also includes typical financial
covenants which allow, with certain restrictions, distributions of excess cash
generated by Manta to the Company. In the current quarter, the Company made an
interest payment in the amount of $1,039,000 to AEC under the AEC line of credit
facility. This payment was in conflict with certain covenants under the LaSalle
facility. The Company is currently discussing waivers and modifications to these
covenants with LaSalle. These discussions have included the issues relating to
the Company's re-capitalization efforts. There can be no assurance that such
discussions will result in a waiver or modification of such covenants. The
Company's failure to obtain a waiver or modification could have an adverse
effect on the Company's ability to fulfill its working capital requirements.
Page 7 of 18
<PAGE>
NOTE 6 - SUBSEQUENT EVENTS
In May 1998 the Company entered into a Management Arrangement with Dominion
Bridge Corporation ("DBC"). Effective May 1, 1998, the Company will provide
management services to DBC in connection with its ongoing, day-to-day,
operations including financing and administrative support services, marketing
administration and support services, human resources management and oversight
and administration of DBC's operating units. In return for services, DBC has
agreed to pay the Company a fee of $100,000 per month, and reimburse all
reasonable out-of-pocket expenses and disbursements the Company incurs in
rendering such services. The term of the agreement is for six months cancellable
by either party with 30 days notice. See Exhibit 10.2 for complete arrangement.
NOTE 7 - RESERVE FOR CONTINGENCIES
The nature and scope of the Company's business operations bring it into regular
contact with the general public, a variety of businesses and government
agencies. These activities inherently subject the Company to the hazards of
litigation, which are defended in the normal course of business. The Company is
currently involved in several litigations and investigations including
regulatory compliance. Although the outcome of these claims is not clearly
determinable at the present time, Management believes that such proceedings are
either adequately covered by insurance, or if uninsured, by the estimated losses
it has recorded to date. The resolution of such claims, however, could have a
material effect on the Company's results of operations and/or cash flows. The
reserves for litigation and contingencies recorded by the Company as of March
31, 1998 amounted to $2,868,00.
Page 8 of 18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
- ---------------------
The Company has included on this Form 10-QSB certain forward-looking statements.
Forward-looking statements are statements relating to the Company's plans,
goals, objectives, strategies, future performance and events as well as any
other statements or representations other than those relating to historical
data. Forward-looking statements inherently possess risks and uncertainties. As
a result, although the Company's forward-looking statements are expressed in
good faith, the Company's actual results could differ materially.
General
The Company currently operates in three primary segments of the specialized
maintenance services industry; Residential provides residential asbestos
abatement services, St. Louis provides environmental remediation services and
the newly acquired Manta operations provide industrial maintenance services. The
other services formerly provided by the Company have been classified as
discontinued operations in the accompanying financial statements. The following
discussion and analysis relate to the Company's continuing operations. The
results of operations for the three and six months ended March 31, 1998 are not
necessarily indicative of results of operations to be expected for the full
year.
Revenue
Consolidated revenue for the three and six months ended March 31, 1998 increased
to $10,563,000 and $21,017,000 respectively from $2,206,000 and $5,596,000 for
the same periods in 1997. The increase in revenue was primarily the result of
the inclusion of the activity from the acquired industrial maintenance services
operations for the current quarter and five months of the year to date.
Consolidated revenue data is set forth below:
<TABLE>
<CAPTION>
Three Months ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Industrial maintenance services......... $ 8,158,000 $ -- $ 14,946,000 $ --
Environmental remediation services...... 1,006,000 906,000 2,955,000 2,897,000
Residential asbestos abatement.......... 1,399,000 1,300,000 3,116,000 2,699,000
------------ ------------ ------------ ------------
Consolidated revenue............... $ 10,563,000 $ 2,206,000 $ 21,017,000 $ 5,596,000
============ ============ ============ ============
</TABLE>
Revenue from the Residential asbestos abatement operations increased 7.6% and
15.5% in the current quarter and year to date periods compared to the same
periods in the prior year. The increase in revenue for these periods was
primarily the result of an increase in weather related residential insurance
claims in the California markets. The specific weather conditions responsible
for the increased claims is not expected to be an ongoing contributor to the
Residential asbestos abatement operations. The Environmental remediation service
operations reflects a net 2.2% increase in its year to date revenue. The
Environmental remediation service operations is past their traditional seasonal
slow down periods and expects increased activity throughout the summer. In
addition, the Environmental remediation and the Industrial maintenance
operations have initiated partnering efforts to focus on growth opportunities
which are expected to be recognized within the next nine months.
Page 9 of 18
<PAGE>
Gross Profit
Gross profit as a percentage of revenue for the three and six month periods
ended March 31, 1998 was 22.3% and 23.8% compared to 41.8% and 37.5% for the
same periods in 1997. The decrease in the gross profit margins was primarily due
to the inclusion of the industrial maintenance services operations which
generate lower margins of approximately 17% to 19%. The residential asbestos
abatement operations experienced a decrease in gross margin percentage in the
first half of 1998 to 47.5% from 52.3% for the same period in 1997. The decrease
was result of an increase in the insurance costs of the operations in the
current year. The results for environmental remediation for the first six months
of 1998 reflected an increase in its gross margin to 29.6% compared to 23.6% for
the same period in 1997 due primarily to gains recognized on several projects
that were completed in the first quarter of the current year.
Selling, General And Administrative Expenses
Consolidated selling, general and administrative expenses (sg&a)for the three
and six months ended March 31, 1998 were to $2,126,000 and $4,006,000
respectively compared to $1,776,000 and $4,199,000 for the same periods in 1997.
Consolidated sg&a data is set forth below:
<TABLE>
<CAPTION>
Three Months ended Six Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Industrial maintenance services......... $ 776,000 $ -- $ 1,196,000 $ --
Environmental remediation services...... 367,000 347,000 723,000 856,000
Residential asbestos abatement.......... 534,000 365,000 1,073,000 924,000
Corporate............................... 449,000 1,064,000 1,014,000 2,419,000
------------ ------------ ------------ ------------
Consolidated sg&a.................. $ 2,126,000 $ 1,776,000 $ 4,006,000 $ 4,199,000
============ ============ ============ ============
</TABLE>
Consolidated sg&a as a percentage of revenue for the three and six months ended
March 31, 1998 decreased to 20.0% and 19.1% respectively from 80.5% and 75.0%
for the same periods in 1997. The increase in the expenses and the decrease in
the sg&a percentages was primary the result of the inclusion of the industrial
maintenance services activity in the current periods. Corporate expenses for the
three and six month periods in 1997, included management fees of $1,000,000 and
$2,000,000 respectively. The fees were incurred from AEC as a result of a
management agreement with the Company to help stablize its operations. The
absence of management fees in the current periods is partially offset by the
combined effect of an increase in management personnel and related expenses and
an increase in goodwill amortization and retention bonus expense. The sg&a as a
percentage of revenue for the residential asbestos abatement operations remained
consistent at 34% for the first half of 1998 over 1997. The efficiencies
recognized in the last two quarters from the prior years restructuring efforts
was offset by the implementation in the second quarter of a new salesmen
compensation plan. Environmental remediation services has reflected a decrease
in the current year to date sg&a as a percentage of revenue of 5% compared to
1997. The decrease in the sg&a percentage is the result of the restructuring and
cost containment efforts initiated by those operations throughout the prior
year.
Other Expenses
Interest expense for the three and six months ended March 31, 1998 was $603,000
and $1,144,000 respectively compared to $396,000 and $623,000 for the same
periods in 1997. The increase in interest expense in the current periods was
primarily due to the increased amounts outstanding under the line of credit from
its principal shareholder AEC. Additional interest was recognized in the current
periods from notes issued to finance a business acquisition in a prior period,
outstanding borrowings from an investor group and from a bank in support of the
industrial maintenance operations. The increase in interest expense was
partially offset by other income recognized in the current periods. Other income
is comprised of interest income accrued on a note receivable issued in
connection with the sale of a business in the prior year and gains recognized
from the settlement of several of the Company's obligations and contingencies.
Page 10 of 18
<PAGE>
Net Loss
The net income for the three and six months ended March 31, 1998 was $6,000 and
$263,000 respectively compared to a net loss of $1,759,000 and $8,426,000 for
the same periods in the 1997. The increase in income for the periods was the
combined result of the contribution of $520,000 and $1,236,000 respectively from
the industrial maintenance business, the reductions in consolidated sg&a and the
recognition of other income partially offset by an increase in interest expense.
Liquidity and Capital Resources:
- --------------------------------
During the first half of 1998 the Company generated positive cash from
operations of $129,000 compared to negative cash from operations of $3,059,000
for the same period in 1997. The positive cash flow is primarily the result of
the inclusion of the profitable industrial maintenance operations, the shut down
in the prior year of the commercial asbestos operations which were experiencing
significant losses, and the efficiencies gained from the company-wide cost
containment initiatives.
During the six months ended March 31, 1998, the Company has received proceeds of
$4,200,000 from the sale of a portion of its AEC securities the Company received
in lieu of cash under the line of credit facility with AEC. The proceeds
received from the sale of securities is being allocated to reduce existing debt
and to settle certain of the Company's outstanding obligations and
contingencies. The Company is currently discussing the details of effecting the
debt to equity conversion option that exists under the current AEC line of
credit facility and also the Deere Park conversion from debt to preferred stock.
The Company expects such conversions will be exercised in the second half of
1998, although there are no guarantees that these conversions will occur.
In February 1998, the Company's subsidiary, JL Manta, signed a $9.5 million
credit facility with LaSalle National Bank. A portion of the facility was used
to refinance certain indebtedness of JL Manta with the remainder available to
meet working capital requirements. The facility is comprised of a $5,500,000 one
year renewable term loan used for capital expenditures and a $4,000,000 working
capital revolving loan and letters of credit. The facility is secured by the
assets of Manta and guaranteed by the Company. Total amounts outstanding under
the capital note on March 31, 1998 were $5,028,000. No amounts were outstanding
under the working capital line. The facility also includes typical financial
covenants which allow, with certain restrictions, distributions of excess cash
generated by Manta to the Company. In the current quarter, the Company made an
interest payment in the amount of $1,039,000 to AEC under the AEC line of credit
facility. This payment was in conflict with certain covenants under the LaSalle
facility. The Company is currently discussing waivers and modifications to these
covenants with LaSalle. These discussions have included the issues relating to
the Company's re-capitalization efforts. There can be no assurance that such
discussions will result in a waiver or modification of such covenants. The
Company's failure to obtain a waiver or modification could have an adverse
effect on the Company's ability to fulfill its working capital requirements.
The Company has entered into a Management Arrangement with Dominion Bridge
Corporation ("DBC"). The Company has agreed to supply DBC with day to day
management services for a period of six months effective May 1, 1998 in return
for a monthly fee of $100,000 and reimbursement of all out of pocket expenses.
See Note 6 of the financial statements for additional disclosure.
The Company believes, that the proceeds from the sale of its remaining
securities held for sale, the proceeds from the sale of a business due in June
1998, the cash flows from the existing operations coupled with the financing
arrangements the Company currently has in place, subject to the above
discussion, will be sufficient throughout the next twelve months to finance its
working capital needs, planned capital expenditures, debt service requirements
and the Company's current outstanding obligations.
Page 11 of 18
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 10.1 Third Amendment to Revolving Line of Credit between the
Company and American Eco Corporation dated February 18, 1998.
Exhibit 10.2 Management Arrangement between Dominion Bridge Corporation
and EIF Holdings, Inc. dated May 13, 1998.
Exhibit 27. Financial Data Schedule
(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
May 20, 1998 By: /S/ J. Drennan Lowell
-----------------------------
J. Drennan Lowell
Vice President, Chief Financial Officer,
Treasurer and Secretary
May 20, 1998 By: /S/ Joseph L. Vaillancourt
-----------------------------
Joseph L. Vaillancourt
Corporate Controller
Principal Accounting Officer
Page 12 of 18
<PAGE>
EIF HOLDINGS, INC.
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
Exhibit 10.1 Third Amendment to Revolving Line of
Credit between the Company and American
Eco Corporation dated February 18, 1998........... 14
Exhibit 10.2 Management Arrangement between Dominion
Bridge Corporation and EIF Holdings, Inc.......... 15
Exhibit 27 Financial Data Schedule........................... 18
Page 13 of 18
THIRD AMENDMENT TO
REVOLVING LINE OF CREDIT
$20,000,000 Houston, Texas February 18, 1998
WHEREAS, EIF HOLDINGS, INC., a Hawaii corporation ("Maker") heretofore executed
and delivered to AMERICAN ECO CORPORATION, an Ontario, Canada corporation (the
"Payee") a certain promissory note (the "Note"). dated March 1, 1996, in the
original principal amount of Five Million Two Hundred Fifty Thousand Dollars
($5,250,000); and
WHEREAS the original Note matured as of July 31, 1997, a renewal, extension and
modification of the Note (the "First Amendment") was executed September 22,
1997, and a second amendment to the Note (the "Second Amendment") that extended
the maximum line of credit was executed September 30, 1997; and
WHEREAS, as specified in the First Amendment, the Note matures as of the date of
this Third Amendment, and the parties desire to extend the Note for six months.
NOW, THEREFORE, IN CONSIDERATION OF THE PREMISES DESCRIBED ABOVE AND FOR THE
VALUE RECEIVED, the Maker hereby promises to pay to the order of payee in lawful
money of the United States, up to the principal sum of Twenty Million and
no/100s (U.S. $20,000,000), with interest at the rate set forth in the Note and
First Amendment. The principal amount hereof and all accrued interest shall be
due and payable as follows:
On or before August 18, 1998
This Note is given in extension, but not in cancellation, discharge or
extinquishment of the Note, First Amendment or Second Amendment (each described
above), the terms and provisions of which are incorporated herein by reference
for all purposes, except where in conflict with the provisions herein, in which
event the terms of this Third Amendment shall control.
MAKER:
EIF HOLDINGS, INC.
By: /s/Frank J. Fradella
------------------------
Name: Frank J. Fradella
------------------------
Title: President
------------------------
ACCEPTED AND AGREED TO:
PAYEE:
AMERICAN ECO CORPORATION
By: /s/Michael E. McGinnis
------------------------
Name: Michael E. McGinnis
------------------------
Title: President
------------------------
Page 14 of 18
<PAGE>
May 13, 1998
Board of Directors of Dominion Bridge Corporation
c/o Allen S. Gerrard
Chairman of the Board of Directors
Dominion Bridge Corporation
500, Rue Notre Dame
Lachine, Quebec H8S2B2
CANADA
RE: Management Arrangement between Dominion Bridge Corporation
and EIF Holdings, Inc.
Gentlemen:
This letter sets forth the agreement to be entered into by and between EIF
Holdings, Inc., a Delaware corporation ("EIF"), and Dominion Bridge Corporation,
a Delaware corporation ("Dominion Bridge"), with respect to the engagement of
EIF to provide certain management services to Dominion Bridge (the Management
Arrangement")
Upon your execution and return of this letter, the parties shall be bound
by the following terms and conditions:
1. Services to be Provided EIF will provide Dominion Bridge with management
services in connection with its ongoing, day-to-day operations. During the term
of EIF's engagement, EIF shall, subject to the general supervision and control
of the Board of Directors of Dominion Bridge, furnish Dominion Bridge with the
following management services: (i) financing and administrative support
services, including oversight of collection of accounts receivable and payment
of accounts payable; (ii) marketing administration and support services; (iii)
human resources management; and (iv) oversight and administration of Dominion
Bridge's operating units. In order to facilitate the provision of these
services, the Chief Executive and Chief Financial Officers of EIF shall be given
responsibilities within Dominion Bridge's organization which are customarily
performed by a corporation's Chief Executive and Chief Financial Officers,
respectively. EIF may provide other persons to provide the services required
during the course of this management arrangement which persons shall be approved
by the Board of Directors of Dominion Bridge. The relationship of Dominion
Board of Directors of Dominion Bridge Corporation
May 13, 1998
Page2
Bridge to EIF and to any person providing services to Dominion Bridge on behalf
of EIF shall at all times be that of an independent contractor. Neither EIF nor
any person providing services to Dominion Bridge under this management
arrangement shall be deemed an employee of Dominion Bridge for any purpose or be
entitled to any rights whatsoever as an employee of Dominion Bridge.
2. Authority of EIF: Neither EIF nor any person providing services to
Dominion Bridge on behalf of EIF shall have any authority to legally bind
Dominion Bridge in any matter whatsoever, except as specified herein. EIF and
any person performing services for Dominion Bridge on behalf of EIF may, in
performance of his, her or its duties, negotiate on behalf of Dominion Bridge
with various parties, including but not limited to, creditors, stockholders,
employees of Dominion Bridge and governmental entities, but unless authorized in
writing by the Board of Directors of Dominion Bridge, no such person shall have
any authority or be under any duty whatsoever to execute documents in the name
of or on behalf of Dominion Bridge with respect to such negotiations or the
transactions contemplated therein except for agreements not exceeding US
$1,000,000 in value which are entered into in the ordinary course of business
and relate to the day to day operations of Dominion Bridge.
3. Term: EIF's engagement to provide management services for Dominion
Bridge shall be deemed to have commenced on May 1, 1998 and shall terminate on
October 31, 1998. However, notwithstanding anything herein to the contrary,
wither party hereto may terminate this Management Arrangement for any reason
whatsoever upon thirty (30) days prior written notice one to the other. The
management fee payable pursuant to Section 3 hereof shall be prorated in the
event of termination.
Page 15 of 18
<PAGE>
4. Management Fee: As compensation for the management services to be
rendered by EIF to Dominion Bridge, Dominion Bridge shall (i) pay to EIF a
management fee of US $100,000 per month, and (ii) reimburse EIF for all
reasonable out-of-pocket expenses and disbursements incurred in rendering such
services:
5. General:
5.1 Disclosure Except as and to the extent required by law, without the
prior written consent of the other party hereto, neither EIF nor Dominion Bridge
shall make, directly or indirectly, any public comment, statement, or
communication with respect to, or otherwise to disclose or permit the disclosure
of the terms, conditions or other aspects of the Management Arrangement. If
either party is of such disclosure (or such shorter period as may be required by
law upon the advice of counsel) it shall provide to the other party hereto the
content of the proposed disclosure, the reasons that such disclosure is required
to be made publicly by law, and the time and place that such disclosure will be
made.
Board of Directors of Dominion Bridge Corporation
May 13, 1998
Page 3
5.2 Notices all notices, requests, claims, demands or other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
when delivered in person, by courier or by fax; and (ii) upon receipt of sent by
express mail, or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties as follows:
If to EIF then to:
EIF Holdings, Inc.
54 Stiles Road
Salem, NH 03079
Attention: Frank J. Fradella
If to Dominion Bridge then to:
Allen S. Gerrard
Chairman of the Board of Directors
of Dominion Bridge Corporation
500 Notre Dame Street
Lachine, Quebec
or to such other address as the person to whom such notice is given may
have previously furnished to the other party in writing in the manner set
forth above; provided, however, that any notice of a change of address
shall be effective only upon receipt thereof.
5.3 Entire Agreement. This letter of intent constitutes the entire
agreement between Dominion Bridge and EIF as to the subject matter herein, and
supersedes all prior oral and written agreements. This letter of agreement
cannot be amended, modified or terminated except by a writing executed by the
parties hereto.
5.4 Governing Law. This letter of intent shall be governed by, and
construed in accordance with the laws of the State of Delaware.
5.5 Assignability. This letter of agreement and the rights and obligations
hereunder may not be assigned except by a writing executed by the parties
hereto.
* * *
If the foregoing accurately summarizes our understanding, please so
indicate by having a duly authorized office of Dominion Bridge execute and date
both copies of this letter in the space provided below and return one copy to
the undersigned.
Page 16 of 18
<PAGE>
Board of Directors of Dominion Bridge Corporation
May 13, 1998
Page 4
Very truly yours,
EIF HOLDINGS, INC.
By: /s/Frank J. Fradella
-----------------------------------
Name: Frank J. Fradella
-----------------------------------
Title: Chairman and Chief Executive Office
-----------------------------------
ACCEPTED AND AGREED TO THIS 13th DAY OF MAY, 1998
------
DOMINION BRIDGE CORPORATION
By: /s/Allen S. Gerrard
------------------------
Name: Allen S. Gerrard
------------------------
Title: Chairman of the Board
------------------------
Page 17 of 18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EIF HOLDINGS,
INC. FORM 10-QSB FOR THE PERIOD ENDED March 31, 1998 AND IS QUALIFIED IN IT'S
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Page 18 of 18
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,799,970
<SECURITIES> 1,362,697
<RECEIVABLES> 10,133,121
<ALLOWANCES> 313,614
<INVENTORY> 195,634
<CURRENT-ASSETS> 19,011,378
<PP&E> 15,924,354
<DEPRECIATION> 8,839,773
<TOTAL-ASSETS> 32,760,343
<CURRENT-LIABILITIES> 30,141,060
<BONDS> 0
0
0
<COMMON> 3,019,246
<OTHER-SE> (13,097,080)
<TOTAL-LIABILITY-AND-EQUITY> 32,760,343
<SALES> 21,016,569
<TOTAL-REVENUES> 21,016,569
<CGS> 16,007,808
<TOTAL-COSTS> 16,007,808
<OTHER-EXPENSES> 4,006,435
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,144,243
<INCOME-PRETAX> 282,756
<INCOME-TAX> 20,000
<INCOME-CONTINUING> 262,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,756
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
