UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
------------
{X} QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
OR
{ } TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
Commission File Number 0-22388
EIF HOLDINGS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
HAWAII 99-0273889
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
15201 Pipeline Lane, Ste. B
Huntington Beach, California 92649
----------------------------------------
(Address of principal executive offices)
(714) 897-9000
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(Issuer's telephone number)
Not applicable
- --------------------------------------------------------------------------------
(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 No X
----- -----
State the number of shares outstanding of each of the issuer's classes of common
equity, as the latest practicable date.
Class Outstanding at August 12, 1997
----- ------------------------------
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 13
<PAGE>
This form 10-QSB/A, Amendment Number 1, amends and supplements the form 10-QSB
(the "Original Form 10-QSB") filed by EIF Holdings, Inc. on August 26, 1997.
This Amendment Number 1 is to amend and restate Part I: Item 1 and Item 2, Part
II Item 1, Item 5, Item 6 and Exhibit 27 of the Original Form 10-QSB. The
Original Form 10-QSB is hereby amended and restated to read in its entirety as
follows. This Form 10-QSB/A should also be read in conjunction with all prior
and subsequent filings with the Securities and Exchange Commission for the
current fiscal year which disclose significant developments.
EIF HOLDINGS INC.
Table of Contents
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1997
and September 30, 1996............................................ 3
Consolidated Statements of Operations for the Three and Six
Months Ended March 31, 1997 and 1996.............................. 4
Consolidated Statements of Cash Flows for the Six
Months Ended March 31, 1997 and 1996.............................. 5
Notes to Consolidated Interim Financial Statements.................. 6
Item 2. Management's Discussion and analysis of Financial condition and
Results of Operations............................................. 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...................................................10
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K....................................10
Signatures..........................................................11
Page 2 of 13
<PAGE>
PART I. FINANCIAL INFORMATION
PART 1. FINANCIAL STATEMENTS
EIF HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
March 31, September 30,
1997 1996
------------ ------------
(Unaudited) (Audited)
ASSETS
Current assets:
Cash........................................... $ 60,665 $ 178,231
Accounts receivable, net....................... 5,636,830 7,299,059
Costs and estimated earnings on contracts
in progress in excess of billings............. 20,222 326,343
Supplies inventory............................. 569,353 478,370
Prepaid assets................................. 431,531 85,816
------------ ------------
Total current assets...................... 6,718,601 8,367,819
Machinery and equipment, net...................... 1,304,596 1,275,087
Other noncurrent assets:
Goodwill....................................... 777,849 881,680
Other assets................................... -- 50,917
------------ ------------
777,849 932,597
------------ ------------
Total assets................................... $ 8,801,046 $ 10,575,503
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses........... $ 9,228,517 $ 6,428,112
Notes payable................................... 2,941,887 1,856,751
Billings in excess of costs and estimated
earnings on contracts in progress.............. -- 737,476
Unearned Revenue................................ 400,000 --
Note payable due to shareholder................. 7,180,642 4,908,317
Reserve for contingencies....................... 1,049,400 --
Current maturities of long-term debt............ -- 144,311
------------ ------------
20,800,446 14,074,967
Long term debt................................... -- 73,882
Stockholders' deficit
Common stock................................... 3,019,246 3,019,246
Additional paid-in capital..................... 804,696 804,696
Accumulated deficit............................ (15,823,342) (7,397,288)
------------ ------------
Total stockholders' deficit.............. (11,999,400) (3,573,346)
------------ ------------
Total liabilities and stockholders' deficit... $ 8,801,046 $ 10,575,503
============ ============
The balance sheet at September 30, 1996 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 13
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months ended
March 31,
----------------------------
1997 1996
------------ ------------
Contract revenue.................................. $ 5,131,154 $ 5,018,611
Cost of contract revenue.......................... 3,596,158 3,526,334
------------ ------------
Gross profit..................................... 1,534,996 1,492,277
Selling, general and administrative expenses...... 2,938,042 2,909,575
------------ ------------
(1,403,046) (1,417,298)
Other:
Other income (expense)........................... -- --
Interest Expense................................. 355,988 107,773
------------ ------------
Loss before provision (benefit)for income taxes.. (1,759,035) (1,525,071)
Income tax provision (benefit).................... -- (3,000)
------------ ------------
Net loss.......................................... $ (1,759,035) $ (1,522,071)
============ ============
Net loss per share................................ $ (0.07) $ (0.07)
============ ============
Weighted average number of common
shares outstanding.............................. 24,618,201 20,991,827
============ ============
Six Months ended
March 31,
----------------------------
1997 1996
------------ ------------
Contract revenue.................................. $ 11,495,584 $ 11,296,671
Cost of contract revenue.......................... 11,964,368 7,720,047
------------ ------------
Gross profit..................................... (468,784) 3,576,624
Selling, general and administrative............... 7,214,253 5,235,668
------------ ------------
(7,683,037) (1,659,044)
Other:
Other income (expense)........................... -- 51,031
Interest Expense................................. 743,016 209,277
------------ ------------
Loss before provision (benefit)for income taxes.. (8,426,053) (1,817,290)
Income tax provision (benefit).................... -- --
------------ ------------
Net loss.......................................... $ (8,426,053) $ (1,817,290)
============ ============
Net loss per share................................ $ (0.34) $ (0.10)
============ ============
Weighted average number of common
shares outstanding.............................. 24,618,201 17,787,600
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
Page 4 of 13
<PAGE>
EIF HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months ended
March 31,
----------------------------
1997 1996
------------ ------------
Net cash used in operating activities............. $ (3,059,161) $ (810,105)
Cash flow from investing activities
Purchase of machinery and equipment........... (197,673) --
------------ ------------
Net cash used in investing activities............. (197,673) --
Cash flow from financing activities
Net advances (payment) on notes payable........ 940,825 1,000,141
Net advances on notes due to shareholder....... 2,272,325 --
Proceeds from sale of common stock............. -- 1,000,000
Net payments on long-term debt................. (73,882) (1,054,139)
Increase in outstanding checks payable......... -- 50,107
------------ ------------
Net cash provided by financing activities......... 3,139,268 996,109
------------ -----------
Net (decrease) increase in cash................... (117,566) 186,004
Cash, beginning of period......................... 178,231 70,775
------------ ------------
Cash, end of period............................... $ 60,665 $ 256,779
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended March 31, 1996, the Company acquired $150,212 of
machinery and equipment under capitalized leases.
The accompanying notes are an integral part of these consolidated financial
statements.
Page 5 of 13
<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 10KSB for the year ended September 30, 1996. 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
three month period ended 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; P.W. Stephens Contractors, Inc., QHI
Stephens Contractors, Inc. and P.W. Stephens Residential, Inc., (collectively
referred to as "P.W. Stephens"), P.W. Stephens Contractors, Inc. and P.W.
Stephens Services, Inc., formerly known as VonGuard Holdings, Inc., (now
collectively referred to as "P.W. Stephens St. Louis") and Kelar Controls, Inc.,
("Kelar").
Net Loss Per Share Information. The net loss per share amounts have been
computed by dividing net 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 is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of statement 128 on the calculation
of fully diluted earnings per share is not expected to be material.
Note 2 - RESTATEMENT OF PREVIOUSLY FILED 10-QSB
During the first quarter, the Company began a conversion of its computer
accounting system to a new software application. The initial conversion efforts
failed and it took the Company approximately six months to resolve the problems
and complete the conversion. In September 1997, the Company determined that
beginning in the quarter ended December 31, 1996, as a result of the initial
failed system conversion attempt, it had inadvertently under-recorded certain
accounts payable and accrued liabilities primarily related to direct and
indirect contract service costs. The Company also determined that certain
contingencies should have been recognized in quarters one and two. These factors
resulted in an understatement of the Company's liabilities, direct costs and
operating expenses as of and for the quarters ended December 31, 1996 and March
31, 1997. Accordingly, the Company has restated its financial statements for
these two quarters.
NOTE 3 - TRANSACTIONS WITH SHAREHOLDER
During 1996, the Company entered into a line of credit with a major shareholder,
American Eco Corp. (AEC). The line of Credit carries a maximum borrowing amount
of $5,250,000, interest at the prime rate plus 2% per annum, is unsecured and
matures on July 31, 1997. See Item 2., Management's Discussion and Analysis of
Financial Condition, Liquidity and Capital Resources, for further discussion.
Pursuant to an agreement dated October 1, 1996 between AEC and the Company. AEC
has agreed to provide certain services to the Company in exchange for a
management fee to be paid on a quarterly basis. The services include providing
the Company with management guidance as well as guaranteeing certain of the
Company's obligations with its creditors, in order to allow the Company to
receive favorable terms from these creditors. The agreement provides for a
quarterly payment of $1,000,000.
NOTE 4 - NOTES PAYABLE
On December 1, 1996 the Company borrowed $300,000 under a promissory note
payable to an investor group. The terms of the note, which matures on March 13,
1997, provide for an interest rate of 12% per annum. In connection with the
note, the Company committed to issue 150,000 warrants to purchase the common
stock of the Company subject to shareholder approval of an increase in the
authorized number of outstanding shares. The Company is currently negotiating
with the investor group an amendment and extension to the note.
On September 30, 1996 the Company obtained a $1,300,000 line of credit facility
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. During the
current quarter the Company borrowed $660,000 under the credit facility. The
outstanding balance under the facility as of March 31, 1997 was $1,030,000.
NOTE 5 - RESERVE FOR CONTINGENCIES
See Part II, Item 1. Legal Proceedings.
Page 6 of 13
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 31, 1997
Versus
Three Months Ended March 31, 1996
Revenue:
Revenue for the three months ended March 31, 1997 increased 2.2% to $5,131,000
from 5,019,000 for the same period in 1996. The increase in revenue was the
combined result of an increase in revenue from P.W. Stephens and Kelar of
$424,000 or 13.1% and $69,000 or 13.2% respectively offset by a (29.1%) decrease
in revenue from P.W. Stephens St.Louis of ($372,000). The revenue for the
quarter was effected by normal fluctuations in the Company being awarded new
contracts and the timing of the commencement of new work. Kelar's revenue was
also affected by the recognition in the current quarter of additional revenue
from a large ongoing energy savings contract compared to the same period in
1996. In addition, P.W. Stephens St. Louis was impacted by a larger than normal
decrease in bid opportunities in its union services markets in the current
quarter, which is not a trend the Company expects to continue.
Gross Profit:
Gross Profit as a percentage of revenue for the three month period ended March
31, 1997 was 29.9% compared to 29.7% for the same period in 1996. The increase
in the gross profit margin was the combined result of P.W. Stephens St. Louis
which achieved a gross profit of 30.8% compared to 9.5% during the three month
periods ended March 31, 1997 and 1996 respectively resulting from operating
efficiencies recognized from the consolidation of branches which occurred in the
spring of 1996. In addition, Kelar's gross profit margin for the current quarter
was 79.0% compared to 42.1% for the same period in the prior year. This gross
profit percentage includes revenue from shared energy savings contracts. Once
initial work is completed and expensed, these projects produce ongoing revenue
while incurring minimal costs. The increase in Kelar's gross profit margin
reflects the timing of the initial work performed. The increases in gross margin
was offset by P.W. Stephens which had a gross margin of 21.7% during the quarter
ended March 31, 1997, compared to 32.5% for the same period in 1996. The
decrease in gross profit margin reflects the effects of continuing losses on
several large commercial asbestos jobs.
Selling, general and administrative expenses:
Selling, general and administrative expenses (SG&A) for the three months ended
March 31, 1997 increased to $2,938,000 from $2,909,000 for the same period in
1996. The increase in SG&A expenses is the combined result of additional
management fees incurred during the period of $1,000,000 offset by a decrease in
P.W. Stephens' SG&A resulting from the cost containment initiatives implemented
during the current period.
Other Expenses
Interest expense during the three months ended March 31, 1997, was $356,000
compared to $108,000 for the same period in 1996. The increase was pimarily the
combined result of the additional amounts outstanding under the line of credit
from its principal shareholder, American Eco Corporation and from the
utilization of factoring arrangements.
Net Loss
The net loss for the three months ended March 31, 1997 increased to ($1,759,000)
compared to a net loss of ($1,522,000) during the same period in 1996. Losses
during the current period primarily reflect the combined result of an increase
in interest expense and the additional management fees incurred in the current
period.
Page 7 of 13
<PAGE>
Six Months Ended March 31, 1997
Versus
Six Months Ended March 31, 1996
Revenue:
Revenue for the six months ended March 31, 1997 increased 1.7% to $11,496,000
from 11,297,000 for the same period in 1996. The increase in revenue was the
combined result of a 1.5% increase in revenue from P.W. Stephens of $118,000 and
a 2.6% increase from P.W. Stephens St. Louis of 74,000. Kelar's revenue for the
six months ending March 31, 1997 of $792,000 remained consistent with the same
period in the prior year. The increase in revenue for P.W. Stephens and P.W.
Stephens St. Louis was result of normal fluctuations in being awarded new
contracts and the timing of the commencement of new work.
Gross Profit:
Gross profit as a percentage of revenue for the six month period ended March 31,
1997 was a negative (4.1)% compared to a positive 31.7% for the same period in
1996. The decrease in the gross profit margin was primarily due to P.W. Stephens
which had a negative gross margin of (21.7)% during the six month period ended
March 31, 1997, compared to a positive 38.3% for the same period in 1996. The
decrease in gross profit margin reflects the impact of several large jobs that
experienced significant losses. As a partial offset to P.W. Stephens' decrease
in gross profit, P.W. Stephens St. Louis achieved a gross profit of 23.6%
compared to 14.3% during the six month periods ended March 31, 1996 and 1995
respectively resulting from the recognition of increased operating efficiencies.
Kelar's gross profit for the six months ended March 31, 1997, was 68.0%. This
gross profit percentage includes revenue from shared energy savings contracts.
Once initial work is completed and expensed, these projects produce ongoing
revenue while incurring minimal costs.
Selling, general and administrative expenses:
Selling, general and administrative expenses (SG&A) for the six months ended
March 31, 1997 increased to $7,214,000 from $5,236,000 for the same period in
1996. The increase in SG&A expenses is the combined result of management fees
incurred during the six month period of $2,000,000, an increase in litigation
and contingency reserves of $1,049,000 and an increase in the reserves for trade
receivables of $220,000. Without the impact of these items, the Company's SG&A
expenses as a percentage of revenue has decreased to 36.1% from 46.3% primarily
resulting from the cost containment initiatives implemented by P.W Stephens
during the period.
Other Expenses
Interest expense during the six months ended March 31, 1997, was $743,000
compared to $209,000 for the same period in 1996. The increase was primarily the
combined result of the additional amounts outstanding under the line of credit
from its principal shareholder, American Eco Corporation and the utilization of
factoring arrangements.
Net Loss
The net loss for the six months ended March 31, 1997 increased to ($8,426,000)
compared to a net loss of ($1,817,000) during the same period in 1996. Losses
during the current period reflect the combined result of significant losses
relating to several large jobs, the management fees incurred in the current
six month period and the increase in litigation and contingency reserves.
Page 8 of 13
<PAGE>
Liquidity and Capital Resources:
The Company's borrowings from American Eco Corp. (AEC) remained its major source
of capital. The balance due to AEC as of March 31, 1997 was $7,181,000 an
increase of $2,272,000 from the September 30, 1996 fiscal year end balance. The
original terms of the AEC facility provided for a maximum borrowing amount of
$5,250,000. Discussions are continuing regarding a potential exchange of the AEC
credit line for additional shares of the Company's common stock. In conjunction
with those discussions, AEC has allowed the outstanding borrowings to exceed the
maximum amount of the facility. Prior to any exchange of part or all of the line
of credit to common stock, the terms of the exchange must be negotiated and the
Company must receive shareholder approval to increase its authorized number of
outstanding shares. There is no assurance that this can be achieved.
The Company utilized factoring arrangements as a source of cash during the six
months ended March 31, 1997. P.W. Stephens and P.W. Stephens St. Louis factored
contract receivables in the amount of $1,903,000 and $2,712,000 respectively
during the period. Under the factoring arrangement, P.W. Stephens and P.W.
Stephens St. Louis are advanced 65% of the face amount of the factored
receivables and incur annualized effective interest of approximately 28%.
During the six months ended March 31, 1997, the Company borrowed $300,000 under
a promissory note payable to an investor group. The terms of the note provide
for an interest rate of 12% per annum and matured on March 13, 1997. The Company
is currently negotiating with the investor group to extend the maturity. In
connection with the note, the Company committed to issue 150,000 warrants to
purchase the common stock of the Company subject to shareholder approval of an
increase in the authorized number of outstanding shares.
The Company also borrowed an additional $660,000 in the current quarter from its
existing revolving credit facility with an investor group. The terms of the
$1,300,000 revolving credit facility provide for an interest rate of 10% per
annum and matures on March 1, 1997. The total borrowing amount outstanding as of
March 31, 1997 was $1,030,000.
Neither the Company nor any of its subsidiaries have a bank line of credit from
which to borrow. As part of the management agreement between AEC and the
Company, AEC has agreed to assist the Company in obtaining favorable financing,
including but not limited to providing any necessary guarantees. There is no
assurance that financing can be obtained.
Page 9 of 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 or cash flows. The
reserves for litigation and contingencies recorded by the Company as of March
31, 1997 total $1,049,400.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27. Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
Page 10 of 13
<PAGE>
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
January 13, 1998 By: /S/ J. Drennan Lowell
-----------------------------
J. Drennan Lowell
Vice President, Chief Financial Officer,
Treasurer and Secretary
Page 11 of 13
<PAGE>
EIF HOLDINGS, INC.
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
27 Financial Data Schedule........................ 13
Page 12 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EIF HOLDINGS,
INC. FORM 10-QSB/A FOR THE PERIOD ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
Page 13 of 13
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 60,665
<SECURITIES> 0
<RECEIVABLES> 5,636,830
<ALLOWANCES> 0
<INVENTORY> 569,353
<CURRENT-ASSETS> 6,718,601
<PP&E> 5,601,638
<DEPRECIATION> 4,297,042
<TOTAL-ASSETS> 8,801,046
<CURRENT-LIABILITIES> 20,800,446
<BONDS> 0
0
0
<COMMON> 3,019,246
<OTHER-SE> (15,018,646)
<TOTAL-LIABILITY-AND-EQUITY> 8,801,046
<SALES> 11,495,584
<TOTAL-REVENUES> 11,495,584
<CGS> 11,964,368
<TOTAL-COSTS> 11,964,368
<OTHER-EXPENSES> 7,214,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 743,016
<INCOME-PRETAX> (8,426,053)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,426,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,426,053)
<EPS-PRIMARY> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
