<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from ____________ to ____________
Commission File Number: 0-27638
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THE EASTWIND GROUP, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 23-2732753
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
100 FOUR FALLS CORPORATE CENTER, SUITE 305, WEST CONSHOHOCKEN, PA 19428
-----------------------------------------------------------
(Address of principal executive offices)
(610) 828-6860
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(Registrant's telephone number, including area code)
NOT APPLICABLE
(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
------ ------
Yes X No
------ ------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $.10 PAR VALUE 1,683,250 SHARES
- ----------------------------- ----------------------------
(Class) (Outstanding at May 7, 1996)
Transitional Small Business Disclosure format (check one)
Yes No X
---- ----
<PAGE>
THE EASTWIND GROUP, INC.
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
The following financial information sets forth the operations of The Eastwind
Group, Inc. ("The Company") for the three months ended March 31, 1996 and 1995.
Certain information and footnote disclosures normally included with financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to SEC rules and regulations.
In the opinion of management, the following unaudited balance sheet and related
statements of operations and cash flows reflect all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial position
at March 31, 1996 and December 31, 1995, and the results of operations and cash
flows for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
PAGE NUMBER
-----------
ITEM 1. - FINANCIAL STATEMENTS
- ------------------------------
<S> <C>
Index to Financial Statements 2
Consolidated Balance Sheets as of
March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
Three Months ended March 31, 1996 and 1995 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Results of Operations for the Three Months
ended March 31, 1996 and 1995 13
Liquidity and Capital Resources 15
</TABLE>
(2)
<PAGE>
THE EASTWIND GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1996 1995
---------- --------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 754,490 $ 426,377
Accounts receivable, net 3,779,832 4,486,821
Stock subscription receivable -- 746,000
Due from related party 47,976 78,000
Inventories 1,846,834 1,911,969
Prepaid expenses 94,700 63,912
---------- -----------
Total current assets 6,523,832 7,713,079
---------- -----------
Property, plant and equipment, net 1,688,786 1,612,817
---------- -----------
Other Assets:
Subordinated note receivable 450,000 --
Deferred income taxes 128,312 128,312
Other assets, net 482,627 492,878
Goodwill, net 167,200 169,400
---------- -----------
1,228,139 790,590
---------- -----------
Total other assets $9,440,757 $10,116,486
---------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 746,213 $ 2,135,096
Current portion of long-term debt 513,608 458,294
Accounts payable 1,771,536 1,571,010
Accrued expenses 367,784 397,188
Accrued income taxes 83,323 27,223
Deferred income taxes 146,494 146,494
---------- -----------
Total current liabilities 3,628,958 4,735,305
---------- -----------
Long-term debt 3,209,875 3,221,585
---------- -----------
Accrued pension and postretirement
benefits 204,260 200,510
---------- -----------
Deferred credit, net 178,712 184,874
---------- -----------
Stockholders' equity:
Preferred stock, $.10 par value,
3,000,000 shares authorized and none
issued and outstanding -- --
Common stock, $.10 par value, 5,000,000
shares authorized, 1,683,250 and
1,608,250 shares issued and outstanding 168,325 160,825
Warrants outstanding 139,836 158,586
Additional paid-in capital 2,129,465 1,818,215
Accumulated deficit (218,674) (363,414)
---------- -----------
Total stockholders' equity 2,218,952 1,774,212
---------- -----------
$9,440,757 $10,116,486
========== ===========
</TABLE>
(3)
<PAGE>
THE EASTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---------- ------------
<S> <C> <C>
Net sales $4,966,982 $1,913,520
Cost of goods sold 3,688,753 1,672,827
---------- -----------
Gross profit 1,278,229 240,693
Selling, general and administrative
expenses 926,696 340,921
---------- -----------
Operating income (loss) 351,533 (100,228)
Interest expense 150,293 74,614
---------- -----------
Income (loss) before income taxes 201,240 (174,842)
Income taxes (benefit) 56,500 (33,163)
---------- -----------
Net income (loss) $ 144,740 $ (141,679)
========== ===========
Pro Forma Earnings Per Share -- $ (0.19)
========== ===========
Pro Forma Weighted Average Number of
Common Shares Outstanding -- 762,294
========== ===========
Earnings per Share $ 0.08 --
========== ===========
Shares used in computing earnings
per share 2,511,490 --
========== ===========
</TABLE>
(4)
<PAGE>
THE EASTWIND GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
---------- ------------
<S> <C> <C>
Cash flows from operating activites:
Net income (loss) $ 144,740 $ (141,679)
----------- -----------
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 70,410 20,699
Amortization of deferred credit (6,162) (6,162)
Amortization, other 12,451 4,478
Deferred income tax provision (benefit) -- (33,163)
Non-cash compensation expense -- 32,500
(Increase) decrease in assets:
Accounts receivable 706,989 609,531
Inventories 65,135 189,047
Prepaid expenses (30,788) 57,532
Other assets -- (63,738)
Increase (decrease) in liabilities:
Accounts payable 200,526 397,544
Accrued expenses (29,404) 346,161
Accrued income taxes 56,100 --
Accrued pension and postretirement
benefits 3,750 --
----------- -----------
Net cash provided by operating
activities 1,193,747 1,412,750
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (254) (1,072)
Net payments from related party 30,024 91,000
Subordinated note receivable of
Lavelle Company (450,000) --
Purchase of net assets of Polychem,
net of cash acquired -- (3,779,963)
----------- -----------
Net cash used in investing
activities (420,230) (3,690,035)
----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) under lines
of credit (1,388,883) 809,436
Principal payments on term notes and
capital leases (102,521) (29,922)
Proceeds from sales of common stock and
warrants 1,046,000 500,000
Borrowings on term note -- 1,952,000
Deferred financing costs -- (206,195)
----------- -----------
Net cash provided by (used in)
financing activities (445,404) 3,025,319
----------- -----------
Net increase in cash and cash equivalents 328,113 748,034
Cash and cash equivalents, beginning
of period 426,377 --
----------- -----------
Cash and cash equivalents, end of period $ 754,490 $ 748,034
=========== ===========
</TABLE>
(5)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
- ------- ---------------------
The unaudited consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations. In the
opinion of management, all adjustments, consisting of only normal
recurring adjustments necessary to present fairly the financial
position at March 31, 1996 and December 31, 1995, and the results of
operations and cash flows for the three months ended March 31, 1996
and 1995, have been made. The results of operations for the three
month period ended March 31, 1996 are not necessarily indicative of
the results for the year ending December 31, 1996. These financial
statements should be read in conjunction with the audited financial
statements and the notes thereto included in the Company's Annual
Report on Form 10-KSB which was filed for the year ended December 31,
1995.
NOTE 2: INVENTORIES
- -------- -----------
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- -------------
<S> <C> <C>
Raw Materials $ 663,127 $ 709,728
Work in Process 864,107 619,165
Finished Goods 319,600 583,076
---------- ----------
$1,846,834 $1,911,969
========== ==========
</TABLE>
NOTE 3: INVESTMENT IN LAVELLE COMPANY
- ------------------------------------
In March 1996, the Company invested $450,000 in Lavelle Company
("Lavelle") in the form of a subordinated debenture. The debenture
matures in March 2001 and pays quarterly interest at a rate of 20% per
year. In connection with its investment, the Company has guaranteed
the indebtedness of Lavelle under a $900,000 equipment facility. The
Company's debenture is subordinate to the equipment facility
indebtedness. In addition, the Company has pledged a $100,000
security interest in favor of the equipment facility lender.
(6)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3: INVESTMENT IN LAVELLE COMPANY (CONTINUED)
- ------- -----------------------------------------
Lavelle was incorporated to purchase the net assets of Lavelle
Aircraft which was liquidated under Chapter 11 of the U.S. Bankruptcy
Law. The stock of Lavelle is owned by non-affiliates of the Company.
Of the $78,000 receivable due from Lavelle Aircraft at December 31,
1995, $55,000 was repaid by Lavelle Aircraft and the remainder was
assumed by Lavelle.
The $450,000 debenture was recorded as a non-current asset in the
March 31, 1996 balance sheet. Because of the Company's guarantee and
pledge relating to Lavelle's equipment facility, any loss of Lavelle
will be recognized by the Company in its statement of operations and
recorded as a reduction in the carrying amount of its investment. To
the extent Lavelle's losses exceed the amount of the investment, a
liability will be recorded on the Company's balance sheet.
There were no losses during the period from the date of investment to
March 31, 1996.
(7)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT
- ----------------------
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- --------------
<S> <C> <C>
Princeton term note payable to bank,
secured by all of its assets, due in
60 monthly installments of $8,333,
plus interest at prime plus 4.25%
(12.5% at March 31, 1996) $ 233,338 $ 258,341
Princeton capital lease obligation,
secured by related equipment, payable
in 60 monthly installments of $2,397,
including interest at 16.1% 78,075 83,569
Polychem term note payable to the
Budd Company, interest at 8%, principal
payable in 20 quarterly installments of
$81,315, beginning March 31, 1998. 1,626,294 1,626,294
Polychem note payable to bank, interest
at prime plus 2.25% (10.5% at March 31,
1996) payable in 18 monthly installments
of $21,155 and 41 monthly installment of
$29,617 plus interest, beginning
April 1, 1995 with a final payment
in March 2000 1,523,143 1,586,607
Polychem chemical lease obligation,
secured by related equipment, payable
in 60 monthly installments of $2,480,
including interest at 10.65% 146,341 --
Eastwind loan payable to Cooke Publishing 25,000 25,000
Other capital lease obligations 91,292 100,068
---------- ----------
3,723,483 3,679,879
Less current portion (513,608) (458,294)
---------- ----------
$3,209,875 $3,221,585
========== ==========
</TABLE>
(8)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
- ------- --------------------------
Princeton has a $1,000,000 demand line of credit with a bank through
June 30, 1996, subject to renewal. Borrowings under the line of
credit bear interest at prime plus 4.25% (12.5% at March 31, 1996) and
are limited to 80% of eligible accounts receivable plus the lesser of
50% of paper stock inventory or $350,000. Outstanding borrowings were
$316,398 and $411,349 at March 31, 1996 and December 31, 1995,
respectively. The line is collateralized by substantially all of
Princeton's assets and the personal guarantees of three of the
Company's shareholders. An annual commitment fee of $15,000 is
required under the line and the financing arrangement places
restrictions on payment of dividends, capital expenditures, sale of
assets and change in ownership, among other terms. The arrangement
also includes a material adverse change clause that can be invoked at
the sole discretion of the bank.
Polychem entered into a loan and security agreement with a bank on
March 10, 1995, which provides for a three-year $9,000,000 revolving
line of credit and term note. Borrowings under the revolver bear
interest at prime plus 1.75% (10.0% at March 31, 1996) and are limited
to 75% of eligible accounts receivable plus the lesser of 55% of
eligible inventory or $1,000,000 minus 55% of then-undrawn amounts of
outstanding letters of credit for inventory purchases. Outstanding
borrowings were $429,815 and $1,723,747 at March 31, 1996 and December
31, 1995, respectively. The line is collateralized by substantially
all of Polychem's assets, a mortgage on the land and building and a
$2,500,000 limited guarantee by the Company. In addition, the
financing agreement requires that Polychem maintain adjusted working
capital of at least $2,200,000 and maximum adjusted net deficit of
$500,000, and places restrictions on the payment of dividends to the
Company and investment in, loans or advances directly to any other
subsidiary and other expenditures, among other items. Polychem was in
compliance with these covenants as of March 31, 1996.
(9)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: LONG-TERM DEBT (CONTINUED)
- ------- --------------------------
Future maturities of long-term debt at March 31, 1996 are as
follows:
<TABLE>
<S> <C>
March 31, 1997 $ 513,608
March 31, 1998 636,079
March 31, 1999 789,323
March 31, 2000 710,428
March 31, 2001 504,846
Thereafter 569,198
----------
$3,723,483
==========
</TABLE>
NOTE 5: ACQUISITION OF POLYCHEM
- ------- -----------------------
On March 10, 1995, the Company acquired, through a newly established
wholly owned subsidiary, the net assets of the Polychem Division of
the Budd Company for approximately $6,448,000, including the seller
notes of approximately $2,376,000. The acquisition has been accounted
for using the purchase method of accounting. The fair market value of
the net assets acquired was recorded based on the carrying value for
monetary net assets, with the remaining portion of the purchase price
allocated to property, plant, and equipment. Polychem's results from
operations have been included in the Company's consolidated financial
statements from the date of acquisition.
The following unaudited pro forma information is presented for the
acquisition of Polychem as if the acquisition had occurred on January
1, 1995. The operating results for the period March 11, 1995 to March
31, 1995 are included in the Company's historical consolidated
statement
(10)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5: PROFORMA INFORMATION AS IF POLYCHEM ACQUISITION OCCURRED JANUARY 1,
- ------- -------------------------------------------------------------------
1994
- ----
of operations for the three months ended March 31, 1995. The pro
forma information does not purport to be indicative of the results
that would have been attained if the operations had actually been
combined during the periods presented and is not necessarily
indicative of operating results to be expected in the future.
<TABLE>
<CAPTION>
Three months ended
March 31, 1995
-------------------
<S> <C>
Total Revenues $4,382,000
==========
Net loss $ (149,000)
==========
Proforma loss per share $ (.20)
==========
Shares used in computing proforma
net loss per share 762,294
==========
</TABLE>
NOTE 6: EARNINGS (LOSS) PER SHARE
- ------- -------------------------
For the three months ended March 31, 1996, the Company's total
outstanding common stock options and warrants exceed 20% of the total
outstanding common stock. Therefore, the income per share
computations are modified, as required under Accounting Principles
Board Opinion No. 15, to assume all outstanding common stock options
and warrants were exercised and the related proceeds were used to
repurchase up to 20% of the total outstanding common stock. Any
remaining proceeds are assumed to be used to reduce borrowings,
thereby reducing interest expense, net of tax.
(11)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: EARNINGS (LOSS) PER SHARE (CONTINUED)
- ------- --------------------------------------
Details of the calculation of earnings per share for the three months
ended March 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Weighted average number of shares outstanding 1,618,140
Assumed exercise of options and warrants 1,230,000
Less assumed repurchase of stock (336,650)
----------
Shares used in computing earnings per
share 2,511,490
==========
Net income for the three months ended
March 31, 1996 $ 144,740
Adjustment to net income for assumed reduction
in interest expense, net of tax 51,471
----------
Adjusted net income for computation
of earnings per share $ 196,211
==========
Earnings per share $.08
==========
</TABLE>
Earnings (loss) per share for the three months ended March 31, 1995 is
calculated by dividing the period loss by the proforma weighted
average number of shares outstanding for the period.
NOTE 7: CONCENTRATION OF CREDIT RISK
- ------- ----------------------------
One customer accounted for 15% and 40% of net sales for the three
months ended March 31, 1996 and 1995, respectively. The Company had
receivables from this customer of approximately $271,000 and $389,000
at March 31, 1996 and December 31, 1995, respectively. The loss of
this customer would have a material adverse effect on Princeton and
the Company.
NOTE 8: SUPPLEMENTAL COST FLOW DISCLOSURE
- ------- ---------------------------------
In March 1996, Polychem entered into a capital lease for $146,125 of
equipment.
(12)
<PAGE>
THE EASTWIND GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
- ------------------------------------------
OVERVIEW
- --------
The Company generated net income of $145,000 during the three months ended March
31, 1996, compared to a loss of $142,000 for the same period of the prior year.
The income for the quarter ended March 31, 1996 is a result of Polychem's
profitability more than offsetting the losses of Princeton during that period.
As Polychem was acquired by the Company effective March 10, 1995, its results of
operations during the three months ended March 31, 1995 showed a virtual
breakeven during that period.
REVENUES
- --------
Revenues for the three months ended March 31, 1996 of $4,967,000 represents an
increase of $3,053,000 versus the same period of the prior year. The increase
is all attributable to Polychem, as Princeton's revenues were slightly down
during the quarter versus the same period of the prior year. Historically,
Princeton's revenues during the first quarter of the calendar year are lower
than other quarters due to the nature of the book publishing marketplace served
by Princeton. Princeton revenues showed substantial increase in April 1996
versus each of the preceding three months.
COST OF SALES
- -------------
Cost of sales for the three months ended March 31, 1996 totalled $3,689,000, or
74% of net sales, compared to the same period of the prior year of $1,673,000,
or 87% of net sales, an improvement of 13%. Polychem's cost of sales for the
period ended March 31, 1996 was $2,581,000 or 69% of net sales. Polychem's
improvement in gross profit percentage by 9 percentage points during the three
months ended March 31, 1996, versus the same period of the prior year, is
attributable to streamlined production methods and a favorable mix in
manufactured products versus products for resale purchased from outside vendors.
Princeton's cost of sales for the three months ended March 31, 1996 was 92%,
approximately the same percentage as in the comparable period of the prior year.
The relatively high cost of sales percentage at Princeton is due to fixed costs
of manufacturing being allocated over slightly lesser volume in the three months
ended March 31, 1996 versus the comparable period of the prior year.
(13)
<PAGE>
THE EASTWIND GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses for the three months ended March
31, 1996 were $927,000 or 19% of net sales, compared to the same period of the
prior year of $341,000 or 18% of net sales. The increase in selling, general
and administrative expenses for the quarter was principally due to Polychem
($401,000), corporate overhead relating to the holding company ($212,000) off-
set by a reduction in selling, general and administrative expenses at Princeton
of $31,000. Polychem's selling, general and administrative expenses as a
percentage of net sales for the quarter ended March 31, 1996 were 13%, a
reduction of 3 percentage points from the same period of the prior year and the
percentage which was experienced during 1995. Management believes that the
percentage of selling, general and administrative expenses to net sales will
decrease as fixed costs are spread over higher net sales for both Polychem and
Princeton.
INTEREST EXPENSE
- ----------------
Interest expense for the three months ended March 31, 1996 was $150,000, or 3.0%
of net sales, versus $76,000, or 3.9% of net sales, for the same period of the
prior year. Interest expense as a percentage of net sales was lower during the
quarter ended March 31, 1996 due to the influx of additional capital and
continuing efforts by management to more effectively manage accounts receivable
and inventories, resulting in lower utilization of available lines of credit.
Polychem's interest expense for the quarter ended March 31, 1996 was $117,000,
or 3.1% of net sales, while Princeton's interest expense during this quarter was
$30,000 or 2.5% of net sales.
(14)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has financed its working capital requirements and capital
expenditures through cash flows generated from operations, bank debt, sale of
common stock and equipment leases. Net cash provided by operating activities
during the three months ended March 31, 1996 was $1,194,000, as compared to cash
provided by operating activities of $1,413,000 for the same period of the prior
year. The principal components of cash flows provided by operating activities
during the three months ended March 31, 1996 were net income of $145,000,
depreciation and amortization of $77,000, accounts receivable ($707,000), and
inventories ($65,000), an increase in accounts payable ($201,000) and accrued
income taxes ($56,000); offset by an increase in prepaid expenses ($31,000) and
accrued income taxes and pension retirement benefits ($60,000).
During the three months ended March 31, 1995, the net loss for the period of
$142,000 was offset by depreciation and amortization of $19,000, non-cash
compensation expense ($33,000), decreases in accounts receivable ($610,000),
inventory ($189,000), prepaid expenses ($58,000), increases in accounts payable
($398,000) and accrued expenses ($346,000); all of which was offset by an
increase in other assets ($64,000) and a deferred tax benefit ($33,000).
The cash flows from operating activities during the three months ended March 31,
1995, was principally attributable to a decrease in inventories and increases in
accounts payable and accrued expenses at Polychem from the date of acquisition.
However, the Company has continued to focus on the management of accounts
receivable and inventories, resulting in lower levels of line of credit
utilization and a resultant lower interest cost. In addition, the Company
continues to utilize increases in accounts payable in order to take advantage of
trade credit available as opposed to increasing borrowings under its revolving
credit facilities.
Net cash used in investing activities for the three months ended March 31, 1996
was $420,000 as compared to cash used in the three months ended March 31, 1995
of $3,690,000. During the three months ended March 31, 1996, the Company made
an investment in the form of a subordinated debenture in Lavelle Company in the
amount of $450,000. During the three months ended March 31, 1995, cash used in
investing activities relating to the purchase of net assets of Polychem
($3,780,000) and purchases of property and equipment ($1,000), whichwere offset
by net payments from a related party ($91,000).
Net cash used in financing activities for the three months ended March 31, 1996
was $445,000, compared to cash provided during the same period of the prior year
of $3,025,000. The principal components of cash used in financing
activities during the 1996 period included repayments under lines of credit
($1,389,000), principal payments on term notes and capital eases ($103,000);
(15)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
offset by proceeds from the exercise of warrants ($1,046,000). During the three
months ended March 31, 1995, cash flows from financing activities included
borrowings on term notes ($1,952,000), net borrowings under lines of credit
($809,000), proceeds from sale of common stock ($500,000) offset by principal
repayments on term notes and capital leases ($30,000) and deferred financing
costs ($206,000).
As of March 31, 1996 and December 31, 1995, working capital was $2,895,000 and
$2,978,000, respectively. While actual working capital decreased by $83,000,
the working capital ratio increased from 1.6 to 1.8. The Company's focus on
managing its principal assets of accounts receivable and inventories has
resulted in stronger liquidity at March 31, 1996 versus December 31, 1995.
The Company has no significant capital spending or purchase commitments, other
than normal commitments under facility and capital leases. There are no
commitments to purchase significant property, plant and equipment during the
remainder of 1996.
The $9,000,000 credit facility at Polychem includes a term loan with an
outstanding balance of $1,523,000 at March 31, 1996, leaving an aggregate
availability of $7,477,000 as of that date under the credit facility, dependent
upon eligible collateral assets. As of March 31, 1996, availability under the
line of credit, based upon available eligible collateral assets, was $1,710,000,
and outstanding borrowings were $430,000.
As of March 31, 1996, Princeton's line of credit balance outstanding was
$316,000 against the total available credit facility of $1,000,000.
As of March 31, 1996, the Company had outstanding Class C, D, and A-1 Company
stock purchase warrants, which were offered in March 1995 to create a reserve to
be used by the Company in raising funds for additional potential business
opportunities and acquisitions. During the three months ended March 31, 1996,
75,000 Class A-1 warrants were exercised, generating $300,000 of net capital to
the Company. The outstanding warrants as of March 31, 1996, if fully exercised,
would generate $3,775,000 of net capital to the Company.
The Company has reached agreements with two separate investors who intend to
make investments in the Company as follows:
Purchase of $1,000,000 of the Company's Preferred Stock, which will
initially have a dividend rate of 9%. In addition, the investor
(16)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
will purchase 220,000 warrants at a purchase price of $220. The warrants
will be exercisable at $6.00 per share for a seven year period. This
transaction is expected to close by May 15, 1996.
Purchase of a five-year, $500,000 Subordinated Note payable of the Company
which will bear interest at 12%. The note will be repaid by December 31,
2000. The investment will be funded $250,000 at closing (anticipated to be
by May 15, 1996) and $250,000 within six months of closing. In addition,
the investor receives a Warrant to purchase 80,000 shares of the Company's
Common Stock at $6.00 per share for a seven-year period.
The Company believes that its current cash and available resources, cash
generated from operations, and the availability under its lines of credit will
be sufficient to fund the Company's operations and expected capital expenditures
for the twelve months from March 31, 1996.
The Company intends to aggressively pursue potential acquisitions. The Company
will require additional capital to fund its expansion plans, which may be in the
form of private placements or public offerings of debt, equity or convertible
securities.
(17)
<PAGE>
THE EASTWIND GROUP, INC.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
- ------- -----------------
none
ITEM 2: CHANGE IN SECURITIES
- ------- --------------------
none
ITEM 3: DEFAULTS ON SENIOR SECURITIES
- ------- -----------------------------
none
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
none
ITEM 5: OTHER INFORMATION
- ------- -----------------
none
- ----
ITEM 6: EXHIBITS AND REPORTS ON FORM 8K
- ------- -------------------------------
(a) Exhibits
none
(b) Reports on Form 8-K
none
(18)
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 13, 1996
THE EASTWIND GROUP, INC.
(Registrant)
/s/ Paul A. DeJuliis
________________________________
Paul A. DeJuliis
Chairman and CEO
/s/ William B. Miller
_________________________________
William B. Miller
Senior Vice President and CFO
(Principal financial and accounting officer)
(19)
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
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0 0
0 0
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<INTEREST-EXPENSE> 150,293 74,614
<INCOME-PRETAX> 201,240 (174,842)
<INCOME-TAX> 56,500 (33,163)
<INCOME-CONTINUING> 144,740 (141,679)
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