<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 SEPTEMBER 27, 1997
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
-------
THE EASTWIND GROUP, INC.
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 3,125,019 SHARES
- --------------------------------- ------------------------------------
(Class) (Outstanding at November 3, 1997)
Transitional Small Business Disclosure format (check one)
Yes No X
--- ---
<PAGE>
THE EASTWIND GROUP, INC.
PAGE NUMBER
-----------
PART I.
- -------
ITEM 1. - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of
September 27, 1997 and December 31, 1996 4
Consolidated Statements of Operations for the
Quarter ended September 27, 1997 and September 30, 1996
and the Three Quarters ended September 27, 1997
and September 30, 1996 5
Consolidated Statements of Cash Flows for the
Three Quarters ended September 27, 1997
and September 30, 1996 6
Notes to Consolidated Financial Statements 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 16
PART II.
- ------
ITEM 1 - LEGAL PROCEEDINGS 26
ITEM 2 - CHANGES IN SECURITIES 26
ITEM 3 - DEFAULTS ON SENIOR SECURITIES 26
ITEM 4 - SUBMISSION OF MATTERS TO A
VOTE OF SECURITIES HOLDERS 27
ITEM 5 - OTHER INFORMATION 27
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 27
(2)
<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 quarter and three quarters ended September
27, 1997 and September 30, 1996. 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 sheets and related
statements of operations and cash flows reflect all adjustments (consisting of
normal recurring adjustments) necessary to present fairly the financial position
at September 27, 1997 and December 31, 1996, and the results of operations and
cash flows for the quarter and three quarters ended September 27, 1997 and
September 30, 1996.
(3)
<PAGE>
<TABLE>
<CAPTION>
The Eastwind Group, Inc.
Consolidated Balance Sheets
(Unaudited)
September 27, December 31,
ASSETS 1997 1996
--------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 230,700 $ 709,697
Accounts receivable, net 7,802,342 7,655,763
Due from related parties - 1,047,354
Inventories 5,449,825 4,001,007
Prepaid expenses 335,910 203,820
Prepaid or recoverable income taxes 1,225,538 91,500
--------------- ----------------
Total current assets 15,044,315 13,709,141
Property, plant and equipment, net 8,312,020 7,024,393
Investment in investee companies - 700,000
Goodwill and other assets 8,390,819 7,024,489
--------------- ----------------
$ 31,747,154 $ 28,458,023
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 5,798,421 $ 3,626,365
Currrent portion of long-term debt 1,340,065 880,012
Current portion of capitalized lease obligations 903,123 848,701
Accounts payable 5,489,024 3,775,002
Accrued expenses 2,668,778 2,718,391
Due to related parties - 276,260
Deferred income taxes 59,431 98,186
--------------- ----------------
Total current liabilities 16,258,842 12,222,917
--------------- ----------------
Long-term debt 5,382,636 5,537,523
--------------- ----------------
Capitalized lease obligations 1,744,613 1,695,229
--------------- ----------------
Accrued pension and postretirement benefits 209,005 218,510
--------------- ----------------
Deferred credit, net 141,737 160,224
--------------- ----------------
Other liabilities 217,459 -
--------------- ----------------
Deferred income taxes 398,550 382,814
--------------- ----------------
Minority interest in consolidated subsidiary 26,145 14,927
--------------- ----------------
Redeemable Series B Preferred Stock 900,000 900,000
--------------- ----------------
Stockholders' equity:
Series A Preferred stock, $.10 par value, 3,000,000
shares
authorized; 1,000 issued and outstanding at
September 27, 1997
and December 31, 1996 100 100
Common stock, $.10 par value, 7,000,000 shares authorized
2,925,019 and 2,411,482 issued and 2,925,019 and 2,376,482
outstanding at September 27, 1997 and December 31, 1996, respectively 292,502 241,148
Warrants outstanding 1,091,797 1,271,597
Additional paid-in capital 7,866,865 6,408,621
Accumulated deficit (2,171,097) (147,051)
--------------- ----------------
7,080,167 7,774,415
Less-Common stock in treasury, 35,000 shares at cost - (193,609)
Notes receivable from sale of stock (612,000) (240,000)
Deferred compensation - (14,927)
--------------- ----------------
Total stockholders' equity 6,468,167 7,325,879
--------------- ----------------
$ 31,747,154 $ 28,458,023
=============== ================
</TABLE>
The accompanying notes and notes to the financial statements included in the
Annual Report on Form 10-KSB for the year ended December 31, 1996 are an
integral part of these financial statements.
(4)
<PAGE>
The Eastwind Group, Inc.
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended Three Quarters Ended
September 27, September 30, September 27, September 30,
1997 1996 1997 1996
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Net sales $10,861,580 $5,168,365 $38,155,075 $14,861,827
Cost of goods sold 9,019,710 3,875,515 30,570,686 11,027,542
------------- ------------ ------------- --------------
Gross profit 1,841,870 1,292,850 7,584,389 3,834,285
Selling, general and administrative expenses:
Selling 934,929 467,428 3,010,192 1,395,341
General and administrative 1,475,405 399,299 5,430,438 1,306,878
Consolidation expenses - Team Graphics, Inc. 23,704 - 212,228 -
Contract settlement with former officer - - 430,137 -
------------- ------------ ------------- --------------
2,434,038 866,727 9,082,995 2,702,219
------------- ------------ ------------- --------------
Operating income (loss) (592,168) 426,123 (1,498,606) 1,132,066
Interest expense, net 462,374 167,608 1,342,247 462,566
------------- ------------ ------------- --------------
Income before income taxes and
minority interest (1,054,542) 258,515 (2,840,853) 669,500
Income taxes (benefit) (362,200) 114,400 (976,592) 198,800
------------- ------------ ------------- --------------
Income (loss) before minority interest (692,342) 144,115 (1,864,261) 470,700
Minority interest in income of
consolidated subsidiary (3,616) - (11,218) -
------------- ------------ ------------- --------------
Net income (loss) (695,958) 144,115 (1,875,479) 470,700
Preferred stock dividends (49,500) (43,714) (148,500) (56,571)
------------- ------------ ------------- --------------
Net income (loss)available to
Common stockholders $ (745,458) $ 100,401 $(2,023,979) $ 414,129
============= ============ ============= ==============
Earnings (loss) per share $ (0.26) $ 0.06 $ (0.75) $ 0.21
============= ============ ============= ==============
Shares used in computing earnings per share 2,900,294 3,279,780 2,698,949 2,994,546
============= ============ ============= ==============
</TABLE>
The accompanying notes and notes to the financial statements included in the
Annual Report on Form 10-KSB for the year ended December 31, 1996 are an
integral part of these financial statements. The Eastwind Group, Inc.
(5)
<PAGE>
The Eastwind Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Quarters Ended
September 27, September 30,
1997 1996
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,875,479) $ 470,700
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,210,358 257,590
Amortization of deferred credit (18,487) (18,487)
Imputed interest 46,647 -
Minority interest in income of consolidated subsidiary 11,218 -
Changes in assets and liabilities, net of effect from acquisitions:
(Increase) decrease in:
Accounts receivable 1,017,008 39,652
Inventories (129,045) (78,632)
Prepaid expenses (31,911) (193,169)
Prepaid or recoverable income taxes (1,147,768) (62,500)
Other assets (377,479) 32,724
Increase (decrease) in:
Accounts payable 444,635 568,575
Accrued expenses (972,983) 158,443
Liability to former officer 380,137 -
Accrued income taxes 0 17,300
Accrued pension and postretirement benefits (9,505) 20,250
-------------- ---------------
Net cash (used in) operating activities (1,452,654) 1 ,212,446
-------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (244,506) (13,913)
Net cash acquired in purchase of Lavelle 172,550 -
Purchase of subordinated note receivable - (450,000)
Purchase of preferred stock - (250,000)
Due from related parties - (315,117)
Other 11,720 -
-------------- ---------------
Net cash provided by (used in) investing activities (60,236) (1 ,029,030)
-------------- ---------------
Cash flows from financing activities:
Net repayments under lines of credit 1,594,314 (1 ,628,183)
Principal payments on term notes and capital leases (1,264,530) (346,649)
Proceeds from sale of common stock and warrants 321,609 1 ,095,742
Net proceeds from exercise of warrants 450,000 1 ,481,000
Proceeds from sale of preferred stock, net of warrants - 459,191
Issuance of warrants, net of exercise - 1 ,074,811
Proceeds from subordinated debenture - 288,800
Payment of preferred stock dividends (67,500) (56,571)
-------------- ---------------
Net cash provided by financing activities 1,033,893 2 ,368,141
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (478,997) 2 ,551,557
Cash and cash equivalents, beginning of period 709,697 426,377
-------------- ---------------
Cash and cash equivalents, end of period $ 230,700 $ 2 ,977,934
============== ===============
</TABLE>
The accompanying notes and notes to the financial statements included in the
Annual Report on Form 10-KSB for the year ended December 31, 1996 are an
integral part of these financial statements.
(6)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
- ------- ---------------------
Effective January 1, 1997, the Company has elected to report its
results of operations on a fifty-two or fifty-three week fiscal
year basis. Accordingly, the first quarter of 1997 contains twelve
weeks and four days. Each subsequent fiscal quarter will contain
thirteen weeks, except for the final fiscal quarter of 1997, which
will contain fourteen weeks.
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 September 27, 1997 and December 31, 1996, and the results
of operations and cash flows for the quarter and three quarters ended
September 27, 1997 and September 30, 1996, have been made. The
results of operations for the three quarters ended September 27, 1997
are not necessarily indicative of the results for the year ending
January 3, 1998. 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 for the
year ended December 31, 1996.
<TABLE>
<CAPTION>
NOTE 2: ACCOUNTS RECEIVABLE
- ------- --------------------
September 27, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Trade receivables $7,769,955 $7,699,041
Retainage receivables 383,349 316,822
Bad debt reserves (197,941) (207,079)
----------- -----------
7,955,363 7,808,784
Less: Retainage receivables
due in over one year (153,021) (153,021)
----------- -----------
$7,802,342 $7,655,763
=========== ===========
NOTE 3: INVENTORIES
- ------- -----------
September 27, December 31,
1997 1996
----------- -----------
Raw Materials $1,893,141 $1,246,482
Work in Process $1,965,063 $1,189,328
Finished Goods $1,591,621 $1,565,197
----------- -----------
$5,449,825 $4,001,007
=========== ===========
</TABLE>
(7)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4: PROPERTY, PLANT AND EQUIPMENT
- ------- -----------------------------
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Land $ 352,135 $ 368,916
Buildings $ 2,795,841 $ 2,142,863
Machinery and Equipment $ 6,669,874 $ 5,141,739
----------- -----------
$ 9,817,850 $ 7,653,518
Less:Accumulated depreciation $(1,505,830) $ (629,125)
----------- -----------
$ 8,312,020 $ 7,024,393
=========== ===========
</TABLE>
Machinery and equipment includes $4,026,108 and $3,484,800 of
production equipment under capital leases at September 27, 1997 and
December 31, 1996, respectively. Accumulated depreciation on such
equipment was $602,099 and $205,509 at September 27, 1997 and December
31, 1996, respectively.
NOTE 5: GOODWILL AND OTHER ASSETS
- ------- -------------------------
<TABLE>
<CAPTION>
September 27, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Goodwill, net $ 7,078,860 $ 6,042,889
Covenant not to compete, net $ 452,083 $ 489,583
Retainage receivables
due in over one year $ 153,021 $ 153,021
Deferred financing, net $ 414,273 $ 138,253
Cash surrender value
of officers' life insurance $ - $ 92,496
Other $ 292,582 $ 108,247
----------- -----------
$ 8,390,819 $ 7,024,489
=========== ===========
</TABLE>
(8)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: LONG-TERM DEBT
- ------- --------------
Long-term debt consists of the following:
September 27, December 31,
1997 1996
-------------- -------------
Centennial notes payable to
individuals, interest at 12.5%, due
on February 1, 1997 $ --- $ 105,000
Centennial term note payable to
seller, interest at 8%, due in 36
monthly installments of principal
and interest of $8,333, beginning
November 1996 191,313 251,235
Centennial term note payable to a
vendor, interest at 8% due in 24
semi-monthly installments beginning
January 1997 26,827 104,000
Princeton term note payable to bank,
secured by all of its assets, due
in 60 monthly installments of
$8,333, plus interest at the bank's
prime rate plus 3.75% (12% at
September 27, 1997) 83,338 158,341
Wickersham note payable to a bank,
interest at prime plus 1.75% (10.25%
at September 27, 1997), due in
monthly installments of $5,000 and
a balloon payment in December 1997 164,935 ---
Wickersham term notes payable to
vendors due in various monthly
installments at interest rates
ranging up to 10% at September 27, 1997 74,667 ---
Polychem note payable to the Budd
Company, interest at 8%, principal
payable in 20 quarterly
installments of $81,315, beginning
March 31, 1998 1,626,093 1,626,093
Polychem note payable to bank,
interest at the bank's prime rate
plus 1.5% (9.75% at September 27,
1997), payable in 18 monthly
installments of $21,155 and 41
monthly installments of $29,617
plus interest, with a final payment
in March 2000 $1,040,813 $1,307,364
(continued)
(9)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: LONG-TERM DEBT (CONTINUED)
- ------- --------------------------
September 27, December 31,
1997 1996
-------------- -------------
Ivy note payable to a bank, secured
by certain property, interest at
7.3%, due in 240 monthly
installments of principal and
interest of $5,909 beginning in
April 1997 739,618 750,000
Ivy note payable to a bank, secured
by certain property, interest at the
bank's prime rate plus 2.0% (10.5%
at September 27, 1997) due in 240 monthly
installments of principal and
interest of $10,487 beginning
in April 1997 1,069,306 1,054,750
Ivy term note payable to a bank,
secured by certain property,
interest at 9.4%, due in 240 monthly
installments of principal and
interest of $2,777 beginning
in March 1997 296,036 300,000
Ivy term note payable to a bank,
secured by certain property,
interest at 10.1%, due in 60 monthly
installments of principal and
interest of $5,756 beginning
in July, 1997 267,886 ---
Ivy term note payable to a finance
company, secured by substantially
all of its assets, due in 35 monthly
installments of $7,500, with a final
installment of $187,500, plus
interest at the bank's prime rate
plus 4.5% (13% at September 27, 1997) 382,500 450,000
Eastwind subordinated note payable to
an investor, interest at 12%, due
in three equal annual installments
commencing June 30, 1999 344,867 310,752
Obligation to former officer of the
Company payable in semi-monthly
installments of $8,333 through
December 31, 1999, discounted at 12% 392,669 ---
Other 21,832 ---
-------------- -------------
6,722,701 6,417,535
Less: current portion (1,340,065) (880,012)
-------------- -------------
$ 5,382,636 $ 5,537,523
============== =============
(10)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6: LONG-TERM DEBT (CONTINUED)
- ------- --------------------------
Centennial has a $2,750,000 line of credit with a bank, with
outstanding borrowings of $2,742,694 at September 27, 1997.
Wickersham has a $1,000,000 line of credit with a finance company
through April 17, 1998. Outstanding borrowings were $519,429 at
September 27, 1997.
Princeton has a $1,000,000 demand line of credit with a bank through
November 4, 1997, subject to renewal (a thirty day renewal has been
granted through December 4, 1997). Outstanding borrowings were
$281,441 and $343,812 at September 27, 1997 and December 31, 1996,
respectively.
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. Outstanding borrowings were $960,373
and $310,139 at September 27, 1997 and December 31, 1996,
respectively. As of September 27, 1997, there was $960,000 available
under the line.
Lavelle has a borrowing arrangement for up to $1,500,000 with a
financing institution through March 22, 1999, whereby it sells
substantially all of its accounts receivable to the institution and is
permitted to receive advances up to 80% of such receivables.
Outstanding borrowings were $183,371 as of September 27, 1997.
Ivy has a $1,500,000 line of credit with a finance company through
January 1, 2000. Outstanding borrowings were $1,111,113 at September
27, 1997.
Future maturities of long-term debt at September 27, 1997 are as
follows:
October 3, 1998 $1,340,065
October 2, 1999 1,289,564
September 30, 2000 1,155,133
September 29, 2001 560,397
September 28, 2002 440,292
Thereafter 1,937,250
----------
Total $6,722,701
==========
NOTE 7: CAPITALIZED LEASE OBLIGATION
- ------- ----------------------------
The Company leases certain equipment under capital leases. Future
minimum principal payments as of September 27, 1997 are as follows:
October 3, 1998 $ 903,123
October 2, 1999 958,734
September 30, 2000 $ 386,226
September 29, 2001 17,173,044
September 28, 2002 $ 51,109
----------
Total minimum lease payments 2,647,736
Less-current portion $ (903,123)
----------
Thereafter $1,744,613
==========
(11)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8: ACQUISITIONS
- ------- ------------
Lavelle
In January 1997, the Company acquired all of the outstanding common
stock of Lavelle in exchange for 44,537 shares of the Company's Common
Stock and forgiveness of certain receivables due from Lavelle. The
acquisition has been accounted for using the purchase method of
accounting. The purchase price was allocated to the assets and
liabilities acquired based on estimates that may be revised at a later
date. The purchase price, including estimated transaction costs,
exceeded the fair value of the net assets acquired by approximately
$680,000, which has been recorded as goodwill and is being amortized
over 20 years. Lavelle's results from operations have been included
in the Company's consolidated financial statements from the date of
acquisition.
Lavelle is a manufacturer of sheet metal products for the aerospace
industry.
Wickersham
In January 1997, the Company acquired all of the outstanding common
stock of Wickersham in exchange for 30,000 shares of the Company's
Common Stock. The acquisition has been accounted for using the
purchase method of accounting. The purchase price was allocated to
the assets and liabilities acquired based on the fair values at the
acquisition date. Such allocation has been based on estimates that
may be revised at a later date. The purchase price, including
estimated transaction costs, exceeded the fair value of the net assets
acquired by approximately $628,000, which has been recorded as
goodwill and is being amortized over 20 years. Wickersham's results
from operations have been included in the Company's consolidated
financial statements from the date of acquisition.
Wickersham is a printing and book manufacturer located in Lancaster,
Pennsylvania.
(12)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9: PRO FORMA INFORMATION AS IF ACQUISITIONS OF CENTENNIAL, IVY,
- ------- ------------------------------------------------------------
LAVELLE, AND WICKERSHAM OCCURRED ON JANUARY 1, 1996
---------------------------------------------------
The following unaudited information is presented for the acquisitions
of Centennial, Ivy, Lavelle, and Wickersham as if such acquisitions
had occurred on January 1, 1996. The operating results for the
quarter and three quarters ended September 27, 1997 are included in
the Company's historical financial consolidated statements of
operations for the period then ended. 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>
Quarter Ended Three Quarters Ended
September 30, 1996 September 30, 1996
------------------ ---------------------
<S> <C> <C>
Net sales $13,783,000 $41,070,000
================== =====================
Net income (loss) $ (831,000) $(1,032,000)
Less Preferred Stock dividends $ (13,000) $ (40,000)
------------------ ---------------------
Net income (loss) available
to Common stockholders $ (844,000) $(1,072,000)
================== =====================
Pro forma income (loss) per share $ (.46) $ (.50)
================== =====================
Shares used in computing pro forma
net income (loss) per share $ 1,853,396 $ 2,138,630
================== =====================
</TABLE>
(13)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10: EARNINGS PER SHARE
- -------- ------------------
Earnings per share for the quarter and three quarters ended September
27, 1997 is computed by dividing net income available to Common
stockholders by the weighted average number of shares of Common Stock
outstanding during the year since the net effect of the modified
treasury stock is antidilutive.
Earnings per share for the quarter and three quarters ended September
30, 1996 is computed using the modified treasury stock method. For the
quarter and three quarters ended September 27, 1996, the Company's
total outstanding Common Stock options and warrants exceed 20% of the
total outstanding Common Stock. Therefore, the earnings per share
computations are required to be modified under Accounting Principles
Board Opinion No. 15 to assume that 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, with any excess assumed
to be invested with income at a market rate of return.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share", which provides changes in the calculation of
earnings per share. The statement is effective for fiscal years
ending after December 15, 1997 and, when adopted, will require
restatement of prior years' earnings per share. The effect of the
adoption of SFAS No. 128 is included on a pro forma basis as presented
below:
<TABLE>
<CAPTION>
Quarter ended Three Quarters Ended
Sept 27, Sept 30, Sept 27, Sept 30,
1997 1996 1997 1996
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Earnings per share as reported $(.26) $ .06 $(.75) $ .21
Effect of SFAS No. 128 $ -- .01 $ -- $ .03
-------- --------- -------- --------
Pro forma basic earnings per share $(.26) $ .07 $(.75) $ .24
======== ========= ======== ========
Earnings per share as reported $(.26) $ .06 $(.75) $ .21
Effect of SFAS No. 128 $ -- $(.01) $ -- $ .02
-------- --------- -------- --------
Pro forma diluted earnings per share $(.26) $ .05 $(.75) $ .23
======== ========= ======== ========
</TABLE>
(14)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11: CONTRACT SETTLEMENT WITH FORMER OFFICER
- -------- ---------------------------------------
By agreement dated June 20, 1997 and effective July 1, 1997, John R.
Thach, the President of the Company, resigned from his office and from
his position as a member of the Executive Committee of the Board of
Directors. He remains a Director of the Company.
The agreement provides for equal monthly payments in satisfaction of
his employment contract plus a lump sum contingent payment. That
portion that was fixed and determinable ($430,000, as discounted) was
recorded in the accompanying financial statements as a charge to
income at its present value as of June 28, 1997.
NOTE 12: CONSOLIDATION EXPENSES - TEAM GRAPHICS, INC.
- -------- --------------------------------------------
During the three quarters ended September 27, 1997, Team Graphics,
Inc., a wholly-owned subsidiary of the Company, combined the
production facilities of Princeton Academic Press, Inc. into the
facilities of Wickersham Printing, Inc. to provide for more efficient
use of buildings, machinery and equipment and supervisory production
staff. The costs of this consolidation, totalling $212,000, are
reported as a separate line item in the accompanying statement of
operations.
(15)
<PAGE>
THE EASTWIND GROUP, INC.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ---------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-----------------------------
RESULTS OF OPERATIONS
- ---------------------
QUARTER ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 30, 1996
- -------------------------------------------------------
OVERVIEW
- --------
The Company generated a net loss, before preferred stock dividends, of $696,000
for the quarter ended September 27, 1997, compared to net income of $144,000 for
the quarter ended September 30, 1996. Operations for the first three quarters
of 1997 include results of businesses acquired from October 1996 through January
1997, namely Centennial Printing Corp. ("Centennial"), Ivy-Tygart Acquisition
Corp. ("Ivy"), Lavelle Company ("Lavelle"), and Wickersham Printing Co., Inc.
("Wickersham"). Accordingly, the results of operations of the Company are not
readily comparable. Centennial, Wickersham, and Princeton Academic Press, Inc.
("Princeton), are wholly-owned subsidiaries, and have been combined under a
single entity, Team Graphics, Inc. ("Team Graphics").
The operating results for the quarter ended September 27, 1997 were adversely
impacted by a softness in the demand for printing resulting in a loss for Team
Graphics for the period, and delay of contract revenue at Polychem resulting
in lesser gross profit for the period.
NET SALES
- ---------
Net sales for the quarter ended September 27, 1997 of $10,862,000 represents an
increase of $5,693,000 versus the quarter ended September 30, 1996. Revenues of
the newly consolidated subsidiaries Ivy ($1,460,000) and Lavelle ($898,000) and
increases in net sales of Team Graphics ($4,383,000) more than offset reduced
revenues from Polychem ($1,048,000), and account for the overall increase versus
the comparable period of 1996. The increase in net sales of Team Graphics was
due to revenues from the newly acquired businesses Centennial and Wickersham,
offset by a decrease in Princeton revenues due to the plant shutdown related to
the move to Wickersham.
COST OF GOODS SOLD
- ------------------
Cost of goods sold for the quarter ended September 27, 1997 of $9,020,000
represents an increase of $5,144,000 versus the quarter ended September 30,
1996. The increase is attributable to the cost of goods sold of newly
consolidated subsidiaries Ivy ($903,000), Lavelle ($524,000), and Team Graphics
($4,268,000). Polychem's cost of sales decreased by $551,000 versus the
comparable period of the prior year.
(16)
<PAGE>
THE EASTWIND GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
The consolidated gross profit percentage for the quarter ended September 27,
1997 was 17.0%, down 8.0% from the quarter ended September 30, 1996, principally
due to a reduction at Polychem (7.2%) and Team Graphics (9.0%), reflecting
absorption of overhead over lesser sales volume during the quarter. Also, the
impact of newly consolidated subsidiaries caused a decreased gross profit due to
the higher relative volume of Team Graphics, which, typical for the industry,
operates at a lower gross profit than the other manufacturing entities in the
consolidated group.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses for the quarter ended September 27,
1997 were $2,434,000 or 22.4% of net sales, compared to the comparable period of
the prior year of $867,000 or 16.8% of net sales. The increase in selling,
general and administrative expenses was due to the inclusion of newly
consolidated subsidiaries of Ivy ($366,000) and Lavelle ($265,000), and
increases in selling, general and administrative expenses of Team Graphics
($845,000) due to the inclusion of newly consolidated subsidiaries Centennial
($795,000) and Wickersham ($236,000), offset by a reduction at Princeton
($186,000). Polychem's selling, general and administrative expenses declined
from the comparable period of the prior year by $162,000. Corporate overhead of
the holding company increased by $253,000 due to increases in staffing costs,
accounting and legal fees and other expenses associated with the Company having
increased its size and diversity versus the comparable period of the prior year.
INTEREST EXPENSE
- ----------------
Interest expense for the quarter ended September 27, 1997 was $462,000, versus
$168,000 for the comparable period of 1996. Interest expense was higher than
the comparable period of 1996 due to the debt incurred for the acquisition of
Ivy, Lavelle, Wickersham and Centennial.
INCOME TAXES
- ------------
The income tax benefit for the quarter ended September 27, 1997 was $362,000,
which is computed at statutory rates.
(17)
<PAGE>
THE EASTWIND GROUP, INC.
THREE QUARTERS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 30, 1996
- --------------------------------------------------------------
OVERVIEW
- --------
The Company generated a net loss, before preferred stock dividends, of
$1,875,000 for the three quarters ended September 27, 1997, compared to net
income of $471,000 for the three quarters ended September 30, 1996.
Operations for the first three quarters of 1997 include results of businesses
acquired from October 1996 through January 1997, namely Centennial, Ivy,
Lavelle, and Wickersham. Accordingly, the results of operations of the Company
are not readily comparable.
The operating results for the three quarters ended September 27, 1997 were
adversely impacted by a softness in the demand for printing resulting in a loss
for Team Graphics for the period, and delay of contract revenue at Polychem
resulting in lesser gross profit for the period. In addition, during the three
quarters ended September 27, 1997, the Company incurred special charges to
operations, namely contract settlement with a former officer ($430,000),
consolidation expenses in Team Graphics ($212,000), and the write-off of
expenses previously incurred for unconsummated transactions ($160,000), which is
included in selling, general and administrative expenses.
NET SALES
- ---------
Net sales for the three quarters ended September 27, 1997 were $38,155,000,
representing an increase of $23,293,000 versus the comparable period of the
prior year. Net sales of the newly consolidated subsidiaries Ivy ($4,955,000),
Lavelle ($4,157,000) and increases in net sales of Team Graphics ($15,810,000)
were offset by a reduction in net sales of Polychem ($1,629,000), primarily due
to a delay of contract revenues expected to be realized in the fourth quarter of
1997 and first half of 1998. The increase in net sales of Team Graphics versus
the comparable period of the prior year is attributable to the newly
consolidated subsidiaries, Centennial ($11,526,000) and Wickersham ($5,368,000),
offset by a reduction in Princeton net sales ($1,084,000), due principally to
the production shutdown in preparation for the consolidation of facilities with
Wickersham.
(18)
<PAGE>
THE EASTWIND GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
COST OF GOODS SOLD
- ------------------
Cost of goods sold for the three quarters ended September 27, 1997 was
$30,571,000, an increase of $19,543,000 versus the comparable period of the
prior year. The increase is attributable to the cost of goods sold of newly
consolidated subsidiaries Ivy ($3,074,000), Lavelle ($2,535,000), and an
increase in the cost of goods sold of Team Graphics ($14,265,000), partially
offset by a decrease at Polychem ($331,000).
The consolidated gross profit percentage for the three quarters ended September
27, 1997 was 19.9%, a reduction of 5.9% from the comparable period of the prior
year. Polychem's gross profit percentage was 8.6% lower than the prior year due
to manufacturing overhead being spread over fewer units. The gross profit
percentage of Team Graphics of 10.1% for the three quarters ended September 27,
1997 was an erosion of 1.4 percentage points versus the prior year, due
principally to the softness in the market, thus causing overhead to be spread
over lesser sales dollars. The printing business operates at a lower gross
profit percentage than the other manufacturing entities in the consolidated
group, thus lowering the consolidated gross profit percentage.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
- --------------------------------------------
Selling, general and administrative expenses for the three quarters ended
September 27, 1997 were $9,083,000 or 23.8% of net sales, compared to $2,702,000
or 18.2% of net sales in the comparable period of the prior year. The increase
in selling, general and administrative expenses was due to the inclusion of
newly consolidated subsidiaries of Ivy ($1,350,000), Lavelle ($725,000), and
increases in selling, general and administrative expenses of Team Graphics
($3,057,000). The Team Graphics increase was due to newly consolidated
subsidiaries Centennial ($2,384,000) and Wickersham ($903,000) offset by a
decrease in Princeton expenses ($186,000). In addition, expenses of Team
Graphics included $212,000 of consolidation expenses related to moving the
production facilities of Princeton into Wickersham. Selling, general and
administrative expenses of the holding company included special charges for the
contract settlement with a former officer ($430,000), the write-off of costs
related to transactions which were not consummated ($160,000) which is included
in selling, general and administrative expenses, and increases in staffing
costs, accounting and legal fees and other expenses associated with the Company
having increased its size and diversity versus the comparable period of the
prior year.
(19)
<PAGE>
THE EASTWIND GROUP, INC.
RESULTS OF OPERATIONS (CONTINUED)
- ---------------------------------
INTEREST EXPENSE
- ----------------
Interest expense for the three quarters ended September 27, 1997 was $1,342,000,
versus $463,000 for the comparable period of 1996. The increased interest
expense for the three quarters ended September 27, 1997 relating to the
inclusion of newly consolidated subsidiaries Ivy ($296,000), Lavelle ($136,000),
Centennial ($327,000) and Wickersham ($102,000) is the principal reason for the
additional expense versus the comparable period of the prior year.
INCOME TAXES
- ------------
The net income tax benefit for the three quarters ended September 27, 1997 was
$977,000, which is computed at statutory rates.
(20)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company has historically financed its working capital requirements and
capital expenditures through cash flows generated from operations, bank debt,
sale of common stock and warrants, and equipment leases. However, during the
three quarters ended September 27, 1997, the Company used net cash of $1,453,000
in operating activities as compared to net cash provided by operating activities
of $1,212,000 during the three quarters ended September 30, 1996. The Company
relied upon collection of accounts receivable, and existing lines of credit to
fund this use of cash in operations. Although there can be no assurances, the
Company believes that its current cash and available resources, cash anticipated
to be generated from a return to profitable operations, the availability under
lines of credit, and additional capital expected by the exercise of certain
warrants will be sufficient to fund the Company's operations and expected
capital expenditures for the twelve months from September 27, 1997.
For the three quarters ended September 27, 1997, the Company funded the payment
of accrued expenses ($948,000) with proceeds from significant collections of
accounts receivable ($1,017,000). The reduction in accounts receivable for the
three quarters ended September 27, 1997 was $977,000 greater than the comparable
period of the prior year. The Company continues to focus on the management of
accounts receivable and inventories in order to reduce interest cost.
A major component in the computation of cash used in operations for the three
quarters ended September 27, 1997 is the increase in prepaid or recoverable
income taxes ($1,148,000), which represents income taxes anticipated to be
realized over future periods. The liability to a former officer ($430,000) from
a contract settlement was charged to operations but will be paid in the future.
Depreciation and amortization was $1,210,000 for the three quarters ended
September 27, 1997 compared to $258,000 for the comparable period of the prior
year, due principally to amortization of goodwill and fixed assets related to
newly consolidated subsidiaries Ivy ($70,000), Lavelle ($137,000), Centennial
($705,000) and Wickersham ($92,000).
Net cash used in investing activities for the three quarters ended September 27,
1997 was $60,000, compared to cash used in investing activities of $1,029,000
for the three quarters ended September 30, 1996. Cash used in the three
quarters ended September 27, 1997 for the purchase of property and equipment
($245,000) was offset by cash acquired in the purchase of Lavelle ($173,000).
The components of cash used in investing activities during the three quarters
ended September 30, 1996 were the purchase of a subordinated note receivable
($450,000), purchase of preferred stock ($250,000), purchase of property and
equipment ($14,000), and advances to related parties ($315,000).
(21)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
Net cash provided by financing activities during the three quarters ended
September 27, 1997 totalled $1,034,000, compared to cash provided by financing
activities for the three quarters ended September 30, 1996 of $2,368,000.
Components of cash provided by financing activities were the receipt of proceeds
from the exercise of certain warrants issued to Clifton Capital, Ltd.
($450,000), sale of Common Stock ($322,000) and draws against lines of credit
($1,594,000), offset by principal payments on term notes and capital leases
($1,265,000) and preferred stock dividends ($67,000).
The Company had a net working capital deficit of $1,215,000 as of September 27,
1997 versus working capital of $1,486,000 as of December 31, 1996, respectively.
Working capital decreased by $2,523,000 due to the impact on working capital of
net operating losses during the three quarters ended September 27, 1997 and the
acquisition of Centennial, Ivy, Lavelle, and Wickersham. The Company is
continuing to focus on improving the management of accounts receivable and
inventories and is currently working toward refinancing its diverse debt
structure to reduce its cost, increase availability, and extend repayment terms
on term debt.
Also, in October 1996, the Company purchased the stock of Centennial for
$2,850,000, of which $450,000 was cash. The former owner of Centennial also
received $500,000 for his agreement not to compete. In addition, the Company
agreed to redeem for cash up to 1,800 shares per quarter of the Company's Series
B Preferred Stock held by the former owner of Centennial at $100 per share
commencing April 1, 1997. The initial redemption of 1,800 shares was requested
as of April 1, 1997. The Company has instituted arbitration proceedings against
the former owner of Centennial pursuant to the indemnification provisions of the
Amended and Restated Agreement and Plan of Merger between the Company,
Centennial, and Centennial Acquisition Corp. Due to the significance of the
Company's claims, the Company has not redeemed such preferred shares.
Ivy acquired substantially all of the assets and business of Tygart Moulding
Corp. on December 31, 1996, for a purchase price of approximately $3,764,000, of
which approximately $3,304,000 was financed as follows: a 20-year term note of
approximately $1,804,000 which bears interest at rates ranging from 7.3% to
10.25%; a 20-year term note of $300,000 which bears interest at 9.4%; a 3-year
term note of $450,000 which bears interest at 4 1/2% over the prime rate; and a
line of credit of $750,000 which bears interest at 3 1/2% over the prime rate.
In addition, pursuant to the terms of this asset purchase agreement, Ivy assumed
liabilities of Tygart Moulding Corp. relating to trade payables, accrued
expenses, and capital leases totalling approximately $450,000. At the time of
acquisition the fair market value of the assets, based upon independent
appraisals, exceeded their purchase price by $1,843,000. This excess was
accounted for as a reduction in the net book value of the assets.
(22)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
In January 1997, the Company acquired all of the outstanding Common Stock of
each of Lavelle and Wickersham through an exchange of the Company's Common
Stock.
The Company has no other 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 1997.
The $9,000,000 credit facility at Polychem includes a term loan with an
outstanding balance of $1,041,000 at September 27, 1997, leaving an aggregate
availability of $7,959,000 as of that date under the credit facility, dependent
upon eligible collateral assets. As of September 27, 1997, availability under
the line of credit, based upon available eligible collateral assets, was
$1,920,000, and outstanding borrowings were $960,000.
Centennial has a $2,750,000 line of credit with a bank, with outstanding
borrowings of $2,743,000 at September 27, 1997.
As of September 27, 1997, Princeton's line of credit balance outstanding was
$281,000 against the total credit facility of $1,000,000.
Wickersham has a $1,000,000 line of credit with a finance company through April
17, 1998. Outstanding borrowings were $519,000 at September 27, 1997.
Lavelle has a borrowing arrangement for up to $1,500,000 with a financing
institution through March 22, 1999, whereby it sells substantially all of its
accounts receivable to the institution and is permitted to receive advances up
to 80% of such receivables. Outstanding borrowings were $183,000 as of
September 27, 1997.
Ivy has a $1,5000,000 line of credit with a finance company through January 1,
2000. Outstanding borrowings were $1,111,113 at September 27, 1997.
In July 1997, the Company sold to Clifton Capital, Ltd., 125,000 shares of its
Common Stock at $3.00 per share, a warrant to acquire up to 500,000 shares of
Common Stock at $3.00 per share and an additional warrant to acquire up to
200,000 shares of Common Stock at $5.00 per share. As of November 3, 1997,
200,000 of the $3.00 warrants have been exercised.
As of November 3, 1997, the Company had outstanding Class A-1, C, C-3, C-4, C-5,
D and Clifton Common Stock purchase warrants. During the three quarters ended
September 27, 1997, exercises of Class C and Clifton warrants to purchase 14,000
and 250,000 shares of Common Stock, respectively, generated gross capital
proceeds to the Company of $1,392,000, of which $612,000 is represented by a
note receivable. The remaining Class A-1, C, C-3, C-4, C-5, D, and new Clifton
warrants, if fully exercised, would generate additional
(23)
<PAGE>
THE EASTWIND GROUP, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------------------
net capital to the Company of $6,715,650 on the issuance of 1,402,500 shares of
common stock. The Company currently anticipates using any such funds, if
received, for working capital, including potential acquisitions.
The Company will require additional capital to fund its expansion plans, which
may be in the form of, among other things, private placements or public
offerings of debt, equity or convertible securities.
(24)
<PAGE>
THE EASTWIND GROUP, INC.
CAUTIONARY STATEMENT
- ---------------------
When used in this Quarterly Report on Form 10-QSB and in other written or
oral public statements by the Company and Company officers, the words
"estimate," "project," "intend," "believe," "anticipate" and similar
expressions are intended to identify forward-looking statements regarding
events and financial trends which may affect the Company's future operating
results and financial position. Such statements are subject to risks and
uncertainties that could cause the Company's actual results and financial
position to differ materially. Such factors include, among others: (i) the
Company's ability to identify appropriate acquisition candidates, complete
acquisitions on satisfactory terms, or successfully integrate acquired
businesses; (ii) the intense competition and low barriers to entry in the
industries in which the Company competes; (iii) the Company's ability to
obtain financing on satisfactory terms and the degree to which the Company
is leveraged, including the extent to which currently outstanding options
and warrants are exercised; (iv) the sensitivity of the Company's
businesses to general economic conditions; (v) the timing of orders from,
and shipments to, major customers; (vi) the timing of new product sales;
(vii) the introduction and market acceptance of new products; (viii)
factors associated with international sales such as the relative strength
of the dollar when compared to the currencies of the countries into which
the Company exports product; (ix) the Company's ability to remain in
compliance with the numerous environmental, health and safety requirements
to which it is subject; (x) changes in accounting principles, policies or
guidelines; and (xi) other economic, competitive, governmental and
technological factors affecting the Company's operations, markets,
products, services and prices. Additional factors are described in the
Company's other public reports filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date made. The
Company undertakes no obligation to publicly release the result of any
revision of these forward-looking statements to reflect events or
circumstances after the date they are made or to reflect the occurrence of
unanticipated events.
(25)
<PAGE>
THE EASTWIND GROUP, INC.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
- ------- -----------------
Reference is made to the Company's Form 10-QSB for the period ended
March 29, 1997 for a description of the binding arbitration proceeding
involving Bruce K. Worrall, the holder of all 9,000 issued and
outstanding shares of the Series B Preferred Stock. Mr. Worrall
requested that 1,800 such shares be redeemed on April 1, 1997 at the
stated value of $100 per share, for an aggregate redemption amount of
$180,000. The Company determined not to redeem such shares nor has the
Company declared quarterly dividends on the Series B Preferred Stock to
date. The Company's decision not to redeem these shares or declare
dividends was based upon its determination that it has no liability to
make such payments pursuant to, among other things, its right of offset
to recoup the damages asserted against Mr. Worrall in the arbitration
proceeding, which damages far exceed such payments.
ITEM 2: CHANGE IN SECURITIES
- ------- --------------------
In July 1997 the Company sold to Clifton Capital, Ltd., 125,000 shares
of its common stock at $3.00 per share, a warrant to acquire up to
500,000 shares of Common Stock at $3.00 per share and an additional
warrant to acquire up to 200,000 shares of Common Stock at $5.00 per
share for an aggregate purchase price of $375,000. Based upon the
limited nature of the Common Stock and warrant offering and the
accredited status of the offeree, the Company relied upon Section 4(2)
of the Securities Act as an exemption from registration.
ITEM 3: DEFAULTS ON SENIOR SECURITIES
- ------- -----------------------------
None.
(26)
<PAGE>
THE EASTWIND GROUP, INC.
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
None
ITEM 5: OTHER INFORMATION
- ------- -----------------
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
- ------- ---------------------------------
(a) Exhibits
EXHIBIT METHOD
NUMBER DESCRIPTION OF FILING
------ ----------- ---------
27 Financial Data Schedule In electronic
format only
(b) Reports on Form 8-K
On September 29, 1997, the Company filed a Form 8-K reflecting the
mutual agreement with Arthur Andersen LLP to terminate Arthur Andersen
LLP as the Company's independent auditors effective September 26, 1997.
Such 8-K was amended on October 17, 1997.
On November 6, 1997, the Company filed a Form 8-K reflecting the
appointment of Grant Thornton LLP as the Company's auditors effective
October 31, 1997.
(27)
<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: November 11, 1997
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)
(28)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> JAN-03-1998 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> SEP-27-1997 SEP-30-1996
<CASH> 230,700 709,697
<SECURITIES> 0 0
<RECEIVABLES> 7,802,342 7,655,763
<ALLOWANCES> 0 0
<INVENTORY> 5,449,825 4,001,007
<CURRENT-ASSETS> 15,044,315 13,709,141
<PP&E> 9,817,850 7,653,518
<DEPRECIATION> (1,505,830) (629,125)
<TOTAL-ASSETS> 31,747,154 28,458,023
<CURRENT-LIABILITIES> 16,097,262 12,222,917
<BONDS> 0 0
900,000 900,000
100 100
<COMMON> 292,502 241,148
<OTHER-SE> 6,175,565 7,084,631
<TOTAL-LIABILITY-AND-EQUITY> 31,747,154 28,458,023
<SALES> 38,155,075 9,693,462
<TOTAL-REVENUES> 38,155,075 9,693,462
<CGS> 30,570,686 7,152,027
<TOTAL-COSTS> 30,570,686 7,152,027
<OTHER-EXPENSES> 9,082,995 1,835,492
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,342,247 294,958
<INCOME-PRETAX> (2,840,853) 410,985
<INCOME-TAX> (976,592) 84,400
<INCOME-CONTINUING> (1,864,261) 326,585
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,864,261) 326,585
<EPS-PRIMARY> (.75) .16
<EPS-DILUTED> (.75) .16
</TABLE>
