<PAGE>
United States
Securities and Exchange Commission
Washington, DC 20549
FORM 10-QSB/A No.1
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 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 2,800,019 shares
- ---------------------------------- -----------------------------------
(Class) (Outstanding at August 15, 1997)
Transitional Small Business Disclosure format (check one)
Yes No X
--- ---
<PAGE>
THE EASTWIND GROUP, INC.
PART I. Page Number
- ------- -----------
Item 1. - Financial Statements (unaudited)
Consolidated Balance Sheets as of
June 28, 1997 and December 31, 1996 4
Consolidated Statements of Operations for the
Quarter ended June 28, 1997 and June 30, 1996 and
the Two Quarters ended June 28, 1997 and June 30, 1996 5
Consolidated Statements of Cash Flows for the
Two Quarters ended June 28, 1997 and June 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 26
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 two quarters ended June 28, 1997
and June 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 June 28, 1997 and December 31, 1996, and the results of operations and cash
flows for the quarter and two quarters ended June 28, 1997 and June 30, 1996.
(3)
<PAGE>
The Eastwind Group, Inc.
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 28, December 31,
ASSETS 1997 1996
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 342,218 $ 709,697
Accounts receivable, net 7,507,995 7,655,763
Due from related parties -- 1,047,354
Inventories 5,243,881 4,001,007
Prepaid expenses 158,790 203,820
Prepaid or recoverable income taxes 844,703 91,500
------------ ------------
Total current assets 14,097,587 13,709,141
Property, plant and equipment, net 8,558,642 7,024,393
Investment in investee companies -- 700,000
Goodwill and other assets 8,204,019 7,024,489
------------ ------------
$ 30,860,248 $ 28,458,023
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Lines of credit $ 4,938,074 $ 3,626,365
Current portion of long-term debt 1,094,506 880,012
Current portion of capitalized lease obligations 968,582 848,701
Accounts payable 4,599,068 3,775,002
Accrued expenses 2,693,856 2,718,391
Due to related parties -- 276,260
Deferred income taxes 59,431 98,186
------------ ------------
Total current liabilities 14,353,517 12,222,917
------------ ------------
Long-term debt 5,162,748 5,537,523
------------ ------------
Capitalized lease obligations 1,990,570 1,695,229
------------ ------------
Accrued pension and postretirement benefits 222,840 218,510
------------ ------------
Deferred credit, net 147,899 160,224
------------ ------------
Other liabilities 629,096 --
------------ ------------
Deferred income taxes 398,550 382,814
------------ ------------
Minority interest in consolidated subsidiary 22,529 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 June 28, 1997
and December 31, 1996 100 100
Common stock, $.10 par value, 5,000,000 shares authorized,
2,800,019 and 2,411,482 issued and 2,800,019 and 2,376,482
outstanding at June 28, 1997 and December 31, 1996, respectively 280,002 241,148
Warrants outstanding 929,497 1,271,597
Additional paid-in capital 7,860,539 6,408,621
Accumulated deficit (1,425,639) (147,051)
------------ ------------
7,644,499 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 7,032,499 7,325,879
------------ ------------
$ 30,860,248 $ 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 Two Quarters Ended
June 28, June 30, June 28, June 30,
1997 1996 1997 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 13,638,211 $ 4,726,480 $ 27,293,495 $ 9,693,462
Cost of goods sold 11,251,782 3,463,274 21,550,976 7,152,027
------------ ------------ ------------ ------------
Gross profit 2,386,429 1,263,206 5,742,519 2,541,435
Selling, general and administrative expenses:
Selling 1,097,192 508,410 2,075,263 927,913
General and administrative 2,320,786 400,386 3,955,034 907,579
Consolidation expenses - Team Graphics, Inc. 188,524 -- 188,524 --
Contract settlement with former officer 430,137 -- 430,137 --
------------ ------------ ------------ ------------
4,036,639 908,796 6,648,958 1,835,492
------------ ------------ ------------ ------------
Operating income (loss) (1,650,210) 354,410 (906,439) 705,943
Interest expense, net 431,794 144,665 879,873 294,958
------------ ------------ ------------ ------------
Income before income taxes and
minority interest (2,082,004) 209,745 (1,786,312) 410,985
Income taxes (benefit) (712,792) 27,900 (614,392) 84,400
------------ ------------ ------------ ------------
Income (loss) before minority interest (1,369,212) 181,845 (1,171,920) 326,585
Minority interest in income of
consolidated subsidiary (492) -- (7,602) --
------------ ------------ ------------ ------------
Net income (loss) (1,369,704) 181,845 (1,179,522) 326,585
Preferred stock dividends (49,500) -- (99,000) --
------------ ------------ ------------ ------------
Net income (loss)available to
Common stockholders $ (1,419,204) $ 181,845 $ (1,278,522) $ 326,585
============ ============ ============ ============
Earnings (loss) per share $ (0.51) $ 0.09 $ (0.49) $ 0.16
============ ============ ============ ============
Shares used in computing earnings per share 2,763,338 2,897,633 2,596,589 2,806,562
============ ============ ============ ============
</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.
(5)
<PAGE>
The Eastwind Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Two Quarters Ended
June 28, June 30,
1997 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,179,522) $ 326,585
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 817,801 176,089
Amortization of deferred credit (12,325) (11,825)
Imputed interest 22,347 --
Minority interest in income of consolidated subsidiary 7,602 --
Changes in assets and liabilities, net of effect from acquisitions:
(Increase) decrease in:
Accounts receivable 1,311,355 398,162
Inventories 76,899 (91,686)
Prepaid expenses 145,209 (57,436)
Deferred tax benefit (766,933) --
Other assets (65,533) (11,800)
Increase (decrease) in:
Accounts payable (445,321) 52,090
Accrued expenses (947,905) 19,684
Liability to former officer 430,137
Accrued income taxes 0 40,900
Other liabilities (18,500)
Accrued pension and postretirement benefits 4,330 9,000
------------ -------------
Net cash (used in) operating activities (620,359) 849,763
------------ -------------
Cash flows from investing activities:
Purchase of property and equipment (239,481) (6,302)
Net cash acquired in purchase of Lavelle 172,550 --
Purchase of subordinated note receivable -- (450,000)
Purchase of preferred stock -- (250,000)
Other 20,631 --
------------ -------------
Net cash provided by (used in) investing activities (46,300) (706,302)
------------ -------------
Cash flows from financing activities:
Net repayments under lines of credit 733,967 (1,115,885)
Principal payments on term notes and capital leases (1,014,124) (217,341)
Proceeds from sale of common stock and warrants 174,337 474,381
Net proceeds from exercise of warrants 450,000 1,321,000
Proceeds from sale of preferred stock, net of warrants -- 459,411
Issuance of warrants, net of exercise -- 1,296,511
Proceeds from subordinated debenture -- 289,600
Payment of preferred stock dividends (45,000) (12,857)
------------ -------------
Net cash provided by financing activities 299,180 2,494,820
------------ -------------
Net increase (decrease) in cash and cash equivalents (367,479) 2,638,281
Cash and cash equivalents, beginning of period 709,697 426,377
------------ -------------
Cash and cash equivalents, end of period $ 342,218 $ 3,064,658
============ =============
</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>
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 June 28, 1997 and December 31, 1996, and the
results of operations and cash flows for the quarter and two
quarters ended June 28, 1997 and June 30, 1996, have been made. The
results of operations for the two quarters ended June 28, 1997 are
not necessarily indicative of the results for the year ending
December 31, 1997. 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.
Note 2: Accounts Receivable
- ------- -------------------
<TABLE>
<CAPTION>
June 28, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Trade receivables $7,444,974 $ 7,699,041
Retainage receivables 438,515 316,822
Bad debt reserves (222,473) (207,079)
----------- ------------
7,661,016 7,808,784
Less: Retainage receivables
due in over one year (153,021) (153,021)
----------- ------------
$7,507,995 $ 7,655,763
=========== ============
</TABLE>
Note 3: Inventories
- ------- -----------
<TABLE>
<CAPTION>
June 28, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Raw Materials $ 1,771,039 $ 1,246,482
Work in Process 1,814,537 1,189,328
Finished Goods 1,631,305 1,565,197
----------- ------------
$ 5,243,881 $ 4,001,007
=========== ============
</TABLE>
(7)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4: Property, Plant and Equipment
- ------- -----------------------------
<TABLE>
<CAPTION>
June 28, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Land $ 352,135 $ 368,916
Buildings 2,776,940 2,142,863
Machinery and Equipment 6,667,987 5,141,739
----------- ------------
9,797,062 7,653,518
Less:Accumulated depreciation (1,238,420) (629,125)
------------ -------------
$ 8,558,642 $ 7,024,393
============ =============
</TABLE>
Machinery and equipment includes $4,122,853 and $3,484,800 of
production equipment under capital leases at June 28, 1997 and
December 31, 1996, respectively. Accumulated depreciation on such
equipment was $404,132 and $205,509 at June 28, 1997 and December
31, 1996, respectively.
Note 5: Goodwill and Other Assets
- ------- -------------------------
<TABLE>
<CAPTION>
June 28, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Goodwill, net $ 7,180,242 $ 6,042,889
Covenant not to compete, net 464,583 489,583
Retainage receivables
due in over one year 153,021 153,021
Deferred financing, net 268,003 138,253
Cash surrender value
of officers' life insurance - 92,496
Other 138,170 108,247
----------- ------------
$ 8,204,019 $ 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:
<TABLE>
<CAPTION>
June 28, December 31,
1997 1996
---------- ------------
<S> <C> <C>
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 212,207 251,235
Centennial term note payable to
a vendor, interest at 8% due in
24 semi-monthly installments
beginning January 1997 53,117 104,000
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 June 28, 1997) 108,338 158,341
Wickersham note payable to a bank,
interest at prime plus 1.75%
(10.25% at June 28, 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 June 28,
1997 85,650 ---
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
</TABLE>
(continued)
(9)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6: Long-term Debt (continued)
------- --------------------------
<TABLE>
<S> <C> <C>
Polychem note payable to bank, interest June 28, December 31,
at the bank's prime rate plus 1.5% 1997 1996
(9.75% at June 28, 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 $1,129,664 $1,307,364
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 743,952 750,000
Ivy note payable to a bank, secured by
certain property, interest at the
bank's prime rate plus 2.0% (10.5% at
June 28, 1997) due in 240 monthly
installments of principal and interest
of $10,487 beginning in April 1997 1,074,779 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 297,388 300,000
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 June 28, 1997) 405,000 450,000
Eastwind subordinated note payable to an
investor, interest at 12%, due in three
equal installments commencing June 30, 1999 333,099 310,752
Other 23,032
---------- ----------
6,257,254 6,417,535
Less: current portion (1,094,506) (880,012)
---------- ----------
$5,162,748 $5,537,523
========== ==========
</TABLE>
(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 $2,199,632 at June 28, 1997.
Wickersham has a $1,000,000 line of credit with a finance company
through April 17, 1998. Outstanding borrowings were $577,463 at June
28, 1997.
Princeton has a $1,000,000 demand line of credit with a bank through
August 4, 1997, subject to renewal (a thirty day renewal has been
granted through September 4, 1997). Outstanding borrowings were
$425,562 and $343,812 at June 28, 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 $538,074 and
$310,139 at June 28, 1997 and December 31, 1996, respectively. As of
June 28, 1997, there was $757,984 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 $291,574 as of June 28, 1997.
Ivy has a $1,500,000 line of credit with a finance company through
January 1, 2000. Outstanding borrowings were $905,769 at June 28, 1997.
Future maturities of long-term debt at June 28, 1997 are as follows:
<TABLE>
<S> <C>
June 27, 1998 $1,094,506
June 26, 1999 951,232
July 1, 2000 988,205
June 30, 2001 649,088
June 29, 2002 539,073
Thereafter 2,035,150
----------
$6,257,254
==========
</TABLE>
(11)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7: 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,
exceeds 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 8: 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
two quarters ended June 28, 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 Two Quarters Ended
June 30, 1996 June 30, 1996
------------- -------------
<S> <C> <C>
Net sales $13,123,000 $27,288,000
=========== ===========
Net income (loss) $ 200,000 $ (228,000)
Less Preferred Stock dividends $ ( 13,000) $ ( 13,000)
----------- -----------
Net income (loss) available
to Common stockholders $ 187,000 $ (241,000)
=========== ===========
Pro forma income (loss) per share $ .10 $ (.04)
=========== ===========
Shares used in computing pro forma
net income (loss) per share 1,800,283 1,709,212
=========== ===========
</TABLE>
(13)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9: Earnings Per Share
------- ------------------
Earnings per share for the quarter and two quarters ended June 28,
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 two quarters ended June 30,
1996 is computed using the modified treasury stock method. For the
quarter and two quarters ended June 30, 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 Two Quarters Ended
June 28, June 30, June 28, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings per share as
reported $ (.51) $ .09 $ (.49) $ .16
Effect of SFAS No. 128 -- .01 -- .03
-------- ------- ------- --------
Pro forma basic earnings
per share $ (.51) $ .10 $ (.49) $ .19
======== ======= ======= ========
Earnings per share as
reported $ (.51) $ .09 $ (.49) $ .16
Effect of SFAS No. 128 -- (.01) -- $ .02
-------- ------- ------- --------
Pro forma diluted
earnings per share $ (.51) $ .08 $ (.49) $ .14
======== ======= ======= ========
</TABLE>
(14)
<PAGE>
THE EASTWIND GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10: 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 ($500,000) has been recorded
in the accompanying financial statements as a charge to income at
its present value as of June 28, 1997.
Note 11: Consolidation Expenses - Team Graphics, Inc.
-------- --------------------------------------------
During the quarter ended June 28, 1997, Team Graphics 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
$188,524, 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 JUNE 28, 1997 AND JUNE 30, 1996
---------------------------------------------
Overview
--------
The Company generated a net loss, before preferred stock dividends, of
$1,370,000 for the quarter ended June 28, 1997, compared to net income of
$182,000 for the quarter ended June 30, 1996. Operations for the first two
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 June 28, 1997 were adversely
impacted by a softness in the demand for printing resulting in a loss for Team
Graphics for the period, and deferral of contract revenue at Polychem
resulting in lesser gross profit for the period. In addition, during the
quarter ended June 28, 1997, the Company incurred special charges to
operations, namely contract settlement with a former officer ($430,000),
consolidation expenses in Team Graphics ($189,000), and the write-off of
expenses previously incurred for unconsummated transactions ($160,000).
Net Sales
---------
Net sales for the quarter ended June 28, 1997 of $13,638,000 represents an
increase of $8,912,000 versus the quarter ended June 30, 1996. Revenues of the
newly consolidated subsidiaries Ivy ($1,811,000) and Lavelle ($1,594,000) and
increases in net sales of Team Graphics ($6,070,000) more than offset reduced
revenues from Polychem ($563,000), 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 small 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 June 28, 1997 of $11,252,000
represents an increase of $7,789,000 versus the quarter ended June 30, 1996.
The increase is attributable to the cost of goods sold of newly consolidated
subsidiaries Ivy ($1,154,000), Lavelle ($1,047,000), and Team Graphics
($5,591,000). Polychem's cost of sales remained at approximately the same
level as 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 June 28, 1997
was 17.5%, down 9.2% from the quarter ended June 30, 1996, principally due to
a reduction at Polychem (13.3%) and Team Graphics (2.7%), 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 June 28,
1997 were $4,037,000 or 29.6% of net sales, compared to the comparable period
of the prior year of $909,000 or 19.2% of net sales. The increase in selling,
general and administrative expenses was due to the inclusion of newly
consolidated subsidiaries of Ivy ($562,000), Lavelle ($243,000), and increases
in selling, general and administrative expenses of Team Graphics ($1,176,000),
which included expenses related to consolidating the production facilities of
Princeton into Wickersham ($189,000). Polychem's selling, general and
administrative expenses declined from the comparable period of the prior year
by $19,000. Corporate overhead of the holding company increased by
$1,160,000, due to the contract settlement with a former officer ($430,000),
the write-off of costs related to transactions which were not consummated
($160,000), 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 June 28, 1997 was $432,000, versus
$145,000 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 June 28, 1997 was $713,000, which
is anticipated to be realized in the remainder of 1997.
(17)
<PAGE>
THE EASTWIND GROUP, INC.
TWO QUARTERS ENDED JUNE 28, 1997 AND JUNE 30, 1996
--------------------------------------------------
Overview
--------
The Company generated a net loss, before preferred stock dividends, of
$1,180,000 for the quarter ended June 28, 1997, compared to net income of
$327,000 for the two quarters ended June 30, 1996.
Operations for the first two 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 two quarters ended June 28, 1997 were adversely
impacted by a softness in the demand for printing resulting in a loss for Team
Graphics for the period, and deferral of contract revenue at Polychem
resulting in lesser gross profit for the period. In addition, during the two
quarters ended June 28, 1997, the Company incurred special charges to
operations, namely contract settlement with a former officer ($430,000),
consolidation expenses in Team Graphics ($189,000), and the write-off of
expenses previously incurred for unconsummated transactions ($160,000).
Net Sales
---------
Net sales for the two quarters ended June 28, 1997 of $27,293,000,
represented an increase of $17,600,000 versus the comparable period of the
prior year. Net sales of the newly consolidated subsidiaries Ivy
($3,495,000), Lavelle ($3,259,000) and increases in net sales of Team Graphics
($11,427,000) were offset by a reduction in net sales of Polychem ($581,000),
primarily due to a deferral of contract revenues expected to be realized in
the second half of 1997. The increase in net sales of Team Graphics versus
the comparable period of the prior year is attributable to the newly
consolidated subsidiaries, Centennial ($8,328,000) and Wickersham
($3,860,000), offset by a reduction in Princeton net sales ($393,000), 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 two quarters ended June 28, 1997 was $21,551,000,
an increase of $14,399,000 versus the comparable period of the prior year.
The increase is attributable to the cost of goods sold of newly consolidated
subsidiaries Ivy ($2,171,000), Lavelle ($2,011,000), and an increase in the
cost of good sold of Team Graphics ($9,997,000) and Polychem ($220,000).
The consolidated gross profit percentage for the two quarters ended June 28,
1997 was 21.0%, a reduction of 5.2% from the comparable period of the prior
year. Polychem's gross profit percentage was 9.4% lower than the prior year
due to manufacturing overhead being spread over fewer months. The gross
profit percentage of Team Graphics of 12.0% for the two quarters ended June
28, 1997 was an improvement of 2.2 percentage points versus the prior year.
However, 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 two quarters ended June
28, 1997 were $6,649,000 or 24.4% of net sales, compared to $1,835,000 or
18.9% 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 ($984,000), Lavelle ($460,000), and
increases in selling, general and administrative expenses of Team Graphics
($2,212,000). The Team Graphics increase was due to newly consolidated
subsidiaries Centennial ($1,589,000) and Wickersham ($667,000) offset by a
decrease in Princeton expenses ($44,000). In addition, selling, general and
administrative expenses of Team Graphics included $189,000 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), 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 two quarters ended June 28, 1997 was $880,000, versus
$295,000 for the comparable period of 1996. The increased interest expense
for the two quarters ended June 28, 1997 relating to the inclusion of newly
consolidated subsidiaries Ivy ($184,000), Lavelle ($80,000), Centennial
($216,000) and Wickersham ($74,000) 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 two quarters ended June 28, 1997 was
$614,000, which is anticipated to be realized in the remainder of 1997.
(20)
<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 warrants, and equipment leases. Net cash used in operating
activities for the first two quarters of 1997 was $620,000 compared to net
cash provided by operating activities of $850,000 during the first two
quarters of 1996. The change was principally attributable to a payment of
accounts payable and accrued expenses and a deferred tax benefit as of June
28, 1997 as compared to June 30, 1996, offset partially by decreases in
accounts receivable and increased depreciation and amortization.
For the two quarters ended June 28, 1997, the Company funded the payment of
accounts payable ($445,000) and accrued expenses ($948,000) with proceeds from
significant collections of accounts receivable ($1,311,000). The reduction in
accounts receivable for the two quarters ended June 28, 1997 was $913,000
greater than the comparable period of the prior year. Reductions in inventory
($77,000) and prepaid expenses ($145,000) generated operating cash in the two
quarters ended June 30, 1997 versus a use of cash from inventories ($92,000)
and prepaid expenses ($57,000) for 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.
Prepaid or recoverable income taxes for the two quarters ended June 28, 1997
was a major component of cash used in operations versus accrued income taxes
in the first two quarters of the prior year ($41,000). 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 $818,000
for the two quarters ended June 28, 1997 compared to $176,000 for the
comparable period of the prior year, due principally to amortization of
goodwill and fixed assets related to newly consolidated subsidiaries Ivy
($64,000), Lavelle ($71,000), Centennial ($465,000) and Wickersham ($61,000).
Net cash used in investing activities for the two quarters ended June 28, 1997
was $46,000, compared to cash used in investing activities of $706,000 for the
two quarters ended June 30, 1996. Cash used in the two quarters ended June
28, 1997 for the purchase of property and equipment ($239,000) was offset by
cash acquired in the purchase of Lavelle ($173,000). The components of cash
used in investing activities during the two quarters ended June 28, 1997 were
the purchase of a subordinated note receivable ($450,000), purchase of
preferred stock ($250,000) and purchase of property and equipment ($6,000).
(21)
<PAGE>
THE EASTWIND GROUP, INC.
Liquidity and Capital Resources (continued)
-------------------------------------------
Net cash provided by financing activities during the two quarters ended June
28, 1997 totalled $299,000, compared to cash provided by financing activities
for the two quarters ended June 30, 1996 of $2,495,000. 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 ($174,000) and draws against lines of credit ($734,000),
offset by principal payments on term notes and capital leases ($1,014,000) and
preferred stock dividends.
The Company had a net working capital deficit of $256,000 versus working
capital of $1,486,000 as of June 28, 1997 and December 31, 1996, respectively.
Working capital decreased by $1,742,000 due to the impact on working capital
of net operating losses during the two quarters ended June 28, 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 and 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% over the prime rate; and a
line of credit of $750,000 which bears interest at 3% 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 Eastwind 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 $1,130,000 at June 28, 1997, leaving an aggregate
availability of $7,870,000 as of that date under the credit facility,
dependent upon eligible collateral assets. As of June 28, 1997, availability
under the line of credit, based upon available eligible collateral assets, was
$1,882,000, and outstanding borrowings were $538,000.
Centennial has a $2,750,000 line of credit with a bank, with outstanding
borrowings of $2,199,632 at June 28, 1997.
As of June 28, 1997, Princeton's line of credit balance outstanding was
$426,000 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 $577,463 at June 28, 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 $291,574 as of June
28, 1997.
Ivy has a $1,5000,000 line of credit with a finance company through January 1,
2000. Outstanding borrowings were $905,769 at June 28, 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 400,000 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 June 28, 1997, the Company had outstanding Class A-1, C, C-3, C-4, C-5,
D and Clifton Common Stock purchase warrants. During the two quarters ended
June 28, 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 $792,000, 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
(23)
<PAGE>
THE EASTWIND GROUP, INC.
Liquidity and Capital Resources (continued)
-------------------------------------------
Clifton warrants, if fully exercised, would generate additional net capital to
the Company of $7,774,500 on the issuance of 1,482,500 shares of common stock.
The Company currently anticipates using any such funds, if received, for
working capital, including potential acquisitions.
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 June 28, 1997.
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, 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 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 proceedings
involving Bruce K. Worrall. There have been no material developments in this
matter since the last report.
Item 2: Change in Securities.
--------------------
During the quarter ended June 28, 1997, certain of the outstanding
warrants issued to Clifton Capital, Ltd. were exercised by their holders. In
April such holders received 100,000 shares of the Company's Common Stock for an
aggregate consideration of $300,000, payable in the form of a Promissory Note.
Based upon the limited nature of the warrant offering and exercise, and the
accredited status of the exercising holders, the Company relied upon Section
4(2) of the Securities Act as an exemption from registration.
Item 3: Defaults on Senior Securities.
-----------------------------
Pursuant to terms of the Company's Series B Preferred Stock, the
holder of all of the issued and outstanding shares of that series of preferred
stock requested that a portion of such shares be redeemed on April 1, 1997. The
Company determined not to redeem the 1,800 shares requested by the holder at the
stated value of $100 per share, or $180,000. In addition, quarterly dividends
at a rate of 6% per annum of the stated value of all 9,000 shares, at $100 per
share,
<PAGE>
were payable on that same April 1, 1997 date, aggregating $13,500, which
the Company also declined to pay. The Company's decision not to redeem these
shares nor pay these dividends was predicated upon the size of the damages being
asserted against the holder of such shares in the arbitration proceeding
identified in Item 1 above, far in excess of these payments due the holder.
Item 4: Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
At the Company's Annual Meeting of Stockholders on June 5, 1997, all
nominees for directors, as named in the Company's Proxy Statement dated May 7,
1997, were elected to the terms of office described in such Proxy Statement.
The tabulation of the votes for each Director were as follows:
<TABLE>
<CAPTION>
Vote in Vote
Name Term Favor Against Abstention
- -------------------------------- ------- --------- ------- ----------
<S> <C> <C> <C> <C>
Paul A. DeJuliis 3 years 2,378,133 0 20,421
John R. Thach 3 years 2,377,133 0 21,421
William B. Miller 3 years 2,377,686 0 20,868
Anthony J. Mendicino 2 years 2,378,186 0 20,368
Bruce P. Murray 2 years 2,378,186 0 20,368
Andrew Panzo 1 year 2,378,120 0 20,434
Porter Bibb 1 year 2,378,186 0 20,368
Edward F. Sager, Jr. 1 year 2,378,186 0 20,368
</TABLE>
2
<PAGE>
The other matters voted upon at such meeting, and all as described in
such Proxy Statement in more detail, were all approved, as follows:
(a) The proposal to amend the Company's Certificate of Incorporation
to classify its Board of Directors, was approved with a vote of 1,398,728 shares
in favor, 33,698 shares against, 9,435 shares abstaining and the balance of the
2,398,573 shares in attendance in person or in proxy either withholding their
vote or represented by broker's non-votes.
(b) The proposal to change the name and address of the Company's
Registered Agent in Delaware and to make other technical connections was
approved with a vote of 1,470,585 shares in favor, 10,440 shares against, 7,927
shares abstaining and the balance of the 2,398,573 shares in attendance in
person or in proxy either withholding their vote or represented by broker's non-
votes.
(c) The proposal to approve the proposed amendments to the Company's
Stock Option Incentive Plan was approved with a vote of 1,372,081 shares in
favor, 78,330 shares against, 11,034 shares abstaining and the balance of the
2,398,573 shares in attendance in person or in proxy either withholding their
vote or represented by broker's non-votes.
3
<PAGE>
(d) The proposal to approve the proposed amendments to the Company's
Non-Employee Directors Stock Option Plan was approved with a vote of 1,369,703
shares in favor, 81,815 shares against, 12,666 shares abstaining and the balance
of the 2,398,573 shares in attendance in person or in proxy either withholding
their vote or represented by broker's non-votes.
Item 5: Other Information.
-----------------
By agreement dated June 20, 1997 and effective July 1, 1997, John R.
Thach resigned as the President and as a member of the Executive Committee of
the Board of Directors of the Company. By subsequent action of the Board of
Directors, Anthony J. Mendicino was appointed to fill his position as President
and as a member of the Board's Executive Committee. The terms of that agreement
are set forth in an Exhibit filed herewith. Mr. Thach took this action in order
to pursue other interests and activities, although he will remain as a member of
the Board of Directors for his current term, which expires at the Annual Meeting
of Stockholders in the year 2000.
Item 6: Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
4
<PAGE>
Exhibit Method
Number Description of Filing
--------- ------------ --------------
10.1 Severance Agreement between the Filed herewith
Company and John R. Thach dated
June 20, 1997.
27 Financial Data Schedule In electronic
format only
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K on April 2, 1997 in connection
with the acquisition of all of the outstanding common stock of Wickersham
Printing Company, Inc. by the Company, which was consummated on March 19, 1997.
The Company filed a report on Form 8-K\A on June 2, 1997 which included the
financial statements of Wickersham Printing Company, Inc.
5
<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: August 18, 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)
<PAGE>
[LOGO OF THE EASTWIND GROUP, INC.]
PERSONAL AND CONFIDENTIAL
- -------------------------
June 20, 1997
Mr. John R. Thach
122 Lenape Drive
Berwyn, PA 19312
Dear John:
The purpose of this letter is to reach an agreement between you and Eastwind,
whereby you will be fairly compensated and Eastwind and you will release each
other from any implied or real obligations it or you may have under the terms of
your Employment Contract.
The terms of the agreement are as follows:
1) You do hereby agree to:
a) Resign, effective July 1, 1997, from any and all offices you now hold
as an officer of Eastwind, other than as a member of the Board of
Directors, and resign from the Executive Committee thereof; and to forgo
any claims you might have in the future to such offices.
b) Release The Eastwind Group, Inc. ("Eastwind"), with prejudice, from any
and all, implied or real, claims and/or obligations by/to you under the
terms of your employment contract, including, but not limited to any
obligations to increase or add to any compensation that you are now, or
have been, receiving, whether they be accrued salary (other than those
normal salary payments already being paid on a consistent basis and
having accrued until the date of the signature of this agreement),
accrued bonuses, or otherwise (unless listed below).
c) Release Eastwind, with prejudice, from any and all, implied or real,
claims and/or obligations that you might have in the future regarding
further compensation or employment (other than as a shareholder or Board
<PAGE>
Mr. John R. Thach
June 20, 1997
Page 2
Member or as listed below), including, but not limited to any bonuses
that you might feel Eastwind would be obligated to pay you subsequent to
or regarding the sale of any Eastwind subsidiaries, such as Lavelle or
Polychem.
d) Indemnify and hold Eastwind harmless for any and all real or imagined
past or present damages that you may feel that you have sustained as a
result of your mistreatment as an officer, shareholder or employee of
Eastwind; to keep all information you may have regarding Eastwind or the
matters covered by this agreement strictly confidential, unless
otherwise notified in writing, by me; and not to make any defamatory
remarks or statements in the future to anyone regarding Eastwind or its
officers or directors.
e) Not compete directly with Eastwind, by acquiring more than a 20%
ownership position in, or indirectly by accepting employment from any
companies whose principal business is in the printing or municipal
wastewater treatment equipment manufacturing industries, within a one
hundred and fifty mile radius of Philadelphia, through January 1, 2000.
f) At my discretion, but with thirty (30) days written notice, vacate your
current office at Eastwind. You are to leave behind all business related
files that you have, other than those files and materials that are
purely personal, or which you brought with you to Eastwind, or which you
may find useful solely in the pursuit of acquiring your own businesses
in the future, other than those businesses described in paragraph 1(e).
You will be provided with all of the general and administrative support
that you have been and are currently being provided, at no cost to you,
until such time as you vacate the Eastwind premises.
2) In return for which, Eastwind (and/or its successors), does hereby agree
to:
a) Pay you, in full, the sum of $125,000, in cash at closing of the earlier
of either Eastwind's refinancing the majority of its secured debt or its
sale of Polychem.
b) Pay you the amount of $200,000 per annum, on a semi-
<PAGE>
Mr. John R. Thach
June 20, 1997
Page 3
monthly basis, effective immediately, beginning to accrue upon signature
of this agreement and continuing through January 1, 2000, in return for
your non-complete obligations set forth in this agreement and its
exhibits, with full confession of judgement in the event of Eastwind's
failure to make payments (The terms of the non-compete agreement are
outlined in Exhibit A). No further pro-active performance will be
required of or from you in order that you be able to collect the amounts
owed you under the terms therein, and no deductions, offsets or claw-
backs will be allowed therefrom, unless you violate the terms of
paragraph 1(e) of this agreement.
c) Immediately vest you fully in all options that you now have in Eastwind
or any of its subsidiaries, including options to acquire 100,000 shares
in Team Graphics, Inc., or its successor, at the same exercise price
granted or if a more favorable exercise price by reason of future
adjustment, that I will have the right to acquire and exercise options
granted to me on the same dates. Eastwind will register all shares
underlying these options, at Eastwind's expense, as part of the next
registration of option shares, or if at earlier time an amendment of a
current registration.
d) Provide you with the right to approve or disapprove any and all press
releases regarding you or the termination of your employment, that are
to be made by Eastwind, but the timing of any such press release or
public announcement shall rest within my sole discretion.
e) Release you, with prejudice, from all of the terms of your employment
contract with Eastwind.
f) Indemnify and hold you harmless for any and all real or imagined past or
present damages that Eastwind may believe that it has sustained as a
result of your performance as an officer, shareholder or employee of
Eastwind; and not allow any officers or employees of Eastwind to make
any defamatory remarks or statements in the future to anyone regarding
you or your performance.
g) Allow you to pursue and use any and all materials assembled or hitherto
used by you as an employee of
<PAGE>
Mr. John R. Thach
June 20, 1997
Page 4
Eastwind, to attempt to acquire for your own benefit additional
businesses in any industry not described in paragraph 1)e), without any
hindrance or interference by Eastwind.
h) Provide you, at no cost to yourself with:
i) Full health and medical benefit coverage, as is currently being
provided to you and your family by Eastwind or any of its
subsidiaries, until such time as you are able by virtue of your
having acquired Ivy/Tygart Acquisition Corp. or some other company,
to obtain similar health and medical coverage therefrom, but not
beyond January 1, 2000.
ii) Full and prompt payment of any and all automotive payments,
privileges or benefits that you are currently being provided or
reimbursed for, by Eastwind or its subsidiaries (including but not
limited to all lease, gasoline, repair and insurance payments),
through the later of December 31, 1997 or your acquisition of
Ivy/Tygart Acquisition Corp or some other company, but not beyond
January 1, 2000.
iii) The same office you now occupy, or a similar office acceptable to
you at Centennial Printing as well as all general and
administrative assistance you now receive (including but not
limited to phone, fax, copy, postal expense, etc.) or, at
Eastwind's discretion, the sum of $1,000 per month in cash to cover
the costs thereof, for a period of twelve (12) months subsequent to
the date of signature of this letter.
i) Pay all reasonable costs related to moving you into your new offices,
unless said office is outside of a thirty mile radius of Philadelphia.
The bill for moving services will be submitted directly to and paid
directly by Eastwind.
j) Provide you with first and last right of review and refusal regarding
any real and acceptable offer made by any person(s) or entity, who is
capable of consummating such a transaction, to acquire the business,
assets or stock of Ivy-Tygart Acquisition Corp, and provide you
<PAGE>
Mr. John R. Tach
June 20, 1997
Page 5
with adequate time to respond adequately.
3) To whatever extent that there may be any ambiguities in this agreement of
its exhibits, such ambiguities shall be construed or interpreted to your
benefit. Eastwind will reimburse you for any and all reasonable expenses
(legal and otherwise) that you might incur in attempting to collect
payments due under the terms of this agreement.
4) Any failure to pursue remedies for any violation of the terms of this
agreement, by either party, shall not be interpreted or construed as a
waiver of any rights either party has under the terms of this agreement.
5) This document is a fully enforceable and binding agreement to be governed
and interpreted by the law of the Commonwealth of Pennsylvania.
6) This letter agreement and Exhibit A set forth the entire understanding of
the parties hereto, and supersede all prior agreements, arrangements,
discussions and communications, verbal or written, between the parties with
respect to the matters covered in this agreement, unless otherwise stated
herein.
If the foregoing is acceptable to you, please confirm by signing this agreement
and returning the original copy to me. The terms of this offer supersede the
terms of any offer made prior to the date of this letter.
Sincerely,
/s/ Paul A. DeJuliis
Paul A. DeJuliis
Chairman and CEO
Agreed and accepted this 20th day of June, 1997, on behalf of himself, by:
---- -----
/s/ John R. Thach
- ------------------
John R. Thach
<PAGE>
EXHIBIT A
---------
The terms of the Non-Compete Agreement whereby John R. Thach ("Thach") agrees
not to compete with The Eastwind Group, Inc. ("Eastwind") under the terms of the
non-compete portion of his termination agreement dated June 20, 1997 and found
in paragraph 1)e) thereof; and in return Eastwind agrees to make certain
semimonthly cash payments to Thach, are as follows:
Agreement: Thach will not compete directly with Eastwind, by acquiring more
than a 20% ownership position in, or indirectly by accepting
employment from any companies whose principal business is in the
printing or municipal wastewater treatment equipment
manufacturing industries, within a one hundred and fifty mile
radius of Philadelphia, through January 1, 2000.
Payments: Thach will be paid $200,000 per annum, in equal semi-monthly
payments to be made on the 1st and 15th of each month through
January 1, 2000, accruing from the date of signature of the
termination agreement, to which this is an Exhibit. In the event
of Thach's death, said payments will continue to be paid to the
benefit of his wife, heirs or personal representatives.
Duration: Up to and including January 1, 2000.
Prepayment: Eastwind shall have the right to prepay the remaining
unsatisfied amount owed under the terms of this non-compete
agreement in full, at any time without fear of loosing any
rights thereunder.
Security: By the full faith and credit of Eastwind. However, in the event
that the Eastwind is, or becomes, unable to make such payments
by virtue of declaring Chapter 11 or otherwise, Thach shall be
released from any and all non-compete obligations in the
agreement.
Withholding of
Payments: Eastwind shall not for any reason, whether real or
imagined, have any right to forgo, reduce or withhold any
payment to Thach, other than for Thach's having gone into
competition with Eastwind, as defined by the terms of this
Agreement. Furthermore, Eastwind shall be considered to have
signed a full confession of
<PAGE>
Exhibit A (continued)
June 20, 1997
judgement to its detriment, in the event of failure to make said
payments.
Failure: Payments are due, by mail or courier, within three (3) working
days of the 15th and end of each month. The failure to do so
will constitute a "Failure" under the terms of this agreement.
Remedy: Either the Chief Executive Officer, Chief Financial Officer or
Chief Operating Officer of Eastwind must receive either oral or
written notice from Thach of such Failure to make said payments,
after which Eastwind has 4 business days to correct such
Failure. However, in the event of ten (10) or more events of
Failure as defined above under the terms of this agreement or
one event of failure with a duration of more than ten (10) days
post-notification, Eastwind shall be required to immediately pay
the full amount of all payments to be made, in cash to Thach.
Eastwind will reimburse Thach for any and all reasonable
expenses (legal and otherwise) that Thach incurs in attempting
to collect said amounts.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
COMMENCING 1/1/97, THE EASTWIND GROUP, INC. WILL BE REPORTING RESULTS OF
OPERATIONS ON A 52-53 WEEK FISCAL YEAR, FIRST TWO QUARTERS OF 1997 ENDED ON
6/28/97--FISCAL YEAR WILL END ON 1/3/98.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JAN-03-1998 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-28-1997 JUN-30-1996
<CASH> 342,218 709,697
<SECURITIES> 0 0
<RECEIVABLES> 7,507,995 7,655,763
<ALLOWANCES> 0 0
<INVENTORY> 5,243,881 4,001,007
<CURRENT-ASSETS> 14,097,587 13,709,141
<PP&E> 9,797,062 7,653,518
<DEPRECIATION> (1,238,420) (629,125)
<TOTAL-ASSETS> 30,860,248 28,458,023
<CURRENT-LIABILITIES> 14,353,517 12,222,917
<BONDS> 0 0
900,000 900,000
100 100
<COMMON> 280,002 241,148
<OTHER-SE> 6,752,497 7,084,631
<TOTAL-LIABILITY-AND-EQUITY> 30,860,248 28,458,023
<SALES> 27,293,495 9,693,462
<TOTAL-REVENUES> 27,293,495 9,693,462
<CGS> 21,550,976 7,152,027
<TOTAL-COSTS> 21,550,976 7,152,027
<OTHER-EXPENSES> 6,648,958 1,835,492
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 879,873 294,958
<INCOME-PRETAX> (1,786,312) 410,985
<INCOME-TAX> (614,392) 84,400
<INCOME-CONTINUING> (1,171,920) 326,585
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,171,920) 326,585
<EPS-PRIMARY> (.49) .16
<EPS-DILUTED> (.49) .16
</TABLE>
