SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
(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 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO ______________
COMMISSION FILE NO. 1-11480
GOLDEN EAGLE GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 65-0353755
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
120 STANDIFER DRIVE, HUMBLE, TEXAS 77338
(Address of principal executive offices) (Zip Code)
(281) 446-2656
(Registrant's telephone number, including area code)
______________________________________________
(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 [ ]
The number of shares outstanding of the issuer's Common Stock, $.01 Par Value,
as of August 4, 1998 was 6,410,218.
Page 1 of 13
<PAGE>
GOLDEN EAGLE GROUP, INC.
FORM 10Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 3
Consolidated Statements of Income for the three
months and six months ended June 30, 1998
and 1997 4
Consolidated Statements of Cash Flows for the
six months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 8
PART II. OTHER INFORMATION 12
Signatures 13
Page 2 of 13
<PAGE>
GOLDEN EAGLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
Assets
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash ................................................. $ 139,274 $ 755,632
Accounts receivable, trade, less allowance
of $858,000 and $815,000 at June 30, 1998
and December 31, 1997, respectively .................. 13,404,145 14,457,569
Prepaid expenses and other current assets ............ 758,570 606,608
------------ ------------
Total current assets ............................ 14,301,989 15,819,809
Property and equipment, net .......................... 1,184,177 1,240,848
Deferred income taxes ................................ 1,167,426 1,262,829
Cost in excess of net assets acquired, net ........... 7,493,646 7,597,284
------------ ------------
Total assets .................................... $ 24,147,228 $ 25,920,770
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Cash overdraft ....................................... $ 258,275 $ --
Notes payable and current portion of
long-term debt ....................................... 1,166,667 1,266,660
Accounts payable, trade .............................. 8,137,056 9,282,002
Accrued expenses ..................................... 438,098 830,246
Obligations under capital leases,
current portion ...................................... 23,029 27,801
Income tax payable ................................... -- 18,122
------------ ------------
Total current liabilities ....................... 10,023,125 11,424,831
Long-term debt ....................................... 3,766,665 4,150,006
Obligations under capital leases, net of
current portion ...................................... -- 8,727
Deferred income taxes ................................ 81,271 176,617
------------ ------------
Total liabilities ............................... 13,871,061 15,760,181
------------ ------------
Stockholders' Equity:
Preferred stock, par value $.01,
1,000,000 shares authorized, none outstanding ........ -- --
Common stock, par value $.01, 10,000,000 shares
authorized; 6,410,218 and 6,410,218 shares
issued and outstanding .............................. 64,102 64,102
Additional paid-in capital ........................... 10,737,277 10,737,277
Employee receivable .................................. (85,552) (85,552)
Accumulated deficit .................................. (439,660) (555,238)
------------ ------------
Total shareholders' equity ...................... 10,276,167 10,160,589
------------ ------------
Total liabilities and shareholders' equity ...... $ 24,147,228 $ 25,920,770
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page 3 of 13
<PAGE>
GOLDEN EAGLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Sales ............................ $ 23,713,553 $ 18,519,314 $ 48,559,699 $35,665,536
Duties ........................... 4,055,443 1,487,649 8,648,996 3,012,071
------------ ------------ ------------ -----------
Net sales ........................ 19,658,110 17,031,665 39,910,703 32,653,465
Cost of sales .................... 13,941,647 12,337,956 28,423,010 23,624,720
------------ ------------ ------------ -----------
Gross profit ............... 5,716,463 4,693,709 11,487,693 9,028,745
Selling, general and
administrative expenses .......... 5,433,090 4,370,143 11,096,673 8,633,754
------------ ------------ ------------ -----------
Operating income ................. 283,373 323,566 391,020 394,991
Other income (expense) ........... (127,794) (6,056) (210,732) 16,218
------------ ------------ ------------ -----------
Income before income taxes ....... 155,579 317,510 180,288 411,209
Income tax expense ........... 56,110 128,057 64,710 161,105
------------ ------------ ------------ -----------
Net income ....................... $ 99,469 $ 189,453 $ 115,578 $ 250,104
============ ============ ============ ===========
Earnings per common share:
Basic .......................... $ 0.02 $ 0.03 $ 0.02 $ 0.04
============ ============ ============ ===========
Diluted ........................ $ 0.02 $ 0.03 $ 0.02 $ 0.04
============ ============ ============ ===========
Weighted average number of shares:
Basic .......................... 6,435,141 5,746,022 6,422,748 5,738,055
============ ============ ============ ===========
Diluted ........................ 6,465,887 5,781,036 6,441,068 5,834,544
============ ============ ============ ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page 4 of 13
<PAGE>
GOLDEN EAGLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................... $ 115,578 $ 250,104
Adjustments to reconcile net income to net
cash
Provided by (used in) operating activities:
Depreciation and amortization ............... 358,622 263,444
Deferred income taxes ....................... (18,065) 121,350
Gain on sale of equipment ................... -- (1,937)
Changes in operating assets net of effects
of acquisition:
Decrease (increase) in accounts
receivable, net ............................... 1,053,424 (1,257,765)
Decrease (increase) in prepaid
expenses ...................................... (170,171) (69,030)
Increase (decrease) in cash overdraft .... 258,275 --
Increase (decrease) in accounts
payable and ................................... (1,537,094) 822,072
accrued expenses
----------- -----------
Net cash provided by operating activities 60,569 128,238
----------- -----------
Cash flows from investing activities:
Proceeds from sale of equipment ............... -- 3,250
Acquisition of business, net of cash
acquired ...................................... -- (60,675)
Capital expenditures .......................... (180,094) (345,616)
----------- -----------
Net cash used in investing activities ... (180,094) (403,041)
----------- -----------
Cash flows from financing activities:
Borrowings under notes payable and line
of credit ................................. 2,350,000 1,000,000
Issuance of common stock ................... -- 27,937
Payments under notes payable and line
of credit ................................. (2,833,334) (1,000,000)
Principal payments under capital lease
obligations ............................... (13,499) (20,726)
----------- -----------
Net cash flows provided by (used in)
financing activities .................. (496,833) 7,211
----------- -----------
Net increase in cash and equivalents .............. (616,358) (267,592)
Cash and equivalents at beginning of period ....... 755,632 513,842
----------- -----------
Cash and equivalents at end of period ............. $ 139,274 $ 246,250
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page 5 of 13
<PAGE>
GOLDEN EAGLE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. These unaudited consolidated financial
statements should be read in conjunction with the consolidated financial
statements and the footnotes thereto contained in the Annual Report on
Form 10-K for the year ended December 31, 1997 as filed with the
Securities and Exchange Commission. The December 31, 1997 balance sheet
included herein was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. In the opinion of the Company, the accompanying unaudited
consolidated statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial
statements. The results of operations for the three and six months ended
June 30, 1998 are not necessarily indicative of the results to be expected
for the full year.
2. PUBLIC WARRANTS
On March 6,1998 the Board of Directors voted to extend the expiration date
of the Company's 800,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") for one year to May 23, 1999. Each Warrant entitles the
registered holder thereof to purchase one share of Common Stock at a price
of $3.25 through May 23, 1999. With respect to their other
characteristics, the Warrants are described at length in the prospectus
filed with the Securities and Exchange Commission (File No. 33-49878-A)
dated November 24, 1992 and are subject to the provisions of the Warrants
and the warrant agency agreement between the Company and Continental Stock
Transfer & Trust Company.
3. CREDIT AGREEMENT WITH BANK
The Company had violated a requirement of its credit agreement relating to
failure to maintain a certain minimum Debt Coverage Ratio. The Company's
bank elected to waive the default as of March 31, 1998. Additionally, the
bank had agreed to an adjusted Debt Coverage Ratio through June 30,1998,
which the Company complied with, whereupon the ratio will revert back to
the requirement as defined in the credit agreement of October 27, 1997.
4. 1998 RESTRICTED STOCK PLAN
On June 16, 1998, the Compensation Committee (the "Committee") adopted the
1998 Restricted Stock Plan (the "Plan"), reserving 540,000 shares of
authorized and unissued common stock for future awards under the Plan. The
Plan allows the Company to reward selected key employees (the
"Participants") by issuing
Page 6 of 13
<PAGE>
vested and/or nonvested shares of restricted common stock of the Company
(individually an "Award" and collectively the "Awards"). The Company will,
with respect to each Award, determine the purchase price, if any, the
Participant is to pay for the shares which are the subject of the Award.
As of June 30, 1998, awards of 162,000 shares of restricted common stock
have been granted under the Plan with an approximate value of $304,000
which is being amortized to compensation cost over the three year vesting
period of the award.
Page 7 of 13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
INTRODUCTION
Golden Eagle Group, Inc. ("GEGP" or the "Company"), through its
wholly-owned subsidiaries, is engaged in the business of providing
international transportation logistics and related services.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,1998 COMPARED TO THREE MONTHS ENDED JUNE 30,
1997
Net sales during the three months ended June 30, 1998, increased
approximately 15.4% or $2,626,445 to $19,658,110 from $17,031,665 during the
same period in 1997. Approximately $2.0M of the increase is attributable to the
Company's New York operations and the addition of Columbia Shipping Group
("CSG") into those operations in October of 1997. The remainder of the increase
is primarily attributable to improvements in the Company's Houston, Miami and
WTT operations as compared to the same period last year.
Gross profit during the three months ended June 30, 1998, increased
approximately 21.8% or $1,022,754 to $5,716,463 from $4,693,709 for the same
period in 1997. The gross profit margin on net sales for the three months ended
June 30, 1998 was approximately 29.1% as compared to approximately 27.6%
reported for the same period in 1997. The increase in gross profit dollars is
primarily attributable to the aforementioned improvements in net sales. The
improvement in margin is attributable to the increased warehousing revenues in
the Company's Laredo and Miami locations which generally results in higher
margins.
Selling, general and administrative expenses during the three months ended
June 30, 1998, increased $1,062,947 to $5,433,090 or approximately 24.3%, from
$4,370,143 in the same period in 1997. As a percentage of net sales, selling,
general and administrative expenses increased from approximately 25.7% of net
sales for the three months ended June 30, 1997 to approximately 27.6% for the
same period in 1998. Both the actual dollar increase and the increase as a
percentage of net sales is primarily attributable to the acquisition of CSG in
October of 1997. The New York operations, which are those primarily effected by
the CSG acquisition, have incurred higher rent and payroll costs while net sales
from CSG activity have actually declined.
The Company's operating and net income was $283,373 and $99,469,
respectively for the three months ended June 30, 1998, as compared to operating
and net income of $323,566 and $189,453, respectively, for the three months
ended June 30, 1997.
The Company's net income for the three months ended June 30, 1998 has
been affected by lower than expected net sales from former CSG operations. The
Company has had significant turnover in mid-level staffing in the former CSG
locations, which is causing revenues to be below original expectations. The
Company's response has been to reduce costs in the CSG locations to more closely
align costs with realized revenue levels. Management believes that with these
reductions, the results in those locations are beginning to show improvement.
Page 8 of 13
<PAGE>
SIX MONTHS ENDED JUNE 30,1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
During the six months ended June 30, 1998, net sales increased $7,257,238,
or approximately 22.2%, to $39,910,703 from $32,653,465 for the six months ended
June 30, 1997. Approximately $4.9M of the increase is directly attributable to
the acquisition of CSG. The remainder of the increase is attributable,
primarily, to the Company's Houston, Miami and Laredo operations as compared to
the previous year.
Gross Profit increased approximately 27.2% or $2,458,948 to $11,487,693
for the six months ended June 30, 1998 from $9,028,745 for the same period in
1997. Approximately 41% of the increase is attributable to the acquisition of
CSG. The remainder of the increase is primarily attributable to the
aforementioned increases in sales in the Company's Houston, Miami and Laredo
operations.
The gross profit margin on net sales for the six months ended June 30,
1998 was approximately 28.8% as compared to approximately 27.7% reported for the
same period in 1997. Again, the improvement in margin is attributable to the
increase in warehousing revenues in the Company's Laredo and Miami locations
combined with higher than usual first quarter export crating activity in the
Houston operations.
Selling, general and administrative expenses increased $2,462,919 or
approximately 28.5% from $8,633,754 for the six months ended June 30, 1997 to
$11,096,673 for the six months ended June 30, 1998. Selling, general and
administrative expenses, as a percentage of net sales, increased from
approximately 26.4% for the six months ended June 30, 1997 to approximately
27.8% for the same period in 1998. The dollar increase is primarily attributable
to the addition of CSG operations. The increase in selling, general and
administrative expenses as a percentage of net sales is also attributable to the
CSG acquisition. The Company has absorbed a higher rent and payroll burden with
the acquisition of the CSG operations while at the same time has had some drop
off in CSG net sales. The Company has made cost reductions, where possible, in
the second half of the six-month period to more closely align costs to the
actual CSG net sales realized.
The Company is reporting operating and net income of $391,020 and
$115,578, respectively, for the six months ended June 30, 1998, as compared to
operating and net income of $394,991 and $250,104, respectively, for the six
months ended June 30, 1997. The Company attributes the weaker results to the CSG
acquisition. Operating income for the Company's New York operations was
approximately $86,320 for the six months ended June 30, 1997 as compared to an
operating loss of ($320,870) for the six months ended June 30, 1998. This loss
coupled with the interest cost of the CSG acquisition and increased selling,
general and administrative costs incurred in managing the CSG acquisition, have
combined to substantially reduce net income for the first six months of 1998.
Basic shares outstanding during the six months ended June 30, 1998 were
6,422,748 as compared to 5,738,055 for the six months ended June 30, 1997. The
increase in basic shares outstanding is attributable primarily to shares issued
in connection with the acquisition of CSG in October of 1997.
Page 9 of 13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had working capital of $4,109,631 as
compared to working capital of $4,394,978 at December 31, 1997. The Company's
primary sources of cash were generated from operations and a credit agreement
with its bank. Under the credit agreement, the Company has both a line of credit
available with maximum borrowings allowed up to $2,000,000 which bears interest
at the bank's prime rate plus 1%, payable on or before October 27, 1998 and a
note payable due in quarterly installments through October 27, 2002. Outstanding
borrowings under the line of credit as of June 30, 1998 were $400,000. Aggregate
amounts available under the line of credit and the note payable are limited to
80% of the Company's eligible accounts receivable and are collateralized by
substantially all of the Company's assets.
Due to lower than projected earnings from the CSG acquisition, the Company
had violated a requirement of its credit agreement related to failure to
maintain a certain minimum Debt Coverage Ratio. The Company's bank elected to
waive the default as of March 31, 1998. Additionally, the bank agreed to an
adjusted Debt Coverage Ratio through June 30, 1998, which the Company has
complied with, whereupon the ratio will revert back to the requirement as
defined in the credit agreement of October 27, 1998.
Management believes that the aforementioned CSG cost reductions will
improve earnings and bring the ratio back into compliance. Additionally, the
Company is aggressively working on a program to reduce the number of accounts
receivable days outstanding thereby generating an improvement in cash thus
reducing debt, also improving the Debt Coverage Ratio. As a result of these
efforts, along with a tighter management of cash balances, the Company has been
able to reduce bank debt $891,667 from $4,741,666 at March 31, 1998 to
$3,849,999 at June 30, 1998.
Cash flows provided by operating activities were $229,802 for the
six months ended June 30, 1998, as compared to $128,238 for the six months ended
June 30, 1997 primarily attributable to tighter management of available cash
balances.
The Company used cash flows in investing activities of $349,327 and
$403,041 for the six months ended June 30, 1998 and 1997 respectively. The
Company's expenditures for facilities and equipment were $180,094 for the six
months ended June 30, 1998 as compared to $345,616 in the same period in 1997.
The conversion of the Company's computer network to frame relay was
substantially completed in 1997. Capital expenditures in 1998 have been
primarily related to the continued expansion of the Company's information
systems and enhancements and expansion of the Company's warehousing and
logistics system.
At June 30, 1998, the Company had cash and equivalents of $139,274 as
compared to $755,632 at December 31, 1997 as a result of the activities
described above.
The Company's primary financing needs relate to the expansion of its
business in existing markets. The Company believes that its present capital
resources, when combined with revenues generated from operations, are adequate
to fund its present level of operations.
Page 10 of 13
<PAGE>
FORWARD LOOKING STATEMENTS
This Form 10-Q contains certain forward looking statements. Such
statements are typically punctuated by words or phrases such as "anticipate,"
"estimate," "projects," "should," "may," "management believes," and words or
phrases of similar import. Such statements are subject to certain risks,
uncertainties or assumptions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those anticipated, estimated or projected. Among the
key factors that may have a direct bearing on the Company's results of
operations and financial condition are: (i) competitive practices in the
industries in which the Company competes, (ii) the impact of current and future
laws and governmental regulations affecting the industry in general and the
Company's operations in particular, (iii) fuel and other costs of company's that
do the shipping for the Company that cannot be passed on to the Company's
customers, and (iv) political or economic strife in major markets to which the
Company's customers transport goods using the Company's services.
Page 11 of 13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Expiration Date of the Company's 800,000 Redeemable Common
Stock Purchase Warrants extended one year to May 23, 1999.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June
16, 1998 where the stockholders voted as follows:
a) For the election of each of the proposed five Directors for
the ensuing year.
b) For the proposal to ratify the selection of Coopers &
Lybrand LLP as independent auditors for the Company's
fiscal year ending December 31, 1998.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
None.
(B) REPORTS ON FORM 8-K:
None.
Page 12 of 13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
GOLDEN EAGLE GROUP, INC.
Date: August 11, 1998 By:/S/ DONALD A. NODORFT
Donald A. Nodorft,
Vice President- Finance
(Principal Financial and
Accounting Officer)
Page 13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE COMPANY'S FORM 10Q FOR THE PERIOD ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 139,274
<SECURITIES> 0
<RECEIVABLES> 14,262,145
<ALLOWANCES> 858,000
<INVENTORY> 0
<CURRENT-ASSETS> 14,301,989
<PP&E> 4,296,731
<DEPRECIATION> 3,112,554
<TOTAL-ASSETS> 24,147,228
<CURRENT-LIABILITIES> 10,023,125
<BONDS> 0
0
0
<COMMON> 64,102
<OTHER-SE> 10,212,065
<TOTAL-LIABILITY-AND-EQUITY> 24,147,228
<SALES> 48,559,699
<TOTAL-REVENUES> 48,559,699
<CGS> 37,072,006
<TOTAL-COSTS> 37,072,006
<OTHER-EXPENSES> 11,096,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,040
<INCOME-PRETAX> 180,288
<INCOME-TAX> 64,710
<INCOME-CONTINUING> 115,578
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,578
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
