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 MARCH 31, 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 of (I.R.S. Identification No.)
Employer incorporation or organization)
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 May 12, 1998 was 6,410,218.
Page 1 of 11
<PAGE>
GOLDEN EAGLE GROUP, INC.
FORM 10Q
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997 3
Consolidated Statements of Income for the three
months ended March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows for the
three months ended March 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis or Plan of
Operation 7
PART II. OTHER INFORMATION 10
Signatures 11
Page 2 of 11
<PAGE>
GOLDEN EAGLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
Assets
March 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash ................................................ $ 1,023,226 $ 755,632
Accounts receivable, trade, less allowance
of $824,161 and $815,000 at March 31, 1998
and December 31, 1997, respectively ................. 13,962,308 14,457,569
Prepaid expenses and other current assets ........... 733,879 606,608
------------ ------------
Total current assets ........................... 15,719,413 15,819,809
Property and equipment, net ......................... 1,237,084 1,240,848
Deferred income taxes ............................... 1,167,426 1,262,829
Cost in excess of net assets acquired, net .......... 7,618,198 7,597,284
------------ ------------
Total assets ................................... $ 25,742,121 $ 25,920,770
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current portion of long-term
debt ................................................ $ 1,866,667 $ 1,266,660
Accounts payable, trade ............................. 8,845,089 9,282,002
Accrued expenses .................................... 802,591 830,246
Obligations under capital leases, current portion ... 26,583 27,801
Income tax payable .................................. -- 18,122
------------ ------------
Total current liabilities ...................... 11,540,930 11,424,831
Long-term debt ...................................... 3,958,332 4,150,006
Obligations under capital leases, net of current
portion ............................................. -- 8,727
Deferred income taxes ............................... 66,161 176,617
------------ ------------
Total liabilities .............................. 15,565,423 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 ................................. (539,129) (555,238)
------------ ------------
Total shareholders' equity ..................... 10,176,698 10,160,589
------------ ------------
Total liabilities and shareholders' equity ..... $ 25,742,121 $ 25,920,770
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page 3 of 11
<PAGE>
GOLDEN EAGLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1998 1997
------------ -----------
Sales ........................................ $ 24,846,146 $17,146,222
Duties ....................................... 4,593,553 1,524,422
------------ -----------
Net Sales .................................... 20,252,593 15,621,800
Cost of sales ................................ 14,481,363 11,286,764
------------ -----------
Gross profit ........................... 5,771,230 4,335,036
Selling, general and administrative
expenses ............................... 5,663,583 4,263,611
------------ -----------
Operating income ............................. 107,647 71,425
Other (expense)/ income ...................... (82,938) 22,274
------------ -----------
Income before income taxes ................... 24,709 93,699
Income tax expense ....................... 8,600 33,048
------------ -----------
Net income ................................... $ 16,109 $ 60,651
============ ===========
Earnings per common share :
Basic ..................................... $ 0.00 $ 0.01
============ ===========
Diluted ................................... $ 0.00 $ 0.01
============ ===========
Weighted average number of shares:
Basic ..................................... 6,410,218 5,730,000
============ ===========
Diluted ................................... 6,417,721 5,814,801
============ ===========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page 4 of 11
<PAGE>
GOLDEN EAGLE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
March 31,
1998 1997
--------- ---------
Cash flows from operating activities:
Net income ......................................... $ 16,109 $ 60,651
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .................... 180,446 125,922
Deferred income taxes ............................ (33,175) 24,048
Gain on sale of equipment ........................ -- (2,636)
Changes in operating assets net of effects of
acquisition:
Decrease (increase) in accounts receivable,
net .............................................. 495,261 (449,718)
Decrease (increase) in prepaid expenses ....... (127,271) (77,500)
Increase (decrease) in cash overdraft ......... -- 286,803
Increase (decrease) in accounts payable and
accrued expenses......................... (464,568) 57,495
----------- ---------
Net cash provided by operating activities .... 66,802 25,065
----------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment .................... -- 3,000
Acquisition of business, net of cash acquired ...... (84,945) (4,762)
Capital expenditures ............................... (112,651) (224,004)
----------- ---------
Net cash used in investing activities ........ (197,596) (225,766)
----------- ---------
Cash flows from financing activities:
Borrowings under notes payable and line of
credit ............................................. 1,950,000 600,000
Payments under notes payable and line of credit . (1,541,667) (788,671)
Principal payments under capital lease
obligations ........................................ (9,945) (21,506)
----------- ---------
Net cash flows provided by (used in) financing
activities ......................................... 398,388 (210,177)
----------- ---------
Net increase (decrease) in cash and equivalents ......... 267,594 (410,878)
Cash and equivalents at beginning of period ............. 755,632 513,842
----------- ---------
Cash and equivalents at end of period ...................$ 1,023,226 $ 102,964
=========== =========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
Page 5 of 11
<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 months
ended March 31, 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 has violated a requirement of its credit agreement relating
to failure to maintain a certain minimum Debt Coverage Ratio. The
Company's bank has elected to waive the default as of March 31, 1998.
Additionally, the bank has agreed to an adjusted Debt Coverage Ratio
through June 30,1998 whereupon the ratio will revert back to the
requirement as defined in the credit agreement.
Page 6 of 11
<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 MARCH 31,1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Net sales during the three months ended March 31, 1998, increased
approximately 29.6% or $4,630,793 to $20,252,593 from $15,621,800 during the
same period in 1997. Net sales in the New York branch have increased from
approximately $.7M for the three months ended March 31, 1997 to approximately
$3.6M for the same period in 1998. The increase in New York is attributable to
the acquisition and addition of the operations of Columbia Shipping Group
("CSG") in October of 1997. CSG's principal operations were in the New York
area. Approximately 1.0M of the remaining increase is due to improved sales in
the Company's Houston location as compared to the same period in 1997. The
remainder of the increase is primarily attributable to the addition of other CSG
business in Philadelphia, Chicago and Los Angeles.
Gross profit during the three months ended March 31, 1998, increased
approximately 33.1% or $1,436,194 to $5,771,230 from $4,335,036 for the same
period in 1997. The gross profit margin on net sales for the three months ended
March 31, 1998 was approximately 28.5% as compared to approximately 27.7%
reported for the same period in 1997. The increase in gross profit dollars is
primarily attributable to the aforementioned improvements in net sales. The
slight improvement in margin is attributable to the increased export crating
activity in the Company's Houston location in the first three months of 1998.
The Company generally reports a higher margin on this activity, as the only
costs charged against gross profit are for direct materials i.e. lumber,
staples, etc. The labor costs required for this activity are reflected in
selling, general and administrative expenses.
Selling, general and administrative expenses during the three months
ended March 31, 1998, increased $1,399,972 to $5,663,583 or approximately 32.8%,
from $4,263,611 in the same period in 1997. As a percentage of net sales,
selling, general and administrative expenses increased from approximately 27.3%
of net sales for the three months ended March 31, 1997 to approximately 27.9%
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 Company's operating and net income was $107,647 and $16,109,
respectively for the three months ended March 31, 1998, as compared to operating
and net income of $71,425 and $60,651, respectively, for the three months ended
March 31, 1997. The Company's net income for the three months ended March 31,
1998 has been affected by lower than expected net sales
Page 7 of 11
<PAGE>
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 actual realized revenue
levels. Management believes that with these reductions, the results in those
locations should begin to show improvement.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Company had working capital of $4,178,483 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. Outstanding borrowings under the line of credit as of March 31,
1998 were $1,100,000. 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 former CSG locations, the
Company has violated a requirement of its credit agreement relating to failure
to maintain a certain minimum Debt Coverage Ratio. The Company's bank is aware
of the default and has elected to waive the default as of March 31, 1998.
Additionally, the bank has agreed to an adjusted Debt Coverage Ratio through
June 30, 1998 whereupon the ratio will revert back. to the requirement as
defined in the credit agreement. 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.
Cash flows provided by operating activities were $66,802 for the
three months ended March, 31,1998, as compared to $25,065 for the three months
ended March 31, 1998.
The Company used cash flows in investing activities of $197,596 and
$225,766 for the three months ended March 31, 1998 and 1997 respectively. The
Company's expenditures for facilities and equipment were $112,651 for the three
months ended March 31, 1998 as compared to $224,004 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 March 31, 1998, the Company had cash and equivalents of $1,023,226 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 8 of 11
<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 9 of 11
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
On March 17, 1998, the Company announced that it will
extend the expiration date of its 800,000 Redeemable
Common Stock Purchase Warrants (the "Warrants") 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. Copies have
been filed as exhibits to the Registration Statement,
which includes the aforementioned prospectus.
The Warrants are listed on the NASDAQ SmallCap market
under the symbol "GEGPW" and listed on the Boston Stock
Exchange under the symbol "GEGW"
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
None.
(B) REPORTS ON FORM 8-K:
None.
Page 10 of 11
<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: May 13, 1998 By: /s/ DONALD A. NODORFT
----------------------
Donald A. Nodorft, Vice President-
Finance (Principal Financial and
Accounting Officer)
Page 11 of 11
<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 MARCH 31, 1998
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,023,226
<SECURITIES> 0
<RECEIVABLES> 14,786,469
<ALLOWANCES> 824,161
<INVENTORY> 0
<CURRENT-ASSETS> 15,719,413
<PP&E> 4,255,178
<DEPRECIATION> 3,018,094
<TOTAL-ASSETS> 25,742,121
<CURRENT-LIABILITIES> 11,540,930
<BONDS> 0
0
0
<COMMON> 64,102
<OTHER-SE> 10,112,596
<TOTAL-LIABILITY-AND-EQUITY> 25,742,121
<SALES> 24,846,146
<TOTAL-REVENUES> 24,846,146
<CGS> 19,074,916
<TOTAL-COSTS> 19,074,916
<OTHER-EXPENSES> 5,663,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118,997
<INCOME-PRETAX> 24,709
<INCOME-TAX> 8,600
<INCOME-CONTINUING> 16,109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,109
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
