<PAGE>
- - ------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
-------------------------------------------
COMMISSION FILE NUMBER 1-14082
---------------------------------------------------
ECKLER INDUSTRIES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
-----------------------------
FLORIDA 59-1469577
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
<TABLE>
<CAPTION>
<S> <C> <C>
5200 S. WASHINGTON AVENUE, TITUSVILLE, FLORIDA 32780 (407) 269-9680
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (ISSUER'S TELEPHONE NUMBER)
</TABLE>
-----------------------------
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 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
------ ------
AS OF AUGUST 8, 1996, 1,516,500 SHARES OF THE REGISTRANT'S CLASS A
COMMON STOCK WERE ISSUED AND OUTSTANDING, AND 523,000 SHARES OF THE
REGISTRANT'S CLASS B COMMON STOCK WERE ISSUED OUTSTANDING.
- - ------------------------------------------------------------------------------
<PAGE>
ECKLER INDUSTRIES, INC.
Index to Form 10-QSB
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
PART I-FINANCIAL INFORMATION
- - ----------------------------
ITEM 1. FINANCIAL STATEMENTS
Balance Sheet as of June 30, 1996 (unaudited) 3
Statements of Operations for three months ended
and nine months ended June 30, 1996 and 1995 (unaudited) 5
Statement of Stockholders' Equity for the nine
Months ended June 30, 1996 (unaudited) 6
Statements of Cash Flows for the nine months ended
June 30, 1996 and 1995 (unaudited) 7
Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 10
PART II-OTHER INFORMATION
- - -------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 15
1
<PAGE>
PART I
ECKLER INDUSTRIES, INC.
FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS
2
<PAGE>
ECKLER INDUSTRIES, INC.
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
June 30, 1996
- - ------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 160,641
Accounts receivable - net of allowance 243,243
Inventories 1,508,551
Prepaid expenses 1,287,967
- - ------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,200,402
- - ------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, less accumulated
depreciation and amortization 2,471,161
- - ------------------------------------------------------------------------------
OTHER ASSETS:
Deferred financing costs, less accumulated amortization 86,572
Prepaid royalty expense 768,517
Other 24,908
- - ------------------------------------------------------------------------------
TOTAL OTHER ASSETS 879,997
- - ------------------------------------------------------------------------------
$ 6,551,560
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
3
<PAGE>
ECKLER INDUSTRIES, INC.
BALANCE SHEET
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
June 30, 1996
- - ------------------------------------------------------------------------------
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 1,400,332
Accrued expenses 386,571
Deferred income taxes 78,400
Current maturities of long-term debt 987,640
Obligations under capital leases 16,060
- - ------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,869,003
- - ------------------------------------------------------------------------------
LONG-TERM DEBT, less current maturities 1,331,807
DEFERRED INCOME TAXES 361,100
- - ------------------------------------------------------------------------------
TOTAL LIABILITIES 4,561,910
- - ------------------------------------------------------------------------------
STOCKHOLDER'S EQUITY:
Class A common stock; $.01 par value; 10,000,000 shares
authorized; 1,516,500 issued and outstanding 15,165
Class B common stock; $.01 par value; 5,000,000 shares
authorized; 523,000 issued and outstanding 5,230
Additional paid-in capital 2,514,865
Deficit (545,610)
- - ------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,989,650
- - ------------------------------------------------------------------------------
$ 6,551,560
- - ------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
ECKLER INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
------------------ -----------------
6/30/96 6/30/95 6/30/96 6/30/95
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 5,048,996 $ 4,293,201 $ 11,144,484 $ 10,178,889
COST OF SALES 3,300,587 2,782,454 7,247,478 6,642,539
- - ------------------------------------------------------------------------------------------------------------------------
Gross Profit 1,748,409 1,510,747 3,897,006 3,536,350
SELLING, GENERAL AND ADMIISTRATIVE
EXPENSES 1,436,737 1,155,404 3,880,145 3,165,099
- - ------------------------------------------------------------------------------------------------------------------------
Income from operations 311,672 355,343 16,861 371,251
- - ------------------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense (68,449) (111,594) (223,258) (293,815)
Interest income 2,264 1,517 14,635 4,040
Miscellaneous income 85,308 25,257 167,626 58,197
- - ------------------------------------------------------------------------------------------------------------------------
19,123 (84,820) (40,997) (231,578)
- - ------------------------------------------------------------------------------------------------------------------------
Income (loss) before (income taxes) benefit
from income taxes 330,795 270,523 (24,136) 139,673
(INCOME TAXES) BENEFIT FROM INCOME TAXES (124,300) -- 6,500 --
- - ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) 206,495 270,523 (17,636) 139,673
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
ACCRETION OF REDEMPTION VALUE OF REDEEMABLE
PREFERRED STOCK (533,032)
DIVIDENDS ON PREFERRED STOCK (18,106)
- - ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCK 206,495 -- (568,774) --
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE $ .08 $ (.23)
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
PROFORMA:
Historical income before income taxes 270,523 139,673
Proforma income taxes 92,000 47,500
- - ------------------------------------------------------------------------------------------------------------------------
Proforma net income 178,523 92,173
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
Proforma earnings per share $ .08 $ .04
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES AND
SHARE EQUIVALENTS OUTSTANDING 2,562,500 2,117,500 2,525,000 2,117,500
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
5
<PAGE>
ECKLER INDUSTRIES, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
CLASS A CLASS B
COMMON STOCK COMMON STOCK
--------------------- -------------------- ADDITIONAL
NUMBER PAR NUMBER PAR PAID-IN
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1995:
As previously reported 360,000 $ 3,600 570,000 $5,700 $(923,939) $(112,365)
Prior period adjustment to reflect
change in method of accounting
for inventories - - - - - 135,529
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
As restated - - - - - 23,164
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
Initial Public Offering, net of 840,000 8,400 - - 2,747,594 -
offering costs
Release of Class A Common 140,000 1,400 - - 210,505 -
stock subject to rescission
Conversion of Preferred
stock 12,000 120 - - 59,880 -
Conversion of investor notes into
Class A shares 102,500 1,025 - - 203,975 -
Issuance of Class A shares for
consulting services 62,000 620 - - 216,380 -
Dividends on preferred stock - - - - - (18,106)
Contribution and retirement
of Class B Shares - - (47,000) (470) 470 -
Accretion of redemption value of
redeemable preferred stock - - - - - (533,032)
Net loss - - - - - (17,636)
- - ------------------------------------------------------------------------------------------------------------------------
BALANCE, June 30, 1996 1,516,500 $15,165 523,000 $5,230 $2,514,865 $(545,610)
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
ECKLER INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------
Nine months ended June 30, 1996 1995
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (17,636) $ 139,673
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities:
Depreciation and amortization 229,937 253,651
Loss on sale of assets 160 -
Issuance of common stock for consulting fees 27,125 -
Deferred income taxes (6,500) -
Cash provided by (used for):
Accounts receivable (134,583) (133,049)
Inventories (675,633) 25,681
Prepaid expenses (474,537) (167,756)
Accounts payable (198,662) 686,576
Royalties payable (175,000) -
Accrued expenses (89,785) 88,388
- - ---------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (1,515,114) 893,164
- - ---------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Notes and advances to affiliates 561,850 (97,732)
Purchases of property, plant and equipment (70,000) (16,530)
Proceeds from disposal of property and equipment 4,850 -
(Increase) decrease in other assets (531) 5,191
- - ---------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 496,169 (109,071)
- - ---------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Principal payments of long-term debt (1,025,044) (261,474)
Payments on capital lease obligations (26,272) (34,736)
Proceeds from sale of common stock 3,219,075 -
Proceeds from issuance of investor notes payable - 195,000
Redemption of preferred stock (950,000) -
Deferred public offering costs - (412,883)
Dividends (18,106) (270,000)
Deferred financing costs (20,067) -
- - ---------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 1,179,586 (784,093)
- - ---------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 160,641 -
Cash and cash equivalents, beginning of period - -
- - ---------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 160,641 -
- - ---------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
ECKLER INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
- - ------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB, and do not include all of
the information and disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the
financial statements and notes thereto for the year ended September 30, 1995.
The accompanying financial statements have not been audited by an
independent accountant in accordance with generally accepted auditing
standards, but in the opinion of management, such financial statements
include all adjustments, consisting only of normal recurring adjustments and
accruals, to fairly report the Company's financial position and results of
operations. The results of operations for the interim periods shown in this
report are not necessarily indicative of results to be expected for the
fiscal year.
NOTE 2 - CAPITAL STOCK
On November 15, 1995, the Company completed its initial public offering of
1,200,000 units consisting of its Class A common stock and warrants at $5.00
per unit. Each unit consisted of one share of Class A common stock and one
warrant to purchase one share of Class A common stock at a price equal to
$6.50 per share. The Company sold 840,000 Class A Common shares and
1,200,000 warrants and received $2,755,994 in proceeds net of offering costs.
Three hundred sixty thousand (360,000) shares of the Class A common stock
included in the units were sold by a stockholder, and the Company received
some of the proceeds from the sale of such shares through repayment of
amounts owed by the stockholder to the Company. The Company used these
proceeds to reduce accounts payable and debt, redeem preferred stock, and for
working capital and general corporate purposes.
NOTE 3 - EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is based upon the weighted average number of common
shares outstanding during each period. Shares of Class B common stock become
convertible into shares of Class A common stock on a 1-for-2 basis and are
included in weighted average shares outstanding. Common stock equivalents
have not been included since the effect would either be antidilutive or
insignificant.
Pursuant to the requirements of the SEC Staff Accounting Bulletin No. 83,
common shares issued by the Company during the twelve months immediately
preceding the initial public offering (242,500 shares) at a price below the
initial public offering price plus the number of common shares subject to the
grant of common stock options and warrants and convertible preferred stock
issued during such period (375,000 shares) having exercise or conversion
prices below the initial
8
<PAGE>
public offering price have been included in the calculation of the shares
used in computing net loss per share as if they were outstanding for all
periods presented, prior to the November 15, 1995 closing of the Company's
initial public offering.
NOTE 4 - PRO FORMA AMOUNTS
Pro forma adjustments are presented for the three months ended and nine
months ended June 30, 1995 to reflect a provision for income taxes based upon
historical income before benefit from income taxes as if the Company had been
a C Corporation.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents include checking accounts and money market funds.
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
The Company accreted $533,032 of redemption value of redeemable preferred
stock during the nine months ended June 30, 1996. In addition, investor
notes of $205,000 were converted into 102,500 shares of Class A common stock
and 102,500 warrants and $50,000 of preferred stock was converted into 12,000
shares of Class A common stock valued at $60,000 during the nine months ended
June 30, 1996. Also, the Company issued 62,000 shares of Class A common stock
valued at $217,000 for consulting services during the nine months ended June
30, 1996. In addition, a shareholder contributed 47,000 shares of Class B
common stock to the Company which had a market value of $405,375. The
Company retired the shares immediately upon receipt. The Company acquired
land through assumption of a mortgage payable in the amount of $163,873
during the nine months ended June 30, 1995. Also, the Company reclassified
trade payables, incurred for professional services, in the amount of $72,050
to notes payable during the nine months ended June 30, 1995.
NOTE 6 - CHANGE IN ACCOUNTING METHOD FOR INVENTORIES
During the third quarter of 1996, the Company changed its method of
accounting for inventories from the last-in, first-out (LIFO) method to the
first-in, first-out (FIFO) method. Under the current economic environment of
low inflation, the Company believes that the FIFO method will result in a
better measurement of operating results. This change has been applied by
retroactively restating the accompanying financial statements. The change
did not have a significant effect on results of operations for the nine
months ended June 30, 1996, nor is it anticipated that it will have a
material effect on future periods.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING ANALYSIS OF THE COMPANY'S FINANCIAL CONDITION AS OF JUNE
30, 1996 AND THE COMPANY'S RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995 SHOULD BE READ IN CONJUNCTION
WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE
IN THIS REPORT.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995.
Sales increased $755,795 or 18% for the three months ended June 30,
1996, compared to the same period in 1995 for several reasons. Increased
inventory allowed the Company to fill customer orders and decrease lost
sales. In addition, the Company instituted an aggressive marketing strategy
which included free shipping, guaranteed lowest price, and ten percent
discount for items not in stock.
Costs of sales increased $518,133 or 19% for the three months ended June
30, 1996, compared to the same period in 1995 due primarily to the increase
in sales. Gross profit as a percentage of sales remained constant at 35%
during the three months ended June 30, 1996 and 1995.
Selling, general and administrative expenses increased by $281,333 or
24% compared to the same period in 1995. This resulted primarily from
increases in advertising costs associated with the production and mailing of
the Company's catalog, and the hiring of additional sales personnel in order
to increase sales. In addition, general overhead increased due to the
compliance and reporting requirements of being a public company.
Other income (expense) consisted primarily of interest income and
expense and miscellaneous income at a net income amount of $19,123 for the
three months ended June 30, 1996 compared to a net expense amount of $84,820
for the same period in 1995. Interest expense decreased by $43,145 or 39%
for the three months ended June 30, 1996 compared to the same period in 1995
primarily due to $900,000 in principal reductions of long-term debt made
during the first quarter of 1996. Miscellaneous income increased by $60,051
or 238% for the six months ended June 30, 1996 compared to the same period in
1995 primarily due to income generated by the Company's affinity charge card
program which began in the second quarter of 1995.
Income tax expense increased $124,300 for the three months ended June
30, 1996. This is mainly due to an increase in current net deferred tax
liability. Income tax expense for the three months ended June 30, 1996
increased $32,300 as compared to pro forma income tax expense for the three
months ended June 30, 1995.
10
<PAGE>
NINE MONTHS ENDED JUNE 30, 1996 COMPARED TO NINE MONTHS ENDED JUNE 30, 1995
Sales increased $965,595 or 9% for the nine months ended June 30, 1996,
compared to the same period in 1995 primarily due to increased inventory
which allowed the Company to fill customer orders and decrease lost sales,
and the aggressive marketing strategy discussed above.
Cost of sales increased $604,939 or 9% for the nine months ended June
30, 1996, compared to the same period in 1995, due primarily to the increase
in sales. Gross profit as a percentage of sales remained constant at 35%
during the nine months ended June 30, 1996 and 1995.
Selling, general and administrative expenses increased by $715,046, or
23% compared to the same period in 1995. This resulted primarily from
increases in advertising costs, associated with the production and mailing of
the Company's catalog, and the hiring of additional sales personnel in order
to increase sales. In addition, general overhead increased due to the
compliance and reporting requirements of being a public company.
Other expense consisted of interest income and expense and miscellaneous
income at a net expense amount of $40,997 for the nine months ended June 30,
1996, compared to $231,578 for the same period in 1995. Interest expense
decreased by $70,557, or 24%, for the nine months ended June 30, 1996
compared to the same period in 1995 primarily due to $900,000 in principal
reductions of long-term debt made during the first quarter of 1996.
Miscellaneous income increased by $109,429 or 188% for the nine months ended
June 30, 1996 compared to the same period in 1995 primarily due to income
generated by the Company's affinity charge card program which began in the
second quarter of 1995.
Benefit from income taxes increased $6,500 for the nine months ended
June 30, 1996. This is mainly due to a decrease in net deferred tax
liabilities. Benefit from income taxes for the nine months ended June 30,
1996 increased $54,000 as compared to pro forma income tax expense for the
nine months ended June 30, 1995.
In connection with the Company's completion of a private placement on
September 20, 1995, the excess of the $950,000 of cash paid and Class A
common stock issued (which was valued at $60,000) to redeem and convert the
preferred stock issued, over the private placement proceeds assigned to
preferred stock ($363,265) is being accreted from the issuance date to the
redemption date (November 15, 1995). This resulted in a decrease in net
earnings applicable to common stock of $533,032 during the first quarter of
1996.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
The following table sets forth the major components of the increase in cash
and cash equivalents:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JUNE 30
--------
1996 1995
---- ----
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES......... $ (1,515) $ 893
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES......... 496 (109)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES......... $ 1,180 (784)
-------- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS.................... $ 161 $ -
-------- -----
-------- -----
</TABLE>
Inventory levels increased by $675,633 and decreased by $25,681 for the
nine months ended June 30, 1996 and 1995, respectively. The primary reason
for the changes in the levels of inventory was the Company's working capital
position. Prior to the initial public offering, the Company was unable to
replenish inventory, as needed, due to marginal working capital. This is
also the reason accounts payable decreased by $198,662 and increased by
$686,576 for the nine months ended June 30, 1996 and 1995, respectively.
Prepaid expenses increased by $474,537 and $167,756 for the nine months
ended June 30, 1996 and 1995, respectively. This was primarily due to
additional costs associated with catalog production and mailing, and
prepayment of consulting fees for the nine months ended June 30, 1996.
Cash used for investing activities exceeded cash provided by investing
activities by $109,071 for the nine months ended June 30, 1995 primarily due
to advances made to affiliates of $97,732.
Cash provided by investing activities exceeded cash used for investing
activities by $496,169 for the nine months ended June 30, 1996, primarily due
to repayments of notes and advances by affiliates in the amount of $561,850
during the period.
Financing activities used cash of $784,093 for the nine months ended
June 30, 1995 primarily due to payment of distributions from S corporation
earnings in the amount of $270,000 and deferred public offering costs of
$412,883.
Financing activities provided cash of $1,179,586 for the nine months
ended June 30, 1996. This resulted from the excess of proceeds from the sale
of common stock of $3,219,075 over repayments of long-term debt of
$1,025,044, payments on capital lease obligations of $26,272, redemption of
preferred stock of $950,000, and dividends paid to preferred stockholders of
$18,106.
12
<PAGE>
The Company had working capital at June 30, 1996 in the amount of
$331,399. The management of the Company has developed and implemented
strategies to meet future liquidity needs. These strategies include (i)
refinancing of the Company's mortgage to obtain more favorable terms, and
arranging a revolving line of credit to finance its seasonal increase in
inventory and annual catalog production costs; and, (ii) a tighter control on
overall costs. The Management of the Company believes that these actions, in
addition to the improved working capital position at June 30, 1996, will
allow the Company to meet its future liquidity needs.
In the past, the Company advanced funds to Mr. Eckler (its then sole
shareholder) for his use to invest in other, unrelated business ventures.
Mr. Eckler, through various entities, purchased real property and entered
into mortgage commitments with certain financial institutions. As a
condition of the mortgages, the Company was required to guarantee such loans.
The Company funded these advances through its working capital by reducing
inventory levels. This resulted in the Company's inability to adequately
fill sales orders thereby reducing sales and cash flow.
The Company renegotiated with various lenders to eliminate guarantees on
the related entities' loans. The Company eliminated the last remaining
guaranty when the real estate securing the loan was sold in March of 1996.
The Company has further terminated lease contracts with related entities
thereby decreasing occupancy costs. Further, the Company has restructured its
debt with NationsBank to extend repayment terms through October 1, 1997. The
Company is no longer advancing funds to Mr. Eckler or his affiliated
entities. Mr. Eckler repaid outstanding balances on loans from the Company to
him and his affiliated entities upon completion of the initial public
offering. The Company does not anticipate any new transactional activity
between the Company and Mr. Eckler or his affiliated entities. However, in
the event any such transactions were proposed, they would be subject to full
disclosure to and authorization by a majority of Board members or
Board-appointed committee not having an interest in the transaction, full
disclosure to and approval of a majority of the shareholders who do not have
an interest in the transaction, or the transaction is fair and reasonable as
to the Company under Florida law at the time it is authorized by the Board or
the shareholders. Further, affiliated transactions having fair market values
exceeding certain statutory amounts are required to be approved by holders of
two-thirds of the voting shares other than the shares beneficially owned by
the shareholder interested in the transaction, unless the transaction is
approved by majority vote of disinterested directors.
Since the closing of the Company's initial public offering on November
15, 1995, the Company increased inventory levels to enhance more favorable
terms with its vendors and take advantage of quantity and cash discounts. In
addition, proceeds from the initial public offering were used to purchase and
manufacture inventory under the GM Agreement. The Company believes this will
result in an increase in sales and cash flow and improve its gross margins.
13
<PAGE>
S CORPORATION ELECTION
Effective October 1, 1989, the Company elected to become an S
Corporation for Federal and Florida income tax purposes. As such, the
Company generally had not been subject to Federal or certain state income
taxes, but its income had been taxable to its shareholder. The Company's
status as an S Corporation was terminated upon the closing of the Private
Placement and the issuance of the Class A Common and preferred stock on
September 20, 1995.
The Board of Directors authorized distributions to the sole shareholder
of the Company in the amount of $270,000 for the nine months ended June 30,
1995.
SEASONALITY
The business of the Company is subject to seasonal fluctuations.
Historically, the business has realized a higher portion of its revenues in
the third and fourth quarters of the Company's fiscal year and the lowest
portion of its revenues in the first quarter. The business of the Company is
particularly dependent on sales to Corvette enthusiasts during the spring and
summer months. This is the time of year that Corvette enthusiasts are
preparing for upcoming car shows that are held in the late summer and early
fall.
INFLATION
Although the effects of inflation on the Company cannot be accurately
determined, the Company does believe that inflation has had a significant
impact on the Company's results of operations for the periods presented.
Historically, the Company has been generally unable to pass price increases
on to customers due to the competitive environment in which the Company
operates. Management believes it has been able to minimize the effect of
inflation by decreasing its operating costs, increasing its employee
productivity and fully utilizing its marketing capabilities.
14
<PAGE>
PART II
ECKLER INDUSTRIES, INC.
OTHER INFORMATION
-----------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS - NONE.
(1) Exhibit 27 - Financial Data Schedules
(B) REPORTS ON FORM 8-K - NONE.
15
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized on August 12, 1996.
ECKLER INDUSTRIES, INC.
By: /s/ RALPH H. ECKLER
---------------------
Ralph H. Eckler
President and Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Ralph H. Eckler President, Chief Executive August 12, 1996
- - ---------------------- Officer, Secretary, Treasurer
Ralph H. Eckler and Director
/s/ Ronald V. Mohr Vice President of Finance August 12, 1996
- - ---------------------- and Administration, and
Ronald V. Mohr Director
(principal financial officer)
/s/ Ernest Restina Controller August 12, 1996
- - ----------------------
Ernest Restina
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM
10QSB FOR THE QUARTERLY PERIOD ENDING JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 249
<ALLOWANCES> 5
<INVENTORY> 1,509
<CURRENT-ASSETS> 3,200
<PP&E> 6,354
<DEPRECIATION> 3,883
<TOTAL-ASSETS> 6,552
<CURRENT-LIABILITIES> 2,869
<BONDS> 1,693
0
0
<COMMON> 21
<OTHER-SE> 1,969
<TOTAL-LIABILITY-AND-EQUITY> 6,552
<SALES> 11,144
<TOTAL-REVENUES> 11,144
<CGS> 7,247
<TOTAL-COSTS> 7,247
<OTHER-EXPENSES> 3,880
<LOSS-PROVISION> 14
<INTEREST-EXPENSE> 223
<INCOME-PRETAX> (24)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (17)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
