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 December 31, 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.)
5200 S. Washington Avenue, Titusville, Florida 32780
(407) 269-9680
(Address of principal executive offices) (Zip Code)
(Issuer's telephone number)
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 February 5, 1997, 5,096,117 shares of the
Registrant's Class A Common Stock were issued and outstanding,
and 1,767,764.5 shares of the Registrant's Class B Common Stock
were issued outstanding.
_________________________________________________________________
ECKLER INDUSTRIES, INC.
Index to Form 10-QSB
PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of December 31, 1996 (unaudited) 3
Statements of Operations for three months ended
December 31, 1996 and 1995 (unaudited) 5
Statement of Stockholders' Equity for the three
Months ended December 31, 1996 (unaudited) 6
Statements of Cash Flows for the three months ended
December 31, 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
PART I
ECKLER INDUSTRIES, INC.
FINANCIAL INFORMATION
Item 1. Financial Statements
ECKLER INDUSTRIES, INC.
Balance Sheet
(Unaudited)
December 31, 1996
ASSETS
Current:
Cash and cash equivalents $ 241,652
Accounts receivable - net of allowance 153,285
Inventories 1,307,525
Prepaid expenses 616,983
Deferred tax asset 330,610
Total Current Assets 2,650,055
Property, plant and equipment, less accumulated
depreciation and amortization 2,512,645
Other assets:
Prepaid royalty expense 641,726
Prepaid consulting fees 126,689
Other 108,693
Total Other Assets 877,108
$6,039,808
See accompanying notes to financial statements.
ECKLER INDUSTRIES, INC.
Balance Sheet
(Unaudited)
(Continued)
December 31, 1996
Liabilities and Stockholders' Equity
Current Liabilities:
Note Payable $ 333,073
Accounts Payable 545,765
Accrued wages 100,554
Other accrued expenses 209,059
Current maturities of long-term debt 167,582
Obligations under capital leases 1,691
Total current liabilities 1,357,724
Long-term debt, less current maturities 2,203,860
Deferred income taxes 402,814
Total liabilities 3,964,398
Stockholder's equity
Class A common stock; $.01 par value; 10,000,000 shares
authorized; 1,736,750 issued and outstanding 17,367
Class B common stock; $.01 par value; 5,000,000 shares
authorized; 510,375 issued and outstanding 5,104
Additional paid-in capital 3,419,251
Note receivable Class A common stock (326,700)
Deficit (1,039,612)
Total stockholders' equity 2,075,410
$ 6,039,808
See accompanying notes to financial statements.
ECKLER INDUSTRIES, INC.
Statements of Operations
(Unaudited)
Three months ended December 31, 1996 1995
Net sales $ 2,941,821 $ 2,824,971
Cost of sales 1,813,371 1,804,851
Gross Profit 1,128,450 1,020,120
Selling, general and administrative expenses 1,492,939 1,100,102
Loss from operations (364,489) (79,982)
Other income (expense):
Interest expense (72,673) (73,594)
Interest income 2,112 9,189
Miscellaneous income 26,043 7,571
(44,518) (56,834)
Loss before benefit from income taxes (409,007) (136,816)
Benefit from income taxes 212,798 53,300
Net loss (196,209) ($ 83,516)
Accretion of redemption value of redeemable
preferred stock (533,032)
Dividends on preferred stock (18,106)
Net loss applicable to common stock (196,209) (634,654)
Net loss per share $ (.07) $ (.27)
Weighted average number of shares and
share equivalents outstanding 2,665,833 2,356,000
See accompanying notes to financial statements
ECKLER INDUSTRIES, INC.
Statement of Stockholders' Equity
(Unaudited)
Class A Class B
Common Stock Common Stock Additional
Number Par Number Par Paid-In
of Shares Value of Shares Value Capital Deficit
Balance, September 30, 1996
1,641,750 $16,417 510,375 $5,104 $3,077,251 $(843,403)
Issuance of Class A common stock
for consulting services
5,000 $ 50 - - $16,200 -
Exercise of Class A common stock warrants
90,000 $ 900 - - $325,800 -
Net loss $(196,209)
Balance, December 31, 1996
1,736,750 $17,367 510,375 $5,104 $3,419,251 $(1,039,612)
See accompanying notes to financial statements.
ECKLER INDUSTRIES, INC.
Statements of Cash Flows
(Unaudited)
Three months ended December 31, 1996 1995
Cash flows from operating activities:
Net income (loss) $ (196,209) $ (83,516)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 66,636 81,948
Deferred income taxes (212,796) (68,400)
Issuance of common stock for consulting fees 16,250 -
Cash provided by (used for):
Accounts receivable 14,762 (42,081)
Inventories 131,370 (176,517)
Prepaid expenses 400,313 58,492
Prepaid royalty expense 103,328 -
Accounts payable (437,362) (764,704)
Royalties payable - (175,000)
Accrued expenses (96,996) (154,385)
Net cash used for operating activities (210,704) (1,324,163)
Cash flows from investing activities:
Notes and advances to affiliates - 561,850
Purchases of property, plant and equipment (33,601) (22,195)
(Increase) decrease in other assets (17,660) (21,296)
Proceeds from note receivable 94,000 -
Net cash provided by investing activities 42,739 518,359
Cash flows from financing activities:
Borrowings under line of credit 200,000 -
Principal payments of long-term debt (41,791) (891,421)
Payments on capital lease obligations (589) (11,753)
Proceeds from sale of common stock 3,219,075
Redemption of preferred stock (950,000)
Dividends (18,106)
Net cash provided by financing activities 157,620 1,347,795
Net increase (decrease) in cash (10,345) 541,991
Cash, beginning of period 251,997 -
Cash, end of period $ 241,652 $ 541,991
See accompanying notes to financial statements
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, 1996. 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 - LOSS PER SHARE
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 be antidilutive.
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 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 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company accreted $533,032 of redemption value of redeemable
preferred stock during the three months ended December 31, 1995.
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 three months
ended December 31, 1995. Also, the Company issued 5,000 shares
of Class A common stock valued at $16,250 for consulting services
during the three months ended December 31, 1996
NOTE 5 - 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 three months ended December 31, 1996, nor is
it anticipated that it will have a material effect on future
periods.
NOTE 6 - RECLASSIFICATIONS
Certain items in the financial statements for the three months
ended December 31, 1995 have been reclassified to conform to
presentation of the three months ended December 31, 1996.
NOTE 7 - SUBSEQUENT EVENT
On February 12, 1997, the Company entered into an Asset Purchase
Agreement with Team Automobile Sales and Finance, Inc., Wholesale
Acquisitions, Inc. and Liberty Finance Company ("the Targets").
Under the terms of the Agreement, the Company will issue 352,156
shares of Class A common stock and a note payable in the amount of
$1,500,000 in exchange for substantially all of the assets of the
"Targets". In addition, the company will assume substantially all
of the liabilities of the "Targets".
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 December 31, 1996 and the Company's results of operations
for the three months ended December 31, 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 December 31, 1996 Compared to Three Months
Ended December 31, 1995
Sales increased $116,850 or 4% for the three months ended
December 31, 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.
Costs of sales increased $8,520 or less than 1%, for the
three months ended December 31, 1996, compared to the same period
in 1995 due primarily to the increase in sales. Gross profit as
a percentage of sales increased to 38% during the three months
ended December 31, 1995, compared to 36% for the same period in
1995 primarily due to the Company being able to take advantage of
favorable terms from vendors subsequent to the Company's initial
public offering.
Selling, general and administrative expenses increased by
$392,837, or 36% compared to the same period in 1995. This
resulted primarily from the write off of $230,000 of prepaid
consulting fees due to the termination of a consulting agreement.
In addition, there were increased advertising costs of $51,000
associated with the production and mailing of the company's
catalog and general overhead increased by approximately $112,000
primarily 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 $44,518 for the
three months ended December 31, 1996 compared to $56,834 for the
same period in 1995.
Benefit from income taxes increased $212,798 for the three
months ended December 31, 1996. This is mainly due to a decrease
in net deferred tax liabilities and a net operating loss carry-
forward. Benefit from income taxes for the three months ended
December 31, 1995 increased $53,000 mainly due to a decrease in
the net deferred tax liabilities.
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) was 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.
Liquidity and Capital Resources.
The following table sets forth the major components of the
increase (decrease) in cash:
Three Months Ended
December 31
1996 1995
(dollar amounts in thousands)
Net cash used for operating activities $ (211) $ (1,324)
Net cash provided by investing activities 43 518
Net cash provided by financing activities $ 15 $ 1,348
Net increase (decrease) in cash $ (10) $ 542
Inventory levels decreased by $131,370 and increased by
$176,517 for the three months ended December 31, 1996 and 1995,
respectively. Inventory decreased during the first quarter of
the 1997 fiscal year due to the seasonality of the Company's
business. The primary reason for the increase in inventory
during the first quarter of fiscal year 1996 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 for the
decrease in accounts payable of $437,362 for the three months
ended December 31, 1996 compared to a decrease of $764,704 for
the three months ended December 31, 1995.
Prepaid expenses decreased by $400,313 and $58,429 for the
three months ended December 31, 1996 and 1995 respectively. This
was primarily due to the amortization of prepaid catalog expenses
and prepaid GM royalties. Also during the first quarter of
fiscal year 1997, the Company wrote off approximately $230,000 of
prepaid consulting fees due to the termination of a consulting
agreement.
Cash provided by investing activities exceeded cash used for
investing activities by $518,159 for the three months ended
December 31, 1995, primarily due to repayments of notes and
advances by affiliates in the amount of $561,850 during the
period.
Cash provided by investing activities exceeded cash used for
investing activities by $42,739 for the three months ended
December 31, 1996 primarily due to payments received on a note
from a stockholder of $94,000.
Financing activities provided cash of $1,347,795 for the
three months ended December 31, 1995. This resulted from the
excess of proceeds from the sale of common stock of $3,219,075
over repayments of long-term debt of $891,421, payments on
capital lease obligations of $11,753, redemption of preferred
stock of $950,000, and dividends paid to preferred stockholders
of $18,106.
Financing activities provided cash of $157,620 for the three
months ended December 31, 1996 primarily due to borrowings under
a line of credit of $200,000
The Company had working capital at December 31, 1996 in the
amount of $1,292,331. The management of the Company has
developed and implemented strategies to meet future liquidity
needs. These strategies include (i) an initial public offering
of the Company's Class A Common Stock which was completed on
November 15, 1995; (ii) 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
catalogue production costs, which was accomplished in September,
1996; and, (iii) a tighter control on overall costs. The
Company's management believes that these actions, in addition to
the working capital position at December 31, 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 further
terminated lease contracts with related entities thereby
decreasing occupancy costs. 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.
In September 1996, the Company refinanced a $2.1 million
NationsBank loan, which was secured by the Company's real and
personal property, maturing on October 1, 1997, and carried an
interest rate of 3% above the prime rate quoted by NationsBank.
The Company's monthly interest payments under the NationsBank
note were $22,000 and an interim balloon payment of $750,000 was
due in October 1996. In replacement thereof, the Company
obtained a $2.4 million loan from Barnett Bank, Inc. ("Barnett
Bank") in September 1996, secured by the Company's real and
personal property, on terms the Company's management believes are
more favorable to the Company. The new Barnett Bank loan matures
on September 30, 1999. The Company is obligated to make monthly
payments of $13,333 principal plus interest at the rate of 1.5%
above the prime rate quoted by Barnett Bank from time to time.
After using the loan proceeds to pay off the NationsBank loan in
the amount of $2,197,623, a first mortgage on certain real
property owned by the Company in the amount of $130,902, and loan
closing costs in the amount of $54,009, the Company received net
loan proceeds of $17,467.
In September 1996, the Company also obtained a $1 million
revolving line of credit from Barnett Bank. Any outstanding
principal balance will bear interest at 1.5% above the prime rate
quoted by Barnett Bank. Interest is payable monthly and any
unpaid principal balance, plus accrued and unpaid interest, is
due on demand. After payment of closing costs in the amount of
$133,073, the Company had an available line of credit at
September 30, 1996 of $866,927. Included in the closing costs of
$133,073 was approximately $130,000 to pay off capital leases
secured by computer equipment. However, the total principal
balance outstanding on the line of credit at any time shall not
exceed, prior to or after a request for draw or advance, the
lesser of (i) $1,000,000, or (ii) 70% of the Company's accounts
receivable that meet certain criteria, plus 50% of the Company's
inventory that meet certain criteria, plus 25% of work in process
in molds.
The capital infusion from the Company's initial public
offering permitted the Company to commence increasing inventory
levels to enhance more favorable terms with its lenders and take
advantage of quantity and cash discounts. Similarly, the
Company's management believes that the addition of the new line
of credit available from Barnett Bank will enhance the Company's
management of cash flow, and further facilitate the Company's
ability to build inventory for its peak marketing season and fund
catalog production costs which will approximate $950,000
annually. The Company believes that this will facilitate
improvement of its sales and gross margins. Prior to obtaining
the line of credit, the Company was required to utilize its own
cash in the approximate amount of $1,200,000 for costs associated
with the publication and mailing of its 1996 spring catalogue in
preparation for its peak selling season. This affected the
Company's cash flow and Company's ability to keep on hand
sufficient inventory to meet product demand during the peak
selling season. The Company's management believes that the
availability of the line of credit will also further enhance the
Company's ability to purchase and manufacture inventory under the
GM Agreement which will also result in an increase in sales and
cash flow. The Company believes that its refinancing of bank
debt and the obtaining of a revolving line of credit will provide
the Company with sufficient cash to meet its needs for the
foreseeable future.
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 believes 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.
PART II
ECKLER INDUSTRIES, INC.
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedules
(b) Reports on Form 8-K
A current report on Form 8-K Item 5 was filed by
Eckler Industries, Inc. on December 31, 1996.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report on Form 10-QSB to be signed on its
behalf by the undersigned, thereunto duly authorized on February
14, 1997.
ECKLER INDUSTRIES, INC.
By:/s/Gary R. Smith
Gary R. Smith
President/CEO
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.
Signatures Title Date
/s/ Gary R. Smith President, Chief Executive February 14, 1997
Gary R. Smith Officer and Director
/s/Joseph M. Barnes Vice President of Finance February 14, 1997
Joseph M. Barnes and Operations
/s/ Ernest Restina Controller February 14, 1997
Ernest Restina
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This schedule contains summary financial information extracted from
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