SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: September 30, 1996
Commission file Number: 000-21133
SPURLOCK INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Virginia 84-1019856
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
5090 General Mahone Hwy., Waverly, VA 23890
(Address and zip code of principal executive offices)
(804) 834-3113
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
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 the filing requirements for
at least the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date:
Number of Shares Outstanding as of
Class September 30, 1996
Common Stock, no par value 6,725,066
<PAGE>
PART I FINANCIAL INFORMATION
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
September 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and Cash Equivalents $59,955 $250,751
Trading Securities 0 200,000
Accounts Receivable - Trade 1,721,365 1,813,775
Other Accounts Receivable 0 62,179
Accounts and Notes Receivable -
Officers Current 46,458 40,520
Inventories:
Raw Materials 492,321 403,273
Finished Goods 162,097 183,815
Work in Process 7,931 8,677
Deferred Tax Asset 98,300 98,300
Estimated Taxes Paid 756,200 0
Prepaid Expenses 230,609 38,124
------- ------
Total Current Assets $3,575,786 $3,099,414
Property, plant and equipment, net of
accumulated depreciation of
$3,703,385 and $3,559,436 9,335,876 5,712,885
Other assets:
Accounts and Notes Receivable -
Officers 118,119 118,119
Investments 150,000 150,000
Financing Fees 171,523 262,550
------- -------
$13,351,304 $9,342,968
=========== ==========
</TABLE>
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes Payable - Line of Credit $1,261,901 $1,329,096
Notes Payable - Other 0 82,447
Current Portion of Long-Term Debt 1,010,633 993,590
Accounts Payable 1,505,928 2,069,561
Accrued Expenses 679,154 249,922
Amounts Due Stockholders and Related
Parties 66,137 95,622
Deferred Rent 0 510,070
----------- ---------
Total Current Liabilities 4,523,753 5,330,308
Long-term debt 3,605,294 983,652
Deferred tax liability 881,876 109,900
Stockholders' equity
Preferred stock, convertible, $2 par value,
5,000,000 shares authorized, 0 and 1,200,000
shares issued and outstanding at September
30, 1996 and December 31, 1995, respectively 0 2,400,000
Common stock, no par value, 50,000,000
shares authorized, 6,725,066 and 4,325,066
shares issued and outstanding at September
30, 1996 and December 31, 1995,
respectively 4,928,814 2,528,814
Retained earnings (588,433) (2,009,706)
--------- -----------
4,340,381 2,919,108
--------- ---------
$13,351,304 $9,342,968
=========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statement of Operations
For the Three Months and Nine Months Ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $6,693,069 $6,781,583 $22,080,512 $25,949,655
Cost of sales 4,995,558 4,949,653 16,163,482 20,920,420
--------- --------- ---------- ----------
1,697,511 1,831,930 5,917,030 5,029,235
Selling, general and
administrative expenses 1,166,518 903,091 3,192,337 2,726,915
--------- ------- --------- ---------
Income (loss) from
operations 530,993 928,839 2,724,693 2,302,320
Other income and
(expense):
Other income 15,959 1,839 50,779 15,557
Other expenses (9,412) (215) (14,412) (84,690)
Interest expense (202,793) (177,452) (457,911) (468,560)
--------- --------- --------- ---------
(196,246) (175,831) (421,544) (537,693)
Net income before
income taxes 334,747 753,011 2,303,149 1,764,627
Provision for income
taxes 128,175 0 881,876 26,000
--------- --------- --------- ---------
Net income (loss) $206,572 $753,011 $1,421,273 $1,738,627
======== ======== ========== ==========
Net income (loss)
per share $.03 $.17 $.21 $.40
==== ==== ==== ====
Average shares outstanding
6,725,066 4,326,066 6,725,066 4,326,066
========= ========= ========= =========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Cash Flow
For the Nine Months Ended September 30, 1996 and 1995
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $1,421,273 $1,738,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 492,720 494,387
Decrease in accounts receivable 154,589 438,252
Decrease in trading securities 200,000 0
(Increase) Decrease in inventories (66,584) 677,860
(Increase) in prepaid expenses (192,535) (178,065)
(Increase) Decrease in other assets (671,610) 0
(Decrease) in accounts payable and accrued expenses (134,402) (2,810,092)
Increase in deferred tax liability 771,976 26,000
------- ------
Total adjustments 554,154 (1,238,899)
-------
Net cash provided by (used in) operating activities 1,975,427 499,728
Investing activities: Purchase of fixed assets (4,115,711) (420,816)
Financing activities:
Increase in notes and loans payable 1,949,488 108,987
Stock and stock subscriptions terminated 0 (3,702)
----------- -------
Net cash provided by (used in) investing activities 1,949,488 105,285
Cash and cash equivalents, beginning of period 250,751 76,984
------- ------
Cash and cash equivalents, end of period $59,955 $261,181
======= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
September 30, 1996
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Spurlock Industries, Inc. (the "Registrant") merged with Air Resources
Corporation, a Colorado corporation (the "Company"), effective July 15, 1996.
The primary purpose of the merger was to change the domicile of the Company to
Virginia. The merger was accounted for as a recapitalization.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year or for any other
interim period. Historically, the Company's business has been significantly
affected by seasonal factors. The Company typically has greater sales revenues
in the spring and fall months of the year.
Income taxes were computed using a statutory rate of 34% net of the effects of
federal surtax exemptions and deductions for state income taxes.
Income (loss) per share was computed using the weighted average number of common
shares outstanding.
The preferred stock shares were converted to common stock pursuant to their
terms at the election of the holder in January 1996.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Forward-Looking Statements
The following discussion contains certain forward-looking statements,
generally identified by phrases such as "the Registrant expects" or words of
similar effect. The Registrant wishes to caution readers that certain important
factors set forth below, among others, in some cases have affected, and in the
future could affect, the Registrant's actual results and could cause the
Registrant's actual results for 1996 and beyond to differ materially from those
expressed in any forward-looking statements made herein.
Results of Operations
For the nine months ended September 30, 1996, the Registrant reported
net sales of $22,080,512, a decrease of 14.9% compared to net sales of
$25,949,655 for the comparable 1995 period. All sales related to sales of
resign, formaldehyde and fertilizer materials by the Registrant's wholly owned
subsidiary, Spurlock Adhesives, Inc. ("Spurlock Adhesives"). The decrease in
sales can be attributed to reduced raw material costs which translated into
lower average selling prices. Product volume shipments were very similar between
the 1995 and 1996 nine-month periods. Quarterly net sales for the period ended
September 30, 1996, showed a more modest 1.3% decrease, from $6,781,583 in the
1995 period to $6,693,069 in the third quarter of 1996.
Costs of sales for the nine months ended September 30, 1996, decreased
22.7% from the comparable 1995 period, from $20,920,420 (80.6% of net sales) to
$16,163,482 (73.2% of net sales). This significant reduction in cost of sales
was driven by lower raw materials costs, which out-paced the decrease in net
sales. Accordingly, gross profits for the first three quarters of 1996 increased
17.7% to $5,917,030 from $5,029,235 in 1995. The gross margin improved to 26.8%
from 19.4% in the 1995 period.
In contrast, gross profits fell 7.3% in the third quarter of 1996
compared to third quarter 1995 to $1,697,511 (25.4% of net sales) from
$1,831,930 (27.0% of net sales). This resulted from cost of sales rising just
under 1% to $4,995,558, due to small increases in raw materials, labor and
overhead compared to third quarter 1995.
Selling, general and administrative expenses for the first three
quarters of 1996 were $3,192,337 or 14.5% of net sales versus $2,726,915 or
10.5% of net sales for 1995. The increase in operating expenses resulted
primarily from increased
<PAGE>
office expenses, expenses related to the Registrant's change of domicile merger,
and higher salaries and benefits costs. Operating expenses also increased on a
quarterly basis, from $903,091 (13.3% of net sales) for the three months ended
September 30, 1995 to $1,166,518 (17.4% of net sales) for the comparable period
in 1996, primarily as a result of travel and other expenses related to the
proposed Albany, New York project (discussed below).
Interest expense for the nine months ended September 30, 1996 totaled
$457,911 or 2.1% of net sales, versus $468,560 or 1.8% of net sales for the
prior years period. This slight decrease was achieved despite a net increase of
almost $2,000,000 in notes and loans payable - primarily attributable to the
purchase of formaldehyde equipment formerly leased under an operating lease -
and reflects lowered borrowing costs achieved by the new asset based loan
facility entered into by the Registrant in July, 1996 and lower average
outstandings. For the quarter ended September 30, 1996, interest expense totaled
$202,793 (3.0% of net sales), up from $177,452 (2.6% of net sales) for the
comparable 1995 period, primarily as a result of the increased outstandings
relating to the purchase of the formaldehyde plant. Because of lower net sales,
interest expense as a percentage of net sales for both the nine and three month
periods ending September 30, 1996, were higher than in the applicable 1995
periods.
Net income before income taxes for the nine months ended September 30,
1996, jumped 30.5%, to $2,303,149 (10.4% of net sales) from $1,764,627 (6.8% of
net sales), primarily due to the dramatic improvement in the gross margin. For
the third quarter of 1996, pre-tax earnings fell 55.5% to $334,747 (5.0% of net
sales) from $753,011 (11.1% of net sales) reported in the third quarter of 1995.
This decrease for the quarter reflects higher operating costs - primarily
increased costs of salaries and employee benefits - which the Registrant was
unable to pass on to its customers.
Net income for the first nine months of 1996 was $1,421,273 (6.4% of
net sales), a decrease of 18.3% from the $1,738,627 (6.7% of net sales) reported
in 1995. This resulted from the provision for income taxes increasing
substantially to $881,876 in 1996 from only $26,000 in 1995 due to the
Registrant having fully utilized net operating loss carry-forwards. Net income
for the third quarter of 1996 totaled $206,572 (3.1% of net sales), down 72.6%
from $753,011 (11.1% of net sales) in third quarter 1995. The third quarter
reduction in net income reflects the above-described reduction in pre-tax
income, and a provision for income taxes of $128,175 compared to $0 in the third
quarter in 1995.
On a per share basis, the Registrant earned $0.21 for the nine months
ended September 30, 1996, down from $0.40 for the 1995 nine month period. For
the 1996 third quarter, the Registrant earned $0.03 per share versus $0.17 in
third quarter 1995.
<PAGE>
Liquidity and Capital Resources
Despite somewhat reduced earnings for the first nine months of 1995,
the Registrant reported a strong cash flow from net income and depreciation and
amortization of $1,913,993. This strong cash flow, supplemented by the sale of
$200,000 in trading securities and an approximately $2,000,000 increase in notes
and loans payable relating to a $3.6 million term loan entered into by the
Registrant in July, 1996, was sufficient to fund the purchase of approximately
$4.1 million of fixed assets. The bulk of such fixed assets related to the
formaldehyde plant purchased in July 1996 from D.B. Western, Inc.
Working capital increased to ($1,610,316) at September 30, 1996, from
($2,230,894) at December 31, 1995. Spurlock Adhesives traditionally has
operated, and continues to operate, with a negative working capital position, as
it takes advantage of supplier payment terms which exceed those granted to its
customers. Significant changes in balance sheet items included: the addition of
Estimated Taxes Paid of $756,200, and an increase of $771,976 in Deferred Tax
Liability, reflecting the Registrant's increased income tax liability due to
increased profitability and full utilization of net operating loss
carry-forwards; an increase in pre-paid expenses of $192,535 due to increased
prepayments of general and health insurance premiums and a deposit for purchase
of real property relating to the proposed New York project (discussed below); a
decrease in accounts payable of $563,633 due to untimely billing by a major
supplier and a corresponding increase in accrued expenses of $429,232 relating
to such untimely billing; and a reduction of $510,070 in deferred rent
reflecting the termination of the D.B. Western, Inc., operating lease for a
formaldehyde plant.
As previously reported, the Registrant refinanced its $3,500,000
working capital line of credit in July, 1995. At September 30, 1996, outstanding
loans under the facility totaled $1,261,901, leaving $525,355 in unused loan
availability at such time based on levels of accounts receivable and inventory
on which the borrowing availability is based. The credit facility provides the
Registrant with an important source of liquidity in addition to its cash account
and cash generated from operations. Management expects that cash generated from
operations, together with amounts available under the Registrant's credit
facility, will be sufficient to meet the Registrant's anticipated working
capital and operating liquidity requirements for the remainder of 1996 and for
1997.
The Registrant intends to acquire certain real property and facilities
on the Hudson River near Albany, New York, and to construct thereon certain
manufacturing facilities for the production of formaldehyde and resins. In the
fourth quarter of this year, the Registrant entered into a contract of sale with
Niagara Mohawk Power Corporation for the purchase of the applicable real
<PAGE>
property in exchange for the assumption by the Registrant of responsibility for
the remediation of certain environmental contamination on the property. Outside
consultants to the Registrant have estimated that the costs for such remediation
will not exceed $860,000. The Registrant has made application to the Department
of Environmental Control of the State of New York, and is currently in
negotiations with such agency as to the timetable and other aspects of the
required remediation.
The total cost of the proposed New York facility would approximate
$8,300,000, with approximately $6,300,000 relating to a resin and formaldehyde
plant to be constructed by D.B. Western, Inc., and $1,800,000 relating to a
methanol and dock project, and other miscellaneous costs relating to the overall
project. The Registrant expects that a second plant will be leased pursuant to
an operating lease from D.B. Western, Inc., and that $7,500,000 of project costs
will be funded via industrial revenue bonds or conventional term financing. The
Registrant has made application to the Industrial Development Authority of
Bethlehem, New York, which application is pending. Also, the Registrant has
received indications of interest and is currently negotiating with a bank to
sell the bonds, or in the absence thereof, to provide conventional term
financing. Management believes that financing for the project, adequate in
amount and on reasonable terms, can be obtained by the Registrant.
The proposed New York project described above - including its
completion, financing, and operation - may be subject to the following factors,
among others: (i) the approval of the project by the New York Department of
Environmental Control on terms acceptable to the Registrant; (ii) approval of
the industrial development bond financing by the Industrial Development
Authority of Bethlehem, New York; (iii) demand for the bonds, and the prospect
of continued investor interest in purchase of the bonds; (iv) the ability of the
Registrant to obtain financing for the project on reasonable terms and at a
reasonable price, the latter subject to the level of interest rates generally
and other macro-economic conditions; and (v) continued strong demand for the
Registrant's products, particularly in the area to be served by the proposed New
York plant.
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On August 1, 1996, the Registrant held its annual meeting of
shareholders. The following five nominees proposed by the Registrant were
elected as directors of the Registrant, for respective terms expiring in the
year indicated: H. Norman Spurlock, Jr. (1997), Irvine R. Spurlock (1998), Glen
A. Whitwer (1998), Harold N. Spurlock (1999) and Philip S. Sumpter (1999).
The only other matter considered at the 1996 annual meeting was the
ratification of the appointment of Winter, Scheifley & Associates, P.C. as
independent auditors for the Registrant for the fiscal year ending December 31,
1996, which was approved by the shareholders.
The chart below sets forth the vote totals for each director and on the
matter of the ratification of the appointment of independent auditors:
<TABLE>
<CAPTION>
- ---------------------------------------- ------------------------- ------------------------ -------------------------
For Against Abstentions and Broker
Non-Votes
- ---------------------------------------- ------------------------- ------------------------ -------------------------
<C> <C> <C> <C>
1. H. Norman Spurlock, Jr. 4,464,547 155,531 730,139
2. Irvine R. Spurlock 4,464,547 155,531 730,139
3. Glen S. Whitwer 4,533,077 87,071 730,139
4. Harold N. Spurlock 4,469,547 150,531 730,139
5. Philip S. Sumpter 4,535,007 85,071 730,139
6. Ratification of Independent Auditors
4,602,348 430 746,439
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The registrant has included the following exhibits pursuant
to Item 601 of Regulation S-K.
Exhibit No. Description
10.1 Spurlock Industries, Inc., 1995 Stock Incentive Plan
(incorporated herein by reference to Exhibit 4.3 of
the Registrant's Form S-8 Registration Statement,
File No. 333-09659)
<PAGE>
10.2 Form of Spurlock Industries, Inc., Incentive Stock
Option Agreement
10.3 Form of Spurlock Industries, Inc., Non-Qualified
Stock Option Agreement
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K:
None.
<PAGE>
SPURLOCK INDUSTRIES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPURLOCK INDUSTRIES, INC.
(Registrant)
Dated: November 14, 1996 By: /s/ Warren E. Beam, Jr.
----------------- -----------------------
Warren E. Beam, Jr.
Treasurer and Assistant Secretary
Dated: November 14, 1996 By: /s/ Warren E. Beam, Jr.
----------------- -----------------------
Warren E. Beam, Jr.
Treasurer and Controller
Chief Accounting Officer
<PAGE>
SPURLOCK INDUSTRIES, INC.
Exhibit Index
Exhibit No. Description
10.1 Spurlock Industries, Inc., 1995 Stock Incentive Plan
(incorporated herein by reference to Exhibit 4.3 of
the Registrant's Form S-8 Registration Statement,
File No. 333-09659)
10.2 Form of Spurlock Industries, Inc., Incentive Stock
Option Agreement
10.3 Form of Spurlock Industries, Inc., Non-Qualified
Stock Option Agreement
11 Statement re: Computation of Per Share Earnings.
27 Financial Data Schedule.
EXHIBIT 10.2
SPURLOCK INDUSTRIES, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT (this "Agreement"), effective as
of the ___ day of ___________, 199_, is made by and between Spurlock Industries,
Inc., a Virginia corporation (the "Company"), and ____________, a key employee
of the Company's wholly owned operating subsidiary, Spurlock Adhesives, Inc.
("Employee").
RECITALS:
A. The Board of Directors of the Company has adopted the Spurlock
Industries, Inc. 1995 Incentive Stock Plan (the "Plan"), pursuant to which a
committee of the Board (the "Committee") is authorized to grant to employees,
who have contributed significantly or who can be expected to contribute
significantly to the profits or growth of the Company or its subsidiaries, one
or more options to purchase the Common Stock of the Company. Capitalized terms
used herein have the definitions ascribed to them in the Plan unless the context
otherwise requires. This Agreement is subject to the applicable provisions of
the Plan and to such other provisions as the Committee may determine.
B. The Committee has determined that Employee has contributed
significantly to the profits and growth of Spurlock Adhesives, Inc., the
Company's wholly owned subsidiary, and desires to induce Employee to continue to
contribute significantly by granting to Employee an Incentive Stock Option.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises, covenants and
agreements herein contained, the parties hereby agree as follows:
1. Incentive Stock Option. Subject to the conditions stated in this
Agreement and the Plan, a copy of which is attached hereto as Exhibit A, the
Company hereby grants to Employee an Incentive Stock Option (the "Incentive
Option") to purchase from it ________________(______) shares of the authorized
and unissued Common Stock of the Company (the "Incentive Shares"). Employee
shall not have any rights as a shareholder with respect to the shares subject to
the Incentive Option until the date he purchases such shares.
2. Exercise of Incentive Option. Subject to the provisions of this
Agreement and the Plan, Employee may exercise the Incentive Option in whole or
part at any time before the expiration of the Incentive Option by delivering to
the Company a written notice of exercise specifying the number of whole shares
to be purchased in multiples of 1,000 and the effective date of the exercise
(which shall be a date coinciding with or following the Company's receipt of
such notice). Any written notice of exercise of the Incentive Option shall be
accompanied by payment of the Purchase Price (as determined in accordance with
Section 3 hereof) for the Incentive Shares being purchased. Such payment shall
be made in cash, unless an alternative method of payment is approved in advance
by the Committee. The Committee may establish such other payment terms as it
deems appropriate. As soon as practicable after receipt of payment, the Company
shall deliver to Employee a certificate or certificates representing the number
of Incentive Shares purchased.
3. Option Price and Purchase Price. The option price for any Incentive
Shares sold to Employee pursuant to any exercise of the Incentive Option shall
be ____________ ($____) per share (the "Option Price"), an amount no less than
the Fair Market Value of each share as of the date of this Agreement. The
purchase price shall equal the number of Incentive Shares to be purchased
multiplied by the Option Price (the "Purchase Price").
4. Term. The Incentive Option shall expire upon the first to occur
of the following:
(a) Employee purchases all of the Incentive Shares;
(b) Ten (10) years pass from the date of this Agreement;
(c) Employee's employment with the Company shall have been
terminated for three or more months for any reason other than
his death or disability; or
(d) Employee's employment with the Company shall have been
terminated for one or more years due to his death or
disability.
5. Representation and Warranties. Any shares transferred to the
Employee pursuant to the Incentive Option will be free and clear of all liens,
pledges and encumbrances. With the exception of this express warranty, the
Company makes no covenants, representations or warranties with respect to the
Incentive Option or the Incentive Shares.
<PAGE>
6. Miscellaneous.
(a) The Incentive Option is not transferable by Employee other than by
will or by the applicable laws of descent and distribution.
(b) All notices and other communications which are required or
permitted to be given hereunder shall be in writing and shall be deemed
effective when mailed postage prepaid, certified mail, return receipt requested,
to the last address of the party to whom notice is being sent as shown on the
corporate records of the Company.
(c) The terms of the Plan shall control the operation of this
Agreement, except to the extent that the Agreement provides terms not
inconsistent with the Plan.
(d) This Agreement shall be interpreted, governed and enforced
according to the laws of the Commonwealth of Virginia.
WITNESS the following duly authorized signatures as of the date first
above written.
SPURLOCK INDUSTRIES, INC.
By:
---------------------------------
Irvine R. Spurlock, President
EMPLOYEE
-------------------------------------
---------------------
<PAGE>
SPURLOCK INDUSTRIES, INC.
1995 STOCK INCENTIVE PLAN
Employee's Notice of Exercise
of Incentive Stock Option
1. Date of Exercise ------------------------
(Date Notice is Delivered)
2. Number of Option Shares to be
Purchased ------------------------
3. Preferred Date of Transfer ------------------------
I, ________________, currently hold an outstanding, unexercised and
unexpired Incentive Stock Option under the Spurlock Industries, Inc. 1995 Stock
Incentive Plan (the "Plan") to purchase up to __________ shares of the Common
Stock, as defined in the Plan, of the Corporation at the Option Price of
$_________ per share, and hereby exercise my option to purchase _________ shares
of the Common Stock of the Corporation for a total Purchase Price of
$__________. Please accept this formal exercise of my option for the number of
shares stated above and arrange the closing of this purchase.
---------------------------------------
----------------------------
EXHIBIT 10.3
SPURLOCK INDUSTRIES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT (this "Agreement"), effective
as of the ____ day of ________, 199_, is made by and between Spurlock
Industries, Inc., a Virginia corporation (the "Company"), and
____________________, a key employee of the Company's wholly owned operating
subsidiary, Spurlock Adhesives, Inc. ("Employee").
RECITALS:
A. The Board of Directors of the Company has adopted the Spurlock
Industries, Inc. 1995 Non-Qualified Stock Plan (the "Plan"), pursuant to which a
committee of the Board of Directors (the "Committee") is authorized to grant to
employees, who have contributed significantly or who can be expected to
contribute significantly to the profits or growth of the Company or its
subsidiaries, one or more options to purchase the Common Stock of the Company.
Capitalized terms used herein have the definitions ascribed to them in the Plan
unless the context otherwise requires. This Agreement is subject to the
applicable provisions of the Plan and to such other provisions as the Committee
may determine.
B. The Committee has determined that Employee has contributed
significantly to the profits and growth of Spurlock Adhesives, Inc., the
Company's wholly owned subsidiary, and desires to induce Employee to continue to
contribute significantly by granting to Employee a Non-Qualified Stock Option.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises, covenants and
agreements herein contained, the parties hereby agree as follows:
1. Non-Qualified Stock Option. Subject to the conditions stated
in this Agreement and the Plan, a copy of which is attached hereto as Exhibit A,
the Company hereby grants to Employee a Non-Qualified Stock Option (the
"Option") to purchase from it ____________________ (________) shares of the
authorized and unissued Common Stock of the Company (the "Option Shares").
Employee shall not have any rights as a shareholder with respect to the Option
Shares until the date he purchases such shares.
<PAGE>
2. Exercise of Option.
(a) Subject to the provisions of this Agreement and the Plan, Employee
may exercise the Option in whole or in part at any time before the expiration of
the Option by delivering to the Company a written notice of exercise specifying
the number of whole shares to be purchased in multiples of 1,000 and the
effective date of the exercise (which shall be a date coinciding with or
following the Company's receipt of such notice).
(b) Any written notice of exercise of the Option shall be accompanied
by payment of the Purchase Price (as determined in accordance with Section 3
hereof) for the Option Shares being purchased. Such payment shall be made in
cash, unless an alternative method of payment under paragraph 2(c) below is
approved in advance by the Committee. The Committee may establish such other
payment terms as it deems appropriate. As soon as practicable after receipt of
payment, the Company shall deliver to Employee a certificate or certificates
representing the number of Option Shares purchased.
(c) To the extent approved by the Committee in advance under Section
2(b) hereof and otherwise permitted under applicable laws and regulations and
under the Plan, Employee may make payment of the Purchase Price for the Option
Shares being purchased by means of a "cashless exercise" of the Option. The
cashless exercise shall be effected by either:
(i) Employee's surrendering to the Company or the Company's
withholding from the Employee shares of Common Stock with a Fair Market
Value equal to the Purchase Price (as defined below) for the Option
Shares being purchased and any additional costs and expenses associated
with the cashless exercise; or
(ii) Employee's delivering to a broker instructions to sell a
sufficient number of the Option Shares being purchased upon exercise of
the Option to cover the Purchase Price thereof and any additional costs
and expenses associated with the cashless exercise.
3. Option Price and Purchase Price. The option price for any
Option Shares sold to Employee pursuant to any exercise of the Option shall be
____________________ ($_____) per share (the "Option Price"), an amount no less
than the Fair Market Value of each share as of the date of this Agreement. The
purchase price shall equal the number of Option Shares to be purchased
multiplied by the Option Price (the "Purchase Price").
4. Term. The Option shall expire upon the first to occur of the
following:
(a) Employee purchases all of the Option Shares;
(b) Ten (10) years pass from the date of this Agreement;
(c) Employee's employment with the Company shall have been
terminated for three or more months for any reason
other than his death or disability; or
(d) Employee's employment with the Company shall have been
terminated for one or more years due to his death or
disability.
5. Representation and Warranties. Any shares transferred to the
Employee pursuant to the Option will be free and clear of all liens, pledges and
encumbrances. With the exception of this express warranty, the Company makes no
covenants, representations or warranties with respect to the Option or the
Option Shares.
6. Miscellaneous.
(a) The Option is not transferable by Employee other than by will
or by the applicable laws of descent and distribution.
(b) All notices and other communications which are required
or permitted to be given hereunder shall be in writing and shall be deemed
effective when mailed postage prepaid, certified mail, return receipt requested,
to the last address of the party to whom notice is being sent as shown on the
corporate records of the Company.
(c) The terms of the Plan shall control the operation of this
Agreement, except to the extent that the Agreement provides terms not
inconsistent with the Plan.
(d) This Agreement shall be interpreted, governed and enforced
according to the laws of the Commonwealth of Virginia.
<PAGE>
WITNESS the following duly authorized signatures as of the date first
above written.
SPURLOCK INDUSTRIES, INC.
By:
---------------------------------
Irvine R. Spurlock, President
EMPLOYEE
-------------------------------------
---------------------
<PAGE>
SPURLOCK INDUSTRIES, INC.
1995 STOCK INCENTIVE PLAN
Employee's Notice of Exercise
of Non-Qualified Stock Option
1. Date of Exercise ------------------------
(Date Notice is Delivered)
2. Number of Option Shares to be
Purchased ------------------------
3. Preferred Date of Transfer ------------------------
I, ____________________, currently hold an outstanding, unexercised and
unexpired Non-Qualified Stock Option under the Spurlock Industries, Inc. 1995
Stock Incentive Plan (the "Plan") to purchase up to __________ shares of the
Common Stock, as defined in the Plan, of the Corporation at the Option Price of
$_____ per share, and hereby exercise my option to purchase __________ shares of
the Common Stock of the Corporation for a total Purchase Price of $________.
Please accept this formal exercise of my option for the number of shares stated
above and arrange the closing of this purchase.
---------------------------------------
----------------------------
EXHIBIT 11
SPURLOCK INDUSTRIES, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30
------------- ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings:
Net income $206,572 $753,011 $1,421,273 $1,738,627
Shares:
Weighted average number of
shares used in computing
primary earnings per share 6,725,066 4,326,066 6,725,066 4,326,066
Earnings per share: 0.03 0.17 0.21 0.40
==== ==== ==== ====
Shares:
Weighted average number of
shares used in computing
primary earnings per share 6,725,066 6,726,066 6,725,066 6,726,066
Earnings per share: 0.03 0.11 0.21 0.26
==== ==== ==== ====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-mos 12-mos
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<CASH> 59,955 250,751
<SECURITIES> 0 200,000
<RECEIVABLES> 1,721,365 1,813,775
<ALLOWANCES> 0 0
<INVENTORY> 662,349 595,765
<CURRENT-ASSETS> 3,575,786 3,099,414
<PP&E> 13,388,031 9,005,251
<DEPRECIATION> 4,052,155 3,170,839
<TOTAL-ASSETS> 13,351,304 9,342,968
<CURRENT-LIABILITIES> 4,523,753 5,330,308
<BONDS> 0 0
0 0
0 2,400,000
<COMMON> 6,725 4,325
<OTHER-SE> 4,922,089 2,524,489
<TOTAL-LIABILITY-AND-EQUITY> 13,351,304 9,342,968
<SALES> 22,080,512 25,949,655
<TOTAL-REVENUES> 22,080,512 25,949,655
<CGS> 16,163,482 20,920,420
<TOTAL-COSTS> 3,192,337 2,726,915
<OTHER-EXPENSES> 14,412 84,690
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 457,911 468,560
<INCOME-PRETAX> 2,303,149 1,764,627
<INCOME-TAX> 881,876 26,000
<INCOME-CONTINUING> 1,421,273 1,738,627
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,421,273 1,738,627
<EPS-PRIMARY> .21 .40
<EPS-DILUTED> .21 .26
</TABLE>
