SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
to
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended: March 31, 1997
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
incorporation or organization) Identification Number)
209 W. Main St., Waverly, VA 23890
(Address and zip code of principal executive offices)
(804) 834-8980
(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
Class as of March 31, 1997
Common Stock, no par value 6,573,639
<PAGE>
Reasons for Amendment No. 1
During the first quarter of 1998, it was discovered that certain of the
accounting records of Spurlock Industries, Inc. (the "Company"), and the records
of its predecessor companies, had been falsified commencing as early as 1992.
Accordingly, the Company's financial statements for the fiscal year ended
December 31, 1996 and the three months ended March 31, 1997, as presented
herein, have been restated to reflect the correction of these fraudulent acts.
The restatement primarily involves the reclassification of expenses, with
limited impact on previously reported earnings. See Note 6 of the Notes to
Consolidated Financial Statements in Part I., Item 1., below. A detailed
discussion of the events surrounding these fraudulent acts has been previously
reported in Amendment No. 4 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, which was filed with the Securities and Exchange
Commission on April 16, 1998.
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheets
(Unaudited)
March 31, 1997 December 31, 1996
-------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $11,714 $106,072
Accounts receivable - trade 1,608,989 1,446,930
Other accounts receivable 18,890 8,718
Accounts and notes receivable
- officers current portion 38,595 38,595
Inventories 693,350 541,632
Prepaid income taxes 72,477 72,477
Prepaid expenses 134,895 74,490
---------- -----------
Total Current Assets 2,578,910 2,288,914
Property, plant and equipment, net
of accumulated depreciation of
$4,305,767 and $4,430,833 9,526,116 9,378,290
Other assets:
Accounts and notes receivable -
officers 187,507 193,467
Investments 150,000 150,000
Other 269,386 259,736
---------- -----------
606,893 603,203
---------- -----------
Total Assets $ 12,711,919 $12,270,407
============ ============
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - Line of Credit $1,638,428 $1,420,801
Current portion of long-term debt 1,096,432 1,029,090
Accounts payable 1,888,303 1,678,442
Accrued expenses 267,176 260,527
------------ -----------
Total current liabilities 4,890,339 4,388,860
Long-term debt 3,112,225 3,402,621
Deferred tax liability 143,476 143,476
Income tax liability 66,773 -
Post retirement benefit liability 74,667 42,667
Stockholders' equity
Common stock, no par value, 50,000,000 shares
authorized, 6,573,639 shares issued and
outstanding 4,808,814 4,808,814
Retained earnings (384,375) (516,031)
------------ -----------
Total equity 4,424,439 4,292,783
------------ -----------
Total liabilities and stockholders' equity $12,711,919 $12,270,407
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Operations
For the Three Months Ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Revenues:
Net sales $5,961,288 $7,473,167
Cost of sales 4,512,915 5,471,222
---------- ----------
Gross profit 1,448,373 2,001,945
Selling, general and administrative expenses 1,182,082 1,017,729
---------- ----------
Income(loss) from operations 266,291 984,216
Other income and (expense):
Other income 13,991 9,604
Interest expense (35,197) (109,337)
---------- ----------
Net income before income taxes 225,085 884,483
Provision for income taxes 66,773 353,793
---------- ----------
Net income (loss) $158,312 $530,690
========== ==========
Net income (loss) per share 0.024 0.077
========== ==========
Average shares outstanding 6,573,639 6,725,066
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $158,312 $530,690
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 249,000 143,950
--------- -----------
Total from operations 407,312 674,640
Change in assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (172,231) 41,196
Inventories (151,718) (50,386)
Prepaid expenses (60,405) (89,755)
Fixed assets (331,059) (335,535)
Other assets (96,113) 174,197
(Decrease) increase in liabilities:
Accounts payable and accrued expenses 216,510 (67,029)
Notes and loans payable (5,427) (392,399)
Deferred tax liability 66,773 243,894
Other liabilities 32,000 -
--------- ----------
Total adjustments (501,670) (475,817)
--------- ----------
Net cash provided by (used in) operating
activities (94,358) 198,823
Cash and cash equivalents, beginning of
period 106,072 450,751
--------- ----------
Cash and cash equivalents, end of period $11,714 $649,574
========= ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
March 31, 1997
(1) 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.
(2) The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
(3) Income taxes were computed using a statutory rate of 34% net of the
effects of federal surtax exemptions and deductions for state income taxes.
(4) Income (loss) per share was computed using the weighted average number of
common shares outstanding of 6,573,539 shares.
(5) As of March 31, 1997 and December 31, 1996, inventories consisted of the
following:
March 31, 1997 December 31, 1996
-------------- -----------------
Raw materials $502,342 $397,511
Work in process 9,422 9,493
Finished goods 181,586 134,628
--------- ---------
$693,350 $541,632
(6) Restatement of Financial Statements
In January, 1998, the Company discovered that financial information
regarding payments on a note receivable from an executive officer and director
of the Company and the payment of travel and related expenses of this individual
had been falsified to intentionally mislead management concerning their
propriety. Subsequent to this discovery, another executive officer and director
admitted that expenses recorded as equipment and other expenses charged on the
Company credit card were personal in nature. An independent investigation
confirmed that these acts were conducted through apparent collusion with another
officer of the Company. Accounting records of the Company, and its predecessor
companies, were falsified commencing as early as 1992. After restatement, the
pretax effect for the three months ended March 31, 1997 of the overstatement of
selling, general and administrative expenses related to the misappropriation
amounted to $15,484, and the understatement of interest income amounted to
$13,211, all of which is deemed immaterial. Since learning of the
misappropriation, the Company has taken actions intended to prevent a recurrence
of this situation.
The Company's fiscal 1996 financial statements and interim financial
statements for the three months ended March 31, 1997 have been restated to
reflect the correction of the misappropriations. The effect of the restatement
is as follows:
<TABLE>
<CAPTION>
For the three months ended March 31, 1997
Previously Restated
Reported
<S> <C> <C>
Property, Plant and Equipment 9,591,884 9,526,116
Accumulated Depreciation 4,313,075 4,305,767
Accounts and Notes Receivable - officers 93,044 187,507
Interest Income 780 13,991
Selling, General and Administrative Expenses (70,681) (55,197)
</TABLE>
<PAGE>
SPURLOCK INDUSTRIES, INC.
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 "MANAGEMENT
BELIEVES" OR WORDS OF SIMILAR EFFECT. THE REGISTRANT WISHES TO CAUTION READERS
THAT CERTAIN IMPORTANT FACTORS SET FORTH WITHIN SUCH DISCUSSION, 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 1997 AND
BEYOND TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN ANY FORWARD-LOOKING
STATEMENTS MADE HEREIN.
ALSO, CERTAIN FACTORS WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER FROM
THOSE CONTAINED IN ANY SUCH FORWARD-LOOKING STATEMENTS ARE CONTAINED IN THE
REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31,
1996 UNDER THE HEADING "FORWARD-LOOKING AND CAUTIONARY STATEMENTS," AND ARE
HEREBY INCORPORATED HEREIN BY REFERENCE.
Results of Operations
For the three months ended March 31, 1997, the Company generated net income
after tax of $158,312 or $0.024 per share (on a fully diluted basis) as compared
to net income of $530,690 or $0.077 per share of common stock, for the same
period last year.
The Company's net sales for the three months ended March 31, 1997 were
$5,961,288 as compared to $7,473,167 for the same period for 1996. All the sales
were from shipments of resin and formaldehyde by the Registrant's wholly owned
subsidiary, Spurlock Adhesives, Inc. The 25.36% decrease in sales as compared to
the same period in 1996 resulted in part from lower average selling prices
related to lower costs of underlying raw materials, and reduced product volume
shipments for the period due to price cutting by certain competitors in the face
of reduced market demand generally. In response, the Registrant effected
downward adjustments in its product prices in February, 1997, and by the end of
the quarter shipments had increased commensurate with first quarter 1996.
Cost of sales for the first quarter were $4,512,915 or 75.7% of net sales as
compared to $5,471,222 or 73.2% for the same period in 1996. The increase in
cost of sales sold as a percentage of net sales is primarily a result of reduced
sales. The gross margin decreased to 24.3% from 26.75% for the prior year
period, reflecting the above-described competitive pressures in the marketplace
which management believes will be short term in nature.
<PAGE>
Operating expenses (sales, general & administrative expenses) for the first
quarter were $1,182,082 or 19.8% of net sales as compared to $1,017,729 or 13.6%
of net sales for the same period in 1996. This increase is attributable to
higher depreciation due to the purchase by the Registrant of the formaldehyde
plant located in Waverly, Virginia, which plant was subject to an operating
lease during the first quarter of 1996. The large percentage change is due to
lower sales.
Interest expense was $55,197 or 0.9% of net sales as compared to $109,337 or
1.5% of net sales in first quarter 1996. Although average borrowings under the
Registrant's line of credit were somewhat lower in the first quarter of 1997
versus the comparable period in 1996, total average outstandings were
approximately $1,000,000 higher due to additional term borrowings relating to
the Registrant's purchase of the Waverly, Virginia formaldehyde plant. However,
significantly reduced borrowing rates under the new credit facilities entered
into by the Registrant in July 1996 resulted in significantly lower interest
expense overall.
The Company accrues for income taxes at an effective rate of 34% inclusive of
the deduction for state income tax. The tax accrual for the first quarter of
1997 is $66,773 as compared to $353,793 for the same period last year, owing to
reduced taxable income.
Liquidity and Capital Resources
Working Capital
At March 31, 1997 working capital was ($3,004,779), down $824,642 from the prior
year's period. Increased product shipments and orders at quarter end caused
accounts receivable and inventories to increase $172,231 and $151,718,
respectively, from December 31, 1996. Likewise, accounts payable and accrued
expenses increased by $216,510 and borrowings under the line of credit increased
by $217,627, effectively funding the buildup of receivables and inventory.
Cash Flow
Net cash provided by operating activities was $407,312 and $674,640 for the
three months ended March 31, 1997 and 1996, respectively. The reduced cash flow
from operations during the 1997 period resulted from lower net income.
Depreciation accounted for $249,000 of such cash flow, a substantial increase
from the $143,950 in the 1996 period, as a result of increased depreciation
expense relating to the purchase of the Waverly formaldehyde plant.
Cash from operations was supplemented by a net increase in liabilities of
$309,856, comprised primarily of increases in accounts payable and accrued
expenses, deferred tax liability and other liabilities. Cash was invested in the
above-described increase in accounts receivable and inventories, and an increase
in fixed assets of approximately $330,000.
<PAGE>
Liquidity
As previously reported, in July 1996 the Registrant entered into a new
$3,500,000 revolving credit facility with a new lender, which facility matures
in July 1999. On March 31, 1997, outstanding loans under the facility totalled
$1,638,428, which amount represented 92% of the total amount available at such
time based on the levels of accounts receivable and inventory on which borrowing
availability is based. The credit facility provides the Registrant with an
important source of liquidity in addition to cash generated from operations.
Management believes that cash generated from operations, together with amounts
available under the revolving credit facility, will be sufficient to meet the
Registrant's anticipated working capital and liquidity requirements during 1997
and 1998.
New York Expansion
In the fourth quarter of 1996, the Registrant entered a contract of sale with
Niagara Mohawk Power Company for the purchase of certain real property and
facilities near Albany, New York, to construct thereon certain manufacturing
facilities for the production of formaldehyde and resins. In April 1997, the
Registrant announced that it had located a more favorable site in the Moreau
Industrial Park in the town of Moreau, Saratoga County, New York. Management
determined that the Moreau site met all of its requirements for operations, was
more cost-effective and would better meet long-term business objectives. The
Registrant allowed the Niagara Mohawk purchase contract to expire without
material cost to the Registrant. The total estimated cost of the proposed Moreau
facility would approximate $8,300,000. Management believes that financing for
the project, adequate in amount and on reasonable terms, can be obtained by the
Registrant, via a conventional loan or funding from industrial revenue bonds.
The Registrant has made application to the local planning board, and further
applications will need to be made with, and approval received from, state
environmental authorities prior to the initiation of construction. Although
management believes the complex can begin operations in early 1998, the
Registrant is unable to predict at this time, when and if, the necessary
approvals for the New York project can be obtained.
<PAGE>
SPURLOCK INDUSTRIES, INC.
PART II - OTHER INFORMATION
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
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: May 14, 1998 By: /s/ Phillip S. Sumpter
------------ ----------------------
Phillip S. Sumpter
Chairman and Chief Executive Officer
(Principal Executive and Financial Officer)
<PAGE>
SPURLOCK INDUSTRIES, INC.
Exhibit Index
Exhibit No. Description
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule
EXHIBIT 11
SPURLOCK INDUSTRIES, INC.
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
1997 1996
---- ----
Earnings:
Net Income $158,312 $530,690
Shares:
Weighted Average number of shares used in
computing primary earnings per share 6,573,639 6,725,066
Weighted Average number of shares used in
computing fully diluted earnings per share 6,858,579 6,935,066
Earnings per share:
Primary 0.024 0.08
========= =========
Fully Diluted 0.023 0.077
========= =========
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,714
<SECURITIES> 0
<RECEIVABLES> 1,608,989
<ALLOWANCES> 0
<INVENTORY> 693,350
<CURRENT-ASSETS> 2,578,910
<PP&E> 13,831,883
<DEPRECIATION> 4,305,767
<TOTAL-ASSETS> 12,711,919
<CURRENT-LIABILITIES> 4,890,339
<BONDS> 0
0
0
<COMMON> 4,808,814
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 12,711,919
<SALES> 5,961,288
<TOTAL-REVENUES> 5,961,288
<CGS> 4,512,915
<TOTAL-COSTS> 1,182,082
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,197
<INCOME-PRETAX> 225,085
<INCOME-TAX> 66,773
<INCOME-CONTINUING> 158,312
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 158,312
<EPS-PRIMARY> .024
<EPS-DILUTED> .023
</TABLE>
