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: June 30, 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 June 30, 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 and six months ended June 30, 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)
June 30, 1997 December 31, 1996
------------- -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 148,827 $ 106,072
Accounts receivable - trade 1,497,014 1,446,930
Other accounts receivable - 8,718
Accounts and notes receivable
- officers current portion 38,595 38,595
Inventories 680,988 541,632
Prepaid income taxes 149,969 72,477
Prepaid expenses 278,747 74,490
----------- -----------
Total current assets 2,794,140 2,288,914
Property, plant and equipment, net
of accumulated depreciation of
$4,452,689 and $4,430,833 10,693,233 9,378,290
Other assets:
Accounts and notes receivable -
officers 183,905 193,467
Investments 150,000 150,000
Other 209,784 259,736
----------- -----------
543,689 603,203
----------- -----------
Total assets $14,031,062 $12,270,407
=========== ===========
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Balance Sheet
(Unaudited)
June 30, 1997 December 31, 1996
------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable - line of credit $ 1,448,843 $ 1,420,801
Current portion of long-term debt 1,010,633 1,029,090
Accounts payable 1,630,713 1,678,442
Accrued expenses 380,317 260,527
----------- -----------
Total current liabilities 4,470,506 4,388,860
Long-term debt 4,472,829 3,402,621
Deferred tax liability 143,476 143,476
Income tax liability 207,042 -
Post retirement benefit liability 106,668 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 (178,273) (516,031)
----------- -----------
Total equity 4,630,541 4,292,783
----------- -----------
Total liabilities and stockholders $14,031,062 $12,270,407
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Consolidated Statements of Operations
For the Three and Six Months Ended
June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net sales $7,284,661 $7,914,276 $13,245,949 $15,387,443
Cost of sales 5,399,182 5,696,702 9,912,097 11,167,924
---------- --------- --------- ----------
Gross profit 1,885,479 2,217,574 3,333,852 4,219,519
Selling, general and
administrative expenses 1,285,993 1,008,090 2,468,075 2,025,819
--------- ---------- ---------- ---------
Income(loss) from operations 599,486 1,209,484 865,777 2,193,700
Other income and (expense):
Other income 10,596 25,216 24,587 34,820
Other expense (58,721) (5,000) (58,721) (5,000)
Interest expense (204,990) (145,781) (260,187) (255,118)
--------- ------- --------- ---------
Net income before income taxes 346,371 1,083,919 571,456 1,968,402
Provision for income taxes 140,269 399,908 207,042 753,701
------- -------- -------- --------
Net income (loss) $206,102 $684,011 $364,414 $1,214,701
======== ========= ========= ===========
Net income (loss) per share 0.03 0.10 0.06 0.18
==== ===== ===== ====
Average shares outstanding 6,573,639 6,725,066 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 Six Months Ended June 30, 1997 and 1996
Six Months Ended
June 30,
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 364,414 $ 1,214,701
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 492,000 293,210
----------- -----------
Total from operations 856,414 1,507,911
Change in assets and liabilities:
(increase) decrease in assets:
Accounts receivable (41,366) (267,754)
Inventories (139,356) 93,848
Prepaid expenses (281,749) (275,716)
Fixed assets (1,741,176) (544,753)
Other assets (32,909) (304,913)
(Decrease) increase in liabilities:
Accounts payable and accrued expenses 72,061 (440,844)
Notes and loans payable 1,079,793 (390,124)
Deferred tax liability 207,042 643,801
Other liabilities 64,001 -
----------- -----------
Total adjustments (813,659) (1,486,455)
----------- -----------
Net cash provided by (used in) operating
activities 42,755 21,456
Cash and cash equivalents, beginning of
period 106,072 450,751
----------- -----------
Cash and cash equivalents, end of period $148,827 $472,207
=========== ===========
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SPURLOCK INDUSTRIES, INC.
Notes to Consolidated Financial Statements
June 30, 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 6,573,639 shares.
(5) As of June 30, 1997 and December 31, 1996, inventories consisted of the
following:
June 30, 1997 December 31, 1996
------------- -----------------
Raw materials $523,014 $397,511
Work in process 8,138 9,493
Finished goods 149,836 134,628
--------- ---------
$680,988 $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 six months ended June 30, 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
$15,251, 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 six months ended June 30, 1997 have been restated to reflect
the correction of the misappropriations. The effect of the restatement is as
follows:
<TABLE>
<CAPTION>
For the six months ended June 30, 1997
Previously Restated
Reported
<S> <C> <C>
Property, Plant and Equipment 10,759,001 10,693,233
Accumulated Depreciation 4,459,997 4,452,689
Accounts and Notes Receivable - officers 87,402 183,905
Interest Income 9,336 24,587
Selling, General and Administrative Expenses (74,205) (58,721)
</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 six months ended June 30, 1997, the Company generated net income after
tax of $364,414 or $0.06 per share (on a fully diluted basis) as compared to net
income of $1,214,701 or $0.181 per share of common stock, for the same period
last year. Net income for the second quarter was $206,102 or $0.030 per share
(on a fully diluted basis) as compared to net income of $684,011 or $0.099 per
share of common stock, for the same period last year.
The Company's net sales for the quarter ended June 30, 1997 totalled $7,284,661
as compared to $7,914,276 for the same period for 1996, a decrease of 7.96%. Net
sales for the six months ended June 30, 1997 were $13,245,949 or 13.9% lower as
compared to $15,387,443 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 aforementioned decreases in sales as compared to
the same period in 1996 resulted in part from lower average selling prices and
reduced product volume shipments of 9.7% for the three month period and 11.8%
for the six month period due to price cutting by certain competitors in the face
of reduced market demand generally. The Registrant effected downward adjustments
in its product prices to maintain its current product volume shipments.
Management believes this situation will continue through the end of the year.
<PAGE>
Cost of sales for the second quarter were $5,399,182 or 74.1% of net sales as
compared to $5,696,702 or 72.0% for the same period in 1996. Cost of sales for
the six month period were $9,912,097 or 74.8% as compared to $11,167,924 or
72.6% 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 25.9% from 28.2% for the second quarter compared to 1996 and to
25.2% from 27.4% for the six month period compared to the same prior year
period, reflecting the above-described competitive pressures in the marketplace.
Operating expenses (sales, general & administrative expenses) for the second
quarter were $1,285,993 or 17.7% of net sales as compared to $1,008,090 or 12.7%
of net sales for the same period in 1996. The operating expenses for the six
month period were $2,468,075 or 18.6% as compared to $2,025,819 or 13.2% for the
same period in 1996. This increase is attributable to higher depreciation and
personal property taxes 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 second quarter and six month period of 1996. Also,
wages paid to employees in general were higher due to salary and wage increases
effective July 1996. The large percentage change is due to lower sales.
Interest expense was $204,990 or 2.8% of net sales as compared to $145,781 or
1.8% of net sales in second quarter 1996. Interest expense was $260,187 or 2.0%
of net sales as compared to $255,118 or 1.7% for the six month period. Although
average borrowings under the Registrant's line of credit were somewhat lower in
the second quarter of 1997 versus the comparable period in 1996, total average
outstandings were approximately $3,500,000 higher due to additional term
borrowings relating to the Registrant's purchase of the Waverly, Virginia
formaldehyde plant and the new New York facility. Significantly reduced
borrowing rates under the new credit facilities entered into by the Registrant
in July 1996 tempered the growth in overall interest expense.
Other expense was $58,721 or 0.8% of net sales in the quarter and six month
period ending June 30, 1997 as compared to $5,000 or 0.6% of net sales for the
comparable 1996 periods. This increase was due primarily to the settlement of a
contract dispute from 1991 related to the dissolved aircraft business.
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 second quarter of
1997 is $140,269 as compared to $399,908 for the same period last year, owing to
reduced taxable income.
<PAGE>
Liquidity and Capital Resources
Working Capital
At June 30, 1997 working capital was ($1,676,366), an increase of $423,580 from
the prior year's period. Increased product shipments and orders at quarter end
caused accounts receivable and inventories to increase $41,366 and $139,356,
respectively, from December 31, 1996.
Cash Flow
Net cash provided by operating activities was $856,414 and $1,507,911 for the
six months ended June 30, 1997 and 1996, respectively. The reduced cash flow
from operations during the 1997 period resulted from lower net income.
Depreciation accounted for $492,000 of such cash flow, a substantial increase
from the $293,210 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
$1,325,987, comprised primarily of increases of $1,079,793 in long term debt,
$72,061 in accounts payable and accrued expenses, and $207,042 in income tax
liability. Cash was invested in the above-described increase in accounts
receivable, inventories, and an increase in fixed assets of approximately
$1,800,000. The increase in fixed assets was attributable to payments made for
the New York facility. See "New York Expansion" below. Prepaids also increased
by $281,749, which was comprised of prepayment of health insurance claims funds
and, as well as, fire, liability and workmen's compensation insurance premiums.
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 June 30, 1997, outstanding loans under the facility totalled
$1,448,843, which amount represented 86% 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.
<PAGE>
New York Expansion
As previously reported, the Registrant located a site to construct manufacturing
facilities for the production of formaldehyde and resins in the Moreau
Industrial Park in the town of Moreau, Saratoga County, New York. The Registrant
has made application to the local planning board and state environmental
authorities, which approvals are required prior to the initiation of
construction. The Registrant expects the necessary approvals for the New York
project to be obtained in the next month and for on-site contruction of the
project to be initiated. Assuming prompt receipt of such approvals, timely
closing on necessary financing and timely prosecution of construction, among
other factors, management believes the complex can begin operations in early
1998.
The Registrant estimates that the costs of the New York project will total
$8,300,000. Management believes that financing for the project adequate in
amount and on reasonable terms, can be obtained by the Registrant, via
conventional loans or funds from industrial revenue bonds. The Registrant has
obtained a preliminary commitment with respect to such financing from its
current primary lender and a local New York bank.
<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
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings: $ 206,102 $ 684,011 $ 364,414 $1,214,701
Net Income
Shares:
Weighted Average number of shares used in
computing primary earnings per share 6,573,639 6,725,066 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 6,858,579 6,935,066
Earnings per share:
Primary 0.031 0.102 0.055 0.181
========== ========== ========== ==========
Fully Diluted 0.030 0.099 0.053 0.175
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 148,827
<SECURITIES> 0
<RECEIVABLES> 1,497,014
<ALLOWANCES> 0
<INVENTORY> 680,988
<CURRENT-ASSETS> 2,794,140
<PP&E> 15,145,922
<DEPRECIATION> 4,452,689
<TOTAL-ASSETS> 14,031,062
<CURRENT-LIABILITIES> 4,470,506
<BONDS> 0
0
0
<COMMON> 4,808,814
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,031,062
<SALES> 13,245,949
<TOTAL-REVENUES> 13,245,949
<CGS> 9,912,097
<TOTAL-COSTS> 2,468,075
<OTHER-EXPENSES> 58,721
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260,187
<INCOME-PRETAX> 571,456
<INCOME-TAX> 207,042
<INCOME-CONTINUING> 364,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 364,414
<EPS-PRIMARY> .055
<EPS-DILUTED> .053
</TABLE>
