As filed with the Securities And Exchange Commission on December 30, 1997
SEC Registration No. 333-9583
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C. 20549
POST EFFECTIVE
AMENDMENT NO. 2 TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN INTERNATIONAL CONSOLIDATED INC.
----------------------------------------------------
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 1541; 1761; 1791 76-0145668
- ---------------------------- --------------------------- --------------
(State or Other Jurisdiction (Primary Standard Industrial (IRS Employer
Of Incorporated or Classification Code Identification
Organization) Number) Number)
14603 Chrisman
Houston, Texas 77039
(281) 449-9000
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(Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
John T. Wilson, Chief Executive Officer
14603 Chrisman
Houston, Texas 77039
(281) 449-9000
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(Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Agent For Service
Copies to:
----------
Alan L. Talesnick, Esquire Thomas A. Rose, Esquire
Francis B. Barron, Esquire Schneck Weltman & Hashmall LLP
Bearman Talesnick & Clowdus 1285 Avenue of the Americas
Professional Corporation New York, NY 10019
1200 Seventeenth Street, Suite 2600 (212) 956-1500
Denver, Colorado 80202
(303) 572-6500
- --------------------------------------------------------------------------------
Approximate Date Of Commencement Of Proposed Sale To The Public: As Soon
As Practicable After The Effective Date Of This Registration Statement.
- --------------------------------------------------------------------------------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------
Proposed Proposed
Offering Aggregate Amount Of
Title Of Each Class Of Amount To Be Price Per Offering Registration
Securities To Be Registered Registered Share (1) Price Fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.001 par value, 667,000(2) $5.00 $3,335,000 $1,010.61
offered by the Company
Common Stock Purchase Warrants offered by 667,000(2) $ .10 66,700 20.21
the Company
Common Stock, issuable upon exercise of 667,000(2) $5.00 3,335,000 1,010.61
Common Stock Purchase Warrants(3)
Underwriters' Warrants to purchase Common 58,000 $ --- 9 .01
Stock
Underwriters' Warrants to purchase Warrants 58,000 $ --- 1 .01
Common Stock, issuable upon exercise of 58,000 $6.00 348,000 105.00
Underwriters' Warrants(4)
Warrants, issuable upon exercise of 58,000 $ .12 6,960 2.11
Underwriters' Warrants(4)
Common Stock, issuable upon exercise of 58,000 $5.00 290,000 87.88
Warrants underlying Underwriters'
Warrants(5)
Common Stock to be sold by Selling 500,100 $5.00 2,500,500 757.72
Securities Holders
Common Stock Purchase Warrants to be sold
by 3,000,000 $ .10 300,000 90.91
Selling Securities Holders
Common Stock, issuable upon exercise of
outstanding Common Stock Purchase Warrants 3,000,000 $5.00 15,000,000 4,545.45
Common Stock to be sold by Underwriter
(from Exercise of Underwriters' Warrants and
Warrants included in Underwriters' Warrants) 116,000 $6.00 696,000 211.00
---------- ----------- ---------
TOTAL $25,878,170 $7,841.87 (6)
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Includes 87,000 shares and/or warrants to cover the Underwriters'
over-allotment option.
(3) Issuable upon the exercise of Common Stock Purchase Warrants. This
Registration Statement also covers any additional shares of Common Stock
which may become issuable by virtue of the anti-dilution provisions of the
Common Stock Purchase Warrants. No additional registration fee is included
for these shares.
(4) Reserved for issuance upon exercise of the Underwriters' Warrants together
with such indeterminate number of Common Stock Purchase Warrants and/or
Common Stock as may be issuable pursuant to the anti-dilution provisions of
the Underwriter's Warrants, or the Common Stock Purchase Warrants.
(5) Reserved for issuance upon exercise of Common Stock Purchase Warrants
obtained upon exercise of the Underwriters' Warrants.
(6) Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with a primary offering of 580,000 shares of Common Stock and
580,000 Warrants (the "Offering Prospectus"), and one to be used in connection
with the secondary sale of 500,100 shares of Common Stock and 3,000,000 warrants
by certain Selling Securities Holders (the "Selling Securities Holders'
Prospectus"). The Offering Prospectus and the Selling Securities Holders'
Prospectus will be identical in all respects except for the alternate pages for
the Selling Securities Holders' Prospectus included herein which are labeled
"Alternate Page for Selling Securities Holders' Prospectus".
<PAGE>
[Red Ink]
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities And Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
[Logo red, white and blue flag]
Subject To Completion December , 1997
[Red Ink]
PROSPECTUS
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AMERICAN INTERNATIONAL CONSOLIDATED INC.
580,000 Shares Of Common Stock And
580,000 Redeemable Common Stock Purchase Warrants
This Prospectus relates to the offering (the "Offering") by American
International Consolidated Inc. (the "Company") of 580,000 shares of common
stock, $.001 par value (the "Common Stock"), and 580,000 Redeemable Common Stock
Purchase Warrants (the "Warrants") through I.A.R. Securities Corp., which is
also the representative (the "Representative") of Worthington Capital Group,
Inc. (collectively, the "Underwriters") for the purpose of this Offering. The
shares of Common Stock and the Warrants, which are offered on a firm commitment
basis, may be purchased separately and will be transferable separately upon
issuance.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $5.00 per share, subject to adjustment
in certain events, at any time during the period commencing on the date hereof
and expiring on the fifth anniversary of the date hereof. The Warrants are
subject to redemption by the Company at $.01 per Warrant at any time commencing
12 months after the date hereof, on not less than 30 days' prior written notice
to the holders of the Warrants, provided that the average closing bid quotation
of the Common Stock, as reported on the OTC Bulletin Board or the average
closing sale price if listed on a national securities exchange, has been at
least 150% of the then current exercise price of the Warrants for each of the 20
consecutive business days ending on the third day prior to the date on which the
Company gives notice of redemption. The Warrants will be exercisable until the
close of business on the day immediately preceding the date fixed for
redemption. See "DESCRIPTION OF SECURITIES-Warrants".
<PAGE>
Prior to this Offering, there has been no public market for the Common
Stock or the Warrants, and there can be no assurance that any such market for
the Common Stock or the Warrants will develop after the closing of this
Offering, or that, if developed, it will be sustained. The offering price of the
Common Stock and the Warrants and the initial exercise price and other terms of
the Warrants were established by negotiation between the Company and the
Representative and do not necessarily bear any direct relationship to the
Company's assets, earnings, book value per share or other generally accepted
criteria of value. See "UNDERWRITING". The Company intends to have the Common
Stock and Warrants quoted on the OTC Bulletin Board, an electronic quotation
system maintained by the National Association of Securities Dealers, Inc.
("NASD"), under the trading symbols "AICI" and "AICIW," respectively. See "RISK
FACTORS-Risk Factor No. 25-Possible Effects Of SEC Rules On Market For Common
Stock And Warrants".
In addition, 38 persons (the "Selling Securities Holders") who hold 500,100
shares of Common Stock and 3,000,000 warrants previously purchased in a private
offering that was exempt from registration under federal and state securities
laws are proposing to sell those shares and warrants to the public. The Company
also is registering the exercise of those warrants by persons who purchase
warrants from the Selling Securities Holders and resales of the Common Stock
issuable upon the exercise of warrants by the Selling Securities Holders or
persons who purchase warrants from the Selling Securities Holders. These
transactions are being registered by separate Prospectus concurrently with this
Offering. The Company will not receive any of the proceeds from the sale of
shares and warrants by the Selling Securities Holders.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVESTMENT THEREIN INVOLVES A
HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT
IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS" (PAGE 9)
AND "DILUTION" (PAGE 20).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Underwriting Proceeds To
Price To Public (1) Discount And Commissions (3)(4) Company (4)(5)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share (2) $ 5.00 $ 0.50 $ 4.50
Per Warrant $ .10 $ 0.01 $ .09
Total (2) $2,958,000 $295,800 $2,662,200
- --------------------------------------------------------------------------------------------------------------
(See Notes on following page)
</TABLE>
The Common Stock and Warrants are being offered by the Company through the
Underwriters on a firm commitment basis. The Offering is made by the
Underwriters, subject to the Underwriters' right to reject any subscription, in
whole or in part, or to withdraw or cancel the Offering without notice. It is
expected that delivery of the certificates representing the Common Stock and the
Warrants will be made against payment therefor at the offices of the
Representative, 99 Wall Street, New York, New York 10005 on or about ________,
1997.
I.A.R. Securities Corp. Worthington Capital Group
The date of this Prospectus is , 1997
-----------------
2
<PAGE>
Notes
-----
(1) The offering price has been arbitrarily determined by negotiations between
the Company and the Representative. See "RISK FACTORS".
(2) The Common Stock and Warrants are offered on a "firm underwriting" basis.
The Common Stock and Warrants are offered, subject to receipt and
acceptance by the Underwriters, to prior sale and to the Underwriters'
right to reject any order in whole or in part and to withdraw, cancel, or
modify the offer without notice. The Company has granted to the
Underwriters an option, solely to cover over-allotments of the Offering, to
purchase all or any part of 15 percent of the total number of shares of
Common Stock and Warrants for a period of 45 days from the date of Closing
of the Offering at the price to public and subject to the underwriting
discount and commissions shown in the above table. See "UNDERWRITING". The
Underwriters reserve the right to reject subscriptions for any reason,
including without limitation, because the Underwriters determine that the
subscriber is not qualified to purchase the Common Stock or Warrants
because either (i) the Offering has not been qualified in the subscriber's
jurisdiction, or (ii) the Underwriters do not believe the investment is
suitable for the subscriber based on the investment profile and strategy of
the subscriber. In addition, the Underwriters may reject a subscription
because the Offering has been oversubscribed.
(3) The Underwriters will receive a non-accountable expense allowance equal to
three percent, or $88,740 of the $2,958,000 aggregate offering amount
($102,051 if the Underwriters' over-allotment option is exercised in full),
of which $25,000 previously has been advanced by the Company.
The Underwriting Agreement provides that, upon the closing of this
Offering, the Company will enter into a consulting agreement with the
Underwriters pursuant to which the Underwriters will receive a consulting
fee of $55,000, payable at the Closing, for services to be rendered by the
Underwriters to the Company for three years commencing on the closing date
of the Offering. See "UNDERWRITING".
The Underwriting Agreement also provides for reciprocal indemnification
between the Company and the Underwriters, including liabilities arising
under the Securities Act of 1933, as amended. See "SECURITIES AND EXCHANGE
COMMISSION POSITION ON CERTAIN INDEMNIFICATION".
(4) Upon the closing of the Offering, the Company will sell to the Underwriters
and/or their designees, for an aggregate price of $10, warrants to purchase
up to a maximum of 58,000 shares of Common Stock and 58,000 Warrants (the
"Underwriters' Warrants"). The Underwriters' Warrants will entitle the
holder to purchase the shares of Common Stock at a purchase price of $6.00
per share and the Warrants at a purchase price of $.12 per Warrant. The
Warrants received upon exercise of the Underwriters' Warrants are
exercisable at $5.00 per share during the four year period commencing one
year after the date of this Prospectus. See "UNDERWRITING".
(5) These amounts represent the proceeds to the Company after payment of the
underwriting commissions, but before deduction of other offering expenses
estimated at $570,000 (approximately $295,000 of which will have been paid
prior to closing). These other offering expenses include the
non-accountable expense allowance to the Underwriters of $88,740 ($102,051
if the Underwriters' over-allotment option is exercised in full) and
additional offering expenses estimated at $481,260 for filing fees,
printing costs, legal and accounting fees, and miscellaneous expenses.
After allowing for all such expenses and offsetting prior payments, the net
cash proceeds to the Company from this Offering are expected to be
$2,387,200.
(6) This Offering commenced as a "best-efforts, minimum maximum" offering on
March 13, 1997. The Offering continued for a 60 day period and was extended
for an additional 30 days upon mutual agreement of the Company and the
Underwriters. Funds received during the Offering period were held by an
escrow agent in a separate escrow account. At the end of the 90 day
offering period, on June 11, 1997, the minimum offering had not been
subscribed for and all funds in the escrow account were returned to the
investors.
3
<PAGE>
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited and reported upon by its
independent certified public accountants after the end of each fiscal year,
commencing with its fiscal year ending April 30, 1998. The Company may
distribute quarterly reports containing unaudited interim financial information.
The Company also will furnish stockholders with such other periodic reports as
the Company may determine to be appropriate or as may be required by law.
Officers, directors and affiliates of the Company, and persons associated
with them, may purchase Common Stock or Warrants in the Offering. If such
purchases are made, they will be made solely with a view toward investment and
not resale. It is not expected that purchases by officers, directors and their
affiliates will exceed five percent of the Common Stock or Warrants. As of the
date of this Prospectus, no officer, director or affiliate of the Company is
obligated to purchase any Common Stock or Warrants in the Offering and no
officer, director or affiliate has made a commitment or indicated his intention
to purchase securities in the Offering.
THE COMMON STOCK AND WARRANTS ARE OFFERED SUBJECT TO PRIOR SALE, ALLOTMENT,
WITHDRAWAL, CANCELLATION OR MODIFICATION OF THE OFFERING WITHOUT PRIOR NOTICE.
THE UNDERWRITERS RESERVE THE RIGHT TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN
PART. THE OFFERING CANNOT BE MODIFIED UNLESS AN AMENDED REGISTRATION STATEMENT
IS FILED AND DECLARED EFFECTIVE BY THE SECURITIES AND EXCHANGE COMMISSION.
ANY DOCUMENT WHICH IS INCORPORATED BY REFERENCE HEREIN BUT NOT DELIVERED
HEREWITH, MAY BE REQUESTED BY ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED.
SUCH REQUESTS SHALL BE MADE TO AMERICAN INTERNATIONAL CONSOLIDATED INC., 14603
CHRISMAN, HOUSTON, TEXAS 77039, TELEPHONE NUMBER (281) 449-9000. DELIVERY OF THE
REQUESTED DOCUMENTS WILL BE MADE WITHOUT CHARGE.
4
<PAGE>
PROSPECTUS SUMMARY
The Company
American International Consolidated Inc. (the "Company") is a general
contractor and a manufacturer that focuses primarily on three types of
construction products: mini-warehouses and self-storage facilities; metal
buildings and structural steel projects; and cold storage, including
refrigerated and freezer, buildings. The Company's services range from the
start, or construction design, phase to the finish, or erection, phase of a
project, including general construction, construction management, design,
manufacture, building, and turnkey services. The Company selects, coordinates
and manages subcontractors for substantially all phases of the work, except for
design and erection of certain metal building components. The Company also
provides oversight and supervision of the entire construction process for each
project.
The Company intends to take advantage of its increased capital and improved
financial condition resulting from this Offering by (i) increasing business
volume through increasing bonding capacity in order to access larger projects
and other new business, undertaking planned domestic and international marketing
programs, and increasing business referrals from suppliers and other business
contacts, and (ii) increasing operating margins and profitability through
decreasing interest expense (from reduction of debt) and decreasing bonding
costs. See "BUSINESS-Business Plan And Strategy" for a more detailed description
of this strategy and each of these items. See also "USE OF PROCEEDS".
The Company's principal executive and administrative offices are located at
14603 Chrisman, Houston, Texas 77039, telephone number (281) 449-9000.
The Company was incorporated under the laws of Texas in May 1985 and
changed its state of incorporation to Delaware in June 1994. In July 1996, the
Company changed its name to American International Consolidated Inc. from
American International Construction Inc.
The Offering
Securities Offered ................. The Company is offering 580,000 shares
of the Company's common stock (the
"Common Stock") and 580,000 redeemable
common stock purchase warrants (the
"Warrants"). Each Warrant entitles the
holder to purchase one share of Common
Stock for $5.00 per share during the
period beginning on the date of this
Prospectus and ending five years from
the date of this Prospectus. See
"DESCRIPTION OF SECURITIES".
Offering Price ..................... $ 5.00 per share of Common Stock
$ .10 per Warrant
Warrant Exercise Price ............. $ 5.00 per share of Common Stock,
subject to adjustments in certain
circumstances
Warrant Exercise Period ............ The Period commencing on the date of
this Prospectus and expiring on
__________, 2002.
5
<PAGE>
Shares of Common
Stock outstanding: prior to
Offering: ......................... 2,900,100
Shares of Common Stock offered (1): 580,000
Shares of Common Stock outstanding
after the Offering(1): ........... 3,480,100
Warrants outstanding prior to
Offering(1): ..................... 3,000,000
Warrants offered(1): ............... 580,000
Warrants outstanding
after the Offering: .............. 3,580,000
Shares of Common Stock Outstanding
after the Offering assuming exercise
of all Warrants offered in the
Offering and all Warrants previously
outstanding: ....................... 7,060,100
Estimated net proceeds to the
Company (2): ....................... $2,387,200
- --------------------
(1) Does not include (i) up to 580,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Offering, (ii) up to 87,000 shares
of Common Stock included in the Underwriters' over-allotment option, and
(iii) up to 203,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants and the warrants issuable to the Underwriters upon
the exercise of the Underwriters' Warrants. See "UNDERWRITING".
(2) This amount is after deduction of aggregate selling commissions of $295,800
and the $275,000 unpaid portion of the other total estimated offering
expenses.
6
<PAGE>
Redemption Of The Warrants ......... The Warrants are redeemable by the
Company at a price of $.01 per Warrant
upon 30 days prior written or published
notice at any time commencing 12 months
after the date of this Prospectus and
prior to their exercise or expiration,
provided however, that the closing bid
quotation for the Common Stock for each
of the 20 consecutive business days
ending on the third day prior to the
Company's giving notice of redemption
has been at least 150 percent of the
then effective exercise price of the
Warrants. The Warrants remain
exercisable during the 30-day notice
period. Any Warrant holder who does not
exercise that holder's Warrants prior to
their expiration or redemption, as the
case may be, forfeits that holder's
right to purchase the shares of Common
Stock underlying the Warrants. See
"DESCRIPTION OF SECURITIES-Common Stock
Purchase Warrants-Redemption".
Use Of Proceeds ................... Net proceeds are intended to be used
primarily for payment of outstanding
indebtedness, undertaking additional
marketing activities, and increasing
working capital, which is anticipated to
improve the Company's financial
condition and thereby enable the Company
to increase its bonding line. See "USE
OF PROCEEDS" and "BUSINESS".
Risk Factors ...................... The securities offered hereby involve a
high degree of risk and substantial
immediate dilution to new investors. See
"RISK FACTORS" and "DILUTION".
OTC Bulletin Board Symbols ........ Common Stock - AICI Warrants - AICIW
Summary Selected Financial Data
The financial statements included in this Prospectus set forth information
regarding the Company as of and for the fiscal years ended April 30, 1996 and
1997 (audited) and as of and for the six months ended October 31, 1996 and 1997
(unaudited). See "FINANCIAL INFORMATION". The summary selected financial data
shown below is derived from, and is qualified in its entirety by, those
financial statements, which are contained in the "FINANCIAL INFORMATION" section
of this Prospectus.
7
<PAGE>
<TABLE>
<CAPTION>
Fiscal Year Ended April 30, Six Months Ended October 31,
---------------------------------------- ----------------------------------
1996 1997 1996 1997
---------------- --------------- ---------------- ------------
(Unaudited) (Unaudited)
Operating Results: Actual Actual Actual Actual
- ------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues.............. $31,184,828 $33,350,003 $17,922,834 $19,827,994
Net Income (Loss)..... 351,570 (4,197,239)(1) (1,831,002) 351,214
Net Income Per share.. .12 (1.45) (.63) .12
Balance Sheet Data: April 30, October 31, 1997 October 31, 1997
------------------------------- (Unaudited) (Unaudited)
1996 1997 Actual As Adjusted (2)
-------- ----------- ----------- ---------------
Working Capital (Deficit) ...... $ 836,774 $(3,945,066) $(3,527,506) $(1,140,306)
Total assets ................... 7,346,083 8,691,840 8,413,080 9,160,280
Long Term Debt ................. 2,422,292 327,213 6,926 6,926
Total liabilities .............. 7,566,576 11,859,522 11,229,548 9,884,548
Accumulated (deficit) .......... (368,648) (4,565,887) (4,214,673) (4,214,673)
Stockholders' equity
(deficit) .................... (220,493) (3,167,682) (2,816,468) (724,268)
</TABLE>
- --------------------
(1) Includes a charge of $1,305,250 for the year ended April 30, 1997 and
$1,105,249 for the six months ended October 31, 1996 as the amortized
portion of the non-recurring pre-tax charge to earnings for the 500,100
shares of the Company's Common Stock that were issued in connection with
the issuance of $300,000 of unsecured promissory notes in July 1996. This
non-recurring charge was amortized over the term of the promissory notes.
Also includes a non-recurring charge of $358,946 for the year ended April
30, 1997 and $29,203 for the six months ended October 31, 1997 for the
write-off of capitalized offering costs. See Note 8 to "Notes To
Consolidated Financial Statements" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
(2) As adjusted to reflect the net proceeds from the Offering, including
repayment of $345,000 of unsecured notes, including interest thereon, and
$1,000,000 of trade accounts. See "USE OF PROCEEDS".
8
<PAGE>
RISK FACTORS
THE COMMON STOCK AND WARRANTS BEING OFFERED INVOLVE A HIGH DEGREE OF RISK
AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE
PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR
ENTIRE INVESTMENT. Prospective investors should consider carefully, among other
factors, the risk factors and other special considerations relating to the
Company and this offering set forth below.
Risk Factors Relating To The Business Of The Company
- ----------------------------------------------------
1. Substantial Doubt About The Company's Ability To Continue As A Going
Concern Without Completion Of Public Offering. The Company's operating results
for each of the fiscal years ended April 30, 1995 and 1996 and for the six
months ended October 31, 1997, resulted in a profit; however, the Company
incurred operating losses during each of the fiscal years ended April 30, 1997,
1994 and 1993, and there is no assurance that the operations of the Company will
be profitable in the future. As a result of the Company's losses during its last
completed fiscal year (approximately $4.2 million, including non-recurring
charges of $1.7 million), the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has further deteriorated and these matters raise substantial doubt
about the Company's ability to continue as a going concern without completion of
this Offering or an alternate substantial infusion of equity capital. The
Company believes that it will be successful in removing the threat concerning
its ability to continue as a going concern by adhering to closer and stricter
scrutiny of its contract bids and utilizing the estimated net proceeds of
approximately $2.38 million from this Offering to achieve profitability through
lower interest and bonding costs and expanded volume. Management believes that
approximately $1.0 to $1.2 million of the proceeds from this Offering are
necessary to remove the threat concerning the Company's ability to continue as a
going concern and that if this Offering is completed, the estimated net proceeds
from this Offering will enable the Company to continue operating for the
foreseeable future at its current level of operations. The length of the period
that these proceeds would enable the Company to continue operating at its
current level of operations is dependent upon a number of factors, including
primarily the Company's profitability. Assuming the Company incurs, during
fiscal 1998 and 1999, additional net losses (excluding non-cash, non-recurring
charges) at the same rate as for fiscal 1997 ($2.5 million), the net proceeds
would allow the Company to operate at its current level of operations for
approximately six months. However, the Company has reported a profit for the
first six months of its 1998 fiscal year, and management does not believe that
the Company will incur a net loss for fiscal 1998 and 1999, combined. There is
no assurance that management's belief is accurate and that the Company will not
incur future cumulative net losses. To the extent that management's belief is
accurate, then the net proceeds from the Offering would allow the Company to
continue operations as long as the Company had not sustained future cumulative
net losses of approximately $1.1 million, although additional working capital
may be needed if the Company increases its revenue and business activity. See
Rick Factors No. 2 and 14. There is no assurance these results will occur even
if this Offering is consummated. If this does not occur, the Company will pursue
other sources of financing, but there is no assurance any other source of
financing will be available.
9
<PAGE>
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in Risk Factor No. 3 below and
except for the holders (the "Noteholders") of $300,000 principal amount
unsecured notes as described in Risk Factor No. 3. The Supplier has indicated
that it has no intent of accelerating payment on any obligations as long as this
Offering is completed. The Supplier has not indicated what it will do if this
Offering is abandoned or otherwise terminated unsuccessfully. The Noteholders
have been informed by the Company that the Company is in default of the payments
of the notes and that the notes and interest thereon will be repaid from the
proceeds of this Offering. As of December 29, 1997, there has not been any
indication made to the Company that any of the Noteholders will commence any
legal action to collect on the notes against the Company in the foreseeable
future.
As a result of the losses incurred in the fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors for that year indicates
that there is substantial doubt concerning the Company's ability to continue as
a going concern without a substantial infusion of equity capital, such as that
contemplated from this Offering. The implication of this to investors is that
successful completion of this Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See
"BUSINESS-Business Plan And Strategy", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "FINANCIAL INFORMATION", and
Note 2 to the Financial Statements.
2. Limited Financial Resources, Negative Net Worth, And Outstanding
Obligations. The Company has limited financial resources available, which has
had an adverse impact on the Company's liquidity. Its activities and operations
to date have resulted in a negative net worth. There is no assurance that the
proceeds of this Offering will be sufficient to successfully develop, produce,
and market the Company's services. The Company may be forced to limit its
activities because of the lack of availability of adequate financing. In the
past, the Company's limited liquidity has limited the amount of credit available
from the Company's suppliers. If the Company were not to have adequate financing
available in the future, it is likely that this credit limitation would continue
and that the Company's domestic and international marketing would be directly
affected, which would impair the Company's ability to increase its business
volume.
The Company's negative net worth and financial condition in general have
prevented the Company from being able to obtain performance and payment bonds,
which has limited the Company's ability to obtain certain projects. If this
Offering is successfully completed, the Company believes that it will be able to
increase its bonding line and thereby increase the jobs available to it. See
"BUSINESS-Business Plan and Strategy-Strengthen Financial Condition and Increase
Bonding Capacity".
3. Outstanding Indebtedness. As of October 31, 1997, the Company owed its
major supplier of raw materials (the "Supplier") $2,739,000 for accounts payable
and an additional $1,799,000 that is evidenced by a note (the "Note") and other
related loan documents. The Company is required to make weekly payments of
$11,537 for outstanding principal and accrued interest on the Note until April
30, 2001. If this Offering is successfully completed, of which there is no
assurance, the Company intends to use approximately $1,000,000 of the proceeds
to reduce the accounts payable to the Supplier. Pursuant to the terms of the
Note, it is an event of default if the Company's net income before interest
expense is less than 1.5 percent of the Company's total sales for any fiscal
year beginning with the fiscal year ended April 30, 1997. The Supplier has
waived this requirement for the fiscal year ended April 30, 1997 and for the
period from May 1, 1997 through December 31, 1997, but the Company is required
to satisfy it for subsequent periods. Management believes that if this Offering
is completed, it will be able to satisfy the requirement for the last four
months of fiscal 1998 and thereafter while the Note is outstanding, or that it
will be close enough to satisfying it that the Supplier will waive it.
Nevertheless, there is no assurance that the Company will satisfy this
requirement. As of October 31, 1997 the Company also was in violation of certain
other covenants for which the Supplier has granted a waiver and for which there
is no assurance that the Company will be able to satisfy in the future. The
other covenants for which the Supplier has granted a waiver are as follows: (A)
the Company's investing in any other third parties as that covenant relates to
the Company's investment in (i) U.S. Storage/Westheimer G.P.L.C., See
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES - Interests In U.S.
Storage, Inc.", (ii) U.S. Storage/Atascocita G.P.L.C., and (iii) U.S.
Storage/Woodlands #1 G.P.L.C.; (B) the timely payment of the Company's accounts
payable with the Supplier; and (C) the Company's failure to provide financial
statements to the Supplier within 90 days of April 30, 1997. If all these
requirements are not satisfied as required in the future, the Company will be
required to obtain alternate financing, receive a waiver from the Supplier, or
default on the Note. See "BUSINESS-Indebtedness To Major Supplier".
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As of October 31, 1997, the Company also owed an aggregate of approximately
$311,000 to FCLT, L.P., a Texas limited partnership ("FCLT"), pursuant to two
loans that are payable in June 1998, are collateralized by the Company's land
and buildings, and are guaranteed by the three principal stockholders of the
Company. Aggregate monthly payments on these two loans are $6,082. See
"BUSINESS-Outstanding Bank Loans".
The Company had other obligations of an aggregate of approximately $42,000
at October 31, 1997 that require aggregate monthly payments of approximately
$4,350. The Company also is the obligor on an aggregate of $300,000 principal
amount of unsecured notes, together with interest of more than $38,200 thereon,
that currently are in default that will be repaid from the proceeds of this
Offering. See "USE OF PROCEEDS". The Noteholders have been informed by the
Company that the Company is in default of the payment of the notes and that the
notes and interest thereon will be repaid from the proceeds of this Offering. As
of December 29, 1997, there has not been any indication made to the Company that
any of the Noteholders will commence any legal action to collect on the notes
against the Company.
No legal actions have been taken by creditors of the Company, including the
Noteholders, to collect on any outstanding indebtedness of the Company.
Should the Company's need for additional capital increase, the Company has
no existing arrangements for additional financing besides this Offering, nor are
any currently contemplated.
4. Fluctuations In Industry Construction Activity. Although most recently,
new construction projects for storage facilities, warehouses and pre-engineered
metal buildings and freezer/refrigerated facilities, as well as renovations and
remodeling projects, have occurred at a historically active rate, new projects
were not as numerous in prior years. These fluctuations in industry activity
result from numerous factors, including general economic conditions, interest
rates and the general real estate market. There can be no assurance that future
demand for the Company's services will be adequate for the Company to operate
profitably.
5. Uncertain Markets And Market Acceptance. No assurance can be given of
market acceptance or profitability from sales of the Company's current services
or that sales of future services will be profitable. The Company's industry is
extremely competitive and subject to numerous changes. See "BUSINESS".
6. Competition. The Company competes, in a highly competitive environment,
with many companies in the construction and erection of storage facilities,
warehouses, manufacture of pre-engineered metal buildings, freezer/refrigerated
facilities, and other construction services. Many of the Company's primary
competitors not only have greater resources than the Company, they also have
larger administrative staffs and more available service personnel. The larger
competitors also may use their greater financial resources to develop and market
their services. The presence of these competitors may be a significant
impediment to any attempts by the Company to develop its business. Major
competitive factors include product knowledge, experience, past relationships,
quality of performance, financial condition, reputation, timeliness, and
pricing. The Company believes that it ranks highly and therefore will have
certain competitive advantages in attempting to develop and market its services,
including the Company's excellent relationships with its past and current
customers, which has led to "repeat" business, the Company's product knowledge,
experience, past relationships, quality of performance, reputation and pricing,
and the Company's ability to respond to customer requests more quickly than some
larger competitors. For the year ended April 30, 1997, approximately 43 percent,
and for the six months ended October 31, 1997, approximately 58 percent, of the
Company's business was derived from repeat customers; however there is no
assurance that this will occur in the future. None of the Company's repeat
business is derived from long-term contracts, and all repeat business results
from separately negotiated contracts. With respect to lower rankings for
competitive factors, the Company's capitalization prior to this Offering has
placed it at a competitive disadvantage in the past but the Company believes
that as a result of this Offering it will increase its ability to compete on the
basis of financial condition. However, there is no assurance that this will
prove correct. See "BUSINESS-Marketing" and "BUSINESS-Industry Environment".
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7. Exposure To Construction Related Litigation. The construction industry
has a high incidence of litigation, and as a participant in this industry, the
Company is constantly exposed to the risk of litigation. Based on information
provided to the Company by its insurance agent concerning the insurance carried
by other companies engaged in the construction industry, the Company believes it
maintains insurance for those matters in amounts customary in the industry. Even
though the Company maintains insurance for these matters in amounts customary in
the industry, and even if the Company prevails in any such litigation, of which
there is no assurance, the management time and out-of-pocket expense expended in
commercial litigation could have an adverse impact on the Company.
8. Past Dependence On Major Customers. During the six months ended October
31, 1997 and the fiscal year ended April 30, 1997, U-Haul, Inc. accounted for
approximately $3.8 million and $7.3 million, respectively, or 19 percent and 22
percent, respectively, of the Company's total revenues. During the fiscal years
ended April 30, 1996 and 1995, U-Haul, Inc. accounted for approximately $8.1
million, and $4.9 million, respectively, or 26 percent and 20 percent,
respectively, of the Company's total revenues. The Company negotiates each
project with U-Haul separately as there is no contract with U-Haul covering the
construction of future projects. The loss of U-Haul, Inc.'s business could have
a materially adverse effect on the Company. See "BUSINESS-Reliance On Major
Customers".
9. Previous Unprofitable International Operations. The Company plans to
expand its business in international markets but a significant portion of its
past experiences in international markets has been unprofitable. The past losses
from international business occurred in situations in which the Company had set
up satellite offices in other countries, such as Guam and Puerto Rico, and the
cost of operating and maintaining these offices was too great to operate
profitably. The Company has closed its offices in Puerto Rico and in Guam, and
believes that it will be able to conduct business internationally without
opening satellite offices. The Company currently is doing a small amount of
business internationally through a two-person international sales force located
in its Houston, Texas headquarters.
10. Availability Of Labor; Possible Effect Of Subcontractors' Use Of
Unionized Labor. In order to minimize overhead, the Company often contracts with
independent third parties to provide a substantial portion of the labor for its
construction projects. Therefore, the Company's ability to provide these
services is dependent upon outside sources of workers and this may result in
delays in the completion of contracts due to the unavailability of such labor.
The Company is not currently experiencing, and has not in the past experienced,
a shortage of labor.
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At the current time, the use of unionized labor by subcontractors engaged
by the Company does not have a significant effect on the Company because
subcontractors tend to use unionized labor only in areas where there is a heavy
concentration of unionized labor, and because in those areas other contractors
in competition with the Company most often utilize unionized labor so that there
would be no competitive advantages or disadvantages to the Company. There is no
assurance that this situation will remain constant in the future.
11. Effect Of Unfavorable Weather. Certain aspects of the Company's
construction activities cannot be performed in severely inclement weather, such
as continuous rain and flooding. Conditions of this nature can have a negative
impact on the Company's earnings.
12. Dependence On Key Personnel. The success of the Company is largely
dependent upon the efforts of John Wilson, Chief Executive Officer and a
director of the Company, Danny Clemons, President and a director of the Company,
R. L. Farrar, Vice President of Operations, Treasurer, Secretary and a director
of the Company, and Jim Williams, Vice President of Finance, Assistant Secretary
and a director of the Company. The loss of the services of any of these persons
or the loss of the services of Jimmy M. Rogers, head of the Company's Thermal
System Division, could be detrimental to the Company as there is no assurance
that the Company could replace any of them adequately at an affordable
compensation level. See "MANAGEMENT". The Company has entered into employment
agreements with each of the above officers. See "EXECUTIVE
COMPENSATION-Employments Contracts And Termination Of Employment And
Change-In-Control Arrangements". The Company is the beneficiary for $500,000 of
key-man term life insurance coverage on each of Messrs. Wilson, Clemons, Farrar,
Rogers and Williams. There is no assurance that these insurance policies will
provide the Company with adequate compensation in the event of the death of any
of the insured.
13. Government Regulation And Workers Compensation Insurance. The Company
is subject to government regulation of its business operations. In addition, the
Company's construction activities must meet with the requirements of local
building codes, and the Company is required to provide workers compensation or
alternate insurance coverage for the Company's employees. Because of the nature
of the Company's business in construction services, the cost of this insurance
for the Company's on-site employees is higher relative to the cost of insurance
coverage for the Company's office personnel. When construction work is performed
on behalf of the Company by subcontractors, the subcontractors, and not the
Company, pay the direct costs of insurance for the construction workers. There
is no assurance that subsequent changes in laws or regulations will not affect
the Company's operations adversely.
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14. Possible Need For Future Financing. The Company believes that the
proceeds of this offering will enable it to accomplish the purposes set forth
under "BUSINESS", although there can be no assurance that this will be the case.
If the proceeds of this offering are not sufficient, the Company would be
required to seek additional financing to enable it to conduct its business
operations. There can be no assurance that the Company will be able to obtain
such financing on acceptable terms. Any such additional financing may entail
substantial dilution of the equity of the then-existing stockholders of the
Company. The availability of additional financing may be restricted by
provisions in the underwriting agreement with the Representative that require,
for a period of 12 months after this Offering, that the Company obtain the
Representative's permission in order to issue securities for financing purposes.
See "UNDERWRITING".
15. Broad Discretion To Allocate Use Of Proceeds. The proceeds of this
offering have been allocated only generally. The specific uses of investors'
funds will depend upon the business judgment of management, upon which the
investors must rely, with only limited information about management's specific
intentions. See "USE OF PROCEEDS" and "BUSINESS".
16. No Proceeds To Company From Sales By Selling Securities Holders. The
Company will not receive any of the proceeds from the sale by the Selling
Securities Holders of the 500,100 shares of Common Stock and 3,000,000 Warrants
being registered pursuant to the registration statement of which this Prospectus
is a part. However, in the event that any of the 3,000,000 Warrants are
exercised, the Company will receive the proceeds from the exercise of those
warrants.
17. Benefits Of The Offering To Current Stockholders. Current stockholders
of the Company will benefit from the Offering, including the following: (i)
creation of a public trading market for the Common Stock, which is intended but
for which there is no assurance; (ii) the sale of up to an aggregate of 500,100
shares by certain non-management, non-employee stockholders at the time of the
public offering; and (iii) the substantial unrealized gain, based upon the
difference between the acquisition costs and the initial public offering price,
for stockholders who acquired their stock prior to the public offering. This
difference is $5.00 per share for the non-management, non-employee stockholders
who received an aggregate of 500,100 shares as partial consideration for loaning
the Company an aggregate of $300,000, and may be considered to be as much as
$4.95 for the shareholders who founded the Company in 1985 and during the
interim developed the business of the Company to its current level.
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18. Potential Conflicts Of Interest. Potential conflicts of interest may
arise between the Company and its officers and directors. Although each of the
Company's officers and directors is committed to devote full working time to the
business of the Company, they also may be engaged in other business activities.
If these business activities are of the same type as those engaged in or
contemplated by the Company, conflicts of interest will arise in the area of
corporate opportunities or in the area of conflicting time commitments with
respect to the officers and directors of the Company. Conflicts of interest also
will develop with respect to any contractual relationships that may be entered
into between the Company and any of its officers and directors. See
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES-Conflicts Of Interest
Policy".
At the present time, there are not any material conflicts of interest
between the Company and any of its officers or directors, except to the extent
that their respective positions as large stockholders might present conflicts of
interest and except to the extent that a consulting arrangement with one
director might present conflicts of interest. A previously existing conflict of
interest was resolved in May 1994 when AIC Management, Inc. merged with and into
the Company. At the time of the merger, AIC Management, Inc. owned the land and
buildings that are utilized for the Company's administrative offices as well as
its metal buildings manufacturing facility. The shareholders and directors of
AIC Management, Inc. at the time of the merger were Messrs. Clemons, Farrar and
Wilson, who are the three largest stockholders and three of the four directors
of the Company.
The Company has established a policy pursuant to which the Board Of
Directors will consider transactions with officers, directors, and shareholders
of the Company and their respective affiliates. Pursuant to this policy, the
Board Of Directors will not approve any transaction unless it determines that
the terms of the transaction are no less favorable to the Company than those
available from unaffiliated parties. Because this policy is not contained in the
Company's Certificate Of Incorporation or Bylaws, the policy is subject to
change by the Board Of Directors, although it currently is not contemplated that
the policy will be changed. In addition, in the event any conflicts of interest
arise with respect to any officer or director of the Company, the Company
anticipates that its officers and directors will exercise their judgment
consistent with their fiduciary duties arising under the applicable state laws.
There can be no assurance that all conflicts of interest will be resolved in
favor of the Company.
19. Lack Of Outside Directors. At the present time, only one of the
Company's directors is not also an officer and employee of the Company. However,
this director also serves as a paid consultant to the Company, which may present
conflicts of interest. See above, "Risk Factor No. 18-Potential Conflicts Of
Interest".
Risk Factors Concerning This Offering And The Securities Offered
- ----------------------------------------------------------------
20. Lack of Experience Of Worthington Capital Group, Inc. Worthington
Capital Group, Inc., formerly known as M.D. Walsh & Co., was licensed as a
broker/dealer in July 1991 and has not participated in public offerings prior to
this Offering. In addition, Worthington Capital Group, Inc. is not permitted to
make markets in securities including the securities offered by the Company. The
limited experience of Worthington Capital Group, Inc. and its inability to make
markets may adversely affect the development of a market for the Common Stock
and/or Warrants. See below, "Risk Factor No. 24-No Assurance Of Market For
Common Stock Or Warrants" and "Risk Factor No. 26-Underwriters' Influence On
Possible Market For Common Stock And Warrants".
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21. Significant Dilution To Investors. An investor in this Offering will,
immediately after the Offering, incur significant dilution from the amount of
his initial investment, as compared to the book value per share of the Common
Stock purchased. Dilution to new investors, will be $5.21, or 104 percent, per
share of Common Stock. It appears that significant dilution also will be the
case for any exercise of Warrants in the foreseeable future, although this
cannot be certain because the amount of any such dilution will depend on the
future business operations and other activities of the Company. See "DILUTION".
22. Control By Present Stockholders And Management. Each of Messrs.
Clemons, Farrar, and Wilson, who are officers and directors of the Company, will
own 20.3 percent and Mr. Williams, who is an officer and director of the
Company, will own 3.9 percent of the Company's outstanding Common Stock after
the Offering. Also after the Offering, Management of the Company as a group will
own approximately 64.9 percent of the outstanding shares of Common Stock and
will remain in effective control of the Company because Management will own
enough shares in the aggregate that it would be able to elect all the directors
of the Company, and the investors in this Offering, voting by themselves as a
group, would not be able to elect any of the directors of the Company. See
"PRINCIPAL STOCKHOLDERS" and "DESCRIPTION OF SECURITIES".
23. No Dividends. Since its inception, the Company has paid no dividends
with respect to its Common Stock and it does not contemplate paying dividends in
the foreseeable future. The Company currently is prohibited from paying
dividends by its agreements with a supplier to whom it is indebted. See
"BUSINESS-Indebtedness To Major Supplier".
24. No Assurance Of Market For Common Stock Or Warrants. There currently is
no public market for the Common Stock or Warrants (collectively, the
"Securities") being offered, and no assurance can be given that a market will
develop. Although Worthington Capital Group is not permitted to make a market
for the Company's Securities, I.A.R. Securities Corp. and another broker-dealer
participating in the Offering have indicated that they will make a market for
the Securities. However, they are not required to do so and there is no
assurance that a market will develop. If a trading market does develop for any
of the Securities, the prices may be highly volatile. Neither of the
Underwriters is obligated to make a market in any of the Securities upon
completion of this offering, and, even if an Underwriter makes a market
following the Offering, there is no assurance that it will continue to do so in
the future. In addition, if a market for any of the Securities does develop, and
the Securities are traded below certain prices, many brokerage firms may not
effect transactions in the Securities, and sales of the Securities will be
subject to Securities And Exchange Commission ("SEC") Rule 15g-9. See below,
"Risk Factor No. 25-Possible Effects Of SEC Rules On Market For Common Stock And
Warrants". Trading in the Securities, if any, will be limited to the OTC
Bulletin Board or the "pink sheets" used by members of the NASD. If a market
does not develop for the Securities, it may be difficult or impossible for
purchasers to resell the Securities. The Company withdrew its application to
list its securities on the NASDAQ SmallCap Market ("NASDAQ") because NASDAQ
indicated that the application would not be approved. There is no assurance that
any of the Securities can ever be sold at the offered price or at any price.
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25. Possible Effects Of SEC Rules On Market For Common Stock And Warrants.
If the Company's Securities are traded for less than $5 per security, then
unless the Company's net tangible assets exceed $2,000,000 or the Company has
had average revenue of at least $6,000,000 for the last three years, the
respective security (a "Low-Priced Security") will be subject to SEC Rule 15g-9
concerning sales of low-priced securities or "penny stock" unless the security
is otherwise exempt from Rule 15g-9. Pursuant to Rule 15g-9, prior to concluding
a sale, a broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written representations and agreement
concerning the transaction. In addition, Rule 15g-9 generally requires
broker-dealers to provide customers for whom they are effecting transactions in
a Low-Priced Security, before the transactions, with a standard risk disclosure
document describing the customer's right to disclosures of the (i) current bid
and ask quotations, if any, (ii) compensation of the broker-dealer and the
salesperson in the transaction, and (iii) monthly account statements showing the
market value of such stock held in the customer's account. If the Common Stock
or Warrants individually trade at a price in excess of $5 per security, then
these rules will not apply to transactions in the respective security trading at
a price in excess of $5. To the extent that the respective security becomes a
Low-Priced Security, these rules will apply and would be expected to have a
negative effect on the desire of brokers to sell the Company's Securities, would
be expected to have a negative effect on the brokers' ability to do so, and also
would be expected to have a negative effect on the ability of purchasers in this
Offering to sell the Company's securities in the secondary market.
26. Underwriters' Influence On Possible Market For Common Stock And
Warrants. A significant amount of the Securities to be sold in this Offering may
be sold to customers of the Underwriters. These customers subsequently may
engage in transactions for the sale or purchase of such Securities through or
with the Underwriters. Although it has no legal obligation or commitment to do
so, one of the Underwriters may from time to time become a market maker, and one
or both of the Underwriters otherwise may effect transactions in such
Securities. (As indicated in Risk Factor No. 20, one of the Underwriters is not
permitted to make markets in any securities.) An Underwriter, if it participates
in the market, may be the sole or primary market maker, it may effect a large
proportion of all transactions in the Securities, and it may for these or other
reasons be a dominating influence in the market, if one develops, for the
Securities. The prices and liquidity of the Securities may be significantly
affected by the degree, if any, of the Underwriter's participation in such
market. In these situations, the price of the Securities as quoted by an
Underwriter may not be subject to an independent market for the Securities.
27. Shares Eligible For Future Sales. The Company has a total of 2,900,100
shares of Common Stock issued and outstanding that are "restricted securities".
Restricted securities may be sold in a registered public offering under the
Securities Act of 1933, as amended (the "1933 Act"), or in open-market
transactions in compliance with Rule 144 adopted under the 1933 Act if the
conditions of Rule 144 are satisfied. Generally, Rule 144 provides that, subject
to current information being publicly available concerning the Company, after a
person has held the restricted securities for a period of one year, that person
may sell, in any three-month period, an amount of up to one percent of the
Company's outstanding Common Stock. Persons who have not been affiliates of the
Company for at least three months and who have held their shares for more than
two years are not subject to any limitations on the sale of their restricted
securities. Under Rule 144, and subject to the sales volume limitations
described above, 2,400,000 shares of Common Stock are eligible for resale;
however, the holders of 2,257,401 of these shares have agreed with the
Underwriters not to sell any of these shares until March 13, 1999 without first
obtaining the prior written consent of the Underwriters. The holders of 142,599
of the 2,400,000 shares currently eligible for resale have agreed with the
Underwriters not to sell any of these shares until March 13, 1998 without first
obtaining the written consent of the Underwriters. In addition, the sale by the
Selling Securities Holders of 500,100 shares of restricted Common Stock,
3,000,000 Warrants, and the 3,000,000 shares of Common Stock underlying those
Warrants is being registered pursuant to the registration statement of which
this Prospectus is a part. Although the sale of the securities by the Selling
Securities Holders is being registered, the Selling Securities Holders may not
sell any of these Securities until March 13, 1998 without first obtaining the
prior written consent of the Underwriters. Sales under Rule 144 and by the
Selling Securities Holders, whenever they are made, may have a depressive effect
on the price of the Common Stock.
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28. Possible Issuance Of Additional Shares Of Common Stock And Preferred
Stock. Subject to the Representative's right to approve any additional issuances
of Common Stock, preferred stock, and other securities of the Company for one
year after the effective date of the Offering, under the Company's Certificate
Of Incorporation, the Board Of Directors of the Company has the power to issue
up to an aggregate of 20,000,000 shares of Common Stock of the Company, of which
2,900,100 were issued and outstanding as of October 31, 1997, and of which an
additional 3,000,000 are reserved for issuance upon the exercise of previously
outstanding Warrants, without stockholder approval under certain circumstances.
If this were to occur, of which there is no present intention, there would be
additional equity dilution to the investors in this Offering. Under the
Company's Certificate Of Incorporation, the Board Of Directors of the Company
also has the power to issue all the 1,000,000 authorized and unissued shares of
the Company's $1.00 par value preferred stock without stockholder approval under
certain circumstances. The Board Of Directors of the Company has the right to
fix the rights, privileges and preferences of any class of preferred stock to be
issued in the future. Any class of preferred stock that may be authorized in the
future may have rights, privileges, and preferences senior to the Common Stock.
The creation of a class of preferred stock with rights senior to the Common
Stock could be authorized by the Board Of Directors of the Company without the
approval of the holders of the Common Stock and may adversely affect the rights
of the holders of Common Stock. See "DESCRIPTION OF SECURITIES" and
"UNDERWRITING".
29. Arbitrary Determination Of Offering Price Of Units And Exercise Price
Of Warrants. The price at which the Units are being offered to the public and
the price at which the Warrants are exercisable for shares of Common Stock have
been determined arbitrarily. The offering price and exercise price were arrived
at after negotiations between the Company and the Representative and were based
upon the Company's and the Representative's assessment of the history and
prospects of the Company, the background of the Company's management and current
conditions in the securities markets. Each of these factors was given
approximately equal weight. There is no relationship between the offering price
or the exercise price and the Company's assets, book value, net worth or any
other economic or recognized criteria of value. See "DESCRIPTION OF SECURITIES".
30. Registration Or Exemption Required To Exercise Warrants. Holders of
Warrants have the right to exercise their Warrants to purchase Common Stock only
if a registration statement relating to those shares is then in effect or an
exemption from registration is available and only if those shares are qualified
for sale, or are deemed to be exempt from qualification, under applicable
securities laws of the state of residence of the holder of those shares. The
Company intends to have a registration statement in effect at times that the
Warrants are eligible for exercise, although there can be no assurance that the
Company will be able to do so. However, the Company will not be required to
honor the exercise of the Warrants if, in its opinion, the issuance of Common
Stock would be unlawful because of the absence of an effective registration
statement or for other reasons. If the Company were unable to cause a required
registration statement to be effective during a period of time when holders
wished to exercise, the market value of the Warrants could be adversely
affected.
31. Prior Offering Period Expired Without Obtaining Minimum Offering. There
is no assurance that this Offering will be completed. The Offering, which
originally was made on a "best efforts, minimum/maximum basis", first commenced
on March 13, 1997. The 90 day offering period ended on June 11, 1997 and all
funds were returned to investors because the minimum offering amount was not
received.
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from this Offering are estimated to be
$2,387,200 ($2,773,219 if the Underwriters' over-allotment option is exercised
in full) after deducting selling commissions and other unpaid expenses of the
Offering. Total selling commissions equal to ten percent of the gross offering
proceeds from the Common Stock and Warrants, together with a three percent
non-accountable expense allowance, will be allowed to the Underwriter upon
consummation of the Offering. Other expenses of the Offering, estimated to be
$570,000, include the non-accountable expense allowance, printing costs, legal
fees, accounting fees, blue sky fees and costs, transfer agent fees, SEC and
NASD filing fees and other miscellaneous costs. Approximately $295,000 of the
total offering expenses will have been paid by the Company prior to closing the
Offering leaving $275,000 of offering expenses and $295,800 of selling
commissions to be paid from the offering proceeds. The $2,387,200 of net
proceeds are expected to be allocated substantially as follows and applied in
the following order of priority, during the 12 month period following the
offering(1):
Offering
------------------------------
Approximate
Percentage
Approximate Of Net
Amount Proceeds
----------- -----------
Domestic and International
Marketing Program ........................ $100,000 4.2%
Repayment of Unsecured Notes (2) ......... 345,000 14.5%
Upgrade Computer Software Systems ........ 50,000 2.1%
Reduction of Trade Account to
Major Supplier ........................... 1,000,000 41.9%
Other Working Capital (3) ................ 892,200 37.3%
---------- -----
TOTAL NET PROCEEDS $2,387,200 100%
========== ====
- --------------------
(1) See "BUSINESS-Business Plan And Strategy" for a description of how the
proposed allocation of proceeds of this Offering applies to the Company's
plans.
(2) The Company intends to repay the $300,000 of indebtedness and approximately
$45,000 of accrued interest on notes issued in July 1996 in order to pay
for costs of this Offering and to provide immediate working capital. This
indebtedness accrues interest at 10 percent per annum and was due and
payable upon the earliest to occur of April 24, 1997 or the closing of any
public debt or equity financing of the Company or the closing of any
transaction in which the Company's securities are exchanged for securities
of another entity (whether by merger or otherwise).
(3) The Company's working capital will be utilized for general corporate
purposes and operating expenses, including payment of $55,000 for the
Representative's consulting fee. If the Underwriters' over-allotment option
is exercised in part or in full, the net proceeds from that exercise will
be applied to working capital. See "UNDERWRITING".
19
<PAGE>
Although the amounts set forth above indicate management's present estimate
of the Company's use of the net proceeds from the Offering, the Company may
reallocate the proceeds or utilize the proceeds for other corporate purposes
based on the contingencies described below. The actual expenditures may vary
from the estimates in the table because of a number of factors, including
whether the Company has been operating profitably, what other obligations have
been incurred by the Company, whether the Company desires to expand its existing
operations, and other changes in circumstances. Although no alternate plans
currently exist, other uses could include additional funds for increased
marketing, expanded operations or additional payment on accounts. If the
Company's need for working capital increases, the Company could seek additional
funds through loans or other financing. No such arrangements exist or are
currently contemplated, and there can be no assurance that they may be obtained
in the future should the need arise. If the use of the proceeds of the Offering
in the manner described above proves impractical or it is otherwise deemed by
Management to be in the Company's best interests to utilize the proceeds in
another manner, the Company may apply the proceeds of the Offering in such
manner as it deems appropriate under the then existing circumstances. The
Company has no present intention, agreements or understandings to make any
material acquisitions of businesses, assets, or technologies.
DIVIDEND POLICY
The Company has not paid any cash dividends to date. As indicated under
"BUSINESS-Indebtedness To Major Supplier", the Company's Note to the Supplier
prohibits the payment of any dividends until the Note is paid in full. The
Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying cash dividends on its Common Stock in the future.
DILUTION
The net tangible book value of the Company as of October 31, 1997 was
$(2,973,231) or $(1.03) per share. Net tangible book value per share represents
the amount of total tangible assets of the Company, reduced by the amount of its
total liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 580,000 shares of
Common Stock and 580,000 Warrants at the initial public offering price of $5.00
per share of Common Stock and $.10 per Warrant, the as adjusted net tangible
book value of the Company as of October 31, 1997 would have been $(724,268), or
$(.21) per share of Common Stock. This represents an immediate increase in net
tangible book value of $.82 per share to existing stockholders and an immediate
dilution of $5.21 per share, or 104 percent, to new investors. The following
table illustrates the per share dilution in net tangible book value to new
investors:
Public offering price per share $ 5.00
Net tangible book value per share before the Offering $(1.03)
Increase per share attributable to new investors $ .82
Net tangible book value per share after the Offering $( .21)
Dilution per share to new investors $(5.21)
20
<PAGE>
The following table summarizes, on a pro forma basis, assuming closing of
the Offering, the differences in total consideration paid for Common Stock and
the average price per share paid by existing stockholders and new investors with
respect to the number of shares of Common Stock purchased from the Company
assuming an initial public offering price of $5.00 per share:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- -----------------------
Average
Number Percent Amount Percent Price/Share
------ ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders 2,900,100 83.3% $ 148,155 4.9% $0.05
New investors 580,000 16.7% $2,900,000 95.1% $5.00
--------- ------ ---------- -----
Total 3,480,100 100.0% $3,048,155 100.0%
========= ===== ========== =====
</TABLE>
The information presented above, with respect to existing stockholders,
assumes no exercise of the Underwriters' Warrants, the Warrants included in the
Offering, or the Warrants outstanding prior to the Offering. In addition,
200,000 shares of Common Stock have been reserved for issuance upon the exercise
of options granted pursuant to the Company's 1994 Stock Option Plan. Pursuant to
the 1994 Stock Option Plan, the Company has approved the issuance, effective
upon the completion of this Offering, of options to purchase 172,000 shares of
Common Stock. These outstanding options may not be exercised until one year
after the Company completes the Offering, at which time 25 percent of the
options become exercisable. An additional 25 percent become exerciable on each
subsequent anniversary and all options expire five years after the completion of
the Offering. The issuance of Common Stock under this plan may result in further
dilution to new investors.
21
<PAGE>
BUSINESS
Overview
American International Consolidated Inc. (the "Company") is a general
contractor and a manufacturer that focuses primarily on three types of
construction products: the construction of mini-warehouses and self-storage
facilities; the manufacture of metal buildings and structural steel projects;
and the construction of cold storage, including refrigerated and freezer,
buildings. The Company's services range from the start, or design, phase to the
finish, or erection, phase of a project, including design, manufacture, general
construction, construction management, building, and turnkey services. The
Company selects, coordinates and manages subcontractors for substantially all
phases of the work, except for design and erection, and manufacture of certain
metal building components. The Company also provides oversight and supervision
of the entire construction process for each project.
The Company's principal executive and administrative offices are located at
14603 Chrisman, Houston, Texas 77039, telephone number (281) 449-9000.
Description Of Business
Within its construction and manufacturing operations, the Company operates
three specialty divisions: (i) mini-warehouses and other self-storage
facilities; (ii) the manufacture of metal buildings and structural steel
projects; and (iii) cold storage buildings, including refrigerated and freezer
facilities. The actual manufacturing, construction and other operating services
related to these are generally provided separately by the particular specialty
division of the Company, and the administrative or non-construction services are
provided by the same marketing, accounting, billing, collection, capital
financing, in-house legal, and other general administrative portions of the
Company. Set forth below is a description of each of the three specialty
operations of the Company.
Construction Of Mini-Warehouses
-------------------------------
During each of the fiscal year ended April 30, 1997 and the six months
ended October 31, 1997, the Company realized revenue of approximately $17
million and $11.9 million, respectively, from its mini-warehouse construction.
For the fiscal years ended April 30, 1996 and 1995, the Company's revenue from
this division was $20.6 million and $11.5 million, respectively. Generally,
mini-warehouse projects are undertaken in one of the following three ways: (1)
the Company is engaged to provide all aspects of the project from breaking
ground to turnkey installation; (2) the Company is engaged as a subcontractor to
provide the building frame, the walls, roof and interior partitions; and (3) the
Company is engaged to convert existing buildings, such as office buildings,
strip centers, warehouses and manufacturing buildings, into mini-warehouse
facilities. In all three of the above situations, the Company provides its own
trained job foreman and crew to erect the steel portion (walls, roof,
partitions) and subcontracts the remaining work to regional contractors.
Approximately 19 percent of the Company's mini-warehouse construction work
currently is being undertaken on behalf of U-Haul Inc. For the fiscal years
ended April 30, 1997 and April 30, 1996, U-Haul Inc. represented approximately
43 percent and 39 percent, respectively, of the Company's mini-warehouse
construction business although the Company has also transacted construction work
for Public Storage, Inc., Shurguard Corporation, and other companies. The
Company believes that it is the contractor for approximately 25 to 35 percent of
U-Haul Inc.'s mini-warehouse construction business and that the Company 's
relationship with U-Haul Inc. continues to be favorable.
The Company employs approximately 90 people for its mini-warehouse
construction business including a chief operating officer, a construction
manager, one architectural draftsperson, three project managers, an operations
coordinator, a project assistant, an executive secretary, two purchasing
department employees, four estimators, four draftspersons, two salespeople, nine
field superintendents, and 50 to 60 erection crew members.
22
<PAGE>
Manufacture Of Metal Buildings
------------------------------
The Company provides different variations of services in its metal
buildings and metal roof activities. Most often, the Company will be engaged to
pre-engineer, prepare construction drawings, manufacture the building frames,
procure all non-structural steel, sheeting and trim, and then ship these
products to the customer, with the customer being responsible for erection and
installation as well as site preparation for the building. The Company also may
be engaged, in some instances, in the actual erection of the building. In other
situations, the Company may be engaged only to provide the material components
or to provide the frame itself in the form of cut and welded pieces of steel
that are based on drawings provided by the customer. In all cases, the Company
generally will rely on the owner's being responsible for site preparation,
including work on the slab or other foundation.
The Company's metal buildings division also provides both conventional and
pre-engineered building face lifts and retrofits, and performs the dismantling
and relocation of metal buildings. The experience and knowledge to provide these
services are a natural by-product of the other services provided by the Company.
For the fiscal year ended April 30, 1997 and for the six months ended
October 31, 1997, the Company realized approximately $15 million and $6.3
million, respectively, in gross revenues from its metal buildings manufacturing
and construction services. Approximately $2.3 million, or 7 percent, of these
revenues for the 1997 fiscal year, and approximately $1.8 million of these
revenues, or 30.0 percent, for the six months ended October 31, 1997 resulted
from international sales despite the fact that the Company has virtually no
continuing marketing effort for international sales. For the fiscal years ended
April 30, 1996 and 1995, the Company's revenue from this division was $9.2
million and 10.0 million, respectively.
The Company has determined to concentrate its metal building division
activities on international sales, from which the Company believes it will
derive higher margins. Accordingly, the Company will not pursue domestic sales
of metal buildings except in isolated situations, if any, that it believes will
have high margins. The Company also has determined to close its metal buildings
manufacturing facility and to utilize outside contractors for manufacturing.
This will reduce the number of employees in the metal building division from 25
to three.
On October 27, 1997, the Company sold substantially all its equipment and
inventory that had previously been utilized in the metal buildings division, and
paid the net proceeds to reduce amounts owed to the Supplier. The equipment
purchasers immediately hired all employees at the Company who previously worked
for the metal building division. The Company paid those former employees for
unpaid vacation time accrued through the date of the sale of the equipment and
their being hired by the purchasers. These amounts previously were accrued for
on the Company's financial statements. Those employees who participated in the
Company's 401(k) plan became fully vested at that time. The vested amounts
previously had been accrued on the Company's financial statements. The Company
did not incur any additional costs or commitments for severance pay, union
contracts, operating leases, excess inventory or other related matters. The
equipment purchasers also agreed, among other things, to lease the manufacturing
facility from the Company on a month-to-month basis and to process any metal
buildings manufacturing orders from the Company at a pre-determined fixed price
per ton of steel. The Company intends to sell the manufacturing facility within
one year or to enter into a long-term lease with an option to sell the entire
facility in the future. There is no assurance that either of these will occur.
The Company believes that the metal buildings division will have significantly
lower sales revenue but generate greater gross margins under the new operating
structure.
The Company believes that it could increase its international metal
buildings manufacturing and construction services significantly through a
marketing program that would entail attendance at trade shows and direct sales
visits to U.S. based companies with international operations. These two methods
of expansion appear preferable to attempting to establish more sales
representatives. The Company believes that international expansion is desirable
at this time because (i) there does not appear to be local competition in most
countries, (ii) international projects tend to have higher margins, and (iii)
with respect to Mexico in particular, the North American Free Trade Agreement
("NAFTA") significantly reduces taxes and makes transportation of products and
materials both easier and less expensive. The Company believes it may be at a
competitive advantage for international business because its metal buildings are
generally more simple to erect, the Company is better able to provide continued
service after the completion of the transaction, and the Company tends to be
able to customize its proposals to deal with international needs that may be
different from those for domestic projects. Because the Company's metal frames
generally include more of the component pieces already welded on than those of
its competitors, they are simpler to erect.
23
<PAGE>
The metal buildings sold by the Company utilize steel frames and steel roof
materials, however the walls can be made of brick or any other material. The
Company believes it is at a competitive advantage in bidding projects utilizing
non-steel materials for the walls because most of its competitors prefer to use
metal walls that they manufacture and thereby increase their profit, whereas the
Company purchases all walls from other companies, regardless of whether they are
metal, and therefore, there is no incentive for the Company's bids for projects
with non-steel walls to be structured to favor the steel wall alternative.
There are three full-time and one part-time employee working in the metal
buildings division, including one salesperson, one estimator, and one
administrative person.
Construction Of Cold Storage (Refrigerated And Freezer) Buildings
-----------------------------------------------------------------
The Company's cold storage construction services are performed with the
Company serving either as a specialty subcontractor that is responsible only for
constructing the refrigerated or freezer portions of the building, or as a
general contractor that is responsible for the entire building. When the Company
acts in the capacity of a general contractor, it subcontracts out most aspects
of the construction that do not deal directly with the cold storage function.
For the fiscal year ended April 30, 1997 and the six months ended October
31, 1997, revenue from cold storage construction services accounted for
approximately $1.7 million and $1.2 million, respectively. For the fiscal years
ended April 30, 1996 and 1995, the Company's revenue from this division was $1.4
million and $2.8 million, respectively.
Much of the business and many of the referrals in the cold storage line of
business are influenced heavily by a contractor's financial condition, bonding
capacity, and rapidity of payment. The Company believes that as a result of this
Offering, it will improve its financial condition, increase the frequency of
payment of its accounts, and obtain more desirable terms for its bonding
arrangements and material purchases. These factors are particularly important in
obtaining cold storage construction business because a very high percentage of
the referrals for cold storage construction come from suppliers, and the
suppliers tend to favor those construction companies that pay their bills on a
timely basis. In addition, a high percentage of the work available in cold
storage construction is for companies with national or international operations.
Financial strength and bonding ability are considered quite important by
companies of that nature.
Competition in cold storage construction is highly specialized and limited.
The Company believes that if it is able to improve the timing of its payments
and its credit standing, it will lower its costs by obtaining better terms from
suppliers and increase its business by the improved supplier relationships and
image of the Company. It also believes that its business will improve to the
extent that any of the Offering proceeds are spent on additional marketing
activities.
Personnel involved in the Company's cold storage construction services
include a chief operating officer, a vice president of operations of field work
and purchasing, a general superintendent, a site supervisor, an administrative
secretary and eight construction crew members.
24
<PAGE>
Backlog
As of October 31, 1997 the Company had an aggregate backlog of
approximately $9.2 million, including a backlog of $1.2 million related to its
metal building manufacturing division, $7.9 million related to its
mini-warehouse construction division, and approximately $.01 million related to
its cold storage construction division. The Company expects to complete all of
this backlog by April 30, 1998. By comparison, as of October 31, 1996, the
Company had an aggregate backlog of approximately $17.6 million in the
respective amounts of $6.6 million, $9.7 million, and $1.3 million related to
its metal building manufacturing, mini-warehouse construction, and cold storage
construction divisions, respectively.
Industry Environment
Management believes that the current industry environment complements the
Company's plan to focus on its three types of specialty manufacturing and
construction services. The demand for mini-warehouses and pre-engineered metal
buildings has increased dramatically in the past few years. The Company believes
that the demand for these structures will continue to increase, and that it is
well positioned to meet this demand because of its expertise and business
reputation in these areas. Management also believes that the general increase in
the level of business internationally, coupled with the Company's ability to
service those areas and the relatively low level of competition for the Company
in many of those areas, also positions the Company extremely well for growth,
most particularly with respect to cold storage and metal buildings. See "RISK
FACTORS-Risk Factor No. 9-Previous Unprofitable International Operations".
Although there is no assurance that the growth of the industry or of the Company
will continue, the Company believes its business will continue to increase and
that it will benefit from a future increase in new construction in these and
other areas.
Business Plan And Strategy
Management of the Company believes that the Company's significant business
experience, quality of services, client relationships and efficient operations
are attributes that will enable the Company to continue to progress in the
current industry environment.
Management's business plan and strategy in following through from this
Offering is summarized as follows:
Increase Business Volume
------------------------
Strengthen Financial Condition And Increase Bonding Capacity. By
strengthening its financial condition, the Company recently has increased, and
anticipates it will be able to further increase, its bonding capacity. Based on
its financial results for the fiscal year ended April 30, 1997, the Company
presently has a bonding capacity for a single job from $250,000 to $500,000 and
its aggregate bonding capacity from approximately $1.5 million to $2.5 million.
It is anticipated, based on discussions with the Company's bonding agent, that
as a result of this Offering the Company's bonding capacity would increase to $5
million per job and that its aggregate bonding capacity also would increase
significantly; however, there is no assurance that this will occur. Each
increase in the Company's bonding capacity expands the number, nature and size
of contracts that are available for the Company to submit bids.
Undertake Planned Domestic And International Marketing Programs. The
Company intends to utilize a portion of the proceeds of this Offering to
undertake planned domestic and international marketing programs through
attendance at industry trade shows, direct sales visits, and advertisements in
publications. See "USE OF PROCEEDS". In the past, the Company has not budgeted
or expended a significant or otherwise meaningful amount of funds for marketing.
Management of the Company believes that because of the Company's experience,
reputation and expertise, a planned marketing effort should be successful in
deriving new business; however, there is no assurance that this will be the
case. Management of the Company believes that despite past losses in
international markets, it will be able to operate profitably in international
markets in the future. This is based on the Company's belief that because it is
accustomed to undertaking projects in areas geographically separated from its
home office, it will be better suited to serving customers in foreign markets
than competitors that generally operate in proximity to their home base. The
Company also believes that it will be able to operate profitably in foreign
markets because it believes the demand in those markets currently exceeds the
availability of qualified companies to service them. See "RISK FACTORS-Risk
Factor No. 9-Previous Unprofitable International Operations".
25
<PAGE>
Increase Business Referrals From Suppliers And Other Business Contacts.
Management of the Company believes that this Offering will enable the Company to
have sufficient working capital to be more timely in payment of its trade
accounts and that this, together with other aspects of its improved financial
condition, will result in an increase in business referrals received by the
Company from its suppliers and other business contacts. Nevertheless, there is
no assurance that this will occur.
Increase Margins And Profitability
----------------------------------
Decrease Bonding Costs. During each of its fiscal years ended April 30,
1997 and 1996, the Company paid aggregate premium expenses of approximately
$51,000 and $38,000, respectively, or approximately two percent and four
percent, respectively, of the respective gross contract price, to obtain
performance bonds for its work. Management believes, based on discussions with
its bonding agent, that the improvement in the Company's financial condition
resulting from the Offering will enable the Company to obtain performance bonds
for a premium cost of 1.5 to 2.0 percent of the respective gross contract
prices; however there is no assurance that this will occur. Although the total
amount that would have been saved in bonding costs during each of fiscal 1997
and fiscal 1996 is limited, future savings are anticipated to be more
significant because the Company believes that in the future it will be utilizing
greater amounts of performance bonds because of the increased bonding capacity
it believes will be available. See "-Increase Business Volume: Strengthen
Financial Condition And Increase Bonding Capacity" above.
Decrease Overall Cost Of Metal Building Manufacturing. As a result of the
successful completion of this Offering and reduction of the Note to the
Supplier, the Company believes it will be able to obtain purchase discounts on
metal building components, which will enable it to increase margins and
profitability; however there is no assurance that these purchase discounts will
be available. The Company also believes it will increase its margins by
contracting out its manufacturing and by concentrating on international sales
for metal buildings.
Management's Plan To Remove The Threat To
The Company's Ability To Continue As A Going Concern
----------------------------------------------------
As a result of the Company's losses incurred in the fiscal year ended April
30, 1997 (approximately $4.2 million, including a non-recurring charge of $1.7
million), the Company's working capital position and ability to generate
sufficient cash flows from operations to meet its operating and capital
requirements has further deteriorated and these matters raise substantial doubt
about the Company's ability to continue as a going concern without completion of
this Offering or a substantial infusion of equity capital. The Company believes
that it will be successful in removing the threat concerning its ability to
continue as a going concern by adhering to closer and stricter scrutiny of its
contract bids and utilizing the estimated net proceeds of approximately $2.38
million from this Offering to achieve profitability through lower interest and
bonding costs and expanded volume as described above under "Increase Business
Volume" and "Increase Margins And Profitability". Management believes that
approximately $1.0 to $1.2 million of the proceeds from this Offering are
necessary to remove the threat concerning the Company's ability to continue as a
going concern and that if this Offering is completed, the proceeds from this
Offering will enable the Company to continue operating for the foreseeable
future at its current level of operations. There is no assurance these results
will occur even if this Offering is consummated. If this does not occur, the
Company will pursue other sources of financing, but there is no assurance any
other source of financing will be available.
26
<PAGE>
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in "Indebtedness To Major Supplier",
below, and except for the holders (the "Noteholders") of $300,000 principal
amount of, and approximately $45,000 accrued interest on, certain outstanding
unsecured notes. The Supplier has indicated that it has no intent of
accelerating payment on any obligations as long as this Offering is completed.
The Supplier has not indicated what it will do if this Offering is abandoned or
otherwise terminated unsuccessfully. The Noteholders have been informed by the
Company that the Company is in default of the payment of the notes and that the
notes and interest thereon will be repaid from the proceeds of this Offering. As
of December 29, 1997, there has not been any indication made to the Company that
any of the Noteholders will commence any legal action to collect on the notes
against the Company.
As a result of the losses incurred during fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors indicates that there is
substantial doubt concerning the Company's ability to continue as a going
concern without a substantial infusion of equity capital, such as that
contemplated from this Offering. The implication of this to investors is that
successful completion of this Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See "RISK
FACTORS-Risk Factor No. 1. Substantial Doubt About The Company's Ability To
Continue As A Going Concern Without Completion Of Public Offering",
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS", and Note 2 to the Financial Statements.
Marketing
The Company obtains business primarily through repeat business from
previous and existing customers and recommendations from customers and vendors.
As indicated elsewhere in this Prospectus, the Company intends to utilize a
portion of the proceeds of this Offering to undertake a marketing program that
includes trade show attendance, sales call visits, and advertising. Management
believes that a marketing program of this nature will have a positive impact on
the Company's business. See "USE OF PROCEEDS" and foregoing subsections under
"Description Of Business".
Reliance On Major Customers
During the six months ended October 31, 1997 and the fiscal year ended
April 30, 1997, one of the Company's customers, U-Haul, Inc., accounted for
approxmately $3.8 million and $7.3 million, respectively, or approximately 19
percent and 22 percent, respectively, of the Company's total revenues. For the
fiscal year ended April 30, 1996, U-Haul, Inc. represented $8.1 million, or 26
percent, of the Company's total revenues. Although the loss of U-Haul, Inc.'s
business could have a material adverse effect on the Company, the Company
believes that this is unlikely to occur in the near future and that the
potential effect on the Company will decrease over time as the Company's
revenues from other customers increase.
Subsidiaries
C.H.O.A. Construction Company ("C.H.O.A.") was formed in September 1993 to
perform general construction services in the State of Louisiana. C.H.O.A. was
formed as a Louisiana corporation and originally was owned 80 percent by the
Company and 20 percent by a general contractor licensed in Louisiana.
Subsequently, the Company acquired the 20 percent minority interest, and
C.H.O.A. became a wholly-owned subsidiary of the Company. C.H.O.A. was dissolved
on September 13, 1996.
L. Campbell Construction, Inc. ("Campbell") was formed as a wholly-owned
subsidiary of the Company in order to handle the Company's turnkey and general
construction operations. Campbell was incorporated under the laws of the State
of Texas in January 1991. Since its inception in January 1991, much of the
general construction work has been performed by the Company directly under
agreement with U-Haul. Consequently, the Company has little or no future need to
perform general construction operations under Campbell and expects to dissolve
Campbell or merge Campbell with and into the Company. Campbell currently has no
assets and no liabilities.
In November 1994, two wholly-owned subsidiaries of the Company, American
International Thermal Systems, Inc. ("AI Thermal") and American International
Building Systems, Inc. ("AI Building"), merged with and into the Company. AI
Thermal performed cold storage construction services and AI Building
manufactured metal buildings and structural steel projects. The Company performs
these same services through two of its divisions.
27
<PAGE>
In May 1994, AIC Management, Inc. ("AIC Management") merged with and into
the Company. Before the merger, AIC Management was wholly-owned by Messrs.
Clemons, Farrar and Wilson, each of whom is an officer, director and 29.47
percent stockholder of the Company. AIC Management was formed in February 1987
to provide management and consulting services to the construction industry,
however all such services were provided to the Company. Prior to the merger, AIC
Management owned the Company's office building and warehouse/assembly plant and
leased them to the Company.
In August 1994 and November 1994, respectively, the Company dissolved two
of its inactive, wholly-owned subsidiaries, Belko Construction, Inc. and AIC
Export Corporation.
Indebtedness To Major Supplier
As of November 30, 1997, the Company owed its major supplier (the
"Supplier") of metal building components $2,739,195 in accounts payable and
$1,798,885 in principal and interest under a note (the "Note") dated April 24,
1996 executed by the Company. The Note is payable in installments and accrues
interest at one percent above the prime rate designated in The Wall Street
Journal. The Company is required to make consecutive weekly payments of $11,537
for outstanding accrued interest and principal, until April 24, 2001 when the
Note will have been paid in full. The Company, which has the right to prepay the
Note in full or in part at any time without penalty, intends, and is required
under the Loan Agreement, to pay $1,000,000 from the proceeds of the Offering to
reduce the accounts payable to the Supplier. See "RISK FACTORS-Risk Factor No.
3" and "USE OF PROCEEDS".
Pursuant to the Loan Agreement effective April 24, 1996 between and among
the Supplier, the Company, and Danny and Teresa Clemons, Ralph and Judith
Farrar, Jim and Shirley Williams and John Wilson (collectively, the five
individuals are referred to as the "Guarantors"), the Note is secured by a
blanket security interest in all the Company's accounts, equipment, and
inventory, whenever acquired, and all proceeds and products of such assets
(collectively, the "Collateral"), subject only to security interests previously
granted to FCLT, L.P., a Texas limited partnership. The Collateral secures the
Note and all other obligations of the Company to the Supplier. The Company also
must provide the Supplier with monthly financial statements prepared in
accordance with generally accepted accounting principles and with audited annual
financial statements that are not subject to a qualification of the auditors'
opinion. The Loan Agreement prohibits the Company from assuming any additional
liabilities except for (a) accounts payable and unsecured liabilities to vendors
and suppliers, (b) up to $500,000 of private placement debt, and (c) those
expenditures for goods and services incurred in the ordinary course of business
on ordinary trade terms. The Company also is prohibited from: (i) compensating
any of the Guarantors who are employees of the Company in excess of $150,000 per
year during the term of the Loan Agreement, (ii) making any advances to third
parties other than in the ordinary course of business and advances to employees
for emergencies up to $25,000, (iii) investing in any other third parties, (iv)
making any capital expenditure in excess of $25,000 or cumulative capital
expenditures in excess of $120,000 in the aggregate annually, except for capital
expenditures made with proceeds of this Offering and except for trade debt
incurred in the ordinary course of business, (v) declaring or paying dividends,
(vi) changing its corporate organization by merger, consolidation, joint venture
or any other method without the written consent of the Supplier, (vii)
substantially changing its management personnel or the general character of its
business, and (viii) permitting the ratio of each of its current assets to
current liabilities to decrease below 60 percent, but notwithstanding the
foregoing, the Loan Agreement expressly states that the Company is in no way
inhibited or prohibited from undertaking an initial public offering of stock.
Pursuant to the Note and/or the Loan Agreement, if (a) any terms, covenants, or
other obligations under the Loan Documents are breached or any representation or
warranty is incorrect or materially misleading, (b) any judgment against any the
Company remains undischarged for a period of 90 days, (c) any Guarantor shall be
adjudicated bankrupt or dies and the life insurance proceeds are not first
applied to repay the Note, (d) the Company makes an assignment for the benefit
28
<PAGE>
of creditors, files a petition in bankruptcy, is adjudicated bankrupt or becomes
insolvent, or (e) the Company fails to maintain earnings before interest expense
equal to at least 1.5% of gross revenues, then all the outstanding amounts due
under the Note shall become immediately due and payable. In addition, upon the
occurrence of any of the above events, the Supplier may exercise its right of
offset against the Collateral. The Loan Agreement terminates upon the
satisfaction of all obligations of the Guarantors and the Company under the Loan
Documents. The Loan Agreement also requires that the Company use $1.2 million of
the proceeds from this Offering to reduce the balance of the Note. As indicated
above, when that payment is made, the weekly payment on the Note will be reduced
so that the remaining balance will be amortized evenly, including payments of
interest, over the remaining term of the Note. As of April 30, 1997, the Company
was in default of a number of covenants under the Loan Agreement, and the
Supplier agreed to waive these defaults. See "RISK FACTORS-Risk Factor No.
3-Outstanding Indebtedness". The other covenants for which the Supplier has
granted a waiver are as follows: (A) the Company investing in any other third
parties as that covenant relates to the Company's investment in (i) U.S.
Storage/Westheimer G.P.L.C., See "TRANSACTIONS BETWEEN THE COMPANY AND RELATED
PARTIES - Interests In U.S. Storage, Inc.", (ii) U.S. Storage/Atascocita
G.P.L.C., and (iii) U.S. Storage/Woodlands #1 G.P.L.C.; (B) the timely payment
of the Company's accounts payable with the Supplier; and (C) the Company's
failure to provide financial statements to the Supplier within 90 days of April
30, 1997.
Also pursuant to the terms of the Loan Agreement, the Company and the
Supplier have agreed that, prior to commencement of this Offering, the Supplier
may review a draft of the Prospectus or Registration Statement used in
connection with this Offering and that the Company and the Supplier will attempt
to cooperate with one another in agreeing upon language in the Prospectus or
Registration Statement relating to the Supplier.
Pursuant to the Security Agreement-Pledge effective April 24, 1996, the
Company and Guarantors pledged to the Supplier all the issued and outstanding
stock of the Company and its subsidiaries that they respectively own, and they
agreed not to transfer or otherwise encumber any of these shares during the term
of the Loan Agreement. Further, the Company and Guarantors executed Irrevocable
Limited Stock Powers appointing the Supplier's legal counsel as attorney to
transfer the above stock to the Supplier in the event of a default under the
Loan Documents. The shares pledged as collateral are to be returned to the
Guarantors and the Company upon the payment of all amounts due under the Note.
The Guarantors also executed Continuing Guarantees to the Supplier which
fully guaranteed all outstanding amounts due under the Note in the event of
default under the Loan Documents.
FCLT Loans
As of October 31, 1997, the Company owed FCLT, L.P., a Texas limited
partnership ("FCLT"), an aggregate of approximately $311,000 (the "Debt") under
two loan agreements. See "RISK FACTORS-Risk Factor No. 3-Outstanding
Indebtedness".
29
<PAGE>
One loan is evidenced by a promissory note in the face amount of $414,000,
with an outstanding principal balance of $238,000 at October 31, 1997. The
Company is required to make monthly payments on this note, including interest,
of $4,907 to FCLT until June 1998, at which time all outstanding principal and
interest become payable. The other loan is evidenced by a promissory note in the
face amount of $180,000, with an outstanding principal balance of $73,000 at
October 31, 1997. The Company is required to make monthly payments on this note,
including interest, of $1,175 to FCLT until June 1998, at which time all
outstanding principal and interest become payable. The Company's aggregate
monthly payments, including interest, currently are $6,082 to FCLT. Interest
accrues on the outstanding Debt at the rate of 10 percent per annum until
maturity and at the rate of 18 percent per annum after maturity. The Company may
prepay part of or all the Debt at any time without penalty.
The Debt is secured by two Deeds of Trust on the Company's real property on
which the Company's offices and warehouse/assembly plant are located. In the
event that the Company sells any of this property, FCLT has the right to declare
the entire outstanding Debt immediately due and payable. The Debt is guaranteed
by each of Messrs. Wilson, Clemons and Farrar.
Government Regulation
The Company's business is subject to a variety of governmental regulations
and licensing requirements relating to construction activities. Prior to
commencing work on a project in the United States, the Company is required to
obtain building permits and, in some jurisdictions, a general contractor license
is required by the state or local licensing authorities. In addition, the
construction projects are required to meet federal, state and local code
requirements relating to construction, building, fire and safety codes. In order
to complete a project and obtain a certificate of occupancy, the Company is
required to obtain the approval of local authorities confirming compliance with
these requirements.
The Company is subject to similar and sometimes more onerous government
regulations and licensing requirements of any foreign countries in which it
operates. Although the Company has not researched the applicable laws of all
foreign countries, the Company is not aware of any significant impediments to
doing business in most other countries. If significant impediments do arise in
certain countries, the Company does not intend to pursue business there.
Employees
The Company has approximately 110 employees including its Chief Executive
Officer, the Presidents for each of its three divisions, an in-house legal
counsel, one Vice President, one construction manager, four project managers,
two operations coordinators, three estimators, five draftsmen, three salesmen,
20 superintendents, 50-60 construction employees, one purchasing manager and one
purchasing coordinator, five accounting personnel and four secretarial,
administrative and clerical employees.
There are no family relationships among the Company's officers and
directors.
Properties
The Company occupies approximately 16,000 square feet of space in an office
building and also owns 21,450 square feet of space in a warehouse/assembly
plant/office at 14603 Chrisman, Houston, Texas. Both buildings, together with
the approximately 7.3 acres on which they are located, are owned by the Company.
The office building includes offices for the Company's metal buildings and
mini-warehouse operations as well as for the Company's administrative and
financial operations. The warehouse/assembly plant/office currently is being
leased to another party on a month-to-month basis. Both buildings are encumbered
by the Debt described under "FCLT Loans" and by the Note described under
"Indebtedness To Major Supplier". The Company also leases 824 square feet of
space in Conroe, Texas, for its cold storage construction services.
Legal Proceedings
No material legal proceedings, other than ordinary routine litigation
incidental to the business of the Company are pending in which the Company is a
party, or to which the property of the Company is subject, and no such material
proceeding is known by management of the Company to be contemplated.
30
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data of the Company presented below for each of the
years in the five-year period ended April 30, 1997 are derived from the audited
consolidated financial statements of the Company for these periods. The selected
financial data presented for the six-month periods ended October 31, 1997 and
1996 are derived from unaudited consolidated financial statements included
elsewhere in this Prospectus, which in the opinion of management include all
normal and recurring adjustments necessary for fair presentation of information.
This information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "Management's Discussion And Analysis Of
Financial Condition And Results Of Operations" included elsewhere in this
Prospectus. The selected consolidated financial data provided below is not
necessarily indicative of the future results of operations or financial
performance of the Company.
<TABLE>
<CAPTION>
Six Months
Years Ended April 30 Ended October 31
---------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1996 1997
------- ---------- -------- -------- -------- -------- --------
Statement of Operations Data: (In thousands except per share data) (unaudited)
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Contract revenues $16,843 $ 25,845(1) $ 24,317 $ 31,185 $ 33,350 $ 17,923 $ 19,828
Contract cost 13,905 22,566 20,812 27,204 31,388 16,244 17,489
Gross profit 2,938 3,279 3,505 3,981 1,962 1,679 2,339
Selling, general and
administrative 3,091 3,303 3,021 3,359 3,839 2,060 1,866
Provision for doubtful
accounts 35 156 48 62 428 254 52
Bridge financing costs -0- -0- -0- -0- (1,305) (1,105) -0-
Interest and other
financing costs (192) (219) (188) (184) (308) (159) (129)
Write-off of IPO
costs - capital -0- -0- (106) -0- (359) -0- (29)
Federal income tax expense -0- -0- -0- (35) -0- -0- -0-
Net income (loss) (361) (420) 187 352 (4,197) (2) (1,831) (2) 351
Net income (loss) per share (.12) (.14) .06 .12 (1.45) (.63) .12
Dividends paid per share .03 .01 -0- -0- -0- -0- -0-
April 30
-----------------------------------------------------------------------------------
1993 1994 1995 1996 1997 October 31, 1997
--------- -------- -------- -------- -------- ----------------
(In thousands) (Unaudited)
Balance Sheet Data:
- -------------------
Current Assets $ 3,058 $ 4,581 $ 4,163 $ 5,944 $ 7,297 $ 7,083
Current Liabilities 4,076 5,974 5,568 5,107 11,242 10,611
Working capital (deficiency) (1,018) (1,393) (1,405) 837 (3,945) (3,528)
Total assets 4,265 5,717 5,487 7,346 8,692 8,413
Long-term debt 519 495 454 2,422 327 --
Stockholders' equity (deficit) (330) (759) (572) (220) (3,168) (2,816)
</TABLE>
- -------------------
(1) See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" for discussion of a non-recurring contract for $5.58
million that was performed during 1994.
(2) Includes a pre-tax charge of $1,305,250 for the year ended April 30, 1997
and $1,105,249 for the six months ended October 31, 1996 as the amortized
portion of the non-recurring pre-tax charge to earnings for the 500,100
shares of the Company's Common Stock that were issued in connection with
the issuance of $300,000 of unsecured promissory notes in July 1996. This
non-recurring charge was amortized over the term of the promissory notes.
Also includes a non-recurring charge of $358,946 at April 30, 1997 for the
write-off of capitalized offering costs. See Note 8 to "Notes To
Consolidated Financial Statements" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results Of Operations
The following table sets forth for the periods indicated the percentages
that certain items are of total revenues and the percentage of change of that
ratio from the corresponding year-earlier period:
<TABLE>
<CAPTION>
Percentage Change
Percentage of Total Revenues Six Months Ended From Prior Period
Year Ended April 30, October 31, Year Ended April 30, Six Months Ended
------------------------ ------------------ ------------------- ------------------
1995 1996 1997 1996 1997 1996 1997 October 31, 1997
---- ---- ---- ---- ---- ---- ---- ----------------
Revenues:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Contract revenues: 100.0% 100.0% 100.0% 100.0% 100.0% 28.2% 6.9% 10.6%
Costs and expenses:
Contract costs: 85.6% 87.2% 94.1% 90.6% 88.2% 30.7% 15.4% 7.7%
Selling, general
and administrative: 12.4% 10.8% 11.5% 11.5% 9.4% 11.2% 14.3% (9.4)%
Provision for doubtful
accounts: .2% .2% 1.3% 1.4% .3% 28.3% 596.5% (79.5)%
Private Placement
financing costs: --- % --- % 3.9% 6.2% --- % --- % 100.0% (100.0)%
Interest and other
financing costs: .8% .6% .9% .9% .7% (1.9%) 67.1% (18.9)%
Total costs and expenses: 99.0% 98.8% 111.7% 110.6% 98.6% 28.0% 21.0% 1.3%
</TABLE>
Six Months Ended October 31, 1997 Compared To Six Months Ended October 31, 1996
- -------------------------------------------------------------------------------
For the six months ended October 31, 1997, the Company reported net income
of $351,214 or $.12 per share on revenues of $19,827,994 compared to a net loss
in the prior year's six month period of ($1,831,002) or ($.63) per share, on
revenues of $17,922,834. The net loss in the six months ended October 31, 1996
is primarily attributable to a non-recurring, non-cash charge of $1,105,249 for
private placement costs.
Total margins increased from 9.4% to 11.8%, which constitutes an
improvement of 25.5%, in comparing October 31, 1997 with October 31, 1996. This
increased margin is attributed primarily to improved margins on new contracts
performed by the Metal Building Manufacturing Division which earned a margin of
15% on revenues of $6.3 million for the six months ended October 31, 1997 as
compared with a margin of 5.2% on revenues of $8.8 million for the six months
ended October 31, 1996. These improved results for the six months ended October
31, 1997 include the revenue earned on a contract to provide a metal building
for a wood processing plant which earned a margin of 28% on revenues of $2.3
million. On October 27, 1997, the Company sold all its equipment and inventory
that previously had been utilized in the metal buildings division and entered
into an agreement for the purchasers, upon request by the Company, to process
the Company's metal buildings manufacturing orders at a pre-determined fixed
price per ton of steel. See "BUSINESS - Description Of Business - Metal Buldings
Division" and " - Liquidity and Capital Resources". The Company anticipates
decreased revenues as a result of the sale of this equipment. However, the
Company continues to operate its metal buildings division by maintaining an
international salesman and a project manager to assist him. The Company
anticipates international sales to be approximately $1.5 million in the six
months ending April 30, 1998.
32
<PAGE>
The mini-warehouse division gross margin decreased to 9.9% on revenues of
$12.3 million for the six months ended October 31, 1997 as compared with a
margin of 13.2% on revenues of $8.6 million for the six months ended October 31,
1996. In addition, the Thermal Systems Division earned revenues of $1.2 million
with a margin of 14.0% for the six months ended October 31, 1997 as compared
with revenues of $.5 million with a margin of 18.0% for the comparable period in
1996.
Selling, general and administrative expenses decreased from $2.06 million,
or 11.5% of revenues, for the six months ended October 31, 1996 to $1.87
million, or 9.4% of revenues, for the six months ended October 31, 1997. This
decrease is a result primarily of reductions in personnel in the metal buildings
and mini-warehouse divisions.
Net interest expense decreased to $129,000 for the six months ended October
31, 1997 as compared with $159,000 for the six months ended October 31, 1996.
This decrease is the result of a declining balance on the note payable to a
major supplier.
The Company's contract backlog as of October 31, 1997 was $9.2 million as
compared with $17.6 million as of October 31, 1996, a decrease of $8.4 million,
which is primarily attributable to a $5.3 million decrease in the backlog for
the metal building manufacturing division, a $1.2 million decrease in the
backlog for the cold-storage construction division, and a $1.8 million decrease
in the backlog of the mini-wharhouse division. The decrease in backlog for the
metal building division is consistent with the Company's decision to concentrate
metal buildings division activity on international projects. See "BUSINESS-Metal
Buildings Manufacturing Division".
Year Ended April 30, 1997 Compared With Year Ended April 30, 1996
-----------------------------------------------------------------
For the year ended April 30, 1997, the Company reported a net loss of
$(4,197,239) or ($1.45) per share, on revenues of $33,350,003 as compared with
net income of $351,570, or $.12 per share, on revenues of $31,184,828 for the
year ended April 30, 1996. The increase in net loss is primarily attributable to
the following: (a) the Company recorded a non-recurring, non-cash charge of
$1,305,000 for private placement costs and a write-off of initial public
offering costs of $358,946; (b) the Company's gross margins decreased
approximately $2,018,380 for the period ended April 30, 1997 as compared with
the same period of the prior year; (c) the Company incurred an expense of
$201,000 as a provision for doubtful accounts resulting from its agreement to
settle a disputed account receivable by accepting $201,000 less than the full
value of the account; (d) the Company incurred an expense of $146,000 as a
provision for doubtful accounts resulting from the write-off of four accounts
receivable as not being collectible; (e) the Company incurred an expense of
$81,000 as a provision for doubtful accounts resulting from the write-off of
balances due from a total of 22 accounts that would equal the normal write-offs
anticipated during any fiscal year; and (f) the Company deferred recognition of
gross profits of $253,084 during the fiscal year ended April 30, 1997 compared
with none during the fiscal year ended April 30, 1996 in connection with
contracts with related parties.
The total margins decreased from 12.8% to 5.9% when comparing the year
ended April 30, 1996 with the year ended April 30, 1997. This decreased margin
is attributable primarily to the metal buildings division, which earned revenues
of $15 million with a margin of .4% for the year ended April 30, 1997 as
compared with earned revenues of $9.2 million with a margin of 10% for the year
ended April 30, 1996. The metal buildings division margins decreased primarily
because two salesmen bid a number of contracts for an aggregate of approximately
$6.5 million, and these contracts cost the Company approximately $7.1 million to
complete. In addition, this division earned revenues of $5.0 million on a
contract with zero margin. All these contracts were entered into a a price that
was lower than the Company's costs or at unreasonably low margins as a result of
the salesmen's providing inaccurate or incomplete information to the estimating
department. Both salesmen were terminated. The contracts involved were
substantially completed at December 31, 1997. If these contract were excluded
from the company's results of operations for the year ended April 30, 1997, the
Company's metal buildings division would have earned revenues of approximately
$3.6 million with costs of $2.9 million resulting in a gross profit margin of
19.4%
The mini-warehouse division margins decreased to 9.9% on revenues of $16.7
million for the year ended April 30, 1997 as compared with margins of 13.8% on
revenues of $20.6 million for the year ended April 30, 1996. The reduction in
margins in the mini-warehouse division resulted primarily from two projects
having been bid and estimated inaccurately. These two projects earned total
revenue of approximately $2.7 million with costs of $3.0 million. If these two
projects were excluded from the Company's results of operations for the year
ended April 30, 1997, the division's results would have been earned revenues of
$14.0 million with a margin of 13.1%.
The Thermal Systems division earned revenues of $1.7 million with margins
of 15.7% for the year ended April 30, 1997 as compared with revenues of $1.4
million with margins of 14.8% for the comparable period in 1996.
33
<PAGE>
Selling, general and administrative expenses as a percentage of revenues
increased to 11.5% for the year ended April 30, 1997 as compared with 10.8% for
the year ended April 30, 1996. This increase in percentage is primarily a result
of increasing insurance expenses. The Company anticipates that, to the extent
that revenues continue to increase in the future, of which there is no
assurance, selling, general and administrative expenses will increase at a lower
rate.
Interest expense increased $123,569 from $184,277 for the year ended April
30, 1996 to $307,846 for the year ended April 30, 1997. This increase is the
result of the conversion of non-interest-bearing accounts payable to
interest-bearing Notes Payable to Supplier effective in April 1996.
The Company's contract backlog as of April 30, 1997 was $18.8 million as
compared with $12.5 million as of April 30, 1996, an increase of $6.3 million,
which is attributable to a $5 million increase in the backlog for the
mini-warehouse construction division, a $1 million increase in the backlog for
the metal building manufacturing division, and a $.3 million increase for the
thermal systems division.
For additional discussions concerning recent losses and the Company's
ability to continue as a going concern, see "RISK FACTORS-Risk Factor No.
1-Substantial Doubt About The Company's Ability To Continue As A Going Concern
Without Completion Of A Public Offering" and "BUSINESS-Business Plan And
Strategy" above and "-Liquidity And Capital Resources" below.
Fiscal Year Ended April 30, 1996 Compared With Fiscal Year Ended April 30,
1995
- --------------------------------------------------------------------------------
For fiscal year ended April 30, 1996, the Company reported a net profit of
$352,000 or $.12 per share, on revenues of $31,185,000 as compared with net
profit of $187,000, or $.06 per share, on revenues of $24,317,000 for the prior
year. The increased profit resulted primarily from increased revenues and from a
reduction in selling, general and administrative expenses as a percentage of
revenues, which decreased to 10.8% of gross revenues in fiscal 1996 from 12.4%
of gross revenues in fiscal 1995. See discussion above of selling, general and
administrative expenses for the six months ended October 31, 1996 for additional
information.
The increase in total revenues from $24,317,000 in fiscal 1995 to
$31,185,000 in fiscal 1996 is due primarily to a large increase in sales of the
mini-warehouses and other general construction products. Although these
increased sales were realized at a lower overall gross profit margin, management
believes that the increase in volume more than justified growth in this area.
The decrease in gross profit margin was from 14.4% for fiscal 1995 to 12.7% for
fiscal 1996.
The Company's contract backlog as of April 30, 1996 decreased to $12
million from $13.3 million as of April 30, 1995, which is primarily attributable
to a lower volume of mini-warehouse general construction products. From April
30, 1994 to April 30, 1995, the Company's backlog increased from $10.5 million
to $13.3 million, which was primarily attributable to both the metal building
and mini-warehouse general construction products.
34
<PAGE>
Interest expense decreased by $4,000 even though gross revenues increased
by almost $7 million in fiscal 1996. This was primarily due to a favorable
financing agreement negotiated with its major supplier which allowed the Company
to substantially increase its existing outstanding accounts payable and
therefore reduce its borrowings to finance accounts receivables.
Liquidity And Capital Resources
As of October 31, 1997, the Company had current assets of $7,083,000 and
current liabilities of $10,611,000 resulting in negative working capital of
$(3,528,000). Working capital as of October 31, 1997 increased $417,000 as
compared with April 30, 1997. The increase in working capital is primarily
attributed to the net income earned of $351,000 during the six months ended
October 31, 1997. As of April 30, 1997 the Company had current assets of
$7,297,000 and current liabilities of $11,242,000, which represents a negative
working capital of $3,945,000 as compared with a positive working capital of
$837,000 as of April 30, 1996. The $4,782,000 decrease in working capital is
primarily attributable to the loss incurred from operations for fiscal 1997 of
$4,197,000 and the increase in current portion of long-term debt and notes
payable of $1,884,000.
As of October 31, 1997, the Company's cash balance increased to $355,000 as
compared with the balance at April 30, 1997 of $160,000. This increase is
primarily attributable to the Company's net income earned of $351,000 during the
six months ended October 31, 1997.
The Company's net cash flow is materially affected by the timing of
payments of accounts payable, other amounts owed, and collection of accounts
receivable. The cash flow from operations for the six months ended October 31,
1997 as compared with October 31, 1996 improved $217,000 to a positive $430,000
from a positive $213,000 for the six months ended October 31, 1996. The
improvement in net cash flow for the six months ended October 31, 1997 is due
primarily to improved operating results. The Company's cash flow from operations
decreased $107,000 for fiscal 1997 as compared with fiscal 1996 as a result of
the Company's loss from operations.
For the fiscal year ending April 30, 1998, the Company is planning to make
capital expenditures of $50,000 described under "USE OF PROCEEDS", which assumes
the successful completion of this Offering. The current maturities of long-term
debt and capital lease obligations that are required to be paid during fiscal
1998 are approximately $566,000 in the aggregate. Management of the Company
believes that for fiscal 1998, the Company's funding from this Offering, and its
financing arrangement with its major supplier, will be adequate for the Company
to meet its requirements for operations, debt service and necessary capital
expenditures. See "RISK FACTORS--Risk Factor No. 3--Outstanding Indebtedness".
However, without the successful completion of this Offering, the Company does
not anticipate being able to undertake the majority of the capital expenditures
described under "USE OF PROCEEDS" in the near future.
As indicated above under "BUSINESS - Description Of Business - Manufacture
Of Metal Buildings", on October 27, 1997, the Company sold all its equipment and
inventory that had previously been utilized in the metal buildings division and
leased the Company's metal buildings manufacturing facility to the equipment
purchasers. The equipment purchasers agreed to process any of the Company's
metal buildings manufacturing orders submitted to them by the Company at a
pre-determined fixed price per ton of steel. The Company believes that the sale
of this equipment will positively impact the Company's liquidity by reducing the
working capital required to support the manufacturing operations, which
primarily consist of payroll and raw materials costs that totaled approximately
$300,000 during the year ended April 30, 1997. In addition, the Company
anticipates increasing its liquidity by approximately $400,000 through the
collection of outstanding accounts receivable and retainages upon completion of
contracts. For additional information concerning the anticipated impact of the
sale of the metal buildings division's equipment on future revenues, see above "
- - Results Of Operasions - Six Months Ended October 31, 1997 Compared to Six
Months Ended October 31, 1996".
As indicated above and in the Company's financial statements, the Company
incurred operating losses for each of the fiscal years ended April 30, 1997,
1994, and 1993, and there is no assurance that the operations of the Company
will be profitable in the future. As a result of the Company's losses in fiscal
1997 (approximately $4.2 million, including non-recurring charges and write-off
of initial public offering costs of an aggregate of $1.7 million), the Company's
working capital position and ability to generate sufficient cash flows from
operations to meet its operating and capital requirements has further
deteriorated. These matters raise substantial doubt about the Company's ability
35
<PAGE>
to continue as a going concern without completion of this Offering or a
substantial infusion of equity capital. The Company believes that it will be
successful in removing the threat concerning its ability to continue as a going
concern by adhering to closer and stricter scrutiny of its contract bids and
utilizing the estimated net proceeds of approximately $2.38 million from this
Offering to achieve profitability through lower interest and bonding costs and
expanded volume. Management believes that approximately $1.0 to $1.2 million of
the proceeds from this Offering are necessary to remove the threat concerning
the Company's ability to continue as a going concern and that if this Offering
is completed, the proceeds from this Offering will enable the Company to
continue operating for the foreseeable future at its current level of
operations. There is no assurance these results will occur even if this Offering
is consummated. If this does not occur, the Company will pursue other sources of
financing, but there is no assurance any other source of financing will be
available.
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in "RISK FACTORS-Risk Factor No.
3-Outstanding Indebtedness" and "BUSINESS-Indebtedness To Major Supplier" and
except for the holders (the "Noteholders") of $300,000 principal amount
unsecured notes as described in Risk Factor No. 3. The Supplier has indicated
that it has no intent of accelerating payment on any obligations as long as this
Offering is completed. The Supplier has not indicated what it will do if this
Offering is abandoned or otherwise terminated unsuccessfully. The Noteholders
have been informed by the Company that the Company is in default of the payment
of notes and that the notes and interest thereon will be repaid from the
proceeds of this Offering. As of December 29, 1997, there has not been any
indication made to the Company that the Noteholders will commence any legal
action to collect on the notes against the Company.
As a result of the losses incurred in the fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors indicates that there is
substantial doubt concerning the Company's ability to continue as a going
concern without a substantial infusion of equity capital, such as that
contemplated from this Offering. The implication of this to investors is that
successful completion of this Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See "RISK
FACTORS-Risk Factor No. 1-Substantial Doubt About The Company's Ability To
Continue As A Going Concern Without Completion Of Public Offering",
"BUSINESS-Business Plan And Strategy", "FINANCIAL INFORMATION", and Note 2 to
the Financial Statements.
As of October 31, 1997, the Company's backlog was $9.2 million as compared
with $17.6 million as of October 31, 1996. The Company anticipates that its
operating results for fiscal 1998 will not significantly alter its liquidity or
capital resources.
Impact Of The Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
Based on a preliminary recent assessment, the Company determined that it
will be required to replace its accounting system software so that its computer
systems will properly utilize dates beyond December 31, 1999. The Company
presently believes that the modifications to existing software and conversions
to new software, the Year 2000 Issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Company.
The Company has not initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which the
Company is vulnerable to those third parties' failure to remediate their own
Year 2000 Issue. The Company's total Year 2000 project cost and estimates to
complete do not include the estimated costs and time associated with the impact
of a third party's Year 2000 Issue, and are preliminary estimates based on
presently available information. There can be no guarantee that the systems of
other companies on which the Company's systems rely will be timely converted, or
that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the Company. The Company has determined it has no exposure to
contingencies related to the Year 2000 Issue for the products it has sold.
36
<PAGE>
The Company will utilize both internal and external resources to replace
its accounting software. The Company plans to replace its accounting software
and complete its Year 2000 project not later than December 31, 1999. The total
cost of the Year 2000 project is estimated at $100,000 and is being funded
through operating cash flows and expected proceeds from the Company's initial
public offering. Of the total project cost, approximately $50,000 is
attributable to the purchase of new software which will be capitalized. The
remaining $50,000, which will be expensed as incurred, is not expected to have a
material effect on the results of operations. To date, the Company has incurred
and expensed approximately $10,000 related to the assessment of, and preliminary
efforts in connection with its Year 2000 project.
The costs of the project and the date on which the Company plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
MANAGEMENT
The Officers and Directors of the Company are as follows:
Name Age Position
- ---- --- --------
John T. Wilson 43 Chief Executive Officer, Chairman Of
The Board and Director
Danny R. Clemons 47 President/Mini-Warehouse Division and
Director
Ralph L. Farrar 50 President/Metal Buildings Division,
Secretary and Director
Jim W. Williams 43 Vice President/Finance, Chief Financial
Officer, Assistant Secretary and Director
Louis S. Carmisciano 55 Director
John T. Wilson has served as Chief Executive Officer of the Company since
May 1992 after having served as Vice President from May 1985 to May 1992. Mr.
Wilson also has served as a Director of the Company since its formation in May
1985 and as Chairman Of The Board since November 1994. In addition to his other
responsibilities as Chief Executive Officer, Mr. Wilson coordinates the
Company's marketing, administrative and financial activities. Mr. Wilson has in
excess of 22 years of experience working in the construction industry.
37
<PAGE>
Danny R. Clemons has served as President of the Mini-Warehouse Division of
the Company since November 1994 after having served as President of the Company
from December 1986 to November 1994. Mr. Clemons also has served as a Director
of the Company since May 1985. Mr. Clemons has in
excess of 25 years of experience working in the construction industry.
Ralph L. Farrar has served as President of the Metal Buildings Division of
the Company since November 1994 and Secretary and a Director of the Company
since May 1985. Mr. Farrar also served as Treasurer of the Company from May 1985
to November 1994. Mr. Farrar has in excess of 27 years
of experience working in the construction industry.
Jim W. Williams has served as Vice President of Finance and Chief Financial
Officer of the Company since January 1990, and as a Director since June 1996.
From January 1989 to January 1990, Mr. Williams served as Controller of Care
Shipping, Inc., which engaged in the business of marine terminal and stevedoring
operations. From January 1981 to January 1989, Mr. Williams served as Treasurer
and Controller of Shippers Stevedoring, Inc., which engaged in the business of
marine terminal and stevedoring operations. Mr. Williams received a B.A. Degree
in Business Administration from Hardin-Simmons University in Abilene, Texas in
1977.
Louis S. Carmisciano became a Director of the Company on January 14, 1997.
Since 1984, Mr. Carmisciano has served as the President of LSC Associates, Inc.,
a firm providing consulting services to the construction and real estate
industries. Mr. Carmisciano, as President of LSC Associates, Inc., has provided
consulting services to the Company since July 1996. Prior to 1984, Mr.
Carmisciano was the senior vice president of Dimeo Enterprises, Inc., a real
estate developer and contractor, and also served as an audit manager for Touche
Ross & Co. In addition, since 1978, Mr. Carmisciano has served as a professional
lecturer at the Hartford Graduate Center in Hartford, Connecticut and has
lectured for the American Subcontractors Association, the Rhode Island Bankers
Association, and the Massachusetts and Rhode Island Societies Of Certified
Public Accountants. Mr. Carmisciano is a member of the Association of General
Contractors, the American Subcontractors Association, the Construction Financial
Management Association, the American Institute of Certified Public Accountants,
the Massachusetts Society of Certified Public Accountants, and the Rhode Island
Society of Certified Public Accountants. Mr. Carmisciano is a certified public
accountant licensed in the Commonwealth of Massachusetts and the State of
Illinois and received a B.S. Degree in Business Administration from Northeastern
University in Boston, Massachusetts in 1963.
Another key employee of the Company is as follows:
Jimmy M. Rogers, 45, has been in charge of the Company's cold storage
services since September 1990 and has served as President of the Thermal Systems
Division of the Company since November 1994. From 1982 to September 1990, Mr.
Rogers served as Vice President of Cold Storage Construction Company, which
engaged in freezer and refrigerated unit installation. Mr. Rogers has in excess
of 12 years of experience working in the freezer and refrigerated installation
industry. Mr. Rogers received a B.S. Degree in Business Agriculture from
Hardin-Simmons University in Abilene, Texas in 1980.
There are no family relationships between any of the above officers,
directors and key employees of the Company.
If the Offering is successfully completed, for a period of five years
commencing after the closing of the Offering, the Representative will have the
right to designate to the Company's Board Of Directors one person to serve as an
advisor to or member of the Company's Board of Directors. The Company has not
been notified of whether the Representative intends to designate an advisor to
or a member of the Company's Board of Directors.
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth in summary form the compensation received
during each of the Company's last three completed fiscal years by certain
officers of the Company. No other employee of the Company, except as set forth
below, received total salary and bonus exceeding $100,000 during any of the last
three fiscal years.
Summary Of Annual Compensation Table
------------------------------------
Fiscal Year
Name and Principal Ended All Other
Position April 30, Salary ($)(1) Compensation ($)(2)
===============================================================================
John T. Wilson 1997 72,500 5,109
Chief Executive Officer, 1996 72,000 6,811
Chairman Of The 1995 72,000 6,120
Board and a director
Danny R. Clemons 1997 72,500 3,600
President/Mini- 1996 72,000 8,329
Warehouse Division 1995 72,000 6,661
and a director
Ralph L. Farrar 1997 72,500 4,180
President/Metal 1996 72,000 8,286
Buildings Division 1995 72,000 7,533
and a director
- -------------------------
(1) The dollar value of base salary (cash and non-cash) received. Each of the
named individuals currently is receiving a salary of $85,000 per year. For
a description of employment agreements with the named individuals, see
below, "Employment Contracts And Termination Of Employment And
Change-In-Control Agreements".
(2) All other compensation received that the Company could not properly report
in any other column of the Summary Compensation Table, consisting of annual
Company contributions or other allocations to the Company's 401(k) plan,
amounts paid for group medical insurance premiums, and amounts paid on
behalf of the named person for life insurance premiums. The amounts shown
consist of the following: 1997: John T. Wilson - $1,750 for 401(k) plan
contributions, $2,180 for group medical insurance premiums, and $130 for
life insurance premiums; Danny R. Clemons - $120 for 401(k) plan
contributions, $2,140 for group medical insurance premiums, and $1,340 for
life insurance premiums; and Ralph L. Farrar - $1,750 for 401(k) plan
contributions, $2,300 for group medical insurance premiums, and $130 for
life insurance premiums; 1996: John T. Wilson - $1,184 for 401(k)
contributions, $4,292 for group medical insurance premiums, and $1,335 for
life insurance premiums; Danny R. Clemons - $1,579 for 401(k) plan
contributions, $4,292 for group medical insurance premiums, and $2,458 for
life insurance premiums; and Ralph L. Farrar - $1,184 for 401(k) plan
contributions, $4,490 for group medical insurance premiums, and $2,612 for
life insurance premiums; and 1995: John T. Wilson - $1,016 in 401(k)
contributions, $4,107 for group medical insurance premiums, and $997 for
life insurance premiums; Danny R. Clemons - $897 for 401(k) plan
contributions, $4,107 for group medical insurance premiums, and $1,657 for
life insurance premiums; and Ralph L. Farrar - $1,016 for 401(k) plan
contributions, $4,681 for group medical insurance premiums, and $1,836 for
life insurance premiums.
39
<PAGE>
Compensation Of Directors
- -------------------------
Louis S. Carmisciano, a Director of the Company who is neither an officer
nor an employee of the Company, will be paid $150 per hour for his services as a
Director of the Company. Mr. Carmisciano also is the President of LSC
Associates, Inc. ("LSC"), which provides consulting services to the Company.
This arrangement is described under "TRANSACTIONS BETWEEN THE COMPANY AND
RELATED PARTIES-Consulting Agreement". Jim W. Williams, the Vice President Of
Finance, Chief Financial Officer and a Director of the Company, received options
to purchase up to 10,000 shares of the Company's Common Stock in January 1997.
For a description of the terms of these options, see below "-Option Grants". The
Company has no other arrangement pursuant to which the other directors of the
Company are compensated for any services provided as a director or for committee
participation or special assignments.
Employment Contracts And Termination Of Employment And
Change-In-Control Arrangements
- -------------------------------------------------------
The Company has entered into three-year employment agreements that began on
January 1, 1995 with each of the following executive officers: John T. Wilson,
Danny R. Clemons, Ralph L. Farrar, and Jim W. Williams. Each of the agreements
is terminable at will and automatically renews for consecutive one-year terms
unless a party provides written notice of its desire not to renew. The annual
salary during the term of the agreements are the following amounts, although the
Board Of Directors of the Company may increase the salary in its sole
discretion: John T. Wilson, Danny R. Clemons, Ralph L. Farrar, and Jim W.
Williams, $85,000 each. The Company also will pay all the premiums on two
$500,000 term life insurance policies covering each of the above executive
officers, of which one policy covering each of them is a key-man policy for
which the Company is the beneficiary and the other policy is for the benefit of
a beneficiary designated by the respective executive officer.
The Company also has entered into a ten-year employment agreement with
Jimmy M. Rogers that became effective on May 1, 1993. This agreement is
terminable at will and automatically renews for consecutive one-year terms
unless either party provides written notice of its desire not to renew. The
annual salary during the term of the agreement is presently $66,000 although the
Board Of Directors of the Company may increase this amount in its sole
discretion. The agreement also provides for Mr. Rogers to receive the following:
(i) an incentive bonus equal to 18 percent of the annual net operating profit of
the thermal systems division of the Company; (ii) bonus payments of $17,000 on
November 16, 1993 and of $13,600 on each December 1 from and including 1994
through 1998, provided that he still is employed by the Company on those
respective dates; and (iii) payment by the Company of the premiums on a $1
million key-man life insurance policy covering Mr. Rogers, of which 50 percent
of the proceeds is distributable to the Company and 50 percent to a beneficiary
designated by Mr. Rogers.
The Company has no compensatory plan or arrangement that results or will
result from the resignation, retirement, or any other termination of an
executive officer's employment with the Company or from a change-in-control of
the Company, unless the Company terminates the employment of an executive
officer without cause before the full term of the employment agreement expires,
in which case the Company is required to pay three months salary to that
executive officer.
Compensation Committee Interlocks And Insider Participation.
- ------------------------------------------------------------
The Company's Board Of Directors determines the compensation for the
Company's executive officers. The Company has no compensation committee or other
committee of the Board Of Directors that performs a similar function. Each of
the Company's current directors except for Louis S. Carmisciano also is an
executive officer of the Company. John T. Wilson, Danny R. Clemons, and Ralph F.
Farrar, each of whom is an executive officer and employee of the Company,
participated in deliberations of the Company's Board Of Directors concerning
executive officer compensation during the fiscal year ended April 30, 1996. Jim
W. Williams became a director of the Company in June 1996. Mr. Williams also is
the Vice President/Finance and Chief Financial Officer of the Company.
40
<PAGE>
Option Grants
- -------------
On January 14, 1997, the Company approved ths issuance, effective upon the
completion of this Offering, of incentive stock options to purchase an aggregate
of 172,000 shares of Common Stock to employees of the Company, including options
to purchase 10,000 shares issued to each of Jim W. Williams, the Vice President
Of Finance, Chief Financial Officer and a Director of the Company, and Jimmy M.
Rogers, President of the Thermal Systems Division of the Company. These options
were granted pursuant to the Company's 1994 Stock Option Plan and allow the
recipients to purchase shares of the Common Stock at an exercise price of $5.00
per share, which is the offering price of shares in this Offering. With respect
to each recipient of options, one-fourth of their options become exercisable on
each of the first, second, third and fourth anniversaries of the completion of
the Offering, and all their options expire on the fifth anniversary of the
completion of the Offering. The Company's obligation to issue options to
purchase 127,000 shares terminated because of the termination of the employment
of certain recipients.
PRINCIPAL STOCKHOLDERS
The following table summarizes certain information as of October 31, 1997
with respect to the beneficial ownership of the Company's Common Stock (i) by
the Company's officers and directors, (ii) by stockholders known by the Company
to own five percent or more of the Company's Common Stock, and (iii) by all
officers and directors as a group.
<TABLE>
<CAPTION>
Amount And Nature Percent Of Percent Of
Name And Address Of Beneficial Class Prior To Class After
Of Beneficial Owner Ownership Offering Offering (1)
- --------------------- --------- -------- ------------
<S> <C> <C> <C>
Danny R. Clemons(2) 707,319 24.4% 20.3%
14603 Chrisman
Houston, Texas 77039
Ralph L. Farrar(2) 707,319 24.4% 20.3%
14603 Chrisman
Houston, Texas 77039
John T. Wilson(2) 707,319 24.4% 20.3%
14603 Chrisman
Houston, Texas 77039
Jim W. Williams(2) 135,444 4.7% 3.9%
14603 Chrisman
Houston, Texas 77039
Louis S. Carmisciano 0 0% 0
P.O. Box 1114
Chicago, Illinois 60690-1114
All Officers And Directors 2,257,401 77.8% 64.9%
As A Group (Five Persons)(2)
</TABLE>
- --------------------
(1) Assumes that all the shares of Common Stock offered pursuant to this
Prospectus are sold, that none of the Warrants offered or previously
outstanding is exercised, and that the respective beneficial owners listed
in the table will not purchase any shares of Common Stock in this Offering.
(2) All the shares owned by each of Messrs. Clemons, Farrar, Wilson and
Williams are pledged as collateral for the Company's indebtedness to the
Supplier as described under "BUSINESS-Indebtedness To Major Supplier". If
there were a default in this indebtedness and the Supplier were to
foreclose on the pledged shares, a change of control of the Company could
result. See "BUSINESS-Indebtedness To Major Supplier".
41
<PAGE>
TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES
Conflicts Of Interest Policy.
- -----------------------------
The Company has established a policy for considering transactions with
directors, officers, and stockholders of the Company and their affiliates.
Pursuant to this policy, the Board Of Directors of the Company will not approve
any such related party transactions unless the Board Of Directors has determined
that the terms of the transaction are no less favorable to the Company than
those available from unaffiliated parties. Because this policy is not contained
in the Company's Certificate Of Incorporation or Bylaws, this policy is subject
to change at any time by the vote of the Board Of Directors. It currently is not
contemplated that this policy will be changed. The Board has determined that the
transactions described below were made on terms no less favorable to the Company
than would have been available from unaffiliated parties.
Issuances And Transfers Of Stock.
- ---------------------------------
The Company was incorporated in Texas on May 14, 1985. At that time, each
of John T. Wilson, Danny R. Clemons, and Ralph L. Farrar paid $250, or $.01 per
share, for 25,000 shares (an aggregate total of 75,000 shares) of stock of
American International Construction, Inc., a Texas corporation ("AIC-Texas").
In May 1994, AIC Management, Inc. merged with and into the Company. As part
of the merger, the shareholders of AIC Management, Inc. received an aggregate of
75,000 shares of the Company's common stock, which after its issuance
constituted 50 percent of the Company's outstanding shares. The shareholders of
AIC Management, Inc. at the time of the merger were John T. Wilson, Danny R.
Clemons and Ralph L. Farrar. In determining that the values of the two companies
were approximately equal, the Company and AIC Management, Inc. considered the
net book value of the assets of each, an appraisal of the value of the land and
a building owned by AIC Management, Inc., and their respective estimates of the
fair market value of the land and building.
In April 1992, each of John T. Wilson, Danny R. Clemons and Ralph L. Farrar
transferred to Jim W. Williams 3,000 shares of the common stock of AIC-Texas
owned by each of them respectively. The shares were given to Mr. Williams as an
incentive bonus.
Grants Of Stock Options.
- ------------------------
On January 14, 1997, the Company approved the issuance, effective upon the
completion of this Offering, of options to purchase an aggregate of 172,000
shares of the Company's Common Stock to employees of the Company pursuant to the
Company's 1994 Stock Option Plan. Included in these option grants were options
to purchase 10,000 shares granted to each of Jim W. Williams and Jimmy M.
Rogers. The exercise price of these options is $5 per share, which is the
offering price of shares in this Offering. One fourth of the options granted
become exercisable on each of the first, second, third and fourth anniversaries
of the completion of the Offering, and all of these options expire on the fifth
anniversary of the completion of the Offering. The Company's obligation to issue
options to purchase 127,000 shares terminated because of the termination of the
employment of certain recipients.
Delaware Reincorporation And Capital Restructurings.
- ----------------------------------------------------
In June 1994, the Company changed its state of incorporation and effected a
16-for-1 stock split by forming a wholly-owned Delaware subsidiary into which
the Company was merged. As a result of this transaction, the Company became a
Delaware corporation with 2,400,000 shares of Common Stock outstanding. All
references in this Prospectus to numbers of shares give effect to this stock
split and the issuance of 75,000 shares to the shareholders of AIC Management.
42
<PAGE>
Employment Agreements.
- ----------------------
The Company is a party to employment agreements with each of its four
officers. These agreements are described under "EXECUTIVE COMPENSATION".
Consulting Agreement.
- ---------------------
LSC Associates, Inc. ("LSC"), of which Louis S. Carmisciano is the
President, has served as a consultant to the Company since July 1, 1996.
Pursuant to the original agreement, which terminated on December 31, 1996, LSC
received $5,000 per month plus expenses for consulting services provided to the
Company during the six month period ended December 31, 1996. This agreement
provided that the Company and LSC would evaluate the arrangement at December 31,
1996 and determine whether to enter into a new arrangement, which might include
continuing to retain LSC as a consultant and electing Mr. Carmisciano as a
Director. Effective January 1, 1997, the arrangement was modified to retain LSC
as a consultant on an as needed basis for $150 per hour, with no minimum hour
requirement. Mr. Carmisciano was elected a Director of the Company on January
14, 1997. Mr. Carmisciano will be paid at the same hourly rate for services
provided to the Company as a Director.
Interests In U.S. Storage, Inc. And U.S. Storage Management Services, Inc.
- --------------------------------------------------------------------------
As of October 16, 1996, each of Danny Clemons, Leroy Farrar, and John T.
Wilson transferred to the Company all of their interests in U.S. Storage, Inc.
("U.S. Storage") and U.S. Storage Management Services, Inc. ("Management
Services"). U.S. Storage was formed for the purpose of owning mini-warehouse
facilities, and Management Services was formed for the purpose of providing
management services for mini-warehouse facilities. In exchange for these
transfers, each of Messrs. Clemons, Farrar and Wilson received the right to
receive eight and one-third percent of any cash distributions received by the
Company from U.S. Storage or its successors. Messrs. Clemons, Farrar, and Wilson
had acquired their respective interests in U.S. Storage consisting, for each of
them, of 25 percent of the common stock of U.S. Storage, in February 1996 for
$500 each. Messrs. Clemons, Farrar, and Wilson had acquired their respective
interests in Management Services, consisting, for each of them, of 25 percent of
the common stock of Management Services, in May 1996 for $250 each. On October
17, 1996, the Company exchanged all its interest in U.S. Storage for a 37.5
percent interest in U.S. Storage/Westheimer G.P.L.C. ("Westheimer") and it sold
all its interest in Management Services to a former employee for $15,000
including $7,500 cash and release of the Company from $7,500 in commissions owed
to the individual. Westheimer is involved in the ownership of mini- warehouse
facilities.
As of October 23, 1996, Messrs. Clemons, Farrar and Wilson each transferred
to Jim W. Williams, an officer and director of the Company, the right to receive
one and two-thirds percent of any cash distributions received by the Company
from U.S. Storage or its successors. As a result of these transfers, each of
Messrs. Clemons, Farrar and Wilson has the right to receive six and two-thirds
percent, and Mr. Williams has the right to receive five percent, of any cash
distributions received by the Company from U.S. Storage or its successors.
None of Messrs. Clemons, Farrar or Wilson ever has received any payment,
distribution, or other economic benefit from either U.S. Storage or Management
Services. In May 1996, prior to assignment of all the interests of Messrs.
Clemons, Farrar and Wilson in U.S. Storage and Management Services to the
Company, the Company entered into a contract with U.S. Storage/Westheimer, Ltd.
for the Company to construct a mini-warehouse facility for approximately $1.36
million. U.S. Storage/Westheimer, Ltd. is a limited partnership in which
Westheimer owns a 45 percent interest, which results in the Company's owning a
16.875 percent beneficial interest in U.S. Storage/Westheimer, Ltd. The Company
believes that the terms of this contract were at least as favorable to the
Company as the terms and conditions of all other similar contracts for
construction of mini-warehouse facilities that the Company enters into with
unrelated parties. As indicated above, none of Messrs. Clemons, Farrar or Wilson
has ever received any payment, distribution or any other economic benefit from
U.S. Storage or Management Services, and each of these three individuals has
transferred all of his respective right, title, and interest in and to each of
U.S. Storage and Management Services to the Company.
The Company is discussing the potential sale of its interests in each of
U.S. Storage/Westheimer G.P.L.C., U.S. Storage Woodlands #1 G.P.L.C. and U.S.
Storage/Atascocita G.P.L.C. to the partners in those respective entities other
than the Company. Each of these entities was formed for the purpose of owning
and operating storage facilities constructed by the Company. Each of Messrs.
Clemons, Farrar and Wilson has the right to receive six and two-thirds percent
and Mr. Williams has the right to receive five percent, of any cash
distributions received by the Company from any of these entities. There is no
assurance that the Company and the potential purchasers will agree to terms or
that those sales will be completed.
43
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 20 million shares of $.001 par
value Common Stock and one million shares of $1.00 par value Preferred Stock.
The Company's issued and outstanding capital as of September 30, 1997 consisted
of 2,900,100 shares of $.001 par value Common Stock which were held by 44
stockholders and 3,000,000 Warrants held by 38 holders. The Company is offering
580,000 shares of Common Stock and 580,000 Warrants pursuant to this Prospectus.
Common Stock
Each share of the Common Stock is entitled to share equally with each other
share of Common Stock in dividends from sources legally available therefore,
subject to the rights of the Preferred Stock, when, as, and if declared by the
Board of Directors and, upon liquidation or dissolution of the Company, whether
voluntary or involuntary, to share equally in the assets of the Company that are
available for distribution to the holders of the Common Stock. Each holder of
Common Stock of the Company is entitled to one vote per share for all purposes,
except that in the election of directors, each holder shall have the right to
cast one vote per share for each nominee for director. Cumulative voting shall
not be allowed in the election of directors or for any other purpose, and the
holders of Common Stock have no preemptive rights, redemption rights or rights
of conversion with respect to the Common Stock. All outstanding shares of Common
Stock and all shares to be sold and issued upon exercise of the Warrants will be
fully paid and nonassessable by the Company. The Board Of Directors is
authorized to issue additional shares of Common Stock within the limits
authorized by the Company's Certificate Of Incorporation and without stockholder
action.
The Company has not paid any dividends during its last two fiscal years or
in any subsequent periods.
The Company has reserved a sufficient number of shares of Common Stock for
issuance in the event that all the Warrants are exercised. In addition, the
Company has reserved a sufficient number of shares of Common Stock for issuance
upon the exercise of options under the Company's 1994 Stock Option Plan.
The issuance of additional shares of Common Stock and other securities of
the Company is subject to the Representative's right of approval for two years
after the effective date of the Offering.
Common Stock Purchase Warrants
General. The redeemable Common Stock Purchase Warrants (the "Warrants")
offered by the Company are to be in registered form. They are tradeable
separately from the Common Stock. Each Warrant is exercisable at $5.00 per
Warrant during the period commencing on the date of this Prospectus and ending
five years from the date of this Prospectus. Although there currently is no plan
or other intention to do so, the Board Of Directors of the Company, in its sole
discretion, may extend the exercise period of the Warrants and/or reduce the
exercise price of the Warrants. It is anticipated that the Board would make such
a modification only if it deemed it to be in the Company's best interests.
Possible circumstances that may lead to modification of the terms of the
Warrants, of which there is no assurance, would include circumstances in which
the market price of the Company's Common Stock is less than the exercise price
of the Warrants and the Board would reduce the exercise price of the Warrants in
order to encourage their being exercised. This would be based on the Board's
belief that it would be in the Company's best interests to receive additional
capital funds from that source.
44
<PAGE>
The exercise price of the Warrants was arbitrarily established and there is
no assurance that the price of the Common Stock of the Company will ever rise to
a level where exercise of the Warrants would be of any economic value to a
holder of the Warrants.
Current Registration Statement Required For Exercise. In order for a holder
to exercise that holder's Warrants, there must be a current registration
statement on file with the Securities and Exchange Commission and various state
securities commissions to continue registration of the issuance of the shares of
Common Stock underlying the Warrants. The Company intends to maintain a current
registration statement during the period that the Warrants are exercisable
unless the market price of the Common Stock underlying the Warrants would create
no economic incentive for exercise of the Warrants. If those circumstances were
to exist during the entire exercise period of the Warrants, the Warrants could
expire without the holders having had an opportunity to exercise their Warrants.
The maintenance of a currently effective registration statement could
result in substantial expense to the Company, and there is no assurance that the
Company will be able to maintain a current registration statement covering the
shares of Common Stock issuable upon exercise of the Warrants. Although there
can be no assurance, the Company believes that it will be able to qualify the
shares of Common Stock underlying the Warrants for sale in those states where
the Units are to be offered. The Warrants may be deprived of any value if a
current prospectus covering the shares of Common Stock issuable upon exercise of
the Warrants is not kept effective or if the underlying shares are not qualified
in the states in which the Warrantholders reside.
Exercise Of Warrants. The Warrants may be exercised upon the surrender of
the Warrant certificate on or prior to the expiration of the exercise period,
with the form of "Election To Purchase" on the reverse side of the certificate
executed as indicated, and accompanied by payment of the full exercise price for
the number of Warrants being exercised. No rights of a stockholder inure to a
holder of Warrants until such time as a holder has exercised Warrants and has
been issued shares of Common Stock.
Redemption. The Warrants are redeemable by the Company at any time prior to
their exercise or expiration upon 30 days prior written or published notice,
provided however, that the closing bid quotation for the Common Stock for all 20
business days ending on the third day prior to the Company's giving notice of
redemption has been at least 150 percent of the then effective exercise price of
the Warrants. The redemption price for the Warrants will be $.01 per Warrant.
Any Warrant holder that does not exercise prior to the date set forth in the
Company's notice of redemption will forfeit the right to exercise the Warrants
and purchase the shares of Common Stock underlying those Warrants. Any Warrants
outstanding after the redemption date will be deprived of any value except the
right to receive the redemption price of $.01 per Warrant.
Tax Consequences Of Warrants. For federal income tax purposes, no gain or
loss will be realized upon exercise of a Warrant. The holder's basis in the
Common Stock received will be equal to the holder's basis in the Warrant
exercised, plus the amount of the exercise price. If the Warrant being exercised
has been purchased by the holder in this Offering, the holder's basis in the
Warrant will be determined based on the consideration paid for the Warrants. Any
loss realized by a holder of a Warrant due to a failure to exercise a Warrant
prior to the expiration of the exercise period will be treated for federal
income tax purposes as a loss from the sale or exchange of property that has the
same character as any shares of Common Stock acquired from the exercise of the
Warrants.
45
<PAGE>
Warrant exercise price adjustments, or the omission of such adjustments,
may under certain circumstances be deemed to be distributions that could be
taxable as dividends for federal income tax purposes to holders of the Warrants
or the holders of the Common Stock.
The Internal Revenue Code provides that a corporation does not recognize
gain or loss upon the issuance, lapse or repurchase of a warrant to acquire its
own stock. Therefore, the Company will not recognize income upon the expiration
of any unexercised Warrants.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of $1.00 par
value Preferred Stock.
The Board Of Directors of the Company has the right to fix the rights,
privileges and preferences of any class of Preferred Stock to be issued in the
future out of authorized but unissued shares of Preferred Stock and can issue
such shares after adopting and filing a Certificate Of Designations with the
Secretary Of State of Delaware. Any class of Preferred Stock that may be
authorized in the future may have rights, privileges, and preferences senior to
the Common Stock. The Company currently does not have a plan to authorize any
class of Preferred Stock.
The foregoing description concerning capital stock of the Company does not
purport to be complete. Reference is made to the Company's Certificate Of
Incorporation, Bylaws, and Underwriting Agreement which are filed as exhibits to
the Registration Statement of which this Prospectus is part, as well as to the
applicable statutes of the State of Delaware for a more complete description of
the rights and liabilities of stockholders.
The issuance of additional shares of Preferred Stock and other securities
of the Company is subject to the Underwriters' right of approval for one year
after the effective date of the Offering.
Registration Rights
Concurrently with the closing of the Offering, there is being registered on
behalf of the Selling Securities Holders an aggregate of 500,100 shares of
Common Stock and 3,000,000 Warrants issued in connection with the $300,000 loan
to the Company consummated in July 1996. The Selling Securities Holders have
entered into a Lock-Up Agreement which, in general, provides that the Selling
Securities Holders will not offer, sell, contract to sell or grant any option to
purchase or otherwise dispose of the shares of Common Stock or Warrants of the
Company issued to them in connection with the loan until March 13, 1998 without
the prior written consent of the Underwriters. If the Underwriters do not
consent to the sale of such securities concurrently with the Offering, the
Selling Security Holders will be entitled to certain demand and "piggyback"
registration rights with respect to the registration of such shares under the
Securities Act. Generally, the Company is required to bear the expense of all
such registrations, except that the Selling Securities Holders will be required
to bear their pro rata share of the underwriting discounts and commissions, if
any. Substantially similar demand and "piggyback rights" have also been granted
to the Underwriters with respect to the Underwriters' Warrant and the securities
underlying the Underwriters' Warrant.
46
<PAGE>
Delaware Law and Certain Charter Provisions
The Company is a Delaware corporation and subject to Section 203 of the
Delaware General Corporation Law (the "Delaware Law"), an anti-takeover law. In
general, Section 203 of the Delaware Law prevents an "interested stockholder"
(defined generally as a person owning 15% or more of the corporation's
outstanding voting stock) from engaging in a "business combination" (as defined)
with a Delaware corporation for three years following the date such person
became an interested stockholder, subject to certain exceptions such as the
approval of the Board of Directors and the holders of at least 66 2/3% of the
outstanding shares of voting stock not owned by the interested stockholder. The
existence of this provision would be expected to have the effect of discouraging
takeover attempts including attempts that might result in a premium over the
market price for the shares of Common Stock held by stockholders.
Transfer Agent
The Transfer Agent for the Common Stock and Warrants is American Securities
Transfer & Trust, Incorporated.
UNDERWRITING
The Company has entered into an Underwriting Agreement with I.A.R.
Securities Corp., formerly I.A. Rabinowitz & Co. and Worthington Capital Group,
Inc. (the "Underwriters"), with I.A.R. Securities Corp., as the representative
(the "Representative") of the Underwriters, which Underwriting Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
forms a part, and which governs the terms and conditions of the sale of the
Common Stock and Warrants offered hereby. Pursuant to the terms of the
Underwriting Agreement, the Underwriters, as the Company's exclusive agents,
have agreed to purchase from the Company on a firm commitment basis 580,000
shares of Common Stock at a price of $5.00 per share and 580,000 Warrants at a
price of $.10 per Warrant. Each Warrant entitles its holder to purchase one
share of Common Stock at an exercise price of $5.00 per share.
The Company intends to have the Common Stock and Warrants quoted on the OTC
Bulletin Board, an electronic quotation system maintained by the NASD, under the
trading symbols "AICI" and "AICIW", respectively. There is no assurance that
quotation on the OTC Bulletin Board will occur or that a trading market will
develop for the Common Stock and/or Warrants. See "RISK FACTORS-Risk Factor No.
24. No Assurance Of Market For Common Stock Or Warrants".
The Company has granted to the Underwriters an option, solely to cover
over-allotments in the Offering, to purchase all or any part of 15 percent of
the total number of shares of the Common Stock and Warrants offered pursuant to
this Prospectus for a period of 45 days from the date of the closing of the
Offering at the price to public and subject to the discounts and commissions
described below.
The public offering price of the shares of Common Stock and the exercise
price of the Warrants were determined by negotiation between the Representative
and the Company. The Warrant offering price and other terms were determined
arbitrarily by negotiation between the Company and the Representative and do not
necessarily bear any direct relationship to the Company's assets, earnings or
other generally accepted criteria of value. Other factors considered in
determining the offering and exercise price of the Warrants include the business
in which the Company is engaged, the Company's financial condition, an
assessment of the Company's management, the general condition of the securities
markets and the demand for similar securities of comparable companies.
47
<PAGE>
The Underwriters will receive a commission equal to 10% of the gross
proceeds from the sale of the Common Stock and Warrants sold or $295,800. The
Underwriters also will receive a non-accountable expense allowance in an amount
equal to 3% of the gross proceeds of this Offering of which $25,000 has been
paid to date.
The Representative has advised the Company that the Underwriters propose to
offer the shares and the Warrants to the public at the public offering price set
forth on the Cover Page of this Prospectus for each separate security, and that
the Underwriters may allow to certain dealers who are members of the NASD, and
to certain foreign dealers not eligible for membership in the NASD, concessions
of not in excess of $.25 for each share of Common Stock and $.005 for each
Warrant. After commencement of this Offering, the concession and the
re-allowance may be changed. No such modification shall change the amount of
proceeds to be received by the Company.
Pursuant to the Underwriting Agreement, the Company has agreed to sell to
the Underwriters, at a nominal cost, Underwriters' Warrants to purchase up to a
maximum of 58,000 shares of Common Stock and 58,000 Warrants, or one share of
Common Stock for each ten shares sold in this Offering and one Warrant for each
ten Warrants sold in this Offering. The Underwriters' Warrants will be
non-exercisable for one year after the date of this Prospectus. Thereafter, for
a period of four years, the Underwriters' Warrants will be exercisable at $6.00
per share of Common Stock and $.12 per Warrant. These Warrants are exercisable
at $5.00 per share during the four year period commencing one year after the
date of this Prospectus. The Underwriters' Warrants are not transferable for a
period of one year after the date of this Prospectus, except to officers and
stockholders of the Underwriters and to members of the selling group and its
officers and partners. The Company has also granted one demand and certain
"piggy-back" registration rights to the holders of the Underwriters' Warrants.
For the life of the Underwriters' Warrants, the holders thereof are given,
at a nominal cost, the opportunity to profit from a rise in the market price of
the Company's securities with a resulting dilution in the interest of other
stockholders. Further, the holders may be expected to exercise the Underwriters'
Warrants at a time when the Company would in all likelihood be able to obtain
equity capital on terms more favorable than those provided in the Underwriters'
Warrants.
The Representative has informed the Company that it does not expect any
sales of the Common Stock and Warrants offered hereby to be made to
discretionary accounts.
The Company may provide the Underwriters with the names of persons
contacting the Company with an interest in purchasing Common Stock or Warrants
in this Offering, and it is possible that the Company's officers, directors, and
employees will refer prospective purchasers to the Underwriters. Although the
Company will not provide any names for the express purpose of closing the
Offering, sales may be made to those persons for that purpose. The Underwriters
may sell a portion of the Common Stock or Warrants offered hereby to such
persons if they reside in a state in which the Common Stock or Warrants can be
sold. The Underwriters are not obligated to sell any Common Stock or Warrants to
such persons and will do so only to the extent that such sales would not be
inconsistent with the public distribution of the shares. Neither the Company nor
the Underwriters will directly or indirectly arrange for the financing of such
purchases, and the proceeds of the Offering will not directly or indirectly be
used for such purchases. Officers, directors and stockholders of the Company may
purchase Common Stock or Warrants offered hereby.
48
<PAGE>
For a period of five years after the closing of the Offering, the
Representative has the right to designate one person to serve as an advisor to
or member of the Company's Board of Directors. There is no restriction on
whether the person designated is a director, officer, partner, employee, or
affiliate of any of the Underwriters. The Representative has not yet informed
the Company of whether it intends to designate an advisor or director.
The Company will enter into on the date of this Prospectus a consulting
agreement with the Underwriters pursuant to which the Underwriters will receive
a consulting fee of $55,000, payable at the closing of the Offering, for
services to be rendered by the Underwriters to the Company for three years
commencing on the closing date of the Offering. Such services shall include but
not be limited to advising the Company in connection with management and
financial matters and possible acquisition opportunities.
The Underwriting Agreement provides that the Company will not sell any
shares of Common Stock, Preferred Stock, Warrants or options for a period of one
year following the date of this Prospectus without the Underwriters' consent
except that the Company may, without the Underwriters' consent, issue Common
Stock, or options pursuant to the Company's 1994 Stock Option Plan.
The Company also has agreed to engage the Representative as the warrant
solicitation agent on behalf of the Company for the solicitation of the exercise
of the Warrants commencing one year after the date of this Prospectus and
continuing for four years thereafter. The Representative will be paid a warrant
solicitation fee of five percent of the exercise price for each Warrant
exercised during that period. Unless granted an exemption by the Commission from
Regulation M under the Exchange Act, the Representative and any other soliciting
broker-dealers will be prohibited from engaging in any market-making activities
or solicited brokerage activities with regard to the Company's securities during
the periods prescribed by exemption (xi) to Regulation M before the solicitation
of the exercise of any Warrant until the later of the termination of such
solicitation activity or the termination of any right the Representative and any
other soliciting broker-dealer may have to receive a fee for the solicitation of
the exercise of the Warrants.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
this Offering, including liabilities under the Securities Act. See "SECURITIES
AND EXCHANGE COMMISSION POSITION ON CERTAIN INDEMNIFICATION".
Worthington Capital Group, Inc., formerly known as M. D. Walsh & Co., was
licensed as a broker/dealer in July 1991 and has not participated in public
offerings prior to this Offering. Worthington Capital Group, Inc. may not make
markets in securities. See "RISK FACTORS-Risk Factor No. 20. Lack Of Experience
Of Worthington Capital Group, Inc.".
The foregoing does not purport to be a complete summary of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Securities And Exchange
Commission in Washington, D.C. See "ADDITIONAL INFORMATION".
There are no material relationships between the Company and any of the
Underwriters other than the relationships created by the Underwriting Agreement.
49
<PAGE>
SECURITIES AND EXCHANGE COMMISSION POSITION
ON CERTAIN INDEMNIFICATION
The Company has agreed to indemnify directors, officers, and other
representatives of the Company for costs incurred by each of them in connection
with any action, suit, or proceeding brought by reason of their position as a
director, officer, or representative. This would include actions, suits, or
proceedings with respect to liability under the 1933 Act. To be eligible for
indemnification, the person being indemnified must have acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company.
The Board Of Directors is empowered to make other indemnification as
authorized by the Company's Certificate Of Incorporation, Bylaws, or corporate
resolutions so long as the indemnification is consistent with the General
Corporation Law Of Delaware. Under the Company's Bylaws, the Company is required
to indemnify its directors to the full extent permitted by the General
Corporation Law Of Delaware, the common law, and any other statutory provisions.
These provisions also may include indemnification for liabilities arising under
the 1933 Act.
In the Underwriting Agreement, the Company and the Underwriters have agreed
to indemnify each other against civil liabilities, including liabilities under
the 1933 Act. See "UNDERWRITING".
Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities And Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable.
LEGAL MATTERS
Bearman Talesnick & Clowdus Professional Corporation, Denver, Colorado, has
acted as counsel for the Company in connection with this offering. Certain legal
matters will be passed upon for the Underwriters by Schneck Weltman & Hashmall
LLP, 1285 Avenue of the Americas, New York, New York.
EXPERTS
The audited financial statements of the Company appearing in this
Prospectus have been examined by HEIN + ASSOCIATES LLP, independent certified
public accountants, as set forth in their report appearing elsewhere herein, and
are included in reliance upon such report and upon the authority of said firm as
experts in accounting and auditing.
50
<PAGE>
CONCURRENT OFFERING
The Registration Statement of which this Prospectus is a part also covers
500,100 shares of Common Stock and 3,000,000 warrants offered by the Selling
Securities Holders made pursuant to the Selling Securities Holders Prospectus.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement under the Securities Act Of
1933 with respect to the securities offered hereby with the United States
Securities And Exchange Commission. This Prospectus does not contain all of the
information contained in the Registration Statement. For further information
regarding both the Company and the securities offered hereby, reference is made
to the Registration Statement, including all exhibits and schedules therein,
filed at the Commission's Washington, D.C. office. Copies of the Registration
Statement and exhibits are on file with the Commission and may be obtained, upon
payment of the fee prescribed by the Commission, or may be examined free of
charge at the offices of the Commission, Public Reference Room, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission maintains a Worldwide Web
site at http:\\www.sec.gov that contains reports, proxies, and information
statements regarding registrants that file electronically with the Commission.
51
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Financial Statements and
Independent Auditor's Report
Years Ended April 30, 1995, 1996 and 1997 and
Six Months Ended October 1996 and 1997
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report.............................................. F-2
Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and 1997
and October 31, 1997 (unaudited)........................... F-3
Consolidated Statements of Operations for each of the
three years ended April 30, 1995, 1996 and 1997
and for each of the six months ended October 31,
1996 and 1997 (unaudited).................................. F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for each of the three years in the period ended
April 30, 1997 and for the six months ended
October 31, 1997 (unaudited)............................... F-5
Consolidated Statements of Cash Flows for each of the
three years ended April 30, 1995, 1996 and 1997
and for each of the six months ended October 31, 1996
and 1997 (unaudited)....................................... F-6
Notes to Consolidated Financial Statements........................ F-8
Independent Auditor's Report-Consolidated Financial
Statement Schedule......................................... S-1
Schedule II - Consolidated Valuation and Qualifying Accounts...... S-2
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders
American International Consolidated Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheets of American
International Consolidated Inc. and Subsidiaries as of April 30, 1996 and 1997,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the three years in the period ended April
30, 1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American International Consolidated Inc. and Subsidiaries as of April 30, 1996
and 1997, and the results of their operations and their cash flows for each of
the three years in the period ended April 30, 1997, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that American
International Consolidated Inc. and Subsidiaries will continue as a going
concern. As more fully discussed in Note 2 to the consolidated financial
statements, the Company has incurred a net loss of $4,197,000 for the year ended
April 30, 1997, which includes a non-recurring charge of $1,305,000 related to
the Company's private placement of securities in July 1996 and a non-recurring
charge of $359,000 arising from the write off of capitalized offering costs. As
a result of this loss, the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has deteriorated. These matters raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 18. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ HEIN + ASSOCIATES, LLP
- ---------------------------
HEIN + ASSOCIATES, LLP
Houston, Texas
July 23, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
-------------------------------- October 31,
1996 1997 1997
------------ ------------- ------------
(Unaudited)
ASSETS
------
Current assets:
<S> <C> <C> <C>
Cash $ 265,949 $ 160,211 $ 355,401
Accounts receivable:
Contracts, less allowance for doubtful accounts 4,874,421 5,178,012 5,896,242
Contracts with related parties -- 459,308 261,601
Employee 26,543 8,274 18,122
Costs and estimated earnings in excess of billings on
uncompleted contracts 645,420 1,303,101 371,078
Other current assets 131,725 188,253 180,854
------------ ------------ ------------
Total current assets 5,944,058 7,297,159 7,083,298
------------ ------------ ------------
Property and equipment, net 1,185,841 1,132,072 1,008,278
Capitalized offering costs 158,764 120,848 156,763
Other assets 57,420 141,761 164,741
------------ ------------ ------------
Total assets $ 7,346,083 $ 8,691,840 $ 8,413,080
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Notes payable to stockholders $ -- $ 300,000 $ 300,000
Current portion of long-term debt and capital
lease obligations 552,264 2,136,244 2,145,473
Accounts payable 3,826,207 7,006,908 7,093,357
Accrued payroll and related expenses 108,970 80,914 203,439
Billings in excess of costs and estimated earnings
on uncompleted contracts 261,319 1,556,787 715,952
Other current liabilities 358,524 161,372 152,583
------------ ------------ ------------
Total current liabilities 5,107,284 11,242,225 10,610,804
------------ ------------ ------------
Long-term debt, net of current portion 2,400,005 294,945 --
Capital lease obligations, net of current portion 22,287 32,268 6,926
Deferred contract revenue -- 253,084 574,818
Other liabilities 37,000 37,000 37,000
------------ ------------ ------------
Total liabilities 7,566,576 11,859,522 11,229,548
Contingencies (Note 10)
Stockholders' equity (deficit):
Preferred stock, $1.00 par value; 1,000,000 shares
authorized; none issued -- -- --
Common stock, $.001 par value; 20,000,000 shares
authorized; 2,400,000 shares issued and outstanding 2,400 2,900 2,900
at April 30, 1996; 2,900,100 issued and outstanding
at April 30, and October 31, 1997
Additional paid-in capital 145,755 1,395,305 1,395,305
Accumulated deficit (368,648) (4,565,887) (4,214,673)
------------ ------------ ------------
Total stockholders' equity (deficit) (220,493) (3,167,682) (2,816,468)
------------ ------------ ------------
Total liabilities and stockholders' equity (deficit) $ 7,346,083 $ 8,691,840 $ 8,413,080
============ ============ ============
See accompanying notes to these consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
Year Ended April 30 Six Months Ended October 31,
-------------------------------------------------- -------------------------------
1995 1996 1997 1996 1997
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Contract revenue $ 24,317,051 $ 31,184,828 $ 33,350,003 $ 17,922,834 $ 19,827,994
Contract cost 20,812,194 27,204,243 31,387,798 16,243,640 17,489,477
------------ ------------ ------------ ------------ ------------
Gross profit 3,504,857 3,980,585 1,962,205 1,679,194 2,338,517
Selling, general and
administrative 3,020,997 3,359,653 3,838,880 2,060,106 1,865,659
Provision for doubtful
accounts 47,919 61,504 428,384 253,792 52,068
Other income (expense):
Interest and other
financing costs (187,908) (184,277) (307,846) (159,475) (129,383)
Writeoff of capitalized
costs in connection
with delayed offering (105,743) -- (358,946) -- (29,203)
Bridge financing costs -- -- (1,305,250) (1,105,249) --
Interest income and
other, net 44,372 11,419 79,862 68,426 89,010
------------ ------------ ------------ ------------ ------------
Income (loss) before federal
income taxes 186,662 386,570 (4,197,239) (1,831,002) 351,214
Federal income tax expense -- (35,000) -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 186,662 $ 351,570 $ (4,197,239) $ (1,831,002) $ 351,214
============ ============ ============ ============ ============
Net income (loss) per share $ .06 $ .12 $ (1.45) $ (.63) $ .12
============ ============ ============ ============ ============
Weighted average common
shares outstanding 2,900,100 2,900,100 2,900,100 2,900,100 2,900,100
============ ============ ============ ============ ============
See accompanying notes to these consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional
--------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, May 1, 1994 2,400,000 $ 2,400 $ 145,755 $ (906,880) $ (758,725)
Net income -- -- -- 186,662 186,662
----------- ----------- ----------- ----------- -----------
Balances, April 30, 1995 2,400,000 2,400 145,755 (720,218) (572,063)
Net income -- -- -- 351,570 351,570
----------- ----------- ----------- ----------- -----------
Balances, April 30, 1996 2,400,000 2,400 145,755 (368,648) (220,493)
Common stock issued in
connection with private
placement offering 500,100 500 1,249,550 -- 1,250,050
Net loss -- -- -- (4,197,239) (4,197,239)
----------- ----------- ----------- ----------- -----------
Balances, April 30, 1997 2,900,100 2,900 1,395,305 (4,565,887) (3,167,682)
Net Income (Unaudited) -- -- -- 351,214 351,214
----------- ----------- ----------- ----------- -----------
Balances, October 31, 1997 (Unaudited) 2,900,100 $ 2,900 $ 1,395,305 $(4,214,673) $(2,816,468)
=========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year Ended April 30, Six Months Ended October 31,
------------------------------------------- ----------------------------
1995 1996 1997 1996 1997
----------- ----------- ----------- ----------- -----------
(Unaudited)
Cash flows from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss) $ 186,662 $ 351,570 $(4,197,239) $(1,831,002) $ 351,214
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Fair value of common stock
issued in connection with
bridge financing, net of discount -- -- 1,250,050 1,050,249 --
Depreciation and amortization 141,176 170,123 165,284 82,598 71,265
(Increase) decrease in:
Receivables, net (12,353) (2,211,591) (744,630) (1,085,762) (530,371)
Costs and estimated earnings
in excess of billings on
uncompleted contracts 673,380 64,215 (657,681) (1,003,331) 932,023
Other current assets (96,016) 3,063 (56,528) (41,586) 7,399
Increase (decrease) in:
Accounts payable (415,777) 2,510,817 3,026,424 2,505,640 86,449
Billings in excess of costs and
estimated earnings 98,668 (226,495) 1,295,468 374,244 (840,835)
Other current liabilities (74,152) (19,064) (70,931) 65,660 (8,789)
Deferred contract revenue -- -- 253,084 165,673 321,734
Other, net (55,788) 2,260 274,604 (69,300) 39,789
----------- ----------- ----------- ----------- -----------
Net cash provided by
operating activities 445,800 644,898 537,905 213,083 429,878
Cash flows from investing activities:
Capital expenditures (169,485) (148,264) (55,183) (68,931) (8,912)
Proceeds from sale of equipment -- -- -- -- 150,400
Proceeds from sale of investments 19,050 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) investing activities (150,435) (148,264) (55,183) (68,931) 141,488
Cash flows from financing activities:
Net borrowings (payments) under
receivables factoring agreements 177,239 (408,889) -- -- --
Proceeds from notes payable to
stockholders -- -- 300,000 300,000 --
Issuance of long-term debt 173,585 -- -- -- --
Principal payments
on long-term debt, capital leases
and other notes payable (439,303) (348,947) (567,430) (287,321) (317,044)
Deferred offering costs (60,325) (101,828) (321,030) (219,418) (65,118)
Other -- -- -- 12,679 5,986
----------- ----------- ----------- ----------- -----------
Net cash used in
financing activities (148,804) (859,664) (588,460) (219,418) (376,176)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash 146,561 (363,030) (105,738) (75,266) 195,190
Cash, beginning of period 482,418 628,979 265,949 265,949 160,211
----------- ----------- ----------- ----------- -----------
Cash, end of period $ 628,979 $ 265,949 $ 160,211 $ 190,683 $ 355,401
=========== =========== =========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Year Ended April 30, Six Months Ended October 31,
1995 1996 1997 1996 1997
------------ ----------- ------------ ----------- ------------
(Unaudited)
Supplemental disclosures:
<S> <C> <C> <C> <C> <C>
Interest paid $ 197,661 $ 184,277 $ 307,846 $ 155,760 $ 111,725
Income taxes paid $ - $ - $ 5,000 $ - $ -
Trade payable converted to
long-term debt $ - $ 2,400,000 $ - $ - $ -
Equipment acquired under
capital leases $ 63,361 $ - $ 56,332 $ 56,320 $ 5,985
============ =========== ============ =========== ============
See accompanying notes to these consolidated financial statements.
F-7
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: The accompanying consolidated financial statements include the
accounts of American International Consolidated, Inc. (AIC), a Delaware
corporation, and its wholly-owned subsidiaries: C.H.O.A. Construction Company
and L. Campbell Construction, Inc., (collectively "the Company"). Effective
April 30, 1994, the Company acquired all the outstanding shares of AIC
Management, Inc., a corporation wholly owned by the stockholders of the Company,
for $1,015,000, consisting of 75,000 shares of the Company's common stock, with
an assigned value of $44,000, and liabilities assumed totaling $971,000. This
acquisition, which was accounted for in a manner which approximates the purchase
method of accounting, gave no rise to goodwill. In June 1994, American
International Construction , Inc., a Texas corporation, formed AIC as a
wholly-owned subsidiary. Subsequent to this, the Texas corporation was merged
into the Delaware corporation in a reverse tax-free exchange. Effective July 26,
1996, the Company changed its name from American International Construction,
Inc. to American International Consolidated, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
The Company has equity investments in three limited liability companies. The
Company's ownership in each of these companies is less than 50 percent and an
unrelated third party is the managing member of each company. The Company
accounts for its investment in these companies on the equity method of
accounting.
The Company is primarily engaged in the design and erection of metal buildings
for use as self-storage, commercial and cold storage facilities and fabrication
of metal building components. The Company also participates in major
construction projects as a general contractor.
Revenue and Cost Recognition: Profits and losses on construction and fabrication
contracts are recorded on the percentage-of-completion method of accounting,
measured by the percentage of contract costs incurred to date to estimated total
contract costs for each contract. Contract costs include raw materials, direct
labor, amounts paid to subcontractors and an allocation of overhead expenses.
General and administrative costs are charged to expense as incurred. Anticipated
losses on uncompleted construction contracts are charged to operations as soon
as such losses can be estimated. Changes in job performance, job conditions,
estimated profitability and final contract settlements may result in revisions
to costs and income and are recognized in the period in which the revisions are
determined.
The asset, "costs and estimated earnings in excess of billings on uncompleted
contracts", represents revenues recognized in excess of amounts billed. The
liability, "billings in excess of costs and estimated earnings on uncompleted
contracts", represents billings in excess of revenues recognized.
Cash: Cash includes all highly liquid investments with original maturities of
less than three months.
Property and Equipment: Property and equipment is carried at cost. Property and
equipment acquired through capital leases is stated at the present value of the
future minimum lease payments at the inception of the lease. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Property and equipment held under capital leases is amortized on the
straight-line method over the lesser of the asset's estimated useful life or the
term of the lease. When assets are retired or otherwise disposed of, the cost
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is recognized in operations for the period. The cost of
maintenance and repairs are expensed as incurred; however, significant
refurbishments or improvements are capitalized.
F-8
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Federal Income Taxes: AIC files a consolidated federal income tax return, which
includes the results of its operations and those of its wholly-owned
subsidiaries. The Company accounts for income taxes using the liability method,
under which deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax basis of existing assets and liabilities. Income tax expense or benefit
represents the current tax payable or refundable for the period plus or minus
the tax effect of the net change in the deferred tax assets and liabilities.
Deferred Offering Costs: Direct costs incurred in connection with the Company's
proposed offering of common stock have been capitalized in the accompanying
balance sheets. Upon closing of the proposed offering, these costs, which amount
to approximately $156,763 at October 31,1997, will be applied as a reduction of
the offering proceeds.
Deferred Financing Costs: Direct costs incurred in the origination of debt are
capitalized and amortized over the related term of the debt on the interest
method.
Use of Estimates: The preparation of the Company's consolidated financial
statements, in conformity with generally accepted accounting principles,
requires the Company's management to make estimates and assumptions that affect
the amounts reported in these financial statements and accompanying notes.
Actual results could differ from those estimates.
The Company's financial statements are based on a number of significant
estimates including the adequacy or the Company's allowance for doubtful
accounts receivable and the determination of profits and losses on construction
and fabrication contracts recorded on the percentage-of-completion method of
accounting. The Company's estimates of profit or loss on construction and
fabrication contracts are inherently imprecise and may change as the contracts
move toward completion.
New Accounting Standards: The Financial Accounting Standards Board ("the FASB")
issued SFAS No. 121 entitled, Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 121 specifies certain events and circumstances which
indicate the cost of an asset or assets may be impaired, the method by which the
evaluation should be performed and the method by which writedowns, if any, of
the asset or assets are to be determined and recognized. SFAS No. 121 had no
material impact on the Company's financial condition or operating results upon
implementation.
The FASB issued SFAS No. 123 entitled, Accounting for Stock Based Compensation,
effective for fiscal years beginning after December 15, 1995. This statement
allows companies to choose to adopt the statement's new rules for accounting for
employee stock-based compensation plans. For those companies which choose not to
adopt the new rules, the statement requires disclosures as to what earnings and
earnings per share would have been if the new rules had been adopted. The
Company has elected not to adopt SFAS No. 123.
In February 1997, the FASB issued SFAS No. 128 entitled, Earnings Per Share,
effective for interim and annual periods after December 15, 1997. This statement
replaces primary earnings per share with a newly defined earnings per share and
modifies the computation of diluted earnings per share. The Company's basic and
diluted earnings per share
F-9
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
computed using the requirements of SFAS 128 are the same as primary earnings per
share disclosed in the accompanying income statements.
In June 1997, the FASB issued two new disclosure standards. Results of
operations and financial position will be unaffected by implementation of these
new standards.
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income, its components and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
Net Income (Loss) Per Share and Common Stock Split: Net income (loss) per share
is based upon the weighted average common shares outstanding. There were no
common stock equivalents during the periods presented. For purposes of
determining the weighted average shares outstanding, the 500,100 shares of
common stock issued in connection with notes payable to stockholders (see Note
8) were deemed to be outstanding begining May 1, 1994.
Unaudited Interim Financial Information: The financial information at October
31, 1997, and for the six month periods ended October 31, 1996 and 1997, is
unaudited. However, such information reflects all adjustments (consisting of
normal recurring adjustments) that are, in the opinion of management, necessary
to fairly present the financial position, results of operations and cash flows
of the Company for the interim periods. The results of operations for the
six-month period ended October 31, 1997 are not necessarily indicative of the
results that will be achieved for the entire year.
NOTE 2 - GOING CONCERN
The Company's loss for the year ended April 30, 1997, which includes a non-cash
charge of $1,305,000 related to the Company's private placement of securities in
July 1996 (see Note 8) and a non-recurring charge of $359,000 arising from the
write-off of capitalized offering costs, was approximately $4,197,000. As a
result of these losses, the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has deteriorated. These matters raise substantial doubt about the
Company's ability to continue as a going concern without a substantial infusion
of equity capital (see Note 18). The Company believes that it will be successful
in removing the threat concerning its ability to continue as a going concern by
adhering to closer and stricter scrutiny of its contract bids and utilizing the
estimated minimum net proceeds of approximately $2.3 million from the
F-10
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
proposed public offering to achieve profitability through lower interest and
bonding costs and expanded volume. There is no assurance these results will
occur even if the proposed public offering is consummated. If this does not
occur, the Company will pursue other sources of financing, but there is no
assurance any other source of financing will be available.
NOTE 3 - CONCENTRATION OF CREDIT RISK
The Company provides construction services to commercial companies primarily in
the continental United States which are principally concentrated in Texas and
Florida. The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company assesses its credit risk and
provides an allowance for any accounts which it deems doubtful of collection.
The Company maintains deposits in banks which may exceed the amount of federal
deposit insurance available. Management believes that the risk of any possible
deposit loss is minimal.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
April 30,
------------------------------------ October 31,
1996 1997 1997
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
Land $ 167,461 $ 167,461 $ 167,461
Buildings 834,944 834,944 834,944
Construction equipment 213,575 232,898 68,402
Office equipment 583,877 553,631 488,977
Automobiles 296,471 286,471 229,449
----------- ----------- -----------
2,096,328 2,075,405 1,789,233
Less accumulated depreciation
and amortization (910,487) (943,333) (780,955)
----------- ----------- -----------
$ 1,185,841 $ 1,132,072 $ 1,008,278
=========== =========== ===========
NOTE 5 - CONSTRUCTION ACCOUNTS
Costs and billings on uncompleted contracts consists of the following:
April 30,
---------------------------------- October 31,
1996 1997 1997
------------ ------------ ------------
(Unaudited)
Costs incurred on uncompleted contracts $ 7,739,410 $ 21,169,011 $ 24,574,911
Estimated earnings on uncompleted contracts 1,239,522 1,378,123 2,273,401
------------ ------------
8,978,932 22,547,134 26,848,312
Less: Billings to date (8,594,831) (22,800,820) (27,193,190)
------------ ------------ ------------
$ 384,101 $ (253,686) $ (344,874)
============ ============ ============
</TABLE>
F-11
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
Included in the accompanying consolidated balance sheets under the following
captions:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 645,420 $ 1,303,101 $ 371,078
Billings in excess of costs and estimated
earnings on uncompleted contracts (261,319) (1,556,787) (715,952)
----------------- ---------------- ---------------
$ 384,101 $ (253,686) $ (344,874)
================ ================ ===============
NOTE 6 - CONTRACTS RECEIVABLE
Contracts receivable consisted of the following:
April 30,
------------------------------------- October 31,
1996 1997 1997
---------------- --------------- -------------
(Unaudited)
Completed contracts $ 1,458,204 $ 612,941 $ 1,269,330
Uncompleted contracts 3,158,551 3,888,280 3,837,015
Retainage 337,523 1,176,603 1,154,667
---------------- --------------- --------------
4,954,278 5,677,824 6,261,012
Less: Allowance for doubtful accounts (79,857) (40,504) (103,169)
---------------- --------------- --------------
$ 4,874,421 $ 5,637,320 $ 6,157,843
================ =============== ==============
</TABLE>
NOTE 7 - NOTES PAYABLE
The Company had a credit line with a financing company under which certain of
the Company's contract receivables were purchased at a discount of 9%. The
Company was refunded a portion of the discount provided the receivable was
collected promptly. The agreement was guaranteed by the Company's four principal
stockholders, all of whom are officers, and three of whom are directors of the
Company. This credit line was terminated effective April 24, 1996.
NOTE 8 - NOTES PAYABLE TO STOCKHOLDERS
In July 1996, the Company issued an aggregate of 500,100 shares of Common Stock,
and agreed to issue 3,000,000 Warrants upon the closing of the Company's initial
public offering, and $300,000 aggregate face amount of unsecured promissory
notes, payable in a balloon payment plus accrued interest at 10 percent per
annum due on the earlier of April 24, 1997 or the closing of any public debt or
equity offering by the Company or the closing of any transaction in which the
Company's securities are exchanged for securities of a public entity. The Comany
is in default on the payment of the notes and interest thereon. The warrants
which were issued on March 13, 1997 are exercisable at $5.00 per share for a
period of five years ending March 13, 2002. The warrants may be redeemed by the
Company at a price of $.01 per share, provided the closing bid price of the
Company's common stock is in excess of 150% of the then exercise price for all
20 trading days preceding the notice of redemption. The Company incurred a
charge to earnings of approximately $1,005,000 which represents the amount by
which the fair value of the 500,100 shares issued to the note holders exceeded
the face amount of the promissory notes. This excess was charged to expense as
opposed to being capitalized as direct financing costs because it was deemed
unrecoverable. An additional $300,000 of expense was
F-12
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
recognized during the year ended April 30, 1997, which represented the
amortization of the discount on the promissory notes. The discount on the
promissory notes is being amortized on the interest method over the term of the
notes. The effective interest rate on the notes, plus the fair value of the
common stock issued to the note holders, amounted to 580%.
NOTE 9 - LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
April 30,
-------------------------------- October 31,
1996 1997 1997
-------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Note payable to supplier, due in
weekly installments of $11,537,
including interest at prime plus 1%
(9.5% at April 30, 1997) through
April 30, 2001. The note is
collateralized by certain contract
receivables, inventory, equipment,
land, buildings and substantially
all shares of the Company's common
stock. The note is guaranteed by
the four stockholders of the
Company. $ 2,400,000 $ 2,002,536 $ 1,798,885
Note payable to a limited
partnership, due in monthly
installments of $4,907, including
interest at 10% through June 1998
when the remaining principal is
due. The note is collateralized by
the Company's land and buildings
and guaranteed by three principal
stockholders of the Company. 289,153 254,932 237,884
Note payable to a limited
partnership, due in monthly
installments of $1,175, including
interest at 10% with a final
payment of principal and interest
due the earlier of 30 days after
consummation of a proposed public
offering or June 5, 1998. The note
is collateralized by a second lien
on the Company's land and buildings
and guaranteed by three principal
stockholders of the Company. 83,416 76,726 73,445
Real estate note payable, due in
monthly installments of $1,018,
including interest at 8.7%, through
October 1998. The note is
collateralized by a first lien on a
portion of the Company's land. 26,556 15,335 10,732
F-13
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 9 - LONG TERM DEBT (continued)
Demand notes payable to the State
of Florida for sales and use tax,
payable in monthly installments of
$7,930, including interest at 12%, 135,042 45,177 --
Other equipment and automobile notes 1,228 -- --
-------------- ------------ ------------
2,935,395 2,394,706 2,120,946
Less: Current portion (535,390) (2,099,761) (2,120,946)
-------------- ------------ -------------
$ 2,400,005 $ 294,945 $ --
============== ============ =============
</TABLE>
The note payable to supplier includes various financial covenants which require,
among other things, the Company to limit its capital expenditures, without prior
approval of the supplier, to $120,000 annually; to submit audited financial
statements within 90 days of year-end, to maintain certain balance requirements
on trade payables to this supplier; to prohibit the payment of dividends; to
maintain a ratio of current assets to current liabilities of at least .60 to 1;
and to maintain earnings before interest expense of at least 1.5% of gross
revenues. The Company is in violation of certain of these debt covenants, and
has received a waiver of such violations through February 28, 1998. Accordingly,
the outstanding balance of the note payable to supplier is classified as current
in the accompanying consolidated balance sheets as of April 30 and October 31,
1997. The Company also had trade payables due this supplier of $1,065,825 and
$1,683,688 at April 30, 1996 and 1997, respectively, and of $2,739,195 at
October 31, 1997.
Scheduled maturities of long-term debt are as follows:
Year Ending April 30
--------------------
1998 $ 531,511
1999 772,472
2000 525,070
2001 565,653
----------
$2,394,706
==========
NOTE 10 - CONTINGENCIES
The owner of one of the Company's construction projects disputed an accounts
receivable of $326,000 for costs charged to a job which was completed in the
fourth quarter of fiscal 1996. The Company settled this dispute during November
1996 for a payment of $125,000 from that owner, resulting in a reduction in
amounts due from this owner by $201,000 during the second quarter of fiscal
1997.
The owner of another construction project has notified the Company of a claim
arising from work performed by the Company, and the Company has in turned filed
a claim with its insurance company. The total amount of loss expected to arise
from this claim is anticipated to be less than $100,000. The ultimate amount of
the loss is dependent on a variety of circumstances, including what amount, if
any, the Company's insurance company will pay on its claim. The Company has
accrued a loss of $64,000 at October 31, 1997 in connection with this claim.
Additionally, the Company is involved in various other claims and legal actions
arising in the ordinary course of business. In the opinion of management, the
ultimate disposition of these matters will not have a material adverse effect on
the Company's consolidated financial condition, liquidity or results of
operations.
NOTE 11 - STOCKHOLDERS' EQUITY
The Company may issue one or more series of preferred stock, with such
designations, preferences, rights, dividends and restrictions as may be
determined by the Board of Directors.
F-14
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 12 - FEDERAL INCOME TAXES
Deferred tax assets and liabilities as of April 30, 1996 consisted of the
following:
<TABLE>
<CAPTION>
Current Noncurrent Total
Deferred tax assets:
<S> <C> <C> <C>
Net operating loss carryforwards $ 157,000 $ - $ 157,000
Deferred compensation and other accruals 27,700 - 27,700
Other, net 62,300 - 62,300
-------------- -------------- --------------
Total deferred tax asset 247,000 - 247,000
Less: Valuation allowance (210,000) - (210,000)
-------------- -------------- --------------
Deferred tax asset, net 37,000 - 37,000
-------------- -------------- --------------
Deferred tax liability - accumulated
depreciation - (37,000) (37,000)
-------------- -------------- --------------
$ 37,000 $ (37,000) $ -
============== ============== ==============
Deferred tax assets and liabilities as of April 30, 1997 consisted of the
following:
Current Noncurrent Total
Deferred tax assets:
Net operating loss carryforwards $ - $ 748,000 $ 748,000
Other, net 38,000 - 38,000
-------------- -------------- --------------
Total deferred tax asset 38,000 748,000 786,000
Less: Valuation allowance (1,000) (748,000) (749,000)
--------------- --------------- ---------------
Deferred tax asset, net 37,000 - 37,000
-------------- -------------- --------------
Deferred tax liability - accumulated
depreciation - (37,000) (37,000)
-------------- -------------- ---------------
$ 37,000 $ (37,000) $ -
============== ============== ==============
</TABLE>
The company had net operating loss carryforwards ("NOL's") for federal income
purposes of approximately $2,000,000 at April 30, 1997. If unused, these NOL's
will expire in 2012. The change in the valuation allowance from April 30, 1996
to April 30, 1997 relates primarily to the increase in the NOL from April 30,
1996 to April 30, 1997. The issuance of the warrants on March 13, 1997 (see Note
8) may have caused a change in control as defined in Internal Revenue Code
Section 382. If a change in control did occur, then the utilization of the
Company's NOL,may be limited.
F-15
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) plan (the "Plan") which covers substantially all
of its employees meeting minimum age and service requirements. The Plan provides
for elective contributions by employees up to the lesser of 15% of the
employee's compensation or the maximum limit allowed by tax regulations. Under
the terms of the Plan, the Company makes matching contributions equal to 25% of
the first 6% of each employee's elective contributions to the Plan. In addition,
the Company may make discretionary contributions up to 15% of total participant
compensation. During the years ended April 30, 1995, 1996 and 1997, the Company
made contributions to the Plan of $25,692, $24,626 and $37,142, respectively,
and $17,137 and $17,905 for the six-month periods ended October 31, 1996 and
1997, respectively.
NOTE 14 - INCENTIVE STOCK OPTION PLAN
The Company has a Stock Option Plan (the Option Plan) which allows the Company
to grant certain officers, employees, and other individuals options to purchase
200,000 shares of the Company's common stock. No stock options had been granted
pursuant to the Option Plan as of October 31,1997.
Options granted pursuant to the Option Plan may be "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, or
"non-qualified stock options," which are options that do not meet the
requirements of Section 422. Incentive options may be granted only to key
employees of the Company, as defined in the Option Plan, and non-qualified
options may be granted to both key employees and other persons, other than an
employee of the Company, who are committed to the interests of the Company.
The Option Plan expires November 21, 2004, except as to options previously
granted and outstanding under the Option Plan at that time.
On January 14, 1997, the Company approved the issuance, effective upon the
completion of the Company's initial public offering (see Note 18), of options to
purchase an aggregate of 172,000 shares of the Company's common stock to
employees of the Company pursuant to the Company's 1994 Stock Option Plan. The
exercise price of these options, when and if issued, is $5 per share, which is
the offering price of shares in the offering. One fourth of the options granted
become exercisable on each of the first, second, third and fourth anniversaries
of the completion of the offering. The Company's obligation to issue options to
purchase 127,000 shares terminated because of the termination of the employment
of certain recipients.
NOTE 15 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of trade receivables, trade payables
and various notes payable to banks, stockholders and a supplier. The Company
believes the carrying value of these financial instruments approximate their
estimated fair value.
F-16
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 16 - RELATED PARTY TRANSACTIONS
The Company has a 37.5% ownership interest in U.S. Storage/Westheimer G.P., L.C.
("Westheimer LLC"), a Texas limited liability company; and, a 24.5% ownership
interest in both U.S. Storage/Woodlands #1 G.P., L.C. ("Woodlands LLC") and U.S.
Storage/Atascocita G.P., L.C. ("Atascocita LLC"), each a Texas limited liability
company. Westheimer LLC, Woodlands LLC, and Atascocita LLC are 45% owners in
U.S. Storage/Westheimer, Ltd.; U.S. Storage/Woodlands #1,Ltd.; and, U.S. Storage
Atascocita, Ltd., respectively. These entities ("the Partnerships") are Texas
limited liability partnerships which were formed to construct and operate
mini-storage facilities.
The Company was engaged by the Partnerships to construct three separate
mini-storage facilities. Revenues derived from the Partnerships aggregated
$2,053,140 during fiscal 1997, and aggregated $1,388,725 and $1,782,072 for the
six month periods ended October 31, 1996 and 1997, respectively. The gross
profits from these construction contracts, aggregating $574,818 at October 31,
1997 ($253,084 at April 30, 1997), is being deferred until the Partnerships sell
the mini-storage facilities or the Company disposes of its ownership interest in
the Partnerships, provided the Company's major stockholders are released from
the guarantees of the bank debt owed by the Partnership. The Partnerships owed
the Company $459,308 and $261,601 at April 30, and October 31, 1997,
respectively as a result of these construction contracts.
F-17
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 17 - MAJOR CUSTOMERS
The following is a summary of customers accounting for ten percent (10%) or more
of the Company's revenues and trade accounts receivable for the periods and
dates indicated:
Revenues
Year Ended April 30,
-----------------------------------------------
1995 1996 1997
--------- --------- ---------
Customer A 19.8% 26.0% 21.7%
Customer B - - -
Customer C 10.2 - -
Customer D - - -
Customer E - - 14.6
Customer F - - -
--------- --------- ---------
30.0% 26.0% 36.3%
========= ========= =========
Receivables
April 30,
-----------------------------------------------
1995 1996 1997
--------- --------- ---------
Customer A 20.0% 11.0% 24.6%
Customer B - - 12.3
Customer C - - -
Customer D 13.0 - -
Customer E - - -
Customer F - - -
--------- --------- ---------
33% 11.0% 36.9%
========= ========= =========
F-18
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
(Information Subsequent to April 30, 1997 is Unaudited)
NOTE 18 - INITIAL PUBLIC OFFERING
The Company is preparing to register the sale of a minimum of 580,000 shares of
common stock and 580,000 warrants with the Securities and Exchange Commission as
part of an initial public offering. Each warrant is exercisable to purchase one
share of common stock at an exercise price of $5.00 per share. The Company
intends to offer these securities in a public offering through two underwriters
on a "firm commitment basis". If the offering is consummated, the Company will
sell to the underwriters and/or their designees, for an aggregate price of $10,
underwriters' warrants to purchase up to a maximum of 58,000 shares of common
stock and 58,000 warrants. The warrants received upon exercise of the
underwriters' warrants are exercisable at $5.00 per share during the four-year
seriod commencing one year after the effective date of the registration
statement concerning the offering. The Company has granted registration rights
with respect to the common stock and warrants underlying the underwriters'
warrants.
F-19
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
INDEPENDENT AUDITOR'S REPORT
ON CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
To the Stockholders
American International Consolidated Inc.
Houston, Texas
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of American International Consolidated Inc.
and subsidiaries included in this Registration Statement and have issued our
report thereon dated July 23, 1997. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial statements taken as a
whole. The accompanying financial statement schedule (Schedule II Consolidated
Valuation and Qualify Accounts) is the responsibility of the Company's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This consolidated financial statement schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects with
the financial data required to be set forth thereon in relation to the basic
consolidated financial statements taken as a whole.
/s/ HEIN + ASSOCIATES
HEIN + ASSOCIATES LLP
Certified Public Accountants
Houston, Texas
July 23, 1997
S-1
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED INC.
AND SUBSIDIARIES
Schedule II - Consolidated Valuation and Qualifying Accounts
Balance at Charged to Balance
Beginning Costs and End of
Description of Year Expenses Write-Offs Year
- ----------------------------------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
Year Ended April 30, 1995 allowance $106,594 $ 47,919 $ 57,460 $ 97,053
for doubtful accounts
Year ended April 30, 1996 allowance $ 97,053 $ 61,504 $ 78,700 $ 79,857
for doubtful accounts
Year ended April 30, 1997 allowance $ 79,859 $428,384 $467,737 $ 40,504
for doubtful accounts
See accompanying notes to these consolidated financial statements.
S-2
</TABLE>
<PAGE>
============================================= =================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED AMERICAN INTERNATIONAL
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, CONSOLIDATED INC.
SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL Common Stock
THERE BE ANY SALE OF THESE SECURITIES IN ANY 580,000 Shares
STATE IN WHICH SUCH OFFER, SOLICITATION OR
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE. Redeemable Common
Stock Purchase Warrants
580,000 Warrants
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ...................... 6
RISK FACTORS ............................ 10
USE OF PROCEEDS ......................... 19
DIVIDEND POLICY ......................... 20
DILUTION ................................ 21 --------------------
BUSINESS ................................ 23
SELECTED CONSOLIDATED FINANCIAL DATA..... 33 PROSPECTUS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF ---------------------
OPERATIONS............................. 35
MANAGEMENT............................... 39
EXECUTIVE COMPENSATION................... 41
PRINCIPAL STOCKHOLDERS................... 44
TRANSACTIONS BETWEEN THE COMPANY AND
RELATED PARTIES........................ 46
DESCRIPTION OF SECURITIES................ 50
UNDERWRITING ............................ 54
SECURITIES AND EXCHANGE COMMISSION
POSITION ON CERTAIN INDEMNIFICATION.... 58
LEGAL MATTERS............................ 58
EXPERTS.................................. 58
CONCURRENT OFFERING...................... 59 I.A.R. Securities Corp.
ADDITIONAL INFORMATION................... 59
FINANCIAL INFORMATION....................F-1 Worthington Capital Group
UNTIL ______, 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS , 1997
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================== ================================
<PAGE>
[Logo red, white and blue flag]
SUBJECT TO COMPLETION
_________, 1997
[Red Ink]
PROSPECTUS
AMERICAN INTERNATIONAL CONSOLIDATED INC.
500,100 Shares Of Common Stock And 3,000,000
Redeemable Common Stock Purchase Warrants
This Prospectus relates to the offering (the "Securities Holders'
Offering") 500,100 shares of Common Stock and 3,000,000 Redeemable Common Stock
Purchase Warrants ("Warrants") of American International Consolidated Inc. (the
"Company") offered by the persons named herein (the "Selling Securities
Holders"). See "OFFERING BY SELLING SECURITIES HOLDERS". The Common Stock and
Warrants being offered hereby were acquired pursuant to a private offering of
Common Stock and Warrants (the "Private Placement") completed in July 1996.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at an exercise price of $5.00 per share, subject to adjustment
in certain events, at any time during the period commencing on the date hereof
and expiring on the fifth anniversary of the date hereof. The Warrants are
subject to redemption by the Company at $.01 per Warrant at any time commencing
on March 13, 1998, on not less than 30 days' prior written notice to the holders
of the Warrants, provided that the average closing bid quotation of the Common
Stock, as reported on the OTC Bulletin Board or the average closing sale price
if listed on a national securities exchange, has been at least 150% of the then
current exercise price of the Warrants for each of the 20 consecutive business
days ending on the third day prior to the date on which the Company gives notice
of redemption. The Warrants will be exercisable until the close of business on
the day immediately preceding the date fixed for redemption. See "DESCRIPTION OF
SECURITIES-Warrants".
The Company will receive no proceeds from the sales of the Common Stock and
Warrants by the Selling Securities Holders. The Common Stock and Warrants
offered by this Prospectus may be sold from time to time by the Selling
Securities Holders, or by transferees. No underwriting arrangements have been
entered into by the Selling Securities Holders. The distribution of the Common
Stock and Warrants by the Selling Warrant Holders may be offered in one or more
transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately-negotiated transactions or through
sales to one or more dealers for resale of such Common Stock and Warrants as
principals, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. Usual and customary
or specifically negotiated brokerage fees or commissions may be paid by the
Selling Securities Holders in connection with sales of the Warrants by Selling
Securities Holders. See "OFFERING BY SELLING SECURITIES HOLDERS".
ALT-FRONT COVER
<PAGE>
Prior to this Securities Holders' Offering, there has been no public market
for the Common Stock or the Warrants, and there can be no assurance that any
such market for the Common Stock or the Warrants will develop after the closing
of this Securities Holders' Offering, or that, if developed, it will be
sustained. The Company intends to have the Common Stock and Warrants quoted on
the OTC Bulletin Board, an electronic quotation system maintained by the
National Association Of Securities Dealers, Inc. ("NASD"), under the trading
symbols "AICI" and "AICIW," respectively. See "RISK FACTORS-Risk Factor No.
25-Possible Effects Of SEC Rules On Market For Common Stock And Warrants".
On ______ 1997, the Company completed an initial public offering (the
"Company Offering") of 580,000 shares of Common Stock and 580,000 Warrants on a
"firm commitment basis" through I.A.R. Securities Corp. and Worthington Capital
Group, Inc. (collectively, the "Underwriters"). The Company Offering commenced
as a "best efforts, minimum/maximum" offering on March 13, 1997. The Company
Offering continued for a 60 day period and was extended for an additional 30
days upon mutual agreement of the Company and the Underwriters. At the end of
the 90 day offering period, on June 11, 1997, the minimum offering had not been
subscribed for and all funds in the escrow account were returned to the
investors.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVESTMENT THEREIN INVOLVES A
HIGH DEGREE OF RISK. FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT
IN THE COMPANY AND IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS" PAGE (10)
AND "DILUTION" (PAGE 20).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSION NOR HAS
THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _______, 1997
ALT-FRONT COVER
<PAGE>
PROSPECTUS SUMMARY
The Company
American International Consolidated Inc. (the "Company") is a general
contractor and a manufacturer that focuses primarily on three types of
construction products: mini-warehouses and self-storage facilities; metal
buildings and structural steel projects; and cold storage, including
refrigerated and freezer, buildings. The Company's services range from the
start, or construction design, phase to the finish, or erection, phase of a
project, including general construction, construction management, design,
manufacture, building, and turnkey services. The Company selects, coordinates
and manages subcontractors for substantially all phases of the work, except for
design, erection and manufacture of certain metal building components. The
Company also provides oversight and supervision of the entire construction
process for each project.
The Company intends to take advantage of its increased capital and improved
financial condition resulting from its Offering by (i) increasing business
volume through increasing bonding capacity in order to access larger projects
and other new business, undertaking planned domestic and international marketing
programs, and increasing business referrals from suppliers and other business
contacts, and (ii) increasing operating margins and profitability through
decreasing interest expense (from reduction of debt) and decreasing bonding
costs. See "BUSINESS-Business Plan And Strategy" for a more detailed description
of this strategy and each of these items. See also "USE OF PROCEEDS".
The Company's principal executive and administrative offices are located at
14603 Chrisman, Houston, Texas 77039, telephone number (281) 449-9000.
The Company was incorporated under the laws of Texas in May 1985 and
changed its state of incorporation to Delaware in June 1994. In June 1996, the
Company changed its name to American International Consolidated Inc. from
American International Construction Inc.
The Offering
Securities Offered .............. 500,100 shares of Common Stock and
3,000,000 Warrants to purchase one share
of Common Stock for $5.00 per share
during the five-year period beginning on
the date of this Prospectus. The Common
Stock and Warrants offered by the
Selling Securities Holders, when
purchased by buyers, are identical to
the Common Stock and Warrants offered by
the Company in the Company Offering
pursuant to the Offering Prospectus.
See, "DESCRIPTION OF SECURITIES" and
"OFFERING BY SELLING SECURITIES
HOLDERS".
Offering Price .................. $ 5.00 per share of Common Stock
$ .10 per Warrant
Warrant Exercise Price .......... $5.00 per share of Common Stock, subject
to adjustments in certain circumstances
Warrant Exercise Period ......... The Period commencing on the date of
this Prospectus and expiring on
March 13, 2002.
ALT-1
<PAGE>
Shares of Common
Stock outstanding prior to
Offering: ........................ 2,900,100
Shares of Common Stock
offered (1): ..................... 580,000
Shares of Common Stock outstanding
after the Offering(1): .......... 3,480,100
Warrants outstanding prior to
Offering(1): .................... 3,000,000
Warrants offered(1): .......... 580,000
Warrants outstanding after the
Offering: ................... 3,580,000
Shares of Common Stock Outstanding
after the Offering assuming
exercise of all Warrants offered in
the Offering and all Warrants
previously outstanding: .......... 7,060,100
- ---------------
(1) Does not include (i) up to 580,000 shares of Common Stock issuable upon
exercise of the Warrants included in the Offering, (ii) up to 87,000 shares
of Common Stock included in the Underwriters' over-allotment option, and
(iii) up to 203,000 shares of Common Stock issuable upon exercise of the
Underwriters' Warrants and the warrants issuable to the Underwriters upon
the exercise of the Underwriters' Warrants.
Redemption Of The Warrants ........ The Warrants are redeemable by the
Company at a price of $.01 per Warrant
upon 30 days prior written or published
notice at any time commencing on March
13,1998 and prior to their exercise or
expiration, provided however, that the
closing bid quotation for the Common
Stock for each of the 20 consecutive
business days ending on the third day
prior to the Company's giving notice of
redemption has been at least 150 percent
of the then effective exercise price of
the War rants. The Warrants remain
exercisable during the 30-day notice
period. Any Warrantholder who does not
exercise that holder's Warrants prior to
their expiration or redemption, as the
case may be, forfeits that holder's
right to purchase the shares of Common
Stock underlying the Warrants. See
"DESCRIPTION OF SECURITIES-Common Stock
Purchase Warrants-Redemption".
ALT-2
<PAGE>
Use Of Proceeds ................. The Company will not receive any of the
proceeds from the sales of the Common
Stock and Warrants by the Selling
Securities Holders. In the event that
any holder of Warrants elects to
exercise Warrants, the proceeds from the
exercise of the those Warrants will be
utilized by the Company for working
capital purposes. See "USE OF PROCEEDS"
and "OFFERING BY SELLING SECURITIES
HOLDERS".
Risk Factors ..................... The securities offered hereby involve a
high degree of risk and substantial
immediate dilution to new investors. See
"CERTAIN RISK FACTORS" and "DILUTION".
OTC Bulletin Board Symbols Common Stock - AICI Warrants - AICIW
Summary Selected Financial Data
The financial statements included in this Prospectus set forth information
regarding the Company as of and for the fiscal years ended April 30, 1996 and
1997 (audited) and as of and for the six-month period ended October 31, 1996 and
1997 (unaudited). See "FINANCIAL INFORMATION". The summary selected financial
data shown below is derived from, and is qualified in its entirety by, those
financial statements, which are contained in the "FINANCIAL INFORMATION" section
of this Prospectus.
ALT-3
<PAGE>
RISK FACTORS
THE COMMON STOCK AND WARRANTS BEING OFFERED INVOLVE A HIGH DEGREE OF RISK
AND, THEREFORE, SHOULD BE CONSIDERED EXTREMELY SPECULATIVE. THEY SHOULD NOT BE
PURCHASED BY PERSONS WHO CANNOT AFFORD THE POSSIBILITY OF THE LOSS OF THEIR
ENTIRE INVESTMENT. Prospective investors should consider carefully, among other
factors, the risk factors and other special considerations relating to the
Company and this offering set forth below.
Risk Factors Relating To The Business Of The Company
- ----------------------------------------------------
1. Substantial Doubt About The Company's Ability To Continue As A Going
Concern Without Completion Of Public Offering. The Company's operating results
for each of the fiscal years ended April 30, 1995 and 1996, and for the six
months ended October 31, 1997, resulted in a profit; however, the Company
incurred operating losses for each of the fiscal years ended April 30, 1997,
1994, and 1993, and there is no assurance that the operations of the Company
will be profitable in the future. As a result of the Company's losses during its
last completed fiscal year (approximately $4.2 million, including non-recurring
charges of $1.7 million), the Company's working capital position and ability to
generate sufficient cash flows from operations to meet its operating and capital
requirements has further deteriorated and these matters raise substantial doubt
about the Company's ability to continue as a going concern without completion of
the Company Offering or an alternate substantial infusion of equity capital. The
Company believes that it will be successful in removing the threat concerning
its ability to continue as a going concern by adhering to closer and stricter
scrutiny of its contract bids and utilizing the estimated minimum net proceeds
of approximately $2.38 million from the Company Offering to achieve
profitability through lower interest and bonding costs and expanded volume.
Management believes that approximately $1.0 to $1.2 million of the proceeds from
the Company Offering are necessary to remove the threat concerning the Company's
ability to continue as a going concern and that if the Company Offering is
completed, the estimated net proceeds from the Company Offering will enable the
Company to continue operating for the foreseeable future at its current level of
operations. The length of the period that these proceeds would enable the
Company to continue operating at its current level of operations is dependent
upon a number of factors, including primarily the Company's profitability.
Assuming the Company incurs, during fiscal 1998 and 1999, additional net losses
(excluding non-cash, non-recurring charges) at the same rate as for fiscal 1997
($2.5 million), the minimum net proceeds would allow the Company to operate at
its current level of operations for approximately six months. However, the
Company has reported a profit for the first six months of its 1998 fiscal year,
and management does not believe that the Company will incur a net loss for
fiscal 1998 and 1999, combined. There is no assurance that management's belief
is accurate and that the Company will not incur future cumulative net losses. To
the extent that management's belief is accurate, then the minimum net proceeds
from the Company Offering would allow the Company to continue operations as long
as the Company had not sustained future cumulative net losses of approximately
$1.1 million although additional working capital may be needed if the Company
increases its revenue and business activity. See Risk Factors No. 2 and 14.
There is no assurance these results will occur even if the Company Offering is
consummated. If this does not occur, the Company will pursue other sources of
financing, but there is no assurance any other source of financing will be
available.
The Company is current in its obligations to all lenders and major
suppliers except for the Supplier described in Risk Factor No. 3 below and
except for the holders (the "Noteholders") of $300,000 principal amount
unsecured notes as described in Risk Factor No. 3. The Supplier has indicated
that it has no intent of accelerating payment on any obligations as long as the
Company Offering is completed. The Supplier has not indicated what it will do if
ALT-4
<PAGE>
the Company Offering is abandoned or otherwise terminated unsuccessfully. The
Noteholders have been informed by the Company that the Company is in default of
the payment of the notes and that the notes and interest thereon will be repaid
from the proceeds of the Company Offering. As of December 29, 1997, there has
not been any indication made to the Company that any of the Noteholders will
commence any legal action to collect on the notes against the Company in the
foreseeable future.
As a result of the losses incurred in the fiscal year ended April 30, 1997,
the audit report of the Company's independent auditors for that year indicates
that there is substantial doubt concerning the Company's ability to continue as
a going concern without a substantial infusion of equity capital, such as that
contemplated from the Company Offering. The implication of this to investors is
that successful completion of the Company Offering (or an equity infusion from
another source) is necessary for the Company to continue operations. See
"BUSINESS-Business Plan And Strategy", "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS", "FINANCIAL INFORMATION", and
Note 2 to the Financial Statements.
2. Limited Financial Resources, Negative Net Worth, And Outstanding
Obligations. The Company has limited financial resources available, which has
had an adverse impact on the Company's liquidity. Its activities and operations
to date have resulted in a negative net worth. There is no assurance that the
proceeds of the Company Offering will be sufficient to successfully develop,
produce, and market the Company's services. The Company may be forced to limit
its activities because of the lack of availability of adequate financing. In the
past, the Company's limited liquidity has limited the amount of credit available
from the Company's suppliers. If the Company were not to have adequate financing
available in the future, it is likely that this credit limitation would continue
and that the Company's domestic and international marketing would be directly
affected, which would impair the Company's ability to increase its business
volume.
The Company's negative net worth and financial condition in general have
prevented the Company from being able to obtain performance and payment bonds,
which has limited the Company's ability to obtain certain projects. If the
Company Offering is successfully completed, the Company believes that it will be
able to increase its bonding line and thereby increase the jobs available to it.
See "BUSINESS-Business Plan and Strategy-Strengthen Financial Condition and
Increase Bonding Capacity".
3. Outstanding Indebtedness. As of October 31, 1997, the Company owed its
major supplier of raw materials (the "Supplier") $2,739,000 for accounts payable
and an additional $1,799,000 that is evidenced by a note (the "Note") and other
related loan documents. The Company is required to make weekly payments of
$11,537 for outstanding principal and accrued interest on the Note until April
30, 2001. If the Company Offering is successfully completed, of which there is
no assurance, the Company intends to use approximately $1,000,000 of the
proceeds to reduce the accounts payable to the Supplier. Pursuant to the terms
of the Note, it is an event of default if the Company's net income before
interest expense is less than 1.5 percent of the Company's total sales for any
fiscal year beginning with the fiscal year ended April 30, 1997. The Supplier
has waived this requirement for the fiscal year ended April 30, 1997 and for the
period from May 1, 1997 through December 31, 1997, but the Company is required
to satisfy it for subsequent periods. Management believes that if the Company
Offering is completed, it will be able to satisfy the requirement for the last
four months of fiscal 1998 and thereafter while the Note is outstanding.
Nevertheless, there is no assurance that the Company will satisfy this
requirement. As of October 31, 1997, the Company also was in violation of
certain other covenants for which the Supplier granted a waiver and for which
there is no assurance that the Company will be able to satisfy in the future.
The other covenants for which the Supplier has granted a waiver are as follows:
(A) the Company's investing in any other third parties as that covenant relates
to the Company's investment in (i) U.S. Storage/Westheimer G.P.L.C., See
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES - Interests In U.S.
Storage, Inc.", (ii) U.S. Storage/Atascocita G.P.L.C., and (iii) U.S.
Storage/Woodlands #1 G.P.L.C.; (B) the timely payment of the Company's accounts
payable with the Supplier; and (C) The Company's failure to provide financial
statements to the Supplier within 90 days of April 30, 1997. If all these
requirements are not satisfied as required in the future, the Company will be
required to obtain alternate financing, receive a waiver from the Supplier, or
default on the Note. See "BUSINESS- Indebtedness To Major Supplier".
ALT-5
<PAGE>
As of October 31, 1997, the Company also owed an aggregate of approximately
$311,000 to FCLT, L.P., a Texas limited partnership ("FCLT"), pursuant to two
loans that are payable in June 1998, are collateralized by the Company's land
and buildings, and are guaranteed by the three principal stockholders of the
Company. Aggregate monthly payments on these two loans are $6,082. See
"BUSINESS-Outstanding Bank Loans".
The Company had other obligations of an aggregate of approximately $42,000
at October 31, 1997 that require aggregate monthly payments of approximately
$4,350. The Company also is the obligor on an aggregate of $300,000 principal
amount of unsecured notes together with interest of more than $38,200 thereon,
that currently are in default that will be repaid from the proceeds of the
Company Offering. See "USE OF PROCEEDS". The Noteholders have been informed by
the Company that the Company is in default of the payment of the notes and that
the notes and interest thereon will be repaid from the proceeds of the Company
Offering. As of December 29, 1997, there has not been any indication made to the
Company that any of the Noteholders will commence any legal action to collect
the notes against the Company.
No legal actions have been taken by creditors of the Company, including the
Noteholders, to collect on any outstanding indebtedness of the Company.
Should the Company's need for additional capital increase, the Company has
not existing arrangements for additional financing besides this Offering, nor
are any currently contemplated.
4. Fluctuations In Industry Construction Activity. Although most recently,
new construction projects for storage facilities, warehouses and pre-engineered
metal buildings and freezer/refrigerated facilities, as well as renovations and
remodeling projects, have occurred at a historically active rate, new projects
were not as numerous in prior years. These fluctuations in industry activity
result from numerous factors, including general economic conditions, interest
rates and the general real estate market. There can be no assurance that future
demand for the Company's services will be adequate for the Company to operate
profitably.
5. Uncertain Markets And Market Acceptance. No assurance can be given of
market acceptance or profitability from sales of the Company's current services
or that sales of future services will be profitable. The Company's industry is
extremely competitive and subject to numerous changes. See "BUSINESS".
6. Competition. The Company competes, in a highly competitive environment,
with many companies in the construction and erection of storage facilities,
warehouses, manufacture of pre-engineered metal buildings, freezer/refrigerated
facilities, and other construction services. Many of the Company's primary
competitors not only have greater resources than the Company, they also have
larger administrative staffs and more available service personnel. The larger
competitors also may use their greater financial resources to develop and market
their services. The presence of these competitors may be a significant
impediment to any attempts by the Company to develop its business. Major
competitive factors include product knowledge, experience, past relationships,
quality of performance, financial condition, reputation, timeliness, and
pricing. The Company believes that it ranks highly and therefore will have
certain competitive advantages in attempting to develop and market its services,
including the Company's excellent relationships with its past and current
customers, which has led to "repeat" business, the Company's product knowledge,
experience, past relationships, quality of performance, reputation and pricing,
and the Company's ability to respond to customer requests more quickly than some
larger competitors. For the year ended April 30, 1997, approximately 43 percent,
and for the six months ended October 31, 1997, approximately 58 percent, of the
Company's business was derived from repeat customers; however there is no
assurance that this will occur in the future. None of the Company's repeat
business is derived from long-term contracts, and all repeat business results
from separately negotiated contracts. With respect to lower rankings for
competitive factors, the Company's capitalization prior to the Company Offering
has placed it at a competitive disadvantage in the past but the Company believes
that as a result of the Company Offering it will increase its ability to compete
on the basis of financial condition. However, there is no assurance that this
will prove correct. See "BUSINESS-Marketing" and "BUSINESS-Industry
Environment".
7. Exposure To Construction Related Litigation. The construction industry
has a high incidence of litigation, and as a participant in this industry, the
Company is constantly exposed to the risk of litigation. Based on information
provided to the Company by its insurance agent concerning the insurance carried
by other companies engaged in the construction industry, the Company believes it
maintains insurance for those matters in amounts customary in the industry. Even
though the Company maintains insurance for these matters in amounts customary in
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the industry, and even if the Company prevails in any such litigation, of which
there is no assurance, the management time and out-of-pocket expense expended in
commercial litigation could have an adverse impact on the Company.
8. Past Dependence On Major Customers. During the six months ended October
31 and the fiscal year ended April 30, 1997, U-Haul, Inc. accounted for
approximately $3.8 million and $7.3 million, respectively, or 19 percent and 22
percent, respectively, of the Company's total revenues. During the fiscal years
ended April 30, 1996 and 1995, U-Haul, Inc. accounted for approximately $8.1 and
$4.9 million, respectively, or approximately 26 percent and 20 percent,
respectively, of the Company's total revenues. The Company negotiates each
project with U-Haul separately as there is no contract with U-Haul covering the
construction of future projects. The loss of U-Haul, Inc.'s business could have
a materially adverse effect on the Company. See "BUSINESS-Reliance On Major
Customers".
9. Previous Unprofitable International Operations. The Company plans to
expand its business in international markets but a significant portion of its
past experiences in international markets has been unprofitable. The past losses
from international business occurred in situations in which the Company had set
up satellite offices in other countries, such as Guam and Puerto Rico, and the
cost of operating and maintaining these offices was too great to operate
profitably. The Company has closed its offices in Puerto Rico and in Guam, and
believes that it will be able to conduct business internationally without
opening satellite offices. The Company currently is doing a small amount of
business internationally through a two-person international sales force located
in its Houston, Texas headquarters.
10. Availability Of Labor; Possible Effect Of Subcontractors' Use Of
Unionized Labor. In order to minimize overhead, the Company often contracts with
independent third parties to provide a substantial portion of the labor for its
construction projects. Therefore, the Company's ability to provide these
services is dependent upon outside sources of workers and this may result in
delays in the completion of contracts due to the unavailability of such labor.
The Company is not currently experiencing, and has not in the past experienced,
a shortage of labor.
At the current time, the use of unionized labor by subcontractors engaged
by the Company does not have a significant effect on the Company because
subcontractors tend to use unionized labor only in areas where there is a heavy
concentration of unionized labor, and because in those areas other contractors
in competition with the Company most often utilize unionized labor so that there
would be no competitive advantages or disadvantages to the Company. There is no
assurance that this situation will remain constant in the future.
11. Effect Of Unfavorable Weather. Certain aspects of the Company's
construction activities cannot be performed in severely inclement weather, such
as continuous rain and flooding. Conditions of this nature can have a negative
impact on the Company's earnings.
12. Dependence On Key Personnel. The success of the Company is largely
dependent upon the efforts of John Wilson, Chief Executive Officer and a
director of the Company, Danny Clemons, President and a director of the Company,
R. L. Farrar, Vice President of Operations, Treasurer, Secretary and a director
of the Company, and Jim Williams, Vice President of Finance, Assistant Secretary
and a director of the Company. The loss of the services of any of these persons
or the loss of the services of Jimmy M. Rogers, head of the Company's Thermal
System Division, could be detrimental to the Company as there is no assurance
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that the Company could replace any of them adequately at an affordable
compensation level. See "MANAGEMENT". The Company has entered into employment
agreements with each of the above officers. See "EXECUTIVE
COMPENSATION-Employments Contracts And Termination Of Employment And
Change-In-Control Arrangements". The Company is the beneficiary for $500,000 of
key-man term life insurance coverage on each of Messrs. Wilson, Clemons, Farrar,
Rogers and Williams. There is no assurance that these insurance policies will
provide the Company with adequate compensation in the event of the death of any
of the insured.
13. Government Regulation And Workers Compensation Insurance. The Company
is subject to government regulation of its business operations. In addition, the
Company's construction activities must meet with the requirements of local
building codes, and the Company is required to provide workers compensation or
alternate insurance coverage for the Company's employees. Because of the nature
of the Company's business in construction services, the cost of this insurance
for the Company's on-site employees is higher relative to the cost of insurance
coverage for the Company's office personnel. When construction work is performed
on behalf of the Company by subcontractors, the subcontractors, and not the
Company, pay the direct costs of insurance for the construction workers. There
is no assurance that subsequent changes in laws or regulations will not affect
the Company's operations adversely.
14. Possible Need For Future Financing. The Company believes that the
proceeds of this offering will enable it to accomplish the purposes set forth
under "BUSINESS", although there can be no assurance that this will be the case.
If the proceeds of this offering are not sufficient, the Company would be
required to seek additional financing to enable it to conduct its business
operations. There can be no assurance that the Company will be able to obtain
such financing on acceptable terms. Any such additional financing may entail
substantial dilution of the equity of the then-existing stockholders of the
Company. The availability of additional financing may be restricted by
provisions in the underwriting agreement with the Representative that require,
for a period of 12 months after the Company Offering, that the Company obtain
the Representative's permission in order to issue securities for financing
purposes.
15. Broad Discretion To Allocate Use Of Proceeds. The proceeds of this
offering have been allocated only generally. The specific uses of investors'
funds will depend upon the business judgment of management, upon which the
investors must rely, with only limited information about management's specific
intentions. See "USE OF PROCEEDS" and "BUSINESS".
16. No Proceeds To Company From Sales By Selling Securities Holders. The
Company will not receive any of the proceeds from the sale by the Selling
Securities Holders of the 500,100 shares of Common Stock and 3,000,000 Warrants
being registered pursuant to the registration statement of which this Prospectus
is a part. However, in the event that any of the 3,000,000 Warrants are
exercised, the Company will receive the proceeds from the exercise of those
warrants.
17. Benefits Of The Offering To Current Stockholders. Current stockholders
of the Company will benefit from the Securities Holders' Offering, including the
following: (i) creation of a public trading market for the Common Stock, which
is intended but for which there is no assurance; (ii) the sale of up to an
aggregate of 500,100 shares by the Selling Securities Holders at the time of the
Company Offering; and (iii) the substantial unrealized gain, based upon the
difference between the acquisition costs and the initial public offering price,
for stockholders who acquired their stock prior to the public offering. This
difference is $5.00 per share for the Selling Securities Holders, who are
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non-management, non-employee stockholders who received an aggregate of 500,100
shares as partial consideration for loaning the Company an aggregate of
$300,000, and may be considered to be as much as $4.95 for the shareholders who
founded the Company in 1985 and during the interim developed the business of the
Company to its current level.
18. Potential Conflicts Of Interest. Potential conflicts of interest may
arise between the Company and its officers and directors. Although each of the
Company's officers and directors is committed to devote full working time to the
business of the Company, they also may be engaged in other business activities.
If these business activities are of the same type as those engaged in or
contemplated by the Company, conflicts of interest will arise in the area of
corporate opportunities or in the area of conflicting time commitments with
respect to the officers and directors of the Company. Conflicts of interest also
will develop with respect to any contractual relationships that may be entered
into between the Company and any of its officers and directors. See
"TRANSACTIONS BETWEEN THE COMPANY AND RELATED PARTIES-Conflicts Of Interest
Policy".
At the present time, there are not any material conflicts of interest
between the Company and any of its officers or directors, except to the extent
that their respective positions as large stockholders might present conflicts of
interest and except to the extent that a consulting arrangement with one
director might present conflicts of interest. A previously existing conflict of
interest was resolved in May 1994 when AIC Management, Inc. merged with and into
the Company. At the time of the merger, AIC Management, Inc. owned the land and
buildings that are utilized for the Company's administrative offices as well as
its metal buildings manufacturing facility. The shareholders and directors of
AIC Management, Inc. at the time of the merger were Messrs. Clemons, Farrar and
Wilson, who are the three largest stockholders and three of the four directors
of the Company.
The Company has established a policy pursuant to which the Board Of
Directors will consider transactions with officers, directors, and shareholders
of the Company and their respective affiliates. Pursuant to this policy, the
Board Of Directors will not approve any transaction unless it determines that
the terms of the transaction are no less favorable to the Company than those
available from unaffiliated parties. Because this policy is not contained in the
Company's Certificate Of Incorporation or Bylaws, the policy is subject to
change by the Board Of Directors, although it currently is not contemplated that
the policy will be changed. In addition, in the event any conflicts of interest
arise with respect to any officer or director of the Company, the Company
anticipates that its officers and directors will exercise their judgment
consistent with their fiduciary duties arising under the applicable state laws.
There can be no assurance that all conflicts of interest will be resolved in
favor of the Company.
19. Lack Of Outside Directors. At the present time, only one of the
Company's directors is not also an officer and employee of the Company. However,
this director also serves as a paid consultant to the Company, which may present
conflicts of interest. See above, "Risk Factor No. 18-Potential Conflicts Of
Interest".
Risk Factors Concerning The Company Offering And The Securities Offered
- -----------------------------------------------------------------------
20. Lack of Experience Of Worthington Capital Group, Inc. Worthington
Capital Group, Inc., formerly known as M.D. Walsh & Co., was licensed as a
broker/dealer in July 1991 and has not participated in public offerings prior to
the Company Offering. In addition, Worthington Capital Group, Inc. is not
permitted to make markets in securities including the securities offered by the
Company. The limited experience of Worthington Capital Group, Inc. and its
inability to make markets may adversely affect the development of a market for
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the Common Stock and/or Warrants. See below, "Risk Factor No. 24-No Assurance Of
Market For Common Stock Or Warrants" and "Risk Factor No. 26-Underwriters'
Influence On Possible Market For Common Stock And Warrants".
21. Significant Dilution To Investors. An investor in the Company Offering
will, immediately after the Offering, incur significant dilution from the amount
of his initial investment, as compared to the book value per share of the Common
Stock purchased. Dilution to new investors in the Company Offering will be $5.4,
or 104 percent, per share of Common Stock. It appears that significant dilution
also will be the case for any exercise of Warrants in the foreseeable future,
although this cannot be certain because the amount of any such dilution will
depend on the future business operations and other activities of the Company.
See "DILUTION".
22. Control By Present Stockholders And Management. Each of Messrs.
Clemons, Farrar, and Wilson, who are officers and directors of the Company, will
own 20.3 percent and, and Mr. Williams, who is an officer and director of the
Company, will own 3.9 percent of the Company's outstanding Common Stock, after
the Company Offering. Also after the Company Offering, Management of the Company
as a group will own approximately 64.9 percent of the outstanding shares of
Common Stock and will remain in effective control of the Company because
Management will own enough shares in the aggregate that it would be able to
elect all the directors of the Company, and the investors in the Company
Offering, voting by themselves as a group, would not be able to elect any of the
directors of the Company. See "PRINCIPAL STOCKHOLDERS" and "DESCRIPTION OF
SECURITIES".
23. No Dividends. Since its inception, the Company has paid no dividends
with respect to its Common Stock and it does not contemplate paying dividends in
the foreseeable future. The Company currently is prohibited from paying
dividends by its agreements with a supplier to whom it is indebted. See
"BUSINESS-Indebtedness To Major Supplier".
24. No Assurance Of Market For Common Stock Or Warrants. There currently is
no public market for the Common Stock or Warrants (collectively, the
"Securities") being offered, and no assurance can be given that a market will
develop. Although Worthington Capital Group is not permitted to make a market
for the Company's Securities, I.A.R. Securities Corp. and another broker-dealer
participating in the Offering have indicated that they will make a market for
the Securities. However, they are not required to do so and there is no
assurance that a market will develop. If a trading market does develop for any
of the Securities, the prices may be highly volatile. Neither of the
Underwriters in the Company Offering is obligated to make a market in any of the
Securities upon completion of this offering, and, even if an Underwriter makes a
market following the Company Offering, there is no assurance that it will
continue to do so in the future. In addition, if a market for any of the
Securities does develop, and the Securities are traded below certain prices,
many brokerage firms may not effect transactions in the Securities, and sales of
the Securities will be subject to Securities And Exchange Commission ("SEC")
Rule 15g-9. See below, "Risk Factor No. 25-Possible Effects Of SEC Rules On
Market For Common Stock And Warrants". Trading in the Securities, if any, will
be limited to the OTC Bulletin Board or the "pink sheets" used by members of the
NASD. If a market does not develop for the Securities, it may be difficult or
impossible for purchasers to resell the Securities. The Company withdrew its
application to list its securities on the NASDAQ SmallCap Market ("NASDAQ")
because NASDAQ indicated that the application would not be approved. There is no
assurance that any of the Securities can ever be sold at the offered price or at
any price.
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25. Possible Effects Of SEC Rules On Market For Common Stock And Warrants.
If the Company's Securities are traded for less than $5 per security, then
unless the Company's net tangible assets exceed $2,000,000 or the Company has
had average revenue of at least $6,000,000 for the last three years, the
respective security (a "Low-Priced Security") will be subject to SEC Rule 15g-9
concerning sales of low-priced securities or "penny stock" unless the security
is otherwise exempt from Rule 15g-9. Pursuant to Rule 15g-9, prior to concluding
a sale, a broker-dealer must make a special suitability determination for the
purchaser and receive the purchaser's written representations and agreement
concerning the transaction. In addition, Rule 15g-9 generally requires
broker-dealers to provide customers for whom they are effecting transactions in
a Low-Priced Security, before the transactions, with a standard risk disclosure
document describing the customer's right to disclosures of the (i) current bid
and ask quotations, if any, (ii) compensation of the broker-dealer and the
salesperson in the transaction, and (iii) monthly account statements showing the
market value of such stock held in the customer's account. If the Common Stock
or Warrants individually trade at a price in excess of $5 per security, then
these rules will not apply to transactions in the respective security trading at
a price in excess of $5. To the extent that the respective security becomes a
Low- Priced Security, these rules will apply and would be expected to have a
negative effect on the desire of brokers to sell the Company's Securities, would
be expected to have a negative effect on the brokers' ability to do so, and also
would be expected to have a negative effect on the ability of purchasers in the
Company Offering to sell the Company's securities in the secondary market.
26. Underwriters' Influence On Possible Market For Common Stock And
Warrants. A significant amount of the Securities to be sold in the Company
Offering may be sold to customers of the Underwriters. These customers
subsequently may engage in transactions for the sale or purchase of such
Securities through or with the Underwriters. Although it has no legal obligation
or commitment to do so, one of the Underwriters may from time to time become a
market maker, and one or both of the Underwriters otherwise may effect
transactions in such Securities. (As indicated in Risk Factor No. 20, one of the
Underwriters is not permitted to make markets in any securities.) An
Underwriter, if it participates in the market, may be the sole or primary market
maker, it may effect a large proportion of all transactions in the Securities,
and it may for these or other reasons be a dominating influence in the market,
if one develops, for the Securities. The prices and liquidity of the Securities
may be significantly affected by the degree, if any, of the Underwriter's
participation in such market. In these situations, the price of the Securities
as quoted by an Underwriter may not be subject to an independent market for the
Securities.
27. Shares Eligible For Future Sales. The Company has a total of 2,900,100
shares of Common Stock issued and outstanding that are "restricted securities".
Restricted securities may be sold in a registered public offering under the
Securities Act of 1933, as amended (the "1933 Act"), or in open-market
transactions in compliance with Rule 144 adopted under the 1933 Act if the
conditions of Rule 144 are satisfied. Generally, Rule 144 provides that, subject
to current information being publicly available concerning the Company, after a
person has held the restricted securities for a period of one year, that person
may sell, in any three-month period, an amount of up to one percent of the
Company's outstanding Common Stock. Persons who have not been affiliates of the
Company for at least three months and who have held their shares for more than
two years are not subject to any limitations on the sale of their restricted
securities. Under Rule 144, and subject to the sales volume limitations
described above, 2,400,000 shares of Common Stock are eligible for resale;
however, the holders of 2,257,401 of these shares have agreed with the
Underwriters not to sell any of these shares until March 13, 1999 without first
obtaining the prior written consent of the Underwriters. The holders of 142,599
of the 2,400,000 shares currently eligible for resale have agreed with the
Underwriters not to sell any of these shares until March 13, 1998 without first
obtaining the written consent of the Underwriters. In addition, the sale by the
Selling Securities Holders of 500,100 shares of restricted Common Stock,
3,000,000 Warrants, and the 3,000,000 shares of Common Stock underlying those
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Warrants is being registered pursuant to the registration statement of which
this Prospectus is a part. Although the sale of the securities by the Selling
Securities Holders is being registered, the Selling Securities Holders may not
sell any of these Securities until March 13, 1998 without first obtaining the
prior written consent of the Underwriters. Sales under Rule 144 and by the
Selling Securities Holders, whenever they are made, may have a depressive effect
on the price of the Common Stock.
28. Possible Issuance Of Additional Shares Of Common Stock And Preferred
Stock. Subject to the Representative's right to approve any additional issuances
of Common Stock, preferred stock, and other securities of the Company for one
year after the effective date of the Offering, under the Company's Certificate
Of Incorporation, the Board Of Directors of the Company has the power to issue
up to an aggregate of 20,000,000 shares of Common Stock of the Company, of which
2,900,100 were issued and outstanding as of October 31, 1997 and of which an
additional 3,000,000 are reserved for issuance upon the exercise of previously
outstanding Warrants, without stockholder approval under certain circumstances.
If this were to occur, of which there is no present intention, there would be
additional equity dilution to the investors in the Company Offering. Under the
Company's Certificate Of Incorporation, the Board Of Directors of the Company
also has the power to issue all the 1,000,000 authorized and unissued shares of
the Company's $1.00 par value preferred stock without stockholder approval under
certain circumstances. The Board Of Directors of the Company has the right to
fix the rights, privileges and preferences of any class of preferred stock to be
issued in the future. Any class of preferred stock that may be authorized in the
future may have rights, privileges, and preferences senior to the Common Stock.
The creation of a class of preferred stock with rights senior to the Common
Stock could be authorized by the Board Of Directors of the Company without the
approval of the holders of the Common Stock and may adversely affect the rights
of the holders of Common Stock. See "DESCRIPTION OF SECURITIES".
29. Arbitrary Determination Of Offering Price Of Units And Exercise Price
Of Warrants. The price at which the Units are being offered to the public and
the price at which the Warrants are exercisable for shares of Common Stock have
been determined arbitrarily. The offering price and exercise price were arrived
at after negotiations between the Company and the Representative and were based
upon the Company's and the Representative's assessment of the history and
prospects of the Company, the background of the Company's management and current
conditions in the securities markets. Each of these factors was given
approximately equal weight. There is no relationship between the offering price
or the exercise price and the Company's assets, book value, net worth or any
other economic or recognized criteria of value. See "DESCRIPTION OF SECURITIES".
30. Registration Or Exemption Required To Exercise Warrants. Holders of
Warrants have the right to exercise their Warrants to purchase Common Stock only
if a registration statement relating to those shares is then in effect or an
exemption from registration is available and only if those shares are qualified
for sale, or are deemed to be exempt from qualification, under applicable
securities laws of the state of residence of the holder of those shares. The
Company intends to have a registration statement in effect at times that the
Warrants are eligible for exercise, although there can be no assurance that the
Company will be able to do so. However, the Company will not be required to
honor the exercise of the Warrants if, in its opinion, the issuance of Common
Stock would be unlawful because of the absence of an effective registration
statement or for other reasons. If the Company were unable to cause a required
registration statement to be effective during a period of time when holders
wished to exercise, the market value of the Warrants could be adversely
affected.
31. Prior Offering Period Expired Without Obtaining Minimum Offering. There
is no assurance that the Company Offering will be completed. The Company
Offering which originally was made on a "bes t efforts, minimum/maximum basis",
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first commenced on March 13, 1997. The Offering was terminated on June 11, 1997
upon the expiration of the 90 day offering period, and all funds were returned
to investors, because the minimum offering amount was not received.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Selling
Securities Holders' Common Stock and Warrants. In the event that any holder of
Warrants elects to exercise Warrants, the proceeds from the exercise of those
Warrants will be utilized by the Company for working capital purposes.
The net proceeds to the Company from the sale of Common Stock and Warrants
in the Company Offering pursuant to the Offering Prospectus are estimated to be
$2,387,200 ($2,773,219 if the Underwriters' over-allotment option is exercised
in full) after deducting selling commissions and other unpaid expenses of the
Company Offering. Total selling commissions equal to ten percent of the gross
offering proceeds from the Common Stock and Warrants, together with a three
percent non-accountable expense allowance, will be allowed to the Underwriter
upon consummation of the Company Offering. Other expenses of the Company
Offering, estimated to be $570,000, include the non-accountable expense
allowance, printing costs, legal fees, accounting fees, blue sky fees and costs,
transfer agent fees, SEC and NASD filing fees and other miscellaneous costs.
Approximately $295,000 of the total offering expenses will have been paid by the
Company prior to closing the Company Offering, leaving $275,000 of offering
expenses and $295,000 of selling commissions to be paid from the offering
proceeds. The $2,387,200 of net proceeds are expected to be allocated
substantially as follows and applied in the following order of priority, during
the 12 month period following the offering(1):
Offering
----------------------------------
Approximate
Percentage
Approximate Of Net
Amount Proceeds
Domestic and International
Marketing Program ................... $100,000 4.2%
Repayment of Unsecured Notes (2) ...... 345,000 14.5%
Upgrade Computer Software Systems ...... 50,000 2.1%
Reduction of Trade Account
to Major Supplier .................... 1,000,000 41.9%
Other Working Capital (3) .............. 892,200 37.3%
---------- ----
TOTAL NET PROCEEDS $2,387,200 100%
=========== ====
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(1) See "BUSINESS-Business Plan And Strategy" for a description of how the
proposed allocation of proceeds of the Company Offering applies to the
Company's plans.
(2) The Company intends to repay the $300,000 of indebtedness and approximately
$45,000 of accrued interest on notes issued in July 1996 in order to pay
for costs of the Company Offering and to provide immediate working capital.
This indebtedness accrues interest at 10 percent per annum and was due and
payable upon the earliest to occur of April 24, 1997 or the closing of any
public debt or equity financing of the Company or the closing of any
transaction in which the Company's securities are exchanged for securities
of another entity (whether by merger or otherwise).
(3) The Company's working capital will be utilized for general corporate
purposes and operating expenses, including payment of $55,000 for the
Representative's consulting fee. If the Underwriters' over-allotment option
in the Company Offering is exercised in part or in full, the net proceeds
from that exercise will be applied to working capital.
Although the amounts set forth above indicate management's present estimate
of the Company's use of the net proceeds from the Company Offering, the
Company may reallocate the proceeds or utilize the proceeds for other
corporate purposes based on the contingencies described below. The actual
expenditures may vary from the estimates in the table because of a number
of factors, including whether the Company has been operating profitably,
what other obligations have been incurred by the Company, whether the
Company desires to expand its existing operations, and other changes in
circumstances. Although no alternate plans currently exist, other uses
could include additional funds for increased marketing, expanded operations
or additional payment on accounts. If the Company's need for working
capital increases, the Company could seek additional funds through loans or
other financing. No such arrangements exist or are currently contemplated,
and there can be no assurance that they may be obtained in the future
should the need arise. If the use of the proceeds of the Company Offering
in the manner described above proves impractical or it is otherwise deemed
by Management to be in the Company's best interests to utilize the proceeds
in another manner, the Company may apply the proceeds of the Company
Offering in such manner as it deems appropriate under the then existing
circumstances. The Company has no present intention, agreements or
understandings to make any material acquisitions of businesses, assets, or
technologies.
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DIVIDEND POLICY
The Company has not paid any cash dividends to date. As indicated under
"BUSINESS-Indebtedness To Major Supplier", the Company's Note to the Supplier
prohibits the payment of any dividends until the Note is paid in full. The
Company currently intends to retain its future earnings, if any, to fund the
development and growth of its business and, therefore, does not anticipate
paying cash dividends on its Common Stock in the future.
SELLING SECURITIES HOLDERS
The Company is registering the sale of Common Stock and Warrants by persons
who received an aggregate of 500,100 shares of Common Stock and 3,000,000
Warrants (the "Selling Securities Holders") in the Private Placement pursuant to
exemptions from registration under federal and state securities laws. In
addition, the Company is registering the exercise of those Warrants by the
persons who purchase those Warrants from the Selling Securities Holders pursuant
to this Prospectus and, in the alternative, the sale of Common Stock received by
the Selling Securities Holders upon the exercise of the Warrants by the Selling
Securities Holders. The Selling Securities Holders may sell their Warrants or
Common Stock at such prices as they are able to obtain in the market, if any
market develops. The Company will receive no proceeds from the sale of Warrants
or Common Stock by the Selling Securities Holders. The following table sets
forth the name of each Selling Securities Holder, the number of Warrants
beneficially owned by each Selling Securities Holder before the Company
Offering, the number of Warrants proposed to be sold by each Selling Securities
Holder, the number of Warrants owned after the Company Offering assuming the
sale of all the Warrants offered by the Selling Securities Holders, the number
of shares of Common Stock owned by the Selling Securities Holders before the
Offering, the number of shares of Common Stock to be sold by the Selling
Securities Holders assuming they exercise their Warrants, and the number of
shares owned by the Selling Securities Holders after the Offering.
ALT-15
<PAGE>
<TABLE>
<CAPTION>
Number Of Shares
Number of Number Of Of Common Stock Number of Number Of Shares
Warrants Owned Warrants Warrants Owned Owned Before Shares To Be Owned After
Name Before Offering to Be Sold After Offering Offering(1) Sold (2) Offering
- ------------------- --------------- ----------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Norman Goldstein 40,000 40,000 0 46,668 46,668 0
Glen Nortman 20,000 20,000 0 23,334 23,334 0
Maria Quacinella 80,000 80,000 0 93,336 93,336 0
Richard Bower 10,000 10,000 0 11,667 11,667 0
Mogul Capital Corp. 150,000 150,000 0 175,005 175,005 0
Euro Pharmaceuticals
Distributors Ltd. 750,000 750,000 0 875,025 875,025 0
John Donnadio 10,000 10,000 0 11,667 11,667 0
LTA Holding Corp. 10,000 10,000 0 11,667 11,667 0
Frank Signorile 10,000 10,000 0 11,667 11,667 0
Abe Heyman 10,000 10,000 0 11,667 11,667 0
Maria Capello 10,000 10,000 0 11,667 11,667 0
Geneva Partners 10,000 10,000 0 11,667 11,667 0
Al Abramovitch 10,000 10,000 0 11,667 11,667 0
Princess Export
Associates, Inc. 50,000 50,000 0 58,335 58,335 0
E.P. Ong 10,000 10,000 0 11,667 11,667 0
Mordecai Goldzweig 10,000 10,000 0 11,667 11,667 0
Irwin and Michelle Raymer 10,000 10,000 0 11,667 11,667 0
Tammy L. Gross 60,000 60,000 0 70,002 70,002 0
Randy Bobkin 190,000 190,000 0 221,673 221,673 0
Elull Development Corp. 50,000 50,000 0 58,335 58,335 0
Christopher Mackie 50,000 50,000 0 58,335 58,335 0
Dunkirk Capital Corp. 500,000 500,000 0 583,350 583,350 0
J.A.A.M. Corp. 325,000 325,000 0 379,177 379,177 0
Gary Lyle Brustein 75,000 75,000 0 87,503 87,503 0
Ronald J. Drucker 50,000 50,000 0 58,335 58,335 0
Patrick Colombo, Jr. 50,000 50,000 0 58,335 58,335 0
Robert Zarin 75,000 75,000 0 87,502 87,502 0
Jay G. Goldman 75,000 75,000 0 87,503 87,503 0
Rifky Weiner 200,000 200,000 0 233,340 233,340 0
Zycor Corp. 50,000 50,000 0 58,335 58,335 0
Ronald J. Brescia 50,000 50,000 0 58,335 58,335 0
--------- ------ - ------ ------ -
TOTAL 3,000,000 3,000,000 0 3,500,100 3,500,100 0
</TABLE>
- ----------------------------
(1) Because the Warrants currently are exercisable, the shares issuable upon
the exercise of the Warrants are considered beneficially owned by the
Selling Securities Holders. The number of shares underlying the Warrants
shown for each Selling Securities Holder under "Number Of Warrants Before
Offering" are included in the "Number Of Share Of Common Stock Owned Before
Offering."
ALT-16
<PAGE>
[ALTERNATE PAGE FOR SELLING SECURITIES HOLDERS' PROSPECTUS]
(2) The number of shares of Common Stock to be sold assumes that the Selling
Securities Holders exercise all their Warrants and elect to sell all the
shares of Common Stock received upon the exercise of the Warrants and all
the shares of Common Stock received in the Private Placement. Upon the
exercise of the Warrants by the Selling Securities Holders, they would
receive restricted shares of Common Stock pursuant to an exemption from
registration under Rule 506 under the Securities Act and those shares of
Common Stock could be transferred only pursuant to an effective
registration statement or an exemption from registration.
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
covers up to 580,000 shares of Common Stock and 580,000 Warrants being offered
by the Company in the offering made pursuant to the Offering Prospectus.
ALT-17
<PAGE>
============================================= =================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION OTHER THAN THOSE CONTAINED AMERICAN INTERNATIONAL
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, CONSOLIDATED INC.
SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL 500,100 Shares Of Common Stock
THERE BE ANY SALE OF THESE SECURITIES IN ANY 3,000,000 Redeemable Common
STATE IN WHICH SUCH OFFER, SOLICITATION OR Stock Purchase Warrants
SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY...................... 6
RISK FACTORS............................ 10
USE OF PROCEEDS......................... 19
DIVIDEND POLICY......................... 20
DILUTION................................ 21 ---------------------
BUSINESS................................ 23
SELECTED CONSOLIDATED FINANCIAL DATA.... 33 PROSPECTUS
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION ---------------------
AND RESULTS OF OPERATIONS............... 35
MANAGEMENT.............................. 39
EXECUTIVE COMPENSATION.................. 41
PRINCIPAL STOCKHOLDERS.................. 44
TRANSACTIONS BETWEEN THE
COMPANY AND RELATED PARTIES.......... 46
DESCRIPTION OF SECURITIES............... 50
SELLING SECURITIES HOLDERS.............. 54
CONCURRENT OFFERING..................... 55
SECURITIES AND EXCHANGE COMMISSION
POSITION ON CERTAIN INDEMNIFICATION... 58
LEGAL MATTERS........................... 58
EXPERTS................................. 58
ADDITIONAL INFORMATION.................. 59
FINANCIAL INFORMATION...................F-1
UNTIL ________, 1998, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS , 1997
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================= =================================
ALT-BACK COVER
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses Of Issuance And Distribution.
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered.
Registration and filing fee............................... $ 10,530
Transfer agent's fee*..................................... 3,000
Printing and engraving*................................... 28,000
Accounting fees and expenses*............................. 140,000
Legal fees and expenses*.................................. 195,000
Blue sky fees and expenses*............................... 50,000
NASD filing fee............................................ 3,224
Underwriter's non-accountable expense allowance............ 88,740
Standard & Poor's listing.................................. 2,380
Miscellaneous*............................................. 49,126
--------
Total* $570,000
========
- --------------------
* Estimated
Item 14. Indemnification Of Directors And Officers.
The Delaware General Corporation Law provides for indemnification by a
corporation of costs incurred by directors, employees, and agents in connection
with an action, suit, or proceeding brought by reason of their position as a
director, employee, or agent. The person being indemnified must have acted in
good faith and in a manner that the person reasonably believed to be in or not
opposed to the best interests of the corporation.
In addition to the general indemnification section, Delaware law provides
further protection for directors under Section 102(b)(7) of the General
Corporation Law of Delaware. This section was enacted in June 1986 and allows a
Delaware corporation to include in its Certificate Of Incorporation a provision
that eliminates and limits certain personal liability of a director for monetary
damages for certain breaches of the director's fiduciary duty of care, provided
that any such provision does not (in the words of the statute) do any of the
following:
"eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation
or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of this Title
[dealing with willful or negligent violation of the
statutory provision concerning dividends, stock purchases
and redemptions], or (iv) for any transaction from which the
director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a
director for any act or omission occurring prior to the date
when such provision becomes effective..."
II-1
<PAGE>
The Board Of Directors is empowered to make other indemnification as
authorized by the Certificate Of Incorporation, Bylaws or corporate resolution
so long as the indemnification is consistent with the Delaware General
Corporation Law. Under the Company's Bylaws, the Company is required to
indemnify its directors to the full extent permitted by the Delaware General
Corporation Law, common law and any other statutory provisions.
Item 15. Recent Sales Of Unregistered Securities.
In July 1996, the Company sold an aggregate of 500,100 shares of Common
Stock, 3,000,000 Warrants, and $300,000 aggregate face amount of promissory
notes in reliance upon exemptions pursuant to Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended (the "Securities Act"). These securities were
sold solely to accredited investors in 300 units at a price of $1,000 per unit.
Each unit consisted of 1,667 shares of Common Stock, 10,000 Warrants, and one
promissory note in the face amount of $1,000.
In January 1997, pursuant to the Company's 1994 Stock Option Plan, the
Company granted stock options to purchase an aggregate of 172,000 shares of the
Company's Common Stock at a purchase price of $5.00 per share to 52 persons who
were employed by the Company. These grants were made pursuant to an exemption
from registration under Section 3(b) of the Securities Act pursuant to Rule 701
under the Securities Act.
Item 16. Exhibits.
The following is a complete list of Exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
Number Description
1.1 Revised form of Underwriting Agreement between and among American
International Consolidated Inc. ("Registrant"), I.A.R. Securities
Corp. and Worthington Capital Group, Inc. (5)
2.1 Agreement And Plan Of Merger of American International
Construction, Inc., a Texas Corporation, and American
International Construction Inc., a Delaware Corporation.(1)
2.2 Plan Of Merger of American International Construction, Inc. and
AIC Management, Inc.(1)
2.3 Plan Of Merger of American International Construction, Inc. and
American International Thermal Systems, Inc.(1)
2.4 Plan Of Merger of American International Construction, Inc. and
American International Building Systems, Inc.(1)
3.1(a) Certificate Of Incorporation filed with the Delaware Secretary Of
State on June 7, 1994.(1)
3.1(b) Certificate of Amendment To The Certificate of Incorporation
filed with the Delaware Secretary of State on July 26, 1996. (5)
II-2
<PAGE>
3.2 Bylaws.(1)
4.1(a) Specimen Common Stock Certificate.(1)
4.1(b) Specimen Common Stock Purchase Warrant. (5)
4.2 Revised form of Underwriter's Warrant (5)
4.3 Revised form of Warrant Agreement concerning Common Stock
Purchase Warrants. (5)
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning legality of issuance of Common Stock, Warrants, and
underlying securities. (5)
10.1A Loan Agreement effective April 24, 1996 between and among the
Company, Metal Building Components, Inc. ("MBCI"), Danny Roy
Clemons, Ralph Leroy Farrar, Judith Ann Farrar, Jimmy Wayne
Williams, Shirley Beth Williams, and John Thomas Wilson. (5)
10.1B Letter Agreement dated October 8, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1C Letter Agreement dated December 31, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1D Letter Agreement dated September 19, 1997 modifying Loan
Agreement dated April 24, 1996. (5)
10.1E Letter Agreement dated November 3, 1997 modifying Loan Agreement
dated April 24, 1996. (5)
10.1F Letter Agreement dated December 24, 1997 modifying Loan Agreement
dated April 24, 1996.
10.2 Renewal, Extension And Modification Agreement effective as of
September 3, 1993 between American International Construction,
Inc. and Texas Commerce Bank National Association.(1)
10.3 Renewal, Extension And Modification Agreement effective as of
September 5, 1993 between American International Construction,
Inc. and Texas Commerce Bank National Association.(1)
10.4A Renewal, Extension And Modification Agreement effective as of
March 5, 1995 between American International Construction, Inc.
and Texas Commerce Bank National Association.(4)
10.4B Renewal, Extension And Modification Agreement effective as of
March 5, 1995 between American International Construction, Inc.
and Texas Commerce Bank National Association.(4)
10.5 Employee Stock Option Plan.(1)
10.8 Revised Form of Executive Service Agreement between the Company
and each of John T. Wilson, Danny R. Clemons, Ralph L. Farrar and
Jim W. Williams.(3)
10.8A Schedule Identifying Material Differences Among Executive Service
Agreements between the Company and each of John T. Wilson, Danny
R. Clemons, Ralph L. Farrar and Jim W. Williams.(1)
10.9 Executive Service Agreement between the Company and Jimmy M.
Rogers dated November 16, 1994.(1)
10.10 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning site preparation for the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
10.11 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning the construction of the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
10.12 Form of Conveyance, Transfer And Assignment Of Corporate Stock
Separate From A Certificate executed by each of Messrs. Clemons,
Farrar and Wilson transferring their respective interests in the
U.S. Storage, Inc. and U.S. Storage Management Services, Inc. to
the Company.(5)
II-3
<PAGE>
16 Letter to Securities and Exchange Commission from the Company's
former independent accountant, MELTON & MELTON, L.L.P.(2)
21 List of subsidiaries of Registrant. (1)
23.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1).
23.2 Consent of HEIN + ASSOCIATES LLP.
24 Power of Attorney (5)
27 Financial Data Schedule
- ---------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 filed with the Securities And Exchange Commission ("SEC") on December
12, 1994, File No. 33-87336.
(2) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement on Form S-1 filed with the SEC on January 24, 1995,
File No. 33-87336.
(3) Incorporated by reference from the Company's Amendment No. 2 to
Registration Statement on Form S-1 filed with the SEC on February 15, 1995,
File No. 33-87336.
(4) Incorporated by reference from the Company's Amendment No. 3 to
Registration Statement on Form S-1 filed with the SEC on March 16, 1995,
File No. 33-87336.
(5) Previously filed.
Item 17. Undertakings.
1. The Company hereby undertakes:
(a) to file, during any period in which offers or sales are being made, a
post-effective amendment to the Registration Statement:
(1) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(2) to reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and
(3) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(b) That for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
2. The Company hereby undertakes to provide to the Underwriter at the closing
specified in the Underwriting Agreement certificates in such denominations
and registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
3. Insofar as indemnification for liabilities arising under the 1933 Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities And Exchange Commission, such
indemnification is against public policy as expressed in the 1933 Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or a controlling person of the
Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or a controlling person in connection
with the securities being registered, the Company will, unless in the
opinion of its counsel, the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the 1933 Act and will be governed by the final adjudication of such issue.
4. The Company hereby undertakes that:
(a) for purposes of determining any liability under the 1933 Act, the
information omitted from the form of prospectus filed as part of the
Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Company pursuant to Rule 424(b)(1) or
(4) or 497(h) under the 1933 Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(b) for the purpose of determining any liability under the 1933 Act, each
post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
5. The Company hereby undertakes to supplement the prospectus, after the
expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the underwriters during the
subscription period, the amount of unsubscribed securities to be purchased
by the underwriters, and the terms of any subsequent reoffering thereof. If
any public offering by the underwriters is to be made on terms different
from those set forth on the cover page of the prospectus, a post-effective
amendment will be filed to set forth the terms of such offering.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has
duly caused this Post Effective Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Houston, State of Texas, on December 30, 1997.
AMERICAN INTERNATIONAL CONSOLIDATED INC.
By: /s/ John T. Wilson
----------------------------------------------
John T. Wilson, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Post
Effective Amendment to the Registration Statement has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ John T. Wilson Chief Executive Officer and December 30, 1997
- --------------------- Director
John T. Wilson
/s/ Danny R. Clemons President/Mini-Warehouse Division December 30, 1997
- --------------------- and Director
Danny R. Clemons
/s/ Ralph L. Farrar President/Metal Buildings Division,
- ---------------------- Secretary and Director December 30, 1997
Ralph L. Farrar
/s/ Jim W. Williams Chief Financial Officer,
- ----------------------- Vice President/Finance, Principal
Jim W. Williams Accounting Officer, and
Assistant Secretary December 30, 1997
/s/ Louis S. Carmisciano Director
- ------------------------ December 30, 1997
Louis S. Carmisciano
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
(Attached To And Made A Part Of Post Effective Amendment No. 2
To The Registration Statement
On Form S-1 For American International Consolidated Inc. Dated March 13, 1997)
The following is a complete list of Exhibits filed as part of this
Registration Statement:
Number Description
- ------ -----------
1.1 Revised form of Underwriting Agreement between and among American
International Consolidated Inc. ("Registrant"), I.A. Rabinowitz &
Co. and Worthington Capital Group, Inc.(5)
2.1 Agreement And Plan Of Merger of American International
Construction, Inc., a Texas Corporation, and American
International Construction Inc., a Delaware Corporation.(1)
2.2 Plan Of Merger of American International Construction, Inc. and
AIC Management, Inc.(1)
2.3 Plan Of Merger of American International Construction, Inc. and
American International Thermal Systems, Inc.(1)
2.4 Plan Of Merger of American International Construction, Inc. and
American International Building Systems, Inc.(1)
3.1(a) Certificate Of Incorporation filed with the Delaware Secretary Of
State on June 7, 1994.(1)
3.1(b) Certificate of Amendment To The Certificate of Incorporation
filed with the Delaware Secretary of State on July 26, 1996.(5)
3.2 Bylaws.(1)
4.1(a) Specimen Common Stock Certificate.(1)
4.1(b) Specimen Common Stock Purchase Warrant.(5)
4.2 Revised form of Underwriter's Warrant.(5)
4.3 Revised form of Warrant Agreement concerning Common Stock
Purchase Warrants.(5)
5.1 Opinion of Bearman Talesnick & Clowdus Professional Corporation
concerning legality of issuance of Common Stock, Warrants, and
underlying securities.(5)
EX-1
<PAGE>
10.1A Loan Agreement effective April 24, 1996 between and among the
Company, Metal Building Components, Inc. ("MBCI"), Danny Roy
Clemons, Ralph Leroy Farrar, Judith Ann Farrar, Jimmy Wayne
Williams, Shirley Beth Williams, and John Thomas Wilson.(5)
10.1B Letter Agreement dated October 8, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1C Letter Agreement dated December 31, 1996 modifying Loan Agreement
dated April 24, 1996.(5)
10.1D Letter Agreement dated September 19, 1997 modifying Loan
Agreement dated April 24, 1996.(5)
10.1E Letter Agreement dated November 3, 1997 modifying Loan Agreement
dated April 24, 1996.(5)
10.1F Letter Agreement dated December 24, 1997 modifying Loan Agreement
dated April 24, 1996.
10.2 Renewal, Extension And Modification Agreement effective as of
September 3, 1993 between American International Construction,
Inc. and Texas Commerce Bank National Association.(1)
10.3 Renewal, Extension And Modification Agreement effective as of
September 5, 1993 between American International Construction,
Inc. and Texas Commerce Bank National Association.(1)
10.4A Renewal, Extension And Modification Agreement effective as of
March 5, 1995 between American International Construction, Inc.
and Texas Commerce Bank National Association.(4)
10.4B Renewal, Extension And Modification Agreement effective as of
March 5, 1995 between American International Construction, Inc.
and Texas Commerce Bank National Association.(4)
10.5 Employee Stock Option Plan.(1)
10.8 Revised Form of Executive Service Agreement between the Company
and each of John T. Wilson, Danny R. Clemons, Ralph L. Farrar and
Jim W. Williams.(3)
10.8A Schedule Identifying Material Differences Among Executive Service
Agreements between the Company and each of John T. Wilson, Danny
R. Clemons, Ralph L. Farrar and Jim W. Williams.(1)
10.9 Executive Service Agreement between the Company and Jimmy M.
Rogers dated November 16, 1994.(1)
10.10 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning site preparation for the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
10.11 Agreement dated May 23, 1996 between the Company and U.S.
Storage\Westheimer, Ltd. concerning the construction of the U.S.
Storage mini-warehouse facilities in Houston, Texas.(5)
EX-2
<PAGE>
10.12 Form of Conveyance, Transfer And Assignment Of Corporate Stock
Separate From A Certificate executed by each of Messrs. Clemons,
Farrar and Wilson transferring their respective interests in the
U.S. Storage, Inc. and U.S. Storage Management Services, Inc. to
the Company.(5)
16 Letter to Securities and Exchange Commission from the Company's
former independent accountant, MELTON & MELTON, L.L.P.(2)
21 List of subsidiaries of Registrant. (1)
23.1 Consent of Bearman Talesnick & Clowdus Professional Corporation
(included in Opinion in Exhibit 5.1).
23.2 Consent of HEIN + ASSOCIATES LLP.
24 Power of Attorney (5)
27 Financial Data Schedule
- ---------------------
(1) Incorporated by reference from the Company's Registration Statement on Form
S-1 filed with the Securities And Exchange Commission ("SEC") on December
12, 1994, File No. 33-87336.
(2) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement on Form S-1 filed with the SEC on January 24, 1995,
File No. 33-87336.
(3) Incorporated by reference from the Company's Amendment No. 2 to
Registration Statement on Form S-1 filed with the SEC on February 15, 1995,
File No. 33-87336.
(4) Incorporated by reference from the Company's Amendment No. 3 to
Registration Statement on Form S-1 filed with the SEC on March 16, 1995,
File No. 33-87336.
(5) Previously filed.
EX-3
American International Construction Inc.
A Division Of American International Consolidated Inc.
14603 Chrisman
Houston, Texas 77039
(281) 449-900 - Fax (281) 442-6351
December 24, 1997
Mr. Ken Maddox
M. B. C. I.
14031 West Hardy
Houston, Texas 77238
Re: Loan Agreement - April 24, 1996
Dear Ken:
Attached to this letter is a copy of our letter dated September 19, 1997
and your acknowledgment and waiver of the loan covenants violated as indicated.
We respectfully request your extension of these waivers from December 31, 1997
to February 28, 1998. Your signature below confirms your consent to extend the
date of these waivers.
Sincerely,
/s/ Jim Williams
Jim Williams
M. B. C. I. hereby acknowledges and consents to extending and waives any
remedies provided pursuant to the loan as a result of these covenant violations
through February 28, 1998.
Metal Building Components, Inc.
/s/ Kenneth Maddox
-------------------------------
Signature
Kenneth Maddox
-------------------------------
Printed Name
Vice President/CEO
-------------------------------
Title
12/24/97
-------------------------------
Date
"Quality Brings Success"
<PAGE>
American International Construction Inc.
A Division Of American International Consolidated Inc.
14603 Chrisman
Houston, Texas 77039
(281) 449-9000 * Fax (281) 442-6351
September 19, 1997
Mr. Ken Maddox
M.B.C.I.
14031 West Hardy
Houston, Texas 77238
Re: Loan Agreement - April 24, 1996
Dear Ken:
During the process of refiling our Registration Statement with the S.E.C.,
and the review by our accountants Hein + Associates LLP, it has been noted that
we need to update your consent relative to the following Negative Covenants in
the referenced loan agreement with your company (the " Loan"). Accordingly,
please acknowledge or confirm the following:
(A) - AICI has acquired a 37.5% interest in a Limited Liability Company.
This Limited Liability Company is a general partner (45% ownership) in a Limited
Partnership that owns a mini-storage project (U.S. Storage/Westheimer). This
acquisition of ownership was acquired in order for AICI to secure the
construction contract for the related mini-storage project for approximately
$1.4 million.
I. - M.B.C.I. hereby acknowledges and consents to this investment and
waives any remedies provided pursuant to the Loan as a result of this covenant
violation.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(B) - AICI has acquired a 24.5% interest in a Limited Liability Company
which is a general partner (45% ownership) in a Limited Partnership that owns a
mini-storage project (U.S. Storage/Woodlands). This acquisition of ownership was
acquired in order for AICI to serve the construction contract for the related
mini-storage project for approximately $1.5 million.
II. - M.B.C.I. hereby acknowledges and consents to this investment and
waives any remedies provided pursuant to the Loan as a result of this covenant
violation.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
"Quality Brings Success"
<PAGE>
Mr. Ken Maddox
September 19, 1997
Page 2
(C) - AICI has acquired a 24.5% interest in a Limited Liability Company
which is a general partner (45% ownership) in a Limited Partnership that owns a
mini-storage project (U.S. Storage/Atascocita). This acquisition of ownership
was acquired in order for AICI to serve the construction contract for the
related mini-storage project for approximately $900,000.00.
III. M.B.C.I. hereby acknowledges and consents to this investment and waives any
remedies provided pursuant to the Loan as a result of this covenant violation.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(D) - AICI is currently delinquent in the timely payment of its accounts
payable with M.B.C.I. and it is estimated the amount past due (over 45 days old)
will range from $.5 to $1 million.
IV. - M.B.C.I. hereby acknowledges notification of this past due amount and
waives any remedies provided pursuant to the Loan as a result of this covenant
violation through December 31, 1997.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(E) - AICI did not reach its Earnings Before Interest Covenant requirements
of 1.5% of gross revenues as of April 30, 1997.
V. - M.B.C.I. hereby acknowledges notification of this deficiency in
required gross profit and waives any remedies provided pursuant to the Loan as a
result of this covenant violation through December 31, 1997.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
(F) - AICI did not provide M.B.C.I. with additional financial statements
within 90 days of April 30, 1997.
VI. - M.B.C.I. hereby acknowledges this covenant violation and waives any
remedies provided pursuant to the Loan as a result of this covenant violation
through December 31, 1997.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
<PAGE>
Mr. Ken Maddox
September 19, 1997
Page 3
(G) - AICI has contacted a realtor in order to market the company's
principal office and warehouse facility in an effort to consummate a
sale/leaseback arrangement.
VII. - M.B.C.I. hereby acknowledges notification of AICI's intent.
/s/ Kenneth W. Maddox
------------------------------------------
(Acknowledgment)
Your prompt response to the items addressed will be greatly appreciated.
Please feel free to contact John Wilson, Bill Betzler or me if you need any
further information.
Sincerely,
/s/ Jim Williams
- ------------------------------------
Jim Williams
VP- Finance
Enclosures
cc: John Wilson
Bill Betzler
JW/ad
<PAGE>
STATE OF TEXAS
COUNTY OF HARRIS
SWORN TO AND SUBSCRIBED by the said Kenneth W. Maddox before and undersigned, a
Notary Public in and for the County and State aforesaid this 16th day of
October, 1997.
My Commission Expires
3-4-99 /s/ Cathy J. Noel
- ------ --------------------------------------
Notary Public
Cathy J. Noel
Notary Public State of Texas
Commission Expires 3-4-99
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report on the consolidated financial statements of
American International Consolidated Inc., as of April 30, 1996, and April 30,
1997 and for each of the three years in the period ended April 30, 1997, dated
July 23, 1997 included herein, in this Registration statement on Form S-1 and to
the reference to our firm under the heading "Experts".
/s/ Hein + Associates
- ----------------------------
HEIN + ASSOCIATES LLP
Houston, Texas
December 30, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> OCT-31-1997
<CASH> 355
<SECURITIES> 0
<RECEIVABLES> 6,212
<ALLOWANCES> 166
<INVENTORY> 124
<CURRENT-ASSETS> 7,083
<PP&E> 1,789
<DEPRECIATION> 781
<TOTAL-ASSETS> 8,413
<CURRENT-LIABILITIES> 10,611
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (2,813)
<TOTAL-LIABILITY-AND-EQUITY> 8,413
<SALES> 19,828
<TOTAL-REVENUES> 19,828
<CGS> 17,489
<TOTAL-COSTS> 17,489
<OTHER-EXPENSES> 1,914
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 112
<INCOME-PRETAX> 261
<INCOME-TAX> 0
<INCOME-CONTINUING> 261
<DISCONTINUED> 0
<EXTRAORDINARY> 90
<CHANGES> 0
<NET-INCOME> 351
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
