U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended April 30, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 333-9583
American International Consolidated Inc.
----------------------------------------
(Name of registrant as specified in its Charter)
Delaware 76-0145668
------------------------------ ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14603 Chrisman, Houston, Texas 77039
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (281) 449-9000
----------------------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, nor
will be contained, to be the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X]
An aggregate market value of the registrant's Common Stock is not provided
because there currently is not any public market for the Common Stock.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of the registrant's Common Stock as of October
31, 1997 was 2,900,100
<PAGE>
PART I
ITEM 1. 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.
Disclosure Regarding Forward-Looking Statements And Cautionary Statements
Forward-Looking Statements
- --------------------------
This Annual Report on Form 10-K includes "forward-looking" statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
facts included in this Annual Report, including without limitation statements
under "ITEM 1. BUSINESS", "ITEM 2. PROPERTIES", and "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION",
regarding the Company's financial position, business strategy, and plans and
objectives of management of the Company for future operations and capital
expenditures, are forward-looking statements. Although the Company believes that
the expectations reflected in the forward-looking statements and the assumptions
upon which the forward-looking statements are based are reasonable, it can give
no assurance that such expectations and assumptions will prove to have been
correct. Additional statements concerning important factors that could cause
actual results to differ materially from the Company's expectations ("Cautionary
Statements") are disclosed below in the "-Cautionary Statements" section and
elsewhere in this Annual Report. All written and oral forward-looking statements
attributable to the Company or persons acting on its behalf subsequent to the
date of this Annual Report are expressly qualified in their entirety by the
Cautionary Statements.
Cautionary Statements
- ---------------------
In addition to the other information contained in this Annual Report, the
following Cautionary Statements should be considered when evaluating the
forward-looking statements contained in this Annual Report:
2
<PAGE>
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, 1996 and 1995 and for the three
months ended July 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 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
the Company's proposed initial public offering of the Company's common stock,
$.01 par value (the "Common Stock"), and Common Stock purchase warrants (the
"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 $2.3 million from the 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 Offering are
necessary to remove the threat concerning the Company's ability to continue as a
going concern and that if the Offering is completed, the estimated net proceeds
from the Offering will enable the Company to continue operating for the
foreseeable future at its current level of operations. The length of the period
that the offering 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 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 quarter 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. There is no assurance these results
will occur even if the Company's proposed 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 paragraph No. 3 below and except
for the holders (the "Noteholders") of $300,000 principal amount unsecured notes
as described in paragraph No. 3. The Supplier has indicated that it has no
intent of accelerating payment on any obligations as long as the Company's
proposed Offering is completed. The Supplier has not indicated what it will do
if the Company's proposed Offering is abandoned or otherwise terminated
unsuccessfully. The Company is requesting to the Noteholders that they extend
their notes or otherwise wait for completion of the Company's proposed Offering
before requiring payment. There is no assurance that the Noteholders will comply
with this request.
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 Offering. The implication of this to investors is that
successful completion of the Offering (or an equity infusion from another
source) is necessary for the Company to continue operations. See "ITEM 1.
BUSINESS--Business Plan And Strategy", "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", and Note 2 to the
Financial Statements.
3
<PAGE>
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 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
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
"ITEM 1. BUSINESS-Business Plan and Strategy-Strengthen Financial Condition and
Increase Bonding Capacity".
3. Outstanding Indebtedness. As of July 31, 1997, the Company owed its
major supplier of raw materials (the "Supplier") $2,665,000 for accounts payable
and an additional $1,914,000 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 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's
proposed 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 July 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. 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 "ITEM 1. BUSINESS-Indebtedness To
Major Supplier".
As of July 31, 1997, the Company also owed an aggregate of approximately
$322,000 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 "ITEM 1.
BUSINESS-Outstanding Bank Loans".
4
<PAGE>
The Company had other obligations of an aggregate of approximately $101,000
at July 31, 1997 that require aggregate monthly payments of approximately
$12,850. The Company also is the obligor on an aggregate of $300,000 principal
amount of unsecured notes, together with interest of more than $30,700 thereon,
that currently are in default that will be repaid from the proceeds of the
Offering.
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 "ITEM 1. 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 three months ended July 31, 1997, approximately 47 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's
Offering has placed it at a competitive disadvantage in the past but the Company
believes that as a result of the 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 "ITEM 1. BUSINESS-Marketing" and "ITEM 1.
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. 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.
5
<PAGE>
8. Past Dependence On Major Customers. During the three months ended July
31, 1997 and the fiscal year ended April 30, 1997, U-Haul, Inc. accounted for
approximately $2.0 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 "ITEM 1. 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, as was experienced in spring 1997.
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 "ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT". The Company has entered into employment agreements with each of the
above officers. See "ITEM 11. EXECUTIVE COMPENSATION-Employment 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.
6
<PAGE>
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 the Company's proposed Offering will enable it to accomplish the
purposes set forth above, although there can be no assurance that this will be
the case. If the proceeds of the 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's proposed Offering, that the
Company obtain the Representative's permission in order to issue securities for
financing purposes.
15. 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 "ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS--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
7
<PAGE>
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.
16. 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, paragraph No. 15, "Potential Conflicts Of
Interest".
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 three months
ended July 31, 1997, the Company realized revenue of approximately $17 million
and $6.0 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.
8
<PAGE>
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.
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 three months ended
July 31, 1997, the Company realized approximately $15 million and $3.4 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 $.9 million of these
revenues, or 8.6 percent, for the three months ended July 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 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 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
9
<PAGE>
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.
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 approximately 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 three months ended July
31, 1997, revenue from cold storage construction services accounted for
approximately $1.7 million and $.5 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 the
Company's proposed 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.
10
<PAGE>
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.
Backlog
As of July 31, 1997 the Company had an aggregate backlog of approximately
$16.6 million, including a backlog of $3.8 million related to its metal building
manufacturing division, $12.2 million related to its mini-warehouse construction
division, and approximately $.6 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 July 31, 1996, the Company had an aggregate backlog of
approximately $23.5 million in the respective amounts of $9.5 million, $12.3
million, and $1.7 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 "ITEM 1.
BUSINESS-Disclosure Regarding Forward-Looking Statements And Cautionary
Statements-Cautionary Statements-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 the
Company's proposed 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, 1996, the Company was
able to increase its bonding capacity for a single job from $250,000 to $500,000
and its aggregate bonding capacity from approximately $1.5 million to
11
<PAGE>
$2.5 million. It is anticipated, based on discussions with the Company's bonding
agent, that as a result of the Company's proposed 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 the Company's proposed
Offering to undertake planned domestic and international marketing programs
through attendance at industry trade shows, direct sales visits, and
advertisements in publications. 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 "ITEM 1.
BUSINESS-Disclosure Regarding Forward-Looking Statements And Cautionary
Statements-Cautionary Statements-No. 9. Previous Unprofitable International
Operations".
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 the Company's proposed 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.
12
<PAGE>
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
the Company's proposed 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 the Company's proposed 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 the Company's proposed Offering are necessary to remove the
threat concerning the Company's ability to continue as a going concern and that
if the Offering is completed, the proceeds from the 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 the Company's
proposed 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 "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 the Company's proposed
Offering is completed. The Supplier has not indicated what it will do if the
Offering is abandoned or otherwise terminated unsuccessfully. The Company has
requested that the Noteholders extend their notes or otherwise wait for
completion of the Offering before requiring payment. There is no assurance that
the Noteholders will comply with this request.
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 the Company's proposed Offering. The implication of this to
investors is that successful completion of the Offering (or an equity infusion
from another source) is necessary for the Company to continue operations. See
"ITEM 1. BUSINESS-Disclosure Regarding Forward- Looking Statements And
Cautionary Statements-Cautionary Statements-No. 1. Substantial Doubt About The
Company's Ability To Continue As A Going Concern Without Completion Of Public
Offering", "ITEM 7. 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 Annual Report on Form 10-K, the Company intends
to utilize a portion of the proceeds of the Company's proposed 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 foregoing
subsections under "Description Of Business".
13
<PAGE>
Reliance On Major Customers
During the three months ended July 31, 1997 and the fiscal year ended April
30, 1997, one of the Company's customers, U-Haul, Inc., accounted for
approximately $2.0 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.
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.
14
<PAGE>
Indebtedness To Major Supplier
As of October 31, 1997, the Company owed its major supplier (the
"Supplier") of metal building components $2,461,738 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 Company's
proposed Offering to reduce the accounts payable to the Supplier. See "ITEM 1.
BUSINESS-Disclosure Regarding Forward-Looking Statements And Cautionary
Statement-Cautionary Statements-No. 3".
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 the Company's proposed 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 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
15
<PAGE>
Agreement terminates upon the satisfaction of all obligations of the Guarantors
and the Company under the Loan Documents. 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 "ITEM 1. BUSINESS -Disclosure Regarding
Forward-Looking Statements And Cautionary Statements-Cautionary Statements-No.
3. Outstanding Indebtedness".
Also pursuant to the terms of the Loan Agreement, the Company and the
Supplier have agreed that, prior to commencement of the Company's proposed
Offering, the Supplier may review a draft of the Prospectus or Registration
Statement used in connection with the Company's proposed 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 July 31, 1997, the Company owed FCLT, L.P., a Texas limited
partnership ("FCLT"), an aggregate of approximately $322,000 (the "Debt") under
two loan agreements. See "ITEM 1. BUSINESS -Disclosure Regarding Forward-Looking
Statements And Cautionary Statements-Cautionary Statements-No. 3. Outstanding
Indebtedness".
One loan is evidenced by a promissory note in the face amount of $414,000,
with an outstanding principal balance of $247,000 at July 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 $75,000 at July 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.
16
<PAGE>
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 120 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, five project managers,
two operations coordinators, four 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.
ITEM 2. 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 "ITEM 1. BUSINESS - FCLT Loans" and by the Note
described under "ITEM 1. BUSINESS - Indebtedness To Major Supplier". The Company
also leases 824 square feet of space in Conroe, Texas, for its cold storage
construction services.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information. There is not any established public trading market for
any of the registrants common equity.
Holders. On October 31, 1997 the number of stockholders of record was 37.
Dividends. The Company has not paid any cash dividends to date. As
indicated under "ITEM 1. 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.
Recent Sales Of Unregistered Securities. In July 1996, the Company sold an
aggregate of 500,100 shares of Common Stock, 3,000,000 Common Stock purchase
warrants, and $300,000 aggregate face amount of promissory notes in reliance
upon exemptions pursuant to Section 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. The Company's obligation to issue options to purchase
127,000 shars terminated because of the termination of the employment of certain
recipients.
ITEM 6. SELECTED FINANCIAL DATA
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. This
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS " included elsewhere in this
Annual Report. 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>
1993 1994 1995 1996 1997
-------- ----------------------------------------------
Statement of Operations Data: (In thousands except per share data)
- -----------------------------
<S> <C> <C> <C> <C> <C>
Contract revenues $16,843 $25,845(1) $24,317 $31,185 $33,350
Contract cost 13,905 22,566 20,812 27,204 31,388
Gross profit 2,938 3,279 3,505 3,981 1,962
18
<PAGE>
Selling, general and administrative 3,091 3,303 3,021 3,359 3,839
Provision for doubtful accounts 35 156 48 62 428
Bridge financing costs -0- -0- -0- -0- (1,305)
Interest and other financing costs (192) (219) (188) (184) (308)
Write-off -IPO costs - capital -0- -0- (106) -0- (359)
Federal income tax expense -0- -0- -0- (35) -0-
Net income (loss) after pro forma
income taxes (361) (420) 187 352 (4,197) (3)
Net income (loss) per share
after pro forma income taxes(2) (.12) (.14) .06 .12 (1.45)
Dividends paid per share .03 .01 -0- -0- -0-
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
------- ------ ------ ------ ------
Balance Sheet Data: (In thousands)
- ------------------
Current Assets $3,058 $4,581 $4,163 $5,944 $7,297
Current Liabilities 4,076 5,974 5,568 5,107 11,242
Working capital (deficiency) (1,018) (1,393) (1,405) 837 (3,945)
Total assets 4,265 5,717 5,487 7,346 8,692
Long-term debt 519 495 454 2,422 327
Stockholders' equity (deficit) (330) (759) (572) (220) (3,168)
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "ITEM 7. 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) Prior to its acquisition during the year ended April 30, 1994, AIC
Management, Inc. was a nontaxable entity. Pro forma income taxes were
reflected herein as if AIC Management, Inc. had been a taxable entity for
the periods preceding its acquisition.
(3) Includes a pre-tax charge of $1,305,250 ($.45 per share) for the year ended
april 30, 1997 and $1,005,250 ($.35 per share) for the quarter ended July
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 "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS".
19
<PAGE>
ITEM 7. 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 From
Percentage of Total Revenues Prior Period
---------------------------------------- ----------------------
Year Ended April 30
--------------------------------------------------------------------------
1995 1996 1997 1996 1997
---- ---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C> <C>
Contract revenues 100.0% 100.0% 100.0% 28.2% 7.8%
Costs and expenses:
Contract costs 85.6% 87.2% 94.1% 30.7% 15.4%
Selling, general and
administrative 12.4% 10.8% 11.5% 11.2% 14.3%
Provision for doubtful
accounts .2% .2% 1.3% 28.3% 596.5%
------- ----- ----- ---- -----
Private Placement
financing costs -- -- 3.9% -- 100%
Interest and other
financing costs .8% .6% .9% (1.9)% 67.1%
------- ----- ----- ---- -----
Total costs and
expenses: 99.0% 98.8% 111.7% 28.0% 21.0%
------- ----- ----- ---- -----
</TABLE>
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 $358,945; (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
$200,000 as a provision for doubtful accounts resulting from its agreement to
settle a disputed account receivable by accepting $200,000 less than the full
value of the account, and (d) the Company deferred recognition of gross profits
of $253,084 during the fiscal year ended April 30, 1997 for self-storage
construction contracts.
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 building 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 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 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.
20
<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 "ITEM 1. BUSINESS-Disclosure
Regarding Forward-Looking Statements And Cautionary Statements-Cautionary
Statements-No. 1. Substantial Doubt About The Company's Ability To Continue As A
Going Concern Without Completion Of A Public Offering" and "ITEM 1.
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 min-warehouse general construction products.
21
<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 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 of $1,884,000.
As of April 30, 1997, the Company's cash balance decreased $106,000 as
compared with the balance at April 30, 1996. This decrease is primarily
attributable to the Company's operating loss during fiscal 1997, and the
Company's utilizing available cash to reduce notes payable and capital lease
obligations.
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 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, which was partially offset by an increase in accounts payable of
$51,600.
For the fiscal year ending April 30, 1998, the Company is planning to make
an aggregate of $50,000 of capital expenditures, which assumes the successful
completion of the Company's proposed 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 the Company's
proposed 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 "ITEM 1. BUSINESS-Disclosure
Regarding Forward-Looking Statements And Cautionary Statements-Cautionary
Statements-No. 3. Outstanding Indebtedness". However, without the successful
completion of the Company's proposed Offering, the Company does not anticipate
being able to undertake the majority of the capital expenditures planned for the
fiscal year ending April 30, 1998.
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 a non-recurring charge 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
22
<PAGE>
to continue as a going concern without completion of the Company's proposed
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 the 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 Offering are necessary to remove the threat
concerning the Company's ability to continue as a going concern and that if the
Offering is completed, the proceeds from the 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 the Company's
proposed 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 "ITEM 1. BUSINESS-Disclosure
Regarding Forward-Looking Statements And Cautionary Statements-Cautionary
Statements-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 "ITEM 1. BUSINESS-Disclosure Regarding
Forward-Looking Statements And Cautionary Statements-Cautionary Statements-No.
3". The Supplier has indicated that it has no intent of accelerating payment on
any obligations as long as the Company's proposed Offering is completed. The
Supplier has not indicated what it will do if the Company's proposed Offering is
abandoned or otherwise terminated unsuccessfully. The Company has requested that
the Noteholders extend their notes or otherwise wait for completion of the
Offering before requiring payment. There is no assurance that the Noteholders
will comply with this request.
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 the Company's proposed Offering. The implication of this to
investors is that successful completion of the Company's proposed Offering (or
an equity infusion from another source) is necessary for the Company to continue
operations. See "ITEM 1. BUSINESS-Disclosure Regarding Forward-Looking
Statements And Cautionary Statements-Cautionary Statements-No. 1. Substantial
Doubt About The Company's Ability To Continue As A Going Concern Without
Completion Of Public Offering", "ITEM 1. BUSINESS-Business Plan And Strategy",
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA", and Note 2 to the
Financial Statements.
As of April 30, 1997, the Company's backlog was $18.8 million as compared
with $12.5 million as of April 30, 1996. The Company anticipates that its
operating results for fiscal 1998 will not significantly alter its liquidity or
capital resources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company did not engage in any activities related to market risk
sensitive instruments during the fiscal year ended April 30, 1997.
23
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements that constitute Item 8 are attached at the end of
this Annual Report on Form 10-K. An index to these Financial Statements is set
forth below:
Page
----
Index To Financial Statements F-1
Independent Auditor's Report F-2
Financial Statements
Consolidated Balance Sheets as of April 30, 1996 and 1997 F-3
Consolidated Statements of Operations for each of the
three years ended April 30, 1995, 1996 and 1997 F-4
Consolidated Statements of Stockholder's Equity (Deficit)
for each of the three years in the period ended April 30, 1997 F-5
Consolidated Statements of Cash Flows for each of the
three years ended April 30, 1995, 1996 and 1997 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
All other schedules are omitted because they are inapplicable, not required, or
the information is included in the financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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
Director
Louis S. Carmisciano 55
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.
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
25
<PAGE>
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.
ITEM 10. 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 $100,000 during any of the last
three fiscal years.
Summary Of Annual Compensation Table
<TABLE>
<CAPTION>
Fiscal Year
Name and Principal Ended All Other
Position April 30, Salary ($) (1) Compensation ($) (2)
=================================================================================================
<S> <C> <C> <C>
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
</TABLE>
26
<PAGE>
- -------------------------
(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.
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 "ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS--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.
27
<PAGE>
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.
Option Grants
- -------------
On January 14, 1997, the Company issued 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. 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 Company's proposed
initial public Offering. The Company's obligation to issue options to purchase
127,000 shares terminated because of the termination of the employment of
certain recipients.
28
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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.
Amount And
Nature Of
Name And Address Beneficial Percentage Of Class
Of Beneficial Owner Ownership Beneficially Owned
- ------------------- --------- ------------------
Danny R. Clemons(1) 707,319 24.4%
14603 Chrisman
Houston, Texas 77039
Ralph L. Farrar(1) 707,319 24.4%
14603 Chrisman
Houston, Texas 77039
John T. Wilson(1) 707,319 24.4%
14603 Chrisman
Houston, Texas 77039
Jim W. Williams(1) 135,444 4.7%
14603 Chrisman
Houston, Texas 77039
Louis S. Carmisciano 0 0%
P.O. Box 1114
Chicago, Illinois 60690-1114
All Officers And Directors 2,257,401 77.8%
As A Group (Five Persons)(1)
- --------------------
(1) 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 "ITEM 1. 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 "ITEM 1. BUSINESS--Indebtedness To Major Supplier".
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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.
29
<PAGE>
Grants Of Stock Options.
- ------------------------
On January 14, 1997, the Company granted 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. One
fourth of the options granted become exercisable on each of the first, second,
third and fourth anniversaries of the completion of the Company's proposed
initial public 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 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 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 Annual Report on Form 10-K to numbers of shares give effect
to this stock split and the issuance of 75,000 shares to the shareholders of AIC
Management.
Employment Agreements.
- ----------------------
The Company is a party to employment agreements with each of its four
officers. These agreements are described under "ITEM 10. 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.
30
<PAGE>
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.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
31
<PAGE>
(a)(1) and (a)(2) Financial Statements And Financial Statement Schedules. See
"ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - Index".
(a)(3) Exhibits
Exhibit Index
Exhibit No. Description
2.1 Plan Of Merger of American International Construction, Inc. and
AIC Management, Inc.(1)
2.2 Plan Of Merger of American International Construction, Inc. and
American International Thermal Systems, Inc.(1)
2.3 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 Specimen Common Stock Certificate.(1)
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.(6)
10.1C Letter Agreement dated December 31, 1996 modifying Loan Agreement
dated April 24, 1996.(7)
10.1D Letter Agreement dated September 19, 1997 modifying Loan
Agreement dated April 24, 1996.
10.1E
Letter Agreement dated November 3, 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)
32
<PAGE>
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.(7)
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.(7)
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.(6)
21 List of subsidiaries of Registrant. (1)
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) Incorporated by reference from the Company's Registration Statement on Form
S-1 filed with the SEC on August 5, 1996, File No. 333-9583.
(6) Incorporated by reference from the Company's Amendment No. 1 to
Registration Statement on Form S-1 filed with the SEC on November 1, 1996,
File No. 333-9583.
(7) Incorporated by reference from the Company's Amendment No. 2 to
Registration Statement on Form S-1 filed with the SEC on December 31, 1996,
File No. 333-9583.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report.................................................F-2
Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and 1997 ................F-3
Consolidated Statements of Operations for each of the three years
ended April 30, 1995, 1996 and 1997 ...............................F-4
Consolidated Statements of Stockholders' Equity (Deficit) for each of
the three years in the period ended April 30, 1997 ................F-5
Consolidated Statements of Cash Flows for each of the three years
ended April 30, 1995, 1996 and 1997 ...............................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 writeoff 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
Certified Public Accountants
Houston, Texas
July 23, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
April 30,
------------------------------
1996 1997
------------ ------------
ASSETS
------
Current assets:
<S> <C> <C>
Cash $ 265,949 $ 160,211
Accounts receivable:
Contracts, less allowance for doubtful accounts 4,874,421 5,637,320
Employee 26,543 8,274
Costs and estimated earnings in excess
of billings on uncompleted contracts 645,420 1,303,101
Other current assets 131,725 188,253
------------ ------------
Total current assets 5,944,058 7,297,159
------------ ------------
Property and equipment, net 1,185,841 1,132,072
Capitalized offering costs 158,764 120,848
Other assets 57,420 141,761
------------ ------------
Total assets $ 7,346,083 $ 8,691,840
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Note payable to stockholders, net of discount $ -- $ 300,000
Current portion of long-term debt and capital
lease obligations 552,264 2,136,244
Accounts payable 3,980,484 7,006,908
Accrued payroll and and related expenses 108,970 80,914
Billings in excess of costs and estimated earnings on
uncompleted contracts 261,319 1,556,787
Other current liabilities 204,247 161,372
------------ ------------
Total current liabilities 5,107,284 11,242,225
------------ ------------
Long-term debt, net of current portion 2,400,005 294,945
Capital lease obligations, net of current portion 22,287 32,268
Deferred contract revenue -- 253,084
Other liabilities 37,000 37,000
------------ ------------
Total liabilities 7,566,576 11,859,522
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 at April 30, 1996;
2,900,100 issued and outstanding at April 30, 1997 2,400 2,900
Additional paid-in capital 145,755 1,395,305
Accumulated deficit (368,648) (4,565,887)
------------ ------------
Total stockholders' equity (deficit) (220,493) (3,167,682)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 7,346,083 $ 8,691,840
============ ============
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,
--------------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Contact revenue $ 24,317,051 $ 31,184,828 $ 33,350,003
Contract cost 20,812,194 27,204,243 31,387,798
------------ ------------ ------------
Gross profit 3,504,857 3,980,585 1,962,205
Selling, general and
administrative 3,020,997 3,359,653 3,838,880
Provision for doubtful
accounts 47,919 61,504 428,384
Other income (expense):
Interest and other
financial costs (187,908) (184,277) (307,846)
Writeoff of capitalized
costs in connection
with delayed offering (105,743) -- (358,946)
Bridge-financing costs -- -- (1,305,250)
Interest income and
other, net 44,372 11,419 79,862
------------ ------------ ------------
Income (loss) before federal
income taxes 186,662 386,570 (4,197,239)
Federal income tax expense -- (35,000) --
------------ ------------ ------------
Net income (loss) $ 186,662 $ 351,570 $ (4,197,239)
============ ============ ============
Net income (loss)per share $ .06 $ .12 $ (1.45)
============ ============ ============
Weighted average common
shares outstanding 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)
=========== =========== =========== =========== ===========
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,
-------------------------------------------
1995 1996 1997
----------- ----------- -----------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $ 186,662 $ 351,570 $(4,197,239)
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 -- -- 1,250,050
Depreciation and amortization 141,176 170,123 165,284
(Increase) decrease in:
Receivables, net (12,353) (2,211,591) (744,630)
Costs and estimated earnings
in excess of billings on
uncompleted contracts 673,380 64,215 (657,681)
Other current assets (96,016) 3,063 (56,528)
Increase (decrease) in:
Accounts payable (415,777) 2,510,817 3,026,424
Billings in excess of costs and
estimated earnings 98,668 (226,495) 1,295,468
Other current liabilities (74,152) (19,064) (70,931)
Deferred contract revenues -- -- 253,084
Other, net (55,788) 2,260 274,604
----------- ----------- -----------
Net cash provided by (used
in) operating activities 445,800 644,898 537,905
Cash flows from investing activities:
Capital expenditures (169,485) (148,264) (55,183)
Proceeds from sale of investments 19,050 -- --
----------- ----------- -----------
Net cash used in investing
activities (150,435) (148,264) (55,183)
Cash flows from financing activities:
Net borrowings (payments) under
receivables factoring agreements 177,239 (408,889) --
Proceeds from notes payable to
stockholders -- -- 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)
Other (60,325) (101,828) (321,030)
----------- ----------- -----------
Net cash provided used in
financing activities (148,804) (859,664) (588,460)
----------- ----------- -----------
Net increase (decrease) in cash 146,561 (363,030) (105,738)
Cash, beginning of period 482,418 628,979 265,949
----------- ----------- -----------
Cash, end of period $ 628,979 $ 265,949 $ 160,211
=========== =========== ===========
See accompanying notes to these consolidated financial statements.
F-6
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Year Ended April 30,
----------------------------------------------
1995 1996 1997
---------- ---------- -----------
Supplemental disclosures:
Interest paid $ 197,661 $ 184,277 $ 307,846
Income taxes paid $ -- $ -- $ 5,000
Trade payable converted to
long-term debt $ -- $2,400,000 $ --
Equipment acquired under
capital leases $ 63,361 $ -- $ 56,332
========== ========== ==========
See accompanying notes to these consolidated financial statements.
F-7
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
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
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 $121,000 at April 30, 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 of 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. SFAS No.
123 had no material impact on the Company's financial condition or operating
results upon implementation.
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 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.
F-9
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
------------------------------------------------
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 beginning May 1, 1994.
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
writeoff 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 cash net proceeds of approximately $2.3 million from the
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.
F-10
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
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:
April 30,
--------------------------------
1996 1997
----------- -----------
Land $ 167,461 $ 167,461
Buildings 834,944 834,944
Construction equipment 213,575 232,898
Office equipment 583,877 553,631
Automobiles 296,471 286,471
----------- -----------
2,096,328 2,075,405
Less appreciation and amortization (910,487) (943,333)
----------- -----------
$ 1,185,841 $ 1,132,072
=========== ===========
NOTE 5 - CONSTRUCTION ACCOUNTS
---------------------
Costs and billings on uncompleted contracts consists of the following:
<TABLE>
<CAPTION>
April 30,
-----------------------------------
1996 1997
------------- ------------
<S> <C> <C>
Cost incurred on uncompleted contracts $ 7,739,410 $ 21,169,011
Estimated earnings on uncompleted contracts 1,239,522 1,378,123
------------ ------------
8,978,932 22,547,134
Less: Billings to date (8,594,831) (22,800,820)
------------ ------------
$ 384,101 $ (253,686)
============ ============
Included in the accompanying
consolidated balance sheets under
the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 645,420 $ 1,303,101
Billings in excess of costs and estimated
earning on uncompleted contracts (261,319) (1,556,787)
------------ ------------
$ 384,101 $ (253,686)
============ ============
F-11
</TABLE>
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 6 - CONTRACTS RECEIVABLE
---------------------
Contracts receivable consisted of the following:
April 30,
---------------------------------
1996 1997
----------- -----------
Completed contracts $ 1,458,204 $ 612,941
Uncompleted contracts 3,158,551 3,888,280
Retainage 337,523 1,176,603
----------- -----------
4,954,278 5,677,824
Less: Allowance for doubtful accounts (79,857) (40,504)
----------- -----------
$ 4,874,421 $ 5,637,320
=========== ===========
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
warrants are exercisable at $5.00 per share for a period of five years beginning
with the effective date of the registration statement filed by the Company with
the Securities and Exchange Commission. The warrants, when and if issued, may be
redeemed by the Company at at price of $.01 per share, provided the closing bid
price of the Company's common stock is in excess of 150 percent 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
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%.
F-12
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 9 - LONG-TERM DEBT
--------------
Long-term debt consisted of the following:
April 30,
-------------------------
1996 1997
----------- ----------
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 four stockholders of the
Company. $2,400,000 $2,002,536
Note payable to a bank, due in monthly
install ments 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
Note payable to a bank, due in monthly
install ments 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
Real estate note payable, due in monthly
installments of $1,018, including interest at
8.7%, through October 1998. The note is col
lateralized by a first lien on a portion of
the Company's land. 26,556 15,335
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
Less: Current portion (535,390) (2,099,761)
---------- ----------
$2,400,005 $ 294,945
========== ==========
F-13
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
NOTE 9 - LONG-TERM DEBT (continued)
--------------
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 December 31, 1997. Accordingly,
the outstanding balance of the note payable to supplier is classified as current
in the accompanying consolidated balance sheets as of April 30, 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.
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 has disputed some of the
costs charged to a job which was completed in the fourth quarter of fiscal 1996.
The Company settled this dispute during November 1996 for $125,000, 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 turn filed a
claim with its insurance company. The total amount of loss expected to arise
from this claim ranges from zero to $200,000. 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 $45,000 at April 30, 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
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) $ --
========= ========= =========
</TABLE>
Deferred tax assets and liabilities as of April 30, 1997 consisted of the
following:
<TABLE>
<CAPTION>
Current Noncurrent Total
------- ---------- -----
<S> <C> <C> <C>
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. If the Company's initial public offering is completed
during the fiscal year ending April 30, 1998, the combination of warrants to
acquire common stock and common stock issued may cause a change in control as
defined in Internal Revenue Code Section 382. If a change in control does occur,
then the utilization of the Company's NOLs 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.
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 April 30,1997.
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 its initial public 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. The exercise price of these
options, when and if issued, 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.
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
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 and three major stockholders of the Company guaranteed
bank debt of the Partnerships. Revenues derived from the Partnerships aggregated
$2,053,140 during fiscal 1997. The gross profit from these construction
contracts, aggregating $253,084 at April 30, 1997, is being deferred until the
Partnerships sell the mini-storage facilities or the Company disposes of its
ownership interests in the Partnerships, provided the Company's major
stockholders are released from their guarantees of the bank debt owed by the
Partnerships. The Partnerships owed the Company $459,308 at April 30, 1997, as a
result of these construction contracts.
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 -- -- --
Customer G -- --
---- ---- ----
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 -- -- --
Customer G -- --
------ ----- ----
33.0% 11.0% 36.9%
======= ===== =====
F-17
<PAGE>
AMERICAN INTERNATIONAL CONSOLIDATED, INC.
AND SUBSIDIARIES
Notes To Consolidated Financial Statements
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
period 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-18
<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 Annual Report 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>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN INTERNATIONAL CONSOLIDATED INC.
Date: November 19, 1997 By: /s/ John T. Wilson
------------------ ------------------------------------------
John T. Wilson, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ John T. Wilson Chief Executive Officer and November 19, 1997
- ------------------------ Director
John T. Wilson
/s/ Danny R. Clemons President/Mini-Warehouse Division Novmeber 19, 1997
- ------------------------ and Director
Danny R. Clemons
/s/ Ralph L. Farrar President/Metal Buildings Division, November 19, 1997
- ------------------------ Secretary and Director
Ralph L. Farrar
/s/ Jim W. Williams Chief Financial Officer, Vice President/ November 19, 1997
- ------------------------- Finance, Principal Financial Officer,
Jim W. Williams Principal Accounting Officer, and
Assistant Secretary
/s/ Louis S. Carmisciano Director November 19, 1997
- --------------------------
Louis S. Carmisciano
</TABLE>
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
American International Construction Inc.
A DIVISION OF AMERICAN INTERNATIONAL CONSOLIDATED INC.
14603 Chrisman
Houston, Texas 77039
(281) 449-9000 o FAX (281) 442-6351
November 3, 1997
Mr. Kenneth W. Maddox
Vice President/Chief Financial Officer
MBCI
14031 West Hardy
Houston, TX 77060
Dear Ken:
As you are aware, we have reduced the amount of our initial public offering as a
result of the offering changing form one of a "best efforts" basis to one on a
"firm commitment" basis. Accordingly, we hereby request the MBCI confirm their
agreement to certain changes in the "Use of the Proceeds" from the offering
which are specified on the attached schedule.
Please sign the statement below acknowledging MBCI's understanding of the
changes to the use of the public offering proceeds. Thank you for your
cooperation.
Sincerely,
/s/ John T. Wilson
- -----------------------
John T. Wilson
Chief Executive Officer
JTW/ad
MBCI hereby confirms that $1,000,000 of the offering proceeds will be used to
reduce American International Consolidated Inc.'s accounts payable balance to
MBCI. Previously, $1,200,000 of the offering proceeds were to be used to reduce
American International Consolidated Inc.'s not payable to MBCI.
/s/ Kenneth W. Maddox November 4, 1997
- --------------------- ----------------
Kenneth W. Maddox Date
Chief Financial Officer
MBCI
"Quality Brings Success"
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from American
International Consolidated, Inc. and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 160
<SECURITIES> 0
<RECEIVABLES> 5,686
<ALLOWANCES> 41
<INVENTORY> 0
<CURRENT-ASSETS> 7,297
<PP&E> 2,075
<DEPRECIATION> 943
<TOTAL-ASSETS> 8,692
<CURRENT-LIABILITIES> 11,242
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> (3,170)
<TOTAL-LIABILITY-AND-EQUITY> 8,692
<SALES> 33,350
<TOTAL-REVENUES> 33,350
<CGS> 31,388
<TOTAL-COSTS> 31,388
<OTHER-EXPENSES> 3,759
<LOSS-PROVISION> 428
<INTEREST-EXPENSE> 308
<INCOME-PRETAX> (2,533)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,533)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,664)
<CHANGES> 0
<NET-INCOME> (4,197)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
