<PAGE> 1
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 [Fee Required] for the fiscal year ended April 30,
1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_________________ to _________________
0-8624
COMMISSION FILE NUMBER..........................................................
ALFA LEISURE, INC.
................................................................................
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
Texas 75-1309458
........................................ ....................................
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization
13501 5th Street, Chino, California 91710
........................................ ....................................
(Address of principal executive offices) (Zip Code)
(909) 628-5574
(Registrant's telephone number, including area code)............................
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
<S> <C>
None None
........................................ ....................................
........................................ ....................................
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value
................................................................................
(Title of class)
................................................................................
(Title of class)
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
--- ---
There is no established trading market for the registrant's common stock. The
aggregate market value of the voting stock held by non-affiliates of the
registrant was $117,105 as of July 30, 1997 based upon the last known trading
price for the registrant's common stock of $.125 in November, 1996.
The number of shares of the registrant's common stock, no par value, outstanding
as of July 30, 1997 was 3,048,137.
DOCUMENTS INCORPORATED BY REFERENCE. None.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to 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|
The index to exhibits appears on page 33; 49 pages in total.
<PAGE> 2
PART I
ITEM 1. BUSINESS
--------
General Development of Business
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Alfa Leisure, Inc. (the "Company" or "Alfa") was incorporated under the laws of
the State of Texas in October 1969 under the name Brougham Coach, Inc. and
commenced operations as a manufacturer and seller of recreational vehicles in
January 1970. Between March 1985 and December 29, 1986, the Company was under
the protection of Chapter 11 of the United States Bankruptcy Code. On December
29, 1986, the Company merged (the "Merger") with two privately-held corporations
engaged in the business of manufacturing and selling recreational vehicles, Alfa
Leisure, Inc., a California corporation ("Alfa-California") and Alfa Leisure of
Louisiana, Inc., a California corporation ("Alfa-Louisiana"). The present
business of the Company consists primarily of the businesses of Alfa-California
to which it has succeeded via the Merger. During 1989 the Company closed its
plant in Louisiana and consolidated those operations into its Chino, California
facilities. Unless otherwise indicated, all references to the past operations of
the Company refer exclusively to the past operations of Alfa-California. The
Company has one subsidiary, Brougham International, Inc., which it organized in
August 1976 for the purpose of operating as a domestic international sales
corporation. The subsidiary has been inactive since 1982.
Financial Information about Industry Segments.
- ----------------------------------------------
The Company operates in one (1) identifiable industry segment, the manufacture
and sale of recreational vehicles. The Company has no affiliated customers to
which it sells recreational vehicles.
Narrative Description of Business.
- ----------------------------------
Products
--------
The Company manufactures and sells recreational vehicles designed as
short-period accommodations for vacationers or long-period accommodations for
travelers who live "full-time" in their vehicles. These products are fifth wheel
travel trailers designed to be towed behind and attached to special couplers in
the bed of pickup trucks. The Company's products are marketed under the brand
names "Gold", "Toyhouse", "See Ya" and "Ideal". They are distributed by
approximately 47 independent dealers located throughout the United States, but
concentrated in the western and southwestern portions of the United States. The
Company has positioned itself as one of the premier names in high-quality fifth
wheel travel trailers in the western United States.
The Company has a reputation for high quality, well priced products
throughout its various product lines from its top of the line "Gold" models in
the "Resort Living" and "Travel" series through the "Ideal" models to the
"Toyhouse" for the adventuresome. The Company's "See-Ya" models have been
absorbed within the "Gold" line.
Each of the model lines are constructed such that frame and structure
integration is of the strongest, lightest body design technology. Steel "I"
beams are used for the chassis rails. Several components are strategically
positioned between the rails for optimum weight distribution, including holding
tanks, air conditioning system, slide-out mechanisms and spare tire providing
for a low center of gravity. The underbelly is fully enclosed providing for
all-weather protection and use. Trailer sidewalls are of advanced high pressure
"vacubond" construction encompassing Heli-arc welded structural aluminum tubing.
Alfa's "Straight-Line" six inch thick crowned roof, combination truss/rafter
structure has the characteristics of aircraft monocoque construction.
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<PAGE> 3
The Company offers three primary product lines. Each of the product
lines targets a different market ranging from vacationers looking for short
period accommodations to long period travelers looking for full time live in
accommodations.
Alfa Gold. The Alfa Gold models are presented in two versions in
lengths of 32' to 39' and multiple floor plans. The Travel Series designed for
the discriminating 5th wheel owner who enjoys following the seasons throughout
the year, and the Resort Living Series with additional spaciousness and luxury
for extended resort living. The Gold has more standard features than other
product lines and as standard equipment it includes Corian counter tops,
hardwood floors and leather furnishings. Retail prices for recreational vehicles
in the Alfa Gold product line range from $36,122 to $48,950.
Alfa Ideal. The Ideal, although only slightly less luxuriously
appointed than the Gold, is more moderately priced, comes in lengths ranging
from 29' to 40' with multiple floor plans. The Ideal is Alfa's volume leader and
is widely accepted for its value for price features. Retail prices for
recreational vehicles in the Alfa Ideal product line range from $27,598 to
$36,107.
Common to both the Gold and Ideal lines are product features which help
give Alfa its competitive edge including basement air conditioning, rack &
pinion slide out rooms with oversized windows and 8' high ceilings, double and
triple glide-out rooms, dual refrigeration systems, extensive storage areas and
entertainment centers.
Alfa Toyhouse. The Toyhouse is a fully equipped, dual purpose vehicle
having many of the same features found in the Alfa Gold and Ideal models,
including chassis, side-walls and roof construction. Also included as standard
is a 4.0 KW generator for the freedom to go where there are no hook-ups, and
plenty of storage for traveling with off-road toys. Retail prices for the Alfa
Toyhouse range from $27,789 to $31,082.
See-Ya. The name See-Ya served Alfa well as a mid-range 5th wheel
trailer priced between the Gold and Ideal. As customers continued to desire
upgrades to their See-Ya coaches, the See-Ya product line began to loose its
specific identity and was absorbed within the Alfa Gold line.
Historically, the Company has sold primarily to buyers upgrading from
another brand recreational vehicle. The Company is considering the development
of an entry level priced line to reach first time buyers, a segment of the
market which the Company has not historically serviced. The Company believes
that operating efficiencies and desirable product flow logistics along with the
low-line product introduction would require relocation to an alternate facility.
The Company's headquarters and manufacturing facilities are located in
Chino, California. The main plant and nearby wall assembly structure, with
approximately 107,000 square feet under cover, provide adequate capacity for the
Company's current production levels. The Company's primary manufacturing
facility also houses a full factory service center providing warranty repair and
parts sales.
The Company's manufacturing facilities are designed to provide assembly
line construction of its recreational vehicles. Each facility is organized into
specific production task areas, such as chassis construction, cabinet assembly,
electrical, plumbing, wall and roof installation, etc., and the vehicles are
moved through each area in a production line manner. The Company manufactures
all of its products in two facilities in Chino, California.
Raw Materials
-------------
The raw materials and finished components for the Company's products
are purchased or are obtainable from numerous sources. The Company is not
dependent upon any one supplier.
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<PAGE> 4
Marketing
---------
Alfa distributes through a network of dealers throughout the United
States, primarily located in the west and southwest who market to a large extent
to retirees and those nearly retired. The Alfa dealer selection process
emphasizes commitment and is undertaken with the objective of establishing
long-term relationships. Dealers are provided substantial support from the
factory in terms of sales staff participation at dealer events and national
trade shows, promotional materials and advertising assistance. The Company
advertises its recreational vehicles primarily in recreational vehicle
magazines. It also promotes its products through participation in regional trade
shows, in association with area dealers.
The Company's sales of recreational vehicles also benefit significantly
from the activities of the "Sundancers", an independent organization of
approximately 1,200 owners of the Company's products consisting of nine chapters
in the western portion of the United States. Each chapter of the Sundancers
typically holds several outings each year at various parks and recreation sites
at which members enjoy caravanning, boat trips, pot luck dinners and dancing. In
addition, the Sundancers annually hold a national rally comprising all chapters.
The national rally is typically held over a one week period of time and is
attended by representatives of the Company and the manufacturers of the
appliances and equipment featured in the Company's products. The Company's and
manufacturers' representatives provide presentations on the care and upkeep of
the Company's products and the related appliances and equipment. The Sundancers
are under the direction and control of its Board of Directors, which is
comprised of and elected by members of the Sundancers.
Warranty
--------
Alfa provides full factory service at its Chino, California facility.
The Company provides a warranty to the first retail purchaser of each
recreational vehicle, warranting the vehicle to be free from manufacturing
defects in material and workmanship under normal use and with reasonable care
and maintenance for one (1) year. The Company is obligated to correct defects in
material and workmanship by repair or replacement of any necessary parts, free
of charge, in a manner intended to prevent further damage. The Company assists
purchasers in enforcing warranties on appliances and equipment included in the
vehicles and will cover such items as a part of its warranty in the event
satisfactory results cannot be obtained on such warranties due to no fault of
the purchaser. The Company has a service department at its factory in Chino,
California. Support through the dealership network is a requirement and all
dealers maintain service facilities where warranty, service and parts sales are
an essential part of their business. The Company requires that the selling
dealer provide any servicing required upon the request of the vehicle's owner.
Seasonality
-----------
Sales of the Company's products vary regionally based on climate rather
than season. The Company believes that this trend is typical of the entire
recreational vehicle industry. Due to anticipated stabilizing of the 5th wheel
trailer market, only minimal variation due to seasonality is projected in the
near future, with the first and second quarters expected to be only slightly
lower than the third and fourth quarters.
Payment Terms
-------------
The Company requires dealer flooring institution approval prior to
shipment of recreational vehicles, with payment generally by wired funds within
three to seven days of delivery.
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<PAGE> 5
Backlog
-------
The Company does not consider the level of the backlog at any given
date to be a significant factor affecting its business, except in establishing
production schedules. The Company normally adjusts the production rate to adapt
to any fluctuation in the incoming order rate.
Competition
-----------
The recreational vehicle industry includes several styles of vehicles
which can range from those self-propelled, or motor homes which are driven, to
those which are towed, or travel trailers which are either towed behind a
vehicle or as in the case of fifth wheel vehicles are towed by attachment to the
bed of a pick-up truck.
Fifth wheel trailers can range from the low-end moderately priced units
to top of the line, high quality, luxurious units such as Alfa builds.
The market for fifth wheel travel trailers is a very mature,
competitive market. The Recreational Vehicle Industry Association ("RVIA")
estimates overall market growth of between 4% and 6% through the end of the
century, in both units and value.
Total Recreational Vehicle "Towables" Market - ($ Millions)
-----------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999 2000
1996 RVIA RVIA RVIA RVIA
Towables Actual Estimate Estimate Estimate Estimate
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Travel trailers 857.3 846.1 835.0 824.1 813.4
conventional
5th wheel 879.7 904.3 929.7 955.7 982.4
trailers
Folding 218.5 214.6 210.7 207.0 203.3
trailers
Truck 93.8 95.3 96.8 98.3 99.8
campers
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Total 2,049.3 2,060.3 2,072.2 2,085.1 2,098.9
</TABLE>
Recently, factors affecting the industry's growth potential, such as
demographics, stable long-term oil prices, increases in the living standard
accompanied by downward pressures on interest rates all have a favorable impact
on the recreational vehicle industry.
The Company believes that the business of manufacturing and selling
recreational vehicles is highly competitive with respect to price, quality,
design and features. Management believes that the keys to success are somewhat
dependent on innovation, but over the long term continue to be product quality,
reputation, and management.
There are many manufacturers in the industry, including several in the
areas where the Company's products are marketed. Many of the Company's
competitors are larger and have greater resources available to them than the
Company. Based upon market surveys, dealer feedback, and customer satisfaction
polls, the Company believes that its principal marketing advantages are price
and design.
-5-
<PAGE> 6
Research and Development
------------------------
The Company manufactures and sells recreational vehicles only. The
Company periodically revises and redesigns models in response to consumer
demand. The extent of these revisions and redesigns are dictated by what is
required to obtain market acceptance. In fiscal 1997, 1996 and 1995, the Company
spent $176,760, $166,046 and $162,926, respectively, on research and development
activities.
Patents
-------
The Company has recently applied for patent protection relating to its
innovative "step chassis" design and "basement" air conditioning system.
Trademarks
----------
In December, 1994, the Company obtained a U.S. registered trademark,
No. 74/610,898 for the Alfa name and logo on "Gold" units. The Company has
applied for a U.S. registered trademark for the Alfa name and logo on "Ideal"
units.
Government Regulations
----------------------
The Company's recreational vehicles are less than 400 square fee in
size and, accordingly, are not regulated as "mobile homes" by United States
Department of Housing and Urban Development. The Company is subject to the
industry standards of the Recreational Vehicle Industry Association and state
housing standards. The Company also complies with specific government
regulations including motor vehicle safety standards. The Company is also
subject to the Fair Labor Standards Act that governs such matters as minimum
wage requirements, overtime and other working conditions.
Employees
---------
As of July 30, 1997, the Company employed approximately 263 people on a
full-time basis and minimal part time basis personnel
ITEM 2. DESCRIPTION OF PROPERTY
-----------------------
The Company's executive offices and principal manufacturing facilities
are in Chino, California. The Company leases the premises from Hercules Land
Holding, Inc., a corporation owned by the Company's chairman, president and
principal shareholder. The lease is for five years commencing January 30, 1997
at a monthly base rental rate of $12,932 subject to annual cost of living
increases. The Company has the option to extend the lease for three additional
three year periods. The Company also has the option to purchase the property at
its fair market value as determined by appraisal at any time during the lease
term. Based on an informal market survey, the Company believes that the monthly
rental rate for the property and facilities is consistent with local market
rates.
The Company leases a second premises near its principal facility that
consists of approximately 25,000 square feet and is used primarily for
construction of vacuum bonded exterior walls. The Company has leased these
premises until June 1, 2001 at a rental note of $3,500 per month.
The Company owns approximately 67,000 square feet of land contiguous to
its principal facilities which it uses for off-street parking and storage.
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<PAGE> 7
The Company also owns a facility in Louisiana consisting of
approximately 53,000 square feet of structures on 10 acres of land which it has
leased to an unaffiliated third party for $4,100 per month.
ITEM 3. LEGAL PROCEEDINGS
-----------------
The Company is involved in several routine litigation matters
incidental to its business. Such litigation matters, when ultimately determined,
will not, in the opinion of management, have a material adverse effect on the
financial position or the results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company held an annual meeting of shareholders on April 1, 1997.
Proxies for the election of Johnnie R. Crean, Carol Smith and Robert A. Rudolph
were solicited pursuant to Regulation 14A of the Securities Exchange Act of
1934. There was no solicitation in opposition of management's nominees and all
of the nominees were elected. The following votes were cast in favor of and
withheld from each nominee:
<TABLE>
<CAPTION>
Votes in Votes
Name of Director Favor Withheld
- ----------------------------- --------------- ---------------
<S> <C> <C>
Johnnie R. Crean 2,532,618 11,463
Carol Smith 2,532,618 11,463
Robert A. Rudolph 2,532,618 11,463
</TABLE>
The Company's shareholders also approved the Company's 1997 Stock
Option Plan with 2,471,697 shares voting in favor, 9,188 shares voting against
and 3,764 shares abstaining from voting.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
----------------------------------------------------------------------
There is no established trading market for the Company's common stock.
As of July 30, 1997, there were approximately 403 record holders of the
Company's Common Stock.
Holders of shares of Common Stock are entitled to receive such
dividends, if any, as may be declared by the Board of Directors of the Company
out of funds legally available therefore and, upon the liquidation, dissolution
or winding up of the Company are entitled to share ratably in all net assets
available for distribution to such shareholders. The Company has never paid
dividends. The Board of Directors may consider the declaration and payment of
dividends in the future.
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<PAGE> 8
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The following selected financial data should read in conjunction with
the Financial Statements and Notes thereto of the Company included elsewhere in
this Annual Report, and such data should be read with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
data at April 30, 1997 and 1996 and for each of the three fiscal years in the
period ended April 30, 1997 are derived from the Company's Financial Statements
for such years which Financial Statements are included elsewhere herein.
Statement of Operations Information
(In Thousands except Share and Per Share Information)
<TABLE>
<CAPTION>
For the Year ended April 30,
-----------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $28,590 $25,750 $27,349 $23,593 $14,324
Net income (loss) from $ 330 $ 665 $ 824 $ 1,000 $ (594)
continuing operations
Net income (loss) per share $ .11 $ .22 $ .27 $ .33 $ (.19)
from continuing operations
Weighted number of shares 3,050,000 3,050,000 3,050,000 3,050,000 3,050,000
outstanding
Research and development $ 177 $ 166 $ 163 $ 162 $ 128
expense
</TABLE>
Balance Sheet Information
(In Thousands except Share and Per Share Data)
<TABLE>
<CAPTION>
As of April 30,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Total assets $5,406 $5,988 $5,703 $4,256 $3,139
Current assets 3,767 4,311 4,570 3,303 2,288
Current liabilities 2,751 2,600 3,241 2,062 1,937
Net working capital 1,016 1,711 1,329 1,241 351
Long-term obligations 981 2,006 1,706 1,898 1,906
Cash dividends per share 0 0 0 0 0
</TABLE>
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<PAGE> 9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
"Selected Financial Information", the Company's financial statements and the
notes thereto included elsewhere herein.
The information set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" below includes "forward looking
statements" within the meaning of Section 27A of the Securities Act, and is
subject to the safe harbor created by that section. Factors that could cause
actual results to differ materially from those contained in the forward looking
statements are set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations".
OVERVIEW
The Company manufactures and sells recreational vehicles which are
distributed by independent dealers located throughout the United States, but
concentrated in the western and southwestern portions of the United States.
RESULTS OF OPERATIONS
The Company's operating results depend in large part on its ability to
effectively produce and sell its recreational vehicles. The demand for
recreational vehicles, more specifically fifth-wheel travel trailers, is subject
to general economic, industry and market-specific conditions including
competitive forces beyond the Company's control which may result in fluctuations
in volume of the Company's products being sold. The Company seeks to maintain
its operating margins by monitoring its material costs, labor efficiencies and
overhead expenses. While the Company has some control over selling prices, it
seeks to minimize risk by maintaining low inventory levels.
YEARS ENDED APRIL 30, 1997 AND 1996
Revenues. Revenues in 1997 were $28.6 million compared to $25.7 million
in 1996, an increase of 11.0%. The revenue increase was due primarily to a 10.2%
increase in the unit volume from that of 1996. The 1997 model price increases
were partially offset as a result of discontinuance of the Company's "See Ya"
line of products with corresponding increases in the "Gold" and lower priced
"Ideal" lines.
Cost of Sales. Cost of Sales in 1997 was $25.0 million compared to
$22.8 million in 1996, an increase of 9.6%. This percentage increase, which is
less than the percentage increase in revenues resulted in a 21.8% improvement in
gross profit. The most significant factor contributing to the improved gross
margin was the Company's ability to hold increases in labor and variable
overhead to slightly above the 8.5% level. As a percentage of revenue, total
Cost of Sales was 87.3% in 1997 compared to 88.4% in 1996.
Operating Expenses. Selling, general and administrative expenses
totaled $3.0 million in 1997, an increase of 16.1% over the prior year amount of
$2.6 million. As a percentage of sales, operating expenses remained relatively
constant, increasing to 10.5% in 1997 from 10.0% for the prior year. Increases
in fiscal 1997 over the corresponding period of 1996 occurred in public
relations, primarily in promotional and trade show expenses.
Interest expense. Interest expense was approximately $197,000 for the
year ended April 30, 1997 compared to approximately $258,000, a decrease of
approximately $61,000 attributable primarily to a decrease in borrowed funds.
Tax Provision. The tax provision for 1997 was favorably affected by a
reduction of $129,996 in the valuation allowance against the Company's net
deferred tax assets.
-9-
<PAGE> 10
YEARS ENDED APRIL 30, 1996 AND 1995
Revenues. Revenues in 1996 were $25.7 million compared to $27.3 million
in 1995, a decrease of 5.8%. The revenue decrease was due primarily to a 16.2%
decrease in the unit volume from that of 1995. The 1996 model price increases
partially offset this volume reduction.
Cost of Sales. Cost of Sales in 1996 was $22.8 million compared to
$23.9 million in 1995, a decrease of 4.8%. This percentage decrease, which is
less than the percentage decrease in revenues resulted in a 13.0% reduction in
gross profit. The most significant factors contributing to the declining gross
margin was the Company's increase in labor as a percentage of revenue partially
offset by a real dollar decline in variable overhead costs. As a percentage of
revenue, total Cost of Sales was 88.4% in 1996 compared to 87.4% in 1995.
Operating Expenses. Selling, general and administrative expenses
totaled $2.6 million in 1996, an increase of 10.2% over the prior year amount of
$2.3 million. As a percentage of sales, operating expenses showed significant
change, increasing to 10.0% in 1996 from 8.6% for the prior year. Increases of
approximately $216,000 in fiscal 1996 over the corresponding period of 1995
occurred in the selling expense categories of salaries, delivery expense and
travel costs in an effort to expand sales and the number of dealerships.
Interest Expense. An increase in interest charges over 1995 of
approximately $105,000 was attributable primarily to a net credit line advance
and increased average balances.
Tax Provision. The tax provision for 1996 was favorably affected by a
reduction of $642,718 in the valuation allowance against the Company's net
deferred tax assets. No corresponding adjustment to the valuation account had
been made in the 1995 year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has accumulated retained earnings of $2,052,601 through
April 30, 1997. The Company has paid down $1,025,000 on its line of credit
obligation to $972,500 as of April 30, 1997. The Company has received a written
representation from the holder of the line of credit that it will not make a
demand for principal payment through the end of fiscal 1998. Accordingly, this
obligation has been classified as non-current in the consolidated balance sheet
at April 30, 1997.
Net cash provided by operating activities in 1997 was $996,115 compared
to $25,221 in 1996. The change reflects the increase in accounts payable and
reduction in inventories.
Net cash used in investing activities was $45,558 in 1997 representing
primarily capital expenditures for replacement of existing plant and equipment.
The Company believes it has sufficient available plant capacity to meet the
demand for its current product line in the foreseeable future.
Net cash used in financing activities was $1,062,402 in 1997. The
Company paid down its line of credit by $1,025,000 in 1997.
Currently there are no major purchase commitments that are expected to
have a significant impact on liquidity. Registrant has a lease commitment of
$197,184 annually under leases for its facilities, including $155,184 with the
Company's President and his affiliates.
Management believes that funds generated by operations and the
available line of credit will be sufficient to fund operations for the coming
year.
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<PAGE> 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
Alfa Leisure, Inc. Index to Consolidated Financial Statements:
--------------------------------------------------------------
<TABLE>
<S> <C>
Independent Auditors' Report...................................................................12
Report of Independent Accountants..............................................................13
Consolidated Balance Sheets as of April 30, 1997
and 1996.......................................................................................14
Consolidated Statements of Operations for the years
ended April 30, 1997, 1996 and 1995............................................................15
Consolidated Statements of Stockholders' Equity
for the years ended April 30, 1997, 1996 and 1995..............................................16
Consolidated Statements of Cash Flows for the years ended
April 30 1997, 1996 and 1995...................................................................17
Notes to Consolidated Financial Statements.....................................................19
</TABLE>
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<PAGE> 12
REPORT OF INDEPENDENT ACCOUNTANTS
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Alfa Leisure, Inc.
We have audited the accompanying consolidated balance sheet of Alfa Leisure,
Inc. and subsidiary (the "Company") as of April 30, 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at April 30, 1997, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Los Angeles, California
July 21, 1997
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<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
Alfa Leisure, Inc.
We have audited the accompanying consolidated balance sheet of Alfa Leisure,
Inc. as of April 30, 1996 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the two years in
the period ended April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 audit 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 amount 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 Alfa
Leisure, Inc. as of April 30, 1996, and the results of its operations and its
cash flows for each of the two years in the period ended April 30, 1996 in
conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Newport Beach, California
June 28, 1996
-13-
<PAGE> 14
ALFA LEISURE, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
April 30,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash $ 393,182 $ 505,027
Restricted cash 149,350 209,142
Accounts receivable 1,769,153 1,816,653
Inventories 1,299,641 1,694,798
Prepaid expenses and other current assets 150,559 85,621
Deferred tax asset - current 5,156 0
----------- -----------
Total Current Assets 3,767,041 4,311,241
Property, plant and equipment, net 1,103,154 1,136,691
Deposits 10,000 0
Deferred tax asset 526,240 540,270
----------- -----------
Total Assets $ 5,406,435 $ 5,988,202
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable $ 1,916,611 $ 1,801,110
Accrued expenses 415,841 411,464
Accrued compensation 418,474 387,261
----------- -----------
Total Current Liabilities 2,750,926 2,599,835
Line of credit 972,500 1,997,500
Deferred income 8,200 8,200
----------- -----------
Total liabilities 3,731,626 4,605,535
Commitments and contingencies
Stockholders' equity:
Common stock, authorized 30,000,000 shares of
no par value; issued and outstanding
3,048,137 and 3,050,000 shares at
April 30, 1997 and April 30, 1996 respectively 62,000 62,000
Note receivable from President (439,792) (402,390)
Retained earnings 2,052,601 1,723,057
----------- -----------
Total Stockholders' equity 1,674,809 1,382,667
----------- -----------
Total liabilities and
stockholders' equity $ 5,406,435 $ 5,988,202
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-14-
<PAGE> 15
ALFA LEISURE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
----------------
<TABLE>
<CAPTION>
For the Years Ended April 30,
----------------------------------------------
1997 1996 1995
----------- ------------ ----------
<S> <C> <C> <C>
Sales $28,590,285 $25,749,645 $27,348,921
Cost of Sales (including rent expense
to a related party of $156,780,
$143,724 and $143,724 for the year
ended April 30, 1997, 1996 and 1995,
respectively.) 24,951,677 22,762,110 23,914,366
----------- ----------- -----------
Gross Profit 3,638,608 2,987,535 3,434,555
Operating Expenses:
Selling, general and administrative 3,002,621 2,585,652 2,347,139
----------- ----------- -----------
Income from operations 635,987 401,883 1,087,416
Interest expense 197,411 257,593 152,528
----------- ----------- -----------
Income before income taxes 438,576 144,290 934,888
Provision (benefit) for income taxes 109,032 (520,384) 110,967
----------- ----------- -----------
Net income $ 329,544 $ 664,674 $ 823,921
=========== =========== ===========
Net income per share $ .11 $ .22 $ .27
=========== =========== ===========
Weighted average shares outstanding 3,050,000 3,050,000 3,050,000
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-15-
<PAGE> 16
ALFA LEISURE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended April 30, 1997, 1996 and 1995
----------------
<TABLE>
<CAPTION>
Common Stock
---------------------- Note Receivable Retained
Shares Amount from President earnings
--------- -------- --------------- ----------
<S> <C> <C> <C> <C>
Balance April 30, 1994 3,050,000 $62,000 $ 234,462
Net advances to President $(363,377)
Net income 823,921
--------- ------- --------- ----------
Balance April 30, 1995 3,050,000 62,000 (363,377) 1,058,383
Net advances to President (39,013)
Net income 664,674
--------- ------- --------- ----------
Balance April 30, 1996 3,050,000 62,000 (402,390) 1,723,057
Net advances to President (37,402)
Net income 329,544
Cancellation of shares (1,863)
--------- ------- --------- ----------
Balance April 30, 1997 3,048,137 $62,000 $(439,792) $2,052,601
========= ======= ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-16-
<PAGE> 17
ALFA LEISURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
----------------
<TABLE>
<CAPTION>
For the Years Ended April 30,
---------------------------------------
1997 1996 1995
--------- --------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 329,544 $ 664,674 $ 823,921
--------- --------- ----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 128,887 129,947 106,374
Changes in operating assets and liabilities:
Deferred income taxes 8,874 (540,270)
Accounts receivable 47,500 (320,511) (961,807)
Inventories 395,157 706,871 (911,035)
Prepaids and other current assets (64,938) (25,977) 17,921
Accounts payable 115,501 (524,438) 1,042,424
Accrued compensation 31,213 82,327 (12,252)
Deferred income 8,200
Accrued expenses 4,377 (197,844) 153,923
--------- --------- ----------
Net cash provided by (used in)
operating activities 996,115 (25,221) 267,669
--------- --------- -----------
Cash flow from investing activities:
Acquisition of property, plant and
equipment (95,350) (133,104) (286,695)
Deposits (10,000)
Restricted cash 59,792 70,810 (59,806)
--------- --------- -----------
Net cash used in investing activities (45,558) (62,294) (346,501)
--------- --------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE> 18
ALFA LEISURE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
----------------
<TABLE>
<CAPTION>
For the Years Ended April 30,
---------------------------------------
1997 1996 1995
----------- --------- ---------
<S> <C> <C> <C>
Cash flows from financing activities:
Principal payments on notes payable $ $ (943) $ (5,481)
Net advances to President (37,402) (39,013) (363,377)
Principal drawn on line of credit 300,000
Principal payments on line of credit (1,025,000) (200,000)
----------- --------- ---------
Net cash provided by (used in) financing
activities (1,062,402) 260,044 (568,858)
----------- --------- ---------
Net increase (decrease) in cash (111,845) 172,529 (647,690)
Cash at beginning of year 505,027 332,498 980,188
----------- --------- ---------
Cash at end of year $ 393,182 $ 505,027 $ 332,498
=========== ========= =========
Supplemental cash flow disclosures:
Interest paid $ 192,482 $ 246,970 $ 152,528
=========== ========= =========
Income taxes paid $ 111,490 $ 172,355 $ -0-
=========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE> 19
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------
1. Summary of Significant Accounting Policies:
General:
The Company manufactures and sells recreational vehicles which are distributed
by independent dealers located throughout the United States but concentrated in
the western and southwestern portions of the United States.
Consolidation:
The consolidated financial statements include the accounts of Alfa Leisure, Inc.
and its inactive, wholly owned subsidiary Brougham International, Inc.,
collectively the "Company."
Reclassifications:
Certain prior year amounts have been reclassified to conform with current year
presentation.
Accounting Periods:
The Company's fiscal year ends on the Sunday in April falling between the 17th
and the 23rd. Fiscal 1997 ended on April 20, 1997, fiscal 1996 ended on April
21, 1996 and fiscal 1995 ended on April 23, 1995. While the financial statements
reflect operations of the Company as of and for the periods ending on those
dates, they have been presented as if the Company's fiscal year ends on April 30
of each year to simplify the presentation.
Cash Equivalents and Restricted Cash:
Cash equivalents are highly liquid investments that are readily convertible into
known amounts of cash and have maturities at acquisition of three months or
less.
Restricted cash balances consist of funds held as collateral for repurchase
agreements with financial institutions that provide the financing agreements as
discussed in Note 6, and funds held as collateral for the Company to be bonded,
as required by various state agencies for licensing procedures. For purposes of
the statements of cash flows, these amounts are not considered cash equivalents.
Inventories:
Inventories are stated at the lower of cost (determined using the first-in,
first out method), or market.
Property, Plant and Equipment:
Property, plant and equipment are stated at cost. Depreciation and amortization
of property, plant and equipment are provided over the estimated useful lives of
the assets which range from three to twenty-eight years. Leasehold improvements
are amortized over the lives of the respective leases, or the service lives of
the improvements, whichever is shorter. Accelerated and straight-line methods of
depreciation are used for both financial reporting and income tax reporting
purposes. Upon sale or disposition of assets, any gain or loss is included in
the statement of operations.
-19-
<PAGE> 20
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
During 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of. Among other provisions, the statement
changed current accounting practices for the evaluation of impairment of
long-lived assets. The adoption did not have a material effect on the Company's
financial statements. The Company evaluates long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the estimated future cash flows
(undiscounted and without interest charges) from the use of an asset are less
than the carrying value, the related asset would be written down to its
estimated fair value.
Normal repairs and maintenance are charged to expense as incurred whereas
significant improvements that materially increase values or extend useful lives
are capitalized and depreciated over the estimated useful lives of the related
assets.
Net Income per Share:
Net income per share is based upon 3,050,000 weighted average shares outstanding
for the years ended April 30, 1997, 1996 and 1995. Fully diluted earnings per
common share does not differ from that presented.
Income Taxes:
Deferred income taxes reflect the tax consequences in future years of (a)
differences between the tax bases of assets and liabilities and the
corresponding bases used for financial reporting purposes and (b) net operating
loss and tax credit carryforwards. A valuation allowance is recorded, if
necessary, to reduce net deferred income tax assets to the amount that more
likely than not will be recoverable.
Advertising Expenses:
Advertising costs are expenses when incurred. Advertising expense for the years
ended April 30, 1997, 1996 and 1995 were $86,762, $95,773 and $7,028
respectively.
Research and Development costs:
Research and development costs are expensed when incurred. Research and
Development expenses for the years ended April 30, 1997, 1996 and 1995 were
$176,760, $166,046 and $162,926 respectively.
Management Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
-20-
<PAGE> 21
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards No. 107 (SFAS No. 107), Disclosures
about Fair Market Value of Financial Instruments, requires management to
disclose the estimated fair value of certain assets and liabilities defined by
SFAS No. 107 as financial instruments. The carrying amount of cash, restricted
cash, accounts receivable and accounts payable are carried at the approximate
fair values because of the short maturities of these instruments. Management
estimates that the fair value of the line of credit approximates carrying value
based upon the Company's effective borrowing rate for issuance of debt with
similar terms.
Concentration of Credit Risk:
Financial instruments that subject the Company to credit risk consist primarily
of accounts receivable. Concentration of credit risk with respect to accounts
receivable is generally diversified due to the number of entities composing the
Company's customer base and their geographic dispersion. The Company performs
ongoing credit evaluations of its customers for potential credit loss exposure.
Bad debt expense for the years ended April 30, 1997, 1996 and 1995 were not
material.
2. Inventories:
Inventories are stated as follows:
<TABLE>
<CAPTION>
April 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials $ 691,976 $ 964,528
Work in process 558,326 588,260
Finished products 49,339 142,010
---------- ----------
Total inventories $1,299,641 $1,694,798
========== ==========
</TABLE>
-21-
<PAGE> 22
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
3. Property, Plant and Equipment:
The major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
Useful
Lives April 30,
------------- ---------------------------
1997 1996
----------- -----------
<S> <C> <C> <C>
Land $ 332,262 $ 332,262
Buildings 28 years 895,097 895,097
Machinery and equipment 2 to 7 years 802,920 775,421
Transportation equipment 5 years 189,055 165,236
Furniture & office equipment 3 to 5 years 299,323 256,744
Leasehold improvements 5 to 7 years 213,832 212,379
----------- -----------
2,732,489 2,637,139
Less: Accumulated depreciation
and amortization (1,629,335) (1,500,448)
----------- -----------
Net property, plant and equipment $ 1,103,154 $ 1,136,691
=========== ===========
</TABLE>
The Company has a manufacturing facility in Benton, Louisiana which the Company
is not currently using. The net book value of these premises is $364,551 and
$378,572 at April 30, 1997 and 1996 respectively. This facility has been leased
to a tenant beginning April 1, 1995 for five years at $4,100 per month.
A parcel of land held by the Company with a book value of $332,000 has been
pledged as collateral for a personal borrowing of the Company's President of
$184,000. Such land was acquired by the Company in 1989 from the Company's
President subject to existing debt which is structured on an interest only
basis.
-22-
<PAGE> 23
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
4. Line of Credit:
In April 1992, the Company entered into a line of credit agreement with a
maximum amount of $2,000,000, of which $972,500 and $1,997,500 were
outstanding at April 30, 1997 and 1996 respectively. Interest is at Bank of
America's prime rate plus 1%, an effective rate of 9.5% at April 30, 1997 and
1996. The line of credit is payable within 90 days of any written demand by the
lender, however, the Company has received written representation from the lender
that it will not make a demand for principal payment through the end of fiscal
1998. Accordingly, this obligation has been classified as noncurrent in the
consolidated balance sheet at April 30, 1997.
Substantially all the assets of the Company are pledged as collateral for the
line of credit. The Company's President has personally guaranteed the line of
credit and has assigned his rights under the lease for the Company's principal
manufacturing facility as additional collateral.
5. Income Taxes:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
For the Years Ended April 30,
------------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Current:
State $ 117,906 $ 18,023 $ 89,616
Federal -0- 1,863 21,351
Deferred:
State 14,736 (52,069) -0-
Federal (23,610) (488,201) -0-
--------- --------- --------
Totals $ 109,032 $(520,384) $110,967
========= ========= ========
</TABLE>
The reconciliation of the effective tax rates and U.S. Statutory tax rates are
as follows:
<TABLE>
<CAPTION>
For the Years Ended April 30,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at statutory rate $ 149,116 $ 49,059 $ 317,862
Decrease in the valuation allowance (129,996) (546,973) (263,588)
State taxes, net of federal benefit 87,544 (22,470) 59,147
Other 2,368 (2,454)
--------- --------- ---------
$ 109,032 $(520,384) $ 110,967
========= ========= =========
</TABLE>
-23-
<PAGE> 24
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
The net operating loss carryforward for federal income tax purposes at April 30,
1997 was approximately $1,830,000. This carryforward expires in various fiscal
years from 1998 through 2008. There was no state net operating loss carryforward
at April 30, 1997.
As of April 30, 1997, the Company had approximately $30,089 of available tax
credit carryforwards comprised of investment tax credits of $3,022 and
alternative minimum tax credits of $27,067. The investment tax credit
carryforwards expire in fiscal year 1998. The alternative minimum tax credits
have an indefinite carryforward period. In addition, the Company had
approximately $85,354 of federal contribution carryforwards expiring in fiscal
years from 2000 to 2001.
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
For the Years Ended
April 30,
------------------------
1997 1996
----------- ---------
<S> <C> <C>
Net operating loss carryforwards $ 622,447 $ 750,307
Depreciation 118,353 127,100
State taxes (17,319) 6,128
Accrued liabilities 115,259 97,626
Charitable contributions 29,020 29,020
Tax credits 30,089 30,089
Valuation allowance (370,004) (500,000)
Deferred income 3,551 -0-
--------- ---------
$ 531,396 $ 540,270
========= =========
</TABLE>
6. Commitments and Contingencies:
Operating Leases:
The Company leases its manufacturing facilities and executive offices under
agreements classified as operating leases. The leases require fixed monthly
payments. One of the Company's manufacturing facilities is leased for $12,932
per month from a Corporation owned by the Company's President. The Company
entered into this five year operating lease effective February 1, 1997 and is
obligated under its terms through January 31, 2002. A second lease was renewed,
with an unrelated party, on another of the Company's facilities effective March
1, 1997 at an annual lease rate of $42,000. This lease expires June 1, 2001.
Future minimum lease payments on these leases at April 30, 1997 are as follows:
<TABLE>
<CAPTION>
Year ended April 30,
--------------------
<S> <C>
1998 $197,184
1999 197,184
2000 197,184
2001 197,184
2002 119,888
--------
$908,624
========
</TABLE>
-24-
<PAGE> 25
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
Rent expense for the years ended April 30, 1997, 1996 and 1995 was $195,576,
$185,724 and $185,724 respectively of which $156,780, $143,724 and $143,724
respectively, was paid to the Company's President.
Financing Arrangements:
The Company is contingently liable under the terms of the repurchase agreements
established with financing institutions to provide inventory financing for
dealers of the Company's products. Vehicles with a maximum sales value of
approximately $8.7 million and $7.4 million at April 30, 1997 and 1996,
respectively were subject to conditions of existing repurchase agreements.. The
risk of loss under these agreements is spread over many dealers and financing
institutions and is reduced by the resale value of any products that may be
repurchased. The Company has historically experienced no significant losses
under these agreements.
Warranty Reserve:
The Company provides a warranty against defects in materials and workmanship for
one year following the date of sale. Estimated costs of product warranties
relating to sales during the year have been accrued and charged to operations
during the year the products were sold. The Company has included $213,201 of
accrued warranty costs in accrued expenses at April 30, 1997 and 1996.
Litigation:
The Company is involved in several routine litigation matters incidental to its
business. Such litigation matters, when ultimately determined, will not, in the
opinion of management, have a material effect on the financial position or the
results of operations of the Company.
Employment Agreement:
The Company has an annual employment agreement with its President that expires
on December 31, 1997. The agreement automatically extends for additional annual
periods unless canceled by either party before October 31. The agreement
provides for a fixed annual salary subject to an annual cost of living
adjustment. Such salary amounted to $253,332, $226,404 and $227,604 in the
fiscal years ended April 30, 1997, 1996 and 1995, respectively.
In addition, the agreement provides for a bonus in an amount equal to 10% of
pretax income before accrual for amounts to be paid by the Company under its
management bonus plan. The agreement also provides for the right of the
Company's President to purchase each year up to two travel trailers manufactured
by the Company for an amount equal to the Company's cost. No trailers were
purchased in fiscal 1997, 1996 or 1995.
Under a bonus program for salaried employees, which includes the President,
bonus expense was recognized in the amounts of $241,459, $235,315 and
$368,401, in fiscal 1997, 1996 and 1995, respectively.
-25-
<PAGE> 26
ALFA LEISURE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, (Continued)
-------------
7. Stock Options:
A total of 300,000 shares is reserved for issuance under the Company's 1997
incentive stock option plan for officers and directors. No options were issued
or outstanding nor had any been exercised during the fiscal years ended April
30, 1997, 1996 or 1995.
8. Note Receivable from President
At April 30, 1997 and 1996, the Company had a note receivable and additional
advances due from its President and major stockholder amounting to $439,792 and
$402,390 respectively. The note and additional advances bear interest at 9%.
Such advances have been classified as a contra-equity item on the April 30, 1997
and 1996 consolidated balance sheet.
-26-
<PAGE> 27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 16, 1997, the Board of Directors of the Company determined
that the firm of Coopers & Lybrand L.L.P. would be dismissed as the Company's
principal accountant and would not be engaged to conduct the audit of the
Company's financial statements for the fiscal year ended April 30, 1997.
Coopers & Lybrand L.L.P.'s report on the financial statements of the
Company for the past two years did not contain any adverse opinion or disclaimer
of opinion, nor was it qualified as to uncertainty, audit scope, or accounting
principles. There were no disagreements between the Company and Coopers &
Lybrand L.L.P. during the past two years and subsequent interim period preceding
such dismissal on any matter of accounting principles or practices, financial
statement disclosure, or audit scope or procedure, which disagreement(s), if not
resolved to the satisfaction of Coopers & Lybrand L.L.P., would have caused it
to make a reference to the subject matter of the disagreement(s) in connection
with its reports.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
-----------------------------------------------
The directors and executive officers of the Company as of July 30, 1997
are as follows:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE POSITION(S) HELD
- ---- --- -------------- ----------------
<S> <C> <C> <C>
Johnnie R. Crean 47 1986 Chairman of the Board and
President
Carol Smith 57 1986 Secretary and Director
Robert A. Rudolph 64 1986 Director
Timothy P. Igo 48 1986 Vice President Engineering
Paul B. Dettor 57 1997 Chief Financial Officer
</TABLE>
JOHNNIE R. CREAN has been Chairman of the Board, President and a
director of the Company since December 29, 1986. Mr. Crean founded Alfa Leisure,
Inc., a California corporation ("Alfa-California") in March 1975 and served as
President and a director of Alfa-California from that time until its merger into
the Company on December 29, 1986. Mr. Crean also served as President and a
director of Alfa Leisure of Louisiana, Inc., a California corporation
("Alfa-Louisiana"), from its organization in October 1985 to the time of its
merger into the Company of December 29, 1986, and as general partner of
Alfa-Louisiana's predecessor, Alfa Louisiana, Ltd., a California limited
partnership, from September 1983 until October 1985. Prior to their merger into
the Company, Alfa-California and Alfa Louisiana, and its predecessor were
engaged in the manufacture and sale of recreational vehicles.
CAROL SMITH has been the Secretary and a director of the Company since
December 29, 1986. Prior to her association with the Company, Ms. Smith had been
employed by Alfa-California since June 1977. From July 1981 to May 1984, Ms.
Smith served as Sales Manager of Alfa-California and from May 1984 to November
1986, she served as Plant Manager. Ms. Smith currently serves as National
Director of Marketing of the Company, a position she held at Alfa-California
from November 1986 to December 29, 1986, at which time Alfa-California was
merged into the Company.
-27-
<PAGE> 28
ROBERT A. RUDOLPH has served as a director of the Company since
December 29, 1986. Mr. Rudolph was the owner and President of Bates Industries,
Inc., a privately-held manufacturer and retailer of custom motorcycle apparel
from 1962 through 1996 at which time the company was sold. Prior thereto, Mr.
Rudolph was a certified public accountant with Arthur Andersen & Co. Mr.
Rudolph presently manages serveral private investment ventures.
TIMOTHY P. IGO has been the Vice President Engineering of the Company
since 1986. Mr. Igo was previously employed in various capacities by Alfa
Leisure, Inc., a California corporation (Alfa-California") from 1973 until
December 29, 1986, when Alfa-California was merged into the Company. Prior to
its merger into the Company, Alfa-California was engaged in the manufacture and
sale of recreational vehicles. From June 1981 to April 1984, Mr. Igo served as
Secretary, Treasurer and a director of Alfa-California, and as Vice President
and a director from April 1984 to December 1986.
PAUL B. DETTOR joined the Company as its Chief Financial Officer in
1997. Mr. Dettor has extensive experience in manufacturing financial management
and consulting services. Mr. Dettor was the Chief Financial Officer of Velie
Circuits, Inc., a manufacturer of printed circuit boards, from May 1995 through
May 1996. Prior and subsequent thereto, Mr. Dettor was a certified public
accountant in private practice. From 1971 to 1984, Mr. Dettor was the Vice
President of Finance, Secretary and Treasurer of Revcon, Inc., a manufacturer of
motor homes and commercial vehicles. From 1968 to 1971, Mr. Dettor was an
accountant with the firm of Deloitte & Touche, LLP. Mr. Dettor earned a
bachelors degree in accounting from the University of Notre Dame. Mr. Dettor has
completed the course work for a Masters of Business Administration degree from
Pepperdine University.
Directors of the Company hold office until the next annual meeting of
shareholders and until their successors are elected and qualified. The Board of
Directors has no standing audit, compensation or nominating committees or any
other committees serving similar functions. All officers serve at the discretion
of the Board of Directors.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
Summary Cash Compensation Table
- -------------------------------
The following table sets forth the compensation (cash and non cash),
for the Chief Executive Officer and all the executive officers who earned in
excess of $100,000 per annum during any of the Company's last three fiscal
years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------ ------------------------
SECURITIES
RESTRICTED UNDERLYING
OTHER ANNUAL STOCK STOCK LTIP
NAME AND PRINCIPAL FISCAL COMPENSATION AWARDS OPTIONS PAYOUTS ALL OTHER
POSITION YEAR SALARY BONUS ($) ($) ($) (#) ($) COMPENSATION
- ------------------- -------- ----------- ---------- -------------- ----------- ------------ -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Johnnie R. Crean 1997 $226,404 $110,065 --- --- --- --- ---
Chairman of the 1996 $226,404 $74,985 --- --- --- --- ---
Board and President
1995 $226,404 $82,487 --- --- --- --- ---
</TABLE>
-28-
<PAGE> 29
1997 Stock Option Plan
- ----------------------
On February 18, 1997, the Board of Directors of the Company adopted,
the Alfa Leisure, Inc. 1997 Stock Option Plan (the "1997 Plan"). The
stockholders of the Company approved the 1997 Plan on April 1, 1997. The 1997
Plan provides for the grant to employees, officers, directors, consultants and
independent contractors of non-qualified stock options as well as for the grant
of stock options to employees that qualify as incentive stock options under
Section 422 of the Internal Revenue Code of 1986 ("Code"). Although the Company
has approximately 250 employees technically eligible to participate in the 1997
Plan, it is anticipated the stock options will be granted only to a limited
number of management level personnel. The 1997 Plan terminates on February 17,
2007. The purpose of the 1997 Plan is to enable the Company to attract and
retain qualified persons as employees, officers and directors and others whose
services are required by the Company, and to motivate such persons by providing
them with an equity participation in the Company. The 1997 Plan reserved 300,000
shares of the Company's common stock for issuance pursuant to the 1997 Plan.
The 1997 Plan is administered by a committee made up of the members of
the Board of Directors (the "Committee"), which has, subject to specified
limitations, the full authority to grant options and establish the terms and
conditions under which they may be exercised. The exercise price of incentive
stock options granted under the 1997 Plan is required to be not less than the
fair market value of the common stock on the date of grant (110% in the case of
a greater than 10% stockholder). The exercise price of non-qualified stock
options can be no less than 85% of the fair market value on the date of grant.
Options may be granted for terms of up to ten (10) years (five (5) years in the
case of incentive stock options granted to greater than 10% stockholders). No
optionee may be granted incentive stock options such that the fair market value
of the options which first become exercisable in any one calendar year exceeds
$100,000. If an optionee ceases to be employed by, or ceases to have a
relationship with the Company, such optionee's options expire six (6) months
after termination of the employment or consulting relationship by reason of
death, one (1) year after termination by reason of permanent disability,
immediately upon termination for cause and three (3) months after termination
for any other reason.
In order to exercise an option granted under the 1997 Plan, the
optionee must pay the full exercise price of the shares being purchased. Payment
may be made either: (i) in cash; (ii) at the discretion of the Committee, by
delivering shares of common stock already owned by the optionee and having a
fair market value equal to the applicable exercise price; or (iii) such other
consideration as may be determined by the Committee and permitted by applicable
law.
Subject to the foregoing, the Committee has broad discretion to
describe the terms and conditions applicable to options granted under the 1997
Plan. The Committee may at any time discontinue granting options under the 1997
Plan or otherwise suspend, amend or terminate the 1997 Plan and may, with the
consent of an optionee, make such modification of the terms and conditions of
such optionee's option as it shall deem advisable; except that the Committee
shall have no authority to make any amendment or modifications to the 1997 Plan
or any outstanding option which would: (i) increase the maximum number of shares
which may be purchased pursuant to options granted under the 1997 Plan, either
in the aggregate or by an optionee; (ii) change the designation of the class of
employees eligible to receive qualified options; (iii) extend the term of the
1997 Plan or the maximum option period thereunder; (iv) decrease the minimum
qualified option price or permit reductions of the price at which shares may be
purchased for qualified options granted under the 1997 Plan; or (v) cause
qualified stock options issued under the 1997 Plan to fail to meet the
requirements of incentive stock options under Section 422 of the Code. Any such
amendment or modification shall be effective immediately, subject to stockholder
approval thereof within twelve (12) months before or after the effective date.
No option may be granted during any suspension or after termination of the 1997
Plan.
The 1997 Plan is designed to meet the requirements of an incentive
stock option plan as defined in Code Section 422. As a result, an optionee will
realize no taxable income, for federal
-29-
<PAGE> 30
income tax purposes, upon either the grant of an incentive stock option under
the 1997 Plan or its exercise. If no disposition of the shares acquired upon
exercise is made by the optionee within two (2) years from the date of grant or
within one (1) year from the date the shares are transferred to him, any gain
realized upon the subsequent sale of the shares will be taxable as capital gain.
In such case, the Company will be entitled to no deduction for federal income
tax purposes in connection with either the grant or the exercise of the option.
If, however, the optionee disposes of the shares within the period mentioned
above, the optionee will realize earned income in an amount equal to the excess
of the fair market value of the shares on the date of exercise (or the amount
realized on disposition if less) over the exercise price, and the Company will
be allowed a deduction for a corresponding amount.
The Company adopted a similar plan in 1987 which expires on December
15, 1997. There are no options outstanding under this prior plan and the Board
of Directors of the Company does not intend to grant any options under such
plan.
Option Grants
- -------------
There were no options granted to executive officers during fiscal 1997.
Option Exercise and Fiscal Year-End Values
- ------------------------------------------
There were no options exercised by executive officers during fiscal
1997 and there are no options held by executive officers during fiscal 1997.
Compensation of Directors
- -------------------------
Directors, other than Johnnie R. Crean, receive compensation of $500
for each meeting of the Board of Directors which they attend.
Employment Agreement
- --------------------
Mr. Crean is employed as President of the Company pursuant to an
employment agreement entered into as of December 1, 1986 (the "Employment
Agreement"). The Employment Agreement renews automatically for successive
twelve-month periods unless terminated by either party by the prior October 31.
The Employment Agreement provides for a base salary of $180,000 per year,
subject to annual cost of living adjustments. The current adjusted annual base
salary is approximately $227,000. Mr. Crean is also entitled to a quarterly cash
bonus in an amount equal to 10% of pre-tax income of the Company. In addition,
Mr. Crean is entitled under his Employment Agreement to purchase up to two
travel trailers manufactured by the Company each fiscal year for an amount equal
to the Company's manufacturing cost. Mr. Crean did not purchase travel trailers
from the Company during the fiscal years ended April 30, 1997, 1996 or 1995.
Compensation Philosophy
- -----------------------
The executive compensation philosophy of the Company is to (i) attract
and retain qualified management to run the business efficiently and guide the
Company's growth in both existing and new markets throughout the country, (ii)
establish a link between management compensation and the achievement of the
Company's annual and long-term performance goals, and (iii) recognize and reward
individual initiative and achievement.
Base Salaries. Base salaries for new management employees are based
primarily on the responsibilities of the position and the experience of the
individual, with reference to the competitive marketplace for management talent,
which is measured in terms of executive compensation offered by comparable
companies in related businesses.
-30-
<PAGE> 31
Stock Options. The Company intends to grant stock options to its
management employees. Because the amount of compensation which will be realized
from these options is directly related to the price of the Company's stock, this
form of compensation is directly related to the performance of the Company and
the results of its operations.
Conclusion. Through the options described above, a portion of the
Company's management compensation will be linked directly to Company
performance. The Company's President receives bonus compensation based on the
Company's pre-tax income. The Board of Directors will continually review all
compensation practices and make changes as appropriate.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth information, as of July 30, 1997, with
respect to the ownership of the Company's common stock by: (i) each person known
by the Company to be the beneficial owner of more than 5% of the Company's
common stock; (ii) by each director; (iii) by each nominee for director; and
(iv) by all officers and directors of the Company as a group.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature of Percent
Beneficial Owner(1) Beneficial Ownership(2) of Class(3)
------------------- ----------------------- -----------
<S> <C> <C>
Johnnie R. Crean 2,281,430(4) 74.8%
Carol Smith 9,600(5) 0.3%
Robert A. Rudolph 8,364 0.3%
Timothy J. Igo 2,400(6) 0.008%
All directors and
officers as a group
(five persons) 2,301,794 75.5%
</TABLE>
- ---------------
(1) The address of each named person, other than Robert A. Rudolph, is 5163
"G" Street, Chino, California 91710. Mr. Rudolph's address is 303 East
Bixby Road, Long Beach, California 90807.
(2) Unless otherwise indicated, each person has sole voting and investment
power over the common stock shown as beneficially owned, subject to
community property laws where applicable and the information contained
in footnotes to this table.
(3) Based on 3,050,000 shares of common stock issued and outstanding.
(4) Includes 2,238,230 shares held in a living trust, over which Mr. Crean
has sole voting and investment power, and includes 43,200 shares held
by trusts for the benefit of the children of Mr. Crean of which Mr.
Crean is co-trustee.
(5) Ms. Smith shares investment power over 9,600 shares with her adult
daughter.
(6) Mr. Igo shares investment power of 2,400 shares with his former spouse.
-31-
<PAGE> 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company leases its manufacturing facilities and executive offices
from Hercules Land Holding, Inc., a California corporation of which Mr. Crean is
the sole shareholder. The Company pays monthly rent of $12,932 pursuant to a
five (5) year lease with three (3) options to extend for three (3) years each.
The lease provides the Company with the option to acquire the property and
facilities at any time during the lease term at the market value as determined
by appraisal by an MAI certified appraiser. Based on an informal market survey,
the Company believes that the monthly rental rate for the property and
facilities is consistent with local market rates. Prior to the acquisition of
the property and facilities by Hercules Land Holding, Inc., Mr. Crean had leased
the property and facilities for $8,324 per month pursuant to a December 19, 1980
lease and subleased the property to the Company. During the fiscal year ended
April 30, 1997 and 1996, the Company paid lease payments of $11,977 per month to
Mr. Crean.
Mr. Crean borrows money from and repays money to the Company from time
to time. During the fiscal years ended April 30, 1997 and 1996, the largest
amounts of money which Mr. Crean owed to the Company on any one date were
$439,792 and $402,390, respectively. A portion of Mr. Crean's obligation to the
Company is represented by an unsecured promissory note in the amount of $402,390
which bears interest at the rate of nine percent (9%) per annum. It is
anticipated that the amount of Mr. Crean's indebtedness to the Company will
fluctuate during fiscal year 1998.
The Company has collateralized Mr. Crean's personal indebtedness of
$184,000 to a third party lender with a deed of trust on a 1.4 acre lot which is
used as the parking lot for the Company's Chino, California manufacturing
facility. Mr. Crean transferred this property to the Company in 1989 subject to
the existing debt which was structured on an interest only basis.
Mr. Crean has personally guaranteed the Company's $2,000,000 line of
credit.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) Financial Statements
--------------------
The following financial statements are being filed as a part of this
Annual Report on Form 10-K:
Independent Auditors' Report
Report of Independent Accountants
Balance Sheets as of April 30, 1997 and 1996.
Statements of Operation for the years ended April 30, 1997,
1996 and 1995
Statements of Stockholders' Equity for the years ended April
30, 1997, 1996 and 1995
Statements of Cash Flows for the years ended April 30, 1997,
1996 and 1995
Notes to Financial Statements
-32-
<PAGE> 33
Financial Statement Schedules
-----------------------------
Not applicable.
<TABLE>
<CAPTION>
Exhibits Page
-------- ----
<C> <S> <C>
3.1 Restated Articles of Incorporation as filed with the 36
Secretary of State for the State of Texas on July 22,
1976 and amended on January 14, 1997 and March
28, 1978.
3.3 Third Amendment to the Restated Articles of
Incorporation as filed with the Secretary of State
for the State of Texas on December 22, 1986,
incorporated by reference from the Company's Annual
Report on Form 10-K for its fiscal year ended January
31, 1987, Exhibit 3.3.
3.4 Bylaws of the Company, incorporated by reference from
the Company's Annual Report on Form 10-K for its
fiscal year ended January 31, 1987, Exhibit 3.4.
4.3 Specimen of the Company's Common Stock Certificates,
incorporated by reference from the Company's Annual
Report on Form 10-K for its fiscal year ended January
31, 1987, Exhibit 4.4.
4.4 Incentive Stock Option Plan of 1987, incorporated by
reference from the Company's Annual Report on Form
10-K for its fiscal year ended April 30, 1988,
Exhibit 4.4.
4.5 1997 Stock Option Plan incorporated by reference
from the Company's Definitive Proxy Statement dated
March 4, 1997, Appendix I.
10.05 Agreement and Plan of Reorganization dated December
30, 1985 between and among the Company, Alfa Leisure,
Inc., a California corporation, and Alfa Leisure of
Louisiana, Inc., a California corporation,
incorporated by reference from the Company's Report
on Form 8-K dated December 29, 1986, Exhibit 10.05.
10.06 Agreement of Merger dated December 26, 1986 between
and among the Company, Alfa Leisure, Inc., a
California corporation, and Alfa Leisure of
Louisiana, Inc., a California corporation,
incorporated by reference from the Company's Report
on Form 8-K dated December 29, 1986, Exhibit 10.06.
</TABLE>
-33-
<PAGE> 34
<TABLE>
<CAPTION>
Exhibits Page
-------- ----
<C> <S> <C>
10.07 Lease Agreement by and between the Industrial
Development Board of the Parish of Bossier,
Louisiana, Inc., and Alfa Leisure of Louisiana, Ltd.,
dated December 1, 1983, incorporated by reference
from the Company's Annual Report on Form 10-K for its
fiscal year ended January 31, 1987, Exhibit 10.07.
10.08 Mortgage and Indenture of Trust by and between the
Industrial Development Board of the Parish of
Bossier, Louisiana, Inc., and the First National Bank
of Shreveport dated January 1, 1984, incorporated by
reference from the Company's Annual Report on Form
10-K for its fiscal year ended January 31, 1987,
Exhibit 10.08.
10.09 Bond Guaranty Agreement by and between Alfa Leisure,
Inc., a California corporation, Johnnie R. Crean and
The First National bank of Shreveport dated January
1, 1984, incorporated by reference from the Company's
Annual Report on Form 10-K for its fiscal year ended
January 31, 1987, Exhibit 10.09.
10.10 Employment Agreement by and between Alfa Leisure,
Inc., a California corporation, and Johnnie R. Crean
dated as of December 1, 1986, incorporated by
reference from the Company's Annual Report on Form
10-K for its fiscal year ended January 31, 1987,
Exhibit 10.10.
16.1 Letter from Coopers & Lybrand L.L.P. to Alfa Leisure,
Inc. concurring in disclosure re: change in certifying
accountant, incorporated by reference from the
Company's current report on Form 8-K/A dated April
16, 1997, Exhibit 16.1.
21 Brougham International, Inc. is the Company's only
subsidiary.
27 Financial Data Schedule. 49
</TABLE>
(b) Reports on Form 8-K.
--------------------
The Company filed reports on Form 8-K and Form 8-K/A each
dated April 16, 1997 reporting the dismissal of Coopers & Lybrand, L.L.P. as the
Company's auditors.
-34-
<PAGE> 35
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
this behalf by the undersigned, thereunto duly authorized.
Dated: August 13, 1997 ALFA LEISURE, INC.
By: /s/ JOHNNIE R. CREAN
---------------------------
Johnnie R. Crean, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the persons on behalf of the registrant in
the capacities and on the dates indicated.
August 13, 1997
<TABLE>
<S> <C>
/s/ JOHNNIE R. CREAN August 13, 1997
- ------------------------------------------------
Johnnie R. Crean, Chairman of the Board
and President
/s/ CAROL SMITH August 13, 1997
- ------------------------------------------------
Carol Smith, Director
/s/ ROBERT A. RUDOLPH August 9, 1997
- ------------------------------------------------
Robert A. Rudolph, Director
/s/ PAUL B. DETTOR August 13, 1997
- ------------------------------------------------
Paul B. Dettor, Chief Financial Officer
[Principal Financial Officer and
Principal Accounting Officer]
</TABLE>
-35-
<PAGE> 1
EXHIBIT 3.1
[Filed in the Office of the Secretary of State of Texas July 22, 1976.]
RESTATED ARTICLES OF INCORPORATION
(with Amendments)
OF
BROUGHAM INDUSTRIES, INC.
A. Brougham Industries, Inc., pursuant to the provisions of Article
4.07 of the Texas Business Corporation Act, hereby adopts Restated Articles of
Incorporation which accurately copy certain provisions contained in the Articles
of Incorporation and the three amendments thereto that are now in effect and
completely restate (and/or add) other provisions.
B. The Articles of incorporation of the Corporation (as so amended) are
amended by the Restated Articles of Incorporation as follows:
1. Article "Three" is completely replaced by a new provision
(see subparagraph 3 of paragraph E to follow).
2. Article "Four" is completely replaced by a new provision
(see subparagraph 4 of paragraph E to follow).
3. Article "Nine" is renumbered as "6".
4. Article "Six" is renumbered as "8".
5. Article "Seven" is completely replaced by a new provision
(see subparagraph 9 of paragraph E to follow).
6. A new Article Seven has been inserted for the purpose of
adding a special provision regarding "Interested Directors, Officers, and
Shareholders" (see subparagraph 7.a. of paragraph E to follow), a special
provision regarding "Indemnification" (see subparagraph 7.b. of paragraph E to
follow), and a special provision regarding the purchase by the corporation of
its own stock (see subparagraph 7.d. of paragraph E to follow).
7. Article "Ten" is renumbered as "7.c."
8. Article "Eight" has been omitted.
C. Each such amendment made by these Restated Articles of Incorporation
has been effected in conformity with the provisions of the Texas Business
Corporation Act, and such Restated Articles of Incorporation and each such
amendment made by the Restated Articles of Incorporation were duly adopted by
the shareholders of the corporation on June 15, 1976.
D. The number of shares of common stock outstanding was 324,148; the
number of shares entitled to vote on the Restated Articles of Incorporation as
so amended was 252,498; the number of shares voted for such Restated Articles as
so amended was 252,498; and the number of shares voted against such Restated
Articles of Incorporation as so amended was -0-.
E. The Articles of Incorporation and all amendments thereto are hereby
superseded by the following Restated Articles of Incorporation which accurately
copy the entire text thereof and as amended as above set forth:
-36-
<PAGE> 2
1. NAME. The name of the corporation is BROUGHAM INDUSTRIES,
INC.
2. DURATION. The period of its duration is perpetual.
3. PURPOSES. The corporation is being organized under the
Texas Business Corporation Act for the purpose of carrying out any lawful
purpose or purposes.
4. SHARES. The corporation may issue two classes of stock as
follows:
a. Common Stock. The aggregate number of shares of common
stock which the corporation may issue is 1,000,000 without par value. The shares
shall be designated as Common Stock and shall have identical rights and
privileges in every respect.
b. Preferred Stock. The aggregate number of shares of
preferred stock which the corporation may issue is 164,400 shares having a par
value of ten cents ($.10) per share and having the following characteristics:
(1). Dividends. Each holder of the preferred stock
shall be entitled to receive, and the corporation shall be bound to pay thereon,
non-cumulative dividends, as and when declared by the board of directors, out of
the corporation's annual net profits to the extent such annual net profits are
adequate for such purpose (to be determined in the sole discretion of the
corporation's accountants) at the rate of eight percent (8%) per share (based on
the $2.50 per share issuance price of the preferred stock) per annum, and no
more, payable during each fiscal year of the corporation on such days and dates
as shall be determined by the corporation's board of directors, before any
dividend shall be declared or paid upon or set apart for the holders of the
shares of the corporation's common stock. If the corporation's annual net
profits are inadequate to pay a full eight percent (8%) dividend on all of the
corporation's preferred stock, then such annual net profits shall be distributed
pro-rata to the holders of the corporation's preferred stock. In the event the
holders of the corporation's preferred stock have received a full eight percent
(8%) dividend for a given fiscal year, then the corporation's board of directors
may declare and set aside for such fiscal year additional dividends which shall
be paid exclusively to the holders of the corporation's common stock, share and
share alike.
(2). Voting Rights. Except as otherwise required by
applicable statutory law, the entire voting power shall be vested in the holders
of the corporation's common stock, and the holders of the preferred stock shall
have no voting power.
(3). Pre-Emptive Rights. No holder of any of the
corporation's preferred stock shall be entitled as a matter of right to purchase
or subscribe for any unissued stock of any class or any additional shares of any
class to be issued by reason of any increase of the authorized or issued stock
of the corporation of any class, or bonds, certificates of indebtedness,
debentures, or other securities convertible into the corporation's stock, or
carrying any right to purchase stock of any class.
(4). Conversion. At any time, the holder of the
corporation's preferred stock may convert such preferred stock (in whole or in
part) into that number of fully paid and non-assessable shares of the
corporation's common stock obtained by dividing the $2.50 issuance price of the
preferred stock (or unredeemed portion thereof) by a conversion price of $2.50
per share upon surrender of the preferred stock certificate to the corporation
or its transfer agent, accompanied (if so required by the corporation) by
instruments of transfer in form satisfactory to the corporation, duly executed
by the holder of the preferred stock or such holder's duly authorized attorney.
No adjustment will be made upon conversion for dividends accrued on the
preferred stock or for dividends on common stock issued upon conversion. The
corporation is not required to issue fractional shares upon any such conversion,
but shall make adjustment therefor in cash on the basis of the $2.50 per share
conversion price. So long as any of the preferred stock is outstanding, the
corporation shall at all times reserve and keep available out of its authorized
but unissued common stock the full number of shares of common stock deliverable
upon the conversion of all of such shares of preferred stock.
-37-
<PAGE> 3
(5). Anti-Dilution Provision. If the corporation at any
time after the date hereof issues or sells any shares of common stock issuable
upon conversion of any of the corporation's convertible subordinated debentures)
for a consideration per share less than the conversion price in effect
immediately prior to the time of such issue or sale, then and in such case the
conversion price shall forthwith be adjusted to equal the result (calculated to
the nearest cent) obtained by dividing (i) the sum of (x) the result obtained by
multiplying the number of shares of common stock outstanding immediately prior
to such issue or sale by the conversion price in effect immediately prior to
such issue or sale, plus (y) the consideration, if any, received by the
corporation upon such issue or sale, by (ii) the number of shares of common
stock outstanding immediately after such issue or sale. Anything in this
paragraph to the contrary notwithstanding, the corporation shall not be required
to give effect to any adjustment in the conversion price unless and until the
net effect of one or more adjustments, determined as above provided, shall have
resulted in a change of the conversion price by at least five cents ($.05), but
when the cumulative net effect of more than one adjustment so determined shall
be to change the conversion price by at least five cents ($.05) such change in
the conversion price shall thereupon be given effect.
(6). Liquidation. In the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the corporation, or any
reduction in its capital resulting in any distribution of assets to its
stockholders, the holders of the preferred stock shall be entitled to receive in
cash out of the corporation's assets, (whether from capital or from earnings),
available for distribution to its stockholders, before any amount shall be paid
to the holders of the common stock or of the stock of any other class ranking
junior to the preferred stock, the sum of $2.50 per share plus an amount equal
to all dividends accrued thereon. The purchase or redemption by the corporation
of stock of any class, in any manner permitted by law, shall not for the purpose
of this paragraph be regarded as a liquidation, dissolution, or winding up of
the corporation or as a reduction of its capital. Neither the consolidation nor
the merger of the corporation with or into any other corporation or
corporations, nor the sale or transfer by the corporation of all or any part of
its assets, shall be deemed to be a liquidation, dissolution, or winding up of
the corporation for the purposes of this paragraph. A dividend or distribution
to stockholders from net profits or surplus earned after the date of any
reduction of capital shall not be deemed to be a distribution resulting from
such reduction in capital. No holder of the preferred stock shall be entitled to
receive any amounts with respect thereto upon any liquidation, dissolution, or
winding up of the corporation other than the amounts provided for in this
paragraph.
(7). Issuance in Series; Redemption. At any time three
(3) years after the date of issuance of the convertible debenture which was
converted into the preferred stock, the preferred stock may be redeemed (in
whole or in part from time to time) by the payment by the corporation to the
holder of the preferred stock of a cash sum equal to $2.50 per share times the
percentages shown below (plus any dividends accrued as of the redemption date).
The shares of the preferred stock herein authorized shall be divided into and
issued in three series. Each series shall be identical to the others except for
the percentages (referred to above) to be paid in the event of redemption which
shall be as follows:
<TABLE>
<S> <C>
First Series: 1975 - 104%
1976 - 102%
1977 - 100%
Second Series: 1975 - 108%
1976 - 106%
1977 - 104%
1978 - 102%
1979 - 100%
Third Series: 1976 - 108%
1977 - 106%
1978 - 104%
1979 - 102%
1980 - 100%
</TABLE>
-38-
<PAGE> 4
Notice of redemption shall be given by mail not less than thirty (30) days prior
to the date fixed for the redemption to the holder of the preferred stock at the
address shown on the corporation's books. In case of a redemption of less than
all of the corporation's preferred stock, the preferred stock to be redeemed
shall be determined by the corporation by lot in such manner as the
corporation's board of directors may determine. In case of the redemption of
only a portion of the preferred stock, the notice shall specify the portion
being redeemed; and upon payment of the portion redeemed, the preferred stock
certificate shall be cancelled, and a new preferred stock certificate shall be
issued for the unredeemed balance. If the preferred stock certificate or part
thereof shall be called for redemption and notice of redemption shall be given
as aforesaid, dividends shall cease to be payable thereon after the redemption
date on the preferred stock or portion thereof so called for redemption (unless
default shall be made in payment of the redemption price upon presentation and
surrender hereof).
5. COMMENCEMENT OF BUSINESS. The corporation will not commence
business until it has received for the issuance of its shares consideration
having a minimum value of ONE THOUSAND AND NO/100 DOLLARS ($1,000.00) and
consisting only of labor done or money or property actually received.
6. NO PRE-EMPTIVE RIGHTS. No shareholder or other person may
have any pre-emptive rights.
7. SPECIAL PROVISIONS PERMITTED TO BE SET FORTH IN ARTICLES
OF INCORPORATION:
a. Interested Directors, Officers, and Shareholders.
(1). If paragraph (2) below is satisfied, no contract or
other transaction between the corporation and any of its directors, officers, or
shareholders (or any corporation or firm in which any of them is directly or
indirectly interested) shall be invalid solely because of this relationship or
because of the presence of such director, officer, or shareholder at the meeting
authorizing such contract or transaction or such person's participation in such
meeting or authorization.
(2). Paragraph (1) above shall apply only if:
(a) The contract or transaction is fair to the
corporation as of the time it is authorized or ratified by the Board of
Directors, a committee of the Board, or the shareholders; or
(b) The material facts of the relationship or
interest of each such director, officer, or shareholder are known or disclosed:
(i) to the shareholders and they nevertheless authorize or ratify the contract
or transaction by a majority of the shares present, each such interested person
to be counted for quorum and voting purposes; or (ii) to the Board of Directors
and it nevertheless authorizes or ratifies the contract or transaction by a
majority of the directors present, each such interested director to be counted
in determining whether a quorum is present but not in calculating the majority
necessary to carry the vote.
(3). The provisions contained in paragraphs (1) and (2)
above shall not be construed to invalidate a contract or transaction which would
be valid in the absence of such provisions.
b. Indemnification.
(1). The corporation shall indemnify, to the extent
provided in paragraphs (2), (4), or (6) to follow any person who is or was a
director, officer, agent, or employee of the corporation and any person who
serves or served at the corporation's request as a director, officer, agent,
employee, partner, or trustee of another corporation or of a partnership, joint
venture, trust, or other enterprise.
(2). In case of a suit by or in the right of the
corporation against a person named in paragraph (1) above by reason of such
person's holding a position named in such paragraph (1), hereafter referred to
as a derivative suit, the corporation shall indemnify such
-39-
<PAGE> 5
person, if such person satisfies the standard in paragraph (3) to follow, for
expenses (including attorneys' fees, but excluding amounts paid in settlement)
actually and reasonably incurred by such person in connection with the defense
or settlement of the suit.
(3). In case of a derivative suit, a person named in
paragraph (1) above shall be indemnified only if such person is successful on
the merits or otherwise; or such person acted in good faith in the transaction
which is the subject of the suit and in a manner such person reasonably believed
to be in, or not opposed to, the best interests of the corporation. However,
such person shall not be indemnified in respect of any claim, issue, or matter
as to which such person has been adjudged liable for negligence or misconduct in
the performance of such person's duty to the corporation unless (and only to the
extent that) the court in which the suit was brought determines, upon
application, that, despite the adjudication, but in view of all of the
circumstances, such person is fairly and reasonably entitled to indemnity for
such expenses as the court deems proper.
(4). In case of a suit, action, or proceeding (whether
civil, criminal, administrative, or investigative) other than a derivative suit,
hereafter referred to as a nonderivative suit, against a person named in
paragraph (1) above by reason of such person's holding a position named in such
paragraph (1), the corporation shall indemnify such person if such person
satisfies the standard contained in paragraph (5) to follow for amounts actually
and reasonably incurred by such person in connection with the defense or
settlement of the nonderivative suit as expenses (including attorneys' fees),
amounts paid in settlement, judgments, and fines.
(5). In case of a nonderivative suit, a person named in
paragraph (1) above shall be indemnified only if such person is successful on
the merits or otherwise; or such person acted in good faith in the transaction
which is the subject of the nonderivative suit and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, such person
had no reason to believe such person's conduct was unlawful. The termination of
a nonderivative suit by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent shall not, of itself, create a presumption
that the person fails to satisfy the standard contained in this paragraph.
(6). A determination that the standard of either
paragraph (3) above or paragraph (5) above has been satisfied may be made by a
court. Or, except as stated in the last sentence of paragraph (5) above, the
determination may be made by the shareholders of the corporation, independent
legal counsel in a written opinion, or a majority of the directors of the
corporation (whether or not a quorum) who were not parties to the action, suit,
or proceeding.
(7). Anyone making a determination under paragraph (6)
above may determine that a person has met the standard as to some matters but
not as to others, and may reasonably prorate amounts to be indemnified.
(8). The corporation may pay in advance any expenses
(including attorneys' fees) which may become subject to indemnification under
paragraphs (1) through (7) above if the Board of Directors authorizes the
specific payment, and the person receiving the payment undertakes in writing to
repay unless it is ultimately determined that such person is entitled to
indemnification by the corporation under paragraphs (1) through (7) above.
(9). The indemnification provided by paragraphs (1)
through (7) above shall not be exclusive of any other rights to which a person
may be entitled by law, Bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise.
(10). The indemnification and advance payment provided
by paragraphs (1) through (8) above shall continue as to a person who has ceased
to hold a position named in paragraph (1) above and shall inure to such person's
heirs, executors, and administrators.
(11). The corporation may purchase and maintain
insurance on behalf of any person who holds or has held any position named in
paragraph (1) above against any liability incurred by such person in any such
position, or arising out of such person's status as such, whether or not the
corporation would have power to indemnify such person against such liability
under paragraphs (1) through (8) above.
-40-
<PAGE> 6
(12). Indemnification payments, advance payments, and
insurance payments made under paragraphs (1) through (11) above shall be
reported in writing to the shareholders of the corporation with the next notice
of annual meeting, or within six months, whichever is sooner.
c. Non-Cumulative Voting. Directors shall be elected by
plurality vote. Cumulative voting shall not be permitted.
d. Purchase Own Stock. The corporation may, directly or
indirectly, purchase its own shares to the extent of the aggregate of
unrestricted capital surplus available therefor and unrestricted reduction
surplus available therefor.
8. REGISTERED OFFICE AND AGENT. The street address of the
corporation's initial registered office and the name of its initial registered
agent at such address are as follows:
CT Corporation System - Republic National Bank Building,
Dallas, Texas 75201
9. DIRECTORS. The number of directors which constituted the
initial board of directors was four, and the names and addresses of the persons
who served as directors until the first annual meeting of the shareholders and
until their successors were elected and qualified were:
Robert J. Elfline 209 South LaSalle Street
Chicago, Illinois 60604
O. Jerry Hawkins 8712 West Dodge Road, Suite 4000
Omaha, Nebraska 68114
Robert C. Williams 5716 Whitman
Fort Worth, Texas
Gary L. Bowling Box 9, Rancho Drive
Keller, Texas 76248
-41-
<PAGE> 7
DATED this 15th day of June, 1976.
BROUGHAM INDUSTRIES, INC.
By: /s/
---------------------------------
Robert C. Williams, President
By: /s/
---------------------------------
Warren W. Elsner, Secretary
STATE OF ILLINOIS x
x
COUNTY OF COOK x
I, Lynne M. LaBash, a Notary Public, do hereby certify that on this
15th day of June, 1976, personally appeared before me ROBERT C. WILLIAMS, who
being by me first duly sworn, declared that he is the President of BROUGHAM
INDUSTRIES, INC., that he signed the foregoing document as the President of said
corporation, and that the statements therein contained are true.
/s/
-------------------------------------------
Notary Public In and For Cook County, Texas
[Notary Seal]
-42-
<PAGE> 8
[Filed in the Office of the Secretary of State of Texas January 14, 1977.]
ARTICLES OF AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION OF
BROUGHAM INDUSTRIES, INC.
-------------------------------------
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned Corporation adopts the following Articles of
Amendment to its Restated Articles of Incorporation filed on July 22, 1976.
I.
The name of the corporation is BROUGHAM INDUSTRIES, INC.
II.
Subparagraph "a" of paragraph "4" of the Restated Articles of
Incorporation is hereby amended by deleting it in its entirety and substituting
therefore the following:
"a. CommonStock. The aggregate number of shares of common stock which
the corporation may issue is 5,000,000 without par value. The shares
shall be designated as Common Stock and shall have identical rights and
privileges in every respect."
III.
The amendment referred to in the preceding paragraph was adopted by the
shareholders of the Corporation on December 8, 1976.
IV.
The number of shares outstanding on December 8, 1976, and the number of
shares entitled to vote on the amendment contained in paragraph II above was
309,148.
V.
The number of shares voting for the amendment was 226,147, and the
number of shares voting against the amendment was 6,000.
-43-
<PAGE> 9
DATED this 13th day of January, 1977.
BROUGHAM INDUSTRIES, INC.
By: /s/
----------------------------------
Raymond L. Rodgers, Vice President
By: /s/
----------------------------------
Warren W. Elsner, Secretary
STATE OF ILLINOIS x
x
COUNTY OF TARRANT x
The undersigned Notary Public does hereby certify that on this 13th day
of January, 1977, personally appeared before me Raymond L. Rodgers, who declared
that he is the Vice President of the Corporation executing the foregoing
document, and being first duly sworn, acknowledged that he signed the foregoing
document in the capacity therein set forth and declared that the statements
therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
/s/
----------------------------------------------
Notary Public In and For Tarrant County, Texas
-44-
<PAGE> 10
[Filed in the Office of the Secretary of State of Texas March 28, 1977.]
SECOND AMENDMENT TO THE
RESTATED ARTICLES OF INCORPORATION OF
BROUGHAM INDUSTRIES, INC.
-------------------------------------
Pursuant to the provisions of Article 4.04 of the Texas Business
Corporation Act, the undersigned Corporation adopts the following Second
Amendment to its Restated Articles of Incorporation filed on July 22, 1976 (as
amended by a First Amendment thereto dated January 14, 1977).
I.
The name of the corporation is BROUGHAM INDUSTRIES, INC.
II.
Article "Four" of the Restated Articles of Incorporation (as amended)
is hereby amended by deleting it in its entirety and substituting therefor the
following:
4. SHARES. The aggregate number of shares which the corporation may
issue is 5,000,000 without par value. The shares shall be designated as Common
Stock and shall have identical rights and privileges in every respect.
III.
The amendment referred to in the preceding paragraph was adopted by the
shareholders of the Corporation on February 17, 1977.
IV.
The number of shares outstanding on the record date, January 12, 1977,
and the number of shares entitled to vote on the amendment contained in
paragraph II above was 309,148.
V.
The number of shares voting for the amendment was 285,932, and the
number of shares voting against the amendment was 6,000.
VI.
The amendment does not provide for a cancellation of issued shares and
does not effect a change in the amount of stated capital since all of the
preferred stock had been converted into common stock prior to the adoption of
the amendment.
-45-
<PAGE> 11
DATED this 2nd day of March, 1977.
BROUGHAM INDUSTRIES, INC.
By: /s/
----------------------------------
Raymond L. Rodgers, Vice President
By: /s/
----------------------------------
Warren W. Elsner, Secretary
STATE OF CALIFORNIA x
x
COUNTY OF SAN BERNARDINO X
The undersigned Notary Public does hereby certify that on this 2nd day
of March, 1977, personally appeared before me Raymond L. Rodgers, who declared
that he is the Vice President of the Corporation executing the foregoing
document, and being first duly sworn, acknowledged that he signed the foregoing
document in the capacity therein set forth and declared that the statements
therein contained are true.
IN WITNESS WHEREOF, I have hereunto set my hand and seal the day and
year before written.
[Notary Seal] /s/
---------------------------------
Notary Public In and For
San Bernardino County, California
-46-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 14 AND 15 OF THE COMPANY'S FORM 10-K FOR THE YEAR ENDED APRIL 30, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-20-1997
<PERIOD-START> APR-22-1996
<PERIOD-END> APR-30-1997
<CASH> 542,532<F1>
<SECURITIES> 0
<RECEIVABLES> 1,769,153
<ALLOWANCES> 0
<INVENTORY> 1,299,641
<CURRENT-ASSETS> 3,767,041
<PP&E> 2,732,489
<DEPRECIATION> (1,629,335)
<TOTAL-ASSETS> 5,406,435
<CURRENT-LIABILITIES> 2,750,926
<BONDS> 0
0
0
<COMMON> 62,000
<OTHER-SE> 1,612,809<F2>
<TOTAL-LIABILITY-AND-EQUITY> 5,406,435
<SALES> 28,590,285
<TOTAL-REVENUES> 28,590,285
<CGS> 24,951,677
<TOTAL-COSTS> 24,951,677
<OTHER-EXPENSES> 3,002,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 197,411
<INCOME-PRETAX> 438,576
<INCOME-TAX> 109,032
<INCOME-CONTINUING> 635,987
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329,544
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
<FN>
<F1>INCLUDES RESTRICTED CASH OF $149,350
<F2>RETAINED EARNINGS OF $2,052,601 NET OF NOTE RECEIVABLE FROM PRESIDENT OF
$439,732.
</FN>
</TABLE>
