<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For Three Months Ended March 31, 1996 Commission File Number 0-3296
DIXIE NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
MISSISSIPPI 64-0440887
(State of other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
107 THE EXECUTIVE CENTER
HILTON HEAD ISLAND, SOUTH CAROLINA 29928
(Address of Principal Executive Office)
Registrant's telephone number including area code: (803) 785-7850
NONE
Former name, former address, and former fiscal year, if changed since last
report.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
Yes / X / No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
CLASS OUTSTANDING AT APRIL 3, 1996
COMMON STOCK, $1.00 PAR VALUE 13,097,66
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DIXIE NATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995 ................................... 3
Consolidated Statements of Operations for the Three
Months ended March 31, 1996 and 1995 ................ 4
Consolidated Statements of Cash Flows for the Three
Months ended March 31, 1996 and 1995 ................ 5
Notes to Consolidated Financial Statements .......... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ....... 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K .................... 9
SIGNATURES .......................................................... 9
</TABLE>
2
<PAGE> 3
DIXIE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,508,695 $ 1,377,869
Accounts receivable - miscellaneous 3,527 14,027
Federal income tax receivable 302,000 302,000
Leases receivable - current portion (note 4) 100,853 98,097
Investment in marketable securities 0 2,227,904
----------- -------------
Total Current Assets 3,915,075 4,019,897
----------- -------------
Plant, Property, and Equipment
Plant, property, and equipment (at cost) 1,225,827 1,225,445
Accumulated depreciation (823,660) (814,510)
----------- -------------
Total Plant, Property, and Equipment (net) 402,167 410,935
----------- -------------
Non-Current Assets
Leases receivable - non-current portion (note 4) 365,239 373,175
Investment in TRS (note 3) 492,975 137,946
Advances to TRS secured by accounts receivable
(note 3) 135,597
Goodwill - TRS (note 3) 61,970 61,970
Option - TRS (note 3) 100,000 100,000
Investment in PMM (note 5) 0 0
----------- -------------
Total Non-current Assets 1,155,781 673,091
----------- -------------
Total Assets $ 5,473,023 $ 5,103,923
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $ 95,386 $ 42,578
Notes payable 23,341 41,667
Mortgage note payable - current portion 107,839 107,862
----------- -------------
Total Current Liabilities 226,566 192,107
----------- -------------
Non-current Liabilities
Mortgage note payable - non-current portion 295,673 320,973
Deferred taxes 127,483 127,483
----------- -------------
Total Non-Current Liabilities 423,156 448,456
----------- -------------
Total Liabilities 649,722 640,563
----------- -------------
Stockholders' Equity
Common stock 10,598,773 10,598,773
Discount on common stock (996,222) (996,222)
Treasury stock (1,112) (1,112)
Retained earnings (deficit) (4,778,138) (5,138,079)
----------- -------------
Total Stockholders' Equity 4,823,301 4,463,360
----------- -------------
Total Liabilities and Stockholders' Equity
$ 5,473,023 $ 5,103,923
=========== =============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE> 4
DIXIE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT AND
CHANGES IN RETAINED EARNINGS (DEFICIT)
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995 (NOTE 2)
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<S> <C> <C>
REVENUES
Rental income $ 46,650 0
----------- -----------
Total Revenue 46,650 0
----------- -----------
EXPENSES
Wages, benefits, and related costs 61,427
Depreciation 9,150
Interest expense 10,998 145,776
General and administrative expenses 176,271 307,837
----------- -----------
Total Operating Expenses 257,846 453,613
----------- -----------
OPERATING INCOME (LOSS) (211,196) (453,613)
----------- -----------
NON-OPERATING INCOME (LOSS)
Interest income - investments 24,179 54,159
Lease income - Fry Guy, Inc. (note 4) 19,131 0
TRS loss (note 3) (143,333) 0
Gain on disposal of marketable securities 671,160 0
----------- -----------
Total Non-operating Income (loss) 571,137 54,159
----------- -----------
Income (loss) from continuing operations before income taxes 359,941 (399,454)
Income taxes 0 0
----------- -----------
Income (loss) from continuing operations 359,941 (399,454)
Income (loss) from operation of discontinued subsidiary Dixie
Life (note 2) 0 (226,131)
Estimated (loss) on disposal of Dixie Life (note 2) 0 (4,182,738)
----------- -----------
Net income (loss) 359,941 (4,808,323)
Retained earnings (deficit) at beginning of period (5,138,079) 1,711,493
----------- -----------
Retained earnings (deficit) at end of period $(4,778,138) $(3,096,830)
=========== ===========
Earnings per share:
Income (loss) from continuing operations $0.034 $(0.048)
====== =======
Income (loss) from discontinued operations $ 0 $(0.522)
====== =======
Net income $0.034 $(0.570)
====== =======
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE> 5
DIXIE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
1996 1995 (NOTE 2)
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<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) from continuing operations $359,941 $(399,454)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciations 9,150 0
Increase in accounts payable 52,808 0
Decrease in lease and accounts receivable 15,680 0
Decrease in notes payable (43,649) 0
--------- ---------
Total adjustments to net income (loss) 33,989 0
--------- ---------
Net cash provided by operating activities 393,930 (399,454)
--------- ---------
Cash flows from investing activities:
Proceeds from sale of marketable securities 2,227,904 0
Increase in Fry Guy, Inc. leases 0 (531,567)
Increase in investment in TRS (293,060) 0
Increase in accounts receivable loan to TRS (197,566) 0
Increase in fixed assets (382) (19,693)
--------- ---------
Net cash provided (used) by investing activities 1,736,896 (551,560)
--------- ---------
Cash flows from financing activities:
Payments on debts 0 (35,689)
--------- ---------
Net cash provided (used) by investing activities 0 (35,689)
--------- ---------
Net cash provided (used) by discontinued operations 0 (497,779)
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,130,826 (1,484,482)
Cash and cash equivalents - beginning of year 1,377,869 4,655,458
--------- ---------
Cash and cash equivalents - end of year $3,508,695 $3,170,976
========= =========
</TABLE>
5
<PAGE> 6
DIXIE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Dixie National
Corporation ("Corporation") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with
instruction to Form 10-Q and Article 10 of Regulations S-X. Accordingly, they
do not include all of the detail and disclosures required by generally accepted
accounting principles for complete financial statements. Operating results for
the three months ended March 31, 1996 are not necessarily indications of the
results that may be expected for the year ending December 31, 1996. More
detailed information is contained in the Notes to Consolidated Financial
Statements included in the Corporation's Form 10-K Annual Report for the year
ended December 31, 1995.
All adjustments which, in the opinion of Management, are necessary for a fair
presentation of such financial statements are included and consist only of
normal recurring adjustments.
NOTE 2 - DISCONTINUED OPERATIONS - DIXIE NATIONAL LIFE INSURANCE COMPANY
On October 2, 1995 the Corporation completed the sale of Dixie National Life
Insurance Company ("Dixie Life"), which was 99.3% owned by the Corporation to
Standard Life Insurance Company of Indiana. Dixie Life represented virtually
all of the Corporation's assets and operations. Accounting Principles Board
Opinion No. 30 (APB 30) required reporting the operations of discontinued
operations as a single net amount in the statement of operations. Beginning on
January 1, 1996, the Corporation started reporting its insurance operations as
discontinued operations and accordingly has restated its March 31, 1995 and
December 31, 1995 financial statements as herein presented to reflect this
change.
NOTE 3 - ACQUISITION OF TEXT RETRIEVAL SYSTEMS, INC. ("TRS")
On April 2, 1996 the Corporation exercised its option and completed the 100%
acquisition of TRS, a privately-held corporation based in Ponte Vedra Beach,
Florida. In October 1995 the Corporation acquired the option with a 35% initial
ownership interest in TRS. Under the terms of the TRS agreement, the
Corporation issued 100,000 shares of its common stock to the prior owners and
granted TRS a $750,000 line of credit for working capital purposes. To complete
the acquisition of TRS, the Corporation issued 2,500,000 additional shares of
its common stock.
6
<PAGE> 7
TRS publishes electronic reference libraries that link related data sources for
convenient access by personal computers. The electronic libraries, often
containing thousands of pages, are connected by hypertext cross-reference links.
This permits users to access massive documents while avoiding time-consuming
manual research. One of the latest TRS products is an employer's compliance
library which links all federal employment laws and related regulations to a
compendium of state statutes and regulations. Other TRS libraries include
comprehensive compliance data for the retail and public housing markets.
Since its incorporation in 1994, TRS has been involved in the development and
packaging of software used in its electronic libraries, and in the marketing of
its products. TRS has 20 employees including 3 software writers, and 12
marketers. As of June 30, 1995, the end of its fiscal year, TRS had total
assets of $515,295, and for the year then-ended revenues of $45,043, and a net
loss of $69,342.
The Corporation is accounting for its initial investment in TRS by the equity
method of accounting under which the Corporation's share of the net income
(loss) of the affiliate is recognized as income (loss) in the Corporation's
operations and is added to (subtract from) the investment account. The loss
recorded by the Corporation for the three months ended March 31, 1996 was
$143,333. At the date of the initial acquisition, the Corporation's investment
exceeded its share of the underlying equity in the assets of TRS by $61,970.
This amount is not being amortized because of the subsequent acquisition of the
remainder of TRS' outstanding stock.
NOTE 4 - LEASING ACTIVITIES
During 1995, the Corporation entered into leasing activities which consist of
the leasing of fry cook units to be placed in various locations and operated by
the lessee. All of the Corporation's leases are classified as direct financing
leases. Under the direct financing method of accounting for leases, the total
net rentals receivable under the lease contracts are recorded as a net
investment in direct financing leases, and the unearned income on each lease is
recognized each month at a constant periodic rate of return on the unrecovered
investment.
NOTE 5 - INVESTMENT IN PHOENIX MEDICAL MANAGEMENT, INC. ("PMM")
PMM was formed in November 1993 to engage in the ownership and operation of
health care facilities specializing in pain care. Its primary business activity
is the development of a proprietary network of medical facilities that
specialize in the comprehensive treatment of patients seeking relief of chronic
pain. Each facility is to be designed and equipped to accommodate a
multi-modality pain management, psychological and physical rehabilitation
program, as well as to accommodate other non-affiliated surgeons who will
perform their own "non-pain related" surgical procedures at these facilities.
PMM currently has one medical facility open and operating in Phoenix, Arizona.
7
<PAGE> 8
Due to the negative equity recorded on the PMM December 31, 1995 unaudited
financial statements and in accordance with the Statement of Financial
Accounting Standards No. 115 (FAS 115), the Corporation has written its
investment in PMM down to zero. This resulted in a charge to 1995 earnings of
$1,051,217. The Corporation is re-examining the investment in PMM but has made
no decision as to its retention.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Corporation has a strong liquid position with current assets at March 31,
1996 in excess of $3,900,000 with the only significant liability being a
mortgage of approximately $403,512.
On April 2, 1996 the Corporation issued 2,500,000 shares of its common stock to
complete the 100% acquisition of TRS (see Note 3 of Notes to Consolidated
Financial Statements). The Corporation anticipates funding TRS' future
developmental and marketing expenditures from existing resources and TRS'
profits, if any. The Corporation's future business plan contemplates the
acquisition, ownership, and operation of companies primarily engaged in applied
technology. The Corporation proposes to finance its acquisitions with its own
funds, issuance of its common stock, and, to the extent feasible and
appropriate, borrowings and public or private financing
Results of Operations
As described in Note 2 of Notes to Consolidated Financial Statements, the
Corporation completed the sale of Dixie Life on October 2, 1995. The March 31,
1995 Consolidated Income Statement has been restated to reflect Dixie Life as a
discontinued operation.
Three Months Ended March 31, 1996 Compared to
Restated Three Months Ended March 31, 1995
For the three months ended March 31, 1996, the Corporation had net income from
continuing operations of $359,941 ($.034 per share) compared to a net loss from
continuing operations of $399,454 ($.048 per share) for the comparable period of
1995. This increase resulted primarily from gain on sale of the remaining Alanco
Environmental Resources, Inc. stock ($671,160) partially offset by the
Corporation's 35% equity share of the TRS loss for the three months ended March
31, 1996. The $134,778 decrease in interest expense results from the
liquidation of notes payable at the time of the sale of Dixie Life. Rental
income represents income from the obligation of Standard Life Insurance Company
to pay $15,000 per month rent to Vanguard, Inc., a wholly-owned subsidiary of
the Corporation, through December 31, 1996, the expiration date of an existing
lease on the office building previously occupied by the Corporation and Dixie
Life. The obligation terminates upon earlier sales of the building.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dixie National Corporation
-----------------------------
(Registrant)
/s/G. Thomas Reed
-----------------------------
Date: May 13, 1996 G. Thomas Reed
President and
Chief Operating Officer
/s/David E. Williams
-----------------------------
Date: May 13, 1996 David E. Williams
Vice President Finance
and Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,508,695
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,915,075
<PP&E> 1,225,827
<DEPRECIATION> 823,660
<TOTAL-ASSETS> 5,473,023
<CURRENT-LIABILITIES> 226,566
<BONDS> 0
0
0
<COMMON> 9,601,439
<OTHER-SE> (4,478,138)
<TOTAL-LIABILITY-AND-EQUITY> 5,473,023
<SALES> 0
<TOTAL-REVENUES> 46,650
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 246,848
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,998
<INCOME-PRETAX> 359,941
<INCOME-TAX> 0
<INCOME-CONTINUING> 359,941
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 359,941
<EPS-PRIMARY> 0.034
<EPS-DILUTED> 0.034
</TABLE>
