SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
SECURITY CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
June 27, 1997
Date of Report (Date of earliest event reported)
Delaware 1-7921 13-3003070
(State or other juris- (Commission (I.R.S. Employer
diction of incorporation) File Number) Identification No.)
1111 North Loop West, Suite 400, Houston, Texas 77008
(Address of principal executive offices)
(713) 880-7100
(Registrant's telephone number, including area code)
1
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
As previously reported in a Current Report on Form 8-K filed by Security Capital
Corporation, a Delaware corporation (the "Company"), on July 10, 1997, on June
27, 1997, Pumpkin Ltd. ("Pumpkin"), a Delaware corporation and a subsidiary of
Pumpkin Masters Holdings, Inc., a Delaware corporation, and a subsidiary of the
Company, acquired substantially all of the assets and assumed certain
liabilities of Pumpkin Ltd. d/b/a Pumpkin Masters, Inc., a Colorado corporation
(the "Seller").
The assets purchased consisted of the assets used by the Seller in the conduct
of its businesses, including cash, accounts receivable, inventories, prepaid
expenses, furniture, fixtures, computer and intellectual property rights and
other intangibles. Prior to the acquisition, the Seller was engaged in the
business of manufacturing and distributing pumpkin and watermelon carving kits
(comprised primarily of tools and patterns) and related accessories. Following
the acquisition, Pumpkin has carried on the business previously conducted by the
Seller.
As previously reported in a Current Report on Form 8-K filed by the Company on
August 10, 1997, on July 17, 1997, the Company's indirect, wholly-owned
subsidiary, Foster Insurance Managers, Inc., a Texas corporation ("FIM"),
transferred all of its beneficial ownership in Foster Insurance Services, Inc.,
a Texas corporation ("FIS"), to BMD&B, Inc. (the "Buyer"),a Texas corporation
and a wholly-owned subsidiary of Bowen, Miclette, Descant & Britt, Inc. In
consideration of such transfer, the Company received $1,314,484.64 (which
represents the purchase price of $1,525,845, less the net amount due FIS, Buyer
or any of their respective affiliates other than FIM and the Company
(collectively, the "Buyer Group") from FIM or the Company, after subtracting all
amounts due to FIM or the Company by any of the Buyer Group (including, without
limitation, pursuant to the Agency and Management Services Agreement, effective
September 1, 1992, as amended to date, between FIM and FIS and the letter
agreement, dated June 28, 1994, from Buyer to Capital Partners, Inc. with
respect to the institution of a management fee for the collection of life and
group commissions), through, at a minimum, June 30, 1997.
2
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The following financial statements and notes thereto of Pumpkin are
included as Appendix I to this Form 8-K/A and are incorporated by
reference herein:
(i) Independent Auditors' Report.
(ii) Balance Sheets as of January 31, 1996 and 1997 and as of June
27, 1997 (unaudited).
(iii) Statements of operations for the years ended January 31, 1995,
1996 and 1997 and for the five months ended June 30, 1996
(unaudited) and for the period from February 1, 1997 to June 27,
1997 (unaudited).
(iv) Statements of changes in stockholders equity for the years
ended January 31, 1995, 1996 and 1997 and for the period from
February 1, 1997 to June 27, 1997 (unaudited).
(v) Statements of cash flow for the years ended January 31, 1995,
1996 and 1997 and for the five months ended June 30, 1996
(unaudited) and for the period from February 1, 1997 to June 27,
1997 (unaudited).
(vi) Notes to financial statements for the years ended January 31,
1995, 1996 and 1997 and for the five months ended June 30 ,1996
(unaudited) and for the period from February 1, 1997 to June 27,
1997 (unaudited).
(b) Pro Forma Financial Information.
The following pro forma financial information and notes thereto of
Security Capital are included as Appendix II to this Form 8-K/A and
are incorporated by reference herein:
(i) Introduction to pro forma financial information.
(ii) Pro forma combined balance sheet as of June 30, 1997
(unaudited).
(iii) Pro forma combined statement of operations for the fiscal year
ended September 30, 1996 (unaudited).
(iv) Pro forma combined statement of operations for the three
months ended December 31, 1996 (unaudited).
(v) Pro forma combined statement of operations for the six months
ended June 30, 1997 (unaudited).
(vi) Notes to pro forma financial information.
(c) Exhibits.
None.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SECURITY CAPITAL CORPORATION
Date: September 10, 1997 LARRY M. KARREN
Larry M. Karren, Treasurer
(Principal Financial Officer)
Page 4
<PAGE>
APPENDIX I
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholder
Pumpkin, Ltd.
Denver, Colorado
We have audited the accompanying balance sheets of Pumpkin, Ltd. d/b/a Pumpkin
Masters, Inc., as of January 31, 1997 and 1996, and the related statements of
operations, changes in stockholder's equity and cash flows for each of the three
years in the period ended January 31, 1997. 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 amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pumpkin, Ltd. d/b/a Pumpkin
Masters, Inc., as of January 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1997 in conformity with generally accepted accounting principles.
Ehrhardt Keefe Steiner & Hottman PC
March 26, 1997
Denver, Colorado
I-1
<PAGE>
PUMPKIN LTD. D/B/A PUMPKIN MASTERS
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------- June 27,
1997 1996 1997
------------- ------------- ----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ................. $ 1,319,920 $ 627,192 $ 131,664
Accounts receivable - trade, net of
allowance for doubtful accounts of
$35,000, $40,042 and $35,000 for
the years ended January 31, 1997
and 1996 and January 27, 1997,
respectively ........................... 69,050 222,385 406,529
Inventory (Note 2) ........................ 639,542 862,028 2,440,707
Prepaid expenses and other ................ 11,048 15,144 13,637
----------- ----------- -----------
Total current assets ................... 2,039,560 1,726,749 2,992,537
----------- ----------- -----------
Property and equipment, at cost
Molds and machinery ....................... 213,010 153,438 238,010
Equipment ................................. 149,807 149,807 149,807
Automobiles ............................... 26,287 26,287 26,287
Furniture and fixtures .................... 62,318 58,483 62,318
Leasehold improvements .................... 228,149 127,212 228,149
----------- ----------- -----------
679,571 515,227 704,571
Less accumulated depreciation ............. (378,991) (264,508) (420,115)
----------- ----------- -----------
Total property and equipment, net ...... 300,580 250,719 284,456
----------- ----------- -----------
Intangible assets (Note 3) .................. 115,640 78,040 128,922
----------- ----------- -----------
Total assets ................................ $ 2,455,780 $ 2,055,508 $ 3,405,915
=========== =========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable - trade .................. $ 236,041 $ 612,618 $ 1,125,103
Accrued bonus ............................. 30,000 -- --
Other accrued liabilities ................. 28,204 21,768 18,287
Line-of-credit - related party (Note 6) ... -- -- 500,000
----------- ----------- -----------
Total current liabilities .............. 294,245 634,386 1,643,390
----------- ----------- -----------
Commitments and contingencies (Notes 5 and 6)
Stockholder's equity (Note 9)
Common stock, $.10 par value; 50,000
shares authorized, 1,000 shares
issued and outstanding ................. 100 100 100
Additional paid in capital ................ 170,300 170,300 170,300
Retained earnings ......................... 1,991,135 1,250,722 1,592,125
----------- ----------- -----------
Total stockholder's equity ............ 2,161,535 1,421,122 1,762,525
----------- ----------- -----------
Total liabilities and stockholder's equity $ 2,455,780 $ 2,055,508 $ 3,405,915
=========== =========== ===========
</TABLE>
See notes to financial statements.
I-2
<PAGE>
Statements of Operations
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FIVE FOR THE PERIOD
JANUARY 31, MONTHS ENDED FROM FEBRUARY 1,
----------------------------------------- JUNE 30, 1997 TO JUNE 27,
1997 1996 1995 1996 1997
----------- ----------- ----------- ------------ ----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Sales ...................................... $ 7,049,316 $ 7,105,901 $ 5,348,877 $ 338,114 $ 480,965
Cost of sales (Note 4) ..................... 3,603,759 3,667,766 2,951,365 230,098 287,775
----------- ----------- ----------- --------- ---------
Gross profit ............................... 3,445,557 3,438,135 2,397,512 108,016 193,190
Selling, general and administrative
expenses .............................. 1,692,609 1,597,349 931,912 498,475 483,948
----------- ----------- ----------- --------- ---------
Income from operations ..................... 1,752,948 1,840,786 1,465,600 (390,459) (290,758)
Other (expense) income
Interest income .......................... 16,933 8,846 -- 3,513 13,559
Interest expense ......................... (119,776) (193,486) (90,219) (32,676) (3,527)
Transaction expenses (Note 9) ............ -- -- -- -- (118,284)
Other .................................... 5,408 18,672 (9,384) -- --
----------- ----------- ----------- --------- ---------
Total other (expense) income ............ (97,435) (165,968) (99,603) (29,163) (108,252)
----------- ----------- ----------- --------- ---------
Net income (loss) before pro forma
adjustment ............................... 1,655,513 1,674,818 1,365,997 (419,622) (399,010)
Pro forma adjustment - provision
for income tax (expense) benefit ...... (612,540) (619,683) (505,419) 155,260 147,638
----------- ----------- ----------- --------- ---------
Pro forma net income (loss) ................ $ 1,042,973 $ 1,055,135 $ 860,578 $(246,362) $(251,372)
=========== =========== =========== ========= =========
Pro forma net income (loss) per common share $ 1,043 $ 1,055 $ 861 $ (264) $ (251)
=========== =========== =========== ========= =========
Weighted average common shares outstanding . 1,000 1,000 1,000 1,000 1,000
=========== =========== =========== ========= =========
</TABLE>
See notes to financial statements.
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<PAGE>
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - February 1, 1994 ........... 1,000 $ 100 $ 170,300 $ 264,907 $ 435,307
Net income for the year .............. -- -- -- 1,365,997 1,365,997
Stockholder distributions ............ -- -- -- (1,640,000) (1,640,000)
------ -------- ----------- ----------- -----------
Balance - January 31, 1995 ........... 1,000 100 170,300 (9,096) 161,304
Net income for the year .............. -- -- -- 1,674,818 1,674,818
Stockholder distributions ............ -- -- -- (415,000) (415,000)
------ -------- ----------- ----------- -----------
Balance - January 31, 1996 ........... 1,000 100 170,300 1,250,722 1,421,122
Net income for the year .............. -- -- -- 1,655,513 1,655,513
Stockholder distributions ............ -- -- -- (915,100) (915,100)
------ -------- ----------- ----------- -----------
Balance - January 31, 1997 ........... 1,000 100 170,300 1,991,135 2,161,535
Net (loss) for the period (unaudited) -- -- -- (399,010) (399,010)
------ -------- ----------- ----------- -----------
Balance - June 27, 1997 (unaudited) 1,000 $ 100 $ 170,300 $ 1,592,125 $ 1,762,525
====== ======== =========== =========== ===========
</TABLE>
See notes to financial statements.
I-4
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FIVE FOR THE PERIOD
JANUARY 31, MONTHS ENDED FROM FEBRUARY 1,
----------------------------------------- JUNE 30, 1997 TO JUNE 27,
1997 1996 1995 1996 1997
----------- ----------- ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ....................... $ 1,655,513 $ 1,674,818 $ 1,365,997 $ (419,622) $ (399,010)
----------- ----------- ----------- ----------- -----------
Depreciation and amortization ........... 146,540 91,819 57,249 44,446 51,323
Abandonment of equipment and intangibles 18,910 645 9,384 -- --
Changes in certain assets and liabilities
Accounts receivable .................... 153,335 482,895 (525,353) (52,621) (337,479)
Inventories ............................ 222,486 (330,232) (166,690) (1,930,251) (1,801,165)
Prepaid expenses and other ............. 4,096 (9,263) (5,880) 1,338 (2,589)
Accounts payable ....................... (376,577) 224,983 161,040 159,298 889,062
Accrued liabilities and bonus .......... 36,436 (82,445) 36,743 367 (39,917)
----------- ----------- ----------- ----------- -----------
205,226 378,402 (433,507) (1,777,423) (1,240,765)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities .............. 1,860,739 2,053,220 932,490 (2,197,045) (1,639,775)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities
Purchase of fixed assets and leaseholds . (164,345) (196,048) (52,244) (143,480) (25,000)
Purchase of intangible assets ........... (88,566) (57,938) (14,340) (10,301) (23,481)
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities (252,911) (253,986) (66,584) (153,781) (48,481)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities
Advances on line-of-credit .............. 3,150,000 2,785,000 1,415,000 2,600,000 500,000
Payments on line-of-credit .............. (3,150,000) (3,610,000) (590,000) -- --
Stockholder distributions ............... (915,100) (415,000) (1,640,000) (522,100) --
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities .............. (915,100) (1,240,000) (815,000) 2,077,900 500,000
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash
and cash equivalents .................... 692,728 559,234 50,906 (272,926) (1,188,256)
Cash and cash equivalents, beginning
of period .............................. 627,192 67,958 17,052 627,192 1,319,920
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end
of period ............................... $ 1,319,920 $ 627,192 $ 67,958 $ 354,266 $ 131,664
=========== =========== =========== =========== ===========
</TABLE>
Supplemental disclosure
Interest paid for the years ended January 31, 1997, 1996 and 1995 was
$119,776, $193,486 and $90,219, respectively. Interest paid for the five
months ended June 30, 1996 (unaudited) and the period from February 1,
1997 to June 27, 1997 (unaudited) was $32,676 and $3,527, respectively.
See notes to financial statements.
I-5
<PAGE>
NOTE 1 - DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pumpkin, Ltd. sells craft tool kits to customers throughout the United States
and Canada. Since September 16, 1993, the Company has been known as Pumpkin,
Ltd. d/b/a Pumpkin Masters, Inc. (the Company).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash and cash equivalents and trade
receivables.
The Company's cash is primarily maintained in demand deposit accounts placed
with a high credit quality financial institution. The Company's investment
policy limits its exposure to concentrations of credit risk. However, such
deposit accounts at times may exceed federally insured limits.
Concentrations of credit risk with respect to trade accounts receivable are
limited due to the large number of customers dispersed across various geographic
areas with relatively short payment terms. To reduce credit risk, the Company
periodically performs credit analysis and monitors its customers financial
condition and carries accounts receivable insurance.
INVENTORY
Inventory is stated at cost using the first-in, first-out method of valuation.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation of property and
equipment is provided using straight-line and accelerated methods over the
estimated useful lives of the assets. Leasehold improvements are amortized using
the straight-line method over the remaining lives of the leases of the
respective improvements. Estimated useful lives of the related assets are as
follows:
CLASSIFICATION USEFUL LIVES
-------------- ------------
Molds 5-7 years
Equipment 5 years
Automobiles 5 years
Furniture and fixtures 5-10 years
Leasehold improvements 34-60 months
I-6
<PAGE>
NOTE 1 - DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of organization, development, trademark, copyright and
patent costs and are carried at cost, less accumulated amortization. The assets
are amortized over 5 to 17 years using the straight-line method.
INCOME TAXES
The Company currently operates as an S corporation. As such, no provision for
income taxes for the Company has been provided in the accompanying financial
statements as any income or loss is included on the income tax returns of the
shareholder. The pro forma tax provision and net income (loss), assuming a 37%
tax rate, discloses the tax expense (benefit) incurred had the Company been a
C-Corporation subject to Federal income taxes.
USE OF 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 date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FINANCIAL INSTRUMENTS
The carrying value of the Company's cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities and line-of-credit approximate
their fair values due to the short-term nature of these financial instruments.
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
In the opinion of the Company, the accompanying unaudited financial statements
contain all adjustments (consisting of only normal recurring accruals) necessary
to present fairly the financial position of the Company at June 27, 1997 and the
results of their operations and changes in cash flows for the five months ended
June 30, 1996 and the period from February 1, 1997 to June 27, 1997. The results
of operations for these periods are not indicative of the results to be expected
for the full year due to the seasonal nature of the Company's operations.
NET INCOME PER COMMON SHARE
Net income per common share has been computed based on the weighted average
number of common shares outstanding during each year and period.
I-7
<PAGE>
NOTE 2 - INVENTORY
Inventory includes the following:
JANUARY 31,
----------------------- JUNE 27,
1997 1996 1997
-------- ---------- ----------
(Unaudited)
Raw materials .............. $425,846 $ 432,103 $ 865,234
Finished goods ............. 213,696 429,925 1,575,473
-------- ---------- ----------
$639,542 $ 862,028 $2,440,707
======== ========== ==========
NOTE 3 - INTANGIBLE ASSETS
Intangible assets include the following intangible assets:
JANUARY 31,
----------------------- JUNE 27,
1997 1996 1997
--------- --------- ---------
(Unaudited)
Organization costs ................... $ 807 $ 807 $ 807
Development costs .................... 131,112 79,735 154,360
Trademarks ........................... 4,999 2,077 5,110
Copyrights ........................... 358 358 358
Patents .............................. 21,322 10,685 21,442
--------- --------- ---------
158,598 93,662 182,077
Less: accumulated amortization ....... (42,958) (15,622) (53,155)
--------- --------- ---------
$ 115,640 $ 78,040 $ 128,922
========= ========= =========
NOTE 4 - COST OF SALES
Cost of sales has the following components:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE FIVE FOR THE PERIOD
JANUARY 31, MONTHS ENDED FROM FEBRUARY 1,
----------------------------------------- JUNE 30, 1997 TO JUNE 27,
1997 1996 1995 1996 1997
----------- ----------- ----------- --------- ---------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Product costs ...................... $ 3,124,782 $ 2,979,122 $ 2,425,155 $ 196,030 $ 251,266
Commissions ........................ 478,977 688,644 526,210 34,068 36,509
----------- ----------- ----------- --------- ---------
Total cost of sales ................ $ 3,603,759 $ 3,667,766 $ 2,951,365 $ 230,098 $ 287,775
=========== =========== =========== ========= =========
</TABLE>
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<PAGE>
NOTE 5 - OPERATING LEASES
The Company leases storage, office space and certain equipment (Note 7) under
long-term operating leases. The storage and a certain office space lease expires
July 31, 1998 with an option to continue leasing on a month-to-month basis.
Additional office space is leased on a month-to-month basis. The Company pays
expenses associated with the buildings. The Company has various leases expiring
during the fiscal years ending January 31, 1998 and 1999. There are no renewal
options. Total rent and lease expense was $58,820, $54,549 and $33,632 for the
years ended January 31, 1997, 1996 and 1995, respectively. The total rent
expense for the five months ended June 30, 1996 (unaudited) and the period from
February 1, 1997 to June 27, 1997 (unaudited) was $25,906 and $23,299,
respectively.
The following is a schedule of future minimum rental payments required under the
above operating leases.
YEAR ENDING
JANUARY 31,
-----------
1998 $ 23,616
1999 4,653
--------
$ 28,269
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company leases its storage and office space from a limited liability company
owned 100% by the sole shareholder and another related party.
Certain computer equipment is leased from a trust whose trustee is a related
party to the Company.
A series of short-term notes with a related party limited liability company are
used to provide the necessary funds to settle short-term liabilities of the
Company. Each note carries interest at 9% and has a one year maturity date.
There were no outstanding balances pertaining to these notes as of January 31,
1997 and 1996, however, there was an outstanding balance of $500,000 as of June
27, 1997 (unaudited).
NOTE 7 - SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION
The Company sponsors a salary reduction simplified employee pension plan
covering employees at least twenty-one years of age with at least one year of
service, and whose compensation exceeds $300 a year. The Company does not make
contributions to this plan.
I-9
<PAGE>
NOTE 8 - ECONOMIC DEPENDENCY
Substantially all of the Company's products are assembled and shipped by an
unrelated company. The Company believes that should something happen to the
assembler, a replacement could be found.
NOTE 9 - SALE OF ASSETS - SUBSEQUENT EVENT
Effective June 27, 1997, the Company's stockholder sold all of her common stock
in the Company in exchange for 200 shares of common stock of Pumpkin Masters
Holdings, Inc. (Holdings) and $5,575,671 cash. In addition, the stockholder is
entitled to additional payments based on financial performance of Holdings as
defined in the acquisition agreement.
I-10
<PAGE>
APPENDIX II
SECURITY CAPITAL CORPORATION
PRO FORMA FINANCIAL INFORMATION
INTRODUCTION:
The pro forma financial statement presented herein give pro forma effect to two
transactions:
1. The purchase of Pumpkin Ltd. on June 27, 1997, and
2. The sale of Foster Insurance Services on July 19, 1997
On June 27, 1997, Security Capital Corporation (the "Company") acquired an
effective 71.6% interest in Pumpkin Ltd. for $7,871,000. The acquisition was
accounted for as a purchase in accordance with the provisions of Accounting
Principles Board Opinion No. 16. The allocation of purchase price to the
tangible and intangible assets acquired, as reflected in the Consolidated
Financial Statements as of June 30, 1997, was based upon preliminary
determination of the fair value of the tangible assets. As such, the final
allocation of purchase price may vary from that presented herein.
On July 15, 1997 the Company sold all its interest in Foster Insurance Services,
Inc. ("FIS") for $1,525,000. Foster was a 50% owned investment carried on the
equity basis of accounting.
The accompanying Pro Forma Combined Balance Sheet as of June 30, 1997 is
intended to reflect the disposition of FIS as if it had occurred on June 30,
1997. (No pro forma adjustment is required for the acquisition of Pumpkin since
it is included in the June 30, 1997 Consolidated Balance Sheet.)
The accompanying Pro Forma Combined Statements of Operations for the year ended
September 30, 1996, the three months ended December 31, 1996, and for the six
months ended June 30, 1997, are intended to reflect the acquisition of Pumpkin
and disposition of FIS as if both had occurred at the beginning of the
respective fiscal periods presented.
The accompanying Pro Forma Combined Financial Information does not purport to be
indicative of the results of operations and financial condition that would have
been achieved had the acquisition and disposition actually been consummated at
the beginning of the respective fiscal periods presented. In addition, the
accompanying Pro Forma Combined Financial Information does not purport to be
indicative of the results of operations which may be achieved in the future.
The accompanying Pro Forma Combined Financial Information has been prepared
using the assumptions set forth in the accompanying Notes to the Pro Forma
Combined Financial Information and should be read in conjunction with the
audited Consolidated Financial Statements and Notes thereto contained in the
Registrant's Annual Report on Form 10-K for the year ended September 30, 1996,
which are incorporated by reference herein, and the unaudited Consolidated
Financial Statements and Notes thereto contained in the Registrant's Quarterly
Reports on Form 10-Q for the periods ended December 31, 1996 and June 30, 1997,
which are incorporated by reference herein. The Company changed its fiscal year
from September 30 to December 31 effective December 31, 1996.
II-1
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1997 (UNAUDITED) (IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
HISTORICAL
SECURITY
CAPITAL PRO FORMA PRO FORMA
ASSETS CORPORATION ADJUSTMENTS COMBINED
CURRENT ASSETS:
Cash and cash equivalents ....... $ 6,341 $ 1,525(1) $ 7,866
Accounts receivable - trade ..... 5,308 -- 5,308
Inventory ....................... 7,292 -- 7,292
Other current assets ............ 1,018 150(2) 1,168
------- ------- --------
Total current assets 19,959 1,675 21,634
PROPERTY AND EQUIPMENT, NET ........ 1,436 -- 1,436
GOODWILL AND OTHER INTANGIBLES, NET 13,827 -- 13,827
LICENSES AND OTHER ASSETS .......... 274 -- 274
INVESTMENT IN AND ADVANCES TO JOINT
ENTERPRISE ...................... 150 (150)(2)
TOTAL .............................. $35,646 $ 1,525 $ 37,171
======= ======= ========
See notes to pro forma financial information.
II-2
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
SECURITY
CAPITAL PRO FORMA PRO FORMA
LIABILITIES AND STOCKHOLDERS' EQUITY CORPORATION ADJUSTMENTS COMBINED
CURRENT LIABILITIES:
<S> <C> <C> <C>
Notes payable, bank ................................... $ 5,453 $ -- $ 5,453
Current portion of long-term debt ..................... 1,600 -- 1,600
Accounts payable ...................................... 1,996 -- 1,996
Accrued interest expense and other liabilities ........ 351 -- 351
------- --------
Total current liabilities ................ 9,400 -- 9,400
LONG-TERM DEBT, LESS CURRENT PORTION ..................... 13,059 -- 13,059
------- --------
OTHER LONG-TERM LIABILITIES .............................. 467 -- 467
------- --------
MINORITY INTEREST ........................................ 1,526 -- 1,526
------- --------
CLASS A REDEEMABLE PREFERRED STOCK,
$.01 par value, 50,000 shares authorized, 30,000 shares
issued (including dividends in arrears of $1,762) ..... 4,762 -- 4,762
------- --------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 7,500 shares
authorized, 551 shares issued
Class A common stock, $.01 par value, 10,000,000
authorized, 4,378,671 shares issued ................ 44 -- 44
Preferred stock, $.01 par value, 2,500,000 shares
authorized, none issued
Additional paid-in capital ............................ 62,544 -- 62,544
Accumulated deficit ................................... (50,941) 1,525( 1) (49,416)
-------- ------ --------
Total .................................... 11,647 1,525 13,172
Less: Treasury stock, at cost, 318,576 shares ........ (5,215) -- (5,215)
------- --------
Total stockholders' equity ............... 6,432 1,525 7,957
-------- ------ --------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ............... $ 35,646 $1,525 $ 37,171
======== ====== ========
</TABLE>
II-3
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1996 (Unaudited)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
SECURITY
CAPITAL PUMPKIN PRO FORMA
CORPORATION LTD. ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
PRODUCT SALES ......................................... $ 9,854 $ 7,069 $ 16,923
COST OF GOODS SOLD .................................... 4,764 3,465 $ 98(3) 8,327
------- ------- ----- --------
GROSS PROFIT (LOSS) ................................... 5,090 3,604 (98) 8,596
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ........................................... 4,086 1,767 196(1) 6,049
------- ------- ----- --------
OPERATING INCOME (LOSS) ............................... 1,004 1,837 (294) 2,547
------- ------- ----- --------
OTHER INCOME/(EXPENSES):
Income (loss) from joint enterprises ............... 362 (362)(4)
Interest income .................................... 483 15 498
Interest expense ................................... (731) (616)(2) (1,347)
Other income ....................................... 82 3 85
------- ------- --------
Total other income/(expenses) ......... 196 18 (978) (764)
------- ------- ----- --------
MINORITY INTEREST SHARE OF (INCOME) LOSS .............. (129) (177)(5) (306)
------- ------- ----- --------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ....................................... 1,071 1,855 (1,449) 1,477
INCOME TAXES .......................................... (58) (50)(6) (108)
------- --------
NET INCOME (LOSS) ..................................... 1,013 1,855 (1,499) 1,369
LESS PREFERRED STOCK DIVIDENDS ........................ (450) (450)
------- --------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS ....................................... $ 563 $ 1,855 $(1499) $ 919
======= ======= ===== ========
NET INCOME (LOSS) PER SHARE
$ 0.14 $ 0.23
======= ========
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENT SHARES OUTSTANDING ................ 4,060 4,060
======= ========
</TABLE>
See notes to pro forma financial information.
II-4
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 (Unaudited)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
SECURITY
CAPITAL PUMPKIN PRO FORMA
CORPORATION LTD. ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
PRODUCT SALES ........................................ $ 5,073 $ 132 $ 5,205
COST OF GOODS SOLD ................................... 2,476 164 $ 25(3) 2,665
------- ------- ------- -------
GROSS PROFIT (LOSS) .................................. 2,597 (32) (25) 2,540
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................................... 1,710 447 49(1) 2,206
------- ------- ------- -------
OPERATING INCOME (LOSS) .............................. 887 (479) (74) 334
------- ------- ------- -------
OTHER INCOME/(EXPENSES):
Income (loss) from joint enterprises .............. (211) 211(4)
Interest income ................................... 98 5 103
Interest expense .................................. (507) (154)(2) (661)
Other income ...................................... 16 5 21
------- ------- -------
Total other income/(expenses) ........ (604) 10 57 (537)
------- ------- ------- -------
MINORITY INTEREST SHARE OF (INCOME) LOSS ............. (55) 199(5) 144
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ...................................... 228 (469) 182 (59)
INCOME TAXES ......................................... (103) (103)
------- -------
NET INCOME (LOSS) .................................... 125 (469) 182 (162)
LESS PREFERRED STOCK DIVIDENDS ....................... (113) (113)
------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS ...................................... $ 12 $ (469) $ 182 $ (275)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE .......................... $ 0.00 $ (0.07)
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENT SHARES OUTSTANDING ............... 4,060 4,060
======= =======
</TABLE>
See notes to pro forma financial information.
II-5
<PAGE>
SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997 (Unaudited)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------
SECURITY
CAPITAL PUMPKIN PRO FORMA
CORPORATION LTD. ADJUSTMENTS COMBINED
<S> <C> <C> <C> <C>
PRODUCT SALES ........................................ $ 6,032 $ 420 $ 6,452
COST OF GOODS SOLD ................................... 2,617 269 $ 49(3) 2,935
------- ------- ------- -------
GROSS PROFIT (LOSS) .................................. 3,415 151 (49) 3,517
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES .......................................... 3,394 946 98(1) 4,438
------- ------- ------- -------
OPERATING INCOME (LOSS) .............................. 21 (795) (147) (921)
------- ------- ------- -------
OTHER INCOME/(EXPENSES):
Income (loss) from joint enterprises .............. 274 (274)(4)
Interest income ................................... 182 19 201
Interest expense .................................. (744) (308)(2) (1,052)
Other income (expense) ............................ (50) (19) (69)
------- ------- -------
Total other income/(expenses) ........ (338) (582) (920)
MINORITY INTEREST SHARE OF (INCOME) LOSS ............. 86 355 (5) 441
------- ------- ------- -------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES ...................................... (231) (795) (374) (1,400)
INCOME TAXES ......................................... (8) (8)
------- -------
NET INCOME (LOSS) .................................... (239) (795) (374) (1,408)
LESS PREFERRED STOCK DIVIDENDS ....................... (225) (225)
------- -------
NET INCOME (LOSS) APPLICABLE TO COMMON
STOCKHOLDERS ...................................... $ (464) $ (795) $ (374) $(1,633)
======= ======= ======= =======
NET INCOME (LOSS) PER SHARE .......................... $ (0.11) $ (0.40)
======= =======
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENT SHARES OUTSTANDING ............... 4,060 4,060
======= =======
</TABLE>
See notes to pro forma financial information.
II-6
<PAGE>
SECURITY CAPITAL CORPORATION
NOTES TO PRO FORMA FINANCIAL INFORMATION
The following describe the pro forma adjustments made to the accompanying Pro
Forma Combined Balance Sheet and Statements of Operations.
PRO FORMA COMBINED BALANCE SHEET - JUNE 30, 1997:
(1) To reflect cash received of $1,525,000 from the sale of Foster Insurance
Services and the recognition of the gain on sale of the same amount.
(2) To reclassify assets of joint enterprise which will be sold or redeployed.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS - FOR THE YEAR ENDED SEPTEMBER 30,
1996, THREE MONTHS ENDED DECEMBER 31, 1996, AND SIX MONTHS ENDED JUNE 30, 1997:
(1) To record amortization of goodwill resulting from the acquisition of
Pumpkin Ltd. based upon a twenty year life.
(2) To record interest expense and amortization of debt issuance cost on debt
incurred in the acquisition of Pumpkin Ltd.
(3) To record amortization of Pumpkin Ltd. patents over their remaining useful
lives.
(4) To eliminate income from joint enterprise (Foster Insurance Services)
which was sold.
(5) To record minority interest share of net income or loss of Pumpkin Ltd.,
including minority interest share of income taxes in accordance with the
Tax Sharing Agreement among the Company and its subsidiaries.
(6) To record additional income taxes related to income from Pumpkin Ltd.
II-7
