This filing consists
of 67 pages. The exhibit
index is on page 60.
FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1995
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 _______________
Commission file number 0-10633
SEVEN OAKS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0850341
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
700 Colonial Road, Suite 100
Memphis, Tennessee 38117
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code (901) 683-7055
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.10 par value
(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 ______
Page 2 of 67
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]
On July 28, 1995, the Registrant had 8,639,572 shares of its Common Stock,
$.10 par value, outstanding. The aggregate market value of such Common Stock
held by non-affiliates of the Registrant, based on the last sale of such stock
on the OTC Bulletin Board, on July 28, 1995, was $3,239,840. For purposes of
this calculation, only directors and executive officers of the Registrant at
that date are deemed affiliates of the Registrant.
Documents Incorporated by Reference.
Not Applicable
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ITEM 1. Description of Business
Seven Oaks International, Inc. ("Company"), a Tennessee corporation
engaged in the coupon processing industry, was organized and commenced
clearinghouse operations in 1971. The Company's wholly-owned subsidiaries,
which are included in the consolidated financial statements, are:
Coupon Redemption, Inc. - the coupon clearinghouse
SOCIS, Inc. - the management information systems group
Siete Robles Internacional, S.A de C.V. - the Mexican processing
corporation
Seven Oaks Direct, Inc. - an inactive subsidiary
The Company acts as a clearinghouse which processes cents-off coupons from
retail establishments throughout the United States. Coupons are processed at
its clearinghouse processing facility, is located in Juarez, Mexico. The
number of coupons processed were 115 and 305 million for the fiscal years
ended April 30, 1995 and 1994, respectively.
The Company's executive offices are located at 700 Colonial Road, Suite
100, Memphis, Tennessee 38117 and its telephone number is (901) 683-7055.
The Coupon Industry
Cents-off coupons are issued primarily by packaged-goods manufacturers as
a promotional technique designed to increase consumer purchases of particular
products. Promotional programs using coupons typically are designed to induce
either repeat purchases, consumer trials of products or brands, or both.
Coupons are distributed primarily through advertisements in newspapers and
newspaper supplements, free-standing inserts in newspapers, advertisements in
magazines, direct mailings and inclusion on or in product packages.
Coupons typically provide that upon presentation to a retailer at the time
of purchase of the product the consumer will receive a discount from the
marked sale price of the product equal to the face amount of the coupon.
Coupons also provide that the product manufacturer (the issuer of the coupon)
will pay supermarkets, grocery stores, drug stores, discount stores and other
retail establishments the face amount of the coupon plus a specified handling
fee upon presentation of the coupon to the manufacturer or its agent. The
handling fee is designed to defray the costs associated with handling coupons,
and is customarily a standard amount per coupon regardless of the face value
of the coupon or the identity of the manufacturer. The standard handling fee
was 8 cents ($.08) for each coupon for each of the fiscal years in the three
years ended April 30, 1995.
The coupon industry is a mature industry with the number of coupons
distributed and redeemed remaining relatively unchanged in the last three
years. A minor decline (3.7%) occurred in 1993 when a decisions by some
manufacturers, especially cigarette manufacturers, to concentrate marketing
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efforts on initial price reductions rather than couponing. According to
industry estimates, the number of coupons distributed by manufacturers was
approximately 310 billion, 299 billion and 310 billion in calendar years 1992,
1993 and 1994, respectively.
Based on its experience and industry estimates, the Company believes that
an average of approximately 2%-3% of the coupons distributed by manufacturers
are actually redeemed. Industry sources estimate the number of coupons
redeemed in calendar years 1992, 1993 and 1994 were 7.7 billion, 6.8 billion
and 6.2 billion, respectively. A reduction in coupon redemption by consumers
in 1993 and 1994 is believed to have occurred primarily because of the
manufacturers' shift in promotional spending discussed earlier.
In the absence of outside assistance, the processing of the large number
of coupons redeemed in the United States each year would require the
utilization of significant resources on the part of retailers and
manufacturer-issuers. The coupon processing industry developed to alleviate
this logistical burden and to achieve economies of scale associated with the
processing of large volumes of coupons.
The coupon processing industry consists of companies that perform one or
both of two principal intermediary functions:
Clearinghouse - generally count, verify and sort coupons submitted to
them by retailers and ship the sorted coupons to the appropriate
manufacturer-issuer for payment. In addition, many clearinghouses pay
some or all of their retailer customers the face value of the coupon plus,
in many cases, a portion of the handling fee within a period of time
determined by agreement with the retailer. This period of time in some
cases is shorter than the period in which the retailer would receive
payment if it forwarded the coupons directly to the manufacturer.
Redemption agent - performs a sort and verification function for
manufacturer-issuers to whom coupons are submitted by clearinghouses and
retailers for collection. Redemption agents are also authorized to make
payments on behalf of the manufacturer-issuer for validly presented
coupons. Redemption agents also customarily provide manufacturer- issuers
with statistical and other data to enable them to evaluate their
coupon promotion efforts.
Company Clearinghouse Operations
The Company receives coupons shipped to it by retailers throughout the
United States and provides the following services:
Counts, sorts and batches coupons received according to the issuing
manufacturer and the denomination of the coupons;
Verifies the value of coupons to be redeemed;
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Provides an invoice or report to the issuing manufacturer that includes
the number and value of coupons and the identity of the retailer; and
Ships the sorted coupons to the issuing manufacturer or its redemption
agent.
The Company is an authorized clearinghouse for substantially all major
manufacturers which distribute coupons. The current prevailing handling fee
paid by manufacturers ("Gross handling fee") is eight cents ($.08) per coupon.
The Company provides its services generally to two classifications of
customers:
Funded Accounts - these are accounts in which the Company pays the
retailer the face value of coupons plus, in most cases, a portion of the
handling fee ("Net handling fee"). Title to the coupons is assigned to the
Company by the retailer. In this type of business, after receipt and
verification of the coupons by the manufacturer, the Company is paid the
face value plus the gross handling fee. Depending on its agreement with
the retailer, the Company might pay the retailer before or after receipt
of funds from the manufacturer. Generally the net handling fee retained
by the Company is designed to compensate it for services rendered plus any
capital the Company has invested in early payments to the retailer.
Pay Direct Accounts - these are accounts in which the Company processes
the coupons for large retailer customers for a contracted fee per 1,000
coupons. Title to the coupon is always retained by the large retailer and
the Company performs a service for the retailer for a contracted fee.
Coupons are shipped to and invoiced to the manufacturer for the payment of
their face value plus gross handling fee directly to the retailer. The
Company is paid directly by its retailer customer for the processing fee
earned.
In the Company's fiscal years ended April 30, 1993, 1994 and 1995, the
Company's revenue was derived 9%, 12% and 19% from Pay Direct Accounts, which
generally results in the Company's receipt of a smaller portion of the gross
handling fee, but requires no investment of capital by the Company in the form
of early payments to the retail customer. The Company recognizes revenue, for
financial reporting purposes, when the process of coupon verification has been
completed. The Company's accounts receivable is composed of the full face
value of verified coupons plus the prevailing eight cent per coupon handling
fee. The Company's actual revenue, however, is the portion of the eight cent
handling fee to be retained by the Company. Thus, there is a high level of
accounts receivable relative to actual revenues.
Most payment plans for the Company's clearinghouse customers are 42 days.
The time period between the time of the Company's receipt of coupons from
retailers until the invoicing of manufacturers ranges from 10 days to 2 weeks,
depending upon the Company's processing efficiency. The Company collects most
of its receivables from manufacturers within five to six weeks after the
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manufacturer is billed for coupons processed by the Company. The payments to
the Company's retail customers constitute the principal demands on its
liquidity and are financed through funds from borrowings. If a manufacturer
refuses to redeem any coupons shipped to it by the Company, the Company has
recourse against the retailer for amounts advanced to it with respect to the
unredeemed coupons. Such amounts normally are deducted from the advance
payment made to the retailer for its next shipment. During fiscal 1995 and
1994, the aggregate face value and handling fees of coupons which
manufacturers refused to redeem was approximately 5% of receivables from
manufacturers.
The Company estimates that it was processing coupons for approximately
2,500 and 5,000 retail outlets in fiscal years 1995 and 1994, respectively.
The Company provides clearinghouse services to independent supermarkets and
grocery or drug stores, retail outlets that are part of large chains of
supermarkets, state associations or cooperatives of retailers.
In August 1993, the Company entered into an arrangement with a
privately-held coupon processor under which the Company processed certain
coupons
submitted to that processor. That arrangement accounted for approximately 12%
of the Company's consolidated revenue in 1995 and 1994. The Company
terminated the arrangement because the business has not been as profitable as
expected, and terminated processing services under this agreement in the first
quarter of fiscal 1995. The Company has contracts with substantially all of
its clearinghouse customers that provide the payment terms for such customers.
Contracts with most customers are non-exclusive.
Coupon Audit and Verification
An important function performed by the Company in its clearinghouse
operations is the prevention of fraudulent or improper coupon redemption. In
general, manufacturers are obligated to pay only for those coupons submitted
by or on behalf of legitimate retailers in connection with the retail sale of
the particular product. Improper redemption can occur for a variety of
reasons, ranging from the inadvertent submission of a coupon to a retailer for
a product not purchased to sophisticated fraudulent schemes designed to obtain
payment from manufacturers for large quantities of their coupons that are not
obtained in ordinary retail transactions.
The Company has adopted a number of procedures designed to prevent
advances by its clearinghouse operation for improperly submitted coupons. The
Company maintains various retailer-related data in its computer files,
including historical shipment information. Coupons also are inspected
visually at the clearinghouse processing facilities. If a shipment
contains "mint condition" coupons or coupons that appear to have been clipped
in bulk, additional verification procedures are instituted by the Company.
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During fiscal 1994 the Company experienced charge-offs for doubtful
accounts considerably above its normal accrual for uncollectible receivables.
Bad debt expense for fiscal 1994 includes $1.1 million in charge offs taken in
the fourth quarter of fiscal 1994. These expenses were due principally to
problems in verifying coupons submitted from certain retailers, loss of
significant customers and to reductions in payment from product manufacturers
which could not be charged back to the Company's customers. No unusual
charges such as this were experienced in fiscal 1995 because control
procedures were implemented by the new Chief Operating Officer in the last
quarter of fiscal 1994 to preclude the re-occurrence of charge-offs.
Data Processing
The Company's data processing capability is vital to the Company's coupon
processing capacity and productivity. The Company's increasing use of scanner
technology, which utilizes the bar code carried on most coupons, is
contributing to the increased efficiency and accuracy of its operations. The
Company's data processing facilities represent a substantial portion of the
Company's investment in fixed assets. During the last quarter of fiscal 1995
the Company made the decision to close its customer service and management
information systems office in El Paso and relocate those operations to its
facility in Juarez, Mexico. The Company has negotiated with its computer
vendor a lease buyout plan which, along with the future occupancy costs of the
El Paso facility, was provided for in a restructuring charge of $337,000
during the quarter ended April 30, 1995. The Company plans to convert from
its current mainframe-based computer operations to a local area network.
Systems development is currently in the latter stages and the Company believes
that its new system will provide data processing capability is sufficient to
meet the anticipated growth of its business.
Marketing
The Company's services are principally marketed and serviced by Company
employees, however accounts are also being obtained through direct mail
solicitations, telemarketing and independent representatives.
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Mexican Operations
Because a substantial portion of coupon counting and sorting functions are
carried out by hand, the coupon processing industry is highly labor intensive.
As a result, the Company and other major companies in the coupon processing
industry generally conduct counting and sorting operations in Mexico and
certain other foreign countries where less expensive labor is available. The
Company conducts clearinghouse operations at a location in Juarez, Mexico and
in the fourth quarter of fiscal 1994 terminated operations at another leased
facility in Juarez. Final payment under that lease were made in the first
quarter of fiscal 1995. See Properties. Employees at the Mexican facility
generally are paid wages equal to or slightly in excess of the minimum wage
required by law in Mexico.
The Company's operations in Mexico are subject to certain of the normal
risks of operating in a foreign country, including currency fluctuations and
changes in foreign law. In addition, in recent years Mexico has experienced
high inflation and substantial devaluation of its currency. During the second
and third quarters of fiscal 1995 the Peso was significantly devalued,
resulting in reduced costs of operating in Mexico. Historically, the
devaluations have more than offset the effects of high inflation, and the
overall impact of these factors on the Company has not been adverse. The
Company is unable to predict the effect of inflation and currency devaluation
on its future operations. The Company is also unable to predict with
certainty the effects that the North American Free Trade Agreement will have
on its Mexican operations, but anticipates that agreement will eventually
increase its employee costs in Mexico.
The Company conducts clearinghouse operations at a location in Juarez,
Mexico and in the fourth quarter of fiscal 1994 terminated operations at
another leased facility in Juarez. See Properties. Employees at the Mexican
facility generally are paid wages equal to or slightly in excess of the
minimum wage required by law in Mexico.
Competition
The Company believes its market share is less than 5% and the Company
experiences significant competition in its clearinghouse operations. The
principal competitive factors in the clearinghouse business are price,
customer service and payment terms. The Company considers that it
has at least five principal competitors, and believes that an affiliate of The
Dun & Bradstreet Corporation, and Carolina Coupon Clearing, Inc., are the
dominant companies in the clearinghouse business.
Technological developments may occur in the future that could be used to
increase productivity in the coupon processing industry, the implementation of
which might require substantial capital investment. The Company believes that
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The Dun & Bradstreet Corporation and Carolina Coupon Clearing, Inc. have
substantially greater financial resources than the Company.
The Company believes that the chief factors pertaining to its competitive
position, to the extent that they exist and are known to the Company, are the
Company's size and focus on the coupon business. The affiliate of The Dun &
Bradstreet Corporation may have access to substantially greater financial
resources than the Company, which resources might allow it to respond to
possible technological developments more readily than the Company. The fact,
however, that the Company is generally not affiliated with entities involved
in other businesses means that it is able to focus its resources and energies
on the coupon business. Although the Company does not anticipate any major
technological developments relating to the Company's current business in the
foreseeable future, the Company's current financial position would prevent it
from committing any significant amount to investment in any such developments.
Industry surveys concluded that, prior to calendar 1992, the number of
coupons distributed by manufacturers had generally continued to rise each
year, but indicated that the rate of growth had slowed. Total expenditures
related to the portion of manufacturers' marketing programs allocated to
coupons had risen at a higher rate; however, because of increases in the
average value of redeemed coupons. Management believes that for
clearinghouses such as Seven Oaks, the slower growth in unit volumes of
coupons led to more competition and, in turn, difficulty in increasing
handling fees sufficiently to compensate for the additional expense generally
associated with financing coupons with higher face values.
During calendar year 1994 the number of coupons distributed by
manufacturers increased to approximately to 309.7 billion in 1994, following a
decrease from 310 billion in 1992 to approximately 298.5 billion in 1993. The
Company believes that the 1993 decrease is largely due to the decisions by
some manufacturers, especially cigarette manufacturers, to concentrate
marketing efforts on initial price reductions rather than couponing. In spite
of the increase in number of coupons distributed, the number of redemptions in
1994 decreased approximately 8.8% -- from 6.8 billion to 6.2 billion -- which
has exacerbated the competitive situation.
Employees
As of July 18, 1995, the Company employed approximately 192 persons, of
whom approximately 170 were employed in its sorting facilities in Mexico. The
remaining employees are executive, administrative, sales, customer service,
and data processing personnel located in the Company's Memphis and El Paso
offices.
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ITEM 2. Properties.
The Company's executive offices are located in Memphis, Tennessee in
approximately 6,000 square feet of leased space. In fiscal 1994 the Company
leased approximately 7,763 square feet of space in El Paso to house its
operations there. Subsequent to the signing of the North American Free Trade
Alliance ("NAFTA") management has determined that its entire operation, with
the exceptions of those functions conducted in the Memphis location, can be
handled from its facility in Juarez, Mexico. Therefore, the Company has
scheduled its move from the El Paso location during the Summer of 1995.
In late July 1994, the Company closed the sale of its approximately 70,000
square foot building in El Paso, Texas. The purchase price for this facility
was $1.5 million, the net proceeds of which were paid to the Company's
principal lender, which held a deed of trust on the facility securing payment
to it. This building, purchased in the third quarter of fiscal 1987, had
served as an administrative and operations office for the Company's
clearinghouse, housed its data processing center, and had served as the
administrative and operations office for its redemption agency and promotion
fulfillment operations prior to the sale in December 1989 of substantially all
of the assets of its redemption agency and promotion fulfillment subsidiary.
In December 1994 the Company closed the sale of a facility which had been
formerly used in its processing operations. The sale price of the facility,
located in Delicias, Mexico, was $1.125 million, the net proceeds of which
were paid to the Company's principal lender. The proceeds fully repaid that
lender and its financing agreement with that lender was concurrently
terminated. The facility was located in Delicias, Mexico was acquired during
fiscal 1987. The completion of this sale left the Company with one processing
facility located in Juarez, Mexico.
The Company also owns two parcels of unimproved real estate totaling
approximately 30 acres in the Las Cruces, New Mexico vicinity. This land was
acquired in a like-kind exchange and is held for investment purposes, and is
encumbered by a deed of trust securing payment to the Company's debenture
holders. Additionally, the debenture holders have first security interest in
all of the Company's furniture, fixtures and equipment located in the United
States.
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Clearinghouse and redemption agency operations, sorting facilities. The
Company processes coupons in a two building complex containing approximately
98,000 square feet located on approximately 3.7 acres in Juarez, Mexico. This
facility was held in trust for the Company's benefit by a Mexican bank, Banca
Serfin S.N.C., prior to the fourth quarter of fiscal 1994, at which time the
Company sold the facility and leased it back for a nine year term from the
purchaser. The Company has a five year renewal option under that lease. The
Company's management believes that this facility is adequate to meet its
processing requirement for the foreseeable future.
In the fourth quarter of fiscal 1994, the Company ceased clearinghouse
activities in an approximately 37,000 square foot leased facility in another
location in Juarez, and lease obligation was fully satisfied in November 1994.
In the first quarter of fiscal 1988, the Company entered into a lease for
an approximately 40,000 square foot facility in Memphis, Tennessee to house
its telemarketing facilities, and in the third quarter of fiscal 1988 entered
into an amendment to this lease for additional adjacent space of approximately
26,000 square feet (together, the "Telemarketing Lease"). The Telemarketing
Lease is for a term of one hundred twenty (120) months following April 15,
1988. Simultaneously with the sale of substantially all of the assets of its
telemarketing subsidiary on April 30, 1989, the Company subleased this space
to the purchaser of the assets for a sixty (60) month term commencing May 1,
1989. In April 1994, the Company entered into an amendment to this sublease
with the successor in interest to the original sublessee extending the term of
the sublease through April 30, 1996, and further granting the successor an
option to extend the sublease term through April 30, 1998. The Company
remains obligated under the Telemarketing Lease. During the 24-month extended
term of the sublease, the sublessee has agreed to fulfill the Company's
obligations under the Telemarketing Lease. The sublessee has no obligation
for the Telemarketing Lease during the last approximately twenty-three and
one-half (23 1/2) months of the Telemarketing Lease, unless it elects to
exercise its renewal option.
ITEM 3. Legal Proceedings.
On or about June 10, 1988, El Paso Saddle Blanket Company, Inc. ("Saddle
Blanket") amended its suit pending in the District Court of El Paso County,
Texas, to join the Company in that case as a co-defendant with the original
defendant Frank Winslett, a former employee of General Letter Service, Inc.
("GLS"); GLS, a former subsidiary of the Company, was dissolved in the last
quarter of the Company's fiscal year ended April 30, 1986. Saddle Blanket
alleges that a mailing list used by GLS that was the property of Saddle
Blanket was purposely or negligently permitted to fall into the hands of one
of its competitors -- through the actions of Mr. Winslett. Saddle Blanket has
sued for in excess of $400,000 actual damages plus punitive damages, and has
indicated in discovery that it believes its actual damages are far in excess
of the $400,000 figure. The Company does not believe that it is liable to
Saddle Blanket in any amount, and is contesting this lawsuit vigorously.
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ITEM 4. Submission of Matters to Vote of Security Holders.
The Company did not hold an annual meeting of shareholders for the fiscal
year 1994. Two of the current six members of the Board of Directors were
elected by the previous members of the Board of Directors concurrent with the
Managerial and Financial Restructuring in September 1994. Two additional
members of the current Board of Directors were elected subsequent to the
restructuring. The four Directors most recently added to the Board have not
been submitted to the stockholders for approval.
The Company entered into two agreements to process coupons for a major
customer, a $750,000 debenture was fully subscribed in March 1995 and a $1
million line of credit was established with a national bank in Memphis,
Tennessee. Additionally, the Company retained its auditors, Deloitte &
Touche, to audit the Company's financial statements for the fiscal year ended
April 30, 1995. None of these matters have been submitted to the shareholders
for approval.
The Company's annual meeting of shareholders for the 1993 fiscal year was
held on February 24, 1994. The matters voted on were the election of
directors and ratification of auditors for the 1994 fiscal year. Tommy R.
Thompson was elected as a director of the Company to hold office until the
fiscal 1996 annual meeting, upon a vote of 5,609,542 for, 134,695 withheld,
and 694,192 abstentions or nonvotes. Frank A. Sullivan was elected as a
director of the Company to hold office until the annual meeting for the 1994
fiscal year, upon a vote of 5,607,887 for, 136,350 withheld, and 694,192
abstentions or nonvotes. The appointment of Deloitte & Touche as the
Company's independent public accountants for the 1994 fiscal year was ratified
by a vote of 5,677,128 for, 24,337 against, and 42,772 abstentions and
nonvotes.
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Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Market Information. The Company's common stock, $.10 par value, was
traded in the over-the-counter market under the NASDAQ symbol "QPON" and
listed on the NASDAQ National Market ("NNM") until March 30, 1994. On that
date, the Company's common stock was delisted from the NNM and is now included
in the NASD's OTC Bulletin Board. At July 19, 1995, there were approximately
600 holders of record of the Company's Common Stock.
The following table sets forth the reported high and low bid prices of the
Common Stock for the first three quarters of fiscal 1994 as regularly quoted
in the National Association of Security Dealers automated quotation system.
Subsequent to the third quarter of 1994 the listed high and low bid prices as
quoted by the over-the-counter bulletin board. These over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Fiscal year ended
April 30, 1994 High Low
First Quarter (May-July) 17/32 1/4
Second Quarter (August-October) 1/2 7/32
Third Quarter (November-January) 5/16 1/8
Fourth Quarter (February-April) 3/8 1/8
Fiscal year ended
April 30, 1995 High Low
First Quarter (May-July) 1/4 1/8
Second Quarter (August-October) 1 1/8
Third Quarter (November-January) 11/16 5/8
Fourth Quarter (February-April) 11/16 9/32
Dividends. The Company declared no dividends for fiscal 1994 or fiscal
1995 and is unable to state with any degree of certainty when or if it will
resume dividend payments.
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ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Summary
Seven Oaks International, Inc. and wholly-owned subsidiaries ("Company")
process cents-off coupons, principally as a clearinghouse between product
manufacturers and retailers throughout the United States. The Company sorts
coupons for retailers and submits the sorted coupons to manufacturers for
reimbursement. The Company generally makes advance payments to retailers and
then is reimbursed by the issuing manufacturers, or their agents, for the face
value of the coupons and the specified per coupon handling fee. The Company
also markets its processing services to both retailers and manufacturers on a
contractual basis not related to the per coupon handling fee. Under these
plans, which typically produce less average revenue per coupon, retailers are
reimbursed directly by manufacturers for submitted coupons without any advance
payments by the Company.
When the Company makes advance payments to retailers, its revenues are
derived from retaining a portion of the handling fee, generally $0.08 per
coupon, paid by product manufacturers to compensate retailers for the expense
of accepting and submitting coupons. Manufacturers pay retailers the handling
fee in addition to the face value of each coupon. The portion of the handling
fee retained by the Company varies per customer according to the volume of
coupons submitted and certain other factors. The Company typically retains
less of the handling fee, and consequently recognizes less average revenue per
coupon, from large chains and associations of retail stores than from smaller,
independent retailers. Changes in the customer mix can affect the Company's
average revenue per coupon, which had averaged less than $0.02 per coupon for
the past several years and the first quarter of fiscal 1995. The average
exceeded $0.02 per coupon in the third quarter of 1995, but declined to less
than $0.02 per coupon in the fourth quarter, because the mix of coupons
processed was affected by the increased processing for the Affiliate on a Pay
Direct Plan during the third quarter. Revenue from processing coupons for the
Affiliate represented 44% of revenue for the fourth quarter and 17% of revenue
for the fiscal year ended April 30, 1995.
When acting as a clearinghouse between retailers and manufacturers, the
Company records as revenue only the portion of the per coupon handling fees it
retains. Neither the face value of the coupons processed nor the portion of
the handling fees received by retailers is recorded as revenue by the Company.
The full face value of the coupons and the total per coupon handling fees are
accounted for as trade receivables, however, since the Company is acting as a
collection agent. When the Company's revenue is compared to total
receivables, the turnover in receivables therefore appears considerably lower
than the Company's actual experience.
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The Company's collection period for receivables has averaged between five
and six weeks in recent years. The principal factor determining the length of
this period is the time required by manufacturers, or their agents, to process
submitted coupons. This step involves collecting marketing information about
redemption activity and verifying the coupons submitted for payment by
retailers or clearinghouses such as the Company.
Results of Operations and Profitability Trends
The number of coupons processed during the fourth quarter increased 71%
from the third quarter of the year. This increase is attributed primarily to
coupons received under the Company's exclusive processing agreement with a
major wholesale grocery company that also is a 4.5% stockholder ("Affiliate").
Receipt of coupons from that wholesaler has been phased in over several
months. The coupons processed under this service agreement (Pay Direct), are
at a lesser fee than that received under agreements with retailers where the
Company has to finance the face value of coupons (Funded Plan). Consequently,
the increased volume at a lower fee reduced the average fee per coupon for the
fourth quarter versus the third quarter. Gross revenue for the fourth quarter
of fiscal 1995 increased $88,000 (21%) from the third quarter, primarily
because of the increased number of coupons processed for the Affiliate.
On May 10, 1995, the Company signed a letter agreement to become the
exclusive processor for the Affiliate's independent retailer coupon program.
This agreement is expected to increase by over 150% the number of coupons
processed for the Affiliate. No coupons were processed under the May 1995
agreement in the fiscal year ended April 30, 1995. The number of coupons
processed for the Affiliate during May and June 1995 increased 37% and 105%
over the number processed during April 1995.
For the fiscal year ended April 30, 1995, the number of coupons processed
by the Company declined 63%, primarily because of the Company's decision to
terminate an arrangement with a privately-held coupon processor under which
the Company processed certain coupons submitted to that processor (See
Description of Business). Processing under this agreement, which was not as
profitable as anticipated when the agreement was signed, terminated in the
first quarter fiscal 1995. Termination of this processing agreement accounted
for the majority of the significant declines in the number of coupons
processed in fiscal 1995 versus 1994 (-63%) and in the fourth quarter of
fiscal 1995 versus the comparable quarter of fiscal 1994 (-56%). The Company
is actively soliciting new accounts to rebuild its coupon volume, but is
having difficulty enticing new customers and retaining existing customers
because of their concerns about the Company's financial stability. At an
average of $0.02 per coupon, the Company would need 5.6 million additional
coupons a month to achieve breakeven. This is an increase of 24% over volume
expected after the full benefit of the Affiliate's independent retailer coupon
program.
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Summary statements of income for the quarters of fiscal years ended April
30, 1995 and 1994, which is not covered by the auditor's report on the
financial statement for the fiscal years ended April 30, 1995 and 1994, are
presented below. Amounts are in thousands of dollars.
1995 Quarter Fiscal
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Year
REVENUE $ 762 $ 474 $ 410 $ 498 $ 2,144
COSTS AND EXPENSES:
Processing Costs 1,065 933 645 599 3,242
General, Administrative
and Selling 631 541 544 930 2,646
Bad Debt Expense 18 18 87 67 190
Interest 92 43 17 62 214
Loss on Real Estate 548 2 550
Total 1,806 1,535 1,841 1,660 6,842
LOSS FROM OPERATIONS (1,044) (1,061) (1,431) (1,162) (4,698)
OTHER INCOME 44 (28) 4 7 27
NET LOSS ($1,000) ($1,089) ($1,427) ($1,155) ($4,671)
1994 Quarter Fiscal
Qtr. 1 Qtr. 2 Qtr. 3 Qtr. 4 Year
REVENUE $1,404 $1,329 $ 946 $ 706 $ 4,385
COSTS AND EXPENSES:
Processing Costs 1,157 1,233 1,214 1,087 4,691
General, Administrative
and Selling 723 749 834 981 3,287
Bad Debt Expense 12 12 36 1,498 1,558
Interest 123 98 91 85 397
Loss on Real Estate 1,630 1,630
Write-off of Intangibles 1,167 1,167
Total 2,015 2,092 2,175 6,448 12,730
LOSS FROM OPERATIONS ( 611) ( 763) (1,229) (5,742) (8,345)
OTHER INCOME 6 42 51 26 125
NET LOSS ($ 605) ($ 721) ($1,178) ($5,716) ($8,220)
Revenue for the fourth quarter of the year ended April 30, 1995 increased
$88,000 (+21%) over the revenue of the third quarter of same fiscal year, the
result of an increase in coupons processed (+71%) and a decrease in the
average fee per coupon (-27%) . Versus the comparable quarter of fiscal 1994,
revenue declined $208,000 (29%), reflecting the decline in number of coupons
processed (-56%) and an improvement in the average fee per coupon of 52%.
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For the year revenue in fiscal 1995 decreased $2,241,000 (-51%) from
fiscal 1994, reflecting the decrease in coupons processed, partly offset by
the increase in average revenue per coupon of 30%.
Operating expenses, reflecting downsizing for reduced coupon volume, for
the fiscal year ended April 30, 1995 decreased $5,888,000 (46%) from the prior
fiscal year, reflecting reduction in workforce, reduced occupancy costs of
processing facilities sold, and other general and administrative cost
reductions. Excluding significant unusual items (primarily loss on real
estate, write-off of intangibles, and bad debt write-offs) in both years,
operating expenses declined $2,804,000 (33%) for fiscal year ended April 30,
1995..
The fourth quarter operating expenses declined $180,000 (10%) compared to
the third quarter of fiscal 1995. Compared to the fourth quarter of 1994,
operating expenses were reduced $4,788,000 (74%). Excluding unusual
significant items (primarily loss on real estate, write-off of intangibles,
and bad debt write-offs), operating expenses were reduced $992,000 (43%).
These reductions are the result of management's continuing efforts to reduce
expenses commensurate with revenues generated.
The operating loss of $1,155,000 for the fourth quarter ended April 30,
1995 was $272,000 (19%) less than the loss for the third quarter of the
current year. Versus the comparable fourth quarter of the prior year the
operating loss was reduced by $4,561,000 (80%). The fourth quarter of fiscal
1994 included non-recurring items totaling $4,133,000, and the fourth quarter
of fiscal 1995 included one non-recurring item of $337,000. Excluding the
significant unusual items (primarily loss on real estate, write-off of
intangibles, and bad debt write-offs) the fourth quarter loss declined by
$765,000 when compared to the comparable quarter of fiscal 1994.
The operating loss of $4,671,000 for the year ended April 30, 1995 was
$3,549,000 (43%) better than the $8,220,000 loss for year ended April 30,
1994. Fiscal 1994 included significant unusual items (primarily loss on real
estate, write-off of intangibles, and bad debt write-offs) totaling
$4,133,000, versus fiscal 1995 non-recurring items totaling $1,049,000.
Excluding the non-recurring items the fiscal year 1995 loss declined by
$465,000 (11%) when compared to the fiscal year 1994 loss.
There were approximately 180 persons in the Company's workforce, including
approximately 150 in the Juarez processing facility, as of April 30, 1995.
Management believes that the Company's processing operations have been
downsized to a point where further reductions are not practical to generate
competitive processing efficiency.
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The Company sold a processing facility located in Mexico during the third
quarter of the fiscal year ended April 30, 1995, for $1,125,000, resulting in
a loss of $583,000, $496,000 was recognized in the year ended April 30, 1994
and an additional $87,000 was expensed in the third quarter of the current
year. Additionally, the Company recognized a loss in the third quarter ended
January 31, 1995 of $462,000 to adjust the carrying value of land held for
sale to its estimated recognizable value, based on a current appraisal.
Managerial and Financial Restructuring
In a transaction completed as of September 7, 1994, Acorn Holdings, LLC, a
privately owned company, and Fleming Companies, Inc. acquired newly issued
common stock holdings representing a combined 25% ownership in the Company.
Under the terms of the transaction, the Company transferred 1,759,837 million
newly
issued shares of Common Stock to Acorn Holdings. An additional 386,306
shares were issued to Fleming. Prior to the sale, the Company had a total of
6,438,429 shares outstanding. Peter R. Pettit, a member and Chief Manager of
Acorn Holdings, was also granted an employee stock option, exercisable over
the next five years under certain conditions, which would allow the purchase
of an additional 3,626,605 shares of the Company at a price of $0.1705 a
share. Fleming was further granted anti-dilution warrants to purchase, at
$0.1705 per share, such number of additional shares necessary to maintain its
percentage ownership of the Company's Common Stock in the event any then
outstanding options, including those issued to Pettit, were exercised. On May
10, 1995, Pettit relinquished options to acquire 2,336,283 shares of the
Company's common stock. Upon the exercise of these options, Acorn Holdings,
Fleming and Pettit combined would control approximately 37% of the Company's
outstanding common shares. In connection with the sale of the shares to
Fleming and Acorn, and the grant of the option to Mr. Pettit, the Board of
Directors amended the Company's Rights Agreement so that its provisions would
not apply to those transactions.
In conjunction with this transaction, the Board of Directors of Seven Oaks
unanimously accepted the resignations of Mel G. Grinspan, Kenneth B. Lenoir
and Joseph M. Radogna as directors. Peter R. Pettit and Jimmy H. Cavin were
selected to serve as new directors. Frank A. Sullivan and Tommy R. Thompson
remained directors of the Company. In November 1994, Kenneth E. Storey, owner
of a chain of independent retail grocery stores, was elected to the Board of
Directors. The Company has agreed to process the coupons of that chain of
stores at a rate and terms that is typically offered to chains of comparable
size.
Peter Pettit has assumed the responsibilities of Chairman and Chief
Executive Officer of the Company. Pettit was formerly President of M & H
Financial Corp., a subsidiary of Fleming. Tommy R. Thompson, who previously
served as Chairman and Chief Executive Officer of the Company, is now serving
as the Company's President. Frank A. Sullivan remains Chief Operating
Officer. Jimmy Cavin, formerly Assistant Controller of Malone & Hyde, Inc., a
subsidiary of Fleming, was elected Chief Financial Officer.
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Management believes that this transaction will enhance the ability of the
Company to obtain new customers and improve the prospects for restoring the
Company's profitability. As part of this transaction, Fleming, which is the
Company's largest trade creditor, agreed to restructure payment of
approximately $1.8 million owed to it by the Company and reflected on the
Company's balance sheet as Account Payable - Retailers. $150,000 of this
debt, part of which was transferred to Acorn Holdings, was converted to common
stock.
The remainder of the Fleming debt has been reclassified as long-term debt
and otherwise restructured to provide that it will be repaid to Fleming out of
a portion of the processing fee that the Company will receive from Fleming and
its subsidiaries for acting as those companies' exclusive coupon processor.
The processing agreement with Fleming, initially a four-year agreement, was
modified by a Letter Agreement, effective May 10, 1995, to a three-year term.
The agreement may be terminated by Fleming in the event of the termination of
Mr. Pettit's employment with the Company and certain other non-financial
defaults. Any part of the debt not paid under this arrangement is payable
upon termination of the processing agreement. At the current time the Company
is not in default of the agreement.
Liquidity and Capital Resources
As of April 30, 1995, the Company's current liabilities exceeded current
assets by $4.2 million. The Company's liquidity has not been sufficient to
continue generally meeting the payment schedules specified with its
clearinghouse customers. In July 1995, the Company formulated a plan to repay
its customers all amounts in arrears, which approximated $2.2 million at July
1995, along with 9% interest. The weekly repayments, which began in July
1995, are over various payout periods.
Trade receivables, which represent a major component of the Company's
balance sheet, totaled $2.8 million as of April 30, 1995, down from $4.5
million at the close of fiscal 1994. The reduction of $1.7 million in trade
receivables principally reflected a higher percentage of coupons being handled
on a non-funded basis, a somewhat faster collection period and a loss of
customers.
At April 30, 1994, the Company had $2,893,000 outstanding under its then
existing line of credit. Proceeds from the sale of the plant located in
Delicias, Mexico were used to fully repay the line of credit on December 5,
1994, and the line of credit was terminated.
On March 1, 1995 the company closed two transactions, described in the
Notes to the financial statements, which provided $1,750,000 capital which
will be used generally for working capital needs, and to improve the payments
to its clearinghouse customers and trade creditors. As of April 30, 1995, the
Company had $197,000 outstanding borrowings under its $1.0 million line of
credit and $750,000 of its debentures outstanding under the agreements.
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The Company and its subsidiaries have pledged substantially all of their
assets in connection with the financings described above, except operating
assets in its plant in Juarez, Mexico and two notes receivable from the
sale/leaseback of that plant. The notes receivable balances at April 30, 1995
total $797,000, but should the Company default under its lease agreement these
notes would be deemed to have been satisfied. This March 1, 1995, transaction
leaves the Company with no significant assets to pledge as collateral for
future borrowings.
The uncertainty regarding the future availability of outside funds and
Seven Oaks' recurring losses led the Company's independent auditors to modify
their unqualified opinion accompanying the financial statements in fiscal 1993
to indicate substantial doubt about Seven Oaks' ability to remain a going
concern. The independent auditor's reports accompanying the financial
statements for fiscal 1995 and 1994 disclaims an opinion on the financial
statements of Seven Oaks.
The Company is attempting to raise additional capital, but has no
commitments in place at July 28, 1995. Management believes that the Company's
operations under its current legal organization is dependent on it's success
in obtaining a financial partner or negotiating a business combination which
would likely necessitate transfer of control of the Company's assets to
another firm.
The Company has no commitments for capital expenditures for fiscal 1996.
Income Taxes
As of April 30, 1995, the Company had net operating loss carryforwards of
approximately $24.6 million for income tax reporting purposes. The effect of
these carryforwards in adding to the Company's cash flow is dependent on the
Company's ability to restore and maintain operating profitability.
Inflation
Inflation is not presently having a material effect on the Company's
operations in the United States. The wages to Mexican employees represent
approximately one-half of the Company's processing costs and are dependent on
the exchange rate of the Mexican peso. A significant devaluation of the peso
during the third quarter ended January 31, 1995, with the full fiscal year
ended April 30, 1995 devaluation of 89%. The devaluation resulted in lower
expenses in the Juarez processing facility, particularly wage costs. The
Mexican Peso devaluation does not affect rental payments for the processing
facility in Juarez, Mexico because the lease is U. S. dollar denominated, with
escalations based on the CPI.
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Page 21 of 67
Item 8. Financial Statements and Supplementary Data.
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Seven Oaks International, Inc.
We have audited the accompanying consolidated balance sheets of Seven Oaks
International, Inc. and subsidiaries as of April 30, 1995 and 1994, and the
related consolidated statements of operations, deficiency in assets and cash
flows for each of the three years in the period ended April 30, 1995. 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 1993 consolidated financial statements present fairly, in
all material respects, the results of Seven Oaks International, Inc. and
subsidiaries operations, their deficiency in assets, and their cash flows as
of and for the year ended April 30, 1993 in conformity with generally accepted
accounting principles.
The accompanying 1995 and 1994 consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Notes 2 and 12 to the financial statements, the Company's
recurring losses from operations, negative working capital, deficiency in
assets, its difficulties in meeting its financing needs and various legal
contingencies raise substantial doubt about its ability to continue as a going
concern. Management's plans concerning these matters are also described in
Notes 2 and 12. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Because of the possible material effects of the uncertainties referred to in
the preceding paragraph, we are unable to express, and we do not express, an
opinion on the consolidated financial statements for 1995 and 1994.
Deloitte & Touche LLP
Memphis, Tennessee
July 7, 1995
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Page 22 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1995 AND 1994
Amounts in thousands of dollars
ASSETS 1995 1994
CURRENT ASSETS (Notes 6 and 8):
Cash and cash equivalents $ 60 $ 169
Trade receivables:
Coupons processed 1,521 3,259
Coupons on-hand 1,191 833
Retailers 176 502
Allowance for doubtful accounts ( 82) (96)
Total trade receivables 2,806 4,498
Other receivables (Notes 3 and 8) 237 588
Prepaid expenses & other assets 232 92
Total current assets 3,335 5,347
ASSETS HELD FOR SALE
(Notes 2, 3 and 6) 194 3,056
INTANGIBLES AND OTHER ASSETS
(Note 4) 39 126
PROPERTY AND EQUIPMENT:
(Notes 3 and 6)
Leasehold improvements 150 223
Data processing equipment 3,453 3,933
Furniture and other equipment 2,187 2,869
Total 5,790 7,025
Less accumulated depreciation 4,859 5,577
Property and equipment, net 931 1,448
TOTAL $ 4,499 $ 9,977
See notes to consolidated financial statements.
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Page 23 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
APRIL 30, 1995 AND 1994
Amounts in thousands of dollars
LIABILITIES AND
DEFICIENCY IN ASSETS 1995 1994
CURRENT LIABILITIES:
Notes payable (Notes 2 and 6) $ 0 $ 2,893
Accounts payable - retail stores (Note 2) 4,476 4,936
Accrued expenses (Note 8) 1,113 1,267
Due to affiliate (Notes 2 and 5) 133 325
Retail store deposits 1,797 1,523
Total current liabilities 7,519 10,944
LONG-TERM LIABILITIES (Notes 2, 5 and 6):
12% Debentures payable 750
Revolving line of credit 197
Due to affiliate 1,514
Other long-term liabilities 330 336
Total long-term liabilities 2,791 336
COMMITMENTS AND CONTINGENCIES (Notes 2, 3,
5, 6, 10 and 12)
DEFICIENCY IN ASSETS (Note 2):
Common stock, authorized 20,000,000 shares;
$.10 par value; 8,639,572 and 6,438,429
shares issued and outstanding in 1995 and
1994, respectively 864 644
Additional paid-in capital 12,725 12,782
Deficit (19,400) (14,729)
Total deficiency in assets (5,811) (1,303)
TOTAL $ 4,499 $ 9,977
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Page 24 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1995
Amounts in thousands, except per share amounts
1995 1994 1993
REVENUE (Note 11) $2,144 $4,385 $7,740
COSTS AND EXPENSES:
Processing costs 3,242 4,691 6,211
General, administrative
and selling (Note 2) 2,646 3,287 4,434
Bad debt expense 190 1,558 185
Interest 214 397 702
Restructuring cost 673
Loss on real estate (Note 3) 550 1,630
Write off of intangibles (Note 4) 1,167
Total 6,842 12,730 12,205
LOSS FROM OPERATIONS (4,698) (8,345) (4,465)
OTHER INCOME, NET 27 125 42
NET LOSS $(4,671) $(8,220) $(4,423)
NET LOSS PER SHARE $ (0.60) $ (1.28) $ (0.69)
WEIGHTED AVERAGE SHARES OUTSTANDING 7,807 6,438 6,438
See notes to consolidated financial statements.
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Page 25 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN DEFICIENCY IN ASSETS
EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1995
Amounts in thousands, except share amounts
Additional
Common Stock Paid-in
Shares Amount Capital Deficit
BALANCE, April 30, 1992 6,438,429 $ 644 $ 12,782 $(2,086)
Net loss for the year (4,423)
BALANCE, April 30, 1993 6,438,429 644 12,782 (6,509)
Net loss for the year (8,220)
BALANCE, April 30, 1994 6,438,429 644 12,782 (14,729)
Common stock issued 2,146,143 215 (65)
Stock options exercised 55,000 5 8
Net loss for the year (4,671)
BALANCE, April 30, 1995 8,639,572 $ 864 $ 12,725 $(19,400)
See notes to consolidated financial statements.
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Page 26 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1995
(Amounts in thousands of dollars)
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,671) $(8,220) $(4,423)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 490 997 1,011
Write-off of intangible asset 1,167
(Gain) loss on sale of equipment 19 (30) (5)
Loss on assets held for sale 87
Provision for loss:
Trade receivables 141 48 90
Notes receivables 842
Real estate held for sale 462 657
Increase (Decrease) in cash resulting
from changes in assets and liabilities:
Trade receivables 1,551 10,725 20,100
Other assets 298 720 (133)
Accounts payable - retail stores 1,061 (6,928) (8,004)
Retail store deposits 274 759 (451)
Other liabilities (160) (1,232) (417)
Net cash provided by (used in)
operating activities (448) (495) 7,768
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property and equipment (37) (450) (101)
Net proceeds from sale of equipment 60 155
Net proceeds from sale of real estate 2,298 1,350 13
Net cash provided by (used in)
investing activities 2,321 1,055 (88)
CASH FLOW FROM FINANCING ACTIVITIES:
Net payments on notes payable (2,893) (1,154) (7,632)
Net borrowings under line of credit 197
Proceeds from debentures issued 750
Net payments on affiliate debt (49)
Proceeds from issuance of stock 13
Net cash used in financing
activities (1,982) (1,154) (7,632)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (109) (594) 48
CASH, BEGINNING OF YEAR 169 763 715
CASH, END OF YEAR $ 60 $ 169 $ 763
See notes to consolidated financial statements.
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Page 27 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1995
(Amounts in thousands of dollars)
1995 1994 1993
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 197 $ 400 $ 706
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Conversion of accounts payable - retailers
during 1995 to:
Common stock $ 150
Due to affiliate $ 1,696
See notes to consolidated financial statements.
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Page 28 of 67
SEVEN OAKS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
EACH OF THE THREE YEARS IN THE PERIOD ENDED APRIL 30, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Consolidation - The consolidated financial statements
include the accounts of the Company and its domestic and foreign
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Business - The Company and its subsidiaries process cents-off coupons
for retail stores and manufacturers. See Note 11.
The following amounts due are included in trade receivables at the face
value of the coupons, plus a handling fee:
Coupons processed is the amount due from manufacturers that has
been invoiced.
Coupons on-hand is the amount due from manufacturers that has not
been invoiced.
Retailers is the net amount due from retail stores for certain
coupons paid for by the Company, but not redeemed by the
manufacturers.
The above amounts due from the processing of coupons are covered by
contracts signed with retailers (retailer service agreements). The
total amount due as of April 30, 1995 under these retail service
agreements is subject to group concentrations of credit risk as covered
by Financial Accounting Standards Board Statement No. 105. This group
concentration of credit risk relates to all amounts due from the various
manufacturers and/or retailers as of April 30, 1995.
Accounts payable - retail stores is the amount due to retailers at
specified times in the future. Accounts payable - retail stores include
$3,085,000 in 1995 and $939,000 in 1994 of bank overdrafts resulting
from checks written which have not been presented for payment.
Retail store deposits is the amount held by the Company from certain
retailers to be offset against future coupons paid for by the Company
but not redeemed by the manufacturers.
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Foreign Operations - A wholly-owned Mexican subsidiary of the company
processes coupons for the Company under a cost-plus fixed fee
arrangement. All of the foreign subsidiary's revenue is from the parent
company and is used to pay costs of processing coupons. The parent paid
the subsidiary $2.3, $3.3, and $3.9 million during the years ended April
30, 1995, 1994 and 1993, respectively. The financial statements of the
Mexican subsidiary, which are included in the consolidated financial
statements, have been translated to U.S. dollars. The subsidiary's
monetary assets and liabilities are translated at year end exchange
rates and its fixed assets and monetary assets and liabilities are
translated at historical rates. Income and expense accounts are
translated at the average rates in effect for the applicable period.
Realized exchange gains and losses (immaterial in amount) and any
translation adjustments (immaterial in amount) are included in current
operations. Net assets of the Mexican subsidiary, excluding inter- company
accounts, were $ .3 and $1.3 million at April 30, 1995 and 1994,
respectively.
Revenue Recognition - The Company recognizes revenue when the process of
coupon verification has been completed.
Property and Equipment - Property and equipment is stated at cost.
Assets held for sale are stated at estimated net realizable value.
Depreciation is computed by using the straight-line method based on the
estimated useful lives of the depreciable assets. Furniture and
fixtures and data processing equipment is depreciated over 3-10 years.
Leasehold and improvements are amortized over the useful lives of the
assets or the lease terms, whichever is shorter.
Income Taxes - During 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"(SFAS No.
109) which did not have a material impact on the Company's financial
position or results of operations as of and for the year ended April 30,
1994. Under SFAS No. 109, the amounts provided for income taxes are
based on the amounts of current and deferred taxes payable or refundable
at the date of the financial statements as a result of all events
recognized in the financial statements as measured by the provision of
enacted tax laws.
Per Share Amounts - Net loss per share has been computed based on the
weighted average number of common shares outstanding during each period.
Cash Equivalents - The Company considers deposits in banks and short-
term marketable securities with original maturities of three months or
less as cash and cash equivalents.
Reclassifications - Certain amounts in prior years have been reclassified
to conform to the current year presentation.
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Page 30 of 67
2. GOING CONCERN AND LIQUIDITY CONSIDERATIONS
(1) The Company's consolidated financial statements have been presented
on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded assets amounts or the amounts and
classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Over the last three years, the Company has incurred net losses
totaling $17 million. As a result, working capital has
decreased from $1.5 million at the close of fiscal 1992 to working
capital deficits of $4.2 million, $5.6 million and $2.0 million
for fiscal years 1995, 1994 and 1993, respectively. The Company's
deficiency in assets was $5.8 million and $1.3 million for fiscal
1995 and 1994, respectively.
(2) As part of a management and financial restructuring agreement
completed in September 1994, the Company entered an agreement with
its largest trade creditor ("Affiliate") to repay approximately
$1.8 million over a period of up to four years, without interest.
The repayment is to be made out of part of the processing fee that
the Company earns from processing coupons for the Affiliate and
its subsidiaries. The Affiliate received 4.5% (386,306 shares)
of the Company's unregistered common stock in exchange for debt of
$27,000.
The Company issued an additional 20.4% (1,759,837 shares) of
unregistered common stock to an entity controlled by the Chairman and
CEO concurrent with entering into the agreement described above in
exchange for debt of $123,000. There was no gain or loss recorded by
the Company relating to the restructuring.
(3) In December 1994, the Company completed the sale of real property
located in Delicias, Mexico for an aggregate sales price of $1.1
million, and pursuant to an agreement with the Company's former line
of credit lender, the net proceeds from the sale were paid to the
lender. The line of credit was fully repaid and the Company's
agreement with that lender was terminated.
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Page 31 of 67
(4) On March 1, 1995, the Company privately placed $750,000 of its
12%, interest-only, debentures due December 31, 1999. On the same
date the Company entered into a loan agreement with a national
bank which provides the Company with a $1.0 million line of
credit, bearing interest at prime plus 1%. The line of credit
expires September 1, 1996.
(5) The Company has implemented a plan to combine its customer
service and information services operations, currently located in El
Paso, Texas, into its office facility in Juarez, Mexico. This
consolidation is part of management's ongoing efforts to reduce
operating costs and return the Company to profitability.
Effective April 30, 1995 the Company provided $337,000 for future
costs of the relocation, including future mainframe computer lease
expense and occupancy costs for the premises to be vacated in El
Paso. A lease buyout was negotiated with the computer vendor,
with the settlement price to be paid out over 15 months commencing
September 1, 1995. Future information services will be provided
by Company-owned computer equipment located in Juarez.
(6) In May 1995, the Company entered into a letter agreement with
Affiliate to modify it September 1994 agreement to become the
exclusive processor of coupons under its Affiliate's independent
retailer program.
(7) In June 1995, the Company offered up to $1.0 million serial notes -
twenty units of $50,000 - due September 1, 2000, bearing interest of
10% ("Offering"). Each subscriber is entitled to receive 25,000
warrants to purchase the Company's common stock for $.25, exercisable
up to five years. The Offering, which expires September 1, 1995,
requires a minimum subscription of ten units. The Offering may be
extended beyond September 1, 1995 at the Company's discretion.
(8) The Company has experienced intermittent cash flow problems during
fiscal 1995 and 1994 which has prevented the Company from
consistently meeting the payment schedule specified with all
clearing house customers. In July 1995, the Company formulated a
plan to repay its customers all amounts in arrears, which
approximated $2.2 million, along with 9% interest. The weekly
repayments, which began in July 1995, are over various payout periods.
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3. LOSS ON REAL ESTATE
In March 1994, the Company sold buildings located in Mexico for
$2,350,000. The Company received cash of $1,500,000 and two notes from
the buyer totaling $850,000. The notes are to be paid over a nine year
period. The book value of the property sold was approximately
$2,350,000 resulting in no gain (loss) on the sale. The buildings housed
the Company's Mexican processing and administrative facilities and the
Company entered into a nine year lease with the buyer. Annual lease
payments under the lease approximate $476,000 per year, subject to All
Items Consumer Price Index adjustments each calendar year. Under the
lease agreement, failure to pay monthly lease payments or a decision by
the Company to terminate the lease agreement result in a penalty equal to
the outstanding balance of the notes receivable from the buyer. Due to
the probable inability to meet future scheduled lease payments and the
resultant uncertainty of collecting the notes receivable, the Company
recorded an allowance of approximately $842,000 as of April 30, 1994.
During year ended April 30, 1995, the Company received principal of
$45,000 on the two notes receivable. At April 30, 1995 the balance of
these notes was $797,000, which is fully reserved. The Company is
current on lease payments under this lease agreement.
At April 30, 1994, assets held for sale included three properties which
were offered for sale. Based on management's analysis of the market
value of these properties, the Company increased their provision for
loss on disposal by approximately $657,000 during the fourth quarter of
fiscal 1994. Two of the properties sold during fiscal 1995, resulting
in an additional realized loss of $87,000.
During fiscal 1994, the Company consolidated all of its Mexican
operations into one plant, resulting in a leased plant facility becoming
vacant. During the fourth quarter of fiscal 1994, the Company recorded
a loss of approximately $130,000, for lease payments through the
remaining term of the lease which terminated in November 1994.
The Company obtained an independent appraisal of the estimated market
value of land owned in New Mexico and increased their provision for loss
on disposal by approximately $462,000 during the third quarter of fiscal
1995.
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4. WRITE OFF OF INTANGIBLES
Intangibles resulting from a past acquisition of the retail accounts
of another clearinghouse in the amount of $1,167,000 were written off
during the fourth quarter of fiscal 1994. In management's opinion,
the intangible no longer had value based on the deterioration of the
business generated from these accounts and the uncertainty of future
financing needed to maintain and/or grow the business generated from
these and similar accounts.
5. LONG-TERM PAYABLE - AFFILIATE
At August 2, 1994, the Company was in arrears $2.0 million to a large
clearing house customer. As part of a management and financial
restructuring agreement completed September 7, 1994, the Company entered
an agreement with this customer ( "Affiliate") to repay approximately $1.8
million, which had previously been carried as Accounts Payable -
Retailers, over a period of up to four years. The repayment is to be
made out of part of the processing fee that the Company will receive
from processing coupons for the Affiliate and its subsidiaries. The
Affiliate received 4.5% of the Company's unregistered common stock in
exchange for debt of $27,000 and the Company granted an anti-dilution
warrant allowing the Affiliate to purchase additional shares of the
Company's common stock to maintain its 4.5% ownership interest in the
Company.
As of April 30, 1995, the Company owed approximately $1,647,000 under
this agreement, of which $1,514,000 was classified as long-term. Under
certain circumstances, including but not limited to, the termination of
employment of the Chairman of the Board and Chief Executive Officer,
a default would occur under this agreement that would accelerate the
entire indebtedness then outstanding.
6. LONG-TERM DEBT
On March 1, 1995 the Company privately placed $750,000 of its 12%,
interest-only, debentures due December 31, 1999, which provide for semi-
annual interest payments on March 1 and September 1. The debentures
were issued to a group of the Company's largest shareholders, of which
one individual in the group became a member of the Company's Board of
Directors in May 1995. The debentures are collateralized by a first
priority security interest in all of the Company's furniture, fixtures
and equipment located in the United States, a first priority mortgage on
approximately 30 acres of land located in New Mexico, and a second
security interest in trade accounts receivable. Additionally, the
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Company issued to the debenture holders warrants to purchase in the
aggregate 750,000 shares of the Company's common stock for $.15 per
share, exercisable at any time prior to March 1, 2000.
On March 1, 1995, the Company entered into a loan agreement with a
national bank which provides the Company with a $1,000,000 line of
credit, bearing interest at prime plus 1%. The line of credit matures on
September 1, 1996. The agreement includes a one-half percent service
fee payable monthly on the previous month's average principal
outstanding balance. The loan is to be used exclusively to provide for
the Company's working capital needs and is collateralized by a first
security interest in trade accounts receivable, a $51,000 certificate of
deposit, any sums of the Company on deposit with the lender, and
guarantees from individuals aggregating $1,000,000.
The Chairman of the Board of Directors and Chief Executive Officer of
the Company guaranteed $500,000 of the above bank loan. As an
inducement for the bank and guarantors to enter this transaction, the
Company issued warrants to purchase in the aggregate 460,000 shares of
common stock at $.15 a share, exercisable through March 1, 2000. The
bank received 100,000 warrants, individuals guaranteeing $500,000 of the
loan received 200,000 warrants (of which $200,000 of the guarantee and
80,000 warrants relate to an outside member of the Board of Directors),
and two individuals, who have guaranteed liquidity of collateral pledged
by the Chairman of the Board of Directors, received 160,000 warrants.
Information relating to borrowing agreements for the years ended April
30 is as follows:
1995 1994 1993
Average month-end balance $1,265,000 $3,510,000 $6,005,000
Weighted average interest rate 11.17% 10.53% 10.74%
Maximum month-end balance $2,579,000 $4,754,000 $12,100,000
Weighted average interest rate
at end of period 11.58% 9.75% 9.00%
The average month-end balance and the weighted average interest rate are
calculated based upon the actual period of borrowings, which was twelve
months during each of the three years in the period ended April 30,
1995.
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7. INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (SFAS No. 109) effective May 1, 1993, the
first day of fiscal 1994. Prior to May 1, 1993, the Company accounted
for income taxes under the provision of Accounting Principles Board
Opinion No. 11. Under SFAS No. 109, deferred income taxes are
recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of
existing assets and liabilities. The effect on deferred taxes of a
change in tax rates is recognized in income in the period that includes
the enactment date. The implementation of SFAS No. 109 and the effect
of adoption were not material to the Company's financial statements.
The tax effects of significant items comprising the Company's net
deferred tax assets as of April 30, 1995 are as follows:
Assets Liabilities Total
Allowance for doubtful accounts $ 32,800 $ 32,800
Restructuring cost 134,800 134,800
Less valuation allowance (167,600) (167,600)
Current deferred taxes -- --
Allowance for note receivable 318,800 318,800
Amortization of intangibles 368,400 368,400
Net operating loss carryforward 9,842,000 9,842,000
Alternative minimum tax credit 120,000 120,000
Charitable contribution carryforward 6,000 6,000
Installment sale (81,600) (81,600)
Property and equipment
basis difference (13,600) (13,600)
Less valuation allowance (10,560,000) (10,560,000)
Non-current deferred taxes 95,200 (95,200) --
Total deferred taxes $ 95,200 $(95,200) $ --
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The Company has net operating loss carryforwards available for future
reductions of federal income taxes at April 30, 1995 as follows:
Expiration Net Operating
Years Loss Carryforwards
2006 $ 6,299,000
2007 6,465,000
2008 4,051,000
2009 4,099,000
2010 3,691,000
Total $24,605,000
The Company also has alternative minimum tax net operating loss
carryforwards of approximately $24.9 million at April 30, 195. Minimum
tax credit carryforwards of $120,000 also exist as of April 30, 1995.
8. VALUATION ALLOWANCES
The Company's valuation allowances for each of the three years in the
period ended April 30, 1995, were as follows:
1995 1994 1993
(Amounts in Thousands)
Allowance for doubtful
accounts receivable:
Balance at beginning of year $ 96 $ 195 $ 582
Additions:
Charged expense 190 1,558 185
Charged to other accounts 4 103 360
Deduction for write-off of bad
accounts and reduction of
allowance (208) (1,760) (932)
Balance at end of year $ 82 $ 96 $ 195
Allowance for doubtful
notes receivable:
Balance at beginning of year $ 842 $ - $ -
Charged expense 842
Recovery ( 45)
Balance at end of year $ 797 $ 842 $ -
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Page 37 of 67
1995 1994 1993
(Amounts in Thousands)
Provision for restructuring costs:
Balance at beginning of year $ 1,347 $ 1,363 $ 700
Additions charged to expense 337 657 673
Deduction (1,347) (673) (10)
Balance at end of year $ 337 $ 1,347 $ 1,363
9. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan which covers all full-time
employees of the Company and its domestic subsidiaries with one year of
service. The Company's annual contribution to the plan is at the
discretion of the Company's Board of Directors and cannot exceed 15% of
eligible compensation. Employees who participate in a qualified plan
may contribute up to 10% of their aggregate annual compensation for all
years since they became a participant. On October 31, 1991, an
amendment was made to the profit sharing plan adding an elective
deferral 401(K) plan. Eligible participants may elect to contribute up
to 15% of their current annual compensation, not to exceed that allowed
by federal tax laws. No Company contributions were made to the plan
during each of the three years in the period ended April 30, 1995.
The Company has an employee stock option plan under which 1,942,176
shares were reserved for issuance to officers and key employees. The
option price corresponds to the market value of the stock on the dates
the options were granted. Stock option transactions for each of the
three years in the period ended April 30, 1995, are as follows:
Average
Number Option Price
of Shares Per Share
Options outstanding, April 30, 1992 268,437
Cancelled (13,250) $6.44
Options outstanding, April 30, 1993 255,187
Granted 240,000 $0.25
Cancelled (283,687) $4.05
Options outstanding, April 30, 1994 211,500
Granted 3,626,605 $0.17
Exercised (55,000) $0.25
Cancelled (46,500) $1.61
Options outstanding, April 30, 1995 3,736,605
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Options covering 1,396,822 shares are exercisable at April 30, 1995, at
option prices of $0.17, $0.25, $1.50, $3.25 and $6.88 a share.
In May 1993, 240,000 options were issued to officers and key employees
at an option price of $.25 per share. In September 1994, 3,626,605
options were issued to the Chairman of the Board and Chief Executive
Officer at the option price of $0.17 per share. In May 1995 the
Chairman relinquished options for 2,336,283 shares, which were included
in options granted to officers and key employees totaling 3,025,000
shares at the option price of $.25 per share.
The Company also maintains an unfunded executive supplemental retirement
plan which provides benefits payable by the Company to certain key
employees. Eligible participants or their designated beneficiaries
receive benefits upon a participant's (i) retirement or death after
reaching retirement age, as defined in the plan, or (ii) death while
employed by the Company prior to reaching retirement age. Fixed amounts
of benefits are established for separate classes of participants,
depending upon the level of executive and managerial responsibility
achieved by the participants. The benefits are payable in monthly
installment and, in certain cases, the participant may elect to receive
an actuarial equivalent of these benefits over a definite period. The
Company has purchased life insurance on the lives of eligible
participants in order to partially defray the cost of funding the
benefits payable.
10.
COMMITMENTS
The Company and its subsidiaries lease various equipment and office
space under agreements expiring at various dates through fiscal 2003.
Future minimum lease commitments at April 30, 1995, for all
noncancellable operating leases, reduced by minimum amounts to be paid
by third parties under a sublease agreement, are as follows:
Minimum Net
Lease Less Lease
Year Ending April 30 Commitments Sublease Commitments
1996 $1,370,000 $ (602,000) $ 768,000
1997 1,094,000 1,094,000
1998 988,000 988,000
1999 476,000 476,000
2000 476,000 476,000
Thereafter 1,268,000 1,268,000
Total $5,672,000 $ (602,000) $5,070,000
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Rent expense amounted to $1,140,000 in 1995, $473,000 in 1994, and
$835,000 in 1993. Rent expense does not include amounts paid by third
parties under the sublease agreement which requires the sub-lessee to pay
directly to the Landlord. These payments amounted to $602,000 for 1995,
$585,000 for 1994, and $551,000 in 1993.
The Chairman and Chief Executive Officer, the President and the
Executive Vice President and Chief Operating Officer all have one-year
employment contracts with the Company which are automatically renewable
absent written 30-day notice by the Officers or the Company. The
contracts provide them with termination benefits equal to their full
base salary for the year in which termination occurs. The processing
agreement which was part of the management and financial restructuring
agreement, discussed in Notes 2 and 5, provides for termination of the
processing agreement should the Chairman cease to be employed by the
Company.
The President has an agreement with the Company which provides him with
termination benefits in the event of a change in control of the Company.
In the event that he remains with the Company for a period of six months
after a change in control of the Company, he will receive a cash payment
in the amount of $80,000. Under the agreement the cessation of the
listing of the Company's outstanding common stock on the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") which occurred on March 30, 1994 was considered a change in
control of the Company. Therefore, the termination benefit of $80,000
became payable in September 1994 and was accrued at year ended April 30,
1994. As part of the management and financial restructuring agreement
entered into September 7, 1994 (See note 2) the payment of termination
benefits due to the cessation of listing on the "NASDAQ" was waived by the
President, and the $80,000 accrual of April 30, 1994 was reversed in
fiscal 1995. In addition, if he is terminated by the Company or
terminates his employment after a decrease in his responsibilities or
level of compensation at any time during the two years following the
change in control, he will receive an $80,000 payment and a sum equal
to six months' salary plus one additional week's salary for each year
of service with the Company. At April 30, 1995, the maximum amount of
severance benefits which would be payable under this plan would be
approximately $159,000.
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Page 40 of 67
11. BUSINESS SEGMENT AND MAJOR CUSTOMER
During each of the three years in the period ended April 30, 1995, the
Company engaged in one dominant industry which was the processing of
cents-off coupons for retail stores and manufacturers. During the year
ended April 30, 1995 one customer (an Affiliate) accounted for
approximately 17% of the Company's revenue. A second major customer
who accounted for 12% of the Company's revenue in 1995 and 1994, ceased
doing business with the Company during the first quarter of the year
ended April 30, 1995. A major customer who accounted for 18% and 19% of
the Company's revenue in the fiscal years ended April 30, 1994 and 1993,
respectively, ceased doing business with the Company in 1994.
12. LITIGATION AND CONTINGENCIES
During the year ended April 30, 1989, the Company was named as a
defendant in a lawsuit alleging damages of $450,000, punitive damages
and treble damages resulting from negligence by a former employee of a
former subsidiary. Management believes the Company has valid defenses
and the Company is vigorously contesting the lawsuit. Trial is
scheduled for the Fall of 1995. In the opinion of management, the
likelihood of this proceeding resulting in a loss in a material amount
is remote.
The State of Texas has performed an audit of the Company's Texas
franchise tax returns for fiscal years 1987 through 1990 resulting in a
tax due notice that determined the liability, including interest and
penalties, to be approximately $350,000.
Part II
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ITEM 9. Disagreements on Accounting and Financial Disclosure.
Within the twenty-four month period prior to the date of the registrant's
most recent consolidated financial statements, for the fiscal year ended April
30, 1995, the registrant did not change accountants, and had no disagreement
on any matter of accounting principles or practices or financial statement
disclosure.
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Page 42 of 67
ITEM 10. Directors and Executive Officers of the Registrant.
Certain information is given below with respect to each director and
executive officer of the Company. Except as otherwise indicated, each
director and executive officer has had the same principal occupation or
employment during the past five years.
Name Age Current Position with the Company
Peter R. Pettit 48 Chairman of the Board; Chief Executive Officer,
Tommy R. Thompson 43 President; Director
Frank A. Sullivan 67 Executive Vice President and Chief Operating
Officer; Director
Jimmy H. Cavin 53 Executive Vice President; Chief Financial
Officer; Secretary; Treasurer; Director
Kenneth E. Storey 64 Director
Earle C. May 77 Director
Mr. Pettit was elected Chairman of the Board of Directors and Chief
Executive Officer on September 7, 1994. Mr. Pettit was formerly President of
M & H Financial Corp., a subsidiary of Malone & Hyde, Inc., a position he held
for 11 years. Mr. Pettit was also Vice President of Malone & Hyde, Inc., a
subsidiary of Fleming Companies, Inc., a position he held for 9 years.
Fleming Companies, Inc. is a major wholesale grocery distributor.
Mr. Thompson was elected to the Company's Board of Directors in April 1981
and was elected Vice President and Controller of the Company in August 1982.
In March 1986, Mr. Thompson was elected Treasurer and Chief Financial Officer
of the Company, and was elected Secretary on May 1, 1987. On April 11, 1989,
he was elected Executive Vice President, Chief Financial Officer and
Secretary, and was re-elected Treasurer on August 29, 1991. On February 25,
1993, he was elected Chairman and Chief Executive Officer. On September 7,
1994, he was elected President. Mr. Thompson is a director of First
Mercantile Trust Co., a trust services company which administers pension and
profit sharing plans, including the Company's profit sharing plan.
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Mr. Sullivan was elected Executive Vice President and Chief Operating
Officer on January 14, 1994, and was elected President and Chief Operating
Officer and director on February 24, 1994. Mr. Sullivan was elected Executive
Vice President on September 7, 1994. Prior to joining the Company, Mr.
Sullivan was engaged in various business enterprises, chiefly importing and
exporting, through a family-owned corporation, L.A.T. Enterprises, Inc. Mr.
Sullivan has also recently been chief executive officer of a private marketing
company. Mr. Sullivan was one of the original founders and shareholders of
the Company, and served as a director and executive officer prior to his
resignation in 1980.
Mr. Cavin was elected Director, Executive Vice President and Chief
Financial Officer, Secretary and Treasurer on September 7, 1994. Mr. Cavin, a
Certified Public Accountant, was previously Assistant Controller of Malone &
Hyde, Inc., a subsidiary of Fleming Companies, Inc., a major wholesale grocery
distributor. He was employed by Malone & Hyde, Inc. for 16 years before
joining the Company. Prior to joining Malone & Hyde, Inc., Mr. Cavin was with
the public accounting firm Ernst & Young LLP.
Mr. Storey was elected to the Board of Directors on November 14, 1994.
Mr. Storey is President and principal owner of Piggly Wiggly Mid-South, Inc.
based in Sikeston, Missouri. Piggly Wiggly Mid-South owns and operates 96
retail supermarkets, primarily under the trade name Piggly Wiggly.
Mr. May was elected to the Board of Directors on May 11, 1995. Mr. May is
a registered investment advisor and Chairman of the Board of May & Camp, Inc.
Mr. May is the second largest shareholder of the Company.
Part III
Page 44 of 67
ITEM 11. Executive Compensation.
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation paid or accrued by the
Company during the fiscal years indicated to the Chief Executive Officer and
the President. No other individuals serving as executive officers during
fiscal 1995 received total annual salary and bonus in excess of $100,000.
LONG-TERM
COMPENSATION ANNUAL
COMPENSATION
AWARDS ALL OTHER
COMPENSATIONName and
Principal
Position
Fiscal
Year
Salary ($)
Stock
Options Life
Insurance
PoliciesPeter R. Pettit,
Chief Executive
Officer (1) 1995
1994
1993 $ 70,714
0
0 3,626,605 (2)
0
0 $ 3,000 (3)
0
0Tommy R. Thompson,
President (4)
1995
1994
1993 $100,000
100,000
106,941 0
50,000 (5)
0 $ 2,973 (6)
1,319
0
(1) Mr. Pettit was elected Chairman and Chief Executive Officer on September
7, 1994. On May 10, 1995, Mr. Pettit relinquished 2,336,283 options to
acquire shares of common stock.
(2) Options to acquire shares of common stock, $ .10 par value.
(3) Under an agreement with Mr. Pettit, the Company pays premiums on a life
insurance policy owned by Mr. Pettit. The policy is assigned by Mr.
Pettit to a bank to assure his guaranty on indebtedness of the Company.
(4) Mr. Thompson was elected President on September 7, 1994. He was
previously elected Chairman and Chief Executive Officer on February 25,
1993, and also elected President on June 3, 1993. See information in
Item 401 regarding prior offices held by Mr. Thompson.
(5) Options to acquire shares of common stock, $ .10 par value.
(6) Pursuant to agreement with Mr. Thompson, the Company pays premiums on a
live insurance policy owned by Mr. Thompson but assigned to the Company.
The agreement provides that, upon termination of employment, Mr. Thompson
may obtain a release of the assignment of the policy by paying the
Company the lesser of the cash value of the policy or the amount of
premiums paid therefor by the Company. Amount shown above is approximate
reportable income for Mr. Thompson regarding this arrangement.
Part II
Page 45 of 67
CERTAIN STOCK OPTION INFORMATION
The following table sets forth certain information regarding stock options
to purchase shares of the Company's common stock, $.10 par value, granted
during fiscal 1995 to Peter R. Pettit, Chief Executive Officer of the Company.
Option/SAR Grants in Last Fiscal Year
(Individual Grants)
Name
(a)
Number of
Securities
Underlying
Options
Granted
(#)
(b)
% of
Total
Options
Granted
to
Employees
in Fiscal
Year
(c)
Exercise
or Base
Price
($/Sh)
(d)
Expiration
Date
(e)Peter R.
Pettit
3,626,605
(1)
100%
$.1705
9/8/2004 1. Granted September 8, 1994; first exercisable
September 8, 1994.
The following table sets forth certain information regarding stock options
granted to Peter R. Pettit, Chief Executive Officer, and Tommy R. Thompson,
President of the Company, to purchase shares of the Company's common stock,
$.10 par value.
Name
(a)
Shares
Acquired
on
Exercise
(b)
Value
Realized
($)
(c)
Number of
Securities
Underlying
Unexercised
Options
(d)
Value of
Unexercised
in-the-
money
Options
(e)Peter R.
PettitNoneNone3,626,605
(1)$401,647
(1)Tommy R.
ThompsonNoneNone50,000$1,563
1. 2,336,283 options to acquire the Company's common stock, par value
$ .10, were relinquished on May 10, 1995 (Valued at $258,743).
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COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or any of its subsidiaries
("Outside Directors") have not been compensated for meetings of the Board of
Directors, commencing with the meeting on December 6, 1994. Prior to that
time Outside Directors received a fee of $500 for each meeting of the
directors which they attend and are paid an additional fee of $250 for each
meeting which they attend the meeting of a committee upon which they serve.
Mr. Radogna received these directors' fees but was not currently being
compensated for services as Secretary of the Company until his resignation
September 7, 1994.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee for the 1994 and 1995 fiscal years,
until September 7, 1994, was composed of Messrs. Grinspan, Lenoir and Radogna.
Mr. Radogna is Mr. Thompson's father-in-law, and served as Secretary of the
Company, without compensation. Prior to May 1, 1987, he was Executive Vice
President of the Company. Mr. Lenoir was chairman, president and majority
shareholder of FMT Holding Company ("FMT"), and chairman and president of its
subsidiaries, First Mercantile Trust Company ("First Mercantile") and Central
Trust Company. Central Trust Company administers Seven Oaks' profit sharing
plan, and received a fee for that service in fiscal 1994 of $2,441. Mr.
Thompson owns approximately 2% of FMT's outstanding stock, and is a director
of both FMT and First Mercantile. The directors of FMT and First Mercantile
determine Mr. Lenoir's compensation as an officer and employee of those
companies. Mr. Radogna owns approximately 12% of the outstanding stock of
FMT.
TERMINATION BENEFITS
The Chairman and Chief Executive Officer, the President, and the Executive
Vice President and Chief Operating Officer all have one-year employment
contracts with the Company which are automatically renewable absent written
30-day notice by the Officers or the Company. The contracts provide them with
termination benefits equal to their full base salary for the year in which
termination occurs. A significant processing agreement, discussed in Notes 2
and 5 to the audited financial statements, provides for termination of the
processing agreement should the Chairman cease to be employed by the Company.
Mr. Thompson, President, has entered into an agreement with the Company
which provides him with benefits in the event of a change in control of the
Company. In the event that he remains with the Company for a period of six
months after a change in control of the Company, he will receive a cash
payment in the amount of $80,000. In addition, if he is terminated by the
Company or terminates his employment after a decrease in his responsibilities
or level of compensation at any time during the two years following the change
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in control then, if such termination occurs within the first six months
following the change in control, he will receive both the $80,000 payment and
a sum equal to six months' salary plus one additional week's salary for each
year of service with the Company, and if the termination occurs following the
six-month period after a change in control of the Company (and after the
$80,000 payment specified in the previous sentence), he will receive the six
months' salary plus one week's salary for each year of service with the
Company. As of April 30, 1995, the maximum amount of severance benefits which
would be payable under this plan would be approximately $159,000.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information as of July 15, 1995
regarding the beneficial ownership of the Company's Common Stock, $.10 par
value, by (i) each person who is known by the Company to have owned
beneficially more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each executive officer named in the summary
compensation table, and (iv) all directors and such officers of the Company as
a group.
Except as otherwise indicated, the individuals named below have sole
voting and dispositive power with regard to the number of shares set forth
next to their names.
The following table sets forth certain information as of July 15, 1995
regarding the beneficial ownership of the Company's Common Stock, $.10 par
value, by (i) each person who is known by the Company to have owned
beneficially more than 5% of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each executive officer named in the summary
compensation table, and (iv) all directors and such officers of the Company as
a group.
Part III
Page 48 of 67
Except as otherwise indicated, the individuals named below have sole
voting and dispositive power with regard to the number of shares set forth
next to their names.
Name and AddressAmount and Nature
of Beneficial
Ownership
Approximate
Percent of
Class
Peter R. Pettit
111 Cherry Road
Memphis, TN 38117
May & Camp, Inc.
Earle C. May
15924 S.W. Quarry Road
Lake Oswego, OR 97035
Tommy R. Thompson
5666 Vantage Point
Memphis, TN 38120
All directors and
executive officers named
in the summary
compensation table as a
group
3,050,159 (1)(6)
1,053,000 (2)(6)
857,697 (3)(4)(5)(6)
5,328,786(6)
30.7%
11.2%
9.4%
46.4%
(1) Includes 1,759,837 shares owned by an entity in which Mr.
Pettit is the principal manager, and options to acquire
1,290,322 shares of common stock which are can be exercised
immediately.
(2) According to Schedule 13D and amendments thereto filed with
the SEC, May & Camp, Inc., a registered investment adviser
and registered broker/dealer, shares voting and dispositive
power with respect to 1,053,000 shares, including 750,000
warrants to acquire shares of common stock, with Earle C.
May, chairman of the board of May & Camp, Inc. and a
stockbroker at May & Camp, Inc. Mr. May is a director of
the Company.
(3) Includes 116,325 shares owned by Mr. Thompson's spouse.
(4) Includes 227,187 shares held in trust for Mr. Thompson's
children; beneficial ownership is disclaimed.
Part III
Page 49 of 67
(5) Includes 47,760 shares with respect to which Mr. Thompson
shares voting and dispositive power with his spouse.
(6) Includes the following number of shares which may be
acquired within 60 days of July 15, 1994 pursuant to the
exercise of options granted pursuant to the Company's
Employee Stock Option Plan: Mr. Pettit (1,290,322); Mr.
Thompson (460,000); and all directors and executive officers
named in the summary compensation table as a group
(2,025,322). Also includes 830,000 shares which may be
acquired through exercise of warrants.
ITEM 13. Certain Relationships and Related Transactions.
Not applicable.
Part IV
Page 50 of 67
ITEM 14. Exhibits, Financial Statements, and Reports on
Form 8-K.
(a) Documents filed as part of
this report:
1. The following consolidated
financial statements of the
registrant and its subsidiaries are contained in Item
310:
Consolidated Balance Sheets as of April 30, 1995 and 1994;
Consolidated Statements of Operations for each of the
three years in the period ended April 30, 1995;
Consolidated Statements of Changes in Deficiency in
Assets for each of the three years in the period ended
April 30, 1995;
Consolidated Statements of Cash Flows for each of the
three years in the period ended April 30, 1995;
Notes to Consolidated Financial Statements; and
Independent Auditors' Report.
3. The following exhibits are
filed herewith or incorporated
by reference as indicated. Exhibit numbers refer to Item
601 of Regulation S-B. *Denotes management contract or
compensatory plan or arrangement.
Exhibit No.
(3) Articles of Incorporation
and By-Laws.
(a) Restated Charter as
amended.
(b) By-Laws as amended
(4) Instruments Defining the
Rights of Security
Holders.
(a) Rights Agreement, dated
August 12, 1988 between
the Registrant and
Third National Bank in
Nashville, including
Incorporated by reference to
Exhibit 3(a) to Registrant's
Annual Report on Form 10-K for
the fiscal year ended April 30,
1988.
Incorporated by reference to
Exhibit 10(b) to Registrant's
Report on Form 10-K for the
fiscal year ended April 30,
1994.
Incorporated by reference to
Exhibit 4.1 to Registrant's
Report on Form 8-K for the
event occurring August 12,
1988.
Form of Rights
Certificate and Form of
Summary Rights.
(10) Material Contracts.
(a) (i) Profit Sharing
Trust of the Registrant,
as amended and restated.
(ii) Amendment No.1 to the
Profit Sharing Trust of
the Registrant, as amended
and restated.
(iii) Amendment No.2 to
the Profit Sharing Trust
of the Registrant, as
amended and restated.
(iv) Amendment No. 3 to
the Profit Sharing Trust
of the Registrant, as
amended and restated.
*(b) (i) Summary Description
of Incentive Bonus Plan
for Key Employees, as
amended.
(ii) Summary Description
of 1994 Bonus Plan.
Part IV
Page 51 of 67
Incorporated by reference to
Exhibit 10(a) to Registrant's
Report on Form 10-K for the
fiscal year ended April 30,
1992.
Incorporated by reference to
Exhibit 10(a)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
April 30, 1994.
Incorporated by reference to
Exhibit 10(a)(iii) to
Registrant's Report on Form 10-K for the fiscal year ended
April 30, 1994.
Incorporated by reference to
Exhibit 10(a)(iv) to
Registrant's Report on Form 10-K for the fiscal year ended
April 30, 1994.
Incorporated by reference to
Exhibit 10(b)(i) to
Registrant's Report on Form 10-K for the fiscal year ended
April 30, 1992.
Incorporated by reference to
Exhibit 10(b)(ii) to
Registrant's Report on Form 10-K for the fiscal year ended
April 30, 1993.
*(c) Sick-Pay Plan.
*(d) Executive Supplemental
Retirement Plan.
*(e) Employee Stock Option
Plan, as amended
(f) Lease Agreement made
February 3, 1992, covering
approximately 6,400 square
feet of office space for
the Registrant's executive
offices in Memphis,
Tennessee.
(g) (i) Lease Agreement dated
May 8, 1987, between Seven
Oaks Direct, Inc., a
subsidiary of the
Registrant, and Crow-
Brindell-Mitchell for the
lease of a facility in
Memphis, Tennessee
(ii) Amendment dated
December 31, 1987 to the
Lease Agreement between
Seven Oaks Direct, Inc.
and Crow-Brindell-
Mitchell.
(iii) Sublease between
Seven Oaks Direct, Inc.
and Teleconnect Data Base
Marketing Company, dated
as of April 30, 1989. Part IV
Page 52 of 67
Incorporated by reference to
Exhibit 10(e) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1985.
Incorporated by reference to
Exhibit 10(f) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1985.
Incorporated by reference to
Exhibit 10(g) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1990.
Incorporated by reference to
Exhibit 10(h) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1992.
Incorporated by reference to
Exhibit 10(v) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1992.
Incorporated by reference to
Exhibit 10(q)(ii) to
Registrant's Report on Form 10-K for the fiscal year ending
April 30, 1988.
Incorporated by reference to
Exhibit 28 to Registrant's
Report on Form 8-K for the
event occurring April 30, 1989.
(iv) First Amendment to
sublease described in
subsection (g)(iii) above.
*(h) Agreement concerning
compensation, consulting,
confidentiality and non-
competition dated May 3,
1988, between the
Registrant and Harold E.
Hill.
*(i) Severance Benefits
Agreement between the
Registrant and Tommy R.
Thompson.
(j) (i) Agreement of
Purchase and Sale of
Assets of Seven Oaks
Marketing Services, Inc.,
dated November 2, 1989
between Seven Oaks
Marketing Services, Inc.
and Lees' Marketing
Services, Inc. ("Lees")
with Addendum thereto
dated December 21, 1989.
(k) Lease agreement dated
September 2, 1993
regarding El Paso, Texas
facility.
(l) Lease agreement for space
in El Paso, Texas
Part IV
Page 53 of 67
Incorporated by reference to
Exhibit 10(i)(iv) to
Registrant's Report on Form
10-K for the fiscal year ending
April 30, 1994.
Incorporated by reference to
Exhibit 10(s) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1988.
Incorporated by reference to
Exhibit 10(k) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1993.
Incorporated by reference to
Exhibit 10(w) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1990.
Incorporated by reference to
Exhibit 10(q) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1993.
Incorporated by reference to
Exhibit 10(r) to Registrant's
Report on Form 10-K for the
fiscal year ending April 30,
1994.
(m) (i) Promise to Execute a
Purchase and Sale
Contract between
Inmobiliaria Axial, S.A.
de C.V. ("Buyer") and
Siete Robles
Internacional, S.A. de
C.V. ("Siete Robles")
(English translation.)
(ii) Lease Agreement
between Buyer and Siete
Robles (English
translation).
(iii) Guaranty of Seven
Oaks International, Inc.
(English translation.)
(iv) $250,000 Promissory
Note (English
translation).
(v) $600,000 Promissory
Note (English
translation).
(vi) Term Sale and
Purchase Agreement in
Performance of Trust
Agreement and Termination
of Trust by and among
Buyer, Siete Robles and
Banca Serfin, S.N.C.
(English translation).
(n) Contract for sale of
facility in El Paso,
Texas and addendum and
amendment thereto.
Part IV
Page 54 of 67
Incorporated by reference to
Exhibit 2(a) to Registrant's
Report on Form 8-K filed March
3, 1994.
Incorporated by reference to
Exhibit 2(b) to Registrant's
Report on Form 8-K filed March
3, 1994.
Incorporated by reference to
Exhibit 2(c) to Registrant's
Report on Form 8-K filed March
3, 1994.
Incorporated by reference to
Exhibit 2(d) to Registrant's
Report on Form 8-K filed March
3, 1994.
Incorporated by reference to
Exhibit 2(e) to Registrant's
Report on Form 8-K filed March
3, 1994.
Incorporated by reference to
Exhibit 2(f) to Registrant's
Report on Form 8-K filed March
3, 1994.
Incorporated by reference to
Exhibits 2(a) and (b) to
Registrant's Report on Form 8-K
filed August 3, 1994.
(o) Contract for sale of real
property in Delicias,
Mexico and related
documents.
(p) Stock Purchase and Debt
Modification Agreement
among the Registrant,
Coupon Redemption, Inc.,
Acorn Holdings LLC and
Fleming Companies, Inc.
(q) Processing Agreement
beteween Fleming
Companies, Inc., Coupon
Redemption, Inc. and
certain other parties.
(r) Registration Rights
Agreement between
Registrant, Acorn
Holdings LLC and Fleming
Companies, Inc.
*(s) Employment Contract
between the Registrant
and Peter R. Pettit.
(t) Security Agreement between
Coupon Redemption, Inc.
and Fleming Companies,
Inc.
(u) Consent and Subordination
Agreement between Foothill
Capital Corporation,
Registrant, Coupon
Redemption, Inc. and
Fleming Companies, Inc.
Part IV
Page 55 of 67
Incorporated by reference to
Exhibit 10(u) to Registrant's
Annual Report on Form 10-K for
the fiscal year ended April 30,
1994.
Incorporated by reference to
Exhibit 10 (a) to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended July 31,
1994.
Incorporated by reference to
Exhibit 10 (b) to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended July 31,
1994.
Incorporated by reference to
Exhibit 10 (c) to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended July 31,
1994.
Incorporated by reference to
Exhibit 10 (d) to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended July 31,
1994.
Incorporated by reference to
Exhibit 10 (e) to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended July 31,
1994.
Incorporated by reference to
Exhibit 10 (f) to Registrant's
Quarterly Report on Form 10-Q
for the quarter ended July 31,
1994.
*(v) 1994 Seven Oaks
International, Inc. Stock
Option Plan.
*(w) Incentive Stock Option
Agreement between the
Registrant and Peter R.
Pettit.
*(x) Registration Rights
Agreement between the
Registrant and Peter R.
Pettit.
(y) Amendment No. 15 to
General Loan and Security
Agreement between Coupon
Redemption, Inc. and
Foothill Capital
Corporation.
(z) Commercial Earnest Money
Contract and addendum
thereto for sale of
facility at 1401 Lomaland,
El Paso, Texas.
(ii) Letter amendment to
Commercial Ernest Money
Contract.
(aa) Real Estate Purchase
Option, dated July 25,
1994, between Siete
Robles Internacional,
Inc. S.A. de C.V. and
Matias Mesta Soule.
(ab) Indenture, dated as of
March 1, 1995, between
Coupon Redemption, Inc.
and Union Planters
National Bank, Trustee. Part IV
Page 56 of 67
Incorporated by reference to
Exhibit (10)(g) to Registrant's
Report on Form 10-Q for the
quarter ended July 31, 1994.
Incorporated by reference to
Exhibit (10)(h) to Registrant's
Report on Form 10-Q for the
quarter ended July 31, 1994.
Incorporated by reference to
Exhibit (10)(i) to Registrant's
Report on Form 10-Q for the
quarter ended July 31, 1994.
Incorporated by reference to
Exhibit (10)(j) to Registrant's
Report on Form 10-Q for the
quarter ended July 31, 1994.
Incorporated by reference to
Exhibit (2)(a) to Registrant's
Report on Form 8-K filed July
29, 1994.
Incorporated by reference to
Exhibit (2)(b) to Registrant's
Report on Form 8-K filed July
29, 1994.
Incorporated by reference to
Exhibit (10)(g) to Registrant's
Report on Form 10-QSB for the
quarter ended October 31, 1994.
Incorporated by reference to
Exhibit (10)(a) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
(ac) Guaranty Agreement, dated
March 1, 1995, between
Seven Oaks International,
Inc. and Union Planters
National Bank, Trustee.
(ad) Security Agreement,
Accounts Receivables &
Contract Rights, dated
March 1, 1995, between
Coupon Redemption, Inc.
and Union Planters
National Bank, Trustee.
(ae) Security Agreement,
Furniture, Fixtures and
Equipment, dated March 1,
1995, between Coupon
Redemption, Inc. and
Union Planters National
Bank, Trustee.
(af) Mortgage, dated March 1,
1995, betweeen SOCIS,
Inc. and Union Planters
National Bank, Trustee.
(ag) Loan Agreement, dated
March 1, 1995, between
Coupon Redemption, Inc.
and Seven Oaks
International, Inc. and
National Bank of
Commerce.
(ah) Line of Credit Note,
dated March 1, 1995,
between Coupon
Redemption, Inc. and
Seven Oaks International,
Inc. and National Bank of
Commerce.
(ai) Security Agreement, dated
March 1, 1995, between
Coupon Redemption, Inc.
and Seven Oaks
International, Inc. and
National Bank of
Commerce. Part IV
Page 57 of 67
Incorporated by reference to
Exhibit (10)(b) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(c) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(d) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(e) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(f) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(g) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(h) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
(aj) Warranty Agreement, dated
March 1, 1995, between
Seven Oaks International,
Inc. and National Bank of
Commerce.
(ak) Sample Warrant to
Purchase Common Stock of
Seven Oaks International,
Inc.
(al) Sample Registration
Rights Agreement.
(am) Letter Agreement dated
May 10, 1995 between
Seven Oaks International,
Inc. and Coupon
Redemption, Inc. and
Fleming Companies, Inc.
to modify the Stock
Purchase and Debt
Modification Agreement
dated September 7, 1994.
(22) Subsidiaries of the
Registrant.
(24) Consents of Experts and
Counsel. Part IV
Page 58 of 67
Incorporated by reference to
Exhibit (10)(i) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(j) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Incorporated by reference to
Exhibit (10)(k) to Registrant's
Report on Form 10-QSB for the
quarter ended January 31, 1995.
Part IV
Page 59 of 67
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.
Seven Oaks International, Inc.
Registrant
Date July 28, 1995 /s/ Peter R. Pettit
Peter R. Pettit, Chairman
and Chief Executive Officer
Date /s/ Jimmy H. Cavin
Jimmy H. Cavin
Chief Financial Officer
Page 60 of 67
SEVEN OAKS INTERNATIONAL, INC.
AND SUBSIDIARIES
EXHIBIT INDEX
Page
10 (am) Letter Agreement dated May 10, 1995 between
Seven Oaks International, Inc. and Coupon
Redemption, Inc. and Fleming Companies, Inc. to
modify the Stock Purchase and Debt Modification
Agreement dated September 7, 1994. 61
22 Subsidiaries of the Registrant. 66
24 Consents of Experts and Counsel. 67
