<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934 For the
Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 0-10096
STRIKER INDUSTRIES, INC.
(Exact name of Company as specified in its charter)
DELAWARE 84-0834953
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
ONE RIVERWAY, SUITE 2450
HOUSTON, TEXAS 77056
(Address of principal executive offices)
(Zip Code)
(713) 622-4092
(Company's telephone number, including area code)
NOT APPLICABLE
(Former name if changed since last report)
Indicate by check mark whether the Company (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 Company was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of May 15, 1997, there were 10,912,564 shares of Common Stock, par value
$0.20 per share, outstanding and no shares of Preferred Stock, par value $0.20
per share, were outstanding.
Page 1 of 24
<PAGE> 2
INDEX TO QUARTERLY REPORT ON FORM 10-Q
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
- ------- --------------------- --------
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II. OTHER INFORMATION
- -------- -----------------
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a
Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
</TABLE>
Page 2 of 24
<PAGE> 3
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
For the Period Ending
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 307,860 292,485
Cash, restricted as to use 360,000 360,000
Accounts receivable:
Trade 500,519 492,533
Other, net of bad debt allowance of 489,671
and 489,671 for March 31, 1997 and
December 31, 1996, respectively 300,557 45,067
Inventories:
Raw materials 24,452 25,221
Finished goods 184,229 210,301
Prepaid expenses and other current assets 69,909 418,958
------------ ------------
Total current assets 1,747,526 1,844,565
Property and equipment, net 15,840,682 15,943,490
Deferred costs and other, net 1,195,375 1,412,411
------------ ------------
Total assets $ 18,783,583 19,200,466
============ ==========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 2,755,589 2,524,519
Accrued liabilities 951,560 932,515
Revolving line of credit 714,825 529,950
Current portion of long term debt 4,142,700 3,463,950
Current obligations under capital leases 28,371 35,962
------------ ------------
Total current liabilities 8,593,045 7,486,896
Long-term liabilities:
Notes payable to affiliates 5,879,532 5,300,000
Term loans, net of current portion 505,100 534,650
Capital lease obligation 17,164 18,750
------------ ----------
Total long-term liabilities 6,401,796 5,853,400
------------ ------------
Stockholders' equity:
Preferred stock, $.20 par value, 5,000,000 shares
authorized, none issued -- --
Common stock, $0.20 par value, 25,000,000 shares authorized,
10,912,564 and 10,912,564 shares issued, respectively 2,184,913 2,184,913
Stock subscriptions receivable (275,000) (275,000)
Additional paid-in capital 14,098,118 14,098,034
Accumulated deficit (12,060,012) (9,988,500)
Foreign currency translation adjustment (84,277) (84,277)
Less treasury stock at cost; 12,000 shares (75,000) (75,000)
------------ ----------
Total stockholders' equity 3,788,742 5,860,170
Commitments and contingencies
------------ ----------
Total liabilities and stockholders' equity $ 18,783,583 19,200,466
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 3 of 24
<PAGE> 4
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the quarters ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Quarter ended March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Revenues $ 769,571 1,392,749
Cost of sales 1,360,950 1,443,269
----------- -----------
Gross margin (591,379) (50,520)
Selling, general and administrative expenses 953,624 372,755
----------- -----------
Operating loss (1,545,003) (423,275)
----------- -----------
Other income (expense):
Interest expense, net (526,508) (93,184)
Other income -- --
----------- -----------
Loss before income taxes and
extraordinary item (2,071,511) (516,459)
Income taxes -- --
----------- -----------
Net loss before extraordinary item (2,071,511) (516,459)
----------- -----------
Extraordinary item, gain on extinguishment
of debt -- --
----------- -----------
Net income (loss) $(2,071,511) (516,459)
=========== ===========
Income (loss) per common share:
Loss before extraordinary item $ (.19) (.05)
Extraordinary item -- --
----------- -----------
Net income (loss) per common share $ (.19) (.05)
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
Page 4 of 24
<PAGE> 5
STRIKER INDUSTRIES, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the quarters ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
Quarter ended March 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(2,071,511) (516,459)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 398,181 210,011
Changes in assets and liabilities:
(Increase) in accounts receivable (263,476) (457,115)
Decrease in inventories 26,841 6,537
Decrease in prepaid expenses and other current assets 349,049 41,437
Increase (decrease) in accounts payable and accrued liabilities 250,114 (106,477)
----------- -----------
Net cash provided by (used) in operating activities (1,310,802) (822,066)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (78,336) (648,508)
Increase in deferred acquisition costs -- (306,072)
----------- -----------
Net cash used in investing activities (78,336) (954,580)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of convertible subordinated notes 735,000 --
Proceeds from revolving lines of credit 860,270 1,808,432
Repayment of revolving lines of credit (675,311) (1,625,404)
Proceeds from fixed asset line of credit -- 232,500
Repayments of fixed asset line of credit (85,800) (90,930)
Principal payments on capital leases (9,178) --
Proceeds received from issuance of common stock subscribed -- 236,000
Deferred and other costs paid -- --
Proceeds from affiliate notes payable 579,532 1,300,000
----------- -----------
Net cash provided by financing activities 1,404,513 1,860,598
----------- -----------
Net increase (decrease) in cash 15,375 83,952
Cash and cash equivalents, beginning of year 292,485 141,557
----------- -----------
Cash and cash equivalents, end of year $ 307,860 225,509
=========== =======
</TABLE>
See notes to accompanying consolidated financial statements.
Page 5 of 24
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Striker and its wholly owned subsidiaries. All material intercompany accounts
and transactions have been eliminated.
Interim Financial Information
The consolidated interim financial statements included herein are unaudited;
however, they include all adjustments of a normal recurring nature which, in
the opinion of management, are necessary to present fairly the consolidated
financial position of the Company at March 31, 1997 and the consolidated
results of operations and the cash flows for the three months ended March 31,
1997 and 1996.
Inventories
Inventories are stated at the lower of cost or market using the average cost
method. The finished goods inventories include materials, direct labor and
plant overhead.
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major renewals
and betterments, which extend the original estimated economic useful lives of
the applicable assets, are capitalized. Expenditures for normal repairs and
maintenance are charged to expense as incurred.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"). This statement
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes
indicate the carrying amount of an asset may not be recoverable.
In order to concentrate on its acquisition strategy and on maximizing sales of
dry felt paper, the Company temporarily suspended asphalt-saturating felt
operations in July, 1994. The Company has identified projects necessary for
improving the existing saturated paper lines to accommodate the production of a
value-added product. The Company anticipates completing the required projects
in the future when it becomes economically feasible.
Pursuant to the adoption of SFAS 121, the Company accounted for the impairment
of its saturating equipment by reducing the carrying amount by approximately
$391,000 for the year ended December 31, 1996. An analysis was completed
comparing the carrying value to an independent valuation. The carrying value
was adjusted to reflect the amount per the independent valuation. This
impairment affected the United States operations only.
Page 6 of 24
<PAGE> 7
Deferred Costs and Other, Net
Deferred costs and other, net, include organization costs and deferred
acquisition and financing costs. The organization costs are being amortized over
a five-year period on a straight-line basis. As of March 31, 1997, the Company's
organizational costs have been fully amortized. Where applicable, the deferred
acquisition costs are added to the cost of the assets acquired after the
acquisition is completed. Deferred financing costs are being amortized over the
life of the related respective financing obtained.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rate and laws that will be in effect
when the differences are expected to reverse.
Revenue Recognition
The Company generally recognizes revenue when products are shipped or when the
customer has accepted the product.
Earnings (Loss) Per Common Share
The computation of earnings or loss per share in each year is based on the
weighted average number of common shares outstanding. When dilutive, stock
options and warrants are included as share equivalents using the treasury stock
method. The number of shares used in computing the earnings (loss) per share
was 10,912,564 for the quarter ended March 31, 1997 and 10,599,564 for the
quarter ended March 31, 1996. Primary and fully diluted earnings per share are
the same for each of these years.
Translation of Foreign Currency Financial Statements
Assets and liabilities of foreign subsidiaries have been translated into United
States dollars at the applicable rates of exchange in effect at the end of the
period reported. Revenues and expenses have been translated at the applicable
weighted average rates of exchange in effect during the period reported.
Translation adjustments are reflected as a separate component of stockholders'
equity. Any transaction gains and losses are included in net income.
Page 7 of 24
<PAGE> 8
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from the estimates.
New Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 specifies the compilation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. The requirements of this statement will be effective for fiscal
years beginning after December 15, 1997. Management does not believe that the
implementation of SFAS 128 will have a material effect on its financial
statements.
Cash Flow Information
For purposes of reporting cash flows, cash and cash equivalents include cash
and short-term investments which mature within three months of their date of
purchase.
Page 8 of 24
<PAGE> 9
2. PROPERTY AND EQUIPMENT, NET:
The Company's property and equipment consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
Useful Life 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Machinery, equipment and vehicles 5 - 12 years $16,056,533 $15,993,022
Buildings 25 years 816,120 807,229
Computer and office equipment 5 years 728,254 728,092
Land improvements 5 years 266,533 260,760
Machinery, equipment and vehicles 2 - 5 years 139,266 139,266
under capital leases
Spare parts 274,472 274,472
Land 150,000 150,000
----------- -----------
18,431,178 18,352,841
Less- Accumulated depreciation and amortization (2,590,496) (2,409,351)
----------- -----------
$15,840,682 $15,943,490
=========== ===========
</TABLE>
3. DEFERRED COSTS AND OTHER, NET:
The Company's deferred costs and other, net, consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
<S> <C> <C>
Deferred financing costs, net 1,122,734 1,344,297
Deposits 53,551 47,751
Patents 25,029 25,029
Less- Accumulated amortization (5,939) (4,666)
Organization costs 78,025 78,025
Less- Accumulated amortization (78,025) (78,025)
----------- -----------
$ 1,195,375 $ 1,412,411
=========== ===========
</TABLE>
Page 9 of 24
<PAGE> 10
4. DEBT:
The Company's debt consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Subordinated notes payable, 10.25% due 12/31/98 $ 5,879,532 $ 5,300,000
Subordinated notes payable @ 13% interest, due the
earlier of (i) 5/15/97, or (ii) the closing of any public or
private debt or equity financing exceeding $10.5 million 798,000 798,000
Original Issue Discount Notes due the earlier of (i) 4/25/97, or (ii) the
closing of any public or private debt or equity financing exceeding
$10.5 million 2,310,000 1,575,000
Stephens:
Term loan, prime (8.25% +3.5%, due 5/31/98 623,300 652,850
Revolving line of credit, prime + 3.5% 352,744 164,148
Canadian Facility:
Term loan, prime (6.5%) +2.5% due 4/01/01 916,500 972,750
Revolving line of credit, prime +2.5% 362,082 365,802
Capitalized lease obligations bearing interest at
rates from 10% to 18% maturing between 1996 and 2000, secured by
underlying machinery, vehicles and computer equipment
45,534 54,712
------------ ------------
Less-Current maturities and revolving lines of credit 11,287,692 9,883,262
(4,885,896) (4,029,862)
------------ ------------
$ 6,401,796 $ 5,853,400
============ ============
</TABLE>
On March 2, 1995, the Company issued $1,200,000 of 10.25% Subordinated Notes
(the "1995 Notes") to seven international investors, three of which are
stockholders. The 1995 Notes mature on December 31, 1998, and interest is
payable quarterly beginning July 1, 1995. The proceeds of the 1995 Notes were
used to pay down the affiliate notes payable.
On May 4, 1995, the Company entered into a financing agreement consisting of a
term loan based upon the liquidation value of certain of the Company's fixed
assets at the Stephens mill and a revolving line of credit based upon eligible
accounts receivable assets (collectively "the Stephens Facility"). Advances
under the Facility are limited to $2,500,000 in the aggregate and bear interest
at prime plus 3.5%.
Page 10 of 24
<PAGE> 11
On July 28, 1995, the Company's Canadian Subsidiary, Striker Paper Canada, Inc.
("Striker Canada"), entered into a financing agreement with a Canadian lender
consisting of a term loan based upon the liquidation value of certain of
Striker Canada's fixed assets and a revolving line of credit based upon
eligible accounts receivable (collectively "the Canadian Facility"). Advances
under the Canadian Facility are limited to $2,000,000 Canadian in the aggregate
and bear interest at Canadian prime plus 2.5%. At December 31, 1995, Striker
Canada was not in compliance with certain covenants of the Canadian Facility
and a waiver was obtained for the year ended December 31, 1995. At December 31,
1996, Striker Canada was not in compliance with certain covenants of the
Canadian Facility. At March 31, 1997 Striker Canada was not in compliance with
certain covenants of the Canadian Facility. As of the date of this report,
though the Company is still attempting to obtain a waiver, none has been
obtained for the quarter ended March 31, 1997 or the year ended December 31,
1996. Therefore, the Company has reclassified the entire Canadian Facility as
current debt for the quarter ended March 31, 1997 and the year ended December
31, 1996.
On February 16, 1996, a wholly-owned subsidiary of the Company issued
$1,300,000 in aggregate principal amount of 10.25 % Subordinated Notes (the
"1996 Notes") to seven purchasers. The proceeds of the 1996 Notes were used for
Transaction costs and/or working capital needs.
On June 5, 1996, a wholly-owned subsidiary of the Company issued $1,300,000 in
aggregate principal amount of 10.25 % Subordinated Notes (the "1996 B Notes")
to twelve international investors, five of which are stockholders. The 1996 B
Notes mature on December 31, 1998 and interest is payable quarterly beginning
July 1, 1996. The proceeds of the 1996 B Notes were used for Transaction costs
and/or working capital needs.
On July 10, 1996, a wholly-owned subsidiary of the Company issued $1,500,000 in
aggregate principal amount of 10.25 % Subordinated Notes (the "1996 C Notes")
to nine international investors, six of which are stockholders. The 1996 C
Notes mature on December 31, 1998 and interest is payable quarterly beginning
July 1, 1996. The proceeds of the 1996 C Notes were used for Transaction costs
and/or working capital needs.
A wholly owned subsidiary of the Company issued $798,000 in aggregate principal
amount of Subordinated Notes (the "1996 D Notes") dated October 28, 1996 to
several investors. Under an agreement in principle negotiated by management
with the 1996 D noteholders, the 1996 D Notes mature on December 31, 1997.
In December, 1996 and January, 1997, the Company issued $2,310,000 in aggregate
principal amount of Original Issue Discount Notes (the "1996 E Notes") to
twenty-one investors. The maturity date of the 1996 E Notes by agreed extension
was 5/19/97. However, on May 16, 1997, approximately $2,000,000 was repaid and
the remaining balance thereof, by agreement in principle, is to be paid by
June 30, 1997. The proceeds of the 1996 E Notes were used for Transaction costs
and/or working capital needs.
Page 11 of 24
<PAGE> 12
In March and April, 1997, the Company issued $579,532 in aggregate principal
amount of 10.25 % Subordinated Notes (the "1997 Notes") to an international
investor. The 1997 Notes mature on December 31, 1998 and interest is payable
thereon quarterly. The proceeds of the 1997 Notes were used for working capital
needs.
In April and May, 1997, a wholly-owned subsidiary of the Company issued
$2,550,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the
"1997 B Notes") to ten international investors. The 1997 B Notes mature on
December 31, 1997 and interest is payable thereon quarterly. the principal use
of the proceeds of the 1997 B Notes was and is to pay down and retire the 1996
E Notes.
At March 31, 1997, there were no amounts available under the lines of credit.
Interest paid for the three months ended March 31, 1997 and 1996, was $46,544
and $96,134, respectively.
Page 12 of 24
<PAGE> 13
5. COMMITMENTS AND CONTINGENCIES:
Contingencies
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction (the Transaction) with the indirect parent corporation of one of
the largest privately-owned manufacturers of asphalt shingles and built up
roofing (GS Roofing). The closing of the Transaction had been extended in
writing by mutual agreement of the parties to April 21, 1997, provided that (i)
a Registration Statement required to raise the equity component of the
financing required for closing was filed with the Securities and Exchange
Commission (which document was filed with the Securities and Exchange
Commission December 26, 1996) and (ii) the merger became effective on or before
April 21, 1997 or within incremental five business day periods of time
thereafter so long as bona fide marketing efforts were being conducted by the
underwriters with a view to such Registration Statement becoming effective on
or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission, the President of GS
Roofing, Donald F. Smith, sent a notice to the Company of his and resultantly,
GS Roofing's repudiation of the Transaction. Subsequent to that date, the
Company made protracted attempts to reinstate the Transaction, without success.
Accordingly, management ultimately retained counsel and filed suit against
Newgen Holdings, Inc., Gen Holdings, Inc., GS Roofing Products Company, Inc.,
Donald F. Smith and Maredon-I, Ltd. alleging, among other things, a breach of
contract by the defendants resulting from the defendants' wrongful repudiation
of the binding agreements between the Company and the defendants providing for
the Transaction, which action by the defendants severely impaired the Company's
ability to complete the equity and debt offerings which were a critical part of
the Transaction. The lawsuit is in the preliminary stages and pre-trial
discovery has not yet commenced. Accordingly, the Company is unable at present
to express any opinion regarding the probable outcome of this litigation.
In connection with the Transaction, the Company received bridge financing from
the underwriter, BlueStone Capital Partners, L.P.(BlueStone). As is customary
with bridge financing, both the Company and the 1996 E noteholders contemplated
payment of the bridge notes out of the debt and equity financing of the
Transaction. During the quarter ended March 31, 1997, and following repudiation
of the Transaction by Donald F. Smith and GS Roofing, et al, the Company
received a demand notice from BlueStone accelerating the due date of the 1996 E
Notes to April 3, 1997 from April 25, 1997. The 1996 E Notes are secured by a
second and subordinate lien and security interest on the assets of each of the
Company's U.S. subsidiaries, including its Stephens, Arkansas plant, junior in
priority to the lien on the same assets held by its senior lender. The 1996 E
Notes are also guaranteed by each of the Company's U.S. subsidiaries. As of the
date of this report, the Company has paid approximately $2,000,000 of the total
owed under the terms of the 1996 E Notes and management has negotiated an
agreement in principle to retire the remaining balance of this indebtedness by
June 30, 1997.
In conjunction with the work performed on the closed water loop system, the
Company removed dirt and sludge from the bottom of the filtering ponds at the
Stephens Mill. The dirt and sludge removed from the filtering ponds were placed
on an isolated area of land at the mill. The Company notified the ADPCE and
requested approval for clean-up. The Company received approval from the ADPCE
to re-cover and cap the sludge, without requirement for any digging up or
removal of any thereof. The Company began work on capping the sludge August 2,
1996. The Company anticipates that this project will be completed by July 15,
1997. The work being performed will bring the Company in compliance with
provisions of the ADPCE landfill permit.
Page 13 of 24
<PAGE> 14
Commitments
During 1995, the Company entered into sales contracts (the Sales Contracts)
with three of its major customers. Under terms of the Sales Contracts, the
customers were required to purchase at least 1,900 tons of dry felt each month,
in the aggregate, for a period of eighteen months at prices based in part upon
the mix of raw materials used in the manufacture of the dry felt and the quoted
market price of the raw materials. During the fourth quarter of 1996, the Sales
Contracts terminated. One of the three contract customers renewed their
contracts for an additional period of twelve months with no change in terms.
The two other customers continue to order product outside of any contract
stipulations. Management believes that there is a sufficient market for its
product and that the Company will be able to sell its total production to
existing and potential new customers.
6. SALE OF SUBSIDIARY:
Effective April 1, 1996, the Company sold 100% of the outstanding shares of its
subsidiary, Striker Services, for consideration equal to the adjusted net book
value of Striker Services after giving affect to the capitalization of the
intercompany account payable owing to the Company by Striker Services.
7. CASUALTY LOSSES AT MILLS:
On January 16, 1997, the Company experienced a fire at its Thorold Mill. The
fire was caused by an electrical short in the main building which houses the
paper line. The fire caused extensive damage to a part of the building and the
sheet forming section of the paper line. The Company immediately contacted its
insurance carrier and started planning the rebuilding of the damaged part of
the plant and replacement of the fire damaged equipment. The estimates
available at the date of this report indicate damage of approximately
$1,500,000 US. The Company's insurance policy calls for 90% of replacement
cost. Management believes that the insurance coverage on the plant and its
contents of $5,000,000 US is more than adequate to cover all the costs of
rebuilding and replacing all fire damage to the plant and equipment. The
Company anticipates that additional routine repairs and maintenance will be
necessary prior to start-up. As of the date of this report, the Company
anticipates having all the repairs completed and the resuming of full operation
on or about June 30, 1997. The ability of the Company to resume operations will
be dependent upon sufficient cash availability for start-up costs, aged payable
payments and working capital. Management has estimated that the start-up of the
Thorold Mill will require approximately $350,000 US. The Company is pursuing
several financing options in order to raise the cash necessary to begin
operations.
Page 14 of 24
<PAGE> 15
On or about February 25, 1997, the Company's Stephens Mill experienced a strong
storm in connection with tornado activity in the region. The Stephens Mill did
not suffer any damage from tornadoes, however, the heavy rains associated with
the storm damaged the roof covering a section of one the main buildings. The
area damaged was not being utilized by the Company. The area is currently
partitioned and no activity is allowed in or about the area. Subsequent to
March 31, 1997, the Company settled the damage claim for $75,000. The Company
is currently soliciting bids to begin repairs to the roof and its support
beams. The Company expects that the repairs will be completed by July 31, 1997.
8. SUBSEQUENT EVENTS:
The Company is currently working with BlueStone and certain debt financing
sources to secure funding for acquisitions in its industry, including an
acquisition of Woodland Industries, Inc. There can be no assurance at
the date of the report that the Company's efforts in this regard will be
successful, or that equity and debt financing required for this purpose can be
obtained on terms and conditions acceptable to the Company.
In April and May, 1997, a wholly-owned subsidiary of the Company issued
$2,550,000 in aggregate amount of 10.25% Subordinated Promissory Notes (the
"1997 B Notes") to ten international investors. The 1997 B Notes mature on
December 31, 1997 and interest is payable thereon quarterly. The principal use
of the proceeds of the 1997 B Notes was and is to pay down and retire the 1996
E Notes.
On or about May 14, 1997, a fire occurred at a finished goods warehouse at the
Stephens Mill. The fire completely destroyed the building and its contents. At
the time of the fire, there were no finished goods in the warehouse, however,
a quantity of raw materials being stored in the building was destroyed. As of
the date of this report, an insurance claim has been filed, but it is
premature at this date to estimate the actual dollar value of the loss suffered.
Page 15 of 24
<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion should be read in conjunction with the financial statements of
the Company included elsewhere in this Form 10-Q:
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Revenue $ 769,571 $ 1,392,749
Cost of Sales 1,360,950 1,443,269
Gross Margin (591,379) (50,520)
Selling, general and 953,624 372,755
administrative
Operating Loss (1,545,003) (423,275)
Interest expense, net (526,508) (93,184)
----------- -----------
Net loss before
income taxes $(2,071,511) $ (516,459)
=========== ===========
</TABLE>
COMPARISON OF QUARTERS ENDED MARCH 31, 1997 AND 1996
Sales for the quarter ended March 31, 1997 were $769,571, a decrease of
$623,178 from sales of $1,392,749 for the quarter ended March 31, 1996. The
decrease in sales is primarily due to a decrease in the number of units (tons)
sold of dry felt. The decrease in the number of tons sold is primarily due to
downtime at both mills during the quarter ended March 31, 1997.
Gross margin decreased to a negative $591,379 (76.8 percent of total sales for
the quarter ended March 31, 1997) from a negative gross margin of $50,520 (3.6
per cent of total sales for the quarter ended March 31, 1996). The decrease in
gross margin is primarily due to the decrease in sales, unabsorbed production
overhead and increased repairs and maintenance due to the downtime during 1997.
Selling, general and administrative expenses increased by $580,869 to $953,624
for the quarter ended March 31, 1997, from $372,755 for the quarter ended March
31, 1996. This increase is primarily due to an increase in legal and
professional fees expensed during 1997, as a result of the repudiation of the
Transaction by Donald F. Smith and GS Roofing, et al. These costs were
capitalized in connection with the Transaction as deferred acquisition costs
during 1996 (See Note 5 to the Consolidated Financial Statements).
Interest expense, net, increased to $526,508 for the quarter ended March 31,
1997, from $93,184 for the quarter ended March 31, 1996. This increase is due
to the additional subordinated notes payable and the amortization of deferred
financing costs (amortized as interest expense).
Page 16 of 24
<PAGE> 17
Because the Company has been in a loss position for financial and income tax
reporting purposes, no current or deferred income tax benefits have been
provided due to the uncertainty of realization.
CASH FLOWS - COMPARISON OF THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Cash flows used by operating activities increased to $1,310,802 for the three
months ended March 31, 1997 from $822,066 for the three months ended March 31,
1996. This increase in primarily due to the increase in operating losses,
partially offset by a decrease in prepaid expenses and an increase in accounts
payable and accrued liabilities.
Cash flows used in investing activities decreased to $78,336 for the three
months ended March 31, 1997 from $954,580 for the three months ended March
31, 1996. This decrease is primarily due to the reduction in purchases of
property and equipment and the decrease in deferred acquisition costs paid in
the 1997 period.
Cash flows provided by financing activities decreased to $1,404,513 for the
three months ended March 31, 1997 from $1,860,598 for the three months ended
March 31, 1996. This decrease is primarily due to a decrease in proceeds from
the revolving lines of credit and term loans.
Liquidity and Capital Resources
For the three months ended March 31, 1997, the Company had an operating loss
and has experienced continued short term liquidity concerns.
The Company devoted substantial amounts of cash to acquisition activities for
the Transaction. The Company raised over $3,000,000 in subordinated debt during
1996 and early 1997 (including $735,000 raised in January, 1997) to pay for the
costs of the Transaction. Because approximately $500,000 of Transaction costs
were not funded, accounts payable were aged beyond their terms. It was the
intention of the Company to pay all outstanding debt and past-due payables upon
the closing of the Transaction. Due to the significant resources devoted to the
Transaction and the subsequent repudiation by Donald F. Smith and GS Roofing,
et al, the Company's ability to repay debt, pay past-due accounts payable,
finance needed capital projects and continue operations has been gravely
impaired.
Page 17 of 24
<PAGE> 18
The Company has a working capital deficit of $6,845,519. This deficit is
primarily due to the short-term classification of the 1996 D Notes, the 1996 E
Notes and the Canadian Facility. The 1996 D and 1996 E Notes are classified as
current debt due to their respective maturity dates during 1997. The Company has
requested a waiver of certain debt covenants from Laurentian Bank of Canada
related to its term note agreement, as of the date of this report, the Company
had not received the waiver. Therefore, the Company has reclassified all of the
term note agreement as current debt of the Consolidated Balance Sheet.
After having been idled for two years by its previous owners, the Thorold Mill
needed extensive capital improvements, additions, and repairs. These necessary
capital improvements, additions and repairs were partially financed. However,
since the plant was idled while the improvements were made, there was no
production. The Company's cash resources were limited and consequently the
balance of the project was financed by increasing current liabilities. The
capital improvements continued through April, 1996. Upon restarting the Thorold
Mill in July, 1996, several repairs were necessary to the paper line in order
to operate. As a result of these repairs, no salable production or cash flow
was generated by the Thorold Mill. These unfunded costs resulted in an increase
of accounts payable and accrued liabilities.
The Company began several capital improvement projects to the Stephens Mill in
1995 that extended into June, 1996. The improvements and additions made were
necessary to meet regulatory requirements. These improvements were only
partially financed by debt, the remaining was funded using trade credit.
Management believes that the improvements made to the Stephens and Thorold
Mills will benefit the operations of the Company. The improvements to the
plants will allow production of varying grades of paper (lightweight, medium
weight, and heavyweight) more efficiently. This will allow the Company to
produce paper for all geographic markets. In addition, the geographic locations
of the plants facilitate distribution of products to the midwest, southwest,
southeast, and northeast markets. However, for the Company to benefit fully
from the improvements made to the plants, the Company must operate the plants
at capacity (typically 11.5 months per year). In addition, the Company must
identify, finance and complete capital projects that will allow the plants to
operate at lower costs.
The above factors have led to the Company's working capital deficit. Management
has continued to monitor its operational realignment that was implemented
during 1994 that included (a) head count reductions, (b) use of lower cost raw
material vendors, (c) obtaining alternative lower cost raw materials sourcing
and (d) a preventative maintenance program to reduce downtime and repairs. The
Company must continue to monitor operations and identify and implement capital
projects that will improve efficiencies and lower costs. While the Company
continues to monitor its program of operational realignment and cost
reductions, however, there can be no assurance that such cost reductions will
allow the Company to achieve profitability.
Page 18 of 24
<PAGE> 19
During November and December, 1996, the Company issued $1,575,000 in aggregate
principal amount of Original Issue Discount Notes (the "1996 E Notes") to
sixteen investors represented by BlueStone. On January 21, 1997, the Company
issued an additional $735,000 in aggregate principal amount of the 1996 E Notes
to six investors. The maturity date of the 1996 E Notes by agreed extension was
5/19/97. The proceeds of the 1996 E Notes were used for Transaction costs and/or
working capital needs. On May 16, 1997, the Company paid approximately
$2,000,000 to BlueStone, the agent for the 1996 E noteholders, in repayment and
retirement of the 1996 E Notes. Management has negotiated an agreement in
principle to retire the remaining balance of this indebtedness by June 30, 1997.
On March 15, 1997, the Company issued $579,532 in aggregate principal amount of
10.25 % Subordinated Notes (the "1997 Notes") to an international investor. The
1997 Notes mature on December 31, 1998 and interest is payable quarterly
beginning July 1, 1997. The proceeds of the 1997 Notes were used for working
capital needs.
Management believes cash generated by operations of both Mills, once its
Thorold Mill is fully operational, will adequately fund the cash needs of the
Company's operations for the remainder of the year. To meet working capital
requirements and expand its business, the Company will need to borrow
additional amounts, obtain an additional third-party credit facility and/or
restructure its existing debt. The Company currently has two existing credit
lines, consisting of revolving lines of credit and term loans collateralized by
receivables, inventories, and fixed assets. The Company is pursuing additional
financing arrangements which might include private or public sales of equity or
debt securities. However, there can be no assurances that the Company will be
able to obtain any additional debt or equity financing.
The ability of the Company to achieve successful operations and realize its
assets is dependent upon many factors including profitable operation of both
Plants, penetration of existing and new markets at a profitable margin and
volume levels and cash liquidity.
Management is currently pursuing various strategies in order to provide needed
liquidity, finance the acquisition of a saturating plant in Georgia and provide
financing for capital projects. Management believes that negotiations regarding
restructuring existing debt and obtaining new debt and/or equity financing are
vital to continuing operations. Pursuant to this view, Management is in
discussion with the 1996 D noteholders to extend the maturity date of the notes
to December 31, 1998. As the Company has been able to retire a substantial
amount of the 1996 E Notes, Management believes that it has eliminated the
threat of foreclosure. Management is currently in discussions with BlueStone to
provide interim bridge financing and to continue to work with the Company in
its acquisition strategy including the saturating plant in Georgia. In
addition, Management is in discussions with affiliated subordinated debt
holders to convert some or all of their debt into equity (common stock) of the
Company. If achieved, the conversion of outstanding affiliated debt would
result in significant savings of cash interest payments and interest expense
Page 19 of 24
<PAGE> 20
While the Company devoted substantial amounts of cash to acquisition
activities, accounts payable and other current liabilities increased.
Management is aware that the Company will need to raise money in order to
reduce accounts payable. Discussions and presentations are being made by
Management to various banks and financial institutions to obtain financing for
potential plant acquisitions, capital improvement projects and short-term
working capital. If the Company is successful in acquiring a saturated felt
plant located in Georgia, management believes that the acquisition of this
plant will absorb allocated costs of administration and provide an additional
source of cash. During the previous eighteen months, Management has identified
several capital improvement projects that would allow the Stephens Mill and
Thorold Mill to operate more efficiently with significant cost savings and
greater production capacity. Management believes that these improvements are
necessary to be competitive and provide adequate margins that would allow the
Company to operate at a profit. The ability to extend maturity dates will allow
the Company to focus on immediate and near-term projects that will improve the
operating efficiency, thereby giving the Company the ability to generate a
positive cash flow that will allow for future debt repayments.
Management believes that strategic acquisitions can enhance profitability and
increase investor/shareholders' value in the Company. The Company intends to
focus on strategic acquisitions in order to grow, gain economies of scale and
allocate administrative costs. Management believes that profitability through
operational changes and improvements and acquisitions will facilitate credit
facilities at favorable terms that could be used for growth and consolidation.
If the Company is successful in acquiring a saturating plant located in Georgia,
management believes that it would provide several benefits to the Company. The
Company's existing dry felt mills can supply the total quantity needed for
saturation operations. This will provide the saturating plant a less expensive
source of dry felt. The Company believes that this potential acquisition would
allow for one of the more vertically integrated companies in the roofing
industry. The Company believes that if this acquisition can be made, it would
allow cost savings and the ability to allocate certain administrative costs
thereby reducing the existing mills cost structure. In addition, the Georgia
saturating plant is strategically located for the Southeast region. Due to the
level of storm activity and hurricanes in recent history, there are several
proposals before legislative bodies that will require enhanced building code
requirements. This is ideal for the Company's value added product, Lighting Fast
Felt.
Management believes some, if not all, of the above mentioned strategies will
allow the Company to obtain sufficient working capital and acquisition
financing to continue with its plan of growth through acquisitions. However,
there can be no assurance that any of these objectives will be achieved.
Page 20 of 24
<PAGE> 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On April 25, 1996, the Company signed an agreement to combine in a merger
transaction (the Transaction) with the indirect parent corporation of one of
the largest privately-owned manufacturers of asphalt shingles and built up
roofing (GS Roofing). The closing of the Transaction had been extended in
writing by mutual agreement of the parties to April 21, 1997, provided that (i)
a Registration Statement required to raise the equity component of the
financing required for closing was filed with the Securities and Exchange
Commission (which document was filed with the Securities and Exchange
Commission December 26, 1996) and (ii) the merger became effective on or before
April 21, 1997 or within incremental five business day periods of time
thereafter so long as bona fide marketing efforts were being conducted by the
underwriters with a view to such Registration Statement becoming effective on
or before April 30, 1997.
On or about February 4, 1997, via facsimile transmission, the President of GS
Roofing, Donald F. Smith, sent a notice to the Company of his and resultantly,
GS Roofing's repudiation of the Transaction. Subsequent to that date, the
Company made protracted attempts to reinstate the Transaction, without success.
Accordingly, management ultimately retained counsel and filed suit against
Newgen Holdings, Inc., Gen Holdings, Inc., GS Roofing Products Company, Inc.,
Donald F. Smith and Maredon-I, Ltd. alleging, among other things, a breach of
contract by the defendants resulting from the defendants' wrongful repudiation
of the binding agreements between the Company and the defendants providing for
the Transaction, which action by the defendants severely impaired the Company's
ability to complete the equity and debt offerings which were a critical part of
the Transaction. The lawsuit is in the preliminary stages and pre-trial
discovery has not yet commenced. Accordingly, the Company is unable at present
to express any opinion regarding the probable outcome of this litigation.
The Company and its subsidiaries are not parties to any material legal
proceedings, other than routine claims and disputes arising in the normal
course of the Company's business, substantially all of which are being resolved
and settled in due course by agreement, except, (i) a suit filed April 7, 1997
against the Company's Canadian subsidiary, Striker Canada, in the Ontario Court
(General Division) in St. Catharines, Ontario asserting claims arising out of
the termination of employment of a former employee of Striker Canada. The
Company denies the claims or the amount thereof asserted in the Canadian suit
and intends to defend the suit vigorously. Management of the Company does not
believe that any legal proceedings pending against it at the date of this
report, individually or in the aggregate, will have a material adverse effect
on the Company's operations or results of operations.
Page 21 of 24
<PAGE> 22
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
In connection with the Transaction referred to in Item 1 of this PART
II above, the Company received bridge financing from its underwriter,
BlueStone. As is customary with bridge financing, both the Company and the 1996
E noteholders contemplated payment of the bridge notes out of the debt and
equity financing of the Transaction. Subsequent to December 31, 1996, and
following repudiation of the Transaction by Donald F. Smith and GS Roofing, et
al, the Company received a demand notice from BlueStone accelerating the due
date of the 1996 E Notes to April 3, 1997 from April 25, 1997. Subsequently,
the Company negotiated an extension of time to May 19, 1997 within which to
remedy the default and repay the 1996 E Notes. On May 16, 1997, the Company
had repaid approximately $2,000,000 of the 1996 E Notes and management has
negotiated an agreement in principle to retire the remaining balance of this
indebtedness by June 30, 1997.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
(1) On or about January 21, 1997, the Company issued an additional
$735,000 in aggregate principal amount of 1996 E Notes, bringing the total of
the 1996 E Notes issued by the Company to $2,310,000. See Item 3 of this PART
II above for the current status of the 1996 E Notes as of the date of this
report.
(2) In March and April, 1997, the Company issued $579,532 in aggregate
principal amount of 10.25% Subordinated Notes (the "1997 Notes") to an
international investor. The 1997 Notes mature on December 31, 1998 and interest
is payable thereon quarterly. The proceeds of the 1997 Notes were used for
working capital needs.
(3) In April and May, 1997, a wholly-owned subsidiary of the Company
issued $2,550,000 in aggregate amount of 10.25% Subordinated Promissory Notes
(the "1997 B Notes") to ten international investors. The 1997 B Notes mature on
December 31, 1997 and interest is payable thereon quarterly. the principal use
of the proceeds of the 1997 B Notes was and is to pay down and retire the 1996
E Notes.
Page 22 of 24
<PAGE> 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.1 Copy of the Company's 1996 E Notes ($735,000 in aggregate
principal amount) issued in January, 1997 (filed as Exhibit 4.18 to
Company's 1996 Form 10-K, and incorporated herein by reference).
4.2 Copy of the Warrants of the Company issued in January, 1997 to
holders of the Company's 1996 E Notes issued contemporaneously
therewith covering the right to purchase, in the aggregate, 105,000
shares of the Company's Common Stock (filed as Exhibit 4.19 to
Company's 1996 Form 10-K, and incorporated herein by reference).
4.3 Copy of the Company's 1997 Notes ($579,532 in aggregate principal
amount) issued in March and April, 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended March
31, 1997:
Page 23 of 24
<PAGE> 24
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Company has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
STRIKER INDUSTRIES, INC.
DATE: May 20, 1997 BY: David A. Collins
------------------------- -----------------------------------
David A. Collins
Chief Executive Officer
DATE: May 20, 1997 BY: Matthew D. Pond
------------------------- -----------------------------------
Matthew D. Pond
Chief Financial Officer
Page 24 of 24
<PAGE> 25
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.1 Copy of the Company's 1996 E Notes ($735,000 in aggregate principal
amount) issued in January, 1997 (filed as Exhibit 4.18 to Company's
1996 Form 10-K, and incorporated herein by reference).
4.2 Copy of the Warrants of the Company issued in January, 1997 to
holders of the Company's 1996 E Notes issued contemporaneously
therewith covering the right to purchase, in the aggregate 105,000
shares of the Company's Common Stock (filed as Exhibit 4.19 to
Company's 1996 Form 10-K, and incorporated herein by reference).
4.3 Copy of the Company's 1997 Notes ($579,532 in aggregate principal
amount) issued in March and April, 1997.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.3
STRIKER INDUSTRIES, INC.
10.25% SUBORDINATED PROMISSORY NOTE
NO. _______
$XXX,XXX HOUSTON, TEXAS ____ _, 1997
FOR VALUE RECEIVED, the undersigned, Striker Industries, Inc., a Delaware
corporation ("Maker"), promises to pay to the order of ______________________
("Holder"), the principal amount of $XXX,XXX, together with interest on the
principal balance from time to time remaining unpaid at the rate and upon the
terms provided in this Note. Each payment of or pre-payment under this Note
shall be made in lawful money of the United States of America at the mailing
address of the Holder set forth on the signature page to the Subscription
Agreement between Maker and Holder of even date herewith, or as subsequently
provided in writing by Holder to Maker.
1. PAYMENT TERMS. The entire unpaid principal balance of this Note , plus all
accrued and unpaid interest on this Note shall be due and payable on
December 31, 1998 (the "Maturity Date"). Interest on the outstanding
principal balance of this Note shall be due and payable on the first day
of each July, October, January and April as it accrues, and on the
Maturity Date
2. INTEREST RATE. The unpaid principal balance of this Note from time to time
outstanding will accrue interest from the date of this Note until the
Maturity Date (and thereafter until paid) at a fixed rate which shall be
equal to ten and one quarter percent (10.25%) per annum and shall be
calculated on a 365 day basis.
3. PREPAYMENT. Maker may prepay all or any portion of this Note at any time,
without premium or penalty.
4. SUBORDINATION. All principal and interest obligations of Maker to Holder
under this Note shall be subordinate to all other Obligations in right of
payment. Upon occurrence of a default under an Obligation, Maker may not
pay the amounts due under this Note prior to payment in full (or
cancellation as the case may be) of all Obligations. Notwithstanding the
foregoing, until a default occurs under an Obligation, Maker may pay the
amounts due under this Note. If Holder receives any prepayment from Maker
in violation of this Section, Holder shall hold any such payment in trust
for Maker and shall promptly turn such payment over to Maker in the form
received (with any necessary endorsements), to be applied to the
Obligations. For purposes of this Section, the term "Obligations" means
all obligations of the Maker to all parties other than the Holder of this
Note and the other 10.25% Subordinated Promissory Notes of even date
herewith due December 31, 1998 issued by Maker.
PAGE 1
<PAGE> 2
5. EVENTS OF DEFAULT: The term "Default", as used in this Note, shall mean
Maker fails to pay all or any portion of the amounts due under this Note
when due and such failure continues for 30 days after Maker receives
written notice of Default from Holder.
6. REMEDIES OF HOLDER. Upon the occurrence of a Default under the terms of
this Note, Holder shall have the following rights:
a. ACCELERATION: Holder may, at his option, and upon giving notices
required by applicable law, declare the entire principal balance of
this Note and the accrued but unpaid interest thereon, immediately
due and payable.
b. OTHER RIGHTS: Holder shall have all the other rights and remedies
available at law or in equity.
7. WAIVER OF JURY TRIAL. MAKER AND HOLDER HEREBY WAIVE TO THE FULLEST EXTENT
PERMITTED BY LAW, THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR THE TRANSACTIONS
COMTEMPLATED HEREBY. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court
and that relate to the subject matter of this transaction, including,
without limitation, contract claims, tort claims, breach of duty claims,
and all other common law and statutory claims. Each party further warrants
and represents that it has reviewed this waiver with legal counsel, and
that it knowingly and voluntarily waives jury trial rights following
consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT
IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS, OR
MODIFICATIONS TO THIS NOTE. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE
FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
8. REQUIREMENTS FOR TRANSFER.
a. The initial Holder hereby certifies, warrants and covenants to Maker,
under penalties of perjury, that
(i) Holder (and any person on whose behalf Holder is acting) is not
a United States person as that term is defined in the income
tax laws of the United States,
(ii) Holder is the beneficial owner of this Note,
(iii) Holder is not a ten percent (10%) shareholder of Maker as
defined by the Internal Revenue code of 1986, as amended,
Section 871(h)(3),
(iv) a United States Internal Revenue Service Form W-8 shall be
executed by or on behalf of Holder, and
PAGE 2
<PAGE> 3
(v) Holder promises to notify Maker within 30 days of occurrence if
its country of citizenship, residence or organization is found
to be, or changes to, the United States.
b. Each subsequent Holder who is not a United States person will be
required to certify to Maker the information set out in subsection
8.a. above by execution of a Transfer Statement in the form attached
to this Note as Exhibit A in order to effect the transfer of record
title to this Note to a transferee on the books of the Maker. A
Transfer Statement submitted to the Maker by any transferee who is a
United States person shall have paragraph B thereof deleted and a
United States Internal Revenue Service Form W-9 attached.
c. Any subsequent Holder who is or becomes a United States person shall
promptly provide to Maker a United States Internal Revenue Service
Form W-9.
d. Each Holder shall re-certify the information set forth in subsection
8.a. above to Maker annually or as more frequently requested by
Maker.
e. Each subsequent Holder / transferee shall complete, execute and
deliver to Maker, a Transfer Statement, in the form attached to this
Note as Exhibit A, without change or alteration, except as provided
or permitted in Section 8.b. of this Note.
9. CAPTIONS AND CERTAIN DEFINITIONS. The captions, headings, and arrangements
used in this Note are for convenience only and do not affect, limit,
amplify, or modify the terms of this Note. As used in this Note, the term
(a) "Holder" means "Holder" as defined in the preamble to this Note and
all subsequent holders or transferees of this Note, and (b) "Maker" means
"Maker" as defined in the preamble to this Note and all subsequent holders
and transferees of this Note, and (b) "Maker" means "Maker" as defined in
the preamble to this Note and its successors and assigns.
10. APPLICABLE LAW. This Note shall be governed by and construed in accordance
with the laws of the State of Texas and the laws of the United States
applicable to transactions within such state.
PAGE 3
<PAGE> 4
THE SECURITY REPRESENTED BY THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT"), OR ANY OTHER APPLICABLE
SECURITIES LAW. THE SECURITIES REPRESENTED BY THIS NOTE MAY BE TRANSFERRED
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER, OR IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER, THE ACT AND IN ACCORDANCE WITH ANY OTHER
APPLICABLE SECURITIES LAWS.
STRIKER INDUSTRIES, INC.
A Delaware Corporation
By:
------------------------------------
Name: Matthew D. Pond
Title: Chief Financial Officer
PAGE 4
<PAGE> 5
EXHIBIT A
TRANSFER STATEMENT
A. The undersigned Holder ("Holder") hereby transfers and assigns to
_______________ ("Transferee") all of Holder's right, title and interest
in and to that one certain 10.25% Subordinated Promissory Note No._____
dated ____ _, 1997 (the "Note"), executed by Striker Industries, Inc.
("Maker") and payable to the order of Holder in the original principal
amount of $_________.
B. Transferee hereby certifies, warrants and covenants to and with Holder and
Maker, under penalties of perjury, that
(i) the Transferee (and any person on whose behalf Transferee is
acting) is not a United States person as that term is defined
in the income tax laws of the United States;
(ii) the Transferee is the beneficial owner of the Note;
(iii) the Transferee is not a ten percent (10%) shareholder of the
Maker as defined by the Internal Revenue code of 1986 (as
amended, the "Code") Section 871(h)(3);
(iv) a United States Internal Revenue Service Form W-8 executed by
or on behalf of the Transferee is attached hereto; and
(v) the Transferee promises to notify Maker within 30 days of
occurrence if its country of citizenship, residence, or
organization is found to be, or changes to, the United States.
C. Transferee hereby further certifies, warrants and covenants to and with
Holder and Maker that:
(i) the Transferee has been furnished with and read carefully the
Confidential Private Placement Memorandum dated _____, 1997
(the "Memorandum"), including the Attachments thereto, pursuant
to which this Note was acquired by the initial Holder hereof
and understands the terms of the offering of the Notes;
PAGE 5
<PAGE> 6
(ii) the Transferee affirms hereby directly to Maker as its, his or
her own representations and warranties each of the
representations and warranties of a subscriber to a Note
contained in Section 3. of the Subscription Agreement included
as an Attachment to the Memorandum ; and
(iii) the Transferee is an "accredited investor" as that term is
defined in Rule 501 (a) of Regulation D promulgated under the
Act.
TRANSFEREE: HOLDER/TRANSFEROR:
By: By:
-------------------------------- -----------------------------------
Name: Name:
------------------------------ ---------------------------------
Title: Title:
----------------------------- --------------------------------
Date: Date:
------------------------------ ---------------------------------
Address of Transferee:
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
STRIKER INDUSTRIES, INC..:
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Date:
------------------------------
PAGE 6
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 307,860
<SECURITIES> 0
<RECEIVABLES> 1,290,747
<ALLOWANCES> (489,671)
<INVENTORY> 208,681
<CURRENT-ASSETS> 1,747,526
<PP&E> 18,431,178
<DEPRECIATION> 2,590,496
<TOTAL-ASSETS> 18,783,583
<CURRENT-LIABILITIES> 8,593,045
<BONDS> 0
0
0
<COMMON> 2,184,913
<OTHER-SE> 1,603,829
<TOTAL-LIABILITY-AND-EQUITY> 18,783,583
<SALES> 769,571
<TOTAL-REVENUES> 769,571
<CGS> 1,360,950
<TOTAL-COSTS> 2,314,574
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 526,508
<INCOME-PRETAX> (2,071,511)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,071,511)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
