<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------
FORM 10-KSB
-----------------------------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 Comm. File No. 0-8115
- ------------------------------------------- ------
Resource General Corporation
----------------------------------------------
(Name of small business issuer in its Charter)
Ohio 31-0737351
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2365 Scioto Harper Drive, Columbus, Ohio 43204
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (614) 276-4877
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
- --------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Exchange Act:
- --------------------------------------------------------------------
Common shares, without par value. 1,085,820 common shares outstanding as of
January 31, 1996.
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB. X
-----
The issuer's revenues for the most recent fiscal year is $8,467,411.
The aggregate market value of the voting stock held by non-affiliates as of
January 31, 1996, is estimated to be $1,017,956.
Documents incorporated by reference. Portions of the registrants' Definitive
Proxy Statement for the 1996 Annual Meeting of Shareholders to be filed pursuant
to Regulation 14A not later than April 8, 1996 (Part III).
<PAGE> 2
PART I
ITEM 1. BUSINESS
A. General
Resource General Corporation, including its subsidiaries, is referred to as the
Company in this document. Resource General Corporation by itself is referred to
as Resource in this document.
Resource is an Ohio corporation resulting from the merger of a number of small
companies over the past twenty years, the oldest of which was incorporated as
the Millersport Bank Company in 1906. Resource sold its banking business in
1981.
In settlement of a debt, Resource acquired Medina Enterprises, Inc. and in 1985,
Medina Enterprises and Resource were merged into Fidelity, which then merged
into the Millersport Bank, which changed its name to Resource General
Corporation.
In partial payment of a debt, Resource received a 500 acre tract of land in
Shawnee, Ohio, on which there are 22 producing oil and gas wells, from which
Resource receives the landowner's royalty.
On April 3, 1987, through a merger by a subsidiary corporation, Resource
acquired for $205,000 certain assets and the right to manufacture and market a
line of industrial hydraulic presses. This business has been operated since that
time by a wholly owned subsidiary, PH Hydraulics and Automation, Inc.
("Hydraulics").
On January 22, 1990, Resource acquired substantially all of the assets, and
assumed all of the accounts payable of Trueblood, Inc., an Ohio corporation. The
business of Trueblood was the manufacture of insert injection molding machines
and plastic parts for a variety of companies, and the design of molds. The
manufacture of machines and molds was established in a subsidiary of Hydraulics,
called the Trueblood Plastics Corporation ("Plastics"). The business of
manufacturing parts was placed in a Resource subsidiary, Resource General
Molding Corporation ("Molding").
The purchase of the assets was $1,350,000, plus monthly premium payments of
$2,700 towards a policy retained by Trueblood insuring the life of Trueblood's
majority stockholder, plus a supplemental payment to be based on Trueblood
Plastics' operations in the subsequent six years. In October of 1994, Resource
negotiated a final settlement of $200,000 with regard to the supplemental
payment.
In 1991, Resource organized an 80% owned subsidiary to which it has leased
surface rights to approximately 150 acres of the company's Perry County, Ohio
property for operation of a construction and demolition landfill. This
subsidiary is named Perry Environmental Recycling, Inc. ("PERI").
As of December 29, 1994, Resource General Molding Corporation ("Molding") and
Trueblood Plastics Corporation ("Plastics"), wholly owned subsidiaries of PH
Hydraulics and Automation, Inc. ("Hydraulics") were merged into Hydraulics.
Hydraulics is now the sole continuing and surviving corporation in this merger.
At the time of the merger, the shares of common stock of Molding and Trueblood
ceased to exist and the number of common shares authorized to exist and be
outstanding for Hydraulics increased to 3,000, but there was no increase in the
number of Hydraulic shares issued and outstanding.
2
<PAGE> 3
Hydraulics is now the only subsidiary of the Company.
B. Financial Information About Industry Segments
The Company sells hydraulic presses, plastic molding machines, press and machine
repair parts, and repair service. The presses and plastic molding machines are
part of the machine tool industry. The Company takes the position that it
operates only in the machine tool industry. The following table shows our sales
by class of products within the machine tool industry, for the years 1995, 1994,
and 1993.
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------- ---------------------------- ---------------------------
Dollars Percent Dollars Percent Dollars Percent
-------------- ---------- -------------- ---------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Presses 6,373,834 75 5,630,700 72 6,425,761 78
- -----------------------------------------------------------------------------------------------------------------------
Machines 1,727,463 20 1,700,142 22 1,276,836 16
- -----------------------------------------------------------------------------------------------------------------------
Repair Parts 248,876 3 242,418 3 167,391 2
- -----------------------------------------------------------------------------------------------------------------------
Repair Service 60,260 1 89,584 1 32,311 1
- -----------------------------------------------------------------------------------------------------------------------
Press Automation 0 --- 0 --- 123,160 1
- -----------------------------------------------------------------------------------------------------------------------
Molded Products 56,978 1 110,660 2 172,352 2
- -----------------------------------------------------------------------------------------------------------------------
Total 8,467,411 100% 7,773,504 100% 8,197,811 100%
=======================================================================================================================
</TABLE>
C. Narrative Description of Business
Except for activities which may develop in connection with its Perry County real
estate, the Company's operations are conducted through Hydraulics.
(1) Business and Principal Products
The Company's operations consist of the manufacture of standard and custom
designed hydraulic presses and vertical injection molding machines. The
Company's hydraulic presses range in tonnage from 1-5,000 tons; the injection
molding machines have a tonnage range from 30 to 450 tons. Hydraulic presses are
marketed under the name of PH Hydraulics. Injection molding machines are
marketed under the name of PH Trueblood.
(2) Sources and Availability of Raw Materials
As a matter of policy, the Company's subsidiary uses standard industrial
components in the manufacture of its products. This policy is perceived as a
strong marketing advantage. Since raw steel is the largest material component of
the Company's product, its availability impacts the Company's ability to meet
promised delivery dates. The Company does not, however, depend heavily on
certified or specialty steels. Hydraulic cylinders and manifolds are key
purchase components which vary in availability and lead times.
3
<PAGE> 4
(3) Backlog
Backlog at December 31, 1995 was approximately $2,619,000, all of which is
expected to be completed in 1996. Backlog at December 31, 1994 was approximately
$2,600,000 and all 1994 backlog was shipped in 1995.
(4) Competition
Hydraulics is able to design and manufacture presses ranging in capacity from 1
to 5,000 tons. It faces a different array of competitors with respect to presses
less than or exceeding 50 tons. In either category, however, most of the market
is shared by fewer than a dozen companies, no one of which is dominant. The
Company believes its strong engineering staff, flexibility, and the reputation
for reliability of its product lines provide strong competitive advantages.
The injection molding machines have a vertical clamp and are used for insert
molding. Insert molding is the fastest growing section of injection molding. The
growth of the industry is starting to attract new competition to meet demand.
(5) Employees
As of December 31, 1995, Resource had no employees. Hydraulics had 54 employees.
(6) Significant Customers
No one customer comprised 10% or more of 1995 sales. One customer accounted for
11% of the sales and 25% of the accounts receivable balance at December 31,
1994. Two customers accounted for 25% of the sales and 49% of the accounts
receivable balance at December 31, 1993.
D. Financial Information about Foreign and Domestic Operations and
Export Sales
Neither the Company nor any subsidiary has a foreign operation. The Company does
not sell directly to foreign companies or governments. It has sold to U.S. based
companies for export to foreign locations. These sales for export are not a
significant part of the Company's sales.
E. Miscellaneous issues
The Company was awarded a patent for a injection molding design in 1994. This
patent does not give the Company any broad advantage in the plastics industry.
The Company does not have any significant, material compliance issues with
regard to environmental protection laws or regulations which would have any
effect on its capital expenditures, earnings or competitive position.
4
<PAGE> 5
ITEM 2. PROPERTIES
A. At December 31, 1995, the Company's operating unit, Hydraulics,
leased a manufacturing and office facility at 2365 Scioto Harper Drive,
Columbus, Ohio, containing approximately 22,000 square feet. The lease term is
April 1, 1989 through August 31, 1999. The rent payments escalate from an annual
amount of $54,750 to $88,080 at the end of the eighth year.
B. The Registrant, Resource, moved its office space in 1995 from 341 S.
Third Street, Columbus, Ohio to the manufacturing and office facility of
Hydraulics at 2365 Scioto Harper Drive, Columbus, Ohio.
C. Real Estate Owned for Investment
Resource owns land in Franklin County, Ohio recorded on the books at $20,420 and
undeveloped land in Perry County recorded on the books at $162,304 which
includes $13,004 in oil and gas royalty reserves.
ITEM 3. PENDING LEGAL PROCEEDINGS
The Company has one product liability suit pending against PH Hydraulics and
Automation, Inc. and Trueblood. The lawsuit does not involve punitive damages
and management feels the related insurance coverage is sufficient to cover any
claims which are successful against the Company, although the prospect is
remote.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR THE COMPANY'S STOCK AND RELATED STOCKHOLDER MATTERS
A. Market Information There are no active market makers. The share
price of the last trade was at 15/16.
B. Holders
As of December 31, 1995, there were 964 record holders of the Company's common
stock.
C. Stock Price and Dividend Information
There is no established public trading market for the Company's common stock.
The Company did not pay dividends in 1995 or 1994. Bank lending agreements
contain restrictions against dividend payment.
5
<PAGE> 6
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations
The Company's profitability and sales rebounded sharply in 1995. Sales increased
by 9% from $7.7 million in 1994 to $8.4 million in 1995. The sale of hydraulic
presses increased from $5.6 million to $6.3 million while sales of injection
molding machines remained steady. The Company reduced its molded parts sales as
it does not believe that it can generate acceptable profit margins in this line
of business.
The Company returned to profitability in 1995. The Company turned an $812,835
loss in 1994 into a $176,485 profit in 1995. Improvement in gross margin from
16% in 1994 to 26% in 1995 is the major reason for the profit turnaround. Gross
margin has improved because of reduced warranty, material, and labor costs.
Another reason for the improvement in gross margin was the return to the
Company's historically low warranty expenses. In 1995 our net warranty expense
was $13,488. In 1994 warranty expense was $246,890 of which $70,000 was reserved
for 1995 potential warranty expenses. As a result of accruing warranty expense
through June of 1995 and the beginning warranty reserve, the Company finished
the year with $85,000 in accrued warranty expenses. Prior to 1994 warranty
expense was $12,376 and $75,046 in 1993 and 1992 respectively.
Material costs, as a percent of sales, dropped by 2.38% to 49.35% in 1995 from
51.73% in 1994. During 1995 a new software system was implemented. The system
enables the Company to closely monitor its material and labor costs so that it
can quickly respond to increases in material costs. Quick recognition of
material cost increases allowed the Company to locate new vendors or to pass the
increased costs into the price of products.
Direct labor and shop expenses decreased by 3.49% in 1995 from 1994. The
manufacturing processes were revised to re-route material flow and to better
schedule labor. These new initiatives, added by the new software, resulted in
increased labor productivity. During the year the amount of overtime and
indirect hours decreased due to the increased productivity.
The increase in revenues was a result of an increase of the Company's customer
base for hydraulic presses. In previous years the bulk of the hydraulic press
sales primarily came from two major automotive companies. The Company's
marketing direction was to non-automotive
6
<PAGE> 7
customers with a number of new customers gained during the year. Hydraulic
presses comprised 75% of sales in 1995 as opposed to 72% in 1994. Hydraulic
presses have higher gross margins than injection molding machines which further
improved gross margin in 1995.
Sales of injection molding machines, the Company's other source of revenue, held
steady in 1995. However, new orders increased to $2.3 million in 1995. $1.2
million of the new orders are scheduled to ship in 1996.
As a result of the prime interest rate increasing in 1995, the Company's
interest expense increased by 22% over 1994.
Liquidity & Capital Resources
The return of profitability, plus a restructure of bank debt has improved the
Company's cash flow and working capital. In late 1995 the Company refinanced its
line of credit with a revolving credit and term loan agreement. The result was a
$500,000 reduction in current short term debt which was termed out for five
years. Working capital increased to $145,000 from a deficit of $358,000 in 1994.
Cash flow from operations increased to $1,336,607 in 1995 from a deficit of
$479,377 in 1994.
Year end cash increased to $122,746, an increase of $57,522 from 1994.
7
<PAGE> 8
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
TABLE OF CONTENTS PAGE
----
<S> <C>
Report of Independent Public Accountants for December
31, 1995, 1994 and 1993 for Financial Statements........................................ 9
Consolidated Balance Sheets as of December 31, 1995 and 1994............................ 10-11
Consolidated Statements of Operations for the years ended December
31, 1995, 1994 and 1993................................................................. 12
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993........................................................ 13
Consolidated Statements of Cash Flows for the years ended December
31, 1995, 1994, and 1993................................................................ 14-15
Notes to Consolidated Financial Statements.............................................. 16-28
</TABLE>
8
<PAGE> 9
[GREENE & WALLACE, INC. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Resource General Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheets of Resource General
Corporation and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resource General Corporation
and Subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years ended December 31, 1995,
1994 and 1993 in conformity with generally accepted accounting principles.
/s/ Greene & Wallace, Inc.
Columbus, Ohio
February 23, 1996
9
<PAGE> 10
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $ 122,746 65,224
Accounts receivable (Notes 3 and 9) 1,277,415 2,315,219
Inventories, less estimated long-term
portion (Note 3) 871,022 945,385
Deferred income taxes (Note 4) 22,400 20,300
Other current assets 57,696 96,548
---------- ----------
Total current assets 2,351,279 3,442,676
---------- ----------
Property and equipment, at cost (Notes 3 and 5):
Office equipment 389,312 295,130
Manufacturing equipment 872,250 934,221
Leasehold improvements 232,809 216,689
Vehicles 81,600 81,600
---------- ----------
1,575,971 1,527,640
Less accumulated depreciation
and amortization 804,185 687,827
---------- ----------
Property and equipment, net 771,786 839,813
---------- ----------
Other noncurrent assets:
Inventory, estimated long-term portion
(Note 3) 50,000 50,000
Oil and gas royalty interests, net 13,004 22,004
Land held for investment (Note 3) 169,720 169,720
Goodwill, net 110,904 138,630
Other noncurrent assets 47,754 41,367
---------- ----------
Total other noncurrent
assets 391,382 421,721
---------- ----------
Total assets $3,514,447 4,704,210
========== ==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
10
<PAGE> 11
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(contd)
December 31, 1995 and 1994
Liabilities and Shareholders' Equity
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 792,694 864,659
Bank line of credit (Note 3) 532,849 1,883,010
Notes payable to directors (Note 8) 87,500 150,376
Current portion of long-term debt
(Note 3) 130,444 121,234
Current portion of capital lease
obligations (Note 5) 14,814 --
Income taxes payable 5,000 --
Accrued expenses and taxes 414,323 460,835
Customer deposits 229,080 320,279
----------- -----------
Total current liabilities 2,206,704 3,800,393
----------- -----------
Noncurrent liabilities, all less current portions:
Notes payable to bank (Note 3) 383,333 187,315
Capital lease obligations (Note 5) 59,794 --
Other long-term installment notes
(Note 3) 95,751 126,195
Deferred income taxes (Note 4) 23,400 21,300
----------- -----------
Total noncurrent liabilities 562,278 334,810
----------- -----------
Total liabilities 2,768,982 4,135,203
----------- -----------
Minority interest in subsidiary -- 27
----------- -----------
Shareholders' equity: (Note 7)
Common stock, with no par value,
authorized 3,412,000 shares;
issued and outstanding 1,085,820 in
1995 and 1994 at $.01 stated value 10,858 10,858
Additional paid-in capital 1,236,543 1,236,543
Retained earnings (deficit) (491,936) (668,421)
----------- -----------
755,465 578,980
Less subscription receivable (Note 8) 10,000 10,000
----------- -----------
Total shareholders' equity 745,465 568,980
----------- -----------
Total liabilities and
shareholders' equity $ 3,514,447 4,704,210
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
11
<PAGE> 12
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 8,467,411 7,773,504 8,197,811
Cost of sales 6,287,521 6,609,664 6,448,619
----------- ----------- -----------
Gross margin 2,179,890 1,163,840 1,749,192
Selling, general and ad-
ministrative expenses 1,802,597 1,862,862 1,374,636
----------- ----------- -----------
Income (loss)from
operations 377,293 (699,022) 374,556
----------- ----------- -----------
Other income (expenses):
Oil and gas royalty, net (5,258) (3,217) (1,456)
Interest income 310 15,137 42,182
Interest expense (186,776) (152,750) (134,611)
Other, net (4,084) 3,350 (13,882)
----------- ----------- -----------
Total other income
(expenses), net (195,808) (137,480) (107,767)
----------- ----------- -----------
Income (loss) before income
taxes 181,485 (836,502) 266,789
Provision for income taxes
(Note 4) (5,000) 23,667 (35,565)
----------- ----------- -----------
Net income (loss) $ 176,485 (812,835) 231,224
=========== =========== ===========
Per share data:
Net income (loss) per common
share $ .16 (.75) .21
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
12
<PAGE> 13
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Retained
Additional Earnings Total
Common Stock Paid-In (Accumulated Subscription Shareholders'
Shares Amount Capital Deficit) Receivable Equity
--------- ---------- ---------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,079,820 $ 10,798 1,230,603 (86,810) (10,000) 1,144,591
Issuance of common stock
(Note 7) 6,000 60 5,940 -- -- 6,000
Net income -- -- -- 231,224 -- 231,224
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1993 1,085,820 10,858 1,236,543 144,414 (10,000) 1,381,815
Net loss -- -- -- (812,835) -- (812,835)
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1994 1,085,820 10,858 1,236,543 (668,421) (10,000) 568,980
Net income -- -- -- 176,485 -- 176,485
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 1,085,820 $ 10,858 1,236,543 (491,936) (10,000) 745,465
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE> 14
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 176,485 (812,835) 231,224
Adjustments to reconcile
net income (loss) to net
cash used in operating
activities:
Depreciation and
amortization 213,596 174,113 152,299
Loss (gain) on sale of
property and equipment 7,896 14,562 (2,807)
Write-down of landfill
development costs -- 133,962 --
Changes in assets and
liabilities affecting cash
flows from operating
activities:
Accounts receivable 1,037,804 (81,501) (217,973)
Inventories 74,363 (26,633) (111,726)
Other current assets 38,852 (32,297) (4,934)
Other noncurrent assets (7,713) (10,938) 2,613
Accounts payable (71,965) (408,141) (238,242)
Accrued income taxes payable 5,000 (34,831) 34,831
Accrued expenses and taxes (46,512) 324,934 (2,454)
Customer deposits (91,199) 280,228 (265,755)
Deferred income taxes -- -- 1,000
----------- -------- --------
Net cash provided by
(used in) operating
activities $ 1,336,607 (479,377) (421,924)
----------- -------- --------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
14
<PAGE> 15
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(contd)
For the years ended December 31, 1995, 1994 and 1993
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities:
Proceeds from sale of equipment $ 83,228 12,428 14,675
Capital expenditures for
property and equipment (106,062) (107,136) (110,412)
Net proceeds from sale of
land held for investment -- 205,909 203,891
Net proceeds from sale of former
manufacturing facility -- -- 573,776
Landfill development
expenditures -- -- (5,094)
----------- -------- --------
Net cash provided by (used
in) investing activities (22,834) 111,201 676,836
----------- -------- --------
Cash flows from financing activities:
Principal payments on
debt obligations (1,778,375) (192,220) (917,465)
Payment of Trueblood
supplemental purchase
obligation -- (200,000) --
Proceeds from debt
obligations 585,000 619,355 880,682
Advances from directors -- 376 --
Principal payments on notes
payable to directors (62,876) -- (22,650)
Proceeds from issuance of
common stock -- -- 6,000
----------- -------- --------
Net cash provided by (used
in) financing activities (1,256,251) 227,511 (53,433)
----------- -------- --------
Net increase (decrease) in cash 57,522 (140,665) 201,479
Cash, beginning of year 65,224 205,889 4,410
----------- -------- --------
Cash, end of year $ 122,746 65,224 205,889
=========== ======== ========
</TABLE>
Supplemental schedule of noncash investing and financing activities:
Goodwill of $100,000 was recorded as part of the Trueblood Plastics
acquisition supplemental purchase price estimate, by recognizing a liability
for the same amount during 1993. (See Note 2)
The accompanying notes are an integral
part of these financial statements.
15
<PAGE> 16
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Business Description:
Resource General Corporation ("Resource"), an Ohio
corporation, is the product of the merger of several
companies, the oldest of which was incorporated in 1906.
Resource owns several real estate parcels held for
investment or development in Ohio. It also owns royalty
interests in a number of oil and gas wells in
southeastern Ohio.
On April 2, 1987, Resource acquired a wholly-owned subsidiary,
PH Hydraulics and Automation, Inc. ("PH"), to manufacture and
market a line of hydraulic presses. PH also designs,
manufactures, and markets automation equipment. On January 22,
1990 the Company acquired, through its subsidiary PH, the
assets of Trueblood, Inc., a manufacturer of insert molding
machines. The principal purpose of the machines is to
encapsulate objects in plastic. The new corporation is
Trueblood Plastics Corporation ("Trueblood Plastics"). At the
same time the Company formed a first tier corporate
subsidiary, Resource General Molding Corporation ("Molding"),
to manufacture plastic parts by its own machines. Effective
December 29, 1994, Trueblood Plastics and its subsidiary
Molding were merged into PH. The principal market areas of
these companies is North America.
On April 16, 1991, Resource incorporated Perry Environmental
Recycling, Inc. ("PERI"), as an 80% owned subsidiary. PERI was
formed to develop an industrial landfill to accept inert
construction waste on property owned by Resource in
southeastern Ohio. The landfill has never been operational
pending licensure by government authorities. During 1993 it
was learned that licensure of a landfill in the Company's
location will require State of Ohio EPA approval in addition
to the Perry County Department of Health permit. Ohio EPA
rules and regulations concerning construction and demolition
landfills are not expected to be issued until 1996. The
Company abandoned plans to obtain licensure as a landfill
during 1995 and has listed the property for sale with a real
estate agent.
16
<PAGE> 17
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 2 - Summary of Significant Accounting Policies:
The following is a summary of certain significant accounting
policies followed in the preparation of the financial
statements.
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of the Company and all of its wholly owned and
majority-owned subsidiaries, hereafter referred to as the
"Company". All intercompany accounts and transactions have
been eliminated from these statements.
Inventories
Inventories are stated at the lower of cost (on a first-in,
first-out basis) or market. Inventories at December 31, 1995
and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Raw materials $ 351,844 375,074
Work-in-process 569,178 620,311
--------- -------
$ 921,022 995,385
========= =======
</TABLE>
The Company has in stock certain items which are not expected
to be utilized or sold currently. Inventory of $50,000 in 1995
and 1994 is shown on the balance sheet as a long-term asset
which represents an estimate of this portion of total raw
materials inventory at each year end.
Property and equipment
Property and equipment are stated at cost. Upon sale or
retirement, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain
or loss is included in income. Depreciation and amortization
are computed using the straight-line method for financial
reporting purposes and accelerated methods for income tax
purposes over the estimated useful lives of the related
assets.
Depreciation expense was $158,349, $145,681 and $143,299 in
1995, 1994 and 1993, respectively.
17
<PAGE> 18
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 2 - Summary of Significant Accounting Policies: (contd)
Oil and gas royalty interests
Oil and gas royalty interests were valued at $180,000 when
originally acquired. The original value was reduced by $66,655
in 1986 due to a decline in oil and gas prices. Oil and gas
royalty interests are amortized based on actual oil and gas
production compared to reserves estimated by a geological
study. The annual amortization was $9,000 in 1995, 1994 and
1993.
The accumulated amortization at December 31, 1995 and 1994 was
$100,341 and $91,341, respectively.
Land held for investment
Land held for investment is valued at the lower of cost or
market. Expenditures that add to the recoverable value of the
property are capitalized as land development costs.
Landfill development costs
Application for an operating permit expired in 1994. Due to
delays and uncertainties concerning requirements for
application under the new rules to be promulgated by the Ohio
EPA, the Company determined the previously deferred costs of
$133,962 to be of questionable future value. The entire amount
was written-off during 1994 and was included in general and
administrative expense.
Goodwill
Goodwill represents allocation of Trueblood supplemental
purchase price. This goodwill is being amortized over a six
year period for financial statement purposes beginning in
1994. The amortization expense for 1995 and 1994 was $27,726
and $19,432, respectively. Goodwill on the financial
statements is shown net of accumulated amortization at
December 31, 1995 and 1994 of $47,158 and $19,432,
respectively.
Research and development costs incurred
In accordance with generally accepted accounting principles,
it is the Company's policy to expense research and development
costs when incurred. Research and experimentation costs during
1995 and 1993 total $11,252 and $14,800, respectively, there
were no costs in 1994.
18
<PAGE> 19
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 2 - Summary of Significant Accounting Policies: (contd)
Revenue recognition
Revenue from equipment sales and related costs are generally
recognized when products are completed and accepted for
shipment by the customer and all costs are incurred or subject
to reasonable estimate. Advance payments from customers prior
to shipment are reported as customer deposits.
Product warranty
The Company generally provides a warranty against defects in
its products for periods up to one year. A liability for
estimated warranty costs is recognized on current sales. The
Company has determined the estimate based on the historical
relationship of actual warranty costs to sales revenue.
Earnings per share
Earnings per share amounts are based on the weighted average
number of shares outstanding, 1,085,820 in 1995 and 1994 and
1,084,563 in 1993.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
Note 3 - Bank Debt and Other Installment Obligations:
Short-term debt
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Bank line of credit, due November
30, 1996 and collateralized by all
property and equipment, accounts
receivable, inventory and
assignment of $500,000 life
insurance policy on one director
Interest at prime plus 1% is
payable monthly (9.75% at December
31, 1995). Unused balance of
$1,217,151 at December 31,
1995, subject to borrowing base
restrictions $532,849 --
</TABLE>
19
<PAGE> 20
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 3 - Bank Debt and Other Installment Obligations: (contd)
Short-term debt (contd)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Bank line of credit, refinanced
in November, 1995. Collateralized
by all accounts receivable,
inventory, property and equipment
and personally guaranteed by two
directors. Interest at prime
plus 1% was payable monthly.
-- 1,883,010
---------- ----------
Total short term debt $ 532,849 1,883,010
========== ==========
Long-term debt
Bank:
Note payable to bank,
collateralized by all accounts
receivable, property and
equipment, inventory and
assignment of $500,000 life
insurance policy on one
director. Due in monthly
installments of $8,333
plus interest at prime
plus 1% through November 6,
2000. $ 483,333 --
Note payable to bank,
collateralized by an auto
Monthly payments of $403
includes interest at prime
plus 1.25%. Refinanced
in November 1995. -- 22,151
Note payable to bank,
collateralized by accounts
receivable, inventory and
equipment and personally
guaranteed by two directors,
with monthly payments of
$2,500 plus interest at
prime plus 1.25%. Refinanced
in November 1995. -- 95,000
</TABLE>
20
<PAGE> 21
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 3 - Bank Debt and Other Installment Obligations: (contd)
Long-term debt (contd)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Note payable to bank,
collateralized by all accounts
receivable, inventory, property
and equipment and personally
guaranteed by two directors,
with monthly payments of
$4,167 plus interest at prime
plus 1.25%. Refinanced in
November 1995. - 162,500
Other:
Note payable to City of Columbus,
secured by an injection mold
press. Monthly payments of $1,414
include interest at 5%, with final
payment in July 1999. 55,537 69,344
Note payable to City of Columbus,
secured by an injection mold
press. Monthly payment of $1,414
includes interest at 5% with final
payment in February 2000. 63,675 77,085
Installment note payable,
collateralized by an automobile.
Monthly payment of $198 includes
interest at 8.75% with final
payment in May 1999. 6,983 8,664
------- -------
Total 609,528 434,744
Long-term portion - notes payable
to bank 383,333 187,315
Long-term portion - other
installment notes 95,751 126,195
--------- -------
Current portion $ 130,444 121,234
========= =======
</TABLE>
21
<PAGE> 22
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 3 - Bank Debt and Other Installment Obligations: (contd)
Long-term debt (contd)
Five-year maturities of long-term debt obligations at December
31, 1995 are as follows:
<TABLE>
<S> <C>
1996 $ 130,444
1997 132,074
1998 133,795
1999 127,072
2000 86,143
</TABLE>
The Company had combined interest payments during 1995, 1994
and 1993 of $186,467, $152,750 and $167,224, respectively.
The bank line-of-credit agreement and term debt agreement with
balances of $532,849 and $483,333 respectively, at December
31, 1995, contain several restrictive covenants. Among the
restrictions are covenants regarding the following: tangible
net worth, debt to tangible net worth ratio, cash flow
coverage ratio, current ratio, payment of dividends, and
repurchase of common stock. The Company was in violation of
two loan covenants at December 31, 1995, however, these
violations have been temporarily waived by the bank. The debt
is classified into expected current and long-term portion
according to original terms.
Note 4 - Income Taxes:
The Company files a consolidated Federal income tax return.
The provision for income taxes on income before income taxes
is comprised of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current tax (benefit)
expense:
Federal $ - (27,000) 27,000
State and local 5,000 3,333 7,565
------- ------- ------
Current tax (benefit)
expense 5,000 (23,667) 34,565
Deferred tax expense:
Federal - - 1,000
------- ------- ------
Provision for income
taxes (benefit) $ 5,000 (23,667) 35,565
======= ======= ======
</TABLE>
22
<PAGE> 23
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 4 - Income Taxes: (contd)
The Company paid income taxes of $35,604 in 1994. No cash
was used to pay income taxes during 1995 or 1993.
The following is a reconciliation between the amount of
reported income tax provision and the amount computed by
multiplying income before income taxes and extraordinary items
by the applicable statutory federal income tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Expected Federal income
tax provision (benefit)
at statutory rate of 34% $61,767 (284,411) 90,708
Increase (decrease) in
income taxes resulting
from:
State and local taxes 5,000 3,333 7,565
Effect of graduated rates (7,667) - (3,410)
Utilization of a net
operating loss
carryforward not
previously recognized
due to valuation
allowance - - (44,592)
Change in valuation
allowances on deferred
tax assets (59,500) 264,200 (43,165)
Alternative minimum tax - - 27,000
Other items, net 5,400 (6,789) 1,459
------- ------- -------
Total income tax
provision (benefit) $ 5,000 (23,667) 35,565
======= ======= =======
</TABLE>
Deferred taxes are recorded based upon temporary differences
between the financial statement and tax basis of assets and
liabilities and available tax credit carryforwards. Temporary
differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax liabilities:
Taxable temporary differences
Depreciation $82,900 95,700
------- ------
Gross deferred tax liability 82,900 95,700
------- ------
</TABLE>
23
<PAGE> 24
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 4 - Income Taxes: (contd)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Deductible temporary differences
Inventory - uniform capitalization 34,000 40,800
Oil and gas mineral rights 26,000 23,600
Operating loss carryforward 119,700 200,700
Deferred landfill development costs 45,500 45,500
Accrued warranty 29,000 27,500
Accrued vacation 7,100 8,300
Other items, net 19,700 6,900
Tax credit carryforwards
Investment tax credits 5,600 5,600
--------- --------
Gross deferred tax asset 286,600 358,900
Less: Valuation allowance (204,700) (264,200)
--------- --------
Net deferred tax asset 81,900 94,700
--------- --------
Net deferred tax liability $ 1,000 1,000
========= ========
</TABLE>
The components giving rise to the net deferred tax liability
described above have been included in the accompanying balance
sheets as of December 31, 1995 and 1994 as follows:
<TABLE>
<CAPTION>
1995
----
Assets (Liabilities) Net
------ ------------- ---
<S> <C> <C> <C>
Current $22,400 - 22,400
Long-term 59,500 (82,900) (23,400)
------- ------- -------
Totals $81,900 (82,900) (1,000)
======= ======= =======
<CAPTION>
1994
----
Assets (Liabilities) Net
------ ------------- ---
<S> <C> <C> <C>
Current $20,300 - 20,300
Long-term 74,400 (95,700) (21,300)
------- ------- -------
Totals $94,700 (95,700) (1,000)
======= ======= =======
</TABLE>
24
<PAGE> 25
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 4 - Income Taxes: (contd)
The Company has available at December 31, 1995 unused
investment credits and operating loss carryforwards expiring
as follows:
<TABLE>
<CAPTION>
Unused Unused
Investment Operating Loss
Year of Expiration Credits Carryforwards
------------------ ---------- --------------
<S> <C> <C>
2000 $ 5,600 -
2005 - -
2009 - 352,100
------- -------
$ 5,600 352,100
======= =======
</TABLE>
During 1993, the Company incurred Federal alternative minimum
tax (AMT) of $27,000. An AMT net operating loss was generated
in 1994 and carried back to 1993 creating a tax refund
receivable of $27,000 which was reported in other current
assets at December 31, 1994.
Note 5 - Leases:
Capital lease agreement
During 1995, the Company entered into an agreement to lease
new computer hardware and software. The sixty month lease
contains a bargain purchase option at the conclusion of the
lease. The lease, which is accounted for as a capital lease,
requires the following future minimum lease payments as of
December 31, 1995:
<TABLE>
<CAPTION>
Year ending December 31:
------------------------
<S> <C>
1996 $23,633
1997 23,633
1998 23,633
1999 23,633
2000 1,968
-------
Total minimum lease payments 96,500
Less amount representing
interest (21,892)
-------
Present value of minimum lease
payments 74,608
Long-term portion 59,794
-------
Current portion $14,814
=======
</TABLE>
25
<PAGE> 26
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 5 - Leases: (contd)
Capital lease agreement (contd)
The leased asset is presented in office equipment at
December 31, 1995 and recorded at cost of $92,607.
Amortization expense and accumulated amortization of $18,521
were also recorded in 1995.
Operating lease agreement
During 1989, the Company entered into an agreement to lease
office and manufacturing space. The lease period is 125 months
with renewal options for an additional three years and an
option to buy the facility at the conclusion of the lease for
its fair market value. The lease was structured with a rent
abatement for the first five months of the lease and monthly
payments starting thereafter at $4,548, escalating to $7,340.
In accordance with Statement of Financial Accounting Standards
No. 13, "Accounting for Leases", the Company has recorded the
lease expense on a straight-line basis.
Minimum future rental payments for the above noncancelable
operating lease for each of the years through expiration are
as follows at December 31, 1995:
<TABLE>
<S> <C>
1996 $82,575
1997 86,704
1998 88,080
1999 58,720
</TABLE>
Rental expense under all operating leases was approximately
$73,000 in 1995, 1994 and 1993.
Note 6 - Fair Value of Financial Instruments:
Estimated fair value of the Company's financial
instruments, all of which are held for non-trading
purposes, are as follows:
<TABLE>
<CAPTION>
1995
-------------------------------
Carrying Fair
Amount Value
-------- -------
<S> <C> <C>
Assets:
Cash $122,746 122,746
Liabilities:
Bank line of credit $532,849 532,849
Long-term debt including
current portion 609,528 609,528
</TABLE>
The carrying value of cash approximates fair value due to the
liquid nature of the asset.
26
<PAGE> 27
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 6 - Fair Value of Financial Instruments: (contd)
The fair value of bank line of credit and long-term debt
including current portions, are based on current rates at
which the Company could borrow funds with similar
remaining maturities.
Note 7 - Stock Options:
Options to purchase shares of Resource's common stock were
granted to one officer and the eight directors prior to 1994,
with most expiring in April 1995. In February 1995, the Board
voted to extend these options through February 2002, at a
price of $1 per share, which approximated the market price at
the time of the extension grant date. At December 31, 1995 and
1994 there were options for 174,000 common shares outstanding.
No options were exercised in 1995 or 1994.
In April 1994, options for 10,000 shares of stock at $1 per
share were granted to an employee of the Company. The options
expire five years subsequent to the grant date and do not
allow for purchase of more than 2,000 shares in any one of the
five years. Subsequent to the grant date, the employee left
employment with the Company and had not exercised any of these
options through December 31, 1995.
In November 1988, the shareholders approved an Employees'
Incentive Stock Option plan providing options for 50,000
shares. Options granted to employees under the plan are to be
at the market price on the day of the grant, except that if
options are granted to employees with existing shareholdings
of 10% or more, the option price must be 110% of the then
market price. To date, no options have been granted.
Note 8 - Transactions with Related Parties:
An officer is indebted to Resource for $10,000 on a
purchase of 10,000 shares. These shares are included in
the calculation of earnings per share.
In 1995 and 1994 fees of $16,684 and $13,063 respectively,
were paid to a director (acting President in 1995) for
services provided to the Company.
Notes receivable and accrued interest totalling $4,896 and
$9,896 were due from a shareholder/director at December 31,
1995 and 1994, respectively.
27
<PAGE> 28
RESOURCE GENERAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(contd)
Note 8 - Transactions with Related Parties: (contd)
Notes payable totalling $87,500 and $150,376 were due to
two shareholders/directors at December 31, 1995 and 1994.
Interest on these unsecured demand notes range from 8.25%
to 12%. Interest of $13,497 and $14,590 was paid in 1995
and 1994, respectively.
A director of the Company served as legal counsel for the
Company through July 31, 1995, for which an expense of
$61,000 was incurred during 1995. This expense was $96,000
in both 1994 and 1993. At December 31, 1995, 1994, and 1993,
other current assets contains $12,929 for legal fees advanced
to this director.
Note 9 - Concentration of Credit Risk and Significant Customers:
A significant portion of the Company's business activity
is with customers directly or indirectly related to the
automotive industry. One of the Company's customers
accounted for 11% of sales in 1994 and 25% of the
accounts receivable balance at December 31, 1994 while
in 1993 two of the Company's customers accounted for 25%
of the sales. No one customer comprised 10% or more of
1995 sales.
Generally, the Company performs ongoing credit evaluation of
its customers' financial condition and on occasion requires
advance deposits with orders.
Note 10 - Note Receivable:
The Company received a note receivable of $409,800 during 1992
as consideration for real estate sold. The note was secured by
a first mortgage on the real estate. Payments were made in two
annual installments, which included interest at 10% per annum.
The final installment of $205,909 was received in 1994.
Note 11 - Profit-Sharing Plan:
The Company sponsors a profit-sharing plan covering
employees having completed at least one year of service
and having attained age 21. Contributions to the plan
are made at the discretion of the Board of Directors.
Employees have an option to make voluntary contributions
to the Plan under the provisions of Internal Revenue Code
Section 401(k). Profit-sharing expense was $30,000 in
1995, $40,191 in 1994 and $13,120 in 1993.
28
<PAGE> 29
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has not changed accounting firms. Also, there are no disagreements
between the outside accountants and the Company.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item is incorporated herein by reference to the
Company's definitive proxy statement (pages 3-5, "Election of Directors")
relating to the 1996 Annual Meeting of Shareholders.
ITEM 10. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to the
Company's definitive proxy statement (page 7, "Executive Compensation") relating
to the 1996 Annual Meeting of Shareholders.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to the
Company's definitive proxy statement (page 7, "Share Holdings of Directors and
Officers") relating to the 1996 Annual Meeting of Shareholders.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to the
Company's definitive proxy statement (page 6, "Certain Relationships and Other
Transactions") relating to the 1996 Annual Meeting of Shareholders.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits required by Item 601 of Regulation S-B are
filed as part of this report. For convenience of reference the exhibits are
listed according to the numbers appearing in the Exhibit Table to Item 601 of
Regulation S-B.
<TABLE>
<CAPTION>
Exhibit Number Description
-------------- -----------
<S> <C>
10 Material Contracts
21 Subsidiaries
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K: There were no reports on Form 8-K filed during
the fourth quarter of 1995.
29
<PAGE> 30
SIGNATURES
In accordance with Section 13 or 15 (d) of the Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RESOURCE GENERAL CORPORATION
March 27, 1996 by: \s\ Robert S. Ryan
- ---------------------- ----------------------
Date Robert S. Ryan, Acting President
March 27, 1996 by: \s\ Charles T. Sherman
- ---------------------- --------------------------
Date Charles T. Sherman, Vice President -
Operations
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
March 27, 1996 by: \s\ Robert S. Ryan
- ---------------------- ----------------------
Date Robert S. Ryan, Director, Acting
President
March 27, 1996 by: \s\ Charles T. Sherman
- ---------------------- --------------------------
Date Charles T. Sherman, Director and
Vice President - Operations
March 27, 1996 by: \s\ Bob Binsky
- ---------------------- ------------------
Date Bob Binsky, Director
March 27, 1996 by: \s\ Donald S. Boston, Jr.
- ---------------------- -----------------------------
Date Donald S. Boston, Jr., Director
March 27, 1996 by: \s\ Lyman Brownfield
- ---------------------- ------------------------
Date Lyman Brownfield, Director and Chairman
Emeritus
March 27, 1996 by: \s\ Richard R. Corna
- ---------------------- ------------------------
Date Richard R. Corna, Director
March 27, 1996 by: \s\ Terry L. Sanborn
- ---------------------- ------------------------
Date Terry L. Sanborn, Director
March 27, 1996 by: \s\ Howard Daniel Smith
- ---------------------- ----------------------------
Date Howard Daniel Smith, Director
30
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
- ------- ----
<C> <C>
10 Material Contracts........................................................ 32-38
21 Subsidiaries of the Registrant............................................ 39
27 Financial Data Schedule................................................... 40
</TABLE>
31
<PAGE> 1
EXHIBIT 10
MATERIAL CONTRACTS
November 6, 1995
Mr. Charles T. Sherman
Resource General Corporation
2365 Scioto Harper Drive
Columbus, Ohio 43204
Dear Chuck:
This letter shall set out the terms and conditions under which Star Bank, N.A.
(hereafter referred to as the "Bank") agrees to loan Resource General
Corporation and PH Hydraulics and Automation, Inc. (hereafter collectively
referred to as the "Company") Two Million Two Hundred Fifty Thousand Dollars
($2,250,000.00) under this Revolving Credit/Term Loan Agreement (the
"Agreement"). The purpose of this loan is to support short-term working capital
and to refinance existing Bank One debt.
THE TERM LOAN
Subject to there being no event of default (or circumstance which would, with
the passage of time, become an event of default), the Bank agrees to lend the
Company $500,000 from the date of this Agreement through November 6, 2000 (the
"Maturity Date"). This loan will be evidenced by a promissory note (the "Note").
The Note shall amortize in 60 consecutive equal payments of $8,333.33 plus
interest beginning December 6, 1995 and monthly thereafter. A final payment for
any balance outstanding shall be made on the Maturity Date.
The Note shall bear interest at 1.0% over the Bank's prime rate (the "Prime
Rate"). The interest rate will be reduced by one-quarter of one percent [0.25%]
each year-end beginning at December 31, 1996 and at December 31, 1997, if all
financial covenants as described in this Agreement are met and maintained. The
Prime Rate is the rate announced as such from time to time by the Bank. The
Prime Rate is determined solely by the Bank pursuant to market factors and its
own operating needs, and is not necessarily the Bank's best or most favorable
rate for commercial or other loans. The Prime Rate is currently 8.75%. The
interest rate on the Note shall be adjusted on the effective date of any change
in the Bank's Prime Rate. The interest shall accrue in arrears and be payable
beginning December 6, 1995 and monthly thereafter and on the Maturity Date.
THE REVOLVING CREDIT
Subject to there being no event of default (or circumstance which would, with
the passage of time become an event of default) the Bank agrees to make
revolving credit loans to the Company (as described below) from the date of this
Agreement through the earlier of: a) a demand for payment in accordance with the
terms of a revolving promissory note (the "Revolving Note"); or b) November 30,
1996 (the "Maturity Date").
Under the Revolving Note, the Company may borrow, repay, and reborrow up to the
lesser of: a) 80% of accounts receivable acceptable to the Bank which are
outstanding less than 90 days from the date of invoice, plus 50% of raw
materials, plus 35% of work-in-process (up to a maximum work-in-process advance
of $250,000) less a reserve amount of $350,000, the reserve amount will be
reduced by the monthly principal payments as further described in the term loan
section above (the sum of which shall be called the "Amount Available"); or b)
$1,750,000. Should the total loan amount outstanding at
32
<PAGE> 2
any time exceed the Amount Available, the Company shall, upon notification,
reduce the amount outstanding to an amount that is less than or equal to the
Amount Available.
The Revolving Note shall bear interest at 1.0% over the Bank's prime rate (the
"Prime Rate"). If the revolving credit facility is renewed at the maturity date,
the interest rate will be reduce by one-quarter of one percent [0.25%] each
year-end beginning at December 31, 1996 and at December 31, 1997, if all
financial covenants as described in this Agreement are met and maintained. The
Prime Rate is the rate announced as such from time to time by the Bank. The
Prime Rate is determined solely by the Bank pursuant to market factors and its
own operating needs, and is not necessarily the Bank's best or most favorable
rate for commercial or other loans. The Prime Rate is currently 8.75%. The
interest rate on the Revolving Note shall be adjusted on the effective date of
any change in the Bank's Prime Rate. Interest shall accrue in arrears and be
payable beginning November 30, 1995 and monthly thereafter and on the Maturity
Date.
REPRESENTATIONS & WARRANTIES
To induce the Bank to enter into this Agreement and to agree to make the loans
described herein, the Company represents and warrants that:
(A) Corporate Existence. It is a corporation duly existing under the laws
of the State of Ohio, is qualified to do business in all states where
failure to be so qualified would have a material adverse effect on the
Company, and has all requisite power and authority to own its property
and carry on its business as now being conducted.
(B) Borrowing Authorization. The execution by the Company and the delivery
and performance of this Agreement, the Note(s), and other documents
connected to the loans described herein have been authorized by
necessary corporate action and will not or 3) any agreement binding on
the Company.
(C) Financial Statements. Its interim financial statements dated September
30, 1995 (a copy of which have been previously furnished to the Bank)
have been prepared in conformity with generally accepted accounting
principles consistently applied, and fairly present the financial
condition of the Company and its operation as of the date of the
statements, and since such date there has been no material adverse
change in its financial condition.
(D) Actions Pending. There are no legal actions pending or threatened
against or affecting the Company before any court or agency, or any
contingent liabilities that are not provided for in the financial
statements referred to in subsection (C) Financial Statements above.
(E) Liens. None of the assets of the Company are subject to any mortgage,
pledge, security interest, lien, or other encumbrance except for those
noted in the financial statements referred to in subsection (C)
Financial Statements.
(F) Environmental Matters. All operations and property of the Company are
in full compliance with all federal, state, and local statutes, rules,
and regulations relating to air and water pollutants and hazardous
waste disposal. There is no judicial or administrative proceeding
pending or threatened against or affecting the Company with respect to
such environmental matters.
(G) Compliance. The Company is in compliance in all material respects with
all statutes, rules, and regulations applicable to it. No default (or
event which with notice or lapse of time, or both, would constitute a
default) exists under any agreement or instrument for borrowed money to
which Company is a party or pursuant to which any property of Company
is encumbered.
33
<PAGE> 3
(H) Liabilities. All taxes, assessments, and other liabilities which are
due have been paid in full and in a timely manner, except for those
taxes and assessments which the Company is contesting in good faith and
with respect to which the Company has taken proper steps to perfect its
appeal and which have not resulted in liens on the Company's property
which materially diminishes the value of the property.
COLLATERAL
All obligations of the Company to the Bank under this Agreement and the Note(s)
shall be secured by the following (collectively called the "Collateral"):
(A) A security interest in the Company's accounts receivable, inventory,
machinery, equipment, furniture, fixtures, furnishings, and general
intangibles, now owned or hereafter acquired, their proceeds (cash or
non-cash) and any insurance proceeds related thereto, all to be
evidenced by the Bank's standard Security Agreement.
(B) An assignment of insurance in the amount of $500,000 on the life of
Charles T. Sherman.
(C) All Company debt to be cross collateralized and cross defaulted to all
existing Bank debt.
The Collateral and all documentation with respect thereto shall be in a form
satisfactory to the Bank, and the Company agrees to execute any and all
documents necessary to assure the protection, perfection, and/or enforcement of
the Bank's security interest in the Collateral.
COVENANTS
In consideration of the Bank's promise to make the loans described herein, the
Company agrees that, from the date of this Agreement until the Note(s) are paid
in full, it shall:
(A) Financial Statement. Furnish the Bank: 1) a copy of the Company's
Audited financial statements, prepared in conformity with generally
accepted accounting principles applied on a basis consistent with the
preceding years by independent certified public accountants acceptable
to the Bank within 90 days of the Company's fiscal year end; 2) a copy
of its unaudited financial statements, similarly prepared, in a form
satisfactory to the Bank within 30 days of the end of each of its
fiscal month; and 3) a copy of the finalized corporate tax return and
supporting schedules to the Bank within 270 days of the company's
fiscal year end.
(B) Periodic Reports. Provide the Bank 1) an aging of accounts receivable,
a work in process breakdown and the accounts payable aging in a form
satisfactory to the Bank within 30 days of the end of each of the
Company's fiscal month; 2) a calculation of the Amount Available as
presented by the borrowing formula described above and a "no- default"
certification signed by an authorized officer of the Company within 30
days of the end of each of its fiscal month; and 3) other reports and
information as the Bank may reasonably request.
(C) Insurance. Maintain insurance on all real and personal property with
carriers acceptable to the Bank in an amount sufficient to repay the
outstanding balance of all Bank loans and against hazards and
liabilities as is common with other companies in similar situations.
The policies shall show the Bank as "name insured" and "loss payee."
The Company shall provide the Bank with certificates of insurance or
other satisfactory evidence upon request.
34
<PAGE> 4
(D) Taxes. Pay all taxes, assessments, and other liabilities when due,
except for those which are contested in good faith.
(E) Notice. Give the Bank prompt notice of any: (i) default of this or any
other Agreement or contract under which the company is liable; (ii)
environmental or labor dispute; (iii) lawsuit filed naming the Company
as a defendant; (iv) reportable event under ERISA; or (v) material
change in the Company's business prospects or financial condition.
(F) Corporate Existence and Status. Maintain its corporate existence and
remain in good standing under the laws of each jurisdiction where the
Company is duly qualified to conduct its business.
(G) Maintenance of Property. Maintain Company property in good condition
and repair, and not commit or permit any action that may impair the
value of the property or the Bank's Collateral.
(H) Current Ratio. Maintain a current ratio, defined as Current Assets
divided by Current Liabilities (as defined below) of at least 1.0:1
beginning with the fiscal year ending December 31, 1995 and 1.2:1
beginning with the fiscal year ending December 31, 1996 and thereafter.
"Current Assets" shall mean any asset that is reasonably expected to be
converted to cash or sold within the next operating cycle or one-year
period, whichever is longer. Current Assets shall exclude any amounts
owed to the Company by owners, partners, shareholders, or officers of
the Company regardless of the date conversion to cash or sale is
expected. "Current Liabilities" shall mean any obligation whose
liquidation is reasonably expected to occur within the next operating
cycle or one-year, whichever is longer. Current Liabilities shall
include any amounts owed by the Company to owners, partners,
shareholders, or officers of the Company regardless of the expected
liquidation date.
(I) Leverage Ratio. Maintain a leverage ratio, defined as Total Liabilities
divided by Tangible Net Worth (as defined below) of not greater than
4.0:1 beginning with the fiscal year ended December 31, 1995, not
greater than 3.5:1 by the fiscal year ended December 31, 1996 and 3.0:1
by the fiscal year ended December 31, 1997 and thereafter.
(J) Cash Flow Coverage Ratio. Maintain a cash flow coverage ratio of at
least 1.25:1 at all times. This ratio will be tested on a quarterly
basis. "Cash Flow Coverage" ratio shall be calculated as follows:
Net Income + Non-Cash Charges + Interest Expense - Dividends
------------------------------------------------------------
Current Portion of Long Term Debt + Interest Expense
(K) Tangible Net Worth. Not permit its tangible net worth to be less than
$775,000 as of December 31, 1995, $925,000 as of December 31, 1996 and
$1,125,000 as of December 31, 1997 and for each fiscal year thereafter.
"Tangible Net Worth" shall mean, as of any date, the sum of the
Company's total equity plus debts subordinated to the Bank minus any
intangible assets. All financial terms in this Agreement shall have the
meanings given them under generally accepted accounting principles.
(L) Indebtedness. Not incur or permit to exist any indebtedness, other than
that indebtedness which existed on balance sheet as of September 30,
1995, except: (i) the borrowings evidenced by this Agreement; (ii)
favorable short-term unsecured trade credit granted in the ordinary
course of business.
35
<PAGE> 5
(M) Liens. Not create or permit to exist any mortgage, pledge, security
interest, or other encumbrance with respect to any assets now owned or
here-after acquired other than that indebtedness which existed on
balance sheet as of September 30, 1995, except for (i) liens created in
favor of the Bank hereunder; or (ii) purchase money interests created
in connection with the acquisition of property acquired after the date
of this Agreement which attaches specifically to the property acquired.
(N) Guaranties. Not guaranty any obligation or indemnify any other person
or enterprise except for the personal liability from the Company's own
officers', directors', or employees' own actions on behalf of the
Company.
(O) Merger, Sale or Transfer of Assets. Not be a party to any merger,
consolidation, transfer or reorganization without the consent of the
bank (including, but not limited to, the purchase of all or
substantially all of the equity or assets of any other enterprise). Not
to transfer any assets from the company's to Perry's Environmental
Recycling, Inc.. It is the Banks understanding the Perry's
Environmental Recycling, Inc. is in the process of being dissolved.
(P) Investments. Not invest in, loan, or make advances to any other
enterprises, except for (i) obligations of the United States Treasury
and agencies thereof, (ii) commercial paper maturing within one-year
and rated "A-1/P-1 or better," or (iii) Certificates of Deposit of the
Bank.
(Q) Restricted Payments. Do not declare nor pay any dividend to
shareholders unless all financial covenants are in compliance. The land
held in Perry County and Franklin County will not be held as
collateral, but if and when the property is sold, all proceeds must be
applied against the term loan. Said properties must remain free of any
liens during the term of all credit facilities.
(R) Depository Accounts. Star Bank shall be the primary depository bank of
Borrowers. With in 90 days of closing a wholesale lock box account will
be established to handle accounts receivable collection. The revolving
line of credit will be then be settled daily via the banks business
checking plus line of credit.
(S) Negative Covenants. The Companies shall not; 1) change the type or
character of its business; 2) not loan any money to or to guarantee any
obligation of any other persons, firm or corporation; and 3) shall not
change any key management personnel without first notifying the Bank
and providing and adequate replacement within 30 days.
(T) Subordination. All notes/accounts payable due to shareholders shall be
subordinated to the Bank. All subordinated debtors shall sign the banks
standard subordination agreement.
(U) Waiver. Any variance from these covenants shall be permitted only with
the prior written consent and/or waiver of the Bank. Any such waiver
shall not preclude the exercise of any power or right under this
Agreement by the Bank.
CLOSING CONDITIONS
The obligation of the Bank to make the loans described by this Agreement is
subject to the satisfaction of each of the following conditions:
(A) Resolutions. The Company shall have delivered to the Bank a copy of the
resolutions of the Company's Board of Directors authorizing the loans
described herein and the execution and delivery of this Agreement, the
Note(s), and other documents the Bank deems necessary for these loans,
certified by an appropriate officer of the Company.
36
<PAGE> 6
(B) Other Documents; Inspection. The Company shall have delivered to the
Bank such other documents as the Bank may request prior to the date of
the initial loan. The Bank or its designated representative shall have
the continuing right to inspect and review all the Company's records,
documents, and assets, whether or not directly related to the Company's
obligations hereunder.
(C) Default. Before and after giving effect to the loan(s) described
herein, no event of default (as defined below) or event which would
with the passage of time mature into an event of default shall have
occurred and/or be continuing.
(D) Warranties. Before and after giving effect to the loan(s) described
herein, the representations and warranties noted above shall be true
and correct on the date of this Agreement.
(E) Fees and Expenses. The Company agrees to pay the Bank a one-time fee of
$2,000.00 plus any out-of-pocket expenses incurred by the Bank
(including reasonable attorneys' fees, legal expenses, filing fees,
etc.) in entering into and closing this Agreement.
EVENTS OF DEFAULT
Upon the occurrence of any of the following events and following a five business
day prior written notice to the Company, and an additional five business day
default cure period, the Bank may declare the Note(s) due and immediately
payable and shall have all rights to realize on the collateral. To the extent
the maximum Amount Available on the revolving credit facility is not being
utilized by the Company, the Bank may upon such declaration of default terminate
any unused balance:
(A) Non-payment of principal or interest prescribed herein when due or when
notice of such non-payment is sent to the Company by the Bank, or any
default, demand, or acceleration under any Note or related instrument
concerning the Collateral; or
(B) Non-payment of principal or interest on any other borrowed money
obligation when due or the holder of such obligation declares the
obligation due prior to its stated maturity unless the obligation is
disputed in good faith; or
(C) Any representation or warranty of the Company in this or any other loan
document is false; or
(D) The Company violates any covenant or condition of this or any other
loan documentation; or
(E) The Company is unable to pay its business debts as they become due or
the Company's consolidated financial statement indicates an insolvency
or deficit net worth; or
(F) The Company applies for the appointment of a trustee or receiver of any
part of the assets of the Company or commences any proceedings relating
to Borrower under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution, or other liquidation law
of any jurisdiction; or
(G) Any such application, if filed, or any such proceedings are commenced
against the Company, and the Company indicates its approval, consent,
or acquiescence; or an order is entered appointing such trustee or
receiver, or adjudicating the Company bankrupt or insolvent, or
approving the petition in any such proceedings, and such order remains
in effect for thirty (30) days; or
37
<PAGE> 7
(H) A material part of the Company's operations shall cease for a period of
thirty (30) days, other than temporary or seasonal cessations which are
simultaneously experienced by other companies in the Company's line of
business (which, if continued, would not have a material adverse effect
on the Company's operations or financial conditions); or,
(I) If, in the reasonable opinion of the Bank, there has been a material
adverse change in the financial affairs or operating condition of the
Company or in the value of the Collateral which, in the reasonable
judgment of Bank, materially imperils the Company's ability to repay or
secure its obligations to the Bank under this Agreement.
OTHER DOCUMENTATION
The terms hereof requiring five day prior written notice and an additional five
day opportunity to cure prior to the Bank's having any right to declare the
Note(s) due and payable, or any right to pursue the collateral following the
occurrence of event of default, shall also be applicable with respect to any and
all events of default specified in any and all other agreements, documents and
instruments, as hereafter may be modified or amended, executed as of the date
hereof in connection with this facility.
LAW/JURISDICTION
This Agreement, the loans, and the Note(s) shall be deemed made in Ohio, and all
the rights and obligations of the parties hereunder shall in all respects be
governed by and construed in accordance with the laws of the State of Ohio,
including all matters of construction, validity, and performance. Without
limitation on the ability of the Bank to exercise all its rights as to the
Collateral security for any loan or note, or to initiate and prosecute actions
for repayment in any applicable jurisdiction, Bank and Company agree that any
action or proceeding commenced by or on behalf of the parties relating to this
Agreement, the loans, or the Note(s) shall be commenced and maintained
exclusively in courts of applicable jurisdiction located in Franklin County,
Ohio. This document memorializes the entire Agreement between parties, and any
amendment to this Agreement, may only be made in writing and signed by all
parties.
WARNING - BY SIGNING THIS PAPER, YOU GIVE UP YOUR RIGHTS TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME, A COURT JUDGEMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE. (SEC. 2323.13 O.R.C.)
Accepted this ______ day of November, 1995
RESOURCE GENERAL CORPORATION
By:________________________ Its: Acting President
Robert S. Ryan
By:________________________ Its: Vice President of Operations
Charles T. Sherman
PH HYDRAULICS AND AUTOMATION, INC.
By:______________________ Its: President
Charles T. Sherman
STAR BANK, N.A.
________________________
Timothy R. Coffey
Assistant Vice President
38
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OF INCORPORATION DOING BUSINESS AS
--------------- ---------------------- -----------------
<S> <C> <C>
1. PH Hydraulics and Ohio PH Hydraulics and
Automation, Inc. Automation, Inc.
PH Trueblood
The PH Companies
</TABLE>
39
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 122,746
<SECURITIES> 0
<RECEIVABLES> 1,277,415
<ALLOWANCES> 0
<INVENTORY> 871,022
<CURRENT-ASSETS> 2,351,279
<PP&E> 1,575,971
<DEPRECIATION> 804,185
<TOTAL-ASSETS> 3,514,447
<CURRENT-LIABILITIES> 2,206,704
<BONDS> 538,878
0
0
<COMMON> 10,858
<OTHER-SE> 744,607
<TOTAL-LIABILITY-AND-EQUITY> 3,514,447
<SALES> 8,467,411
<TOTAL-REVENUES> 8,467,411
<CGS> 6,287,521
<TOTAL-COSTS> 6,287,521
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,776
<INCOME-PRETAX> 181,485
<INCOME-TAX> 5,000
<INCOME-CONTINUING> 176,485
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,485
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
