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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number 2-30905
HMI INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-1202810
- ---------------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3631 Perkins Ave, Cleveland, Ohio 44114
- ---------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 432-1990
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- -----------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past ninety (90) days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 20, 1999
- ------------------------------------ ------------------------------------
Common stock, $1 par value per share 5,286,353
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<TABLE>
<CAPTION>
INDEX
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PART I. FINANCIAL INFORMATION.......................................................................................3
ITEM 1. FINANCIAL STATEMENTS......................................................................................3
Consolidated Condensed Balance Sheets..........................................................................3
Consolidated Condensed Statements of Income....................................................................4
Consolidated Condensed Statements of Cash Flow.................................................................5
Notes to Consolidated Condensed Financial Statements...........................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.....................8
Results of Operations..........................................................................................8
Liquidity and Capital Resources...............................................................................12
Cautionary Statement for "Safe Harbor" Purposes Under the Private Securities Litigation Reform Act of 1995....13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..............................................13
PART II. OTHER INFORMATION.........................................................................................14
ITEM 1. Legal Proceedings.......................................................................................14
ITEM 2. Changes in Securities and Use of Proceeds...............................................................14
ITEM 3. Defaults Upon Senior Securities.........................................................................14
ITEM 4. Submission of Matters to A Vote of Security Holders.....................................................14
ITEM 5. Other Information.......................................................................................14
ITEM 6. Exhibits and Reports on Form 8-K........................................................................15
(a) Index to Exhibits.........................................................................................15
(b) Reports on Form 8-K.......................................................................................15
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
MARCH 31, September 30,
1999 1998
-------------------- -------------------
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,605 $ 51,365
Trade accounts receivable (net of allowance of $844,182 and $1,084,594) 2,940,313 3,892,141
Notes receivable 105,211 90,180
Finance contracts receivable 35,588 42,305
Inventories:
Finished goods 1,789,899 2,292,552
Work-in-progress, raw material and supplies 1,574,589 2,071,003
Deferred income taxes 2,297,327 1,342,862
Prepaid expenses 116,621 226,489
Other current assets 55,099 -
-------------------- -------------------
Total current assets 8,917,252 10,008,897
-------------------- -------------------
PROPERTY, PLANT AND EQUIPMENT, NET 1,194,950 5,010,053
-------------------- -------------------
OTHER ASSETS:
Long-term notes receivable (less amounts due within one year) 192,887 249,821
Cost in excess of net assets of acquired businesses
(net of amortization of $2,879,393 and $2,756,642) 6,330,017 6,446,682
Deferred income taxes 1,299,340 2,253,805
Unamortized trademarks 265,746 289,162
Finance contracts receivable (less amounts due within one year) 71,175 84,610
Other 1,260 65,753
-------------------- -------------------
Total other assets 8,160,425 9,389,833
--------------------
===================
Total assets $ 18,272,627 $ 24,408,783
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 3,469,967 $ 5,118,002
Income taxes payable 1,096,302 1,126,049
Accrued expenses and other liabilities 3,004,122 3,152,908
Long-term debt due within one year 102,751 121,599
-------------------- -------------------
Total current liabilities 7,673,142 9,518,558
-------------------- -------------------
LONG-TERM LIABILITIES:
Long-term debt (less amounts due within one year) 251,242 549,819
Other 168,036 241,401
-------------------- -------------------
Total long-term liabilities 419,278 791,220
-------------------- -------------------
STOCKHOLDERS' EQUITY:
Preferred stock, $5 par value; authorized, 300,000 shares; issued, none - -
Common stock, $1 par value; authorized, 10,000,000 shares;
issued, 5,368,556 shares 5,368,556 5,368,556
Capital in excess of par value 7,930,497 8,173,924
Unearned compensation, net (242,177) (522,984)
Retained earnings (1,345,965) 3,103,052
Other comprehensive loss (Note 5) (878,994) (1,037,721)
-------------------
--------------------
10,831,917 15,084,827
Less treasury stock 141,235 and 210,191 shares, respectively, at cost 651,710 985,822
-------------------- -------------------
Total stockholders' equity 10,180,207 14,099,005
==================== ===================
Total liabilities and stockholders' equity $ 18,272,627 $ 24,408,783
==================== ===================
See notes to consolidated condensed financial statements.
</TABLE>
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<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
For the three months ended March 31, For the six months ended March 31,
1999 1998 1999 1998
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Revenues:
Net product sales $ 9,519,630 $ 10,195,589 $ 18,691,603 $ 19,106,779
Financing revenue and other 148,310 86,315 263,969 186,640
----------------- ----------------- ----------------- ------------------
9,667,940 10,281,904 18,955,572 19,293,419
Operating costs and expenses:
Cost of products sold 6,447,990 6,837,731 13,004,395 12,968,225
Selling, general and administrative
expenses 3,888,692 5,876,063 7,162,608 11,228,821
Interest expense 16,253 755,009 44,576 1,287,684
Impairment loss (Note 3) - - 2,664,574 -
Other expenses 66,113 103,332 114,436 119,189
----------------- ----------------- ----------------- ------------------
Total expenses 10,419,048 13,572,135 22,990,589 25,603,919
----------------- ----------------- ----------------- ------------------
Loss before income taxes (751,108) (3,290,231) (4,035,017) (6,310,500)
Provision (benefit) for income taxes 39,000 (923,171) 39,000 (1,838,613)
----------------- ----------------- ----------------- ------------------
Loss before discontinued operations (790,108) (2,367,060) (4,074,017) (4,471,887)
----------------- ----------------- ----------------- ------------------
(Loss) income from discontinued
operations -
Household Rental Systems
(net of taxes of $-0-) - (252,022) - 10,196
Bliss Manufacturing
(net of taxes of $-0-,
$152,045, $-0- and $137,348)) - (248,073) - 224,094
Tube Fab Ltd.
(net of taxes of $-0-, $-0-,
$-0- and $128,733) - (2,697) - 207,341
----------------- ----------------- ----------------- ------------------
- (502,792) - 441,631
----------------- ----------------- ----------------- ------------------
(Loss) gain on disposals -
Household Rental Systems
(net of taxes of $-0-) - 436,889 - 436,889
Bliss Manufacturing
(net of taxes of $-0-,
$6,017,199, $-0- and $6,017,199) (375,000) 6,093,058 (375.000) 6,093,058
Tube Fab Ltd.
(net of taxes of $-0-,
$183,269, $-0- and $183,269) - (299,019) - (299,019)
Health-Mor Personal Care Corp.
(net of taxes of $-0-,
$119,700, $-0- and $119,700) - (195,300) - (195,300)
----------------- ----------------- ----------------- ------------------
(375,000) 6,035,628 (375,000) 6,035,628
----------------- ----------------- ----------------- ------------------
Net (loss) income $ (1,165,108) $ 3,165,776 $ (4,449,017) $ 2,005,372
================= ================= ================= ==================
Weighted average number of shares
outstanding 5,222,659 5,034,034 5,202,245 5,033,059
================= ================= ================= ==================
Basic and diluted per share
of common stock:
Loss before discontinued operations $ (0.15) $ (0.47) $ (0.78) $ (0.89)
(Loss) income from discontinued
operations $ - $ (0.10) $ - $ 0.09
(Loss) gain on disposals $ (0.07) $ 1.20 $ (0.07) $ 1.20
----------------- ----------------- ----------------- ------------------
Net (loss) income
$ (0.22) $ 0.63 $ (0.85) $ 0.40
================= ================= ================= ==================
Cash dividends per common share $ - $ - $ - $ -
================= ================= ================= ==================
</TABLE>
See notes to consolidated condensed financial statements.
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<TABLE>
<CAPTION>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
For the six months ended March 31,
1999 1998
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Cash flows from operating activities:
Net (loss) income $ (4,449,017) $ 2,005,372
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 444,825 906,254
Impairment of asset 2,664,574 -
Loss on sale of assets 47,331 -
Loss (gain) on disposal of discontinued operation 375,000 (6,035,628)
Amortization of stock awards, net 371,492 606,938
Deferred income taxes - 3,872,574
Changes in operating assets and liabilities:
Decrease in receivables 1,013,883 685,761
Decrease (increase) in inventories 999,067 (1,739,442)
Decrease in prepaid expenses 109,868 63,523
Increase in other current assets (55,099) (91,088)
Decrease in accounts payable (1,648,035) (1,162,290)
Decrease in accrued expenses and other liabilities (597,151) (1,240,996)
Decrease in income taxes payable (29,747) (2,000,475)
Other, net 240,310 358,992
----------------- ----------------
Net cash used in operating activities (512,695) (3,770,505)
----------------- ----------------
Cash flows from investing activities:
Proceeds from sale of businesses, net of transaction expenses of $5,229,344 - 25,724,406
Net proceeds from sale of assets 792,670 -
Capital expenditures (11,310) (110,841)
----------------- ----------------
Net cash provided by investing activities 781,360 25,613,565
----------------- ----------------
Cash flows from financing activities:
Net repayments under credit facility (256,838) (16,305,219)
Payment of long term debt (60,587) (4,871,666)
----------------- ----------------
Net cash used in financing activities (317,425) (21,176,885)
----------------- ----------------
Net (decrease) increase in cash and cash equivalents (48,760) 666,175
Cash and cash equivalents, beginning of period 51,365 239,797
================= ================
Cash and cash equivalents, end of period $ 2,605 $ 905,972
================= ================
</TABLE>
See notes to consolidated condensed financial statements.
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS FOR PREPARATION OF THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The interim consolidated condensed financial statements included in this report
have been prepared, without audit, by HMI Industries Inc. ("the Company") from
the consolidated statements of the Company and its subsidiaries, pursuant to the
rules and regulations of the Securities and Exchange Commission. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures,
including significant accounting policies, normally included in annual financial
statements have been condensed or omitted pursuant to such rules and
regulations.
In the opinion of management, the unaudited financial information for the
interim periods presented reflects all adjustments (which include only normal,
recurring adjustments) necessary for a fair presentation. These condensed
consolidated financial statements and notes thereto should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1998. Operating results for interim periods are not necessarily
indicative of operating results for an entire fiscal year.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the fiscal 1999
presentation.
FOREIGN CURRENCY TRANSLATION
The Company finalized the closing of its Holland sales office in February 1999.
This action resulted in an expense of $138,700 associated with the write off of
the Holland cumulative translation adjustment previously included within the
other comprehensive loss caption of the Consolidated Condensed Balance Sheets.
EARNINGS PER SHARE
The denominators for calculating the Company's basic and diluted earnings per
share are identical as all common stock equivalents are anti-dilutive as of
March 31, 1999 and 1998.
2. DISCONTINUED OPERATIONS
All previously recorded discontinued operations were disposed of in fiscal 1998.
Sales applicable to discontinued operations for the three and six months ended
March 31, 1998 were $16,665,100 and $34,174,600, respectively.
On March 19, 1999, the Company reached an agreement with Rhone Capital LLC ("the
Buyer") to resolve a dispute concerning unusable and unsaleable inventory, and
related representations and warranties stemming from the sale of Bliss
Manufacturing ("Bliss") to the Buyer in March 1998, pursuant to a Stock Purchase
Agreement, dated December 17, 1997, as subsequently amended ("Purchase
Agreement"). Certain conditions of the resolution are as follows: (1)
approximately $500,000 in funds escrowed in connection with the Purchase
Agreement were released to the Buyer;
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(2) both the Company and the Buyer agreed not to assert claims for
indemnification under specified sections of the Purchase Agreement; (3) the
Buyer agreed not to require the Company to purchase any unusable or unsaleable
inventory pursuant to the Purchase Agreement and (4) the Buyer agreed to not
seek reimbursement for any monies actually paid in respect of environmental
damages from March 27, 1998 to and including March 31, 1999.
Also in March 1999, the Company recorded a reserve of $425,000 for future
environmental damage expenditures pursuant to the Purchase Agreement. This
reserve was offset by the reversal of $50,000 of professional fees established
in the original loss on disposal reserve recorded in fiscal year 1998 for the
sale of Bliss that will not be paid due to the release of the entire escrow to
the Buyer.
3. PROPERTY, PLANT AND EQUIPMENT
On January 12, 1999, the Company sold its current facility and related land in
Cleveland, Ohio, to Rose Management Company, a local real estate investment
company, for $840,000. The net book value of the related land and building at
the time of sale was $3,504,600. In December 1998, the Company recorded a
non-cash impairment loss of $2,664,600 on the building to reflect the difference
between the sales price and the net book value of the property. The impairment
loss was recorded as a separate line item under operating expenses in the
Consolidated Condensed Statement of Income.
4. DEBT
As of December 31, 1998, the Company was not in compliance with the book net
worth covenant of its existing credit facility due to the non-cash impairment
loss on the Company's Cleveland, Ohio facility (See Note 3). The Company's
credit facility agreement was therefore amended in January 1999 to modify
various subsections of the original agreement, primarily the book net worth
covenant. There were no covenant violations as of March 31, 1999.
In May 1999, the Company anticipates terminating its current credit facility and
entering into a $3,500,000 revolving line of credit with a new lender consisting
of loans against the Company's eligible receivables and inventory. The new
credit agreement would expire in 2002 and calls for interest to accrue at a rate
of prime plus 2%. A pre-payment penalty waiver for early termination of the
current credit facility was obtained from the Company's lender in February 1999.
5. COMPREHENSIVE INCOME
During the first quarter of fiscal 1999, the Company adopted Statement of
Financial Accounting Standards No. 130 ("FAS 130"), "Reporting Comprehensive
Income," which establishes new rules for the reporting and display of
comprehensive income and its components. In general, comprehensive income
combines net income and "other comprehensive items," which represents foreign
currency translation adjustments, reported as a separate component of
shareholders' equity in the accompanying Consolidated Condensed Balance Sheet.
The Company presents such information in its statement of stockholders' equity
on an annual basis and in a footnote in its
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quarterly reports. The Company had a comprehensive loss of $1,147,600 and
$4,429,000 for the three and six months ended March 31, 1999 and comprehensive
income of $3,323,000 and $1,695,700 for the three and six months ended March 31,
1998.
6. LONG TERM COMPENSATION PLAN
During the second fiscal quarter of 1999, the Board of Directors granted 307,832
incentive stock options and 77,500 restricted shares to key employees of the
Company in accordance with the Health-Mor Inc. 1992 Omnibus Long-Term
Compensation Plan. The majority of the options and restricted shares vest over a
36-month period with the exception of 133,332 options and 25,832 restricted
shares that vested immediately.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NET PRODUCT SALES-
SECOND QUARTER OF FISCAL 1999 COMPARED TO SECOND QUARTER OF FISCAL 1998
Net product sales of $9,519,600 for the quarter ended March 31, 1999 decreased
by $676,000 or 6.6% as compared to fiscal 1998. The decrease in sales is due
primarily to a decline in Canadian and European sales offset by an increase in
American and Asian sales. In March 1998, the Company changed the way it went to
market in Canada, moving from a company owned distribution warehouse to an
importer. A trade discount, which is reduced yearly, was provided to the
importer in exchange for his assumption of all selling and administrative
expenses associated with the Canadian operation. This trade discount accounts
for a portion of the decrease in Canadian revenue. The decrease in Canadian
sales is also related to a decrease in After the Sale ("ATS") parts. The main
focus of the Canadian importer has been on maintaining a strong distributor
network and stabilizing Majestic (the Company's floor care product) sales while
rebuilding the ATS program. The rebirth of the Canadian ATS program is taking
longer than originally estimated but Company management and the Canadian
importer have recently implemented a new strategy that they feel will improve
the growth of ATS parts sales. European sales were unfavorable for the second
quarter of fiscal 1999 as compared to the same quarter in fiscal 1998 primarily
as a result of decreases in U.K. and Russian sales. Sales in U.K. decreased due
to the difficulty in obtaining consumer financing to complete the sale
transactions. Consumer financing companies used in England decreased from four
primary lenders to one during the last quarter. To rectify this situation, the
Company has negotiated with a consumer finance professional who will identify
and establish new financial services, while revitalizing existing relationships
for the U.K. network. Sales in Russia and its neighboring trading states have
dramatically declined as a result of the problems in the Russian economy and the
fall of the ruble. In the Americas Division in fiscal 1998, continued
distributor network stabilization efforts were pursued while programs were being
implemented to grow sales. In fiscal 1998, low producing distributor offices
were eliminated and a cash only sales policy was established. In spite of one
third fewer distributor offices, the Americas Division increased sales in the
second quarter of fiscal 1999 as compared to the same period in fiscal 1998 by
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maintaining Majestic sales and increasing Defender (the Company's air filtration
product) sales by 29%. The increase in Defender sales is directly attributable
to the repackaging of the Company's products (the Majestic and Defender) as a
side-by-side system rather than as stand-alone products. Following last year's
fallout of the Asian currency devaluation, the Company had anticipated a return
to growth in four of its most promising markets - Korea, Singapore, Malaysia and
the Philippines. Sales in Asia for the quarter ended March 31, 1999 appear to
reflect a return to growth and are favorable to the comparable quarter in fiscal
1998.
FIRST SIX MONTHS OF FISCAL 1999 COMPARED TO FIRST SIX MONTHS OF FISCAL 1998
Net product sales of $18,691,600 for the six months ended March 31, 1999
represent a decline of $415,200 or 2.2% compared to $19,106,800 for the six
months ended March 31, 1998. The decline in sales is a result of decreased ATS
sales in Canada and Eastern Europe and unit sales for the Eastern European
region offset by increased sales in America and Western Europe. The primary
reason for the decline in ATS Canadian sales is attributable to the rebirth of
the Canadian ATS network taking longer than anticipated by Company management
and the Canadian importer. A refocus of ATS as a lead generation tool and added
sales support in Canada are part of the strategy being used to rebuild the ATS
Canadian network. Eastern European sales, both ATS and units, have been
adversely affected by the currency devaluations in the Turkish and Polish
markets. Bank problems and currency devaluation in these countries will continue
to make it difficult to distribute product to these areas in the near future.
The Americas' network continues to get stronger and more productive, with an
overwhelming majority of distributors willing and able to afford and move toward
selling the complete indoor air quality system, rather than just the Majestic.
The increase in European sales is attributable to a 100% increase in the number
of Defender units sold and expansion of new importer offices in Western Europe.
The Company's net product sales and income from continuing operations were not
materially impacted by inflation or changing prices.
GROSS PROFIT- Gross profit, exclusive of financing revenue, for the quarter
ended March 31, 1999 was $3,071,600, or 32.3%, as compared to $3,357,900, or
32.9%, in the quarter ended March 31, 1998. Gross profit, exclusive of financing
revenue, for the six months ended March 31, 1999 was $5,687,200 or 30.4%,
compared to $6,138,600 or 32.1%, for the comparable period. A change in the way
the Company went to market in Canada (see Net Product Sales above), a new
Majestic model and additional obsolescence charges of $248,000 (resulting from a
change in the Japanese motor to improve the quality of the unit) led to the
decrease in the gross profit margin. In March 1998, the Company introduced its
70th Anniversary Majestic model to the distribution network. Increases in
material costs of $94,000 and $222,400 associated with the new model are
reflected in the gross margin for the three and six months ended March 31, 1999,
respectively.
Exclusive of the items discussed above, the gross margin percentage for the
quarter and six months ended March 31, 1999 would have been 39.3% and 36.7%,
respectively. This improvement in the gross margin percentage is reflective of
improved efficiencies resulting from initiatives begun in the fourth quarter of
fiscal 1997 and continued throughout fiscal 1998 to strengthen business
processes, reduce costs, and improve quality. These initiatives continue today
as management conducts its review of component costs and continues to strengthen
operational processes.
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SELLING, GENERAL, AND ADMINISTRATIVE - Selling, general and administrative
("SG&A") expenses decreased by $1,987,400 for the quarter ended March 31, 1999
versus the comparable quarter of fiscal 1998. SG&A expenses for the six months
ended March 31, 1999 were $4,066,200 lower than the comparable period in fiscal
1998. The decrease in SG&A expenses is primarily related to decreases in
employee related costs and professional fees attributable to the Company's cost
reduction measures undertaken in fiscal 1998 and continuing into fiscal 1999. In
fiscal 1998, the Company downsized its businesses to one core business segment,
reduced its staff to an appropriate level, and reduced both non-sales growth
expenses and fixed costs. Also contributing to the decrease in SG&A expenses are
lower administrative costs relating to the Canadian and Holland entities. These
operations were downsized in fiscal 1998 as part of the Company's overall cost
reduction plan. The Holland sales office was subsequently deregistered in
February 1999.
INTEREST EXPENSE - Interest expense for the quarter ended March 31, 1999 was
$16,300 or $738,800 lower than the comparable quarter of fiscal 1998 due
primarily to lower outstanding balances on the current credit facility as
compared to the Star Bank credit facility in fiscal 1998. The Star Bank credit
facility was retired in March 1998 from the proceeds generated from the
Company's sale of its Bliss Manufacturing operation. Interest expense for the
six months ended March 31, 1999 was $44,600 compared to $1,287,700 for the six
months ended March 31, 1998. This change is also due to the aforementioned
change in the Company's outstanding debt.
IMPAIRMENT LOSS - On January 12, 1999, the Company sold its current facility and
related land in Cleveland, Ohio, to Rose Management Company, a local real estate
investment company, for $840,000. The net book value of the related land and
building at the time of sale was $3,504,600. In December 1998, the Company
recorded a non-cash impairment loss of $2,664,600 on the building to reflect the
difference between the sales price and the net book value of the property.
INCOME TAXES - The effective income tax rate for the first quarter of fiscal
1999 is (1.0%) due to the establishment of a valuation allowance against current
quarter net operating losses offset by the provision for state franchise taxes.
DISCONTINUED OPERATIONS - All previously recorded discontinued operations were
disposed of in fiscal 1998. Sales applicable to discontinued operations for the
three and six months ended March 31, 1998 were $16,665,100 and $34,174,600,
respectively.
On March 19, 1999, the Company reached an agreement with Rhone Capital LLC ("the
Buyer") to resolve a dispute concerning unusable and unsaleable inventory, and
related representations and warranties stemming from the sale of Bliss to the
Buyer in March 1998, pursuant to a Stock Purchase Agreement, dated December 17,
1997, as subsequently amended ("Purchase Agreement"). Certain conditions of the
resolution are as follows: (1) approximately $500,000 in funds escrowed in
connection with the Purchase Agreement were released to the Buyer; (2) both the
Company and the Buyer agreed not to assert claims for indemnification under
specified sections of the Purchase Agreement; (3) the Buyer agreed not to
require the Company to purchase any unusable or unsaleable inventory pursuant to
the Purchase Agreement and (4) the Buyer agreed to not seek reimbursement for
any monies actually paid in respect of environmental damages from March 27, 1998
to and including March 31, 1999.
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Also in March 1999, the Company recorded a reserve of $425,000 for future
environmental damage expenditures pursuant to the Purchase Agreement. This
reserve was offset by the reversal of $50,000 of professional fees established
in the original loss on disposal reserve recorded in fiscal year 1998 for the
sale of Bliss that will not be paid due to the release of the entire escrow to
the Buyer.
YEAR 2000 - Older computer software programs that use two digits rather than
four digits to identify the year in a date field are a concern with year 2000
approaching. If not corrected, many computer applications may fail to treat
dates intended to represent years in the twenty-first century as such but
instead treat them as still in the twentieth century, potentially resulting in
system failures or miscalculations disruptive of business operations, including,
among other things, an inability to initiate, receive, process, invoice or
otherwise complete normal business activities. These Year 2000 issues affect
virtually all companies and organizations.
Through the use of internal personnel and outside consultants, the Company has
performed a detailed review to assess the impact of the Year 2000 issue on its
continuing operations. In connection with this review, the Company conducted an
inventory of IT and non-IT hardware and software, material vendors and
customers, and business processes. Each inventoried item was addressed to
evaluate its risk, to decide whether to remediate or replace, to identify its
priority to the business and to develop a plan for the system.
Plans developed in the assessment phase are being executed in the implementation
phase. Non-compliant IT and non-IT hardware and software are being remediated or
replaced. As of April 26, 1999, the majority of the Company's IT and non-IT
hardware and software utilize Year 2000 compliant software. Remaining
non-compliant hardware and software will be remediated or replaced with Year
2000 software and hardware by June 1999. Testing, which is expected to be
completed by June 30, 1999, is currently being performed to ensure compliance.
Testing attempts to verify that all systems function correctly and it extends to
all interfaces with key business partners.
During the assessment and testing phase, no significant information technology
projects have been deferred as a result of our efforts on Year 2000.
The Company relies on third party suppliers for raw materials, water, utilities,
transportation and other key services. Interruption of supplier operations due
to Year 2000 issues could affect Company operations, financial conditions or
cash flows. We are now in the process of surveying our vendors in order to
ascertain their ability to continue supplying us with necessary services and
materials. As of April 26, 1999, with 55% (120 out of 219) of the surveys
returned, the Company has not received any negative responses. All state that
they are, or will be, compliant by mid-1999. In addition to the survey,
contingency plans are being developed. While approaches to reducing risks of
interruption due to supplier failures will vary, options include identification
of alternate suppliers, and utility providers, accumulation of inventory to
assure production capability where feasible or warranted, and establishment of
crisis teams to address unexpected problems. These activities are intended to
provide a means of managing risk, but cannot eliminate the potential for
disruption due to third party failure.
11
<PAGE> 12
The Company is also dependent upon our customers for sales and cash flow. Year
2000 issues in our customers' operations could result in decreased sales,
decreased cash flows, and increased inventory and receivables. While these
events are possible, we believe our customer base is broad enough to minimize
the effects of a single occurrence. In addition, the majority of the customer
base is not dependent upon equipment that could be affected by the Year 2000
issues. However, steps are currently being taken to monitor the status of our
customers as a means of determining risks and alternatives.
The Company estimates that the total cost to identify and fix Year 2000 problems
is approximately $350,000 of which $326,000 has been incurred to date. The
Company's policy is to expense as incurred information system maintenance and
modification costs and to capitalize the cost of any new hardware and amortize
it over the assets' useful lives. All expenses related to Year 2000 problems are
being funded through operating cash flows or the existing credit facility.
LIQUIDITY AND CAPITAL RESOURCES
OPERATING ACTIVITIES - Cash flows from operating activities utilized net cash of
$512,700 for the six months ended March 31, 1999, principally due to the net
loss of $4,449,000 and a decrease in accounts payable of $1,648,000 and accrued
expenses and other liabilities of $597,200 offset by the $2,664,600 non-cash
expense associated with the impairment of the Company's Cleveland, Ohio facility
(See Note 3 to the Consolidated Condensed Financial Statements), and cash
inflows resulting from decreases in receivables of $1,013,900 and inventories of
$999,100. The decrease in receivables was due primarily to a greater majority of
customers prepaying, in order to take advantage of cash discounts, versus cash
on delivery, and improved collection efforts in the greater than 120 day
category which generated approximately $570,000 during the first fiscal quarter
of 1999. Improvement in production forecasts, decreases in labor and overhead
absorption rates, utilization of excess ATS inventories, increases in the
obsolescence reserve and implementation of a Kanban system for ATS parts
primarily contributed to the decrease in inventories. Labor and overhead
absorption rates decreased as a result of increased inventory turns and lower
plant spending. The increase in the obsolescence reserve resulted from a change
in the Japanese motor that was needed to improve the quality of the unit. The
Kanban technique is used to pull products and material through and into the
manufacturing process through the use of a physical signal that identifies
points of consumption and replenishment. Accounts payable decreased by
$1,648,000 primarily due to a decrease in inventory and continued Company-wide
cost containment efforts. The decrease in accrued expenses and other liabilities
is a result of the payment of non-recurring professional fees and commissions
accrued for at September 30, 1998.
INVESTING ACTIVITIES - Net cash provided by investing activities of $781,400 for
the six months ended March 31, 1999, primarily represents net proceeds from the
sale of the Company's facility and related land in Cleveland, Ohio (See Note 3
to the Consolidated Condensed Financial Statements).
12
<PAGE> 13
FINANCING ACTIVITIES - Net cash used in financing activities was $317,400, which
included $256,800 for net repayments under the credit facility and $60,600 for
payment of long-term debt.
As of December 31, 1998, the Company was not in compliance with the book net
worth covenant of its existing credit facility due to the non-cash impairment
loss on the Company's Cleveland, Ohio facility (See Note 3 to the Consolidated
Condensed Financial Statements). The Company's credit facility agreement was
therefore amended in January 1999 to modify various subsections of the original
agreement, primarily the book net worth covenant. There were no covenant
violations as of March 31, 1999.
In May 1999, the Company anticipates terminating its current credit facility and
entering into a $3,500,000 revolving line of credit with a new lender consisting
of loans against the Company's eligible receivables and inventory. The new
credit agreement would expire in 2002 and calls for interest to accrue at a rate
of prime plus 2%. A pre-payment penalty waiver for early termination of the
current credit facility was obtained from the Company's lender in February 1999.
The Company believes that its current working capital, cash flow generated from
future operations and its existing or future credit facility will be sufficient
to fund the Company's capital requirements for the foreseeable future.
CAUTIONARY STATEMENT FOR "SAFE HARBOR" PURPOSES UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
This report, including Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements within
the meaning of the Federal securities laws. As a general matter, forward-looking
statements are those focused upon future plans, objectives or performance as
opposed to historical items and include statements of anticipated events or
trends and expectations and beliefs relating to matters not historical in
nature, including the statements made in "Net Product Sales" regarding
appearance of return to growth in the Asian markets and the implementation of a
strategy to improve ATS sales growth, "Gross Profit" pertaining to operational
initiatives and the improvement of the gross margin percentage, "Year 2000"
concerning the impact of costs incurred on the Company's future operating
results, financial condition and cash flows and the potential impact of
suppliers and customers and "Liquidity and Capital Resources" relating to the
Company's anticipation of entering into a revolving line of credit with a new
lender. Such forward-looking statements are subject to uncertainties including
the improvement of sales in the Asian and ATS markets, the ability of the
Company to continue to implement cost reduction measures. Such uncertainties are
difficult to predict and could cause actual results of the Company to differ
materially from those matters expressed or implied by such forward-looking
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
14
<PAGE> 15
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) INDEX TO EXHIBITS
<S> <C> <C>
10.00 Material Contracts Real Estate Sale Agreement and Amendment
to Real Estate Sale Agreement,
incorporated by reference from Form 10-Q
for the quarter ended December 31, 1998
10.01 Material Contracts Bliss Stock Purchase Agreement,
incorporated by reference from Form
10-K/A3 for the year ended September 30,
1997.
10.02 Material Contracts Bliss Stock Purchase Agreement Settlement
Letter, attached.
10.03 Material Contracts Second Amendment to Heller Financial Loan
and Security Agreement, attached.
10.04 Material Contracts Heller Financial Pre-Payment Penalty
Waiver Letter, attached.
10.05 Material Contracts Amendment to Restricted Stock Agreements,
attached.
10.06 Material Contracts Restricted Stock Agreements, attached.
10.07 Material Contracts Incentive Stock Option Agreements,
attached.
27.00 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the quarter for which this report
is filed.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HMI INDUSTRIES INC.
-------------------------------
(Registrant)
Date: MAY 7, 1999 /s/ Julie A. McGraw
----------- -------------------------------
Julie A. McGraw
Vice President - Corporate
Controller and Chief Accounting
Officer
16
<PAGE> 1
Exhibit 10.02
BLISS TECHNOLOGIES INC.
1536 First Street
Newton Falls, Ohio 44444
March 19, 1999
Carl H. Young, Esq.
General Counsel
HMI Industries Inc.
3631 Perkins Avenue
Cleveland, Ohio 44114
Re: HMI/Bliss
---------
Dear Carl:
I refer to: (i) a Stock Purchase Agreement between Rhone Capital LLC and
HMI Industries Inc., dated as of December 17, 1997, and amended as of February
11, 1998; (ii) an Escrow Agreement among HMI, Bliss Technologies Inc. (formerly
known as Danube Inc.) and The Chase Manhattan Bank (as Escrow Agent), dated as
of March 27, 1998; and (iii) an Assignment and Assumption Agreement dated as of
March 27, 1998, whereby Bliss succeeded to all of Rhone's rights and obligations
under the Stock Purchase Agreement. Terms defined in the Stock Purchase
Agreement or the Escrow Agreement have the same meaning when used herein.
A dispute between HMI and Bliss has arisen regarding certain
representations, warranties and agreements of HMI in sections 3.15 and 5.8 and
Schedule 3.15 of the Stock Purchase Agreement that concern unusable and
unsaleable inventory of the Company. Under Article VIII of the Stock Purchase
Agreement, Bliss has sought indemnification by HMI in respect of its Claim
relating to this dispute. By this Letter Agreement, HMI and Bliss agree to
resolve the dispute as follows:
1. Concurrent with the execution of this Letter Agreement, HMI will execute
the enclosed Resolution Certificate Instructing the Escrow Agent to pay the
entire amount of
<PAGE> 2
-2-
Carl H. Young, Esq.
the Escrow Fund to Bliss within two business days following receipt of the
Resolution Certificate by the Escrow Agent.
2. HMI agrees to assert no Claim for indemnification under Article VIII of
the Stock Purchase Agreement now or at any time in the future.
3. In consideration of HMI's execution of the Resolution Certificate and
its agreement to assert no claims for indemnification under Article VIII of the
Stock Purchase Agreement, Bliss and all the Buyer Indemnified Parties agree to
make no further Claim for indemnification under sections 8.2(a), 8.2(b) and
8.2(c) of the Stock Purchase Agreement. Bliss and the Buyer Indemnified Parties
also agree to make no further Claim for indemnification under section 8.2(f) of
the Stock Purchase Agreement, but only to the extent that such a Claim would
arise from or be associated with any actions, suits, proceedings, demands,
judgments, costs and legal and other expenses incident to matters referred to in
sections 8.2(a), 8.2(b), and 8.2(c) of the Stock Purchase Agreement. Therefore,
irrespective of the time limitation for the assertion of indemnification Claims
by the Buyer set forth in section 8.3 of the Stock Purchase Agreement, Bliss
agrees that no further indemnification Claims will be made under sections
8.2(a), 8.2(b), 8.2(c) and 8.2(f) (as limited by the previous sentence) of the
Stock Purchase Agreement.
4. Bliss also agrees not to require HMI to purchase any unusable or
unsaleable inventory of Bliss pursuant to section 5.8 of the Stock Purchase
Agreement.
5. Bliss and the Buyer Environmental Indemnities further agree that they
will not seek reimbursement for any monies actually paid in respect of
Environmental Damages from the date of the Closing to and including March 31,
1999. In all other respects, section 8.5 of the Stock Purchase Agreement,
including HMI's indemnification obligations thereunder, remain unmodified and in
full force and effect.
6. In connection with paragraph 3 above, Bliss agrees that HMI shall have
the right to remove at their expense and dispose of raw materials covered by
section 5.8 and schedule 3.15 of the Stock Purchase Agreement with a book value
not greater than $50,000 by March 26, 1999.
<PAGE> 3
-3-
Carl H. Young, Esq.
Apart from the subject matter of this Letter Agreement, the terms of the
Stock Purchase Agreement and the Escrow Agreement remain unmodified and in full
force and effect. Your signature below will signify HMI's agreement to the terms
of this Letter Agreement.
Sincerely,
By: /s/ M. Brett Herman
---------------------------------------------
Name: M. Brett Herman
Title: Vice President, Bliss Technologies Inc.
Agreed to:
/s/ Carl H. Young 3/19/99
- --------------------------------
Carl H. Young, Esq.
General Counsel
HMI Industries Inc.
<PAGE> 1
Exhibit 10.03
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to that certain Loan and Security Agreement
("Amendment") is made and entered into as of January 29, 1999 by and between
HMI Industries, Inc. ("Borrower") and Heller Financial, Inc. ("Lender").
WHEREAS, Lender and Borrower are parties to a certain Loan and Security
Agreement, dated April 23, 1998 and all amendments thereto (the "Agreement");
and
WHEREAS, Certain information has come to the attention of Lender, and
after discussions with the Borrower, the Lender has decided to phase out the
Inventory sub-line; and
WHEREAS, Events of Default are in existence under the Agreement as a
result of Borrower's breach of certain conditions contained in paragraph (J),
POST CLOSING CONDITIONS, clauses (3)-(6), of the Conditions Rider (the "Existing
Events of Default"), and Borrower has requested Lender waive the Existing Events
of Default; and
WHEREAS, the parties desire to amend the Agreement as hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual conditions and agreements
set forth in the Agreement and this Amendment, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. DEFINITIONS. Capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such term in the
Agreement.
2. AMENDMENT. Subject to the conditions set forth below, the Agreement
is hereby amended as follows:
(a) Subsection 1.1 is amended by inserting the following definitions
after the existing definition of "AGREEMENT" and before the existing definition
of "AUSTRALIAN LINE OF CREDIT":
" 'APPLICABLE ADVANCE PERCENTAGE' means the following:
Date Percentage Rate
---- ---------------
January 29, 1999 through and
including March 1, 1999 50%
March 2, 1999 through and
including March 31 , 1999 45%
April 1, 1999 through and
including April 30, 1999 35%
May 1, 1999 through and
including May 31, 1999 20%
1
<PAGE> 2
June 1, 1999 through and
including the Termination Date 0%"
(b) Subsection 2.1, REVOLVING LOAN, is hereby amended by deleting
SUBSECTION 2.1, REVOLVING LOAN in its entirety and inserting the following in
lieu thereof:
"2.1, REVOLVING LOAN. Upon Borrower's request made at any time
during the term of this Agreement, Lender may, in its sole and
absolute discretion, make advances to Borrower ("Revolving
Advances") in an aggregate amount up to the lesser of (A)(i) after
the Acceptable Accounts Reporting Date (x) 80% of the aggregate
outstanding amount of Eligible Accounts, MINUS, (y) the HMAC
Reserve, plus (ii) the lessor of (x) Applicable Advance Percentage
of the aggregate value of Borrower's Eligible Inventory or (y)
$2,500,000.00 or (B) $4,250,000.00 (the "Maximum Revolving Loan
Amount")."
(c) Subsection 6.1, Book Net Worth is amended by deleting SUBSECTION
6.1. BOOK NET WORTH in its entirety and inserting the following in lieu thereof:
"6.1, BOOK NET WORTH. Permit Borrower's book net worth, at any time,
to be less than $9,750,000."
(d) Paragraph (J) POST-CLOSING CONDITIONS, of the Conditions Rider,
clauses (3)-(6) are hereby amended by deleting clauses (3)-(6), REAL ESTATE AND
MACHINERY AND EQUIPMENT APPRAISALS, EPA PHASE I REPORT, TITLE INSURANCE
COMMITMENT POLICY, and SURVEY in their entirety.
3. WAIVER. Lender hereby waives the Existing Events of Default. This is
a limited waiver and shall not be deemed to constitute a waiver of any other
Events of Default or any future breach of the Agreement or any of the other Loan
Documents. Notwithstanding, the foregoing waiver of the Existing Events of
Default, Borrower has failed to meet the conditions set forth in the side letter
to the Agreement dated April 23, 1998, from Lender and accepted by Borrower, and
due to the fact that the Borrower has sold the real property Collateral, Lender
is hereby notifying Borrower that Lender is revoking the proposed Term Loan
facility.
4. CONDITIONS. The effectiveness of this Amendment is subject to the
following conditions precedent (unless specifically waived in writing by
Lender):
(a) There shall have occurred no material adverse change in the
business, operations, financial condition. profits or prospects of Borrower, or
in the Collateral;
(b) Borrower shall have executed and delivered such other documents
and instruments as Lender may require;
(c) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lender and its
legal counsel:
2
<PAGE> 3
(d) No Default or Event of Default other than the Existing Events of
Default shall have occurred and be continuing; and
(e) The Borrower shall have delivered to Lender evidence of the
consummation of the sale of Borrower's real property located at 3631 Perkins
Avenue, Cleveland, Ohio 44114.
5. CORPORATE ACTION. The execution, delivery, and performance of this
Amendment has been duly authorized by all requisite corporate action on the part
of Borrower and this Amendment has been duly executed and delivered by Borrower.
6. REPRESENTATIONS AND WARRANTIES. To induce the Lender to enter into
this Amendment, the Borrower hereby warrants, represents and covenants to the
Lender that each representation or warranty of the Borrower set forth in Section
4 of the Agreement is hereby restated and reaffirmed as true and correct on and
as of the date hereof as if such representation or warranty were made on and as
of the date hereof (except to the extent that any such representation or
warranty expressly relates to a prior specific date or period).
7. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
8. SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
9. COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which shall constitute an original, but all of which taken
together shall be one and the same instrument.
10. RATIFICATION. The terms and provisions set forth in this Amendment
shall modify and supersede all inconsistent terms and provisions of the
Agreement and, except as expressly modified and superseded by this Amendment,
the terms and provisions of the Agreement are ratified and confirmed and shall
continue in full force and effect.
11. REFERENCES.
(a) Any reference to the Agreement contained in any Loan Document,
or any other notice, request, certificate, or other document executed
concurrently with or after the execution and delivery of this Amendment shall be
deemed to include this Amendment, unless the context shall otherwise require.
(b) Except as specifically amended above, the Agreement, and all
other Loan Documents, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed. The Borrower has no knowledge
of any challenge to the Lender's claims arising under the Loan Documents or the
effectiveness of the Loan Documents:
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the
3
<PAGE> 4
Lender under any of the Loan Documents, nor constitute a waiver of any provision
of any of the Loan Documents. This Amendment shall not constitute a modification
of the Agreement or a course of dealing with the Lender at variance with the
Agreement such as to require further notice by the Lender to require strict
compliance with the terms of the Agreement and the other Loan Documents in the
future, except as expressly set forth herein.
(d) The Borrower confirms and agrees that to the extent that any
such Loan Document purports to assign or pledge to the Lender, or to grant a
security interest or lien on, any Collateral as security for the Obligations of
the Borrower from time to time existing in respect of the Agreement and the Loan
Documents, such pledge, assignment and/or grant of the security interest is
hereby ratified and confirmed in all respects, except as expressly provided for
herein.
12. LOAN DOCUMENT. This Amendment shall be deemed to be a Loan Document
for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
HELLER FINANCIAL, INC.
By: /s/ Michael L. DuBois
-------------------------
Name: Michael L. DuBois
-------------------------
Title: Vice President
-------------------------
HMI INDUSTRIES, INC.
ATTEST:
/s/ Julie A. McGraw By: /s/ R. M. Benedict, Jr.
- -------------------- -------------------------
Secretary Name: R. M. Benedict, Jr.
-------------------------
Title: Exec. VP, CFO & Treasurer
-------------------------
4
<PAGE> 1
Heller Financial, Inc.
500 West Monroe Street
Chicago, Illinois 60661
312 441 7000
Exhibit 10.04
- --------------------------------------------------------------------------------
[LOGO] HELLER FINANCIAL
February 19, 1999
Mr. Robert Benedict
V.P. - Finance
HMI Industries, Inc.
3631 Perkins Road
Cleveland, OH 44114
re: pre-payment penalty waiver
Dear Bob:
Please accept this letter as HMI Industries, Inc.'s authority to early terminate
the current $5,000,000 Financing Agreement with Heller Financial, Inc. without
any pre-payment penalty to HMI Industries, Inc.
Please call me if you have any questions pertaining to this matter.
Sincerely,
/s/ Michael L. DuBois
- ---------------------
Michael L. DuBois
Vice President
<PAGE> 1
Exhibit 10.05
AMENDMENT TO
RESTRICTED STOCK AGREEMENT
THIS AMENDMENT TO RESTRICTED STOCK AGREEMENT is entered into as of this
1st day of February, 1999, by and between HMI Industries Inc., a Delaware
corporation (the "Company") and Robert M. Benedict, Jr. (the "Employee").
WHEREAS, the Company and the Employee entered into a Restricted Stock
Agreement (the "Agreement") dated April 1, 1998; and
WHEREAS, both parties desire to amend such agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Employee hereby amend the
Agreement as follows:
1. Subsection 2(d) shall be deleted in its entirety.
2. Except as specifically amended hereby, all the terms and provisions
of the Agreement shall be and remain in full force and effect.
IN WITNESS WHEREOF, the Company and Employee have executed this
Amendment to the Restricted Stock Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
--------------------------
/s/ Robert M. Benedict, Jr.
--------------------------
Robert M. Benedict, Jr.
<PAGE> 2
Exhibit 10.05
AMENDMENT TO
RESTRICTED STOCK AGREEMENT
THIS AMENDMENT TO RESTRICTED STOCK AGREEMENT is entered into as of this
1st day of February, 1999, by and between HMI Industries Inc., a Delaware
corporation (the "Company") and Carl H. Young (the "Employee").
WHEREAS, the Company and the Employee entered into a Restricted Stock
Agreement (the "Agreement") dated March 25, 1998; and
WHEREAS, both parties desire to amend such agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Employee hereby amend the
Agreement as follows:
1. Subsection 2(d) shall be deleted in its entirety.
2. Except as specifically amended hereby, all the terms and provisions
of the Agreement shall be and remain in full force and effect.
IN WITNESS WHEREOF, the Company and Employee have executed this
Amendment to the Restricted Stock Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
-------------------
/s/ Carl H. Young
-----------------------
Carl H. Young
<PAGE> 3
Exhibit 10.05
AMENDMENT TO
RESTRICTED STOCK AGREEMENT
THIS AMENDMENT TO RESTRICTED STOCK AGREEMENT is entered into as of this
1st day of February, 1999, by and between HMI Industries Inc., a Delaware
corporation (the "Company") and Julie A. McGraw (the "Employee").
WHEREAS, the Company and the Employee entered into a Restricted Stock
Agreement (the "Agreement") dated April 1, 1998; and
WHEREAS, both parties desire to amend such agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Employee hereby amend the
Agreement as follows:
1. Subsection 2(d) shall be deleted in its entirety.
2. Except as specifically amended hereby, all the terms and provisions
of the Agreement shall be and remain in full force and effect.
IN WITNESS WHEREOF, the Company and Employee have executed this
Amendment to the Restricted Stock Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
-------------------
/s/ Julie A. McGraw
-----------------------
Julie A. McGraw
<PAGE> 4
Exhibit 10.05
AMENDMENT TO
RESTRICTED STOCK AGREEMENT
THIS AMENDMENT TO RESTRICTED STOCK AGREEMENT is entered into as of this
1st day of February, 1999, by and between HMI Industries Inc., a Delaware
corporation (the "Company") and James Malone (the "Employee").
WHEREAS, the Company and the Employee entered into a Restricted Stock
Agreement (the "Agreement") dated March 25, 1998; and
WHEREAS, both parties desire to amend such agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Employee hereby amend the
Agreement as follows:
1. Subsection 2(d) shall be deleted in its entirety.
2. Except as specifically amended hereby, all the terms and provisions
of the Agreement shall be and remain in full force and effect.
IN WITNESS WHEREOF, the Company and Employee have executed this
Amendment to the Restricted Stock Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
-------------------
/s/ James Malone
-----------------------
James Malone
<PAGE> 1
Exhibit 10.06
HMI Industries Inc.
Exhibit 10
Material Contracts - Restricted Stock Agreements
PARTICIPANT AGREEMENT SHARES EFFECTIVE DATE/SHARES EXERCISABLE
DATE
Robert Benedict 02/18/99 10,000 02/18/99 - one-third
02/18/00 - one-third
02/18/01 - one-third
Julie McGraw 02/18/99 7,500 02/18/99 - one-third
02/18/00 - one-third
02/18/01 - one-third
Joseph Najm 03/16/99 10,000 03/16/99 - one-third
03/16/00 - one-third
03/16/01 - one-third
See filed exhibit for Robert Benedict
<PAGE> 2
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AGREEMENT is entered into as of this 18th day of
February, 1999, by and between HMI Industries Inc., a Delaware corporation with
its principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the
"Company") and ROBERT M. BENEDICT, JR. (the "Employee").
WHEREAS, the Employee is employed as a key member of management of the
Company; and,
WHEREAS, pursuant to the Company's 1992 Omnibus Long-Term Compensation
Plan (the "Plan") the Board of Directors of the Company has approved a grant to
the Employee of shares of Common Stock of the Company, par value $1.00 per
share, subject to certain restrictions; and,
WHEREAS, the Employee has agreed to accept the shares subject to the
restrictions placed on ownership of the shares.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the Company and the Employee agree as follows:
1. GRANT OF SHARES. The Company grants to the Employee 10,000 shares of Common
Stock of the Company subject to the restrictions in section 2 (the "Shares"),
and the Employee accepts the Shares subject to the restrictions.
2. VESTING. The Shares shall vest on the following dates in the amount
indicated:
February 18, 1999 3,333 shares
February 18, 2000 3,333 shares
February 18, 2001 3,334 shares
Prior to the vesting of the Shares, if the Employee terminates his employment
with the Company or if the Company shall terminate his employment with Cause (as
defined below), the Shares shall be forfeited as provided in Section 4. In the
event of the following occurrences, all unvested Shares shall vest immediately
and shall not be subject to forfeiture: (a) Termination of the Employee's
employment without cause; (b) Death of the Employee; (c) Change in Control of
the Company as defined in the Plan.
3. DEFINITION OF CAUSE. Termination of Employee's employment for any of the
following reasons will constitute cause: (a) conviction of a felony or a crime
involving dishonesty or moral turpitude; (b) material breach of, or neglect of
the Employee's duties and responsibilities that is willful and deliberate and
that is likely to result in material economic injury to the Company.
1
<PAGE> 3
4. FORFEITURE. In the event that the Shares do not vest, the Shares shall be
surrendered and canceled and returned to the Company's treasury, and the
Employee shall receive no payment in consideration of such forfeited Shares.
5. COMPLIANCE WITH SECURITIES LAWS. No Shares will be issued in the absence of
an effective registration statement under the Securities. Act of 1933, unless
the Company has received evidence of exemption therefrom which is satisfactory
to counsel for the Company. Employee agrees to be bound by such provisions as
the Company may require to insure that the issuance by the Company or the sale
by the Employee of any of the Shares shall be in compliance with applicable
securities laws. These restrictions may include but shall not be not limited to
a) placing a restricted legend on the certificates evidencing the shares; b)
issuance of a stop transfer order by the transfer agent; and c) providing to the
Company an investment intent letter in which the Employee agrees that the shares
are being held for investment only and not for resale or distribution.
6. SAFEGUARDING OF SHARES. Employee agrees that the Company will retain the
Shares until they vest or are forfeited. Employee further agrees to execute an
assignment separate from certificate with a medallion signature guarantee
transferring the Shares to the Company in the event of forfeiture.
7. RECEIPT OF PLAN. Employee acknowledges receipt of a copy of the Plan, and
agrees that this grant of Shares shall be subject to all the terms and
provisions of the Plan, including any future amendments.
8. TAXES. Employee acknowledges that any federal, state or local income taxes
that may be due as a result of this grant are solely the responsibility of the
Employee, and agrees to pay any such taxes when due. If, as a result of this
grant, the Company is required to withhold any amount from the Employee for
federal, state or city income tax, FICA or Medicare tax or other similar taxes
or fees for which withholding is required by an employer for compensation paid
to an employee, the Employee authorizes the Company to withhold from other cash
sources due to the Employee from the Company, sufficient amounts to pay any
withholding which may be required as a result of the grant of Shares.
9. NO CONTRACT OF EMPLOYMENT. This agreement does not constitute a contract of
employment, and nothing herein shall be construed as creating a contract of
employment between Employee
and the Company.
10. CONSIDERATION. It is understood that the consideration for the Shares shall
be past services through the date of issuance having a value not less than the
par value of the shares.
11. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of any successors to the Company and all persons lawfully claiming under
the Employee.
2
<PAGE> 4
IN WITNESS WHEREOF, the Company and the Employee have executed this Restricted
Stock Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
------------------------
Carl H. Young, President
/s/ Robert M. Benedict, Jr.
--------------------------
Robert M. Benedict, Jr.
3
<PAGE> 1
Exhibit 10.07
HMI Industries Inc.
Exhibit 10
Material Contracts - Incentive Stock Option Agreements
PARTICIPANT AGREEMENT SHARES EFFECTIVE DATE/SHARES EXERCISABLE
DATE
Robert Benedict 02/18/99 10,000 02/18/00 - one-third
02/18/01 - one-third
02/18/02 - one-third
Julie McGraw 02/18/99 7,500 02/18/00 - one-third
02/18/01 - one-third
02/18/02 - one-third
Joseph Najm 03/16/99 10,000 03/16/00 - one-third
03/16/01 - one-third
03/16/02 - one-third
See filed exhibit for Robert Benedict
James Malone 02/18/99 66,666 02/18/99
Carl Young 02/18/99 66,666 02/18/99
See filed exhibit for James Malone.
<PAGE> 2
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT is entered into as of February
18, 1999 by and between HMI Industries Inc., a Delaware corporation, with its
principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the
"Company") and ROBERT M. BENEDICT, JR. (the "Participant").
WHEREAS, the Company has adopted the 1992 Omnibus Long-Term
Compensation Plan (the "Plan"); and,
WHEREAS, Participant is a Key Employee of the Company as defined
in the Plan; and,
WHEREAS, pursuant to section 8 of the Plan the Participant may be
granted an option to purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Participant hereby agree as follows:
1. GRANT OF OPTION. There is hereby granted to Participant an option to
purchase 10,000 shares of Common Stock of the Company at a price of $1.50 per
share. The number of shares which may be purchased and the exercise price per
share are subject to adjustment as provided in the Plan. This option is intended
to be an incentive stock option within the meaning of section 422 of the
Internal Revenue Code
2. EXERCISE OF OPTION. The option granted to Participant herein may be
exercised in whole or in part, subject to the following limitations on exercise:
EFFECTIVE DATE SHARES EXERCISABLE
-------------- ------------------
February 18, 2000 one-third of optioned shares
February 18, 2001 two-thirds of optioned shares
February 18, 2002 all of optioned shares
3. EXPIRATION. To the extent not exercised, the option expires on
February 18, 2004, unless expiring sooner pursuant to the terms of the Plan,
applicable provisions of the Internal Revenue Code or other provisions of this
Agreement.
4. ACCELERATION. In the event of a change in control as defined in
the Plan, this option shall become immediately exercisable with respect to all
unexercised shares.
5. RETIREMENT. If the Participant ceases to be an employee of the
Company by reason of retirement in accordance with any retirement plan or policy
of the Company then in effect, the Participant, at any time within the six month
period following such retirement (but prior to the expiration date of the option
as specified in section 3) may exercise the option with respect to the shares
then exercisable.
1
<PAGE> 3
6. DEATH OF PARTICIPANT. If the Participant shall die while in the
employ of the Company, then within the one year period following his death (but
prior to the expiration date of the option as specified in section 3) the person
entitled by will or the applicable laws of descent and distribution may exercise
the option without regard to the vesting schedule in section 2.
7. TERMINATION OF EMPLOYMENT. If the Participant ceases to be employed
by the Company for any reason other than retirement or death, this option shall
not be exercisable after the expiration of three months from the date employment
terminates and shall be exercisable only to the extent that it was exercisable
as of the date of termination of employment. The option must be exercised in any
event prior to the expiration date of the option specified in section 3.
8. REGISTRATION. Participant represents and warrants that any shares
purchased by him upon the exercise of an option will be acquired for investment
only and not with a view to resale or distribution. Provided, however, that this
representation and warranty shall not be applicable to an offer for the sale or
the sale of any such shares which, at the time of such offer or sale, are
registered under the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities law, or which without such registration and apart
from the provisions of this section could be offered for sale or sold without
violation of such Act or law. Nothing herein shall require the Company to file a
registration statement or to keep such registration statement current for any
shares purchased pursuant to the exercise of options granted hereunder. If
requested by the Company, Participant agrees to sign a letter addressed to the
Company certifying investment intent. Participant acknowledges that any shares
issued without registration will be "restricted securities" as that term is
defined in Rule 144 of the Act, and that any transfer or disposition of such
shares can be accomplished only in compliance with Rule 144, the Act or other
applicable rules under the Act.
9. LEGEND ON CERTIFICATES. Each certificate for shares of Common Stock
of the Company issued to Participant upon exercise of an option shall, in the
sole discretion of the Company, bear a legend substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The shares may not be sold or
transferred in the absence of such registration or an opinion of counsel that
registration is not required due to an exemption from registration under that
Act."
10. EMPLOYMENT RIGHT. This Agreement shall not be construed as
requiring the Company to retain Participant as an employee or affect or limit
the right of the Company to terminate the employment of Participant at any time
for any reason or to give Participant any additional rights as an employee
beyond those rights granted by law or by contract. As consideration for
receiving the option, Participant agrees that he will remain in the employ of
the Company for at least one year from the date of the grant of the option,
unless his employment is terminated because of disability or with the consent of
the Company.
2
<PAGE> 4
11. COMPLIANCE WITH PLAN. Participant agrees to comply with all
applicable provisions of the Plan, a copy of which has been delivered to
Participant and receipt of which is hereby acknowledged.
12. CONFLICT WITH PLAN. In the event of any conflict between any term
of this Agreement and the Plan, the terms of the Plan shall prevail. Except for
terms defined in this Agreement, the definitions contained in the Plan will
apply to this Agreement.
13. ASSIGNMENT AND DISPOSITION. Participant shall not transfer or
assign or in any way dispose of any option granted herein except in accordance
with the Plan and applicable law.
14. NOTICE OF EXERCISE. This option may be exercised by delivering to
the Company at the office of its Controller a written notice, signed by the
person entitled to exercise the option and stating the number of shares to be
purchased. Such notice shall, as an essential part thereof, be accompanied by
payment of the full purchase price of the shares to be purchased. Upon payment
within the time period specified by the Company of the amount, if any, required
to be withheld for Federal, state and local tax purposes as a result of the
exercise of the option, the option shall be deemed exercised as of the date the
Company received the written notice of exercise. The Participant may satisfy any
withholding requirement by authorizing the Company at the time of exercise to
withhold from his next salary payment all or part of the amount required to be
withheld by the Company as a result of such exercise. Participant may satisfy
the withholding obligation by authorizing the Company to withhold shares from
the shares acquired hereunder equal in value to the amount required to satisfy
such withholding. Payment of the purchase price may be made in cash or in shares
equal in value to the exercise price, or partly in cash and partly in shares.
The option shall not be exercisable if the exercise would violate any applicable
state securities law. any registration or other requirements under the Act or
any applicable legal requirement of any other governmental authority.
IN WITNESS WHEREOF, the Company and Participant have executed this
Incentive Stock Option Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
------------------------
Carl H. Young, President
/s/ Robert M. Benedict,Jr.
--------------------------
Robert M. Benedict, Jr.
3
<PAGE> 5
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT is entered into as of February
18, 1999 by and between HMI Industries Inc., a Delaware corporation, with its
principal place of business at 3631 Perkins Avenue, Cleveland, Ohio (the
"Company") and JAMES R. MALONE (the "Participant").
WHEREAS, the Company has adopted the 1992 Omnibus Long-Term
Compensation Plan (the "Plan"); and,
WHEREAS, Participant is a Key Employee of the Company as defined
in the Plan; and,
WHEREAS, pursuant to section 8 of the Plan the Participant may be
granted an option to purchase shares of Common Stock of the Company.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Participant hereby agree as follows:
1. GRANT OF OPTION. There is hereby granted to Participant an option to
purchase 66,666 shares of Common Stock of the Company at a price of $1.50 per
share. The number of shares which may be purchased and the exercise price per
share are subject to adjustment as provided in the Plan. This option is intended
to be an incentive stock option within the meaning of section 422 of the
Internal Revenue Code.
2. EXERCISE OF OPTION. The option granted to Participant herein may be
exercised in whole or in part at any time after the date of this Agreement but
prior to the expiration date specified in section 3.
3. EXPIRATION. To the extent not exercised, the option expires on July
2, 2002, unless expiring sooner pursuant to the terms of the Plan, applicable
provisions of the Internal Revenue Code or other provisions of this Agreement.
4. RETIREMENT. If the Participant ceases to be an employee of the
Company by reason of retirement in accordance with any retirement plan or policy
of the Company then in effect, the Participant. at any time within the six month
period following such retirement (but prior to the expiration date of the option
as specified in section 3) may exercise the option.
5. DEATH OF PARTICIPANT. If the Participant shall die while in the
employ of the Company, then within the one year period following his death (but
prior to the expiration date of the option as specified in section 3) the person
entitled by will or the applicable laws of descent and distribution may exercise
the option.
6. TERMINATION OF EMPLOYMENT. If the Participant ceases to be employed
by the Company for any reason other than retirement or death, this option shall
not be exercisable after the expiration of three months from the date employment
terminates The option must be exercised in any event prior to the expiration
date of the option specified in section 3.
1
<PAGE> 6
7. REGISTRATION. Participant represents and warrants that any shares
purchased by him upon the exercise of an option will be acquired for investment
only and not with a view to resale or distribution. Provided. however, that this
representation and warranty shall not be applicable to an offer for the sale or
the sale of any such shares which, at the time of such offer or sale, are
registered under the Securities Act of 1933, as amended (the "Act"), and any
applicable state securities law, or which without such registration and apart
from the provisions of this section could be offered for sale or sold without
violation of such Act or law. Nothing herein shall require the Company to file a
registration statement or to keep such registration statement current for any
shares purchased pursuant to the exercise of options granted hereunder. If
requested by the Company. Participant agrees to sign a letter addressed to the
Company certifying investment intent. Participant acknowledges that any shares
issued without registration will be "restricted securities" as that term is
defined in Rule 144 of the Act, and that any transfer or disposition of such
shares can be accomplished only in compliance with Rule 144, the Act or other
applicable rules under the Act.
8. LEGEND ON CERTIFICATES. Each certificate for shares of Common Stock
of the Company issued to Participant upon exercise of an option shall, in the
sole discretion of the Company, bear a legend substantially as follows:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The shares may not be sold or
transferred in the absence of such registration or an opinion of counsel that
registration is not required due to an exemption from registration under that
Act."
9. EMPLOYMENT RIGHT. This Agreement shall not be construed as requiring
the Company to retain Participant as an employee or affect or limit the right of
the Company to terminate the employment of Participant at any time for any
reason or to give Participant any additional rights as an employee beyond those
rights granted by law or by contract. As consideration for receiving the option.
Participant agrees that he will remain in the employ of the Company for at least
one year from the date of the grant of the option, unless his employment is
terminated because of disability or with the consent of the Company.
10. COMPLIANCE WITH PLAN. Participant agrees to comply with all
applicable provisions of the Plan, a copy of which has been delivered to
Participant and receipt of which is hereby acknowledged.
11. CONFLICT WITH PLAN. In the event of any conflict between any term
of this Agreement and the Plan, the terms of the Plan shall prevail. Except for
terms defined in this Agreement, the definitions contained in the Plan will
apply to this Agreement.
12. ASSIGNMENT AND DISPOSITION. Participant shall not transfer or
assign or in any way dispose of any option granted herein except in accordance
with the Plan and applicable law.
2
<PAGE> 7
13. NOTICE OF EXERCISE. This option may be exercised by delivering to
the Company at the office of its Controller a written notice, signed by the
person entitled to exercise the option and stating the number of shares to be
purchased. Such notice shall, as an essential part thereof, be accompanied by
payment of the full purchase price of the shares to be purchased. Upon payment
within the time period specified by the Company of the amount, if any, required
to be withheld for Federal, state and local tax purposes as a result of the
exercise of the option, the option shall be deemed exercised as of the date the
Company received the written notice of exercise. The Participant may satisfy any
with holding requirement by authorizing the Company at the time of exercise to
withhold from his next salary payment all or part of the amount required to be
withheld by the Company as a result of such exercise. Participant may satisfy
the withholding obligations by authorizing the Company to withhold shares
from the shares acquired hereunder equal in value to the amount required to
satisfy such withholding. Payment of the purchase price may be made in cash or
in shares equal in value to the exercise price, or partly in cash and partly in
shares. The option shall not be exercisable if the exercise would violate any
applicable state securities law, any registration or other requirements under
the Act, any requirements of NASDAQ or any other national securities exchange on
which the shares are listed at the time of exercise of the option or any
applicable legal requirement of any other governmental authority.
IN WITNESS WHEREOF, the Company and Participant have executed this
Incentive Stock Option Agreement as of the date indicated above.
HMI INDUSTRIES INC.
By: /s/ Carl H. Young
------------------------
Carl H. Young, President
/s/ James R. Malone
------------------------
James R. Malone
3
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 2,605
<SECURITIES> 0
<RECEIVABLES> 4,189,356
<ALLOWANCES> 844,182
<INVENTORY> 3,364,488
<CURRENT-ASSETS> 8,917,252
<PP&E> 5,198,004
<DEPRECIATION> 4,003,054
<TOTAL-ASSETS> 18,272,627
<CURRENT-LIABILITIES> 7,673,142
<BONDS> 0
0
0
<COMMON> 5,368,556
<OTHER-SE> 4,811,651
<TOTAL-LIABILITY-AND-EQUITY> 18,272,627
<SALES> 18,691,603
<TOTAL-REVENUES> 18,955,572
<CGS> 13,004,395
<TOTAL-COSTS> 20,281,439
<OTHER-EXPENSES> 2,664,574
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,576
<INCOME-PRETAX> (4,035,017)
<INCOME-TAX> 39,000
<INCOME-CONTINUING> (4,074,017)
<DISCONTINUED> (375,000)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,449,017)
<EPS-PRIMARY> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
