TABLE OF CONTENTS
- -----------------
1 Financial Highlights
1 Corporate Profile
2 Five-year Financial Performance
3 Letter to Shareholders
5 Five-year Selected Financial Data
6 Management's Discussion and Analysis of Results of
Operations and Financial Condition
Appendix A Audited Financial Statements
Appendix B Investor Information
FINANCIAL HIGHLIGHTS
- --------------------
Percent
Years Ended June 30, 1997 1996 Change
- -------------------- ---- ---- ------
Net operating revenue $2,585,443 $2,614,973 (1%)
Net income $214,432 $174,495 19%
Net income per common share $.16 $.12 33%
Working capital $713,198 $689,424 3%
Shareholders' equity $1,003,587 $789,155 27%
Closing market price
per common share $.57 $.98 (58%)
(Average of bid and ask)
CORPORATE PROFILE
- -----------------
Oakridge Holdings, Inc. is a Minnesota Corporation organized on
March 6, 1961. Through two wholly owned subsidiaries, Oakridge
Cemetery (Hillside), Inc. and Glen Oak Cemetery Company, the
Company operates two adjacent cemeteries near Hillside, Illinois,
used for the intern of human remains. The cemetery operations of
the Company are discussed on a consolidated basis. The Company
makes no functional distinction between the two cemeteries,
except where noted.
The combined cemeteries have 176.7 total acres of which 12.8 are
used for interior roads and other improvements leaving 163.9 net
acres with 137,000 burial plots, of which 39,068 remain in
inventory. The cemeteries have two mausoleums with 975 niches and
3,190 crypts of which 152 niches and 359 crypts remain in
inventory. The Company also holds deeds to 188 unsold crypts
located in Forest Home Cemetery in Forest Park, Illinois. Cook
and Dupage Counties in Illinois serve as the principal market for
the Company's services.
The Company estimates that it has an inventory of cemetery and
mausoleum spaces representing a 26 to 35 year supply, based on
the maintenance of current sale levels. This inventory is
considered adequate, and the Company does not currently plan on
adding to it.
FIVE-YEAR FINANCIAL PERFORMANCE
[The following information was presented in bar graph form in the
original Annual Report]
<TABLE>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales 2,585,443 2,614,973 2,584,565 2,321,677 2,243,461
Net income 214,432 174,495 190,512 678,588 (15,804)
Earnings per share .16 .12 .09 .35 (.01)
Income from
operations 384,014 446,940 416,459 263,277 3,705
</TABLE>
LETTER TO SHAREHOLDERS
- ----------------------
[Oakridge Holdings, Inc. letterhead]
Dear Shareholders:
All our employees can look back on fiscal year 1997 and take
great pride in their collective achievements. In the annual
report last year, I told you my number one priority in 1997 was
to continue the growth of the past three years, improve earnings
and increase cash flow. We accomplished the goal to improve
earnings and cash flow, but unfortunately sales remained flat.
Our management team had another solid year of experience again
under challenging circumstances due to litigation. For the fourth
consecutive year, we achieved sales at least equal to or greater
than prior management, cash flow increased 63% and net income
increased 19% over the prior year. In addition, for the first
time since 1993 no litigation exist against the company and all
past litigation have either been settled or dismissed.
Net income per share for 1997 was $.16 per share, this is an
increase of 33% over the $.09 per share reported in 1996, and
178% increase over 1995.
The strong 1997 financial results, unfortunately, were not
matched by the performance of the market price. The price of our
common stock decreased during the year, but as of today,
continues to rebound.
Are we presently satisfied with the operating and market results?
Of course not. In fact, we will continue to redefine operations
as we have the past four years to build our company for the long-
term to increase shareholder value.
Our primary long-term objective in fiscal year 1998 is to
continue the growth achieved in the past four years and continue
to enhance shareholder value through greater earnings and
increased cash flow. To meet this challenge, we will continue to
look for ways to raise shareholder value, either by growing and
the expanding the present business, re-purchasing our shares in
the open market, cash or stock dividends, or the acquisition of
an existing business.
While fiscal year 1997 was another record year for management of
the company, it was again challenged to create value despite
difficult problems caused by litigation. We could not have
recorded such a performance the last four years without the
loyalty and dedication of our employees, and the support and
guidance of our distinguished Board of Directors. For us, success
is a never-ending journey, taken one step at a time. We thank
you, the shareholders, for taking that journey with us. And we
look forward to converting our strategic goals into additional
value for you.
/s/Robert C. Harvey
Robert C. Harvey
Chairman, Board of Directors
and Chief Executive Officer
SELECTED FINANCIAL DATA
- -----------------------
<TABLE>
6/30/97 6/30/96 6/30/95 6/30/94 6/30/93
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Income:
Net cemetery sales $2,344,988 $2,378,109 $2,349,345 $2,103,021 $2,032,626
Interest 240,455 236,864 235,220 218,656 210,835
---------- ---------- ---------- ---------- ----------
2,585,443 2,614,973 2,584,565 2,321,677 2,243,461
Operating expenses:
Cemetery 1,210,979 1,209,532 1,204,238 1,141,273 1,188,392
Selling 247,800 224,942 201,446 180,195 221,287
General & administrative 742,650 733,559 762,422 736,932 830,077
Other expense 86,582 202,445 121,310 91,875 19,509
---------- ---------- ---------- ---------- ----------
Income (loss) from
continuing operations
before income taxes
and cumulative effect
of change in
accounting principle 297,432 244,495 295,149 171,402 (15,804)
Income taxes 83,000 70,000 104,639 69,406 -
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of change in
accounting principle 214,432 174,495 190,512 101,996 (15,804)
Cumulative effect of
change in accounting
principle - - - 576,592 -
---------- ---------- ---------- ---------- ----------
Net income (loss) $214,432 $174,495 $190,512 $678,588 $(15,804)
========== ========== ========== ========== ==========
Per common share
Continuing operations $.16 $.12 $.09 $.05 $(.01)
Cumulative effect of
change in accounting
principle - - - $.30
- -
---------- ---------- ---------- ---------- ----------
Net income (loss) $.16 $.12 $.09 $.35 $(.01)
========== ========== ========== ========== ==========
Number of shares used in
per share computations 1,309,670 1,309,670 1,623,242 1,835,965 2,196,965
========== ========== ========== ========== ==========
Total assets $2,682,918 $2,613,437 $3,125,595 $2,350,132 $1,515,185
========== ========== ========== ========== ==========
Long-term obligations $706,603 $989,065 $1,315,485 $301,103 $441,987
========== ========== ========== ========== ==========
Cash dividends declared per
share of common stock $ - $ - $ - $ - $ -
========== ========== ========== ========== ==========
</TABLE>
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------
RESULTS OF OPERATIONS
NET INCOME AND EARNINGS PER SHARE BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES
Net income for 1997 was $214,432 , an increase of 19% compared
with $174,495 for 1996. Net income for last four years
individually represents increases of more than 1000 percent over
prior years. Earnings per share for primary earnings and fully
diluted earnings per common share for 1997 was $.16, an increase
of 33% compared with $.12 per share for 1996. Earnings per share
were $.09 in 1995 and $.05 in 1994. The sum of per share earnings
by quarter does not equal earnings per share for the year ended
June 30, 1997, due to the effect of shares issued during fiscal
year 1997.
SALES
Net sales during 1997 was $2,344,988 , a decrease of $33,121 or
1% versus 1996 sales of $2,378,109. This modest decrease was
attributable to Mausoleum sales and cremations case loads being
lower than the previous years, and with cemetery lot sales and
interment fees remaining stable. The decrease is primarily
attributable to the increased competition, change in marketing
strategies and poor publicity surrounding the past lawsuit in
regards to idenmifaction of cremation remains.
Cemetery care funds revenue was $240,455 a modest increase of 2%
versus 1996 interest of $236,864. The increase was due to
primarily to increase in trust assets and higher rates of return.
COST OF SALES AND PRODUCTS SOLD
Cost of services and products sold for 1997 was $1,210,979, a
less than 1% increase from $1,209,532 in 1996. The 1997 increase
in cost of services and products sold primarily reflects increase
in costs.
As a percent of net sales, cost of services and products sold
were 51.64% in 1997 as compared to 50.86% in 1996.
SELLING
Selling expenses for 1997 was $247,800, an increase of 10% over
1996 costs of $224,942. The increase is attributable to the
having a full time sales manager for twelve months. When
retained by management it was anticipate that this individual
would be able to increase productivity and improve customer
service. Customer service improved but sales continue to remain
flat.
As a percent of net sales, selling expenses were 10.56% in 1997,
and 9.46% in 1996.
GENERAL AND ADMINISTRATIVE
General and Administrative expenses for 1997 were $742,650, a
increase of 1% from 1996 of $733,559. The increase is primarily
due to legal fees associated with prior lawsuits brought against
the company, which were either settled for a immaterial cost or
dismissed by the courts. All other costs remained constant or
decreased due to effective cost controls by management.
As a percent of net sales, general and administrative expense
were 31.67% in 1997 as compare to 30.85% in 1996. General and
administrative expense have continued to decrease from a high of
41% in 1993 to now an average of 31%.
OPERATING INCOME
Net interest expense was $86,338 in 1997, a decrease of $33,303
compared to 1996 net interest of $119,641. The decrease in 1997
net interest expense is due primarily to reduction of notes
payable.
Environmental costs were $0 in 1997 as compared to $33,258 in
1996. Specific information regarding the environmental costs is
noted below.
TAXES ON INCOME
The effective rate on income were approximately 29% in 1997 and
1996.
FINANCIAL POSITION
- ------------------
LIQUIDITY AND CAPITAL RESOURCES
The financial position remains strong and continues to improve.
Cash totaled $382,287 at year end June 30, 1997 compared to
$264,691 at June 30, 1996. The total working capital of $713,198
at June 30, 1997, an increase of $23,744 compared to $689,424 at
June 30, 1996. The source of cash from operating activities
decreased $ 70,470 in comparison to prior year, with uses for the
purchase of fixed assets decreasing $75,108, and net cash flows
from financing activities or principal payments for debt
decreased $40,958 from prior years, leaving a cash flow increase
of $45,596 in comparison to the prior year.
The ratio of total debt (net of cash) to total capitalization was
34%, 36%, and 46% at June 30, 1997, 1996 and 1995, respectively.
As of June 30, 1997, $17,705 of long-term debt matures within one
year.
Management believes that, in addition to current financial
resources, adequate capital resources are available to satisfy
the Company's strategic direction. Management believes the
Company 's cash flow is sufficient to maintain its current
operations.
CAPITAL EXPENDITURES
Capital expenditures in 1997 amounted to $59,038 compared to
$134,715 in 1996. During the past five years, capital
expenditures totaled $459,094.
Expenditures in 1997 were for computer equipment, fax machine,
office chairs, various ground equipment and black-top paver &
roller, and sewer work on the grounds.
The Company expects its capital expenditures in 1998 to
approximate $ 125,000. The Company plans to continue capital
expenditure programs designed to enhance productivity, create a
safe working environment and improve sales opportunities. Cash
flow from operating activities will provide the principal support
for these expenditures; however, depending upon the Company's
evaluation of growth opportunities and other existing market
conditions, external financing may be required from time to time.
ENVIRONMENTAL MATTERS
The Company has adopted a corporate environmental protection
policy. The implementation of this policy is a primary management
objective and the responsibility of each employee of the Company.
The Company is committed to the protection of human health and
the environment, and its operating within the complex laws and
regulations of federal, state, and local environmental agencies,
and is taking action aimed at assuring compliance with such laws
and regulations. Environmental considerations are among the
criteria by which the Company evaluates operations, products, and
purchases and, accordingly, does not expect compliance with these
laws and regulations to have a material effect on the Company's
competitive position, financial condition, results of operations
or capital expenditures.
Subsequent to 1994, the Company commissioned an engineering study
of its property for the purpose of determining the full extent of
possible soil contamination. Five underground fuel tanks were
found to require removal and the adjoining soil to undergo
remediation. Estimated remedial expenses for this project is
recognized in accordance with generally accepted accounting
principles governing probability and the ability to estimate
future costs. During fical year 1997, the Company expensed $0 for
current or future expenditures and a total of approximately
$292,000 has been spent in its clean-up efforts. Furthermore, the
Company was notified by the Illinois Environmental Protection
Agency that the clean-up plan may not be in full compliance with
EPA guidelines. The Company has responded to the Illinois
Environmental Protection Agency with a work plan that calls for
additional costs of approximately $28,500 with the possibility of
additional costs. The Company is awaiting a response on the work
plan from the Illinois Environmental Protection Agency.
Additional costs beyond the $28,500 accrued for at June 30, 1997
may be incurred, however, management cannot reasonably estimate
those costs. In addition, the Company may not file for
reimbursement from the Leaking Underground Storage Tank Fund
until the plan has EPA approval. Accordingly, the Company has
made no provision for reimbursement.
Environmental exposures are difficult to assess for numerous
reasons, including advances in technology, changes in
environmental laws and regulations and their application, the
scarcity of reliable data pertaining to the site, and the
difficulty in assessing the time periods (sometimes lengthy) over
which the site remediation occurs. It is possible that some of
these matters (the outcome of which are subject to various
uncertainties) may be decided unfavorably against the Company.
It is, however, the opinion of Company management after
consulting with outside EPA engineers, that any unfavorable
decision will hot have a material adverse effect on the Company's
financial position.
COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
Shareholders' equity was $1,003,587 at June 30, 1997, as compared
with $789,155 at June 30, 1996. The increase of $214,432
represents net income earned at June 30, 1997. The book value of
each share of common stock at June 30, 1997 was $.77, compared to
$.61 at June 30, 1996.
In 1997, the return on average shareholders' equity was 21% as
compared to 22% in 1996 and 18% in 1995 and 10% in 1994.
The Company has traditionally not paid dividends and does not
anticipate paying dividends in the foreseeable future.
At June 30, 1997 common shareholders of record numbered 1,930
compared with 1,960 at the end of 1996.
INFLATION
General inflation has not had a significant impact on the Company
over the past four years due to strong cash flow from operations.
The Company continues to maximize cash flow through programs
designed for cost containment, productivity improvements and
capital spending. Management does not expect inflation to have a
significant impact on the results of operations or financial
condition in the foreseeable future.
OUTLOOK
The Company's prospects for the future are now positive. The
operations of the operating cemeteries remain strong and the
Company expects future operating results to be the same or better
than 1997.
For fiscal year 1998, the Company has targeted net income before
tax of $350,000. To achieve this net income before tax, the
Company must increase sales at approximately 5 percent and
continue to decrease general and administrative expenses for both
the operating cemeteries and the holding company.
FINANCIAL CONDITION
The Company's June 30, 1997 balance sheet continues to improve
after four consecutive years of net income.
The following key measurements are indicative of the improvement
made in 1997 by the Company:
<TABLE>
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash $382,287 $264,691 $192,691 $391,373 $76,161
Cash flow $117,596 $72,000 $(198,682) $315,212 $66,654
Shareholders Equity $1,003,587 $789,155 $1,052,710 $1,061,051 $382,463
Shareholders Equity to
Total Liabilities 1 to 1.67 1 to 2.31 1 to 1.97 1 to 1.21 1 to 2.96
</TABLE>
Cash was $382,287 at year end 1997, an increase of $117,596 from
the year end 1996 balance. Cash flow from operations continue to
generate sufficient funds to meet working capital for operations
and capital improvements.
The Company, in its long-term cash planning, anticipates that
internally generated funds will be sufficient to meet short-term
debt.
Accounts receivable increased in comparison to fiscal year 1996.
At June 30, 1997, days sales outstanding (the number of days
worth of sales that are in accounts receivable) was 74, or
increased 5 days in comparison to June 30, 1996.
The inventory decrease of $19,133 in 1997 is primarily due to
sales of cemetery plots.
Net property and equipment decreased $10,263 in 1997, which is
due to the increase in capital expenditures of $59,038 being less
than depreciation of $69,301. .
Prepaid expenses and other assets decreased $6,947 during the
year. The decrease was primarily caused by amortization of loan
fees associated with bank debt.
Deferred income taxes decreased $81,429 due to net income.
Property rights investment of $250,000 remained unchanged due to
no development plans.
Note payable bank increased $75,000 due to a new bank line of
credit being secured.
Accounts payable decreased $27,781 in 1997. The decrease was
caused by the Company's continued increased in net income and
improved cash flow.
Accrued liabilities increased $90,292 in 1997. The primary
increase was deferred revenue associated with pre-need sales.
Mortgage, debentures and other notes payable decreased $282,462
in 1997. The primary decrease was bank debt payments and new line
of credit.
The Company believes it has sufficient cash and credit capacity
to fulfill all of its current obligations and planned
expenditures.
APPENDIX A - AUDITED FINANCIAL STATEMENTS
- -----------------------------------------
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
TABLE OF CONTENTS
PAGE
Independent Auditors' Report 1
Consolidated Financial Statements:
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statements of Stockholders' Equity 4
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 8
{Letterhead of Independent Auditors}
To The Board of Directors and Stockholders
Oakridge Holdings, Inc. and Subsidiaries
Apple Valley, Minnesota
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of
Oakridge Holdings, Inc. and Subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for the years then ended.
These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits. The consolidated financial statements of Oakridge
Holdings, Inc. and Subsidiaries as of June 30, 1995, were audited
by other auditors whose report dated September 1, 1996, expressed
an unqualified opinion on those financial statements.
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 consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Oakridge Holdings, Inc. and Subsidiaries as of June
30, 1997 and 1996, and the results of their operations and their
cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Stirtz Bernards Boyden Surdel & Larter, P.A.
Edina, Minnesota
September 5, 1997
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
__________________________________
1997 1996 1995
__________ __________ __________
ASSETS
Cash and cash equivalents $ 382,287 $ 264,691 $ 192,691
---------- ---------- ----------
Receivables:
Trade, less allowance for
doubtful accounts of $15,000
in 1997, $33,800 in 1996,
and $25,500 in 1995 476,443 446,891 397,386
Trust income (Note 12) 106,855 66,750 62,900
---------- ---------- ----------
Total receivables 583,298 513,641 460,286
---------- ---------- ----------
Inventories:
Cemetery and mausoleum space
available for sale 682,108 701,490 724,030
Markers, urns and flowers 15,924 15,675 14,156
---------- ---------- ----------
Total inventories 698,032 717,165 738,186
---------- ---------- ----------
Property and equipment:
Property and equipment 1,760,528 1,701,490 1,569,774
Less accumulated depreciation(1,286,611) (1,217,310) (1,153,419)
---------- ---------- ----------
Total property and
equipment, net 473,917 484,180 416,355
---------- ---------- ----------
Prepaid expenses and
other assets 39,384 46,331 79,578
---------- ---------- ----------
Deferred income taxes 256,000 337,429 407,249
---------- ---------- ----------
Investment in property rights-
Mohave Shores Development Inc. 250,000 250,000 831,250
---------- ---------- ----------
$2,682,918 $2,613,437 $3,125,595
========== ========== ==========
June 30,
__________________________________
1997 1996 1995
__________ __________ __________
LIABILITIES AND STOCKHOLDERS'
EQUITY
Note payable bank $ 75,000 $ - $ -
---------- ---------- ----------
Accounts payable - trade 42,418 70,199 95,484
---------- ---------- ----------
Accrued liabilities:
Accrued salaries and
payroll taxes 124,971 151,182 125,724
Perpetual care trust funds 227,087 190,135 177,044
Deferred revenue 389,609 314,483 234,586
Accrued marker and
inscription costs 77,976 76,026 100,826
Accrued environmental costs 28,500 28,500 -
Other 7,167 4,692 23,736
---------- ---------- ----------
Total accrued liabilities 855,310 765,018 661,916
---------- ---------- ----------
Mortgage, debentures and
other notes payable 706,603 989,065 1,315,485
---------- ---------- ----------
Commitments and contingencies
(Note 7) - - -
Stockholders' equity:
Preferred stock - $.10 par
value; authorized - 1,000,000
shares; issued - none - - -
Common stock - $.10 par value;
authorized - 5,000,000 shares;
issued and outstanding -
1,309,670 shares in 1997
and 1996, and 1,623,242
shares in 1995 130,968 130,968 162,325
Additional paid-in capital 1,875,500 1,875,500 2,282,193
Accumulated deficit (1,002,881) (1,217,313) (1,391,808)
---------- ---------- ----------
Total stockholders' equity 1,003,587 789,155 1,052,710
---------- ---------- ----------
$2,682,918 $2,613,437 $3,125,595
========== ========== ==========
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
June 30,
__________________________________
1997 1996 1995
__________ __________ __________
Revenue:
Cemetery $2,344,988 $2,378,109 $2,349,345
Trust and interest income 240,455 236,864 235,220
---------- ---------- ----------
Total revenue 2,585,443 2,614,973 2,584,565
---------- ---------- ----------
Operating expenses:
Cemetery 1,210,979 1,209,532 1,204,238
Selling 247,800 224,942 201,446
General and administrative 742,650 733,559 762,422
---------- ---------- ----------
Total operating expenses 2,201,429 2,168,033 2,168,106
---------- ---------- ----------
Income from operations 384,014 446,940 416,459
---------- ---------- ----------
Other income (expense):
Environmental costs - (33,258) (63,523)
Interest expense (86,338) (119,641) (60,009)
Loss on investment in
property rights - (50,000) -
Other (244) 454 2,222
---------- ---------- ----------
Total other income
(expense) (86,582) (202,445) (121,310)
---------- ---------- ----------
Income before income taxes 297,432 244,495 295,149
Income taxes 83,000 70,000 104,637
---------- ---------- ----------
Net income $ 214,432 $ 174,495 $ 190,512
========== ========== ==========
Primary earnings and fully
diluted earnings per common
share $.16 $.12 $.09
========== ========== ==========
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
<TABLE>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
___________________ __________ ___________ __________
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,835,965 $183,597 $2,459,774 $(1,582,320) $1,061,051
Issuance of stock at $.25 per
share on August 22, 1994 as
part of director stock options 3,500 350 525 - 875
Issuance of stock at $.25 per
share on August 22, 1994 as
part of employee stock options 60,000 6,000 9,000 - 15,000
Issuance of stock at $.25 per
share on December 5, 1994 as
part of employee stock options 30,000 3,000 4,500 - 7,500
Issuance of stock at $1.00 per
share on December 5, 1994 as
part of employee stock options 21,522 2,152 19,370 - 21,522
Issuance of escrow stock at $1.25
per share on December 5, 1994
as part of property rights
purchase price 425,000 42,500 488,750 - 531,250
Redemption of common stock
on April 29, 1995 (752,745) (75,274) (699,726) - (775,000)
Net income - - - 190,512 190,512
--------- -------- ---------- ---------- ----------
Balance, June 30, 1995 1,623,242 162,325 2,282,193 (1,391,808) 1,052,710
Return of escrow stock in
December, 1995 (425,000) (42,500) (488,750) - (531,250)
Conversion of subordinated
debentures into common
stock on June 25, 1996 111,428 11,143 66,857 - 78,000
Paid-in capital - stock
options, June 30, 1996 - - 15,200 - 15,200
Net income - - - 174,495 174,495
--------- -------- ---------- ----------- ----------
Balance, June 30, 1996 1,309,670 130,968 1,875,500 (1,217,313) 789,155
Net income - - - 214,432 214,432
--------- -------- ---------- ----------- ----------
Balance, June 30, 1997 1,309,670 $130,968 $1,875,500 $(1,002,881) $1,003,587
========= ======== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
June 30,
__________________________________
1997 1996 1995
__________ __________ __________
Cash flows from operating
activities:
Net income $ 214,432 $ 174,495 $ 190,512
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation 69,301 66,321 61,383
Deferred income taxes 81,429 69,820 104,637
Loss on investment in
property rights - 50,000 -
Compensation expense -
stock options - 15,200 -
Receivables (69,657) (53,355) (90,754)
Inventories 19,133 21,021 (14,555)
Prepaid expenses and
other assets 6,947 33,247 (59,891)
Accounts payable - trade (27,781) (25,285) (43,242)
Accrued liabilities 90,292 103,102 (187,336)
---------- ---------- ----------
Net cash flows from
operating activities 384,096 454,566 (39,246)
---------- ---------- ----------
Cash flows from investing
activities:
Purchase of property
and equipment (59,038) (134,146) (143,715)
Investment in property rights - - (300,000)
---------- ---------- ----------
Net cash flows from
investing activities (59,038) (134,146) (443,715)
---------- ---------- ----------
Cash flows from financing
activities:
Principal payments on
long-term debt (282,462) (254,890) (285,618)
Increase in note payable bank 75,000 - -
Issuance of long-term debt - 28,470 1,200,000
Principle payments on debentures - (22,000) -
Proceeds from issuance of
debentures - - 100,000
Proceeds from issuance of
common stock - - 44,897
Retirement of common stock - - (775,000)
---------- ---------- ----------
Net cash flows from
financing activities (207,462) (248,420) 284,279
---------- ---------- ----------
Net change in cash and
cash equivalents 117,596 72,000 (198,682)
Cash and cash equivalents,
beginning of year 264,691 192,691 391,373
---------- ---------- ----------
Cash and cash equivalents,
end of year $ 382,287 $ 264,691 $ 192,691
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
June 30,
__________________________________
1997 1996 1995
__________ __________ __________
Cash paid during the years for:
Interest $ 86,338 $ 133,932 $ 45,715
========== ========== ==========
Income taxes $ 560 $ - $ -
========== ========== ==========
OTHER NONCASH INVESTING AND FINANCING ACTIVITIES
In January 1997, $750,000 of long-term debt was refinanced with the
issuance of long-term debt.
In June 1996, $78,000 of subordinated debentures were converted into
111,428 shares of common stock.
In December 1995, common stock valued at $531,250 was returned to the
Company from escrow and retired, and the investment in property rights -
Mohave Shores Development, Inc. was reduced by $531,250.
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1996, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a Minnesota corporation organized on March 6, 1961. It
is engaged in the operation of two cemeteries in Illinois. The cemetery
operations routinely grant credit to pre-need customers, substantially
all of whom are in the Chicago area.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, each of which is wholly owned. All
material intercompany balances and transactions have been eliminated in
consolidation.
UNCLASSIFIED BALANCE SHEETS
The Company presents unclassified balance sheets. The
current/noncurrent presentation is deemed to have little or no relevance
due to the nature of the Company's operations.
ESTIMATES AND ASSUMPTIONS
The preparation of consolidated 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 consolidated financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
INVENTORIES
The cemetery and mausoleum space available for sale is stated at the
lower of cost (determined by an allocation of the total purchase and
development costs of each of the properties to the number of spaces
available) or market. Included in cemetery space available for sale is
land held in a land trust in which a wholly owned subsidiary of the
Company is the sole beneficiary.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the
related assets. When assets are retired or otherwise disposed of, the
cost and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is recognized in income for the period.
The cost of maintenance and repairs is charged to operations as incurred
and significant renewals and betterments are capitalized.
INVESTMENT IN PROPERTY RIGHTS - MOHAVE SHORES DEVELOPMENT INC.
The Company considers the costs of these intangibles to be part of the
developmental cost and will be matched against any revenue from the
development.
CEMETERY AND MAUSOLEUM SPACE REVENUE
Under the Cemetery Care Act of the State of Illinois, the Company is
required to transfer a portion of the proceeds of each sale of cemetery
and mausoleum space to perpetual care trust funds. The reported net
revenue has been reduced by the portion of the sales price that is
required to be remitted to the perpetual care trusts.
Income on the perpetual care trust funds is recorded as cemetery revenue
in the accompanying consolidated financial statements as earned.
Distributions from the perpetual care trusts are used for care and
maintenance of the cemetery. Expenses are recognized as incurred.
DEFERRED REVENUE
Pre-need contracts include charges for services to be performed at a
later date. Revenue on these services is deferred to the period in
which the services are performed.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported
in the consolidated financial statements and consist of taxes currently
due plus deferred income taxes. Deferred income taxes relate to
differences between the financial and tax bases of certain assets and
liabilities. The significant temporary differences relate to fixed
assets, valuation allowances, certain accruals and operating loss
carryforwards that are available to offset future taxable income.
Deferred income tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or settled.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. This new standard defines a fair value
based method of accounting for an employee stock option or similar
equity instrument. This statement gives entities a choice of
recognizing related compensation expense by adopting the new fair value
method or to continue to measure compensation using the intrinsic value
approach under Accounting Principles Board (APB) Option No. 25, the
former standard. If the former standard for measurement is elected,
SFAS No. 123 requires supplemental disclosure to show the pro forma net
income and earnings per share as if SFAS No. 123 had been adopted. This
statement is effective for the Company s 1997 fiscal year. However,
there were no stock options issued in fiscal year 1997, and the effect
of the stock options issued in 1996 under SFAS No. 123 is immaterial to
the 1996 net income and earnings per share. The Company intends to
continue using the measurement prescribed by APB Opinion No. 25, and
accordingly, this pronouncement will not affect the Company s financial
position or results of operations.
ENVIRONMENTAL COSTS
Environmental expenditures that pertain to current operations or relate
to future revenue are expensed or capitalized consistent with the
Company's capitalization policy. Expenditures that result from the
remediation of an existing condition caused by past operations that do
not contribute to current or future revenue are expensed. Liabilities
are recognized for remedial activities when the clean-up is probable and
the cost can be reasonably estimated.
CONCENTRATIONS OF CREDIT RISK
The Company's cash deposits from time to time exceed federally insured
limits. The Company has not experienced any losses on its cash deposits
in the past.
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable.
The credit risk is limited due to the large number of entities
comprising the Company's customer base. At June 30, 1997, the Company
had no significant concentrations of credit risk.
2. INVENTORIES
Inventories of cemetery and mausoleum space available for sale consist
of the following:
1997 1996 1995
__________ __________ __________
Cemetery space $ 556,265 $ 572,523 $ 588,877
Mausoleum space 125,843 128,967 135,153
---------- ---------- ----------
$ 682,108 $ 701,490 $ 724,030
========== ========== ==========
3. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1997 1996 1995
__________ __________ __________
Land $ 50,000 $ 50,000 $ 50,000
Land improvements 252,373 213,773 155,622
Building and improvements 522,881 522,881 510,531
Vehicles 198,617 198,617 165,918
Equipment 736,657 716,219 687,703
---------- ---------- ----------
$1,760,528 $1,701,490 $1,569,774
========== ========== ==========
Depreciation charged to operations was $69,301 in 1997, $66,321 in 1996,
and $61,383 in 1995.
4. INVESTMENT IN PROPERTY RIGHTS
Mohave Shores Development Inc. (MSD), a Nevada corporation, has a master
lease agreement with the Fort Mohave Tribal Corporation (Tribal
Corporation) located in Arizona. In December 1994, the Company
purchased from MSD a development ground sublease and an option to
develop and operate a golf course. The option to develop and operate a
golf course expired November 30, 1995. The property under rights is
located in the County of Mohave, Arizona.
Development Ground Sublease
The Company purchased the right to develop 10 dwelling units for
$250,000. The right has a term of 50 years. In addition, the Company
has the right to purchase 31 additional development units in increments.
Each increment would require additional fees to a total aggregate of
$1,300,000.
Development of a Golf Course
The Company acquired from Mohave Shores Development, Inc. the right to
negotiate with the Tribal Corporation for the development of a golf
course, reception of the proceeds of up to $6,000,000 of bonds when
sponsored by the Tribal Corporation, allocation of 1,500 acre feet of
water rights for use in connection with the golf course, an option to
develop either a 200-unit lodge or 200 dwelling unit lots adjacent to
the golf course, and an option to the commercial site proposed under the
master lease. The Company paid Mohave Shores Development, Inc. $50,000
cash and 425,000 shares of the Company's common stock for these rights
to negotiate. The shares were issued into escrow pending the execution
of the golf course lease by the Tribal Corporation, the delivery of the
bond proceeds and the execution of the water rights agreement. The
rights of Mohave Shares Development, Inc. to the cash and the Company
common stock were terminated November 30, 1995 and the 425,000 shares of
common stock was returned, and the $50,000 was written off as
uncollectible.
5. NOTE PAYABLE - BANK
The Company has a $225,000 line-of-credit of which $150,000 was unused
and available at June 30, 1997. Interest is payable monthly at the
prime rate (8.25% at June 30, 1997). The note is secured by the assets
of a wholly owned subsidiary and matures November 1, 1997.
6. MORTGAGE, DEBENTURES AND OTHER NOTES PAYABLE
Mortgage, debentures and other notes payable consisted of the following:
1997 1996 1995
__________ __________ __________
Mortgage note payable bank,
payable in monthly installments
of $9,350 including interest at
8.625%, maturing January 2001,
secured by real estate and the
assets of the Company. $ 685,190 $ - $ -
Mortgage note payable - bank,
payable in monthly installments
of $10,000 plus interest at
.75% over prime, maturing in
March 1998, secured by real
estate, assignment of interest
in a land trust, accounts
receivable and inventories. - 950,000 1,190,000
Note payable, payable in
monthly installments of $365
including interest at 8.75%,
maturing in April 1998,
secured by equipment. 3,120 6,577 9,746
Note payable, payable in
monthly installments of $765
including interest at 8.75%,
maturing in November 1999,
secured by equipment. 18,293 25,413 -
Note payable, payable in
monthly installments of $819
including interest at 9.79%,
secured by equipment. - 7,075 15,739
---------- ---------- ----------
Mortgages and other notes
payable before debentures 706,603 989,065 1,215,485
Convertible subordinated
debentures - 9.25%, convertible
into one common share at par
value of $.01 per share for
each $.70 of the principal
amount, issued primarily to
its officers, matured in July,
1996 and callable after July,
1995. $78,000 of the
subordinated debentures were
converted to common stock and
the remaining $22,000 was
repaid in June 1996. $ - $ - $ 100,000
---------- ---------- ----------
Mortgages, debentures and
other notes payable $ 706,603 $ 989,065 $1,315,485
========== ========== ==========
Subsequent maturities as of June 30, 1997 are as follows:
Years Ending June 30:
1998 $ 17,075
1999 64,164
2000 63,371
2001 561,993
----------
$ 706,603
==========
7. ENVIRONMENTAL COSTS
Subsequent to June 30, 1994, the Company commissioned an engineering
study of its property for the purpose of determining the full extent of
possible soil contamination. Five underground fuel tanks were found to
require removal and the adjoining soil to undergo remediation.
Environmental costs expensed to operations were $-0- in 1997, $33,258 in
1996, $63,523 in 1995 and approximately $195,000 in years prior to those
presented.
Furthermore, the Company was notified by the Illinois Environmental
Protection Agency (IEPA) that the clean-up plan may not be in full
compliance with IEPA guidelines. The Company has responded to the IEPA
with a work plan that calls for additional costs of approximately
$28,500 with the possibility of additional costs. The Company is
awaiting a response on the work plan from the IEPA. Additional costs
beyond the $28,500 accrued for at June 30, 1997 may be incurred,
however, management cannot reasonably estimate those costs. In addition,
the Company may not file for reimbursement from the Leaking Underground
Storage Tank Fund until the work plan has IEPA approval. Accordingly,
the Company has made no provision for reimbursements.
8. INCOME TAXES
The provision for income taxes consisted on the following:
1997 1996 1995
__________ __________ __________
Current:
Federal $ - $ - $ -
State 1,571 180 -
---------- ---------- ----------
1,571 180 -
---------- ---------- ----------
Deferred:
Federal 70,000 59,320 88,937
State 11,429 10,500 15,700
---------- ---------- ----------
81,429 69,820 104,637
---------- ---------- ----------
$ 83,000 $ 70,000 $ 104,637
========== ========== ==========
Principal reasons for variations between the statutory federal tax rate
and the effective tax rate were as follows:
1997 1996 1995
__________ __________ __________
Federal tax rate 34% 34% 34%
State taxes, net of
federal benefit 3 6 6
Utilization of deferred
income tax assets at
rates different than
originally capitalized (9) (11) (4)
---------- ---------- ----------
28% 29% 36%
========== ========== ==========
The net deferred income tax assets in the accompanying consolidated
balance sheets included the following components as of June 30, 1997,
1996 and 1995:
1997 1996 1995
__________ __________ __________
Deferred income tax
liabilities $ (6,000) $ (7,000) $ (13,108)
Deferred income tax assets:
Net operating loss
carryforwards 218,600 298,000 367,358
Environmental liability 8,000 8,000 -
Other 54,300 58,329 75,906
Deferred income tax asset
valuation allowances (18,900) (19,900) (22,907)
---------- ---------- ----------
Net deferred income
tax assets $ 256,000 $ 337,429 $ 407,249
========== ========== ==========
The Company has operating loss carryforwards of approximately $780,000,
which expire in 2007 and 2008, that may be offset against future taxable
income and investment tax credits totaling approximately $18,900 that
may be offset against future federal income taxes. If not used, the
investment tax credits will expire as follows:
1998 $ 2,000
1999 3,100
2000 3,200
2001 10,600
----------
$ 18,900
==========
The operating loss carryforwards expire as follows:
2007 $ 187,000
2008 593,000
----------
$ 780,000
==========
9. RELATED PARTY TRANSACTIONS
During the years ended June 30, 1997, 1996 and 1995, amounts paid for
compliance services to entities related to the chief executive officer
were $12,192, $10,908 and $6,014, respectively. The Company leases
office space from the chief executive officer at no cost.
10. PENSION PLAN
Certain subsidiaries of the Company participate in a multi-employer
union administer defined benefit pension plan that covers the cemetery
employees. Pension expense under this plan was $15,113 in 1997, $14,856
in 1996 and $15,600 in 1995.
11. EMPLOYMENT CONTRACTS AND STOCK OPTIONS
The Company is committed under an employment contract with its chief
executive officer (CEO) to pay annual compensation and bonus payments
for three years ending December 31, 1998. Under this agreement, the
Company is committed to pay a bonus of 10% of the Company net income
over $300,000 and 15% of the Company net income over $500,000. The
Company accrued $-0- under these terms of the agreement for the years
ended June 30, 1997, 1996 and 1995. The annual compensation expense
under the employment contract is $90,000.
In addition, the contract provides for stock options subject to certain
performance levels:
a) 10,000 shares at fair market value for each $100,000 of net income
over a base income amount of $300,000.
b)40,000 shares at fair market value based on the performance of the
Company's stock in the public market.
The employment agreement expires December 31, 1998, and the exercise
date of the stock options must be between three years of their grant or
90 days after the termination of the CEO's employment, whichever is
first.
Under the agreement, stock options for 40,000 shares of common stock at
$.25 per share were earned in 1996. $15,200 of compensation expense was
recognized with these stock options. No other stock options were issued
in 1997, 1996 or 1995, subject to the above performance criteria.
On May 18, 1990, the Board of Directors approved a nonqualified stock
option plan for outside directors. Under the plan, each outside
director received options to purchase 3,500 shares of the Company's
common stock at an exercise price per share equal to the market price at
the grant date. These stock options are exercisable for a period of ten
years from the grant date for active board members or for a period of
twelve months from the date of termination for former board members. The
Company reserved 21,000 shares of common stock for issuance under the
plan, of which 3,500 shares have been issued, an option for 3,500 shares
is outstanding and 14,000 shares are available for issuance.
12. CEMETERY AND MAUSOLEUM TRUST FUNDS
Two of the Company's wholly-owned subsidiaries are beneficiaries of
perpetual care trust funds established under the Cemetery Care Act of
the State of Illinois. Earnings on these perpetual care trust funds are
to be used for the care, preservation and ornamentation of the Company's
cemetery and mausoleum properties.
Earnings on these perpetual care trust funds totaled $226,973 in 1997,
$225,223 in 1996 and $213,978 in 1995. These earnings are included in
cemetery revenue in the accompanying consolidated financial statements.
Perpetual care trust fund assets totaled approximately $3,850,000,
$3,670,000 and $3,500,000 at June 30, 1997, 1996 and 1995, respectively.
13. WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
The following table reconciles the weighted average number of shares of
common stock outstanding.
1997 1996 1995
__________ __________ __________
Common stock shares
outstanding at June 30 1,309,670 1,309,670 1,623,242
Effect of weighted average
common stock shares - 68,158 408,803
Effect of treasury stock
method for stock options 30,240 27,965 12,217
---------- ---------- ----------
Weighted average common stock
shares for primary earnings
per share at June 30 1,339,910 1,405,793 2,044,262
If converted, effect of
convertible subordinated
debentures - - 142,857
---------- ---------- ----------
Weighted average common
stock shares for fully
diluted earnings per
share at June 30 1,339,910 1,405,793 2,187,119
========== ========== ==========
14. REDEMPTION OF COMMON STOCK
A former officer of the Company filed Chapter 7 bankruptcy in the United
States Bankruptcy Court for the District of Colorado. The trustee of
the Chapter 7 estate negotiated with the Company for the sale of the
Company's common stock. A court order dated March 21, 1995 was entered
which approved the sale of the common stock. The Company paid $775,000
for 752,745 shares. The transaction was recorded on April 29, 1995.
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at June
30, 1997, and the methods and assumptions used to estimate such fair
values, were as follows:
Cash and cash equivalents - the fair value approximates the carrying
amount because of the short maturity of those financial instruments.
Mortgages, debentures and other notes payable - the fair value
approximates the carrying amount, as the interest rates on the debt
approximate current interest rates.
16. RECLASSIFICATIONS
Certain reclassifications were made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation which had no
effect on net income.
APPENDIX B - INVESTOR INFORMATION
- ---------------------------------
OFFICERS AND DIRECTORS
Robert C. Harvey
Chairman of the Board
Chief Executive Officer
Robert B. Gregor
Secretary and Director
Hugh H. McDaniel
Director
INDEPENDENT AUDITORS
Stirtz Bernards Boyden Surdel & Larter, P.A.
Minneapolis, Minnesota
LEGAL COUNSEL
Oppenheimer Wolff & Donnelly
Minneapolis, Minnesota
Fagel & Haber
Chicago, Illinois
TRANSFER AGENT AND REGISTER
Correspondence regarding stock holdings and changes of address should be
directed to the transfer agent at the following departments:
For general inquiries, changes of address and consolidation of
shareholder accounts:
Chemical Mellon Shareholder Services, L.L.C.
Recordkeeping Services
PO Box 590
Ridgefield Park, NJ 07660
For transfer of certificates:
Chemical Mellon Shareholder Services, L.L.C.
Stock Transfer Department
PO Box 469
Washington Bridge Station
New York, NY 10033
For replacement of lost stock certificates:
Chemical Mellon Shareholder Services, L.L.C.
Estoppel Department
PO Box 467
Washington Bridge Station
New York, NY 10033<PAGE>
COMMON STOCK
Ticker Symbol: OKRG
Common stock of Oakridge Holdings, Inc. is listed and traded on the
over-the-counter market, primarily through listings in the National
Quotation Bureau "pink sheets".
As of June 30, 1997 there were approximately 1930 shareholders of record
of the Company's common stock.
STOCK PRICES
Years Ended June 30, 1997 1996
High Low High Low
- ----------------------------------------------------------------------
First quarter 1.19 .63 .63 .25
Second quarter 1.13 .63 .94 .50
Third quarter .88 .63 .94 .57
Fourth quarter .75 .38 1.32 .63
DIVIDEND POLICY
The Company has never paid dividends on its common stock and does not
anticipate a change in this policy in the foreseeable future. The
cemeteries are currently financing the Company's growth.
FORM 10-K
Copies of Oakridge Holdings, Inc. annual report to the Securities and
Exchange Commission on Form 10-K may be obtained by contacting:
Robert C. Harvey
4810 120th Street West
St. Paul, Minnesota 55124-8628
(612) 686-5495 Phone
(612) 686-5427 Fax
FINANCIAL INFORMATION
Security analysts, investment managers and shareholders seeking
additional information about the Company should direct inquiries to the
Corporate office.
ANNUAL MEETING OF SHAREHOLDERS
All shareholders and other interested parties are invited to attend the
Company's annual meeting. It is scheduled for January 23, 1998 at 3:00
p.m. at Oppenheimer Wolff & Donnelly, Plaza VII, 45 South Seventh
Street, Suite 3400, Minneapolis, Minnesota.
