TABLE OF CONTENTS
- -----------------
Financial Highlights. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Corporate Profile. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Five-year Financial Performance. . . . . . . . . . . . . . . . . . . . . . . .2
Letter to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Five-year Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . .5
Management's Discussion and
Analysis of Results of Operations and Financial Condition. . . . . . . . . . .6
Audited Financial Statements . . . . . . . . . . . . . . . . . . . . Appendix A
Investor Information . . . . . . . . . . . . . . . . . . . . . . . . Appendix B
FINANCIAL HIGHLIGHTS
- --------------------
Percent
Years Ended June 30, 1998 1997 Change
- -------------------------------------------------------------------------------
Total revenue $2,767,214 $2,585,443 7%
Net income $129,926 $214,432 (39%)
Basic net income per common share $.10 $.16 (38%)
Diluted net income per common share $.09 $.16 (44%)
Working capital $1,976,945 $956,597 107%
Stockholders' equity $1,198,513 $1,003,587 19%
Closing market price per common share $2.25 $.57 295%
(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.
On June 29, 1998, the Company, through Stinar HG Inc., a Minnesota corporation
and wholly-owned subsidiary of the Company, purchased substantially all the
assets (including the right to use the name of the seller) and assumed
substantially all of the liabilities of Stinar Corporation, a Minnesota
corporation ( Seller ). Until the sale of the assets to Stinar HG, Inc., the
Seller had been engaged in the manufacture and sale of ground support equipment
for use by commercial airports and airlines and by military airbases.
Principal products of Stinar include truck-mounted stairways for use on
aircraft, fuel and water trucks, food service and catering vehicles, vehicles
used in transporting and loading luggage and cargo, sanitary services vehicles
and other custom-built ground support vehicles used by airports, commercial
airlines and the military. Stinar also provides limited service and repairs on
vehicles it sells.
FIVE-YEAR FINANCIAL PERFORMANCE
- -------------------------------
[The following information was presented in bar graph form in the original
Annual Report]
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Total Revenue $2,767,214 $2,585,443 $2,614,973 $2,584,565 $2,321,677
Net income $129,926 $214,432 $174,495 $190,512 $678,588
Basic Earnings per Share .10 .16 .12 .09 .35
Income from Operations $506,038 $384,014 $446,940 $416,459 $263,277
LETTER TO SHAREHOLDERS
- ----------------------
[Oakridge Holdings, Inc. letterhead]
Dear Stockholders:
We, as employees of the Company, again can look back on fiscal year 1998
and take great pride in our collective achievements. In the annual report last
year, I told you our priorities for 1998 were to continue the growth achieved in
the past four years and to continue to enhance stockholder value through greater
earnings and increased cash flow. We accomplished the goals to improve earnings
from operations and cash flow, but unfortunately the net income goals weren t
attained due to loss on investment in property rights.
The Company had a great year by increasing cemetery sales by 11%,
decreasing cost of sales, decreasing selling expenses in relation to sales, and
decreasing general and administrative in comparison to the prior years. Thus by
increasing sales and decreasing all related expenses, net income from operations
was a record high of $506,038, or an increase of 32%. Management and all
employees of the Company should be congratulated for this accomplishment.
Basic net income per share for 1998 was $.10 per share. This is a decrease
of 37% over the $.16 per share reported in 1997. Diluted net income per share
for 1998 was $.09 per share, or a decrease of 44% over the $.16 per share
reported in 1997.
While the 1998 financial results were weak due to the loss on the
investment in property rights, the performance of the market price was
excellent. The price of our common stock increased during the year, due to the
increase in net income from operations and the acquisition of Stinar Corporation
on June 29, 1998. In addition, as of January 8, 1999, the stock is at an all
time high for the prior years.
As we wrote last year in the annual report, are we presently satisfied with
the operating and market results? Of course not. In fact, we will continue to
redefine operations as we have in the past five years to build our Company for
the long-term to increase stockholder value.
Our primary long-term objective in fiscal year 1999 is to define strategic
goals for Stinar Corporation, continue the growth of the wholly owned
subsidiaries, and enhance stockholder value. To meet this challenge, we will
continue to look for ways to improve stockholder value, either by growing and
expanding the present business, re-purchasing our shares in the open market,
cash or stock dividends, or again the acquisition of an existing business. We
will not stand around and wait for things to happen; we will make things happen.
While fiscal year 1998 was another good year for management of the Company,
it was extremely important for the Company to acquire Stinar Corporation. We
could not have made this acquisition without the loyalty and dedication of our
employees, and the support and guidance of the Board of Directors. I have said
this before, Success is a never-ending journey, taken one step at a time, and
last year we took a big step in the right direction. We thank you, the
stockholders, for taking the 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>
<CAPTION>
6/30/98 6/30/97 6/30/96 6/30/95 6/30/94
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue:
Net cemetery sales $2,550,709 $2,344,988 $2,378,109 $2,349,345 $2,103,021
Interest 216,505 240,455 236,864 235,220 218,656
---------- ---------- ---------- ---------- ----------
Total revenue 2,767,214 2,585,443 2,614,973 2,584,565 2,321,677
--------- ---------- ---------- ---------- ----------
Operating expenses:
Cemetery 1,306,614 1,210,979 1,209,532 1,204,238 1,141,273
Selling 237,484 247,800 224,942 201,446 180,195
General & administrative 717,078 742,650 733,559 762,422 736,932
--------- ---------- ---------- --------- ---------
Total operating expenses 2,261,176 2,201,429 2,168,033 2,168,106 2,058,400
--------- ---------- ---------- ---------- ----------
Income from operations 506,038 384,014 446,940 416,459 263,277
--------- ---------- ---------- ---------- ----------
Other non-operating expense 324,112 86,582 202,445 121,310 91,875
--------- ---------- ---------- ---------- ----------
Income from continuing operations
before income taxes and
cumulative effect of change
in accounting principle 181,926 297,432 244,495 295,149 171,402
Income taxes 52,000 83,000 70,000 104,637 69,406
--------- ---------- ---------- ---------- ----------
Income before cumulative
effect of change in
accounting principle 129,926 214,432 174,495 190,512 101,996
Cumulative effect of change in
accounting principle - - - - 576,592
---------- ---------- ---------- ---------- ----------
Net income $129,926 $214,432 $174,495 $190,512 $678,588
========== ========== ========== ========== ==========
Basic net income per common share:
Continuing operations $.10 $.16 $.13 $.09 $.05
Cumulative effect of change in
accounting principle - - - - $.30
---------- ---------- ---------- ---------- ----------
Basic net income per common share $.10 $.16 $.13 $.09 $.35
========== ========== ========== ========== ==========
Number of shares used in basic per
share computations 1,309,670 1,309,670 1,377,828 2,032,045 1,926,959
========== ========== ========== ========== ==========
Total assets $9,509,303 $2,682,918 $2,613,437 $3,125,595 $2,350,132
========== ========== ========== ========== ==========
Long-term obligations $3,123,833 $689,528 $989,065 $1,315,485 $301,103
========== ========== ========== ========== ==========
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 1998 was $129,926, a decrease of 39% compared with $214,432 for
1997. Net income for the last five years has continue to alternate from a high
of $678,588 in 1994 to a low of $129,926 in 1998. Whereby net income from
operations continues to increase from a low of $263,277 in 1994 to a high of
$506,038 in 1998. Basic earnings per share for 1998 was $.10, a decrease of 37%
compared with $.16 per share for 1997. Diluted earnings per share was $.09, a
decrease of 44% compared with $.16 per share for 1997. Basic earnings per
share from continuing operations in 1996, 1995 & 1994 was $.13, $.09, and $.05
respectively.
REVENUE
Cemetery revenue for 1998 was $2,550,709, an increase of $205,721 or 11% versus
1997 cemetery revenue of $2,344,988. This increase was attributable to increase
in case loads, sales price increases, and a 58% increase in monument sales due
to aggressive marketing and a new display area. Cemetery revenue has continued
to increase from a low of $2,103,021 in 1994 to a high of $2,550,709 in 1998.
Cemetery care funds revenue was $216,505, a decrease of $23,950 or 10% versus
1997 revenue of $240,455. This decrease is attributable to the timing of
interest payments. Revenue care fund income has continued to range from a low
of $216,505 in 1998 to a high of $240,455 in 1997 for the past five years.
COST OF SALES AND PRODUCTS SOLD
Cost of cemetery services and products sold for 1998 was $1,306,614, or an
increase of $95,635 from $1,210,979. The increase was contibuted to increase in
sales of $205,721.
As a percentage of net sales, cost of cemetery services and products sold were
51.23% in 1998 as compared to 51.64% in 1997. Costs of cemetery services and
products in 1996, 1995 and 1994 was 50.86%, 51.26% and 54.27 respectively.
SELLING EXPENSE
Selling expense for 1998 was $237,484, a decrease of $10,316 or 4.2% over 1997
costs of $247,800. The decrease is due to the general manager assuming the
sales manager duties.
Selling expenses in 1996, 1995 and 1994 were $224,942, $201,446, and $180,195,
respectively.
As a percentage of cemetery revenue, selling expenses were 9.31% in 1998, 10.56%
in 1997, 9.46% in 1996, 8.57% in 1995 and 8.57% in 1994. In 1994, 1995, and
1998 the Company had no sales manager, whereby in 1996 and 1997 a sales manager
was part of management.
GENERAL AND ADMINISTRATIVE EXPENSE
General and Administrative expense for 1998 was $717,048, a decrease of $25,572
or 3% from 1997 of $742,650. The decrease is due to decreased legal fees
associated with past litigation, most other costs remained constant or decreased
due to effective cost controls by management.
General and administrative expenses in 1996, 1995 and 1994 was $733,559,
$762,422, and $736,932 respectively.
As a percentage of cemetery revenue, general and administrative expenses were
28.11% in 1998 as compared to 31.67% in 1997. General and administrative
expenses have continued to decrease from a high of 35.04% in 1994 to a low of
28.11% in 1998. The average for five years is 31.62%.
OTHER NON-OPERATING EXPENSES
Net interest expense was $73,042 in 1998, a decrease of $13,296 compared to 1997
net interest of $86,338. The decrease in 1998 net interest expense is due
primarily to reduction of notes payable and bank debt for eleven months or until
the acquisition of Stinar Corporation.
Loss on investment in property rights was $250,000 due the Company determination
that the likelihood of realizing a return on the property rights investment to
be remote.
TAXES ON INCOME
The effective rate on income were approximately 29% in 1998 and 1997.
FINANCIAL POSITION
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on cash flow from continuing cemetery and new manufacturing
operations to meet operating needs, debt, and funding capital requirements.
Funeral industry businesses have provided sufficient cash during the past five
years to support day-to-day operations, current debt service, capital
expenditures, and provide cash to assist in the acquisition of the assets of a
manufacturer of aviation ground support equipment. Since 1995 cash flow from
operations has increased and liquidity has continued to improve. Cemetery and
manufacturing operations will provide sufficient cash during the next five years
to cover all debt payments and operation needs.
The manufacturing operations has secured a $3,000,000 line of credit to fund
operations and capital expenditures and the Company has secured a line of credit
for $225,000 for the cemetery operations to meet any uncertainties that could
materially affect liquidity.
Cash totaled $823,458 at year end June 30, 1998 compared to $382,287 at June 30,
1997. The total working capital was $1,976,945 at June 30, 1998, an increase of
$1,020,348 compared to $956,597 at June 30, 1998. The source of cash from
operating activities increased $303,630 in comparison to prior year, with cash
flow from investing activities for the purchase of fixed assets and acquisition
of Stinar Corporation decreasing cash $1,837,429 in 1998 and net cash flows from
financing activities increasing cash $1,590,874 in 1998, leaving a cash flow
increase of $441,171 or an increase of $324,121 in comparison to the prior year.
The ratio of total debt to total stockholders equity was 6.93 to 1, 1.67 to 1,
2.31 to 1, 1.97 to 1, and 1.21 to 1 at June 30, 1998, 1997, 1996, 1995 and 1994,
respectively. The increase in the 1998 ratio was due to the acquisition of the
manufacturing company. At June 30, 1998, $2,490,694 of long-term debt matures
within one year, $2,065,000 is bank line of credit which will be able to be
refinanced.
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 and service its debt.
CAPITAL EXPENDITURES
Capital expenditures for the cemetery in 1998 amounted to $150,289, compared to
$59,038 in 1997. During the past five years cemetery capital expenditures
totaled $590,480.
Cemetery expenditures in 1998 were for computer equipment, roads, various
grounds equipment, mausoleum expenditures and office equipment.
The cemetery and manufacturing operations have a five year plan for capital
expenditures in 1998 to 2002 period of approximately $2,600,000. The cemetery
capital expenditures will be approximately $600,000 for cemetery road
improvements, increased inventory of niches and crypts in mausoleum and
outdoors, grounds keeping equipment, and a new computer software and hardware
system. Manufacturing operations capital expenditures will be approximately
$2,000,000 for improvements in the present plant, an additional manufacturing
facility, computer software and hardware, office equipment and manufacturing
equipment to meet anticipate revenue increase.
Net cash from operating activity, bank debt and sale of debentures in fiscal
year 1998 resulted in the Company s ability to generate sufficient cash flow to
finance its operations, fund capital expenditures, pay current debt service,
purchase the assets of manufacturing operation, and continue to solve its
environmental matters.
STINAR ACQUISITION
On June 29, 1998 the Company accomplished the acquisition of the Stinar s assets
pursuant to an asset purchase agreement between the Company, Stinar and the
shareholders of Stinar. The aggregate purchase price of the purchase of the
assets consisted of: (i) $2,000,000 cash paid at closing; (ii) a promissory note
issued by the Company in the original principal amount of $200,000, payable June
30, 1999 with interest at 8.25% per annum, guaranteed by the Company; (iii) a
convertible subordinated debenture of the Company in the original principal
amount of $700,000, convertible into shares of the Company s common stock at a
conversion price equal to seventy-five percent (75%) of the mean between the
average closing bid and ask price of the Company s stock on each of the last
five (5) full trading days immediately prior to the date the debenture is
converted, with interest payable at 9% per annum of December 31 of each year it
is outstanding and principal payable in annual installments of $200,000
commencing June 30, 2001 and on June 30, 2001 and on June 30, 2002 and 2003,
with a final payment of principal on June 30, 2004, guaranteed by the Company,
and (iv) aggregate payments under two contracts for deed pursuant to which the
Company will pay the Stinar and two of its shareholders principal of $1,300,000
over seven years from the closing date, with equal installments of principal and
interest (at the rate of 8.25%) payable monthly. In addition to the foregoing
payments, the Company assumed debt of Stinar in the amount of approximately
$2,830,000. The source of the $2,000,000 cash paid by the Company at the
closing was income from the Company s operations, a $3,000,000 credit facility
extended to Stinar by Riverside Bank of Minneapolis, and the sale of convertible
subordinate debentures by the Company of $520,000.
In connection with the acquisition, the Company entered into employment
agreements with Randy and Gary Stinar, shareholders and former employees of
Stinar, pursuant to which each will serve as an employee of Stinar until June
30, 2000. The ters and conditions of their employment are substantially similar
to the terms and conditions of their employment with Stinar.
ENVIRONMENTAL MATTERS
CEMETERY OPERATIONS
In fiscal year 1995, the Company commissioned an engineering study of the
Cemetery operations for the purpose of determining the full extent of possible
soil contamination related to suspected leaking underground storage tanks. As a
result of this study, five underground fuel tanks were removed and the adjoining
soil was removed and disposed by an independent contractor.
During 1998, the Company did not incur any expenses for environmental
remediating and a total of approximately $228,000 has been spend in prior years
in remediating conditions at the Cemetery operations. In fiscal year 1997 the
Company was notified by the Illinois Environmental Protection agency ( Illinois
EPA ) that the environmental work conducted at the Cemetery operations may not
have been in full compliance with its guidelines. The Company responded to the
Illinois EPA with a work plan that will require the expenditure of additional
costs of approximately $28,500, with the possibility of additional costs. The
Company is awaiting a response on the work plan form the Illinois EPA.
Additional costs beyond the $28,500 accrued for at June 30, 1998 may be
incurred; however, management cannot reasonably estimate those costs. In
addition, the Company may not file for reimbursement form the Leaking
Underground Storage Tank Fund until the work plan has Illinois EPA approval.
Accordingly, the Company has made no provisions for reimbursements. The Company
is not aware of any other environmental issues affecting the Cemetery
operations.
STINAR HG, INC.
The assets purchased by Stinar HG, Inc. from Stinar Corporation included a
43,271 square foot manufacturing facility located on approximately 7.875 acres
of land (the facility ) located in an industrial park in Eagan, Minnesota, a
suburb of St. Paul, Minnesota. Prior to the acquisition of the Stinar facility,
Stinar and the Company obtained a Phase I environmental assessment of the Stinar
facility. This phase I environmental assessment suggested the need for
additional study of the Stinar facility. In addition, the Phase I assessment
suggested that certain structural improvements be made to the Stinar facility.
Accordingly, two additional Phase II environmental assessments were performed
and revealed the presence of certain contaminants in the soil around and under
the building located on the Stinar facility.
Subsequent to the completion of the Phase II environmental assessments and
completion of the structural improvements to the building, the Company and
Stinar requested and obtained a no association letter from the Minnesota
Pollution Control Agency ( MPCA ) stating that, provided certain conditions set
forth in the no association letter are met, the Company and Stinar will not be
deemed responsible for contamination which occurred at the Stinar facility prior
to the purchase of the assets Stinar HG, Inc. The structural improvements
recommended by the Company s environmental consulting firm was scheduled to be
completed before November, 1998, and then will be reviewed and, the Company
believes, will be approved by the MPCA. Work has been performed by not
completed, and the Company believes the approval by the MPCA will be before the
fiscal year 1999 is completed.
The purchase agreement between Stinar, its shareholders and Stinar HG, Inc.
requires Stinar and its shareholders to indemnify Stinar HG, Inc. for costs or
expenses by Stinar related to environmental conditions at the Stinar facility,
up to an amount believed by Stinar HG, Inc. and Stinar to exceed the reasonably
anticipated potential liability associated with the Stinar facility. In
addition, Stinar agreed to pay all costs associated with obtaining the no
association letter from the MPCA and Stinar paid for the environmental
consulting, remediating and structural improvements discussed in the preceding
paragraph. The Company does not anticipate that the operations of Stinar HG,
Inc. and the ownership of the assets will result in any material liability to
the Company or Stinar HG, Inc. under existing environmental laws, and Stinar HG,
Inc. has not included a material sum in it budget for matters related to
environmental compliance.
COMMON STOCK AND STOCKHOLDERS EQUITY
Stockholders equity was $1,198,513 at June 30, 1998, as compared with
$1,003,587 at June 30, 1997. The increase of $129,926 represents 1998 net
income. The book value of each share of common stock at June 30, 1998 was $
.92, compared to $ .77 at June 30, 1997.
In 1998, the return on average shareholders equity was 12% as compared to 24%
in 1997, 19% in 1996, 18% in 1995, and 9.4% in 1994.
The Company has traditionally not paid dividends and does not anticipate paying
dividends in the foreseeable future.
At June 30, 1998 common shareholders of record numbered 2,195 compared with
1,930 at the end of June 30, 1997.
INFLATION
General inflation has not had a significant impact on the Company over the past
five 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 better than 1998 with Stinar HG, Inc. included in the
consolidation.
FINANCIAL CONDITION
The Company s June 30, 1998 balance sheet continues to improve after five
consecutive years of net income.
The following key measurements are indicative of the improvements made in 1998
by the Company:
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
Cash and cash equivalents $823,458 $382,287 $264,691 $192,691 $391,373
Cash flow $441,171 $117,596 $72,000 $(198,682) $315,212
Stockholders Equity $1,198,513 $1,003,587 $789,155 $1,052,710 $1,061,051
Stockholders Equity to
Total Liabilities 1 to 6.93 1 to 1.67 1 to 2.31 1 to 1.97 1 to 1.21
- -------------------------------------------------------------------------------
Cash and cash equivalents were $832,458 at year end 1998, an increase of
$441,171 from the year end 1997 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.
All assets and liabilities increased as of June 30,1998 in comparison to June
30, 1997 due to the acquisition of Stinar HG, Inc. on June 29, 1998.
YEAR 2000 ISSUE
The Year 2000 issue is the result of computer programs, microprocessors and
embedded date reliant systems using two digits rather than four to define the
applicable year. If not corrected, date-related information and data could cause
many programs or systems to fail or generate erroneous information. The
Company s products and services have no inherent time or date function and will
operate regardless of Year 2000 issues, the Company, however, uses computer
systems and programs that will be affected by Year 2000 issues. In fiscal year
1999, the Company initiated a comprehensive Year 2000 readiness program
addressing business software and hardware, manufacturing software and hardware
used in the design, and/or manufacturing of equipment, and third party
suppliers. Although the Company does not currently expect any significant
disruption to its operations due to Year 2000 issues, there can be no assurance
that the Company will be able to assess, identify and correct all Year 2000
issues in a timely or successful manner.
The Company is assessing its suppliers whose failures to become year 2000
compliant in a timely manner, if at all, could have a material adverse effect on
the Company. The Company is distributing questionnaires on Year 2000 compliance
status (and follow-up letters, as necessary) to over 500 of its suppliers.
As of January 18, 1999, the costs incurred by the Company for Year 2000
compliance efforts have not been material. The Company currently estimates
incurring an additional $20,000 for Year 2000 remediating efforts. The projected
costs of the Company Year 2000 compliance efforts are based on management s best
estimates, which were derived using assumptions about future events. These
estimates may change as such efforts proceed and actual results could differ
significantly from current plans.
Although the Company expects to complete its Year 2000 remediation in 1999,
there are risks if its efforts are delayed or fail. A delay or failure in
remedying a Year 2000 issue, caused by computer hardware or software errors or
failures by the Company, or suppliers who may not be Year 2000 complaint could,
in a worst case, interrupt the Company s business. Depending upon the extent
and duration of the business interruption resulting from non-compliance issues,
such interruption could have a material adverse effect on the Company s
business, financial condition and results of operations.
The Company will begin to develop contingency plans for Year 2000 readiness in
March 1999 to ensure that back-up processes are in place in the event the
Company is unable to complete remediation efforts by December 31, 1999. The
Company expects to complete these contingency plans by September 1999, but there
is no assurance that the Company will complete such plans or that any such plans
will address all risks that may actually arise.
FORWARD-LOOKING STATEMENTS
The statements in this Annual Report under the headings Liquidity and Capital
Resources, Capital Expenditures, Environmental Matters, and Year 2000 Issue
about the Year 2000 compliance, are forward-looking statements based on current
expectations. These statements are subject to risks and uncertainties,
including slower or faster customer acceptance of new management of Stinar HG,
Inc., difficulties in financing and expanding capacity, changes in manufacturing
efficiencies, difficulties in implementing Year 2000 compliance and the other
risks and uncertainties discussed above. These factors may cause the Company s
actual results to differ materially from historically earnings and from the
financial performance of the Company presently anticipated.
APPENDIX A - INVESTOR INFORMATION
- ---------------------------------
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 AND 1997
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 5
Notes to Consolidated Financial Statements 6
{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, 1998 and 1997, 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.
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, 1998 and 1997, 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
August 19, 1998
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
______________________
1998 1997
__________ __________
ASSETS
Current assets:
Cash and cash equivalents $ 823,458 $ 382,287
Receivables:
Trade, less allowance for doubtful accounts
of $11,000 in 1998 and $15,500 in 1997 2,547,042 476,443
Trust income (Note 12) 20,350 106,855
Inventories:
Production 2,829,142 -
Cemetery and mausoleum space available for sale 663,791 682,108
Markers, urns and flowers 24,388 15,924
Deferred income taxes 245,000 256,000
Other current assets 10,731 26,783
---------- ----------
Total current assets 7,163,902 1,946,400
---------- ----------
Property and equipment:
Property and equipment 3,632,908 1,760,528
Less accumulated depreciation (1,347,698) (1,286,611)
---------- ----------
Total property and equipment, net 2,285,210 473,917
---------- ----------
Other assets 60,191 12,601
---------- ----------
Investment in property rights-
Mohave Shores Development Inc. - 250,000
---------- ----------
$9,509,303 $2,682,918
========== ==========
June 30,
______________________
1998 1997
__________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable bank $2,065,000 $ 75,000
Notes Payable - other 230,000 -
Accounts payable - trade 950,791 42,418
Accrued liabilities:
Accrued salaries and payroll taxes 469,980 124,971
Perpetual care trust funds 226,858 227,087
Deferred revenue 452,661 389,609
Customer deposits 329,914 -
Accrued warranty 138,883 -
Accrued marker and inscription costs 98,676 77,976
Accrued environmental costs 28,500 28,500
Current maturities of long-term debt 83,250 17,075
Other current liabilities 112,444 7,167
---------- ----------
Total current liabilities 5,186,957 989,803
---------- ----------
Long-term debt 3,123,833 689,528
---------- ----------
Commitments and contingencies - -
---------- ----------
Total liabilities 8,310,790 1,679,331
---------- ----------
Stockholders' equity:
Preferred stock, $.10 par value; 1,000,000
shares authorized; none issued - -
Common stock, $.10 par value; 5,000,000 shares
authorized; 1,309,670 shares issued and
outstanding in 1998 and 1997 130,968 130,968
Additional paid-in capital 1,940,500 1,875,500
Accumulated deficit (872,955) (1,002,881)
---------- ----------
Total stockholders' equity 1,198,513 1,003,587
---------- ----------
$9,509,303 $2,682,918
========== ==========
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30,
______________________
1998 1997
__________ __________
Revenue:
Cemetery $2,550,709 $2,344,988
Trust and interest income 216,505 240,455
---------- ----------
Total revenue 2,767,214 2,585,443
---------- ----------
Operating expenses:
Cemetery 1,306,614 1,210,979
Selling 237,484 247,800
General and administrative 717,078 742,650
---------- ----------
Total operating expenses 2,261,176 2,201,429
---------- ----------
Income from operations 506,038 384,014
---------- ----------
Other income (expense):
Interest expense (73,042) (86,338)
Loss on investment in property rights (250,000) -
Other (1,070) (244)
---------- ----------
Total other income (expense) (324,112) (86,582)
---------- ----------
Income before income taxes 181,926 297,432
Income taxes 52,000 83,000
---------- ----------
Net income $ 129,926 $ 214,432
========== ==========
Basic net income per share $ .10 $ .16
========== ==========
Diluted net income per share $ .09 $ .16
========== ==========
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
___________________ __________ ___________ __________
<S> <C> <C> <C> <C> <S><C>
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
Paid-in capital - stock
options, June 30, 1998 - - 65,000 - 65,000
Net income - - - 129,926 129,926
--------- -------- ---------- ----------- ----------
Balance, June 30, 1998 1,309,670 $130,968 $1,940,500 $ (872,955) $1,198,513
========= ======== ========== =========== ==========
</TABLE>
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
Years Ended June 30,
______________________
1998 1997
__________ __________
Cash flows from operating activities:
Net income $ 129,926 $ 214,432
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation 77,226 69,301
Deferred income taxes 50,000 81,429
Loss on investment in property rights 250,000 -
Compensation expense - stock options 65,000 -
Receivables 75,845 (69,657)
Inventories 9,853 19,133
Other assets 18,520 6,947
Accounts payable - trade (61,397) (27,781)
Accrued liabilities 72,753 90,292
---------- ----------
Net cash flows from operating activities 687,726 384,096
---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (150,289) (59,038)
Acquisition, net of cash acquired of $355,810 (1,687,140) -
---------- ----------
Net cash flows from investing activities (1,837,429) (59,038)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt (19,520) (282,462)
Increase in note payable bank 1,060,394 75,000
Proceeds from issuance of debentures
and other notes payable 550,000 -
---------- ----------
Net cash flows from financing activities 1,590,874 (207,462)
---------- ----------
Net change in cash and cash equivalents 441,171 117,596
Cash and cash equivalents, beginning of year 382,287 264,691
---------- ----------
Cash and cash equivalents, end of year $ 823,458 $ 382,287
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Years Ended June 30,
______________________
1998 1997
__________ __________
Cash paid during the years for:
Interest $ 73,042 $ 86,338
========== ==========
Income taxes $ 1,011 $ 560
========== ==========
Details of acquisition:
Fair value of assets $7,072,179 $ -
Liabilities 5,029,229 -
---------- ----------
Cash paid 2,042,950 -
Less cash acquired 355,810 -
---------- ----------
Net cash paid for acquisition $1,687,140 $ -
========== ==========
See Notes to Consolidated Financial Statements
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1998 and 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
The Company is a Minnesota corporation organized on March 6, 1961. The Company
operates two cemeteries in Illinois. The cemetery operations routinely grant
credit to pre-need customers, substantially all of whom are in the Chicago area.
On June 29, 1998 the Company acquired the net assets of an airline ground
equipment business (see Note 2). The business designs, engineers and
manufactures airline ground equipment and serves customers on a worldwide basis.
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.
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
Production inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out (FIFO) method.
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.
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
Deferred revenue consists of pre-need contracts that 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.
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 Company
generally does not require collateral for its trade accounts receivable. The
credit risk is limited due to the large number of entities comprising the
Company's customer base. At June 30, 1998, the Company had no significant
concentrations of credit risk.
INCOME PER SHARE
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share (SFAS No. 128). SFAS No. 128
establishes accounting standards for computing and presenting earnings per
share. Basic earnings per common share are computed by dividing net income by
the weighted average number of shares of common stock outstanding during the
period. No dilution for potentially dilutive securities is included. Diluted
earnings per share are computed under the treasury stock method and are
calculated to compute the dilutive effect of outstanding options, warrants and
other securities. The adoption had no effect on previously reported income per
share.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No. 130) in
June 1997. SFAS No. 130 requires the disclosure of other comprehensive income
in the Company s financial statements and is effective for reporting periods
beginning after December 15, 1997. The adoption of SFAS No. 130 is not expected
to have a material impact on the Company s financial statements or the
disclosures contained therein.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS No. 131) in June 1997. SFAS No. 131 establishes
accounting standards for segment reporting and is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 131 is not expected
to have a material impact on the Company s financial statements or the
disclosures therein.
2. ACQUISITION
On June 29, 1998, the Company acquired certain assets and liabilities of Stinar
Corporation (Stinar) for $4,242,950 including acquisition costs. Stinar designs,
engineers and manufactures airline ground equipment. The purchase price included
$2,000,000 in cash, the issuance of $1,300,000 of contracts for deed, a $200,000
short-term note and $700,000 of convertible subordinated debentures. The
transaction was accounted for using the purchase method. Accordingly, the
purchase price was allocated to net assets acquired based on their estimated
fair values. The excess of the purchase price over the fair value of net assets
acquired of approximately $50,100 is being amortized on a straight-line basis
over 30 years. The results of operations of the acquired business from the date
of acquisition to June 30, 1998 are not significant and will be reflected in the
Company s operations beginning July 1, 1998.
The following summarized unaudited pro forma results of operations for the years
ended June 30, 1998 and 1997 assumes the Stinar acquisition occurred on July 1
of each year:
PRO FORMA INFORMATION
1998 1997
__________ __________
Net sales $15,483,743 $12,473,303
Net earnings $ 220,299 $ 153,371
Earnings per share $ .17 $ .12
Pro forma results reflect adjustments for the incremental interest expense on
debt incurred to finance the acquisition, depreciation and amortization of
assets based on purchase price allocation and estimated income tax expense. The
pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been completed as of the beginning of each year
presented, nor are they necessarily indicative of future consolidated results.
3. INVENTORIES
Production inventories consist of the following:
1998 1997
__________ __________
Finished goods $ 230,066 $ -
Work in progress 1,146,295 -
Raw materials and trucks in stock 1,452,781 -
---------- ----------
$2,829,142 $ -
========== ==========
Inventories of cemetery and mausoleum space available for sale consist of the
following:
1998 1997
__________ __________
Cemetery space $ 539,940 $ 556,265
Mausoleum space 123,851 125,843
---------- ----------
$ 663,791 $ 682,108
========== ==========
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1998 1997
__________ __________
Land $ 450,000 $ 50,000
Land improvements 288,092 252,373
Building and improvements 1,422,881 522,881
Vehicles 250,114 198,617
Equipment 1,221,821 736,657
---------- ----------
$3,632,908 $1,760,528
========== ==========
Depreciation charged to operations was $77,226 in 1998 and $69,301 in 1997.
5. INVESTMENT IN PROPERTY RIGHTS
In December 1994, the Company purchased the right to develop 10 dwelling units
for $250,000 from Mohave Shore Development Inc. (MSD), a Nevada corporation.
MSD has a master lease agreement with the Fort Mohave Tribal Corporation located
in Arizona. The right has a term of 50 years. In addition, the Company has the
right to purchase 31 additional development units in increments with each
increment requiring additional fees to a total aggregate of $1,300,000. In
1998, the Company determined that the likelihood of realizing a return on this
investment to be remote and accordingly wrote off the investment in property
rights to $-0- realizing a $250,000 loss.
6. NOTE PAYABLE - BANK
The Company has a $225,000 line-of-credit of which $160,000 was unused and
available at June 30, 1998. Interest is payable monthly at the prime rate (8.5%
at June 30, 1998). The note is secured by the assets of a wholly owned
subsidiary and matures November 1, 1998.
The Company has a $3,000,000 line-of-credit of which $2,000,000 was outstanding
at June 30, 1998. At June 30, 1998, approximately $889,000 of the line-of-
credit was unused and available with approximately $111,000 used for open
letters of credit. Advances on the line-of-credit are based on 80% of eligible
accounts receivable plus 75% of the eligible truck, work-in-process and finished
goods inventory plus 50% of the eligible raw materials inventory. Interest is
payable monthly at the banks reference rate plus .75% (9.25% at June 30, 1998.)
The note is secured by the assets of the Company s wholly owned subsidiary,
Stinar HG, Inc., and by assignment of life insurance policies.
7. NOTES PAYABLE - OTHER
Notes payable - other consisted of the following:
1998 1997
__________ __________
Note payable to individuals - due June 1999
plus interest at 8.25%, secured by a second
priority lien on certain inventories, accounts,
equipment, and general intangibles. $ 200,000 $ -
Unsecured note payable to an officer, interest
at 9%, repaid July 1998. 30,000 -
---------- ----------
$ 230,000 $ -
========== ==========
8. LONG-TERM DEBT
Long-term debt consisted of the following:
1998 1997
__________ __________
Mortgage note payable bank, payable in
monthly installments of $9,350 including
interest at 8.625%, maturing January 2002,
secured by real estate and the assets of
the Company. $ 675,767 $ 685,190
Other notes payable, payable in monthly
installments including interest at 8.75%,
maturing through November 1999, secured
by equipment. 11,316 21,413
Contracts for deed, Payable in monthly
installments of $8,264 and $1,503 including
interest at 8.25%, maturing in June 2005
secured by certain property. 1,300,000 -
---------- ----------
Long-term debt payable before debentures 1,987,083 706,603
Convertible subordinated debentures - 9%
interest, due annually each December 31,
convertible into one common share at a
conversion price equal to 75% of the mean
between the average closing bid and ask
price on each of the five trading days prior
to the conversion date, issued to owners of
the business acquired, payable in annual
installments of $200,000 commencing June 2001
and in June 2002 and 2003, with the final
$100,000 payment due in June 2004, unsecured,
redeemable by the company with ten days
written notice. 700,000 -
Convertible subordinated debentures - 9%
interest due annually each December 31,
convertible into one common share for each
$2.00 of the principal amount, maturing in
July 2006, unsecured, $270,000 of the
debentures were issued to an officer and
employee of the Company. 520,000 -
---------- ----------
3,207,083 706,603
Less current maturities (83,250) (17,075)
---------- ----------
$3,123,833 $ 689,528
========== ==========
Subsequent maturities as of June 30, 1998 are as follows:
Years Ending June 30:
1999 $ 83,250
2000 76,622
2001 279,635
2002 706,050
2003 215,343
Thereafter 1,846,183
----------
$3,207,083
==========
9. ENVIRONMENTAL COSTS
In 1995, 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
1998 and 1997 and approximately $228,000 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, 1998 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.
10. INCOME TAXES
The provision for income taxes consisted on the following:
1998 1997
__________ __________
Current:
Federal $ - $ -
State 2,000 1,571
---------- ----------
2,000 1,571
---------- ----------
Deferred:
Federal 44,000 70,000
State 6,000 11,429
---------- ----------
50,000 81,429
---------- ----------
$ 52,000 $ 83,000
========== ==========
Principal reasons for variations between the statutory federal tax rate and the
effective tax rate were as follows:
1998 1997
__________ __________
Statutory U.S. federal tax rate 34% 34%
State taxes, net of federal benefit 3 3
Federal surtax exemption (4) (3)
Utilization of deferred income tax assets at
rates different than originally capitalized (4) (6)
---------- ----------
29% 28%
========== ==========
The net deferred income tax assets in the accompanying consolidated balance
sheets included the following components as of June 30, 1998 and 1997:
1998 1997
__________ __________
Deferred income tax liabilities $ (10,000) $ (6,000)
Deferred income tax assets:
Net operating loss carryforwards 156,000 218,600
Environmental liability 8,000 8,000
Accrued vacation 51,800 10,200
Other 56,100 44,100
Valuation allowance (16,900) (18,900)
---------- ----------
Net deferred income tax assets $ 245,000 $ 256,000
========== ==========
The Company has operating loss carryforwards of approximately $559,000, which
expire in 2008, that may be offset against future taxable income and investment
tax credits totaling approximately $16,900 that may be offset against future
federal income taxes. If not used, the investment tax credits will expire as
follows:
1999 $ 3,100
2000 3,200
2001 10,600
----------
$ 16,900
==========
11. OTHER RELATED PARTY TRANSACTIONS
During the years ended June 30, 1998 and 1997 amounts paid for compliance
services to entities related to the chief executive officer were $20,124 and
$12,192, respectively.
12. PENSION PLAN
Certain subsidiaries of the Company participate in a multi-employer union
administered defined benefit pension plan that covers the cemetery employees.
Pension expense under this plan was $14,950 in 1998 and $15,113 in 1997.
13. 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, 1998, and 1997. 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 beginning of year fair market value for each $100,000 of
net income over a base income amount of $300,000.
b) 40,000 shares at beginning of year 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 $.38 per
share were earned in 1998. Compensation expense of $65,000 was recognized with
these stock options. No stock options were issued in 1997.
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.
Shares subject to option are summarized as follows:
1990 Stock Employment Weighted Average
Option Plan Contract Options Exercise Price
___________ ________________ ________________
Balance, June 30, 1996 and 1997 3,500 40,000 $ .25
Options granted - 40,000 .38
----- ------ ---
3,500 80,000 $ .31
===== ====== ===
Options exercisable at:
June 30, 1997 3,500 40,000 $ .25
June 30, 1998 3,500 80,000 $ .32
Information regarding options outstanding at June 30, 1998 is as follows:
Weighted Average
Number of Exercise Weighted Average Remaining
Type of Option Options Price Range Exercise Price Contractual Life
______________ _________ ___________ ________________ ________________
1990 Stock Option Plan 3,500 $ .25 $ .25 4.0 Years
Employment Contract 80,000 $ .25-.38 $ .32 2.0 Years
The Company applies Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations in accounting for its
options. Had compensation cost been recognized based on the provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, the Company s net income
would have been decreased to the following pro forma amounts:
1998 1997
__________ __________
NET INCOME
As reported $ 129,926 $ 214,432
Pro forma $ 128,426 $ 214,432
The weighted average fair value of options granted was $1.68 in 1998. The fair
value of each option is estimated on the date of grant using the Black-Scholes
option pricing model. The weighted average assumptions used for grants in 1998
were as follows:
1998
__________
Risk free interest rate 5.5%
Expected life of options 3 years
Expected volatility 35.85%
Expected dividend yield -
14. 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 $202,014 in 1998 and
$226,973 in 1997.
Perpetual care trust fund assets totaled approximately $4,100,000 and $3,850,000
at June 30, 1998 and 1997, respectively.
15. EARNINGS PER SHARE OF COMMON STOCK DISCLOSURES
<TABLE>
The following table reconciles the income and shares of the basic and diluted earnings per share
computations:
<CAPTION>
1998 1997
___________________________________ ___________________________________
Income Shares Per-share Income Shares Per-share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
___________ _____________ _________ ___________ _____________ _________
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS
Income available to
common shareholders $129,926 1,309,670 $ .10 $214,432 1,309,670 $ .16
===== =====
EFFECT OF DILUTIVE SECURITIES
Employee Contract - 60,863 - 27,807
1990 Option plan - 2,830 - 2,433
Convertible debentures - 320 - -
-------- --------- -------- ---------
DILUTED EPS
Income available to common
stockholders plus assumed
conversions $129,926 1,373,683 $ .09 $214,432 1,339,910 $ .16
======== ========= ===== ======== ========= =====
</TABLE>
16. SEGMENT INFORMATION
The Company s operations are classified into two principal industry segments:
cemeteries and airline ground equipment. The following is a summary of the
identifiable assets by segment:
1998 1997
__________ __________
Cemeteries $2,437,124 $2,682,218
Airline ground equipment 7,072,179 -
---------- ----------
$9,509,303 $2,682,218
========== ==========
The results of operations of the airline ground equipment business will be
reflected in the company s operations beginning July 1, 1998 (see Note 2).
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at June 30,
1998, 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.
LONG-TERM DEBT AND OTHER NOTES PAYABLE - the fair value approximates the
carrying amount, as the interest rates on the debt approximate current interest
rates.
APPENDIX B - INVESTOR INFORMATION
- ---------------------------------
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
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". Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions.
As of June 30, 1998 there were approximately 2,195 shareholders of record of the
Company's common stock.
STOCK PRICES
Years Ended June 30, 1998 1997
High Low High Low
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First quarter 1.06 .56 1.19 .63
Second quarter 1.59 .81 1.13 .63
Third quarter 4.00 1.25 .88 .63
Fourth quarter 2.50 2.00 .75 .38
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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.
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
(651) 686-5495 Phone
(651) 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 February 22, 1999 at 3:00 p.m. at
Oppenheimer Wolff & Donnelly, Plaza VII, 45 South Seventh Street, Suite 3400,
Minneapolis, Minnesota.
