TABLE OF CONTENTS
Financial Highlights 1
Corporate Profile 1
Letter to Shareholders 2
Selected Financial Data 3
Management's Discussion and
Analysis of Results of Operations and Financial Condition 4
Audited Financial Statements Appendix A
Investor Information Appendix B
FINANCIAL HIGHLIGHTS
Percent
Years Ended June 30, 1999 1998 Change
_________________________________________________________________
Total revenue $12,409,032 $2,767,214 348%
Net income $488,157 $129,926 275%
Basic earnings per share .36 $.10 260%
Earnings per share
assuming dilution .29 $.09 222%
Working capital $1,902,951 $1,976,945 (3.7%)
Stockholders' equity $1,771,253 $1,198,513 47.8%
Closing market price
per common share
(Average of bid and ask) $3.15 $2.25 40.0%
Return on equity 32.89% 11.80% 178.7%
Return on assets 5.50% 5.08% 8.3%
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 36,537 remain in
inventory. The cemeteries have two mausoleums with 975 niches and
3,190 crypts of which 148 niches and 348 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 25 to 33 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.
[Oakridge Holdings, Inc. Letterhead]
To Our Shareholders,
We are pleased to report fiscal year 1999 was a landmark year
for Oakridge. The two cemeteries and the manufacturing operation
in fiscal year 1999 have transformed the Company as we celebrate
our 38th anniversary and prepare for the next century.
Revenues for fiscal year 1999 were $12,409,032; a 348.4%
increase over the $2,767,214 recorded a year earlier. Income from
operations grew for the seventh consecutive year, reaching
$877,085 in the year ended June 30, 1999 or 73.32 percent above
the $506,038 of the previous year. Net income after taxes but
before cumulative effect on prior years of changing the method of
accounting for deferred taxes increased to $488,157 in the year
ended June 30, 1999 or 275.7 percent above $129,926 of the
previous year.
Basic net income per share for fiscal year 1999 was $.36 per
share, or 260 percent above the $.10 per share of the previous
year. Diluted net income per share for fiscal year 1999 was $.29
per share, or 222 percent above the $.09 per share of the
previous year.
The 1999 financial results were greatly improved and the
performance of the market price of the stock has continued to
improve, we believe the future is bright for the Company.
Our primary long-term objective in fiscal year 2000 is to
implement the business plan, continue to redefine strategic
goals, increase revenue, decrease operating costs, and enhance
shareholder value. As I have stated in the past, we will continue
to redefine operations as we have in the last seven years to
build our company for the long-term increasing shareholder value.
To meet the challenge in the next century, we will continue to
look for ways to improve shareholder value, by growing or
expanding the present businesses, repurchasing our shares in the
open market, early retirement of debt, cash or stock dividends,
or again the acquisition of an existing business. As I have said
in the past, "We will not stand around and wait for things to
happen; we will make things happen."
While fiscal year 1999 was another good year for management of
the Company, it is extremely important for us to remember,
"Success is a never-ending journey, taken one step at a time, and
last year we took a large step in the right direction." We thank
you, the shareholders, for taking the journey with us, and we
look forward to converting our strategic goals into additional
value for you the shareholder.
/S/Robert C. Harvey
Robert C. Harvey
Chairman, Board of Directors
and Chief Executive Officer
<TABLE>
SELECTED FINANCIAL DATA
6/30/99 6/30/98 6/30/97 6/30/96 6/30/95 6/30/94 6/30/93
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets $8,232,020 $9,509,303 $2,682,918 $2,613,437 $3,125,595 $2,350,132 $1,515,185
Long-term
obligations $3,044,075 $3,123,833 $689,528 $989,065 $1,315,485 $301,103 $441,987
Total revenue $12,409,032 $2,550,709 $2,344,988 $2,378,109 $2,349,345 $2,103,021 $2,243,461
Income (loss)
from continuing
operations before
income taxes
and cumulative
effect of change
in accounting
principle $670,157 $181,926 $297,432 $244,495 $295,149 $171,402 ($15,804)
Net income (loss) $488,157 $129,926 $214,432 $174,495 $190,512 $678,588 ($15,804)
Basic net income
(loss) per
common share $.36 $.10 $.16 $.13 $.09 $.35 ($.01)
Basic net income
(loss) per
common share
assuming dilution $.29 $.09 $.16 $.12 $.09 $.35 ($.01)
Cash dividends
declared per share
of common stock $ - $ - $ - $ - $ - $ - $ -
Return on equity 33% 12% 24% 19% 18% 14% (4%)
Book value per share $1.28 $.92 $.77 $.60 $.65 $.58 $.17
Closing stock price $3.15 $2.25 $.64 $.98 $.43 $.50 $.09
</TABLE>
Closing Market Price Per Share Graph
1993 $.09
1994 $.50
1995 $.43
1996 $.98
1997 $.64
1998 $2.25
1999 $3.15
MANAGEMENT'S DISCUSSION
AND ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Income and Earnings Per Share
Net Income for 1999 was $488,157, an increase of 275% compared with $129,926 for
1998. Net income for the last seven years has continued to alternate from a
high of $488,157 in 1999 to a low of a loss of $15,804 in 1993. With the
exception of fiscal year 1994, when net income was $678,588 due to a cumulative
effect of a change in accounting principle.
Net Income Graph
1993 $(15,804)
1994 $101,996
1995 $190,512
1996 $174,495
1997 $214,432
1998 $129,926
1999 $488,157
Basic earnings per share for 1999 was $.36, an increase of 260% compared with
$.10 per share for 1998. Basic earnings per share since 1993 have returned an
average of $.17, with fiscal year 1993, 1994, 1995, 1996 and 1997 were ($.01),
$.35, $.09, $.12, and $.16 respectively.
Basic Earnings Per Share Graph
1993 $(.01)
1994 $.35
1995 $.09
1996 $.12
1997 $.16
1998 $.10
1999 $.36
Diluted earnings per share was $.29, an increase of 222% compared with $.09 per
share in 1998. Diluted earnings per share since 1993 have returned an average
of $.16, with fiscal year 1993, 1994, 1995, 1996, and 1997 were ($.01), $.35,
$.09, $.12, and $.16 respectively.
Diluted Earnings Per Share Graph
1993 $(.01)
1994 $.35
1995 $.09
1996 $.12
1997 $.16
1998 $.09
1999 $.29
Revenue
Revenue for 1999 was $12,409,032, an increase of $9,641,818 or 348% versus
revenue of $2,767,214 in 1998. This increase is attributable to the acquisition
of Stinar HG, Inc. ("Stinar").
Total Revenue Graph
1993 $2,243,461
1994 $2,321,677
1995 $2,584,565
1996 $2,614,973
1997 $2,585,443
1998 $2,767,214
1999 $12,409,032
Cemetery Operations
In fiscal year 1999, cemetery revenue increased $22,981, or .8%, over fiscal
year 1998. The company did experience a $105,000 increase, or 4.1%, in funeral
service revenues due to an increase in at-need cases handled of approximately 9%
over fiscal year 1998. The increase was offset by a decrease of $61,000, or
2.4%, in sales of monuments and memorials, primarily attributable to one very
large memorial sale in fiscal year 1998, and a $18,216 decrease In trust and
interest income from 1998. The decrease is due to a decrease in investment
returns on taxable bond funds.
Stinar Operations
Stinar manufacturing sales in fiscal year 1999 were $9,618,837: the sales markup
was 35% to United States government entities, 20% to international airlines, and
45% to commercial airlines. There is no reliable historical financial
information regarding revenue to identify specific trends.
Holding Operations
Holding Company had other income of $57,589 in fiscal year 1999 consisting
primarily of a partial settlement with prior board members.
Cost of Sales and Products Sold
Cemetery Operations
Cemetery operating expenses in fiscal year 1999 increased $65,615, or 5%, but
cost of goods sold in relation to sales increased 1.9% over fiscal year 1998.
The increase was due to higher labor costs, increased medical and dental
insurance benefits for the employees, and ground repairs caused by vandalism and
storms.
Stinar Operations
Stinar cost of sales in relation to sales was 88%, with raw materials being 49%,
labor and benefits being 27%, and remaining 12% being utilities, shop supplies,
freight, insurance and miscellaneous expenses.
Holding Operations
Holding company operating expenses in fiscal year 1999 decreased approximately
$50,000 or 17% in comparison to the prior fiscal year 1998. The decrease is due
to decrease in officer's wages of $17,500, professional fees of $24,000, and
lowers operating costs of approximately $9,000.
Gross Profit
Cemetery Operations
Cemetery operations gross profit decreased from 52.7% in fiscal year 1998 to
50.8% in fiscal year 1999. The decrease was due to revenue mix and increased
costs of labor and related benefits, and repairs.
Stinar Operations
Stinar operations gross profit was 12%, since there is no reliable historical
financial information regarding operations to identify specific trends.
Selling Expenses
Cemetery Operations
Cemetery selling expenses decreased $23,427, or 9.9%, for the fiscal year 1999,
compared to fiscal year 1998, due to the elimination of the sales manager
position and decreased commissions attributable to the large memorial sale
discussed above.
Stinar Operations
Stinar selling expenses in relation to sales was 5% or $459,834, with sales
salaries, sales representative's commissions and related benefits 78%,
advertising in trade magazines 11%, show expense 4%, travel and miscellaneous
7%.
General and Administrative Expense
Cemetery Operations
Cemetery general and administrative expenses increased $35,778, or 8.5%, for the
fiscal year 1999 compared to fiscal year 1998. The increase is due to legal
fees associated with land condemnation.
Stinar Operations
Stinar general and administrative expenses in fiscal year 1999 were $352,768 or
4% in relation to sales. Salaries and benefits 35%, real estate taxes 16%,
professional fees 15%, network consulting fees 3%, and various expenses 31%.
There is no reliable historical financial information regarding operations to
identify specific trends.
Income From Operations Graph
1993 $(15,804)
1994 $263,277
1995 $416,459
1996 $446,940
1997 $384,014
1998 $506,038
1999 $877,085
Other Non-Operating Expenses
Stinar Operations
Stinar other expenses, which consist of interest expense, were $231,208. This
was due to mortgage payment on land and building, sellers note, and bank debt.
Holding Operations
Holding Company interest expense in fiscal year 1999 increased $89,746 in
comparison to prior fiscal year 1998. The increase is due to the subordinated
debentures sold to assist in the acquisition of Stinar.
Taxes on Income
The effective rate on income was approximately 27% in 1999 and 29% in 1998.
FINANCIAL POSITION
Liquidity and Capital Resources
The company relies on cash flow from continuing cemetery and Stinar operations
to meet operating needs, debt and capital requirements. The cemetery businesses
have provided sufficient cash during the past five years to 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 Stinar. The company expects that cemetery operations and Stinar
will provide sufficient cash during the next five years to cover all debt
payments and operation needs.
Stinar has secured a $3,000,000 line of credit to fund operations and capital
expenditures. The line of credit expired June 30, 1999, and was extended to
October 1, 1999. The bank has told the company that a new line of credit will
be for $2,000,000 and a term note for $700,000 will be issued.
The cemetery has secured a line of credit for $225,000 to meet any uncertainties
that could materially affect liquidity. This line of credit is secured by
assets of the cemetery and matures October 3, 2000.
There are no expected changes in the number of full time, part time or seasonal
employees by the Cemetery operations. However, Stinar anticipates hiring
additional 15 full time employees for production, and a chief financial officer
in fiscal year 2000.
The ratio of total debt to total stockholders equity was 3.64 to 1, 6.93 to 1,
1.67 to 1, 2.31 to 1, 1.97 to 1, 1.21 to 1, and 2.96 to 1 at June 30, 1999,
1998, 1997, 1996, 1995, 1994 and 1993, respectively.
Debt to Equity Graph
1993 2.96%
1994 1.21%
1995 1.96%
1996 2.31%
1997 1.67%
1998 6.93%
1999 3.65%
The decrease in the 1999 ratio was due to the first year of operations of Stinar
Corporation. At June 30, 1999, $1,452,743 of long-term debt matures within one
year, $1,346,556 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 Company in 1999 amounted to $779,457, compared to
$150,289 in 1998. During the past five years the Company capital expenditures
totaled $1,266,645. The Company expenditures in 1999 for cemetery operations
were; computer software and hardware, tools, sewers and repaying of roads, and
vehicles, with Stinar operations capital expenditures were; snow plow, computer
software and hardware, shop equipment, and building improvements.
The cemetery and manufacturing operations have a five-year plan for capital
expenditures in 1999 to 2003 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 computer software and hardware system.
Manufacturing operation's capital expenditures will be approximately $2,000,000
for improvements in the present plant; computer software and hardware, office
equipment and manufacturing equipment to meet anticipate revenue increase.
Net cash from operating activity in fiscal year 1999 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.
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 1999, 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 at June 30, 1999 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 Illinois EPA approval. Accordingly, the Company
has made no provisions for reimbursements. The Company is not aware of any
other environmental issues after the Cemetery operations.
Stinar
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 assessment 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, 1999, and the will be reviewed and, the Company
believes, will be approved by the MPCA. Work has been performed but not
completed, and the Company believes the approval by the MPCA will be before the
fiscal year 2000 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 its budget for matters related to
environmental compliance.
Common Stock and Stockholder's Equity
Stockholders' equity was $1,771,253 at June 30, 1999, as compared with
$1,198,513 at June 30, 1998. The increase of $572,740 represents $488,157 of
net income and $84,583 of stock transactions. The book value of each share of
common stock at June 30, 1999 was $1.28, compared to $.92 at June 30, 1998.
Stockholders' Equity Graph
1993 $ 382,463
1994 $1,061,051
1995 $1,052,710
1996 $ 789,155
1997 $1,033,587
1998 $1,198,513
1999 $1,771,253
Book Value Per Share
1993 $ .17
1994 $ .58
1995 $ .65
1996 $ .60
1997 $ .76
1998 $ .92
1999 $1.28
Return on Equity Graph
1993 (.04%)
1994 14%
1995 18%
1996 19%
1997 24%
1998 12%
1999 33%
In 1999, the return on average stockholders' equity was 33% as compared to 12%
in 1998, 24% in 1997, 19% in 1996, 18% in 1995, 14% 1994 and (.4%) in 1993.
The Company has traditionally not paid dividends and does not anticipate paying
dividends in the foreseeable future.
At June 30, 1999 common stockholders' of record numbered 2,109, compared with
2,195 at the end of June 30, 1998.
Inflation
General inflation has not had a significant impact on the Company over the past
seven 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 2000 with Stinar HG, Inc. included in the
consolidation.
Financial Condition
The Company's June 30, 1999 balance sheet continues to improve after six
consecutive years of net income.
The following key measurements are indicative of the improvements made in 1999
by the Company:
Stockholders'
Cash and cash Stockholders' Equity to Total
equivalents Cash flow Equity Liabilities
1993 $76,161 $66,654 $382,463 1 to 2.96
1994 $391,373 $315,212 $1,061,051 1 to 1.21
1995 $192,691 ($198,682) $1,052,710 1 to 1.97
1996 $264,691 $72,000 $789,155 1 to 2.31
1997 $382,287 $117,596 $1,003,587 1 to 1.67
1998 $823,458 $441,171 $1,198,513 1 to 6.93
1999 $950,907 $127,449 $1,771,253 1 to 3.65
Cash and cash equivalents were $950,907 at year end 1999, an increase of
$127,449 from the year end 1998 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.
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. 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 addressing 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 December 10, 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 compliant 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 any such plans will address all risks that may actually
arise.
Forward-Looking Statements
The statements in the 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 earning and from the
financial performance of the Company presently anticipated.
APPENDIX A
AUDITED FINANCIAL STATEMENTS
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1999 AND 1998
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, 1999 and
1998, 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, 1999 and 1998, 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 25, 1999
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
__________ __________
1999 1998
__________ __________
ASSETS
Current assets:
Cash and cash equivalents $ 950,907 $ 823,458
Receivables:
Trade, less allowance for doubtful
accounts of $33,000 in 1999 and
$11,000 in 1998 1,578,822 2,547,042
Trust income 9,425 20,350
Other 132,500 -
Inventories:
Production 1,854,221 2,829,142
Cemetery and mausoleum space
available for sale 634,887 663,791
Markers, urns and flowers 20,367 24,388
Deferred income taxes 102,000 245,000
Other current assets 36,514 10,731
---------- ----------
Total current assets 5,319,643 7,163,902
---------- ----------
Property and equipment 4,387,570 3,632,908
Less accumulated depreciation (1,539,730) (1,347,698)
---------- ----------
2,847,840 2,285,210
---------- ----------
Other assets 64,537 60,191
---------- ----------
$8,232,020 $9,509,303
========== ==========
June 30,
__________ __________
1999 1998
__________ __________
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $1,346,556 $2,065,000
Notes payable - other 30,155 230,000
Accounts payable - trade 601,186 950,791
Accrued liabilities:
Accrued salaries and payroll taxes 375,657 469,980
Perpetual care trust funds 212,781 226,858
Deferred revenue 507,711 452,661
Customer deposits 25,248 329,914
Income taxes 39,000 -
Accrued marker and inscription costs 79,876 98,676
Accrued environmental costs 28,500 28,500
Other accrued liabilities 93,990 251,327
Current maturities of long-term debt 76,032 83,250
---------- ----------
Total current liabilities 3,416,692 5,186,957
---------- ----------
Long-term debt 3,044,075 3,123,833
---------- ----------
Commitments and contingencies - -
---------- ----------
Total liabilities 6,460,767 8,310,790
---------- ----------
Stockholders' equity:
Preferred stock, $.10 par value,
1,000,000 shares authorized; none
issued - -
Common stock, $.10 par value, 5,000,000
shares authorized; 1,388,003 and
1,309,670 shares issued and outstanding
in 1999 and 1998, respectively 138,801 130,968
Additional paid-in capital 2,017,250 1,940,500
Accumulated deficit (384,798) (872,955)
---------- ----------
Total stockholders' equity 1,771,253 1,198,513
---------- ----------
$8,232,020 $9,509,303
========== ==========
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended June 30,
___________ ___________
1999 1998
___________ ___________
Net sales $12,409,032 $2,767,214
Cost of good sold 9,802,382 1,306,614
----------- -----------
Gross margin 2,606,650 1,460,600
Selling, general and
administrative expenses 1,729,565 954,562
----------- -----------
Income from operations 877,085 506,038
----------- -----------
Other income (expense):
Interest expense (392,970) (73,042)
Loss on investment in property rights - (250,000)
Other 186,042 (1,070)
----------- -----------
Total other income (expense) (206,928) (324,112)
----------- -----------
Income before income taxes 670,157 181,926
Income taxes 182,000 52,000
----------- -----------
Net income $ 488,157 $ 129,926
=========== ===========
Basic net income per share $ .36 $ .10
=========== ===========
Diluted net income per share $ .29 $ .09
=========== ===========
<TABLE>
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1999 AND 1998
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
BALANCE, June 30, 1997 1,309,670 $130,968 $1,875,500 $(1,002,881) $1,003,587
Paid-in capital - stock
options, June 31, 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
--------- -------- ---------- ----------- ----------
Issuance of common
stock for cash 40,000 4,000 76,000 - 80,000
Issuance of common
stock for services 15,000 1,500 41,000 - 42,500
Retirement of common stock (16,667) (1,667) (46,250) - (47,917)
Exercise of stock options 40,000 4,000 6,000 - 10,000
Net income - - - 488,157 488,157
--------- -------- ---------- ----------- ----------
BALANCE, June 30, 1999 1,388,003 $138,801 $2,017,250 $(384,798) $1,771,253
========= ======== ========== =========== ==========
</TABLE>
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) In Cash And Cash Equivalents
Years Ended June 30,
___________ ___________
1999 1998
___________ ___________
Cash flows from operating activities:
Net income $ 488,157 $ 129,926
Adjustments to reconcile net income to
net cash flows from operating activities:
Depreciation 217,332 77,226
Deferred income taxes 143,000 50,000
Common stock received in settlement (47,917) -
Loss on investment in property rights - 250,000
Loss on disposal of equipment 4,500 -
Compensation expense - stock options - 65,000
Compensation expense - common stock 42,500 -
Receivables 846,645 75,845
Inventories 1,007,846 9,853
Other assets (35,134) 18,520
Accounts payable - trade (349,605) (61,397)
Accrued liabilities (495,153) 72,753
---------- ----------
Net cash flows from
operating activities 1,822,171 687,726
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (779,457) (150,289)
Acquisition, net of cash acquired
of $355,810 - (1,687,140)
---------- ----------
Net cash flows from
investing activities (779,457) (1,837,429)
---------- ----------
Cash flows from financing activities:
Principal payments on long-term debt
and other notes payable (286,821) (19,520)
Change in note payable - bank (718,444) 1,060,394
Proceeds from issuance of debentures
and other notes payable - 550,000
Proceeds from sale of common stock 80,000 -
Proceeds on exercise of stock options 10,000 -
---------- ----------
Net cash flows from
financing activities (915,265) 1,590,874
---------- ----------
Net change in cash and cash equivalents 127,449 441,171
Cash and cash equivalents,
beginning of year 823,458 382,287
---------- ----------
Cash and cash equivalents,
end of year $950,907 $823,458
========== ==========
Supplemental Disclosure of Cash Flow Information
Cash paid during the years for:
Interest 328,119 73,042
========== ==========
Income taxes 2,000 1,011
========== ==========
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
========== ==========
OAKRIDGE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 aviation ground
support equipment business (see Note 2). The business designs, engineers and
manufactures aviation ground support equipment serving businesses domestically
and internationally.
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, 1999, 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
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 establishes accounting and reporting
standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively
referred to as derivatives) and for hedging activities. SFAS No.
133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. The Company does not expect SFAS
No. 133 to materially affect its financial position or results of
operations.
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 aviation ground support 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 10
years. The results of operations of the acquired business from
the date of acquisition to June 30, 1998 are not significant and
are reflected in the Company's operations beginning July 1, 1998.
The following summarized unaudited pro forma results of operations for the year
ended June 30, 1998 assumes the Stinar acquisition occurred on July 1 of 1997:
PRO FORMA INFORMATION
1998
Net sales $15,483,743
Net earnings $220,299
Earnings per share $ .17
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 1998, nor are they necessarily indicative of future
consolidated results.
3.INVENTORIES
Production inventories consist of the following:
1999 1998
Finished goods $170,173 $230,066
Work in progress 945,782 1,146,295
Raw materials and trucks in stock 738,266 1,452,781
---------- ----------
$1,854,221 $2,829,142
========== ==========
Inventories of cemetery and mausoleum space available for sale
consist of the following:
1999 1998
Cemetery space $521,783 539,940
Mausoleum space 113,104 123,851
---------- ----------
$634,887 $663,791
========== ==========
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
1999 1998
Land $450,000 450,000
Land improvements 417,344 288,092
Building and improvements 1,798,692 1,422,881
Vehicles 291,836 250,114
Equipment 1,429,698 1,221,821
---------- ----------
$4,387,570 $3,632,908
========== ==========
Depreciation charged to operations was $212,327 in 1999 and
$77,226 in 1998.
5. INVESTMENT IN PROPERTY RIGHTS
In December 1994, the Company purchased the right to develop ten
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 $219,997 was
unused and available at June 30, 1999. Interest is payable
monthly at the prime rate (7.75% at June 30, 1999). The note is
secured by the assets of a wholly-owned subsidiary and matures
October 31, 1999.
The Company has a $3,000,000 line-of-credit of which $1,341,553
was outstanding at June 30, 1999. At June 30, 1999, approximately
$625,000 of the line-of-credit was unused and available. 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% (8.5% at June 30, 1999). The note matures October 1, 1999 and is
secured by the assets of the Company's wholly owned subsidiary, Stinar HG, Inc.,
and by assignment of life insurance policies. As of June 30, 1999, the Company
was not in compliance with certain financial covenants related to tangible net
worth. The bank intends to waive those covenants as of June 30, 1999.
7. NOTES PAYABLE - OTHER
Notes payable - other consisted of the following:
1999 1998
Note payable to individuals -
interest at 8.25%, secured by a
second priority lien on certain
inventories, accounts, equipment,
and general intangibles. $30,155 $200,000
Unsecured note payable to an
officer, interest at 9%, repaid
July 1998. - 30,000
---------- ----------
$30,155 $230,000
========== ==========
8. LONG-TERM DEBT
Long-term debt consisted of the following:
1999 1998
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. $616,445 $675,767
Other notes payable, payable in
monthly installments including
interest at 8.75%, maturing through
November 1999, secured by equipment. 2,989 11,316
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. 1,280,673 1,300,000
---------- ----------
Long-term debt before debentures 1,900,107 1,987,083
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, 2002
and 2003, with the final $100,000
payment due in June 2004,unsecured,
redeemable by the Company with 10
days written notice. 700,000 700,000
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. 520,000 520,000
---------- ----------
3,120,107 3,207,083
Less current maturities (76,032) (83,250)
---------- ----------
$3,044,075 $3,123,833
========== ==========
Subsequent maturities as of June 30, 1999 are as follows:
Years Ending June 30:
2000 $ 76,032
2001 279,550
2002 702,988
2003 215,342
2004 116,657
Thereafter 1,729,538
----------
$3,120,107
==========
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 1999 and 1998 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, 1999 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:
1999 1998
---------- ----------
Current:
Federal $22,000 $ -
State 17,000 2,000
---------- ----------
39,000 2,000
Deferred:
Federal 139,000 44,000
State 4,000 6,000
---------- ----------
143,000 50,000
---------- ----------
$182,000 $ 52,000
========== ==========
Principal reasons for variations between the statutory federal
tax rate and the effective tax rate were as follows:
1999 1998
Statutory U.S. federal tax rate 34% 34%
State taxes, net of federal benefit 2 3
Federal surtax exemption (2) (4)
Utilization of deferred income tax
assets at rates different than
originally capitalized (5) (4)
Other (2) -
------ ------
27% 29%
====== ======
The net deferred income tax assets in the accompanying
consolidated balance sheets included the following components as
of June 30, 1999 and 1998:
1999 1998
Deferred income tax liabilities $(15,000) $(10,000)
Deferred income tax assets:
Net operating loss carryforwards - 156,000
Environmental liability 8,000 8,000
Accrued vacation 53,400 51,800
Other 55,600 56,100
Valuation allowance - (16,900)
---------- ----------
Net deferred income tax assets $102,000 245,000
========== ==========
11. OTHER RELATED PARTY TRANSACTIONS
During the years ended June 30, 1999 and 1998 amounts paid for
compliance services to entities related to the chief executive
officer were $13,715 and $20,124, 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 $15,600 in 1999 and $14,950 in 1998.
13. EMPLOYMENT CONTRACTS AND STOCK OPTIONS
The Company was 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 was 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, 1999, and
1998. The annual compensation expense under the employment
contract was $90,000. As of June 30, 1999, no new agreement had
been formalized.
In addition, the contract also provided 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 expired December 31, 1998, and the
exercise date of the stock options must be within 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 1999.
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 an option for 3,500 shares is outstanding and 14,000
shares are available for issuance.
On September 1, 1998, the Board of Directors approved a stock
incentive awards plan to attract and retain individuals to
contribute to the achievement of the Company's economic
objectives. Under the plan, individuals will be eligible based on
judgement of a committee of Board members (committee). At the
discretion of the committee, eligible recipients may be granted
options to purchase shares of the Company's common stock at an
exercise price per share equal to the market price at the grant
date. The stock options are exercisable at such times and in such
installments as determined by the committee, limited to a maximum
of ten years from the date of the grant. The Company reserved
175,000 shares of common stock for issuance under the plan. As of
June 30, 1999, no options have been granted.
During 1999, the Company entered into employment agreements with
certain individuals that expire 2001 through 2004. The agreements
provide for annual stock options to be granted on the respective
anniversary date in total in the amount of 11,000 shares in 2000
and 2001 and 2,000 shares in 2002, 2003, and 2004. The options
are exercisable upon issuance at fair market value at date of
grant.
Shares subject to option are summarized as follows:
1990 Employment Weighted
Stock Contract Average
Option Options Exercise
Plan Price
BALANCE, June 30, 1997 3,500 40,000 $ .25
Options granted - 40,000 $ .38
------ -------
BALANCE, June 30, 1998 3,500 80,000 $ .31
Options exercised - (40,000) $ .25
BALANCE, June 30, 1999 3,500 40,000 $ .37
====== =======
Options exercisable at:
June 30, 1998 3,500 80,000 $ .31
June 30, 1999 3,500 40,000 $ .37
Information regarding options outstanding at June 30, 1999 is as
follows:
Type of Option Number of Exercise Weighted Weighted
Options Price Average Average
Range Exercise Remaining
Price Contractual
Life
1990 Stock Option Plan 3,500 $ .25 $ .25 3.0 Years
Employment contract 40,000 $ .38 $ .38 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 as follows:
1999 1998
---------- ----------
Net Income
As reported $486,157 $129,926
Pro forma $486,157 $128,426
The weighted average fair value of options granted was $1.68 in
1998. There were no options granted in 1999. 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 5.50%
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 $184,646 in
1999 and $202,014 in 1998.
Perpetual care trust fund assets totaled approximately $4,170,000
and $4,100,000 at June 30, 1999 and 1998, respectively.
15. EARNINGS PER SHARE OF COMMON STOCK DISCLOSURES
The following table reconciles the income and shares of the basic and diluted
earnings per share computations:
<TABLE>
1999 1998
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 $488,157 1,344,250 $.36 $129,926 1,309,670 $.10
to common
shareholders
EFFECT OF DILUTIVE SECURITIES
Employee
Contract - 34,146 - 60,863
1990 Option
plan - 3,159 - 2,830
Convertible
debentures 76,900 567,154 - -
DILUTED EPS
Income available
to common
stockholders
plus assumed
conversions $565,057 1,948,709 $.29 $129,926 1,373,363 $.09
</TABLE>
16. SEGMENT INFORMATION
The Company's operations are classified into two principal industry segments:
cemeteries and aviation ground support equipment. The accounting policies of the
segments are the same as those described in the summary of significant
accounting policies. The company evaluates performance based on profit or loss
from operations before income taxes. Financial information by industry segment
as of and for the years ended June 30, 1999 and 1998 is summarized as follows:
Aviation
Ground
Support
Cemeteries Equipment Total
1999
Net sales - external $2,790,195 $9,618,837 $12,409,032
Depreciation and
amortization 91,021 126,311 217,332
Interest expense 1,302 231,208 232,510
Segment operating profit 877,801 140,827 1,018,628
Segment assets 3,072,662 5,408,274 8,480,936
Expenditures for segment
fixed assets 267,634 511,823 779,457
1998
Net sales - external $2,767,214 $ $ 2,767,214
Depreciation and
amortizaation 77,226 77,226
Intereat expense 2,329 2,329
Segment operating profit 798,035 798,035
Segment assets 2,176,457 7,072,180 9,248,637
Expenditures for segment
fixed assets 150,289 1,738,230 1,888,519
Reconciliation of segment profit to consolidated income before income taxes is
as follows:
1999 1998
---------- ----------
Total profit for reportable segments $1,018,628 $ 798,035
Unallocated amounts:
Interest expense (160,460) (70,713)
Other corporate expenses (188,011) (545,396)
---------- ----------
Income before income taxes $ 670,157 $ 181,926
========== ==========
Reconciliation of segment assets to consolidated asset is as follows:
1999 1998
---------- ----------
Total segment assets $8,480,936 $9,248,637
Other assets 196,227 347,500
Elimination of receivable from
corporate headquarters (445,143) (86,834)
---------- ----------
Total assets $8,232,020 $9,509,303
========== ==========
The results of operations of the aviation ground support equipment business are
reflected in the Company's operations beginning July 1, 1998 (see Note 2).
approximately 20% of aviation ground support equipment net sales area to foreign
entities.
Segment profit represents segment revenues less directly related operating
expenditures of the Company's segments. Management believes this is the most
meaningful measurement of each segment's results as it excludes consideration of
corporate expenses which are common to both business segments.
Other corporate expenses consist principally of senior management's
compensation, and general and administrative expenses. These costs generally
would not be subject to significant reduction upon the discontinuance or
disposal of one of the segments.
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments
at June 30, 1999, 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.
18. COMMITMENTS AND CONTINGENCIES
The Company is in labor negotiations with its Illinois cemetery
employees represented by Local #1, of the Service Employees
International Union, AFL-CIO, CLC, whose contract expired
February 29, 1999. If the Company is unable to reach a negotiated
settlement, a strike could occur which would depress cemetery
revenues and disrupt cemetery operations.
19. OTHER INCOME
Included in 1999 other income is a settlement with the Illinois Department of
Transportation regarding condemnation of property for $132,500.
20. RECLASSIFICATIONS
Certain reclassifications were made to the 1998 consolidated
financial statements to conform to the 1999 presentation which
had no effect on net income.
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
Transfer Agent and Register
Correspondence regarding stock holdings and changes of address and transfer of
certificates should be directed to the transfer agent at the following
departments:
For general inquiries, changes of address, transfers and consolidation of
shareholder accounts:
Chemical Mellon Shareholder Services, L.L.C.
PO Box 33102
South Hackensack, NJ 07606-19
Overnight or express mail only:
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.
Lost Securities
85 Challenger Rd
Ridgefield Park, NJ 07660
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, 1999 there were approximately 2,109 shareholders of record of the
Company's common stock.
Stock Prices
Years Ended June 30, 1999 1998
High Low High Low
First quarter 1.59 3.50 1.06 .56
Second quarter 1.75 4.50 1.59 .81
Third quarter 2.63 4.00 4.00 1.25
Fourth quarter 2.06 4.25 2.50 2.00
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
(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 28, 2000 at 3:00 p.m. at
Oppenheimer Wolff & Donnelly, Plaza VII, 45 South Seventh Street, Suite 3400,
Minneapolis, Minnesota.
