SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
Commission file number 2-93668-FW
CURTIS MATHES HOLDING CORPORATION
(Exact name of Registrant as specified in its charter)
Texas 75-1975147
(State of incorporation) (I.R.S. Employer Identification No.)
10911 Petal Street, Dallas, Texas 75238
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 503-8880
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
(Title of class)
Preferred Stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark, if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
On August 2, 1996, the aggregate market value of the voting stock
held by non-affiliates of the Registrant (21,374,873 shares) was
approximately $30,993,566, based upon the average bid and asked price
per share of $1.45.
On August 2, 1996, there were 24,311,188 shares of Registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Exhibits listed on Exhibit index.
<PAGE>
GENERAL INDEX
Page
Number
ITEM l. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 3
ITEM 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . 11
ITEM 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS. . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . 13
ITEM 6. SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION. . . . . . . . . . . 15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements
(F-1 through F-35). . . . . . . . . . . . . . . . . . . 19
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE. . . . . . . . . . 19
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. . . 21
ITEM 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . 24
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT. . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. . . . . 29
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . 31
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . 69
<PAGE>
CURTIS MATHES HOLDING CORPORATION
PART I
ITEM l. BUSINESS
(a) General Development of Business
Curtis Mathes Holding Corporation, formerly Enhanced Electronics
Corporation, and subsidiaries (the "Company") is engaged in the
manufacture and distribution of consumer electronics products relating
specifically to the home entertainment industry.
The Company was incorporated in Texas on July 13, 1984 as Donny
Osmond Entertainment Corporation and operated in several facets of the
entertainment industry until 1988. The Company filed an S-18
registration statement in November of 1984 and completed the registered
offering in January 1985.
The Company acquired Curtis Mathes Corporation (CM) in November,
1993 and on November 8, 1993 the Company's stock was first listed on the
NASDAQ Small Cap Market (symbol CRTM). CM became the flagship business
of the Company and, to reflect its commitment, the Company changed its
name to Curtis Mathes Holding Corporation in May, 1994. CM continues to
operate as one of the Company's primary subsidiaries, providing the
traditional consumer electronics products which have become so well
known over the years for their quality and reliability.
Another subsidiary, Curtis Mathes Marketing Corporation (CMMC),
during fiscal year 1996 acquired the rights to a proprietary computer-
enhanced television technology called UniViewTM which allows a family,
through the use of its TV remote control, to surf the Internet,
receive e-mail, or to search for movies or programs featuring specific
subjects, stars, or ratings. This technology was successfully exhibited
in May, 1996 at the Consumer Electronics Show in Florida and generated
great enthusiasm among its viewers. CMMC also holds the rights to the
125" projection television technology known as RealViewTM. This
technology is best suited for sports arenas, stadiums, shopping malls,
airports, and other large commercial applications, however, the Company
also expects to use the technology to improve CM's consumer projection
television products.
A subsidiary closely related to CM in the past has been Warranty
Repair Corporation (WRC) which, until recently, has provided the
warranty support for all products sold by CM. CM continues to honor all
of its warranty obligations and now utilizes the expertise of an outside
warranty servicing company to control warranty costs while providing
highly professional services to its customers. The warranty servicing
company monitors all outstanding warranties on CM products, provides
technical assistance to CM's authorized service centers, and serves all
of the warranty related needs of CM's customers.
<PAGE>
During fiscal year 1996, the Company sold CM Transportation, Inc.
(CMTI), a subsidiary of the Company initially created to provide
transportation for the economical delivery of CM products to its
dealers. The sale of this subsidiary was a result of the changing
transportation needs of CM. As CM shifted its emphasis away from the
commodity side of consumer electronics, meaning 27" televisions and
smaller products, the number of units being shipped decreased. Without
a substantial number of units being shipped, the benefit of CMTI to the
Company was reduced accordingly. CM's transportation needs are now
served through outside transportation brokers, as in the past.
FFL Corporation (FFL), a subsidiary which in the past engaged in
real estate transactions, remains dormant at this time. Systematic
Electronics Corp., formerly known as Advanced PC Products, Inc. and a
current subsidiary of FFL, also remains dormant at this time.
(b) Financial Information About Industry Segments
Please refer to Note 18 on page F-33 of the Notes to Consolidated
Financial Statements in this Form 10-K for information concerning
Industry Segments.
(c) Description of Business
Major Markets and Products
Curtis Mathes Corporation (CM)
CM's products have traditionally been sold through two primary
markets: independent dealers and distributors. CM would sell its
products directly to independent dealers and to distributors who in turn
would sell the products to other independent dealers in their geographic
areas. These independent dealers would sell the products directly to
the consumer. This distribution system is no longer mandated by legal
restriction, and CM is free to explore additional avenues of
distribution in order to maximize product exposure in the marketplace.
CM's product line consists of the following:
Product Characteristics
Direct View Televisions 32" and 35" screen sizes
(picture tube) Color picture-in-picture
(digital) Surround sound
Projection Televisions 50" size only
(projector and screen) Surround sound
(digital)
<PAGE>
The market for traditional direct view televisions remains
essentially flat. Management believes that diminished consumer demand
for value-added products requires the Company to market only those
products that historically have produced the greatest margins and
volumes (32 to 35 direct view, and projection televisions).
Reasonable increases in sales volumes have occurred within the industry
for these larger screen units. It is anticipated by the industry that
consumer demand for traditional direct view televisions will remain
unchanged with minimal increases for the next several years. Both of
the direct view units (32" and 35") and the projection unit to be
offered by CM utilize digital technology, which is expected to become
more of a consumer product from the standpoint of price and availability
as digital technology is improved. (Digital units receiving digital
input from television transmissions, laser discs, or Digital Video
Discs, are able to provide a picture of remarkable clarity when compared
to displays from a typical analog signal.)
Projection television has shown continued growth. Product in the
45" range has become the norm, with larger sizes also becoming much more
in demand. The Company has chosen to offer a 50" unit which is offered
at competitive prices to the Curtis Mathes customer.
Historically, VCR sales represented a noticeable portion of total
CM sales; however, in recent years, a severe decline in sales volume
occurred with this product, which only reinforced the Company's decision
not to compete in the commoditized, low margin consumer electronics
markets. CM plans instead to selectively license its brand name to
other manufacturers who wish to market quality products in the areas in
which the Company has chosen not to participate.
Curtis Mathes Marketing Corporation (CMMC)
The Company's newest proprietary television technology, called
UniView, is designed to meet the high interest and expected demand of
the consumer for easy and affordable access to the Internet through the
television medium. All Curtis Mathes televisions and set-top units
equipped with the unique UniView system seamlessly integrate Internet
access, fax and on-line information services with the traditional TV
viewing experience using broadcast quality translucent graphics. All
UniView units additionally have built-in e-mail, conference phone, on-
screen caller ID, automated VCR control and various interactive
television capabilities. Other unique features include a fast
proprietary multi-tasking operating system and special software that
automatically monitors the TV listings databases and blocks any
programming that parents might find inappropriate based on their own
specifications of show, rating or specific content.
The UniView units are further designed to accept optional input
peripherals, such as the Wireless SurfBoardTM, which will be offered by
the Company as an accessory to the basic system. The UniView system is
fully operational with its standard infrared-style remote control; the
Wireless SurfBoard allows greater flexibility in surfing the Internet
or sending e-mail by providing a full keyboard and mouse touchpad and
provides a high level of data integrity through its radio frequency
wireless technology, which allows operation of the system from up to 50
feet away. The Company's license of the technology from Interactive
Video Publishing, Inc. authorizes the exclusive use of the UniView
technology in its premium television sets and in separate set-top units
on a non-exclusive basis.
<PAGE>
CMMC also offers its 10-foot diagonal projection television system
known as RealView to the commercial market. While its competitors rely
upon either thousands of miniature CRTs or banks of monitors to provide
a picture, RealView provides for high resolution and flexible
transmittal of video and graphics from any source onto a 75" x 100"
seamless projection screen through the use of a single light valve
projector. This results in an electrical power consumption rate that is
considerably lower than comparably-sized display systems. CMMC delayed
the introduction of the RealView during the past year while improvements
were made to the technology, resulting in a sharper and brighter image
and a more efficient cabinet design, which makes the unit more easily
transportable. With current funding, CMMC is preparing to market the
newly designed RealView commercially to complement its sales of UniView
and to complement CM's consumer electronics sales.
CMMC also holds certain rights to the former SysPower LED sign
technology. This product offers a unique sign display system, utilizing
light emitting diodes (LED), which interfaces with a control unit and
software which allows the display to be connected and controlled by a
variety of computers and other similar products. CMMC's rights are
exclusive for the market consisting of indoor sports arenas in the
United States seating less than 25,000 where basketball, hockey, or
other sports can be played. Otherwise, the rights are held concurrently
with Animated Systems and Presentations, Inc.
Warranty Repair Corporation (WRC)
WRC has, in the past, provided warranty and repair service for CM
consumer electronics products. Warranty support for CM products is
currently being provided under contract by an outside servicer. WRC is
currently inactive and it offers no other services or products to any
other outside party.
Competition
Curtis Mathes Corporation (CM)
CM has manufactured and markets consumer electronics home
entertainment products, many of which have achieved a unique or
leadership position in their market. CM does, however, encounter
competition in varying degrees in all product groups and for each
product line. Competitors include other domestic and foreign companies
that manufacture and/or sell the same or similar products. The
principal methods of competition are product performance, quality of
services, delivery schedule, price, and other terms and conditions of
sale. However, CM has positioned itself over the years in a niche
market of high quality consumer electronics products made up primarily
of 27" or larger televisions. CM has not tried to compete with lower
quality products that are typically sold for less through large retail
chains, choosing to compete primarily on quality rather than on price
and volume. In the event CM elected to offer its products through a
major retailer, the lower quality products would be in competition with
CM products only to the extent that they offer a less expensive
alternative to lesser demanding consumers.
<PAGE>
Curtis Mathes Marketing Corporation (CMMC)
CMMC's UniView proprietary television technology is expected to be
among the first products of its type to enter the marketplace.
Competitors which have announced a television product which allows
access to the Internet include Zenith, Sony, Phillips, and other less
well known companies. The primary methods of competition with these
companies are expected to be price, features, and product performance.
While the product announced by all of CMMC's competitors is limited to
providing Internet access, UniView contains many other features
(described above) for the same price or less.
CMMC's RealView 10-foot diagonal projection television system is in
the same product category as the Jumbotron and DiamondVision color video
display systems manufactured by its competitors. The primary methods of
competition are expected to be price and product performance. As
described in the products section above, the RealView is believed to be
technically superior to its competition with a significantly lower sales
price.
Research and Development
The Company views its ability to offer new, improved, and
innovative television technology and products as an important component
in its plan for future growth. As with the UniView technology license,
the Company intends to take advantage of additional licensing
opportunities, as well as pursue internal and external development of
new products as may be necessary to meet consumer demand. Management
believes that it has reserved adequate funds to cover anticipated
product development and licensing costs during the coming year, which it
believes to be necessary for the Company to maintain its edge in the
marketplace.
Manufacturing
Curtis Mathes Corporation (CM)
CM products have historically been produced by several different
manufacturers which build the products bearing the Curtis Mathes name
and meeting the CM quality standards. Its direct view televisions will
be produced in America and in Taiwan and its projection televisions will
be produced in America and in Mexico.
Curtis Mathes Marketing Corporation (CMMC)
CMMC will also utilize various manufacturers located in America,
Mexico, and in Taiwan to produce the UniView units according to its
specifications. CMMC plans to assemble the RealView units at its Dallas
office/warehouse location, using components manufactured by other
companies. This subsidiary will not be involved in any other
manufacturing activities.
<PAGE>
Environmental
To the best of its knowledge, the Company believes that it is
presently in substantial compliance with all existing applicable
environmental laws and does not anticipate that such compliance will
have a material effect on its future capital expenditures, earnings or
competitive position. CM currently utilizes other equipment
manufacturers to assemble its product according to its specifications
for high quality and its operations therefore have no environmental
impact. As CMMC will not be involved in manufacturing, its operations
will likewise have no environmental impact.
Prior Obligations Affecting Current Operations
CM's Plan of Reorganization (the "Plan") was confirmed as of
October 1, 1992 and the obligations of the Plan were assumed by the
Company upon acquisition of CM. The Company could continue to be
affected by the reorganization until September 30, 1998, when the Plan
will terminate. Until termination, or otherwise settled, Deutsche
Financial Services Corporation (DFS) (f/k/a ITT Commercial Finance
Corp.) maintains the right to 1% of gross sales on CM product sales
only, as a priority creditor in the Plan. Further, 1/2% of gross sales
of CM must also be paid monthly to a Liquidating Trustee, which has
been designated by the Bankruptcy Court to administer such payments on
behalf of unsecured creditors in the order of priority.
During March 1996, CM and the Company signed an agreement with DFS
for an early retirement of its entire debt obligation to DFS of
approximately $3.5 million. Initial funding for the transaction was
generated by the sale of product inventory to a third party for
approximately $2,000,000 and included an installment agreement providing
for periodic payments for the balance of the agreed settlement amount.
The funds have been reserved by the Company for the amount due under the
installment agreement and all payments are current under the agreement.
(See Other Matters on page 18 of this Form 10-K, and Note 9 on page F-
24 of the Notes to Consolidated Financial Statements for further
information on the settlement agreement with DFS.)
Beyond these obligations to DFS and the Trustee, CM remains
obligated to service past outstanding product warranties. Cash balances
have been set aside to cover these estimated product warranty costs and
an additional amount is accrued monthly to cover the estimated costs
associated with ongoing warranty support for current products sold.
Many of the warranties on products sold in the past are expiring and due
to lower product sales in the past few years, CM's warranty obligations
are slowly diminishing. (See Item 3 beginning on page 12 of this Form
10-K; and Note 11 on page F-25, and Note 16 on page F-31 of the Notes to
Consolidated Financial Statements for further warranty information.)
<PAGE>
Warranty
At June 30, 1996 financial reserves were approximately $84,000 for
CM warranty claims anticipated within the ensuing twelve months and
approximately $270,000 for claims reserved for periods beyond twelve
months. Approximately $32,000 has been set aside as restricted cash
(Orange Account) to cover potential warranty claims on products sold
during the period from the date of filing CM's bankruptcy petition
(January 27, 1992) until the Plan was confirmed on October 1, 1992.
During fiscal year 1996, Management reviewed prior warranty claims
related to the Orange Account and determined that operations had paid
for most of these associated costs, rather than the Orange Account. The
Disbursing Agent established by the CM Plan of Reorganization for the
Orange Account then instructed the Company to maintain $8,000 per month
in the fund as coverage for claims and to utilize the remainder of the
unused funds for other parts and warranty claims. At June 30, 1996 the
above mentioned $32,000 provides for coverage as determined by the
Disbursing Agent.
CM continues to meet its warranty obligations through an outside
warranty servicing company which specializes in warranty service and
repair for consumer electronics. By contracting these services to an
outside servicer, CM is able to more efficiently provide consistent high
quality warranty support, and the Company is able to eliminate the
direct overhead associated with the warranty support function.
Marketing and Distribution
Curtis Mathes Corporation (CM)
CM historically distributed its products principally through a
network of dealers and in some instances, distributors. The products
were then sold to consumers through independently owned and operated
retail and rental store environments. The primary customer reach
extended to consumers seeking value-added products, which are products
to which additional value has been added by including a four year
warranty on the products at no additional cost to the consumer and by
local dealers being able to provide personalized service to their
customers. These added values are not typically offered on products
sold by mass merchandising discount stores, which normally offer only
limited personalized service and offer extended warranties only by
service contracts sold at an additional cost. Although the Company
still believes in the value-added approach, its future distribution
system will not be limited to its traditional approach, and
consideration will be given to any retail outlet or store chain which
can be expected to contribute on favorable terms to overall product
sales. CM has in the past sold product outside of the United States on
a very limited basis, which is not expected to change in the near
future.
The most significant issue with regard to CM's traditional
distribution system has been third party financing. In the past, DFS
would finance CM dealers with significant sales volumes. Since CM's
settlement with DFS, even this limited financing for dealers is not
available and until these dealers obtain their own financing, sales of
CM products through these outlets can be expected to be significantly
impaired.
<PAGE>
Curtis Mathes Marketing Corporation (CMMC)
CMMC expects to market its UniView units in the same fashion as CM
markets its products, giving consideration to any retail outlet or store
chain which can be expected to contribute on favorable terms to overall
product sales. CMMC has not in the past sold any products outside of
the United States; however, the Company anticipates opportunities to
expand its geographical sales area.
CMMC expects to market RealView to sports arenas, stadiums,
shopping malls, airports and other large-scale commercial applications.
In connection with its purchase of the RealView technology, CMMC also
acquired extensive marketing information and customer lists from the
seller which is expected to be of great benefit to CMMC as it prepares
to market the product. CMMC expects to make use of a direct
distribution system to its customers.
Trademarks
Curtis Mathes Corporation (CM)
CM owns or holds rights to all trademarks that it considers to be
necessary in the conduct of its business, including the Curtis Mathes
name and logo, which is due for renewal in April, 2005.
CM entered into a license agreement as of June 1, 1994 under which
Animated Systems and Presentations, Inc. has the nonexclusive right to
use the Curtis Mathes Trademark and Logo in connection with an LED sign
system marketed in the United States and Mexico, in return for a royalty
of 4% on the licensee's gross revenue, payable to CM during the term of
the agreement. Management chose to enter into the agreement in
connection with a product (LED sign systems) outside of CM's own product
line as a means of increasing revenue. The current term of the license
expires on June 30, 2001.
CM also granted a license to CMMC as of February 28, 1995 to use
the Curtis Mathes Trademark and Logo in connection with its marketing of
RealView and its LED sign technology, in return for a royalty of 1.5% on
the licensee's gross sales receipts, payable to CM during the term of
the agreement. Management chose to enter into the agreement in
connection with products (commercial large screen televisions and LED
sign systems) outside of CM's own product line as a means of increasing
revenue. The current term of the license expires on February 28, 2010.
CM also granted a license to CMMC as of April 17, 1996 to use the
Curtis Mathes Trademark and Logo in connection with its marketing of
UniView, in return for a royalty of 1.5% on the licensee's gross sales
receipts, payable to CM during the term of the agreement. Management
chose to enter into the agreement in connection with products (units
containing the UniView proprietary television technology) outside of
CM's own product line as a means of increasing revenue. The current
term of the license expires on April 17, 2011.
Curtis Mathes Marketing Corporation (CMMC)
CMMC has filed an Intent to Use with the U.S. Patent and
Trademark Office in connection with the trademark UniView, which it
plans to utilize in marketing the units containing the proprietary
television technology licensed from Interactive Video Publishing, Inc..
<PAGE>
CMMC has also filed an Intent to Use with the U.S. Patent and
Trademark Office in connection with the trademark RealView, which it
plans to utilize in marketing its commercial large screen television
technology.
Seasonality
Curtis Mathes Corporation (CM)
As with most consumer electronics companies, CM enjoys a seasonal
business highlighted by an end of calendar year buying season and an end
of product year clearance season. In many ways, this cycle is
advantageous to CM because the brief off-season allows the Company to
prepare its new product line and promotional materials for the next
buying season.
Curtis Mathes Marketing Corporation (CMMC)
The same seasonal variation affecting CM's sales is expected to
have a similar impact on the sales of UniView. CMMC does not expect
RealView sales to experience the same seasonal variation as consumer
electronics due to the commercial application of the product. However,
other seasonal factors which are unknown and unexpected at this time may
impact the sales of RealView.
Customers
No customer of the Company, including its subsidiaries, accounted
for 10% or more of sales for 1995.
Employees
As of June 30, 1996, the Company, including all subsidiaries,
employed 17 persons. The Company believes that its employee relations
are good.
ITEM 2. PROPERTIES
As of June 30, 1996 the Company, including all subsidiaries,
continued to operate from the following locations:
Location Purpose/Use Owned/Leased Square Footage
Dallas, TX Corporate Headquarters,
CM Office/Warehouse
and CMMC Offices Leased 74,882
The Dallas location is equipped with material-handling equipment
used for receiving, storing and distributing large quantities of
consumer electronics products, parts and other product support material.
The Company in fiscal year 1996 completed the relocation of its
subsidiary Warranty Repair Corporation (WRC) from the Athens facility to
the Dallas location. The Athens location had five warehouses which
housed the staff and parts inventory and equipment to service CM
warranty claims. Warranty support for CM products is now provided under
contract with an outside service and repair company, which eliminates
the need for warehouse space dedicated to parts inventory and supplies,
and the space required for shipping and receiving of units for repair.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is routinely a party to ordinary litigation incidental
to its business, as well as to other litigation of a nonmaterial nature,
the outcome of which management does not expect, individually or in the
aggregate, to have a material adverse effect on the financial condition
or results of operations of the Company.
The Company's subsidiary, CM, received notification on May 5, 1995
that it had been named as a Potentially Responsible Party by the Texas
Natural Resource Conservation Commission (TNRCC) under the Texas Solid
Waste Disposal Act pertaining to a real estate site owned by this
subsidiary for a short period of time during the early 1980s. The
Company responded to the TNRCC to the effect that any liability that may
have arisen out of CM's former ownership of the site was discharged upon
confirmation of CM's Chapter 11 Plan of Reorganization on October 1,
1992. No further proceedings have occurred since the initial
notification by TNRCC. Management intends to vigorously contest any
environmental liability and believes that the outcome of this matter
will have no material adverse financial effect upon the Company.
CM is currently operating under a Chapter 11 Plan of Reorganization
(the "Plan"), which could remain in effect until September 30, 1998,
unless earlier settled. In connection with its acquisition of CM, the
Company agreed to comply in all respects with the Plan. Under the Plan,
CM received a discharge of all pre-petition debts, except for those
specifically allowed under the Plan. CM is further required by the Plan
to maintain certain cash reserves to cover its outstanding product
warranties, to make certain cash contributions proportional to its
income toward the payment of certain classes of allowed claims, and is
restricted in certain areas that relate to corporate structure and to
financial activities outside the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this 10-K Report, through
the solicitation of proxies or otherwise.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Since November 8, 1993, the Company's Common Stock, $.01 par value
(the "Common Stock") has been traded on the NASDAQ Small Cap Market
Listing, symbol CRTM. Prior to that, it was traded in the Over-the-
Counter (OTC) Market, on the Bulletin Board and Pink Sheets. The
quarterly high and low bid information for the Company's Common Stock
for each quarter in the last two fiscal years are presented below. Such
market quotations reflect interdealer prices, without retail mark-up,
mark-down, or commission, and may not necessarily represent actual
transactions.
Quarter Ending Date High Bid Low Bid
Fiscal 1996
June 30, 1996 $ 4.13 $ 0.31
March 31, 1996 $ 0.56 $ 0.19
December 31, 1995 $ 0.97 $ 0.31
September 30, 1995 $ 1.13 $ 0.50
Fiscal 1995
June 30, 1995 $ 1.25 $ 0.53
March 31, 1995 $ 2.13 $ 0.94
December 31, 1994 $ 2.69 $ 1.94
September 30, 1994 $ 2.88 $ 2.00
As of August 2, 1996 there were approximately 8,214 record
shareholders and 24,311,188 common shares outstanding. The Company has
never paid cash dividends on common shares, and does not anticipate
doing so in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The financial statements for fiscal years 1996, 1995, and 1994
excludes any effect of SMI, which was sold on December 31, 1994. The
financial data for fiscal years 1996 and 1995 referenced below includes
twelve months of operations of CM, while the financial statements for
fiscal 1996 includes only eight months of operations of CM, from its
acquisition by the Company until fiscal year ended June 30, 1994. All
financial data for the years referenced below were derived from the
Consolidated Financial Statements of the Company for those years and the
comparability of the information is affected by acquisitions,
dispositions, and other transactions which are described in the
footnotes which accompany those Consolidated Financial Statements, and
which should be read in conjunction with this five-year financial
summary. Other factors which may affect the comparability of the
information for the more recent fiscal years are discussed further in
Item 7 below.
<PAGE>
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1995 1994 1993 1992
Consolidated Statement
of Operations Data
<S> <C> <C> <C> <C> <C>
Net Sales or Operating
Revenues(1) $ 7,656,836 $21,267,244 $14,730,847 $ -- $ --
Net Income (Loss) (5,887,313) (4,236,585) (309,444) 109,211 (90,846)
Income (Loss)
per Common Share(2) (0.35)(3) (0.44)(4) (0.05)(5) 0.01(6) (0.01)
Income (Loss) from
Continuing Operations(1) (5,887,313) (4,409,585) (1,009,042) (107,621) (90,846)
Income (Loss) from
Continuing Operations
per Common Share(1),(2) (0.35)(3) (0.46)(4) (0.14)(5) (0.03)(6) (0.01)
Consolidated Balance
Sheet Data
Total Assets 15,210,406 14,088,400 18,260,221 3,884,348 1,841
Long Term Debt 1,450,435 3,282,706 2,204,611 453,145 --
Shareholders' Equity 11,723,532 2,920,780 4,217,485 1,511,814 (51,136)
</TABLE>
(1) 1994 adjusted based upon the disposition of SMI subsequent to
fiscal year end.
(2) Computed based upon the weighted average number of common shares
outstanding during each fiscal year.
(3) For the year ended June 30, 1996, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $26,081 ($0.002 per common share) and the
computation was based upon 17,432,013 weighted average shares
outstanding.
(4) For the year ended June 30, 1995, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $78,188 ($0.01 per common share) and the
computation was based upon 9,416,503 weighted average shares
outstanding.
(5) For the year ended June 30, 1994, for purposes of computation of
earnings per share, net loss was increased for preferred stock
dividends in arrears of $121,329 ($0.01 per common share) and the
computation was based upon 8,168,625 weighted average shares
outstanding.
(6) For the year ended June 30, 1993, for purposes of computation of
earnings per share, net income was reduced for preferred stock
dividends in arrears of $36,500 ($0.01 per common share) and the
computation was based upon 7,140,000 weighted average shares
outstanding.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following discussion provides information to assist in the
understanding of the Company's financial condition and results of
operations and should be read in conjunction with the Consolidated
Financial Statements and related notes appearing elsewhere herein.
Results of Operations
Revenues
Sales for 1996 decreased to $7.66 million which represents a
decline of $13.61 million from 1995. Sales declined for CM in direct
proportion to the decrease of available financing sources for CM
dealers. Prices were reduced on certain product lines to stimulate
sales. In some cases, prices were reduced to the original cost of the
products to reduce dated inventory and to reduce inventory carrying
costs that had already significantly impacted related margins. In
accordance with the Company's redirected emphasis, discussed further
below, the Company in March, 1996 sold all remaining finished goods on
hand, concurrently with an agreement with Deutsche Financial Services
Corporation ( DFS ) for retirement of its entire debt obligation to DFS.
(See Prior Obligations Affecting Current Operations on page 8 of this
Form 10-K; Other Matters on page 18 of this Form 10-K; and Note 9 on
page F-24 of the Notes to Consolidated Financial Statements for further
information on the agreement with DFS.) This inventory reduction sale
further contributed to decreased sales of the Company for 1996. Total
sales for 1996 reflects twelve months of operations; however, sales were
limited to the nine months (July 1995 through March 1996) prior to the
DFS agreement and concurrent inventory reduction sale.
During the current year, the Company redirected its primary focus.
Previously, sale of televisions, camcorders and VCRs have been
considered the Company's primary revenue source. In accordance with its
new focus, the Company will continue to produce lines of televisions;
however, the percentage of overall CM product is expected to be
significantly lower than in the past and production of television lines
will be driven by the demand of the marketplace. The Company recently
licensed a new technologically advanced product known as UniView,
which it has the right to market through its subsidiary CMMC. The
Company has redirected its focus to this new Internet related product as
the primary source of revenue generation for the Company.
Sales for 1995 increased approximately $6.58 million, or 44% over
1994. Sales for 1995 include twelve months of CM operations, while
sales for 1994 represent only eight months. Therefore, sales for the
period ended June 30, 1995, which includes twelve months of CM
operations, compared to the period ended June 30, 1994, which includes
only eight months of CM operations, appear to be consistent on an
annualized basis between years.
<PAGE>
Gross Margin
Gross margin as a percentage of sales, was 10.3% in 1996, down from
17.9% in 1995. The primary reason for this decline in margin is the
inventory reduction sale of product near or at cost, in connection with
the DFS settlement agreement previously discussed, whereby the Company
elected to eliminate certain inventory carrying costs, in accordance
with its redefined strategic focus, by selling certain products at lower
margins.
Gross margin as a percentage of sales (excluding the gain on sale
of assets of $250,000 in 1994), was 17.9% in 1995, down from 19.8% in
1994. The primary reason for the decline in gross margin during this
period is the lower margins achieved through the distributor network.
Management believes that, based upon historical data, reasonable
margins should be achievable in the range of 17% to 22%; however, there
can be no assurance of attaining such margins in the future, as the
margin on the new UniView product line remains at this time untested.
Operating Expenses
Total operating expenses for 1996 decreased by $801,000 from 1995.
The significant decrease was a direct result of management's
consolidation of all operations into the Dallas facility. Major
components of the decrease are a savings of approximately $600,000 for
payroll and related payroll expenses, and $50,000 for rent expenses,
which decreased as lease obligations were fulfilled for the Athens
location. Warranty costs decreased as a more efficient means of
servicing warranty obligations were implemented through an outside
servicer. Reorganization costs decreased in direct correlation with CM
sales, as required under the CM Plan of Reorganization.
Total operating expenses for 1995 increased by $3.67 million over
1994. It should be noted that, in comparing these two years, 1995
represents twelve months of CM operations, while 1994 represents only
eight months. The significant increases of the components, including
the additional effect of four months of CM operations, are approximately
$40,000 for rent, $120,000 for depreciation, $500,000 for other, and
$700,000 for warranty.
The Company anticipates that in 1997, selling, general, and
administrative expense will increase in absolute dollars as it
introduces the new UniView product line to the marketplace.
Accordingly, related expenses, including personnel and marketing costs
are expected to rise in direct proportion to the introduction of this
new product line. Funds necessary to accomplish the initial phases of
this product introduction have been reserved for this purpose.
Interest Expense
Interest expense for fiscal 1996 decreased by $991,000 from 1995,
which is primarily attributable to the settlement of the Company's line
of credit and related notes payable, as previously discussed. Lower
average inventory levels resulted in significant inventory carrying cost
savings, including interest expense.
<PAGE>
Interest expense for fiscal 1995 increased by $741,000 over 1994,
which occurred as a result of the unexpected reduced sales brought on by
a restructuring of the distribution system. Because of this change in
planned sales, the Company's average inventory levels were substantially
higher than 1994, which resulted in increased interest payments to DFS.
The direct correlation between interest expense and inventory levels was
due to the Company's financing arrangement with DFS, which called for
interest payments on all unsold products.
Liquidity and Capital Resources
Cash Flows From Operations
Cash used by operations for the fiscal years ended June 30, 1996
and 1995 were ($1,919,841) and ($5,858,000), respectively. Significant
components of cash flows from operations for 1996 include $990,231 for
decreases in accounts receivable, $2,329,000 for decreases in inventory,
$536,000 for increase of provision for bad debts, $363,000 for decreases
of current liabilities, and $645,000 for depreciation and amortization,
coupled with the effects of a $5,887,000 loss from operations.
Cash used by operations for the fiscal years ended June 30, 1995
and 1994 were ($5,858,000) and $4,042,000, respectively. Major
components of cash flows from operations for 1995 include $921,000 for
increases in inventory, $563,000 for increases in accounts receivable,
$537,000 for decreases in accounts payable, and $477,000 for
depreciation and amortization, coupled with the $4,236,000 loss from
operations.
Cash Flows From Investing Activities
During fiscal year 1996 the Company purchased for cash
approximately $136,000 of property, plant and equipment as compared to
approximately $300,000 during fiscal year 1995 and $449,000 for fiscal
1994. The Company expects the level of capital expenditures to be
commensurate with levels of sales and operations. The level of future
capital expenditure is not expected to materially exceed 1996 capital
expenditures.
Cash Flows from Financing Activities
The Company generated net cash from financing activities of
$6,119,000 during the fiscal year ended June 30, 1996. Significant
components include $10,271,000 generated from issuances of preferred and
common stock; $2,572,000 net payments on its line of credit; and
$1,235,000 payments of long term debt. Until its new products become
available to the market, which is expected in time for the end of year
holiday season, the Company expects to finance its operations primarily
through its cash reserves and, as necessary, through additional
issuances of common and preferred stock.
<PAGE>
CM formerly had a $19,500,000 inventory line of credit established
with Deutsche Financial Services Corporation (DFS) (f/k/a ITT Commercial
Finance Corp.), collateralized by inventory and other assets of CM. At
June 30, 1996 there was no outstanding balance owed on this line of
credit, due to the settlement agreement noted below in Other Matters.
Management continually evaluates the need for other sources of financing
and working capital and intends to pursue any source which it considers
appropriate based upon the needs of the Company and market conditions.
The Company currently possesses sufficient cash reserves and may raise
additional capital through the issuance of common and/or preferred stock
as might be required going forward. Additionally, the Company will
consider a replacement line of credit for financing needs as they arise.
The Company generated cash from financing activities of $5,444,000
during the year ended June 30, 1995, compared to ($1,379,000) for fiscal
1994. Significant components in 1995 were $2,429,000 raised through
issuances of preferred and common stock; $3,437,000 generated through
increased borrowing on its line of credit; and a $152,000 reduction of
cash flows from financing activities related to the redemption of
preferred stock and payment of dividends on preferred stock.
Other Matters
During the year, the Company settled its entire debt obligation to
DFS, which consisted of $2,987,706 owed on its line of credit and
$665,291 owed on a separate note payable. The settlement consisted of
cash of $1,900,536, generated by the inventory reduction sale previously
discussed, which was paid directly to DFS by an independent third party;
and a new $500,000 short term note payable to DFS. The balance of this
short term note payable at current fiscal year end was $300,000. Funds
for payment of this balance have been reserved and are available for
payment according to schedule. The Company plans to recognize a
$1,252,461 deferred gain as a result of the settlement with DFS, upon
final payment of the short term note, which is expected to occur in the
first quarter of fiscal 1997. Although the financing arrangement with
DFS met certain needs of CM during critical times in CM's past, in some
respects the arrangement was burdensome and made it difficult for CM to
have sufficient operating capital after making the restrictive payments
due to DFS under the arrangement. As a result of the settlement with
DFS, the Company is free to seek other potentially less restrictive and
more favorable financing arrangements.
During current and previous years, CM has been a party to financial
instruments with certain off balance sheet risk. These risks have been
limited to repurchase obligations for CM dealers related to inventory
financed under CM's dealer floorplan agreement with DFS, and risks
associated with a 1% of sales commitment under the CM Plan of
Reorganization due to DFS. The aforementioned settlement agreement
releases CM of obligations with regard to the 1% of sales, amounting to
$1.55 million upon fulfillment of the $500,000 note payable previously
discussed.
<PAGE>
Factors That May Affect Future Results
The Company participates in a highly volatile industry which is
characterized by rapidly changing customer demand patterns and fierce
industry-wide competition for market share, resulting in aggressive
pricing strategies. In anticipation of continued growth and expansion
of its market share, the Company has shifted its focus to the CMMC
UniView product line, with the CM product line assuming a lesser role.
The Company's product strategy focuses in part on marketing products
with distinctive features which meet and exceed evolving industry
performance standards, which meet and exceed customer quality
expectations, and which are affordable for a wide variety of purchasers.
Because of the pace of technological advances, the Company must
introduce on a timely basis new products that offer customers the latest
competitive and innovative technologies while managing the production
and marketing cycles of its existing products. For the Company to
attain and maintain its anticipated market share for its products, it
will be necessary to accurately forecast customer requirements; maintain
short design cycles while meeting and exceeding evolving industry
performance standards; efficiently manage its product transitions,
inventory levels and manufacturing processes; and distribute its
products quickly and efficiently in response to customer demand. A
breakdown in any one of the foregoing areas could have an adverse effect
upon the anticipated operating results of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and related Financial Statement
Schedules are included at pages F-1 through F-35 in this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
A new independent accountant, King, Burns & Company, P.C., was
engaged as of October 31, 1994 as the principal accountant to audit the
Registrant's financial statements beginning with fiscal year ended June
30, 1994. The new engagement was initially reported in Form 8-K dated
November 4, 1994. Prior to engaging that accountant, neither the
Registrant (nor anyone on its behalf) consulted the newly engaged
accountant regarding (I) either: the application of accounting
principles to a specified transaction, either completed or proposed; or
the type of audit opinion that might be rendered on the Registrant's
financial statements; or (ii) any matter that was either the subject of
a disagreement or a reportable event.
The Registrant provided the newly engaged accountant with a copy of
the Form 8-K containing the above disclosures, prior to filing with the
Commission, requested the accountant to review the disclosures, and to
furnish the Registrant with a letter addressed to the Commission
containing any new information, clarification of the Registrant's
expression of its views, or the respects in which it did not agree with
the statements made by the Registrant therein. The accountant elected
not to furnish such a letter, stating that it had nothing to add to the
disclosures contained therein.
<PAGE>
The client-auditor relationship between the Registrant and Hein +
Associates LLP ended, with the approval of Registrant's audit committee,
by mutual agreement as of October 26, 1994. The change in certifying
accountant became necessary when the former accountant advised the
Company that it would be unable to complete the audit of the Company's
financial statements for fiscal year ended June 30, 1994, as explained
in more detail below.
The former accountant's report on Registrant's financial statements
for either of the past two fiscal years contained no adverse opinion, no
disclaimer of opinion, and was not qualified or modified as to
uncertainty, audit scope, or accounting principles. During the
Registrant's two most recent fiscal years and the subsequent interim
period preceding termination of the relationship, there were no
disagreements with the former accountant on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. There were, however, unresolved differences of
opinion on the accounting for certain transactions as specified below.
During fiscal year ended June 30, 1994, without prior consultation
with its former accountant, the Company reported certain transactions in
a manner the Company believed to be appropriate for a fair statement of
results for the periods presented. After subsequent review by the
former accountant, the Company was advised that the former accountant
believed it would be necessary to report in a different manner two real
estate sales in which gains of $155,000 and $275,000, respectively, were
recorded; and the sale of 20% of a subsidiary in which a gain of
approximately $699,000 was recorded. Because these sales were made to
parties that are, in the former accountant's opinion, related to the
Company, the Company was advised that it would be necessary to defer
recognition of those gains pending either (I) final resolution of the
transactions with the parties or (ii) consummation of the transactions
with other parties that are not related to the Company.
The Company was further advised that the former accountant would
require additional information to evaluate a series of transactions
related to another subsidiary, in which income of $690,000 was
recognized and an investment in $2,240,000 of preferred stock of the
subsidiary following the sale was recorded as an asset of the Company.
The information was required for the former accountant to evaluate the
propriety of the gain recognition in these series of transactions. In
addition, the former accountant advised the Company that it believed the
preferred stock of the subsidiary should not be recorded as an asset of
the Company, but should be reflected as a reduction in stockholders'
equity because the primary asset of the former subsidiary following the
series of transactions was an investment in the Company's preferred
stock.
Obtaining the additional information would have required a review
or an audit of the financial statements of an entity that had invested
in the Company and had participated in several transactions with the
Company, including the series of transactions mentioned in the
immediately preceding paragraph. The Company furnished to the former
accountant all information within its control, but was unable to obtain
the required additional information from the investor. The former
accountant advised the Company that, without the additional information,
it would be unable to complete the audit.
<PAGE>
The former accountant further advised the Company that the
accounting for several transactions, including those mentioned above,
had not, in the former accountant's opinion, been properly processed
through the Company's system of internal controls and that condition
could impact the Company's financial statements. The former accountant
also advised the Company that, to satisfy its reporting responsibility
under generally accepted auditing standards, additional work would be
necessary to understand the cause of certain accounting errors that the
former accountant perceived the Company had made.
The above disclosures were initially reported in Form 8-K/A dated
November 15, 1994. The Registrant provided the former accountant with a
copy of the Form 8-K/A, prior to filing with the Commission, and
requested the former accountant to furnish the Registrant with a letter
addressed to the Commission stating whether it agreed with the
statements made in the Form 8-K/A and, if not, stating the respects in
which it did not agree. The former accountant's letter, confirming
agreement with the statements made in the Form 8-K/A, was attached
thereto, and is incorporated herein by reference.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors
The following sets forth, with respect to each member of the
Company's Board of Directors as of June 30, 1996, his name, age, period
served as director, present position, if any, with the Company and other
business experience. All directors serve one-year terms between annual
meetings of shareholders.
Patrick A. Custer, 47, is the Chairman of the Board, President and
Chief Executive Officer of the Company. Mr. Custer served as a director
of the Company from 1984 to 1985, and from 1987 until the present. He
served as President and Chief Executive Officer of the Company from 1984
to 1985 and from September, 1992 until the present. From 1986 until
1990, Mr. Custer was an international business consultant for Park
Central Funding (Guernsey), Ltd. From 1978 until 1982, Mr. Custer was a
general securities principal and worked for a major brokerage firm as a
corporate finance specialist and was owner of his own brokerage firm.
He was responsible for structuring and funding IPO's, real estate,
energy companies, and numerous high-tech start-up companies. Mr. Custer
is a graduate of Texas Tech University in Finance and Management, with
additional studies in Electrical Engineering and master studies in
Finance.
Edward M. Warren, 55, has been a director of the Company since
September, 1992. Since 1980, he has been the Registered Principal and
Branch Manager for a major securities firm in Albany New York. He is
also a Financial Consultant, having presented numerous financial
seminars over the years throughout eastern New York and western New
England. He is a co-founder of the Coronado Group, which provides
professional services to the financial community, such as the analysis
of economic and market conditions, review of financial products,
exchange of marketing ideas, and continuing evaluation and
recommendation of asset allocation models. Mr. Warren received his
undergraduate degree from Williams College and holds a Master of Arts
degree from Harvard University.
<PAGE>
Billy J. Robinson, 48, has been a director of the Company since
March, 1994. He has also served as Vice President/ General Counsel of
the Company since October, 1993, and as Secretary of the Company since
June, 1994. Mr. Robinson has over fifteen years legal experience,
representing banks and other financial institutions, with a
concentration in commercial transactions and real estate. He was a
shareholder in the law firm of Curry, Curry & Robinson, P.C. from 1980
until February, 1992. From February, 1992 until October, 1993, he
continued his practice as a sole practitioner. Mr. Robinson is
admitted to practice before the United States Supreme Court, the United
States District Court for the Northern District of Texas and the
District of New Mexico, and is licensed to practice before all state
courts in Texas and New Mexico. Mr. Robinson is a certified Mediator in
the State of Texas and is the author of the 1994-95 Real Estate Law
Correspondence Course for the Texas Tech University Paralegal
Certification Program.
Bernard S. Appel, 64, has been a director of the Company since
February, 1995. He has enjoyed a career of 34 years with Radio Shack,
holding every key merchandising and marketing position, culminating with
his promotion to president in 1984. In 1992 he was promoted to Chairman
of Radio Shack and Senior Vice President of Tandy Corporation. Since
August, 1993, Mr. Appel has operated the private consulting firm of
Appel Associates, focusing upon consumer electronics product
development, marketing and distribution. He is a director of IRG
Technologies, Inc., a company with a class of securities registered
pursuant to section 12 of the Exchange Act of 1934, and is also a
director of several privately held companies. Mr. Appel also has an
arrangement with the Company to provide consulting services.
Executive Officers
The following sets forth, with respect to each executive officer of
the Company not heretofore named, as of June 30, 1996, his name, age,
present position and offices held with the Company, period of service in
such capacity, and other business experience. All officers serve
indefinite terms at the discretion of the Board of Directors.
F. Shelton Richardson, Jr., 37, has been Vice President/ Chief
Financial Officer of the Company since February 27, 1995. From
February, 1990 to February, 1995 he was Chief Financial Officer of
Captivision, Inc., a consulting firm specializing in electronics and
telecommunications ventures. From January, 1987 to February, 1990 he
was the Controller for the law firm of Ryan & Smith. Mr. Richardson
holds a Bachelor of Science degree in Accounting and Taxation from the
University of Houston and a Master of Business Administration from
Houston Baptist University.
Thomas W. (Bill) Park, 60, has been Vice President/ Chief Operating
Officer of subsidiary Curtis Mathes Corporation (CM) since October 3,
1994; and has been Vice President/ Chief Operating Officer of subsidiary
Curtis Mathes Marketing Corporation (CMMC) since July 1, 1995. He
enjoyed a career of 29 years with CM, before leaving the company in
August, 1993 for a position as Vice President of Benelec Corporation, an
international trading company dealing in electronics, medical supplies,
and other products. From August, 1993 until his return to the company
in 1994, Mr. Park continued to make his knowledge and experience
available to CM as a consultant. During his career with CM, he served
<PAGE>
in various positions with the company, beginning as an Office Manager/
Cost Accountant in 1964 and culminating as Executive Vice President in
1985, in which capacity he served until 1993. Mr. Park has traveled
extensively and maintains valuable business contacts in Europe and Asia.
He holds a Bachelor of Business Administration degree in Finance from
the University of Texas.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the 1934 Act ("Section 16(a)"), requires the
Company's directors, executive officers and persons who beneficially own
more than 10% of a registered class of the Company's equity securities
("10% Owners") to file reports of beneficial ownership of the Company's
securities and changes in such beneficial ownership with the Securities
and Exchange Commission ("Commission"). Directors, executive officers
and 10% Owners are also required by rules promulgated by the Commission
to furnish the Company with copies of all forms they file pursuant to
Section 16(a).
Based solely upon a review of the copies of the forms filed
pursuant to Section 16(a) furnished to the Company, or written
representations that no year-end Form 5 filings were required for
transactions occurring during Fiscal Year Ended June 30, 1996, the
Company believes that during the fiscal year ended June 30, 1996, all
Section 16(a) filing requirements applicable to its directors, executive
officers and 10% Owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid over the last
three completed fiscal years to the Company's Chief Executive Officer
and any other executive officer of the Company who received compensation
of $100,000 or more during the fiscal year ended June 30, 1996.
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
All
Other
Name and Year Other Restricted Securities LTIP Compen-
Principal Ended Annual Stock Underlying Payouts sation
Position Jun. 30 Salary($) Bonus($) Compensation($) Award(s)($) Options/SARs(#) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Patrick A. Custer 1996 102,692 -0- 12,000 59,750 -0- -0- -0-
Chairman of the 1995 121,458 -0- 12,308 -0- -0- -0- -0-
Board and CEO 1994 122,876 -0- 12,308 -0- -0- -0- -0-
Billy J. Robinson 1996 72,981 -0- 27,500 79,475 -0- -0- -0-
Vice President, 1995 83,937 -0- 32,776 43,625 -0- -0- -0-
General Counsel 1994 56,667 -0- 16,609 29,083 -0- -0- -0-
</TABLE>
<PAGE>
Compensation of Directors
None of the inside Directors are paid compensation as such, except
for services performed in another capacity, such as an executive officer
of the Company. The outside Directors of the Company are paid $500 per
meeting, plus their expenses for attending Board of Director meetings.
The Company entered into a consulting contract with Mr. Appel as of
February 21, 1995 under which Mr. Appel is paid $6,250 per calendar
quarter in return for a minimum of ten hours of consulting services per
month to be devoted to the Company. In connection with his appointment
to the Board, Mr. Appel further received stock options for 50,000 shares
of common stock of the Company, exercisable at $1.28 per share for five
years, which were exercised by Mr. Appel on May 9, 1996.
Employment Contracts
Effective October 11, 1993, the Company entered into a four year
employment arrangement with Mr. Robinson at an annual salary, plus
employee benefits. The arrangement also provided for a stock bonus of
50,000 common shares of the Company, deemed to be earned by Mr. Robinson
over the term of the agreement, and an $80,000 salary advance. Twenty-
five percent of the salary advance will be forgiven for each year Mr.
Robinson remains employed with the Company. If Mr. Robinson's
employment with the Company is terminated for any reason other than for
cause, he will be entitled to receive the unpaid balance of the stock
bonus and the remaining balance of the salary advance will be forgiven.
If Mr. Robinson is terminated subsequent to a change of control of the
Company, such termination would be deemed to be termination without
cause. Fifty percent of the salary advance has been forgiven pursuant
to action by the Board of Directors.
Compensation Committee Interlocks and Insider Participation
Mr. Custer, Mr. Robinson, and Mr. Richardson participated in
advising the Company's Board of Directors concerning certain aspects of
executive officer compensation during the last completed fiscal year.
Mr. Custer is Chairman of the Board, President and Chief Executive
Officer of the Company; Mr. Robinson is Vice President, Secretary,
General Counsel, and a director; and Mr. Richardson is Vice President,
Chief Financial Officer.
Board of Directors Report on Executive Compensation
Executive Compensation
The Company has structured its executive compensation program
within the financial framework of the Company with a goal of attracting
and retaining high-quality executive talent. The executive compensation
program consists generally of base salary and employee benefits. The
Company reviews its compensation programs periodically and compares its
pay practices with other similar companies and with companies staffed
with similarly-skilled executives. During the first fiscal quarter of
each year, the Company reviews salary increases for the current year
and, considering the Company's financial performance and each executive
officer's perceived contribution to that performance, salaries are set
accordingly.
<PAGE>
Chief Executive Officer
For the year ended June 30, 1996, Mr. Custer received $114,692 and
restricted stock awards valued at $59,750 for his services as President
and Chief Executive Officer of the Company. The factors the Company
considered in setting his compensation include Mr. Custer's leadership
in restructuring the Company, his contribution to the strategic focus of
the Company, and the Company's financial performance during fiscal year
ended June 30, 1995 and 1996.
Patrick A. Custer (Chairman) Edward M. Warren
Bernard S. Appel Billy J. Robinson
F. Shelton Richardson, Jr.
The foregoing report is not incorporated by reference in any prior
or future filings of the Company under the Securities Act of 1933, as
amended (the "1933 Act"), or under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), unless the Company specifically
incorporates the report by reference and the report shall not otherwise
be deemed filed under such Acts.
Performance Graph
The following graph compares total stockholder returns of the
Company since December 31, 1992 to two indices: a Composite Market
Index which includes the NASDAQ Market (the "Broad Market") and the
companies classified under S.I.C. code 3651 for consumer electronics
(Household Audio and Video Equipment) (the "Industry Index"). The total
return for the Company's stock and for each index assumes the
reinvestment of dividends, although dividends have never been declared
on the Company's stock. The Broad Market tracks the aggregate price
performance of equity securities of all companies traded on the various
exchanges, including the NASDAQ Market. The Industry Index tracks the
aggregate price performance of equity securities of companies traded on
the various exchanges, including the NASDAQ Market, which are grouped
under S.I.C. code 3651 for consumer electronics (Household Audio and
Video Equipment.)
The graph should be viewed in the context of the disposition of
Southwest Memory, Inc. by the Company in December, 1994, and the
consolidation of its primary business operations into the Curtis Mathes
Corporation subsidiary. As a result, the indications of the graph may
not necessarily indicate future performance of the Company.
Comparison of Cumulative Total Return on Investment
Since December 31, 1992(1)
1/1/93 6/30/93 6/30/94 6/30/95 6/30/96
Curtis
Mathes 100.00 200.00 576.00 138.00 276.00
SIC Code 100.00 120.64 179.75 148.15 182.14
NASDAQ
Market 100.00 111.94 122.75 143.96 181.22
<PAGE>
(1) For a meaningful comparison of the Company's stock performance with
that of similar companies, December 31, 1992 was chosen as the
beginning date for the comparison. Characterization of the primary
business activity of the Company as consumer electronics began with
the acquisition of Southwest Memory, Inc. in December, 1992.
Before then, the Company was essentially dormant and comparison of
the performance of its stock before that date would have limited
application.
The foregoing graph is not incorporated in any prior or future
filings of the Company under the 1933 Act or the 1934 Act, unless the
Company specifically incorporates the graph by reference, and the graph
shall not otherwise be deemed filed under such Acts.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 2,
1996 with respect to the beneficial ownership of Common Stock by (I)
persons known to the Company to be the beneficial owners of more than 5%
of the outstanding shares of Common Stock, (ii) all directors of the
Company, (iii) each of the executive officers named in the Summary
Compensation Table (appearing in Item 11) and (iv) all directors and
executive officers of the Company as a group.
The number of shares of Common Stock beneficially owned by each
individual set forth below is determined under the rules of the
Commission and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which an individual has
sole or shared voting power or investment power and any shares which an
individual presently, or within 60 days of September 28, 1996 (the date
on which this Form 10-K is due at the Commission, the "Due Date"), has
the right to acquire through the exercise of any stock option or other
right. Unless otherwise indicated, each individual has sole voting and
investment power (or shares such powers with his spouse) with respect to
the shares of Common Stock set forth in the following table. The
information is based upon corporate records, information furnished by
each shareholder, or information contained in filings made with the
Securities and Exchange Commission.
Number of Shares
Name and Address Amount and Nature Percent
of Beneficial Owner of Beneficial Ownership of Class
5% Beneficial Owners
Patrick A. Custer 2,381,215(1) 9.75%
P. O. Box 802808
Dallas, Texas 75380-2808
D. Ronald Allen 1,997,665(2) 7.67%
8111 Preston Rd., Suite 550
Dallas, TX 75225-6308
Custer Company, Inc. 2,026,515(3) 8.29%
P.O. Box 802808
Dallas, TX 75380-2808
<PAGE>
Geninvest, S.A. 4,027,333(4) 14.41%
c/o Lewis D. Rowe, Director
P.O. Box 1561
Zephyr House, Mary Street,
Grand Cayman, British West Indies
The Alana Group, Ltd. 1,250,000 5.14%
c/o Trident Trust
P.O. Box 146
Road Town, Tortola BVI
Directors
Edward M. Warren 202,500 0.83%
Patrick A. Custer 2,381,215(1) 9.75%
Billy J. Robinson 65,000(5) 0.27%
Bernard S. Appel 50,000 0.21%
Executive Officers
Patrick A. Custer 2,381,215(1) 9.75%
Billy J. Robinson 65,000(5) 0.27%
All Directors and Executive
Officers as a Group 2,936,315(6) 12.00%
(1) Includes 125,000 shares owned outright by Mr. Custer; 1,906,515
shares held of record by Custer Company, Inc., a family trust, over
which Mr. Custer exercises voting control; 120,000 shares issuable
to Custer Company, Inc. upon exercise of warrants; 229,500 shares
owned by his wife; 100 shares owned by his son; and 100 shares of
which Mr. Custer shares beneficial ownership with a minor son.
(2) Includes 120,000 shares owned by Winterstone Management Company,
which is controlled by Mr. Allen; 136,865 shares and 805,600 shares
issuable upon exercise of warrants held by Associates Funding
Group, Inc., which is controlled by Mr. Allen; and 935,200 shares
issuable upon exercise of warrants held by QAG, Inc., which is
controlled by Mr. Allen.
(3) Includes 120,000 shares issuable upon exercise of warrants.
(4) Includes 3,627,333 shares issuable upon exercise of warrants.
(5) Shares are held in escrow to be earned over four year term of
employment, but over which Mr. Robinson has voting rights.
(6) Includes 2,698,715 shares beneficially owned by all directors.
Also includes 100,000 shares owned outright by Mr. Katz, 10,000
shares owned by his wife, 10,000 shares held in the name of his
minor daughter, 4,000 shares owned by his father's estate, and
55,000 shares owned by his mother, all of which Mr. Katz is deemed
to be the beneficial owner. Also includes 15,000 shares and 20,000
shares issuable to Mr. Richardson upon exercise of stock options.
Also includes 10,000 shares and 13,600 shares issuable to Mr. Park
upon exercise of stock options.
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal year ended June 30, 1996, the Company engaged in the
transactions described below with various entities affiliated with the
Company. Management believes these transactions contain substantially
competitive terms as those available from unaffiliated sources.
Transactions with Related Parties
Ilya K. Drapkin
In December, 1992 Mr. Drapkin, then owner of Southwest Memory, Inc.
(SMI) sold 100% of his company (SMI) to the Company. The purchase price
was 500,000 shares of the Company's common stock, valued at that time at
$16,500, and an employment agreement that included contingent
consideration based on future earnings of SMI. Prior to this sale,
neither Mr. Drapkin nor SMI were related to the Company. SMI became a
wholly owned subsidiary of the Company, with Mr. Drapkin becoming a 5%
beneficial owner of the Company and remaining as an officer of SMI.
In December, 1994, SMI Chips, Inc., a corporation controlled by Mr.
Drapkin, repurchased SMI from the Company. Reasons for the sale
included differing management styles and the inability to control
operations due to Mr. Drapkin's continued and required involvement.
Management found itself spending inordinate amounts of time
concentrating on a segment of the Company which was not the primary
focus of the Company. Other reasons for the sale included the high risk
nature of the business and the fact that the Company had changed its
focus to concentrate upon its consumer electronics segment.
The consideration received for the sale of SMI consisted of two
promissory notes totaling $1,570,000. The first note in the original
principal sum of $500,000, bearing interest at an annual rate of 7.5%
and secured by 500,000 common shares of the Company, provided for a
balloon payment on or before February 20, 1995. This note has been
paid. The second note in the original principal sum of $1,070,000,
bearing interest at an annual rate of 7.5%, provided for eight quarterly
installment payments of $145,279.64, beginning April 1, 1995. The
second note was guaranteed by Charter World International, Ltd. and was
initially secured by a second lien pledge of three promissory notes
previously executed by third parties and payable to Charter World
International, Ltd., in the total face amount of $1,593,493, two of
which were in turn secured by certain real estate. During fiscal year
1995, the Company accepted a substitution of collateral on the second
note in the form of 97,500 shares of the Company's Series G Preferred
Stock held in the name of Associates Funding Group, Inc. (AFG).
SMI Chips, Inc. initially performed on payment of the second note
receivable; however, during fiscal year 1996, payments on the note
became delinquent and the Company offset against the collateral securing
the note. A reserve for bad debts equal to the balance of $613,144 left
owing on the note has been recorded on the Company's financial
statements until a determination can be made by the Company of its
collectability.
The Company further recognized a $250,000 write off of a note
guaranteed by Mr. Drapkin, relating to ID Logic, Inc., which was
determined to be uncollectible during the current year.
<PAGE>
Charter World International, Ltd.
Charter World International, Ltd. is a foreign investor which
previously owned common and Series B preferred stock of the Company.
Charter World, acting as a distributor, sold inventory (computer memory
chips) to SMI from a supplier in California called A.C.D.C. $5.9
million of this product was purchased by the Company through Charter
World during fiscal year ended June 30, 1994. Payment for the product
was made partly in the form of cash from SMI and $4.07 million of the
product was purchased through the issuance by the Company of Series B
preferred stock. The structure of this transaction conserved the
Company's resources by allowing SMI to purchase inventory using
preferred stock of the Company, while allowing Charter World the benefit
of its investment in the Company's preferred stock. No relationship
between Charter World and the Company existed prior to this transaction.
Management believes that Charter World guaranteed the note of SMI Chips,
Inc. for the purchase of SMI from the Company pursuant to business
commitments between the parties, to which the Company was not a party.
Management is unaware of any relationship between Charter World and SMI
other than as described. (See Note 12 on page F-31 of the Notes to
Consolidated Financial Statements for further information.)
D. Ronald Allen/Associates Funding Group, Inc.
D. Ronald Allen, CPA, a consultant for the Company and currently a
7.67% beneficial owner of the Company, became affiliated in late 1992
when he assisted the Company in acquiring Southwest Memory, Inc.
("SMI"). Mr. Allen is President of Winterstone Management Company,
which is a family owned corporation and record holder of 120,000 shares
of the Company's common stock. Mr. Allen also owns Associates Funding
Group, Inc. (AFG), which is record holder of 136,865 common shares and
805,600 common shares issuable upon exercise of warrants of the Company.
Mr. Allen is also President of QAG, Inc. (QAG), which holds 935,200
common shares issuable upon exercise of warrants of the Company. Mr.
Allen has from time to time assisted the Company in structuring
transactions between the Company and entities with which he is
associated as principal or agent, which transactions are described as
follows:
(a) In September, 1995 the Company redeemed for cash from AFG
14,958 shares of Series G Preferred Stock of the Company for face value
of $149,580, plus accrued dividends on outstanding Series G Preferred
Stock of $80,417.
(b) In May, 1996 AFG converted 97,500 shares of the Company's
Series G Preferred Stock, representing collateral for payment of the SMI
Chips second note, into 390,000 common shares of the Company. (See
previous discussion of the SMI Chips note in this section above.) The
net result of this stock conversion was a shift of equity. Of the
390,000 shares converted, 253,135 shares were retained by the Company
and applied to the outstanding balance of the SMI Chips note receivable.
The remaining 136,865 common shares were issued to AFG.
<PAGE>
Indebtedness of Management
The Company advanced Mr. Robinson $80,000 pursuant to an employment
arrangement, whereby twenty-five percent of the advance will be forgiven
for each year Mr. Robinson remains employed with the Company. If Mr.
Robinson's employment with the Company is terminated for any reason
other than for cause, the remaining balance of the advance will be
forgiven. If Mr. Robinson is terminated subsequent to a change of
control of the Company, such termination would be deemed to be
termination without cause. Fifty percent of the advance has been
forgiven pursuant to action by the Board of Directors.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a)(1) Financial Statements
Reference is made to page F-1 of this Form 10-K for an index
of all financial statements filed as part of this report.
(2) Financial Statement Schedules
Reference is made to page F-1 of this Form 10-K for an index
of all financial statement schedules filed as part of this
report.
All other schedules are omitted because they are not
applicable or not required, or because the required
information is included in the financial statements or notes
thereto.
(3) Exhibits
Reference is made to the Exhibit Index beginning on page 69 of
this Form 10-K for a list of all exhibits filed with and
incorporated by reference in this report.
(b) Reports on Form 8-K
During the three months ended June 30, 1996 the Company has
filed no Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly
authorized.
CURTIS MATHES HOLDING CORPORATION
By: /s/ PAT CUSTER
Patrick A. Custer
President and Chief Executive Officer
August 16, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Company and in the capacities and on the dates indicated.
Principal Executive Officer
/s/ PAT CUSTER Chairman of the Board, August 16, 1996
Patrick A. Custer President, Chief Executive
Officer and Director
Principal Financial and Accounting Officer
/s/ F. SHELTON RICHARDSON, JR. Vice President, August 16, 1996
F. Shelton Richardson, Jr. Chief Financial
Officer
Additional Directors
/s/ BILLY J. ROBINSON Vice President, August 16, 1996
Billy J. Robinson Secretary,
General Counsel,
and Director
/s/ BERNARD S. APPEL Director August 16, 1996
Bernard S. Appel
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
JUNE 30, 1996 AND 1995
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-3
FINANCIAL STATEMENTS
Consolidated Balance Sheets for years ended
June 30, 1996 and 1995 F-4
Consolidated Statements of Operations for years ended
June 30, 1996, 1995 and 1994 F-7
Consolidated Statement of Changes in Stockholders' Equity
for years ended June 30, 1996, 1995 and 1994 F-8
Consolidated Statements of Cash Flows for years ended
June 30, 1996, 1995 and 1994 F-11
Notes to Consolidated Financial Statements F-15
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts F-35
</TABLE>
All other schedules are omitted because they are not applicable or not
required, or because the required information is included in the financial
statements or notes thereto.
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Curtis Mathes Holding Corporation
We have audited the consolidated balance sheets of Curtis Mathes Holding
Corporation (formerly Enhanced Electronics Corporation) and Subsidiaries as of
June 30, 1996 and 1995, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the years in the
three year period ended June 30, 1996. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Curtis Mathes
Holding Corporation and Subsidiaries as of June 30, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three year period ended June 30, 1996, in conformity with generally accepted
accounting principles.
As described in Note 1 to the financial statements, the Company previously
restated its financial statements as of and for the year ended June 30, 1994.
As discussed in Note 3, Curtis Mathes Holding Corporation disposed of its
electronics components segment effective December 31, 1994.
KING, BURNS & COMPANY, P.C.
Dallas, Texas
August 7, 1996
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,150,481 $ 91,693
Subscriptions receivable 4,351,500 --
Accounts receivable
Trade, net of allowance of $77,034 for 1995 8,445 978,306
Other (including $40,000 and $60,000 due from
related parties) 40,000 196,387
Notes receivable, current portion ($4,807 and $606,119
due from related parties) 354,807 606,119
Inventory 646,929 5,297,002
Current portion of restricted cash 47,423 84,190
Prepaid expenses and other 585,583 108,833
----------- -----------
Total current assets 10,185,168 7,362,530
----------- -----------
PROPERTY AND EQUIPMENT, net 656,102 1,263,722
----------- -----------
OTHER ASSETS
Notes receivable, less current portion (all due from
related parties) -- 363,664
Restricted cash, less current portion -- 196,442
Trademark, net of accumulated amortization of $577,389
and $331,925 4,338,366 4,583,830
Other 30,770 318,212
----------- -----------
Total Other Assets 4,369,136 5,462,148
----------- -----------
TOTAL ASSETS $15,210,406 $14,088,400
=========== ===========
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Advances on lines of credit $ -- $ 5,124,354
Current maturities of long-term debt (including
$765,000 due to related parties in 1995) 807,847 1,552,879
Current maturities of obligations under capital leases 109,487 113,655
Debentures -- 555,000
Checks issued in excess of cash balances -- 32,852
Trade accounts payable 134,522 954,903
Current portion of pre-petition liabilities -- 92,224
Accrued and other current liabilities 649,456 1,125,581
Deferred gain 1,252,461 --
----------- -----------
Total current liabilities 2,953,773 9,551,448
LONG-TERM DEBT, less current maturities 186,310 836,428
OBLIGATIONS UNDER CAPITAL LEASES, less current maturities 88,876 90,915
PRE-PETITION LIABILITIES, net of current portion -- 261,301
OTHER LIABILITIES 257,915 427,528
----------- -----------
Total liabilities 3,486,874 11,167,620
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 2, 9,10,
11, 15, 16, 17 and 19)
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30, 1996 and 1995
LIABILITIES AND STOCKHOLDERS' EQUITY - CONTINUED
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Preferred stock, cumulative, $1.00 par value;
1,000,000 shares authorized:
Series A, 140,000 shares (liquidation
preference of $140,000) $ 140,000 $ 140,000
Series G, 117,305 and 229,763 shares
(liquidation preference of $1,173,050) 117,305 229,763
Series H, 55 shares in 1996 (liquidation
preference of $1,375,000) 55 --
Series I, 5,385 shares in 1996 (liquidation
preference of $5,385,000) 5,385 --
Common stock, $.01 par value; 40,000,000 shares
authorized; 24,311,188 and 9,954,800 shares issued
and outstanding at June 30, 1996 and 1995, respectively 243,112 99,548
Additional paid-in capital 22,193,525 7,234,151
Accumulated deficit, since July 1, 1993 quasi
reorganization in which an accumulated deficit
of $4,140,595 was eliminated (10,975,850) (4,782,682)
------------ ------------
Total Stockholders' Equity 11,723,532 2,920,780
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 15,210,406 $ 14,088,400
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Net sales $ 7,656,836 $ 21,267,244 $ 14,730,847
Gain on sales of assets (including $250,000
in 1994 from a related party) -- -- 250,000
Royalty income -- 300,000 --
------------ ------------ ------------
Total Revenue 7,656,836 21,567,244 14,980,847
COST OF SALES 6,867,560 17,712,200 11,804,941
------------ ------------ ------------
Gross Profit 789,276 3,855,044 3,175,906
OPERATING EXPENSES 6,400,523 7,201,209 3,535,342
------------ ------------ ------------
Operating Loss (5,611,247) (3,346,165) (359,436)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest and other income, net 307,367 128,663 153,512
Interest expense (583,433) (1,574,540) (833,623)
------------ ------------ ------------
Total Other Income (Expense) (276,066) (1,445,877) (680,111)
------------ ------------ ------------
MINORITY INTEREST SHARE OF
LOSS OF SUBSIDIARY -- 382,457 30,505
------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (5,887,313) (4,409,585) (1,009,042)
DISCONTINUED OPERATIONS
Income from operations of discontinued
electronics components segment -- 74,590 699,598
Gain on sale of discontinued segment -- 98,460 --
------------ ------------ ------------
NET LOSS $ (5,887,313) $ (4,236,535) $ (309,444)
============ ============ ============
Loss from continuing operations attributable
to common shareholders (Note 1) $ (6,187,353) $ (4,331,397) $ (1,130,371)
============ ============ ============
Loss attributable to common
shareholders (Note 1) $ (6,187,353) $ (4,158,347) $ (430,773)
============ ============ ============
Loss from continuing operations per share
attributable to common stockholders $ (0.35) $ (0.46) $ (0.14)
============ ============ ============
Loss per share attributable to
common stockholders $ (0.35) $ (0.44) $ (0.05)
============ ============ ============
Weighted average common shares outstanding 17,432,013 9,416,503 8,168,625
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Notes Receivable
Common Stock Preferred Stock Paid-In and Investment in Accumulated
Shares Amount Shares Amount Capital Preferred Stock Deficit
----------- ----------- ----------- ----------- ----------- --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES - June 30, 1993 7,614,000 $ 76,140 145,850 $ 145,850 $ 5,430,419 $ -- $(4,140,595)
Reclassification pursuant to
quasi reorganization -- -- -- -- (4,140,595) -- 4,140,595
Issuances of common stock for
acquisitions of companies 662,500 6,625 -- -- 2,193,375 -- --
Other issuances of common stock 135,500 1,355 -- -- 416,365 -- --
Redemption of Series C
preferred stock -- -- (5,000) (5,000) (495,000) -- --
Issuance of Series B preferred
stock for inventory -- -- 4,070 4,070 4,065,905 -- --
Issuance of Series B preferred
stock in satisfaction
of notes payable -- -- 361 361 360,632 -- --
Redemption of Series B preferred
stock in satisfaction of notes
receivable -- -- (1,417) (1,417) (342,156) -- --
Partial redemption of Series B
preferred stock -- -- (100) (100) (99,900) -- --
Redeemable preferred stock -- -- (850) (850) (849,150) -- --
Investment in preferred stock -- -- -- -- -- (2,240,000) --
Net loss for the year -- -- -- -- -- -- (309,444)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCES - June 30, 1994 8,412,000 84,120 142,914 142,914 6,539,895 (2,240,000) (309,444)
Issuances of common stock
for cash 1,400,000 14,000 -- -- 1,750,500 -- --
Issuances of common stock for
reduction of advances to a
shareholder and officer 120,000 1,200 -- -- 58,800 -- --
Other issuances of common stock 22,800 228 -- -- -- -- --
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Shares Amount Shares Amount
------- ------ --------- -----------
<S> <C> <C> <C> <C>
Conversion of Series B preferred
stock to Series F preferred stock -- $ -- $ -- $ --
Net redemption of Series F
preferred stock in connection
with settlement of liabilities -- -- (1,056) (1,056)
Issuance of Series F preferred
stock for dividends -- -- 183 183
Redemption of Series F preferred
stock in satisfaction of notes
receivable and interest from APC -- -- (252) (252)
Issuance of Series F preferred
stock in satisfaction of
notes payable -- -- 1,049 1,049
Redemption of Series F preferred
stock in satisfaction of notes
receivable from AFG -- -- (125) (125)
Redemption of Series F preferred
stock in connection with
employee settlement -- -- (25) (25)
Redemption of Series F preferred
stock for investment in APC -- -- (2,240) (2,240)
Redemption of Series F preferred
stock for cash -- -- (98) (98)
Conversion of Series F preferred
stock to series G preferred stock -- -- 35,350 35,350
Issuance of Series G preferred
stock for cash -- -- 96,563 96,563
Issuance of Series G preferred stock
for repurchase of 20% interest in
Curtis Mathes Corporation -- -- 97,500 97,500
Dividends paid in cash -- -- -- --
Net loss for the year -- -- -- --
------ ------ ----------- -----------
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Notes Receivable
Paid-In and Investment in Accumulated
Capital Preferred Stock Deficit
----------- ---------------- ------------
<S> <C> <C> <C>
Conversion of Series B preferred
stock to Series F preferred stock $ -- $ -- $ --
Net redemption of Series F
preferred stock in connection
with settlement of liabilities (699,098) -- --
Issuance of Series F preferred
stock for dividends 182,564 -- --
Redemption of Series F preferred
stock in satisfaction of notes
receivable and interest from APC -- -- --
Issuance of Series F preferred
stock in satisfaction of
notes payable 1,048,415 -- --
Redemption of Series F preferred
stock in satisfaction of notes
receivable from AFG -- -- --
Redemption of Series F preferred
stock in connection with
employee settlement (24,975) -- --
Redemption of Series F preferred
stock for investment in APC (2,237,760) 2,240,000 --
Redemption of Series F preferred
stock for cash (97,902) -- --
Conversion of Series F preferred
stock to series G preferred stock (35,350) -- --
Issuance of Series G preferred
stock for cash 578,437 -- --
Issuance of Series G preferred stock
for repurchase of 20% interest in
Curtis Mathes Corporation 170,625 -- --
Dividends paid in cash -- -- (236,703)
Net loss for the year -- -- (4,236,535)
----------- ----------- -----------
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Shares Amount Shares Amount
------------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCES - June 30, 1995 9,954,800 $ 99,548 $ 369,763 $ 369,763
Issuance of Series H preferred
stock for cash -- -- 55 55
Issuance of Series I preferred
stock for cash -- -- 550 550
Subscriptions for Series I preferred
stock -- -- 4,835 4,835
Conversion of Series G preferred
stock to common 136,900 1,369 (112,458) (112,458)
Conversion of debentures and
demand notes 1,050,000 10,500 -- --
Issuance of common stock for fees
and services 222,000 2,220 -- --
Issuance of common stock for
employee compensation 83,000 830 -- --
Issuance of common stock for cash
and payment of note payable
of $145,280 10,317,100 103,171 -- --
Exercise of warrants 1,887,000 18,870 -- --
Issuance of common stock for fees
on above common stock issuances
for cash 660,400 6,604 -- --
Dividends paid in cash -- -- -- --
Net loss for the year -- -- -- --
------------ ------------ ---------- ------------
BALANCES - June 30, 1996 24,311,200 $ 243,112 262,745 $ 262,745
============ ============ ========== ============
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additional Notes Receivable
Paid-In and Investment in Accumulated
Capital Preferred Stock Deficit
----------- ----------------- -----------
<S> <C> <C> <C>
BALANCES - June 30, 1995 $ 7,234,151 $ -- $ (4,782,682)
Issuance of Series H preferred
stock for cash 1,287,445 -- --
Issuance of Series I preferred
stock for cash 494,450 -- --
Subscriptions for Series I preferred
stock 4,346,665 -- --
Conversion of Series G preferred
stock to common (405,875) -- --
Conversion of debentures and
demand notes 789,500 -- --
Issuance of common stock for fees
and services 149,280 -- --
Issuance of common stock for
employee compensation -- -- --
Issuance of common stock for cash
and payment of note payable
of $145,280 5,845,279 -- --
Exercise of warrants 2,452,630 -- --
Issuance of common stock for fees
on above common stock issuances
for cash -- -- --
Dividends paid in cash -- -- (305,855)
Net loss for the year -- -- (5,887,313)
------------ ------- ------------
BALANCES - June 30, 1996 $ 22,193,525 $ -- $(10,975,850)
============ ======= ============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(5,887,313) $(4,236,535) $ (309,444)
Adjustments to reconcile net loss
to cash provided (used) by operating activities:
Non-cash purchase of inventory included
in cost of sales -- -- 4,069,975
(Gain) loss on sales of assets 305 44,185 (225,000)
Gain on sale of discontinued segment -- (98,460) --
Depreciation and amortization 645,128 477,014 256,928
Provision for bad debts 536,080 (59,512) --
Provision for obsolete inventory (282,457) 9,962 125,861
Minority interest share of loss in subsidiary -- (382,457) (30,505)
Issuance of shares as employee compensation
and/or financing fees 830 -- 56,553
Commissions paid through issuance of common stock 228 --
Interest income earned through redemption of
preferred stock -- (2,500) --
Employee settlement through redemption of
preferred stock -- (25,000) --
Common stock issued for consulting fees 30,000 -- --
Write off of note receivable 25,000 -- --
Write off of investment 250,000 -- --
Changes in assets and liabilities, net of effects
from acquisitions and dispositions:
Accounts receivable 990,231 (563,429) (2,697,868)
Inventory 2,329,882 (921,877) 3,582,036
Prepaid expense and other (460,144) 153,648 (51,112)
Restricted cash 233,209 65,263 (13,296)
Other assets 32,720 164,048 (426,748)
Accounts payable, accrued liabilities
and other current liabilities (193,699) (537,515) 76,225
Other liabilities (169,613) 54,183 (371,127)
----------- ----------- -----------
Cash provided (used) by operating activities (1,919,841) (5,858,754) 4,042,478
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (136,558) (299,328) (449,217)
Purchase of subsidiary and assets and liabilities in
connection with CM acquisition -- -- (1,660,892)
Repurchase of 20% interest in CM -- (151,000) --
Reorganization payments to trustee and DFS -- (361,267) --
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES - Continued
Proceeds from sale of assets $ -- $ -- $ 37,004
Cash balance in company acquired (disposed) (5,342) (11,992) 19,481
Collections on notes receivable 1,193 625,217 4,955
------------ ------------ ------------
Cash used for investing activities (140,707) (198,370) (2,048,669)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Checks issued in excess of cash balances (32,852) 32,852 (648,644)
Issuance of debentures -- -- 1,170,000
Change in borrowings under line of
credit agreements (2,572,024) 3,437,866 (2,003,088)
Proceeds from long-term debt -- -- 1,006,000
Principal payments on long-term debt (1,235,147) (196,605) (411,668)
Principal payments on capital lease obligations (6,207) (116,844) (16,627)
Issuances of preferred and common stock for cash 10,271,421 2,439,500 125,000
Redemption of preferred stock -- (98,000) (600,000)
Dividends paid (305,855) (53,956) --
------------ ------------ ------------
Cash provided (used) by financing activities 6,119,336 5,444,813 (1,379,027)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 4,058,788 (612,311) 614,782
CASH AND CASH EQUIVALENTS, BEGINNING 91,693 704,004 89,222
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $ 4,150,481 $ 91,693 $ 704,004
============ ============ ============
SUPPLEMENTAL INFORMATION
Cash paid for interest $ 508,898 $ 1,787,846 $ 1,534,482
============ ============ ============
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Conversion of debentures and demand notes into common stock $ 800,000 $ -- $ --
============ ============ ============
Issuance of common stock for fees and services $ 151,500 $ -- $ --
============ ============ ============
Issuance of common stock for note payable $ 145,280 $ -- $ --
============ ============ ============
Sale of inventory parts for note receivable $ 350,000 $ -- $ --
============ ============ ============
Issuance of common stock for subscriptions receivable $ 4,350,500 $ -- $ --
============ ============ ============
Issuance of common stock for commission $ 6,604 $ 228 $ --
============ ============ ============
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES - Continued
Purchases of property and equipment for notes payable $ 59,337 $ 511,047 $ --
======== ========== ==========
Issuance of common stock to employees $ -- $ -- $ 193,365
======== ========== ==========
Issuance of common stock in satisfaction of amounts
due to shareholder $ -- $ 60,000 $ --
======== ========== ==========
Redemption of preferred stock in connection with
employee settlement $ -- $ 25,000 $ --
======== ========== ==========
Issuance of preferred stock in satisfaction
of notes payable and accounts payable $ -- $1,049,464 $ 360,993
======== ========== ==========
Redemption of preferred stock in satisfaction
of notes receivable and interest $ -- $3,673,500 $1,416,679
======== ========== ==========
Conversion of debentures to demand notes payable $ -- $ 615,000 $ --
======== ========== ==========
Line of credit converted to long term debt $ -- $1,024,750 $ --
======== ========== ==========
Issuance of preferred stock for dividends $ -- $ 182,747 $ --
======== ========== ==========
Sale of SMI for notes payable $ -- $1,570,000 $ --
======== ========== ==========
Preferred stock ($268,125) and notes payable ($150,000)
portion of consideration for repurchase of 20% of CM $ -- $ 418,425 $ --
======== ========== ==========
Purchase of inventory in exchange for
preferred stock $ -- $ -- $4,069,975
======== ========== ==========
Issuance of common stock in connection with
purchase of APC $ -- $ -- $1,800,000
======== ========== ==========
Issuance of common stock in connection with
purchase of 20% of FFL $ -- $ -- $ 30,000
======== ========== ==========
Issuance of common stock in connection with
purchase of CM $ -- $ -- $ 370,000
======== ========== ==========
</TABLE>
- Continued -
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Years ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES - Continued
Market value of common stock issued in excess
of cash received in connection with
financing agreement $ -- $ -- $ 97,720
====== ====== ==========
Contribution of capital in connection with sale of CWI $ -- $ -- $ 135,346
====== ====== ==========
Receipt of note receivable in connection with
sale of billboard sign technology $ -- $ -- $ 225,000
====== ====== ==========
Receipt of note receivable in connection with
sale of 20% of CM stock discounted to
$417,000 $ -- $ -- $ 417,000
====== ====== ==========
Receipt of notes receivable in connection with
sale of land $ -- $ -- $1,572,309
====== ====== ==========
Receipt of note receivable in connection with
sale of CWI $ -- $ -- $ 125,000
====== ====== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Principles of Consolidation
Curtis Mathes Holding Corporation (formerly Enhanced Electronics Corporation)
was formed on July 13, 1984, to operate in the entertainment industry. The
Company discontinued this line of business in 1988, acquired rent-to-own
operations which were subsequently discontinued, and was deemed to have
reentered the development stage effective July 1, 1990.
The Company was no longer considered to be in the development stage following
the acquisition of operating subsidiaries FFL, Inc. (FFL) and Southwest
Memory, Inc. (SMI) in December 1992. In November 1993, the Company acquired
100% of the common stock of Curtis Mathes Corporation ("CM") (20% was
subsequently sold). In June 1995, the Company reacquired the outstanding 20%
to regain 100% ownership of Curtis Mathes. In December, 1994, the Company
sold SMI (see Note 3).
During 1996, the Company operated principally as a wholesale distributor in
the consumer electronics industry through its 100% owned subsidiary Curtis
Mathes Corporation ("CM"). The Company also owns 100% of FFL, which was
involved in real estate and financing transactions in prior years but which
is now inactive. The Company has other subsidiaries which have been
relatively inactive. Towards the latter half of fiscal 1996, the Company
redirected its focus toward a new product called Uniview which allows the
user, through the use of their TV remote control, to 'surf the Internet',
receive E-Mail, or to search for movies or programs featuring specific
subjects, stars or ratings. The Company intends to continue on a reduced
scale its traditional wholesale distributor business as well. (See Note 2).
The accompanying financial statements include the accounts of Curtis Mathes
Holding Corporation and its subsidiaries. These entities are collectively
referred to herein as "the Company". All material intercompany accounts and
transactions are eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid debt instruments having an original
maturity of three months or less when purchased to be cash equivalents for
purposes of the statement of cash flows.
Inventory
Inventories are stated at the lower of average cost or market.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over estimated useful lives of three to seven years.
Maintenance and repairs are expensed as incurred. Replacements and
betterments are capitalized.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Trademark
Trademark represents the value considered to arise from the Curtis Mathes
Corporation name and reputation and consists of the excess of the purchase
price paid over the estimated fair market value of identifiable net assets
acquired in connection with the acquisition of Curtis Mathes Corporation.
The excess purchase price includes amounts currently being paid to Deutsche
Financial Services ("DFS"), (previously ITT Commercial Finance Corporation)
and unsecured creditors in accordance with the Curtis Mathes Corporation
reorganization (see Note 16). The trademark value is amortized on a
straight-line basis over 20 years. Amortization of the trademark for the
years ended June 30, 1996, 1995 and 1994 amounted to $244,264, $206,284, and
$146,286, respectively.
On an on-going basis, management reviews recoverability, the valuation and
amortization of the trademark. As a part of this review, the Company
considers the undiscounted value of the projected future net earnings in
evaluating the value of the trademark. If the undiscounted future net
earnings is less than the stated value, the trademark would be written down
to its fair value.
Income Taxes
The Company utilizes the asset and liability method of accounting for income
taxes. The Company records deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements and income tax returns. Deferred tax assets and
liabilities are determined based on the differences between the financial
statement and income tax bases of assets and liabilities using currently
enacted tax rates.
Financial Instruments with Off-Balance-Sheet Risk
In the normal course of business, CM is a party to financial instruments with
off-balance sheet risk to meet the financing needs of the CM dealers. These
financial instruments principally include obligations to repurchase defaulted
dealer receivables and inventory financed under CM's dealer floorplan
agreement with DFS.
CM's exposure to credit loss in the event of nonperformance by CM dealers
with respect to the repurchase obligations is represented by the contractual
amount of the instruments as discussed in Note 16. CM uses the same credit
policies in evaluating its guarantees as it does for financial instruments
reflected in the Company's financial statements.
Sale of Accounts Receivable
Historically, the Company has sold a significant portion of its accounts
receivable to a finance company on a recourse basis, with an option to
repurchase the receivables. The Company does not remove the accounts from
its balance sheet until the accounts are collected by the finance company or
written off as uncollectible. The Company records a payable for the proceeds
of receivable sales, pending collection of the receivable. At June 30, 1996,
no accounts receivable are factored under this arrangement.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Net Income (Loss) Per Common Share
Net income (loss) per share of common stock is computed based on the weighted
average number of common shares outstanding during each respective year. Net
income (loss) for purposes of the computation of income (loss) per share is
reduced for preferred stock dividends of $300,040, $78,188 and $121,329
($0.02, $0.01 and $0.01 per common share) for the years ended June 30, 1996,
1995, and 1994, respectively. Fully diluted loss per share for the years
ended June 30, 1996, 1995 and 1994 is the same as primary loss per share
since the assumed conversion of common stock warrants would be anti-dilutive.
Quasi Reorganization
Effective July 1, 1993, the stockholders and directors of the Company
approved a plan of quasi reorganization. Pursuant to the plan, all assets
and liabilities as of that date were adjusted to estimated fair value (such
adjustments were nominal) and an accumulated deficit of $4,140,595 was
removed from the balance sheet with a corresponding charge to additional
paid-in capital.
Accounting Standards Not Yet Adopted
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" ("SFAS 123"), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation
expense in the income statement, or the pro forma effect on net income and
earnings per share of such compensation expense to be disclosed in the
footnotes to the Company's financial statements commencing with the Company's
1997 fiscal year. The Company expects to adopt SFAS 123 on a disclosure
basis only. As such, implementation of SFAS 123 is not expected to impact
the Company's balance sheet or statement of operations.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could vary from the estimates that were used.
Fair Market Value of Financial Instruments
The carrying amount for cash and cash equivalents, notes receivable, and long
term debt is not materially different than fair market value because of the
short maturity of the instruments and/or their respective interest rate
amounts.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Restatement of the year ended June 30, 1994 financial statements
The Company previously restated and reissued its fiscal 1994 financial
statements. Amendments to those financial statements are included throughout
these financial statements as applicable. The adjustments relate principally
to gains reported on related party transactions and the proper accounting
thereof. These financial statements also include additional adjustments for
fiscal 1994 for the related party transactions in response to comments by the
Securities and Exchange Commission.
2. BUSINESS AND RECAPITALIZATION
As reflected in the accompanying consolidated financial statements, the
Company incurred losses from continuing operations of $5,887,313, $4,409,585
and $1,009,042 during the years ended June 30, 1996, 1995 and 1994,
respectively. During 1996 and 1995, the Company also used substantial cash
in operations. Revenues from its traditional business declined significantly
during 1996. During the second half of fiscal 1996, the Company redirected
its focus toward a new product, Uniview. This refocus by the Company and
resulting recapitalization through the issuance of common and preferred stock
for cash and the conversion of debt to equity has significantly improved the
current financial condition of the Company. The Company's ability to
continue as a going concern in the long term will be based on its ability to
capitalize on this new direction and capture a portion of this market going
forward.
3. ACQUISITIONS AND DISPOSITIONS
CM and WRC
In November 1993, the Company acquired 100% of the common stock of CM and
substantially all of the assets of Whitaker Repair Company, Inc. ("WRC"),
which provided warranty repair services under the CM warranty program, in
exchange for a total cash payment of $1,500,000. The Company also
capitalized approximately $555,000 of costs directly associated with the
acquisitions which included $370,000 recorded for the issuance of 92,500
shares of the Company's common stock to brokers involved in the transaction
resulting in a total cost of acquisition of approximately $2,055,000. Prior
to and at the time of the acquisition of CM, no relationship existed between
the Company and CM. In connection with its acquisition, the Company adopted
the reorganization plan of CM in accordance with CM's October 1, 1992
reorganization. As a result of the purchase and resultant adoption of the
plan of reorganization, the Company is required to pay on a monthly basis
1.5% of its sales to the trustees. (See further discussion at Note 16).
Significant identifiable assets of CM and WRC that were acquired included
inventory, leasehold improvements and accounts receivable. The acquisitions
of CM and WRC were accounted for as purchases and the operations of each are
included in the consolidated financial statements beginning November 1, 1993.
The Company recorded costs in excess of net assets acquired of approximately
$3,747,000, the amount of the purchase price in excess of the estimated fair
market value of the net assets acquired.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
CM and WRC - Continued
The following unaudited proforma financial information has been prepared as
if the acquisition of CM and WRC occurred at the beginning of 1994 as
follows:
<TABLE>
<S> <C>
Revenues $ 87,615,000
Net income (loss) attributable to common stockholders $ (322,000)
Net income (loss) per share attributable to common
stockholders (after effect of preferred stock dividends
in arrears of $121,329) $ (0.04)
</TABLE>
Proforma financial information including the effect of the disposition of SMI
effective December 31, 1994 is as follows:
<TABLE>
<S> <C>
Revenues $ 23,329,000
Net income (loss) attributable to common stockholders $ (1,022,000)
Net income (loss) per share attributable to common
stockholders (after effect of preferred stock dividends
in arrears of $121,329) $ (0.13)
</TABLE>
Effective March 15, 1994, the Company sold 20% of the common stock of CM to
Associates Funding Group, Inc. ("AFG", a company controlled by D. Ronald
Allen ("Ron Allen"), a shareholder of the Company) in exchange for a note
receivable of $417,000. The gross note receivable amount of $1,100,000 was
discounted to $417,000 to record the transaction at the Company's basis which
also approximates fair market value. The note receivable and related accrued
interest were repaid in fiscal 1994 by the redemption of 1,100 shares the
Company's Series B Preferred Stock acquired from Charter World International,
Ltd. ("Charter") as further discussed in Note 12. As the sale was concluded
with a corporation affiliated through common ownership, the sale transaction
has been recorded at the Company's proportionate cost basis of CM.
Accordingly, no gain was recorded in connection with this sale.
The sale arose out of discussions with an Asian investor concerning a
manufacturing facility joint venture in which the investor would also
participate in the ownership of CM, to further tie their investment and CM
together. The investor was to make its investment through AFG and the 20%
interest in CM was transferred to AFG in anticipation of this investment.
The transaction for the manufacturing facility did not materialize and the
20% interest in CM was ultimately repurchased by the Company in June 1995.
(See also Note 13).
The Company reacquired the outstanding 20% interest in CM for a total of
$568,125 consisting of 97,500 shares of Series G preferred stock, a $150,000
promissory note, and $151,000 cash. The consideration has been capitalized
to trademark and will be amortized on a straight line basis over 20 years.
The 97,500 Series G preferred shares were valued at the number of common
shares assuming conversion at average common share prices at the closing
date.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
APC
Effective September 30, 1993, the Company acquired 100% of the common stock
of Advanced PC Products, Inc. ("APC") in exchange for 450,000 shares of the
Company's common stock. The Company and APC were unrelated at the time of
acquisition. APC is engaged in the distribution and sale of hardware
products and parts and software for personal computers. The stock issued by
the Company was recorded at $1,800,000, which represented the quoted value of
the shares at date of closing.
The Company originally acquired APC from Mr. Liu to expand the Company's
product line to include computers that would be sold nationally through the
CM dealer network. After operating the business for a period of time,
however, it became evident that too much on-site installation was required to
move the business beyond a regional level. As a result of this and other
philosophical differences between CM and Mr. Liu over the direction of the
Company, it was determined that the best solution was to sell APC. Mr. Liu
desired to reacquire APC and agreed to reimburse the Company for $250,000 in
management expenses incurred at the corporate level.
In May, 1994, the Company transferred 100% of its APC common stock to QAG,
Inc., a company owned by Ron Allen, a shareholder of the Company, in exchange
for 100% of newly issued preferred stock of APC. The preferred stock earned
4% cumulative dividends, had a $2,240,000 liquidation preference, had no
voting rights nor conversion privileges and could be redeemed at the sole
option of APC. Concurrently, the operating assets and liabilities of APC
were sold to Mr. Liu and APC acquired $2,240,000 of the Company's Series B
preferred stock from Charter (See Note 12), which served as collateral for
the Company's investment in APC's preferred stock. APC generated net income
of approximately $375,000 during the period that it was operated by the
Company's management. The Company also received a note receivable of
$250,000 discounted to $1.00 (the note was discounted to $1.00 as the
settlement of the note receivable was for preferred stock with a related
party) as reimbursement for management expenses (which is
an allocated amount substantially indistinguishable from the general
operating expenses of the Company). As the sale was conducted with a
corporation affiliated through common ownership, the sale transaction has
been recorded at the Company's cost basis of $2,175,000 (initial cost of
$1,800,000 plus $375,000 in net income generated by the Company) which
approximates fair market value. Fair market value approximates cost plus
earnings because the original purchase of APC was with an unrelated third
party, and the purchase and sale date are separated by a relatively short
period. Accordingly, no gain on sale was recorded in connection with this
transaction. The discounted note receivable of $1.00 (see Note 6) was
settled during fiscal year 1995 through the redemption of Series B preferred
stock also acquired from Charter.
The $2,240,000 Series B preferred stock of the Company held by APC is
considered a "de facto" redemption against the preferred stock investment of
$2,240,000 held in APC, and, accordingly, at June 30, 1994, the investment in
APC has been reflected as a reduction of stockholders' equity. During 1995
the $2,240,000 Series B preferred stock was redeemed against the $2,240,000
investment in APC.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
CWI
CWI Partners, Inc. ("CWI") was incorporated effective April 17, 1992. The
primary asset created in connection with this entity was the licensed ability
of the Company to operate as a mutual fund. The net earnings of CWI since
acquisition to the date of its sale were nominal. Effective March 31, 1994,
the Company sold its interest in CWI to an unrelated entity for cash of
$25,000 and a note for $125,000. The entity defaulted on the note and sold
CWI to AFG. As the sale was ultimately concluded through the redemption of
preferred stock from a related party, the transaction has been recorded at
the Company's cost basis with the note being discounted to a nominal amount
equal to the par value of the preferred stock ultimately redeemed against it,
$125.00. Accordingly, no gain on sale was recorded in connection with the
transaction.
IDL
In July 1993, the Company formed ID Logic, Inc. ("IDL") with Ilya K. Drapkin
("Ilya Drapkin"), an individual (also an employee of SMI) who owned the
marketing and trademark license rights to a radio tuning product. The
Company was issued 80% of the common stock of IDL and agreed to purchase
$3,000,000 of preferred stock. The Company paid $100,000 for preferred stock
in July 1993 and agreed to pay for the remaining $2,900,000 in installments
through November 1994. During the year ended June 30, 1994, $150,000 of
additional preferred stock was purchased. Subsequent to June 30, 1994, as a
result of the Company's redirected strategic focus, the Company agreed to
release its marketing rights to the technology and was released from its
obligation to purchase additional preferred stock. During 1996, the
investment in preferred stock was written off.
SMI and FFL
In December 1992, the Company acquired 100% of the common stock of SMI
by issuing the sole shareholder 500,000 shares of the Company's common stock
and granting him an employment agreement that included contingent
consideration based on future earnings of SMI (SMI was disposed of in 1995).
In connection with the acquisition of SMI, the Company also acquired 80% of
FFL by issuing 500,000 shares of its treasury stock and making cash payments
to the seller of $88,000. An additional payment of $25,000 was also made in
connection with the acquisitions. Of the treasury shares issued, 307,500
shares were acquired from the president of the Company for approximately
$19,000 in order to facilitate the transaction. There was no relationship
between the Company and its affiliates and SMI and FFL prior to and at the
time of the acquisitions of SMI and FFL.
The 1,000,000 shares of common stock issued by the Company to acquire SMI and
FFL were recorded at approximately $33,000, which represented the estimated
fair market value of the combined net assets acquired and the other costs
related to the acquisition of $113,000. The Company acquired the remaining
20% interest in FFL during 1994 by issuing an additional 120,000 shares of
its common stock, valued at $30,000, which represented the quoted value of
the shares at that time.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
3. ACQUISITIONS AND DISPOSITIONS - Continued
SMI and FFL - Continued
Effective December 31, 1994, the Company sold back to its former owner, Ilya
Drapkin, 100% of the issued and outstanding capital stock of SMI, its
electronic components division, pursuant to a Memorandum of Stock Sale
Agreement. The consideration received consisted of two promissory notes
totaling $1,570,000. One promissory note for $500,000 (bearing interest at
7.5%) was collected in cash during fiscal 1995. The remaining balance of the
second promissory note is due in quarterly installments of $145,280, bears
interest at 7.5% and is guaranteed by Charter. (See Note 6). At June 30,
1996, the note is in default as no payments have been received after the
first quarterly payment was remitted. The Company has established a reserve
equal to the remaining balance (plus accrued interest) of $613,114 at June
30, 1996.
Revenues for SMI for the period ended December 31, 1994 and the year
ended June 30, 1994 are as follows:
<TABLE>
<CAPTION>
December 31,
1994 1994
----------- -----------
<S> <C> <C>
REVENUES $34,230,595 $64,286,266
=========== ===========
</TABLE>
The assets and liabilities at December 31, 1994 (disposition date) and June
30, 1994 of SMI are as follows:
<TABLE>
<S> <C> <C>
ASSETS
Cash $ 11,992 $ 514,771
Trade accounts receivable, net 5,210,953 3,945,074
Inventory, net 511,442 702,058
Other current assets 62,301 195,673
Property and equipment 113,454 100,751
Other assets 398,337 353,362
----------- -----------
Total assets $ 6,308,479 $ 5,811,689
=========== ===========
LIABILITIES
Advances on lines of credit $ 3,766,678 $ 2,350,695
Trade accounts payable 987,288 1,948,727
Due to CMH 1,115,639 1,233,632
Other 82,973 5,288
----------- -----------
Total liabilities $ 5,952,578 $ 5,538,342
=========== ===========
</TABLE>
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
4. ACQUISITION AND SALE OF REAL ESTATE
During the year ended June 30, 1993, through a newly created subsidiary JH&BC
Corp, the Company purchased land from an entity related to Ron Allen, a
shareholder, for $1,200,000 based upon an independent appraisal value.
Management was considering the acquisition of CM at this time and one of the
pad sites was projected to be the location of a CM company owned super store.
In connection with the purchase of the land, 850 Series E Preferred shares
totaling $850,000 were issued by the Company as partial consideration (see
Note 13) with the balance being settled by notes payable and cash.
The property was sold to an entity related to Ron Allen. As the sale was
entered into with a related party and involved the Company's preferred stock,
the sale was recorded at the Company's cost which approximated fair market
value. Accordingly, no gains were recorded in connection with the
transaction. Ultimately, the Company abandoned its plan for a CM Company
Super Store at that location.
During the year ended June 30, 1994, for investment purposes the Company also
purchased land from an unrelated company and subsequently sold the land to a
company affiliated through Ron Allen. This sale was recorded at the
Company's cost which approximated fair market value. Accordingly, no gains
were recorded in connection with this sale.
Subsequent to June 30, 1994, the amounts due to the Company in connection
with these sales were settled partially through redemption of Series E
preferred stock and partially as a reduction of amounts due by the Company.
The Series E preferred stock was required to be redeemed upon sale of the
land by JH&BC Corp. During 1995, the note receivable was redeemed against
the preferred stock.
5. RESTRICTED CASH
In accordance with CM's plan of reorganization (see Note 16), a post-petition
warranty bank account was established and funded for the purpose of securing
payment of warranty claims on units sold by CM during the period from January
28, 1992 to September 30, 1992. The post-petition warranty account is to be
used for no other purpose than paying valid warranty claims on units sold
during the period CM was in bankruptcy. During 1996, based on the
availability of funds versus expected future payments, the Company obtained
permission from the disbursing agent, (Ron Allen, a related party), to use
funds for payment of warranty claims arising out of other periods in addition
to those specified in the plan of reorganization. Any surplus funds
remaining in the post-petition warranty account on February 1, 1997, shall
vest with the reorganized Curtis Mathes Corporation.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
6. NOTES RECEIVABLE
Notes receivable at June 30, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Note receivable from Inman's Corporation, non-interest earning,
with bi-monthly installments of $8,250, secured by parts
inventory and proceeds from sale of parts inventory. $350,000 $ -
Note receivable from employee, earning interest at 9.5%,
secured by automobile. 4,807 -
Unsecured note receivable in connection with sale of SMI,
earning interest at 7.5%, with quarterly installments of
$145,280, including interest, pledged as security for
note payable to DFS (See Note 9) -- 944,783
Note receivable from BC&Q, Corp., affiliated with Ron
Allen, due on demand -- 25,000
--------- ---------
354,807 969,783
Less current portion (354,807) (606,119)
--------- ---------
Long-term portion $ -- $363,664
========= =========
</TABLE>
7. INVENTORY
Inventory at June 30, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Consumer electronic products $ 646,929 $ 4,822,073
Electronic components -- 752,749
Furniture -- 4,637
----------- -----------
646,929 5,579,459
Less reserve for excess and obsolete inventory -- (282,457)
----------- -----------
$ 646,929 $ 5,297,002
=========== ===========
</TABLE>
Also see Note 9.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
8. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Equipment $ 1,198,566 $ 1,109,192
Vehicles 7,500 391,114
Furniture and fixtures 49,690 49,690
Leasehold improvements 71,692 70,464
----------- -----------
1,327,448 1,620,460
Less accumulated depreciation and amortization (671,346) (356,738)
----------- -----------
Net property and equipment $ 656,102 $ 1,263,722
=========== ===========
</TABLE>
Equipment under capital leases included above at June 30, 1996 and 1995
amounted to $323,761, and the related accumulated amortization amounted to
$272,401 and $152,561, respectively.
Depreciation expense for the years ending June 30, 1996, 1995 and 1994
totaled $391,331, $275,488 and $110,642, respectively.
9. BORROWING ARRANGEMENTS AND DEBT
Until March 1996, the Company utilized a line of credit payable to Deutsche
Financial Services ("DFS"), previously ITT Commercial Finance Corporation.
Borrowings outstanding under the line of credit were collateralized by
inventory of CM and at June 30, 1995 amounted to $4,705,405. Principal
payments on the line of credit were due to DFS as inventory was sold by CM.
Interest at prime plus 1.75% (10.75% at June 30, 1995) was payable monthly.
During 1996, the Company negotiated a settlement agreement with DFS, whereby
all but $500,000 of the unpaid balance was forgiven, subject to payment in
full of the remaining $500,000 on or before April 8, 1997, resulting in a
deferred gain of $1,252,461. The deferred gain will be recorded as an
extraordinary gain on extinguishment of debt once the $500,000 is settled in
full.
The Company has an arrangement with Fidelity Funding, Inc. ("Fidelity")
pursuant to which it assigns accounts to Fidelity for collection on a
recourse basis. Fidelity charges interest on outstanding advances at prime
plus 7% (15.25% at June 30, 1996). Fidelity advances 80% of the uncollected
accounts receivable assigned. Amounts due to Fidelity are collateralized by
financed accounts receivable. The Company has no outstanding balance at June
30, 1996, but the arrangement is available at the Company's option. The
outstanding balance at June 30, 1995 was $314,024.
The Company had debentures with an outstanding balance of $555,000 at June
30, 1995. During 1996, all of the debentures were converted into the
Company's common stock.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. BORROWING ARRANGEMENTS AND DEBT - Continued
Long-term debt at June 30, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to an individual with imputed interest of 10%, payable in
monthly installments of $1,458, unsecured $ 66,455 $ --
Note payable to a financial institution with interest at 10.9%, payable in
monthly installments of $2,677, collaterized by equipment 32,686 --
Note payable to AIG Designs, Inc. with interest at 10%, payable in
monthly installments of approximately $15,000, unsecured 227,319 --
Note payable to DFS with interest at prime (8.25% at June 30, 1996),
payable in monthly principal installments of $33,000 plus interest,
collaterized by a note receivable due from SMI and inventory 300,000 --
Note payable to a financial institution with interest at 12%, payable in
quarterly installments of $145,280, collateralized by note
receivable from SMI -- 905,089
Notes payable to a financial institution with interest ranging from
12.75% to 13.5% payable in monthly installments of $7,846,
collateralized by semi trucks and trailers -- 307,767
Note payable to a financial institution with interest at 6%, payable in
eight quarterly installments of principal of $58,778, plus interest,
collateralized by certain inventory 367,697 411,451
Notes payable to shareholders bearing interest at 13%, payable -- 615,000
on demand
Note payable to Charter in connection with repurchase of 20% interest
in CM, bearing interest at 9.5%, with principal and interest due
October 5, 1995 -- 150,000
----------- -----------
994,157 2,389,307
Less current portion (807,847) (1,552,879)
----------- -----------
Long-term portion $ 186,310 $ 836,428
=========== ===========
</TABLE>
During the year ended June 30, 1994, the Company paid approximately $49,000
in interest and financing fees to various corporations affiliated with Ron
Allen.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
9. BORROWING ARRANGEMENTS AND DEBT - Continued
The following is a schedule of maturities of long-term debt at June 30, 1996:
<TABLE>
<S> <C>
1997 $807,847
1998 143,766
1999 13,866
2000 15,318
2001 13,360
--------
$994,157
========
</TABLE>
10. PRE-PETITION LIABILITIES
Pre-petition liabilities consisted of priority claims under CM's plan of
reorganization to pay the administrative fee of the bankruptcy trustee and
for Federal and state payroll taxes, state income and sales taxes, and state
and local property taxes. As of June 30, 1996, stipulated amounts for each
of these priority claims and administrative fees have been paid in full.
11. ALLOWANCE FOR WARRANTY CLAIMS
Warranty costs, where applicable, are recorded by CM upon the sale of the
electronic products based on estimates of failure rates and costs to repair
defective units. A simple average of the failure rates and repair costs is
applied to the total number of units that are under warranty to establish the
allowance for warranty claims.
All electronic products sold up to the date of settlement with DFS (March,
1996) included a four year parts and labor warranty. Pursuant to CM's plan
of reorganization, CM agreed to continue to extend a parts only warranty for
the time period of the original warranties on units sold prior to CM's
bankruptcy filing on January 27, 1992.
The reorganized CM was required under the plan of reorganization to fully
fund the cost of warranty claims for units sold during the period CM was in
bankruptcy. In addition, CM's plan of reorganization provided that the
reorganized CM fund in a segregated bank account an amount equal to 1.25% of
gross electronic sales to pay warranty claims subsequent to the
reorganization confirmation date (October 1, 1992). The remaining liability
at June 30, 1996 represents the remaining four months of coverage until
expiration of warranties in October, 1996.
For the years ended June 30, 1996, 1995 and the eight months ended June 30,
1994, the Company provided for warranty allowance at a rate of approximately
2.5% of sales. Management believes that the reserve is adequate to cover
potential warranty claims. Other current liabilities in the accompanying
balance sheets include an allowance for warranty claims of $96,479 and
$106,087 at June 30, 1996 and 1995, respectively and other long-term
liabilities include an allowance for warranty claims of $257,915 and $423,095
at June 30, 1996 and 1995, respectively.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
11. ALLOWANCE FOR WARRANTY CLAIMS - Continued
During fiscal 1996, the Company sold all of its remaining parts inventory on
hand to a third party and outsourced repairs and parts servicing for all
warranty obligations. The Company pays fees for the service and repair of
warrantied units.
12. RELATED PARTY TRANSACTIONS
During 1996, the Company wrote off a $25,000 note receivable from BC & Q.
During the year ended June 30, 1994, the Company issued 4,070 shares of
Series B preferred stock to Charter in exchange for $4,069,975 of inventory.
The inventory was valued at similar inventory purchased on a cash basis.
Subsequent purchases on an accounts payable basis amounting to $1,827,250
were also made resulting in Charter accounting for approximately 10% of
inventory purchased by SMI during the year ended June 30, 1994. Charter is
related to the Company through business transactions conducted with the
Company and other affiliates, its acquisition of 437,000 common shares in
CMH, (acquired in connection with the APC disposition transaction) and its
acquisition of the Company's preferred Series B stock.
In 1994, the Company advanced $80,000 to an employee in connection with an
employment agreement. The amount accrues to the individual at $20,000 per
year and is being amortized over the same period. In connection with this
employment agreement, the Company also issued 50,000 shares to this
individual valued at $174,500 which is also being amortized over the same
period.
At June 30, 1994, an individual, Ilya Drapkin, a shareholder of CMH, owed the
Company $121,389 for advances made by the Company. This amount was settled
during the year ended June 30, 1995.
During the year ended June 30, 1994, the Company sold technology in
connection with billboard signs to Animated Systems & Presentations, Inc., a
company affiliated with Phillip Scheldt, a shareholder and prior officer of
the Company for $25,000 in cash and a note receivable of $225,000 which was
collected subsequent to June 30, 1994. The transaction resulted in a
realized gain of $250,000 which is reflected in the accompanying consolidated
statements of operations as "gain on sales of assets". In connection with
the sale, the Company received royalty payments which amounted to $300,000
during the year ended June 30, 1995.
See Note 3 regarding sale of SMI.
See discussion throughout financial statement footnotes concerning settlement
of note receivable and payable.
See Note 3 regarding reacquisition of 20% of CM.
See issuance of 120,000 shares for settlement of $60,000 due to the Company
president, in Note 13.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. STOCKHOLDERS' EQUITY
Preferred Stock
The Company has 1,000,000 authorized shares of $1.00 par value cumulative
preferred stock. The Company's articles of incorporation allows the board of
directors to determine the number of shares and determine the relative rights
and preferences of any series of preferred stock to be issued. In various
transactions during 1994, the Company issued 4,070 shares of Series B
preferred stock ("Series B") to Charter in exchange for $4,069,975 of
inventory. The Company also issued 361 shares of Series B in satisfaction of
a note payable of $360,993, and 1,417 shares of Series B were redeemed in
satisfaction of certain notes receivable totaling $1,416,679 as described in
Note 3. In addition, 100 shares of Series B were redeemed for cash.
In December 1992, the Company issued 140,000 shares of Series A Preferred
Stock ("Series A") and 280,000 shares of common stock in a private placement
for $140,000 in cash. Of the common shares issued, 220,000 had been acquired
from the president of the Company for $13,700 to be used for the private
placement. On March 31, 1993, the Company issued 5,000 shares of Series C
preferred stock ("Series C") and 100,000 shares of common stock to a company
owned by the president of the Company for $500,000 cash. During 1994, all
shares of Series C were redeemed for cash.
In June 1993, the Company issued 850 shares of Series E preferred stock
("Series E") as partial consideration for land acquired for investment and
resale. Due to changes in circumstances in 1994, (see Note 4), at June 30,
1994, the 850 Series E preferred shares were classified as redeemable
preferred stock. During the year ended June 30, 1995 the preferred stock was
redeemed against the note receivable.
During 1995, all outstanding Series B were converted into Series F preferred
stock which provide for cumulative dividends of 4%. During the year ended
June 30, 1995, Series F preferred stock ("Series F") was issued and redeemed
in connection with payment of dividends, settlement of notes payable and
notes receivable, settlement with an employee, and the cancellation of an
investment in APC. In addition, $98,000 in Series F was also redeemed for
cash.
The remaining outstanding shares of Series F preferred stock was
converted to Series G preferred stock ("Series G") which provides for
cumulative dividends of 14% and has a liquidation preference of $10.00 per
share. The Series G stock is convertible into the Company's common stock at
$2.50 per share. In connection with the reacquisition of 20% of CM, 97,500
shares of Series G stock were issued. In addition, 96,563 shares of Series G
were issued to AFG for cash proceeds of $675,000.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. STOCKHOLDERS' EQUITY - Continued
Preferred Stock - Continued
In May, 1996, AFG converted 97,500 shares of Series G preferred stock with an
original basis of $568,125 to 390,000 shares of common stock. The Company
issued 136,900 of these shares and canceled 253,100 shares in satisfaction of
the remaining balance of a note receivable and accrued interest due from SMI.
The preferred shares were previously held as collateral on the note
receivable from SMI. During 1996, two additional series preferred stock were
authorized, Series I (6,500 authorized) and Series H (70 authorized). During
1996, 55 and 5,385 Series H and I, respectively, were issued for cash
proceeds of $1,782,500 and subscriptions receivables of $4,351,500.
In addition, the Company paid $230,000 and issued 20,742 shares of Series G
Preferred shares for the cancellation of 35,700 shares of Series G Preferred
Stock owned by AFG and payment of past due dividends.
Common Stock
The Company issued 63,500 shares of common shares to employees during 1994.
The shares were recorded at the quoted values, which totaled $193,365. Of
this amount, $174,500 relates to an employment agreement with a four year
term. Accordingly, such amount is being amortized on a straight-line basis
over the related agreement.
Also during the year ended June 30, 1994, 72,000 shares of common stock were
issued to a finance company for cash of $125,000. The consideration received
was less than market value and accordingly, the difference between the issue
price and market value of $97,920 was capitalized as a financing fee and is
being amortized over the two year life of the financing agreement. As of
June 30, 1996, these fees have been fully amortized.
All notes receivable outstanding as of June 30, 1994 issued in connection
with companies related through common ownership and other affiliations with
the Company as described in Note 3, to the extent ultimately settled through
the return of the Company's preferred stock, have been offset against
stockholders' equity which is consistent with the recording of credits in
connection with these transactions as contributions to capital.
During 1995, the Company issued 1,400,000 common shares for cash of
$1,764,500. The Company also issued 120,000 shares to Custer Company, a
company controlled by Pat Custer, a shareholder and president of the Company,
in satisfaction of advances amounting to $60,000.
During 1996, the Company issued 83,000 shares of common shares to employees
as bonuses. The shares were recorded at par value, amounting to $830.
During 1996, 12,204,100 common shares were issued for cash and settlement of
a note payable. The Company issued additional shares in 1996 in connection
with fees and services payable and conversion of debentures and demand notes
as detailed in the consolidated statement of changes in stockholders equity.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
13. STOCKHOLDERS' EQUITY - Continued
Common stock warrants issued and outstanding as of June 30, 1996 are as
follows:
<TABLE>
<CAPTION>
Shares Exercise Price Issuance Date Term
------ -------------- ------------- ----
<S> <C> <C> <C>
155,000 3.940 March 1994 5 years
30,000 3.125 April 1994 5 years
40,000 3.125 May 1994 5 years
30,000 3.125 June 1994 5 years
57,000 3.000 July 1994 3 years
20,000 2.250 February 1995 5 years
105,000 1.250 April 1995 5 years
1,240,800 2.500 May 1995 4 years
13,600 2.650 May 1995 5 years
720,000 1.500 June 1995 3 years
1,020,000 1.500 July 1995 3 years
124,000 1.000 August 1995 3 years
1,250,000 1.500 August 1995 3 years
700,000 1.500 September 1995 3 years
1,778,000 1.500 October 1995 3 years
296,000 1.500 November 1995 3 years
100,000 1.500 December 1995 3 years
1,053,333 1.500 March 1996 3 years
400,000 1.500 April 1996 3 years
20,000 0.500 May 1996 3 years
50,000 1.500 May 1996 3 years
55,000 3.000 May 1996 3 years
75,000 3.280 May 1996 5 years
40,000 4.500 May 1996 3 years
</TABLE>
All warrants were issued with an exercise price equal to the quoted market
price of the Company's common stock on the date of issue. During the year
ended June 30, 1996, 1,887,000 warrants were exercised for total cash
proceeds of $2,471,500. No warrants were exercised during 1995 or 1994.
Dividends of $305,855 on preferred stock were paid during the year ended
June 30, 1996. Dividends of $236,703 were paid during the year ended June
30, 1995, of which, $182,747 were paid through the issuance of additional
preferred stock. Cumulative dividends in arrears as of June 30, 1996, 1995
and 1994 amounted to $26,081, $31,896 and $121,329, respectively.
14. INCOME TAXES
The Company did not record a provision for income taxes during the years
ended June 30, 1996, 1995 and 1994. A reconciliation of income tax expense
computed by applying the U.S. federal tax rates to the pre-tax income from
continuing operations and actual income tax expense is as follows:
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
14. INCOME TAXES - Continued
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------- ---------
<S> <C>
Tax expense (benefit) at statutory rate $(2,177,000) $ (1,707,000) $(116,000)
Difference in gain on sale of stock - - 746,000
Difference in gain on sale of real estate - - 75,000
Preferred stock discount - - (67,000)
Goodwill - - 11,000
Difference on sale of SMI - 310,000 -
Net operating loss carryforward - - (649,000)
Valuation allowance 2,177,000 1,397,000 -
------------ ------------- ---------
$ - $ - $ -
============ ============= =========
</TABLE>
The components of the Company's deferred income taxes at June 30, 1996
and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Current:
Inventory reserve $ (36,000) $ 104,000
Note receivable reserve 227,000 --
Other -- 28,000
Valuation allowance (191,000) (132,000)
----------- -----------
-- --
----------- -----------
Noncurrent:
Goodwill (310,000) (298,000)
Depreciation (53,000) (17,000)
Warranty reserve 95,000 196,000
Net operating loss carryforward 5,565,000 3,281,000
Valuation allowance (5,297,000) (3,162,000)
----------- -----------
-- --
----------- -----------
Total $ -- $ --
=========== ===========
</TABLE>
At June 30, 1996, the Company has net operating loss carryforwards for
Federal income tax purposes of approximately $14,400,000 which may be used
to offset future taxable income, subject to the provisions of Internal
Revenue Code Section 382, and will expire in various amounts in the years
2000 through 2011 if not utilized. The total change in the valuation
allowance for the years ended June 30, 1996, 1995 and 1994 amounted to
$2,194,000, $2,451,000 and $(591,000) respectively.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. COMMITMENTS AND CONTINGENCIES
In the normal course of business, CM transfers receivables from qualified
dealers to DFS and Fidelity Funding, Inc. under a repurchase agreement.
The agreements require CM, in the event of default by the dealer, to
repurchase property that is collateral (inventory consisting of consumer
electronic products) for the financing provided to the Curtis Mathes dealer.
CM is contingently liable to DFS and Fidelity Funding, Inc. for the portion
of the receivable that is defaulted through non payment or non recovery of
the collateral. The maximum contingent liability at June 30, 1996 was
approximately $2,155,000.
In conjunction with the settlement agreement with DFS, all dealer financing
programs were canceled effective August 1, 1996.
During fiscal 1996, the Company entered into a license agreement to obtain
certain Uniview technology for an original period of five years. Under the
terms of the agreement, royalties of 3% of all sales of the product will be
remitted to the licensor. In June, 1996, the Company paid an advance
royalty of $500,000 (included in prepaid expenses and other in the
accompanying consolidated balance sheet) that will be applied to future
royalties due once sales begin.
During fiscal 1996, the Company entered into an agreement to obtain
advertising in exchange for $710,400 in cash and $719,400 in CM electronic
component inventory. Advertising is to be received prior to December 31,
1997.
In the normal course of business, the Company is involved in various
product liability lawsuits, the cumulative effect of which when ultimately
settled will not, in management's opinion, be material to the Company's
financial position and results of operations. The Company has accrued
$150,000 in connection with these items which is management's estimate of
the ultimate aggregate settlement amount.
The Company has been named as a potentially responsible party to an
environmental claim involving the State of Texas. Management believes that
any potential liability was discharged in the CM bankruptcy.
The Company leases equipment under capital leases and office and purchase
facilities under long-term noncancelable operating leases. The leases carry
no renewal options. During 1995, the Company entered into a lease which
consolidated certain purchasing and office facilities.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
15. COMMITMENTS AND CONTINGENCIES - Continued
The following is a schedule of future minimum lease payments at June 30,
1996:
<TABLE>
<CAPTION>
Operating
Operating sub-lease Capital
leases income leases
---------- ---------- ----------
<S> <C> <C> <C>
1997 $ 454,181 $(41,322) $ 199,102
1998 356,767 (1,722) 35,987
1999 318,290 -- 19,223
2000 158,026 -- --
2001 -- -- --
---------- -------- ---------
$1,287,264 $(43,044) 254,312
========== ========
Less amount representing interest (55,949)
---------
Present value of net minimum lease payments
including current maturities of $109,487 $ 198,363
=========
</TABLE>
Rental and lease expense under operating leases for the years ended June
30, 1996, 1995 and 1994 was approximately $459,108, $410,000 and $267,000,
respectively.
16. CURTIS MATHES CORPORATION REORGANIZATION
On October 1, 1992, the Bankruptcy Court for the Eastern District of Texas
confirmed CM's plan of reorganization ("Plan"), subject to certain positive
and negative covenants. The Plan provided for the following key provisions
which affect the ongoing operations of the reorganized CM.
Warranty Costs
The reorganized CM assumed the warranties for the original warranty periods
for units that were sold prior to CM filing for bankruptcy (pre-petition).
The warranty assumed covers parts with a cost in excess of $15 for the
remaining term of the warranty period.
Treatment of DFS Allowed Unsecured Claim
The DFS allowed unsecured claim is identified as "class twelve" in the Plan
and cannot exceed $2,600,000. Beginning on the effective date of the Plan,
CM was required to contribute up to $400,000 as needed to fund anticipated
losses on certain specific home entertainment units financed by DFS.
Additionally, in February 1993, CM began remitting to DFS on a monthly basis
an amount equal to 1% of the Company's gross sales for the preceding month.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
16. CURTIS MATHES CORPORATION REORGANIZATION - Continued
As of June 30, 1996, CM was current in making the remittances to DFS, which
amounted to approximately $71,260 and $216,000 for the years ended June 30,
1996 and 1995, respectively, and approximately $136,000 for the eight month
period ended June 30, 1994. The remaining liability at June 30, 1996 is
approximately $1.5 million.
This payment will be made to DFS for a period of 72 months from the
effective date of the Plan or until the class twelve claim is paid in full.
If the claim is repaid before the expiration of the 72 month period, the 1%
payment will be remitted to the trustee for the benefit of the "class
fourteen" creditors until the expiration of the 72 month period.
Treatment of Allowed Claims of Unsecured Creditors
The allowed claims of unsecured creditors are identified as "class fourteen"
in the Plan. Beginning in November 1992, CM was required to deposit on a
monthly basis with the trustee for the creditors' committee an amount equal
to 1/2% of CM's electronic sales for the preceding month. As of June 30,
1996, CM was current in making the remittances, which amounted to
approximately $36,000 and $108,000 for the years ended June 30, 1996 and
1995, respectively, and $96,000 for the eight month period ended June 30,
1994. This payment will be made by CM to the trustee for a period of 72
months from the effective date of the Plan.
17. MAJOR CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
The Company's customers are located throughout the United States. No single
customer accounted for 10% or more of the Company's net sales in 1996, 1995
or 1994.
Financial instruments subject to credit risk consist primarily of cash,
subscriptions receivable and notes receivable. Cash is at risk to the
extent that it exceeds Federal Deposit Insurance Corporation insured amounts
(approximately $251,793 at June 30, 1996). To minimize risk, the Company
places its cash with high credit quality financial institutions.
Subscriptions receivable were all collected subsequent to year end. The
significant portion of notes receivable is secured by the parts inventory
included in the sale.
18. BUSINESS SEGMENT INFORMATION
During 1996, the Company was engaged primarily in the distribution of
consumer electronic products and previously various real estate activities
in the United States. The following tables set forth certain information
with respect to the years ended June 30, 1996, 1995 and 1994:
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
18. BUSINESS SEGMENT INFORMATION - Continued
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues:
Consumer electronics $ 7,656,836 $ 21,267,244 $ 14,730,847
Corporate -- 300,000 250,000
------------ ------------ ------------
Consolidated $ 7,656,836 $ 21,567,244 $ 14,980,847
============ ============ ============
Operating loss:
Consumer electronics $ (3,478,435) $ (2,281,536) $ 296,645
Real estate and other -- (4,010) 415,353
Corporate (1,825,445) (931,956) (661,906)
Eliminations -- -- (256,016)
------------ ------------ ------------
Total operating loss (5,303,880) (3,217,502) (205,924)
Less interest expense (583,433) (1,574,540) (833,623)
Add minority interest loss
of subsidiary -- 382,457 30,505
------------ ------------ ------------
Loss from
continuing operations $ (5,887,313) $ (4,409,585) $ (1,009,042)
============ ============ ============
Identifiable assets:
Consumer electronics $ 6,356,795 $ 12,334,861 $ 10,008,989
Electronic components -- -- 5,811,689
Real estate and other 29,487 55,713 1,236,752
Corporate 8,824,124 1,697,826 2,886,638
Eliminations -- -- (1,683,847)
------------ ------------ ------------
$ 15,210,406 $ 14,088,400 $ 18,260,221
============ ============ ============
Depreciation and amortization:
Consumer electronics $ 436,122 $ 317,483 $ 152,401
Electronic components -- -- 49,653
Real estate and other 1,226 756 12,003
Corporate 207,780 158,775 42,871
------------ ------------ ------------
$ 645,128 $ 477,014 $ 256,928
============ ============ ============
Capital expenditures:
Consumer electronics $ 194,667 $ 742,432 $ 145,817
Electronic components -- -- 105,972
Real estate and other -- -- --
Corporate 1,228 67,943 197,428
Less capital expenditures
paid for other than by cash (59,337) (511,047) --
------------ ------------ ------------
$ 136,558 $ 299,328 $ 449,217
============ ============ ============
</TABLE>
Operating loss for segment reporting purposes consists of revenues and other
income, less all expenses except interest expense.
<PAGE>
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE 19. RETIREMENT PLAN
Prior to bankruptcy filing in 1992, the Company had a defined benefit plan
which covered substantially all full-time employees. The Company believed
that all liability for funding of the Plan had been discharged in bankruptcy.
However, it has been determined that funding of the plan for prior years
service has not been relieved. Therefore, the Company has accrued the amount
of the unfunded plan liability as of January 1, 1995, resulting in
recognition of approximately $171,000 in pension cost for the year ended June
30, 1996. As the plan covers former employee services, the plan liability at
June 30, 1996 does not differ substantially from the actuarial report
performed at January 1, 1995.
The following table sets forth the funded status of the Company's defined
pension plan as of January 1, 1995:
Actuarial present value of benefit obligations:
<TABLE>
<CAPTION>
January 1,
1995
---------
<S> <C>
Accumulated benefit obligation $ 685,152
---------
Projected benefit obligation $ 685,152
Plan assets at fair value 518,514
---------
Excess projected benefit obligation 166,638
Increase due to an assumption change 883
---------
Net pension liability $ 167,521
=========
Net pension cost for 1996 included the following components:
Funding deficiency accumulated in prior years $ 141,348
Funding deficiency for 1994 32,827
Net amortization and deferrals (6,654)
---------
Net pension cost $ 167,521
=========
</TABLE>
The weighted average assumed discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.75%. The plan's assets
are invested in fixed income assets.
20. SUBSEQUENT EVENTS
In July, 1996, 117,305 Series G Preferred shares were redeemed by the Company
for $1,200,496 cash.
<PAGE>
SCHEDULE II
CURTIS MATHES HOLDING CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years ended June 30, 1994, 1995, and 1996
<TABLE>
<CAPTION>
Balance at Charged to Charged to
beginning costs and to other Balance at
Description of year expenses accounts Deductions end of year
- ----------- ------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1994
Allowance for doubtful
accounts $(164,601) $ 65,121 $ -- $ -- $ (99,480)
Inventory obsolescence
reserve (427,316) 121,389 -- -- (305,927)
Note receivable reserve -- -- -- -- --
Year ended June 30, 1995
Allowance for doubtful
accounts (99,480) 340,947 -- 318,502 (77,034)
Inventory obsolescence
reserve (305,927) 250,208 -- 173,955 (229,675)
Note receivable reserve -- -- -- -- --
Year ended June 30, 1996
Allowance for doubtful
accounts (77,034) -- 77,034 -- --
Inventory obsolescence
reserve (229,675) 118,672 111,003 -- --
Note receivable reserve -- 613,114 -- -- 613,114
</TABLE>
*Note: deductions represent uncollectible accounts or inventories written off.
<PAGE>
CURTIS MATHES HOLDING CORPORATION
(FORMERLY ENHANCED ELECTRONICS CORPORATION)
AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
Number Description of Exhibits Page
2.1 Memorandum of Sale and Purchase Agreement (CMC) for
the acquisition of Curtis Mathes Corporation (filed
as Exhibit "A" to the Company's quarterly report on
Form 10-Q for the quarter ended December 31, 1993
and incorporated herein by reference.)
2.2 Memorandum of Sale and Purchase Agreement (WRC) for
the acquisition of certain assets of Whitaker Repair
Company, Inc. (filed as Exhibit "B" to the Company's
quarterly report on Form 10-Q for the quarter ended
D e cember 31, 1993 and incorporated herein by
reference.)
2.3 Memorandum of Stock Sale Agreement for the sale of
Southwest Memory, Inc. (filed as Exhibit "A" to the
Company's current report on Form 8-K dated January
13, 1995 and incorporated herein by reference.)
2.4 Memorandum of Stock Sale Agreement dated February
27, 1996 for the sale of CM Transportation, Inc. to
Q u ality Logistics Specialists, Inc. (filed as
Exhibit "2.1" to the Company's quarterly report on
Form 10-Q for the quarter ended March 31, 1996 and
incorporated herein by reference.)
3(i) Articles of Incorporation of the Company, as amended
(filed as Exhibit "4.1" to the Company's
Registration Statement on Form S-3 originally filed
w i t h the Commission on June 20, 1996 and
incorporated herein by reference.)
3(ii) Bylaws of the Company, as amended (filed as
Exhibit "3(ii)" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1994
and incorporated herein by reference.)
4.1 Form of Common Stock Certificate of the Company
(filed as Exhibit "4.2" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1994 and incorporated herein by reference.)
4.2 Series A Preferred Stock terms and conditions (filed
as Exhibit "4.3" to the Company's annual report on
Form 10-K for the fiscal year ended June 30, 1994
and incorporated herein by reference.)
<PAGE>
4.3 Series G Preferred Stock terms and conditions
(filed as Exhibit "4.7" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.)
4.4 Series H Preferred Stock terms and conditions (filed
as Exhibit "4.4" to the Company's Registration
Statement on Form S-3 originally filed with the
Commission on June 20, 1996 and incorporated herein
by reference.)
4.5 Series I Preferred Stock terms and conditions (filed
as Exhibit "4.5" to the Company's Registration
Statement on Form S-3 originally filed with the
Commission on June 20, 1996 and incorporated herein
by reference.)
10.1 Sublicense Agreement dated June 1, 1994 between
SysPower Corporation and Animated Systems and
Presentations, Inc. (filed as Exhibit "10.4" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1994 and incorporated herein by
reference.)
10.2** Written description of employment arrangement with
Mr. Robinson (filed as Exhibit "10.5" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1994 and incorporated herein
by reference.)
10.3 Business Financing Agreement dated as of October 27,
1992 between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.8" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.4 Amendment to Business Financing Agreement dated as
of July 15, 1994 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.9" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.5 Addendum to Business Financing Agreement dated as of
August 13, 1994 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.10" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
<PAGE>
10.6 Letter Agreement dated as of September 19, 1994
between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.11" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.7 Amendment to Business Financing Agreement dated as
of January 17, 1995 between Curtis Mathes
Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.)
(filed as Exhibit "10.12" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.)
10.8 Floorplan Purchase Agreement dated as of October 27,
1992 between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.13" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.9 Amendment to Floorplan Purchase Agreement dated as
of April 30, 1993 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.14" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.10 Financing Program Agreement dated as of October 27,
1992 between Curtis Mathes Corporation and Deutsche
Financial Services Corporation (f/k/a ITT Commercial
Finance Corp.) (filed as Exhibit "10.15" to the
Company's annual report on Form 10-K for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.11 Amendment to Financing Program Agreement dated as
of November 6, 1992 between Curtis Mathes
Corporation and Deutsche Financial Services
Corporation (f/k/a ITT Commercial Finance Corp.)
(filed as Exhibit "10.16" to the Company's annual
report on Form 10-K for the fiscal year ended June
30, 1995 and incorporated herein by reference.)
10.12 Amendment to Financing Program Agreement dated as of
April 15, 1993 between Curtis Mathes Corporation and
Deutsche Financial Services Corporation (f/k/a ITT
Commercial Finance Corp.)(filed as Exhibit "10.17"
to the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
<PAGE>
10.13 Amendment to Financing Program Agreement dated as of
September 8, 1993 between Curtis Mathes Corporation
and Deutsche Financial Services Corporation (f/k/a
ITT Commercial Finance Corp.) (filed as Exhibit
"10.18" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and incor-
porated herein by reference.)
10.14 Revolving Credit and Security Agreement dated March
17, 1994 between Curtis Mathes Corporation and
Fidelity Funding, Inc. (filed as Exhibit "10.19" to
the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.15 Asset Purchase Agreement between Curtis Mathes
Marketing Corporation and Hughes Training, Inc. dated
as of October 25, 1994, relating to the purchase of
the RealView technology (filed as Exhibit "10.20" to
the Company's annual report on Form 10-K for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.16** Letter Consulting Agreement between the Company and
Mr. Appel dated January 30, 1995 (filed as Exhibit
"10.21" to the Company's annual report on Form 10-K
for the fiscal year ended June 30, 1995 and
incorporated herein by reference.)
10.17 Trademark License Agreement dated June 1, 1994
between Curtis Mathes Corporation, as Licensor, and
Animated Systems and Presentations, Inc., as Licensee
relating to CM trademark license for LED sign systems
(filed as Exhibit "10.25" to the Company's annual
report, as amended, on Form 10-K/A for the fiscal
year ended June 30, 1995 and incorporated herein by
reference.)
10.18 First Amended Partial Assignment of Rights Under
Sublicense Agreement dated February 28, 1995 between
Animated Systems and Presentations, Inc. and Curtis
Mathes Marketing Corporation, relating to LED sign
technology (filed as Exhibit "10.26" to the Company's
annual report, as amended, on Form 10-K/A for the
fiscal year ended June 30, 1995 and incorporated
herein by reference.)
10.19 Trademark License Agreement dated February 28, 1995
between Curtis Mathes Corporation, as Licensor, and
Curtis Mathes Marketing Corporation, as Licensee,
relating to CM trademark license for RealView
products and LED sign systems (filed as Exhibit
"10.27" to the Company's annual report, as amended,
on Form 10-K/A for the fiscal year ended June 30,
1995 and incorporated herein by reference.)
<PAGE>
10.20* Trademark License Agreement dated April 17, 1996
between Curtis Mathes Corporation, as Licensor,
and Curtis Mathes Marketing Corporation, as
Licensee, relating to CM trademark license for
UniView products.
10.21 Settlement and Release Agreement dated as of March
9, 1996 between the Company and Deutsche Financial
Services Corporation, f/k/a ITT Commercial Finance
Corp. (filed as Exhibit "10.1" to the Company's
quarterly report on Form 10-Q for the quarter ended
March 31, 1996 and incorporated herein by
reference.)
10.22* Contract for Sale of Goods dated March 15, 1996
between Curtis Mathes Corporation and R.S. Haas and
Silverman Retail Consultants, Inc. for the sale of
CM inventory in connection with DFS Settlement and
Release Agreement.
10.23* Letter of Intent dated April 29, 1996 between Curtis
Mathes Corporation, and Inman's Corporation relating
to CM warranty service.
10.24* Warranty Service Agreement dated May 10, 1996 between
Curtis Mathes Corporation, Warranty Repair
Corporation, and Inman's Corporation relating to CM
warranty service.
10.25* Memorandum of Asset Purchase Agreement dated June
19, 1996 between Warranty Repair Corporation and
Inman's Corporation relating to sale of WRC's parts
inventory.
10.26* Promissory Note from Inman's Corporation to Warranty
Repair Corporation dated June 19, 1996 relating to
sale of WRC parts inventory.
10.27* Security Agreement dated June 19, 1996 between
Inman's Corporation and Warranty Repair Corporation
relating to sale of WRC parts inventory.
10.28* Technology License Agreement dated April 23, 1996
between Interactive Video Publishing, Inc., as
Licensor, and Curtis Mathes Marketing Corporation, as
Licensee, relating to UniView (Vista and KOSMOS)
technology.
10.29* Trademark License Agreement dated April 23, 1996
between Curtis Mathes Corporation, as Licensor, and
Interactive Video Publishing, Inc., as Licensee,
relating to CM trademark license for Vista set-top
units.
16 Letter regarding change in certifying accountant
(filed as Exhibit to the Company's current report on
Form 8-K/A dated November 15, 1994 and incorporated
herein by reference.)
<PAGE>
21* Subsidiaries of the Company.
27* Financial Data Schedule.
_______________
* Filed herewith.
** Management contract or compensation plan or arrangement required to
be filed as a exhibit pursuant to Item 14(c).
<PAGE>
EXHIBIT 10.20
TRADEMARK LICENSE AGREEMENT
AGREEMENT made this date by and between CURTIS MATHES CORPORATION
(hereinafter called ''Licensor''), and CURTIS MATHES MARKETING
CORPORATION (hereinafter called ''Licensee''):
WHEREAS Licensor owns the valuable federally registered trademark
''Curtis Mathes (and design)" (hereinafter referred to as the
''Trademark''), said Trademark having been used over the facilities of
numerous stations in radio and/or television broadcasting in allied
fields, and in promotional and advertising material in different
businesses and being well known and recognized by the general public and
associated in the public mind with Licensor, and
WHEREAS Licensee desires to utilize the Trademark upon and in
connection with the manufacture, sale and distribution of articles
hereinafter described,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, it is hereby agreed:
1. GRANT OF LICENSE.
(a) LICENSED PRODUCTS. Upon the terms and conditions hereinafter
set forth, Licensor hereby grants to Licensee the right and license to
use the Trademark, and Licensee hereby accepts the right, license and
privilege of utilizing the Trademark solely and only upon and in
connection with the manufacture, sale and distribution of the following
articles:
UniViewTM large screen televisions (31" and larger),
specialized VCRs, other electronic appliances
(including UniView Set-top units), and related
products.
such articles being hereinafter referred to as the "Licensed Products."
["UniView" is a trademark of Licensee which pertains to electronic
appliances utilizing (1) the Vista Technology, which is a proprietary
hardware/software platform; and (2) a fully-integrated, compact multi-
tasking operating system called KOSMOS; both of which together allow the
television set to manage and display various telephone, VCR, television
functions, and display, search or block specific TV listings and text
received via vertical blanking interval, modem, or through the Internet,
which technology has been previously licensed by Licensee from
Interactive Video Publishing, Inc.]
(b) TERM. The term of the license hereby granted shall be
effective on the date of execution of this Agreement and shall continue
for fifteen (15) years, unless sooner terminated in accordance with the
provisions hereof. At the end of this term, and at the end each term
thereafter, this license shall be automatically renewed for a five (5)
year term, unless either party hereto shall be given written notice to
the contrary at least one year prior to the expiration date of the then
current term. Licensor agrees that it will exercise its option of
nonrenewal only for good cause shown.
<PAGE>
2. TERMS OF PAYMENT.
(a) RATE. Licensee agrees to pay to Licensor as royalty a sum
equal to one and one-half percent (1.5%) of gross receipts from sales of
the Licensed Products by Licensee or any of its affiliated, associated
or subsidiary companies. The term ''gross receipts'' shall mean gross
monies actually collected by Licensee, less returns.
(b) ROYALTY PAYMENTS. Royalties shall be due within thirty (30)
days after the close of each calendar quarter in which earned, during
the term of this Agreement or any extension hereof, and payment shall
accompany the statements furnished as required below. The receipt or
acceptance by Licensor of any of the statements furnished pursuant to
this Agreement or of any royalties paid hereunder (or the cashing of any
royalty checks paid hereunder) shall not preclude Licensor from
verifying the correctness thereof at any time, and in the event that any
inconsistencies or mistakes are discovered in such statements or
payments, they shall immediately be rectified and the appropriate
payment made by Licensee.
(c) PERIODIC STATEMENTS. (i) Within thirty (30) days after
the close of each calendar quarter during the term of this Agreement or
any extension hereof, Licensee shall furnish to Licensor, a complete and
accurate statement certified to be accurate by Licensee showing the
number, description, gross sales price, itemized deductions from gross
sales price, and gross receipts from the sale of the Licensed Products
distributed and/or sold by Licensee during the preceding calendar
quarter, together with any returns made during the preceding calendar
quarter. Such statements shall be furnished to Licensor whether or not
any of the Licensed Products have been sold during the preceding
calendar quarter.
(ii) Within sixty (60) days after the end of each calendar
year during the term of this Agreement or any extension hereof, Licensee
shall furnish to Licensor, a statement showing the number, description,
gross sales price, itemized deductions from gross sales price, and gross
receipts from the sale of the Licensed Products distributed and/or sold
by Licensee during the preceding calendar year, together with any
returns made during the preceding calendar year, as shown on Licensee's
business books and records. If such statement discloses any
underpayment of royalties for that year, Licensee shall pay the amount
of the underpayment to Licensor at the time of the statement required
under this paragraph. Any overpayment shall be credited by Licensor to
Licensee's account.
(iii) All books and records maintained by Licensee relating
to operations concerning this License shall be available for inspection
by Licensor or any of its designated representatives at any reasonable,
mutually agreeable time and Licensee shall cooperate with any person
making such examination on behalf of Licensor. All books of account and
records shall be kept available for at least two (2) years after the
termination of this license.
3. EXCLUSIVITY. Nothing in this Agreement shall be construed to
prevent Licensor from granting any other licenses for the use of the
Trademark or from otherwise utilizing the Trademark in connection with
products not covered by this Agreement. Licensor agrees that it will
not use, and will grant no other licenses for the use of, the Trademark
<PAGE>
in connection with the sale of the Licensed Products during the term of
this Agreement or any extension hereof.
4. ADVERTISING. Licensee agrees to use its best efforts to advertise
and promote the sale of the Licensed Products during the term of this
Agreement or any extension hereof.
5. GOOD WILL. Licensee recognizes the great value of the good will
associated with the Trademark, and acknowledges that the Trademark and
all rights therein and good will pertaining thereto belong exclusively
to Licensor, and that the Trademark has a secondary meaning in the mind
of the public.
6. MAINTENANCE OF TRADEMARK. Licensor will use its best efforts to
maintain, or cause to be maintained, the Trademark in the areas in which
the Licensed Products are sold to enable the Licensed Products to be
distributed and sold in those areas under the Trademark as provided
herein. Licensor will not permit any other person to use the Trademark
in connection with the Licensed Products.
7. PROTECTION OF TRADEMARK. Licensee and Licensor both agree to assist
the other to the extent necessary in the procurement of any protection
or to protect any of Licensor's rights to the Trademark, and either
party may commence or prosecute any claims or suits in its own name or
join the other as a party thereto. Licensee shall notify Licensor in
writing of any action that Licensee takes on account of any
infringements or imitations by others in the Trademark.
8. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE.
Licensee hereby indemnifies Licensor and undertakes to defend itself
and/or Licensor against and hold Licensor harmless from any claims,
suits, loss and damage arising out of any allegedly unauthorized use of
any trademark, patent, process, idea, method or device by Licensee in
connection with the Licensed Products or any other alleged action by
Licensee and also from any claims, suits, loss and damage arising out of
alleged defects in the Licensed Products. Licensee agrees that it will
obtain, at its own expense, product liability insurance in a reasonable
a m o unt from a recognized insurance company, providing adequate
protection for Licensor (as well as for Licensee) against any claims,
suits, loss or damage arising out of any alleged defects in the Licensed
Products. As proof of such insurance, a fully paid certificate of
insurance naming Licensor as an additional insured party will be
furnished to Licensor by Licensee before any Licensed Product is
distributed or sold. Any proposed change in certificates of insurance
shall be furnished to Licensor within thirty (30) days after such
change. Licensor shall be entitled to a copy of the then prevailing
certificate of insurance, which shall be furnished to Licensor by
Licensee within thirty (30) days after request by Licensor.
9. QUALITY OF LICENSED PRODUCTS. Licensee agrees that the Licensed
Products shall be of high standard and of such style, appearance and
quality as to be adequate and suited to their exploitation to the best
advantage and to the protection and enhancement of the Trademark and the
good will pertaining thereto, that such articles will be manufactured,
sold and distributed in accordance with all applicable Federal, State
and local laws, including but not limited to, product safety and
labelling, and that the same shall not reflect adversely upon the good
Trademark of Licensor. Licensee shall use the Trademark only with the
Licensed Products manufactured by or for the Licensee in accordance with
<PAGE>
specifications, directions, and processes approved by the Licensor or
its representatives or agents from time to time and the quality of the
Licensed Products shall be according to industry standards as approved
by Licensor, which approvals shall not be unreasonably withheld.
10. WARRANTY AND SERVICING. Licensee agrees to provide for the
warranty and servicing of all Licensed Products manufactured,
distributed or sold by Licensee, unless otherwise agreed in writing.
11. LABELING. (a) Licensee agrees that it will cause to appear on or
within each Licensed Product sold by it under this license and on or
within all advertising, promotional or display material bearing the
Trademark the appropriate statutory notice of registration thereof. In
the event that any Licensed Product is marketed in a carton, container
and/or packing or wrapping material bearing the Trademark, such notice
shall also appear upon the said carton, container and/or packing or
wrapping material. Each and every tag, label, imprint or other device
containing any such notice and all advertising, promotional or display
material bearing the Trademark shall be submitted to Licensor for its
approval, which shall not be unreasonably withheld. Approval by
Licensor shall not constitute a waiver of Licensor's rights or
Licensee's duties under any provision of this Agreement.
(b) Licensee agrees to cooperate fully and in good faith with
Licensor for the purpose of securing and preserving Licensor's rights in
and to the Trademark. Nothing contained in this Agreement shall be
construed as an assignment or grant to the Licensee of any right, title
or interest in or to the Trademark, it being understood that all rights
relating thereto are reserved by Licensor, except for the license
hereunder to Licensee of the right to use and utilize the Trademark only
as specifically and expressly provided in this Agreement. Licensee
hereby agrees that at the termination or expiration of this Agreement,
including any extension hereof, Licensee will be deemed to have
assigned, transferred and conveyed to Licensor any rights, equities,
good will, titles or other rights in and to the Trademark which may have
been obtained by Licensee or which may have vested in Licensee in
pursuance of any endeavors covered hereby, and that Licensee will
execute any instruments requested by Licensor to accomplish or confirm
the foregoing. Any such assignment, transfer or conveyance shall be
without other consideration than the mutual covenants and considerations
of this Agreement.
(c) Licensee hereby agrees that its every use of such Trademark
shall inure to the benefit of Licensor and that Licensee shall not at
any time acquire any rights in such Trademark by virtue of any use it
may make of such Trademark.
12. PROMOTIONAL MATERIAL. In all cases where Licensee desires
artwork involving Licensed Products, the cost of such artwork and the
time for the production thereof shall be borne by Licensee. All artwork
and designs involving the Trademark, or any reproduction thereof, shall,
notwithstanding their invention or use by Licensee, be and remain the
property of Licensor and Licensor shall be entitled to use the same and
to license the use of the same by others.
13. DISTRIBUTION. Licensee agrees that during the term of this license
it will use its best efforts to manufacture, distribute and sell the
Licensed Products and that it will make and maintain adequate
arrangement for their distribution.
<PAGE>
14. TERMINATION. (a) Should the Licensee fail to comply with any
material provision of this Agreement, the Licensor may terminate this
license upon sixty (60) days' written notice to the Licensee, provided
that the Licensee has not corrected such default during the notice
period.
(b) Termination of the license under the provisions of this
paragraph shall be without prejudice to any rights which Licensor may
otherwise have against Licensee. Upon the termination of this license,
notwithstanding anything to the contrary herein, all royalties on sales
theretofore made shall become immediately due and payable.
15. FINAL STATEMENT UPON TERMINATION OR EXPIRATION. Sixty (60) days
before the expiration of this license and, in the event of its
termination, ten (10) days after receipt of notice of termination,
Licensee shall furnish to Licensor a statement showing the number and
description of Licensed Products on hand or in process. Licensor shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such
physical inventory by Licensor shall forfeit Licensee's right to dispose
of such inventory, Licensor retaining all other legal and equitable
rights Licensor may have in the circumstances.
16. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION. After
termination of the license under the provisions of paragraph 14,
Licensee may, except as otherwise provided in this Agreement, dispose of
Licensed Products which are on hand or in process at the time notice of
termination is received. Such disposal may occur for a period of six
(6) months after notice of termination, provided advances and royalties
with respect to that period are paid and statements are furnished for
that period in accordance with paragraph 2. Notwithstanding anything to
the contrary herein, Licensee shall not manufacture, sell or dispose of
any Licensed Products after an expiration or a termination of this
license which is based on the failure of Licensee to affix notice of
trademark registration or any other notice to the Licensed Products,
cartons, containers, or packing or wrapping material or advertising,
promotional or display material, or because of the departure by Licensee
from the quality and style approved by Licensor pursuant to paragraph 9.
17. EFFECT OF TERMINATION OR EXPIRATION. Upon and after the
expiration or termination of this license, all rights granted to
Licensee hereunder shall forthwith revert to Licensor, who shall be free
to license others to use the Trademark in connection with the
manufacture, sale and distribution of the Licensed Products and Licensee
will refrain from further use of the Trademark or any further reference
to it, direct or indirect, or anything deemed by Licensor to be similar
to the Trademark in connection with the manufacture, sale or
distribution of Licensee's products, except as provided in paragraph 16.
18. NOTICES. All notices and statements to be given, and all payments
to be made hereunder, shall be given or made at the current respective
addresses of the parties unless notification of a change of address is
given in writing, and the date of mailing shall be deemed the date the
notice or statement is given.
19. NO JOINT VENTURE. Nothing herein contained shall be construed to
place the parties in the relationship of partners or joint venturers,
and neither party shall have the power to obligate or bind the other in
any manner whatsoever.
<PAGE>
20. NO WAIVER. None of the terms of this agreement can be waived or
modified except by an express agreement in writing signed by both
parties. There are no representations, promises, warranties, covenants
or undertakings other than those contained in this Agreement, which
represents the entire understanding of the parties. The failure of
either party hereto to enforce, or the delay by either party in
enforcing, any of its rights under this Agreement shall not be deemed a
continuing waiver or a modification thereof and either party may, within
the time provided by applicable law, commence appropriate legal
proceeding to enforce any or all of such rights. No person, firm, group
or corporation (whether included in the Trademark or otherwise) other
than Licensee and Licensor, and their successors, shall be deemed to
have acquired any rights by reason of anything contained in this
Agreement.
IN WITNESS WHEREOF, the parties have caused this instrument to be
duly executed as of April 17, 1996.
LICENSOR: LICENSEE:
CURTIS MATHES CORPORATION CURTIS MATHES MARKETING
CORPORATION
By: /s/ Bill Park By: /s/ Pat Custer
Bill Park, Vice President Patrick A. Custer,
Chief Operating Officer President
<PAGE>
EXHIBIT 10.22
CONTRACT FOR SALE OF GOODS
ARTICLE 1. GENERAL RECITALS
Nature of Contract and Names of Parties
1.01. This is a contract for sale of certain personal property
consisting of inventory more fully described in Schedule "A" and
Schedule "A-1" attached hereto, and incorporated herein for all
purposes, between CURTIS MATHES CORPORATION, whose principal place of
business is located at 10911 Petal Street, Dallas, Texas 75238, referred
to as Seller; R.S. HAAS, whose principal place of business is located at
8623 Hazy Meadow, Houston, Texas 77040, and SILVERMAN RETAIL
CONSULTANTS, INC. ("SRC"), whose principal place of business is located
at 546 Long Point Road, Mt. Pleasant, South Carolina 29401, R. S. Hass
and Silverman Retail Consultants, Inc. referred to collectively herein
as Buyers. Seller, Buyers, and Lender collectively are referred to as
the ''parties.'' This contract was drafted and executed at Dallas,
Texas on March 15, 1996.
Integrated Agreement
1.02. The terms of this contract are intended by the parties as a
final expression of their Agreement.
ARTICLE 2. GOODS
Nature of Goods
2.01. The goods shown in Schedule "A", attached to and made a part of
this Agreement, are in FIRST CLASS, WORKING CONDITION, except as
otherwise limited herein. The goods shown in Schedule "A-1", attached
to and made a part of this Agreement, ARE SOLD ON AN ''AS IS'' AND
''WITH ALL FAULTS'' BASIS, AND SELLER DISCLAIMS ANY IMPLIED WARRANTIES
WITH RESPECT TO THE GOODS.
Quantity of Goods
2.02. The quantity of goods to be delivered by Seller and received by
Buyer under this contract is as shown on Schedule "A" and Schedule "A-
1", attached to and made a part of this contract.
ARTICLE 3. WARRANTY DISCLAIMERS
DISCLAIMER OF EXPRESS PRODUCT WARRANTY
3.01. ALL GOODS IDENTIFIED ON SCHEDULE A AND SCHEDULE A-1 HERETO ARE
BEING SOLD BY SELLER AND ACCEPTED BY BUYER WITHOUT SELLER'S NORMAL FOUR
YEAR PARTS AND LABOR WARRANTY, AND WITHOUT ANY SUCH PRODUCT WARRANTY OF
ANY KIND. BUYERS SPECIFICALLY AGREE THAT, IN ANY SUBSEQUENT SALE OF THE
GOODS, THIS EXPRESS DISCLAIMER OF PRODUCT WARRANTY BY SELLER WILL BE
NOTED AND STAMPED CONSPICUOUSLY ON THE CARTON OF EACH UNIT SUBSEQUENTLY
SOLD, OR OTHERWISE CONSPICUOUSLY COMMUNICATED TO THE END USER OF THE
GOODS. BUYER WILL FURTHER REQUIRE ITS SUBSEQUENT BUYERS, IF ANY, TO
ADHERE TO THIS REQUIREMENT.
<PAGE>
DISCLAIMER OF WARRANTY BY AFFIRMATION OR PROMISE
3.02. SELLER HAS MADE NO AFFIRMATION OF FACT OR PROMISE RELATING TO
THE GOODS SHOWN ON SCHEDULE "A-1", ATTACHED HERETO, THAT HAS BECOME ANY
BASIS OF THIS BARGAIN. FURTHER, SELLER HAS MADE NO AFFIRMATION OF FACT
OR PROMISE RELATING TO SAID GOODS SHOWN ON SCHEDULE "A-1", ATTACHED
HERETO, THAT HAS CREATED OR AMOUNTED TO AN EXPRESS WARRANTY THAT THE
GOODS WOULD CONFORM TO ANY SUCH AFFIRMATION OR PROMISE.
DISCLAIMER OF IMPLIED WARRANTY OF MERCHANTABILITY
3.03. SELLER DISCLAIMS ANY WARRANTY OF MERCHANTABILITY WITH RESPECT
TO THE GOODS SHOWN ON SCHEDULE "A-1", ATTACHED HERETO.
DISCLAIMER OF IMPLIED WARRANTY OF FITNESS
3.04. SELLER DISCLAIMS ANY WARRANTY OF FITNESS FOR ANY PARTICULAR
PURPOSES WHATSOEVER WITH RESPECT TO ANY OF THE GOODS BEING SOLD UNDER
THIS AGREEMENT AFTER LEAVING SELLER'S LOCATION.
DISCLAIMER OF ALL IMPLIED WARRANTIES
3.05. THE GOODS SHOWN ON SCHEDULE "A-1", ATTACHED HERETO, ARE SOLD ON
AN ''AS IS'' AND ''WITH ALL FAULTS'' BASIS, AND SELLER DISCLAIMS ANY
IMPLIED WARRANTIES WITH RESPECT TO THE GOODS.
ARTICLE 4. PURCHASE PRICE AND PAYMENT
Total Purchase Price
4.01. The purchase price for the goods that are the subject matter of
this contract is shown in Schedule "A" and Schedule "A-1", attached
hereto, and made a part of this Agreement.
Payment
4.02. PAYMENT SHALL BE MADE IN CERTIFIED FUNDS DIRECTLY TO DEUTSCHE
FINANCIAL SERVICES CORPORATION ("LENDER"), ACCORDING TO ITS
INSTRUCTIONS, PAYMENT TO BE RECEIVED BY LENDER BEFORE 5:00 P.M., TEXAS
TIME, ON MARCH 19, 1996. Lender shall confirm to Buyers and Seller
receipt of payments.
No Sale Until Payment Made
4.03 Notwithstanding anything herein to the contrary, title to
goods shall not pass from Seller to Buyers until Lender receives in good
funds the total purchase price for all of the goods.
ARTICLE 5. DELIVERY
Place of Delivery
5.01. The place for delivery of goods being sold under this contract
is Seller's place of business at 10911 Petal Street, Dallas, Texas
75238.
<PAGE>
Time for Delivery
5.02. The time for delivery of the goods will be upon confirmation by
Lender to Seller of receipt in certified funds of the full purchase
price of the goods being sold hereunder, and thereafter at such times as
the parties mutually agree.
ARTICLE 6. EXPENSE REIMBURSEMENT TO SELLER
6.01. From and after confirmation of receipt of payment by Lender,
and until all of the goods are removed from Seller's premises, Buyers
shall pay to Seller a per diem rate of $1,000 per day for storage of the
goods, excess payroll expense, if any, additions of Buyers as additional
insureds and other miscellaneous expenses that may be incurred by Seller
during removal of the goods by Buyers.
ARTICLE 7. RISK OF LOSS AND INSURANCE
Risk of Loss
7.01. The risk of loss of the goods will pass to Buyers at the time
payment for the goods is received by Lender.
Insurance
7.02. It is agreed that Buyers must obtain adequate insurance
coverage with respect to the goods sold by this Agreement, at Buyers'
expense. Buyers' insurance coverage will begin at time payment for the
goods is received by Lender.
ARTICLE 8. TERMINATION OF AGREEMENT
8.01. In the event payment is not received by Lender as specified in
Paragraph 4.02 above, then this Agreement shall terminate and be deemed
null and void on and as of that date.
Dated: March 15, 1996
BUYER: R.S. HAAS SELLER: CURTIS MATHES CORPORATION
By: /s/ R.Steven Haas By: /s/ Pat Custer
R.S. Haas Patrick A. Custer, President
BUYER: SILVERMAN RETAIL CONSULTANTS, INC.
By: /s/ Harry Aureli
Harry Aureli, Executive Vice President
ACKNOWLEDGED AND CONSENTED TO:
LENDER: DEUTSCHE FINANCIAL SERVICES CORPORATION
By: /s/ Richard E. Scholle
Name: Richard E. Scholle
Title: Reginal Vice President
<PAGE>
EXHIBIT 10.23
LETTER OF INTENT
April 29, 1996
Wade Gaylor, President
Inman's Corporation
10620 E. Northwest Hwy.
Dallas, Texas 75238
RE: Warranty Service Agreement and Asset Purchase Agreement
Dear Mr. Gaylor:
This will confirm our recent conversations with you regarding the
proposed Warranty Service Agreement and Asset Purchase between our
companies. Based upon our discussions, Inman's Corporation d/b/a
Inman's Electronics & Satellite Company ("IEC") proposes to perform
warranty repair services on behalf of Curtis Mathes Corporation ("CM");
and Warranty Repair Corporation ("WRC") proposes to sell and IEC
proposes to purchase certain assets; all according to the following
terms and conditions:
1. As promptly as possible after the delivery of this Letter of
Intent, with Closing on Phase One to occur no later than May 3, 1996,
and Closing on Phase Two to occur as indicated below, the parties shall
work towards the preparation and execution of definitive contracts (the
"Agreements") covering the terms, types of representations, warranties,
covenants, indemnities, conditions, and provisions, together with
appropriate exhibits, all of which must be, as to form and substance,
mutually satisfactory and acceptable to the parties, as follows:
PHASE ONE
a. IEC, WRC and CM will execute a Warranty Service Agreement,
providing for warranty repair services to be performed by IEC on CM
products;
i. IEC will promptly perform all PC board and unit repair;
IEC will receive items for repair directly from CM's
dealer/customer base; WRC may also deliver items to IEC for
repair; IEC will return repaired items directly to the
dealer/customer from whom it was received; IEC will handle all
correspondence with dealer/customer concerning information
necessary to receive, repair, or ship an item; WRC will
continue to handle Customer Care inquiries and complaints
during Phase One;
ii. IEC will be provided with approved CM warranty
guidelines; IEC will be provided access to CM's warranty
database; and IEC will verify warranty compliance on all items
received by IEC for repair;
iii. An AS400 terminal will be installed at IEC and linked to
WRC for tracking repairs on CM products;
<PAGE>
iv. IEC will first call WRC for parts needed to repair an
item; if a part is unavailable from WRC, IEC will then obtain
the part elsewhere to repair the item; WRC will supply
available parts for CM warranty repairs at no cost to IEC; WRC
will invoice IEC for parts furnished to IEC for non-warranty
repairs;
v. IEC will invoice CM daily for warranty repairs at IEC's
parts cost, plus 20%, and IEC's labor rate shown in Exhibit
"A" attached hereto; (the total net charge for a repair will
not exceed part replacement cost, less dud allowance); during
the first six months of the Warranty Service Agreement, CM
will remit to IEC bi-monthly on the first and fifteenth day of
each month; parts furnished to IEC by WRC for CM warranty
repairs will not be included in IEC's invoice to CM; IEC will
invoice the dealer/customer directly for all non-warranty
repairs;
vi. WRC will consign and transfer to IEC service information
on various media, specified service equipment, test equipment,
and test jigs to IEC for use during Phase One of this
agreement;
vii. IEC may interview and rehire WRC technicians;
viii. IEC will cooperate, as may be necessary, in
providing notification of relevant changes in procedure to
CM's dealer/customer base;
ix. IEC will provide "Telephone Tech," who will process calls
from dealers/customers for an appropriate fee;
b. The following services remain at WRC during Phase One:
Customer Care,
Non-repair Parts Order:
Entry/Scheduling/Purchasing/Shipping/Billing
(Picture tubes shipped direct from vendor to
dealer/customer)
Repair Parts Inventory
PHASE TWO
c. Upon mutual agreement of the parties, no later than ninety
(90) days after the Closing of Phase One, IEC, WRC and CM will
execute an Asset Purchase Agreement, and related documents,
providing that IEC will receive all of the right, title, and
interest in and to specified assets, which will include WRC's
current repair parts inventory, service information on various
media, certain service equipment, test equipment, and test jigs;
d. IEC will pay $360,000 (to be adjusted for shrinkage of assets
between the date of execution of this Letter of Intent and the
Closing of Phase Two), for the specified assets, as follows: Cash
down payment of $10,000 payable at the Closing of Phase Two; and
One Promissory Note in the original principal sum of $350,000,
executed by IEC and made payable to and delivered to WRC, bearing
<PAGE>
no interest until default, then bearing interest at the maximum
lawful rate, principal due and payable in periodic installments of
$16,500.00 per month (or $8,250 bi-monthly), the timing of such
payments to coincide with the due dates of CM's payments on IEC's
invoices, the first of which installments shall be due and payable
on the next due date of CM's payment on IEC's invoices after the
Closing of Phase Two, and the others regularly on the same due
date(s) of CM's payments on IEC's invoices of each calendar month
thereafter, until said principal amount is fully paid; SECURED by
UCC filings on the assets transferred;
i. Credits will be applied to payment of said note as
follows: a credit of 35% of each IEC invoice payable by CM
after the Closing of Phase Two, or the first $16,500 of each
monthly payment by CM on IEC's invoices (or the first $8,250
of each bi-monthly payment by CM on IEC's invoices), whichever
is less, will be applied toward payment of said note;
e. All remaining services transfer to IEC, as follows:
Customer Care
Non-repair Parts Order:
Entry/Scheduling/Purchasing/Shipping/Billing
Repair Parts Inventory
f. IEC will begin to include in its invoices to CM, warranty
parts used by other dealers/customers consisting of picture tubes
and complete chassis modules, at IEC's cost plus (i) 10% on such
items with a cost of $300 or less; (ii) 7% on such items with a
cost greater than $300 up to and including $600; and (iii) 5% on
such items with a cost greater than $600.
2. The parties agree to prepare and promptly file all reports,
documents, and notices with all applicable regulatory and other
governmental agencies, as may be required with respect to this Letter of
Intent.
3. The parties recognize that certain valuable confidential
information of the respective companies may be exchanged during the
process of finalizing the Agreements, and the parties each mutually
agree to maintain the confidentiality of the other's private information
and to require all representatives of the parties who will have access
to such confidential information to do likewise.
4. The parties recognize that any release of information to the
public or other third parties with respect to these negotiations may
cause great detriment to both parties and thus agree to keep this
proposal confidential until mutual agreement of the parties is reached
in writing to disclose information to the public. The parties further
agree that the timing and content of any such disclosure of information
to the public shall be as mutually agreed.
5. The parties shall each bear their own costs and expenses,
including all legal and accounting fees with respect to this
transaction, whether the transaction is consummated or not.
<PAGE>
6. This Letter of Intent shall terminate without liability to
anyone upon the occurrence of any one of the following events:
a. All parties are unable to agree by the Closing date upon
all terms, representations, warranties, covenants, conditions,
and provisions of the Agreements as to both form and
substance, evidenced by the execution of definitive contracts
by the parties.
b. Any state or federal agency, if any, having jurisdiction
over approval of this transaction shall disapprove of any part
of the proposed transaction.
7. This agreement is conditioned only upon our mutual agreement
on the specific wording and completion of appropriate documentation to
be drawn pursuant to this Letter of Intent. It is hereby agreed that
such documentation shall contain terms mutually satisfactory to each of
us, specifically including the terms set forth in this Letter of Intent,
as well as other provisions customary for transactions of this type.
This Letter of Intent is merely a guide to the preparation of mutually
satisfactory Agreements. Nothing in this Letter of Intent shall be
construed to preclude other provisions from being inserted into the
Agreements at the request of either party.
If this approach and proposal meets with your approval, we would
appreciate your acknowledgement and acceptance of these terms by signing
and returning a copy of this letter. We can then proceed with the
drafting of the final agreements.
CURTIS MATHES CORPORATION INMAN'S CORPORATION d/b/a
INMAN'S ELECTRONICS & SATELLITE
COMPANY
By: /s/ Pat Custer By: /s/ Wade Gaylor
Patrick A. Custer, Wade Gaylor, President
President
WARRANTY REPAIR CORPORATION
By: /s/ Pat Custer
Patrick A. Custer, President
<PAGE>
EXHIBIT 10.24
WARRANTY SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this date between CURTIS
MATHES CORPORATION ("CM"), a Delaware corporation, located at 10911
Petal Street, Dallas, Texas 75238, WARRANTY REPAIR CORPORATION ("WRC"),
a Texas corporation, located at 10911 Petal Street, Dallas, Texas 75238,
and INMAN'S CORPORATION d/b/a INMAN'S ELECTRONICS & SATELLITE COMPANY
("IEC"), a Texas corporation, located at 10620 E. Northwest Hwy.,
Dallas, Texas 75238.
W I T N E S S E T H
WHEREAS, CM is a marketer of consumer electronics products;
WHEREAS, WRC currently provides warranty repair services for CM
products;
WHEREAS, IEC is in the business of servicing consumer electronics
products and related equipment and has expertise in the administration
of service warranties;
WHEREAS, CM desires to use IEC's expertise and services to service
CM's warranty obligations, and IEC desires to provide such services, as
hereinafter described; and
WHEREAS, the parties hereto wish to enter into this mutual
agreement;
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE RECEIPT
AND SUFFICIENCY OF WHICH IS HEREBY ACKN0WLEDGED, CM, WRC, AND IEC AGREE
AS FOLLOWS:
I. APPOINTMENT. IEC is hereby appointed as a CM Authorized Service
Center and as CM's Warranty Service Administrator. IEC agrees to
p r o v ide warranty service and repair support for the products
manufactured, distributed and warranted by CM. IEC agrees to comply
with all of the terms of this Agreement, all federal, state and local
laws, rules and regulations, and with all CM policies and procedures as
may be established or modified from time to time concerning CM's
Warranty, Parts, Service and Product. IEC has been furnished with the
most recent revision of said policies and procedures, receipt of which
is hereby acknowledged by IEC.
II. QUALITY OF SERVICE. IEC shall at all times provide high quality
services to its customers in keeping with industry standards and the
high quality image of CM.
III. TERM AND RENEWAL. This Agreement shall become effective as of the
day and year written below and shall continue in effect until any party
hereto, for good cause, gives a minimum of ninety (90) days written
notice to the other parties that it desires to terminate the Agreement,
after good faith attempts by the parties to resolve any differences.
<PAGE>
IV. TRADEMARK AND SERVICE MARKS.
A. Ownership. CM is the exclusive owner of the various
trademarks and service marks including the words "Curtis Mathes"
and the several other words and design marks ("Proprietary Marks")
which CM uses in connection with its products.
B. Use by IEC. IEC is granted the right of displaying such
Proprietary Marks in connection with the servicing of CM products
only in strict compliance with this Agreement or as may be
otherwise agreed to in writing by CM, and shall immediately
discontinue the display or use of any such mark or change the
manner in which any such mark is displayed or used when requested
to do so by CM.
1. The use of such Marks shall be restricted to display of
authorized window decals, counter signs, stationery and
literature reflecting IEC's status as a CM Authorized Service
Center and as CM's Warranty Service Administrator, and such
other materials as may from time to time be provided
specifically by CM to IEC. IEC is further specifically
authorized to answer its phone lines dedicated to CM customers
with "Curtis Mathes Parts and Service," or any variation
thereof. Any other use of such Marks is not allowed in any
form of signage, advertising, promotion or business identity
materials.
2. Such Marks may not be displayed in such a manner which
would tend to indicate to the public that IEC is any more than
a CM Authorized Service Center and CM's Warranty Service
Administrator.
V. IEC'S OBLIGATIONS.
A. Facilities. IEC shall maintain its physical premises in a
neat and clean condition.
B. Personnel. IEC's employees should strive to provide
accurate, courteous, and complete information to a customer
concerning the specific service needs of the customer's product.
C. Evaluation. IEC may be evaluated periodically concerning
quality of appearance of facilities, personnel, and service
provided to customers, and IEC agrees to reasonably correct any
deficiencies noted within thirty (30) days after written
notification by CM.
D. Formal Complaints. IEC agrees to immediately notify CM of any
verbal inquiries, transmit copies to CM of any and all written
correspondence, and refer to CM any and all such inquiries or
correspondence received from any state Attorney General's office,
Better Business Bureau, the media (including national media) or any
other similar agency pertaining to a consumer complaint or other
inquiry about any CM product, policy, or service.
E. Product Training. IEC agrees to attend such CM product
training programs as may be necessary for IEC to maintain
proficiency on all CM product servicing information.
<PAGE>
F. Policies. IEC agrees to implement a program of Policies and
Procedures that will comply with OSHA, Minimum Wage Compliance,
Equal Employment Opportunity, ADA, Worker's Compensation, and
programs of a similar nature. IEC will cooperate, as may be
necessary, in providing notification of relevant changes in CM's
Warranty Repair Policies and Procedures to CM's dealer/customer
base.
G. Reports. IEC agrees to provide to CM such reports as CM may
from time to time reasonably request, including technical reports
and any other pertinent information regarding CM products.
H. Insurance. IEC shall provide insurance coverage for theft,
loss, or damage to customer's products that are accepted for
service and all CM consigned material while in possession of IEC.
IEC shall provide a certificate of insurance to CM upon request.
I. Technicians. IEC shall maintain adequate trained service
personnel to provide prompt, competent and courteous service to
customers. IEC will provide a "Telephone Tech," who will process
calls from dealers/customers for an appropriate fee.
J. Equipment. IEC shall maintain adequate tools, test
equipment and materials for servicing CM products in an efficient
and competent manner. Until WRC's repair parts inventory is
transferred to IEC, as provided under Phase Two of the Letter of
Intent executed by the parties on April 29, 1996, WRC will transfer
to IEC for use on a consignment basis service information on
various media, as well as service equipment, test equipment, and
test jigs, as specified on Exhibit "A" attached hereto.
K. Customer Satisfaction. IEC shall strive to safeguard the
goodwill of all owners of CM consumer products and take whatever
steps are reasonably necessary to assure customer satisfaction with
CM products and service.
L. Warranty Repair Service.
1. IEC will promptly perform all PC board and unit repair;
IEC will receive items for repair directly from CM's
dealer/customer base; WRC or CM may also deliver items to IEC
for repair; IEC will return repaired items directly to the
dealer/customer from whom it was received; IEC will handle all
correspondence with dealer/customer concerning information
necessary to receive, repair, or ship an item.
2. IEC will be provided access to CM's warranty database and
IEC will verify warranty compliance on all items received by
IEC for repair; an AS400 terminal will be installed at IEC and
linked to WRC for tracking warranty repairs on CM products.
3. Until WRC's repair parts inventory is transferred to IEC,
as provided under Phase Two of the Letter of Intent executed
by the parties on April 29, 1996, IEC will first call WRC for
parts needed to repair an item; if a part is unavailable from
WRC, IEC will then obtain the part elsewhere to repair the
item; WRC will supply available parts for CM warranty repairs
at no cost to IEC.
<PAGE>
4. IEC will invoice CM daily for warranty repairs at IEC's
parts cost, plus 20%, and IEC's labor rate as agreed to in
writing by CM; (the total net charge for a repair will not
exceed part replacement cost, less dud allowance); parts
furnished to IEC by WRC for CM warranty repairs will not be
included in IEC's invoice to CM.
5. Before transfer of the following services to IEC, WRC is
responsible for Non-Repair Parts Order Entry, Scheduling,
Purchasing, Shipping, and Billing. After transfer of these
services to IEC, IEC will begin to include in its invoices to
CM, warranty parts used by other dealers/customers consisting
of picture tubes and complete chassis modules, at IEC's cost
plus (i) 10% on such items with a cost of $300 or less; (ii)
7% on such items with a cost greater than $300 up to and
including $600; and (iii) 5% on such items with a cost greater
than $600.
M. Non-Warranty Repair Service.
1. IEC shall promptly upon receipt of an item for repair
commence service upon the item and will keep the
dealer/customer reasonably informed of its progress during the
time the item is held for servicing.
2. Charges for non-warranty repair services that are
performed by IEC for the dealer/customer shall be comparable
to those reasonably and customarily charged in the industry
for retail repair services and IEC will invoice the
dealer/customer directly for all such non-warranty repairs.
3. WRC will invoice IEC for parts furnished to IEC for non-
warranty repairs.
4. IEC shall guarantee its work for a minimum of thirty (30)
days following completion of the service and agrees not to
charge CM or customer for service or repairs within that
period that are substantially the same as those originally
performed in repair of the product.
N. Customer Service. WRC will continue to handle Customer Care
inquiries and complaints until these services are transferred to
IEC, as provided under Phase Two of the Letter of Intent executed
by the parties on April 29, 1996.
VI. CM's OBLIGATIONS.
CM shall pay IEC's invoices at the agreed rate and, during the
first six months of this Agreement, CM will remit to IEC bi-monthly on
the first and fifteenth day of each month. In the event CM should fail
to make any payment when due, and such failure continues for ten days
past any payment due date, IEC may, at its option, terminate this
agreement after giving CM thirty days' written notice of its intention
to do so.
<PAGE>
VII. RISK OF LOSS OR DAMAGE. The party sending items for repair, or
returning repaired items agrees to be responsible for loss or damage to
such items, and shall be responsible for filing all claims for such loss
or damage. The receiving party agrees to provide reasonable assistance
to sending party in filing such claims with the carrier.
VIII. TERMINATION.
A. IEC, WRC or CM may terminate this Agreement at any time, for
good cause, and after good faith attempts by the parties to resolve
any differences, by written notice of termination delivered to the
other. Such notice shall be delivered not less than ninety (90)
days prior to the effective date of termination.
B. IEC shall be deemed to be in default under this Agreement, and
all rights granted hereunder automatically terminate without notice
to IEC, if a petition in bankruptcy is filed by IEC or such a
petition is filed against IEC, or if IEC is adjudicated a bankrupt
or insolvent, or if a bill in equity or other proceeding for the
appointment of a receiver of IEC or other custodian for IEC's
business or assets is filed and consented to by IEC, or if a
receiver or other custodian (temporary or permanent) of IEC's
assets or property, or any part thereof, is appointed by any court
of competent jurisdiction.
C. IEC shall be deemed to be in default, and CM may, at its
option, terminate this Agreement and all rights granted hereunder,
without affording IEC any opportunity to cure the default,
effective immediately upon receipt of notice by IEC, upon the
occurrence of any of the following events:
1. If any of IEC's principal officers is convicted of a
felony, a crime involving moral turpitude, consumer fraud, or
any other crime or offense that is reasonably likely, in the
s o le opinion of CM, to adversely affect the goodwill
associated with CM; or
2. If IEC is in repeated violation of any CM warranty policy
or procedure and in CM's sole judgment, such violation amounts
to gross disregard of such policy or procedure.
D. If IEC should otherwise be out of compliance with the terms of
this Agreement, then IEC will be given thirty (30) days written
notice to cure the default and to comply with the terms of the
Agreement. If such default or defaults are not reasonably cured
within such thirty day period, then this Agreement shall terminate
effective upon the thirty-first day after receipt by IEC of such
notice to cure.
E. In the event CM or WRC terminates this Agreement, any
obligation of IEC existing at that time under the Promissory Note
contemplated under Phase Two of the Letter of Intent executed by
the parties on April 29, 1996, shall be extinguished and IEC shall
cause to be transferred to CM or WRC all of the collateral securing
said Note, except for a sufficient amount of the collateral to
cover amounts which may be owed by CM or WRC to IEC. In the event
IEC terminates this Agreement for any reason except nonpayment by
<PAGE>
CM, according to Paragraph VI above, such Note obligation shall
continue in full force and effect, payable according to the terms
of the Note.
IX. OBLIGATIONS UPON TERMINATION.
A. Obligations of CM.
Termination shall operate as a cancellation of this Agreement
and all rights associated herewith. Notwithstanding the foregoing,
following the termination, CM shall continue to honor the warranty
on its products and will fulfill commitments made by it prior to
the termination.
B. Obligations of IEC.
1. Upon Termination, this Agreement and all rights granted
hereunder to IEC shall forthwith terminate and IEC shall
immediately and permanently cease to use, in any manner
whatsoever, any CM trademarks, service marks, or other
Proprietary marks. This obligation shall include but is not
limited to, the following:
a. IEC shall not display any of the CM proprietary
marks, and shall remove all such marks from its physical
premises.
b. IEC shall cease answering its telephone with "Curtis
Mathes Parts and Service," or any variation thereof which
utilizes the Curtis Mathes name.
c. IEC shall cease any activity that may tend to
indicate that it is still a CM Authorized Service Center
or CM's Warranty Service Administrator.
2. IEC shall continue to perform its pending CM warranty and
service obligations to its customers.
3. IEC shall thereafter refer to CM for service and repair
information all customers with servicing needs on CM products.
X. RESTRUCTURE OF IEC. IEC agrees to give CM immediate notice in
writing:
A. Of any transaction or occurrence which materially alters or
affects IEC's ownership; and
B. Of any transaction or occurrence that would materially reduce
or impair the financial ability of IEC to discharge its obligations
under this Agreement.
XI. RELATIONSHIP OF PARTIES. The relationship between CM and IEC during
the term of this AGREEMENT shall be that of independent contractor.
None of the parties to this Agreement are the agent or legal
representative of the other for any purpose whatsoever and are not
granted by the terms or execution of this Agreement or otherwise any
express or implied right or authority to assume or create any obligation
or responsibility on behalf of or in the name of the other, or to bind
one another in any manner or thing whatsoever.
<PAGE>
XII. ASSIGNMENT. IEC shall not transfer nor assign nor attempt to
transfer or assign this Agreement or any right or obligation hereunder
without the prior written consent of CM and WRC.
XIII. SEVERABILITY. If any provision of this Agreement is deemed to
be invalid or unenforceable or is prohibited by the laws of the state or
place where it is to be performed, this Agreement shall be considered
divisible as to such provision and such provision shall not be operative
in such state or place and shall not be part of the consideration moving
from either party to the other. The remaining provisions of this
Agreement, however, shall be valid and binding and of like effect as
though the unenforceable provisions were not included herein.
XIV. NO IMPLIED WAIVER. The failure of any party at any time to require
performance by any of the other parties of any provision hereof shall in
no way affect the full right to require such performance at any time
thereafter. Nor shall the waiver by any party of a breach of any
provision hereof constitute a waiver of any succeeding breach of the
same or any other such provision nor constitute a waiver of the
provision itself.
XV. NOTICES. Any notice required to be given by any party to any of
the other parties under or in connection with this Agreement shall be in
writing and delivered personally or by certified mail, return receipt
requested. Notices to the parties shall be directed to their
representatives at the addresses shown above. Such notices shall be
deemed received by the party to whom sent at the time personally
delivered or on the third day following the mailing of same per the
United States Postal service, certified mail, return receipt requested,
in a properly addressed and stamped envelope. Any party may change the
address for the purpose of this paragraph by giving the other parties
written notice of the new address.
XVI. APPLICABLE LAW. All transactions between the parties shall be
deemed to take place in the State of Texas, County of Dallas. The
parties acknowledge that all questions of construction, interpretation
and performance of this agreement and any amendments and supplements
hereto shall be governed by the laws of the State of Texas.
IN WITNESS WHEREOF, CM, WRC, and IEC have executed this Agreement
as of May 10, 1996.
CURTIS MATHES CORPORATION INMAN'S CORPORATION d/b/a
INMAN'S ELECTRONICS & SATELLITE
COMPANY
By: /s/ Pat Custer By: /s/ Wade Gaylor
Patrick A. Custer, Wade Gaylor, President
President
WARRANTY REPAIR CORPORATION
By: /s/ Pat Custer
Patrick A. Custer,
President
EXHIBIT "A"
(Specified service equipment, test equipment, and test jigs consigned to
IEC)
<PAGE>
EXHIBIT 10.25
MEMORANDUM OF ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (''Agreement'') dated as of the date
indicated hereinbelow, by and between INMAN'S CORPORATION, a Texas
corporation, (''Purchaser''), whose registered office is 10620 E.
Northwest Hwy., Dallas, Texas 75238, and WARRANTY REPAIR CORPORATION, a
Texas corporation, (''Seller,'') of 10911 Petal Street, Dallas, Texas
75238.
INTRODUCTION
Seller desires to sell and Purchaser desires to purchase certain
specified assets of Seller on the terms and conditions set forth in this
Agreement.
In consideration of the mutual promises of the parties; in reliance
on the representations, warranties, covenants, and conditions contained
in this Agreement; and for other good and valuable consideration, the
parties agree as follows:
ARTICLE 1
SALE
Sale of Assets
1.01. Seller agrees to sell, convey, transfer, assign, and
deliver to Purchaser, and Purchaser agrees to purchase or accept from
Seller, all of the following assets of Seller:
(a) All of its repair parts inventory; and
(b) All furniture, fixtures, equipment, supplies, and other items
described on Schedule 1, attached to and incorporated fully into this
Agreement.
Consideration for Sale
1.02. In consideration of the sale and transfer of the
specified assets of Seller and the representations, warranties, and
covenants of Seller set forth in this Agreement, Purchaser shall pay to
Seller $360,000, as follows: Cash down payment of $10,000 payable on
the Closing Date; and One Promissory Note in the original principal sum
of $350,000, executed by Buyer and made payable to and delivered to
Seller, bearing no interest until default, then bearing interest at the
maximum lawful rate, principal due and payable in periodic installments
of $16,500.00 per month due on the first day of each month (or $8,250
bi-monthly due on the first and fifteenth day of each month), until said
principal amount is fully paid; the timing of such payments to coincide
with the due dates of CM's payments on Buyer's invoices, the first of
which installments shall be due and payable on the next due date of CM's
payment on Buyer's invoices after the Closing of Phase Two; SECURED by
UCC filings on the assets transferred. Credits will be applied to
payment of said note as follows: a credit of 25% during the first six
<PAGE>
months of this Agreement, and thereafter, 35% of each IEC invoice
payable by Curtis Mathes Corporation ("CM") for warranty repair services
provided by IEC to CM after the date hereof, or the first $16,500 of
each monthly payment by CM on IEC's invoices (or the first $8,250 of
each bi-monthly payment by CM on IEC's invoices), whichever is less,
will be applied toward payment of said note; said Promissory Note
secured by Security Agreement of even date herewith.
ARTICLE 2
SELLER'S REPRESENTATIONS AND WARRANTIES
Seller hereby represents and warrants to Purchaser that the
following facts and circumstances are and at all times up to the Closing
Date will be true and correct:
Organization
2.01. Seller is a corporation duly organized, validly existing,
and in good standing under the laws of Texas. Seller has all requisite
power and authority (corporate and, when applicable, government) to own,
operate, and carry on its business as now being conducted.
Inventory
2.02. The repair parts inventory owned by Seller
(''Inventory'') consists of items of a quality and quantity inspected
and accepted by Buyer.
Authority
2.03. Seller has full power and authority to execute, deliver,
and/or consummate this Agreement, subject to the conditions to Closing
set forth in this Agreement.
Full Disclosure
2.04. No representation, warranty, or covenant made to
Purchaser in this Agreement nor any document, certificate, exhibit, or
other information given or delivered to Purchaser pursuant to this
Agreement contains or will contain any untrue statement of a material
fact, or omits or will omit a material fact necessary to make the
statements contained in this Agreement or the matters disclosed in the
related documents, certificates, information, or exhibits not
misleading.
Brokers
2.05. Neither Seller, nor any of Seller's officers, directors,
employees, or stockholders, has retained, consented to, or authorized
any broker, investment banker, or third party to act on Seller's behalf,
directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
<PAGE>
ARTICLE 3
PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to Seller that:
Authority
3.01. Purchaser has full power and authority to execute,
deliver, and consummate this Agreement subject to the conditions to
Closing set forth in this Agreement. All corporate acts, reports, and
returns required to be filed by Purchaser with any government or
regulatory agency with respect to this transaction have been or will be
properly filed prior to the Closing Date. No provisions exist in any
contract, document, or other instrument to which Purchaser is a party or
by which Purchaser is bound that would be violated by consummation of
the transactions contemplated by this Agreement.
Broker
3.02. Neither Purchaser, nor any of Purchaser's officers,
directors, or employees, has retained, consented to, or authorized any
broker, investment banker, or third party to act on its behalf, directly
or indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.
Organization and Standing of Purchaser
3.03. Purchaser is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas,
with corporate power to own property and carry on its business as it is
now being conducted.
ARTICLE 4
CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE
The obligation of Purchaser to Close under this Agreement is
subject to each of the following conditions (any one of which may, at
the option of Purchaser, be waived in writing by Purchaser) existing on
the Closing Date, or such earlier date as the context may require.
Representations and Warranties
4.01. Each of the representations and warranties of Seller in
this Agreement, the disclosures contained in the exhibits to this
Agreement, and all other information delivered under this Agreement
shall be true in all material respects at and as of the Closing Date as
though each representation, warranty, and disclosure were made and
delivered at and as of the Closing Date.
Compliance With Conditions
4.02. Seller shall comply with and perform all agreements,
covenants, and conditions in this Agreement required to be performed and
complied with by Seller. All requisite action (corporate and other) in
order to consummate this Agreement shall be properly taken by Seller.
<PAGE>
ARTICLE 5
CONDITIONS TO SELLER'S OBLIGATION TO CLOSE
The obligation of Seller to Close under this Agreement is subject
to each of the following conditions (any one of which at the option of
Seller may be waived in writing by Seller) existing on the Closing Date.
Corporate Action
5.01. Purchaser shall take appropriate corporate action
regarding this transaction, which shall be evidenced by resolutions of
its board of directors and shareholders and certified by Purchaser's
corporate secretary, authorizing Purchaser to enter into and complete
this transaction.
Government Approvals
5.02. All necessary government approvals regarding this
transaction shall be received prior to the Closing Date, in
substantially the form applied for and to the reasonable satisfaction of
Purchaser and its counsel.
ARTICLE 6
PARTIES' OBLIGATIONS AT THE CLOSING
Seller's Obligations at the Closing
6.01. At the Closing, Seller shall execute, if appropriate, and
shall deliver to Purchaser a bill of sale in a form acceptable to
Purchaser sufficient to convey to Purchaser all rights, title, and
interest in and to all of the inventories, fixtures, equipment, and
items of personalty being sold to Purchaser under the terms of this
Agreement.
Purchaser's Obligation at Closing
6.02. At the Closing, Purchaser shall deliver to Seller against
delivery of the items specified in Paragraph 6.01, above, a check in the
amount of $10,000, the Promissory Note, and Security Agreement described
herein.
ARTICLE 7
GENERAL PROVISIONS
Survival of Representations, Warranties, and Covenants
7.01. The representations, warranties, covenants, and
agreements of the parties contained in this Agreement or contained in
any writing delivered pursuant to this Agreement shall survive the
Closing Date for the period of time set forth in this Agreement.
<PAGE>
Notices
7.02. All notices that are required or that may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if given in writing and delivered personally
or by certified mail, return receipt requested, postage prepaid to the
addresses shown in the first paragraph of this Agreement, or such other
address as may be provided in writing to the other party as set out
herein.
Assignment of Agreement
7.03. This Agreement shall be binding on and inure to the
benefit of the parties to this Agreement and their respective successors
and permitted assigns. This Agreement may not be assigned by any party
without the written consent of all parties and any attempt to make an
assignment without consent is void.
Governing Law
7.04. This Agreement shall be construed and governed by the
laws of the state of Texas.
Amendments; Waiver
7.05. This Agreement may be amended only in writing by the
mutual consent of all of the parties, evidenced by all necessary and
proper corporate authority. No waiver of any provision of this Agreement
shall arise from any action or inaction of any party, except an
instrument in writing expressly waiving the provision executed by the
party entitled to the benefit of the provision.
Entire Agreement
7.06. Except for the Letter of Intent dated April 29, 1996, the
Warranty Service Agreement dated May 10, 1996, this Agreement, together
with any documents and exhibits given or delivered pursuant to this
Agreement, constitutes the entire agreement between the parties to this
Agreement. No party shall be bound by any communications between them on
the subject matter of this Agreement unless the communication is (a) in
writing, (b) bears a date contemporaneous with or subsequent to the date
of this Agreement, and (c) is agreed to by all parties to this
Agreement. Except for the above, on execution of this Agreement, all
prior agreements or understandings between the parties shall be null and
void.
Dated as of June 19, 1996.
PURCHASER: Inman's Corporation
By: /s/ Wade Gaylor
Wade Gaylor, President
SELLER: WARRANTY REPAIR CORPORATION
By: /s/ Pat Custer
Patrick A. Custer, President
<PAGE>
EXHIBIT 10.26
PROMISSORY NOTE
(Secured by Security Agreement)
Date: June 19, 1996
Maker: Inman's Corporation ("IEC")
Maker's Mailing Address (including county):
10620 E. Northwest Hwy.
Dallas, Dallas County, Texas 75238
Payee: Warranty Repair Corporation
Place for Payment (including county):
10911 Petal Street
Dallas, Dallas County, Texas 75238
Principal Amount: Three Hundred Fifty Thousand and No/100 Dollars
($350,000)
Annual Interest Rate on Unpaid Principal from Date of Funding: Zero
Percent
Annual Interest Rate on Matured, Unpaid Amounts: Maximum lawful rate
Terms of Payment (principal and interest): Principal shall be due and
payable in bi-monthly installments of Eight Thousand Two Hundred Fifty
a n d No/100 Dollars ($8,250) or more each, the first of which
installments shall be due and payable on July 15, 1996, and the others
regularly on the first and fifteenth day of each month thereafter, until
the whole of said principal sum has been duly paid. Credits will be
applied to payment of this note as follows: a credit of 25% during the
first six months of this Agreement, and thereafter, 35% of each IEC
invoice payable by Curtis Mathes Corporation ("CM") for warranty repair
services provided by IEC to CM after the date hereof, or the first
$16,500 of each monthly payment by CM on IEC's invoices (or the first
$8,250 of each bi-monthly payment by CM on IEC's invoices), whichever is
less, will be applied toward payment of this note;
Security for Payment
A Security Interest Created and Granted in the Following Security
Agreement:
Date: June 19, 1996
Debtor: Inman's Corporation
Secured Party: Warranty Repair Corporation
Collateral: (a) all repair parts inventory sold and transferred
by the Secured Party to the Debtor, pursuant to that one certain Asset
Purchase Agreement dated of even date herewith, and all accessions
thereto and products thereof and documents therefor; and (b) all
proceeds of the foregoing.
<PAGE>
Maker promises to pay to the order of Payee at the place for
payment and according to the terms of payment the principal amount plus
interest at the rates stated above. All unpaid amounts shall be due by
the final scheduled payment date.
If Maker defaults in the payment of this note or in the performance
of any obligation in any instrument securing or collateral to it, and
the default continues after Payee gives Maker notice of the default and
the time within which it must be cured, as may be required by law or by
written agreement, then Payee may declare the unpaid principal balance
and earned interest on this note immediately due. Maker and each
surety, endorser, and guarantor waive all demands for payment,
presentations for payment, notices of intention to accelerate maturity,
protests, and notices of protest.
If this note or any instrument securing or collateral to it is
given to an attorney for collection or enforcement, or if suit is
brought for collection or enforcement, or if it is collected or enforced
through probate, bankruptcy, or other judicial proceeding, then Maker
shall pay Payee all costs of collection and enforcement, including
reasonable attorney's fees and court costs, in addition to other amounts
due.
Interest on the debt evidenced by this note shall not exceed the
maximum amount of nonusurious interest that may be contracted for,
taken, reserved, charged, or received under law; any interest in excess
of that maximum amount shall be credited on the principal of the debt
or, if that has been paid, refunded. On any acceleration or required or
permitted prepayment, any such excess shall be cancelled automatically
as of the acceleration or prepayment or, if already paid, credited on
the principal of the debt or, if the principal of the debt has been
paid, refunded. This provision overrides other provisions in this and
all other instruments concerning the debt.
Each Maker is responsible for all obligations represented by this
note. When the context requires, singular nouns and pronouns include
the plural.
Inman's Corporation
By: /s/ Wade Gaylor
Wade Gaylor, President
<PAGE>
EXHIBIT 10.27
SECURITY AGREEMENT
ARTICLE 1
GENERAL SECURITY AGREEMENT
This Security Agreement is made and entered into effective the date
shown hereinbelow by and between INMAN'S CORPORATION referred to as
''Debtor,'' whose registered office is 10620 E. Northwest Hwy., Dallas,
Texas 75238, and WARRANTY REPAIR CORPORATION, referred to as "Secured
Party," of 10911 Petal Street, Dallas, Texas 75238.
For value received, the Debtor grants to the Secured Party a
security interest in the following described property, referred to as
the Collateral:
(a) all repair parts inventory sold and transferred by the Secured
Party to the Debtor, pursuant to that one certain Asset Purchase
Agreement dated of even date herewith, and all accessions thereto
and products thereof and documents therefor; and
(b) all proceeds of the foregoing,
wherever located, to secure:
(1) the Debtor's note of even date herewith to the Secured Party
in the principal amount of Three Hundred Fifty Thousand and No/100
Dollars ($350,000), principal and interest payable as provided in
the note; and
(2) all liabilities of Debtor to Secured Party now existing or
later incurred, matured or unmatured, direct or contingent, and any
renewals and extensions of, and substitutions for, such
liabilities.
ARTICLE 2
GENERAL RECITALS
The Debtor warrants and covenants:
The Collateral is to be used in business other than farming
operations.
The Debtor's chief place of business is at 10620 E. Northwest Hwy.,
Dallas, Texas 75238.
This security interest will attach to the collateral on the date of
this agreement or as otherwise provided by the Texas Business and
Commerce Code.
<PAGE>
DEBTOR WARRANTS, COVENANTS, AND AGREES:
ARTICLE 3
TITLE TO AND MAINTENANCE OF COLLATERAL
Title
3.01. Except for the security interest granted by this
Agreement, the Debtor has, or on acquisition will have, full title to
the Collateral free from any lien, security interest, encumbrance, or
claim, and the Debtor will, at the Debtor's cost and expense, defend any
action which may affect the Secured Party's security interest in, or the
Debtor's title to, the Collateral.
Financing Statement
3.02. No Financing Statement covering the Collateral, or any
part or proceeds of the Collateral, is on file in any public office. At
the Secured Party's request, the Debtor will join in executing all
necessary Financing Statements in forms satisfactory to the Secured
Party, will pay the filing costs, will further execute all other
instruments necessary for the secured party to perfect its interest, and
pay the filing costs.
Sale, Lease, or Disposition of Collateral
3.03. The Debtor will not, without the prior written consent of
the Secured Party, sell, contract to sell, lease, encumber, or dispose
of the Collateral or any interest in it outside the ordinary course of
business until this Security Agreement and all obligations secured by it
have been fully satisfied.
Insurance
3.04. The Debtor will insure the Collateral against such
casualties and in such amounts as the Secured Party shall reasonably
require, with insurance companies acceptable to the Secured Party, with
a loss payable clause in favor of the Debtor and Secured Party as their
interests may appear, and the Secured Party is authorized to collect
sums that may become due under such insurance and apply them to the
obligations secured by this Agreement.
Protection of Collateral
3.05. The Debtor will keep the Collateral in good order and
condition and will not waste or destroy the Collateral or any part of
it. The Debtor will not use the Collateral in violation of any statute
or ordinance. The Secured Party will have the right to examine and
inspect the Collateral at any reasonable time.
Taxes
3.06. The Debtor will pay all taxes and assessments on the
Collateral or for its use and operation promptly when due.
<PAGE>
Location and Identification
3.07. The Debtor will keep the Collateral separate and
identifiable and at the address shown above, and will not remove the
Collateral without the Secured Party's prior written consent.
ARTICLE 4
PROTECTION OF SECURITY
Security Interest in Proceeds and Accessions
4.01. The Debtor grants to the Secured Party a security
interest in and to all proceeds, increases, substitutions, replacements,
additions, and accessions to the Collateral. This provision shall not be
construed to mean that the Debtor is authorized to sell, lease, or
dispose of the Collateral outside the ordinary course of business
without the consent of the Secured Party.
Decrease in Value of Collateral
4.02. If in the Secured Party's judgment the Collateral has
materially decreased in value or if the Secured Party shall at any time
deem that the security is inadequate, the Debtor shall either provide
enough additional Collateral or reduce the total indebtedness by an
amount sufficient to satisfy the Secured Party that its security is
adequate. A material decrease in value shall not include variations
in the normal market value of the Collateral due to usage, normal wear
and depreciation.
Reimbursement of Expenses
4.03. At the option of the Secured Party, the Secured Party may
discharge taxes, liens, interest, or perform or cause to be performed
for and on behalf of the Debtor any actions and conditions, obligations,
or covenants that the Debtor has failed or refused to perform, and may
pay for the repair, maintenance, and preservation of the Collateral, and
all sums so expended, including, but not limited to, attorney's fees,
court costs, insurance premiums, agent's fees, or commissions, or any
other costs or expenses, shall bear interest from the date of payment at
the maximum lawful rate and shall be payable at the place designated in
the note described above and shall be secured by this Security
Agreement. The Debtor shall not be responsible for any such expense
attributable to variations in the normal market value of the Collateral
due to usage, normal wear and depreciation.
ARTICLE 5
DUTIES OF DEBTOR
Payment
5.01. The Debtor will pay the notes secured by this Security
Agreement, any renewal or extension thereof, and any other indebtedness
secured thereby in accordance with their terms and provisions and will
repay immediately all sums expended by the Secured Party in accordance
with the terms and provisions of this Security Agreement.
<PAGE>
Change of Residence or Place of Business
5.02. The Debtor will promptly notify the Secured Party of any
change of the Debtor's chief place of business.
Time of Performance and Waiver
5.03. Time shall be of the essence in performing any act under
this Security Agreement and the note secured by it. The Secured Party's
acceptance of partial or delinquent payments, or the failure of the
Secured Party to exercise any right or remedy, shall not be a waiver of
any obligation of the Debtor or right of the Secured Party, or of any
other similar default subsequently occurring.
ARTICLE 6
DEFAULT
Default Defined
6.01. The Debtor shall be in default under this Security
Agreement if any of the following events or conditions occurs:
(a) Default in the payment or performance of any note,
obligation, covenant, or liability contained or referred to in this
Agreement;
(b) If any warranty, representation, or statement made or
furnished to the Secured Party by or in behalf of the Debtor proves
to have been knowingly false in any material respect when made or
furnished;
(c) Any event that results in the acceleration of the
maturity of the Debtor's indebtedness to others under any
indenture, agreement, or undertaking;
(d) Loss, theft, substantial damage, destruction, sale, or
encumbrance to or of any of the Collateral, or the making of any
levy, seizure, or attachment of or on the Collateral;
(e) Any time the Secured Party believes in good faith that
the prospect of payment of any indebtedness secured by this
Agreement or the performance of this Security Agreement is
impaired;
(f) Death, dissolution, termination of existence, insolvency,
business failure, appointment of a receiver for any part of the
Collateral, assignment for the benefit of creditors, or the
commencement of any proceeding under any bankruptcy or insolvency
law by or against the Debtor or any guarantor or surety for the
Debtor.
Remedies
6.02. On or at any time after the occurrence of any such event
of default, the Secured Party may declare all obligations secured
immediately due and payable and may proceed to enforce payment of the
<PAGE>
same and exercise any and all of the rights and remedies provided by the
Business and Commerce Code of Texas as well as other rights and
remedies, either at law or in equity, possessed by the Secured Party.
The Secured Party may require the Debtor to assemble the Collateral
and make it available to the Secured Party at any place to be designated
by the Secured Party that is reasonably convenient to both parties.
Unless the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market, the
Secured Party will give the Debtor reasonable notice of the time and
place of any public sale, or of the time after which any private sale or
any other intended disposition of the Collateral is to be made. The
requirements of reasonable notice shall be met if such notice is mailed,
postage prepaid, to the address of the Debtor shown at the beginning of
this Security Agreement, at least five days before the time of the sale
or disposition. Expenses of retaking, holding, preparing for sale,
selling, or the like shall include the Secured Party's reasonable
attorney's fees and legal expenses.
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.01. (a) Texas Law to Apply: This Agreement shall be governed
by and construed under and in accordance with the Bus. & Com. C.
(Chapter 9 of the Business and Commerce Code of Texas) and other
applicable laws of the State of Texas and all obligations of the parties
created under this Agreement are performable in Dallas County, Texas.
(b) Parties Bound: This Agreement shall be binding on and inure to
the benefit of the parties to it and their respective heirs,
executors, administrators, legal representatives, successors, and
assigns where permitted by this Agreement.
(c) Legal Construction: In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be
invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other
provision of this Agreement and this Agreement shall be construed
as if such invalid, illegal, or unenforceable provision had never
been contained in it.
(d) Definitions: All terms used in this Agreement that are defined
in the Business and Commerce Code of Texas shall have the same
meaning as in that Code.
Dated as of June 19, 1996.
DEBTOR: INMAN'S CORPORATION
By: /s/ Wade Gaylor
Wade Gaylor, President
SECURED PARTY: WARRANTY REPAIR CORPORATION
By: /s/ Pat Custer
Patrick A. Custer, President
<PAGE>
EXHIBIT 10.28
TECHNOLOGY LICENSE AGREEMENT
AGREEMENT made this date by and between INTERACTIVE VIDEO
PUBLISHING, INC., located at 2604-B El Camino Real, Suite 382, Carlsbad,
California 92008 (hereinafter called ''Licensor'') and CURTIS MATHES
MARKETING CORPORATION, located at 10911 Petal Street, Dallas, Texas
75238 (hereinafter called ''Licensee''):
WHEREAS Licensor represents (1) that it is the exclusive owner of
the valuable and proprietary hardware/software platform (hereinafter
referred to as the ''Vista Technology'') including a fully-integrated,
compact multi-tasking operating system called KOSMOS, and numerous
unique and compelling interactive television, Internet access, telephone
and television management applications; (2) that it is the exclusive
owner of the software operating system and applications which allow the
television set to manage and display various telephone, VCR, television
functions, and display, search or block specific TV listings and text
received via vertical blanking interval, modem, or through the Internet;
(3) that it will use its best efforts to create a unique front-of-screen
user interface and custom applications of the Vista Technology for the
Licensee's products; and (4) that the Licensor has the right to grant
this exclusive and non-exclusive license, and has not granted to any
other person, firm, or corporation any right, license, or privilege
thereunder; and
WHEREAS Licensee desires to utilize the Vista Technology and KOSMOS
upon and in connection with the manufacture, sale and distribution of
articles hereinafter described,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, it is hereby agreed:
1. GRANT OF LICENSE.
(a) LICENSED PRODUCTS. Upon the terms and conditions hereinafter
set forth, Licensor hereby grants to Licensee the exclusive right to
utilize the Vista Technology and the proprietary KOSMOS Operating System
in certain Licensee-branded and distributed large-screen home theater
products, meaning 31" and larger televisions, and specialized VCRs, as
well as the right to incorporate the Vista Technology and KOSMOS into
other electronic appliances, and Licensee hereby accepts the right,
license and privilege of utilizing the Vista Technology and KOSMOS
solely and only upon and in connection with the manufacture, sale and
distribution of the following articles: certain Licensee-branded and
distributed large-screen home theater products and specialized VCRs with
built-in applications of the Vista Technology and KOSMOS on an exclusive
basis, and other electronic appliances with built-in applications of the
Vista Technology and KOSMOS on a non-exclusive basis, with all such
articles being hereinafter referred to as the "Licensed Products."
(b) TERM. The term of the license hereby granted shall be
effective on the date of execution of this Agreement and shall continue
for five (5) years, unless sooner terminated in accordance with the
provisions hereof. At the end of this term, and at the end each term
<PAGE>
thereafter, this license may be renewed for successive one year terms,
according to mutually agreeable terms and conditions unless either party
hereto shall be given written notice to the contrary at least thirty
(30) days prior to the expiration date of the then current term.
2. TERMS OF PAYMENT.
(a) RATE. Licensee agrees to pay to Licensor as royalty a sum
equal to three percent (3%) of all net sales of the Licensed Products
[as defined in paragraph 1(a) above] by Licensee or its sublicensees
under this Agreement, or any of its affiliated, associated, or
subsidiary companies. The term ''net sales'' shall mean gross sales
less quantity discounts and returns, but no deduction shall be made for
cash or other discounts or uncollectible accounts. No costs incurred in
the manufacture, sale, distribution or exploitation of the Licensed
Products shall be deducted from any royalty payable by Licensee.
(b) ADVANCE ROYALTY PAYMENT. Licensee agrees to pay to Licensor an
advance royalty payment of Five Hundred Thousand Dollars ($500,000) on
or before May 31, 1996, said payment to apply and be credited upon all
minimum royalties and royalty payments due Licensor under this
Agreement.
(c) MINIMUM ROYALTIES. Licensee agrees to pay to Licensor a
minimum annual royalty of Ten Thousand Dollars ($10,000) as a minimum
guarantee against royalties to be paid to Licensor during each year of
the contract term, said minimum royalty to be paid in quarterly
installments within fifteen (15) days after the close of each calendar
quarter during the term of this Agreement or any extension hereof.
Payment shall accompany the statements furnished as required below.
(d) ROYALTY PAYMENTS. Royalties in excess of the aforementioned
minimum royalty shall be due within fifteen (15) days after the close of
each calendar quarter in which earned, during the term of this Agreement
or any extension hereof, and payment shall accompany the statements
furnished as required below. The receipt or acceptance by Licensor of
any of the statements furnished pursuant to this Agreement or of any
royalties paid hereunder (or the cashing of any royalty checks paid
hereunder) shall not preclude Licensor from verifying the correctness
thereof at any time, and in the event that any inconsistencies or
mistakes are discovered in such statements or payments, they shall
immediately be rectified and the appropriate payment made by Licensee.
Domestic taxes payable in the licensed territory shall be payable by
Licensee.
(e) PERIODIC STATEMENTS. (i) Within fifteen (15) days after
the close of each calendar quarter during the term of this Agreement or
any extension hereof, Licensee shall furnish to Licensor, in a form
acceptable to Licensor, a complete and accurate statement certified to
be accurate by Licensee showing the number, description and gross sales
price, itemized deductions from gross sales price and net sales price of
the Licensed Products distributed and/or sold by Licensee during the
preceding calendar quarter, together with any returns made during the
preceding calendar quarter. Such statements shall be furnished to
Licensor whether or not any of the Licensed Products have been sold
during the preceding calendar quarter.
<PAGE>
(ii) Within sixty (60) days after the end of each year of
this Agreement or any extension hereof, Licensee shall furnish to
Licensor, in a form acceptable to Licensor, a statement showing the
number, description and gross sales price, itemized deductions from
gross sales price and net sales price of the Licensed Products
distributed and/or sold by Licensee during the preceding calendar year,
together with any returns made during the preceding calendar year, as
shown on Licensee's business books and records. If such statement
discloses any underpayment of royalties for that year, Licensee shall
pay the amount of the underpayment to Licensor at the time of the
statement required under this paragraph. Any overpayment shall be
credited by Licensor to Licensee's account.
(iii) All books and records maintained by Licensee relating
to operations concerning this License shall be available for inspection
by Licensor or any of its designated representatives at any reasonable,
mutually agreeable time and Licensee shall cooperate with any person
making such examination on behalf of Licensor. All books of account and
records shall be kept available for at least two (2) years after the
termination of this license.
3. ADVERTISING. Licensee agrees to use reasonable efforts to
advertise and promote the sale of the Licensed Products during the term
of this Agreement or any extension hereof.
4. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE.
Licensee hereby indemnifies Licensor and undertakes to defend itself
and/or Licensor against and hold Licensor harmless from any claims,
suits, loss and damage arising out of alleged defects in the Licensed
Products manufactured by or on behalf of Licensee. Licensee agrees that
it will obtain, at its own expense, product liability insurance in a
mutually agreed amount from a recognized insurance company acceptable to
Licensor, providing adequate protection for Licensor (as well as for
Licensee) against any claims, suits, loss or damage arising out of any
alleged defects in the Licensed Products. Licensor shall be entitled to
a copy of the then prevailing certificate of insurance, which shall be
furnished to Licensor by Licensee.
5. INFRINGEMENT. The Licensor shall defend, at its own expense, and
indemnify the Licensee from any claims, suits, loss and damage arising
out of, all infringement suits that may be brought against Licensee or
its sublicensees based on or related to the manufacture, use, or sale of
the devices and applications using the Vista Technology and KOSMOS. In
the event any information is brought to the attention of Licensor that
others without benefit of license are infringing any of the rights
granted pursuant to this Agreement, Licensor shall, at its own expense,
diligently prosecute all such infringers. In any of the foregoing
suits, the Licensee may, at Licensee's expense, be represented by
counsel of its own choice.
6. WARRANTY AND SERVICING. Licensee agrees to provide the warranty
and servicing for all Licensed Products manufactured, distributed or
sold by it after the date of this Agreement, unless otherwise agreed in
writing.
7. DISTRIBUTION. (a) Licensee agrees that during the term of this
license it will diligently and continuously manufacture, distribute and
sell the Licensed Products and that it will make and maintain adequate
arrangement for their distribution.
<PAGE>
(b) Licensee agrees to sell to Licensor such quantities of the
articles at as low a rate and on as good terms as Licensee sells similar
quantities of the Licensed Products to the general trade.
8. TERMINATION. (a) If Licensee shall not have commenced in good
faith to manufacture and distribute Licensed Products in substantial
quantities within nine (9) months after the date of this Agreement or if
at any time thereafter in any calendar quarter Licensee fails to sell
any of the Licensed Products, Licensor, in addition to all other
remedies available to it hereunder, may at its sole option terminate
this license with respect to any Licensed Products which have not been
manufactured and distributed during such quarter, by giving written
notice of termination to Licensee. Such notice shall be effective when
received by Licensee.
(b) Should the Licensee fail to comply with any material provision
of this Agreement, the Licensor may terminate this license upon thirty
(30) days' written notice to the Licensee, provided that the Licensee
has not corrected such default during the notice period.
(c) Termination of the license under the provisions of this
paragraph shall be without prejudice to any rights which Licensor may
otherwise have against Licensee. Upon the termination of this license,
notwithstanding anything to the contrary herein, all royalties on sales
theretofore made shall become immediately due and payable and no minimum
royalties shall be repayable or avoidable.
9. FINAL STATEMENT UPON TERMINATION OR EXPIRATION. Sixty (60) days
before the expiration of this license and, in the event of its
termination, ten (10) days after receipt of notice of termination,
Licensee shall furnish to Licensor a statement showing the number and
description of Licensed Products on hand or in process. Licensor shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such
physical inventory by Licensor shall forfeit Licensee's right to dispose
of such inventory, Licensor retaining all other legal and equitable
rights Licensor may have in the circumstances.
10. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION. After
termination of the license under the provisions of paragraph 8, Licensee
may, except as otherwise provided in this Agreement, dispose of Licensed
Products which are on hand or in process at the time notice of
termination is received. Such disposal may occur for a period of sixty
(60) days after notice of termination, provided advances and royalties
with respect to that period are paid and statements are furnished for
that period in accordance with paragraph 2.
11. EFFECT OF TERMINATION OR EXPIRATION. Upon and after the
expiration or termination of this license, all rights granted to
Licensee hereunder shall forthwith revert to Licensor, who shall be free
to license others to use the Vista Technology and KOSMOS in connection
with the manufacture, sale and distribution of products similar to the
Licensed Products and Licensee will refrain from further use of the
Vista Technology and KOSMOS or any further reference to it, direct or
indirect, or anything deemed by Licensor to be similar to the Vista
Technology and KOSMOS in connection with the manufacture, sale or
distribution of Licensee's products, except as provided in paragraph 10.
<PAGE>
12. NOTICES. All notices and statements to be given, and all payments
to be made hereunder, shall be given or made at the respective addresses
of the parties as set forth above unless notification of a change of
address is given in writing, and the date of mailing shall be deemed the
date the notice or statement is given.
13. NO JOINT VENTURE. Nothing herein contained shall be construed to
place the parties in the relationship of partners or joint venturers,
and either party shall have no power to obligate or bind the other in
any manner whatsoever.
14. ASSIGNMENT AND SUBLICENSE. The Licensor shall not have the right
to assign this Agreement or any rights granted to Licensor hereunder
without the prior written consent of the Licensee. This Agreement and
the rights and licenses granted to the Licensee hereunder may be
assigned to a successor in interest of the entire or of a substantial
portion of the business of Licensee. The Licensee may, at its option,
s u b license to affiliated parties or subsidiaries the right to
incorporate built-in applications of the Vista Technology and KOSMOS in
electronic appliances.
15. NO WAIVER. None of the terms of this agreement can be waived or
modified except by an express agreement in writing signed by both
parties. The failure of either party hereto to enforce, or the delay by
either party in enforcing, any of its rights under this Agreement shall
not be deemed a continuing waiver or a modification thereof and either
party may, within the time provided by applicable law, commence
appropriate legal proceeding to enforce any or all of such rights. No
person, firm, group or corporation other than Licensee and Licensor
shall be deemed to have acquired any rights by reason of anything
contained in this Agreement, except as provided in paragraph 14.
IN WITNESS WHEREOF, the parties have caused this instrument to be
duly executed as of April 23, 1996.
LICENSOR: LICENSEE:
INTERACTIVE VIDEO CURTIS MATHES MARKETING
PUBLISHING, INC. CORPORATION
By: /s/ David Serlin By: s/ Pat Custer
David Serlin, CEO Patrick A. Custer,
President
<PAGE>
EXHIBIT 10.29
TRADEMARK LICENSE AGREEMENT
AGREEMENT made this date by and between CURTIS MATHES CORPORATION,
located at 10911 Petal Street, Dallas, Texas 75238 (hereinafter called
''Licensor''), and INTERACTIVE VIDEO PUBLISHING, INC., located at 2604-B
El Camino Real, Suite 382, Carlsbad, California 92008 (hereinafter
called ''Licensee''):
WHEREAS Licensor owns the valuable federally registered trademark
''Curtis Mathes (and design)" (hereinafter referred to as the
''Trademark''), said Trademark having been used over the facilities of
numerous stations in radio and/or television broadcasting in allied
fields, and in promotional and advertising material in different
businesses and being well known and recognized by the general public and
associated in the public mind with Licensor, and
WHEREAS Licensee desires to utilize the Trademark upon and in
connection with the manufacture, sale and distribution of articles
hereinafter described,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, it is hereby agreed:
1. GRANT OF LICENSE.
(a) LICENSED PRODUCTS. Upon the terms and conditions hereinafter
set forth, Licensor hereby grants to Licensee the right and license to
use the Trademark, and Licensee hereby accepts the right, license and
privilege of utilizing the Trademark solely and only upon and in
connection with the manufacture, sale and distribution of the following
articles:
Set-Top Units with the Vista Technology
with all such articles that are distributed or marketed by or on behalf
of the Licensee bearing the Trademark being hereinafter referred to as
the "Licensed Products."
(b) TERRITORY. The license hereby granted extends only to
Canada, the Continental United States and the States of Hawaii and
Alaska (hereinafter referred to as the ''Territory''). Licensee agrees
that it will not make, or authorize, any use, direct or indirect, of the
Trademark in any other area, and that it will not knowingly sell
Licensed Products to persons who intend or are likely to resell them in
any other area.
(c) TERM. The term of the license hereby granted shall be
effective on the date of execution of this Agreement and shall continue
for five (5) years, unless sooner terminated in accordance with the
provisions hereof. At the end of this term, and at the end each term
thereafter, this license shall be automatically renewed for successive
one year terms, unless either party hereto shall be given written notice
to the contrary at least thirty (30) days prior to the expiration date
of the then current term.
<PAGE>
2. TERMS OF PAYMENT.
(a) RATE. Licensee agrees to pay to Licensor as royalty a sum
equal to three percent (3%) of all net sales of the Licensed Products by
Licensee or any of its affiliated, associated or subsidiary companies.
The term ''net sales'' shall mean gross sales less quantity discounts
and returns, but no deduction shall be made for cash or other discounts
or uncollectible accounts. No costs incurred in the manufacture, sale,
distribution or exploitation of the Licensed Products shall be deducted
from any royalty payable by Licensee.
(b) LICENSING FEE. Licensee agrees to pay to Licensor a licensing
fee of Ten Thousand Dollars ($10,000) upon execution of this Agreement.
(c) MINIMUM ROYALTIES. Licensee further agrees to pay to Licensor
a minimum annual royalty of Ten Thousand Dollars ($10,000) as a minimum
guarantee against royalties to be paid to Licensor during each year of
the contract term, said minimum royalty to be paid in quarterly
installments within fifteen (15) days after the close of each calendar
quarter during the term of this Agreement or any extension hereof.
Payment shall accompany the statements furnished as required below.
(d) ROYALTY PAYMENTS. Royalties in excess of the aforementioned
minimum royalty shall be due within fifteen (15) days after the close of
each calendar quarter in which earned, during the term of this Agreement
or any extension hereof, and payment shall accompany the statements
furnished as required below. The receipt or acceptance by Licensor of
any of the statements furnished pursuant to this Agreement or of any
royalties paid hereunder (or the cashing of any royalty checks paid
hereunder) shall not preclude Licensor from verifying the correctness
thereof at any time, and in the event that any inconsistencies or
mistakes are discovered in such statements or payments, they shall
immediately be rectified and the appropriate payment made by Licensee.
Domestic taxes payable in the licensed territory shall be payable by
Licensee.
(e) PERIODIC STATEMENTS. (i) Within fifteen (15) days after
the close of each calendar quarter during the term of this Agreement or
any extension hereof, Licensee shall furnish to Licensor, in a form
acceptable to Licensor, a complete and accurate statement certified to
be accurate by Licensee showing the number, description and gross sales
price, itemized deductions from gross sales price and net sales price of
the Licensed Products distributed and/or sold by Licensee during the
preceding calendar quarter, together with any returns made during the
preceding calendar quarter. Such statements shall be furnished to
Licensor whether or not any of the Licensed Products have been sold
during the preceding calendar quarter.
(ii) Within sixty (60) days after the end of each year of
this Agreement or any extension hereof, Licensee shall furnish to
Licensor, in a form acceptable to Licensor, a statement showing the
number, description and gross sales price, itemized deductions from
gross sales price and net sales price of the Licensed Products
distributed and/or sold by Licensee during the preceding calendar year,
together with any returns made during the preceding calendar year, as
shown on Licensee's business books and records. If such statement
discloses any underpayment of royalties for that year, Licensee shall
<PAGE>
pay the amount of the underpayment to Licensor at the time of the
statement required under this paragraph. Any overpayment shall be
credited by Licensor to Licensee's account.
(iii) All books and records maintained by Licensee relating
to operations concerning this License shall be available for inspection
by Licensor or any of its designated representatives at any reasonable,
mutually agreeable time and Licensee shall cooperate with any person
making such examination on behalf of Licensor. All books of account and
records shall be kept available for at least two (2) years after the
termination of this license.
3. EXCLUSIVITY. Nothing in this Agreement shall be construed to
prevent Licensor from granting any other licenses for the use of the
Trademark in connection with products not covered by this Agreement, or
from otherwise utilizing the Trademark in any manner whatsoever,
including the sale of Licensed Products currently existing in Licensor's
inventory or the delivery of which Licensor may be obligated to accept
under current production contracts. Notwithstanding the foregoing
however, Licensor agrees that, except as provided herein, it will grant
no other licenses for the use of the Trademark in connection with the
sale of the Licensed Products for the territory to which this license
extends effective during the term of this Agreement or any extension
hereof. In the event Licensor desires in the future to utilize the
Trademark in connection with the manufacture, distribution or sale of a
particular model or style of a Licensed Product covered by this
Agreement, Licensor shall obtain Licensee's written permission to so use
the Trademark, which permission will not be unreasonably withheld.
4. ADVERTISING. Upon commercial introduction of the Licensed
Products, Licensee agrees to use its best efforts to advertise and
promote the sale of the Licensed Products during the term of this
Agreement or any extension hereof.
5. GOOD WILL. Licensee recognizes the great value of the good will
associated with the Trademark, and acknowledges that the Trademark and
all rights therein and good will pertaining thereto belong exclusively
to Licensor, and that the Trademark has a secondary meaning in the mind
of the public.
6. PROTECTION OF LICENSOR'S RIGHTS. Licensee agrees to assist
Licensor to the extent necessary in the procurement of any protection or
to protect any of Licensor's rights to the Trademark, and Licensor, if
it so desires may commence or prosecute any claims or suits in its own
name or in the name of Licensee or join Licensee as a party thereto.
Licensee shall notify Licensor in writing of any infringements or
imitations by others in the Trademark on articles the same as or similar
to those covered by this Agreement which may come to Licensee's
attention, and Licensor shall have the sole right to determine whether
or not any action shall be taken on account of any such infringements or
imitations. Licensee shall not institute any suit or take any action on
account of any such infringements or imitations without first obtaining
the written consent of Licensor.
7. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE.
Licensee hereby indemnifies Licensor and undertakes to defend itself
and/or Licensor against and hold Licensor harmless from any claims,
suits, loss and damage arising out of any allegedly unauthorized use of
<PAGE>
any trademark, patent, process, idea, method or device by Licensee in
connection with the Licensed Products or any other alleged action by
Licensee and also from any claims, suits, loss and damage arising out of
alleged defects in the Licensed Products. Licensee agrees that it will
obtain, at its own expense, product liability insurance in a mutually
agreed amount from a recognized insurance company acceptable to
Licensor, providing adequate protection for Licensor (as well as for
Licensee) against any claims, suits, loss or damage arising out of any
alleged defects in the Licensed Products. As proof of such insurance, a
fully paid certificate of insurance naming Licensor as an insured party
will be submitted to Licensor by Licensee for Licensor's prior approval
before any Licensed Product is distributed or sold, and at the latest
within thirty (30) days after the date of this Agreement. Any proposed
change in certificates of insurance shall be submitted to Licensor for
its prior approval. Licensor shall be entitled to a copy of the then
prevailing certificate of insurance, which shall be furnished to
Licensor by Licensee.
8. QUALITY OF LICENSED PRODUCTS. Licensee agrees that the Licensed
Products shall be of high standard and of such style, appearance and
quality as to be adequate and suited to their exploitation to the best
advantage and to the protection and enhancement of the Trademark and the
good will pertaining thereto, that such articles will be manufactured,
sold and distributed in accordance with all applicable Federal, State
and local laws, including but not limited to, product safety and
labelling, and that the same shall not reflect adversely upon the good
Trademark of Licensor. Licensee shall use the Trademark only with the
Licensed Products manufactured by or for the Licensee in accordance with
specifications, directions, and processes approved by the Licensor or
its representatives or agents from time to time, and the quality of the
Licensed Products shall be according to industry standards as approved
in writing by Licensor.
9. WARRANTY AND SERVICING. Licensee agrees to provide the warranty
and servicing for all Licensed Products manufactured, distributed or
sold by it after the date of this Agreement, unless otherwise agreed in
writing.
10. LABELING. (a) Licensee agrees that it will cause to appear on or
within each Licensed Product sold by it under this license and on or
within all advertising, promotional or display material bearing the
Trademark the appropriate statutory notice of registration thereof. In
the event that any Licensed Product is marketed in a carton, container
and/or packing or wrapping material bearing the Trademark, such notice
shall also appear upon the said carton, container and/or packing or
wrapping material. Each and every tag, label, imprint or other device
containing any such notice and all advertising, promotional or display
material bearing the Trademark shall be submitted to Licensor for its
written approval prior to use by Licensee. Approval by Licensor shall
not constitute a waiver of Licensor's rights or Licensee's duties under
any provision of this Agreement.
(b) Licensee agrees to cooperate fully and in good faith with
Licensor for the purpose of securing and preserving Licensor's rights in
and to the Trademark. Nothing contained in this Agreement shall be
construed as an assignment or grant to the Licensee of any right, title
or interest in or to the Trademark, it being understood that all rights
relating thereto are reserved by Licensor, except for the license
<PAGE>
hereunder to Licensee of the right to use and utilize the Trademark only
as specifically and expressly provided in this Agreement. Licensee
hereby agrees that at the termination or expiration of this Agreement,
including any extension hereof, Licensee will be deemed to have
assigned, transferred and conveyed to Licensor any rights, equities,
good will, titles or other rights in and to the Trademark which may have
been obtained by Licensee or which may have vested in Licensee in
pursuance of any endeavors covered hereby, and that Licensee will
execute any instruments requested by Licensor to accomplish or confirm
the foregoing. Any such assignment, transfer or conveyance shall be
without other consideration than the mutual covenants and considerations
of this Agreement.
(c) Licensee hereby agrees that its every use of such Trademark
shall inure to the benefit of Licensor and that Licensee shall not at
any time acquire any rights in such Trademark by virtue of any use it
may make of such Trademark.
11. PROMOTIONAL MATERIAL. I n all cases where Licensee desires
artwork involving Licensed Products, the cost of such artwork and the
time for the production thereof shall be borne by Licensee. All artwork
and designs involving the Trademark, or any reproduction thereof, shall,
notwithstanding their invention or use by Licensee, be and remain the
property of Licensor and Licensor shall be entitled to use the same and
to license the use of the same by others.
12. DISTRIBUTION. (a) Licensee agrees that during the term of this
license it will diligently and continuously manufacture, distribute and
sell the Licensed Products and that it will make and maintain adequate
arrangement for their distribution.
(b) Licensee shall not, without prior written consent of Licensor,
sell or distribute such Licensed Products to jobbers, wholesalers,
distributors, retail stores or merchants whose sales or distribution are
or will be made for publicity or promotional tie-in purposes,
combination sales, premiums, giveaways, or similar methods of
merchandising, or whose business methods are questionable.
(c) Licensee agrees to sell to Licensor such quantities of the
articles at as low a rate and on as good terms as Licensee sells similar
quantities of the Licensed Products to the general trade.
13. TERMINATION. (a) If Licensee shall not have commenced in good
faith to manufacture and distribute Licensed Products in substantial
quantities within six (6) months after the date of this Agreement or if
at any time thereafter in any calendar month Licensee fails to sell any
of the Licensed Products, Licensor, in addition to all other remedies
available to it hereunder, may at its sole option terminate this license
with respect to any Licensed Products which have not been manufactured
and distributed during such month, by giving written notice of
termination to Licensee. Such notice shall be effective when mailed by
Licensor.
(b) Should the Licensee fail to comply with any material provision
of this Agreement, the Licensor may terminate this license upon thirty
(30) days' written notice to the Licensee, provided that the Licensee
has not corrected such default during the notice period.
<PAGE>
(c) Termination of the license under the provisions of this
paragraph shall be without prejudice to any rights which Licensor may
otherwise have against Licensee. Upon the termination of this license,
notwithstanding anything to the contrary herein, all royalties on sales
theretofore made shall become immediately due and payable and no minimum
royalties shall be repayable or avoidable.
14. FINAL STATEMENT UPON TERMINATION OR EXPIRATION. Sixty (60) days
before the expiration of this license and, in the event of its
termination, ten (10) days after receipt of notice of termination,
Licensee shall furnish to Licensor a statement showing the number and
description of Licensed Products on hand or in process. Licensor shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement, and refusal by Licensee to submit to such
physical inventory by Licensor shall forfeit Licensee's right to dispose
of such inventory, Licensor retaining all other legal and equitable
rights Licensor may have in the circumstances.
15. DISPOSAL OF STOCK UPON TERMINATION OR EXPIRATION. After
termination of the license under the provisions of paragraph 13,
Licensee may, except as otherwise provided in this Agreement, dispose of
Licensed Products which are on hand or in process at the time notice of
termination is received. Such disposal may occur for a period of sixty
(60) days after notice of termination, provided advances and royalties
with respect to that period are paid and statements are furnished for
that period in accordance with paragraph 2. Notwithstanding anything to
the contrary herein, Licensee shall not manufacture, sell or dispose of
any Licensed Products after an expiration or a termination of this
license which is based on the failure of Licensee to affix notice of
trademark registration or any other notice to the Licensed Products,
cartons, containers, or packing or wrapping material or advertising,
promotional or display material, or because of the departure by Licensee
from the quality and style approved by Licensor pursuant to paragraph 8.
16. EFFECT OF TERMINATION OR EXPIRATION. Upon and after the
expiration or termination of this license, all rights granted to
Licensee hereunder shall forthwith revert to Licensor, who shall be free
to license others to use the Trademark in connection with the
manufacture, sale and distribution of the Licensed Products and Licensee
will refrain from further use of the Trademark or any further reference
to it, direct or indirect, or anything deemed by Licensor to be similar
to the Trademark in connection with the manufacture, sale or
distribution of Licensee's products, except as provided in paragraph 15.
17. NOTICES. All notices and statements to be given, and all payments
to be made hereunder, shall be given or made at the respective addresses
of the parties as set forth above unless notification of a change of
address is given in writing, and the date of mailing shall be deemed the
date the notice or statement is given.
18. NO JOINT VENTURE. Nothing herein contained shall be construed to
place the parties in the relationship of partners or joint venturers,
and Licensee shall have no power to obligate or bind Licensor in any
manner whatsoever.
19. NO ASSIGNMENT OR SUBLICENSE BY LICENSEE. This Agreement and all
rights and duties hereunder are personal to Licensee and shall not,
without the written consent of Licensor, be assigned, mortgaged,
<PAGE>
sublicensed or otherwise encumbered by Licensee or by operation of law.
Licensor may assign its rights hereunder, but upon doing so, shall
furnish written notice of any such assignment to Licensee.
20. NO WAIVER. None of the terms of this agreement can be waived or
modified except by an express agreement in writing signed by both
parties. The failure of either party hereto to enforce, or the delay by
either party in enforcing, any of its rights under this Agreement shall
not be deemed a continuing waiver or a modification thereof and either
party may, within the time provided by applicable law, commence
appropriate legal proceeding to enforce any or all of such rights. No
person, firm, group or corporation (whether included in the Trademark or
otherwise) other than Licensee and Licensor shall be deemed to have
acquired any rights by reason of anything contained in this Agreement,
except as provided in paragraph 19.
IN WITNESS WHEREOF, the parties have caused this instrument to be
duly executed as of April 23, 1996.
LICENSOR: LICENSEE:
CURTIS MATHES CORPORATION INTERACTIVE VIDEO PUBLISHING, INC.
By: s/ Pat Custer By: /s/ David Serlin
Patrick A. Custer, David Serlin, CEO
President
<PAGE>
EXHIBIT 21
CURTIS MATHES HOLDING CORPORATION
SUBSIDIARIES OF THE COMPANY
Name State of Incorporation
Curtis Mathes Corporation Delaware
Curtis Mathes Marketing Corporation Texas
(Formerly ID Logic, Inc.)
Warranty Repair Corporation Texas
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS AT JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 4,150,481
<SECURITIES> 0
<RECEIVABLES> 403,252
<ALLOWANCES> 0
<INVENTORY> 646,929
<CURRENT-ASSETS> 10,185,168
<PP&E> 1,327,448
<DEPRECIATION> 671,346
<TOTAL-ASSETS> 15,210,406
<CURRENT-LIABILITIES> 2,953,773
<BONDS> 0
<COMMON> 243,112
0
262,745
<OTHER-SE> 11,217,675
<TOTAL-LIABILITY-AND-EQUITY> 15,210,406
<SALES> 7,656,836
<TOTAL-REVENUES> 7,656,836
<CGS> 6,867,560
<TOTAL-COSTS> 6,867,560
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 888,114
<INTEREST-EXPENSE> 583,433
<INCOME-PRETAX> (5,887,313)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,187,353)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,187,353)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
