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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-10984-LA
TUFCO INTERNATIONAL, INC.
(Name of Small Business Issuer as specified in its charter)
Nevada 95-4071623
------------ ---------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
12575 Pioneer Lane 72734
Gentry, Arkansas -----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (501) 736-2201
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Indicate by check mark whether the adjustment (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act 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 T No .
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. T
The Issuer's revenues for the fiscal year ending May 31, 1999 were
$6,049,462.
As of September 7, 1999, 6,965,800 shares of the Issuer's common stock
were issued and outstanding 1,154,543 of which were held by non-affiliates. As
of September 7, 1999, the aggregate market value of shares held by
non-affiliates (based upon an average price) was approximately $363,681.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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<PAGE>
PART I
ITEM 1. BUSINESS
General
Tufco International, Inc., (the "Company") is engaged in the business of
installing industrial floors and selling floor products, supplies and techniques
to its franchisees and licensees. The Company's floors are known as "Tufco
Floors". The installation of the Company's floors is accomplished by the Company
or by one of the Company's franchisees or licensees.
Industry Overview
The industrial flooring industry is made up of a number of small and
medium size businesses offering a variety of flooring products and surfaces to
industrial customers. Many industries engaged in manufacturing or other lines of
business have flooring requirements as a result of extensive wear or chemical
corrosion. Some businesses are engaged in industries which have specific
industry flooring standards. For example, the USDA has promulgated numerous
standards for flooring used in food operations. Flooring standards are generally
adopted for health and safety reasons.
Many businesses use a variety of chemicals in their manufacturing
operations which frequently result in corrosion of the floors. Corrosion of
floors can cause great expense and unsafe working conditions for such
businesses. The Tufco Floor is designed to provide industrial users with a
corrosion resistant, skid resistant and wear resistant floor. From time to time,
the Company has submitted to the USDA information concerning the chemical
components of Tufco Floor products. For more than 30 years, the USDA has stated
that the chemical composition of Tufco Floors is acceptable for use in food
processing and meat packaging industries.
Company Products
Tufco Floor. The Company's primary product is the TUFCO FLOOR. This
industrial flooring surface is offered in a variety of colors and formulations
designed to meet the specific needs and requirements of its customers. A Tufco
Floor is a floor made from six laminated layers of various types of resins,
bonding agents, aluminum oxide, high grade finishing sand and other components.
Each of the six separate layers consists of distributed resin squeegeed over the
existing flooring surface. Aggregate is distributed throughout two of the
layers. Aluminum oxide or sand is used in the top layers for maximum wear and to
provide a safe, skid proof surface. The Tufco Floor is installed on top of an
existing floor, generally concrete. The Tufco Flooring process requires that the
existing floor be treated both chemically and mechanically pursuant to Tufco
specifications prior to the application of the Tufco Floor.
The exact composition of a Tufco Floor varies according to the needs and
requirements of the specific customer. Tufco Floors are designed to be chemical
resistant, skid resistant and wear resistant and come with a five year warranty.
Historically, Tufco Floors have been made from a
<PAGE>
vinyl ester base. Tufco Floors are now available with a 100% solid epoxy which
contains no styrene and is therefore, free of this odor. This allows a Tufco
Floor to be installed in such industrial plants as food processing plants or
open vat breweries without a shut down in processing lines due to styrene odors.
The Company's product line essentially consists of the various components
of the Tufco Floor sold to its franchisees and licensees. The Company's products
are offered and sold to its franchisees and licensees in bulk which permits such
franchisee or licensee to complete a particular flooring installation project.
The Company also offers and sells "patch kits" which come in several colors and
permit small repairs to be easily made.
Tufco Floors have been installed on various sizes of floors ranging from
200 square feet to 95,000 square feet. The Company estimates that the average
flooring job requires 4,000 square feet of Tufco Flooring and takes
approximately 40 hours to install. The installation of a floor this size
typically requires the services of 6 installers. Tufco Floors are generally
ready for full usage within six hours after installation is complete.
Warranties
Tufco Floors are warranted to the customer by the franchisees for a period
of five (5) years subject to certain conditions. If the conditions are met, the
Tufco Floor is unconditionally warranted by the franchisee for its normal
intended use for three years and will be replaced or repaired at no charge to
the customer. During the fourth year following installation, the franchisee will
pay 75% of the cost of repair or replacement and the customer will pay 25% of
the cost. During the fifth year following installation, the franchisee will pay
50% of the costs of repairing or replacing the floor and the customer will be
required to pay 50% of the price. During the last two fiscal years, the Company
has not accrued or incurred any material costs for repair or replacement of
floors pursuant to its warranty.
Customers
Tufco Floors have been installed for national and local businesses
operating in a wide variety of industries. Generally, the Company solicits
business from nationally based customers and then refers such nationally based
customers to the franchisee operation within the territory in which the Tufco
Floor is to be installed. The franchisee then installs the Tufco Floor for the
nationally based company and the Company sells the floor supplies or ceilings or
walls to the franchisee. The franchisee also solicits local businesses in the
franchised or licensed territory.
The Company primarily sells its products to its franchisees who in turn
install Tufco Floors for the ultimate user. The Company has a limited number of
franchisees and therefore, a limited number of direct customers. During the
years ending May 31, 1999 and 1998, there were franchisees that accounted for
more than 10% of the total sales of the Company. These franchisees were the
following:
<PAGE>
Year Ended May 31
-----------------
1999 Per 1998 Per
Franchisee Sales cent Sales cent
------------------------------------------------------------------
Arkotex, Inc. $2,040,000 35% $1,838,000 28%
Tufco Flooring, Inc. $884,000 15% $ 947,000 15%
TOTAL $2,924,000 50% $2,785,000 43%
Suppliers and Manufacturing
Tufco Floors are made up of various resins, sands, aluminum oxide and
other components. The Company purchases the various components from its
suppliers and has the components shipped to the Company's headquarters. The
Tufco Floor components are stored in the Company's warehouse facilities until
needed for a specific installation project. At such time, the Company's
employees prepare and assemble the specific ingredients required in the Tufco
Floor to be installed at the particular installation project. These ingredients
are prepared and assembled from the various components stockpiled at the
Company's warehouse facility. The specific ingredients are then packaged in
metal drums and plastic containers and shipped for installation. The Company
ships, in its own trucks and independent common carriers, the containers of
Tufco Flooring mix directly to the franchisee who installs the Tufco Floor for
the customer.
For the years ending May 31, 1999 and 1998, the Company purchased 33% and
38%, respectively, of its raw materials from Interplastics Corporation.
Management believes that it could purchase equivalent raw materials from other
sources at comparable cost, and an interruption in the relationship with such
supplier should not have an adverse effect on the continuous flow of the
Company's operations.
The balance of the Company's raw materials are purchased from a number of
different suppliers. Management believes that it would be able to find suitable
alternative suppliers at comparable costs in the event it were not able to
purchase such supplies from its current suppliers.
Franchise Program
The Company primarily sells its flooring products to various franchisees
and licensees located in the United States, Mexico and Canada. There are
currently 14 franchise areas in the United States and Canada. The earliest
franchise was sold in 1976 and the most recent franchise was sold in 1997. Upon
the sale of a franchise territory, a franchisee pays an initial franchise fee
and a continuing franchise fee, the amounts of which depend on the franchise
area granted. The initial franchise fee is payable in advance and the continuing
franchise fee is payable quarterly based upon a percent of the gross revenues
(normally 10%) of the franchisee, until paid in full. Initial franchise fee
revenue received is deferred until all material services or conditions relating
to the franchise agreement have been substantially performed or satisfied by the
Company. Upon completion of substantial performance, continuing franchise fees
are recognized when received. No initial franchise fee revenue was recognized
the two years ended May 31, 1999 and 1998.
<PAGE>
The franchise agreement grants the franchisee the right to own and operate
Tufco Flooring Franchises at locations approved by the Company. The franchisees
may offer and sell flooring products and services which utilize the trade
secrets, secret processes, formats, designs, methods, specifications, standards,
operating procedures, trademarks and other commercial symbols of the Company.
Each franchisee is required to purchase Tufco Floor components from the Company.
Some materials, such as sand may be purchased locally with Company approval. The
sale of components to franchisees is the principal source of income to the
Company with respect to the franchisees.
There are currently the following operating franchisees:
Date Franchise
Granted Area(1)
1. 8/01/76 Oklahoma, Texas, Arkansas, Louisiana
2. 11/01/82 N. and S. Dakota, Nebraska, Kansas, Iowa,
Missouri, Colorado
3. 11/01/82 Tennessee, North Carolina and South Carolina
4. 8/02/86 Northern California
5. 1/04/88 Washington, Oregon
6. 11/01/88 Florida, Georgia
7. 12/10/88 Minnesota, Michigan, Illinois, Indiana, Wisconsin
8. 10/03/94 Ohio, Kentucky, West Virginia
9. 2/28/87 Ontario, Canada
10. 12/01/89 Quebec, Canada
11. 3/04/86 Maritimes, Canada
12. 11/1/94 Mississippi, Alabama
13. 1/2/95 Delaware, Virginia, Maryland, Pennsylvania.
14. 1/1/97 Nevada, Idaho, Montana, Wyoming, Utah
There are currently 9 states which are not covered by a franchise
relationship. Any Tufco Floor installation in such states is performed by the
Company or a licensee of the Company. In September 1993, the Caribbean Island
franchise agreement was discontinued by the Company due to non-performance under
the franchise agreement. In January 1994, the franchise agreement for the areas
of Ohio, Kentucky and West Virginia was discontinued by the Company due to
non-performance under the franchise agreement. In October 1994, this franchise
territory was resold for $425,000.
Sales Information
The Company's products were sold to its franchisees and licensees who
utilize the products to install Tufco Floors and Arcoplast ceilings and walls
for their customers. For purposes of this section, sales are divided into
franchise sales and Company sales (which are revenues primarily generated from
the installation of floors). Information about gross sales during the last two
years is as follows:
<PAGE>
5/31/99 5/31/98
--------------------------------
Franchise Sales (1) $5,297,000 $5,386,000
Royalties (2) $265,000 $ 283,000
Franchise Fees (3) $38,000 $ 4,000
Company Sales (4) $56,000 $ 406,000
Foreign Sales (5) $393,000 $ 407,000
--------------------------------
Total Sales $6,049,000 $6,486,000
================================
(1) Sales of products to franchisees.
(2) Royalties received from sales of products to franchisees.
(3) Initial and continuing franchise fees.
(4) Sales made directly by the Company or by its subsidiaries which
are unrelated to revenues generated from transactions with
franchisees.
(5) Sales generated by the Company from sales of products to Tufco
Canada and the Canadian Franchises and sales of products
and installations performed by the Company in Mexico.
The Company's products were sold in the United States, Mexico and Canada
during the last two years. The following chart provides information as to the
allocation of sales between United States and foreign markets.
5/31/99 5/31/98
--------------------------------
U.S. Sales $5,656,000 $6,079,000
Foreign Sales $393,000 $ 407,000
--------------------------------
Total Sales $6,049,000 $6,486,000
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For the fiscal years ended May 31, 1999 and 1998, approximately 100% of
the Company's sales were for Tufco Floors.
Marketing
The Company's products are primarily marketed by its franchisees and
licensees who conduct their own marketing campaigns and develop their own
marketing strategies. The Company does attend various trade shows and advertises
in various trade journals. In October 1994 and August 1995, the Company released
its first technical three ring binder and flooring guides which includes
technical information, specification sheets, product selector and sample cards.
Competition
The business in which the Company competes is fragmented and subject to
numerous competitive factors which include price, quality, reliability and
market acceptance. The Company faces competition from numerous sources which
operate on a national, regional or local basis.
<PAGE>
Although Management believes the Company's Tufco Floor offer advantages over
competitive products, there can be no assurance that the Company will be able to
effectively compete in the market place. Competing producers of the Company's
Tufco Floor include, but are not limited to:
Stonhard, General Polymers, Ceilcote and Trowelon.
Trademarks
The Company has obtained a trademark for the name "Tufco" from the United
States Patent and Trademark Office. The trademark was granted for a term of 20
years ending March 11, 1994. The trademark renewal was registered on March 12,
1994 under Registration No. 980205 in class 12 for "laminated seamless acid
resistant flooring". The Company has also obtained with the Department of
Commerce and Industrial Development (SECOFI) in Mexico trademarks for the names
"Tufco". The Company has not sought or obtained patent protection for its floors
but relies on trade secret protection.
Governmental Regulation
The Company is, and will continue to be, subject to numerous governmental
regulations by federal, state, local and foreign government agencies which are
applicable to all businesses in general. Additionally, the Company is subject to
numerous federal and state laws and regulations which are specifically
designated for businesses involved in the franchise industry and businesses
which may be required to dispose of chemical products, such as the resins, which
are components of the Company's Tufco Flooring. The Company is subject to the
franchise rules and regulations of the Federal Trade Commission and the various
states in which it offers and sells franchises. The Company will continue to be
subject to franchise regulations both on a federal and state basis and will
continue to incur costs in complying with such rules and regulations.
Management believes the Company is currently in compliance in all material
respects with applicable federal, state, local and foreign regulations, statutes
and ordinances regulating the discharge of materials into the environment and
otherwise relating to the protection of the environment. Management does not
believe the Company will be required to expend any material amounts in order to
remain in compliance with these laws and regulations or that compliance will
materially affect its capital expenditures, earnings or competitive position in
the marketplace.
Employees
The Company employs 7 full-time personnel, 2 of whom are executives, and 2
of whom are clerical. The Company also employs 3 warehouse personnel. The
Company hires part-time employees on an as-needed basis.
Insurance
The Company maintains liability insurance in the amount of $1,000,000 per
occurrence and $2,000,000 in the aggregate. While Management believes its
insurance policies to be adequate in amount and coverage for its current
operations, there can be no assurance that coverage will continue to be
available in adequate amounts or at a reasonable cost, and there can be no
assurance that the insurance proceeds, if any, will cover the full extent of
loss resulting from the claims.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns approximately 15 acres of property on 12575 Pioneer Lane
in Gentry, Arkansas upon which its offices, warehouse and research and
development facilities are located. The Company's offices, warehouse and
research and development facilities are contained in a building of approximately
14,000 square feet. Management believes its facilities are adequate for its
current needs.
ITEM 3. LEGAL PROCEEDINGS
There are not presently any material legal proceedings to which the
Company is a party or which any of its property or wholly-owned subsidiary is
subject and no such proceedings are known to be threatened or contemplated
against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to the Company's shareholders for voting during
the fourth quarter of the fiscal year ending May 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND WARRANTS AND
RELATED SECURITY HOLDER MATTERS
A. The Company's common stock is quoted on the NASD's Electronic Bulletin
Board, however, during the last two years there has been only a limited number
of actual transactions. There can be no assurance that an active market in the
Company's common stock will ever develop or if developed that it will be
sustained.
B. Holders of Common Stock. The approximate number of holders of record of
the Company's common stock was 38 as of September 7, 1999. Management believes
the actual number of beneficial holders of its Common Stock is greater than the
number of shareholders of record.
C. Dividends. During the last fiscal year, the Company paid dividends
totalling $.02 per share.
Outstanding Warrants
Each Unit offered and sold in the Company's initial public offering
consisted of ten (10) shares of common stock, one hundred (100) Class "A" Common
Stock Purchase Warrants, one hundred (100) Class "B" Common Stock Purchase
Warrants and one hundred (100) Class "C" Common Stock Purchase Warrants. Each
Class "A" Warrant entitles the holder to purchase one share of the Company's
common stock at $.75 per share, each Class "B" Warrant entitled the holder to
purchase one share of the Company's common stock at $.95 per share and each
Class "C" Warrant entitles the holder to purchase one share of common stock at
$1.15 per share.
<PAGE>
The Class "B" and Class "C" Warrants have expired. The exercise period of
the Class "A" Warrants have been extended several times and are currently as
follows:
1. Class "A" Warrants. Expiration on June 30, 2000.
The Warrants may be further extended at the discretion of the Board of
Directors.
The Warrants may not be exercised unless and until there is a current
registration statement on file with the Securities and Exchange Commission
relating to the shares of common stock underlying the Warrants. There is not a
current registration statement on file with the Securities and Exchange
Commission and, therefore, the Warrants are not currently exercisable. The
Warrants may be exercised only in those states in which it is legally
permissible to do so.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
General
The Company is engaged in the business of selling and installing
industrial flooring.
Results of Operations
The Company's revenues are primarily attributed to the sale of flooring
components to its franchisees and licensees and the sale and installation of
complete flooring jobs by the Company.
The following table sets forth certain items from the Company's
consolidated statements of operations as a percentage of net sales for the
period indicated:
Years Ended
May 31st
1999 1998
-------------------
Net Sales 100% 100%
Cost of Sales 66% 69%
Gross Profit 34% 31%
Operating Expenses 26% 26%
Operating Income 8% 5%
Other Income 10% 2%
Income Taxes 2% 3%
Net Income 6% 4%
Year Ended May 31, 1999 Compared to Year Ended May 31, 1998
Total net sales for the year ended May 31, 1999, were $6,049,462 compared
with $6,486,037 for the year ended May 31, 1998, a decrease of approximately
6.73%. The decrease was attributed a reduction in company installations due to
the sale of the Pennsylvania territory to an existing
<PAGE>
franchise who preformed the installations in 1998. Sales to U.S. customers for
the year ended May 31, 1999 and 1998 amounted to 94% of total sales. The Company
has not identified any trend in sales and cannot predict whether installation
orders will continue to increase in the immediate future.
Gross profit as a percentage of sales increased to 34% for the year ended
May 31, 1999, from 31% for the year ended May 31, 1998. Gross profit as a
percentage of sales in fiscal 1997 was 27%. The increase in percentage of gross
profit was the result of the elimination of gross profit on floor installations
performed by the Company and lower gross profit on sales of Arcoplast wall and
ceiling panels.
Operating Expenses. Operating expenses decreased in absolute dollar amount
from $1,653,552 for the year ended May 31, 1998, to $1,579,086 for the year
ended May 31, 1999. Operating expenses as a percentage of net sales remained the
same as 1998. Total selling expenses were $351,126 (5% of sales) for the year
ended May 31, 1998, to $272,915 (5% of sales) for the year ended May 31, 1999.
General and administrative costs decreased from $1,279,938 (20% of total sales)
for the year ended May 31, 1998 to $1,211,506 (20% of total sales) for the year
ended May 31, 1999. The decrease in selling expenses and general and
administrative expenses was due largely impart to the elimination of the
Arcoplast division.
Total cost of sales and operating expenses were $5,579,232 for the year
ended May 31, 1999, as compared to $6,134,600 for the year ended May 31, 1998.
Interest Expense. Net interest expense was $78,241 during the year ended
May 31, 1998, as compared to $59,047 for the year ended May 31, 1999.
Other Income. Other income was $65,064 during the year ended May 31, 1999,
as compared to $176,932 for the year ended May 31, 1998. Other income is
primarily attributed to finance and freight charges on franchisees open
accounts.
Net Income. For the year ended May 31, 1999, the Company incurred net
income of $352,337 as compared to net income of $252,460 from the year ended May
31, 1998.
Liquidity and Financial Resources
For the Years Ended May 31, 1999 and 1997
Net cash provided by all activities in fiscal year 1999 was $8,511
compared to ($20,260) in fiscal year 1998.
Total assets as of May 31, 1999, were $2,851,885 as compared to $3,040,757
as of May 31, 1998.
Accounts and notes receivable decreased to $1,500,039 at May 31, 1999
compared to $1,776,007 at May 31, 1998.
The Company continues to have limited cash assets. At May 31, 1999, the
Company had cash of $9,648 compared to cash of $1,137 at May 31, 1998.
<PAGE>
At May 31, 1999, current maturities on long-term debt was $60,613.
Accounts payable at May 31, 1999 were $955,559 compared to $1,088,159 at May 31,
1998.
At May 31, 1999, shareholders equity was $1,171,037 which was a increase
of $45,397 over shareholders equity at May 31, 1998.
During the year ended May 31, 1999, the Company had capital expenditures
of approximately $40,000 for property and equipment. At the beginning of the
fiscal year, the Company had anticipated that such expenditures would be
approximately $25,000. For the current year, management anticipates it will
spend approximately $50,000 to purchase capital equipment to be used primarily
in ongoing research and development, new product development and marketing
efforts.
Short-term cash flow needs are generally met by current revenues.
Management believes that its presently anticipated short-term and long-term
needs for operating capital and debt repayments will be satisfied by funds
currently available.
Forward Looking Statement
The foregoing discussion in "Management's Discussion and Analysis"
contains forward- looking statements, within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act, which
reflect Management's current views with respect to future events and financial
performance. Such forward looking statements may be deemed to include, among
other things, statements relating to anticipated growth, and increased
profitability, as well as to statements relating to the Company's strategic
plan, including plans to develop and increase loan originations and to
selectively acquire other companies. These forward-looking statements are
subject to certain risks and uncertainties, including, but not limited to,
future financial performance and future events, competitive pricing for
services, costs of obtaining capital as well as national, regional and local
economic conditions. Actual results could differ materially from those addressed
in the forward looking statements. Due to such uncertainties and risks, readers
are cautioned not to place undue reliance on such forward-looking statement,
which speak only as of the date whereof.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Financial Statements
Independent Accountants' Report
Years ended May 31, 1999 and 1998
Consolidated Balance Sheet
May 31, 1999
Consolidated Statements of Operations
Years ended May 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity
Years ended May 31, 1999 and 1998
Consolidated Statements of Cash Flows
Years ended May 31, 1999 and 1998
Notes to Consolidated Financial Statements
<PAGE>
Independent Auditor's Report
Board of Directors and Stockholders
Tufco International, Inc.
Gentry, Arkansas
We have audited the accompanying consolidated balance sheet of Tufco
International, Inc. as of May 31, 1999 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the two years in
the period then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Tufco
International, Inc. as of May 31, 1999, and the results of its operations and
its cash flows for each of the two years in the period then ended, in conformity
with generally accepted accounting principles.
Certified Public Accountants
Little Rock, Arkansas
July 23, 1999
<PAGE>
TUFCO INTERNATIONAL, INC.
Consolidated Balance Sheets
May 31, 1999
Assets 1999
Current assets
Cash $ 9,648
Accounts receivable, less allowance for doubtful
accounts of $235,000
Trade 1,176,403
Affiliates 313,636
Notes receivable - current 10,000
Inventories 509,473
Prepaid expenses and other 40,038
Current deferred income tax benefit 98,230
---------------
Total current assets 2,157,428
---------------
Property and equipment
Land 83,500
Buildings 455,896
Machinery and equipment 402,808
Furniture and fixtures 125,606
Vehicles 61,668
---------------
1,129,478
Accumulated depreciation (493,898)
---------------
Net property and equipment 635,580
---------------
Other assets
Notes receivable - long-term -
Reaquired franchise territory, net of
accumulated amortization of $301,711 54,848
Other 4,029
---------------
Total other assets 58,877
---------------
Total assets $2,851,885
===============
The accompanying notes are an integral part of these financial statements.
<PAGE>
TUFCO INTERNATIONAL, INC.
Consolidated Balance Sheets
May 31, 1999
Liabilities and Stockholders' Equity 1999
Current liabilities
Accounts payable $ 955,559
Accrued expenses 90,842
Income taxes payable 113,061
Current maturities of long-term debt 60,613
--------------
Total current liabilties 1,220,075
--------------
Long-term debt, less current maturities 432,376
Deferred income taxes 28,397
Stockholders' equity
Common stock, $.001 par value; authorized
50,000,000 shares; issued and outstanding
6,965,800 shares 6,966
Additional paid-in capital 261,964
Retained earnings 1,300,015
Accumulated comprehensive income (2,077)
-------------
1,566,868
Capital contributions receivable (86,116)
Unamortized employee stock ownership expense (309,715)
-------------
Total stockholders' equity 1,171,037
-------------
Total liabilities and stockholders' equity $ 2,851,885
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
TUFCO INTERNATIONAL, INC.
Consolidated Statements of Operations
For the Years Ended May 31, 1999 and 1998
1999 1998
----
Net sales
Trade customers $ 5,470,013 $ 5,011,114
Affiliates 579,449 1,474,923
-----------------------------
Total net sales 6,049,462 6,486,037
Cost of sales 4,000,146 4,481,048
-----------------------------
Gross profit 2,049,316 2,004,989
-----------------------------
Operating expenses
Selling 272,915 351,126
General and administrative 1,211,506 1,279,938
Bad debts 94,665 22,488
-----------------------------
Total operating expenses 1,579,086 1,653,552
-----------------------------
Income from operations 470,230 351,437
-----------------------------
Other income (expense)
Interest expense (78,241)
(59,047)
Other income 65,064 176,932
-----------------------------
Total other income (expense) 6,017 98,691
-----------------------------
Income before income tax expense 476,247 450,128
Income tax expense 123,910 197,668
-----------------------------
Net income $ 352,337 $ 252,460
=============================
Numerator - net income $ 352,337 $ 252,460
Denominator - weighted average number of shares 6,965,800 6,965,800
-----------------------------
outstanding
Basic earnings per share $ 0.051 0.036
=============================
The accompanying notes are an integral part of these financial statements.
<PAGE>
TUFCO INTERNATIONAL, INC.
Consolidated Statements of Stockholders' Equity
For the Years Ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
Unearned
Employee
Additional Cumulative Capital Stock
Common Paid-In Retained Translation Contributions Ownership
Stock Capital Earnings Adjustment Receivable Shares Total
--------- --------- ---------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - May 31, 1997 $6,966 $261,964 $973,850 $(2,892) $(92,116) $ - $1,147,772
Comprehensive income
Net income - - 252,460 - - - 252,460
Other comprehensive income
Foreign currency
translation adjustment - - - (18) - - (18)
--------- --------- ---------- ----------- ---------- ---------- ----------
Total comprehensive income - - 252,460 (18) - - 252,442
--------- --------- ---------- ----------- ---------- ---------- ----------
Recognition of payments on capital
contributions receivable - - - - 1,500 - 1,500
Option payments advanced on
behalf of ESOP - - - - - (282,494) (282,494)
Unamortized employee stock
ownership expense - - - - - 6,320 6,320
released
--------- --------- ---------- ----------- ---------- ---------- ----------
Balances - May 31, 1998 6,966 261,964 1,226,310 (2,910) (90,616) (276,174) 1,125,540
Comprehensive income
Net income - - 352,337 - - - 352,337
Other comprehensive Income
Foreign currency - - - 833 - - 833
translation adjustment
--------- --------- ---------- ----------- ---------- ----------- ----------
Total comprehensive income - - 352,337 833 - - 353,170
--------- --------- ---------- ----------- ---------- ----------- ----------
Recognition of payments on capital
contributions receivable - - - - 4,500 - 4,500
Option payments advanced on
behalf of ESOP - - - - - (283,919) (283,919)
Unamortized employee stock
ownership expense released - - - - - 250,378 250,378
Dividends paid - - (278,632) - - - (278,632)
--------- --------- ---------- ------------ ----------- ----------- ----------
Balances - May 31, 1999 $6,966 $261,964 $1,300,015 $(2,077) $(86,116) $(309,715) $1,171,037
========= ========= ========== ============ =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TUFCO INTERNATIONAL, INC.
Consolidated Statements of Cash Flows
For the Years Ended May 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $352,337 $252,460
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 70,177 83,351
Amortization 27,282 27,282
Gain on sale of property and equipment (3,590) (5,234)
Change in deferred income taxes (24,897) 28,326
Changes in assets and liabilities:
Accounts and notes receivable 275,968 (112,260)
Inventories (147,623) 173,305
Refundable Income Taxes - 15,752
Prepaid expenses and other (7,384) 37,016
Other assets (324) 1,285
Accounts payable (132,600) (361,036)
Accrued expenses 10,260 (105,784)
Income taxes payable (66,322) 179,383
----------- ---------
Net cash provided by (used in) operating activities 353,284 213,846
----------- ---------
Cash flows from investing activities
Purchase of property and equipment (32,127) (38,995)
Proceeds from sale of property and equipment 34,149 30,500
----------- ---------
Net cash provided (used in) investing activities (2,022) (8,495)
------------ ---------
Cash flows from financing activities
Net change in notes payable - (444,323)
Proceeds from long-term debt 10,968 513,500
Principal payments on long-term debt (50,923) (20,096)
Payments on capital contributions receivable 4,500 1,500
Option payments advanced on behalf of ESOP (283,919) (282,494)
Unamortized employee stock ownership expense released 250,378 6,320
Dividends paid (278,632) _
------------ ---------
Net cash provided by (used in) financing activities (347,628) (225,593)
------------ ---------
Effect of exchange rate changes on cash 833 (18)
------------ ---------
Increase (decrease) in cash 8,511 (20,260)
Cash - beginning of year 1,137 21,397
------------ ----------
Cash - end of year $ 9,648 $ 1,137
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
1. Organization and Summary of Significant Accounting Policies
a. Nature of business - Tufco International, Inc. (the "Company") and its
subsidiaries sell and install flooring materials through independent
franchises to industrial, meat processing, food service and retailing
customers throughout the continental United States, Canada and Mexico.
Certain of these independent franchises are owned by relatives of the primary
stockholders. All transactions with these franchises are engaged in for a
profit. The Company extends unsecured credit to these independent franchises.
b. Principles of consolidation - The consolidated financial statements
include the accounts of Tufco International, Inc. and its wholly owned
subsidiaries:
Tufco, Inc.
Tufco Flooring East, Inc.
Tufco De Mexico S.A. de C.V.
All significant intercompany accounts and transactions have been
eliminated in consolidation.
c. Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
d. Cash equivalents - The Company considers all highly liquid investments
with an original maturity of three months or less at the time of purchase to
be cash equivalents.
e. Inventories - Inventories, consisting of raw materials, are stated at the
lower of cost or market using the FIFO (first-in, first-out) method.
f. Property and equipment - Property and equipment are stated at cost and are
depreciated over the estimated useful lives of the assets. Annual
depreciation is computed using the straight-line method.
g. Reacquired franchise territories - The Company's cost of reacquiring
franchise territories is being amortized over ten years using the
straight-line method.
h. Franchise fee revenue - Upon the sale of a franchise territory, the
franchisee agrees to pay the Company an initial franchise fee and a
percentage of its sales, not to exceed an agreed upon amount. Payment of the
continuing fee is contingent upon sales generated by the franchisee.
<PAGE>
1. Organization and Summary of Significant Accounting Policies (cont.)
Initial franchise fee revenue received is deferred until all
material services or conditions relating to the franchise agreement have
been substantially performed or satisfied by the Company. Upon completion
of substantial performance, continuing franchise fees are recognized when
received. There was no initial franchise fee revenue recognized during the
years ended May 31, 1999 and 1998.
i. Income taxes - The Company utilizes the asset and liability method of
accounting for deferred income taxes. The asset and liability method requires
the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax basis and
financial reporting basis of assets and liabilities.
j. Capital contributions receivable - Capital contributions receivable
consist primarily of rights to receive future payments from independent
franchisees exchanged by a major shareholder for common stock. Payments
received will be applied against capital contributions receivable. Any future
payments in excess of these receivables will be recognized as income in the
year received. The rights to receive future payments consist of an agreement
with an independent franchisee which provides for payments based on a
percentage of sales of the franchisee. During the years ended May 31, 1999
and 1998, payments from independent franchises totaled $4,500 and $1,500,
respectively.
k. Comprehensive Income - In June 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standard No. 130 -
"Reporting Comprehensive Income". This statement established standards for
reporting and display of comprehensive income and its components in financial
statements. The provisions of this statement are effective for fiscal years
beginning after December 15, 1997 with restatement of comparative prior
period financial statements required. The Company's financial statement for
the year ended May 31, 1998 has been restated to reflect the adoption of this
standard. For the years ended May 31, 1999 and 1998, the Company's foreign
currency translation adjustment which is discussed in note 9 represented the
only item of other comprehensive income.
l. Earnings per share - Earnings per share have been calculated using the
weighted average number of shares outstanding for each year. Options to
purchase 2,480,440 shares of common stock at $0.75 per share were outstanding
during the year ended May 31, 1999 but were not included in the computation
of diluted EPS because the options' exercise price was greater than the
average market price of the common shares. Employee stock ownership plan
shares are considered outstanding and are considered in the weighted average
number of shares outstanding.
m. Advertising - The Company expenses the production costs of advertising
when such costs are incurred. Total advertising expenses were approximately
$146,000 and $83,000 for the years ended May 31, 1999 and 1998, respectively.
n. Reclassifications - Certain reclassifications have been made to the 1998
balances in order to conform to the 1999 presentation.
<PAGE>
2. Long-Term Debt
Long-term debt consists of:
1999
--------------
Note payable to bank; payable in monthly installments
of $7,100, including interest at 10%, with remaining balance
due June 2007; secured by buildings and land; guaranteed by
a prior officer and director of the Company. $ 468,840
Note payable to individual; payable $1,000 monthly,
including interest at 8.5%; due June 2001; unsecured. 13,763
Note payable to a financing company; payable in monthly
installments of $278, including interest at 10%; due
March 2003; secured by certain equipment. 10,386
Note payable to a financing company; payable in monthly
installments of $311, including interest at 10.5%; due
March 1999; secured by certain equipment. -
---------------
492,989
Less current maturities 60,613
Long-term debt, less current maturities $ 432,376
===============
Aggregate maturities of long-term debt are as follows:
Year Ended Amount
2000 $ 60,613
2001 56,459
2002 58,770
2003 63,454
2004 61,376
Thereafter 192,317
-----------
$ 492,989
===========
The Company made interest payments on long-term debt totaling
approximately $49,500 and $42,700 during the years ended May 31, 1999 and 1998,
respectively.
<PAGE>
3. Income Taxes
The provision for income taxes consists of:
1999 1998
---- ----
Current tax expense $ 148,807 $ 169,342
Deferred income tax expense (benefit) (24,897) 28,326
--------------- ---------------
$ 123,910 $ 197,668
=============== ===============
Reconciliation of the differences between income taxes computed at the
Federal statutory tax rates and the consolidated provision for income taxes is
as follows:
1999 1998
---- ----
Income taxes computed at Federal statutory tax rate $ 161,924 $ 153,044
State tax provision, net of Federal benefits 20,430 19,310
Dividends paid on ESOP shares (76,199) -
Other 17,755 25,314
-----------------------
Provision for income taxes $ 123,910 $ 197,668
=======================
The Company has available at May 31, 1999, an unused operating loss
carryforward of approximately $31,000 for Federal income tax purposes which
expires in the year 2008. This Federal income tax loss carryforward was
acquired in a prior year merger and is limited as to the amounts which can be
recognized annually.
Temporary differences which give rise to significant deferred tax
assets (liabilities) are as follows:
1999 1998
---- ----
Net operating loss carryforward $ 11,050 $ 13,032
Bad debts 89,981 70,837
Vacation accrued 6,266 6,266
-------------------------
Total deferred income tax assets 107,297 90,135
-------------------------
Tax depreciation in excess of book depreciation (37,464) (45,199)
-------------------------
Total deferred tax liabilities (37,464) (45,199)
-------------------------
Net deferred tax assets $ 69,833 $ 44,936
=========================
The Company made tax payments totaling approximately $215,100 during
the year ended May 31, 1999. There were no tax payments in fiscal 1998.
4. Employee Stock Ownership Plan
The Company maintains an Employee Stock Ownership Plan (the "ESOP") for
the purpose of providing retirement benefits for eligible employees. To be
eligible to participate in the plan, employees must have completed one year
of service and be at least 21 years of age. The Company's contribution to the
ESOP is discretionary and will be determined by this Board of Directors.
Participants in the ESOP generally vest after six years. The Company has
given participants holding ESOP shares certain put rights which require the
Company to repurchase any shares held for the fair value at the time the put
option is exercised.
On January 14, 1998, the trustees of the ESOP signed an option
agreement whereby the two majority stockholders of the Company granted the
ESOP options to purchase 4,975,110 shares of the Company's common stock over
a fifteen-year period ending January 14, 2013. The total purchase price for
these options was $1,169,648 with interest on the unexercised options at an
annual rate of 10%. Multiple options could be exercised in any of the fifteen
years.
During the year ended May 31, 1998, the ESOP exercised options covering
1,196,827 shares of stock. During the period from June 1, 1998 through
January 31, 1999, additional options covering 578,475 shares were exercised.
Effective January 31, 1999, the ESOP exercised the remaining outstanding
options covering 3,199,808 shares of stock by issuing a note payable to the
stockholders of $692,827. This note bears interest at 10% and matures in
October, 2002. The ESOP shares are maintained in a suspense account until
released and allocated to participants accounts. The release of shares from
the suspense account is determined by multiplying the number of shares in the
suspense account by the ratio of debt service payments (principal plus
interest) made by the ESOP during the year to the sum of the debt service
payments made by the ESOP in the current year plus the debt service payments
to be made by the ESOP in future years. Released shares are allocated to
participants' accounts in accordance with the terms of the plan agreement.
The ESOP is accounted for under the shares allocated method pursuant to
the American Institute of Certified Public Accountant's Statement of Position
93-6 (SOP 93-6), Employers' Accounting for Employee Stock Ownership Plans.
All ESOP shares are considered outstanding for earnings per common share
purposes.
Unamortized employee stock ownership expense is recorded by the Company
based on cash contributed or committed to be contributed by the Company to
the ESOP during the year. Unamortized ESOP expense is reduced as the Company
recognizes contribution expense. Dividend payments made by the Company to the
ESOP are
<PAGE>
reported as reductions of retained earnings and unamortized ESOP expense.
The Company's contributions to the ESOP were as follows:
1999 1998
---- ----
Contribution Expense $ 56,981 $ 37,327
Dividends 199,000 $ -
------------- --------------
Total contributions $ 255,981 $ 37,327
------------- --------------
5. Related Party Transactions
During the years ended May 31, 1999 and 1998, the Company paid
consulting fees to an officer and director of approximately $147,200 and
$129,600, respectively.
Certain company officers and directors have personally guaranteed an
unsecured trade account payable with a major supplier (note 8) up to a
maximum of $500,000.
At May 31, 1999 this trade payable approximated $504,000.
Certain company officers and directors have personally guaranteed
certain secured and unsecured notes payable to a bank in the aggregate amount
of $468,840 at May 31, 1999.
6. Stock Warrants
During the year ended May 31, 1996, pursuant to the Company's stock
warrant plan, 7,500,000 shares of common stock were reserved for issuance
upon exercise of warrants granted to certain shareholders as well as other
brokers and individuals. At May 31, 1999, the Company had warrants
outstanding with exercise prices as follows:
Warrants Exercise Expiration
Outstanding Class Price Date
-------------------------------------------------------------------
2,480,440 A $0.75 Later of June 30, 2000
The stock warrants may be exercised only if a current registration statement is
in effect. Management is presently unable to estimate when a registration
statement may be filed.
7. Commitments
There are no significant minimum rental commitments under operating
leases that have initial or remaining noncancellable lease terms in excess of
one year at May 31, 1999. Total rent expense included in the statement of
operations for the years ended May 31, 1999 and 1998 was approximately $7,400
and $32,400, respectively.
<PAGE>
The Company has entered into employment agreements with the two
majority stockholders for a period of six years with monthly salaries of
$10,000 and $5,000, respectively, as a result of the option agreement
discussed in note 4.
8. Major Customers and Suppliers
The Company has a limited number of franchisee customers. During the
years ended May 31, 1999 and 1998, there were two franchisees who,
individually, provided in excess of 10% of total sales. The aggregate sales
to these franchisees were 50% in 1999 and 44% in 1998 of the total sales.
Sales to related parties approximated 10% and 23% of total sales in 1999 and
1998, respectively.
During the year ended May 31, 1999, the Company purchased 33%, 23%, and
10%, respectively of its materials from three separate vendors. During the
year ended May 31, 1998 the Company purchased 38% and 16%, respectively, from
two separate vendors. Management believes these materials could be purchased
from other sources at comparable cost and any interruption of the Company's
relationship with these vendors should not have an adverse effect on the
continuous flow of operations.
9. Foreign Currency Translation
For translation of its international currency, the Company has
determined that the local currency of its international subsidiary is the
functional currency. In consolidating the international subsidiary, assets
and liabilities of the international subsidiary are translated into U.S.
dollars using current (year end) exchange rates. The U.S. dollar effects that
arise from translating the assets and liabilities of this international
subsidiary at changing rates during the year are recorded in the cumulative
translation adjustment account in stockholders' equity.
Translation adjustments are primarily attributable to receivables,
inventories and plant and equipment. Such adjustments are not reported as
part of operating results since realization is remote unless the
international business is sold or liquidated.
10. Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consists primarily of trade accounts receivable
with a variety of customers. The Company generally does not require
collateral from its customers. Such credit risk is considered by management
to be limited due to the Company's customer base and its customer's financial
resources.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
A. Identification of Directors and Executive Officers
The current directors and executive officers of the Company who will serve
until the next annual meeting of shareholders or until their successors are
elected or appointed and qualified, are set forth below:
Name Age Position
--------------------------------------------------------------
Brent E. Mills 37 Chairman of the Board/Chief
Executive Officer/Chief
Financial/Officer/
President/Director/
Treasurer
Russell D. Cox 42 Executive Vice
President/Director
M. Jean Martindale 58 Secretary/Director
Leslie P. Lagoni 75 Director
Background information concerning the Company's officers and directors is
as follows:
Brent E. Mills. Mr. Mills has been employed by the Company since April
1992. Prior to that time he was employed by the regional accounting firm of
Baird, Kurtz and Dobson as an auditor. Mr. Mills is a CPA. He earned his
Bachelor's of Science Degree in Business Administration from Henderson State
University. He is currently a member of the AICPA and ASCPA.
Russell D. Cox. Mr. Cox has been and is currently the operations manager
for the Company. His responsibilities include assisting franchisees and
licensees with job scheduling, raw material ordering and scheduling, serving as
a service technician to the franchisees and licensees, and conducting training
classes in the preparation and application of Tufco Flooring. Mr. Cox graduated
from high school in 1975. He started working for Tufco in 1973.
<PAGE>
M. Jean Martindale. Ms. Martindale has been, and is, currently the office
manager for the Company. Her responsibilities include assisting franchises/and
licensees in all areas of marketing and maintaining all the information
necessary to operate the office management of their franchise area.
Leslie P. Lagoni. Mr. Lagoni has been an independent corporate consultant
in marketing, shareholder relations and financial relations for the past 15
years. From 1985 to 1987 he was President and Director of Upland Capital
Associates, Inc., the past Chairman of Parker Medical Ventures, Inc., and is
past President, Treasurer and Director of Pinnacle Associates, Inc., blind- pool
organizations. Since May 1985 he has been a Director of Traditional Industries,
Inc. Mr. Lagoni is a director of Sports Time, Inc. and an officer and director
of Terry Home Design, Inc. Mr. Lagoni was a founder and promoter of Coastech,
Inc. He has been a director of the Company since 1986.
B. Significant Employees. None.
C. Familial Relationships. None.
D. Other: Involvement in Certain Legal Proceedings.
There have been no events under any bankruptcy act, no criminal
proceedings and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
E. Compliance With Section 16(a). The Company currently has no class of
security registered pursuant to Section 12 of the Exchange Act and is therefore
not subject to Section 16(a).
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the aggregate cash compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer.
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the last three years to the Company's Chief
Executive Officer and to the Company's most highly compensated executive
officers other than the CEO, whose annual salary and bonus exceeded $100,000:
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> >C>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Other All
Name and Annual Restrict Option/ LTIP Other
Principal ($) ($) Compen- Stock SAR's Payouts Compensa-
Position Year Salary Bonus sation($) Awards($) (#) ($) tion ($)
- ---------------------------------------------------------------------------------------------------
Donald L. Cox 1999 $ 60,000 $ -0- $141,871(1) $-0- -0- $-0- $-0-
President, CEO 1998 $ 81,000 $ -0- $125,237(1) $-0- -0- $-0- $-0-
Chairman 1997 $ 23,403 $ -0- $175,700(1) $-0- -0- $-0- $-0-
Russell D. Cox 1999 $120,000 $75,000 $-0- $-0- -0- $-0- $-0-
Executive Vice- 1998 $ 93,333 $75,000 $-0- $-0- -0- $-0- $-0-
President
Brent E. Mills 1999 $ 90,000 $ -0- $-0- $-0- -0- $-0- $-0-
President/CEO/
CFO/Treasurer
</TABLE>
(1) This compensation was attributed to consulting fees paid to Mr.
Cox by the Company.
No options, stock appreciation rights or long-term incentive plan awards
were issued or granted to the Company's executive officers during the fiscal
year ended May 31, 1999. As of May 31, 1999, the end of the Company's last
fiscal year, the Company's management owned no options or stock appreciation
rights. Accordingly, no tables relating to such items have been included in this
Item 10.
Compensation of Directors
The Company's non-employee director is not compensated for attending Board
of Directors meetings.
ESOP
In 1998, the Company adopted an Employee Stock Ownership Plan ("ESOP").
The ESOP has purchased 4,975,110 shares of the Company's Common Stock from
persons who were formerly the majority shareholders of the Company. Note 4 to
financial statements attached hereto provides additional information about the
ESOP.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
A. & B. Security Ownership of Management and Certain Beneficial Owners.
The following table sets forth information regarding shares of the
Company's common stock owned beneficially as of May 31, 1999, by (i) each
director of the Company, (ii) all officers and directors as a group, and (iii)
each person known by the Company to beneficially own 5% or more of the
outstanding shares of the Company's common stock:
<PAGE>
Name Amount
and Address and Nature
of Beneficial of Beneficial Percent
Owner Ownership of Class (1)
-------------------------------------------------------------------
Tufco International, Inc. 4,975,110 71.42%
Employee Stock Ownership
Plan & Trust
Leslie P. Lagoni(1)(2) 425,000 6.10%
21345 Las Pilas Rd.
Woodland Hills, CA 91364
Brent Mills(1)(3) 375,000 5.38%
Pioneer Lane
Gentry, AR 72734
Richard Graves 400,000 5.74%
106 Ruth Lane
Rogers, AR 72756
All Officers and Directors 6,191,677 88.89%
as a Group (5 persons)
Total Shares Issued
and Outstanding 6,965,800 100.00%
(1) These individuals are the officers and/or directors of the Company.
(2) Mr. Lagoni owns 62,500 of such shares in his own name. Growth
Science Ventures, Inc., an affiliate of Mr. Lagoni, owns 212,500 of
such shares of record and Astoria Productions, Inc., an affiliate of
Mr. Lagoni, owns 150,000 of such shares of record.
(3) Mr. Mills owns 375,000 shares in joint ownership with Tina Mills,
his wife.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Repurchase of Stock. During the year ended May 31, 1998, the Company
purchased and retired a total of 937,000 shares of the Company's stock which was
previously held by Ghislain Beauregard and Thomas Jakubik. These individuals
were formerly officers and directors of the Company. Consideration given in
connection with these acquisitions consisted of the following:
Distribution of certain inventory items $140,759
Distribution of certain fixed assets 66,103
Relief of outstanding amounts owed by the individuals 24,111
Relief of deferred compensation liability owed to the
individuals (22,500)
____________
$208,473
============
Issuance of Shares. In September, 1997, subsequent to the 1997 fiscal year
end, the Company issued 125,000 shares of its common stock to Brent Mills, an
officer and director of the Company, pursuant to an Employment Agreement.
Real Estate Transaction. The Company's office and warehouse are located
upon approximately 15 acres in Gentry, Arkansas. Legal title to the land was
originally acquired in the name of Donald L. Cox and Lucille M. Cox. Site
improvements were paid for by a Tufco subsidiary. The office/warehouse building
was financed from the Tufco subsidiary's cash flow and from a mortgage loan
obtained by Donald L. Cox and Lucille M. Cox. In August, 1991, Donald L. Cox and
Lucille M. Cox conveyed the land and the improvements and buildings situated
thereon, to the Company. The Company did not pay any consideration to Mr. and
Mrs. Cox for such conveyance. Prior to such conveyance, Mr. and Mrs. Cox held
title to the property as a nominee for the Tufco subsidiary.
Affiliated Franchisees. One franchise is affiliated with the officers and
directors of the Company. Tufco Flooring Systems of Florida, Inc. is owned by
Gilbert Bachellor, the uncle of Russell D. Cox.
Guarantee. Donald L. Cox and Lucille M. Cox have personally guaranteed an
unsecured trade accounts payable with Interplastics Corporation, a supplier of
the Company's raw materials up to a maximum of $500,000. As of May 31, 1999 and
May 31, 1998, the outstanding payable to such creditor was approximately
$433,000 and $522,000, respectively. Brent E. Mills guaranteed a bank loan of
$467,000 to the Company which is secured by the Company's real property.
Receivables from Affiliates. As of May 31, 1999 and 1998, the Company had
receivables of $275,000 and $188,000, respectively, from the following
affiliated franchisee: Tufco Flooring Systems of Florida, Inc., which is owned
by relatives of Russell D. Cox. These receivables arose in connection with the
purchase and sale of the Company's products in the normal course of business.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. No Exhibits are filed with this Report.
B B. No Form 8-K's were filed during the last quarter of the fiscal year
ended May 31, 1999.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Company
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TUFCO INTERNATIONAL, INC.
Date: November 9, 1999 By /s/ Brent Mills
-------------------------------------------
Principal Financial Officer
Principal Executive and Financial Officer
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Company and in the capacities and on the
dates indicated.
Signature Capacity Date
/s/ Brent E. Mills Chairman/President/ November 9, 1999
Brent E. Mills CEO/Director/CFO
/s/ M. Jean Martindale Secretary/ Director November 9, 1999
M. Jean Martindale
/s/ Russell D. Cox Executive Vice President November 9, 1999
Russell D. Cox Director
/s/ Leslie P. Lagoni Director November 9, 1999
Leslie P. Lagoni
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TUFCO
INTERNATIONAL, INC.'S FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> 9,648
<S> <C>
<PERIOD-TYPE> 12-MOS
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